Federal Communications Commission FCC 08-262 
Before the 
Federal Communications Commission 
Washington, D.C. 20554 
In the Matter of 
High-Cost Universal Service Support 
Federal-State Joint Board on Universal Service 
Lifeline and Link Up 
Universal Service Contribution Methodology 
Numbering Resource Optimization 
Implementation of the Local Competition 
Provisions in the Telecommunications Act of 1996 
Developing a Unified Intercarrier Compensation 
Regime 
Intercarrier Compensation for ISP-Bound Traffic 
IP-Enabled Services 
))))))))))))))))))))) 
WC Docket No. 05-337 
CC Docket No. 96-45 
WC Docket No. 03-109 
WC Docket No. 06-122 
CC Docket No. 99-200 
CC Docket No. 96-98 
CC Docket No. 01-92 
CC Docket No. 99-68 
WC Docket No. 04-36 
ORDER ON REMAND AND REPORT AND ORDER 
AND FURTHER NOTICE OF PROPOSED RULEMAKING 
Adopted: November 5, 2008 Released: November 5, 2008 
Comment Date: (14 days after publication in the Federal Register) 
Reply Comment Date: (21 days after publication in the Federal Register) 
By the Commission: Chairman Martin issuing a separate statement; Commissioners Copps, 
Adelstein, Tate, and McDowell issuing a joint statement. 
TABLE OF CONTENTS 
I. ORDER ON REMAND  ISP-BOUND TRAFFIC............................................................................... 1 
A. Background ..................................................................................................................................... 2 
B. Discussion ....................................................................................................................................... 6 
1. Scope of Section 251(b)(5)........................................................................................................ 7 
2. Authority Under Section 201................................................................................................... 17 
3. Other Issues ............................................................................................................................. 23 
II. REPORT AND ORDER  REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT.......... 30 
A. Background ................................................................................................................................... 31 
B. Discussion ..................................................................................................................................... 37

Federal Communications Commission FCC 08-262 
2 
III. FURTHER NOTICE OF PROPOSED RULEMAKING..................................................................... 38 
IV. PROCEDURAL MATTERS................................................................................................................ 42 
A. Ex Parte Presentations ................................................................................................................... 42 
B. Comment Filing Procedures........................................................................................................... 43 
C. Initial Regulatory Flexibility Analysis........................................................................................... 51 
D. Paperwork Reduction Act .............................................................................................................. 52 
E. Accessible Formats ........................................................................................................................ 53 
F. Congressional Review Act............................................................................................................. 54 
V. ORDERING CLAUSES....................................................................................................................... 55 
APPENDIX A  Chairmans Draft Proposal 
APPENDIX B  Narrow Universal Service Reform Proposal 
APPENDIX C  Alternative Proposal 
APPENDIX D  Relevant Ex Partes 
APPENDIX E  Initial Regulatory Flexibility Analysis 
I. ORDER ON REMAND  ISP-BOUND TRAFFIC 
1. The actions we take in this order respond to the writ of mandamus granted by the United 
States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) directing the Commission to 
respond to its prior remand of the Commissions intercarrier compensation rules for Internet Service 
Provider (ISP)-bound traffic.1 As discussed below, we conclude that we have authority to impose ISPbound 
traffic rules. 
A. Background 
2. On February 26, 1999, the Commission issued a Declaratory Ruling and Notice of 
Proposed Rulemaking in which it held that ISP-bound traffic is jurisdictionally interstate because end 
users access websites across state lines.2 Because the Local Competition First Report and Order 
concluded that the reciprocal compensation obligation in section 251(b)(5) applied only to local traffic, 
the Commission found in the Declaratory Ruling that ISP-bound traffic is not subject to section 
251(b)(5).3 On March 24, 2000, in the Bell Atlantic decision, the D.C. Circuit vacated certain provisions 
of the Declaratory Ruling.4 The court did not question the Commissions finding that ISP-bound traffic is 
interstate. Rather, the court held that the Commission had not adequately explained how its end-to-end 
jurisdictional analysis was relevant to determining whether a call to an ISP is subject to reciprocal 
compensation under section 251(b)(5).5 In particular, the court noted that a LEC serving an ISP appears 
1 In re Core Communications, Inc., 531 F.3d 849, 861-62 (D.C. Cir. 2008) (directing the Commission to respond to 
the remand in the form of a final, appealable order which explains its legal authority to issue the pricing rules for 
ISP-bound traffic adopted in the ISP Remand Order). 
2 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket No. 99-68, Declaratory Ruling and Notice of 
Proposed Rulemaking, 14 FCC Rcd 3689 (1999) (Declaratory Ruling), vacated and remanded, Bell Atlantic Tel. 
Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) (Bell Atlantic). 
3 See also Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and 
Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket 
Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 16013, paras. 103334 (1996) (subsequent history 
omitted) (Local Competition First Report and Order). 
4 Bell Atlantic, 206 F.3d at 1. 
5 See id. at 5.

Federal Communications Commission FCC 08-262 
3 
to perform the function of termination because the LEC delivers traffic from the calling party through 
its end office switch to the called party, the ISP.6 
3. On April 27, 2001, the Commission released the ISP Remand Order, which concluded 
that section 251(g) excludes ISP-bound traffic from the scope of section 251(b)(5).7 The Commission 
explained that section 251(g) maintains the pre-1996 Act compensation requirements for exchange 
access, information access, and exchange services for such access, thereby excluding such traffic from 
the reciprocal compensation requirements that the 1996 Act imposed.8 The Commission concluded that 
ISP-bound traffic was information access and, therefore, was subject instead to the Commissions 
section 201 jurisdiction over interstate communications.9 The Commission also found convincing 
evidence in the record that carriers had targeted ISPs as customers merely to take advantage of . . . 
intercarrier payments (including offering free service to ISPs, paying ISPs to be their customers, and 
sometimes engaging in outright fraud). It therefore adopted an ISP payment regime in order to limit, if 
not end, the opportunity for regulatory arbitrage.10 The Commission concluded that a bill-and-keep 
regime might eliminate incentives for arbitrage and force carriers to look to their own customers for cost 
recovery.11 To avoid a flash cut to bill-and-keep, however, the Commission adopted a compensation 
regime pending completion of the Intercarrier Compensation proceeding.12 Specifically, the regime 
adopted by the Commission consisted of: (1) a gradually declining cap on intercarrier compensation for 
ISP-bound traffic, beginning at $.0015 per minute-of-use and declining to $.0007 per minute-of-use; (2) a 
growth cap on total ISP-bound minutes for which a LEC may receive this compensation; (3) a new 
markets rule requiring bill-and-keep for the exchange of this traffic if two carriers were not exchanging 
traffic pursuant to an interconnection agreement prior to the adoption of the regime; and (4) a mirroring 
rule that gave incumbent LECs the benefit of the rate cap only if they offered to exchange all traffic 
6 See id. at 6. 
7 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket Nos. 96-98, 99-68, Order on Remand and 
Report and Order, 16 FCC Rcd 9151, 917172, para. 44 (2001) (ISP Remand Order), remanded but not vacated by 
WorldCom, Inc. v. FCC, 288 F.3d 429, 432 (D.C. Cir. 2002) (WorldCom) (subsequent history omitted) (holding that 
section 251(g) appears to provide for the continued enforcement of certain pre-Act regulatory interconnection 
restrictions and obligations). 
8 The term 1996 Act refers to the Telecommunications Act of 1996. Pub. L. No. 104-104, 110 Stat. 56 (1996). 
The term Act refers to the Communications Act of 1934, as amended. 47 U.S.C.  151 et seq. 
9 See ISP Remand Order, 16 FCC Rcd at 9175, para. 52. Thus, the Commission affirmed its prior finding in the 
Declaratory Ruling that ISP-bound traffic is jurisdictionally interstate. See id; see also Declaratory Ruling, 14 FCC 
Rcd at 3710-03, paras. 18-20. 
10 See ISP Remand Order, 16 FCC Rcd at 9187, para. 77. 
11 ISP Remand Order, 16 FCC Rcd at 9184-85, paras. 74-75. The Commission discussed at length the market 
distortions and regulatory arbitrage opportunities created by the application of per-minute reciprocal compensation 
rates to ISP-bound traffic. In particular, the Commission found that requiring compensation for this type of traffic at 
existing reciprocal compensation rates undermined the operation of competitive markets because competitive LECs 
were able to recover a disproportionate share of their costs from other carriers, thereby distorting the price signals 
sent to their ISP customers. See ISP Remand Order, 16 FCC Rcd at 9181-86, paras. 67-76. 
12 See ISP Remand Order, 16 FCC Rcd at 9153, para. 2 (citing Developing a Unified Intercarrier Compensation 
Regime, CC Docket No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610 (2001) (Intercarrier 
Compensation NPRM)). 

Federal Communications Commission FCC 08-262 
4 
subject to section 251(b)(5) at the same rates.13 These rate caps reflected the downward trend in 
intercarrier compensation rates contained in then-recently negotiated interconnection agreements.14 
4. On May 3, 2002, the D.C. Circuit found that the Commission had not provided an 
adequate legal basis for the rules it adopted in the ISP Remand Order.15 Once again, the court did not 
question the Commissions finding that ISP-bound traffic is jurisdictionally interstate. Rather, the court 
held that section 251(g) of the Act did not provide a basis for the Commissions decision. The court held 
that section 251(g) is simply a transitional device that preserved obligations that predated the 1996 Act 
until the Commission adopts superseding rules, and that there was no pre-1996 Act obligation with 
respect to intercarrier compensation for ISP-bound traffic.16 Although the court rejected the legal 
rationale for the compensation rules, the court remanded, but did not vacate, the ISP Remand Order to the 
Commission, and it observed that there is plainly a non-trivial likelihood that the Commission has 
authority to adopt the rules.17 Accordingly, the rules adopted in the ISP Remand Order have remained in 
effect. 
5. On November 5, 2007, Core filed a petition for writ of mandamus with the D.C. Circuit 
seeking to compel the Commission to enter an order resolving the courts remand in the WorldCom 
decision.18 On July 8, 2008, the court granted a writ of mandamus and directed the Commission to 
respond to the WorldCom remand in the form of a final, appealable order which explains its legal 
authority to issue the pricing rules for ISP-bound traffic adopted in the ISP Remand Order .19 The court 
directed the Commission to respond to the writ of mandamus by November 5, 2008.20 
B. Discussion 
6. In this order, we respond to the D.C. Circuits remand order in WorldCom v. FCC,21 and 
the courts writ of mandamus in Core Communications Inc.22 Specifically, we hold that although ISPbound 
traffic falls within the scope of section 251(b)(5), this interstate, interexchange traffic is to be 
afforded different treatment from other section 251(b)(5) traffic pursuant to our authority under section 
201 and 251(i) of the Act. 
1. Scope of Section 251(b)(5) 
13 ISP Remand Order, 16 FCC Rcd at 918789, 919394, paras, 78, 80, 89. In a subsequent order, the Commission 
granted forbearance to all telecommunications carriers with respect to the growth caps and the new markets rule. 
See Petition of Core Communications, Inc. for Forbearance Under 47 U.S.C.  160(c) from Application of the ISP 
Remand Order, WC Docket No. 03-171, Order, 19 FCC Rcd 20179 (2004) (Core Forbearance Order). Thus, only 
the rate caps and mirroring rule remain in effect today. 
14 See ISP Remand Order, 16 FCC Rcd at 919091, para. 85. 
15 See WorldCom, 288 F.3d at 429. 
16 See id. at 433. 
17 See id. at 434. 
18 Pet. for Writ of Mandamus to the Federal Communications Commission, D.C. Cir. 07-1446 (filed Nov. 5, 2007). 
19 Core Communications, Inc., 531 F.3d at 861-62. 
20 See id. If the Commission fails to comply with the writ by the November 5th deadline, the rules will be vacated 
on November 6, 2008. See id. at 862. 
21 See 288 F.3d at 434. 
22 See 531 F.3d at 861-62.

Federal Communications Commission FCC 08-262 
5 
7. As an initial matter, we conclude that the scope of section 251(b)(5) is broad enough to 
encompass ISP-bound traffic. To be sure, we acknowledge that, in the Local Competition First Report 
and Order, the Commission found that section 251(b)(5) applies only to local traffic,23 and some 
commenters continue to press for such an interpretation.24 As other commenters recognize, however, the 
Commission, in the ISP Remand Order, reconsidered that judgment and concluded that it was a mistake 
to read section 251(b)(5) as limited to local traffic, given that local is not a term used in section 
251(b)(5).25 We recognize, as the Supreme Court noted in AT&T Corp. v. Iowa Utilities Board, that [i]t 
would be a gross understatement to say that the 1996 Act is not a model of clarity.26 Nevertheless, we 
find that the better view is that section 251(b)(5) is not limited to local traffic. 
8. We begin by looking at the text of the statute. Section 251(b)(5) imposes on all LECs the 
duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.27 The Act broadly defines telecommunications as the 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.28 Its scope is not limited geographically (local, 
intrastate, or interstate) or to particular services (telephone exchange service,29 telephone toll 
service,30 or exchange access31). We find that the traffic we elect to bring within this framework fits 
squarely within the meaning of telecommunications. We also observe that had Congress intended to 
preclude the Commission from bringing certain types of telecommunications traffic within the section 
23 Local Competition First Report and Order, 11 FCC Rcd at 16012-13, para. 1033. 
24 See, e.g., Supplemental Comments of Verizon and Verizon Wireless at 2432; Letter from Daniel Mitchell, Vice 
President, Legal and Industry, National Cable and Telecommunications Association (NCTA), to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 9 (filed Sept. 30, 2008) (NCTA Sept. 30, 2008 Ex Parte Letter); Verizon 
Intercarrier Compensation FNPRM Comments at 3842; NARUC Intercarrier Compensation FNPRM Comments 
at 67; Rural Alliance Intercarrier Compensation FNPRM Comments at 14449; Cincinnati Bell Intercarrier 
Compensation FNPRM Comments at 511; Maine Public Utilities Commission and Vermont Public Service Board 
Intercarrier Compensation FNPRM Comments at 7; New York State Department of Public Service Intercarrier 
Compensation FNPRM Comments at 7; Verizon and BellSouth, Supplemental White Paper on ISP Reciprocal 
Compensation, CC Docket No. 96-98, 99-68 at 1620 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP White 
Paper); NARUCs Initial Comments at 7 n.13 (May 23, 2004). But see, e.g., ICF Intercarrier Compensation 
FNPRM Comments at 39. 
25 ISP Remand Order, 16 FCC Rcd at 916667, para. 35. See also, e.g., Qwest, Legal Authority for Comprehensive 
Intercarrier Compensation Reform 24 (Qwest White Paper), attached to Letter from Melissa Newman, Counsel for 
Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos. 04-36, 05- 
337, 05-195, 06-122 (filed Oct. 7, 2008) (Qwest Oct. 7, 2008 Ex Parte Letter); Letter from Kathleen OBrien Ham 
et al., Counsel for T-Mobile, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 910 (filed Oct. 3, 
2008) (T-Mobile Oct. 3, 2008 Ex Parte Letter); Level 3 Aug. 18, 2008 Ex Parte Letter at 2, 1518; AT&T Reply to 
Comment Sought on Missoula Plan Phantom Traffic Interim Process Call Detail Records Proposal, CC Docket No. 
01-92, Public Notice, DA 06-2294 (WCB 2006) (Missoula Phantom Traffic) at 3541; Brief from Gary M. Epstein, 
Counsel for ICF, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2935 (filed Oct. 5, 2004). 
26 AT&T v. Iowa Utils. Bd., 525 U.S. at 397. 
27 47 U.S.C.  251(b)(5). 
28 47 U.S.C.  153(43). 
29 Id.  153(47). 
30 Id.  153(48). 
31 Id.  153(16).

Federal Communications Commission FCC 08-262 
6 
251(b)(5) framework, it could have easily done so by incorporating restrictive terms in section 251(b)(5). 
Because Congress used the term telecommunications, the broadest of the statutes defined terms, we 
conclude that section 251(b)(5) is not limited only to the transport and termination of certain types of 
telecommunications traffic, such as local traffic. 
9. In the Local Competition First Report and Order the Commission concluded that section 
251(b)(5) applies only to local traffic, but recognized that [u]ltimately . . . the rates that local carriers 
impose for the transport and termination of local traffic and for the transport and termination of long 
distance traffic should converge.32 In the ISP Remand Order, the Commission reversed course on the 
scope of section 251(b)(5), finding that the phrase local traffic created unnecessary ambiguities, and we 
correct that mistake here.33 The ISP Remand Order noted that the term local, not being a statutorily 
defined category, . . . is not a term used in section 251(b)(5).34 The Commission found that the scope of 
section 251(b)(5) is limited only by section 251(g), which temporarily grandfathered the pre-1996 Act 
rules governing exchange access, information access, and exchange services for such access provided 
to interexchange carriers and information service providers until explicitly superseded by regulations 
prescribed by the Commission.35 On appeal, the D.C. Circuit left intact the Commissions findings 
concerning the scope of section 251(b)(5), although it took issue with other aspects of the ISP Remand 
Order.36 
10. We disagree with commenters who argue that section 251(b)(5) only can be applied to 
traffic exchanged between LECs, and not traffic exchanged between a LEC and another carrier.37 The 
Commission rejected that argument in the Local Competition Order, finding that section 251(b)(5) 
applies to traffic exchanged by a LEC and any other telecommunications carrier, and adopted rules 
implementing that finding.38 In a specific application of that principle, the Commission concluded that 
CMRS providers will not be classified as LECs,39 but nevertheless found that LECs are obligated, 
32 Local Competition First Report and Order, 11 FCC Rcd at 16012, para. 1033. 
33 ISP Remand Order, 16 FCC Rcd at 9173, para. 46. 
34 Id. at 9167, para. 34. 
35 47 U.S.C.  251(g). 
36 See WorldCom v. FCC, 288 F.3d at 429. 
37 See, e.g., Supplemental Comments of Verizon and Verizon Wireless(The best interpretation of  251(b)(5)  read 
in light of the text, structure, and history of the 1996 Act  is that the reciprocal compensation obligation applies 
only to intraexchange (or local) voice calls that originate on the network of one LEC (or wireless provider) and 
terminate on the network of another LEC (or wireless provider) operating in the same exchange (or, in the case of 
wireless providers, the same MTA.); Letter from Ann D. Berkowitz, Associate Director, Federal Regulatory 
Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 26 (filed May 
17, 2004) (attaching white paper entitled Internet-Bound Traffic is Not Compensable Under Sections 251(b)(5) and 
252(d)(2)) (Verizon/BellSouth White Paper) (By its nature, reciprocal compensation must [ ] apply to 
telecommunications exchanged between LECs (or carriers, like CMRS providers, that the Commission is 
authorized to treat as LECs), not to traffic that is exchanged between LECs and non-LECs.) (emphasis in original). 
38 See Local Competition First Report and Order, 11 FCC Rcd at 16013-16, paras. 1034-41. See also 47 C.F.R. 
51.703(a) (Each LEC shall establish reciprocal compensation arrangements for transport and termination of 
telecommunications traffic with any requesting telecommunications carrier); ISP Remand Order, 16 FCC Rcd at 
919394, para. 89 n.177 (Section 251(b)(5) applies to telecommunications traffic between a LEC and a 
telecommunications carrier . . . .). 
39 Local Competition First Report and Order, 11 FCC Rcd at 15996, para. 1005. 

Federal Communications Commission FCC 08-262 
7 
pursuant to section 251(b)(5) (and the corresponding pricing standards of section 252(d)(2)), to enter into 
reciprocal compensation agreements with all CMRS providers.40 No one challenged that finding on 
appeal, and it has been settled law for the past 12 years. We see no reason to revisit that conclusion now. 
While section 251(b)(5) indisputably imposes the duty to establish reciprocal compensation arrangements 
on LECs alone, Congress did not limit the class of potential beneficiaries of that obligation to LECs.41 
11. We also disagree with commenters who argue that section 252(d)(2)(A)(i) limits the 
scope of section 251(b)(5).42 Section 252(d)(2)(A)(i) provides that a state commission shall not consider 
the terms and conditions for reciprocal compensation to be just and reasonable unless such terms and 
conditions provide for the mutual and reciprocal recovery by each carrier of costs associated with the 
transport and termination on each carriers network facilities of calls that originate on the network 
facilities of the other carrier.43 Verizon and others argue that this provision necessarily excludes 
interexchange traffic from the scope of section 251(b)(5), because at the time the 1996 Act was passed 
calls neither originated nor terminated on an interexchange carriers network.44 We reject this reasoning 
because it erroneously assumes that Congress intended the pricing standards in section 252(d)(2) to limit 
the otherwise broad scope of section 251(b)(5). We do not believe that Congress intended the tail to wag 
the dog. 
12. Section 251(b)(5) defines the scope of traffic that is subject to reciprocal compensation. 
Section 252(d)(2)(A)(i), in turn, deals with the mechanics of who owes what to whom, it does not define 
the scope of traffic to which section 251(b)(5) applies. Section 252(d)(2)(A)(i) provides that, at a 
minimum, a reciprocal compensation arrangement must provide for the recovery by each carrier of costs 
associated with the transport and termination on each carriers network of calls that originate on the 
network of the other carrier.45 Section 252(d)(2)(A)(i) does not address what happens when carriers 
exchange traffic that originates or terminates on a third carriers network. This does not mean, as Verizon 
suggests, that section 251(b)(5) must be read as limited to traffic involving only two carriers. Rather, it 
means that there is a gap in the pricing rules in section 252(d)(2), and the Commission has authority under 
section 201(b) to adopt rules to fill that gap. 
13. We also reject Verizons argument that a telecommunications carrier that delivers traffic 
to an ISP is not eligible for reciprocal compensation because the carrier does not terminate 
40 Local Competition First Report and Order, 11 FCC Rcd at 15997, para. 1008. 
41 If Congress had intended to limit the class of potential beneficiaries of LECs duty to establish reciprocal 
obligation arrangements, it would have said so explicitly. See 47 U.S.C.  251(b)(3) (describing the duty to 
provide dialing parity to competing providers of telephone exchange service and telephone toll service). 
42 See, e.g., Verizon/BellSouth White Paper at 4143; New York State Department of Public Service Intercarrier 
Compensation FNPRM Comments at 89; TDS Intercarrier Compensation FNPRM Comments at 19 n.27; VeriSign 
Intercarrier Compensation FNPRM Comments, Attach B. at 9, 12, 2628; Qwest Intercarrier Compensation 
FNPRM Comments at 39; NASUCA Intercarrier Compensation FNPRM Reply at 17;Leap Wireless International, 
Inc. Intercarrier Compensation FNPRM Reply, Ex. 5 at 8. 
43 47 U.S.C.  252(d)(2)(A)(i). 
44 See, e.g., Maine Public Utilities Commission and Vermont Public Service Board Intercarrier Compensation 
FNPRM Comments at 78; New York State Department of Public Service Intercarrier Compensation FNPRM 
Comments at 710; Verizon/BellSouth Supp. ISP White Paper at 1620; NARUC Intercarrier Compensation 
FNPRM Initial Comments at 7 n.13. 
45 47 U.S.C.  252(d)(2)(A)(i). 

Federal Communications Commission FCC 08-262 
8 
telecommunications traffic at the ISP.46 In the Local Competition Order, the Commission defined 
termination as the switching of traffic that is subject to section 251(b)(5) at the terminating carriers 
end office switch  and delivery of that traffic to the called partys premises.47 As the D.C. Circuit 
suggested in the Bell Atlantic decision, Calls to ISPs appear to fit this definition: the traffic is switched 
by the LEC whose customer is the ISP and then delivered to the ISP, which is clearly the called party.48 
We agree.49 
14. Verizon also argues that the reference to reciprocal compensation in the competitive 
checklist in section 271,50 which was designed to ensure that local markets are open to competition, 
somehow shows that Congress intended to limit the scope of section 251(b)(5) to local traffic.51 We do 
not see how this argument sheds any light on the scope of section 251(b)(5). Congress no doubt included 
the reference to reciprocal compensation in section 271 because section 251(b)(5) applies to local traffic, 
a point that no one disputes. That does not suggest, however, that section 251(b)(5) applies only to local 
traffic. 
15. We need not respond to every other variation of the argument that the history and 
structure of the Act somehow demonstrate that section 251(b)(5) is limited to local traffic. At best, these 
arguments show that one plausible interpretation of the statute is that section 251(b)(5) applies only to 
local traffic, a view that the Commission embraced in the Local Competition First Report and Order. 
These arguments do not persuade us, however, that this is the only plausible reading of the statute. 
Moreover, many of the same arguments based on the history and context of the adoption of section 251 to 
limit its scope to local traffic were rejected by the D.C. Circuit in the context of section 251(c).52 We find 
46 See, e.g., Supplemental Comments of Verizon and Verizon Wireless at 3334; Verizon/BellSouth White Paper at 
3132. 
47 Local Competition Order, 11 FCC Rcd at 16015, para. 1040. See also 47 C.F.R.  51.701(d). 
48 206 F.3d at 6. 
49 We reject Verizons argument against the application of section 251(b)(5) to ISP-bound traffic because this traffic 
is one-way traffic and as such is not reciprocal, see Supplemental Comments of Verizon and Verizon Wireless at 26 
(Oct. 2, 2008); Verizon White Paper at 41-43 (May 17, 2004). As Level 3 points out, these arguments have been 
rejected by the Commission and the U.S. Court of Appeals for the Ninth Circuit. See Level 3 Aug. 18, 2008 Ex 
Parte Letter at 18; Pacific Bell v. Cook Telecom, Inc., 197 F.3d 1236, 1242-44 (9th Cir. 1999) (reciprocal 
compensation applies to paging traffic); TSR Wireless, LLC v. U.S. West Communications, Inc., 15 FCC Rcd 11166, 
11178 para. 21 (2000) (the Commissions reciprocal compensation rules draw [] no distinction between one-way 
and two-way carriers). Because our conclusion in this order concerning the scope of section 251(b)(5) is no longer 
tied to whether this traffic is local or long distance, we need not address arguments made by the parties as to whether 
ISP-bound traffic constitutes telephone exchange service under the Act. See e.g., Letter from John T. Nakahata, 
Counsel for Level 3 Communications, LLC, to Marlene H. Dortch, Secretary, Federal Communications 
Commission, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed Sept. 24, 2004). 
50 See 47 U.S.C.  271(c)(2)(B)(xiii). 
51 See Supplemental Comments of Verizon and Verizon Wireless at 26; Verizon/BellSouth White Paper at 9. 
52 United States Telecom Association v. FCC, 359 F.3d 554, 592 (D.C. Cir. 2004) (USTA II), cert. denied sub nom., 
Nat'l Ass'n of Regulatory Utility Comm'rs v. United States Telecom Ass'n, 543 U.S. 925, 125 S. Ct. 313, 160 L.Ed.2d 
223 (2004) (Even under the deferential Chevron standard of review, an agency cannot, absent strong structural or 
contextual evidence, exclude from coverage certain items that clearly fall within the plain meaning of a statutory 
term. The argument that long distance services are not telecommunications services has no support.). In USTA 
II, the D.C. Circuit was addressing whether the term telecommunications services was limited to local 
(continued.)

Federal Communications Commission FCC 08-262 
9 
that the better reading of the Act as a whole, in particular the broad language of section 251(b)(5) and the 
grandfather clause in section 251(g), supports our view that the transport and termination of all 
telecommunications exchanged with LECs is subject to the reciprocal compensation regime in sections 
251(b)(5) and 252(d)(2). 
16. Notwithstanding section 251(b)(5)s broad scope, we agree with the finding in the ISP 
Remand Order that traffic encompassed by section 251(g) is excluded from section 251(b)(5) except to 
the extent that the Commission acts to bring that traffic within its scope. Section 251(g) preserved the 
pre-1996 Act regulatory regime that applies to access traffic, including rules governing receipt of 
compensation.53 Here, however, the D.C. Circuit has held that ISP-bound traffic did not fall within the 
section 251(g) carve out from section 251(b)(5) as there had been no pre-Act obligation relating to 
intercarrier compensation for ISP-bound traffic.54 As a result, we find that ISP-bound traffic falls within 
the scope of section 251(b)(5). 
2. Authority Under Section 201 
17. The section 251(b)(5) finding above, however, does not end our legal analysis here. That 
is because the ISP-bound traffic at issue here is clearly interstate in nature and thus also subject to our 
section 201 authority. The Commission unquestionably has authority to regulate intercarrier 
compensation with respect to interstate access services, rates charged by CMRS providers, and other 
traffic subject to Commission authority such as ISP-bound traffic. Section 2(a) of the Act establishes the 
Commissions jurisdiction over interstate services, for which the Commission ensures just, reasonable, 
and not unjustly and unreasonably discriminatory rates under section 201 and 202.55 Likewise, the 
Commission has authority over the rates of CMRS providers pursuant to section 332 of the Act.56 
18. In sections 251 and 252 of the Act, Congress altered the traditional regulatory framework 
based on jurisdiction by expanding the applicability of national rules to historically intrastate issues and 
state rules to historically interstate issues.57 In the Local Competition First Report and Order, the 
Commission found that the 1996 Act created parallel jurisdiction for the Commission and the states over 
interstate and intrastate matters under sections 251 and 252.58 The Commission and the states are to 
address the same matters through their parallel jurisdiction over both interstate and intrastate matters 
under sections 251 and 252.59 Moreover, section 251(i) provides that [n]othing in this section shall be 
construed to limit or otherwise affect the Commissions authority under section 201.60 In the Local 
Competition First Report and Order, the Commission concluded that section 251(i) affirms that the 
Commissions preexisting authority under section 201 continues to apply for purely interstate 
(continued from previous page) 
telecommunications services under section 251(c), while here we consider the analogous question of whether 
telecommunications is limited to local telecommunications under section 251(b). 
53 47 U.S.C. 251(g). 
54 WorldCom, 288 F.3d at 433. 
55 47 U.S.C.  152(a), 201, 202. 
56 47 U.S.C.  332. 
57 Local Competition First Report and Order, 11 FCC Rcd at 15544, para. 83. 
58 Id. at 1554445, para. 85. 
59 Id. 
60 47 U.S.C.  251(i).

Federal Communications Commission FCC 08-262 
10 
activities.61 
19. In implementing sections 251 and 252 in the Local Competition First Report and Order, 
the Commissions treatment of LEC-CMRS traffic provides an instructive example. Prior to the 1996 
Act, the Commission expressly preempted state and local regulations of the kind of interconnection to 
which CMRS providers are entitled based on its authority under section 201 and 332 of the Act.62 
Nevertheless, in the Local Competition First Report and Order, the Commission brought LEC-CMRS 
interconnection within the section 251 framework as it relates to intraMTA (including interstate 
intraMTA) traffic.63 The Commission recognized, however, that it continued to retain separate authority 
over CMRS traffic.64 
20. Courts confirmed that, in permitting LEC-CMRS interconnection to be addressed through 
the section 251 framework, the Commission did not in any way lose its independent jurisdiction or 
authority to regulate that traffic under other provisions of the Act. Thus, although the Eighth Circuit 
invalidated the Commissions TELRIC pricing rules in general,65 it recognized that because section 
332(c)(1)(B) gives the FCC the authority to order LECs to interconnect with CMRS carriers, we believe 
that the Commission has the authority to issue the rules of special concern to the CMRS providers, 
[including the reciprocal compensation rules] but only as these provisions apply to CMRS providers. 
Thus, [the pricing] rules . . . remain in full force and effect with respect to the CMRS providers, and our 
order of vacation does not apply to them in the CMRS context.66 Subsequently, the D.C. Circuit held 
that CMRS providers were entitled to pursue formal complaints under section 208 of the Act for 
violations of the Commissions reciprocal compensation rules.67 
21. We build upon our actions in the Local Competition First Report and Order and find here 
that addressing ISP-bound traffic through the section 251 framework does not diminish the Commissions 
independent jurisdiction or authority to regulate traffic under other provisions of the Act. Specifically, we 
retain our authority under section 201 to regulate ISP-bound traffic, despite acknowledging that such 
traffic is section 251(b)(5) traffic. With respect to interstate services, the Act has long provided us with 
the authority to establish just and reasonable charges, practices, classifications, and regulations.68 The 
Commission thus retains full authority to regulate charges for traffic and services subject to federal 
jurisdiction, even when it is within the sections 251(b)(5) and 252(d)(2) framework. Because we reaffirm 
our findings concerning the interstate nature of ISP-bound traffic, which have not been vacated by 
61 Local Competition First Report and Order at 1554647, para. 91. 
62 Implementation of Sections 3(n) and 332, GN Docket No. 93-252, Second Report and Order, 9 FCC Rcd 1411, 
1498, para. 230 (1994). 
63 See Local Competition First Report and Order, 11 FCC Rcd at 16005, para. 1023. 
64 Id. (By opting to proceed under sections 251 and 252, we are not finding that section 332 jurisdiction over 
interconnection has been repealed by implication, or rejecting it as an alternative basis for jurisdiction.). 
65 We note that the Supreme Court later reversed this decision and affirmed the TELRIC methodology. See Verizon 
Commcns, Inc. v. FCC, 535 U.S. 467 (2002) (Verizon v. FCC). 
66 Iowa Utils. Bd. v. FCC, 120 F.3d 753, 800 n.21 (8th Cir. 1997) (Iowa Utils. I) (vacated and remanded in part on 
other grounds, AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999) (AT&T v. Iowa Utils. Bd.)). 
67 See Qwest Corp. v. FCC, 252 F.3d 462, 465-66 (D.C. Cir. 2001) (describing the Eighth Circuits analysis of 
section 332(c)(1)(B) in Iowa Utils. Bd. v. FCC and concluding that an attempt to relitigate the issue was barred by 
the doctrine of issue preclusion). 
68 47 U.S.C.  201(b). 

Federal Communications Commission FCC 08-262 
11 
any court, it follows that such traffic falls under the Commissions section 201 authority preserved by the 
Act and that we therefore have the authority to issue pricing rules pursuant to that section.69 This 
conclusion is reinforced by section 251(i) of the Act. As the Commission explained in the ISP Remand 
Order, section 251(i) expressly affirms the Commissions role in an evolving telecommunications 
marketplace, in which Congress anticipates that the Commission will continue to develop appropriate 
pricing and compensation mechanisms for traffic that falls within the purview of section 201.70 It 
concluded that section 251(i), together with section 201, equips the Commission with the tools necessary 
to keep pace with regulatory developments and new technologies.71 When read together, these statutory 
sections preserve the Commissions authority to address new issues that fall within its section 201 
authority over interstate traffic, including compensation for the exchange of ISP-bound traffic. 
Consequently, in the ISP Remand Order, the Commission properly exercised its authority under section 
201(b) to issue pricing rules governing the payment of compensation between carriers for ISP-bound 
traffic.72
22. Our result today is consistent with the D.C. Circuits opinion in Bell Atlantic, which 
concluded that the jurisdictional nature of traffic is not dispositive of whether reciprocal compensation is 
owed under section 251(b)(5).73 It is also consistent with the D.C. Circuits WorldCom decision, in which 
the court rejected the Commissions view that section 251(g) excluded ISP-bound traffic from the scope 
69 We have consistently found that ISP-bound traffic is jurisdictionally interstate. ISP-bound traffic melds a 
traditional circuit-switched local telephone call over the PSTN to packet switched IP-based Internet communication 
to Web sites. See e.g., Declaratory Ruling, 14 FCC Rcd at 3702, para. 18; ISP Remand Order, 16 FCC Rcd at 9175, 
para. 52. This conclusion has not been questioned by the D.C. Circuit. See WorldCom, 288 F.3d at 431; Bell 
Atlantic v. FCC, 206 F.3d at 5 (There is no dispute that the Commission has historically been justified in relying on 
this method when determining whether a particular communication is jurisdictionally interstate.). In other contexts, 
the Commission has likewise found that services that offer access to the Internet are jurisdictionally interstate 
services. In 1998, for example, the Commission found that ADSL service is jurisdictionally interstate. See GTE 
Tel. Operating Cos., CC Docket No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd 22466, 22481, para. 28 
(1998) (finding that GTEs ADSL service is subject to federal jurisdiction and is an interstate service). More 
recently, the Commission has confirmed this ruling for a variety of broadband Internet access services. See Inquiry 
Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GN Docket No. 00-185, CS Docket 
No. 02-52, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4832, para. 59 (2002) 
(finding that, on an end-to-end analysis, cable modem service is an interstate information service); Wireline 
Broadband Internet Access Order, 20 FCC Rcd 14853 at 14914, para. 110 (2005), affd by Brand X, 545 U.S. 967; 
Appropriate Regulatory Treatment for Broadband Access to the Internet Over Wireless Networks, WT 07-53, 
Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007); United Power Line Councils Petition for 
Declaratory Ruling Regarding the Classification of Broadband over Power Line Internet Access Service as an 
Information Service, WC 06-10, Memorandum Opinion and Order, 21 FCC Rcd 13281, 13288, para. 11 (2006). In 
the Vonage Order, the Commission likewise found that VoIP services are jurisdictionally interstate, employing the 
same end-to-end analysis reflected in those other orders. Vonage Order, 19 FCC Rcd at 2241314, paras. 1718. 
70 ISP Remand Order, 16 FCC Rcd at 9174, para. 50. 
71 See ISP Remand Order, at 9175, para. 51. 
72 We thus respond to the D.C. Circuits remand order in WorldCom, 288 F.3d at 434, and the courts writ of 
mandamus in Core Communications, 531 F.3d at 86162, which directed the Commission to explain its legal 
authority to issue the pricing rules for ISP-bound traffic adopted in the ISP Remand Order. Specifically, we find, 
for the reasons set forth here that the Commission had the authority to adopt the pricing regime pursuant to our 
broad authority under section 201(b) to issue rules governing interstate traffic. 
73 See Bell Atlantic, 206 F.3d at 5.

Federal Communications Commission FCC 08-262 
12 
of section 251(b)(5), but made no other findings.74 Finally, this result does not run afoul of the Eighth 
Circuits decision on remand from the Supreme Court in the Iowa Utilities Board litigation, which held 
that the FCC does not have the authority to set the actual prices for the state commissions to use under 
section 251(b)(5).75 At the time of that decision, under the Local Competition First Report and Order, 
section 251(b)(5) applied only to local traffic. Thus, the Eighth Circuit merely held that the Commission 
could not set reciprocal compensation rates for local traffic. The court did not address the Commissions 
authority to set reciprocal compensation rates for interstate traffic.76 In sum, the Commission plainly has 
authority to establish pricing rules for interstate traffic, including ISP-bound traffic, under section 201(b), 
and that authority was preserved by section 251(i). 
3. Other Issues 
23. Most commenters urge the Commission to maintain the compensation rules governing 
ISP-bound traffic until the Commission is able to complete comprehensive intercarrier compensation 
reform.77 These parties contend that a higher compensation rate would create new opportunities for 
arbitrage78 and impose substantial financial burdens on wireless companies, incumbent LECs and state 
74 See WorldCom, 288 F.3d at 434. 
75 Iowa Utils. Bd. v. FCC, 219 F.3d 744, 757 (8th Cir. 2000) (Iowa Utils. II), revd in part sub nom. Verizon v. FCC, 
535 U.S. 467. 
76 Indeed, above, the court expressly confirmed the Commissions independent authority to set rates for CMRS 
traffic pursuant to section 332 and declined to vacate the Commissions pricing rules as they applied in the context 
of CMRS service. See Iowa Utils. I, 120 F.3d at 800 n.21. 
77 See, e.g., Letter from Gregory J. Vogt, Counsel for CenturyTel, Inc. to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 05-337; CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8, 2008) (asking the Commission to 
maintain the existing compromises reached with respect to ISP-bound traffic); Letter from Gary L. Phillips, 
Associate General Counsel, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 
8 (filed May 9, 2008) (asserting that the public interest would be best served by maintaining the existing transitional 
rates pending broader intercarrier compensation reform); Letter from L. Charles Keller, Counsel for Sage Telecom, 
to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 Ex 
Parte Letter) (stating that retaining the ISP rate serves broad policy goals); Letter from John T. Nakahata, Counsel 
for Level 3 Communications to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 1 (filed May 7, 
2008) (supporting continuation of the compensation rules); Letter from Joshua Seidmann, Vice President of 
Regulatory Affairs, Independent Telephone & Telecommunications Alliance, to Marlene H. Dortch, Secretary, FCC, 
CC Docket Nos. 99-68, 96-98, Attach. at 2 (filed Apr. 28, 2008) (ITTA Apr. 28, 2008 Ex Parte Letter) (asking the 
Commission to retain the current $0.0007 rate for ISP-bound traffic); Letter from Donna Epps, Vice President of 
Federal Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed 
Apr. 7, 2008) (urging the Commission to support its earlier finding that $0.0007 is appropriate compensation for 
dial-up ISP traffic); Letter from L. Charles Keller, Counsel to Verizon Wireless, to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 01-92, 99-68, Attach. (filed May 1, 2008) (Verizon Wireless May 1, 2008 Ex Parte Letter) 
(describing how elimination of the existing ISP rate would create substantial burdens on a number of carriers and 
state commissions); Letter from Glenn Reynolds, Vice President, Policy, USTelecom, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) 
(USTelecom Apr. 29, 2008 Ex Parte Letter) (noting that the Commissions existing rules have largely mitigated the 
debate around compensation for ISP-bound traffic, but there is every reason to believe the same problems would 
arise if the Commission were to reverse direction on this issue). 
78 See, e.g., USTelecom Apr. 29, 2008 Ex Parte Letter at 2; Letter from Melissa E. Newman, Vice President, Federal 
Regulatory, Qwest Communications International, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99- 
68, 96-98, WC Docket No. 07-135, Attach. at 35 (filed Apr. 25, 2008) (Qwest April 25, 2008 Ex Parte Letter); 
Verizon and BellSouth, Further Supplemental White Paper on ISP Reciprocal Compensation at 20 
(continued.)

Federal Communications Commission FCC 08-262 
13 
public utility commissions.79 They further claim that the existing regime has simplified interconnection 
negotiations.80 
24. In the ISP Remand Order, the Commission found that the one-way nature of ISP-bound 
traffic creates significant arbitrage opportunities. Due to the unbalanced nature of ISP-bound traffic, the 
Commission observed that reciprocal compensation arrangements created enormous incentives for 
competitive LECs to sign up ISPs as customers.81 The Commission cited evidence that competitive 
LECs, on average, terminated eighteen times more traffic than they originated, resulting in annual CLEC 
reciprocal compensation billings of approximately two billion dollars, 90 percent of which was for ISPbound 
traffic.82 The Commission concluded that the record strongly suggests that CLECs target ISPs in 
large part because of the availability of reciprocal compensation payments.83 This undermined the 
operation of competitive markets because competitive LECS were able to recover a disproportionate 
share of their costs from other carriers.84 To limit arbitrage opportunities that arose from excessively 
high reciprocal compensation rates,85 the Commission adopted a gradually declining cap on intercarrier 
compensation for ISP-bound traffic, beginning at $.0015 per minute of use and declining to $.0007 per 
minute of use, the current cap.86 The Commission derived the rate caps from contemporaneous 
interconnection agreements, in which carriers voluntarily agreed to rates comparable to the rate caps 
adopted by the Commission.87 The interconnection agreements included lower rates for unbalanced 
traffic than for balanced traffic, and the rates declined over time, like the rate caps.88 Although the 
Commission made no specific findings with regard to the actual costs associated with delivering traffic to 
ISPs, it noted evidence in the record that technological advances were reducing the costs incurred by 
carriers when handling all forms of traffic.89 The Commission also noted that negotiated reciprocal 
compensation rates continue to decline as ILECS and CLECs negotiate new agreements.90 
(continued from previous page) 
(Verizon/BellSouth Further Supp. ISP White Paper), attached to Letter from Donna Epps, Vice President, Federal 
Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-98, 99-68 (filed Sept. 
27, 2004). 
79 See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter, Attach. 
80 See, e.g., id. (stating that the [m]irroring [r]ule simplified wireless-ILEC interconnection negotiations 
tremendously); Supplemental Comments of Verizon and Verizon Wireless on Intercarrier Payments for ISP-Bound 
Traffic and the WorldCom Remand, CC Docket Nos. 01-92, 96-98, 99-68 at 3840 (filed Oct. 2, 2008) 
(Supplemental Comments of Verizon and Verizon Wireless) (indicating that Verizon entered into multiple 
agreements using the $.0007 rate cap established in the ISP Remand Order). 
81 Id. at 9182-83, para. 68-71. 
82 Id. at 9183, para. 70. 
83 Id. 
84 Id. at para. 71. 
85 Id. at 9185, para. 75. 
86 Id. at 9187, para. 78. 
87 Id. at 9190-91, para. 85. 
88 Id. 
89 Id. at 9190, para. 84. 
90 Id.

Federal Communications Commission FCC 08-262 
14 
25. On July 14, 2003, Core Communications, Inc. (Core) filed a petition pursuant to 
Section 10 of the Communications Act91 requesting that the Commission forbear from enforcing the rate 
caps and certain other provisions set forth in the ISP Remand Order with respect to the exchange of ISPbound 
traffic between telecommunications carriers. In 2004, the Commission denied the petition with 
respect to rate caps and the mirroring rule, determining that Core had satisfied none of the three prongs of 
the statutory test for forbearance.92 First, the Commission found that forbearance from enforcement of the 
rate caps was not consistent with the public interest. To the contrary, the Commission concluded that rate 
caps remained necessary to prevent regulatory arbitrage and to promote efficient investment in 
telecommunications services and facilities.93 Second, the Commission found limited potential for 
discrimination under the rate caps. The caps applied to ISP-bound traffic only to the extent that an 
incumbent carrier offered to exchange all traffic at the same rate under Section 251(b)(5).94 Accordingly, 
the Commission concluded that Core had not proven that the rate caps resulted in impermissible 
discrimination against or between competitive carriers or services.95 Finally, the Commission found that 
Core had not demonstrated that enforcement of the rate caps was not necessary for the protection of 
consumers. Core advanced speculative general claims that the caps caused artificially high rates, had 
forced competitive carriers from the market, and had deterred investment in telecommunications services, 
all to consumers detriment. The Commission rejected these unsupported claims, explaining that the rate 
caps were designed to prevent the subsidization of dial-up Internet access customers at the expense of 
consumers of basic telephone service and to avoid regulatory arbitrage and discrimination between 
services.96 For these reasons, the Commission denied Cores petition for forbearance insofar as rate caps 
were concerned.97 
26. In 2006, the D.C. Circuit affirmed our decision not to forbear from the rate cap (and the 
mirroring rule).98 The Court found reasonable the Commissions view that the rate caps are necessary to 
prevent the subsidization of dial-up Internet access consumers by consumers of basic telephone service 
91 See 47 U.S.C.  160(a) ([T]he Commission shall forbear from applying any regulation or any provision of [the 
Communications] Act to a telecommunications carrier . . . if the Commission determines that (1) enforcement of 
such regulation or provision is not necessary to ensure that the charges, practices, classifications or regulations by, 
for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable, 
and are not unjustly or unreasonably discriminatory; (2) enforcement of such regulation or provision is not necessary 
for the protection of consumers; and (3) forbearance from applying such provision or regulation is consistent with 
the public interest.). 
92 See Petition of Core Communications, Inc. for Forbearance Under 47 U.S.C.  160(C) From Application of the 
ISP Remand Order, 19 FCC Rcd 20179 (2004) (Forbearance Order). 
93 The Commission rejected as an initial matter Cores argument that the D.C. Circuits decision in WorldCom, 
Inc. v. FCC, 288 F.3d 429 (2002), cert. denied, 538 U.S. 1012 (2003), compelled the agency to grant the 
petition, observing that the court remanded but did not vacate the rules adopted in the ISP Remand Order and 
specifically found a non-trivial likelihood that the Commission would be able to justify the regime it 
adopted. See Forbearance Order, 19 FCC Rcd at 20185 para. 17 (quoting Worldcom, 288 F.3d at 434). 
94 See 47 U.S.C.  251(b)(5) (imposing upon local exchange carriers the duty to establish reciprocal 
compensation arrangements for the transport and termination of telecommunications). 
95 See Forbearance Order, 19 FCC Rcd at 20187 para. 23. 
96 Id. at 20188 para. 25. 
97 Id. at 20189 para. 29. 
98 In re Core Communications, Inc., 455 F.3d 267 (D.C. Cir. 2006).

Federal Communications Commission FCC 08-262 
15 
that would occur if reciprocal compensation rates applied to one-way ISP-bound traffic.99 The Court 
likewise rejected Cores contention that the rate cap was unreasonably discriminatory, both because 
one-way ISP-bound calls were fundamentally different from other forms of traffic and because the 
mirroring rule ensures that the caps apply to ISP-bound traffic only if an incumbent LEC offers to 
exchange all Section 251(b)(5) traffic at the same rate.100 Finally, the Court concluded that the 
Commissions concern than the rate cap was necessary to prevent regulatory arbitrage and distorted 
economic incentives was reasonable.101 
27. The policy justifications provided by the Commission in 2001 for the rules at issue here 
have not been questioned by any court. In addition, the policy justifications provided by the Commission 
for refusing to forbear from enforcement of these rules were upheld by the D.C. Circuit in 2006. We 
therefore disagree with parties who suggest that the Commission, in responding to the D.C. Circuits 
remand in WorldCom, must offer detailed new justifications for the ISP intercarrier payment regime102; 
We have already offered our justifications for that regime. Moreover, both the Worldcom remand and 
Core writ of mandamus focused on the issue of legal authority. We also reject arguments that the 
Commission unlawfully delegated its authority in the ISP Remand Order and arguments that the 
Commission addressed previously in the Core Forbearance Order.103 
28. The Commission long has stated its intention to move to a more unified intercarrier 
compensation regime. Progress is difficult due to competing priorities, such as competition, innovation, 
universal service, and other goals. The Commission recognized in 2001 that ISP-bound traffic 
represented a unique arbitrage problem that required immediate attention, based on the policy concerns 
discussed above. The Commission remains committed to moving towards a more unified intercarrier 
compensation regime, as evidenced by the Further Notice issued in conjunction with this order. 
29. In sum, we maintain the $.0007 cap and the mirroring rule pursuant to our section 201 
authority. These rules shall remain in place until we adopt more comprehensive intercarrier 
compensation reform. 
II. REPORT AND ORDER  REFORM OF HIGH-COST UNIVERSAL SERVICE 
SUPPORT 
30. In this report and order, we address the Recommended Decision of the Federal-State 
Joint Board on Universal Service (Joint Board), which was released on November 20, 2007.104 As 
99 Id. at 278. 
100 Id. (citing Forbearance Order, 19 FCC Rcd at 20187, para. 23). 
101 Id. at 279. 
102 See Letter from Michael B. Hazzard, Counsel to Core Communications, to Marlene H. Dortch, FCC, CC Docket 
Nos. 99-68, 01-92, Attach. at 2026 (May 14, 2008). 
103 See Core May 14, 2008 Response at 18 & n.8, 1920. The Commission did not delegate its authority in the ISP 
Remand Order, but rather provided options that were not mandatory. See, e.g., ISP Remand Order, 16 FCC Rcd at 
9193, para. 89. Additionally, Core argues that the Commission provided no reasoned explanation for the growth cap 
and new markets rules adopted in the ISP Remand Order and never provided notice or an opportunity for comment 
on those specific rules. These rules, as applicable to all carriers, were forborne from in the Core Forbearance 
Order. See Core Forbearance Order, 19 FCC Rcd at 2018687, paras. 2021. As such, this argument is moot. 
104 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (Comprehensive Reform 
Recommended Decision). 

Federal Communications Commission FCC 08-262 
16 
discussed below, we appreciate the great efforts expended by the Joint Board and its staff in considering 
how best to reform the current high-cost support mechanism and in developing its recommendations. We 
choose not to implement the recommendations contained in the Comprehensive Reform Recommended 
Decision at this time, however. 
A. Background 
31. The 1996 Act amended the Communications Act of 1934 with respect to the provision of 
universal service.105 In the 1996 Act, Congress sought to preserve and advance universal service, while at 
the same time opening all telecommunications markets to competition.106 Section 254(b) of the Act 
directs the Joint Board and the Commission to base policies for the preservation and advancement of 
universal service on several general principles, plus other principles that the Commission may 
establish.107 Among other things, section 254(b) directs that there should be specific, predictable, and 
sufficient federal and state universal service support mechanisms; quality services should be available at 
just, reasonable, and affordable rates; and access to advanced telecommunications and information 
services should be provided in all regions of the nation.108 
32. The Commission implemented the universal service provisions of the 1996 Act in the 
1997 Universal Service First Report and Order.109 Among other things, the Commission adopted rules to 
create explict universal service support mechanisms for customers living in rural and high cost areas. 
Pursuant to section 254(e) of the Act, an entity must be designated as an eligible telecommunications 
carrier (ETC) to receive high-cost universal service support.110 ETCs may be incumbent LECs, or nonincumbent 
LECs, which are referred to as competitive ETCs.111 Under the existing high-cost support 
distribution mechanism, incumbent LEC ETCs receive high-cost support for their intrastate services 
based on their costs.112 Competitive ETCs receive support for each line based on the support the 
incumbent LEC would receive for that line in the service area.113 This support to competitive ETCs is 
known as identical support. The Commissions universal service high-cost support rules do not 
distinguish between primary and secondary lines; therefore, high-cost support may go to a single end user 
105 47 U.S.C.  254 (added by the 1996 Act). 
106 47 U.S.C.  254. 
107 See 47 U.S.C.  254(b). 
108 47 U.S.C.  254(b)(1), (2), (5). 
109 See Universal Service First Report and Order, 12 FCC Rcd at 878088, paras. 120. 
110 47 U.S.C.  254(e). The statutory requirements for ETC designation are set out in section 214(e) of the Act. 47 
U.S.C.  214(e). 
111 See 47 C.F.R.  54.5 (A competitive eligible telecommunications carrier is a carrier that meets the definition 
of eligible telecommunications carrier below and does not meet the definition of an incumbent local exchange 
carrier in  51.5 of this chapter.). 
112 Non-rural incumbent LEC ETCs receive support for their intrastate supported services based on the forwardlooking 
economic cost of providing the services. 47 C.F.R.  54.309. Rural incumbent LEC ETCs receive support 
based on their loop costs, as compared to a national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R.  54.305. 
Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines receive support based on their local 
switching costs. 47 C.F.R.  54.301. Additionally, incumbent LEC ETCs that are subject to price cap or rate-ofreturn 
regulation receive interstate access support based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, 
K. 
113 47 C.F.R.  54.307(a).

Federal Communications Commission FCC 08-262 
17 
for multiple connections.114 Further, the Commissions rules result in subsidizing multiple competitors in 
the same high-cost area. 
33. High-cost support for competitive ETCs has grown rapidly over the last several years, 
placing extraordinary pressure on the federal universal service fund.115 In 2001, high-cost universal 
service support totaled approximately $2.6 billion.116 By 2007, the amount of high-cost support had 
grown to approximately $4.3 billion per year.117 In recent years, this growth has been due mostly to 
increased support provided to competitive ETCs, which receive high-cost support based on the per-line 
support that the incumbent LECs receive pursuant to the identical support rule. Competitive ETC 
support, in the six years from 2001 through 2007, has grown from under $17 million to $1.18 billionan 
annual growth rate of over 100 percent.118 This funded competition has grown significantly in a large 
number of rural, insular, or high-cost areas; in some study areas more than 20 competitive ETCs currently 
receive support.119 
34. To address the growth in competitive ETC support, the Joint Board recommended an 
interim cap on the amount of high-cost support available to competitive ETCs, pending comprehensive 
high-cost universal service reform.120 The Commission adopted this recommendation on May 1, 2008.121 
35. For the past several years, the Joint Board and the Commission have been exploring ways 
114 See Universal Service First Report and Order, 12 FCC Rcd at 882830, paras. 9496. 
115 Support for the fund derives from assessments paid by providers of interstate telecommunications services and 
certain other providers of interstate telecommunications. See 47 C.F.R.  54.706. Fund contributors are permitted 
to, and almost always do, pass those assessments though to their end-user customers. See 47 C.F.R.  54.712. Fund 
assessments paid by contributors are determined by applying the quarterly contribution factor to the contributors 
contribution base revenues. In the second quarter of 2007, the contribution factor reached 11.7 percent, which is the 
highest level since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor has since declined 
to 11.4 % in the fourth quarter of 2008. Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008). 
116 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 3.2 (2007) (2007 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf. 
117 UNIVERSAL SERVICE ADMINISTRATIVE COMPANY, 2007 ANNUAL REPORT 43 (2007) (USAC 2007 ANNUAL 
REPORT), available at http://www.usac.org/_res/documents/about/pdf/usac-annual-report-2007.pdf. 
118 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 3.2; USAC 2007 ANNUAL REPORT at 45. 
119 See USAC Quarterly Administrative Filings for 2008, Fourth Quarter (4Q) Appendices, HC03Rural Study 
Areas with Competition4Q2008, available at http://www.usac.org/about/governance/fccfilings/
2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls (showing 
24 competitive ETCs in the study area of incumbent LEC Iowa Telecom North (study area code 351167), and 22 
competitive ETCs in the study area of incumbent LEC Iowa Telecom Systems (study area code 351170)). 
120 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd 8998, 89999001, paras. 47 (JB 2007) (Interim Cap 
Recommended Decision). 
121 Interim Cap Recommended Decision, 22 FCC Rcd at 89999001, paras. 47; Interim Cap Order, 23 FCC Rcd at 
8834. As recommended by the Joint Board, the Commission capped competitive ETC support for each state. 
Interim Cap Recommended Decision, 22 FCC Rcd at 9002, para. 9; Interim Cap Order, 23 FCC Rcd at 8846, paras. 
2628. The Commission set the cap at the level of support competitive ETCs were eligible to receive during March 
2008. Interim Cap Order, 23 FCC Rcd at 8850, para. 38.

Federal Communications Commission FCC 08-262 
18 
to reform the Commissions high-cost program. In the most recent high-cost support comprehensive 
reform efforts, the Joint Board issued a recommended decision on November 20, 2007.122 The Universal 
Service Joint Boards recommended decision included several recommendations to address the growth in 
high cost support and to reform the high cost mechanisms.123 Specifically, the Universal Service Joint 
Board recommended that the Commission should: (1) deliver high-cost support through a provider of last 
resort fund, a mobility fund, and a broadband fund;124 (2) cap the high-cost fund at $4.5 billion, the 
approximate level of 2007 high-cost support;125 (3) reduce the existing funding mechanisms during a 
transition period;126 (4) add broadband and mobility to the list of services eligible for support under 
section 254 of the Act;127 (5) eliminate the identical support rule;128 and (6) explore the most appropriate 
auction mechanisms to determine high-cost universal service support.129 
36. On January 29, 2008, the Commission released the Joint Board Comprehensive Reform 
NPRM, seeking comment on the Joint Boards Comprehensive Reform Recommended Decision.130 
Pursuant to section 254(a)(2), the Commission shall complete any proceeding to implement subsequent 
recommendations from any Joint Board on universal service within one year after receiving such 
recommendations.131 
B. Discussion 
37. We have carefully reviewed the Joint Boards Comprehensive Reform Recommended 
Decision and the comments that were filed in response to the Commissions Joint Board Comprehensive 
Reform NPRM. We thank the Joint Board and its staff for their hard work in studying these difficult 
issues and in developing their recommendations. We choose not to implement these recommendations at 
this time, however. 
III. FURTHER NOTICE OF PROPOSED RULEMAKING 
38. In enacting the Act, Congress sought to introduce competition into local telephone 
service, which traditionally was provided through regulated monopolies. Recognizing that in introducing 
such competition, it was threatening the implicit subsidy system that had traditionally supported universal 
service, it directed the Commission to reform its universal service program to make support explicit and 
sustainable in the face of developing competition. 
122 Comprehensive Reform Recommended Decision, 22 FCC Rcd 20477. 
123 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 1. 
124 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048081, para. 11. 
125 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. 
126 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 27. 
127 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048182, paras. 1218. 
128 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20486, para. 35. 
129 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, paras. 16. 
130 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (Identical Support NPRM); High- 
Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC 
Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008) (Reverse Auctions NPRM); Joint 
Board Comprehensive Reform NPRM, 23 FCC Rcd 1531 (collectively the High-Cost Reform NPRMs). 
131 47 U.S.C.  254(a)(2).

Federal Communications Commission FCC 08-262 
19 
39. The communications landscape has undergone many fundamental changes that were 
scarcely anticipated when the 1996 Act was adopted. The Internet was only briefly mentioned in the 1996 
Act,132 but now has come into widespread use, with broadband Internet access service increasingly viewed 
as a necessity. Consistent with this trend, carriers are converting from circuit-switched networks to IPbased 
networks. These changes have benefited consumers and should be encouraged. Competition has 
resulted in dramatically lower prices for telephone service, and the introduction of innovative broadband 
products and services has fundamentally changed the way we communicate, work, and obtain our 
education, news, and entertainment. At the same time, however, these developments have challenged the 
outdated regulatory assumptions underlying our universal service and intercarrier compensation regimes, 
forcing us to reassess our existing approaches. We have seen unprecedented growth in the universal 
service fund, driven in significant part by increased support for competitive ETCs. The growth of 
competition also has eroded the universal service contribution base as the prices for interstate and 
international services have dropped. Finally, we have seen numerous competitors exploit arbitrage 
opportunities created by a patchwork of above-cost intercarrier compensation rates. 
40. We seek comment today on three specific proposals. The first, attached as Appendix A, 
is the Chairmans Draft Proposal circulated to the Commission on October 15, 2008, which was placed on 
the Commissions agenda for a vote on November 4, 2008. This item subsequently was removed from 
the Agenda on November 3, 2008.133 The second, attached as Appendix B, is a Narrow Universal Service 
Reform Proposal circulated to the Commission on October 31, 2008. The third, attached as Appendix C, 
is a draft Alternative Proposal first circulated by the Chairman on the evening of November 5, 2008. 
Appendix C incorporates changes proposed in the ex parte presentations attached as Appendix D. We 
note that members of industry, Congress, and the general public have urged the Commission to seek 
comment on these proposals. 
41. We seek particular comment on two questions. First, should the additional cost standard 
utilized under  252(d)(2) of the Act be: (i) the existing TELRIC standard; or (ii) the incremental cost 
standard described in the draft order? Second, should the terminating rate for all  251(b)(5) traffic be set 
as: (i) a single, statewide rate; or (ii) a single rate per operating company? 
IV. PROCEDURAL MATTERS 
A. Ex Parte Presentations 
42. The rulemaking this Further Notice initiates shall be treated as a permit-but-disclose 
proceeding in accordance with the Commissions ex parte rules.134 Persons making oral ex parte 
presentations are reminded that memoranda summarizing the presentations must contain summaries of the 
substance of the presentations and not merely a listing of the subjects discussed. More than a one or two 
sentence description of the views and arguments presented generally is required.135 Other requirements 
pertaining to oral and written presentations are set forth in section 1.1206(b) of the Commissions rules.136 
B. Comment Filing Procedures 
132 See 47 U.S.C.  230; 47 U.S.C.  157 nt. 
133 See http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-286532A1.pdf. 
134 47 C.F.R.  1.200 et seq. 
135 See 47 C.F.R.  1.1206(b)(2). 
136 47 C.F.R.  1.1206(b).

Federal Communications Commission FCC 08-262 
20 
43. Pursuant to sections 1.415 and 1.419 of the Commissions rules,137 interested parties may 
file comments and reply comments regarding the Further Notice on or before the dates indicated on the 
first page of this document. All filings should refer to CC Docket Nos. 96-45, 96-98, 99-68, 99-200, 
01-92 and WC Docket Nos. 03-109, 04-36, 05-337, and 06-122. Comments may be filed using: (1) the 
Commissions Electronic Comment Filing System (ECFS); (2) the Federal Governments e-Rulemaking 
Portal, or; (3) by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 
FR 24121 (1998). 
44. Electronic Filers: Comments may be filed electronically using the Internet by accessing 
the ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal e-Rulemaking Portal: http://www.regulations.gov. 
Filers should follow the instructions provided on the website for submitting comments. 
45. ECFS filers must transmit one electronic copy of the comments for CC Docket Nos. 96- 
45, 96-98, 99-68, 99-200, 01-92 and WC Docket Nos. 03-109, 04-36, 05-337, and 06-122, respectively. 
In completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing 
address, and the applicable docket number. Parties may also submit an electronic comment by Internet email. 
To get filing instructions, filers should send an e-mail to ecfs@fcc.gov, and include the following 
words in the body of the message, get form. A sample form and directions will be sent in response. 
46. Paper Filers: Parties who choose to file by paper must file an original and four copies of 
each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by 
first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving 
U.S. Postal Service mail). All filings must be addressed to the Commissions Secretary, Marlene H. 
Dortch, Office of the Secretary, Federal Communications Commission, 445 12th Street, S.W., 
Washington, D.C. 20554. 
47. The Commissions contractor will receive hand-delivered or messenger-delivered paper 
filings for the Commissions Secretary at 236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 
20002. The filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held 
together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. 
48. Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority 
Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. 
49. U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th 
Street, S.W., Washington D.C. 20554. Parties should send a copy of their filings to Victoria Goldberg, 
Pricing Policy Division, Wireline Competition Bureau, Federal Communications Commission, Room 5- 
A266, 445 12th Street, S.W., Washington, D.C. 20554, and to Jennifer McKee, Telecommunications 
Access Policy Division, Wireline Competition Bureau, Federal Communications Commission, Room 5- 
A423, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. Parties shall 
also serve one copy with the Commissions copy contractor, Best Copy and Printing, Inc. (BCPI), Portals 
II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or via e-mail to 
fcc@bcpiweb.com. 
50. Documents in CC Docket Nos. 96-45, 96-98, 99-68, 99-200, 01-92 and WC Docket Nos. 
03-109, 04-36, 05-337, and 06-122 will be available for public inspection and copying during business 
hours at the FCC Reference Information Center, Portals II, 445 12th Street S.W., Room CY-A257, 
Washington, D.C. 20554. The documents may also be purchased from BCPI, telephone (202) 488-5300, 
facsimile (202) 488-5563, TTY (202) 488-5562, e-mail fcc@bcpiweb.com. 
137 47 C.F.R.  1.415, 1.419.

Federal Communications Commission FCC 08-262 
21 
C. Initial Regulatory Flexibility Analysis 
51. As required by the Regulatory Flexibility Act of 1980,138 the Commission has prepared 
an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small 
entities of the policies and rules addressed in this document. The IRFA is set forth as Appendix E. 
Written public comments are requested on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines for comments on the Notice provided on or before the dates 
indicated on the first page of this Notice. 
D. Paperwork Reduction Act 
52. This document contains proposed new or modified information collection requirements. 
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public 
and the Office of Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107- 
198,139 we seek specific comment on how we might further reduce the information collection burden for 
small business concerns with fewer than 25 employees. 
E. Accessible Formats 
53. To request materials in accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental 
Affairs Bureau at 202-418-0530 (voice) or 202-418-0432 (TTY). Contact the FCC to request reasonable 
accommodations for filing comments (accessible format documents, sign language interpreters, CART, 
etc.) by e-mail: FCC504@fcc.gov; phone: 202-418-0530 or TTY: 202-418-0432. 
F. Congressional Review Act 
54. The Commission will include a copy of this ORDER ON REMAND AND REPORT 
AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING in a report to be sent to 
Congress and the Government Accountability Office pursuant to the Congressional Review Act. See 5 
U.S.C.  801(a)(1)(A). 
V. ORDERING CLAUSES 
55. Accordingly, IT IS ORDERED that, pursuant to Sections 14, 201209, 214, 218220, 
224, 251, 252, 254, 303(r), 332, 403, 502, and 503 of the Communications Act of 1934, as amended, and 
Sections 601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.  151154, 157 nt, 201209, 
214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503, and sections 1.1, 1.4111.429, and 1.1200 
1.1216 of the Commissions rules, 47 C.F.R.  1.1, 1.4111.429, 1.12001.1216, the ORDER ON 
REMAND AND REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING 
ARE ADOPTED. 
56. IT IS FURTHER ORDERED, in light of the opinion of the United States Court of 
Appeals for the District of Columbia Circuit in WorldCom v. FCC, 288 F.3d 429 (D.C. Cir. 2002), we 
consider our obligations met from the writ of mandamus issued in In re Core Communications, Inc. on 
Petition for Writ of Mandamus to the Federal Communications Commission, D.C. Cir. No. 07-1446 
(decided July 8, 2008). 
138 See 5 U.S.C.  603. 
139 See 44 U.S.C.  3506(c)(4).

Federal Communications Commission FCC 08-262 
22 
57. IT IS FURTHER ORDERED that this FURTHER NOTICE OF PROPOSED 
RULEMAKING SHALL BECOME EFFECTIVE on the date of publication of the text of a summary 
thereof in the Federal Register, pursuant to 47 C.F.R.  1.4, 1.13. 
58. IT IS FURTHER ORDERED that this ORDER ON REMAND AND REPORT AND 
ORDER SHALL BE EFFECTIVE upon release. 
59. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this ORDER ON REMAND AND 
REPORT AND ORDER AND 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 
Marlene H. Dortch 
Secretary

Federal Communications Commission FCC 08-262 
APPENDIX A 
Chairmans Draft Proposal 
In the Matter of 
High-Cost Universal Service Support 
Federal-State Joint Board on Universal Service 
Lifeline and Link Up 
Universal Service Contribution Methodology 
Implementation of the Local Competition 
Provisions in the Telecommunications Act of 1996 
Developing a Unified Intercarrier Compensation 
Regime 
Intercarrier Compensation for ISP-Bound Traffic 
IP-Enabled Services 
Numbering Resource Optimization 
))))))))))))))))))))) 
WC Docket No. 05-337 
CC Docket No. 96-45 
WC Docket No. 03-109 
WC Docket No. 06-122 
CC Docket No. 96-98 
CC Docket No. 01-92 
CC Docket No. 99-68 
WC Docket No. 04-36 
CC Docket No. 99-200 
ORDER ON REMAND AND REPORT AND ORDER 
AND FURTHER NOTICE OF PROPOSED RULEMAKING 
Adopted: "Insert Adopted Date" Released: "Insert Release Date" 
Comment Date: [XX days after date of publication in the Federal Register] 
Reply Comment Date: [XX days after date of publication in the Federal Register] 
TABLE OF CONTENTS 
Heading Paragraph # 
I. INTRODUCTION................................................................................................................................. 1 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT ....................................................... 4 
A. Background ..................................................................................................................................... 5 
B. Discussion ..................................................................................................................................... 12 
1. Controlling the Growth of the High-Cost Fund....................................................................... 14 
2. Conditioning Support on Offering Broadband Internet Access Service.................................. 19 
a. Definition of Broadband Internet Access Service............................................................. 24 
b. Broadband Internet Access Service Obligations............................................................... 25 
3. Incumbent LECs Commitment to Offer Broadband .............................................................. 28 
4. Reverse Auctions for Study Areas Unserved by Broadband................................................... 32 
a. Geographic Area ............................................................................................................... 35 
b. Reserve Price .................................................................................................................... 36

Federal Communications Commission FCC 08-262 
A-2 
c. Auctioned Support ............................................................................................................ 38 
d. Selecting a Winning Bid ................................................................................................... 43 
e. Bidder Qualifications ........................................................................................................ 48 
5. Competitive Eligible Telecommunications Carriers ............................................................... 51 
a. Background...................................................................................................................... 51 
b. Certification by Existing Competitive ETCs .................................................................... 52 
c. Calculation of Support ...................................................................................................... 53 
6. Build-Out Milestones and Monitoring, Compliance, and Enforcement.................................. 57 
III. BROADBAND FOR LIFELINE/LINK UP CUSTOMERS................................................................ 64 
A. Background ................................................................................................................................... 65 
B. Discussion ..................................................................................................................................... 71 
1. Available Funding ................................................................................................................... 77 
2. Eligible Services and Equipment............................................................................................. 80 
3. Selection Criteria..................................................................................................................... 85 
4. Implementation and Reporting Requirements......................................................................... 88 
5. Program Oversight................................................................................................................... 91 
IV. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS ............................................................. 92 
A. Background ................................................................................................................................... 93 
B. Discussion ..................................................................................................................................... 97 
1. Legal Authority ....................................................................................................................... 98 
2. The New Numbers-Based Assessment Methodology for Residential Services .................... 105 
a. Benefits of a Numbers-Based Contribution Methodology.............................................. 106 
b. Assessable Numbers ....................................................................................................... 115 
3. Contribution Assessment Methodology for Business Services............................................. 130 
4. Wireless Prepaid Plans .......................................................................................................... 135 
5. Exceptions to Contribution Obligations ................................................................................ 140 
6. Reporting Requirements and Recordkeeping ........................................................................ 147 
7. Transition to New Methodology............................................................................................ 154 
V. REFORM OF INTERCARRIER COMPENSATION ....................................................................... 157 
A. A Brief History of Intercarrier Compensation ............................................................................. 159 
1. Intercarrier Compensation Regulation Before the Telecommunications Act of 1996 .......... 160 
2. Intercarrier Compensation Regulation Since the 1996 Act ................................................... 169 
3. Problems Associated With the Existing Intercarrier Compensation Regimes ...................... 178 
B. Comprehensive Reform ............................................................................................................... 186 
1. Introduction ........................................................................................................................... 186 
2. A New Approach to Intercarrier Compensation.................................................................... 188 
3. Legal Authority ..................................................................................................................... 207 
a. Legal Authority for Comprehensive ReformInterpretation of Sections 
251(b)(5) and 251(g)....................................................................................................... 207 
b. Legal Authority for the Transition.................................................................................. 230 
4. Additional Costs Standard..................................................................................................... 236 
a. Background..................................................................................................................... 237 
b. The Importance of Incremental Cost In Regulated Pricing............................................. 240 
c. The Incremental Cost of Call Termination on Modern Networks .................................. 253 
d. Reconsideration of Additional Costs Standard ............................................................... 262 
C. Implementation ............................................................................................................................ 269 
1. Direction to the States ........................................................................................................... 270 
a. Setting Final Reciprocal Compensation Rates Based on Incremental Cost.................... 271 
b. Symmetry....................................................................................................................... 276

Federal Communications Commission FCC 08-262 
A-3 
c. Modifications and Suspensions under Section 251(f)(2) ................................................ 282 
d. Existing Agreements....................................................................................................... 291 
2. Revenue Recovery Opportunities.......................................................................................... 294 
a. End-User Charges ........................................................................................................... 296 
b. Universal Service Support .............................................................................................. 311 
D. Measures to Ensure Proper Billing .............................................................................................. 326 
1. Introduction ........................................................................................................................... 326 
2. Background........................................................................................................................... 327 
3. Discussion............................................................................................................................. 329 
a. Signaling Information ..................................................................................................... 330 
b. Financial Responsibilities ............................................................................................... 336 
VI. FURTHER NOTICE OF PROPOSED RULEMAKING................................................................... 343 
A. Universal Service Contributions .................................................................................................. 343 
B. Intercarrier Compensation Further Notice ................................................................................... 345 
VII. PROCEDURAL MATTERS........................................................................................................... 350 
A. Ex Parte Presentations ................................................................................................................. 350 
B. Comment Filing Procedures......................................................................................................... 351 
C. Initial Regulatory Flexibility Analysis......................................................................................... 362 
D. Final Regulatory Flexibility Analysis .......................................................................................... 363 
E. Paperwork Reduction Act ............................................................................................................ 364 
F. Accessible Formats ...................................................................................................................... 365 
G. Congressional Review Act........................................................................................................... 366 
VIII. ORDERING CLAUSES .............................................................................................................. 367 
I. INTRODUCTION 
1. In enacting the Telecommunications Act of 1996 (1996 Act),1 Congress sought to 
introduce competition into local telephone service, which traditionally was provided through regulated 
monopolies. Recognizing that in introducing such competition, it was threatening the implicit subsidy 
system that had traditionally supported universal service, it directed the Commission to reform its 
universal service program to make support explicit and sustainable in the face of developing competition. 
2. For the most part, Congresss vision has been realized. Competition in local telephone 
markets has thrived. At the same time, the communications landscape has undergone many fundamental 
changes that were scarcely anticipated when the 1996 Act was adopted. The Internet was only briefly 
mentioned in the 1996 Act,2 but now has come into widespread use, with broadband Internet access 
service increasingly viewed as a necessity. Consistent with this trend, carriers are converting from 
circuit-switched networks to Internet Protocol (IP)-based networks. These changes have benefited 
consumers and should be encouraged. Competition has resulted in dramatically lower prices for 
telephone service, and the introduction of innovative broadband products and services has fundamentally 
changed the way we communicate, work, and obtain our education, news, and entertainment. At the same 
time, however, these developments have challenged the outdated regulatory assumptions underlying our 
universal service and intercarrier compensation regimes, forcing us to reassess our existing approaches. 
We have seen unprecedented growth in the universal service fund, driven in significant part by increased 
support for competitive eligible telecommunications carriers (ETCs). The growth of competition also has 
eroded the universal service contribution base as the prices for interstate and international services have 
1 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (1996 Act). 
2 See 47 U.S.C.  230; 47 U.S.C.  157 nt.

Federal Communications Commission FCC 08-262 
A-4 
dropped. Finally, we have seen numerous competitors exploit arbitrage opportunities created by a 
patchwork of above-cost intercarrier compensation rates. Although the Commission has attempted to 
address many of these issues on a case-by-case basis, it has become increasingly clear that piecemeal 
efforts to respond to these developments are inadequateonly comprehensive reform can address the 
fundamental challenges that they present.3 
3. Today we adopt a comprehensive approach to addressing these difficult, but critical 
issues. First, we spur widespread deployment of broadband by ensuring that carriers receiving universal 
service high-cost support offer broadband throughout their service areas. Second, we help Lifeline/Link 
Up customers participate in this new broadband world by creating a pilot program to provide discounted 
access to broadband services. Third, we broaden and stabilize our universal service contribution base 
through equitable and non-discriminatory contributions. Fourth, having placed our universal service fund 
on solid footing, we now take the long-overdue step of moving toward uniform intercarrier compensation 
rates that provide efficient incentives for the investment in and use of broadband networks. Finally, our 
approach minimizes disruptions to carriers and safeguards universal service for consumers by adopting 
sensible transition plans and ensuring that universal service is used to support service in high-cost areas, 
not carriers dividends. 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT 
4. Today we take a monumental step toward our goal of ensuring that broadband is 
available to all Americans. We do this by requiring that all recipients of high-cost support offer 
broadband Internet access service to all customers within their supported areas as a condition of receiving 
future support. Taking this action will promote the deployment of broadband Internet access service to all 
areas of the nation, including high-cost, rural, and insular areas where customers may not currently have 
access to such services. In particular, as a condition of receiving continued high-cost support, we will 
require all incumbent local exchange carriers (LECs) to commit to offer broadband Internet access service 
within five years to all customers in study areas where the incumbent LECs receive high-cost support. 
Competitive eligible telecommunications carriers (ETCs) likewise will be required to commit to offer 
broadband Internet access services to all customers in their service areas within five years to continue to 
receive high-cost support, which will be distributed based on the competitive ETCs own costs. 
Competitive ETCs that do not make this commitment will not be eligible to receive high-cost support; 
incumbent LECs that do not make this commitment will gradually lose their high-cost support, as this 
support will be awarded via reverse auction to an ETC who will meet carrier of last resort obligations and 
will commit to offering broadband Internet access to all customers in the entire study area within ten 
years. With these reforms, we take great strides toward ensuring that all Americans, regardless of where 
they live, will have broadband Internet access service available to them, without increasing the size of the 
high-cost fund. 
3 We thus conclude that there is a compelling need to proceed with comprehensive reform at this time, as we 
describe below. See, e.g., infra Parts II.A, III.A, IV.A, and V.B. Given that we have notice and an extensive 
record, going back in some cases seven years, we are unpersuaded by commenters proposing that we delay reform to 
seek further comment, or that we issue a Further Notice of Proposed Rulemaking on questions beyond those raised 
in Part VI. See, e.g., Letter from Ray Baum, Chairman, NARUC Communications Committee, to Chairman Kevin 
J. Martin, et al., FCC, CC Docket Nos. 01-92, 80-286, WC Docket Nos. 08-152, 04-32, 06-122, WT Docket No. 05- 
194 at 2 (filed Oct. 21, 2008) (NARUC Oct. 21, 2008 Ex Parte Letter); Letter from Jeffery S. Lanning, Embarq, to 
Chairman Kevin J. Martin, et al., FCC, CC Docket Nos. 01-92, 99-68, WC Docket No. 04-36 at 2 (filed Oct. 28, 
2008) (Embarq Oct. 28, 2008 Ex Parte Letter); Letter from Eric N. Einhorn, Windstream, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 06-122, 07-135, 08-152 at 1 (filed October 
27, 2008) (Windstream Oct. 27, 2008 Ex Parte Letter).

Federal Communications Commission FCC 08-262 
A-5 
A. Background 
5. The 1996 Act amended the Communications Act of 1934 (the Act) with respect to the 
provision of universal service.4 Congress sought to preserve and advance universal service, while at the 
same time opening all telecommunications markets to competition.5 Section 254(b) of the Act directs the 
Federal-State Joint Board on Universal Service (Joint Board) and the Commission to base policies for the 
preservation and advancement of universal service on several general principles, plus other principles that 
the Commission may establish.6 Among other things, section 254(b) directs that there should be specific, 
predictable, and sufficient federal and state universal service support mechanisms; quality services should 
be available at just, reasonable, and affordable rates; and access to advanced telecommunications and 
information services should be provided in all regions of the nation.7 
6. The Commission implemented the universal service provisions of the 1996 Act in the 
1997 Universal Service First Report and Order.8 In considering methods to determine universal service 
support in rural, insular, and high-cost areas, the Commission examined the use of competitive bidding, 
and identified several advantages of competitive bidding as a method for allocating high-cost universal 
service support.9 First, the Commission found that a compelling reason to use competitive bidding is its 
potential as a market-based approach to determining universal service support, if any, for any given 
area.10 Second, by encouraging more efficient carriers to submit bids reflecting their lower costs, 
another advantage of a properly structured competitive bidding system would be its ability to reduce the 
amount of support needed for universal service.11 Despite these advantages, the Commission determined 
that the record at the time was insufficient to support adoption of a competitive bidding mechanism.12 
Moreover, the Commission found it unlikely that competitive bidding mechanisms would be useful at that 
time because there likely would be no competition in a significant number of rural, insular, or high-cost 
areas in the near future.13 The Commission, therefore, declined to adopt a competitive bidding 
mechanism at that time, but found that competitive bidding warranted further consideration as a potential 
4 47 U.S.C.  254 (added by the 1996 Act). 
5 47 U.S.C.  254. 
6 See 47 U.S.C.  254(b). 
7 47 U.S.C.  254(b)(1), (2), (5). 
8 See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 
878088, paras. 120 (1997) (Universal Service First Report and Order) (subsequent history omitted). 
9 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320. 
10 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (agreeing with the Joint Board). The 
Commission also agreed with the Joint Board that competitive bidding is consistent with section 254, and comports 
with the intent of the 1996 Act to rely on market forces and to minimize regulation. Id. at 8951, para. 325. 
11 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (In that regard, the bidding process 
should also capture the efficiency gains from new technologies or improved productivity, converting them into cost 
savings for universal service.). 
12 See Universal Service First Report and Order, 12 FCC Rcd at 894950, paras. 32223. Only GTE had proposed 
a detailed competitive bidding plan, which it characterized as an outline rather than a final proposal. See GTEs 
Comments in Response to Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996). 
13 See Universal Service First Report and Order, 12 FCC Rcd at 8950, para. 324.

Federal Communications Commission FCC 08-262 
A-6 
mechanism for determining levels of high-cost support in the future.14 
7. Pursuant to section 254(e) of the Act, an entity must be designated as an eligible 
telecommunications carrier (ETC) to receive high-cost universal service support.15 ETCs may be 
incumbent LECs, or non-incumbent LECs, which are referred to as competitive ETCs.16 Under the 
existing high-cost support distribution mechanism, incumbent LEC ETCs receive high-cost support for 
their intrastate services based on their costs.17 Competitive ETCs, on the other hand, receive support for 
each of their lines based on the per-line support the incumbent LEC receives in the service area.18 This 
support to competitive ETCs is known as identical support. The Commissions universal service highcost 
support rules do not distinguish between primary and secondary lines; therefore, high-cost support 
may go to a single end user for multiple connections.19 Further, the Commissions rules may result in 
multiple competitors in the same high-cost area receiving identical per-line support. 
8. High-cost support for competitive ETCs has grown rapidly over the last several years, 
which has placed extraordinary pressure on the federal universal service fund.20 In 2001, high-cost 
universal service support totaled approximately $2.6 billion.21 By 2007, the amount of high-cost support 
had grown to approximately $4.3 billion per year.22 In recent years, this growth has been due mostly to 
increased support provided to competitive ETCs, which pursuant to the identical support rule receive 
14 See Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320. 
15 47 U.S.C.  254(e). The statutory requirements for ETC designation are set out in section 214(e) of the 
Communications Act of 1934, as amended (Communications Act or Act). 47 U.S.C.  214(e). 
16 See 47 C.F.R.  54.5 (A competitive eligible telecommunications carrier is a carrier that meets the definition of 
eligible telecommunications carrier below and does not meet the definition of an incumbent local exchange 
carrier in  51.5 of this chapter.). 
17 Non-rural incumbent LEC ETCs receive support for their intrastate supported services based on the forwardlooking 
economic cost of providing the services. 47 C.F.R.  54.309. Rural incumbent LEC ETCs receive support 
based on their loop costs, as compared to a national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R.  54.305. 
Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines receive support based on their local 
switching costs. 47 C.F.R.  54.301. Additionally, incumbent LEC ETCs that are subject to price cap or rate-ofreturn 
regulation receive interstate access support based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, 
K. 
18 47 C.F.R.  54.307(a). 
19 See Universal Service First Report and Order, 12 FCC Rcd at 882830, paras. 9496. 
20 Support for the fund derives from assessments paid by providers of interstate telecommunications services and 
certain other providers of interstate telecommunications. See 47 C.F.R.  54.706. Fund contributors are permitted 
to, and almost always do, pass those assessments though to their end-user customers. See 47 C.F.R.  54.712. Fund 
assessments paid by contributors are determined by applying the quarterly contribution factor to the contributors 
contribution base revenues. In the second quarter of 2007, the contribution factor reached 11.7%, which is the 
highest level since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor has since declined 
to 11.4% in the fourth quarter of 2008. Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008). 
21 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 3.2 (2007) (2007 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf. 
22 UNIVERSAL SERVICE ADMINISTRATIVE COMPANY, 2007 ANNUAL REPORT 43 (2007) (USAC 2007 ANNUAL 
REPORT), available at http://www.usac.org/_res/documents/about/pdf/usac-annual-report-2007.pdf. 

Federal Communications Commission FCC 08-262 
A-7 
high-cost support based on the incumbent LECs per-line support. Competitive ETC support, in the six 
years from 2001 through 2007, has grown from under $17 million to $1.18 billionan annual growth rate 
of over 100 percent.23 This funded competition has grown significantly in a large number of rural, 
insular, or high-cost areas; in some study areas, more than 20 competitive ETCs currently receive 
support.24 
9. To address the growth in competitive ETC support, the Joint Board recommended an 
interim cap on the amount of high-cost support available to competitive ETCs, pending comprehensive 
high-cost universal service reform. The Commission adopted this recommendation in 2008.25 
10. For the past several years, the Joint Board and the Commission have been exploring ways 
to reform the Commissions high-cost program. In the most recent high-cost support comprehensive 
reform efforts, the Joint Board issued a recommended decision on November 20, 2007.26 The Joint Board 
recommended that the Commission address reforms to the high-cost program and make fundamental 
revisions in the structure of existing Universal Service mechanisms.27 Specifically, the Joint Board 
recommended that the Commission should: (1) deliver high-cost support through a provider of last resort 
fund, a mobility fund, and a broadband fund28; (2) cap the high-cost fund at $4.5 billion, the approximate 
level of 2007 high-cost support29; (3) reduce the existing funding mechanisms during a transition period30; 
(4) add broadband and mobility to the list of services eligible for support under section 254 of the Act31; 
(5) eliminate the identical support rule32; and (6) explore the most appropriate auction mechanisms to 
determine high-cost universal service support.33 
23 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 3.2; USAC 2007 ANNUAL REPORT at 45. 
24 See USAC Quarterly Administrative Filings for 2008, Fourth Quarter (4Q) Appendices, HC03Rural Study 
Areas with Competition4Q2008, available at http://www.usac.org/about/governance/fccfilings/
2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls (showing 
24 competitive ETCs in the study area of incumbent LEC Iowa Telecom North (study area code 351167), and 22 
competitive ETCs in the study area of incumbent LEC Iowa Telecom Systems (study area code 351170)). 
25 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No.96-45, Recommended Decision, 22 FCC Rcd 8998, 89999001, paras. 47 (JB 2007) (Interim Cap 
Recommended Decision); High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, 
WC Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834 (2008) (Interim Cap Order). As 
recommended by the Joint Board, the Commission capped competitive ETC support for each state. Interim Cap 
Recommended Decision, 22 FCC Rcd at 9002, para. 9; Interim Cap Order, 23 FCC Rcd at 8846, paras. 2628. The 
Commission set the cap at the level of support competitive ETCs were eligible to receive during March 2008. 
Interim Cap Order, 23 FCC Rcd at 8850, para. 38. 
26 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (Comprehensive Reform 
Recommended Decision). 
27 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 1. 
28 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048081, para. 11. 
29 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. 
30 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 27. 
31 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048182, paras. 1218. 
32 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20486, para. 35. 
33 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, paras. 16.

Federal Communications Commission FCC 08-262 
A-8 
11. On January 29, 2008, the Commission released three notices of proposed rulemaking 
addressing proposals for comprehensive reform of high-cost universal service support.34 In the Identical 
Support NPRM, the Commission sought comment on the Commissions rules governing the amount of 
high-cost universal service support provided to competitive ETCs.35 It tentatively concluded that the 
Commission should eliminate the identical support rule.36 The Commission also tentatively concluded 
that support to a competitive ETC should be based on the competitive ETCs own costs of providing the 
supported services, and it sought comment on how the support should be calculated, the reporting 
obligations to be applied, and whether the Commission should cap such support at the level of the 
incumbent LECs support.37 In the Reverse Auctions NPRM, the Commission tentatively concluded that 
reverse auctions offer several potential advantages over current high-cost mechanisms and sought 
comment on whether they should be used as the disbursement mechanism to determine the amount of 
high-cost universal service support for ETCs serving rural, insular, and high-cost areas, and it sought 
comment on how to implement reverse auctions for this purpose.38 The Commission also sought 
comment on a number of specific issues regarding auctions and auction design.39 The Commission also 
released the Joint Board Comprehensive Reform NPRM, seeking comment on the Joint Boards 
Comprehensive Reform Recommended Decision and incorporating by reference the Identical Support 
NPRM and the Reverse Auctions NPRM.40 The discussion that follows represents our response to the 
Joint Boards Comprehensive Reform Recommended Decision, pursuant to section 254(a)(2).41 
B. Discussion 
12. Today we comprehensively reform the high-cost universal service support mechanism, 
and take steps to ensure that broadband Internet access service is deployed quickly to all areas of the 
country, including rural and insular areas. The steps we take today will provide certainty to providers as 
to the levels of support available to them in providing supported services and broadband Internet access 
service to all customers within the supported areas. This will assist providers in creating business plans to 
deploy services in currently unserved areas and will ensure efficiency in the deployment of services to 
these areas. Specifically, we are defining the level of high-cost support available to providers that commit 
to offer broadband to all customers within a service area. Support in incumbent LEC service areas will be 
34 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (Identical Support NPRM); High- 
Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC 
Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008) (Reverse Auctions NPRM); High-Cost 
Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC Docket 
No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1531 (2008) (Joint Board Comprehensive Reform NPRM) 
(collectively the High-Cost Reform NPRMs). 
35 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1. 
36 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1. 
37 Identical Support NPRM, 23 FCC Rcd at 147378, paras. 1225. 
38 Reverse Auctions NPRM, 23 FCC Rcd at 1495, para. 1. 
39 Reverse Auctions NPRM, 23 FCC Rcd at 150012, paras. 1050. 
40 Joint Board Comprehensive Reform NPRM, 23 FCC Rcd at 1531, para. 1. 
41 47 U.S.C.  254(a)(2). Pursuant to that section, the Commission shall complete any proceeding to implement a 
Joint Board recommendation within one year after receiving it. The Commission has acted on the Comprehensive 
Reform Recommended Decision prior to the November 20, 2008 one-year statutory deadline.

Federal Communications Commission FCC 08-262 
A-9 
set at the total amount of high-cost support disbursed to the incumbent LEC ETC in December 2008 on 
an annualized basis. Incumbent LEC ETCs will continue to receive this level of support if they commit to 
offer broadband Internet access services to all customers within the service area within five years. If an 
incumbent LEC does not make this broadband commitment for a particular service area, the support will 
be transitioned to the winning bidder of a reverse auction that will commit to deploy broadband 
throughout the service area within ten years, and to take on carrier of last resort obligations. Competitive 
ETCs will receive high-cost support, based on their own costs as compared to the relevant high-cost 
support thresholds, so long as they, too, commit to offer broadband Internet access service to all 
customers in their service areas within five years. While ensuring that broadband Internet access service 
is made available to customers in rural and high-cost areas, we also cap the overall size of the high-cost 
mechanism to protect customers in all areas of the nation from increasing universal service contribution 
assessments. 
13. The requirements that we adopt for disbursement of high-cost universal service support 
do not apply to providers operating in Alaska, Hawaii, or any U.S. Territories and possessions.42 We find 
that these areas have very different attributes and related cost issues than do the continental states.43 For 
this reason, we are exempting providers in Alaska, Hawaii and U.S. Territories or possessions from the 
high-cost support requirements and rules adopted herein, and we will address them in a subsequent 
proceeding.44 
1. Controlling the Growth of the High-Cost Fund 
14. Consistent with the recommendation of the Joint Board, we cap the total amount of high- 
42 Providers operating in U.S. Territories and possessions, such as Puerto Rico and Guam, are not subject to the 
high-cost support requirements adopted in this order. See Letter from Earl Comstock, Comstock Consulting LLC, to 
Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-377 at 1 (dated Oct. 15, 2008) (asking 
the Commission to recognize the higher costs and lower income levels in Puerto Rico in any reform efforts it may 
take); Letter from Eric N. Votaw, Vice President-Marketing & Regulatory, GTA Telecom, Inc., to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-45, WC Docket No. 05-337 at 12 (filed Oct. 24, 2008) (asking 
the Commission to recognize that Guams costs are higher than the continental United States and that Guam should 
be treated separately, along with Alaska and Hawaii, for reform purposes). 
43 E.g., Verizon Commcns, Inc., Transferor, and Amrica Mvil, S.A. de C.V., Transferee, WT Docket No. 06-113, 
Memorandum Opinion and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36 (2007) 
(Verizon/Amrica Mvil Transfer Order) (describing difficult to serve terrain and dramatic urban/rural differences 
in Puerto Rico); Integration of Rates and Services for Provision of Communications by Authorized Common 
Carriers between the Contiguous States and Alaska, Hawaii, Puerto Rico and the Virgin Islands, CC Docket No. 
83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd 395, 396, paras. 78 (1989) (Rates and Services 
Integration Order) (describing the unique market conditions and structure in Alaska); Letter from Brita D. 
Strandberg, Counsel for General Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01- 
92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008) (discussing Alaskas particular service needs and network 
architecture). 
44 Cf. The Establishment of Policies and Service Rules for the Broadcasting-Satellite Service at the 17.3-17.7 GHz 
Frequency Band and at the 17.7-17.8 GHz Frequency Band Internationally, and at the 24.75-25.25 GHz Frequency 
Band for Fixed Satellite Services Providing Feeder Links to the Broadcasting-Satellite Service and for the Satellite 
Services Operating Bi-directionally in the 17.3-17.8 GHz Frequency Band, IB Docket No. 06-123, Report and Order 
and Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para. 47 (2007) (Policies and Service Rules 
for the Broadcasting-Satellite Service Order) (The Commission is committed to establishing policies and rules that 
will promote service to all regions in the United States, particularly to traditionally underserved areas, such as 
Alaska and Hawaii, and other remote areas.).

Federal Communications Commission FCC 08-262 
A-10 
cost universal service support.45 As the Joint Board recognized, high-cost support currently accounts for 
more than half of total federal universal service support.46 Since 1997, when the Commission 
implemented the universal service requirements of section 254 of the Act, high-cost support has increased 
by 240 percent.47 Although, earlier this year, we took an initial step to address high-cost fund growth by 
capping support to competitive ETCs, that cap was an interim, emergency measure, pending a closer 
examination of the steps necessary to achieve comprehensive reform.48 Many commenters have urged the 
Commission to cap the overall amount of high-cost support, rather than limiting the cap only to 
competitive ETCs.49 Although other commenters oppose the adoption of a cap on the total amount of 
high-cost support or on the amount of support available to incumbent LEC ETCs,50 we find that, to 
manage the high-cost support mechanism effectively, we must control its growth, and that capping 
support in the manner discussed below will provide specific, predictable, and sufficient support to 
preserve and advance universal service.51 
45 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, 20481, 20484, paras. 2, 11, 26. 
46 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. In 2007, total federal universal 
service disbursements amounted to approximately $6.95 billion. Of that amount, approximately $4.29 billion, 62%, 
was disbursed as high-cost support. USAC 2007 ANNUAL REPORT at 51. 
47 See 2007 UNIVERSAL SERVICE MONITORING REPORT at 3-14, tbl. 3.1 (high-cost support in 1997 was 
approximately $1.26 billion, compared with approximately $4.29 billion in 2007). Even taking into account the fact 
that additional interstate support mechanisms, Interstate Access Support (IAS) and Interstate Common Line Support 
(ICLS), were created in 2000 and 2001, respectively, high-cost support has still increased by more than 45%, from 
approximately $2.94 billion in 2002 to its current level of approximately $4.29 billion. Id. 
48 See Interim Cap Order, 23 FCC Rcd at 8834, para. 1. 
49 See CenturyTel High-Cost Reform NPRMs Comments at 18 (existing high-cost support mechanisms should be 
frozen at the study area level or on a statewide basis to provide funding certainty and encourage investment); 
Chinook High-Cost Reform NPRMs Comments, Attach. at 56 (any cap on universal service support should apply to 
all ETCs, including incumbent LECs); Connecticut Dept of Pub. Util. Control High-Cost Reform NPRMs 
Comments at 5 (supporting a cap on high-cost support set at the 2007 level); Florida PSC High-Cost Reform NPRMs 
Comments at 2 (supporting the recommendation to cap the overall size of the high-cost fund); Information 
Technology Industry Council (ITI) High-Cost Reform NPRMs Comments at 7 (an overall cap should be applied to 
control the size of the high-cost mechanism); NCTA High-Cost Reform NPRMs Comments at 19 (the Joint Boards 
proposal to cap the overall size of the high-cost mechanism is a welcome dose of fiscal responsibility); National 
Consumer Law Center Joint Board Comprehensive Reform NPRM Comments at 23 (supporting the Joint Boards 
proposal to cap the overall high-cost fund); Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 23, 
69 (Commission should cap the overall high-cost fund). 
50 See Frontier High-Cost Reform NPRMs Comments at 67; JSI High-Cost Reform NPRMs Comments at 6; 
Montana Telecommunications Assn High-Cost Reform NPRMs Comments at 2122; NECA High-Cost Reform 
NPRMs Comments at 1720; TCA High-Cost Reform NPRMs Comments at 1011; TDS High-Cost Reform NPRMs 
Comments at 89; Missouri Small Telephone Company Group (MSTC) High-Cost Reform NPRMs Reply at 57; 
Utah Rural Telecom Assn High-Cost Reform NPRMs Reply at 5. 
51 47 U.S.C.  254(b)(5); see CenturyTel High-Cost Reform NPRMs Comments at 18; Comcast High-Cost Reform 
NPRMs Comments at 3, 11; Florida PSC High-Cost Reform NPRMs Comments at 89; National Consumer Law 
Center Joint Board Comprehensive Reform NPRM Comments at 2; NCTA High-Cost Reform NPRMs Comments at 
46; New Jersey Division of Rate Counsel High-Cost Reform NPRMs Comments at 5254; Oregon PUC High-Cost 
Reform NPRMs Comments at 23; Sprint Nextel High-Cost Reform NPRMs Comments at 3; USTelecom High-Cost 
Reform NPRMs Comments at 2; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 7; New Jersey 
Division of Rate Counsel High-Cost Reform NPRMs Reply at 6465; Sprint Nextel High-Cost Reform NPRMs 
Reply at 89; State Commissioners High-Cost Reform NPRMs Reply at 2; Texas Office of Public Utility Counsel 
(continued.)

Federal Communications Commission FCC 08-262 
A-11 
15. We find it necessary to cap the high-cost mechanism as a first step toward fulfilling our 
statutory obligation to create specific, predictable and sufficient universal service support mechanisms.52 
As the United States Court of Appeals for the Fifth Circuit held in Alenco: [t]he agencys broad 
discretion to provide sufficient universal service funding includes the decision to impose cost controls to 
avoid excessive expenditures that will detract from universal service.53 The Alenco court also found that 
excessive funding may itself violate the sufficiency requirements,54 and the United States Court of 
Appeals for the Tenth Circuit has stated that excessive subsidization arguably may affect the 
affordability of telecommunications services, thus violating the principle in [section] 254(b)(1).55 Given 
the excessive growth in high-cost support, we find it necessary to cap this mechanism to ensure that 
unsubsidized users who contribute to the fund are not harmed by excessive subsidization. 
16. Therefore, we take several steps to limit the growth of high-cost support. First, we cap 
the overall high-cost fund at the total amount of high-cost support disbursed by the Universal Service 
Administrative Company (USAC) for December 2008 on an annualized basis, net of any prior or past 
period adjustments. Although we agree with the Joint Boards recommendation to cap the high-cost 
mechanism, rather than set such a cap at the 2007 level of high-cost support as the Joint Board 
recommended, we find it is more appropriate to set the cap at the level of support disbursed by USAC in 
December 2008 on an annualized basis. Furthermore, we freeze each incumbent LEC ETCs individual, 
annual high-cost support at the amount of support, on a lump sum basis, that the ETC received in 
December 2008 annualized, net of any prior or past period adjustments, on a study area or service area 
basis.56 
17. As discussed below, we also eliminate the identical support rule for competitive ETCs. 
Competitive ETCs support levels will be based on their costs as compared to the relevant high-cost 
support mechanism benchmarks, and frozen at the amount of support, on a lump sum basis, that the 
competitive ETC received in 2008 on a study area basis.57 
18. Consistent with section 254(b)(5) of the Act, we find that capping high-cost support in 
this manner will enable ETCs to predict the specific level of support that they will receive should they 
(continued from previous page) 
Joint Board Comprehensive Reform NPRM Reply at 2; Virgin Mobile High-Cost Reform NPRMs Reply at 34. The 
Commission has already implemented caps on the schools and libraries and rural health care universal service 
mechanisms. Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a 
$2.25 billion annual cap for the schools and libraries mechanism and a $400 million annual cap for the rural health 
care mechanism); see also 47 C.F.R.  54.507(a), 54.623(a). 
52 47 U.S.C.  254(b)(5); see also Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 
704. 
53 Alenco Commcns, Inc. v. FCC, 201 F.3d 608, 62021 (5th Cir. 2000) (Alenco). 
54 Alenco, 201 F.3d at 620. 
55 Qwest Commcns Intl Inc. v. FCC, 398 F.3d 1222, 1234 (10th Cir. 2005). 
56 Pursuant to section 214(e)(5) of the Act, the term service area is used to refer to the geographic area established 
by a state commission or this Commission for the purpose of determining universal service obligations and support 
mechanisms. 47 U.S.C.  214(e)(5). For a rural telephone company, section 214(e)(5) states that service area 
shall mean the rural companys study area unless and until the Commission and the states establish a different 
definition of service area for such company. Id. In this order, we use the terms service area and study area 
interchangeably. Nothing in this order is meant to change any redefinitions of service area previously established by 
the Commission and/or the state commissions. 
57 See infra paras. 5356.

Federal Communications Commission FCC 08-262 
A-12 
choose to participate in the program.58 To the extent that an incumbent LEC ETC determines that it 
cannot offer broadband Internet access service throughout its service area at the specified level of support, 
as discussed below, that particular study area will be deemed an Unserved Study Area, and we will 
conduct a reverse auction to determine the entity capable of meeting our service requirements and the 
amount of support to provide for that area. In fact, through the reverse auction process, it will be the 
bidders, not the Commission, that determine how much support they would need to offer service. Finally, 
as discussed below, if the reverse auction process does not yield a winning bidder, the Commission will 
reexamine whether it needs to take further action with regard to this situation, should it arise. 
2. Conditioning Support on Offering Broadband Internet Access Service 
19. The broadband era is here. Those of us who have broadband Internet access service use 
it to communicate, to work, to get vital information, to be educated, and to be entertained. Broadband 
Internet access servicea novelty at the time of the passage of the 1996 Actis now mainstream. Yet 
some Americans still lack access to this vital service, and as Commissioner Copps has said, does 
America at the beginning of the 21st century become technologically stagnant or the leader of the Digital 
Age? For me, the answer to that question depends in some significant measure upon whether we succeed 
in bringing high-speed, high-value broadband and an open Internet to all Americans . . . rural as well as 
urban folks . . . .59 
20. Today, we modify our high-cost support system fundamentally to spur deployment and 
ensure that all Americans have access to broadband. Specifically, we make offering broadband Internet 
access service a condition of being eligible to receive high-cost support. As we explain below, we will 
require all incumbent LECs to certify whether or not they will commit to offering broadband Internet 
access throughout their supported study areas in five years.60 Those who make that commitment will 
continue to receive their current levels of support. Existing competitive ETCs likewise will have the 
opportunity to commit to offering broadband Internet access service throughout their supported service 
areas, and will be eligible to receive high-cost support based on their actual costs. Auction winners, as 
well, must commit to offering broadband Internet access service throughout their supported areas as a 
58 47 U.S.C.  254(b)(5). 
59 Remarks of Commissioner Michael J. Copps, Pike & Fischers Broadband Policy Summit IV, Washington, DC 
(June 12, 2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-282890A1.pdf. 
60 See supra note 56 (explaining use of the terms study area and service area in this order). We understand the 
concern of commenters who point out the need for more granular information on broadband availability. See 
Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20481, para. 13; see also Comcast High-Cost 
Reform NPRMs Comments at 1316; GCI High-Cost Reform NPRMs Comments at 3436; NCTA High-Cost 
Reform NPRMs Comments at 20; New Jersey Rate Counsel High-Cost Reform NPRMs Comments at 2122; New 
York State PSC Joint Board Comprehensive Reform NPRM Comments at 1, 56; TCA High-Cost Reform NPRMs 
Comments at 1112; USTelecom High-Cost Reform NPRMs Comments at 36; Embarq High-Cost Reform NPRMs 
Reply at 810. The Commission has recently undertaken a major effort to gather more specific and granular data 
about broadband subscribership and availability. See Development of Nationwide Broadband Data to Evaluate 
Reasonable and Timely Deployment of Advanced Services to All Americans, Improvement of Wireless Broadband 
Subscribership Data, and Development of Data on Interconnected Voice over Internet Protocol (VoIP) 
Subscribership, WC Docket No. 07-38, Report and Order and Further Notice of Proposed Rulemaking, 23 FCC Rcd 
9691, 970809, paras. 3435 (2008) (Broadband Data Gathering Order) (seeking comment on, among other things, 
adopting a national broadband mapping program). We believe our refined broadband data gathering program will 
help all of us better assess where our broadband availability needs are greatest. For purposes of implementing the 
broadband deployment program of this order, we ask incumbent LECs to identify where they will and will not 
commit to broadband availability, thus identifying where we need to proceed to a reverse auction.

Federal Communications Commission FCC 08-262 
A-13 
condition of receiving even initial support. In other words, all ETCs are subject to the same basic 
obligationto offer broadband Internet access throughout their supported service areas. We also explain 
the obligations related to this condition, including carrier-of-last-resort-type obligations. 
21. We believe that imposing this condition on the receipt of high-cost support is fully 
consistent with and indeed promotes Congresss overall objectives as stated in section 254 of the 
Communications Act and section 706 of the 1996 Act.61 Section 254(b)(2) of the Act instructs the 
Commission to base policies for the advancement of universal service on the principle that [a]ccess to 
advanced telecommunications and information services should be provided in all regions of the 
Nation.62 Similarly, section 254(b)(3) states that [c]onsumers . . . in rural, insular, and high-cost areas, 
should have access to . . . advanced telecommunications and information services, that are reasonably 
comparable to those services provided in urban areas and that are available at rates charged for similar 
services in urban areas.63 Indeed, Congress even established the definition of universal service as an 
evolving level of telecommunications services . . . taking into account advances in telecommunications 
and information technologies and services.64 We believe that imposing a broadband condition on receipt 
of high-cost support advances the general purposes of section 254 of the Act as just described and also 
advances Congresss objective stated in section 706 of the 1996 Act to encourage the deployment on a 
reasonable and timely basis of advanced telecommunications capability to all Americans.65 We also see 
no reason why conditioning the receipt of high-cost support on offering broadband Internet access service 
is not permissible under the Commissions authority to promulgate general rules related to universal 
service.66 
22. Broadband Internet Access As a Condition to Receiving High-Cost Support. Consistent 
61 47 U.S.C.  157 nt, 254. Some commenters suggest that adding broadband Internet access service to the list of 
supported services would be inconsistent with section 254(c)(1) of the Act because broadband Internet access 
service is an information service, not a telecommunications service. See SouthernLINC High-Cost Reform NPRMs 
Comments at 3031; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 3132; SouthernLINC 
High-Cost Reform NPRMs Reply at 4243; Sprint Nextel High-Cost Reform NPRMs Reply at 1617. Using the 
universal service program to ensure universal broadband availability, however, is fully consistent with the statute as 
explained above. In addition, section 254(c)(2) provides that [t]he Joint Board may, from time to time, recommend 
to the Commission modifications in the definition of the services that are supported by Federal universal service 
support mechanisms. 47 U.S.C.  254(c)(2). The Joint Board did just that in the Comprehensive Reform 
Recommended Decision, in which it recommended that we add broadband Internet access service to the list of 
services eligible for support under section 254. See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 
20491, para. 56. In this order, we achieve the Joint Boards goal by conditioning receipt of federal high-cost support 
on an ETCs commitment to offer broadband Internet access service throughout its service area, but we do not add 
broadband Internet access service to the list of universal service supported services. 
62 47 U.S.C.  254(b)(2) (emphasis added). 
63 47 U.S.C.  254(b)(3) (emphasis added). 
64 47 U.S.C.  254(c)(1) (emphasis added). 
65 47 U.S.C.  157 nt, 254. 
66 The Commission has previously considered imposing conditions on the receipt of high-cost support. See 
Universal Service First Report and Order, 12 FCC Rcd at 8831, para. 98. And of course, todays recipients of highcost 
support must comply with many obligations that are not explicitly spelled out in the statute. For example, to be 
designated as an ETC, an applicant must demonstrate that it has back-up power. See Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Report and Order, 20 FCC Rcd 6371, 6382, para. 25 (2005) (ETC 
Designation Order).

Federal Communications Commission FCC 08-262 
A-14 
with the objectives of sections 254 and 706 as just described, all ETCs must offer broadband Internet 
access service to all customers in their supported service areas as a condition of receiving universal 
service high-cost support. Since the Commission adopted universal service rules in response to the 1996 
Act, broadband Internet access service has evolved into a critical service for American consumers. The 
importance of this evolution is reflected in Congresss recent finding that [t]he deployment and adoption 
of broadband technology has resulted in enhanced economic development and public safety for 
communities across the Nation, improved heath care and education opportunities, and a better quality of 
life for all Americans, [and] [c]ontinued progress in the deployment and adoption of broadband 
technology is vital to ensuring that our Nation remains competitive and continues to create business and 
job growth.67 The majority of consumers who use broadband Internet access service today rely on it for 
telework, access to banking services, interaction with government, entertainment, shopping, access to 
news and other information, and so many other uses.68 Broadband Internet access plays a special role in 
rural areas, reducing the burdens of distance.69 For example, high-speed connections to the Internet allow 
children in rural areas to have access to the same information as school children in urban areas. 
Telemedicine networks made possible by broadband Internet access service also save lives and improve 
the standard of healthcare in sparsely populated, rural areas that may lack access to the breadth of medical 
expertise and advanced medical technologies available in other areas.70 Broadband service also enables 
the sharing of critical, time-sensitive information with first responders, government officials, and health 
care providers, thereby improving the governments ability to provide a comprehensive and cohesive 
response to a public health crisis in coordination.71 
67 Broadband Data Improvement Act, Pub. L. No. 100-385, 122 Stat. 4096,  102(1)(2) (2008). 
68 A recent survey finds that, compared to Internet users with dial-up service at home, those with broadband service 
at home are far more likely to engage in 14 different types of Internet-related activities on a typical day. These 
activities include using an online search engine, checking for weather reports, getting news, visiting a state or local 
government Web site, obtaining job information, watching a video, and downloading a podcast. The daily use of a 
search engine, for example, is reported by 57% of the broadband users as compared to only 26% of the dial-up users. 
See JOHN B. HORRIGAN, PEW INTERNET & AMERICAN LIFE PROJECT, HOME BROADBAND ADOPTION 2008 at 19 
(2008) (2008 PEW BROADBAND ADOPTION STUDY), available at 
http://www.pewinternet.org/pdfs/PIP_Broadband_2008.pdf. 
69 For example, the California Broadband Task Force Report finds broadband service critical to expanding job 
opportunities for rural residents. It observes, for example, that broadband has facilitated the use of homeshoring, 
or the use of home-based workers for providing customer service, instead of requiring employees to adhere to a 
strict work schedule at a centralized location. This report also finds that broadband offers farmers better access to 
market information and allows them to expand their potential customer base. See FINAL REPORT OF THE 
CALIFORNIA BROADBAND TASK FORCE at 13 (Jan. 2008) (CALIFORNIA 2008 BROADBAND REPORT), available at 
http://www.calink.ca.gov/taskforcereport/. 
70 See Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111, 11112, para. 5 
(2006); see also SUSANNAH FOX, PEW INTERNET & AMERICAN LIFE PROJECT, THE ENGAGED E-PATIENT 
POPULATION at 1 (2008) (finding that home broadband users are twice as likely as home dial-up users to do health 
research on a typical day), available at http://www.pewinternet.org/pdfs/PIP_Health_Aug08.pdf. 
71 A recent report to Congress concludes that [m]odern broadband communications networks and applications 
present an enormous opportunity to radically improve the manner in which emergency information is shared by 
health officials. Broadband services enable bandwidth intensive information such as video, pictures, and graphics to 
be transmitted faster and in a more reliable and secure manner. JOINT ADVISORY COMMITTEE ON 
COMMUNICATIONS CAPABILITIES OF EMERGENCY MEDICAL AND PUBLIC HEALTH CARE FACILITIES, REPORT TO 
CONGRESS 2 (Feb. 4, 2008), available at 
http://energycommerce.house.gov/Press_110/JAC.Report_FINAL%20Jan.3.2008.pdf. 

Federal Communications Commission FCC 08-262 
A-15 
23. Despite the advances in broadband technology and the deployment of infrastructure to 
accommodate higher bandwidth speeds, ubiquitous broadband availability does not exist throughout the 
nationespecially for those consumers in rural areas.72 In March 2008, the Commissions most recent 
data revealed that more than half of the households in the United States now subscribe to a high-speed 
service provider and at least one high-speed service provider is providing service in excess of 200 kbps in 
at least one direction in 99.9 percent of zip codes in the country.73 The broadband subscription rate is 
much lower in rural areas, however. A 2008 survey finds that the percentage of rural households 
subscribing to broadband service is only 38 percentwell below the 57 percent and 60 percent 
subscription rates found in urban and suburban areas, respectively.74 This survey concludes that the lack 
of broadband availability very likely accounts for some of this disparity.75 Moreover, this conclusion is 
consistent with the results of residential surveys in several states.76 We find that making the offering of 
broadband Internet access service a condition of receiving universal service high-cost support can bring 
this critical service to the remainder of Americans who await its deployment.77 In addition, doing so will 
further the objective of section 254(b)(3) that consumers in rural, insular, and high-cost areas have access 
72 See, e.g., Cellular South High-Cost Reform NPRMs Comments at 10; see also generally 2008 PEW BROADBAND 
ADOPTION STUDY at 1112. 
73 See FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF DECEMBER 31, 2006, tbl. 15 (2007), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf. 
74 See 2008 PEW BROADBAND ADOPTION STUDY at 34. The survey was conducted by phone from April 8, 2008 to 
May 11, 2008 among 2,251 American adults, 1,153 of whom were broadband users. Id. 
75 Pew acknowledges that the participants in its 2008 survey may report incorrectly as to whether broadband service 
is available where they live. 2008 PEW BROADBAND ADOPTION STUDY at 11. Pew nonetheless concludes that the 
fact that rural residents are more likely to report that broadband isnt available where they live indicates that 
infrastructure availability comes into play in broadband adoption. Some 28% of rural adult Americans without 
home high-speed say broadband isnt available where they live, in contrast to 22% of non-rural Americans without 
broadband who say this. Moreover, 24% of dial-up users in rural areas say having the service available where they 
live would prompt a switch to broadband; this compares to the 14% figure for all respondents. Id. at 1112. 
76 In Ohio, a March 2008 survey of 1,200 residents found broadband service available in 96% of urban homes but in 
only 79% of rural homes. See CONNECT OHIO TECHNOLOGY ASSESSMENT: EXECUTIVE SUMMARY at 2 (June 27, 
2008), available at http://connectoh.org/_documents/Res_OHExecutiveSummary06252008_FINAL.pdf. In 
California, a state-commissioned task force recently found that approximately 500,000 California households, or 
almost 1.4 million California residents, are unable to subscribe to broadband service with a speed of at least 500 
kbps. The task force identified 1,975 communities without broadband service and concluded that many California 
communities do not have access to the higher broadband speeds. See CALIFORNIA 2008 BROADBAND REPORT at 33. 
In Tennessee, a July 2007 survey of 1,787 residents having dial-up service at home found that 36% of them did not 
subscribe to broadband service because it was unavailable to their homes. See CONNECTED TENNESSEE, TENNESSEE 
RESIDENTIAL CONSUMERS at 22 (2007), available at 
http://www.connectedtn.org/_documents/CTResidentialSurvey100107.FINAL.pdf. 
77 We disagree with commenters who suggest that it is premature or ill-advised to require all ETCs to offer 
broadband because, as discussed below, we do so in a manner that does not increase the size of the high-cost fund. 
See, e.g., SouthernLINC High-Cost Reform NPRMs Comments at 30; Sprint Nextel High-Cost Reform NPRMs 
Comments at 1617; USTelecom High-Cost Reform NPRMs Comments at 3334; Western Telecomms. Alliance 
(WTA) High-Cost Reform NPRMs Comments at 73; SouthernLINC High-Cost Reform NPRMs Reply at 41. 
Similarly, we disagree with commenters who argue that government action at the current time would be wasteful as 
the market is already taking steps to reach currently underserved areas. See, e.g., NCTA High-Cost Reform NPRMs 
Comments at 1920; SouthernLINC High-Cost Reform NPRMs Comments at 30; SouthernLINC High-Cost Reform 
NPRMs Reply at 42. We cannot wait indefinitely for the benefits of broadband to reach all Americans.

Federal Communications Commission FCC 08-262 
A-16 
to advanced telecommunications and information services that are reasonably comparable to those 
services provided in urban areas and that are available at rates charged for similar services in urban 
areas.78 
a. Definition of Broadband Internet Access Service 
24. For purposes of satisfying the condition to receive high-cost support, we adopt a 
definition of broadband Internet access service that focuses on the end users experience, without regard 
to the types of facilities, protocols, or other technologies used to deliver that experience. Broadband 
Internet access service is therefore defined as an always on service that combines computer processing, 
information provision, and computer interactivity with data transport, enabling end users to access the 
Internet and use a variety of applications, at speeds discussed elsewhere in this order.79 We refer 
specifically to broadband Internet access servicean information serviceand not to broadband 
transmission alone because our goal is to ensure that all Americans have access to the Internet.80 
b. Broadband Internet Access Service Obligations 
25. Section 254(b)(1) instructs the Commission to base policies for the advancement of 
universal service on the principle that quality services should be offered at just, reasonable, and affordable 
rates.81 Below we provide requirements for offering broadband Internet access service as a condition of 
receiving universal service high-cost support. In sum, all ETCs must offer broadband Internet access 
service, along with all supported services, to all customers throughout their service areas by the end of a 
five- or ten-year build-out period consistent with the requirements of this order. 
26. Except as described just below, an ETC may offer broadband Internet access service 
using any technology, or combination of technologies, that meets the requirements for speed set forth in 
this order. An ETC may also combine services provided over its own facilities with those provided over 
another providers facilities pursuant to agreement. Indeed, there may be service areas where it is more 
economic to offer broadband Internet access service via one technology than another and we explicitly 
provide for even a single provider to take advantage of the inherent benefits of different technologies for 
different areas.82 Furthermore, an ETC can combine a common carrier offering of broadband 
transmission83 with the information processing capabilities described above,84 so long as what the end 
user receives is in fact broadband Internet access service. 
78 See 47 U.S.C.  254(b)(3). 
79 See infra paras. 28, 45, 52; see also Appropriate Framework for Broadband Access to the Internet over Wireline 
Facilities, CC Docket No. 02-33, Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14853, 
1486061, para. 9 (2005) (Wireline Broadband Internet Access Order), affd sub nom. Time Warner Telecom, Inc. v. 
FCC, 507 F.3d 205 (3d Cir. 2007). 
80 As explained below, nothing in this order changes the choice that providers have today to offer broadband 
transmission on a common carrier basis. See infra para. 26. 
81 47 U.S.C.  254(b)(1). 
82 Thus, we are not favoring wireline technology over another. But see Virgin Mobile High-Cost Reform NPRMs 
Reply at 56. 
83 See Wireline Broadband Internet Access Order, 20 FCC Rcd at 1490001, paras. 8990 (giving providers of 
wireline broadband Internet access the choice to offer broadband transmission on a common carrier basis or a noncommon 
carrier basis). 
84 See supra para. 24.

Federal Communications Commission FCC 08-262 
A-17 
27. An ETC cannot use satellite broadband technology to meet its obligations under this 
order, however, absent a waiver from the Commission. We are concerned that broadband Internet access 
service provided via satellite differs from broadband Internet access provided over other technologies in 
two important ways. First, satellite-provided broadband Internet access service is subject to latency due 
to the amount of time it takes a signal to travel between the satellite and the user. 85 Latency ranges from 
a quarter of a second to almost a second, making the use of applications that require a very fast response 
difficult or impossible, and substantially degrading the quality of other applications like voice over 
Internet protocol. 86 Second, satellite-provided broadband Internet access service is subject to degradation 
due to weather events (rain fade) to a greater degree than other wireless technologies.87 For these 
reasons, we find that satellite-provided broadband Internet access service cannot be the primary means by 
which we serve rural America. We recognize, however, that for certain customers, satellite-provided 
broadband may be the only economic means of reaching them. Therefore, ETCs may apply to the 
Commission for a waiver to be able to meet their commitments under this order by offering broadband 
Internet access service via satellite to certain customers, based on a specific, detailed showing that there is 
no other economic option for serving those customers.88 If the Commission grants such a waiver with 
regard to particular customers, that waiver may be transferred if a different ETC becomes subject to the 
obligation to offer broadband to those customers. 
3. Incumbent LECs Commitment to Offer Broadband 
28. As discussed above, as a condition of receiving federal high-cost universal service 
support, all ETCs must offer broadband Internet access service.89 Therefore, incumbent LECs receiving 
85 See, e.g., COMPUTER SCIENCE AND TELECOMMUNICATIONS BOARD, NATIONAL RESEARCH COUNCIL, BROADBAND: 
BRINGING HOME THE BITS 145 (2002) (BRINGING HOME THE BITS); BroadbandInfo.com, Inside the World of 
Satellite Broadband, BroadbandInfo.com, http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last visited 
Nov. 3, 2008) (stating that because the satellites providing broadband signals orbit the earth approximately 22,300 
miles above the surface, there is a lag time between the sending and receiving of the satellite broadband signal). 
86 See BRINGING HOME THE BITS 145 (explaining that for Internet telephony, the delay can cause a real degradation 
in usability); Jon Norwood, Overview of Satellite InternetComparing the Main Features of Broadband Satellite 
(Oct. 17, 2006), available at http://www.velocityguide.com/satellite/satellite-internet-comparison.html (last visited 
Oct. 24, 2008) (stating that signal delay to a satellite ranges from around 500 to 900 milliseconds, and that this 
latency can render any software that requires real-time user input problematic at best); BroadbandInfo.com, Inside 
the World of Satellite Broadband, available at http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last 
visited Oct. 24, 2008) (stating that for certain broadband Internet real-time applications, such as e-gaming, the 
latency is enough to cause severe interference with the application). 
87 See, e.g., Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a 
Reasonable and Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to Section 706 of the 
Telecommunications Act of 1996, CC Docket No. 98-146, Second Report, 15 FCC Rcd 20913, 20938, para. 59 
(2000) (explaining that areas subject to extreme rain or snow may have difficulty receiving satellite signals in those 
conditions, and describing it as a limitation to satellite Internet last-mile facilities); see also Howstuffworks.com, 
How Does Satellite Internet Operate?, http://computer.howstuffworks.com/question606.html (last visited Oct. 24, 
2008) (explaining that, as for satellite TV, heavy rains can affect reception of Internet signals); Skycasters, 
Broadband Satellite Internet: 99.44% System Reliability, http://www.skycasters.com/satellite-internet-servicespecs/
system-reliability.html (last visited Oct. 31, 2008) (explaining that rain fade is a short duration period during 
which the loss of satellite service occurs when intense storm cells are located directly between the satellite and the 
satellite dish). 
88 If the Commission grants a waiver allowing the use of satellite service, the ETC may not charge a higher price to 
customers served by satellite than it charges to customers served by another broadband technology. 
89 See supra paras. 1927.

Federal Communications Commission FCC 08-262 
A-18 
high-cost support must certify to the Commission, for each study area90 for which they receive high-cost 
support, whether or not they will offer broadband Internet access service to all customers within that 
study area, consistent with the requirements of this order, within five years of the due date of their 
commitment.91 This certification must include a commitment to offer broadband Internet access service 
with download speeds equal to or greater than 768 kbps and upload speeds greater than 200 kbps.92 
29. Incumbent LECs that file a certification for a particular study area indicating that they 
will offer broadband Internet access service under the terms specified in this order will continue to receive 
their current levels of high-cost support for that study area, which will be deemed a Committed Study 
Area. We specify the precise benchmarks that the incumbent LEC must meet over the five-year buildout 
period, and the consequences for failure to do so, below.93 
30. As discussed above, we freeze each incumbent LEC ETCs individual high-cost support 
at the amount of support, on a lump sum basis, the ETC received in December 2008 annualized, net of 
any prior or past period adjustments, on a study area or service area basis.94 Incumbent LEC ETCs 
committing to offer broadband Internet access service within a study area consistent with the 
requirements of this order will continue to receive the frozen high-cost support amount for that study 
area.95 
31. Study areas for which incumbent LECs either certify that they will not offer broadband in 
five years as described herein, or for which the incumbent LECs fail to file any certification at all, will be 
deemed Unserved Study Areas. For these areas, the Commission will conduct a reverse auction as 
90 See supra note 56 (explaining the use of the terms study area and service area in this order). 
91 The Wireline Competition Bureau (Bureau) will release a public notice at a future date specifying the manner and 
due date of the certification. Other reporting, monitoring, and milestone requirements are set forth below. See infra 
paras. 5763. 
92 This tier of broadband is similar to the tier described as Basic Broadband Tier 1 in our Broadband Data 
Gathering Order. See Broadband Data Gathering Order, 23 FCC Rcd at 970001, para. 20 & n.66. 
93 See infra paras. 5763. 
94 See supra para. 16. 
95 Some incumbent LECs assert that they will not be able to commit to provide broadband Internet access service to 
all customers within their study areas at the frozen level of support. See, e.g., Letter from Eric N. Einhorn, V.P. 
Federal Government Affairs, Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 
99-68, WC Docket Nos. 05-337, 06-122, 08-152, 07-135, at 3 (filed Oct. 27, 2008); Letter from Gregory J. Vogt, 
Counsel for CenturyTel, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC 
Docket No. 05-337, at 2 (filed Oct. 20, 2008); Letter from Daniel Mitchell, Vice President Legal & Industry, NTCA, 
to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337, 04-36, at 1-2 (filed 
Oct. 28, 2008). First, to the extent incumbent LECs cannot build out their networks to provide broadband to all 
customers in their study areas, they may seek a waiver to provide service via satellite technology, as discussed 
above. Second, universal service support is not meant to subsidize high-cost carriers, but rather it is meant to 
support customers in high-cost areas. See Alenco, 201 F.3d at 620 (The Act only promises universal service, and 
that is a goal that requires sufficient funding of customers, not providers. So long as there is sufficient and 
competitively-neutral funding to enable all customers to receive basic telecommunications services, the FCC has 
satisfied the Act and is not further required to ensure sufficient funding of every local telephone provider as well.). 
Therefore, if an incumbent LEC cannot provide broadband service at the frozen support levels, support will go to a 
reverse auction winning bidder who can provide such service at or below that level on a more efficient basis. 
Finally, as discussed below, to the extent that a reverse auction does not produce a winning bidder, the Commission 
will reexamine support to that study area.

Federal Communications Commission FCC 08-262 
A-19 
described below, awarding high-cost support to a bidder that will commit to take on carrier of last resort 
obligations and to offer broadband Internet access service throughout the study area. 
4. Reverse Auctions for Study Areas Unserved by Broadband 
32. The Joint Board recommended that the Commissions universal service goals include 
universal availability of broadband Internet service at affordable and comparable rates for all rural and 
non-rural areas.96 While we are not adopting the Joint Boards recommendation to create a separate 
broadband fund, we agree with the Joint Boards goal that broadband Internet access service should be 
universally and affordably available. We are therefore allowing incumbent LECs and competitive ETCs 
receiving high-cost support to continue to receive such support if they commit to offer broadband services 
throughout their supported service areas by the end of a five-year build-out period. We anticipate, 
however, that in some study areas, the incumbent LEC may decline to make that commitment. For these 
Unserved Study Areas, we will conduct a reverse auction for the right to receive high-cost support.97 
33. We sought comment in our Reverse Auctions NPRM on the merits of using reverse 
auctions, a form of competitive bidding, to decide how much high-cost support to provide to ETCs 
serving rural, insular, and high-cost areas.98 In a reverse auction, support generally would be determined 
by the lowest bid to serve the auctioned area.99 We conclude that using a reverse auction method for 
identifying both the recipient of high-cost support for an Unserved Study Area, as well as the amount of 
support, is appropriate because the winning bid should approach the minimum level of subsidy required 
to achieve our universal service goals.100 In contrast, a support mechanism based on cost or on a cost 
model provides no incentive for an ETC to provide supported services at the minimum possible cost.101 
In addition, a reverse auction provides a fair and efficient means of eliminating or reducing the 
subsidization of multiple ETCs in a given region.102 For these reasons, we find that a reverse auction 
offers advantages over the current high-cost support distribution mechanisms and we adopt a reverse 
96 See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2049192, paras. 5662. 
97 Many commenters, in particular those representing rural telephone companies, opposed the use of reverse 
auctions to award high-cost support to carriers of last resort in rural areas. See, e.g., OPASTCO Reverse Auctions 
Comments at 1621; NTCA Reverse Auctions Comments at 3046. Under the measures we adopt today, reverse 
auctions will be conducted only in study areas for which the incumbent LEC receiving high-cost support has not 
committed to offer broadband Internet access service. 
98 See Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 10. 
99 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11. 
100 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Connecticut Dept of Pub. Util. Control High-Cost 
Reform NPRMs Comments at 7 (supporting reverse auctions as a means of controlling and reducing the size of the 
universal service fund, while putting the burden on providers to estimate bid amounts); Comcast High-Cost Reform 
NPRMs Comments at 7 (noting that the use of reverse auctions could reduce the size of the high-cost fund 
significantly). 
101 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Letter from Grover Norquist, Americans for Tax 
Reform, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-337 at 1 (filed Apr. 14, 
2008) (arguing that reverse auctions will create incentives to invest in rural communities and will not finance and 
subsidize wasteful carriers). 
102 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11.

Federal Communications Commission FCC 08-262 
A-20 
auction plan, as discussed below.103 
34. To implement the reverse auctions, there are several issues that must be addressed. We 
describe in this part: (1) the geographic area to be auctioned; (2) the reserve price for the reverse auction; 
(3) what a winning bidder will receive; (4) how the winning bidder will be selected; and (5) the 
qualifications a bidder must demonstrate before it may participate in a reverse auction. 
a. Geographic Area 
35. In the Reverse Auctions NPRM, we sought comment on whether we should use the study 
area104 as the geographic area for reverse auctions.105 We observed that high-cost support today is 
generally based on the wireline incumbent LECs study area.106 We tentatively concluded that the 
wireline incumbent LECs study area would be the appropriate geographic area on which to base reverse 
auctions.107 We adopt our tentative conclusion that the study area is the best geographic area to use for 
several reasons. First, if we allowed bidders to bid to provide service in smaller geographic areas, we 
would encourage bidders to bid on areas that are easier or cheaper to serve, leaving our most difficult-toserve 
populations still without broadband service.108 Conversely, if we required bidders to bid on even 
larger geographic areas, we might discourage bidders from entering the auction because of the difficulty 
in committing to serve an even larger area. Although some commenters oppose using the incumbent 
LECs study area,109 use of the study area is consistent with the area we ask incumbent LECs to consider 
in making their commitments. Finally, selecting smaller geographic areas for auction would increase the 
number of auctions to be held, potentially delaying the conduct of the auction and, therefore, the 
103 Although several rural LEC commenters oppose the use of reverse auctions to distribute high-cost support, as 
discussed above, incumbent LECs will not be required to participate in a reverse auction to receive support, so long 
as they commit to deploy broadband throughout their study areas. See, e.g., ATA High-Cost Reform NPRMs 
Comments at 1315 (opposing the use of reverse auctions); Alexicon Reverse Auctions NPRM Comments at 23 
(opposing reverse auctions for rural LECs). 
104 A study area is a geographic segment of an incumbent LECs telephone operations. Generally, a study area 
corresponds to an incumbent LECs entire service territory within a state. Direct Communications Cedar Valley, 
LLC and Qwest Corporation Joint Petition for Waiver of the Definition of Study Area of the Appendix-Glossary 
of Part 36 of the Commissions Rules, Petition for Waiver of Section 69.2(hh) and 69.605(c) of the Commissions 
Rules, CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB 2005). Section 54.207 of the 
Commissions rules provides that a rural telephone companys service area will be its study area unless and until 
the Commission and the states, after taking into account recommendations of a Federal-State Joint Board instituted 
under section 410(c) of this Act, establish a different definition of service area for such company. 47 C.F.R.  
54.207(b); 47 U.S.C.  214(e)(5). As discussed above, we use the terms study area and service area 
interchangeably in this order. See supra note 56. 
105 See Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20. 
106 Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20 
107 Reverse Auctions NPRM, 23 FCC Rcd at 1504, para. 21. 
108 Thus, we disagree with commenters arguments that we should hold auctions for small geographic areas, such as 
counties, census block groups, or zip codes. See, e.g., Comcast High-Cost Reform NPRMs Comments at 9; NCTA 
High-Cost Reform NPRMs Comments at 16; SouthernLINC High-Cost Reform NPRMs Comments at 2425; 
TracFone High-Cost Reform NPRMs Comments at 6. 
109 See, e.g., Comcast High-Cost Reform NPRMs Comments at 89; NCTA High-Cost Reform NPRMs Comments at 
16; SouthernLINC High-Cost Reform NPRMs Comments at 25; TracFone High-Cost Reform NPRMs Comments at 
5.

Federal Communications Commission FCC 08-262 
A-21 
deployment of broadband to unserved areas.110 For these reasons, we conclude that the study area is the 
best available geographic area to consider for the auction. We will conduct a reverse auction for each 
study area for which the incumbent LEC receiving high-cost support has not committed to offer 
broadband Internet access service pursuant to the requirements explained above (Unserved Study 
Areas).111 
b. Reserve Price 
36. In the Reverse Auctions NPRM, we noted that we should establish a reserve pricea 
maximum level of high-cost support that participants in the auction would be allowed to place as a bid.112 
We observed that a reserve price that is set too low is likely to discourage bidders from participating, 
while one that is set too high raises the possibility of providing too much support.113 We conclude that 
the reserve price should be the amount of high-cost support that the incumbent LEC would have been 
entitled to receive had it committed to offer broadband Internet access service within the study area.114 
37. We set the reserve price in each study area at the incumbent LECs current level of highcost 
support for several reasons. First, we are capping the overall high-cost fund at its current level. 
Setting a reserve price will help ensure that overall high-cost funding remains within this amount, because 
the high-cost funding for each Unserved Study Area will merely be transferred to another ETC, not 
increased. In addition, setting a reserve price at this level will ensure that, even in reverse auctions for 
particular Unserved Study Areas that do not garner many bids, those bids will be made by providers who 
are confident that they can assume all the obligations of the carrier of last resort,115 as well as the new 
broadband service obligations, and provide service more efficiently than the incumbent LEC.116 Indeed, 
we expect that bidders frequently will offer to provide service using newer and more efficient 
technologies than the incumbent LEC uses today. For these reasons, we set the reserve price at the level 
described above. 
110 See Ohio PUC Reverse Auctions NPRM Comments at 67 (generally agreeing that the incumbent LECs study 
area is the appropriate geographic area on which to base reverse auctions because further disaggregation could add 
cost and delays, and increase the opportunity for creamskimming). 
111 See supra paras. 1931. 
112 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36. 
113 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36. 
114 See SouthernLINC High-Cost Reform NPRMs Comments at 22 n.63 (The Commission would start bidding at 
current support levels.). As discussed above, each incumbent LEC ETCs individual high-cost support is frozen at 
the amount of support, on a lump sum basis, the ETC received in December 2008 annualized, net of any prior or 
past period adjustments, on a study area basis. See supra paras. 16, 30. 
115 Carrier of last resort obligations for incumbent LECs are a matter of state law. Under section 214(e)(6), when 
the state lacks jurisdiction, the Commission shall make the public interest determination on whether to designate a 
carrier an ETC. 47 U.S.C.  214(e)(6). The ETC requirements include a requirement to provide supported services 
throughout the service area. 47 U.S.C.  214(e)(1). 
116 Some commenters oppose setting the reserve price at current incumbent LEC levels, or setting any reserve price. 
See OPASTCO High-Cost Reform NPRMs Comments at 1920; MSTC Group High-Cost Reform NPRMs 
Comments at 1718; North Dakota PSC High-Cost Reform NPRMs Comments at 5. We find that setting the reserve 
price at the incumbent LEC support level will provide certainty to bidders and enable bidders with more efficient 
technologies to provide broadband in areas where incumbent LECs do not commit to do so. Furthermore, as 
discussed below, if a reverse auction provides no winner, the Commission will examine the need for further action. 
See infra para. 47.

Federal Communications Commission FCC 08-262 
A-22 
c. Auctioned Support 
38. For Unserved Study Areas, we will auction the award of high-cost support to provide all 
supported services to the entire Unserved Study Area, on a carrier of last resort basis, consistent with the 
requirements of this order. The maximum annual award amount will be equal to the amount of the 
winning bid (Award Amount), paid out as described in more detail below as certain geographic areas are 
built out.117 
39. The Award Amount is conditioned on the winning bidder providing all supported 
services as a carrier of last resort, as the incumbent LEC does today under state law, and meeting the ETC 
requirements set forth in the ETC Designation Order.118 Competitive ETCs are currently required to 
provide supported services throughout their service area, even though they may not be, under state law, 
the carrier of last resort.119 In the ETC Designation Order, the Commission adopted additional 
requirements for ETC designation proceedings in which the Commission acts pursuant to section 
214(e)(6).120 The Commission requires that applicants seeking ETC designation from this Commission 
demonstrate the following: (1) a commitment and ability to provide services, including providing service 
to all customers within its proposed service area; (2) that it will remain functional in emergency 
situations; (3) that it will satisfy consumer protection and service quality standards; (4) that it offers local 
usage comparable to that offered by the incumbent LEC; and (5) an understanding that it may be required 
to provide equal access if all other ETCs in the designated service area relinquish their designations 
pursuant to section 214(e)(4).121 We find that the universal service obligations in the ETC Designation 
Order will apply to all competitive ETCs winning reverse auctions; in addition, the auction winner must 
accept all of the carrier of last resort obligations of the incumbent LEC for that study area, whether such 
obligations are imposed on the LEC pursuant to state or federal law. 
40. In addition to the ETC Designation Order requirements, we add two additional 
requirements to competitive ETCs winning reverse auctions. First, they must, as a condition of receiving 
the Award Amount, offer broadband Internet access service to all customers within the Unserved Study 
Area. Second, competitive ETCs winning reverse auctions must offer supported services at a retail price 
comparable to the retail price charged by the incumbent LEC in that same study area for the same or 
equivalent service.122 In this manner, we ensure that competitive ETCs receiving high-cost support will 
continue to make supported services at least as affordable and available as they are today. 
117 A competitive ETC that currently serves all or a portion of an Unserved Study Area will not receive high-cost 
support for the same service area as both a winning bidder and based upon a showing of its own costs. If a 
competitive ETC that already receives high-cost support within this study area wins the auction, it will lose its 
existing high-cost support for particular geographic areas as it begins to receive its Award Amount for those areas. 
118 ETC Designation Order, 20 FCC Rcd 6371. Section 214(e)(6) of the Act gives the Commission authority to 
designate carriers as ETCs when those carriers are not subject to the jurisdiction of a state commission. 47 U.S.C.  
214(e)(6). The requirements in the ETC Designation Order currently apply only to Commission-designated ETCs, 
although the Commission, in that order, encouraged state commissions to adopt similar requirements. ETC 
Designation Order, 20 FCC Rcd at 6372, 6379, paras. 1, 19. 
119 See 47 U.S.C.  214(e)(1). 
120 ETC Designation Order, 20 FCC Rcd at 6380, para. 20. 
121 ETC Designation Order, 20 FCC Rcd at 6380, para. 20; 47 U.S.C.  214(e)(4). 
122 In adopting this requirement, we are not setting any specific rates, nor does this requirement conflict with the 
states jurisdiction over intrastate rates. Instead, we are conditioning the receipt of federal universal service support 
on an ETCs provision, on a voluntary basis, of rates comparable to the incumbent LECs for equivalent services.

Federal Communications Commission FCC 08-262 
A-23 
41. We recognize that a transition mechanism is needed to shift high-cost support from the 
incumbent LEC currently receiving it to another ETC that wins an Award Amount. A flash cut would be 
harmful in at least two ways. First, the incumbent LEC would immediately lose support upon which it 
may rely to maintain supported services as a carrier of last resort to consumers today. It is possible that 
removing support from the incumbent LEC would, in some cases, jeopardize its provision of services to 
some users. In addition, granting a full Award Amount immediately to a winning ETC would provide 
little incentive for the competitive ETC to build out new facilities to difficult-to-serve areas until the last 
possible moment, as in many cases those areas will be the most expensive to serve. As a result, we 
conclude that, prior to the initiation of an auction, the incumbent LEC for the Unserved Study Area will 
be required to identify the distribution of support by geographic area for purposes of the auction and the 
transfer of support to the winning bidder. As the winning ETC builds out to those geographic areas and 
certifies that it complies with all its obligations under this order for that area, it will receive high-cost 
support for that portion of the Unserved Study Area, and the incumbent LEC will no longer receive such 
support for that area.123 As the winning bidder takes on carrier of last resort obligations and obtains highcost 
support for an area, the incumbent LEC will no longer receive high-cost support for that area and will 
be relieved of its carrier of last resort obligations at both the state and federal levels. We require winning 
auction bidders to comply fully with all the requirements of this order by the end of a ten-year build-out 
period. 
42. Finally, we address the question of transferability of the Award Amount. We conclude 
that auction winners may transfer their right to the Award Amount. This transfer could take one of 
several formsan auction winner could be purchased by another entity, the winner could sell assets used 
to provide the supported services, or the auction winner could transfer just the right to the Award Amount 
itself. The transferee will, in all events, step into the shoes of the auction winner and will be responsible 
for meeting all obligations as if it had been the original auction winner. Any such transfer, however, must 
be authorized by the Commission before it is consummated. 
d. Selecting a Winning Bid 
43. In the Reverse Auctions NPRM, we sought comment on whether the reverse auction 
should award high-cost support to a single winner or to multiple winners.124 We observed that if only one 
winner receives support, this could provide a fair and efficient means of eliminating the subsidization of 
multiple ETCs in a region, particularly in areas in which costs are prohibitive.125 We tentatively 
concluded that universal service support auctions should award high-cost support to a single winner.126 
We now conclude that the single winner format will provide the most effective mechanism for 
determining the support amount sufficient to meet the universal service goals in any given area.127 We 
123 The amount of support to be awarded to the winning bidder could be less than the amount of support received by 
the incumbent LEC for that same area. The transfer of support will be based on the amount of support, relative to 
support for the entire study area, received by the incumbent LEC for the area to be transferred; that same relative 
percentage will be used to calculate the amount of award support the auction winner should receive for the same 
area. In no event will an incumbent LEC who is not an auction winner continue to receive support for an area once 
an auction winner begins to receive support for that same area. 
124 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 13. 
125 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14. 
126 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14 
127 See, e.g., Florida PSC High-Cost Reform NPRMs Comments at 45; New York PSC Identical Support and 
Reverse Auctions NPRMs Comments at 23; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 
2122, App. at 12. We disagree with commenters who support multiple winner auctions. See, e.g., Alltel High-Cost 
(continued.)

Federal Communications Commission FCC 08-262 
A-24 
therefore adopt our tentative conclusion to select one winner in each reverse auction. 
44. As we have explained above, in requiring the offering of broadband Internet access 
service as a condition of receiving high-cost support, one of our main goals is to ensure that all Americans 
have access to affordable, quality broadband services.128 Achieving this goal will require careful 
selection of the winning bidder for a particular Unserved Study Area. As explained in more detail below, 
the winning bidder will be the one who commits to offer the highest speed of broadband service 
throughout the entire Unserved Study Areaat a bid amount that is equal to or less than the reserve price 
(the incumbent LECs current high-cost support amount). In so doing, we work towards making quality, 
technologically advanced broadband services available to all Americans, including those in difficult- or 
expensive-to-serve areas, rather than settling for lesser broadband service for those Americans who live in 
high-cost areas. We acknowledge that, in many cases, the winning bid will not be the cheapest one. But 
we believe that encouraging bidders to offer better broadband services at or below a set reserve price will 
help us achieve our broadband goals, while keeping an appropriate limit on the amount of high-cost 
support disbursed to achieve that goal. 
45. For purposes of our reverse auction, we establish three tiers of broadband service. We 
will use the term Basic Broadband Tier 1 to refer to service with download speeds equal to or greater 
than 768 kbps but less than 1.5 mbps, and upload speeds greater than 200 kbps. We will use the term 
Broadband Tier 2 to refer to service with download speeds equal to or greater than 1.5 mbps and less 
than 3 mbps, and upload speeds greater than 200 kbps. We will use the term Broadband Tier 3 to refer 
to service with download speeds equal to or greater than 3 mbps, and upload speeds greater than 200 
kbps.129 
46. We will evaluate bids as follows: for any Unserved Study Area, a bidder will submit a 
bid to commit to offering a service falling within Basic Broadband Tier 1, Broadband Tier 2, or 
Broadband Tier 3 to all customers in the Unserved Study Area. To qualify for an award, the bid must be 
equal to or less than the reserve pricethat is, equal to or less than the amount of high-cost support 
received by the incumbent LEC for that Unserved Study Area.130 The bidder need not specify a specific 
speed to which it will commit in any of the three tiers, but it must disclose in which tier its proposed 
service will fall. The bid amount will be an amount of high-cost support to provide all supported services 
in the Unserved Study Area as carrier of last resort, subject to all the requirements of this order, including 
the condition to offer broadband throughout the Unserved Study Area. The winning bid will be selected 
through a two-step process. First, we will identify the highest speed tier for which there is a valid bid. If 
there is only one bid for that tier, then that is the winning bid. If there are multiple bids within that tier, 
then the winning bid will be the lowest price bid within that tier.131 
(continued from previous page) 
Reform NPRMs Comments at 4041; Atlantic Tele-Network Identical Support and Reverse Auctions NPRMs 
Comments at 13. We find that supporting a single auction winner is a more efficient means of ensuring the 
provision of broadband Internet access in areas where the incumbent LEC has determined that the costs of serving 
all customers in the area is prohibitive. 
128 See supra paras. 1923. 
129 These terms are similar, but not identical, to terms used in our latest Broadband Data Gathering Order. See 
Broadband Data Gathering Order, 23 FCC Rcd at 970001, para. 20 & n.66. 
130 See supra paras. 1636. 
131 For example, assume the Commission conducted a reverse auction for an Unserved Study Area with a reserve 
price of $5 and received four bids: $1 to offer Basic Broadband Tier 1, $2 to offer Broadband Tier 2, $3 to offer 
Broadband Tier 3, and $4 to offer Broadband Tier 3. In that scenario, the winning bid amount would be $3 to offer 
Broadband Tier 3. 

Federal Communications Commission FCC 08-262 
A-25 
47. If a particular reverse auction produces no winner, the study area will be identified as a 
truly high-cost study area. The fact that there is no winning bidder may indicate that the reserve price was 
set at too low an amount of support. The Commission will reexamine any such study area to determine 
whether the frozen high-cost support amount is sufficient, and, if it is not, the Commission will determine 
what further actions should be taken to ensure that the study area is served by a provider that will meet the 
broadband commitment and carrier of last resort requirements. For example, the Commission may 
consider disaggregating the study area on a wire center basis for reverse auction purposes, or increasing 
the amount of high-cost support set as the reserve price for the study area.132 To ensure continued service 
to customers during the limited period of time in which the Commission examines these issues, the 
existing incumbent LEC will continue to have all carrier of last resort and ETC obligations, and will 
continue to receive high-cost support frozen at its current level pending transfer of such support to the 
winning bidder of the reverse auction. 
e. Bidder Qualifications 
48. We adopt a number of conditions that bidders must meet before they can participate in 
any auction. We adopt these requirements to help ensure that any bidder who wins an auction will be 
capable of meeting the commitments that flow from being a winning bidder. 
49. First, we require that a bidder be an ETC, certified by the Commission or by a state. In 
the Reverse Auctions NPRM, we tentatively concluded that an auction bidder must be an ETC covering 
the relevant geographic area prior to participating in the auction.133 We hereby adopt that tentative 
conclusion. Winning bidders must be designated as ETCs before receiving high-cost support pursuant to 
sections 214 and 254 of the Act; therefore, requiring bidders to receive this designation prior to 
participating in an auction entails only a small additional burden. This burden is offset by the potential 
delay in deploying broadband Internet access service that would result while a non-ETC winning bidder 
seeks and obtains ETC designation.134 We note that ETCs are not required to provide all supported 
services with their own facilities.135 ETCs may enter into contracts with other entities to provide some 
supported services in part or all of the study area. 
50. As a general matter, in our spectrum auctions we require an upfront payment to deter 
frivolous or insincere bidding.136 In the reverse auctions we adopt today, we are not requiring an upfront 
payment. Instead, we are requiring participants to demonstrate to the Commission a capability to meet 
132 See Free Press Oct. 24, 2008 Ex Parte Letter at 12 (arguing that, if a study area receives no winning bidder in a 
reverse auction, then the study area should be disaggregated). 
133 Reverse Auctions NPRM, 23 FCC Rcd at 150001, para. 12; see also, e.g., Florida PSC High-Cost Reform 
NPRMs Comments at 5; Indiana Util. Reg. Commn High-Cost Reform NPRMs Comments at 12; MSTC Group 
High-Cost Reform NPRMs Comments at 12; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments, App. 
at 8. 
134 For this reason, we disagree with commenters who argue that we should not require bidders to be ETCs. See 
GCI High-Cost Reform NPRMs Comments at 89; Consumers Union (CU) et al. High-Cost Reform NPRMs Reply at 
17. 
135 Pursuant to section 214(e)(1)(A) of the Act, a common carrier designated as an ETC must offer the services 
supported by the federal universal service mechanisms throughout the designated service area either by using its 
own facilities or by using a combination of its own facilities and resale of another carriers services (including the 
services offered by another ETC). 47 U.S.C.  214(e)(1)(A). 
136 See, e.g., Auction of LPTV and TV Translator Digital Companion Channels Scheduled for November 5, 2008, 
AU Docket No. 08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008).

Federal Communications Commission FCC 08-262 
A-26 
the milestone requirements. This showing will include, for example, evidence of financial resources with 
which to undertake the construction or upgrading of facilities necessary to offer broadband Internet access 
service. In addition, in areas where the bidder does not currently offer telecommunications services, we 
will require the bidder to submit a plan demonstrating the timetable for building the necessary facilities 
and obtaining any required permits. 
5. Competitive Eligible Telecommunications Carriers 
a. Background 
51. In the Identical Support NPRM, the Commission tentatively concluded that it should 
eliminate the current identical support rule for competitive ETCs, because the rule bears no relationship to 
the amount of money competitive ETCs have invested in rural and other high-cost areas of the country.137 
In that notice, the Commission tentatively concluded that a competitive ETC should receive high-cost 
support based on its own costs, which better reflect real investment in rural and other high-cost areas of 
the country, and which create greater incentives for investment in those areas.138 Because a competitive 
ETCs per-line support is based solely on the per-line support received by the incumbent LEC, rather than 
its own network investments in an area, the competitive ETC has little incentive to invest in, or expand, 
its own facilities in areas with low population densities, thereby contravening the Acts universal service 
goal of improving the access to telecommunications services in rural, insular and high-cost areas.139 
Instead, competitive ETCs have a greater incentive to expand the number of subscribers, particularly 
those located in the lower-cost parts of high-cost areas, rather than to expand the geographic scope of 
their networks. As discussed above, the Joint Board recommended elimination of the identical support 
rule; we agree with the Joint Board and adopt this recommendation and our tentative conclusion.140 
Under the new high-cost support mechanism that we adopt today, competitive ETCs will be eligible to 
receive support based on their own costs as compared to the relevant support benchmarks, contingent 
upon a commitment to offer broadband Internet access service to all customers in a service area within 
five years.141 
b. Certification by Existing Competitive ETCs 
52. As discussed above, as a condition of continuing to receive federal high-cost universal 
137 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5; see, e.g., Embarq High-Cost Reform NPRMs Comments 
at 10 (It is logically inconsistent to compensate a carrier for serving high-cost areas when there is no evidencein 
the form of cost studies, filings, or model resultsthat the areas being supported are indeed high-cost for that 
carrier.); Frontier High-Cost Reform NPRMs Comments at 4 (asserting that identical support is merely a subsidy to 
competitive ETCs, and there is no basis to tell whether consumers are getting any [u]niversal [s]ervice benefits 
whatsoever from subsidizing competitive ETCs in this manner). 
138 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5. 
139 See 47 U.S.C.  254(b)(3); Alabama PSC High-Cost Reform NPRMs Comments at 3 (The identical support rule 
provides little incentive for ETCs to invest in building their own facilities in rural areas with low population 
densities because their support currently is based solely on the per-line support received by the incumbent, instead of 
investment in the network.). 
140 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 5 (recommending elimination of 
the identical support rule, which bears little or no relationship to the amount of money competitive ETCs have 
invested in rural and other high-cost areas of the country). 
141 The calculation of support provisions in this Part apply to competitive ETCs that do not receive high-cost support 
as the result of winning a reverse auction. Support for winning auction bidders, including competitive ETCs, will be 
based on the bid amount, as discussed above. See supra paras 4347. 

Federal Communications Commission FCC 08-262 
A-27 
service support, incumbent LEC ETCs must offer broadband Internet access service to all customers in 
their service areas within five years.142 Similarly, to be eligible to receive high-cost support on a goingforward 
basis, competitive ETCs must also certify that they will offer broadband Internet access service to 
all customers within a supported service area, consistent with the requirements of this order, within five 
years of the due date of their commitment.143 Consistent with the certification required of incumbent LEC 
ETCs, competitive ETC certifications must include a commitment to offer broadband Internet access 
service with download speeds equal to or greater than 768 kbps and upload speeds greater than 200 
kbps.144 Failure to make this commitment or to meet the milestones and requirements established herein 
shall result in loss of ETC status for the service area. 
c. Calculation of Support 
53. We adopt our tentative conclusion in the Identical Support NPRM that competitive ETCs 
should receive high-cost support based on their own costs.145 We are not persuaded by arguments that, by 
requiring competitive ETCs to demonstrate that their own costs exceed a high-cost threshold as a 
condition of receiving universal service support, we will be placing undue administrative burdens on the 
competitive ETCs and providing incentives for them to maximize their costs.146 Instead, we find that 
competitive ETCs should demonstrate eligibility for high-cost support in the same manner as incumbent 
LEC ETCs, based on their costs, as this will better reflect competitive ETCs investment in their service 
areas.147 Specifically, we require competitive ETCs to file cost information for the total costs of a service 
area, from which will be developed a cost per line. Spectrum costs are not included for purposes of 
142 See supra para. 28. 
143 The Bureau will release a public notice at a future date specifying the manner and due date of the certification. 
Other reporting, monitoring, and benchmark requirements are set forth below. See infra paras. 5763. 
144 This tier of broadband is similar to the tier described as Basic Broadband Tier 1 in our Broadband Data 
Gathering Order. See Broadband Data Gathering Order, 23 FCC Rcd at 970001, para. 20 & n.66. 
145 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5. 
146 See GCI High-Cost Reform NPRMs Comments at 5, 40, 6567; Oregon PUC High-Cost Reform NPRMs 
Comments at 5; Rural Cellular Assn (Rural Cellular) Identical Support and Reverse Auctions NPRMs Comments at 
2; USCellular High-Cost Reform NPRMs Comments at 7, 3840; USTelecom High-Cost Reform NPRMs Comments 
at 16; Wyoming Office of Consumer Advocate (Wyoming OCA) Identical Support NPRM Comments at 2; 
SouthernLINC High-Cost Reform NPRMs Reply at 13. 
147 Many commenters favor basing competitive ETCs support on their own costs. See ATA High-Cost Reform 
NPRMs Comments at 3; Alexicon Identical Support NPRM Comments at 34; CenturyTel High-Cost Reform 
NPRMs Comments at 2122; Connecticut Dept. of Pub. Util. Control High-Cost Reform NPRMs Comments at 23; 
Embarq High-Cost Reform NPRMs Comments at 10; Iowa Telecomm. Assn (ITA) Identical Support NPRM 
Comments at 34; Independent Tel. and Telecomms. Alliance (ITTA) Identical Support NPRM Comments at 23 
24; John Staurulakis, Inc. (JSI) High-Cost Reform NPRMs Comments at 3; Kansas Rural Indep. Tel. Companies 
Identical Support NPRM Comments at 4; Missouri PSC Identical Support NPRM Comments at 5; Montana 
Telecomms. Assn High-Cost Reform NPRMs Comments at 12; NECA High-Cost Reform NPRMs Comments at 
2226; NTCA High-Cost Reform NPRMs Comments at 1923; OPASTCO High-Cost Reform NPRMs Comments at 
1213; PetroCom License Corp. Identical Support NPRM Comments at 23; Qwest High-Cost Reform NPRMs 
Comments at 7; Rural Indep. Competitive Alliance (RICA) High-Cost Reform NPRMs Comments at 1315; Rural 
Iowa Independent Tel. Assn (RIITA) High-Cost Reform NPRMs Comments at 23; Telcom Consulting Assoc., Inc. 
(TCA) High-Cost Reform NPRMs Comments at 1315; Texas Statewide Tel. Coop., Inc. (Texas Statewide) High- 
Cost Reform NPRMs Comments at 10; Utah Rural Telecom Assn (URTA) High-Cost Reform NPRMs Comments at 
8; WTA High-Cost Reform NPRMs Comments at 2226.

Federal Communications Commission FCC 08-262 
A-28 
calculating a cost per line.148 We will then apply the same benchmarks that are applied to incumbent 
LECs costs to determine whether the competitive ETCs qualify to receive high-cost support. In the case 
of a competitive ETC providing service in a non-rural service area, the cost per line would be compared 
to the benchmark threshold for support calculated by the High-Cost Proxy Model.149 For a competitive 
ETC providing service in a rural service area, support will be determined by comparing the competitive 
ETCs cost per loop incurred to provide the supported services to the same national average cost per loop 
used to determine incumbent LEC support for the same service area.150 
54. Because a competitive ETC may have few or no lines when it first receives its ETC 
designation, performing a calculation of per-line costs at the initial time of market entry likely would 
result in a considerable upward bias in the resulting amount. Similarly, a competitive ETC that has not 
gained customers in high-cost areas would have low line counts, skewing upward its costs per line. 
Conversely, a competitive ETC that has successfully gained customers will have lower costs per line due 
to the larger number of lines over which to spread its costs. To correct this issue, rather than relying on 
the competitive ETCs line counts to determine per-line costs, we will use the same line counts used to 
determine the incumbent LEC cost per line for the same service area. 
55. Consistent with the freeze on incumbent LEC high-cost support based on December 2008 
support levels, we will use December 2008 as the base period for both the incumbent LEC lines used to 
determine the competitive ETCs per-line costs, and for the benchmarks against which the competitive 
ETCs costs will be compared for high-cost support purposes. Once the competitive ETC has 
demonstrated that its costs exceed the relevant benchmark, that competitive ETC will be entitled to 
continue to receive support for the relevant service area, frozen at the amount of support, on a lump sum 
basis, that the competitive ETC received in 2008. If a competitive ETC does not commit to the 
broadband build-out requirements set forth herein, or does not demonstrate that its costs exceed the 
relevant benchmark, it shall no longer be entitled to receive support. 
56. If no competitive ETC elects to show its own costs in a particular study area, we will 
conduct a reverse auction to award support to a broadband mobility provider. The reserve price for such 
auction shall be the largest amount of high-cost support received by a competitive ETC in the study area 
in 2008. There shall be no interim support in such study area to an existing competitive ETC that does 
not commit to the broadband requirements pending the completion of the reverse auction.151 
6. Build-Out Milestones and Monitoring, Compliance, and Enforcement 
57. We find that a rigorous monitoring, compliance and enforcement program is necessary to 
ensure that all ETCs receiving high-cost support adhere to their obligation to offer broadband Internet 
access service throughout their supported service areas by the end of their respective build-out periods. 
We therefore establish build-out requirements to monitor providers progress toward their build-out 
commitment. Specifically, and as described in detail below, we require each provider receiving high-cost 
148 We agree with ITA that such costs do not represent a direct investment in facilities and infrastructure for 
purposes of providing supported services in high-cost areas. See ITA Identical Support NPRM Comments at 3 
(spectrum costs represent investment in an intangible asset with an indefinite life rather than a direct investment in 
facilities with a limited useful life). 
149 See 47 C.F.R.  54.309. 
150 See 47 C.F.R.  36.613, 36.622(c). 
151 We also note that, consistent with our capping the high-cost fund and the provisions herein freezing both 
incumbent LEC and competitive ETC support at the study area level, we keep in place the interim cap on 
competitive ETC support adopted in the Interim Cap Order. 

Federal Communications Commission FCC 08-262 
A-29 
support to meet specific milestones with regard to broadband deployment in the years preceding 
completion. 
58. Applicability of Requirements. As an initial matter, we find that the monitoring, 
compliance and enforcement requirements we adopt today will apply equally to all recipients of high-cost 
support that commit to offer broadband Internet access service as a condition of receiving support. 
Consumers should expect to receive the benefits of todays order, irrespective of whether an incumbent 
LEC, competitive ETC, or winning auction bidder receives high-cost support in their area. We find that 
the milestone obligations we impose today will not unduly burden any company; rather, they represent 
efforts we believe carriers would undertake in the normal course of constructing a broadband network. 
We therefore apply the monitoring, compliance, and enforcement requirements below to all recipients of 
high-cost support. 
59. Milestones for Committed Incumbent LECs and Existing Competitive ETCs. To ensure 
that incumbent LECs that commit to offering broadband and competitive ETCs other than auction 
winners make steady progress towards offering broadband Internet access service throughout their entire 
service areas as required in this order, we adopt milestones based on customer locations where the 
incumbent LEC or competitive ETC is not yet offering broadband Internet access service (Unserved 
Customers).152 Specifically, we require incumbent LECs and competitive ETCs to be capable of 
providing broadband Internet access service to an additional 20 percent of their Unserved Customers by 
the end of each year of the five-year build-out period. This requirement means that, of the total number 
of Unserved Customers in the service area, these carriers must offer broadband to 20 percent by the end 
of year one, 40 percent by the end of year two, 60 percent by the end of year three, 80 percent by the end 
of year four, and 100 percent by the end of year five. This five-year period starts from the due date of the 
incumbent LEC or competitive ETC commitment. 
60. Milestones for Auction Winners. To ensure that auction winners make good progress 
toward meeting their obligation to become fully compliant with the requirements of this order, we require 
every auction winner to be capable of serving 10 percent of the potential customers in the service area by 
the end of year two, 25 percent by the end of year three, 50 percent by the end of year four, 65 percent by 
the end of year five, 75 percent by the end of year six, 85 percent by the end of year seven, 90 percent by 
the end of year eight, 95 percent by the end of year nine, 100 percent by the end of year ten. The absence 
of a milestone at the end of year one is intended to allow new service providers sufficient time to plan 
their network and to start deploying and marketing it within some parts of the service area. Similarly, the 
ascending milestones in the remaining years are intended to permit the auction winner a reasonable time 
in which to build its network and services while ensuring that it does not delay in reaching customers who 
need this vital service. The ten-year build-out period starts on the date on which that carrier wins the 
auction.
61. Consequences of Not Meeting Milestones. For all ETCs receiving high-cost support, 
failure to achieve any milestone will result in loss of eligibility for support (and, where this Commission 
has jurisdiction over the designation of ETC status, loss of ETC status) for that service area. If the ETC 
that loses its eligibility for support is an incumbent LEC or an auction winner, the study area will be 
subject to re-auction. If at the end of the build-out period, the ETC is not fully compliant with all its 
obligations under this order, including its obligation to offer broadband Internet service throughout the 
service area, the ETC will forfeit its eligibility for support and, if its ETC designation was made by this 
Commission, lose its ETC status. 
62. Milestone Audits. All milestone data will be subject to audit by the Commissions Office 
152 Customer locations include both residential and business locations within the ETCs service area.

Federal Communications Commission FCC 08-262 
A-30 
of Inspector General and, if necessary, investigated by the Office of Inspector General, to determine 
compliance with the build-out requirements, the Act, and Commission rules and orders.153 Service 
providers will be required to comply fully with the Office of Inspector Generals audit requirements, 
including, but not limited to, providing full access to all accounting systems, records, reports, and source 
documents of the service providers and their employees, contractors, and other agents, in addition to all 
other internal and external audit reports that are involved, in whole or in part, in the administration of this 
program.154 Such audits or investigations may provide information showing that a service provider failed 
to comply with the Act or the Commissions rules, and thus may reveal instances in which universal 
service support was improperly distributed or used. 
63. We emphasize that we retain the discretion to evaluate the uses of monies disbursed 
through the high-cost program and to determine on a case-by-case basis whether waste, fraud, or abuse of 
program funds occurred and whether recovery is warranted. We remain committed to ensuring the 
integrity of the universal service program and will aggressively pursue instances of waste, fraud, and 
abuse under the Commissions procedures and in cooperation with law enforcement agencies. In doing 
so, we intend to use any and all enforcement measures, including criminal and civil statutory remedies, 
available under law.155 
III. BROADBAND FOR LIFELINE/LINK UP CUSTOMERS 
64. In this Part, pursuant to section 254(b) of the Act, we establish a Broadband Lifeline/Link 
Up Pilot Program (Pilot Program) to examine how the Lifeline and Link Up universal service support 
mechanism can be used to enhance access to broadband Internet access services for low-income 
Americans.156 Specifically, we conclude that we will make available $300 million each year for the next 
three years to enable ETCs to support broadband Internet access service and the necessary access devices. 
In particular, if an ETC provides Lifeline service to an eligible customer, the Pilot Program will support 
50 percent of the cost of broadband Internet access installation, including a broadband Internet access 
device, up to a total amount of $100. In addition, if an ETC provides Lifeline service to an eligible 
household, the Pilot Program will double, up to an additional $10, the households current monthly 
subsidy to offset the cost of broadband Internet access service. 
153 See Comprehensive Review of the Universal Service Fund Management, Administration, and Oversight, Federal- 
State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, Rural Health 
Care Support Mechanism, Lifeline and Link-Up, Changes to the Board of Directors for the National Exchange 
Carrier Association, Inc., WC Docket No. 03-109, Report and Order, 22 FCC Rcd 16372, 1638384, para. 24 
(Comprehensive Review Report and Order) (requiring recipients of universal service support for high-cost 
providers to retain all records that they may require to demonstrate to auditors that the support they received was 
consistent with the Act and the Commissions rules, assuming that the audits are conducted within five years of 
disbursement of such support.). The term service provider includes any participating subcontractors. 
154 This includes presenting personnel to testify, under oath, at a deposition if requested by of the Office of Inspector 
General. 
155 See, e.g., 41 U.S.C.  5158 (Anti-Kickback Act of 1986); 31 U.S.C.  3729 (False Claims Act). 
156 The Commission has established a similar universal service pilot program under the Rural Health Care support 
mechanism. See Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111(2006) 
(2006 Rural Health Care Pilot Program Order) (establishing a Rural Health Care pilot program to examine how the 
Rural Health Care funding mechanism can be used to enhance public and non-profit health care providers access to 
advanced telecommunications and information services); Rural Heath Care Support Mechanism, WC Docket No. 
02-60, Order, 22 FCC Rcd 20,360 (2007) (selecting Rural Health Care pilot program participants eligible to receive 
up to 85% of the costs associated with the construction of state or regional broadband health care networks and with 
the advanced telecommunications and information services provided over those networks).

Federal Communications Commission FCC 08-262 
A-31 
A. Background 
65. Since 1985, the Commission, pursuant to its general authority under sections 1, 4(i), 201, 
and 205 of the Act and in cooperation with state regulators and local telephone companies, has 
administered two programs designed to increase subscribership by reducing charges to low-income 
consumers.157 The Commission's Lifeline program reduces qualifying consumers' monthly charges, and 
Link Up provides federal support to reduce eligible consumers initial connection charges by up to one 
half.158 
66. Under the Commissions current rules, states and territories have the authority to 
establish their own Lifeline/Link Up programs that provide additional support to low-income consumers 
that incorporate the unique characteristics of each state or territory.159 For example, in establishing 
eligibility criteria, states have the flexibility to consider federal and state-specific public assistance 
programs with high rates of participation among low-income consumers in the state. State certification 
procedures and outreach efforts can also take into account existing state laws and budgetary limits. Some 
states and territories, however, have elected to use the federal criteria as their default standard. These 
federal default states include not only states and territories with their own Lifeline/Link Up programs 
that have adopted the federal default criteria, but also states and territories that have not adopted their own 
Lifeline/Link Up program. In April 2004, the Commission released an order expanding the federal 
default eligibility criteria to include an income-based criterion and additional means-tested programs.160 
67. Eligibility for Lifeline and Link Up. In states that provide state Lifeline and Link Up 
support, Lifeline and Link Up are available to all subscribers who meet state eligibility requirements. 
Although states have some latitude in selecting means tests, state commissions must establish narrowly 
targeted qualification criteria that are based solely on income or factors directly related to income for lowincome 
residents to be eligible for Lifeline and Link Up. In addition, states with eligible residents of 
tribal lands must ensure that their qualification criteria are reasonably designed to apply to residents of 
tribal lands, if applicable.161 To receive Lifeline and Link Up in a state that does not mandate state 
Lifeline support, consumers must certify that their household income is at or below 135 percent of the 
Federal Poverty Guidelines, or that they participate in one of the following seven federal programs: 
157 47 U.S.C.  151, 154(i), 201, 205. 
158 Lifeline currently provides low-income consumers with discounts of up to $10.00 off of the monthly cost of 
telephone service for a single telephone line in their principal residence, though this amount adjusts, in part, to 
reflect the carriers tariffed federal subscriber line charge. See 47 C.F.R.  54.403. Link Up provides low-income 
consumers with discounts of up to $30.00 off of the initial costs of installing telephone service. See 47 C.F.R.  
54.411(a). Under the Commissions rules, there are four tiers of federal Lifeline support. All eligible subscribers 
receive Tier 1 support which provides a discount equal to the ETCs subscriber line charge. Tier 2 support provides 
an additional $1.75 per month in federal support, available if all relevant state regulatory authorities approve such a 
reduction. (All fifty states have approved this reduction.) Tier 3 of federal support provides one half of the 
subscribers state Lifeline support, up to a maximum of $1.75. Only subscribers residing in a state that has 
established its own Lifeline/Link Up program may receive Tier 3 support, assuming that the ETC has all necessary 
approvals to pass on the full amount of this total support in discounts to subscribers. Tier 4 support provides eligible 
subscribers living on tribal lands up to an additional $25 per month towards reducing basic local service rates, but 
this discount cannot bring the subscribers cost for basic local service to less than $1. See 47 C.F.R.  54.403. 
159 See 47 C.F.R.  54.409(a), 54.415(a). 
160 See Lifeline and Link Up, WC Docket No. 03-109, Report and Order and Further Notice of Proposed 
Rulemaking, 19 FCC Rcd 8302 (2004). 
161 47 C.F.R.  54.409(a).

Federal Communications Commission FCC 08-262 
A-32 
Medicaid, Food Stamps, Supplemental Security Income (SSI), Federal Public Housing Assistance 
(Section 8), the Low-Income Home Energy Assistance Program (LIHEAP), the National School Lunch 
Programs free lunch program, or Temporary Assistance for Needy Families (TANF).162 Subscribers 
living on tribal lands qualify to receive federal Lifeline support if: (1) they qualify under state criteria in a 
state that provides Lifeline support; (2) they certify that their household income is at or below 135 percent 
of the Federal Poverty Guidelines; (3) they certify that they receive benefits from one of the seven federal 
programs listed above; or (4) they certify that they participate in one of the following additional federal 
assistance programs: Bureau of Indian Affairs General Assistance (GA), Tribally administered Temporary 
Assistance for Needy Families (Tribal TANF), or Head Start (meeting the income-qualifying standard).163 
68. TracFone and Computer and Communications Industry Association Petitions. On 
October 9, 2008, TracFone Wireless, Inc. (TracFone) submitted a petition requesting that the Commission 
establish a trial basis program to support broadband Internet access service and the devices that support 
this service.164 Citing data demonstrating that a significant amount of low-income families are unable to 
afford broadband Internet access, TracFone proposes that the Commission, on a temporary basis, provide 
affordable access to low-income consumers by supporting broadband Internet access service and the 
devices used to access these services.165 TracFone proposes limiting the program to 500,000 to 100,000 
low-income households in Florida, Virginia, Tennessee, and the District of Columbia.166 Doing so, 
according to TracFone, will enable to the Commission to examine how to better make available 
broadband Internet access service to low-income consumers throughout the Nation.167 
69. On October 7, 2008, the Computer and Communications Industry Association (CCIA) 
filed a petition requesting the Commission revise the definition of universal service supported services to 
allow low-income consumers receive support for broadband Internet access services.168 CCIA states that, 
despite a critical need for broadband Internet access service, low-income consumers still have a 
considerably low broadband Internet access deployment rate. Accordingly, CCIA argues the definition of 
supported services for purposes of universal service should be revised to provide support for broadband 
Internet access service to low-income consumers.169 
70. In recent proceedings, other parties have also urged the Commission to provide lowincome 
consumers with support for broadband services. For example, Windstream argues that the 
Commission should direct broadband support to low-income consumers where such support is most 
162 47 C.F.R.  54.409(b). 
163 47 C.F.R.  54.409(a)(d). 
164 See Lifeline and Link Up, Federal-State Joint Board on Universal Service, WC Docket No. 03-109, CC Docket 
No. 96-45, Petition to Establish A Trial Broadband Lifeline/Link Up Program (filed Oct. 9, 2008) (TracFone 
Petition). 
165 See TracFone Petition at 34. 
166 See TracFone Petition at 3. 
167 See TracFone Petition at 5. 
168 See Petition for Rulemaking to Enable Low-Income Consumers to Access Broadband Through the Universal 
Service Lifeline and Link Up Programs, WC Docket No. 03-109 (filed Oct. 7, 2008) (CCIA Petition). 
169 See CCIA Petition at 7.

Federal Communications Commission FCC 08-262 
A-33 
needed.170 AARP also concludes that the Commission should provide Lifeline/Link Up support for 
broadband services and urges the Commission to conduct a proceeding to examine the matter.171 AARP 
proposes that in addition to examining supporting broadband services, the Commission should also 
examine how to increase low-income consumers access to devices that support broadband services and 
education on how to use such devices.172 Many consumer groups and service providers have also 
commented in support of TracFone and CCIAs proposals to support the provision to low-income 
consumers of broadband Internet access service and the devices used to access these services.173 
B. Discussion 
71. Consistent with the Commissions authority under sections 1, 4(i), 201, 205, and 254 of 
the Act, we establish a Lifeline and Link Up pilot program to support the provision of broadband Internet 
access service and the devices used to access this service to low-income consumers.174 In doing so, we 
explain the justification for establishing this program and provide criteria and obligations applicants must 
satisfy for selection to participate in this program. Further, we establish requirements for oversight and 
administration of the Pilot Program. 
170 See Letter from Eric Einhorn, Vice President Governmental Affairs, Windstream Communications Inc., to 
Marlene Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 99-68, 08-122, 05-337, 08-152 
(Sept. 24, 2008) (Windstream Sept. 24, 2008 Ex Parte Letter). 
171 AARP Joint Board Comprehensive Reform NPRM Comments at 55. 
172 AARP Joint Board Comprehensive Reform NPRM Comments at 55. 
173 See, e.g., Letter from Dale R. Schmick, CEO, YourTel America, Inc., to Marlene H. Dortch, Secretary, FCC, CC 
Docket Nos. 96-45, 01-92, WC Docket Nos. 03-109, 05-337, at 2 (filed Oct. 21, 2008) (YourTel Oct. 21, 2008 Ex 
Parte Letter); Letter from Thomas J. Sugrue, Vice President Government Affairs, T-Mobile, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket Nos. 04-356, 07-195 at 3 (filed Oct. 17, 
2008) (urging the Commission to adopt quickly TracFones and CCIAs proposals); Letter from Karyne Jones, 
President & CEO, National Caucus and Center on Black Aged, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 03-109 at 1 (filed Oct. 29, 2008) (NCBA Oct. 29, 2008 Ex Parte Letter); Letter from 
Donnie Ruby, Staff Associate, Telecommunications Research and Action Center, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 28, 2008); Letter from Bill Newton, Executive 
Director, Florida Consumer Action Network, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC 
Docket No. 03-109 (filed Oct. 27, 2008); Letter from Robert D. Atkinson, Chair Public Policy Committee, Alliance 
for Public Technology, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed 
Oct. 24, 2008) (APT Oct. 24, 2008 Ex Parte Letter); Letter from John Breyault, Vice President of Public Policy 
Telecommunications and Fraud, National Consumers League, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 03-109 (filed Oct. 23, 2008) (NCL Oct. 23, 2008 Ex Parte Letter); Letter from Mark 
Richert, Director, Public Policy, American Foundation for the Blind, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 28, 2008) (AFB Oct. 28, 2008 Ex Parte Letter). 
174 To the extent that our adoption of the Pilot Program adds broadband to the list of universal service supported 
services, we clarify that this inclusion is limited only to the Pilot Programbroadband is not a supported service for 
other low-income or high-cost support purposes. Pursuant to section 254(c)(1) of the Act, the Joint Board has 
recommended adding broadband as a supported service, and we do so for the limited purpose of the Pilot Program. 
See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 4 (The Joint Board now 
recommends that the nations communications goals include achieving . . . universal availability of broadband 
Internet services). Furthermore, the Commissions authority to provide universal service support to low-income 
consumers pre-dates the adoption in 1996 of section 254 of the Act, and arises out of sections 1, 4(i), 201, and 205 
of the Act. 47 U.S.C.  151, 154, 201, 205; Universal Service First Report and Order, 12 FCC Rcd at 895657, 
paras. 33840. Pursuant to our authority to regulate low-income support under these sections, as well as under 
section 254, we provide universal service support for broadband Internet access services through the Pilot Program.

Federal Communications Commission FCC 08-262 
A-34 
72. Broadband Internet Access Service and Devices Eligible for Low Income Support. In the 
Universal Service First Report and Order, consistent with its statutory obligations, the Commission 
maintained the authority to adopt changes to the Lifeline program to make it more consistent with 
Congresss mandates in the 1996 Act if such changes would serve the public interest.175 We believe that a 
Lifeline and Link Up pilot program comports with the goals of universal service, and advances the public 
interest by providing new technologies and services to low-income consumers. Section 254(b)(2) of the 
Act instructs the Commission to base policies for the advancement of universal service on the principle 
that [a]ccess to advanced telecommunications and information services should be provided in all regions 
of the Nation.176 Similarly, section 254(b)(3) states that low-income consumers . . . should have access 
to . . . advanced telecommunications and information services, that are reasonably comparable to those 
services provided in urban areas and that are available at rates charged for similar services in urban 
areas.177 
73. Since the Commission first adopted its universal service rules in response to the 1996 
Act, broadband Internet access service has evolved into a critical service for American consumers.178 The 
majority of consumers who use broadband Internet access service today rely on it for telework, access to 
banking services, interaction with government, entertainment, shopping, access to news and other 
information, and many other uses. Access to broadband Internet access service is especially important to 
low-income consumers for purposes of education, public health and public safety.179 High-speed 
connections to the Internet allow children in low-income families access to distance learning and 
research.180 Telemedicine networks made possible by broadband Internet access service also save lives 
and improve the standard of healthcare to low-income families living in areas that may lack access to the 
breadth of medical expertise and advanced medical technologies available in other areas.181 Broadband 
Internet access service also enables the sharing of critical, time-sensitive information with first 
responders, government officials, and health care providers, thereby improving the governments ability 
to provide a comprehensive and cohesive response to a public health crisis. 
74. Despite the advances in broadband technology, broadband availability still lags for low- 
175 Universal Service First Report and Order, 12 FCC Rcd at 8956, para. 339. 
176 47 U.S.C.  254(b)(2) (emphasis added). 
177 See 47 U.S.C.  254(b)(3) (emphasis added). 
178 See APT Oct. 24, 2008 Ex Parte Letter at 2; NCBA Oct. 29, 2008 Ex Parte Letter at 1; NCL Oct. 23, 2008 Ex 
Parte Letter at 1. 
179 According to the National Caucus and Center on Black Aged, older low-income Americans have difficulty 
affording broadband services and many do not have Internet access. NCBA Oct. 29, 2008 Ex Parte Letter at 1 
(citing Older Americans, Broadband and the Future of the Net, SeniorNet, 2008). Commenters also assert that 
broadband connections are particularly necessary for consumers who are blind, visually impaired, deaf or hard of 
hearing. See APT Oct. 24, 2008 Ex Parte Letter at 1 (citing ALLIANCE FOR PUBLIC TECHNOLOGY, ACHIEVING 
UNIVERSAL BROADBAND: POLICIES FOR STIMULATING DEPLOYMENT AND DEMAND 27 (2007)); AFB Oct. 28, 2008 
Ex Parte Letter. 
180 See Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a 
Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the 
Telecommunications Act of 1996, GN Docket No. 07-45, Notice of Inquiry, 22 FCC Rcd 7816, 7817, para. 3 (2007) 
(706 Fifth NOI). 
181 See 2006 Rural Health Care Pilot Program Order, 21 FCC Rcd at 11112, para. 5; 706 Fifth NOI, 22 FCC Rcd at 
7817, para. 4.

Federal Communications Commission FCC 08-262 
A-35 
income consumers.182 The Commissions most recent data reveal that where the median income is under 
$21,000, approximately 99.5 percent of households have high-speed service available with speeds in 
excess of 200 kbps in at least one direction.183 Yet, according to the Pew Internet & American Life 
Project, only 25 percent of households with annual incomes below $20,000 have broadband service.184 In 
contrast, among those living in households with annual incomes in excess of $100,000, broadband 
adoption is approximately 85 percent.185 
75. According to the Commissions data, there are approximately 6.9 million consumers 
participating in the Lifeline universal service program.186 Providing an additional $300 million in annual 
support through the low-income universal service support mechanisms over a three-year period should 
increase the broadband subscribership for low-income customers to over fifty percent.187 
76. We therefore find that this Pilot Program furthers the universal service objectives of 
section 254 of the Act and serves the public interest by making this critical service available to the lowincome 
Americans who cannot otherwise afford it. In addition, the Pilot Program will provide the 
Commission with a more complete and practical understanding of how to ensure the best use of Lifeline 
and Link Up universal service support to deploy advanced services to low-income consumers.188 
1. Available Funding 
77. We establish a maximum annual funding level for this broadband Lifeline and Link Up 
Pilot Program at $300 million for each of the next three years. In its petition, TracFone proposes that a 
pilot program should fund up to either $180 million or $360 million per year for Lifeline broadband 
Internet access service support, and up to $125 million or $250 million for the Link Up portion of the 
program, for a total of either $305 million or $610 million, depending on whether the program would 
182 See Cellular South High-Cost Reform NPRMs Comments at 10. 
183 See FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF DECEMBER 31, 2006, tbl. 19 (2007), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf. 
184 See 2008 PEW BROADBAND ADOPTION STUDY ii. 
185 See 2008 PEW BROADBAND ADOPTION STUDY at 2. 
186 See 2007 UNIVERSAL SERVICE MONITORING REPORT. 
187 Desktop computers can be purchased for as low as $200. See Walmart Consumer Products, 
http://www.walmart.com/catalog/catalog.gsp?cat=3951&fromPageCatId=14503 (last visited Oct. 24, 2008). For 
$267, a consumer can purchase a new ASUS Eee PC 2G Surf laptop. See Amazon ASUS Eee PC 2G Surf Product 
Page, http://www.amazon.com/gp/product/B00114T9WY/ref=noref?ie=UTF8&s=pc (last visited Oct. 24, 2008). 
Personal computers and wireless devices will continue to become available at even lower rates. Throughout the 
world, there are $100 laptops and wireless devices. See Michael Trucano, InfoDev.org, Quick guide: Low-cost 
computing devices and initiatives for developing world (Apr. 2008), 
http://www.infodev.org/en/Publication.107.html (last visited Oct. 25, 2008). For example, Candlebox, being 
developed for use in India by Qualcom, is a low-cost, low-power device that uses mobile technology to provide 
wireless Internet access and supports e-mail, social networking, e-commerce and distance learning applications. 
RICHARD P. ADLER &MAHESH UPPAL, ASPEN INSTITUTE INDIA, M-POWERING INDIA:MOBILE COMMUNICATIONS 
FOR INCLUSIVE GROWTH at 21 (2008), available at http://www.aspeninstitute.org/atf/cf/%7Bdeb6f227-659b-4ec8- 
8f84-8df23ca704f5%7D/2008INDIA.pdf. 
188 See NCBA Oct. 29, 2008 Ex Parte Letter at 2 (suggesting that the Pilot Program should be modeled after the 
existing Lifeline program and can be studied and evaluated to develop future broadband Lifeline/Link Up support 
programs).

Federal Communications Commission FCC 08-262 
A-36 
support 500,000 participants or one million participants.189 
78. While we recognize the importance of making sufficient funds available for this Pilot 
Program to enable us to determine whether and, if so, how to make broadband Internet access service 
funding a permanent part of the Lifeline and Link Up programs, we find that the levels of funding 
proposed by TracFone are not sufficiently tied to a specific improvement in the adoption of broadband by 
Lifeline subscribers, as discussed above. In 2007, the overall size of the universal service funds 
disbursement mechanisms was approximately $7.0 billion.190 Of that amount, approximately $823 
million went to fund the universal service low-income program.191 TracFones proposal represents a 
potential 74 percent increase over existing low-income program disbursements, and would be limited to 
targeting low-income consumers in only three states and the District of Columbia.192 We are concerned 
that such a large funding commitment for a limited geographic area would not provide the Commission 
with sufficient information to assess the benefits of expanding the low-income support mechanisms upon 
the conclusion of the Pilot Program. When extrapolated to all states and territories, the low-income pilot 
program proposed by TracFone could potentially double the size of the $7 billion universal service 
fund.193 We find it more appropriate to fund a pilot program that better correlates with providing 
broadband Internet access service to all eligible low-income support recipients as this provides better 
information regarding the permanent adoption of such support. 
79. Instead, we set the size of the Lifeline and Link Up Pilot Program at up to $300 million 
per year over the next three years. We find that this amount provides benefits to low-income consumers 
while not overly increasing the amount of low-income support disbursed from the universal service fund. 
Specifically, this level of funding should enable the program to increase the broadband subscribership for 
these customers to over fifty percent.194 
2. Eligible Services and Equipment 
80. For the broadband Lifeline/Link Up Pilot Program we adopt today, we limit support to 
one subsidy per household. For purposes of this order, we define household as one adult and his/her 
dependants, living together in the same residence.195 Participating households who remain eligible for the 
program will be entitled to remain in the program beyond the first year, subject to the requirement that 
participating ETCs verify their customers continued eligibility under the applicable income-based or 
program-based criteria, as they are required to do for their current voice Lifeline customers. We do not 
require state or carrier matching requirements. The Pilot Program is exempt from fees and taxes to the 
same degree as the current Lifeline programs. 
189 See TracFone Petition at 5. 
190 See USAC 2007 ANNUAL REPORT at 51. USACs administrative expenses for 2007 were $104,073,000. Id. at 3. 
191 USAC 2007 ANNUAL REPORT at 3. 
192 See TracFone Petition at 3. 
193 Assuming $250 is provided to each consumer, the total cost of the TracFone proposal could reach almost $7 
billion. 
194 See supra para. 75. 
195 Federal-State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, 
Rural Health Care Support Mechanism, Lifeline and Link-up, CC Docket Nos. 96-45, 02-6 and WC Docket Nos. 
02-60, 03-109, Order, 20 FCC Rcd 16883, 16890, para. 12 (2005) (Hurricane Katrina Order). Also, service 
agreements of longer than the lesser of one year or the remaining Pilot Program funding period are prohibited. 

Federal Communications Commission FCC 08-262 
A-37 
81. Under the Link Up portion of the Pilot Program we adopt today, we seek to overcome 
barriers that low-income households might face in subscribing to broadband services, such as lacking the 
equipment necessary to connect to broadband services. Therefore, if an ETC currently provides or seeks 
to provide Lifeline voice service to an eligible customer, the Pilot Program will support 50 percent of the 
cost of broadband Internet access service installation, including a broadband Internet access device, up to 
a total amount of $100. The device can be a laptop computer, a desktop computer, or a handheld device, 
so long as the equipment has the capability to access the Internet at the speeds established per this order, 
and the equipment carries at least a warranty.196 The device subsidy is a one-time subsidy and is limited 
to one unit per qualified household.197 The subsidy amount will be paid by USAC to the participating 
ETC that provides the device and the service to the customer, utilizing the same process that USAC uses 
for the current Link Up program.198 
82. Once low-income households have the ability to connect to the Internet, we seek to 
ensure that they can afford to subscribe to broadband Internet access service. Under the Lifeline portion 
of the program, if an ETC currently provides or seeks to provide Lifeline voice service to an eligible 
household, and that ETC provides broadband Internet access service, the Pilot Program will double the 
current monthly subsidy for the Lifeline subscriber up to $10 per month to offset the cost of broadband 
Internet access service.199 As defined in this order, broadband Internet access service is an always on 
service that combines computer processing, information provision, and computer interactivity with data 
transport, enabling end users to access the Internet and use a variety of applications, at speeds discussed 
below.200 This monthly support provided to participating customers under the Pilot Program is separate 
from and in addition to their monthly Lifeline support for voice telephone service.201 
83. All ETCs participating in the existing low-income programs are eligible to participate, 
provided that they notify the Commission and USAC of their election to participate at least a month in 
advance and certify that they will comply with all program requirements, including those set forth herein. 
Such certification must identify the service area in which the ETC plans to offer such Lifeline/Link Up 
broadband services, the costs of such service and broadband device, and all costs, both recurring and 
nonrecurring, to the customer participating in the program. The ETC must offer the services supported in 
the Pilot Program throughout the entire service area. The Wireline Competition Bureau will release a 
public notice establishing a deadline by which ETCs must notify the Commission of their intention to 
participate. 
84. The program we adopt today is technologically and competitively neutral; however, we 
196 Where such device costs $100 or less, the Pilot Program will support 90% of the cost of the broadband Internet 
access device. 
197 47 C.F.R.  54.411(b). 
198 See USAC, Low Income: Overview of the Process, http://www.universalservice.org/li/about/overviewprocess.
aspx (last visited Oct. 11, 2008). 
199 Because $10 is the maximum federal support under Tier 1 to Tier 3 of the existing Lifeline program, we find this 
to be the appropriate support amount for purposes of the Pilot Program. See 2007 UNIVERSAL SERVICE MONITORING 
REPORT, tbl. 2.3. Ten dollars is also above the average Lifeline support amount of $8.46, which includes both tribal 
and non-tribal recipients. See id., tbl. 2.12. 
200 See infra para. 84. 
201 Pilot Program participants may not receive support for the same services from both the Pilot Program and the 
existing universal service programswhich consist of the rural health care, E-rate, high-cost, and low-income 
programs.

Federal Communications Commission FCC 08-262 
A-38 
establish minimum speeds at which participating ETCs must be able to provide broadband service. ETCs 
participating in the Pilot Program must offer broadband Internet access service with download speeds 
equal to or greater than 768 kbps and upload speeds greater than 200 kbps.202 
3. Selection Criteria 
85. TracFone suggests that all ETCs notifying the Commission of their intent to participate in 
the Pilot Program should be allowed to provide the broadband Internet access service and devices under 
the Pilot Program.203 TracFone also argues that the Commission should limit the Pilot Program to 
500,000 to 100,000 low-income households in Florida, Virginia, Tennessee and the District of 
Columbia.204 We agree with TracFone that all ETCs should be allowed to provide services under the 
Pilot Program, but we disagree that the consumers who are eligible to participate should be limited to 
three states and the District of Columbia.205 Instead, it is consistent with the public interest to allow all 
ETCs and consumers that meet the criteria discussed in this order to participate in the Pilot Program, 
limited only by the availability of funds. Support will be disbursed on a first come, first served basis 
where priority is established according to ETCs submission of reimbursement requests to USAC and 
compliance with program eligibility. 
86. Consumer Qualifications. To receive reimbursement under the Pilot Program, an ETC 
must provide support to a consumer eligible for support under the current Lifeline and Link Up programs. 
Specifically, the consumer must meet the eligibility criteria specified in section 54.409 of the 
Commissions rules.206 We agree with TracFone that only one connection and device per household 
should be funded. Accordingly, we limit Pilot Program support to one new connection and device per 
household. Lifeline consumers who currently have a broadband connection and related Internet device 
are excluded from participation in this Pilot Program. In addition to their obligations under section 
54.409 of our rules, consumers must demonstrate that they do not currently have a broadband Internet 
access service subscription or broadband Internet access device.207 
87. ETC Obligation to Offer Pilot Program Services. Prior to participation, ETCs must 
notify the Commission and USAC of their intention to participate. A participating ETC must offer the 
services and supported devices to all qualifying low-income consumers throughout its service areas. It 
must also follow the carrier obligations identified in section 54.405, as applicable, of the Commissions 
rules.208 Consumers and ETCs must follow the framework and requirements of the existing Lifeline and 
Link Up program.209 
4. Implementation and Reporting Requirements 
202 See supra para. 52. 
203 TracFone Petition at 4. 
204 TracFone Petition at 3. 
205 See, e.g., YourTel Oct. 21, 2008 Ex Parte Letter at 2 (urging the Commission to allow low-income consumers 
living in Missouri to be eligible for Pilot Program support). 
206 See 47 C.F.R.  54.409. 
207 As discussed above, for purposes of this Pilot Program we define household as one adult and his/her 
dependants living together in the same residence. See supra paras 8084; Hurricane Katrina Order, 20 FCC Rcd at 
16890, para. 12. 
208 See 47 C.F.R.  54.405. 
209 47 C.F.R.  54.400.417.

Federal Communications Commission FCC 08-262 
A-39 
88. To be eligible for support, ETCs must submit a reimbursement request to USAC 30 days 
from the date a customer subscribes to service or purchases a device. We require participating each ETC 
to file with USAC on a monthly basis the number of Pilot Program consumers it is serving, the types and 
prices of devices offered, the type of technology used (including make and model of equipment used) and 
the speeds at which it is providing service to each of those consumers. ETCs in their monthly submission 
must also report the number of subscribers served for the past month and projections for the number of 
subscribers for the next 2 months. Such monthly reporting is required to allow USAC to monitor 
availability of funds under the Pilot Program and notify participating ETCs when funds may no longer be 
available for additional customers. In determining and/or projecting funds availability, USAC should 
consider the recurring costs of existing customers; we decline to specifically allocate the available 
funding between Lifeline and Link Up, relying instead on the certification and reporting requirements 
herein to enable USAC to properly administer the Pilot Program. 
89. Similar to current recordkeeping requirements, we also require ETCs to maintain records 
to document compliance with all Commission requirements governing this Pilot Program for the three full 
preceding calendar years and provide that documentation to the Commission or USAC upon request.210 
Additionally, ETCs must maintain documentation for as long as the consumer is receiving broadband 
Lifeline service from that ETC pursuant to the Pilot Program, and for three additional years after the 
consumer stops receiving service pursuant to the Pilot Program. 
90. ETCs may receive reimbursement for the revenue they forego in reducing the price of 
any qualified consumers broadband Internet access service and related device. As a condition of 
participation, it is the ETCs responsibility to make available a wide array of cost efficient broadband 
Internet access devices capable of providing the speeds described above to qualified consumers under this 
program. ETCs must also comply with the self-certification procedures, and submit certifications with 
their monthly submissions, consistent with sections 54.410 and 54.416 of the Commissions rules.211 Any 
services or equipment supported under this order are non-transferable and the devices must be returned to 
the ETC if they are not used in compliance with the terms of this order or other applicable laws or 
regulations. We delegate to the Wireline Competition Bureau the authority to disqualify an ETC or 
consumer from the Pilot Program and seek recovery of support not used in a manner consistent with this 
order. 
5. Program Oversight 
91. We are committed to guarding against waste, fraud, and abuse, and ensuring that funds 
disbursed through the Pilot Program are used for appropriate purposes. In particular, each Pilot Program 
participant shall be subject to audit by the Office of Inspector General and, if necessary, investigated by 
the Office of Inspector General, to determine compliance with the Pilot Program, Commission rules and 
orders, as well as section 254 of the Act.212 The Pilot Program participant will be required to comply 
fully with the Office of Inspector Generals audit requirements including, but not limited to, providing 
full access to all accounting systems, records, reports, and source documents of itself and its employees, 
contractors, and other agents in addition to all other internal and external audit reports that are involved, 
in whole or in part, in the administration of this Pilot Program.213 Such audits or investigations may 
210 See 47 C.F.R.  54.417(a). 
211 See 47 C.F.R.  54.410, 54.416. 
212 See 47 C.F.R.  54.619; Comprehensive Review Report and Order, 22 FCC Rcd at 16387, para. 26. 
213 This includes presenting personnel to testify, under oath, at a deposition if requested by the Office of Inspector 
General.

Federal Communications Commission FCC 08-262 
A-40 
provide information showing that a Pilot Program participant or vendor failed to comply with the Act or 
the Commission rules, and thus may reveal instances in which Pilot Program awards were improperly 
distributed or used. To the extent the Commission finds that funds were distributed and/or used 
improperly, the Commission will require USAC to recover such funds though its normal processes, 
including adjustment of support amounts in other universal service programs from which Pilot Program 
participants receive support.214 If any participant fails to comply with Commission rules or orders, or 
fails to timely submit filings required by such rules or orders, the Commission also has the authority to 
assess forfeitures for violations of such Commission rules and orders. In addition, any participant or 
service provider that willfully makes a false statement can be punished by fine or forfeiture under sections 
502 and 503 of the Act,215 or by fine or imprisonment under Title 18 of the United States Code (U.S.C.) 
including, but not limited to, criminal prosecution pursuant to section 1001 of Title 18 of the U.S.C.216 
We emphasize that we retain the discretion to evaluate the uses of monies disbursed through the Pilot 
Program and to determine on a case-by-case basis whether waste, fraud, or abuse of program funds 
occurred and whether recovery is warranted. We remain committed to ensuring the integrity of the 
universal service program and will aggressively pursue instances of waste, fraud, and abuse under the 
Commissions procedures and in cooperation with law enforcement agencies. In doing so, we intend to 
use any and all enforcement measures, including criminal and civil statutory remedies, available under 
law.217 The Commission will also monitor the use of awarded monies and develop rules and processes as 
necessary to ensure that funds are used in a manner consistent with the goals of this Pilot Program. 
Finally, we remind participants that nothing in this order relieves them of their obligations to comply with 
other applicable federal laws and regulations. 
IV. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS 
92. In this Part, we adopt a telephone numbers-based methodology under which contributors 
will pay a constant, flat-rate assessment based on the number of telephone numbers they have assigned to 
residential end users. We set this per-number assessment at the fixed rate of $1.00 per residential number 
per month. We conclude that providers of business services should contribute to the universal service 
fund on a connection basis, and we seek comment on implementation of that methodology. In the 
interim, providers of business services will continue to contribute based on interstate and international 
revenues for these services. The separate contribution methodologies for residential and business services 
will be implemented beginning on January 1, 2010. 
A. Background 
93. In implementing the universal service requirements of the 1996 Act, the Commission 
214 We intend that funds disbursed in violation of a Commission rule that implements section 254 or a substantive 
program goal will be recovered. Sanctions, including enforcement action, are appropriate in cases of waste, fraud, 
and abuse, but not in cases of clerical or ministerial errors. See Comprehensive Review Report and Order, 22 FCC 
Rcd at 1638889, para. 30. 
215 47 U.S.C.  502, 503(b). 
216 18 U.S.C.  1001. Further, the Commission has found that debarment of applicants, service providers, 
consultants, or others who have defrauded the USF is necessary to protect the integrity of the universal service 
programs. Comprehensive Review Report and Order, 22 FCC at 16390, para. 32. Therefore, the Commission 
intends to suspend and debar parties from the Pilot Program who are convicted of or held civilly liable for the 
commission or attempted commission of fraud and similar offenses arising out of their participation in the Pilot 
Program or other universal service programs. See id. paras. 3132. 
217 See, e.g., 41 U.S.C.  5158 (Anti-Kickback Act of 1986); 31 U.S.C.  3729 (False Claims Act).

Federal Communications Commission FCC 08-262 
A-41 
established a method for collecting funds to be disbursed through the various universal service support 
mechanisms. Specifically, the Commission determined that contributions to the universal service fund 
would be assessed on telecommunications providers based on their interstate and international end-user 
telecommunications revenues.218 The Commission concluded that basing providers universal service 
contributions on their revenues would be competitively neutral, easy to administer, and explicit.219 
94. When the Commission adopted the revenue-based contribution system, assessable 
interstate revenues were growing. The total assessable revenue base has declined in recent years, 
however, from about $79.0 billion in 2000 to about $74.5 billion in 2006,220 while universal service 
disbursements grew over that same time period from approximately $4.5 billion in 2000 to over $6.6 
billion in 2006.221 Declines in assessable contribution revenues combined with growth in universal 
service disbursements have increased the contribution factor applied to determine universal service 
contribution amounts.222 This upward pressure jeopardizes the stability and sustainability of the support 
mechanisms, demonstrating the need for long-term fundamental reform of the contribution 
methodology.223 
95. In addition, interstate end-user telecommunications service revenues are becoming 
increasingly difficult to identify as customers migrate to bundled packages of interstate and intrastate 
telecommunications and non-telecommunications products and services.224 The integration of local and 
218 See Universal Service First Report and Order, 12 FCC Rcd at 920607, paras. 84344; 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) (Fifth Circuit Remand Order) (establishing a single contribution for all universal service support 
mechanisms based on interstate and international revenues). 
219 Universal Service First Report and Order, 12 FCC Rcd at 920608, 9211, paras. 843, 84548, 854. 
220 Compare JIM LANDE & KENNETH LYNCH, FCC, 2000 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 
(2002), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf with 
JIM LANDE & KENNETH LYNCH, FCC, 2006 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf. But see Letter from David C. Bergmann, 
Chair, NASUCA Telecommunications Committee, to Chairman Kevin Martin et al., FCC, WC Docket Nos. 08-152, 
07-135, 06-122, 05-337, 05-195, 04-36, 03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262, 96-45, 
80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008 Ex Parte Letter) (arguing that the growth in the 
contribution factor is almost entirely due to the growth in universal service disbursement requirements). 
221 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 1.2a (2001) (2001 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01- 
0.pdf; 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.11; see also USAC 2007 ANNUAL REPORT at 3, 51 
(detailing universal service disbursements for 2007 at approximately $6.9 billion). 
222 The contribution factor grew from 5.9% in the first quarter of 2000 to 11.3% for the fourth quarter of 2008. See 
Proposed First Quarter 2000 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, 15 FCC 
Rcd 3660 (WCB 1999); Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC Docket No. 96- 
45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (Fourth Quarter 2008 Contribution Factor Public Notice). 
223 See 47 U.S.C.  254(b), (d). 
224 Although the Commission has established safe harbors for the reporting of interstate telecommunications 
revenues derived from interstate telecommunications services bundled with customer premises equipment (CPE) or 
information services, it has not established guidelines for reporting interstate telecommunications service revenues 
for flat-rated bundles of wireline interstate and intrastate services. See Policy and Rules Concerning the Interstate, 
Interexchange Marketplace; Implementation of Section 254(g) of the Communications Act of 1934, as amended; 
1998 Biennial Regulatory ReviewReview of Customer Premises Equipment and Enhanced Local Exchange 
(continued.)

Federal Communications Commission FCC 08-262 
A-42 
long-distance wireline services into packages that allow customers to purchase buckets of long distance 
minutes and local service for a single price blurs the distinction between revenue derived from intrastate 
telecommunications service and interstate telecommunications service. Similarly, the availability of 
mobile wireless calling plans that allow customers to purchase buckets of minutes on a nationwide 
network without incurring roaming or long-distance charges also makes it difficult for providers and the 
Commission to identify the amount of revenue derived from interstate telecommunications service.225 
Further, migration to interconnected VoIP services complicates the distinctions that serve as the basis for 
current contribution obligations.226 
96. In 2001 and 2002, the Commission sought comment on modifications to the existing 
revenue-based contribution methodology, and on replacing that methodology with one that assesses 
contributions on the basis of a flat-fee charge, such as a per-line charge.227 The Commission also sought 
comment on other universal service contribution methodologies, including moving to a numbers-based 
methodology.228 Finally, in May 2008, the Commission encouraged commenters to refresh the record in 
several pending intercarrier compensation and universal service reform proceedings, including the 
contribution methodology proceeding.229 
B. Discussion 
97. The system of contributions to the universal service fund is broken. The Commission has 
repeatedly patched the current system to accommodate decreasing interstate revenues, a trend toward allyou-
can-eat services that make distinguishing interstate from other revenues difficult if not impossible 
(continued from previous page) 
Markets, CC Docket Nos. 96-61, 98-183, Report and Order, 16 FCC Rcd 7418, 744648, paras. 4754 (2001) (CPE 
Bundling Order). 
225 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, 2125859, paras. 1315 (1998) (First Wireless 
Safe Harbor Order); see also Federal-State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90- 
571, 92-237, 99-200, 95-116, 98-170, Report and Order and Second Further Notice of Proposed Rulemaking, 17 
FCC Rcd 24952, 2496567, paras. 2125 (2002) (Second Wireless Safe Harbor Order). 
226 See Universal Service Contribution Methodology, WC Docket Nos. 06-122, 04-36, CC Docket Nos. 96-45, 98- 
171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and Order and Notice of Proposed Rulemaking, 21 FCC Rcd 
7518 (2006) (2006 Interim Contribution Methodology Order); affd in part, vacated in part sub nom. Vonage 
Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 2007). 
227 See Federal-State Joint Board on Universal Service, 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 Contribution NPRM); see also Federal- 
State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, 
Further Notice of Proposed Rulemaking and Report and Order, 17 FCC Rcd 3752, 3765, para. 31, 376689, paras. 
3483 (2002) (Contribution First FNPRM). 
228 Second Wireless Safe Harbor Order, 17 FCC Rcd at 2498397, paras. 66100 (seeking comment on capacitybased 
proposals that had been developed in the record and on telephone-number proposals advocated by certain 
parties); Commission Seeks Comment on Staff Study Regarding Alternative Contribution Methodologies, CC Docket 
Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public Notice, 18 FCC Rcd 3006 (2003) 
(Contribution Staff Study) (seeking comment on a Commission staff study that estimated potential contribution 
assessment levels under the then-newly modified revenue-based method and the three connection-based proposals in 
the further notice portion of the Second Wireless Safe Harbor Order). 
229 Interim Cap Clears Path for Comprehensive Reform: Commission Poised to Move Forward on Difficult 
Decisions Necessary to Promote and Advance Affordable Telecommunications for All Americans, News Release 
(May 2, 2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

Federal Communications Commission FCC 08-262 
A-43 
and changes in technology. While the service developments that precipitated these changes have 
enormous consumer benefits, they have also severely strained the contributions system.230 We therefore 
adopt today a system of contributions that will assess a $1.00 contribution per residential telephone 
number per month, and we will move to a connections-based system for business services. In this part, 
we explain our legal authority to move to these new methodologies, why we have decided to move to 
these methodologies, and how the residential numbers-based system will work. 
1. Legal Authority 
98. The Commission has ample authority to require contributions from the variety of 
providers discussed below. The Commissions authority derives from several sections of the Act: section 
254(d), Title I, and section 251(e). These sections of the statute provide us authority to require 
contributions from the kinds of service providers we address below in our discussions of the new 
numbers-based approach for residential services and the connections-based approach for business 
services.
99. Section 254 is the cornerstone of the Commissions universal service program. Section 
254(d) first provides 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.231 
Under this mandatory contribution provision, every provider of telecommunications services232 must 
contribute, although the Commission has authority to exempt a carrier or class of carriers if their 
contributions would be de minimis.233 
100. Section 254(d) also provides that the Commission may require [a]ny other provider of 
interstate telecommunications . . . to contribute to the preservation and advancement of universal service 
if the public interest so requires.234 The Commission has relied on this permissive authority to require 
various providers of telecommunications,235 but not necessarily telecommunications services,236 to 
230 We agree with commenters who argue that the contribution methodology requires a comprehensive overhaul. 
See, e.g., Letter from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and 
Verizon Sept. 11, 2008 Ex Parte Letter); Letter from Roger C. Sherman, Director, Government AffairsWireless 
Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 04-36 at 1 
(filed June 14, 2006) (Sprint Nextel June 14, 2006 Ex Parte Letter); Letter from Susanne A. Guyer, Senior Vice 
President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96- 
45, WC Docket Nos. 05-337, 06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 Ex Parte Letter); Letter from 
Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and Verizon Oct. 20, 2008 Ex Parte Letter). 
231 47 U.S.C.  254(d). 
232 Section 254(d) refers to telecommunications carriers, which are defined as any provider of 
telecommunications services. 47 U.S.C.  153(44). 
233 47 U.S.C.  254(d). 
234 47 U.S.C.  254(d). 
235 Telecommunications is defined as the 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. 
47 U.S.C.  153(43).

Federal Communications Commission FCC 08-262 
A-44 
contribute. For example, the Commission has required entities that provide interstate telecommunications 
to others on a private contractual basis to contribute to the universal service fund,237 as well as payphone 
aggregators.238 Most recently, we required interconnected VoIP providers to contribute even though the 
Commission has not determined that they are telecommunications carriers. Specifically, in the 2006 
Interim Contribution Methodology Order, we used our permissive authority under section 254(d) to 
require interconnected VoIP providers to contribute, and we noted that they provide 
telecommunications to their end users.239 We also noted that in some cases, the interconnected VoIP 
provider may be providing telecommunications even if it arranges for the end user to have PSTN access 
through a third party.240 
101. The Commission also has authority under Title I to require other service providers to 
contribute. In general, the Commission can rely on its ancillary jurisdiction under Title I when the 
Commission has subject matter jurisdiction over the service to be regulated, and the assertion of 
jurisdiction is reasonably ancillary to the effective performance of [its] various responsibilities. 241 The 
Commission relied on this authority before section 254 was added by the 1996 Act to establish a highcost 
support fund,242 which the U.S. Court of Appeals for the D.C. Circuit found to be a permissive 
exercise of Title I authority.243 And more recently in the 2006 Interim Contribution Methodology Order, 
the Commission relied on its ancillary jurisdiction under Title I as an additional source of authority to 
require contributions from interconnected VoIP providers.244 In that order, the Commission noted that the 
Act grants subject matter jurisdiction over interconnected VoIP because it involves transmission of 
(continued from previous page) 
236 Telecommunications service is defined 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. 47 
U.S.C.  153(46). 
237 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918384, paras. 79495. 
We note that private service providers that provide interstate connections solely to meet their internal needs (i.e., 
self-providers) will not be required to contribute under the new methodology. This is consistent with our current 
policy. In the Universal Service First Report and Order, the Commission reasoned that, for self-providers of 
interstate telecommunications, the telecommunications is incidental to their primary non-telecommunications 
business. See Universal Service First Report and Order, 12 FCC Rcd at 9185, para. 799. 
238 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918485, paras. 79698. 
But see Letter from Robert F. Aldrich, Counsel for the American Public Communications Council (APCC), to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23, 2008). 
239 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753840, paras. 3941; 47 C.F.R.  54.706(a). 
240 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41 (To provide this capability 
[telecommunications], interconnected VoIP providers may rely on their own facilities or provide access to the PSTN 
through others.). 
241 See United States v. Southwestern Cable Co., 392 U.S. 157, 17778 (1968); United States v. Midwest Video 
Corp., 406 U.S. 649, 66768 (1972); FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979); see also American 
Library Assn v. FCC, 406 F.3d 689 (D.C. Cir. 2005). 
242 See Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, CC Docket No. 80- 
286, Decision and Order, 96 F.C.C.2d 781, (1984), affd sub nom. Rural Tel. Coalition v. FCC, 838 F.2d 1307 (D.C. 
Cir. 1988). 
243 Rural Tel. Coalition, 838 F.2d at 1315. 
244 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 754143, paras. 4649.

Federal Communications Commission FCC 08-262 
A-45 
voice by wire or radio,245 and that imposing contribution obligations on interconnected VoIP providers 
was reasonably ancillary to the effective performance of the Commissions responsibilities to establish 
specific, predictable, and sufficient mechanisms . . . to preserve and advance universal service.246 In 
particular, the Commission noted that interconnected VoIP providers benefit from their interconnection 
to the PSTN.247 
102. In addition, Congress provided the Commission with plenary authority over numbering 
in section 251(e). Specifically, the Commission has exclusive jurisdiction over those portions of the 
North American Numbering Plan that pertain to the United States.248 The Commission relied on its 
authority under section 251(e) to support its action to require interconnected VoIP providers to provide 
E911 services.249 The Commission noted that it exercised its authority under section 251(e) because, 
among other reasons, interconnected VoIP providers use NANP numbers to provide their services.250 
103. These sections of the Act provide the Commission ample authority to require 
contributions from all providers subject to the new numbers-based and connections-based approaches 
described in more detail below. These methodologies may require some providers to contribute directly 
to universal service when in the past they may have been contributing only indirectly or not at all. For 
example, under the numbers-based approach, any provider who assigns an Assessable Number to a 
residential user must contribute $1.00 per number per month.251 Providers such as VoIP providers who 
are not interconnected VoIP providers, electronic facsimile service providers, Internet-based TRS 
providers, one-way and two-way paging service providers, and telematics providers may assign 
Assessable Numbers to residential users and maintain the retail relationship with the end users.252 Not all 
of these providers are telecommunications carriers subject to the mandatory contribution obligation of 
section 254(d). Nonetheless, we have authority to require them to contribute. First, all of these providers 
providedirectly or indirectlysome amount of interconnection to the public switched telephone 
network (PSTN), the network that universal service supports. Interconnection to the PSTN benefits the 
consumers of each of these types of services, facilitating communication (even if just one-way 
communication) between the end user and PSTN users. As we noted in the 2006 Interim Contribution 
Methodology Order, interconnected VoIP providers often provide access to the PSTN via third parties253 
and this is sufficient to permit the Commission to rely on its authority to require contributions from other 
provider[s] of interstate telecommunications.254 And as we explain below, it is in the public interest (as 
245 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 47 & n.160 (citing IP-Enabled 
Services, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005) (VoIP 911 Order), 
affd sub nom. Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); 47 U.S.C.  152(a)). 
246 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48 (quoting 47 U.S.C.  254(d)). 
247 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48. 
248 47 U.S.C.  251(e)(1). 
249 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
250 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
251 The term Assessable Number is defined below. See infra paras. 115129. 
252 This list is meant to be illustrative, not exhaustive. Other providers may also have to contribute to the universal 
service fund based on the criteria described in this order. 
253 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41. 
254 47 U.S.C.  254(d).

Federal Communications Commission FCC 08-262 
A-46 
required by section 254(d)) that these providers contribute. Furthermore, the prerequisites for the use of 
our Title I ancillary jurisdiction are unquestionably met here. All the services that rely on assignment of 
an Assessable Number to a residential end user come within the Commissions broad subject matter 
jurisdiction because they involve in some manner interstate . . . communication by wire or radio.255 
And similar to our explanation in the 2006 Interim Contribution Methodology Order, requiring 
contributions from providers who take advantage of PSTN connectivity whether directly or indirectly 
makes sense because their end users benefit from the ubiquity of that network and from being somehow 
interconnected with it.256 Finally, our plenary authority over numbering supports our actions here with 
regard to a numbers-based methodology for residential services. The purpose of a uniform system of 
numbering is to facilitate communication on interconnected networks based on a standardized system of 
identifierstelephone numbers.257 Those customers who are assigned telephone numbers, whether for 
plain old telephone service (POTS) or for any other service, are using the numbers to take advantage of 
some feature of the PSTN, whether it is the capability to be called, to have their locations automatically 
relayed to emergency call handlers, to be faxed from anywhere, or for some other reason. Because 
customers are receiving this benefit, it is appropriate that their service providers (and ultimately, likely, 
the customers themselves) contribute to the ubiquity and support of the network from which they are 
benefiting. 
104. We reject suggestions that we do not have authority to require contributions based on 
numbers or connections because we lack authority over intrastate services.258 The same number or 
connection typically is used for both interstate and intrastate services. The Commission and courts have 
rejected the assertion that simply because a single facility has the capacity to provide both interstate and 
intrastate services, the Commission lacks authority to regulate any aspect of the facility.259 In fact, the 
subscriber line charge (SLC) that the Commission established is intended to capture the interstate cost of 
the local loop.260 The contribution methodologies we adopt are thus limited to assessments on services 
that can provide interstate service. We will only require providers to contribute to universal service based 
on the Assessable Numbers or connections that are capable of originating or terminating interstate or 
255 47 U.S.C.  152(a); see also VoIP 911 Order, 20 FCC Rcd 1026162, para. 28 (providing detailed explanation of 
why interconnected VoIP falls within the Commissions subject matter jurisdiction). 
256 Compare 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7540, para. 43. 
257 Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96- 
98, Second Report and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, 19404, 19407, paras. 19, 
25 (1996) (noting that numbering administration ensures the creation of a nationwide, uniform system of numbering 
essential to the efficient delivery of interstate and international telecommunications services and the development of 
a competitive telecommunications services market) (subsequent history omitted); see also Administration of the 
North American Numbering Plan, CC Docket No. 95-283, Report and Order, 11 FCC Rcd 2588, 2591, para. 4 
(1995) (Adequate telephone numbers, available through a uniform numbering plan, are essential to provide 
consumers efficient access to new telecommunications services and technologies and to support continued growth of 
an economy increasingly dependent upon those services and technologies.); Administration of the North American 
Numbering Plan, CC Docket No. 92-237, Notice of Proposed Rulemaking, 11 FCC Rcd 2068, para. 2 (1994). 
258 See, e.g., American Association of Paging Carriers (AAPC) Contribution First FNPRM Comments at 7; Alaska 
Communication Systems (ACS) Contribution First FNPRM Reply at 67; Allied Personal Communications 
Industry Association of California (Allied) Contribution First FNPRM Comments at 67; National ALEC 
Association/Prepaid Communications Association (NALA/PCA) Contribution First FNPRM Reply at 3. 
259 See, e.g., NARUC v. FCC, 737 F.2d 1095, 1113 (D.C. Cir. 1984) (The same loop that connects a telephone 
subscriber to the local exchange necessarily connects that subscriber into the interstate network as well.). 
260 NARUC v. FCC, 737 F.2d at 111314.

Federal Communications Commission FCC 08-262 
A-47 
international communications.261 
2. The New Numbers-Based Assessment Methodology for Residential Services 
105. As discussed above, we adopt a new contribution methodology for residential services 
based on assessing telephone numbers, rather than interstate and international services revenue. We find 
that this change will benefit contributors and end users by simplifying the contribution process and 
providing predictability as to the amount of universal service contributions and pass-through charges for 
residential services. For residential services, we set the contribution amount at a flat $1.00 per month 
charge for each number associated with residential services. 
a. Benefits of a Numbers-Based Contribution Methodology 
106. We find that adoption of a telephone number-based methodology for residential services 
will help preserve and advance universal service by ensuring a specific, predictable, and sufficient 
funding source, consistent with the universal service principles of section 254(b) of the Act.262 Changes 
in technology and services have made the revenue-based contribution mechanism difficult to administer. 
As commenters have noted, the distinction between intrastate and interstate revenues is blurring as 
providers move from their traditional roles as pure LECs or interexchange carriers (IXCs) to businesses 
that offer consumers the choice of purchasing their telecommunications needs from a single source.263 
Additionally, these providers are offering consumers greater flexibility, such as bundling of local and long 
distance service at a flat rate.264 Moreover, technologies such as wireless and interconnected VoIP have 
emerged that provide voice and data services that know no jurisdictional boundaries.265 Consumers 
benefit from the opportunity to obtain bundled services, and the universal service contribution mechanism 
should reflect and complement those marketplace and technological developments as much as possible. 
Our decision to use numbers as the basis for assessing contributions for residential services will enhance 
the specificity and predictability of entities contributions. 
107. Our adoption of a numbers-based contribution methodology will benefit both residential 
consumers and contributors by simplifying the basis for assessments and stabilizing assessments at a set 
amount of $1.00 per month per residential telephone number.266 Contributors are allowed, and in most 
cases do, recover their universal service contribution costs from fees assessed on their end-user 
customers.267 Under the revenue-based contribution mechanism, a provider's contribution costs fluctuated 
261 Services that provide only intrastate communications and do not traverse a public interstate network will not be 
required to contribute under the new assessment methodology. 
262 47 U.S.C.  254(b)(5). 
263 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1. 
264 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also Letter from James S. Blaszak, 
Counsel for Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 
06-122, at 5 (filed Nov. 19, 2007) (Ad Hoc Nov. 19, 2007 Ex Parte Letter) (discussing the convergence of different 
applications for business and residential customers onto a single integrated network with bundled pricing). 
265 See Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public 
Utilities Commission, 19 FCC Rcd 22404, 2241214, paras. 1618 (2004) (Vonage Order), affd sub nom. 
Minnesota Pub. Utils. Commn v. FCC, 483 F.3d 570 (8th Cir. 2007). 
266 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2. 
267 Contributors are prohibited from passing through to subscribers more than their contribution cost. 47 C.F.R.  
54.712.

Federal Communications Commission FCC 08-262 
A-48 
from quarter to quarter, causing consumers universal service fees to fluctuate as well. These fluctuations 
did not allow customers to anticipate changes to their fees. A set $1.00-per-number contribution 
assessment is simple and predictable for both contributors and for consumers. To the extent a contributor 
elects to recover its contribution costs through end-user fees, its residential customers will pay the same 
$1.00 fee per number each month, making the assessment simple and predictable.268 
108. A numbers-based contribution methodology also benefits residential end users because it 
is technologically and competitively neutral. A consumer will pay the same universal service charge 
regardless of whether the consumer receives residential service from a cable provider, an interconnected 
VoIP provider, a wireless provider, or a wireline provider. This will enable residential consumers to 
choose the providers and provider types they want without regard to any artificial distortions that would 
otherwise be caused by differing contribution charges.269 In a marketplace characterized by increased 
competition within and between different technology platforms, residential consumers will receive the 
same universal service charge regardless of the type of service the customer chooses. 
109. Similarly, by subjecting contributors to the same regulatory framework for assessments 
on residential services regardless of technology, the numbers-based methodology will eliminate 
incentives under the current revenue-based system for providers to migrate to services and technologies 
that are either exempt from contribution obligations or are subject to safe harbors.270 The elimination of 
such incentives will result in a more competitively and technologically neutral marketplace and a more 
predictable source of funding for the universal service mechanisms. 
110. The adoption of a fixed $1.00 per residential number per month contribution assessment 
is specific and predictable and will simplify the administration of universal service contributions.271 
Interstate end-user telecommunications revenues have become increasingly difficult to identify, 
particularly for residential services, due to increased bundling of local and long distance service and the 
growth of consumer interconnected VoIP offerings.272 In contrast, telephone numbers provide an easily 
268 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2; see also Information Technology Industry 
Council (ITI) 2006 Contribution FNPRM Comments at 6; NCTA 2006 Contribution FNPRM Comments at 5; Small 
Business Administration Office of Advocacy (SBA) 2006 Contribution FNPRM Comments at 8; Vonage 2006 
Contribution FNPRM Comments at 78; Letter from Gregory V. Haledjian, Regulatory and Governmental 
Relations, Counsel to IDT Corporation and USF By the Numbers Coalition, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 06-122, Attach. at 34 (filed Jan. 30, 2007). 
269 See, e.g., NCTA 2006 Contribution FNPRM Comments at 5; Vonage 2006 Contribution FNPRM Comments at 
6; Letter from Grace E. Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch, Secretary, FCC, WC Docket 
Nos. 06-122, 05-337, 01-92, CC Docket Nos. 96-45, 99-68, 96-262 at 2 (filed July 15, 2008). 
270 See AT&T 2006 Contribution FNPRM Comments at 4. 
271 In addition to being easily administrable, the record supports adoption of $1.00 per month as the residential pernumber 
assessment amount. See, e.g., Letter from James S. Blaszak, Counsel for Ad Hoc Telecommunications 
Users Committee, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 
95-116, 98-170, NSD File No. L-00-72, Attach. at 3 (filed Oct. 25, 2005); See Letter from Mary L. Henze, AT&T 
Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket 
No. 96-45, at 3 (filed Sept. 23, 2008) (AT&T and Verizon Sept. 23, 2008 Ex Parte Letter) (estimating a $1.01 pernumber 
per-month assessment under a numbers-based contribution methodology); see also Letter from Paul Garnett, 
Assistant Vice President, CTIAThe Wireless Association, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
96-45 at 1 (filed Oct. 2, 2008) (CTIA Oct. 2, 2008 Ex Parte Letter), Attach. at 5 (supporting the AT&T and Verizon 
proposal); Letter from David B. Cohen, Vice President, Policy, USTelecom, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 06-122, CC Docket No. 96-45, Attach. at 1 (filed Sept. 25, 2008). 
272 See 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.1.

Federal Communications Commission FCC 08-262 
A-49 
identifiable basis for contribution.273 The amount of North American Numbering Plan (NANP) telephone 
numbers in use has shown steady, stable growth, providing a fairly constant basis for estimating universal 
service support amounts.274 The new methodology, based on a flat $1.00 per residential number per 
month, will be easier to administer, facilitating greater regulatory compliance. A numbers-based 
contribution methodology will also be readily applicable to emerging service offerings. The new 
methodology minimizes the potential for providers to avoid contributions by bundling intrastate revenues 
with interstate revenues or engaging in other bypass activities.275 
111. Further, assessing universal service contributions based on residential telephone numbers 
will promote number conservation.276 Telephone numbers are a finite, public resource. If contributors 
are assessed based on the residential telephone numbers assigned to them, they will have an incentive to 
efficiently manage their numbering resources in a manner that minimizes their costs. We expect that this 
will result in the need for fewer area code splits or overlays due to number exhaust.277 
112. Our adoption of a numbers-based contribution methodology for residential services is 
consistent with the goal of ensuring just, reasonable, and affordable rates.278 The per-number assessment 
of $1.00 per number per month will represent a reduction in pass-through charges for many residential 
customers.279 Although the $1.00 per number per month assessment may represent an increase in 
universal service charges for residential customers that make few or no long distance calls, this increase 
should be slight. Under the current revenue-based contribution mechanism, providers may assess a 
federal universal service fee on the basis of the customers SLC. The residential SLC may be as high as 
273 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also ALEXANDER BELINFANTE, FCC, 
TELEPHONE SUBSCRIBERSHIP IN THE UNITED STATES, tbl. 1 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf. 
274 See CRAIG STROUP AND JOHN VU, FCC, NUMBERING RESOURCE UTILIZATION IN THE UNITED STATES, tbl. 12 
(2008) (showing number utilization from December 2000 to December 2007), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf. 
275 See Ad Hoc Contribution First FNPRM Comments at 67; Coalition for Sustainable Universal Service (CoSUS) 
Contribution First FNPRM Comments at 38; Sprint Contribution First FNPRM Comments at 89. Because 
residential services will no longer be assessed based on revenues, contributors may not mark-up or otherwise adjust 
the $1.00 per Assessable Number per month residential contribution assessment in response to uncollectible 
revenues. 
276 See, e.g., ITI 2006 Contribution FNPRM Comments at 6; Vonage 2006 Contribution FNPRM Comments at 7. 
277 See Numbering Resource Optimization, CC Docket No. 99-200, Report and Order and Further Notice of 
Proposed Rulemaking, 15 FCC Rcd 7574, 7625, para. 122 (2000) (NRO I Order) (determining that implementation 
of thousands-block number pooling is essential to extending the life of the NANP by making the assignment and use 
of NXX codes more efficient); see also Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, 
Fourth Report and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (NRO IV Order) (explaining further that 
thousands-block number pooling is a numbering resource optimization measure in which 10,000 numbers in an 
NXX are divided into ten sequential blocks of 1,000 numbers and allocated to different service providers (or 
different switches) within a rate center). 
278 47 U.S.C.  254(b)(1). 
279 See Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to IDT Telecom, to Marlene H. Dortch, Secretary, 
FCC, WC Docket No. 06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 Ex Parte Letter) (showing that the 
average residential household paid about $1.37 in universal service fees in 2006). IDT claims the data show that the 
lowest-income consumers paid an average of $1.09 in universal service fees for wireline telephone bills. Id. at 6. 

Federal Communications Commission FCC 08-262 
A-50 
$6.50 per month.280 Based on the most recent contribution factor of 11.4 percent, even a customer who 
made no long distance calls could thus be assessed $0.74 per month in universal service charges under the 
existing revenue-based methodology.281 Thus, the potential increase for a customer who makes no long 
distance calls could be as little as $0.26 per month under the $1.00 per number methodology. In addition, 
we have separate protections to ensure that telephone service remains affordable for low-income 
subscribers.282 
113. Some commenters assert that assessing a flat universal service charge is inherently unfair 
because it does not take into account the fact that some people make many interstate and international 
calls, while others make few if any such calls in a given month.283 We disagree. We find that imposition 
of a flat charge is warranted because all contributors and their subscribers receive a benefit from being 
connected to the public network, enabling them to make and receive interstate calls.284 The ability to 
make or receive interstate calls over a public network is a significant benefit and it is reasonable to assess 
universal service contributions for residential customers based on access to the network. Customers who 
do not make any interstate calls still receive the benefit of accessing the network to receive interstate 
calls. The $1.00 per month per number assessment reflects our finding that it is equitable for providers to 
contribute a fixed amount based on the ability to access and utilize a ubiquitous public network. 
114. Some commenters allege that changing from the current revenue-based methodology to a 
new mechanism based on telephone numbers would not be equitable because it could reduce 
contributions from certain industry segments and increase them for others.285 Although the change to a 
numbers-based contribution methodology for residential services will result in changes in the relative 
contribution obligations of industry segments, the new contribution methodology is not inequitable or 
discriminatory. The evolving nature of the telecommunications marketplace and of its participants 
requires the Commission to periodically review and revise the contribution methodology to ensure that 
providers continue to be assessed on an equitable and non-discriminatory basis. We find that, given the 
difficulties in continuing to assess contributions entirely on a revenue-based methodology and the benefit 
to residential consumers of access to the public network, it is equitable to adopt a numbers-based 
contribution methodology that assesses a $1.00 per month per number fee for residential services. 
b. Assessable Numbers 
115. Below, we describe the telephone numbers for which service providers are obligated to 
280 47 C.F.R.  69.104(n)(1), 69.152(d)(1). The SLC is referred to as the End User Common Line Charge in the 
Commissions rules. 
281 The revenue from the $6.50 SLC would be multiplied by the 11.4% contribution factor, resulting in a 
contribution amount and corresponding assessment of $0.74. See Fourth Quarter 2008 Contribution Factor Public 
Notice at 1; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 3. 
282 See 47 C.F.R.  54.400 et seq.; infra para. 141 (describing contribution exemptions for services to low-income 
consumers). 
283 See, e.g., Letter from Maureen A. Thompson, Executive Director, Keep USF Fair Coalition, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 57 (filed Mar. 27, 2006) (Keep USF Fair Mar. 27, 2006 
Ex Parte Letter); see also NASUCA Sept. 30, 2008 Ex Parte Letter at 9. 
284 Universal Service First Report and Order, 12 FCC Rcd at 8783, para. 8 
285 See, e.g., FW&A Contribution First FNPRM Comments at 1315; NRTA and OPASTCO Contribution First 
FNPRM Comments at 711; SBC Contribution First FNPRM Comments at 18; Verizon Contribution First FNPRM 
Reply at 6; Verizon Wireless Contribution First FNPRM Comments at 56.

Federal Communications Commission FCC 08-262 
A-51 
contribute to the universal service fund. We call these Assessable Numbers. The Commission has 
addressed certain reporting based on telephone numbers in other contexts. In the number utilization 
context, the Commission requires that each telecommunications carrier that receives numbering resources 
from the North American Numbering Plan Administrator (NANPA), the Pooling Administrator, or 
another telecommunications carrier report its numbering resources in each of six defined categories of 
numbers set forth in section 52.15(f) of our rules.286 In the regulatory fee context, the Commission used 
the category of assigned numbers as the starting point for determining how to assess fees on certain 
providers, but found it necessary to modify that definition to account for the different regulatory contexts. 
Specifically, in assessing regulatory fees for commercial mobile radio service (CMRS) providers that 
report number utilization to NANPA based on the reported assigned number count in their Numbering 
Resource Utilization and Forecast (NRUF) data, the Commission requires these providers to adjust their 
assigned number count to account for number porting. The Commission found that adjusting the NRUF 
data to account for porting was necessary for the data to be sufficiently accurate and reliable for purposes 
of regulatory fee assessment.287 
116. We adopt a new term based on the category of assigned numbers to represent the 
numbers being assessed for universal service contribution purposesAssessable Numbers. The 
definition of Assessable Numbers that we adopt focuses on those numbers that are actually in use by end 
users for services that traverse a public interstate network. Specifically, we define an Assessable Number 
286 These six categories of numbers are defined as follows: 
(i) Administrative numbers are numbers used by telecommunications carriers to perform internal 
administrative or operational functions necessary to maintain reasonable quality of service standards. 
(ii) Aging numbers are disconnected numbers that are not available for assignment to another end user or 
customer for a specified period of time. Numbers previously assigned to residential customers may be aged 
for no more than 90 days. Numbers previously assigned to business customers may be aged for no more 
than 365 days. 
(iii) Assigned numbers are numbers working in the Public Switched Telephone Network under an 
agreement such as a contract or tariff at the request of specific end users or customers for their use, or 
numbers not yet working but having a customer service order pending. Numbers that are not yet working 
and have a service order pending for more than five days shall not be classified as assigned numbers. 
(iv) Available numbers are numbers that are available for assignment to subscriber access lines, or their 
equivalents, within a switching entity or point of interconnection and are not classified as assigned, 
intermediate, administrative, aging, or reserved. 
(v) Intermediate numbers are numbers that are made available for use by another telecommunications 
carrier or non-carrier entity for the purpose of providing telecommunications service to an end user or 
customer. Numbers ported for the purpose of transferring an established customers service to another 
service provider shall not be classified as intermediate numbers. 
(vi) Reserved numbers are numbers that are held by service providers at the request of specific end users or 
customers for their future use. Numbers held for specific end users or customers for more than 180 days 
shall not be classified as reserved numbers. 
47 C.F.R.  52.15(f) 
287 See Assessment and Collection of Regulatory Fees for Fiscal Year 2005, Assessment and Collection of 
Regulatory Fees for Fiscal Year 2004, MD Dockets No. 05-59, 04-73, Report and Order and Order on 
Reconsideration, 20 FCC Rcd 12259, 12271, paras. 3940 (2005).

Federal Communications Commission FCC 08-262 
A-52 
as a NANP telephone number or functional equivalent identifier288 in a public or private network that is in 
use by a residential end user and that enables the residential end user to receive communications from or 
terminate communications to (1) an interstate public telecommunications network or (2) a network that 
traverses (in any manner) an interstate public telecommunications network.289 Assessable Numbers 
include geographic as well as non-geographic telephone numbers (such as toll-free numbers and 500- 
NXX numbers) so long as they meet the other criteria described in this part for Assessable Numbers. 
117. The provider with the retail relationship to the residential end user is the entity 
responsible for contributing.290 We impose the contribution obligation on the provider with the retail 
relationship to the end user for several reasons. First, this provider will have the most accurate and up-todate 
information about how many Assessable Numbers it currently has assigned to end users. Second, 
this provider is also in the best position to distinguish residential users from business users, and thus to 
determine how many of its telephone numbers in use are Assessable Numbers. Finally, this provider, and 
its users, are benefiting from a supported PSTN, and thus it is sound policy to require them to contribute 
to its support.291 We note that today, providers are permitted to pass through their contribution 
assessments to end users, and we understand that they typically do so.292 Under the new methodologies, 
they may continue to do so, subject to the same requirement that they will not pass through more than 
their contribution amount.293 
118. Next, we specify whether certain types of numbers are included in the definition of 
Assessable Numbers. First, numbers used for intermittent or cyclical purposes are included in the 
definition of Assessable Numbers. Numbers used for cyclical purposes are numbers designated for use 
that are typically working or in use by the end user for regular intervals of time. These numbers 
include, for example, an end users summer home telephone number that is in service for six months out 
of the year.294 In the NRO III Order, the Commission clarified that these types of numbers should 
288 Functional equivalent identifier means an identifier used in place of and with the same PSTN access capability 
as a NANP number; it is not intended to capture identifiers used in conjunction with NANP numbers, such as 
internal extensions that cannot be directly dialed from the PSTN. Nor is functional equivalent identifier intended 
to capture routing identifiers used for routing of Internet traffic, unless such identifiers are used in place of a NANP 
number to provide the ability to make or receive calls on the PSTN. 
289 For purposes of the definition of Assessable Numbers, we include only the NANP telephone numbers used in the 
United States and its Territories and possessions. 
290 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844; see also, e.g., Letter from Melissa 
E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06- 
122, at 7 (filed Sept. 24, 2008) (Qwest Sept. 24, 2008 Ex Parte Letter); AT&T and Verizon Sept. 11, 2008, Ex Parte 
Letter, Attach. 1 at 12; Letter from Brad E. Mutschelknaus, Counsel for XO Communications, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36, Attach. at 9 (filed Oct. 3, 2008); 
Letter from Donna N. Lampert, Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct. 3, 2008) 
(Google Oct. 3, 2008 Ex Parte Letter); see also 47 C.F.R.  54.5 (defining contributor as an entity required to 
contribute to the universal service support mechanism pursuant to  54.706 [of the Commissions rules]). 
291 See supra para. 103 (discussing the public interest in requiring these entities to support the network). 
292 See, e.g., AT&T and Verizon Sept. 23, 2008 Ex Parte Letter, Attach. 2 at 2; see also Second Wireless Safe 
Harbor Order, 17 FCC Rcd at 24978, para. 50. 
293 47 C.F.R.  54.712. 
294 See Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, Third Report and Order and 
Second Order on Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17 FCC Rcd 252, 303, para. 
119 (2001) (NRO III Order).

Federal Communications Commission FCC 08-262 
A-53 
generally be categorized as assigned numbers if they meet certain thresholds and that, if they do not 
meet these thresholds, they must be made available for use by other customers (i.e., they are available 
numbers).295 Because these numbers are assigned to end users, we find they should be included in the 
definition of Assessable Numbers we adopt today. 
119. We exclude from our definition of Assessable Numbers those telephone numbers that 
satisfy the section 52.15 definition of assigned numbers solely because the numbers [are] not yet 
working but hav[e] a customer service order pending for five days or less.296 Providers generally do not 
bill for services that have yet to be provisioned and therefore are not compensated for services during the 
pendency of the service order. Moreover, such numbers are not yet operational to send or receive calls. 
Thus, under the existing contribution methodology, providers would not contribute for services they are 
about to provide (but have not yet provided) under a pending service order. We continue to find it 
appropriate for contributors not to be required to contribute to the universal service fund for pending 
service orders. 
120. We exclude from the definition of Assessable Numbers those telephone numbers that 
telecommunications providers have transferred or ported to a carrier using resale or the unbundled 
network element platform. Under prior numbering orders, such telephone numbers would still be 
included in the NRUF assigned number count of the transferring-out carrier.297 Consistent with our 
definition of Assessable Numbers, because the underlying provider no longer maintains the retail 
relationship with the end user, the provider should not include these numbers in its Assessable Number 
count. Conversely, the receiving provider of such transferred customers would include the associated 
telephone numbers in their count of Assessable Numbers. 
121. We exclude from the definition of Assessable Numbers those numbers that meet the 
definition of an Available Number, an Administrative Number, an Aging Number, or an Intermediate 
Number as those terms are defined in section 52.15(f) of the Commissions rules.298 For a particular 
carrier, the carrier will not have an end user associated with a number in any of these categories of 
numbers. For example, an intermediate number is a number that is made available for use by another 
telecommunications carrier or non-carrier entity for the purpose of providing telecommunications service 
to an end user or customer.299 The receiving provider will be responsible for including the number as an 
295 NRO III Order, 17 FCC Rcd at 304, para. 122 (With this requirement, we seek to limit the amount of numbers 
that are set aside for use by a particular customer, but are not being used to provide service on a regular basis. Thus, 
in order to categorize such blocks of numbers as assigned numbers, carriers may have to decrease the amount [of] 
numbers set aside for a particular customer. We also clarify that numbers working periodically for regular 
intervals of time, such as numbers assigned to summer homes or student residences, may be categorized as assigned 
numbers, to the extent that they are working for a minimum of 90 days during each calendar year in which they are 
assigned to a particular customer. Any numbers used for intermittent or cyclical purposes that do not meet these 
requirements may not be categorized as assigned numbers, and must be made available for use by other 
customers.). 
296 See 47 C.F.R.  52.15(f)(iii). 
297 NRO I Order, 15 FCC Rcd at 758687, para. 18. Ported-out numbers, a subcategory of assigned numbers, are 
not reported to NANPA although NRUF reporting carriers are required to maintain internal records associated with 
these numbers for five years. Id. at 7592, 7601, paras. 36, 62. 
298 See 47 C.F.R.  52.15(f); see also Qwest Sept. 24, 2008 Ex Parte Letter at 7 (arguing, among other things, that 
numbers used for administrative purposes and numbers that are not actively working, such as aging, unassigned, 
reserved numbers, and numbers donated back to the industry pool should be excluded from the contributors base). 
299 See 47 C.F.R.  52.15(f)(v).

Federal Communications Commission FCC 08-262 
A-54 
Assessable Number once it provides the number to an end user.300 
122. We exclude non-working telephone numbers from the definition of Assessable Number. 
Carriers report as assigned numbers for NRUF purposes entire codes or blocks of numbers dedicated to 
specific end-user customers if at least fifty percent of the numbers in the code or block are working in the 
PSTN.301 Consistent with our definition of Assessable Numbers, carriers should not include the nonworking 
numbers in these blocks in their Assessable Number counts, because the non-working numbers 
portion of these blocks are not providing service to the end user. 
123. We exclude from the definition of Assessable Number those numbers that are used 
merely for routing purposes in a network, so long as such numbers are alwayswithout exception 
provided without charge to the end user, are used for routing only to Assessable Numbers for which a 
universal service contribution has been paid, and the ratio of such routing numbers to Assessable 
Numbers is no greater than 1:1. For example, a NANP number used solely to route or forward calls to a 
residential number, office number, and/or mobile number would be excluded from our definition of 
Assessable Number if such routing number were provided for free, and such number routes calls only to 
Assessable Numbers. If, however, such routing or forwarding is provided for a fee, such as with remote 
call forward service or foreign exchange service, both the routing number and the end user number to 
which calls are routed or forwarded would be considered Assessable Numbers. 
124. In addition, incumbent LECs need not include numbers assigned to wireless providers 
that interconnect at the end office of an incumbent LEC and have obtained numbers directly from the 
incumbent LEC.302 Because the incumbent LEC does not have the retail relationship with the end user, it 
should not include these numbers in its Assessable Number count. The wireless carriers that have the 
retail relationship with the end users must include these telephone numbers in their Assessable Number 
count. 
125. Finally, we exclude from the definition of Assessable Numbers those numbers associated 
with Lifeline services for the reasons described below.303 
126. We do not restrict our definition to numbers that exclusively use the PSTN.304 As noted 
300 See NRO I Order, 15 FCC Rcd at 7587, para. 21 (2000) (We agree with commenters who opine that 
[intermediate] numbers should not be categorized as assigned numbers because they have not been assigned to an 
end user. . . . We therefore conclude that numbers that are made available for use by another carrier or non-carrier 
entity for the purpose of providing telecommunications service to an end user or customer should be categorized as 
intermediate [numbers].). 
301 NRO III Order, 17 FCC Rcd at 304, para. 122. 
302 When a wireless carrier interconnects at an incumbent LEC end office it is known as a Type 1 interconnection. 
See Federal Communications Commission Seeks Comment on Initial Regulatory Flexibility Analysis in Telephone 
Number Portability Proceeding, CC Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at para. 19 
n.53 (2005) (Type 1 numbers reside in an end office of a LEC and are assigned to a Type 1 interconnection group, 
which connects the wireless carrier's switch and the LEC's end office switch.). 
303 See infra paras. 14046. 
304 The record is split over whether the definition of an assessable number should be restricted to the PSTN. AT&T 
and Verizon, for example, do not include such a requirement in their proposed definitions. See AT&T and Verizon 
Sept. 23, 2008 Ex Parte Letter, Attach. 1. Other commenters, however, argue for such a requirement. See Google 
Oct. 3, 2008 Ex Parte Letter at 1 (the definition of an assessable number should be premised on a telephone 
number acting as a proxy for an underlying two-way PSTN connection). As we explain herein, such a restriction is 
not warranted.

Federal Communications Commission FCC 08-262 
A-55 
above, evolution in communications technology away from the PSTN to alternative networks that may 
only partially (if at all) traverse the PSTN is one of the causes in the erosion of the contribution base 
under the current revenue-based methodology. As more service providers migrate to alternative networks 
that partially access the PSTN, continuing to assess universal service contributions based only on traffic 
that exclusively traverses the PSTN will not account for this migration; nor will it allow us to meet our 
principle of competitive neutrality.305 Moreover, if a service provider connects a private network to a 
public network, the service provider and its customers benefit from the connection to the PSTN. Because 
universal service supports the PSTN and these parties connect to the PSTN, they benefit from universal 
service.306 Thus, it is increasingly important that we conform our regulatory definitions to recognize this 
reality. Indeed, the Commission has already begun to recognize the need to create a level regulatory 
playing field. For example, calls to end users that utilize interconnected VoIP service are not wholly 
within the PSTN. Indeed, calls between two interconnected VoIP users may not touch the PSTN at all. 
Yet we found in 2006 that interconnected VoIP providers must contribute to the universal service fund.307 
For these reasons, we conclude that our definition must account for public or private interstate networks, 
regardless of the technology of the network (e.g., circuit-switched, packet-switched) or the transmission 
medium of the network (e.g., wireline, wireless). 
127. Finally, we recognize that, by declining to adopt for contribution purposes verbatim the 
definition of assigned numbers in section 52.15(f) of our rules, which is used by carriers to file NRUF 
reports,308 we may nominally increase some of the administrative burden associated with universal service 
contribution filings. We find, however, that any minor administrative cost increases arising from not 
using the pre-existing definition are outweighed by the benefits of modifying the definition to achieve 
sound universal service policy. For example, as stated above, the existing definition of assigned numbers 
would not enable us to meet our universal service contribution goal of ensuring that the provider with the 
retail relationship to the end user be the one responsible for contributing.309 
128. Under our numbers-based approach, certain providers will be required to contribute to the 
universal service fund based on Assessable Numbers even though they are not today required to submit 
NRUF data. Section 52.15(f) of the Commissions rules requires only reporting carriers to submit 
NRUF data to the NANPA.310 A reporting carrier is defined as a telecommunications carrier that 
receives numbering resources from the NANPA, the Pooling Administrator, or another 
telecommunications carrier.311 In the case of numbers provided by a telecommunications carrier to a noncarrier 
entity, the carrier providing the numbers to such entities must report NRUF data to the NANPA for 
those numbers. Thus, non-carrier entities that use telephone numbers in a manner that meets our 
definition of Assessable Numbers do not report NRUF data yet must contribute.312 For example, 
interconnected VoIP providers may use telephone numbers that meet our definition of Assessable 
305 Universal Service First Report and Order, 12 FCC Rcd at 9207, paras. 84546. 
306 Universal Service First Report and Order, 12 FCC Rcd at 9184 para. 796. 
307 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753637, paras. 33-34. 
308 See 47 C.F.R.  52.15(f)(iii). 
309 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844. 
310 47 C.F.R.  52.15(f). 
311 47 C.F.R.  52.15(f)(2). 
312 NRO I Order, 15 FCC Rcd at 7587, para. 21. 

Federal Communications Commission FCC 08-262 
A-56 
Numbers even though these providers do not report NRUF data.313 These non-carrier entities that use 
numbers in a manner that meets our definition of Assessable Number will be required to determine their 
Assessable Number count based on their internal records (e.g., billing system records) and will be 
required to report such numbers to USAC.314 
129. We are mindful that our move to a numbers-based contribution methodology may 
encourage entities to try to avoid their contribution obligations by developing ways to bypass the use of 
NANPA-issued numbers.315 To the extent, however, these alternative methods are the functional 
equivalent of numbers and otherwise meet our definition of Assessable Numbers, such entities must 
report these functional equivalents as Assessable Numbers to the universal service fund administrator. 
3. Contribution Assessment Methodology for Business Services 
130. Although we find that a numbers-based contribution mechanism is superior to the 
existing revenue-based mechanism for residential services, applying a numbers-based approach to 
business services would result in inequitable contribution obligations. Specifically, certain business 
services that do not utilize numbers, or that utilize them to a lesser extent, would not be contributing to 
the universal service fund on an equitable basis.316 Section 254(d) of the Act requires every carrier that 
provides interstate telecommunications services to contribute to the universal service fund.317 Thus, 
providers of business services, including non-numbers based services, must continue to contribute. We 
conclude that these services should be assessed based on their connection to the public network. 
131. A number of commenters supported moving to a methodology that would assess 
telephone numbers for those services that are associated with a telephone number and assess based on 
capacity of the connection to the public switched network those services not associated with a telephone 
313 See Administration of the North American Numbering Plan, Order, 20 FCC Rcd 2957, 296162, para. 9 (2005) 
(SBCIS Waiver Order) (noting that most VoIP providers numbering utilization data are embedded in the NRUF 
data of the LEC). In the SBCIS Waiver Order, the Commission granted SBCIS, an Internet service provider, 
permission to obtain numbering resources directly from the NANPA and/or Pooling Administrator, conditioned on, 
among other things, SBCIS reporting NRUF data. Id. at 2959, para. 4. 
314 See infra paras. 14753. 
315 See Letter from Jeanine Poltronieri, Vice President, Federal Regulatory, BellSouth D.C., Inc, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) (If voice service is provided 
without using telephone numbers, but with IP address or other identifier, FCC will need to establish a functional 
equivalency test.). 
316 Business services such as private line and special access services do not typically utilize telephone numbers in 
the same manner as residential services, and would not contribute equitably to the universal service fund under a 
numbers-based approach. See, e.g., Letter from James S. Blaszak, Counsel to Ad Hoc Telecommunications Users 
Committee, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 
98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from Robert Quinn, Vice President Federal 
Government Affairs, AT&T, to Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 
99-200, 95-116, 98-170, NSD File No. L-00-72, at 2 (filed Oct. 22, 2002). Moreover, unlike residential services, 
which usually have one telephone number assigned per access line, business services do not usually have a number 
of telephone numbers assigned that aligns with the number of access lines utilized. 
317 47 U.S.C.  254(d). Therefore, we disagree with those parties that continue to support a numbers-only based 
approach because we find such an approach would be inconsistent with the statutory requirement that every 
telecommunications carrier must contribute to the universal service fund. See, e.g., Letter from James S. Blaszak, 
Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 
05-337, 07-135, Attach. at 5 (filed Oct. 14, 2008).

Federal Communications Commission FCC 08-262 
A-57 
number.318 Other commenters supported retaining a revenue-based methodology for these services.319 As 
discussed above, a revenue-based contribution methodology is no longer sustainable in todays 
telecommunications marketplace.320 Additionally, a connections-based contribution methodology will 
provide a basis for assessing services not associated with telephone numbers, and will recognize the 
greater utility derived by business end users from these high capacity business service offerings.321 
Further, in contrast to the revenues on which contributions are currently based, the number and capacity 
of connections continues to grow over time, providing a contribution base that is more stable than the 
current revenue-based methodology. Moreover, a connections-based mechanism can be easily applied to 
all business services. We, therefore, conclude that a connections-based contribution mechanism is the 
better option for business services. We seek comment below on the implementation of the connectionsbased 
contribution mechanism for business services.322 
132. We find that it is equitable and nondiscriminatory, consistent with the requirements of 
section 254(d) of the Act, to establish different contribution methodologies for residential and business 
services.323 Although the statute states that [a]ll providers of telecommunications services should make 
an equitable and nondiscriminatory contribution to the preservation and advancement of universal 
service, it does not require that all contributors or all services be assessed in the same manner.324 Under 
the current revenue-based mechanism, the Commission has established different contribution 
methodologies through the use of proxies for wireless and interconnected VoIP services.325 As noted 
above, continuing to use a revenues-based contribution methodology has become increasingly complex, 
and a numbers-based system would avoid many of those complexities.326 At the same time, however, if 
we relied exclusively on a numbers-based contribution methodology, there are some business services 
such as private line and special accessthat would escape contribution requirements entirely. That result 
would be inconsistent with the obligation that all providers of interstate telecommunications services 
contribute to universal service, and would impose an unfair burden on providers that contribute on the 
318 See Staff Study; see also Ad Hoc Telecommunications Users Committee 2003 Staff Study Reply; Letter from 
John Nakahata, Counsel for the Coalition for Sustainable Universal Service, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 96-45, at 1 (filed Oct. 31, 2002). 
319 See Letter from Melissa E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006 Ex Parte Letter); 
see also Qwest Sept. 24, 2008 Ex Parte Letter at 2. 
320 See supra para. 97. 
321 Time Warner 2006 Contribution FNPRM Comments at 2. 
322 We decline at this time to adopt AT&T and Verizons proposal for assessing contributions on connections based 
on flat rate charges that would differ based on the speed of the connection. AT&T and Verizon Oct. 20, 2008 Ex 
Parte Letter at 2. Instead, we seek further comment on implementing assessments based on connections. 
323 47 U.S.C.  254(d). 
324 47 U.S.C.  254(b)(4). 
325 The proxies offer an alternative to contributions assessed on actual interstate revenues; they are intended to 
approximate the portion of revenues derived from the provision of interstate telecommunications services. First 
Wireless Safe Harbor Order, 13 FCC Rcd at 2125860, paras. 1315 (establishing safe harbors for wireless service 
providers); Second Wireless Safe Harbor Order, 17 FCC Rcd at 14954, para. 1 (modifying the wireless safe 
harbors); 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7532, 7545, paras. 23, 53 (revising the 
wireless safe harbor and establishing a safe harbor for interconnected VoIP providers). 
326 See supra para. 95.

Federal Communications Commission FCC 08-262 
A-58 
basis of numbers.327 We therefore conclude that adopting different contribution assessment 
methodologies for residential and business services will result in equitable and nondiscriminatory 
contribution obligations. 
133. On an interim basis, while we conduct a proceeding to implement the connections-based 
contribution methodology, we continue to require providers to contribute to the universal service fund 
using the current revenue-based methodology for their business services.328 We find that providers of 
business services should continue to bear their portion of the universal service contribution obligation to 
ensure the sufficiency of the fund while the connections-based contribution mechanism is being 
implemented.329 
134. During the interim period in which the revenue-based contribution assessment for 
business services remains in place, the contribution factor for providers of business services will be 
determined based on the funding requirements not covered by the $1.00 assessment on Assessable 
Numbers. We will hold constant the contribution assessment on Assessable Numbers and determine the 
revenue contribution factor based on the quarterly projected demand of the universal service mechanisms 
divided by the quarterly projected-collected interstate and international end user telecommunications 
revenues from business services in the same manner in which the current contribution factor is 
calculated.330 This approach will ensure a specific, predictable, and sufficient funding source for the 
Commissions universal service mechanisms. 
4. Wireless Prepaid Plans 
135. We adopt an alternative methodology for telephone numbers assigned to handsets under a 
wireless prepaid plan. Some commenters assess prepaid wireless services on a per-minute-of-use basis.331 
For example, prepaid wireless providers argue that their customers are typically low-income or low- 
327 47 U.S.C.  254(b)(4), (d). 
328 Contributors will base their contributions on business service revenues in the same manner as they do currently. 
We make no change to the de minimis exemption or to the Limited International Revenue Exception (LIRE) for 
business contributions based on revenues. 47 U.S.C.  254(d); 47 C.F.R.  54.708; Fifth Circuit Remand Order, 15 
FCC Rcd at 168788, para. 19; Contribution First FNPRM, 17 FCC Rcd at 380607, paras. 12528. These 
exceptions do not apply to residential contributions based on numbers. 
329 See 47 U.S.C.  254(d). Prepaid calling card providers, as well as any other current contributors who provide 
services to residential consumers but do not assign Assessable Numbers, shall continue to contribute based on their 
revenues during the interim period until these business services are assessed on the basis of connections and/or 
numbers. Despite IDTs recent request that its prepaid calling card services be treated as residential for purposes of 
universal service contribution assessments, we find that, consistent with arguments made over the years by such 
providers, these calling card services are provided to businesses. See Request for Review of Decision of the 
Universal Service Administrator by IDT Corporation and IDT Telecom, CC Docket No. 96-45 at 3 (filed June 30, 
2008) (The vast majority of [prepaid calling card sales] are completed through a network of distributors and 
resellers before being purchased by the ultimate end user consumer.). But see Letter from Tamar E. Finn, Counsel, 
IDT Corporation, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 06-122 (filed Oct. 28, 
2008) (asking the Commission to treat prepaid calling cards as residential services if the Commission adopts a 
numbers-based methodology limited to residential numbers). 
330 The Commission may revise the specific per-number residential assessment amount in the future, if market 
conditions warrant. 
331 AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 4.

Federal Communications Commission FCC 08-262 
A-59 
volume consumers and, as such, should be subject to a lesser assessment.332 Verizon and TracFone 
further assert that prepaid wireless providers may have difficulty administering a per-number 
assessment.333 Verizon, therefore, recommends that any new contribution methodology accommodate 
prepaid wireless service providers by adopting a per-number assessment that reflects the unique 
characteristics of [the] service, and TracFone similarly agrees.334 Finally, CTIA essentially argues that 
the sheer number of prepaid wireless end usersover 44 millioncombined with the likelihood that 
most of these end users would see a rise in their pass-through assessments warrants an exception.335 
136. To accommodate the unique situation of prepaid wireless service providers, we find it 
appropriate to create a limited modification in contribution assessments for providers of prepaid wireless 
services and their end users.336 We agree with commenters that it is considerably more difficult for 
wireless prepaid providers to pass-through their contribution assessments in light of their pay-as-you-go 
service offerings.337 Because of this significant practical issue, we will modify the numbers-based 
assessment for prepaid wireless providers with regard to their offering of these services. Further, we note 
that, just as with Lifeline customers, many prepaid wireless end users are low income consumers. For 
example, TracFone states that about half of its customers have incomes of $25,000 or less.338 
137. We find that TracFones USF by the Minute proposal best addresses the concerns of 
prepaid wireless providers within the context of the new numbers-based contribution methodology we 
adopt today.339 TracFones proposed USF by the Minute Plan would calculate universal service 
332 Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
96-45, Attach. at 2 (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 Ex Parte Letter); CTIA 2006 Contribution 
FNPRM Comments at 6; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex 
Parte Letter at 34; Letter from John M. Beahn and Malcolm Tuesley, Counsel to Virgin Mobile USA, to Marlene 
H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 47 (filed June 12, 2006) (Virgin Mobile June 12, 
2006 Ex Parte Letter). 
333 See, e.g., Verizon Mar. 28, 2006 Ex Parte Letter, Attach. at 3; TracFone Sept. 17, 2008 Ex Parte Letter, Attach. 
at 2; Virgin Mobile June 12, 2006 Ex Parte Letter, Attach. at 7. 
334 See Verizon Mar. 28, 2006 Ex Parte Letter, Attach. at 3; TracFone Sept. 17, 2008 Ex Parte Letter, Attach.; see 
also Letter from Antoinette Bush, Counsel for Virgin Mobile, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, Attach. at 11 (filed Mar. 18, 2005) (Virgin Mobile Mar. 18, 2005 Ex Parte Letter); AT&T and Verizon 
Sept. 23, 2008 Ex Parte Letter at 6. 
335 See CTIA Oct. 2, 2008 Ex Parte Letter at 1 (raising a concern that current proposals could harm the large number 
of prepaid wireless customers). 
336 As discussed below, Lifeline customers are exempt from contribution assessments. See infra para. 141. 
337 See Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, at 3 (filed June 15, 2007) (TracFone June 15 Ex Parte Letter). 
338 TracFone June 15, 2007 Ex Parte Letter at 3. TracFone also asserts that an exception is warranted because it 
provides service to low volume end users (i.e., end users that do make a small amount of calls, measured in 
minutes). Id. However, as explained below, we decline to provide a contribution exception for low-volume users. 
See infra para. 143. 
339 AT&T and Verizon support the TracFone discount approach for prepaid wireless providers. AT&T and Verizon 
Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 3; see also Letter from David L. Sieradzki, Counsel to OnStar Corp., to 
Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28, 2008) (OnStar 
strongly supports the TracFone per-minute of use proposal for prepaid wireless services) (OnStar Oct. 28, 2008 Ex 
Parte Letter). 

Federal Communications Commission FCC 08-262 
A-60 
contribution assessments on prepaid wireless services by dividing the residential per-number assessment 
(the $1.00 flat fee adopted above) by the number of minutes used by the average postpaid wireless 
customer in a month. This per-minute number would then be multiplied by the number of monthly 
prepaid minutes generated by the provider. This amount would be the providers monthly universal 
service contribution obligation. The per-minute assessment, however, would be capped at an amount 
equal to the current per month contribution per Assessable Number, the per-number assessment amount 
adopted above.340 We illustrate the proposal below. 
138. According to CTIA data submitted by TracFone, the average wireless postpaid customer 
used 826 minutes per month for the period ending December 2007.341 The residential per-number 
assessment of $1.00 would be divided by 826 minutes to calculate a per-minute assessment of 
$0.001210654. The wireless prepaid providers contribution obligation would be calculated by 
multiplying the per-minute assessment by the number of prepaid minutes generated for the month. If the 
wireless prepaid provider generated a billion prepaid minutes in a month, its contribution for that month 
would be $1,210,654.342 If the prepaid provider had 10 million prepaid customers that month, the average 
contribution per customer would be $0.12 and its contribution obligation would remain at $1,210,654. If, 
on the other hand, it had only 1 million customers, the average contribution per-customer would be $1.20, 
which exceeds the residential per-number assessment of $1.00. In this case, because the per-customer 
contribution amount under the calculation would exceed the residential per-number assessment 
established by the Commission, the prepaid providers contribution obligation would be capped at 
$1,000,000, which is the residential per-number assessment of $1.00 multiplied by the 1 million monthly 
prepaid customers. Under this scenario, the average per-customer contribution for the prepaid wireless 
provider would be equal to the per-number contribution of $1.00 for non-prepaid residential numbers. 
139. We find the TracFone discount approach superior to other forms of a discount proposed 
by parties. For example, CTIA proposed a fifty percent discount for prepaid wireless providers.343 The 
TracFone approach is based on actual wireless calling data, whereas the CTIA approach represents a more 
arbitrary half-off discount. Moreover, the CTIA proposal makes no allowance for the type of end user 
that is using the prepaid wireless service. This contrasts with the TracFone proposal, which would not 
provide any discount to those end users that use more than the average monthly post-paid number of 
minutes. As explained above, for those customers whose usage would result in more than the $1.00 passthrough, 
the assessment on the provider and the pass-through would be capped at $1.00 per month per 
Assessable Number. Thus, high volume users would neither benefit from, nor be penalized by, the 
discount mechanism. Finally, we make clear that if the prepaid provider is an ETC and is providing 
service to qualifying Lifeline customers, the provider is exempt from contribution assessments on the 
qualifying Lifeline customers and we prohibit the provider from assessing any universal service passthrough 
charges on their Lifeline customers. 
5. Exceptions to Contribution Obligations 
140. A number of parties have asked for exceptions from the contribution obligation. We find 
that, in general, providing an exception or exemption to a particular provider or to a particular category of 
340 TracFone Sept. 17, 2008 Ex Parte Letter, Attach. at 45. 
341 See TracFone Sept. 17, 2008 Ex Parte Letter at 5. We use these data because they are the most recent publicly 
available data. 
342 To the extent that the prepaid wireless subscriber is a Lifeline customer for the prepaid service, the prepaid 
provider should exclude prepaid minutes associated with the qualifying Lifeline customer. See infra para. 141. 
343 CTIA Oct. 2, 2008 Ex Parte Letter at 5.

Federal Communications Commission FCC 08-262 
A-61 
end users would complicate the administration of the numbers-based methodology we adopt today. The 
result would unfairly favor certain groups by reducing or eliminating their contribution obligations, while 
increasing the contribution obligations on providers that are not exempted from contributing. Therefore, 
we conclude that grant of an exemption from the contribution obligations is only warranted for those who 
are truly unable to bear the burden of contributing to the universal service fundlow-income consumers. 
As discussed below, we exempt providers from contribution assessments on their qualifying Lifeline 
program customers and prohibit contributors from assessing any universal service pass-through charges 
on their Lifeline customers. Similarly, we exempt providers of stand-alone voice mail services, which are 
provided to low-income phoneless people, from contribution obligations. As explained below, an 
exception for low-income consumers is consistent with the Commissions policies underlying the lowincome 
universal service program and targets universal service benefits to those consumers most in need 
of those benefits.344 
141. We conclude that telephone numbers assigned to Lifeline customers should be excluded 
from the universal service contribution base and providers of Lifeline service may not pass-through 
contribution assessments to Lifeline customers.345 The Lifeline program provides an opportunity for the 
Commission to ensure that low-income families are not denied access to telephone service. We find that 
an exception for Lifeline customers satisfies the high threshold necessary to justify an exception to the 
new numbers-based contribution methodology we adopt today. Lifeline customers are, by definition, 
among the poorest individuals in the country. As such, they are in the greatest need of relief from 
regulatory assessments. Prohibiting recovery of universal service contributions from Lifeline customers 
helps to increase subscribership by reducing qualifying low-income consumers monthly basic local 
service charges.346 The record, moreover, overwhelmingly supports the creation of an exception for 
Lifeline customers. Consumer groups, large telecommunications customers, LECs, and wireless 
providers all support creating an exemption for Lifeline customers, and no commenter opposes an 
exemption for Lifeline customers.347 We therefore adopt an exemption to our numbers-based contribution 
methodology for Lifeline customers. 
142. Similarly, we find that stand-alone voice mail service providers are exempt from direct 
contribution obligations of the new methodology we adopt today. Community Voice Mail National 
(CVM) argues that stand-alone voice mail services consist of free voice mail access to phoneless 
people.348 As in the exemption for Lifeline customers, we find that stand-alone voice mail service of the 
type provided by CVM benefits low-income consumers who are most in need of access to such services. 
We therefore exempt providers of this type of stand-alone voice mail service from universal service 
contribution assessments on numbers associated with stand-alone voice mail services, and we prohibit 
providers of these services from assessing any universal service contribution pass-through charges on 
344 Alenco v. FCC, 201 F.3d at 621. 
345 See, e.g., AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 4 (proposing that numbers assigned to Lifeline 
customers be excluded from the monthly number count for contribution purposes). 
346 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24982, para. 62. 
347 See, e.g., CTIA 2006 Contribution FNPRM Comments at 5; CU et al. High-Cost Reform NPRMs Reply at 58; Ad 
Hoc Nov. 19, 2007 Ex Parte Letter at 4; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 5. 
348 Letter from Jennifer D. Brandon, Executive Director, Community Voice Mail National, to Tom Navin, Wireline 
Competition Bureau, FCC, CC Docket No. 96-45 at 1 (filed May 30, 2006) (Community Voice Mail May 30, 2006 
Ex Parte Letter) (CVM provides free, personalized voicemail access to people in crisis and transition (homeless, 
victims of domestic violence, and other phoneless people)).

Federal Communications Commission FCC 08-262 
A-62 
customers of these services.349 
143. Although commenters have sought contribution exceptions for other groups of consumers 
or service providers, we decline to adopt any further exceptions.350 Some parties argue that consumers 
who make few or no calls, i.e., low-volume users, should be exempt from the numbers-based residential 
contribution assessment mechanism.351 As discussed above, all users of the network, even those who 
make few or no calls, receive a benefit by being able to receive calls, and therefore it is appropriate for 
these consumers to contribute to universal service.352 Also as discussed above, to the extent low-volume 
consumers may see an increase in the amount of their universal service contribution pass-through fee,353 
any such increase should be slight.354 
144. We also decline to exempt telematics providers,355 one-way service providers,356 and twoway 
paging services357 from contributing based on numbers. We disagree with commenters arguing for 
special treatment for these services.358 Granting exceptions for these services would provide them with an 
349 We decline to adopt a reimbursement method, in which contributors would pay the full amount of their 
contribution assessments and then seek refunds from USAC for any exempted numbers, as recommended by AT&T 
and Verizon. AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 4. We find that adopting such a reimbursement 
requirements would create a significant administrative burden on contributors that would outweigh any potential 
benefits. Letter from Matthew A. Brill, Counsel for USA Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 96-45, WC Docket No. 06-122 at 2 (filed Oct. 24, 2008). 
350 We do not prejudge whether additional exceptions should apply if the Commission were to assess contributions 
based on numbers for business services. We note that certain businesses, such as non-profit health care providers, 
libraries, and colleges and universities, support such exemptions. We do not address those exemptions at this time. 
351 See, e.g., CU et al. Contribution First FNPRM Comments at 12; NASUCA Contribution First FNPRM 
Comments at 14; Keep USF Fair Mar. 27, 2006 Ex Parte Letter, Attach. at 1. 
352 See supra para. 113; see also Sprint Contribution First FNPRM Comments at 7. 
353 But see IDT Aug. 2, 2007 Ex Parte Letter at 67 (arguing that low-volume consumers who make no long 
distance calls pay about $1.40 in universal service contribution assessments). 
354 See supra para. 112. 
355 Telematics is a service that is provided through a transceiver, which is usually built into a vehicle but can also be 
a handheld device, that provides public safety information to public safety answering points (PSAPs) using global 
positioning satellite data to provide location information regarding accidents, airbag deployments, and other 
emergencies in real time. See, e.g., Letter from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch, FCC, 
CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006); Revision of the Commissions Rules To Ensure 
Compatibility with Enhanced 911 Emergency Systems, CC Docket No. 94-102, Order, 18 FCC Rcd 21531, 21531 
33, paras. 2, 8 (2003). 
356 One-way services include, but are not limited to, one-way paging, electronic facsimile (e-fax), and voicemail 
services (other than stand-alone voicemail services, as discussed above). 
357 See, e.g., Letter from Matthew Brill, Counsel for USA Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing the assessment of a numbers-based 
fee on paging carriers and their customers); Letter from Kenneth Hardman, representing the American Association 
of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 
Attach. (filed Oct. 22, 2008). 
358 See Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz USA, LLC, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 96-45, at 1 (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 Ex Parte Letter); see also Letter 
from John E. Logan, ATX Group, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed 
(continued.)

Federal Communications Commission FCC 08-262 
A-63 
advantage over other services that are required to contribute based on residential telephone numbers. 
These services are receiving the benefit of accessing the public network and therefore assessing universal 
service contributions on these entities is appropriate.359 These service providers have not shown that 
grant of a contribution exception is warranted.360 Accordingly, providers of these services will be 
assessed the full per-number charge. Some one-way service providers argue that their services are 
currently offered on a free, or nearly-free basis, and if these services are assessed on a per telephone 
number basis, providers will no longer be able to offer them.361 We disagree that our change in 
contribution policy necessitates this result. Although these services may be marketed as free to the end 
user, these services are not truly free. Commercial providers of free or nearly-free services generate 
revenue in other ways, such as advertising or through more sophisticated paid service offerings or product 
offerings, and, therefore, whether they continue to offer free services would be a business decision based 
upon the circumstances of the particular business.362 Indeed, we find that assessing a per-number 
contribution obligation on these services is consistent with our determination that services that benefit 
from a ubiquitous public network are fairly charged with supporting the network. 
(continued from previous page) 
Mar. 16, 2006) (ATX Mar. 16, 2006 Ex Parte Letter); Letter from David M. Don, Counsel for j2 Global 
Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18, 2005) (j2 
Global Nov. 18, 2005 Ex Parte Letter); Letter from William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom 
Navin, Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb. 13, 2006) (Bonfire Feb. 13, 2006 Ex 
Parte Letter); j2 Global Contribution Second FNPRM Comments at 2; Letter from Kenneth E. Hardman, Counsel 
for American Association of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. 
at 1 (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 Ex Parte Letter); Letter from Frederick M. Joyce, Counsel for USA 
Mobility, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 13 (filed Mar. 22, 2006) (USA 
Mobility Mar. 22, 2006 Ex Parte Letter). 
359 We similarly decline to adopt an exemption from the numbers-based contribution assessment method for services 
provided by alarm companies. See Letter from Donald J. Evans, Counsel for Corr Wireless Communications, LLC, 
to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No. 05-194, at 2 
(filed Oct. 23, 2008). These services are receiving the benefit of having access to the PSTN and should therefore 
contribute to universal service. 
360 Telematics providers argue against imposition of a $1.00 per number per month contribution assessment on 
telematics numbers due to the services critical role in advancing public safety, and because the $1.00 assessment 
would be prohibitively expensive. See, e.g., Letter from Gary Wallace, Vice President Corporate Relations, ATX 
Group, Inc., to Kevin Martin, Chairman, FCC, CC Docket No. 96-45, WC Docket No. 06-122 at 12 (filed Oct. 28, 
2008); OnStar Oct. 28, 2008 Ex Parte Letter at 34; Letter from Matthew Brill, Counsel for Toyota Motor Sales 
USA, Inc., to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at 12 (filed Oct. 24, 
2008). We find, however, that treating these services differently than other residential services would not be 
equitable, given their use of the PSTN and the ability of telematics providers to recover the assessment from their 
end users. Given the public safety benefit to consumers, we find unpersuasive the telematics providers assertions 
that consumers will discontinue use of the service based on an assessment of only $1.00 per number. Furthermore, 
we disagree with commenters who argue that telematics service should be treated as a business service, and 
conclude that telematics service is a residential service that should be assessed under the $1.00 per number per 
month residential contribution methodology. See OnStar Oct. 28, 2008 Ex Parte Letter at 2; Letter from Tamara 
Preiss, Legal and External Affairs, Verizon Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, 
CC Docket No. 96-45 at 1 (filed Oct. 29, 2008). 
361 See, e.g., j2 Global Contribution Second FNPRM Comments at 7 (arguing that a connections-based universal 
service methodology would force many heavily used one-way communications services out of existence). 
362 See, e.g., j2 Global Contribution Second FNPRM Comments at 8 (describing a free service supported by 
advertising revenue).

Federal Communications Commission FCC 08-262 
A-64 
145. We also decline to adopt an exception from the residential numbers-based contribution 
mechanism for additional handsets provided through a wireless family plan. We do not agree with 
commenters who argue that telephone numbers assigned to the additional handsets in family wireless 
plans should be assessed at a reduced rate, either permanently or for a transitional period.363 These 
commenters assert that assessing contributions at the full per-number rate would cause family plan 
customers to experience rate shock.364 Although family plan customers may see an increase in 
universal service contribution pass-through charges on their monthly bills, we are not persuaded that the 
fear of rate shock justifies special treatment. We find that each number associated with a family plan 
obtains the full benefits of accessing the public network, and thus it is fair to assess each number with a 
separate contribution obligation. We also note that wireless service is one of the fastest-growing sectors 
of the industry and the record does not include persuasive data showing that a move to a numbers-based 
contribution methodology would have a significant, detrimental impact on wireless subscribership.365 We 
agree with Qwest that an exception for additional family plan handsets would not be competitively neutral 
and would advantage approximately 70 million wireless family plan consumers over other residential 
service consumers.366 Multiple wireline lines in a household are not given a discounted contribution 
assessment rate. We therefore decline to adopt a reduced assessment for wireless family plan numbers. 
146. Some parties seek an exception to the contribution methodology we adopt today to 
exclude Internet-based telecommunications relay services (TRS), including video relay services (VRS) 
and IP Relay services.367 We decline to adopt an exception for such providers at this time. The 
Commission has an open proceeding on a number of issues related to these providers, including whether 
certain costs to these providers related to the acquisition of ten-digit numbers by their customers should 
be reimbursed by the TRS fund.368 We defer to that proceeding consideration of whether to adopt an 
exception to the contribution methodology we adopt today for numbers assigned to Internet-based TRS 
363 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter at 4; CTIA 2006 Contribution FNPRM Comments 
at 56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte Letter at 2. 
364 E.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 4; CTIA 2006 Contribution FNPRM 
Comments at 56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte 
Letter at 23. But see AAPC Oct. 9, 2008 Ex Parte Letter at 2. 
365 There are, as of December 2007, 249,235,715 mobile wireless subscribers, a more than 9% increase from the 
previous year. See FCC, LOCAL TELEPHONE COMPETITION: STATUS AS OF DECEMBER 31, 2007, tbl. 14 at 18 (2008), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf. Moreover, where a wireless 
provider is eligible to receive universal service support, it receives the same level of support for each handset. See 
WTA/OPASTCO/ITTA Oct. 10, 2008 Ex Parte Letter at 2. 
366 Qwest Sept. 24, 2008 Ex Parte Letter, Attach. at 7; Qwest May 4, 2006 Ex Parte Letter, Attach. at 9; see also 
CTIA Oct. 2, 2008 Ex Parte Letter at 1. 
367 See Letter from Deb MacLean, Communication Access Center for the Deaf and Hard of Hearing, et al. to 
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 12 (filed Sept. 29, 2008) 
(CSDVRS Sept. 29, 2008 Ex Parte Letter). 
368 See Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech 
Disabilities, CG Docket No. 03-123, WC Docket No. 05-196, Report and Order and Further Notice of Proposed 
Rulemaking, 23 FCC Rcd 11591, 11646, para. 149 (2008) (We . . . seek comment on whether, and to what extent, 
the costs of acquiring numbers, including porting fees, should be passed on to the Internet-based TRS users, and not 
paid for by the [TRS] Fund. . . . We also seek comment on whether there are other specific costs that result from the 
requirements adopted in the Order that, mirroring voice telephone consumers, should be passed on to consumers, 
including, for example, E911 charges.).

Federal Communications Commission FCC 08-262 
A-65 
users.369 
6. Reporting Requirements and Recordkeeping 
147. Under the existing revenue-based contribution methodology, contributors report their 
historical gross-billed, projected gross-billed, and projected collected end-user interstate and international 
revenues quarterly on the FCC Form 499-Q and their gross-billed and actual collected end-user interstate 
and international revenues annually on the FCC Form 499-A.370 Contributors are billed for their universal 
service contribution obligations on a monthly basis based on their quarterly projected collected 
revenue.371 Actual revenues reported on the FCC Form 499-A are used to perform true-ups to the 
quarterly projected revenue data.372 
148. We will develop a new and unified reporting system to accommodate our new universal 
service contribution methodology.373 Contributors will report their Assessable Number counts on a 
monthly basis. Contributors must report as an Assessable Number any such number that is in use by an 
end user during any point in the relevant month. The Commission will develop an additional version of 
the FCC Form 499 for use in reporting Assessable Numbers. Under the interim business revenue-based 
reporting component, contributors will report their revenue information on the modified FCC Forms 499- 
A and 499-Q. 
149. Under the new numbers-based system we adopt today, contributors will report historical 
Assessable Numbers monthly. Contributors will then be invoiced and required to contribute the 
following month. By reporting actual, historical numbers, the numbers-based component of our 
contribution methodology remains simple and straightforward. As explained above, a key reason to move 
to a primarily numbers-based approach is its simplicity. Indeed, several commenters propose monthly 
reporting of historical number counts.374 We find that reporting Assessable Numbers on a projected 
369 To the extent that Internet-based TRS users utilize a proxy number or identifier other than an assigned ten-digit 
number during/pending the transition to ten-digit numbering for Internet-based TRS services, we make clear that 
those numbers or identifiers are NOT subject to universal service contribution at this time. This treatment is 
necessary to ensure the smooth transition to ten-digit numbering for these services, and to prevent duplicative 
charges for end users of these services. 
370 See, e.g., Second Wireless Safe Harbor Order, 17 FCC Rcd at 24969, para. 29. Filers are required to file 
revisions to FCC Form 499-Q within 45 calendar days of the original filing date. See FCC, INSTRUCTIONS TO THE 
TELECOMMUNICATIONS REPORTING WORKSHEET, FCC Form 499-Q, at 10 (Feb. 2008), available at 
http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers are required to file revisions to FCC Form 499-A by March 
31 of the year after the original filing date. See FCC, INSTRUCTIONS TO THE TELECOMMUNICATIONS REPORTING 
WORKSHEET, FCC Form 499-A, at 1112 (Feb. 2008), available at http://www.fcc.gov/Forms/Form499-A/499a- 
2008.pdf. 
371 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 35. 
372 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 36. 
373 We decline to adopt the suggestion by AT&T and Verizon to transition the Telecommunications Relay Services 
Fund, local number portability cost recovery, and numbering administration to a numbers/connections-based 
assessment methodology. See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 6. Although these programs rely 
on the revenue information reported in the current FCC Form 499-A, they do not rely on many of the revenue 
distinctions, such as interstate and intrastate, that necessitate the change from a revenue-based assessment for the 
universal service fund. 
374 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 2-3; CTIA Oct. 2, 2008 Ex Parte Letter, 
Attach. at 5; USF by the Numbers Oct. 3, 2008 Ex Parte Letter. 

Federal Communications Commission FCC 08-262 
A-66 
collected basis would unnecessarily complicate the numbers-reporting system. Although we are mindful 
of the issues inherent in historical reporting,375 we find that a one month lag between the reported 
Assessable Numbers and the contribution based on those numbers is minimal and will not unfairly 
disadvantage any provider, even those with a declining base. 
150. We allow contributors to self-certify which telephone numbers are, consistent with this 
order, considered residential. Contributors will be subject to audit, however, and their method for 
distinguishing residential from other numbers must be reasonable and supportable. For example, in the 
Commissions Broadband Data Gathering Order released earlier this year, the Commission directed 
mobile wireless service providers to report as residential subscriptions those subscriptions that are not 
billed to a corporate account, to a non-corporate business customer account, or to a government or 
institutional account.376 We added that [f]or purposes of Form 477, subscriptions billed to a federal 
government department or agency, for example, will not be residential subscriptions, while 
subscriptions to a service plan offered to all federal government employees will be considered to be 
residential subscriptions.377 For purposes of identifying numbers associated with business services 
(which are not Assessable Numbers), contributors may rely on the fact that the line associated with that 
number is assessed a multi-line end user common line charge (i.e., SLC); provided, however, that the SLC 
must be a mandatory charge, rather than a discretionary charge.378 For determining residential numbers 
(which are Assessable Numbers), however, a contributor may not rely on the assessment of a residential 
SLC, because SLC rates are the same for residential and single-line business end users. Therefore, the 
fact that a contributor charges the single-line business/residential SLC may not accurately indicate 
whether the service provided is a business or residential service.379 
151. Each contributor must maintain the necessary internal records to justify, in response to an 
audit or otherwise, its reported Assessable Number counts and the data reported on the Commissions 
contribution forms.380 Contributors are responsible for accurately including all Assessable Numbers 
associated with residential services in their Assessable Number counts and revenues from all business 
services in the interim business services revenue component of the methodology. Failure to file the 
required form by the applicable deadline, or failure to file accurate information on the form, could subject 
a contributor to enforcement action.381 In addition, as with the current FCC Forms 499-A and 499-Q, we 
will require that an officer of the filer certify to the truthfulness and accuracy of the forms submitted to 
the administrator. 
375 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 2496970, paras. 2932. 
376 Development of Nationwide Broadband Data to Evaluate Reasonable and Timely Deployment of Advanced 
Services to All Americans, Improvement of Wireless Broadband Subscribership Data, and Development of Data on 
Interconnected Voice over Internet Protocol (VoIP) Subscribership, WC Docket No. 07-38, 23 FCC Rcd 9691, 
9704, para. 24 (2008) (Broadband Data Gathering Order), Order on Reconsideration, 23 FCC Rcd 9800 (2008). 
377 Broadband Data Gathering Order at para. 24 n.91. 
378 In other words, the SLC type and rate must be established pursuant to the Commissions rules. 47 C.F.R.  
69.104(o)(1), 69.152(k)(1). To the extent that the contributor is not required to charge a SLC (e.g., is not rateregulated 
by the Commission), a voluntary business choice to include a subscriber line charge on a customers bill 
may not be dispositive of the type of service, residential or business, being provided. 
379 47 C.F.R.  69.104(n)(1), 69.152(d)(1). 
380 Comprehensive Review Report and Order, 22 FCC Rcd at 16387, para. 27. 
381 Pursuant to section 1.80 of the Commissions rules, failure to file required forms or information carries a base 
forfeiture amount of $3,000 per instance and is subject to adjustment criteria. See 47 C.F.R.  1.80.

Federal Communications Commission FCC 08-262 
A-67 
152. To ensure that filers report correct information, we continue to require all reporting 
entities to maintain records and documentation to justify the information reported in these forms, and to 
provide such records and documentation to the Commission and to USAC upon request.382 All universal 
service fund contributors are required to retain their records for five years.383 Specifically, contributors to 
the universal service fund must retain all documents and records that they may require to demonstrate to 
auditors that their contributions were made in compliance with the program rules, assuming that the audits 
are conducted within five years of such contribution. Contributors further must make available all 
documents and records that pertain to them, including those of contractors and consultants working on 
their behalf, to the Office of Inspector General, to USAC, and to their respective auditors. These 
documents and records should include without limitation the following: financial statements and 
supporting documentation; accounting records; historical customer records; general ledgers; and any other 
relevant documentation.384 
153. Further, we make clear that for purposes of the interim business revenue component, we 
retain all existing reporting requirements associated with the filing of the FCC Forms 499-A and 499-Q 
for business service revenue. Finally, we direct the Bureau, and delegate to the Bureau the authority, to 
develop or modify the necessary forms to ensure proper contribution reporting occurs, consistent with this 
order. 
7. Transition to New Methodology 
154. The new reporting procedures discussed above will require reporting entities to adjust 
their record-keeping and reporting systems in order to provide reports to USAC regarding the number of 
Assessable Numbers and to adjust their revenue information to include only business service revenue. 
Accordingly, we implement a 12-month transition period for the new contribution mechanisms.385 This 
transition period will give contributors ample time to adjust their record-keeping and reporting systems so 
that they may comply with modified reporting procedures. As explained below, a 12-month transition 
period will also allow reporting entities to submit several reports for informational purposes before being 
assessed on the basis of projected Assessable Numbers for residential services.386 We find, therefore, that 
a 12-month transition period balances administrative burdens on contributors with the need to implement 
the new contribution methodologies in a balanced and equitable manner. 
155. During 2009, filers will continue reporting their interstate telecommunications revenue 
382 Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; see also 47 C.F.R.  54.706(e), 
54.711(a). 
383 See Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; 47 C.F.R.  54.706(e). 
384 See Comprehensive Review Report and Order, 22 FCC Rcd at 16387, paras. 2728. We note that contributors 
who also report NRUF data to the NANPA are currently required to maintain internal records of their numbering 
resources for audit purposes. NRO I Order, 15 FCC Rcd at 7601, para. 62. 
385 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (proposing a 12-month transition to the new 
mechanism taking effect). 
386 See CTIA 2006 Contribution FNPRM Comments at 7; see also Verizon and AT&T Sept. 11, 2008 Ex Parte 
Letter, Attach. at 2 (advocating a 12-month implementation period followed by a 6-month transition period). Some 
parties advocated for a transition period as short as possible. See, e.g., Letter from Gregory J. Vogt, Counsel for 
CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) 
(CenturyTel Sept. 19, 2008 Ex Parte Letter); Sprint Nextel June 14, 2006 Ex Parte Letter. Others advocated for a 
longer transition period. See, e.g., Qwest Mar. 21, 2006 Ex Parte Letter, Attach. at 3 (advocating 18 months); XO 
Communications Oct. 3, 2008 Ex Parte Letter, Attach. at 11 (advocating at least 18 months).

Federal Communications Commission FCC 08-262 
A-68 
on a quarterly basis and USAC will continue assessing contributions to the federal universal service 
mechanisms based on those quarterly reports. This one-year period and, in particular, the first six months 
of that period, should be used by contributors to adjust their internal and reporting systems to prepare for 
the reporting of Assessable Numbers and business revenues. 
156. Beginning in July 2009, contributors will continue to report and contribute based on their 
quarterly reported interstate and international revenues for the last two quarters of the year, but they will 
also begin filing with USAC monthly reports of their Assessable Numbers and quarterly reports of their 
business revenues. USAC will thus collect data under the old revenue-based methodology, while 
collecting and reviewing data under the new Assessable Number and business revenues methodologies 
for the last six months of 2009. We find that this six-month period of double-reporting is necessary to 
help reporting entities, Commission staff, and USAC identify implementation issues that may arise under 
this new methodology prior to it taking effect.387 Although only the December 2009 Assessable Numbers 
and the fourth quarter 2009 business revenue data will be used to compute contributors January 2010 and 
first quarter 2010 assessments, we find it is reasonable to require contributors to begin filing under the 
new methodologies prior to these periods to ensure that there is adequate time for all affected parties to 
address any implementation issues that may arise. Moreover, we conclude that the short overlap of 
reporting under both the old and new methodologies will not be unduly burdensome for contributors 
given the limited duration of the dual reporting. 
V. REFORM OF INTERCARRIER COMPENSATION 
157. Since Congress first passed the Communications Act in 1934, the Commission has 
sought to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, 
Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable 
charges.388 To promote universal service, regulators have long relied on a complex array of intercarrier 
compensation mechanisms, which generally have included implicit subsidies. Through the years, the 
introduction of competition into first long-distance and then local markets, as well as the development and 
deployment of new technologies, have eroded the fundamental economic underpinnings of the current 
intercarrier compensation regimes. The reforms we adopt in this order are designed to unify and simplify 
the myriad intercarrier compensation systems in existence today. This unification and simplification will 
encourage the efficient use of, and investment in, advanced telecommunications and broadband networks, 
spur intermodal competition throughout the United States, and minimize the need for future regulatory 
intervention. 
158. Today, we adopt a new approach to intercarrier compensation and establish the blueprint 
for moving to new uniform termination rates that are economically efficient and sustainable in our 
increasingly competitive telecommunications markets. At the same time, we recognize, as the 
Commission has in the past, that we need to be cognizant of market disruptions and potential adverse 
effects on consumers and carriers of moving too quickly from the existing intercarrier compensation 
regimes to our new uniform approach to intercarrier compensation. Accordingly, we adopt here a gradual 
ten-year transition plan, with separate stages, designed to reduce rates over a sufficient period to minimize 
market disruptions and to cushion the impact of our reform on both customers and carriers. At the end of 
the transition period, all telecommunications traffic will be treated as falling within the reciprocal 
compensation provisions of section 251(b)(5), and states will set default reciprocal compensation rates 
pursuant to the new methodology we adopt herein. 
387 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (recommending a six-month transition period 
for filers and USAC to test and calibrate the new system prior to its taking effect). 
388 47 U.S.C.  151.

Federal Communications Commission FCC 08-262 
A-69 
A. A Brief History of Intercarrier Compensation 
159. This section provides an overview of the development of intercarrier compensation 
regulation in the United States. Although not comprehensive, it highlights several important goals that 
have emerged in Commission precedent, which are relevant to intercarrier compensation reform. 
 Promoting universal service. The Commission has sought to promote universal service, and, in 
furtherance of that objective, an intricate web of implicit subsidies evolved that were intended to keep 
the price of residential local telephone service affordable, even if that price was below cost. With the 
introduction of competition for long-distance telephone service, regulators sought to maintain implicit 
subsidies of local service when they created regulated intercarrier compensation charges, known as 
access charges, that long-distance service providers paid local telephone companies to originate and 
terminate long-distance calls. 
 Encouraging efficient use of the network. The Commission has long recognized that requiring endusers 
to bear a greater proportion of the cost of the local network encourages them to make rational 
choices in their use of telephone service. The Commission nevertheless has declined to shift a 
significant percentage of the cost of the network to those end users in light of universal service 
concerns. 
 Realigning cost recovery in response to competition. For much of the twentieth century, telephone 
service was viewed as a natural monopoly. The emergence of competition for long-distance services 
in the 1970s and for local services, particularly after the 1996 Act, has placed pressure on above-cost 
intercarrier compensation charges. Although the Commission, in response to competitive entry, 
sought to develop intercarrier compensation rules that align more closely with the economic principle 
that costs should be recovered in the way they are incurred, marketplace developments confirm that 
those efforts were incomplete. As new competitors entered, a series of regulatory arbitrage strategies 
developed, some of which the Commission has attempted to address on a case-by-case basis. 
 Technological advancements. As carriers shift from circuit-switched telephone-only networks to 
packet-switched broadband networks supporting numerous services and applications, it is important 
that intercarrier compensation rules create the proper incentives for carriers to invest in new 
broadband technology and that consumers have the opportunity to take full advantage of the new 
capabilities of this broadband world. 
1. Intercarrier Compensation Regulation Before the Telecommunications Act 
of 1996 
160. When AT&T began offering telephone service in 1877,389 it held all the essential patents 
and effectively operated as a legal monopoly. When the original patents expired in 1894, however, 
thousands of independent telephone companies began offering competing local telephone service.390 This 
389 The company that became AT&T was originally called the Bell Telephone Company. See AT&T, A Brief 
History: Origins, http://www.corp.att.com/history/history1.html (last visited Sept. 11, 2008) (AT&T Brief History). 
For simplicity, we use the term AT&T to include all predecessor companies. 
390 Between 1894 and 1904, over six thousand independent telephone companies went into business in the United 
States, and the number of telephones boomed from 285,000 to 3,317,000. See AT&T Brief History. By 1900, 
independent telephone companies controlled 38 percent of the phones installed in the United States. GERALD W. 
BROCK, THE TELECOMMUNICATIONS INDUSTRY, THE DYNAMICS OF MARKET STRUCTURE 148 (1981) (THE 
TELECOMMUNICATIONS INDUSTRY). And, by 1902, 451 out of 1002 cities with telephone service had two or more 
(continued.)

Federal Communications Commission FCC 08-262 
A-70 
new competition led to lower rates,391 and reduced AT&Ts average return on investments by over 80 
percent.392 AT&T responded by refusing to interconnect with any independent telephone company to 
exchange long-distance or local traffic.393 Without interconnection, independent telephone companies 
could not offer a viable service unless such entities duplicated the AT&T system, which was not 
economically feasible. As a result, independent telephone companies began to go out of business or were 
acquired by AT&T.394 
161. AT&Ts predatory strategy led the Department of Justice to file an antitrust suit against 
AT&T in 1913. The government alleged that AT&Ts interconnection and acquisition policies violated 
Section 2 of the Sherman Act.395 The case was eventually dropped after AT&T committed to abide by 
certain principles in what became known as the Kingsbury Commitment of 1913. Under the Kingsbury 
Commitment, AT&T agreed to: (i) allow independent telephone companies to interconnect with AT&Ts 
long-distance network; and (ii) not acquire any additional independent telephone companies absent 
regulatory approval.396 In exchange, the government sanctioned AT&Ts monopoly control over markets 
where it already offered service. 
162. In essence, the Kingsbury Commitment and subsequent regulation assumed that both the 
local and long-distance telephone businesses were natural monopolies.397 Policymakers embraced the 
(continued from previous page) 
competing providers. See MICHAEL K. KELLOGG ET AL. FEDERAL TELECOMMUNICATIONS LAW 11 (1992) (FEDERAL 
TELECOMMUNICATIONS LAW). 
391 THE TELECOMMUNICATIONS INDUSTRY at 116. 
392 FEDERAL TELECOMMUNICATIONS LAW at 11; see also Adam D. Thierer, Unnatural Monopoly: Critical Moments 
In The Development Of The Bell System Monopoly, 14 CATO J. 2 (1994), available at 
http://www.cato.org/pubs/journal/cjv14n2-6.html (Unnatural Monopoly). Although independent companies 
competed with AT&T for local service, AT&T had the only long-distance network operating at the time and 
possessed important long-distance technology patents. See THE TELECOMMUNICATIONS INDUSTRY at 148. 
According to Brock, there is some evidence that the independent companies had planned on starting a separate longdistance 
network until AT&T refused interconnection. GERALD W. BROCK, THE SECOND INFORMATION 
REVOLUTION 3032 (2003) (SECOND INFORMATION REVOLUTION). 
393 FEDERAL TELECOMMUNICATIONS LAW at 1112; THE TELECOMMUNICATIONS INDUSTRY at 148; David F. 
Weiman & Richard C. Levin, Preying for Monopoly? The Case of Southern Bell Telephone Company, 18941912, 
102 J. POL. ECON. 103, 10326 (1994). 
394 FEDERAL TELECOMMUNICATIONS LAW at 11. In 1912 alone, AT&T purchased 136,000 telephone companies and 
sold 43,000. See THE TELECOMMUNICATIONS INDUSTRY at 156. 
395 Original Petition, United States v. AT&T, No. 6082 (D. Or. 1913); United States v. AT&T, No. 6082, 1 DECREES 
AND JUDGMENT IN CIVIL ACTION CASES 483 (D. Or. 1914); see also PETER TEMIN, THE FALL OF THE BELL SYSTEM: 
A STUDY IN PRICES AND POLITICS 910 (1987); ROBERT W. GARNET, THE TELEPHONE ENTERPRISE: THE EVOLUTION 
OF THE BELL SYSTEMS HORIZONTAL STRUCTURE, 18761909 15253 (1985). 
396 The Kingsbury Commitment was a unilateral letter rather than an actual consent decree. See THE 
TELECOMMUNICATIONS INDUSTRY at 155. The Kingsbury Commitment was republished in AT&Ts 1913 Annual 
Report at 2426, available at http://www.porticus.org/bell/pdf/1913ATTar_Complete.pdf. AT&T also agreed to 
sell off its Western Union stock, a large independent telephone company that AT&T had recently acquired. See id. 
at 24. See FEDERAL TELECOMMUNICATIONS LAW at 1112; see also Unnatural Monopoly. 
397 See, e.g., Unnatural Monopoly (noting that a Senate Commerce Committee hearing in 1921 stating that 
telephoning is a natural monopoly and a House of Representative committee report stated that [t]here is nothing 
to be gained by local competition in the telephone business.) (quoting G. H. Loeb, The Communications Act Policy 
Toward Competition: A Failure to Communicate, 1 DUKE LAW J. 14 (1978)); see also id. (explaining that many state 
regulatory agencies began refusing requests by telephone companies to construct new lines in areas already served 
(continued.)

Federal Communications Commission FCC 08-262 
A-71 
view that, because of economies of scale, a natural monopoly could provide service more efficiently than 
would occur in a competitive market.398 Rates for these natural monopolies were subject to rate-of-return 
regulation.399 In setting regulated rates, a primary policy objective of regulators was to promote universal 
service to all consumers through affordable local telephone rates for residential customers. To 
accomplish this objective, however, regulators created a patchwork of what has become known as implicit 
subsidies. Thus, for example, regulators permitted higher rates to business customers so that residential 
rates could be lower, and they frequently required similar rates to urban and rural customers, even though 
the cost of serving rural customers was higher.400 Similarly, AT&T was permitted to charge artificially 
high long-distance toll rates, and its interstate toll revenues were placed into an interstate settlements 
pool.401 AT&T then shared a portion of these interstate revenues with independent telephone companies 
and AT&Ts affiliated Bell Operating Companies (BOCs).402 These high long-distance rates enabled 
regulators to set lower local rates for the BOCs and independent local telephone companies. 
163. The use of microwave technology by Microwave Communications, Inc. (MCI), to offer a 
competitive alternative to AT&Ts switched long-distance service beginning in the 1970s cast into doubt 
the assumption that long-distance telecommunications was a natural monopoly.403 MCI focused initially 
on private line service, where AT&Ts rates were above cost. MCIs service offerings grew after a series 
of Commission and court decisions rejected AT&Ts objections to MCIs entry.404 Despite these 
(continued from previous page) 
by another carrier and continued to encourage monopoly swapping and consolidation in the name of efficient 
service) (citing Warren G. Lavey, The Public Policies That Changed the Telephone Industry Into Regulated 
Monopolies: Lessons From Around 1915, 39 FED. COMM. L.J. 171, 18485 (1987)); FEDERAL 
TELECOMMUNICATIONS LAW at 17. 
398 A natural monopoly arises when a single firm can efficiently serve the entire market because average costs are 
lower with one firm than with two firms. R. PRESTON MCAFEE, INTRODUCTION TO ECONOMIC ANALYSIS 6241 
(2006), available at http://www.mcafee.cc/Introecon/IEA.pdf; see also DANIEL F. SPULBER, REGULATION AND 
MARKETS 34 (1989) (Natural monopoly generally refers to a property of productive technology, often in 
conjunction with market demand, such that a single firm is able to serve the market at less cost than two or more 
firms. Natural monopoly is due to economies of scale or economies of multiple-output production.). 
399 For discussions of rate of return regulation, see, e.g., JAMES C. BONBRIGHT ET AL., PRINCIPLES OF PUBLIC 
UTILITY RATES 197376 (1988); CHARLES F. PHILLIPS, JR., THE ECONOMICS OF REGULATION: THEORY AND 
PRACTICE IN THE TRANSPORTATION AND PUBLIC UTILITY INDUSTRIES 260302 (1969) (PHILLIPS, THE ECONOMICS 
OF REGULATION); 1 ALFRED E. KAHN, THE ECONOMICS OF REGULATION: PRINCIPLES AND INSTITUTIONS 2058 
(1970) (THE ECONOMICS OF REGULATION). 
400 See, e.g., JONATHAN E. NUECHTERLEIN & PHILIP J.WEISER, DIGITAL CROSSROADS: AMERICAN 
TELECOMMUNICATIONS POLICY IN THE INTERNET AGE 1015 (2007) (DIGITAL CROSSROADS). 
401 See Economic Implications and Interrelationships Arising from Policies and Practices Relating to Customer 
Information, Jurisdictional Separations and Rate Structures, Docket No. 20003, First Report, 61 FCC 2d 766, 796 
97, paras. 8182 (1976). 
402 Under the settlements process, the local exchange companies were allowed to recover the portion of their costs 
allocated to the interstate jurisdiction from the interstate toll revenues. The process for affiliated companies was a 
process of intracorporate accounting known as division of revenues, while the process for unaffiliated companies 
represented real payments from AT&T to the independent companies. See THE SECOND INFORMATION REVOLUTION 
at 188. According to Brock, the revenue sharing settlements process was a major source of support for small rural 
companies, which often could recover a large share of their costs from the interstate toll revenue pool (in some cases 
as much as 85 % of their non-traffic sensitive costs). See id. 
403 See DIGITAL CROSSROADS at 6064. 
404 AT&T argued that MCI would cherry pick the most profitable customers (those paying above-cost rates) and 
force AT&T to increase local rates thereby undermining the goal of universal service. AT&T opposed the entry of 
(continued.)

Federal Communications Commission FCC 08-262 
A-72 
victories, MCI was not entitled to equal access to local exchange service,405 and MCI and other IXCs 
were dependent on the BOCs and independent local telephone companies to complete long-distance calls 
to the end users.406 
164. For a number of reasons, including AT&Ts resistance to the introduction of competition 
in the long-distance market, the Department of Justice in 1974 filed an antitrust suit alleging that AT&T 
had engaged in unlawful monopolization in the local, long-distance, and equipment manufacturing 
markets.407 After eight years of litigation, AT&T and the Department of Justice entered into a consent 
decree, which federal District Court Judge Greene approved in 1982.408 Under the Modification of Final 
Judgment (MFJ), AT&T agreed to divest its affiliated BOCs from AT&T long distance, and the BOCs 
were required to provide equal access and dialing parity.409 In addition, the MFJ barred the BOCs from 
entering the long-distance, information services, equipment manufacturing, or other competitive markets 
to prevent predatory cross subsidization by their regulated monopoly local telephone service.410 Although 
the MFJ applied only to the BOCs, the Commission subsequently extended interconnection and 
nondiscriminatory equal access obligations to all incumbent LECs.411 As a result of the MFJ, MCI, and 
other competitors were able to compete directly with AT&T to provide long-distance or interstate service, 
and all IXCs paid interstate access charges to the BOCs and other incumbent LECs to originate and 
(continued from previous page) 
MCI before the Commission and the courts. See FEDERAL TELECOMMUNICATIONS LAW at 60214; Bell System 
Tariff Offerings of Local Distribution Facilities for Use by Other Common Carriers, Docket No. 19896, Decision, 
46 FCC 2d 413 (1974), affd Bell Tel. Co. of Pa. v. FCC, 503 F.2d 1250 (3d Cir. 1974); see also DIGITAL 
CROSSROADS at 6064 (noting that AT&T fought tooth and nail to deprive MCI of effective access and even 
unplugged certain MCI lines from AT&Ts network). 
405 Equal access requires that all long-distance carriers be accessible by dialing a 1 and not a string of long-distance 
codes before dialing the called partys telephone number. See, e.g., HARRY NEWTON, NEWTONS TELECOM 
DICTIONARY 326 (16th ed. 2000). 
406 During much of the 1970s, AT&T and MCI debated before the Commission and courts about the charges that 
MCI should pay the BOCs for originating and terminating interstate calls placed by or to end users on the BOCs 
local networks. In December 1978, under the Commissions supervision, AT&T, MCI, and other IXCs entered into 
a comprehensive interim agreement, known as Exchange Network Facilities for Interstate Access (ENFIA), which 
set the rates that AT&Ts affiliated BOCs would charge IXCs for originating and terminating access to local 
exchange networks. See Exchange Network Facilities for Interstate Access (ENFIA), CC Docket No. 78-371, 
Memorandum Opinion and Order, 71 FCC 2d 440 (1979) (subsequent history omitted). 
407 See United States v. AT&T, 524 F. Supp. 1336, 1346 (D.D.C. 1981). 
408 See United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), affd sub nom. Maryland v. United States, 460 U.S. 
1001 (1983). The 1982 consent decree, as entered by the court, was called the Modification of Final Judgment 
because it modified a 1956 Final Judgment against AT&T stemming from a 1949 antitrust lawsuit. See THE 
TELECOMMUNICATIONS INDUSTRY at 11620. 
409 The Act defines dialing parity to mean that a person that is not an affiliate of a local exchange carrier is able 
to provide telecommunications services in such a manner that customers have the ability to route automatically, 
without the use of any access code, their telecommunications to telecommunications services provider of the 
customers designation from among 2 or more telecommunications services providers (including such local 
exchange carrier). 47 U.S.C.  153(15). 
410 See United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982). 
411 MTS and WATS Market Structure, CC Docket No. 78-72, Phase I, Third Report and Order, 93 FCC 2d 241 
(1983) (1983 Access Charge Order), modified on recon., 97 FCC 2d 682 (1983), modified on further recon., 97 FCC 
2d 834 (1983), affd in part and remanded in part, Natl Assn of Regulatory Util. Commissioners v. FCC, 737 F.2d 
1095 (D.C. Cir. 1984).

Federal Communications Commission FCC 08-262 
A-73 
terminate service to end users. 
165. While the AT&T antitrust suit was pending, the Commission began to take the first steps 
toward reforming intercarrier compensation. In 1978, the Commission commenced a review of 
intercarrier compensation for originating and terminating access.412 In 1983, following the MFJ, the 
Commission eliminated the existing potpourri of [compensation] mechanisms,413 and replaced it with a 
single uniform mechanism . . . through which local carriers [could] recover the cost of providing access 
services needed to complete interstate and foreign telecommunications.414 The access charge rules 
adopted by the Commission provided for the recovery of incumbent LECs costs assigned to the interstate 
jurisdiction and detailed the precise manner in which [incumbent LECs] may assess charges on IXCs 
and end users.415 In designing the interstate access charge rules, the Commission sought to balance a 
number of competing objectives.416 For one, the Commission recognized that [a]rtificial pricing 
structures, while perhaps appropriate for use in achieving social objectives under the right conditions, 
cannot withstand the pressures of a competitive marketplace.417 Consequently, the Commission sought 
to follow more closely the principle that costs should be recovered in the way they are incurred, consistent 
with principles of cost-causation.418 Under this rate structure principle, the cost of facilities that do not 
vary based on the amount of traffic carried over those facilities (i.e., non-traffic-sensitive costs) should be 
recovered through fixed, flat-rated charges, while only costs that vary with usage of facilities (i.e., trafficsensitive 
costs) should be recovered through corresponding per-minute rates.419 
166. Despite these rate structure principles, the Commission concluded that a sudden 
introduction of large flat-rated charges on end-users could have adverse effects on subscribership. It 
therefore adopted a plan [that] provides for the gradual introduction of these end-user charges.420 Thus, 
412 See MTS and WATS Market Structure, CC Docket No. 78-72, Notice of Inquiry and Proposed Rulemaking, 67 
FCC 2d 757 (1978); Supplemental Notice of Inquiry and Proposed Rulemaking, 73 FCC 2d 222 (1979); Second 
Supplemental Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 224 (1980); Report and Third Supplemental 
Notice of Inquiry and Proposed Rulemaking, 81 FCC 2d 177 (1980); and Fourth Supplemental Notice of Inquiry 
and Proposed Rulemaking, 90 FCC 2d 135 (1982). 
413 See MTS and WATS Market Structure, CC Docket No. 78-72, Memorandum Opinion and Order, 97 FCC 2d 682, 
683, para. 2 (1983) (First Reconsideration of 1983 Access Charge Order). 
414 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d 682. 
415 See Access Charge Reform Order, 12 FCC Rcd at 1599192, para. 22. 
416 See, e.g., First Reconsideration of 1983 Access Charge Order, 97 FCC 2d at 683, para. 3 (identifying the four 
primary objectives of: (1) elimination of unreasonable discrimination and undue preferences among rates for 
interstate services; (2) efficient use of the local network; (3) prevention of uneconomic bypass; and (4) preservation 
of universal service). 
417 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d. at 686, para. 7. 
418 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d. at 68889, para. 10; see also Access 
Charge Reform Order, 12 FCC Rcd at 15992, para. 24 (The Commission has recognized in prior rulemaking 
proceedings that, to the extent possible, costs of interstate access should be recovered in the same way that they are 
incurred, consistent with principles of cost-causation.). 
419 Access Charge Reform Order, 12 FCC Rcd at 15992, para. 23. 
420 1983 Access Charge Order, 93 FCC 2d at 253, para. 35; see also id. at 243, para. 4 (finding that a transitional 
plan is necessary in part because [i]mmediate recovery of high fixed costs through flat end user charges might 
cause a significant number of local exchange service subscribers to cancel local exchange service despite the 
existence of a Universal Service Fund and [s]uch a result would not be consistent with the goals of the 
Communications Act.). As a result, the Commission initially limited the flat rate charge imposed on end users, also 
(continued.)

Federal Communications Commission FCC 08-262 
A-74 
the Commission limited the amount of the interstate loop costs assessed to residential and business 
customers as a flat-rated monthly charge, and it recovered the remaining interstate loop costs through a 
per-minute charge imposed on IXCs.421 Moreover, the Commission continued to apply traditional rate-ofreturn 
regulation based on carriers embedded, fully distributed costs, including common costs and 
overhead.422 
167. In 1991, the Commission took another step toward intercarrier compensation reform by 
replacing rate-of-return regulation with an incentive-based system of regulation for the BOCs and GTE.423 
This new regulatory regime, known as price cap regulation, was designed to replicate some of the 
efficiency incentives found in competitive markets. In particular, price caps were designed to encourage 
companies to: (1) improve their efficiency by creating incentives to reduce costs; (2) invest efficiently in 
new plant and facilities; and (3) develop and deploy innovative service offerings.424 Although many 
smaller and rural incumbent LECs remain subject to the Part 69 rate-of-return rules, most of the larger 
incumbent LECs are now subject to price cap regulation.425 
168. The Commissions reforms during the 1980s and early 1990s yielded many public 
interest benefits. For example, economists have estimated that above-cost access charges reduced U.S. 
(continued from previous page) 
known as the subscriber line charge or SLC, to $1.00 (subsequent orders raised the cap on the subscriber line charge 
for residential users to $6.50). 
421 This per-minute charge was called the carrier common line charge. See Access Charge Reform Order, 12 FCC 
Rcd at 15992, para. 24. Additional charges were imposed on IXCs to recover the interstate portion of the costs of 
other parts of a local exchange carriers network, such as local switches and transport. See First Reconsideration of 
1983 Access Charge Order, 97 FCC 2d at 73540, paras. 12934, 13743. 
422 See 47 C.F.R.  69.301.502; see also Policy and Rules Concerning Rates for Dominant Carriers, CC Docket 
No. 87-313, Second Report and Order, 5 FCC Rcd 6786, 6787, para. 1 (1990) (LEC Price Cap Order). The rate-ofreturn 
regulations are set forth in Part 69 of our rules. See generally 47 C.F.R.  69.1701. 
423 Price cap regulation was mandatory for the BOCs and GTE and optional for other incumbent local exchange 
carriers. See LEC Price Cap Order, 5 FCC Rcd at 681820, paras. 25779; see also Access Charge Reform; Price 
Cap Performance Review for Local Exchanges Carriers; Interexchange Carrier Purchases of Switch Access 
Services Offered by Competitive Local Exchange Carriers; Petition of U.S. West Commcns, Inc. for Forbearance 
from Regulation as a Dominant Carrier in the Phoenix, Arizona MSA, CC Docket Nos. 96-262, 94-1, 98-157, Fifth 
Report and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221, 14224 n.1 (1999) (Pricing 
Flexibility Order). 
424 LEC Price Cap Order, 5 FCC Rcd at 678991, paras. 2137; Special Access Rates for Price Cap Carriers, WC 
Docket No. 05-25, Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 199899, para. 11 (2005); Section 
272(b)(1)s Operate Independently Requirement for Section 272 Affiliates, WC Docket No. 03-228, CC Docket 
Nos. 96-149, 98-141, 96-149, 01-337, Report and Order, Memorandum Opinion and Order, 19 FCC Rcd 5102, 
5115, para. 22 (2004); Access Charge Reform; Price Cap Performance Review for LECs; Low-Volume Long 
Distance Users; Federal-State Joint Board on Universal Service, CC Docket Nos. 96-262, 94-1, 99-249, 96-45, 
Order on Remand, 18 FCC Rcd 14976, 14979, para. 4 (2003); Cost Review Proceeding for Residential and Single- 
Line Business Subscriber Line Charge (SLC) Caps; Price Cap Performance Review for Local Exchange Carriers, 
CC Docket Nos. 96-262, 94-1, Order, 17 FCC Rcd 10868, 10873, para. 9 (2002). See also Windstream Petition for 
Conversion to Price Cap Regulation and for Limited Waiver Relief, WC Docket No. 07-171, Order, 23 FCC Rcd 
5294 (2008); Petition of Puerto Rico Telephone Company, Inc, for Election of Price Cap Regulation and Limited 
Waiver of Pricing and Universal Service Rules; Consolidated Communications Petition for Conversion to Price Cap 
Regulation and for Limited Waiver Relief; Frontier Petition for Limited Waiver Relief upon Conversion of Global 
Valley Networks, Inc., to Price Cap Regulation, WC Docket Nos. 07-291, 07-292, 08-18, Order, 23 FCC Rcd 7353 
(2008). 
425 See generally 47 C.F.R.  61.1.193, 69.1.701.

Federal Communications Commission FCC 08-262 
A-75 
economic welfare by an estimated $1017 billion annually during the late 1980s, but that the annual 
welfare loss declined substantially to between $2.5 billion and $7 billion following the Commissions 
access charge reforms in the 1980s and early 1990s.426 Despite these reforms, however, per-minute 
access rates remained high.427 These high switched access rates created an opportunity for competitive 
access providers (CAPs) to begin offering facilities-based competition. CAPs could offer carriers a 
competitive alternative to the BOCs, often with lower rates and higher quality.428 The entry of CAPs and 
the potential entry of cable companies into local residential telephone markets created pressure toward 
opening the local telephone markets to competition, which ultimately resulted in the passage of the 1996 
Act. 
2. Intercarrier Compensation Regulation Since the 1996 Act 
169. Recognizing these fundamental market changes, Congresss goals in passing the 1996 
Act were to: (1) open local exchange and exchange access markets to competition; (2) promote increased 
competition in telecommunications markets that were already open to competition; and (3) reform the 
existing universal service system to be consistent with competitive markets.429 With respect to the last 
goal, Congress recognized that implicit subsidies, which were implemented when the industry was 
considered a natural monopoly, were neither consistent with, nor sustainable in, a competitive market, and 
that they should be replaced with explicit support where necessary.430 It also recognized, however, that 
conversion of the existing web of implicit subsidies to a system of explicit support would be a difficult 
task that could not be accomplished immediately.431 Accordingly, when Congress established the 
statutory scheme to open local markets to competition,432 it included a transitional mechanism in section 
251(g) providing for the continued enforcement of certain pre-Act obligations.433 Notably, section 251(g) 
426 See Letter from Jerry Ellig, Senior Research Fellow, Mercatus Center, to Marlene H. Dortch, Secretary, FCC, CC 
Docket Nos. 01-92, 96-45, WC Docket Nos. 08-183, 07-135, 05-337, 99-68 at 2 (filed Sept. 22, 2008) (Mercatus 
Center Sept. 22, 2008 Ex Parte Letter) (citing ROBERT W. CRANDALL, AFTER THE BREAKUP: U.S. 
TELECOMMUNICATIONS IN AMORE COMPETITIVE ERA 141 (1991) and ROBERT W. CRANDALL & LEONARD 
WAVERMAN,WHO PAYS FOR UNIVERSAL SERVICE? 120 (2000)). 
427 Among the reasons that switched access rates remained high were that they were based on fully distributed costs 
and included a large allocation of common and overhead network costs. See supra note 422. 
428 See, e.g., Expanded Interconnection with Local Telephone Company Facilities, CC Docket No. 91-141, 
Memorandum Opinion and Order, 9 FCC Rcd 5154, 5158, para. 8 (1994) (recognizing that local competition should 
lead to more efficient operations, the deployment of new technologies facilitating innovative service offerings, 
increase the choices available to access customers, and reduce the prices of services subject to competition). 
429 See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and 
Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket 
Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 15505, para. 3 (1996) (subsequent history omitted) 
(Local Competition First Report and Order). 
430 Specifically, Congress directed that universal service support should be explicit and sufficient to achieve the 
purposes of section 254. 47 U.S.C.  254(e); see also S. REP. NO. 104-230, at 131 (1996) (Conf. Rep) (stating that, 
[t]o the extent possible, . . . any support mechanisms continued or created under new section 254 should be explicit, 
rather than implicit as many support mechanisms are today). 
431 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9. 
432 See 47 U.S.C.  25152; Local Competition First Report and Order, 11 FCC Rcd at 15505, para. 3. 
433 See 47 U.S.C.  251(g); WorldCom, Inc. v. FCC, 288 F.3d 429, 432 (D.C. Cir. 2002) (WorldCom) (subsequent 
history omitted) (holding that section 251(g) appears to provide for the continued enforcement of certain pre-Act 
regulatory interconnection restrictions and obligations); see also Competitive Telecomms. Assn v. FCC, 117 F.3d 
(continued.)

Federal Communications Commission FCC 08-262 
A-76 
provides for the continued enforcement of exchange access and interconnection obligations only until 
such restrictions and obligations are explicitly superseded by regulations prescribed by the Commission 
after the date of such enactment, suggesting that such obligations would be re-evaluated based on the 
requirements imposed by the 1996 Act. 434 
170. Congress also recognized the need to impose new obligations on carriers to open local 
telephone markets to competition, and directed the Commission to adopt implementing rules. 
Specifically, section 251(b) imposed certain obligations on all LECs, while section 251(c) imposed 
additional obligations on incumbent LECs, including the obligation to provide access to network elements 
on an unbundled basis.435 Of relevance here, section 251(b)(5) of the 1996 Act imposed on all LECs a 
duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.436 
171. In requiring LECs to enter into reciprocal compensation agreements with requesting 
carriers, Congress introduced another mechanism through which carriers compensate each other for the 
exchange of traffic besides the access charge regime preserved under section 251(g). Although Congress 
expressed a preference for negotiated interconnection agreements to implement the requirements of 
section 251, section 252 provided procedures for the resolution of interconnection disputes involving 
incumbent LECs, including standards governing arbitration of such disputes by state regulatory 
commissions.437 For such state arbitrations, section 252(d) also established general pricing guidelines for 
incumbent LECs, including guidelines for setting the price of unbundled network elements (UNEs)438 and 
reciprocal compensation rates.439 
172. In the Local Competition First Report and Order, the Commission adopted pricing rules 
for states to use in setting the price of interconnection and UNEs when arbitrating interconnection 
disputes.440 In particular, the Commission directed the states to employ a forward-looking, long-run 
average incremental cost methodology, which it called Total Element Long-Run Incremental Cost or 
TELRIC.441 The Commission found that TELRIC prices should include a reasonable allocation of 
forward-looking common costs, including overheads.442 Although the Commission recognized that peak- 
(continued from previous page) 
1068, 1072 (8th Cir. 1997) (finding that section 251(g) preserves certain rate regimes already in place and leaves 
the door open for the promulgation of new rates at some future date). 
434 47 U.S.C.  251(g). 
435 See 47 U.S.C.  251(b)(c). Certain rural carriers were exempt from section 251(c) until such time as a 
requesting carrier met the statutory test for removing the so-called rural exemption. See 47 U.S.C.  251(f)(1). 
436 47 U.S.C.  251(b)(5). 
437 47 U.S.C.  252. 
438 47 U.S.C.  252(d)(1). 
439 See 47 U.S.C.  252(d)(2). 
440 See Local Competition First Report and Order, 11 FCC Rcd at 15812929, paras. 618862 (implementing the 
pricing principles contained in sections 251(c)(2) and (c)(3) and section 252(d)(1) of the 1996 Act); see also 47 
U.S.C.  251(c)(2)(3), 252(d)(1). Among other things, the 1996 Act required incumbent LECs to make portions 
of their networks (the physical facilities and features, functions, and capabilities associated with those facilities) 
available to requesting competitive carriers on an unbundled basis. See Local Competition First Report and Order, 
11 FCC Rcd at 15624, 15631, paras. 241, 258. 
441 See Local Competition First Report and Order, 11 FCC Rcd at 1584456, paras. 672703. 
442 See Local Competition First Report and Order, 11 FCC Rcd at 1585154, paras. 69498; 47 C.F.R.  51.503, 
51.505. The term common costs refers to costs that are incurred in connection with the production of multiple 
(continued.)

Federal Communications Commission FCC 08-262 
A-77 
load pricing was the most efficient way to recover the cost of traffic-sensitive facilities, it did not require 
states to adopt peak-load pricing because of the administrative difficulties associated with such an 
approach.443 In interpreting the statutory pricing rules for reciprocal compensation contained in section 
252(d)(2)(A) of the 1996 Act,444 the Commission found that costs for transport and termination should 
be recovered in a cost-causative manner and that usage based charges should be limited to situations 
where costs are usage sensitive.445 In particular, the Commission found that the additional costs to the 
LEC of terminating a call that originates on another carriers network primarily consists of the trafficsensitive 
component of local switching and that non traffic-sensitive costs, such as the costs of local 
loops and line ports, should not be considered additional costs.446 The Commission further found that 
the additional costs standard of section 252(d)(2) permits the use of the same TELRIC standard that it 
(continued from previous page) 
products or services, and remains unchanged as the relative proportion of those products or services varies. Local 
Competition First Report and Order, 11 FCC Rcd at 15845, para. 676. In its rules, the Commission defines 
forward-looking common costs as economic costs efficiently incurred in providing a group of elements or 
services . . . that cannot be attributed directly to individual elements or services. 47 C.F.R.  51.505(c)(1). The 
term overhead costs refers to common costs incurred by the firms operations as a whole, such as the salaries of 
executives. Local Competition First Report and Order, 11 FCC Rcd at 15851, para. 694. 
443 The Commission recognized that, [b]ecause the cost of capacity is determined by the volume of traffic that the 
facilities are able to handle during peak load periods, we believe, as a matter of economic theory, that if usagesensitive 
rates are used, then somewhat higher rates should apply to peak period traffic, with lower rates for nonpeak 
usage. Local Competition First Report and Order, 11 FCC Rcd at 15878, para. 755. The Commission 
recognized that higher costs are incurred to carry additional traffic at peak volumes, because additional capacity is 
required to carry that traffic. Id. at 15878, para. 755. In contrast, off-peak traffic imposes relatively little additional 
cost because it does not require any incremental capacity to be added to base plant. Id. at 15878, para. 755. The 
Commission found that there would be administrative difficulties with establishing peak-load prices, however, and 
did not require or forbid states from adopting that approach. Id. at 1587879, paras. 75657. 
444 See generally Local Competition First Report and Order, 11 FCC Rcd at 1600858, paras. 1027118 
(implementing the reciprocal compensation obligations contained in section 251(b)(5) of the 1996 Act). The 
reciprocal compensation rules currently require the calling partys LEC to compensate the called partys LEC for the 
additional costs associated with transporting a call subject to section 251(b)(5) from the carriers interconnection 
point to the called partys end office, and for the additional costs of terminating the call to the called party. Section 
51.701(c) of the Commissions rules defines transport as the transmission and any necessary tandem switching of 
telecommunications traffic subject to section 251(b)(5) of the Act from the interconnection point between the two 
carriers to the terminating carriers end office switch that directly serves the called party, or equivalent facility 
provided by a carrier other than an incumbent LEC. 47 C.F.R.  51.701(c). Section 51.701(d) of the 
Commissions rules defines termination as the switching of telecommunications traffic at the terminating carriers 
end office switch, or equivalent facility, and delivery of such traffic to the called partys premises. 47 C.F.R. 
 51.701(d). In the Local Competition First Report and Order, the Commission also concluded that the new 
transport and termination rules should be applied to LECs and CMRS providers. 11 FCC Rcd at 1601617, para. 
1043. 
445 Local Competition First Report and Order, 11 FCC Rcd at 16028, para. 1063. This determination led to perminute 
pricing for transport and termination, except in the case of dedicated facilities, which may be flat-rated. Id. 
at 16028, para. 1063. Specifically, the Commission required that all interconnecting parties be offered the option of 
purchasing dedicated facilities on a flat-rated basis. Id. at 16028, para. 1063. 
446 Local Competition First Report and Order, 11 FCC Rcd at 1602425, para. 1057. Although the Commission 
concluded that non-traffic sensitive costs should not be considered additional costs, the only non-traffic sensitive 
costs specifically identified and required to be removed were the costs of local loops and line ports. Id. at 16025, 
para. 1057.

Federal Communications Commission FCC 08-262 
A-78 
established for interconnection and unbundled elements.447 The pricing rules governing reciprocal 
compensation that the Commission adopted in the Local Competition First Report and Order remain in 
effect today.448 
173. Following passage of the 1996 Act, the Commission also began reforming both interstate 
access charges and federal universal service support mechanisms by moving the implicit subsidies 
contained in interstate access charges into explicit universal service support, consistent with the 1996 
Acts directives. In particular, in the 1997 Access Charge Reform Order, the Commission modified the 
price cap rules for larger incumbent LECs by aligning the price cap LECs rate structure more closely 
with the manner in which costs are incurred.449 Recognizing Congresss direction that universal service 
support should be explicit, the Commission adopted rules to reduce usage-sensitive interstate access 
charges by phasing out local loop and other non-traffic sensitive costs from those charges and directing 
incumbent LECs to recover those NTS [non-traffic sensitive] costs through more economically efficient, 
flat-rated charges.450 
174. The Commission acknowledged, however, that the measures it adopted in the Access 
Charge Reform Order would not remove all implicit support from all access charges immediately.451 
Rejecting suggestions that all implicit subsidies be eliminated from access charges immediately, the 
Commission noted that it did not have the tools to identify the existing subsidies precisely, and it 
expressed concern that eliminating all implicit subsidies at once might have an inequitable impact on the 
incumbent LECs.452 Moreover, while stating its desire to rely on competition to drive access charges 
toward cost,453 the Commission recognized that some services may prove resistant to competition, and 
447 Local Competition First Report and Order, 11 FCC Rcd at 1602325, paras. 105458. As with its pricing rules 
for UNEs, the Commission determined that termination rates established pursuant to the TELRIC methodology 
should include a reasonable allocation of forward-looking common costs. Id. at 16025, para. 1058. Similarly, the 
Commission again noted that the costs of transporting and terminating traffic during peak and off-peak hours may 
not be the same. Id. at 1602829, para. 1064. In light of administrability concerns, the Commission once again 
neither required nor forbid states from adopting rates that reflected peak and off-peak costs, but expressed hope that 
some states or negotiating parties would consider peak-load pricing. Id. at 1602829, para. 1064. 
448 A number of parties appealed the Commissions Local Competition First Report and Order, including the rules it 
adopted governing the setting of rates for unbundled network elements and reciprocal compensation. In AT&T v. 
Iowa Utilities Board, the Supreme Court upheld the Commissions jurisdiction to design a pricing methodology to 
govern state rate setting under section 252 of the Act. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 397 (1999) 
(AT&T v. Iowa Utils. Bd.). Subsequently, in Verizon Commcns, Inc. v. FCC, the Supreme Court affirmed the 
Commissions choice of TELRIC as a permissible methodology for states to use in ratemaking proceedings. 
Verizon Commcns, Inc. v. FCC, 535 U.S. 467, 497529 (2002) (Verizon v. FCC). The court held that the 
Commissions decision to adopt a forward-looking cost methodology was a reasonable interpretation of the statute 
and that the Commission did not err in rejecting alternative methodologies advocated by the incumbent LECs. 
Verizon v. FCC, 535 U.S. at 50708. The Court also rejected arguments that various aspects of the TELRIC 
methodology were unlawful. Verizon v. FCC, 535 U.S. at 523. 
449 See Access Charge Reform Order, 12 FCC Rcd at 1600407, paras. 5466 (summarizing the rate structure 
changes). 
450 Access Charge Reform Order, 12 FCC Rcd at 15986, para. 6. 
451 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9. 
452 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9; see also id. at 1600203, paras. 4547. 
453 Explaining its reliance on a market-based approach to access reform, it stated its belief that emerging 
competition in the local exchange markets would provide a more accurate means of identifying implicit subsidies 
(continued.)

Federal Communications Commission FCC 08-262 
A-79 
it reserved the right to adjust rates in the future to bring them into line with forward-looking costs.454 
175. To limit possible rate shock to retail customers, the Commission also limited the amount 
of allocated interstate cost of a local loop that could be assessed directly on residential and business 
customers as a flat-rated monthly charge.455 Although the Access Charge Reform Order started the 
process toward establishing explicit subsidies, the Commission concluded that a process that eliminates 
implicit subsidies from access charges over time [was] warranted.456 
176. In the 2000 CALLS Order,457 the Commission continued its effort to remove implicit 
subsidies and replace them with explicit universal service support for price cap LECs by, among other 
things, reducing per-minute intercarrier charges, raising the SLC cap, phasing out the Presubscribed 
Interexchange Carrier Charge (PICC),458 and permitting price-cap LECs to deaverage the SLC once the 
affected carrier charges were eliminated.459 The Commission also created a new universal service fund to 
compensate price-cap incumbent LECs, in part, for lost interstate access revenues.460 
177. In the MAG Order, the Commission extended similar reforms to incumbent LECs subject 
(continued from previous page) 
and moving access rates to economically sustainable levels. Access Charge Reform Order, 12 FCC Rcd at 16001 
02, para. 44. 
454 Access Charge Reform Order, 12 FCC Rcd at 16003, para. 48. The Commission also applied its market-based 
approach to the terminating access rates charged by competitive LECs and declined to adopt any regulations 
governing competitive LEC access charges. Id. at 16141, para. 363. It reasoned that the possibility of 
competitive responses by IXCs will have a constraining effect on non-incumbent LEC pricing. Id. at 16141, para. 
362. This reliance on a market-based approach proved misplaced. In subsequent years, competitive LECs, instead 
of reducing access charges, frequently raised them above the regulated rates of incumbent LECs. As a result, the 
Commission was forced to regulate competitive LEC access charges. See 47 C.F.R.  61.26; Access Charge 
Reform, Reform of Access Charges Imposed by Competitive Local Exchange Carriers, CC Docket No. 96-262, 
Seventh Report and Order, 16 FCC Rcd 9923, 9924, paras. 13 (2001) (CLEC Access Charge Order) (establishing 
benchmark rates for competitive LEC access charges), recon., Access Charge Reform, Reform of Access Charges 
Imposed by Competitive Local Exchange Carriers, Petition of Z-Tel Commcns Inc. For Temporary Waiver of 
Commission Rule 61.26(d) to Facilitate Deployment of Competitive Service in Certain Metropolitan Statistical 
Areas, CC Docket No. 96-262, CCB/CPD File No. 01-19, Eighth Report and Order and Fifth Order on 
Reconsideration, 19 FCC Rcd 9108 (2004) (CLEC Access Charge Recon. Order). 
455 See, e.g., Access Charge Reform Order, 12 FCC Rcd at 1601011, para 73. To reduce per-minute carrier 
common line (CCL) charges, the Commission created the presubscribed interexchange carrier charge (PICC), a flatrated, 
monthly charge imposed on IXCs on a per-line basis. Id. at 1599816000, paras. 3740. The Commission 
also shifted the cost of line ports from per-minute local switching charges to the common line category and 
established a mechanism to phase out the per-minute Transport Interconnection Charge (TIC). Id. at 1603540, 
1607386, paras. 12534, 21043. 
456 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9. 
457 See CALLS Order, 15 FCC Rcd 12962. 
458 See supra note 455 (discussing the PICC). 
459 See generally CALLS Order, 15 FCC Rcd at 1302528, paras. 15159 (reducing interstate switched access rates); 
id. at 1299113007, paras. 76112 (raising SLC caps and eliminating PICCs); id. at 1300714, paras. 11328 
(deaveraging SLCs). 
460 See CALLS Order, 15 FCC Rcd at 1304649, paras. 20105 (establishing a $650 million interstate access 
universal service support mechanism).

Federal Communications Commission FCC 08-262 
A-80 
to rate-of-return regulation.461 As with the CALLS Order, these reforms were designed to rationalize the 
interstate access rate structure by aligning it more closely with the manner in which costs are incurred.462 
Among other things, the MAG Order increased the SLC caps for rate-of-return carriers and phased out the 
per-minute CCL charge from the common line rate structure.463 The Commission also created a universal 
service support mechanism to replace implicit support with explicit support, in order to foster competition 
and more efficient pricing.464 Many, but not all, states have also addressed intercarrier compensation 
regulation. In addition to setting rates for reciprocal compensation, many states have revised their rules 
governing intrastate access charges. Although some states have chosen to mirror interstate access 
charges, 465 others continue to maintain intrastate access charges that far exceed interstate charges.466 
3. Problems Associated With the Existing Intercarrier Compensation Regimes 
461 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, Second Report and Order and Further 
Notice of Proposed Rulemaking, 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 From Interstate 
Services of Local Exchange Carriers, CC Docket No. 98-166, Report and Order, 16 FCC Rcd 19613 (2001) (MAG 
Order), recon. in part, Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent Local 
Exchange Carriers and Interexchange Carriers, CC Docket No. 00-256, First Order on Reconsideration, Federal- 
State Joint Board on Universal Service, CC Docket 96-45, Twenty-Fourth Order on Reconsideration, 17 FCC Rcd 
5635 (2002), amended on recon., Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent 
Local Exchange Carriers and Interexchange Carriers, CC Docket No. 00-256, Federal-State Joint Board on 
Universal Service, CC Docket 96-45, Third Order on Reconsideration, 18 FCC Rcd 10284 (2003); see also Multi- 
Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent Local Exchange Carriers and 
Interexchange Carriers; Federal-State Joint Board on Universal Service, CC Docket Nos. 00-256, 96-45, Report 
and Order and Second Further Notice of Proposed Rulemaking, 19 FCC Rcd 4122 (2004). 
462 MAG Order, 16 FCC Rcd at 19617, para. 3. 
463 MAG Order, 16 FCC Rcd at 19621, para. 15. 
464 MAG Order, 16 FCC Rcd at 19617, para. 3. A new universal service support mechanism, Interstate Common 
Line Support (ICLS), was implemented to replace the CCL charge beginning July 1, 2002. Id. at 19621, para. 15. 
This mechanism recovers any shortfall between the allowed common line revenue requirement of rate-of-return 
carriers and their SLC and other end-user revenues, thereby ensuring that changes in the rate structure did not affect 
the overall recovery of interstate access costs by rate-of-return carriers serving high-cost areas. Id. at 19642, 19667 
73, paras. 61, 12841. To reform the local switching and transport rate structure of rate-of-return carriers, the 
Commission shifted the non-traffic sensitive costs of local switch line ports to the common line category, and 
reallocated the remaining costs contained in the TIC to other access rate elements, thus reducing per-minute 
switched access charges. Id. at 1964961, paras. 76111. 
465 See, e.g., BA-WVs Intrastate Access Charges, Case No. 00-0318-T-GI, Commission Order, 2001 WL 935643 
(West Virginia PSC June 1, 2001) (ordering that the traffic-sensitive intrastate access charges of Verizon-WV shall 
be modified to mirror the interstate rate structure and rate elements); Tariff Filing of BellSouth 
Telecommunications, Inc to Mirror Interstate Rates, Case No. 98-065, Order (Kentucky PSC Mar. 31, 1999) 
(requiring BellSouth to eliminate the state-specific Non-Traffic Sensitive Revenue Requirement . . . , thus moving 
its aggregate intrastate switched access rate to the FCCs CALLS interstate rate); Establishment of Carrier-to- 
Carrier Rules, Case No. 06-1344-TP-ORD, Order, 2007 WL 3023991 (Ohio PUC Oct. 17, 2007) ([T]his 
Commission requires ILECs to mirror their interstate switched access rate on the intrastate side . . . .). 
466 See, e.g., Letter from David C. Bartlett, Vice President of Federal Government Affairs, Embarq, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92, Exh. C (filed Aug. 1, 2008) (noting intrastate terminating switched 
access rates five to ten times higher than interstate rates in Missouri, Washington, Virginia, and several other States). 

Federal Communications Commission FCC 08-262 
A-81 
178. The introduction of competition into local telephone markets revealed weaknesses in the 
existing intercarrier compensation regimes that remained notwithstanding the efforts of the Commission 
and certain states to reform interstate and intrastate access charges. As the Commission observed in 2001, 
[i]nterconnection arrangements between carriers are currently governed by a complex system of 
intercarrier compensation regulations . . . [that] treat different types of carriers and different types of 
services disparately, even though there may be no significant differences in the costs among carriers or 
services.467 We have seen numerous examples of regulatory arbitrage in the marketplace both because 
of the different rates for similar functions under different intercarrier compensation regimes and because 
none of these regimes currently set rate levels in an economically efficient manner.468 
179. One example of regulatory arbitrage involves traffic to dial-up ISPs. Following adoption 
of the Local Competition First Report and Order, state commissions set reciprocal compensation rates for 
the exchange of local traffic. These reciprocal compensation rates were sufficiently high that many 
competitive LECs found it profitable to target and serve ISP customers who were large recipients of local 
traffic, since dial-up Internet customers would call their ISP and then stay on the line for hours. This 
practice led to significant traffic imbalances, with competitive LECs seeking billions of dollars in 
reciprocal compensation payments from other LECs.469 The Commission responded by adopting a 
separate interim intercarrier compensation regime for this traffic. 
180. On February 26, 1999, the Commission issued a Declaratory Ruling and Notice of 
Proposed Rulemaking in which it held that ISP-bound traffic is jurisdictionally interstate because end 
users access websites across state lines. Because the Local Competition First Report and Order 
concluded that the reciprocal compensation obligation in section 251(b)(5) applied to only local traffic, 
the Commission found in the Declaratory Ruling that ISP-bound traffic is not subject to section 
251(b)(5).470 On March 24, 2000, in the Bell Atlantic decision, the United States Court of Appeals for the 
District of Columbia Circuit (D.C. Circuit) vacated certain provisions of the Declaratory Ruling.471 The 
court did not question the Commissions finding that ISP-bound traffic is interstate. Rather, the court 
held that the Commission had not adequately explained how its end-to-end jurisdictional analysis was 
relevant to determining whether a call to an ISP is subject to reciprocal compensation under section 
251(b)(5).472 In particular, the court noted that a LEC serving an ISP appears to perform the function of 
termination because the LEC delivers traffic from the calling party through its end office switch to the 
called party, the ISP.473 
467 Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Notice of Proposed 
Rulemaking, 16 FCC Rcd 9610 (2001) (Intercarrier Compensation NPRM). 
468 The phrase regulatory arbitrage refers to profit-seeking behavior that can arise when a regulated firm is 
required to set difference prices for products or services with a similar cost structure. See, e.g., PATRICK DEGRABA, 
BILL AND KEEP AT THE CENTRAL OFFICE AS THE EFFICIENT INTERCONNECTION REGIME 1, para. 2 n.3 (Federal 
Communications Commission, OPP Working Paper No. 33, 2000), available at 
http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp33.pdf. 
469 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket Nos. 96-98, 99-68, Order on Remand and 
Report and Order, 16 FCC Rcd 9151, 9183, para. 70 (2001) (subsequent history omitted) (ISP Remand Order). 
470 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket Nos. 96-98, 99-68, Declaratory Ruling and 
Notice of Proposed Rulemaking, 14 FCC Rcd 3689, 370306, paras. 2127 (1999) (Declaratory Ruling), vacated 
and remanded, Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) (Bell Atlantic). 
471 Bell Atlantic, 206 F.3d at 1. 
472 See Bell Atlantic, 206 F.3d at 5. 
473 Bell Atlantic, 206 F.3d at 6. 

Federal Communications Commission FCC 08-262 
A-82 
181. On April 27, 2001, the Commission released the ISP Remand Order, which concluded 
that section 251(g) excludes ISP-bound traffic from the scope of section 251(b)(5).474 The Commission 
explained that section 251(g) maintains the pre-1996 Act compensation requirements for exchange 
access, information access, and exchange services for such access, thereby excluding such traffic from 
the reciprocal compensation requirements that the 1996 Act imposed. The Commission concluded that 
ISP-bound traffic is information access and, therefore, is subject instead to the Commissions section 
201 jurisdiction over interstate communications.475 The Commission concluded that a bill-and-keep 
regime might eliminate incentives for arbitrage and force carriers to look to their own customers for cost 
recovery.476 To avoid a flash cut to bill-and-keep, however, the Commission adopted an interim 
compensation regime pending completion of the Intercarrier Compensation proceeding.477 
182. On May 3, 2002, the D.C. Circuit found that the Commission had not provided an 
adequate legal basis for the rules it adopted in the ISP Remand Order.478 Once again, the court did not 
question the Commissions finding that ISP-bound traffic is jurisdictionally interstate. Rather, the court 
held that section 251(g) of the Act did not provide a basis for the Commissions decision. The court held 
that section 251(g) is simply a transitional device that preserved obligations that predated the 1996 Act 
until the Commission adopts superseding rules, and there was no pre-1996 Act obligation with respect to 
intercarrier compensation for ISP-bound traffic.479 Although the court rejected the legal rationale for the 
interim compensation rules, the court remanded, but did not vacate, the ISP Remand Order to the 
Commission, and it observed that there is plainly a non-trivial likelihood that the Commission has 
authority to adopt the rules.480 Accordingly, the interim rules adopted in the ISP Remand Order have 
remained in effect. 
474 See ISP Remand Order, 16 FCC Rcd at 917172, para. 44. 
475 See ISP Remand Order, 16 FCC Rcd at 9175, para. 52. Thus, the Commission affirmed its prior finding in the 
Declaratory Ruling that ISP-bound traffic is jurisdictionally interstate. See id; see also Declaratory Ruling, 14 FCC 
Rcd at 370103, paras. 1820. 
476 ISP Remand Order, 16 FCC Rcd at 918485, paras. 7475. The Commission discussed at length the market 
distortions and regulatory arbitrage opportunities created by the application of per-minute reciprocal compensation 
rates to ISP-bound traffic. In particular, the Commission found that requiring compensation for this type of traffic at 
existing reciprocal compensation rates undermined the operation of competitive markets because competitive LECs 
were able to recover a disproportionate share of their costs from other carriers, thereby distorting the price signals 
sent to their ISP customers. See id. at 918186, paras. 6776. 
477 See ISP Remand Order, 16 FCC Rcd at 915557, paras. 78. The interim regime adopted by the Commission 
consisted of: (1) a gradually declining cap on intercarrier compensation for ISP-bound traffic, beginning at $.0015 
per minute-of-use and declining to $.0007 per minute-of-use; (2) a growth cap on total ISP-bound minutes for which 
a LEC may receive this compensation; (3) a new markets rule requiring bill-and-keep for the exchange of this 
traffic if two carriers were not exchanging traffic pursuant to an interconnection agreement prior to the adoption of 
the interim regime; and (4) a mirroring rule that gave incumbent LECs the benefit of the rate cap only if they 
offered to exchange all traffic subject to section 251(b)(5) at the same rates. Id. at 918789, 919394, paras. 78, 80, 
89. In a subsequent order, the Commission granted forbearance to all telecommunications carriers with respect to 
the growth caps and the new markets rule. See Petition of Core Commcns Inc. for Forbearance Under 47 U.S.C. 
 160(c) from Application of the ISP Remand Order, WC Docket No. 03-171, Order, 19 FCC Rcd 20179 (2004) 
(Core Forbearance Order). Thus, only the rate caps and mirroring rule remain in effect today. 
478 See WorldCom, 288 F.3d at 429. 
479 See WorldCom, 288 F.3d at 433. 
480 See WorldCom, 288 F.3d at 434.

Federal Communications Commission FCC 08-262 
A-83 
183. On November 5, 2007, Core filed a petition for writ of mandamus with the D.C. Circuit 
seeking to compel the Commission to enter an order resolving the courts remand in the WorldCom 
decision.481 On July 8, 2008, the court granted a writ of mandamus and directed the Commission to 
respond to the WorldCom remand in the form of a final, appealable order that explains the legal authority 
for the Commissions interim intercarrier compensation rules that exclude ISP-bound traffic from the 
reciprocal compensation requirement . . . .482 The court directed the Commission to respond to the writ 
of mandamus by November 5, 2008.483 
184. Another regulatory arbitrage opportunity arose as a result of the Commissions 1997 
decision not to regulate the interstate access charges of competitive LECs. As a result, many competitive 
LECs filed tariffs with access charges that were well above the rates charged by incumbent LECs for 
similar services.484 In response, the Commission adopted new rules that effectively capped the interstate 
access charges that competitive LECs could tariff.485 
185. Two more recent examples of regulatory arbitrage involve billing problems and the 
Access Stimulation problem. Commenters describe problems billing for traffic when it arrives for 
termination with insufficient identifying information.486 Because the existing intercarrier compensation 
mechanisms have vastly disparate rates that apply to different types of traffic, carriers have both the 
opportunity and incentive to disguise the nature, or conceal the source, of the traffic being sent in order to 
avoid or reduce payments to other carriers.487 Access Stimulation refers to allegations that certain 
LECs may have entered into agreements with providers of services that generate large volumes of 
incoming calls to substantially increase the number of calls sent to the LEC.488 It has been alleged that 
481 Pet. for Writ of Mandamus, In re Core Communications Inc., No. 07-1446 (D.C. Cir. Nov. 5, 2007). 
482 In re Core Commcns Inc., 531 F.3d 849, at 86162 (D.C. Cir. 2008) (Core Decision). 
483 See Core Decision, 531 F.3d at 86162. If the Commission fails to comply with the writ by the November 5th 
deadline, the interim rules will be vacated on November 6, 2008. See id. at 862. 
484 See CLEC Access Charge Order, 16 FCC Rcd at 9931, para. 22. For instance, the Commission found that certain 
competitive LECs charged $0.09 per minute and that the weighted average of competitive LEC access rates was 
above $0.04 per minute. Id. In contrast, the same underlying data showed a composite incumbent LEC rate of 
$0.0056 for that same traffic. See AT&T Additional Comments, CC Docket Nos. 96-262, 97-146, CCB/CPD File 
No. 98-63, App. A. (Jan. 11, 2001). The Commission found that competitive LECs could impose excessive charges 
due to two factors. First, the Commission observed that access charges are paid by the IXC rather than the end-user 
customer. Because the IXC has no ability to affect the calling or called partys choice of service providers, it cannot 
avoid carriers with high access charges. CLEC Access Charge Order, 16 FCC Rcd at 9935, para. 31. Second, the 
Commission found that the rate averaging requirements in section 254(g) of the Act precluded IXCs from passing 
through particular competitive LECs excessive access charges to the end user customers of those competitive 
LECs. Id. As a result, the Commission found the existing regulatory regime did not effectively create the incentives 
for the end users to select a lower-priced access provider. Id. 
485 See 47 C.F.R.  61.26 (containing rules governing the tariffing of competitive LEC interstate switched exchange 
access services). As a general matter, the Commissions rules governing competitive LEC access charges limit 
these rates to those charged by the competing incumbent LEC. Id. 
486 See infra Part V.D. 
487 See infra para. 326. 
488 See, e.g., Qwest Commcns Corp. v. Farmers and Merchs. Mut. Tel. Co., File No. EB-07-MD-001, Memorandum 
Opinion and Order, 22 FCC Rcd 17973, para. 1 (2007) (addressing Qwests allegations that Farmers deliberately 
planned to increase dramatically the amount of terminating access traffic delivered to its exchange, via agreements 
with conference calling companies).

Federal Communications Commission FCC 08-262 
A-84 
this significantly increased growth in terminating access traffic may be causing carriers rates to become 
unjust or unreasonable in violation of section 201 of the Act.489 In the Access Stimulation NPRM, the 
Commission has sought information about the extent of this practice, its potential impact on the rates of 
price cap, rate-of-return, and competitive LECs, and how this practice should be addressed.490 
B. Comprehensive Reform 
1. Introduction 
186. Evidence of increasing regulatory arbitrage, as well as increased competition and changes 
in technology, has led the Commission to consider comprehensive reform of intercarrier compensation. 
In 2001, the Commission adopted a Notice of Proposed Rulemaking to examine possible alternatives to 
existing intercarrier regimes with the intent of moving toward a more unified system.491 The notice 
generated extensive comments that generally confirmed the need for comprehensive intercarrier 
compensation reform, including a number of competing proposals.492 In 2005, the Commission adopted a 
Further Notice of Proposed Rulemaking seeking comment on the various industry proposals.493 In 2006, 
another industry coalition submitted an alternative comprehensive intercarrier compensation reform 
proposal, known as the Missoula Plan.494 The Commission separately requested and received comments 
489 See Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135, Notice of 
Proposed Rulemaking, 22 FCC Rcd 17989, para. 1 (2007) (Access Stimulation NPRM). 
490 Access Stimulation NPRM, 22 FCC Rcd 17989. 
491 See Intercarrier Compensation NPRM, 16 FCC Rcd 9610. The Commission acknowledged a number of 
problems with the existing regimes, including inefficient rates and different rates for the same types of calls. Id. at 
961618, paras. 1118. The Commission thus sought comment on alternative approaches to reforming intercarrier 
compensation, including moving to a bill-and-keep approach to intercarrier compensation. Id. at 961113, paras. 2 
4. 
492 See, e.g., Regulatory Reform Proposal of the Intercarrier Compensation Forum (ICF Proposal), attached to Letter 
from Gary M. Epstein and Richard R. Cameron, Counsel for the Intercarrier Compensation Forum, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92, App. A (filed Oct. 5, 2004) (ICF Oct. 5, 2004 Ex Parte Letter); 
Comprehensive Plan For Intercarrier Compensation Reform of Expanded Portland Group (EPG Proposal), attached 
to Letter from Glenn H. Brown, EPG Facilitator, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed 
Nov. 2, 2004); Intercarrier Compensation Reform Plan of Alliance for Rational Intercarrier Compensation (ARIC 
Plan), attached to Letter from Wendy Thompson Fast, President, Consolidated Companies, and Ken Pfister, Vice 
PresidentStrategic Policy, Great Plains Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 
01-92, 96-45, 99-68, 96-98, WC Docket No. 04-36 (filed Oct. 25, 2004); Cost-Based Intercarrier Compensation 
Coalition (CBICC Proposal), attached to Letter from Richard M. Rindler, Counsel for the Cost-Based Intercarrier 
Compensation Coalition, to Marlene Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept. 2, 2004); Updated 
Ex Parte of Home Telephone Company, Inc. and PBT Telecom (Home/PBT Proposal), attached to Letter from 
Keith Oliver, Vice President, Finance, Home Telephone Company, and Ben Spearman, Vice President, Chief 
Regulatory Officer, PBT Telecom, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 2, 
2004); NASUCA Intercarrier Compensation Proposal at 1 (NASUCA Proposal), attached to Letter from Philip F. 
McClelland, Senior Assistant Consumer Advocate, NASUCA, to Marlene Dortch, Secretary, FCC, CC Docket No. 
01-92 (filed Dec. 14, 2004); Western Wireless Intercarrier Compensation Reform Plan at 9 (Western Wireless 
Proposal), attached to Letter from David L. Sieradzki, Counsel for Western Wireless Corp., to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 (filed Dec. 1, 2004). 
493 See Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Further Notice of Proposed 
Rulemaking, 20 FCC Rcd 4685, 4687, para. 4 (2005) (Intercarrier Compensation FNPRM). 
494 See Missoula Plan for Intercarrier Compensation Reform (Missoula Plan), attached to Letter from Tony Clark, 
Commissioner and Chair, NARUC Committee on Telecommunications, Ray Baum, Commissioner and Chair, 
(continued.)

Federal Communications Commission FCC 08-262 
A-85 
on the Missoula Plan proposal.495 Finally, in 2008, the Commission stabilized the universal service fund 
by adopting an interim cap on payments to competitive ETCs, helping pave the way for comprehensive 
intercarrier compensation and universal service reform, and leading to a number of new reform 
proposals.496 
187. As a result of the Intercarrier Compensation NPRM, the Intercarrier Compensation 
FNPRM, the filing of the Missoula Plan, and the more recent proposals that have been filed, the 
Commission has compiled an extensive record over the past seven years. The Commission has received 
comments or proposals from a wide variety of interested parties, including, states, incumbent LECs, 
competitive LECs, rural companies, IXCs, new technology companies, consumer advocates, business 
customers, and industry associations. As demonstrated throughout this order, the Commission has 
thoroughly reviewed and analyzed the voluminous record, has considered the evidence submitted by the 
parties supporting the alternatives, and has carefully evaluated each of the proposals that have been 
presented. Based on this examination of the options, we find that the approach we describe below and 
adopt in this order best achieves the goals of promoting universal service, encouraging the efficient use 
of, and investment in, broadband technologies, spurring competition, and ultimately, further reducing the 
need for regulation. 
2. A New Approach to Intercarrier Compensation 
188. Since the introduction of competition into long-distance telephone service, the 
Commission has moved toward eliminating implicit subsidies from intercarrier charges. At every stage, 
however, the Commission has had to balance the desire to establish more efficient intercarrier charges 
against the potential adverse effects on consumers (in the form of higher flat-rated charges) and carriers 
(in the form of reduced intercarrier revenues). The introduction of competition into local telephone 
markets accelerated the need for reform. As discussed above, since the implementation of the 1996 Act, 
not only has local competition increased, but so has the incidence and severity of regulatory arbitrage. 
189. We conclude today that, with the universal service fund now stabilized, we can wait no 
longer to begin the process of comprehensive intercarrier compensation reform. The differences in 
existing intercarrier compensation regimes impose significant inefficiencies on users and distort carriers 
investment incentives, which can result in losses of billions of dollars in consumers and producers 
surplus. Possibly more important, these legacy regulatory regimes pose an obstacle to the transition to an 
all-IP broadband world. Because carriers currently can receive significant revenues from charging abovecost 
rates to terminate telecommunications traffic, they have a reduced incentive to upgrade their 
networks to the most efficient technology or to negotiate interconnection agreements that are designed to 
accommodate the efficient exchange of IP traffic, as both actions would likely lead to reduced intercarrier 
(continued from previous page) 
NARUC Task Force, and Larry Landis, Commissioner and Vice-Chair, NARUC Task Force, to Hon. Kevin Martin, 
Chmn., FCC, CC Docket No. 01-92 (filed July 24, 2006) (NARUC Task Force July 24, 2006 Ex Parte Letter). 
495 Comment Sought on Missoula Intercarrier Compensation Reform Plan, CC Docket No. 01-92, Public Notice, 21 
FCC Rcd 8524 (2006). Subsequently, the Missoula Plan supporters filed additional details concerning specific 
aspects of the plan, on which the Commission continued to seek comment. See Comment Sought on Missoula Plan 
Phantom Traffic Interim Process and Call Detail Records Proposal, CC Docket No. 01-92, Public Notice, 21 FCC 
Rcd 13179 (2006); Comment Sought on Amendments to the Missoula Plan Intercarrier Compensation Proposal to 
Incorporate a Federal Benchmark Mechanism, CC Docket No. 01-92, Public Notice, 22 FCC Rcd 3362 (2007). 
496 The Commission invited parties to refresh the record in these and other relevant dockets. Interim Cap Clears 
Path for Comprehensive Reform: Commission Poised to Move Forward on Difficult Decisions Necessary to 
Promote and Advance Affordable Telecommunications for All Americans, News Release (May 2, 2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf. 

Federal Communications Commission FCC 08-262 
A-86 
payments.497 
190. In this order, we therefore adopt a new approach to intercarrier compensation and 
establish the blueprint for moving to new uniform termination rates that are economically efficient and 
sustainable in our increasingly competitive telecommunications markets. At the same time, we recognize, 
as the Commission has in the past, the need to be cognizant of market disruptions and potential adverse 
effects on consumers and carriers of moving too quickly from the existing intercarrier compensation 
regimes to our new uniform approach to intercarrier compensation. Accordingly, we adopt here a gradual 
ten-year transition plan with separate stages, designed to reduce rates over a sufficient period to minimize 
market disruptions and to cushion the impact of our reform on both customers and carriers. At the end of 
the transition period, all telecommunications traffic will be treated as falling within the reciprocal 
compensation provisions of section 251(b)(5), and states will set default reciprocal compensation rates 
pursuant to the new methodology we adopt herein. 
191. The requirements that we adopt for intercarrier compensation do not apply to providers 
operating in Alaska, Hawaii, or any U.S. Territories and possessions. We find that these areas have very 
different attributes and related cost issues than the continental states.498 For this reason, we are exempting 
providers in Alaska, Hawaii and U.S. Territories and possessions from the requirements and rules adopted 
herein, and we will address them in a subsequent proceeding.499 
192. Transition Plan. As described below, we adopt a ten-year transition plan.500 In the first 
stage, intrastate access rates are reduced to the levels of interstate rates. During stage two, carriers will 
reduce their rates to an interim uniform termination rate, set by the state. Carriers whose current rates are 
below the interim uniform rate set by the state, however, may not increase their rates. During stage three, 
the rates carriers charge at the end of stage two (either the interim uniform rates or their prior rates, 
whichever are lower) will be gradually reduced to the rates that will apply at the end of the transition. 
This transition will be designed by the state so as to minimize market disruptions and adverse economic 
effects. This transition is described in more detail below. 
497 See, e.g., T. RANDOLPH BEARD & GEORGE S. FORD, DO HIGH CALL TERMINATION RATES DETER BROADBAND 
DEPLOYMENT? (Phoenix Center Policy Bulletin No. 22, Oct. 2008), available at http://www.phoenixcenter.
org/PolicyBulletin/PCPB22Final.pdf. 
498 See, e.g., Verizon/Amrica Mvil Transfer Order, 22 FCC Rcd at 6211, para. 36 (describing difficult to serve 
terrain and dramatic urban/rural differences in Puerto Rico); Rates and Services Integration Order, 4 FCC Rcd at 
396, paras. 78 (describing the unique market conditions and structure in Alaska); GCI Oct. 3, 2008 Ex Parte Letter 
(citing cost distinctions between Alaska and the continental United States). 
499 Cf. Policies and Service Rules for the Broadcasting-Satellite Service Order, 22 FCC Rcd at 8860, para. 47 (The 
Commission is committed to establishing policies and rules that will promote service to all regions in the United 
States, particularly to traditionally underserved areas, such as Alaska and Hawaii, and other remote areas.). 
500 A number of parties argue for a shorter transition period than that provided here. See, e.g., Letter from Robert W. 
Quinn, Senior Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92 (filed Oct. 23, 2008) (AT&T Oct. 23, 2008 Ex Parte Letter); Letter from Kyle McSlarrow, President and 
CEO, NCTA, to Kevin J. Martin, Chairman, FCC, CC Docket No. 01-92 (filed Oct. 28, 2008) (NCTA Oct. 28, 2008 
Ex Parte Letter); Letter from Paul W. Garnett, Assistant Vice-President, CTIAThe Wireless Association, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed October 27, 2008) (CTIA October 27, 2008 Ex 
Parte Letter); Small Business Administration Office of Advocacy (SBA) ICC FNPRM Comments at 57. We note 
that the reforms adopted today do not preclude carriers from entering into agreements that would reduce intercarrier 
charges more quickly, (See, e.g., Letter from Susanne A. Guyer, Senior Vice-President, Verizon, to Kevin J. Martin, 
Chairman, FCC, CC Docket No. 01-92 (filed October 28, 2008) at 6.) nor do they prevent state commissions from 
accelerating the glide path toward the final reciprocal compensation rate if they deem it appropriate. 

Federal Communications Commission FCC 08-262 
A-87 
193. Intrastate Rate Reductions. One year from the effective date of this order, we require 
that all LECs reduce their terminating intrastate switched access rates by 50 percent of the difference 
between their intrastate switched access rates and their interstate switched access rates.501 Two years 
from the effective date of this order, we require that all LECs reduce their terminating intrastate switched 
access rates by the remaining 50 percent of the difference between their intrastate switched access rates 
and their interstate switched access rates so that their intrastate rates equal their interstate rates. Carriers 
will comply with state tariffing requirements or other applicable state law in effectuating those changes in 
intrastate terminating access rates. 
194. State Establishment of Interim, Uniform Reciprocal Compensation Rates. Within two 
years from the effective date of this order, states must adopt a state-wide interim, uniform reciprocal 
compensation rate applicable to all carriers (except carriers whose rates are below the interim, uniform 
rate, in which case, those carriers rates shall be capped at those lower, existing rates). Three years from 
the effective date of this order, we require that all LECs reduce their terminating rates by 50 percent of the 
difference between their current terminating rate and the interim, uniform reciprocal compensation rate 
established by the state. Four years from the effective date of this order we require that all LECs reduce 
their terminating rates by the remaining 50 percent of the difference between their current terminating rate 
and the interim, uniform reciprocal compensation rate established by the state so that their terminating 
rates equal the state-set interim, uniform reciprocal compensation rate. This rate will become the starting 
point for stage threea six-year gradual downward transition to the final uniform reciprocal 
compensation rate, which the states will also set, consistent with the methodology we adopt in this order. 
The states will have discretion to determine the glide path, which begins four years from the effective date 
of this order and ends ten years from the effective date of this order. This glide path will determine the 
trajectory of the interim reciprocal compensation rate as it trends down to the final reciprocal 
compensation rate. All carriers are subject to this glide path. However, if a carriers rate is below the rate 
specified in the glide path, such carrier cannot raise its rates, but is subject to the trajectory when the 
interim rate equals that carriers rate. At the end of ten years (i.e., at the end of stage two), all the 
terminating rates of all carriers in each state will be reduced to the new final, uniform reciprocal 
compensation rate established by each state. We believe that, by establishing this ten-year, multiple-stage 
transition to a state-set final uniform reciprocal compensation rate, we will provide a sufficiently smooth 
and gradual glide path so that carriers will be able to adjust their other rates and revenues in a measured 
way over time, as allowed by the reforms adopted in this order, without creating unacceptable rate or 
revenue effects. 
195. Although we permit the states to establish the particular interim, uniform reciprocal 
compensation rate for each step of the final six years of the transition, we establish certain conditions on 
the interim, uniform reciprocal compensation rate and on the terminating intercarrier rates that carriers 
may charge. First, although we do not set forth a methodology that states must use in setting the interim, 
uniform reciprocal compensation rates, we do require that, within each state, there must be a single, statewide 
interim, uniform reciprocal compensation rate during each year and at each stage of the transition.502 
Therefore, in establishing interim, uniform reciprocal compensation rates, a state may wish to consider 
the impact of those rates on all the carriers in the state. States are permitted to adopt an interim, uniform 
reciprocal compensation rate that may be higher at the beginning of the transition than some existing 
incumbent LEC rates today. If they do so, however, carriers with lower termination rates may not raise 
501 To the extent that a carriers intrastate terminating access rate already is below its interstate terminating access 
rate, it will not change that rate. 
502 We recognize that the state-wide interim, uniform reciprocal compensation rates may vary state-by-state as state 
commissions consider the best means of transitioning to a final, uniform reciprocal compensation rate. 

Federal Communications Commission FCC 08-262 
A-88 
them to the interim uniform rate. Second, states may determine the glide path for moving from the 
interim, uniform reciprocal compensation rate to the final, uniform reciprocal compensation rate, subject 
to the requirement that the interim uniform rate be identical for all carriers at each step in the transition. 
By the end of the transition period, the interim, uniform reciprocal compensation rates must decrease to a 
single final, uniform reciprocal compensation rate for all carriers established pursuant to the 
Commissions new additional costs methodology. 
196. Transition of Rates During Stage Three. Beginning four years from the effective date of 
this order, and through the remainder of the transition, each carrier must set each of its terminating rates at 
the lower of: (i) its current rate; or (ii) the state-set interim, uniform reciprocal compensation rate 
applicable at that stage of the transition. Thus, for example, if a carrier has an interstate terminating 
access rate above the interim, uniform reciprocal compensation rate applicable at that stage of the 
transition, but a current reciprocal compensation rate below the interim, uniform reciprocal compensation 
rate, the carrier will reduce its interstate rate to the interim rate but leave its current reciprocal 
compensation rate unchanged. That carrier will continue to have two separate termination rates until such 
time as the applicable interim, uniform reciprocal compensation rate is adjusted lower and becomes less 
than its current reciprocal compensation rate. At that time, all the carriers rates will be set at the level of 
the interim, uniform reciprocal compensation rate for that state. 
197. We emphasize that under no circumstances shall a carrier be permitted to increase its 
current rates, even if the interim, uniform reciprocal compensation rate is higher than one or more of its 
current rates. In this respect, the applicable interim, uniform reciprocal compensation rate set by the 
states will act as a ceiling or cap on such rates. We do not permit a carrier to charge a rate for terminating 
interstate or intrastate access, reciprocal compensation, or ISP-bound traffic that is higher than the 
interim, uniform reciprocal compensation rate, but we will permit a carrier to continue to charge a rate 
that is lower than the interim, uniform reciprocal compensation rate. We note that because CMRS 
providers may not tariff terminating access today,503 and we do not permit a carrier to increase rates 
during the transition, CMRS providers therefore will not be permitted to charge for terminating access 
until the end of the transition period.504 
198. We note that we already have an interim intercarrier compensation regime for ISP-bound 
traffic, and to avoid disruption in the marketplace, we will apply on a transitional basis the pricing 
standards we adopted for ISP-bound traffic in the ISP Remand Order,505 as modified by the Core 
503 Although CMRS providers may not tariff access charges, they are not prohibited from entering into contracts 
with interexchange carriers that provide for the payment of such charges. Petitions of Sprint PCS and AT&T Corp. 
For Declaratory Ruling Regarding CMRS Access Charges, WT Docket No. 01-316, Declaratory Ruling, 17 FCC 
Rcd 13192 (2002) (CMRS Access Charges Declaratory Ruling). 
504 Consistent with our conclusion that CMRS providers are unable to assess access charges during the transition, we 
make clear that our symmetry rule, set forth in Part V.C.1.b, will not apply until the transition is over. Even so, we 
clarify that, to the extent that any carrier has a terminating rate above the permissible rate, such carrier must reduce 
the rate to the permissible level. Specifically, in the first year of the transition, all carriers with intrastate access 
charges higher than their interstate access charges must reduce such charges by 50 percent of the difference between 
its interstate switched access rate and its intrastate switched access rate. Similarly, once the state-set interim, 
uniform rate is in effect, all carriers must reduce terminating rates, whether interstate access, reciprocal 
compensation, or ISP-bound traffic, by 50 percent of the difference between the current terminating switched access 
rate and the interim, uniform rate (as it is reduced over time). Even though rates during the transition will not reflect 
true symmetry, rates for most carriers should be symmetric before the transition is over as all carriers reduce charges 
to the final, uniform rate. 
505 See ISP Remand Order, 16 FCC Rcd at 9153, 918693, paras. 21, 7788. 

Federal Communications Commission FCC 08-262 
A-89 
Forbearance Order.506 Currently, two rules remain in effect: (1) ISP-bound traffic is currently subject to 
a reciprocal compensation rate cap of $.0007 per minute-of-use; and (2) under the mirroring rule, the 
$.0007 cap applies to traffic exchanged with an incumbent LEC only if it offers to exchange all traffic 
subject to section 251(b)(5) at the same rate. As explained below, we conclude that it is appropriate to 
retain these rules, but only on a transitional basis until a state commission, applying the additional costs 
standards adopted in this order, has established reciprocal compensation rates that are at or below $.0007 
per minute-of-use. 
199. In the ISP Remand Order in 2001, based on convincing evidence in the record that 
carriers had targeted ISPs as customers merely to take advantage of . . . intercarrier paymentsoffering 
free service to ISPs, paying ISPs to be their customers, and sometimes engaging in outright fraudthe 
Commission adopted an interim ISP payment regime to limit, if not end, the opportunity for regulatory 
arbitrage.507 The Commission adopted a gradually declining cap on intercarrier compensation for ISPbound 
traffic, beginning at $.0015 per minute-of-use and declining to $.0007 per minute-of-use.508 These 
rate caps reflected the downward trend in intercarrier compensation rates contained in then-recently 
negotiated interconnection agreements.509 We have previously recognized that evidence that carriers 
have agreed to ratesthrough voluntary, arms-length negotiationsconstitutes substantial evidence that 
rates are just and reasonable.510 
200. Most commenters urge the Commission to maintain the interim compensation rules 
governing ISP-bound traffic until the Commission is able to transition to comprehensive intercarrier 
compensation reform.511 These parties contend that a higher compensation rate would create new 
506 See Core Forbearance Order, 19 FCC Rcd at 2018489, paras. 1626. 
507 ISP Remand Order, 16 FCC Rcd at 9187, para. 77. 
508 ISP Remand Order, 16 FCC Rcd at 9187, para. 78. 
509 ISP Remand Order, 16 FCC Rcd at 919091, para. 85. 
510 ISP Remand Order, 16 FCC Rcd at 919091, para. 85; see also Petition of ACS of Anchorage, Inc. Pursuant to 
Section 10 of the Communications Act of 1934, as Amended, for Forbearance from Sections 251(c)(3) and 252(d)(1) 
in the Anchorage Study Area, WC Docket No. 05-281, 22 FCC Rcd 1958, 198485, paras. 39, 40 n.136 (2007) 
(finding that commercially negotiated rates provide just and reasonable prices); Review of the Section 251 
Unbundling Obligations of Incumbent Local Exchange Carriers; Implementation of the Local Competition 
Provisions of the Telecommunications Act of 1996; Deployment of Wireline Services Offering Advanced 
Telecommunications Capability, CC Docket Nos. 01-338, 98-147, 96-98, Report and Order and Order on Remand 
and Further Notice of Proposed Rulemaking, 18 FCC Rcd 16978, 17389, para. 664 (2003) (subsequent history 
omitted) (Triennial Review Order) (finding that arms-length agreements . . . to provide [an] element at [a] rate 
demonstrate[s] that the rate is just and reasonable). 
511 See, e.g., Letter from Gregory J. Vogt, Counsel for CenturyTel, Inc. to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8, 2008) (asking the Commission to 
maintain the existing compromises reached with respect to ISP-bound traffic); Letter from Gary L. Phillips, 
Associate General Counsel, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 
8 (filed May 9, 2008) (asserting that the public interest would be best served by maintaining the existing transitional 
rates pending broader intercarrier compensation reform); Letter from L. Charles Keller, Counsel for Sage Telecom, 
to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 Ex 
Parte Letter) (stating that retaining the ISP rate serves broad policy goals); Letter from John T. Nakahata, Counsel 
for Level 3 Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 1 (filed May 
7, 2008) (supporting continuation of the interim compensation rules); Letter from Joshua Seidmann, Vice President 
of Regulatory Affairs, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 2 
(filed Apr. 28, 2008) (ITTA Apr. 28, 2008 Ex Parte Letter) (asking the Commission to retain the current $0.0007 
rate for ISP-bound traffic); Letter from Donna Epps, Vice President of Federal Regulatory Affairs, Verizon, to 
(continued.)

Federal Communications Commission FCC 08-262 
A-90 
opportunities for arbitrage512 and impose substantial financial burdens on wireless companies, incumbent 
LECs and state public utility commissions.513 They further claim that the existing regime has simplified 
interconnection negotiations.514 
201. We share these commenters concerns. The record also suggests that eliminating the 
$.0007 cap and instead applying higher reciprocal compensation rates that may be set by the states during 
the transition period to the adoption of our new methodology would have a significant negative impact on 
carriers serving rural markets and broadband deployment.515 The record demonstrates that dial-up 
minutes remain at high levels in rural areas and that the application of reciprocal compensation to these 
minutes would generate significant costs to carriers serving these rural areas.516 Thus, it remains the case 
that the rate caps help avoid arbitrage and market distortions that otherwise would result from the 
(continued from previous page) 
Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 at 1 (filed Apr. 7, 2008) (urging the Commission 
to support its earlier finding that $0.0007 is appropriate compensation for dial-up ISP traffic); Letter from L. Charles 
Keller, Counsel for Verizon Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, Attach. 
(filed May 1, 2008) (describing how elimination of the existing ISP rate would create substantial burdens on a 
number of carriers and state commissions) (Verizon Wireless May 1, 2008 Ex Parte Letter); Letter from Glenn 
Reynolds, Vice President, Policy, USTelecom, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99- 
68, 96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) (noting that the Commissions existing rules have 
largely mitigated the debate around compensation for ISP-bound traffic, but there is every reason to believe the 
same problems would arise if the Commission were to reverse direction on this issue) (USTelecom Apr. 29, 2008 
Ex Parte Letter). 
512 See, e.g., USTelecom Apr. 29, 2008 Ex Parte Letter at 2; Letter from Melissa E. Newman, Vice President, 
Federal Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, WC Docket No. 
07-135, Attach. at 35 (filed Apr. 25, 2008) (Qwest April 25, 2008 Ex Parte Letter); Verizon and BellSouth, Further 
Supplemental White Paper on ISP Reciprocal Compensation at 20 (Verizon/BellSouth Further Supp. ISP White 
Paper), attached to Letter from Donna Epps, Vice President, Federal Regulatory Advocacy, Verizon, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-98, 99-68 (filed Sept. 27, 2004). 
513 See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter, Attach. 
514 See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter (stating that the [m]irroring [r]ule simplified wireless- 
ILEC interconnection negotiations tremendously.); Supplemental Comments of Verizon and Verizon Wireless on 
Intercarrier Payments for ISP-Bound Traffic and the WorldCom Remand, CC Docket Nos. 01-92, 96-98, 99-68 at 
3840 (filed Oct. 2, 2008) (Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments) (indicating that Verizon 
entered into multiple agreements using the $.0007 rate cap established in the ISP Remand Order). 
515 See, e.g., ITTA April 28, 2008 Ex Parte Letter, Attach. at 3, 5; Embarq May 1, 2008 Ex Parte Letter, Attach. at 
2, 57. 
516 See, e.g., Letter from Tamar E. Finn, Counsel for Earthlink, to Marlene H. Dortch, Secretary, FCC, CC Docket 
Nos. 99-68, 01-92, Attach. at iii, 1112 (filed Aug. 14, 2008) (estimating that 24% of dial-up users in rural America 
say that broadband service is not available where they live); Sage Telecom May 9, 2008 Ex Parte Letter at 34; 
Embarq May 1, 2008 Ex Parte Letter, Attach. at 6 (calculating its cost to be $100 million if all ISP-bound minutes 
were subject to TELRIC-based rates under section 251(b)(5)); ITTA Apr. 28, 2008 Ex Parte Letter (noting that dialup 
usage remains strong in rural areas); USTelecom Apr. 29, 2008 Ex Parte Letter (noting a recent study from the 
Pew Internet & American Life Project that indicated that while the number of dial-up subscribers had dropped 63% 
since 2001, the number of minutes spent online by each dial-up subscriber had increased approximately 70%. As a 
result, some USTelecom member companies are actually seeing an increase in dial-up minutes.) (emphasis in 
original); Letter from Bennett L. Ross, General CounselD.C., BellSouth D.C., to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 01-92, 99-68, WC Docket No. 03-171 (filed Aug. 29, 2005) (attaching a chart showing that 
dial-up subscribers would continue to generate substantial minutes of dial-up ISP calls, notwithstanding projections 
of a continued decline in the number of dial-up subscribers.). 

Federal Communications Commission FCC 08-262 
A-91 
availability of reciprocal compensation for ISP-bound traffic.517 We further believe that maintaining the 
cap on a transitional basis will minimize the disruptive effects and regulatory uncertainty that otherwise 
would result from the abrupt elimination of clear compensation rules for ISP-bound traffic. 
202. We expect that state commissions, applying the new additional costs standard adopted 
in this order, will set final reciprocal compensation rates at or below $.0007 per minute-of-use. As noted 
below, the evidence in the record suggests that the incremental cost of call termination on modern 
switches is de minimis.518 We have given state commissions up to ten years to transition to new rates 
based on the additional costs standard. Accordingly, the rate cap will only have an impact in a 
particular state on a transitional basis until that state sets rates at or below $.0007. 
203. The mirroring rule has also succeeded in promoting the Commissions goal of a more 
unified intercarrier compensation regime by requiring LECs to offer similar rates for like traffic.519 Most 
intraMTA traffic is now exchanged pursuant to the rate caps, and a substantial portion of wireline 
intraexchange traffic is being exchanged at rates at or below the rate caps as well.520 Eliminating the 
mirroring rule and allowing carriers to charge higher transitional reciprocal compensation rates for traffic 
currently subject to the mirroring rule would significantly increase the cost carriers incur in exchanging 
that traffic. Those increased costs would divert funds from investment in next generation wireless 
networks and likely would be borne by consumers, through increases in the costs of wireless offerings.521 
204. We reject arguments that the Commission unlawfully delegated its authority in the ISP 
Remand Order and arguments that the Commission addressed previously in the Core Forbearance 
Order.522 We also disagree with parties who suggest that the Commission, in responding to the D.C. 
Circuits remand in WorldCom, must offer detailed new justifications for each of the four features of the 
ISP intercarrier payment regime: the rate caps, the mirroring rule, the growth cap, and the new markets 
rule.523 The prior policy justifications offered for those rules by the Commission have not been 
overturned by any court, and our current policy justification for retaining these rules is simply to maintain 
the status quo in this area on a transitional basis until our new additional costs methodology has been 
fully implemented. Indeed, pursuant to our new additional costs methodology, we believe that the rate 
caps set forth in 2001 may well be higher than the final, uniform reciprocal compensation rates set by the 
states. However, discarding these rules during the transition to our new methodology would be unwise 
and unwarranted because the rate caps are necessary to prevent discrimination between dial-up Internet 
517 Core Forbearance Order, 19 FCC Rcd at 2081516, para. 18. 
518 See supra para. 255. 
519 Core Forbearance Order, 19 FCC Rcd at 20816, para. 19. 
520 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 40. 
521 Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments. at 40. 
522 See Letter from Michael B. Hazzard, Counsel for Core Communications, to Marlene H. Dortch, Secretary, FCC, 
CC Docket Nos. 99-68, 01-92, Attach. at 18 & n.8 (filed May 14, 2008) (Core May 14, 2008 Ex Parte Letter). We 
also reject Cores argument that the ISP Remand Order unlawfully delegates to incumbent LECs the decision of 
whether the ISP Remand Order applies. See id. at 1920. The Commission did not delegate its authority in the ISP 
Remand Order but rather provided options that were not mandatory. See, e.g., ISP Remand Order, 16 FCC Rcd at 
9193, para. 89. Additionally, Core argues that the Commission provided no reasoned explanation for the growth cap 
and new market rules adopted in the ISP Remand Order and never provided notice or an opportunity for comment 
on those specific rules. These rules, as applicable to all carriers, were forborne from in the Core Forbearance 
Order. See Core Forbearance Order, 19 FCC Rcd at 2018687, paras. 2021. As such, this argument is moot. 
523 See Core May 14, 2008 Ex Parte Letter, Attach. at 2026. 

Federal Communications Commission FCC 08-262 
A-92 
access customers and basic telephone service customers, those caps protect consumers of basic 
telephone service from being forced to subsidize dial-up Internet access service, and the rate caps 
minimize the classic regulatory arbitrage that reciprocal compensation for ISP-bound traffic had made 
possible.524 
205. In sum, we maintain the $.0007 cap and the mirroring rule, on a transitional basis, 
pursuant to our section 201 authority. These interim rules shall remain in place in a state until the state 
commission, applying the additional costs standard adopted in this order, has established reciprocal 
compensation rates that are at or below $.0007 per minute-of-use. 
206. We find that our transition plan is necessary and appropriate to prevent undue economic 
hardships to carriers caused by a too-rapid reduction in intercarrier compensation rates. If there is 
evidence that carriers are attempting to abuse the interim, uniform reciprocal compensation rate and/or 
transition process to create arbitrage opportunities, we encourage carriers to bring such evidence to our 
attention or that of the state commission so such claims can be investigated and, if appropriate, action 
taken. 
3. Legal Authority 
a. Legal Authority for Comprehensive ReformInterpretation of 
Sections 251(b)(5) and 251(g) 
207. The history of intercarrier compensation reveals many policy reasons for 
comprehensively reforming intercarrier compensation rates, including reducing arbitrage, promoting 
competition, facilitating the introduction of new technologies, and benefiting consumers. The dual 
structure of separate federal and state jurisdiction over communications has made accomplishing such 
reforms more complex, however. Although our reform does not disturb those fundamental jurisdictional 
distinctions, we find that, through the tools made available by the 1996 Act, we have the means to 
accomplish this reform by electing to partner with the states. 
208. The Commission unquestionably has authority to reform intercarrier compensation with 
respect to interstate access services, rates charged by CMRS providers, and IP/PSTN traffic. Section 2(a) 
of the Act establishes the Commissions jurisdiction over interstate services, for which the Commission 
ensures just, reasonable, and not unjustly and unreasonably discriminatory rates under section 201 and 
202.525 Likewise, the Commission has authority over the rates of CMRS providers pursuant to section 
332 of the Act.526 We also make clear that authority to impose economic regulation with respect to 
IP/PSTN traffic rests exclusively with this Commission. The Commission has adopted a number of 
regulatory requirements applicable to interconnected VoIP services and providers.527 With respect to the 
statutory classification of IP-enabled services, however, the Commission only has addressed two 
524 In re Core Commcns 455 F.3d at 27780 (internal quotation marks omitted). 
525 47 U.S.C.  152(a), 201, 202. 
526 47 U.S.C.  332. 
527 See, e.g., Telephone Number Requirements for IP-Enabled Services Providers; Local Number Portability Porting 
Interval and Validation Requirements; IP-Enabled Services; CTIA Petitions for Declaratory Ruling on Wireline- 
Wireless Porting Issues, CC Docket Nos. 99-200, 95-116, WC Docket Nos. 07-243, 07-244, 04-36, Report and 
Order, Declaratory Ruling, Order on Remand, and Notice of Proposed Rulemaking, 22 FCC Rcd 19531, 1953840, 
paras. 14, 16 (2008) (LNP Order) (imposing LNP requirements, and noting that the Commission previously imposed 
the requirement to provide 911 service, to contribute to universal service, to protect the privacy of customers, to 
comply with disability access and telecommunications relay service requirements, and to satisfy certain CALEA 
obligations).

Federal Communications Commission FCC 08-262 
A-93 
situations.528 
209. We now classify as information services those services that originate calls on IP 
networks and terminate them on circuit-switched networks, or conversely that originate calls on circuitswitched 
networks and terminate them on IP networks (collectively IP/PSTN services).529 Such traffic 
today involves a net protocol conversion between end-users, and thus constitutes an enhanced or 
information service.530 
528 On one hand, the Commission classified as an information service Pulver.coms free service that did not 
provide transmission and offers a number of computing capabilities. Petition for Declaratory Ruling that 
Pulver.com's Free World Dialup is Neither Telecommunications nor a Telecommunications Service, WC Docket 
No. 03-45, Memorandum Order and Opinion, 19 FCC Rcd 3307 (2004) (Pulver.com Order). On the other hand, the 
Commission found that certain IP-in-the-middle services were telecommunications services where they: : (1) 
use ordinary customer premises equipment (CPE) with no enhanced functionality; (2) originate and terminate on the 
public switched telephone network (PSTN); and (3) undergo no net protocol conversion and provide no enhanced 
functionality to end users due to the provider's use of IP technology. See, e.g., Petition for Declaratory Ruling that 
AT&T's Phone-to-Phone IP Telephony Services are Exempt from Access Charges, WC Docket No. 02-361, Order, 
19 FCC Rcd 7457 (2004) (IP-in-the-Middle Order). See also, e.g., Regulation of Prepaid Calling Card Services, 
WC Docket No. 05-68, Declaratory Ruling and Report and Order, 21 FCC Rcd 7290 (2006) (Prepaid Calling Card 
Order). 
529 We use the term IP/PSTN as a shorthand, without reaching any universal conclusions regarding the technology 
underlying the PSTN. Today the PSTN continues to rely primarily on circuit-switched technology to connect to 
end-user customers, although we recognize that carriers increasingly are converting portions of their networks to IP 
technology. See, e.g., IP-Enabled Services; E911 Requirements for IP-Enabled Service Providers, WC Docket Nos. 
04-36, 05-196, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245, 10258, para. 24 & 
n.77 (2005) (distinguishing the specialized CPE required for interconnected VoIP services from the standard CPE 
used for typical telephone calls); Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to 
Congress, 13 FCC Rcd 11501, 11532, para. 84 (1998) (IP telephony services enable real-time voice transmission 
using Internet protocols. The services can be provided in two basic ways: through software and hardware at 
customer premises, or through gateways that enable applications originating and/or terminating on the PSTN. 
Gateways are computers that transform the circuit-switched voice signal into IP packets, and vice versa, and perform 
associated signaling, control, and address translation functions.). Insofar as a service allows a customer to originate 
a communication on an IP network and terminate it on a circuit-switched network, or vice versa, it involves a net 
protocol conversion, and we classify it as an information service today. Insofar as that service allows 
communications with no net protocol conversion, it is not subject to our information service classification here. 
We note that the presence of a net protocol conversion is not the only basis for classifying a service as an 
enhanced or information service. See, e.g., 47 C.F.R.  64.702(a); Computer II Final Decision, 77 FCC 2d at 
42021, para. 97. We do not reach those issues at this time, however. 
530 See, e.g., Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act 
of 1934, as Amended, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 
11 FCC Rcd 21905, 2195758, para. 106 (1996) (Non-Accounting Safeguards Order). Interpreting the 1996 Acts 
definition of information services, the Commission held that all of the services that the Commission has 
previously considered to be enhanced services are information services. Non-Accounting Safeguards Order, 11 
FCC Rcd at 21956, para. 103. For the all reasons discussed in Part V.B.2, we decline to defer the classification of 
IP/PSTN services, as requested by some parties, instead finding it appropriate to address this issue as part of our 
comprehensive reforms. See, e.g., Letter from Ben Scott, Policy Director, Free Press, to Marlene H. Dortch, 
Secretary, FCC, WC Docket Nos. 05-337, 06-122, CC Docket Nos. 96-45, 01-92 at 15 (filed Oct. 24, 2008) (Free 
Press Oct. 24, 2008 Ex Parte Letter); Letter from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for 
Broadview Networks, et al., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008).

Federal Communications Commission FCC 08-262 
A-94 
210. Although there are certain exceptions to this treatment, we do not find them applicable.531 
In particular, we do not find this to be protocol conversion in connection with the introduction of new 
technology to implement existing services that would be treated as a basic, rather than enhanced 
service.532 That exception was designed to address situations involving no change in an existing service, 
but merely a change in electrical interface characteristics to facilitate transitional introduction of new 
technology.533 By contrast, we find that IP/PSTN services are not mere changes to the underlying 
technology used for existing basic services, but are entirely new services with characteristics in many 
ways distinct from pre-existing telephone services.534 
211. Consistent with the Pulver.com Order and the Vonage Order, we preempt any state 
efforts to impose traditional telephone company regulations as they relate to IP/PSTN information 
services as inconsistent with our generally unregulated treatment of information services.535 Of course, 
neither the Vonage Order, the Pulver.com Order, nor our actions here preempt state actions that are 
531 Two of the exceptions are: (1) protocol processing involving communications between an end user and the 
network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users; and (2) 
protocol conversion to facilitate the interconnection of networks. Non-Accounting Safeguards Order, 11 FCC Rcd 
at 2195758, para. 106. These categories of protocol processing services may involve protocol conversions, but 
they result in no net protocol conversion between the end users. Implementation of the Non-Accounting Safeguards 
of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket No. 96-149, Order on 
Reconsideration, 12 FCC Rcd 2297, 229799, para. 2 (1997). Thus, they are not relevant here. 
532 Amendment to Sections 64.702 of the Commissions Rules and Regulations (Third Computer Inquiry); and Policy 
and Rules Concerning Rates for Competitive Common Phase II Carrier Service and Facilities Authorization 
Thereof; Communications Protocols Under Section 64.702 of the Commissions Rules and Regulations, CC Docket 
No. 85-229, Report and Order, 2 FCC Rcd 3072, 3081, para. 65 (1987) (Computer III Phase II Order). See also 
Non-Accounting Safeguards Order, 11 FCC Rcd at 2195758, para. 106. 
533 Communications Protocols under Section 64.702 of the Commissions Rules and Regulations, GN Docket No. 
80-756, Memorandum Opinion, Order, and Statement Of Principles, 95 FCC 2d 584, para. 16 (1983) (Protocols 
Order). 
534 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 911 (filed Sept. 19, 2008); Letter from 
Susanne A. Guyer, Senior Vice President, Federal Regulatory Affairs, Verizon, to Chairman Kevin J. Martin, FCC, 
WC Docket No. 04-36, at 1011 (filed Aug. 6, 2007); Letter from AT&T et al., to Chairman Kevin J. Martin, FCC, 
et al., WC Docket No. 04-36, CC Docket No. 01-92 at 23 (filed Aug. 6, 2008); VON Coalition IP-Enabled 
Services NPRM Comments at 316; AT&T IP-Enabled Services NPRM Comments at 1317. We thus disagree with 
parties who suggest, in essence, that IP/PSTN services are no different than basic services. See, e.g., Letter from 
Thomas Jones and Jonathan Lechter, Counsel for tw telecom et al., to Marlene H Dortch, Secretary, FCC, CC 
Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337, 99-68, 04-36, Attach. at 2 (filed Oct. 28, 2008) (tw telecom et. 
al Oct. 28, 2008 Ex Parte Letter). We note that whether a service is viewed by consumers as a possible substitute 
for a basic service is a distinct question from whether, as a matter of technology and the nature of the service 
offering, the service simply replaces the technology underlying a pre-existing basic service. Thus, our conclusion 
here is not inconsistent with the Commissions recognition that interconnected VoIP services increasingly are 
viewed by consumers as a substitute for traditional telephone services. See, e.g., LNP Order, 22 FCC Rcd at 19547, 
para. 28. 
535 Vonage Order, 19 FCC Rcd at 22404; see also Pulver.com Order, 19 FCC Rcd at 3316, para. 15 (We 
determine, consistent with our precedent regarding information services, that FWD is an unregulated information 
service and any state regulations that seek to treat FWD as a telecommunications service or otherwise subject it to 
public-utility type regulation would almost certainly pose a conflict with our policy of nonregulation.). 

Federal Communications Commission FCC 08-262 
A-95 
consistent with federal policy.536 Moreover, as we describe below, we allow states to establish reciprocal 
compensation rates, pursuant to our methodology, including for IP/PSTN traffic. 
212. In sections 251 and 252 of the Act, Congress altered the traditional regulatory framework 
based on jurisdiction by expanding the applicability of national rules to historically intrastate issues and 
state rules to historically interstate issues.537 In the Local Competition First Report and Order, the 
Commission found that the 1996 Act created parallel jurisdiction for the Commission and the states over 
interstate and intrastate matters under sections 251 and 252.538 The Commission and the states are to 
address the same matters through their parallel jurisdiction over both interstate and intrastate matters 
under sections 251 and 252.539 Moreover, section 251(i) provides that [n]othing in this section shall be 
construed to limit or otherwise affect the Commissions authority under section 201.540 The Commission 
concluded that section 251(i) affirms that the Commissions preexisting authority under section 201 
continues to apply for purely interstate activities.541 
213. In implementing sections 251 and 252 in the Local Competition First Report and Order, 
the Commissions treatment of LEC-CMRS traffic provides an instructive approach. Prior to the 1996 
Act, the Commission expressly preempted state and local regulations of the kind of interconnection to 
which CMRS providers are entitled based on its authority under section 201 and 332 of the Act.542 
Nevertheless, in the Local Competition First Report and Order, the Commission brought LEC-CMRS 
interconnection within the section 251 framework as it relates to intraMTA (including interstate 
intraMTA) traffic.543 The Commission recognized, however, that it continued to retain separate authority 
over CMRS traffic.544 
214. Courts confirmed that, in permitting LEC-CMRS interconnection to be addressed through 
the section 251 framework, the Commission did not in any way lose its independent jurisdiction or 
authority to regulate that traffic under other provisions of the Act. Thus, although the Eighth Circuit 
invalidated the Commissions TELRIC pricing rules in general,545 it recognized that because section 
332(c)(1)(B) gives the FCC the authority to order LECs to interconnect with CMRS carriers, we believe 
that the Commission has the authority to issue the rules of special concern to the CMRS providers, 
536 For example, states are free to require contributions to state universal service or telecommunications relay service 
funds through methodologies that are consistent with federal policy. See, e.g., Letter from Robert W. Quinn, Jr. 
Senior Vice President, Federal Regulatory, AT&T, to Chairman Kevin J. Martin, FCC, WC Docket Nos. 04-36, 06- 
122, CC Docket No. 96-45 at 1116 (filed July 23, 2008) (describing ways that states could require contributions to 
state universal service or telecommunications relay service funds in a manner that is consistent with federal policy). 
537 See Local Competition First Report and Order, 11 FCC Rcd at 15544, para. 83. 
538 Local Competition First Report and Order, 11 FCC Rcd at 1554445, para. 85. 
539 Local Competition First Report and Order, 11 FCC Rcd at 1554647, para. 91. 
540 47 U.S.C.  251(i). 
541 Local Competition First Report and Order, 11 FCC Rcd at 1554647, para. 91. 
542 Implementation of Sections 3(n) and 332, Second Report and Order, 9 FCC Rcd 1411, 1498, para. 230 (1994). 
543 See Local Competition First Report and Order, 11 FCC Rcd at 16005, para. 1023. 
544 Local Competition First Report and Order, 11 FCC Rcd at 16005, para. 1023 (By opting to proceed under 
sections 251 and 252, we are not finding that section 332 jurisdiction over interconnection has been repealed by 
implication, or rejecting it as an alternative basis for jurisdiction.). 
545 We note that the Supreme Court later reversed this decision and affirmed the TELRIC methodology. See Verizon 
v. FCC, 535 U.S. at 467.

Federal Communications Commission FCC 08-262 
A-96 
[including the reciprocal compensation rules] but only as these provisions apply to CMRS providers. 
Thus, [the pricing] rules . . . remain in full force and effect with respect to the CMRS providers, and our 
order of vacation does not apply to them in the CMRS context.546 Subsequently, the D.C. Circuit held 
that CMRS providers were entitled to pursue formal complaints under section 208 of the Act for 
violations of the Commissions reciprocal compensation rules.547 
215. We build upon our actions in the Local Competition First Report and Order, and now 
permit states to establish a uniform reciprocal compensation rate, in accordance with the new 
methodology we establish in this order, pursuant to the section 251(b)(5) and 252(d)(2) framework. In 
particular, section 251(b)(5) imposes on all LECs a duty to establish reciprocal compensation 
arrangements for the transport and termination of telecommunications.548 Section 252(d)(2)(A) sets 
forth an additional costs standard that state commissions, in arbitrating interconnection disputes 
involving incumbent LECs, should apply in setting the charges for transport and termination of 
traffic.549 Although we allow states to set new uniform termination rates under this framework, pursuant 
to our methodology, we retain our authority under section 201 to find that reciprocal compensation 
charges are unjust and unreasonable as they relate to interstate, CMRS, and IP/PSTN traffic within our 
jurisdiction.550 We expect that states will faithfully implement the pricing standards adopted in this order, 
and thus it will not be necessary for us to exercise that authority.551 
216. The Commission unquestionably has authority to interpret and adopt rules implementing 
sections 251(b)(5) and 252(d)(2). Congress delegated to the Commission the task of administering the 
Communications Act. Section 201(b) authorizes the Commission to prescribe such rules and regulations 
as may be necessary in the public interest to carry out the provisions of this Act.552 [T]he grant in 
 201(b) means what it says: The FCC has rulemaking authority to carry out the provisions of this 
546 Iowa Utils. Bd. v. FCC, 120 F.3d 753, 800 n.21 (8th Cir. 1997) (Iowa Utils. I), revd in part and remanded on 
other grounds, AT&T v. Iowa Utils. Bd., 525 U.S. 366. 
547 Qwest Corp. v. FCC, 252 F.3d 462, 46566 (D.C. Cir. 2001) (describing the Eighth Circuits analysis of 
section 332(c)(1)(B) in Iowa Utils. I and concluding that an attempt to relitigate the issue was barred by the doctrine 
of issue preclusion). 
548 47 U.S.C.  251(b)(5). 
549 47 U.S.C.  252(d)(2)(A). 
550 See supra paras. 20814. See also, e.g., Letter from John T. Nakahata, Counsel for Level 3 Communications, to 
Marlene H. Dortch, Secretary, FCC, WC Docket No. 01-92 at 911 (filed on Aug. 18, 2008) (Level 3 Aug. 18, 2008 
Ex Parte Letter). Contrary to Verizons claims, we thus find no tension between permitting states to set reciprocal 
compensation rates for interstate traffic under the section 251 and 252 framework and the Commissions continuing 
authority over traffic subject to its jurisdiction, including section 201 authority expressly preserved under section 
251(i). 
551 We recognize that the just and reasonable rates required by Sections 201 and 202 . . . must ordinarily be costbased, 
absent a clear explanation of the Commissions reasons for a departure from cost-based ratemaking. Access 
Charge Reform, CC Docket Nos. 96-262, 94-1, 91-213, Second Order on Reconsideration and Memorandum 
Opinion and Order, 12 FCC Rcd 16606, 1661920, para. 44 (Access Charge Reform Second Order) (citing 
Competitive Telecomms. Ass'n v. FCC, 87 F.3d 522, 529 (D.C. Cir. 1996)). In this order, we adopt an incremental 
cost methodology for setting termination rates. We find that the proper application of that methodology produces 
rates that are just and reasonable under section 201. As discussed below, we find it appropriate to adopt a 
transition before carriers begin charging rates set pursuant to our incremental cost methodology. 
552 47 U.S.C.  201(b) (The Commission may prescribe such rules and regulations as may be necessary in the 
public interest to carry out the provisions of this Act.).

Federal Communications Commission FCC 08-262 
A-97 
Act.553 The Commissions rulemaking authority is not limited to interstate matters; it extends to all 
provisions of the Communications Act.554 
217. In addition, we find that the section 251(b)(5) and 252(d)(2) framework is broad enough 
to facilitate our intercarrier compensation reform. We acknowledge that, in the Local Competition First 
Report and Order, the Commission found that section 251(b)(5) applies only to local traffic,555 and some 
commenters continue to press for such an interpretation.556 As other commenters recognize, however, the 
Commission, in the ISP Remand Order, reconsidered that judgment and concluded that it was a mistake 
to read section 251(b)(5) as limited to local traffic, given that local is not a term used in section 
251(b)(5).557 We recognize, as the Supreme Court noted in AT&T Corp. v. Iowa Utilities Board, that [i]t 
would be a gross understatement to say that the 1996 Act is not a model of clarity.558 Nevertheless, we 
find that the better view is that section 251(b)(5) is not limited to local traffic. 
218. We begin by looking at the text of the statute. Section 251(b)(5) imposes on all LECs the 
duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.559 The Act broadly defines telecommunications as the 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.560 Its scope is not limited geographically (local, 
intrastate, or interstate) or to particular services (telephone exchange service,561 telephone toll 
service,562 or exchange access563). We find that the traffic we elect to bring within this framework fits 
553 AT&T v. Iowa Utils. Bd., 525 U.S. at 378. 
554 AT&T v. Iowa Utils. Bd., 525 U.S. at 378 n.6 ([T]he question in these cases is not whether the Federal 
Government has taken the regulation of local telecommunications competition away from the States. With regard to 
the matters addressed by the 1996 Act, it unquestionably has.). 
555 Local Competition First Report and Order, 11 FCC Rcd at 1601213, para. 1033. 
556 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 2432; Letter from Daniel Mitchell, Vice 
President, Legal and Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 9 (filed Sept. 
30, 2008) (NCTA Sept. 30, 2008 Ex Parte Letter); Verizon ICC FNPRM Comments at 3842; NARUC ICC 
FNPRM Comments at 67; Rural Alliance ICC FNPRM Comments at 14449; Cincinnati Bell ICC FNPRM 
Comments at 511; Maine PUC and Vermont Pub. Serv. Bd. ICC FNPRM Comments at 7; New York State PSC 
ICC FNPRM Comments at 7; Verizon and BellSouth, Supplemental White Paper on ISP Reciprocal Compensation, 
CC Docket No. 96-98, 99-68 at 1620 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP White Paper); NARUCs 
Initial Comments at 7 n.13 (May 23, 2004). But see, e.g., ICF ICC FNPRM Comments at 39. 
557 ISP Remand Order, 16 FCC Rcd at 916667, para. 35. See also, e.g., Qwest, Legal Authority for Comprehensive 
Intercarrier Compensation Reform at 24, attached to Letter from Melissa Newman, Counsel for Qwest, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos. 04-36, 05-337, 05-195, 06-122 
(filed Oct. 7, 2008); Letter from Kathleen OBrien Ham et al., Counsel for T-Mobile, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 910 (filed Oct. 3, 2008); Level 3 Aug. 18, 2008 Ex Parte Letter at 2, 15 
18; AT&T Missoula Phantom Traffic Reply at 3541; Brief from Gary M. Epstein, Counsel for ICF, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92 at 2935 (filed Oct. 5, 2004) 
558 AT&T v. Iowa Utils. Bd., 525 U.S. at 397. 
559 47 U.S.C.  251(b)(5). 
560 47 U.S.C.  153(43). 
561 Id. at  153(47). 
562 Id. at  153(48). 
563 Id. at  153(16).

Federal Communications Commission FCC 08-262 
A-98 
squarely within the meaning of telecommunications.564 Had Congress intended to preclude the 
Commission from bringing certain types of telecommunications traffic within the section 251(b)(5) 
framework, it could have easily done so by incorporating restrictive terms in section 251(b)(5). Because 
Congress used the term telecommunications, the broadest of the statutes defined terms, we conclude 
that section 251(b)(5) is not limited only to the transport and termination of certain types of 
telecommunications traffic, such as local traffic. 
219. In the Local Competition First Report and Order the Commission concluded that section 
251(b)(5) applies only to local traffic, but recognized that [u]ltimately . . . the rates that local carriers 
impose for the transport and termination of local traffic and for the transport and termination of long 
distance traffic should converge.565 In the ISP Remand Order, the Commission reversed course on the 
scope of section 251(b)(5), finding that the phrase local traffic created unnecessary ambiguities, and we 
correct that mistake here.566 The ISP Remand Order noted that the term local, not being a statutorily 
defined category, . . . is not a term used in section 251(b)(5).567 The Commission found that the scope of 
section 251(b)(5) is limited only by section 251(g), which temporarily grandfathered the pre-1996 Act 
rules governing exchange access, information access, and exchange services for such access provided 
to IXCs and information service providers until explicitly superseded by regulations prescribed by the 
Commission.568 On appeal, the D.C. Circuit left intact the Commissions findings concerning the scope 
of section 251(b)(5), although it took issue with other aspects of the ISP Remand Order.569 
220. We agree with the finding in the ISP Remand Order that traffic encompassed by section 
251(g) is excluded from section 251(b)(5) except to the extent that the Commission acts to bring that 
traffic within its scope. Section 251(g) preserved the pre-1996 Act regulatory regime that applies to 
access traffic, including rules governing receipt of compensation.570 There would have been no need 
for Congress to have preserved these compensation rules against the effects of section 251 if the scope of 
section 251(b)(5) was not broad enough for the Commission to bring within its scope the traffic covered 
by section 251(g), i.e., access traffic. Because Congress is presumed not to have wasted its breath, 
particularly with a provision as lengthy and detailed as section 251(g), we find that section 251(g) 
confirms that section 251(b)(5) applies to the transport and termination of all telecommunications traffic 
exchanged with LECs, including ISP-bound traffic. And because section 251(g) is worded simply as a 
transitional device, preserving various LEC duties that antedated the 1996 Act until such time as the 
Commission should adopt new rules pursuant to the Act,571 we clearly have authority under the Act to 
564 As discussed above, we classify IP/PSTN services as information services. We note, however, that information 
services, by definition, are provided via telecommunications, enabling us to bring IP/PSTN traffic within the 
section 251(b)(5) framework. 47 U.S.C.  153(20). Moreover, given that we retain independent authority under 
section 201, we find it reasonably ancillary to that authority to regulate IP/PSTN services in this regard, consistent 
with our efforts to ensure uniform treatment of all traffic on the PSTN for intercarrier compensation purposes. Thus, 
IP/PSTN traffic ultimately will be subject to the final uniform reciprocal compensation rates established pursuant to 
the methodology adopted in this order. We maintain the status quo for this traffic during the transition, however. 
565 Local Competition First Report and Order, 11 FCC Rcd at 16012, para. 1033. 
566 ISP Remand Order, 16 FCC Rcd at 9173, para. 46. 
567 ISP Remand Order, 16 FCC Rcd at 9167, para. 34. 
568 47 U.S.C.  251(g). 
569 See WorldCom, 288 F.3d at 429. 
570 47 U.S.C. 251(g). 
571 WorldCom, 288 F.3d at 430.

Federal Communications Commission FCC 08-262 
A-99 
adopt regulations superseding that regime. We exercise that authority today. 572 
221. By placing all traffic under the umbrella of one compensation scheme, we eliminate 
jurisdictional and regulatory distinctions that are not tied to economic or technical differences between 
services. As the Commission observed in the Intercarrier Compensation NPRM, regulatory arbitrage 
arises from different rates that different types of providers must pay for essentially the same functions.573 
Our current classifications require carriers to treat identical uses of the network differently, even though 
such disparate treatment usually has no economic or technical basis. These artificial distinctions distort 
the telecommunications markets at the expense of healthy competition. Similar types of traffic should be 
subject to similar rules. Similar types of functions should be subject to similar cost recovery mechanisms. 
We achieve that result by moving away from the regime preserved by section 251(g) and bringing that 
traffic within the section 251(b)(5) framework. 
222. We disagree with commenters who argue that section 251(b)(5) only can be applied to 
traffic exchanged between LECs, and not traffic exchanged between a LEC and another carrier.574 The 
Commission rejected that argument in the Local Competition Order, finding that section 251(b)(5) 
applies to traffic exchanged by a LEC and any other telecommunications carrier, and adopted rules 
implementing that finding.575 In a specific application of that principle, the Commission concluded that 
CMRS providers will not be classified as LECs,576 but nevertheless found that LECs are obligated, 
572 Verizon notes that although the Commission in the ISP Remand Order deleted the word local from its 
regulations governing reciprocal compensation, the regulations continued to exclude access services from the scope 
of section 251(b)(5). See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 2432; 47 C.F.R.  
51.701(b)(1). At that time, it made sense to retain the access exemption because the Commission had not issued 
rules superseding the access regime preserved by section 251(g). We supersede the grandfathered access regime in 
this order, at least in part. 
573 Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 12. 
574 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments (The best interpretation of  251(b)(5)  read 
in light of the text, structure, and history of the 1996 Act  is that the reciprocal compensation obligation applies 
only to intraexchange (or local) voice calls that originate on the network of one LEC (or wireless provider) and 
terminate on the network of another LEC (or wireless provider) operating in the same exchange (or, in the case of 
wireless providers, the same MTA.); Verizon and BellSouth, Internet-Bound Traffic is Not Compensable Under 
Sections 251(b)(5) and 252(d)(2) at 26 (Verizon/BellSouth ISP White Paper) (By its nature, reciprocal 
compensation must . . . apply to telecommunications exchanged between LECs (or carriers, like CMRS providers, 
that the Commission is authorized to treat as LECs), not to traffic that is exchanged between LECs and non-LECs.), 
attached to Letter from Ann D. Berkowitz, Associate Director, Federal Regulatory Advocacy, Verizon, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed May 17, 2004). 
575 See Local Competition First Report and Order, 11 FCC Rcd at 1601316, paras. 103441. See also 47 C.F.R. 
51.703(a) (Each LEC shall establish reciprocal compensation arrangements for transport and termination of 
telecommunications traffic with any requesting telecommunications carrier.); ISP Remand Order, 16 FCC Rcd at 
919394, para. 89 n.177 (Section 251(b)(5) applies to telecommunications traffic between a LEC and a 
telecommunications carrier . . . .). 
576 Local Competition First Report and Order, 11 FCC Rcd at 15996, para. 1005. In this regard, we note that, absent 
a determination that CMRS providers are LECs, IXC-CMRS traffic would not be encompassed by section 251(b)(5), 
since neither are LECs. Nevertheless, it is our intention that, at the end of the transition, CMRS providers be 
entitled to reciprocal compensation for all the traffic they terminate. As the Commission has observed, [t]here are 
three ways in which a carrier seeking to impose charges on another carrier can establish a duty to pay such charges: 
pursuant to (1) Commission rule; (2) tariff; or (3) contract. Petitions of Sprint PCS and AT&T Corp. For 
Declaratory Ruling Regarding CMRS Access Charges, Declaratory Ruling, 17 FCC Rcd 13192, 13196, para. 8 
(2002). 

Federal Communications Commission FCC 08-262 
A-100 
pursuant to section 251(b)(5) (and the corresponding pricing standards of section 252(d)(2)), to enter into 
reciprocal compensation agreements with all CMRS providers.577 No one challenged that finding on 
appeal, and it has been settled law for the past 12 years. We see no reason to revisit that conclusion now. 
Although section 251(b)(5) indisputably imposes the duty to establish reciprocal compensation 
arrangements on LECs alone, Congress did not limit the class of potential beneficiaries of that obligation 
to LECs.578 
223. We also disagree with commenters who argue that section 252(d)(2)(A)(i) limits the 
scope of section 251(b)(5).579 Section 252(d)(2)(A)(i) provides that a state commission shall not 
consider the terms and conditions for reciprocal compensation to be just and reasonable unless such 
terms and conditions provide for the mutual and reciprocal recovery by each carrier of costs associated 
with the transport and termination on each carriers network facilities of calls that originate on the 
network facilities of the other carrier.580 Verizon and others argue that this provision necessarily 
excludes interexchange traffic from the scope of section 251(b)(5) because at the time the 1996 Act was 
passed, calls neither originated nor terminated on an IXCs network.581 We reject this reasoning because 
it erroneously assumes that Congress intended the pricing standards in section 252(d)(2) to limit the 
otherwise broad scope of section 251(b)(5). We do not believe that Congress intended the tail to wag the 
dog. 
224. Section 251(b)(5) defines the scope of traffic that is subject to reciprocal compensation. 
Section 252(d)(2)(A)(i), in turn, deals with the mechanics of who owes what to whom, it does not define 
the scope of traffic to which section 251(b)(5) applies. Section 252(d)(2)(A)(i) provides that, at a 
minimum, a reciprocal compensation arrangement must provide for the recovery by each carrier of costs 
associated with the transport and termination on each carriers network of calls that originate on the 
network of the other carrier.582 Section 252(d)(2)(A)(i) does not address what happens when carriers 
exchange traffic that originates or terminates on a third carriers network. This does not mean, as Verizon 
suggests, that section 251(b)(5) must be read as limited to traffic involving only two carriers. Rather, it 
means that there is a gap in the pricing rules in section 252(d)(2), and the Commission has authority under 
section 201(b) to adopt rules to fill that gap. 
225. We reject Verizons argument that a telecommunications carrier that delivers traffic to an 
ISP is not eligible for reciprocal compensation because the carrier does not terminate 
telecommunications traffic at the ISP.583 In the Local Competition Order, the Commission defined 
577 Local Competition First Report and Order, 11 FCC Rcd at 15997, para. 1008. 
578 If Congress had intended to limit the class of potential beneficiaries of LECs duty to establish reciprocal 
obligation arrangements, it would have said so explicitly. See 47 U.S.C.  251(b)(3) (describing the duty to 
provide dialing parity to competing providers of telephone exchange service and telephone toll service). 
579 See, e.g., Verizon/BellSouth ISP White Paper at 4143; New York State PSC ICC FNPRM Comments at 89; 
TDS ICC FNPRM Comments at 19 n.27; Qwest ICC FNPRM Comments at 39; NASUCA ICC FNPRM Reply at 
1718. 
580 47 U.S.C.  252(d)(2)(A)(i). 
581 See, e.g., Maine PUC and Vermont Pub. Serv. Bd. ICC FNPRM Comments at 78; New York State PSC ICC 
FNPRM Comments at 710; Verizon/BellSouth Supp. ISP White Paper at 1620; NARUC ICC FNPRM Comments 
at 7 n.13. 
582 47 U.S.C.  252(d)(2)(A)(i). 
583 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 3334; Verizon/BellSouth ISP White Paper 
at 3132. 

Federal Communications Commission FCC 08-262 
A-101 
termination as the switching of traffic that is subject to section 251(b)(5) at the terminating carriers 
end office switch . . . and delivery of that traffic to the called partys premises.584 As the D.C. Circuit 
suggested in the Bell Atlantic decision, Calls to ISPs appear to fit this definition: the traffic is switched 
by the LEC whose customer is the ISP and then delivered to the ISP, which is clearly the called 
party.585 We agree.586 Consequently, ISP-bound traffic is subject to our new intercarrier compensation 
framework.587 
226. We reject opponents other arguments that the context and history of the 1996 Act 
compel a finding that section 251(b)(5) could not be applied to access traffic. Verizon argues, for 
example, that section 251(g) demonstrates that Congress did not intend to displace the existing access 
pricing regime.588 This argument ignores that Congress preserved the access regime only until such 
restrictions and obligations are explicitly superseded by regulations prescribed by the Commission.589 
As noted above, we find that section 251(g) actually supports a finding that section 251(b)(5) is broad 
enough to cover access traffic. Verizon also argues that the reference to reciprocal compensation in the 
competitive checklist in section 271,590 which was designed to ensure that local markets are open to 
competition, somehow shows that Congress intended to limit the scope of section 251(b)(5) to local 
traffic.591 We do not see how this argument sheds any light on the scope of section 251(b)(5). Congress 
no doubt included the reference to reciprocal compensation in section 271 because section 251(b)(5) 
applies to local traffic, a point that no one disputes. That does not suggest, however, that section 
251(b)(5) applies only to local traffic. 
227. We need not respond to every other variation of the argument that the history and 
structure of the Act somehow demonstrate that section 251(b)(5) does not apply to access traffic. At best, 
these arguments show that one plausible interpretation of the statute is that section 251(b)(5) applies only 
to local traffic, a view that the Commission embraced in the Local Competition First Report and Order. 
584 Local Competition First Report and Order, 11 FCC Rcd at 16015, para. 1040. See also 47 C.F.R.  51.701(d). 
585 206 F.3d at 6. 
586 Because ISP-bound traffic did not fall within the section 251(g) carve out from section 251(b)(5) as there had 
been no pre-Act obligation relating to intercarrier compensation for ISP-bound traffic, WorldCom, 288 F.3d at 433, 
ISP-bound traffic is, and always has been, subject to section 251(b)(5), although clearly interstate in nature and 
subject to our section 201 authority. 
587 We reject Verizons argument against the application of section 251(b)(5) to ISP-bound traffic because this 
traffic is one-way traffic and as such is not reciprocal. See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments 
at 26; Verizon/BellSouth ISP White Paper at 4143. As Level 3 points out, these arguments have been rejected by 
the Commission and the U.S. Court of Appeals for the Ninth Circuit. See Level 3 Aug. 18, 2008 Ex Parte Letter at 
18; Pacific Bell v. Cook Telecom, Inc., 197 F.3d 1236, 124244 (9th Cir. 1999) (reciprocal compensation applies to 
paging traffic); TSR Wireless, LLC v. U.S. West Commcns, Inc., 15 FCC Rcd 11166, 11178, para. 21 (2000) (the 
Commissions reciprocal compensation rules draw no distinction between one-way and two-way carriers). 
Because our conclusion in this order concerning the scope of section 251(b)(5) is no longer tied to whether this 
traffic is local or long distance, we need not address arguments made by the parties as to whether ISP-bound traffic 
constitutes telephone exchange service under the Act. See, e.g., Letter from John T. Nakahata, Counsel for Level 
3 Communications, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed 
Sept. 24, 2004). We note, however, that we retain our interim ISP-bound traffic rules. See supra paras. 198205. 
588 See Verizon ICC FNPRM Comments at 41. 
589 47 U.S.C.  251(g). 
590 See 47 U.S.C.  271(c)(2)(B)(xiii). 
591 See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 26; Verizon/BellSouth ISP White Paper at 9. 

Federal Communications Commission FCC 08-262 
A-102 
These arguments do not persuade us, however, that this is the only plausible reading of the statute. 
Moreover, many of the same arguments based on the history and context of the adoption of section 251 to 
limit its scope to local traffic were rejected by the D.C. Circuit in the context of section 251(c).592 We 
find that the better reading of the Act as a whole, in particular the broad language of section 251(b)(5) and 
the grandfather clause in section 251(g), supports our view that the transport and termination of all 
telecommunications exchanged with LECs is subject to the reciprocal compensation regime in sections 
251(b)(5) and 252(d)(2). 
228. The approach we adopt here provides a sound basis for comprehensive reform, and we 
thus decline to adopt alternative proposals. On one hand, we note that some commenters advocate that 
the Commission adopt an intercarrier compensation rate or cap of $0.0007 per minute of use for all 
traffic.593 To implement this reform proposal, parties have suggested that it would likely be necessary for 
the Commission to preempt state regulation of intrastate access charges.594 We believe that such a 
significant step is not currently warranted, and elect instead to allow states to continue setting rates for 
intrastate traffic, as well as permitting them to set rates for traffic subject to federal jurisdiction, pursuant 
to our methodology. We fully expect the new pricing methodology to achieve the goals of our continuing 
intercarrier compensation reform. On the other hand, some parties contend that the Commission should 
leave matters of intrastate intercarrier compensation reform entirely to the states.595 These proposals 
evidence a pre-1996 Act worldview, however. Given the tools that the 1996 Act put at our disposal, we 
find it possible to move forward with truly comprehensive intercarrier compensation reform under an 
approach which still provides for a state role. 
229. We note that, in the Local Competition First Report and Order, the Commission 
observed that section 251(b)(5) does not address charges payable to a carrier that originates traffic and 
592 United States Telecom Assn v. FCC, 359 F.3d 554, 592 (D.C. Cir. 2004) (USTA II) (Even under the deferential 
Chevron standard of review, an agency cannot, absent strong structural or contextual evidence, exclude from 
coverage certain items that clearly fall within the plain meaning of a statutory term. The argument that long distance 
services are not telecommunications services has no support.). In USTA II, the D.C. Circuit was addressing 
whether the term telecommunications services was limited to local telecommunications services under section 
251(c), while here we consider the analogous question of whether telecommunications is limited to local 
telecommunications under section 251(b). 
593 See, e.g., Letter from Grace E. Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92, Attach. A at 1 (filed Oct. 6, 2008); Letter from Teresa D. Bauer and Richard R. Cameron, 
Counsel for Global Crossing North America, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 1 
(filed Sept. 18, 2008); Letter from Susanne A. Guyer, Senior Vice President of Federal Regulatory Affairs, Verizon, 
to Kevin Martin et al., Commissioners, FCC, CC Docket. 01-92 at 4 (filed Sept. 12, 2008) (Verizon Sept. 12, 2008 
Ex Parte Letter). But see, e.g., Letter from Richard A. Askoff, Executive DirectorRegulatory, NECA, to Marlene 
H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 3 (filed Oct. 7, 2008) (Prescription of a nationwide uniform 
default rate of $0.0007 is unnecessary to solve the rate arbitrage problems identified by Verizon. It would also 
represent bad policy.); Letter from Lawrence Zawalick, Senior Vice President, Rural Telephone Finance 
Cooperative, to Kevin Martin et al., Commissioners, FCC, CC Docket 01-92 at 1 (filed Sept. 30, 2008) (The Rural 
Telephone Finance Cooperative (RTFC) strongly opposes [the $0.0007] proposal.). 
594 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 1425 (filed Sept. 19, 2008) (Verizon Sept. 
19, 2008 Ex Parte Letter). 
595 In some cases, parties propose that the Commission make available universal service support as an enticement 
for states to reform intrastate rates, but ultimately the decisions would be left to the individual states. See Letter 
from Tom Karalis, Counsel for Rural Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, 
Attach. at 7 (filed Sept. 26, 2008).

Federal Communications Commission FCC 08-262 
A-103 
concluded, therefore, that such charges were prohibited under that provision of the Act.596 Because we 
elect to have the states set rates under section 251(b)(5), pursuant to our methodology, we find that 
retention of originating charges would be inconsistent with that statutory scheme and our new regulatory 
approach. Accordingly, we find that originating charges for all telecommunications traffic subject to our 
comprehensive intercarrier compensation framework must be eliminated at the conclusion of the 
transition to the new regime. We recognize, however, that changes to originating access charge rates may 
raise issues distinct from terminating charges. Moreover, several parties urge the Commission to delay 
any changes to originating charges.597 For these reasons, we ask parties to comment on the appropriate 
transition for eliminating originating access charges in the accompanying Further Notice.598 Although we 
ask parties to comment on the appropriate transition for eliminating originating access charges, we clarify 
that, under the transitional mechanism we adopt today, carriers are not permitted to increase any of their 
current rates, including their originating access rates.599 Thus, both interstate and intrastate originating 
switched access rates will remain capped at current levels until further action by the Commission 
addressing the appropriate transition for this traffic. This approach is consistent with our transition of 
terminating rates600 and with our goal of eliminating originating access charges at the conclusion of the 
transition to the new regime. 
b. Legal Authority for the Transition 
230. Although we comprehensively reform intercarrier compensation, we do not flash cut to 
our new regime, but provide for a measured transition.601 The goal of this transition is to avoid overly 
rapid rate changes for consumers while providing carriers with sufficient means to preserve their financial 
596 See Local Competition First Report and Order, 11 FCC Rcd at 16016, para. 1042. See also 47 C.F.R. 
 51.703(b) (stating that a LEC may not assess charges on any other telecommunications carrier for 
telecommunications traffic that originates on the LECs network). 
597 See, e.g., Verizon Sept. 12, 2008 Ex Parte Letter at 5 (asking the Commission to defer reform of originating 
access); Letter from Grace E. Kohl, Policy Counsel, Cox, to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 
06-122, 05-337, CC Docket Nos. 96-45, 01-92, 99-68, 96-262 at 2 (filed Oct. 6, 2008) (supporting proposals to 
delay reform of originating access) (Cox Oct. 6, 2008 Ex Parte Letter); Letter from Brian Benison, Director 
Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC 
Docket Nos. 05-337, 07-135, Attach. at 3 (filed Oct. 7, 2008) (describing model with No Change to Current 
Structure and Rates for originating access); Letter from Kathleen OBrien Ham, Federal Regulatory Affairs, TMobile, 
to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 5 (filed Oct. 3, 2008); cf. Letter from Mary 
C. Albert, Assistant General Counsel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket 
Nos. 04-36, 05-337, Attach. at 1 (filed Oct. 2, 2008) (urging the Commission to delay any changes to intercarrier 
compensation). But see Letter from Anna M. Gomez, Vice President, Government Affairs, COMPTEL, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 7 (filed Oct. 1, 2008) (urging 
the Commission to reform originating access immediately) (Sprint Oct. 1, 2008 Ex Parte Letter). 
598 See infra para 346. 
599 This prohibition on increasing access rates also applies to the Primary Interexchange Carrier Charge in section 
69.153 of the Commissions rules, the per-minute Carrier Common Line charge in section 69.154 of the 
Commissions rules, and the per-minute Residual Interconnection Charge in section 69.155 of the Commissions 
rules. 47 C.F.R.  69.153, 69.154, 69.155. 
600 See supra paras. 19495 (prohibiting carriers from increasing their current rates, even if the interim, uniform 
reciprocal compensation rate is higher than one or more of its current rates). 
601 See supra section V.B.2.

Federal Communications Commission FCC 08-262 
A-104 
integrity as we move to the new intercarrier compensation regime.602 For many of the same reasons that 
we have authority to adopt comprehensive reform, we find that the Commission has clear authority to 
establish such a transitional structure to serve as a glide path to the new methodology we have developed 
in this order. 
231. We find it reasonable to adopt a transition plan under these circumstances. As the D.C. 
Circuit has recognized, avoiding market disruption pending broader reforms is, of course, a standard and 
accepted justification for a temporary rule,603 and here temporary rules setting forth a glide path are 
needed to mitigate potentially adverse rate or revenue effects that may be caused by our comprehensive 
intercarrier compensation reform, including the elimination of implicit universal service subsidies in those 
rates. Therefore, the Commissions exercise of its authority to create a transition plan is especially 
appropriate here, where the Commission is acting to reconcile the Acts implicit tension between . . . 
moving toward cost-based rates and protecting universal service.604 Not surprisingly, most commenters 
have affirmatively recognized the need for a transitional regime.605 Indeed, every major plan submitted to 
us in this proceeding, whether the Missoula plan,606 the ICF plan,607 Verizons plan,608 AT&Ts plan,609 or 
the plan from CBICC,610 ARIC,611 NARUC,612 or NASUCA,613 has called for the Commission to establish 
602 This approach is consistent with Commission precedent set forth in Part V.A, which started reforming intercarrier 
compensation in the 1980s. There the Commission found that a transitional plan is necessary in part because 
[i]mmediate recovery of high fixed costs through flat end-user charges might cause a significant number of local 
exchange service subscribers to cancel local exchange service despite the existence of a Universal Service Fund 
and [s]uch a result would not be consistent with the goals of the Communications Act. 1983 Access Charge 
Order, 93 FCC 2d at 243, para. 4. As a result, the Commission initially limited the flat rate charge imposed on end 
users, also known as the subscriber line charge or SLC, to $1.00 (subsequent orders raised the cap on the subscriber 
line charge for residential users to $6.50). 
603 Competitive Telecomms. Assn v. FCC, 309 F.3d 8, 14 (D.C. Cir. 2002). 
604 Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523, 538 (8th Cir. 1998). 
605 See, e.g., BellSouth ICC FNPRM Comments at 17 (In order to avoid the market disruption and dislocation that 
would be associated with instantaneous implementation of a unified plan, BellSouth proposes a two-phase transition 
plan.); CCG ICC FNPRM Comments at 2 (Any plan that reduces access rates should be phased-in over as long a 
period as possible, at least for rural carriers, so these companies have time to prepare for and adjust to the economic 
impact.); Cincinnati Bell ICC FNPRM Comments at 12 (The Commission must allow carriers the opportunity to 
earn this lost access revenue in the transition to a new compensation regime in order to make any regime change 
revenue neutral to the affected carriers.); CCAP ICC FNPRM Comments at 23 (The CCAP believes that any 
reform of the existing intercarrier compensation regimes should take place over a three-to-five-year period . . . .). 
606 Missoula Plan, Executive Summary at 3 (Recognizing the vast differences among carriers, the Plan creates three 
different transition schedules for intercarrier compensation rates.). 
607 Letter from Gary M. Epstein and Richard R. Cameron, Counsel for ICF, to Marlene H. Dortch, Secretary, FCC, 
CC Docket 01-92, Attach. 2 at 3 (filed Aug. 16, 2004). 
608 Verizon Sept. 12, 2008 Ex Parte Letter at 910. 
609 Letter from Henry Hultquist, Federal Regulatory Vice-President, AT&T, to Marlene H. Dortch, Secretary, FCC, 
CC Docket 01-92, Attach 1 at 4 (filed July 17, 2008). 
610 Letter from Richard M. Rindler, Counsel for CBICC, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, 
Attach. 1 at 2. 
611 ARIC ICC FNPRM Comments, Attach. 1 at 33. 
612 NARUC ICC FNPRM Comments, Attach. C at 6.

Federal Communications Commission FCC 08-262 
A-105 
an orderly transition period. We take heed of these commenters and of our statutory responsibilities to 
ensure a smooth transition to the new regime by setting forth a multi-stage transition plan as part of our 
comprehensive reform of intercarrier compensation. 
232. Moreover, we have several independent sources of legal authority to adopt the transition 
plan established in this order. For one, section 251 explicitly contemplates our authority to adopt a 
transitional scheme with regard to access charges. We agree with the United States Court of Appeals for 
the District of Columbia Circuit that section 251(g) created a transitional enforcement mechanism614 
preserving the access charge regimes that pre-dated the 1996 Act until . . . explicitly superseded by 
regulations prescribed by the Commission.615 Thus, section 251(g), by its terms, anticipates that the 
Commission may take action to end the regimes grandfathered by section 251(g), and inherent within the 
power to supersede the grandfathered access regime is the lesser power to prescribe regulations that 
determine how to transition to a cost-based pricing mechanisma power that we have twice employed in 
the past to reduce access charges without explicitly superseding that regime.616 
233. In addition, as the Supreme Court has further held, the Commission has authority to 
prescribe the requisite pricing methodology that the States will apply in setting rates under section 
252(d)(2).617 Consistent with our authority, the Commission here is providing for a transitional regime in 
the public interest to smooth the transition to the new pricing standard adopted by this order. The goal of 
this transition is to allow gradual changes to consumer rates while providing carriers with sufficient 
means to preserve their financial integrity as we move to the new intercarrier compensation regime. 
234. Significantly, as discussed in greater detail above, although we elect to rely on the 
sections 251(b)(5) and 252(d)(2) framework for reform, that does not affect the Commissions jurisdiction 
(continued from previous page) 
613 Letter from Philip F. McClelland, Senior Assistant Consumer Advocate, NASUCA, to Marlene H. Dortch, 
Secretary, FCC, CC Docket 01-92, Attach. 1 at 1 (filed Dec. 14, 2004). 
614 WorldCom, 288 F.3d at 433. 
615 47 U.S.C.  251(g) (emphasis added). At the least, section 251(g) preserved the interstate access regime the 
Commission had prescribed for all carriers (see id. (preserving obligations (including receipt of compensation) . . . 
under any . . . regulation, order, or policy of the Commission . . . .)) and the intrastate access regime the Bell 
Operating Companies had agreed to in the Modified Final Judgment. See United States v. AT&T, 552 F. Supp. at 
169. Recognizing, however, that it would be incongruous to conclude that Congress was concerned about the 
effects of potential disruption to the interstate access charge system, but had no such concerns about the effects on 
analogous intrastate mechanisms, the Commission has consistently interpreted section 251(g) to preserve the 
intrastate access regime pre-dating the Act for all carriers. ISP Remand Order, 16 FCC Rcd at 9168 n.66 (quoting 
Local Competition First Report and Order, 11 FCC Rcd at 15869, para. 732); see also Competitive Telecomms. 
Assn v. FCC, 117 F.3d 1068, 1072 (8th Cir. 1997) ([I]t is clear from the Act that Congress did not intend all access 
charges to move to cost-based pricing, at least not immediately. The Act plainly preserves certain rate regimes 
already in place.). 
616 See MAG Order, 16 FCC Rcd 19613 (reducing interstate access charges for rate-of-return carriers); CALLS 
Order, 15 FCC Rcd 12962 (reducing interstate access charges for price-cap carriers), affd in relevant part by Texas 
Office of Pub. Util. Counsel v. FCC, 265 F.3d at 324 (reasoning that because the Commission had not yet 
superseded the pre-Act interstate access regime, it retained authority under section 201(b) to set just and reasonable 
rates for interstate access); see also WorldCom, 288 F.3d at 433 (We will assume without deciding that under 
 251(g) the Commission might modify LECs pre-Act restrictions or obligations, pending full implementation 
of relevant sections of the Act. The Fifth Circuit appeared to make that assumption . . . .). 
617 AT&T v. Iowa Utils. Bd., 525 U.S. at 384; see also id. at 378 (The FCC has rulemaking authority to carry out the 
provisions of this Act, which include  251 and 252, added by the Telecommunications Act of 1996.)

Federal Communications Commission FCC 08-262 
A-106 
over traffic or services otherwise subject to federal authority. 618 With respect to interstate services, the 
Act has long provided us with the authority to establish just and reasonable charges, practices, 
classifications, and regulations.619 The Commission also has authority over the rates of CMRS providers 
pursuant to section 332 of the Act.620 The Commission thus retains full authority to adopt transition plans 
for traffic and services subject to federal jurisdiction, even when it is within the sections 251(b)(5) and 
252(d)(2) framework. Because we re-affirm our findings concerning the interstate nature of ISP-bound 
traffic, it follows that such traffic falls under the Commissions section 201 authority preserved by the 
Act.621 This conclusion is reinforced by section 251(i) of the Act. As the Commission explained in the 
ISP Remand Order, section 251(i) expressly affirms the Commissions role in an evolving 
telecommunications marketplace, in which Congress anticipates that the Commission will continue to 
develop appropriate pricing and compensation mechanisms for traffic that falls within the purview of 
section 201.622 It concluded that section 251(i), together with section 201, equips the Commission with 
the tools necessary to keep pace with regulatory developments and new technologies.623 When read 
together, these statutory sections preserve the Commissions authority to address new issues that fall 
within its section 201 authority over interstate traffic, including compensation for the exchange of ISPbound 
traffic. Consequently, in the ISP Remand Order, the Commission properly exercised its authority 
under section 201(b) to issue interim pricing rules governing the payment of compensation between 
carriers for ISP-bound traffic.624 
618 See supra section V.B.3. 
619 47 U.S.C.  201(b). 
620 47 U.S.C.  332. 
621 We have consistently found that ISP-bound traffic is jurisdictionally interstate. ISP-bound traffic melds a 
traditional circuit-switched local telephone call over the PSTN to packet switched IP-based Internet communication 
to Web sites. Declaratory Ruling, 14 FCC Rcd at 3702, para. 18; ISP Remand Order, 16 FCC Rcd at 9175, para. 
52. This conclusion has not been questioned by the D.C. Circuit. See WorldCom, 288 F.3d at 431; Bell Atlantic v. 
FCC, 206 F.3d at 5 (There is no dispute that the Commission has historically been justified in relying on this 
method when determining whether a particular communication is jurisdictionally interstate). In other contexts, the 
Commission has likewise found that services that offer access to the Internet are jurisdictionally interstate services. 
In 1998, for example, the Commission found that ADSL service is jurisdictionally interstate. See GTE Tel. 
Operating Cos., CC Docket No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd 22466, 22481, para. 28 
(1998) (finding that GTEs ADSL service is subject to federal jurisdiction and is an interstate service). More 
recently, the Commission has confirmed this ruling for a variety of broadband Internet access services. See Inquiry 
Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GN Docket No. 00-185, CS Docket 
No. 02-52, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4832, para. 59 (2002) 
(finding that, on an end-to-end analysis, cable modem service is an interstate information service); Wireline 
Broadband Internet Access Order, 20 FCC Rcd at 14914, para. 110, affd by Natl Cable & Telecomms. Assn v. 
Brand X Internet Servs. (Brand X), 545 U.S. 967 (2005); Appropriate Regulatory Treatment for Broadband Access 
to the Internet Over Wireless Networks, WT 07-53, Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007); 
United Power Line Councils Petition for Declaratory Ruling Regarding the Classification of Broadband over 
Power Line Internet Access Service as an Information Service, WC 06-10, Memorandum Opinion and Order, 21 
FCC Rcd 13281, 13288, para. 11 (2006). In the Vonage Order, the Commission likewise found that VoIP services 
are jurisdictionally interstate, employing the same end-to-end analysis reflected in those other orders. Vonage 
Order, 19 FCC Rcd at 2241314, paras. 1718. 
622 ISP Remand Order, 16 FCC Rcd at 9174, para. 50. 
623 See ISP Remand Order, at 9175, para. 51. 
624 We thus respond to the D.C. Circuits remand order in WorldCom, 288 F.3d at 434, and the courts writ of 
mandamus in Core Communications, 531 F.3d at 86162, which directed the Commission to explain its legal 
(continued.)

Federal Communications Commission FCC 08-262 
A-107 
235. This result is consistent with the D.C. Circuits opinion in Bell Atlantic, which concluded 
that the jurisdictional nature of traffic is not dispositive of whether reciprocal compensation is owed under 
section 251(b)(5).625 It is also consistent with the courts WorldCom decision, in which the court rejected 
the Commissions view that section 251(g) excluded ISP-bound traffic from the scope of section 
251(b)(5), but made no other findings.626 Finally, this result does not run afoul of the Eighth Circuits 
decision on remand from the Supreme Court in the Iowa Utilities Board litigation, which held that the 
FCC does not have the authority to set the actual prices for the state commissions to use under section 
251(b)(5).627 At the time of that decision, under the Local Competition First Report and Order, section 
251(b)(5) applied only to local traffic. Thus, the Eighth Circuit merely held that the Commission could 
not set reciprocal compensation rates for local traffic. The court did not address the Commissions 
authority to set reciprocal compensation rates for interstate traffic.628 In sum, the Commission plainly has 
authority to establish pricing rules for interstate traffic, including ISP-bound traffic, under section 201(b), 
and that authority was preserved by section 251(i). 
4. Additional Costs Standard 
236. We now turn to reconsideration of our additional costs standard for implementing 
section 252(d)(2). Before describing our new standard, we briefly review the relevant statutory language 
and the Commission's implementation of the additional costs standard in the Local Competition First 
Report and Order. We then explain the importance of incremental cost in regulated pricing. Next we 
examine the incremental cost of call termination on modern networks. Finally we describe in detail the 
additional costs standard we adopt in this order. 
a. Background 
237. Section 252(d)(2)(A) sets forth the standard that state commissions, in arbitrating 
interconnection disputes, should apply in setting the charges for transport and termination of traffic. 
That section states that [f]or the purposes of compliance  with section 251(b)(5), a State commission 
shall not consider the terms and conditions for reciprocal compensation to be just and reasonable unless 
(i) such terms and conditions provide for the mutual and reciprocal recovery by each carrier of costs 
associated with the transport and termination on each carriers network facilities of calls that originate on 
the network facilities of the other carrier; and (ii) such terms and conditions determine such costs on the 
basis of a reasonable approximation of the additional costs of terminating such calls.629 Section 
252(d)(2)(B) provides that the preceding standard shall not be construed (i) to preclude arrangements 
that afford the mutual recovery of costs through offsetting of reciprocal obligations, including 
arrangements that waive mutual recover (such as bill and keep arrangements); or (ii) to authorize the 
Commission or any State commission to engage in any rate regulation proceedings to establish with 
(continued from previous page) 
authority to issue the interim pricing rules for ISP-bound traffic adopted in the ISP Remand Order. Specifically, we 
find, for the reasons set forth above and in Part V.B.3, that the Commission had the authority to adopt the interim 
pricing regime pursuant to our broad authority under section 201(b) to issue rules governing interstate traffic. 
625 See Bell Atlantic, 206 F.3d at 5. 
626 See WorldCom, 288 F.3d at 434. 
627 Iowa Utils. Bd. v. FCC, 219 F.3d 744, 757 (8th Cir. 2000) (Iowa Utils. II), revd in part sub nom. Verizon v. FCC, 
535 U.S. 467. 
628 Indeed, as discussed above, the court expressly confirmed the Commissions independent authority to set rates 
for CMRS traffic pursuant to section 332 and declined to vacate the Commissions pricing rules as they applied in 
the context of CMRS service. See supra para. 214; Iowa Utils. I, 120 F.3d at 800 n.21. 
629 47 U.S.C.  252(d)(2)(A).

Federal Communications Commission FCC 08-262 
A-108 
particularity the additional costs of transporting or terminating calls, or to require carriers to maintain 
records with respect to the additional costs of such calls.630 
238. In the Local Competition First Report and Order, the Commission adopted implementing 
rules interpreting section 252s pricing standards for interconnection and UNEs (section 252(d)(1)), and 
for reciprocal compensation (section 252(d)(2)). In setting the pricing methodology for interconnection 
and UNEs, the Commission directed the states to employ a forward-looking, long-run average 
incremental cost methodology, known as TELRIC.631 The TELRIC methodology assumes that the 
relevant increment of output is all current and reasonably projected future demand, (i.e., it is designed to 
calculate the total cost of building a new, efficient network).632 The Commission found that TELRIC 
rates should also include a reasonable allocation of forward-looking common costs, including overhead 
costs. Thus, TELRIC calculates the long-run average incremental cost of a network element. In setting 
the pricing methodology for reciprocal compensation, the Commission concluded that the statutory 
pricing standards for interconnection and UNEs (section 252(d)(1)), and for transport and termination of 
traffic (section 252(d)(2)), were sufficiently similar to permit the use of the same TELRIC methodology 
for establishing rates under both statutory provisions.633 
239. Market developments since the adoption of the Local Competition First Report and 
Order demonstrate that application of the TELRIC methodology to reciprocal compensation has led to 
excessively high reciprocal compensation rates.634 More specifically, following the Commissions 
order, certain carriers began designing business plans to take advantage of above-cost reciprocal 
compensation payments by becoming a net recipient of local traffic. The most prevalent example of 
regulatory arbitrage for reciprocal compensation is ISP-bound traffic where the Commission found 
evidence that CLECs appear to have targeted customers that primarily or solely receive traffic, 
particularly ISPs, in order to become net recipients of reciprocal compensation payments.635 As a result, 
the Commission has found that reciprocal compensation rates do not simply compensate the terminating 
630 47 U.S.C.  252(d)(2)(B). 
631 Local Competition First Report and Order, 11 FCC Rcd at 15515, 1584496, paras. 29, 672732. 
632 Local Competition First Report and Order, 11 FCC Rcd at 1585057, paras. 690703, see also 47 C.F.R. 
 51.505. 
633 Local Competition First Report and Order, 11 FCC Rcd at 16023, para. 1054. In applying the TELRIC 
methodology to reciprocal compensation, the Commission found that the additional costs to the LEC of 
terminating a call that originates on another carriers network primarily consists of the traffic-sensitive component 
of local switching. For purposes of setting rates, the Commission concluded that only that portion of the forwardlooking, 
economic cost of end-office switching that is recovered on a usage-sensitive basis constitutes an additional 
cost to be recovered through termination charges. Id. at 1602425, para. 1057. The Commission excluded nontraffic 
sensitive costs, such as the costs of local loops and line ports. Id. Further, the Commission concluded that 
termination rates established pursuant to the TELRIC methodology should include a reasonable allocation of 
forward-looking common costs because, the Commission reasoned, a rate equal to incremental costs may not 
compensate carriers fully when common costs are present. Id. at 16025, para. 1058. For transport, the Commission 
required the calling partys LEC to compensate the called partys LEC for the additional costs associated with 
transporting a call subject to section 251(b)(5) from the carriers interconnection point to the called partys end 
office and for the additional costs of terminating the call to the called party. Id. at 1600858, paras. 1027118; see 
also 47 C.F.R.  51.701(c), (d). 
634 ISP Remand Order, 16 FCC Rcd at 9185, para. 75); see also Letter from Norina Moy, Director, Government 
Affairs, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket No. 04-36 (filed 
Sept. 26, 2008) (Sprint Nextel Sept. 26, 2008 Ex Parte Letter). 
635 Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 11.

Federal Communications Commission FCC 08-262 
A-109 
network, but also appear to generate profits for each minute that is terminated, thus creating a potential 
windfall.636 In short, the evidence indicates that application of the TELRIC methodology to reciprocal 
compensation has not led to rates that accurately reflect a carriers additional costs as the Commission 
initially envisioned and Congress intended. Rather, the Commissions existing pricing standard has led to 
rates that not only vary significantly among states,637 but are generally too high, and which ultimately 
create regulatory arbitrage opportunities. Based on this evidence, and as detailed further below, we 
therefore conclude that we need to revise the current reciprocal compensation pricing methodology to 
align our standard more closely with the statutory text and with economic theory to eliminate, as far as 
possible, opportunities for regulatory arbitrage. 
b. The Importance of Incremental Cost In Regulated Pricing 
240. To provide a framework for our reconsideration of the proper additional costs 
methodology, we begin with a brief overview of long-standing principles for public utility pricing. As 
explained below, we believe the traditional economic definition of incremental cost, as applied to 
multiproduct firms, is most appropriate for setting intercarrier compensation rates. The Commissions 
existing TELRIC standard governing reciprocal compensation deviates from this more efficient version of 
incremental cost, and is likely to lead to rates that significantly exceed efficient levels. We also consider 
evidence in the record concerning costs of switches and fiber. 
241. In economic theory generally and in its application to regulation, the relationship of price 
and marginal cost is of fundamental importance. Marginal cost can be simply defined as the rate of 
change in total cost when output changes by an infinitesimal unit. In economics, the term incremental 
cost refers to a discrete change in total cost when output changes by any non-infinitesimal amount, which 
might range from a single unit to a large increment representing a firms entire output.638 The terms 
additional costs and avoidable costs are commonly used to refer to incremental costs resulting from an 
increase or a decrease in output respectively.639 
242. In a competitive market, it is assumed that both consumers and producers independently 
636 See, e.g., Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 11; see also Intercarrier Compensation 
FNPRM, 20 FCC Rcd at 4698 n.67 ([R]eciprocal compensation rates often substantially exceed the per-minute 
incremental cost of terminating a call and therefore create a potential windfall for carriers that serve customers that 
primarily or exclusively receive traffic.); ISP Remand Order, 16 FCC Rcd at 9192, para. 87 ([T]here may be a 
considerable margin between current reciprocal compensation rates and the actual costs of transport and 
termination.); BellSouth ICC NPRM Comments at 9 ([R]eciprocal compensation payments enabled carriers to 
offer services to their customers at rates that bore little relationship to actual costs and provided the recipients of 
reciprocal compensation an advantage over their competitors.); Verizon 2000 Remand of ISP Declaratory Ruling 
Public Notice Comments at 1112 (noting that competitive LECs with ISP customers reap a windfall profit 
because of high reciprocal compensation rates). 
637 See, e.g., Eastern Rural Telecom Assn ICC FNPRM Comments at 23 (Depending on the assumptions used to 
develop a companys TELRIC study, the results can vary significantly and be open to challenge.). 
638 If C(q) represents the cost of producing an output q and Dq represents an increment of output, then incremental 
cost is equal to C(q+Dq)  C(q). If incremental cost is used as a guide to pricing, then price should be set equal to 
the average incremental cost 
( ) ( ) 
q 
C q q C q 
D 
+ D - 
. If there are no fixed costs and initial output q = 0, then 
incremental cost pricing is equivalent to average cost pricing. If Dq is small, then incremental cost pricing 
approximates marginal cost pricing. Cf. Local Competition First Report and Order, 11 FCC Rcd at 15844, para. 
675. 
639 1 KAHN, THE ECONOMICS OF REGULATION at 6566. See also PRINCIPLES OF PUBLIC UTILITY RATES at 393.

Federal Communications Commission FCC 08-262 
A-110 
will choose outputs to purchase or to supply on the basis of a market price. In standard economic 
analysis, this price is determined by the intersection of a downward sloping demand function, which 
represents consumer valuations for additional units of consumption, and an upward sloping supply 
function, which represents the marginal cost of supplying an additional unit. The competitive price is 
efficient in the following sense. At any other price, consumer demands would no longer be equal to 
producer supply, and market transactions would be limited to the smaller of the two terms.640 At this 
level of output, consumers would value an additional unit of output more than the cost of producing it as 
determined by the marginal cost function. Hence both consumers and producers could be made better off 
by increasing output by a small amount.641 When price is equal to the competitive price, no alternative 
price can be found such that both consumer and producers are better off. 
243. Forward-looking versus Historical Cost: When prices are determined in a regulated 
market, similar reasoning applies. In this context, there is a large amount of literature on practical rules 
and procedures that must be considered to achieve an outcome that is as close as possible to a fully 
efficient one.642 The cost of any economic resource is equal to its value in the best alternative use. The 
cost which a regulated firm incurs in producing a particular output is therefore equal to the value of the 
economic resources that are used to produce it, and which are therefore no longer available for the 
production of alternative goods and services. It follows that from the standpoint of economic efficiency, 
the only costs that are relevant in pricing decisions of a regulated firm are current or future costs, and that 
historical costs can be ignored.643 We acknowledge that economists and industry experts have often 
debated the relative merits of forward-looking (or reproduction) cost versus historical (or original) capital 
cost in administering rate-of-return regulation,644 and that regulators, including state regulators and this 
Commission, have continued to use historical cost in rate setting for smaller, primarily rural telephone 
companies. Nevertheless, since the adoption of the Local Competition First Report and Order, the 
Commission has consistently concluded that it believes that forward-looking costs are the most 
appropriate measure of cost.645 In this order, we reaffirm our conclusion that forward-looking costs 
should form the basis for regulation in a uniform intercarrier compensation regime. 
244. Short-Run versus Long-Run Incremental Cost: Economists have also debated whether it 
is appropriate to use short-run or long-run incremental cost as a guide for regulatory pricing.646 Short-run 
incremental cost refers to the cost of an increment of demand when some inputs to production are in fixed 
640 If price is greater than the competitive level, consumer demand is less than supply, and demand would determine 
market volume. If price is less than the competitive level, then producers voluntarily would supply no more than the 
amount at which marginal cost is equal to price. 
641 Where the market price exceeds marginal cost, there will be an associated deadweight loss in social welfare. The 
deadweight loss represents the loss in consumer plus producer surplus caused by a deviation from the competitive 
equilibrium. See, e.g., DENNIS W. CARLTON & JEFFREY M. PERLOFF,MODERN INDUSTRIAL ORGANIZATION 84 
(1990); KENNETH E. TRAIN, OPTIMAL REGULATION 185 (1992) (OPTIMAL REGULATION). 
642 See, e.g., Ronald. H. Coase, The Theory of Public Utility Pricing and Its Applications, 1 BELL J. ECON. 113, 113 
128 (1970) (Theory of Public Utility Pricing); 1 KAHN, THE ECONOMICS OF REGULATION at 6386. 
643 Theory of Public Utility Pricing, 1 BELL J. ECON. at 122; Alexander C. Larson, An Economic Guide to 
Competitive Standards in Telecommunications Regulation, 1 COMMLAW CONSPECTUS 31, 47 n.100 (1993) (quoting 
Theory of Public Utility Pricing, 1 BELL J. ECON. at 12122). 
644 See, e.g., 1 KAHN, THE ECONOMICS OF REGULATION at 10916. 
645 Local Competition First Report and Order, 11 FCC Rcd at 15813, 15846, paras. 620, 679. 
646 See 1 KAHN, THE ECONOMICS OF REGULATION at 7075, 83103; see also PHILLIPS, THE ECONOMICS OF 
REGULATION at 39091 (rev. ed. 1969); PRINCIPLES OF PUBLIC UTILITY RATES at 41725.

Federal Communications Commission FCC 08-262 
A-111 
supply. Long-run incremental cost refers to the cost of an increment when all inputs are variable. In 
order to set prices so as to maximize economic efficiency at any particular point in time, it is clear that 
short-run incremental cost is the appropriate concept.647 For example, if an airline carrier has empty seats 
for a particular scheduled flight, then it would make sense to sell capacity for those seats at any price that 
would recover the small additional costs of fuel and amenities for an additional passenger. Pricing based 
on short-run incremental cost, however, necessarily implies that prices can be adjusted freely and perhaps 
continuously during the day.648 Moreover, in a regulatory context, such flexibility is likely infeasible. 
245. Short- or intermediate-run costs might also be advocated on practical grounds, since 
some productive inputs (e.g., poles and conduits) can have extremely long lives. Nevertheless, regulators 
have traditionally relied on long-run incremental costs rather than short-run incremental costs in setting 
regulated prices. First, setting prices on the basis of short-run incremental cost may mean that a carrier 
would not recover its average total cost of investment over the life of the asset.649 Second, to the extent 
that forward-looking costs are used, long-run incremental costs are more naturally and easily 
accommodated, since a forward looking cost study can legitimately assume that all inputs are variable. In 
the Local Competition First Report and Order, the Commission, in adopting its TELRIC methodology, 
explained that [t]his long run approach ensures that rates recover not only the operating costs that vary 
in the short run, but also the fixed investment costs that, while not variable in the short term, are necessary 
inputs directly attributable to providing the element.650 We reaffirm here the Commissions decision in 
the Local Competition First Report and Order that long-run incremental cost rather than short-run 
incremental cost is the appropriate cost concept. 651 
246. Peak Load Pricing: Closely related to the question of short-run versus long-run costing is 
the issue of peak load pricing. When demand varies systematically by time of day, day of the week, or 
over longer periods, there may be periods of time when there is significant excess capacity, since 
productive inputs clearly cannot vary with such frequency. In such cases, economic efficiency might 
require that prices should vary by time or day or over longer periods even in the long run.652 For 
example, many wireless telephone carriers offer free minutes of usage during weekends or evenings. 
Although these arguments are indisputable, it has proven difficult in practice to incorporate peak load 
pricing principles into regulated rate proceedings.653 Accordingly, we conclude, as the Commission did in 
the Local Competition First Report and Order, that we should not require peak-load pricing as part of an 
intercarrier compensation regime, although we affirm that carriers should be free to voluntarily negotiate 
agreements including peak pricing principles. 
247. Common Costs: Telecommunications carriers are multiproduct firms which provide a 
large array of services to different groups of consumers. Within the category of traditional telephony, 
these services include call origination, call termination, local transport, and either access to long distance 
transport or long distance service through an affiliated carrier. As networks evolve, the number of 
647 1 KAHN, THE ECONOMICS OF REGULATION at 71; DANIEL F. SPULBER, REGULATION AND MARKETS 234 (1989) 
(REGULATION AND MARKETS). 
648 1 KAHN, THE ECONOMICS OF REGULATION at 84. 
649 1 KAHN, THE ECONOMICS OF REGULATION at 88. 
650 Local Competition First Report and Order, 11 FCC Rcd at 15851, para. 692. 
651 Local Competition First Report and Order, 11 FCC Rcd at 16023, para. 1054. 
652 1 KAHN, THE ECONOMICS OF REGULATION at 89. 
653 See Local Competition First Report and Order at 15878, paras. 75557. See also 1 KAHN, THE ECONOMICS OF 
REGULATION at 9193.

Federal Communications Commission FCC 08-262 
A-112 
services that a telecommunications network can provide is rapidly expanding to include Internet access 
and other data services and, in some cases, video distribution. Many of these services share common 
facilities.654 For example, a copper loop can be used to provide analog voice service as well as data 
service using DSL technology. The cost of the loop is therefore common to both voice and DSL services. 
The incremental cost of voice service, assuming that DSL is already provided, therefore does not include 
any of the long run incremental cost of the loop itself. Similarly, the incremental cost of DSL, assuming 
voice is already provided, includes only that portion of the loop cost that may be required to condition the 
loop to meet the higher quality standards that may be required for data transmission. 
248. Methodology for Computing Incremental Cost in Multiproduct Firms: Common cost and 
its relationship to incremental cost in multiproduct firms can be more precisely defined as follows using 
an analysis developed by Faulhaber, Baumol, and others.655 Under this approach, one imagines a 
multiproduct firm in which a forward looking cost function is known, which allows one to compute the 
stand alone cost of any possible subset of products. For example, if the set of products is indexed by 
the set N = {1 , . . . , n}, then the stand alone cost of the entire firm can be represented by the value C(N). 
The incremental cost of any individual product j contained in N can then be represented by the value IC(j) 
= C(N)  C(N  j), where C(N  j) represents the stand alone cost of producing every product in the set N 
except product j. Under this definition, the incremental cost may be viewed as the additional costs of 
adding product j to a firm currently producing products (N  j). Alternatively, it may be viewed as the 
cost that may be avoided if the firm, currently producing products 1 through n, decides not to produce 
product j. The common cost for the firm as a whole is then equal to ( ) ( ) 
- 
j N 
C N IC j . When there is 
significant sharing of facilities used in providing groups of services to customers, common costs are 
typically positive, and may be a significant portion of the firms total cost. 
249. Multiproduct Incremental Cost versus TELRIC: In the Local Competition First Report 
and Order, the Commission adopted a pricing methodology, which it called Total Element Long Run 
Incremental Cost or TELRIC. Under the TELRIC methodology, prices for UNEs and interconnection 
would be determined by estimating the forward-looking cost of individual network elements, which the 
Commission defined as physical facilities of the network, together with the features, functions, and 
capabilities associated with those facilities.656 In adopting the TELRIC methodology, the Commission 
determined that forward-looking costs should be based on the least cost, most efficient network . . . 
technology, assuming current wire center locations.657 It further determined that the relevant increment 
should be the entire quantity of the network element provided.658 The Commission concluded that 
forward-looking common costs shall be allocated among elements and services in a reasonable manner 
654 Cf. Local Competition First Report and Order, 11 FCC Rcd at 15845, para. 676 (The term common costs 
refers to costs that are incurred in connection with the production of multiple products or services, and remains 
unchanged as the relative proportion of those products or services varies (e.g., the salaries of corporate managers).). 
655 See, e.g., Gerald R. Faulhaber, Cross-Subsidization: Pricing in Public Enterprises, 65 AM. ECON. REV. 966, 966 
77 (1975). Faulhabers objective in the paper was to define a test for cross subsidy, which could precisely define the 
maximum and minimum prices that a regulated firm should be allowed to charge to any subset of customers; 
WILLIAM J. BAUMOL ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE 35156 (1982); 
William J. Baumol, Minimum and Maximum Pricing Principles for Residual Regulation, in Current Issues in 
PUBLIC UTILITY ECONOMICS (A. Danielson & D. Kamerschen eds., 1983). 
656 Local Competition First Report and Order, 11 FCC Rcd at 15631, para. 258. 
657 Local Competition First Report and Order, 11 FCC Rcd at 1584849, paras. 68385. 
658 Local Competition First Report and Order, 11 FCC Rcd at 15850, para. 690.

Federal Communications Commission FCC 08-262 
A-113 
 . 659 In choosing to estimate the forward-looking cost of the entire network element, the Commission 
acknowledged that, when a requesting carrier leased access to that element, it would have exclusive 
control over that element.660 
250. With respect to reciprocal compensation, the Commission determined that the 
additional cost of terminating a call . . . primarily consists of the traffic-sensitive component of local 
switching.661 Nevertheless, the only non traffic-sensitive cost of the local switch that the Commission 
required states to exclude was the cost of line ports.662 Similarly, in the rules that the Commission 
adopted regarding shared transmission facilities between tandem switches and end offices, the 
Commission allowed the full forward-looking cost of those facilities to be recovered through usage 
sensitive charges.663 Thus, with the exception of requiring recovery of the cost of line ports through flatrated 
charges, the Commissions TELRIC rules permitted the full forward-looking cost of the local 
switch, tandem switch, and shared interoffice transmission facilities, including a reasonable allocation of 
common costs, to be recovered through usage-based charges. In effect, the Commissions TELRIC 
methodology permitted average-cost pricing using a forward-looking cost methodology. 
251. The TELRIC methodology thus differs significantly from the definition of incremental 
cost for multiproduct firms proposed by Faulhaber and others. First, unlike TELRIC, the traditional 
economic approach for determining the incremental cost of a single service excludes all common costs. 
Second, although the TELRIC methodology is essentially an average cost methodology, the traditional 
economic approach focuses on identifying the additional forward-looking cost that a network would incur 
if it provided an additional servicein this case call termination. Under the traditional economic 
definition, the incremental cost of call termination would be determined by estimating the stand alone cost 
of a network which incorporates all existing services except call termination (including call origination, 
switching, etc.) and then subtracting this amount from a comparable estimate of the total cost of providing 
all the same existing services, including call termination. As should be obvious, the incremental cost of 
call termination under the traditional economic definition should be significantly lower than that 
calculated under a TELRIC methodology. 
252. The Relevance of Multi-part Pricing: One common criticism of incremental cost pricing 
is that it may not permit a firm to recover its total costs, particularly if there are significant common 
costs.664 Economists have pointed out, however, that multi-part pricing regimes can potentially lead to 
more efficient outcomes than uniform prices set equal to either marginal cost or average cost. 665 For 
example, if the firm is able to charge a fixed monthly fee and a variable usage charge, then it is possible 
for the firm to set the usage charge at or close to marginal cost and recover any residual costs through the 
fixed charge. In this case, the regulator must take account of both subscription and usage elasticities in 
order to minimize the possibility that higher fixed fees will cause some subscribers to drop off the 
659 Local Competition First Report and Order, 11 FCC Rcd at 1585253, para. 696. 
660 Local Competition First Report and Order, 11 FCC Rcd at 15693, para. 385. 
661 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. 
662 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. Cf. 47 U.S.C.  51.509(b) 
(requiring only that line port costs of the unbundled local switching element be recovered through a flat-rated 
charge). 
663 47 U.S.C.  51.509(d). 
664 See, e.g., REGULATION AND MARKETS at 12223. 
665 See, e.g., Theory of Public Utility Pricing, 1 BELL J. ECON. at 11720; OPTIMAL REGULATION at 191213.

Federal Communications Commission FCC 08-262 
A-114 
network.666 We note that, in the access charge regime, the Commission recognized the efficiencies 
associated with multi-part pricing, even if it failed to reduce usage-based charges to marginal or 
incremental cost. 
c. The Incremental Cost of Call Termination on Modern Networks 
253. We now consider the evidence in the record concerning the incremental cost of 
terminating calls on modern telecommunications networks. We note at the outset that there appear to be 
no cost studies or analyses in the record that attempt to estimate the termination costs using Faulhabers 
definition of incremental cost. Thus, we would expect the cost estimates in the record to be significantly 
lower if they had been calculated using Faulhabers definition. 
254. We consider first evidence concerning the cost of termination on modern circuit switches. 
We note that, in 1996, when the Commission adopted the TELRIC methodology, circuit switches and 
fiber optic transmission facilities were generally considered the least-cost, most efficient currently 
available technology. And it appears that state commissions in interconnection arbitrations analyzed the 
forward-looking costs of circuit switches and fiber optic transmission facilities in developing TELRIC 
rates. Sprint Nextel filed an ex parte in which it analyzed state UNE rates for unbundled switching and 
common transport.667 Sprint Nextel reports that the national weighted average price per minute for 
unbundled local switching was $0.00058 (with individual rates ranging from a low of $0.00004 to a high 
of $0.0061). Similarly the national weighted average price per minute for common transport was 
$0.00057 (with individual rates ranging from a low of $0.00010 to a high of $0.00727). Sprint Nextel 
further observes that the rates for companies in the survey with a relatively small number of lines were 
often lower than the rates for companies with a large number of lines, indicating scale and scope 
economies do not significantly affect the cost of traffic termination.668 As Sprint Nextel notes, these 
rates are all based on the TELRIC methodology and thus represent estimates of average, traffic-sensitive 
forwarding-looking costs, plus an allocation of common cost and overheads.669 These estimates, by 
definition, will significantly exceed incremental cost estimates using the Faulhaber definition; therefore 
they provide an upper bound on the rates that may result under a Faulhaber approach to incremental cost. 
255. Some additional evidence concerning the incremental cost of terminating calls on modern 
circuit switches can be gleaned from a declaration filed by three economists in support of the Intercarrier 
Compensation Forum (ICF) plan. 670 The economists contend that modern circuit switches are to a large 
666 Demand for subscription is generally estimated to be significantly less elastic than demand for usage. See 
Mercatus Center Sept. 22, 2008 Ex Parte Letter at 3 n.15; Jerry Hausman & Howard Shelanski, Economic Welfare 
and Telecommunications Regulation: The E-Rate Policy for Universal-Service Subsidies, 16 YALE J. ON REG. 19, 39 
(1999) (estimating elasticity of demand for subscription to be -.005, whereas elasticity of demand for long-distance 
service is closer to -0.7); Effects of Breakup of AT&T, 83 AM. ECON. REV. at 182 (estimating elasticity of demand 
for basic access at -0.005 and elasticity of demand for long-distances service between -0.25 and -1.2). 
667 See Sprint Nextel Sept. 26, 2008 Ex Parte Letter. The data used in the analysis were obtained from the March 
2006 Survey of Unbundled Network Element Prices in the United States. 
668 Sprint Nextel Sept. 26, 2008 Ex Parte Letter, Attach. at 34. 
669 We note that NuVox disputes some of Sprint Nextels assumptions. See, e.g., Letter from Brad Mutschelknaus 
& John J. Heitmann, Counsel to NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 and WC 
Docket No. 04-36 (filed Oct. 27, 2008) (NuVox Oct. 27 Ex Parte Letter). There is insufficient information in the 
two ex parte submissions for us to resolve this dispute. Carriers remain free to raise issues for consideration in the 
course of state proceedings. 
670 Richard N. Clarke et al., Economic Benefits from Reform of Intercarrier Compensation (ICF Economists), 
attached to ICF ICC FNPRM Reply, Errata, App. A.

Federal Communications Commission FCC 08-262 
A-115 
extent non-traffic sensitive.671 According to the authors, whereas earlier generations of switching 
technologies had large shared resources that could be commandeered by any line needing to place or 
receive a telephone call, most of the resources in a digital switch are dedicated to individual lines through 
line ports and trunk ports.672 In addition, according to the authors, because of the massive increases in 
computing power offered by modern microchips, modern circuit switches include call processing 
capacity . . . [that] is adequate to serve all reasonably offered demand.673 In other words, modern 
switches are designed to be non-blocking, which would suggest that the incremental cost of termination is 
zero. The declaration thus concludes that the incremental cost of call termination on modern circuit 
switches should be de minimis. 
256. The economists declaration further argues that the incremental costs of adding additional 
fiber optic transmission capacity similarly are low. They contend that fiber optic technologies have large 
fixed costs associated with supporting structures (poles, trenches and conduits) and relatively low 
incremental costs of increasing the capacity of each fiber cable by installing improved laser transmission 
equipment (which in many cases is based on technological advances made subsequent to the initial fiber 
deployment). For these reasons, they conclude that once a fiber cable has been laid on a route, the costs 
of increasing its transmission capacity are relatively small, so extra minutes of demand result in very little 
incremental costs. We note that this analysis suggests, at a minimum, that the incremental cost of adding 
capacity is significantly lessand likely orders of magnitude lessthan the forward looking average cost 
of capacity, as estimated under TELRIC. 
257. AT&T submitted evidence that attempts to estimate the incremental cost of a modern 
softswitch.674 AT&T maintains that, to estimate the incremental cost of a softswitch, it is necessary to 
estimate two parameters: the total investment associated with a softswitch, and the percentage of this 
investment that is traffic-sensitive.675 Using what it claims are conservative estimates, AT&T first 
compares the estimated investment cost per line of a Class 5 circuit switch with the estimated investment 
cost per line of a modern softswitch and finds that the investment cost per-line of a softswitch is 
significantly lower.676 Although it estimates that the investment cost of a Class 5 switch is approximately 
$100 per line, it finds that the likely investment cost of a softswitch is between $34 and $80 per line.677 
AT&T then considers the likely percentage of the investment costs per line that are traffic-sensitive, and 
concludes that, depending on the particular softswitch, the traffic-sensitive costs are likely to be between 
zero and 20 percent of the total investment cost of the switch.678 Using the higher estimate of 20 percent 
traffic-sensitive costs, and assuming that each line carries an average of 1400 minutes a month, AT&T 
derives a traffic sensitive incremental cost per minute of between $0.00010 and $0.00024.679 For the 
671 ICF Economists at 22. 
672 ICF Economists at 2021. 
673 ICF Economists at 21. 
674 Letter from Henry Hultquist, Vice President-Regulatory Affairs, AT&T Services, Inc., to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 05-337, 96-45, 99-68, 07-135 (filed Oct. 4, 2008) (AT&T Oct. 4, 2008 Ex 
Parte Letter). 
675 AT&T Oct. 4, 2008 Ex Parte Letter at 2. 
676 AT&T Oct. 4, 2008 Ex Parte Letter at 3. 
677 AT&T Oct. 4, 2008 Ex Parte Letter at 23. 
678 AT&T Oct. 4, 2008 Ex Parte Letter at 34. 
679 AT&T Oct. 4, 2008 Ex Parte Letter at 4.

Federal Communications Commission FCC 08-262 
A-116 
other softswitch that AT&T considers, however, the traffic-sensitive incremental costs of termination 
would be zero. Although we do not necessarily accept the precise estimates contained in AT&Ts ex 
parte letter, we note that its analysis suggests that the incremental traffic-sensitive costs of modern 
softswitches are likely to be significantly lower than those of circuit switches and possibly zero, both 
because the investment cost per line is lower and because the percentage of traffic-sensitive costs to total 
costs is lower for modern softswitches. 
258. Windstream Communications, Inc. and NuVox subsequently filed ex parte letters 
criticizing AT&Ts analysis of the traffic sensitive costs of a softswitch,680 and AT&T filed a response.681 
Essentially, both Windstream and NuVox criticize specific elements of AT&Ts analysis. In addition, 
Windstream argues that it would be grossly inefficient for a rural carrier to immediately replace circuit 
switching equipment with softswitch technology, while NuVox contends that even a forward-looking 
network design would not consist entirely of soft switches. Significantly, NuVox criticizes AT&T for 
failing to apply the TELRIC methodology, and NuVox recalculates AT&Ts estimates using TELRIC. 
Because we expressly reject use of the TELRIC methodology for purposes of setting reciprocal 
compensation rates, we conclude that many of the NuVox challenges are moot. To the extent that NuVox 
and Windstream are challenging cost assumptions that may be applied by states pursuant to our new 
additional costs methodology, such issues may be raised for consideration by the state commission during 
the cost proceeding to establish the uniform reciprocal compensation rate. We feel compelled, however, 
to point out a few of the most critical mistakes and misconceptions contained in the Windstream and 
NuVox ex parte letters. 
259. First, Windstream argues that it is somehow inappropriate to consider the additional costs 
of softswitches in setting termination rates because it would be economically infeasible for an incumbent 
LEC to replace all its existing circuit switches with softswitches.682 This argument fundamentally 
misconstrues the purpose of a forward-looking cost methodology. The adoption of a forward-looking 
cost standard does not imply in any way that existing carriers should replace fully functional plant and 
equipment simply because a more recent vintage of replacement equipment is available. Forward-looking 
costs are simply a measure of the economic value of future investments, and in a competitive 
marketplace, these values should determine the appropriate investment decisions regarding replacement 
of existing plant. More importantly, these values should be used as an appropriate guide in setting 
efficient prices for the utilization of existing plant and equipment. Second, although both Windstream 
and NuVox raise objections to AT&Ts cost analysis, neither they nor AT&T actually attempt to estimate 
the incremental cost of call termination. For example, both Windstream and NuVox argue that AT&Ts 
estimates of the cost of investment in forward-looking softswitch technologies are flawed because of the 
assumptions made about the number of lines served per switch.683 Although this is may be a valid issue, 
as it relates to the extent to which softswitch technologies are scalable for deployment in wire centers 
with different numbers of final customers, the dispute does not really address the issue of the incremental 
680 Letter from Eric N. Einhorn, Vice President, Federal Government Affairs, Windstream Communications, to 
Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 06-122, 07- 
135, 08-152 (filed Oct. 27, 2008) (Windstream Oct. 27, 2008 Ex Parte Letter); Letter from John J. Heitmann, 
Counsel for NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Oct. 24, 2008) (NuVox 
Oct. 24, 2008 Ex Parte Letter). 
681 See Letter from Henry Hultquist, Vice President Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 07-135 (Oct. 28, 2008) (AT&Ts response 
appears specific to the NuVox Oct. 24, 2008 Ex Parte Letter). 
682 See Windstream Oct. 27, 2008 Ex Parte Letter at 2. 
683 See Windstream Oct. 27, 2008 Ex Parte Letter at 23; NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 89.

Federal Communications Commission FCC 08-262 
A-117 
cost of call termination. Third, NuVox claims that the absence of line cards in softswitches is evidence 
that all switch costs are traffic sensitive.684 This analysis ignores the potentially large fixed costs 
associated with a softswitch that are not related to line ports. Since softswitches resemble small 
computers, the appropriate analogy for estimating incremental cost would be the cost of additional 
memory cards, which could be inserted into the CPU. Fourth, NuVox maintains that both common costs 
to the firm as a whole and land and building costs associated with switching equipment should be 
included in any traffic sensitive cost computed for purposes of reciprocal compensation.685 As explained 
above, we conclude that common costs should no longer be included in calculating the incremental cost 
of call termination. 
260. Another approach to estimating the incremental cost of call termination is to examine the 
technology of next generation networks in which voice calls are carried on the same network platform as 
data and video services delivered to the same customer. Telecommunications carriers are currently 
deploying such networks at a rapid pace, although the transition to the new technology is far from 
complete. Nevertheless, most experts believe that IP technologies will be used to deliver the predominant 
share of voice and data traffic within a few years. Packet technologies, and the resulting commingling of 
voice and data traffic, make possible a dramatic reduction in the cost of originating and terminating voice 
traffic in the network. In addition, although the costs of circuit based switching technologies are difficult 
to quantify using public data sources, the Internet itself provides a variety of sources which can be used to 
provide at least a rough estimate of the costs associated with a next generation network. 
261. Consider the case of a single customer who subscribes to a next generation network 
offering a full range of voice, video and data services. Suppose that this customer makes exactly one 
voice call lasting five minutes during each hour of the busy period (which we will unrealistically assume 
to last for 16 hours every day of the month). High quality (ISDN level) voice service requires a channel 
capacity of 64 kbps. Ignoring the possibility of signal compression, and making a conservative allowance 
for packet header overhead,686 we assume that the single call per hour requires a network capacity of 100 
kbps. This capacity requirement translates to 12,800 bytes per second, or 0.0000128 Gigabytes to be 
available for the duration of the call.687 Publicly available estimates of the cost of serving residential 
customers on a broadband network range from $0.1 Gigabytes per month to $0.5 Gigabytes per month.688 
These estimates include the cost of the servers, routers and fiber links necessary to provide service to the 
residential customer, but do not include the substantial cost of the local broadband loop.689 The 
684 See NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 1415. 
685 See NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 18 & n.40. 
686 See, e.g., VoIP-Info.org, Bandwidth Consumption, http://www.voip-info.org/wiki-Bandwidth+consumption (last 
visited Oct. 25, 2008); Westbay, Voice over IP Bandwidth, http://www.erlang.com/bandwidth.html (last visited Oct. 
24, 2008) (investigating bandwidth requirements for the transmission of voice over an IP based network). 
687 In this analysis, we ignore the additional economies that can result because multiple packet streams for voice 
traffic can be transmitted simultaneously over the same channel capacity. 
688 The lower estimate is contained in the Wikipedia entry Broadband Internet Access, 
http://en.wikipedia.org/wiki/Broadband_Internet_access (last visited Oct. 11, 2008). The higher estimate is 
contained the trade publication Telephony Online, OFC: BellSouth Chief Architect warns of HD VOD costs, 
March 7, 2006, http://telephonyonline.com/iptv/news/BellSouth_VOD_costs_030706 (last visited Oct. 11, 2008). 
Both estimates are also reported in David Clark, A Simple Cost Model for Broadband Access: What Will Video 
Cost?, Presentation at the Telecommunications Policy Research Conference (Sept. 28, 2008), available at 
http://tprcweb.com/files/Cost%20analysis%20TPRC.pdf. 
689 The cost of the local loop is clearly a common cost that is shared by all of the voice, video, and data services 
consumed by the subscriber and should not be included under any reasonable definition of incremental cost.

Federal Communications Commission FCC 08-262 
A-118 
hypothetical consumer described above places a demand of 0.000512 Gigabytes per month, and using the 
upper limit on the estimated cost, we estimate a monthly incremental cost to the consumer of delivering 
this level of voice service at 0.0256 cents per month.690 Under these conservative assumptions the cost, 
on a per-minute basis, would be 0.00001 cents per minute.691 Even if the cost estimates used above are 
wrong by several orders of magnitude, it is clear that the cost of voice traffic on a broadband network is 
vanishingly small.692 Although we are not directing the states to consider the incremental cost of 
terminating voice telecommunications on such next generation networks,693 we find that, as carriers move 
to an all IP broadband world, the incremental costs of terminating voice calls should drop dramatically. 
d. Reconsideration of Additional Costs Standard 
262. We adopt a new additional costs methodology using the traditional economic definition 
of the incremental cost of a service produced by a multiproduct firm, rather than continuing to rely on the 
TELRIC methodology.694 The Supreme Court has made clear that an initial agency interpretation is not 
instantly carved in stone. On the contrary, the agency  must consider varying interpretations and the 
wisdom of its policy on a continuing basis, for example in response to changed factual circumstance, or a 
change in administrations.695 Consistent with this, the Commission, in its 2005 Intercarrier 
Compensation FNPRM, solicited comment on whether the Commission should reinterpret additional 
costs to mean incremental cost in light of the need to reform intercarrier compensation due to market 
distortions.696 In response, several commenters supported such a proposal noting that the additional 
incremental cost of terminating traffic is de minimis.697 Based on the evidence highlighted above and for 
690 Broadband Internet service is typically priced on the basis of capacityeither the maximum instantaneous 
upload and download speed or, as in this example, total monthly traffic. A rigorous application of true incremental 
cost pricing would require measuring each customers contribution to system costs, which primarily consists of the 
delays or packet losses imposed on other users. For this purpose, minutes of use are largely irrelevant. 
691 These estimated costs do not include the costs of billing, advertising, or other customer care expenses. As with 
the case of the local loop, we believe that such costs should not be included in any measure of long run incremental 
cost of call termination. 
692 It is very unlikely that the cost estimates are significantly low. Telecommunications carriers continue to upgrade 
their networks to provide precisely the range of video and data services that the articles in a previous footnote were 
concerned with. Indeed, the BellSouth estimate was given with concern that such services would not be viable 
unless that estimate of cost could be reduced in the near future. Very similar arguments were made exactly 20 years 
ago in ROBERT M. PEPPER, THROUGH THE LOOKING GLASS: INTEGRATED BROADBAND NETWORKS, REGULATORY 
POLICY, AND INSTITUTIONAL CHANGE (FCC, OPP Working Paper No. 24, Nov. 1988), available at 
http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp24.pdf. 
693 See infra section V.C.1. 
694 We find it preferable to shift entirely to an approach based on the traditional economic definition of incremental 
cost, rather than trying to achieve the same result through extensive revisions to the TELRIC methodology as some 
commenters suggest. See, e.g., Rural Alliance ICC FNPRM Comments at 5054 (calling for a more precise 
definition of TELRIC for purposes of reciprocal compensation). 
695 Brand X, 545 U.S. at 981 (quoting Chevron U.S.A. Inc. v. Natl Res. Def. Council (Chevron), 467 U.S. 837, 863 
64 (1984) and citing Motor Vehicle Mfrs. Assn of United States, Inc. v. State Farm Mut. Automobile Ins. Co. (State 
Farm), 463 U.S. 29, 59 (1983) (Rehnquist, J., concurring in part and dissenting in part)). 
696 Intercarrier Compensation FNPRM, 20 FCC Rcd at 4719, para. 71. 
697 See, e.g., CTIA ICC FNPRM Comments at 16 (Because a call does not impose significant incremental costs on 
either the calling partys or called partys network, there is no justification for allowing the terminating network to 
impose any charge on the non-terminating network.); Frontier ICC FNPRM Comments at 7 (However, there is 
virtually NO additional incremental cost of sending a minute-of-use across [dedicated hardware interfaces].); 
(continued.)

Federal Communications Commission FCC 08-262 
A-119 
the reasons set forth below, we revise our interpretation of the additional costs language in section 
252(d)(2) to mean incremental costs as traditionally defined. We believe that this conclusion is 
supported by the economic theory discussed above, and represents a more appropriate interpretation of 
the additional costs standard than the TELRIC methodology.698 
263. As an initial matter, the Commission plainly has the authority to revise its interpretation 
of additional costs.699 Indeed, the Supreme Court has recognized that the phrase additional costs is 
ambiguous.700 Words like additional cost give ratesetting commissions broad methodological 
leeway,701 and courts owe substantial deference to the interpretation the Commission accords them.702 
The Commission, consistent with its obligation to consider varying interpretations and the wisdom of its 
policy on a continuing basis now revises its definition of additional costs.703 
264. Revising our interpretation of additional costs to follow the traditional economic 
definition of the incremental cost of a service is supported by the Commissions interpretation of the term 
additional costs in section 224 of the Act. Section 224, which addresses the pricing of pole 
attachments, is the only other place in the Act that uses the term additional costs. The Commission 
consistently has found that the term additional costs in section 224 means incremental cost,704 and that 
the legislative history for section 224 makes clear that Congress intended such a result.705 Interpreting the 
term additional costs as used in two parts of the Act in the same manner is consistent with the 
(continued from previous page) 
Western Wireless ICC FNPRM Comments at 16 (Independent Wireless Carriers urge the Commission to confine 
its analysis of additional cost only to the incremental traffic-sensitive switching and transport costs actually 
incurred by the parties exchanging traffic for purposes of intercarrier compensation.). 
698 We reaffirm that the TELRIC methodology is appropriate for setting interconnection and network element rates 
pursuant to section 252(d)(1), where Congress directed the Commission to consider a reasonable profit. 
699 The Supreme Court affirmed the Commissions authority to apply a cost methodology for the states to 
implement. AT&T v. Iowa Utils. Bd., 525 U.S. at 378. See also id. at 378 n.6 ([T]he question in these cases is not 
whether the Federal Government has taken the regulation of local telecommunications competition away from the 
States. With regard to the matters addressed by the 1996 Act, it unquestionably has.); 47 U.S.C.  201(b); United 
Telegraph Workers, AFL-CIO v. FCC, 436 F.2d 920, 923 (D.C. Cir. 1970) (citations and quotations omitted) 
(finding that section 201(b) authorizes the Commission to prescribe such rules and regulations as may be necessary 
in the public interest to carry out the provisions of this Act). 
700 See Verizon v. FCC, 535 U.S. at 499501 ([W]ithout any better indication of meaning than the unadorned term, 
the word cost in section 252(d)(1), as in accounting generally, is a chameleon, a virtually meaningless term 
. . . .) (citations omitted). 
701 See Verizon v. FCC, 535 U.S. at 499501 (quoting AT&T Corp. v. Iowa Utils. Bd., 525 U.S. at 423 (Breyer, J., 
concurring in part and dissenting in part)). 
702 Capital Network System, Inc. v. FCC, 28 F.3d 201, 204 (D.C. Cir. 1994). 
703 Brand X, 545 U.S. at 981 (quoting Chevron, 467 U.S. at 86364 and citing State Farm, 463 U.S. at 59 
(Rehnquist, J., concurring in part and dissenting in part)). 
704 See, e.g., Adoption Of Rules For The Regulation Of Cable Television Pole Attachments, CC Docket No. 78-144, 
Memorandum and Opinion and Second Report and Order, 72 FCC 2d 59, 62, para. 8 (1979); Adoption Of Rules For 
The Regulation Of Cable Television Pole Attachments, CC Docket No. 78-144, Notice of Proposed Rulemaking, 68 
FCC 2d 3, 15, App. (1978) (Cable Television Pole Attachment NPRM). 
705 Cable Television Pole Attachment NPRM, CC Docket No. 78-144, Notice of Proposed Rulemaking, 68 FCC 2d 
at 15, App. (Additional costs are generally equivalent to what is referred to as incremental cost, and the 
proportional part of Operating expenses and actual capital costs are generally equivalent to fully allocated costs. 
(quoting S. Rep. No. 95-580 at 1921 (1977)). 

Federal Communications Commission FCC 08-262 
A-120 
presumption that identical words used in different parts of the same act are intended to have the same 
meaning.706 
265. In contrast, the statutory pricing standard for reciprocal compensation (additional costs) 
is not the same as the statutory pricing standard for UNEs (cost plus a reasonable profit).707 Even 
though the two statutory provisions may, as the Commission found previously, be similar, our 
subsequent experience indicates that TELRIC is not consistent with the additional costs standard. First, 
as discussed above, evidence indicates that reciprocal compensation rates based on TELRIC methodology 
were excessive.708 If reciprocal compensation rates truly reflected the incremental additional costs, 
regulatory arbitrage should not occur because a carrier would not make a profit by recovering its 
incremental cost. 709 
266. Second, TELRIC includes the cost of the total element and, as a result, measures the 
long run incremental average cost of the switch including common costs and overhead, not just the 
additional costs of using the function to terminate another carriers traffic. In other words, TELRIC 
measures the average cost of providing a function, which is not necessarily the same as the additional 
costs of providing that function. Because of this, we expect that the TELRIC methodology would 
continue to produce reciprocal compensation rates above the true additional costs of terminating such 
traffic, in light of evidence that the cost of terminating traffic today is low710 and is decreasing even 
further as carriers transition to softswitches711 and ultimately pure packet switches. Consistent with our 
change in methodology, we also disavow our finding in the Local Competition First Report and Order 
that only that portion of the forward-looking, economic cost of end-office switching that is recovered on 
706 See, e.g., Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932). 
707 Compare 47 U.S.C.  252(d)(1) with 47 U.S.C.  252(d)(2). 
708 See, e.g., Intercarrier Compensation FNPRM, 20 FCC Rcd at 4694, 469798, 4717, 4719, paras. 16, 2324, 66, 
7172; Intercarrier Compensation NPRM, 16 FCC Rcd at 9616-18, paras. 1118; ISP Remand Order, 16 FCC Rcd 
at 916162, paras. 1820. 
709 For the same reasons, we reject suggestions that TELRIC should be used to set a unified rate for intercarrier 
compensation. See, e.g., Ohio PUC ICC FNPRM Comments at 20 ([T]he Ohio Commission recommends the use 
of the TELRIC standard for setting intercarrier compensation rates.); Pac West et al. ICC FNPRM Comments at 9 
(The additional cost standard should continue to be tied to TELRIC); Time Warner Telecom et al. ICC FNPRM 
Comments at 12 ([A] central component of reform must be the requirement that, to the extent possible, each 
carrier charge a single, cost-based rate for the exchange of all types of traffic. . . . [T]he Commission arguably has 
the authority to mandate that states use a cost-based methodology, in particular TELRIC, as the basis for setting all 
intercarrier termination rates.); Integra ICC FNPRM Comments at 3 (Integra urges the Commission to . . . [u]nify 
access and reciprocal compensation rates at TELRIC based levels on a company-by-company basis.); KMC and 
Xspedius ICC FNPRM Reply at 3 ([T]he Commission should support tariffed-based intercarrier compensation 
arrangements that: (i) set rates no higher than the comparable TELRIC (or similar cost-based) rates.); XO ICC 
FNPRM Reply at 11 ([T]he only appropriate intercarrier compensation regime must include TELRIC-based 
rates.). 
710 The national average of TELRIC rates for transport and termination of calls was $0.00212 in 2004, which likely 
overstates the actual incremental costs because, as noted above, TELRIC includes common and overhead costs and 
examines the average cost of the function, not the additional cost of terminating traffic. Letter from Richard M. 
Rindler, Counsel for the Cost-Based Intercarrier Compensation Coalition, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 at 3 (filed Sept. 2, 2004) (CBICC Sept. 9 Ex Parte Letter); see also Sprint Nextel Sept. 26, 
2008 Ex Parte Letter. 
711 See T-Mobile ICC FNPRM Comments at 2930.

Federal Communications Commission FCC 08-262 
A-121 
a usage-sensitive basis constitutes an additional costs to be recovered through termination charges.712 
In particular, as explained above, we specifically exclude common costs and overhead allocations from 
the calculation of what constitutes additional costs under our new pricing methodology. 
267. We thus end our reliance on the TELRIC methodology for setting reciprocal 
compensation rates, and instead require that such rates be set pursuant to our new incremental cost 
methodology.713 In our Implementation section below, we provide specific guidance to the states 
regarding how to apply this new methodology. We note that this Commission takes seriously its 
responsibility to ensure that rates for carriers are just, reasonable, and not confiscatory. In this order, we 
have set in motion mechanisms to help ensure that the financial viability of carriers will not be 
undermined. We feel confident that these mechanisms, in combination with the other avenues available 
for carriers to offset declines in access revenues, will be sufficient to achieve this result.714 
712 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. 
713 A number of parties advocate for or against Commission adoption of bill-and-keep for intercarrier compensation. 
See, e.g., Letter from Jonathan Askin, Counsel for FeatureGroup IP, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92 at 34 (filed Oct. 7, 2008); Letter from Paul W. Garnett, Assistant Vice President of Regulatory 
Affairs, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 1 (filed Oct. 7, 2008); Corr ICC 
FNPRM Comments at 8; Cox ICC FNPRM Comments at 89; ICF ICC FNPRM Comments at 26, 30; Western 
Wireless et al. ICC FNPRM Comments at 68. But see, e.g., Letter from Tamar E. Finn, Counsel for PAETEC, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, Attach. at 10 (filed Oct. 7, 2008) (Mandatory Bill-and- 
Keep Is Not A Viable or Fair Solution); Letter from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for 
Cavalier Telephone et al., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 3, 2008) 
([T]he adoption of mandatory bill-and-keep arrangements is extremely ill advised as a policy matter.); BellSouth 
ICC FNPRM Comments at 9 ([A] plan to transition rates ultimately to bill-and-keep would not promote economic 
efficiency or preserve universal service, nor is bill-and-keep competitively neutral.); CCG Consulting Inc. (CCG) 
ICC FNPRM Comments at 7 ([A]ccess rates should not be reduced to zero through implementation of a Bill and 
Keep mechanism.); CenturyTel ICC FNPRM Comments at 4 (. . . CenturyTel unequivocally opposes replacing 
intercarrier compensation with a bill and keep regime.); CCAP ICC FNPRM Comments at 11 (The CCAP urges 
the Commission to avoid implementation of a bill and keep regime . . . .); Frontier ICC FNPRM Comments at 6 
(arguing that bill and keep is inappropriate because it does not account for asymmetric traffic patterns); SBA ICC 
FNPRM Comments at 7 (arguing that bill-and-keep is inappropriate between rural and larger LECs due to various 
asymmetries). We believe the reforms we adopt here are preferable to a pure bill-and-keep requirement and more 
appropriately balance the interests of consumers and carriers at this time. The approach we adopt in this order 
avoids the need to resolve disputes in the record regarding bill-and-keep in various circumstances because it allows 
parties to advocate for such an approach before state commissions and parties may negotiate such arrangements. 
714 Some carriers have suggested that our changes in ratemaking methodology will necessarily produce confiscatory 
rates and constitute a taking. See, e.g., NTCA, Interim Universal Service & Intercarrier Compensation Reform 
Proposal (NTCA Interim Proposal) at 1922, attached to Letter from Daniel Mitchell, Vice President, Legal & 
Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92 
(filed Oct. 6, 2008) (NTCA Oct. 6, 2008 Ex Parte Letter) (contending that the Commissions current access regime, 
not to mention any reductions in access rates, threatens rate-of-return carriers with unconstitutional takings). See 
also Cincinnati Bell ICC FNPRM 1112 (The elimination of interstate switched access charges without an 
opportunity to earn the revenue in another fashion could be confiscatory . . . .); GVNW Consulting ICC FNPRM 
Comments at 9 (The existing system of cost recovery consisting of three equally important components of access 
charges, universal service support, and local rates is the only approach available to the Commission that will enable 
it to avoid valid claims of confiscation.). This argument lacks merit. Faced with a similar challenge to the 
TELRIC methodology previously adopted by the Commission, the Supreme Court stated unequivocally that this 
Court has never considered a taking challenge on a ratesetting methodology without being presented with specific 
rate orders alleged to be confiscatory . . . . Verizon v. FCC, 535 U.S. at 524 (citations omitted). 

Federal Communications Commission FCC 08-262 
A-122 
268. Moreover our decision to adopt a unified intercarrier compensation methodology is in no 
way arbitrary or adopted with any confiscatory purpose. In fact, the determinations made in this order 
reveal just the contrary, our decision to raise the cap on SLCs, our referral to the Federal-State Joint 
Board on Separations (Separations Joint Board) of the issue of whether to allow additional increases in 
SLC caps in Part V.C below, and our acknowledgment of the ability of a carrier to establish entitlement to 
supplemental universal service to help ensure that carriers can maintain their financial integrity.715 
Although in most cases the rates for intrastate and interstate terminating access will drop substantially, 
that alone is not the test for whether a taking has occurred; rather, a primary consideration for takings 
claims is whether the rates ultimately adopted will produce a reasonable return sufficient to enable a 
company to maintain its financial integrity.716 
C. Implementation 
269. In this section, we detail certain implementation items. First, we provide guidance to 
states with regard to their implementation responsibilities for the intercarrier compensation regime we 
adopt today. Importantly, this includes setting reciprocal compensation rates using the new incremental 
cost pricing methodology. We also provide guidelines for the states application of the modification and 
suspension provisions of section 251(f)(2) of the Act. We explain the need to require symmetrical 
compensation arrangements without any exceptions under section 252(d)(2)(A)(ii) of the Act. And we 
discuss the effect of our intercarrier compensation reforms on existing interconnection and commercial 
agreements. Finally, we address the extent to which reduced revenue from carrier-to-carrier charges may 
be replaced through end-user charges or new universal service support, where needed. 
1. Direction to the States 
270. We set forth the timeline for states to implement our comprehensive reform and adopt an 
interim, uniform reciprocal compensation rate along with a transition plan in section [III.B.2] above. In 
this section, we set forth additional parameters for states to follow in implementing the reforms adopted in 
this order. 
a. Setting Final Reciprocal Compensation Rates Based on Incremental 
Cost 
271. Under our new methodology for setting final reciprocal compensation rates, states will 
need to set prices according to a forward-looking economic cost study or computer cost model using the 
Faulhaber principles to identify the traffic-sensitive incremental cost of transport and termination of 
traffic.717 First, states will need to evaluate a forward-looking economic cost analysis of a stand-alone 
network that performs all functions of a modern telecommunications network, including transport and 
termination of other carriers traffic. Second, states will need to evaluate a forward looking economic 
cost analysis of a stand-alone network that performs all the same functions except for the transport and 
termination of other carriers traffic. Third, states must compare the costs of these two networks. The 
difference between the costs of the two networks is the additional costs of termination of traffic subject to 
715 See FPC v. Hope Natural Gas Co., 320 U.S. 591, 605 (1944) (Rates which enable the company to operate 
successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks 
assumed certainly cannot be condemned as invalid, even though they might produce only a meager return . . . .). 
716 FPC v. Hope Natural Gas Co., 320 U.S. at 605. 
717 We recognize that the incremental cost of terminating traffic may include certain non-traffic-sensitive costs, such 
as the cost of a trunk port. Consistent with cost-causation principles, however, such non-traffic-sensitive costs may 
not be recovered through per-minute charges, but must rather be recovered through flat-rated monthly charges 
associated with interconnection trunks. 

Federal Communications Commission FCC 08-262 
A-123 
the additional costs standard we adopt in this order.718 
272. We offer further guidance regarding specific aspects of these cost studies. First, these 
cost studies must use the least cost, most efficient network technology. We find that the least cost, most 
efficient switch today is a softswitch.719 We further find that the least cost, most efficient technology for 
transport is fiber optic cable.720 We observe that, when carriers deploy fiber, they typically deploy 
capacity significantly in excess of current needs.721 
273. Second, consistent with the traditional economic definition of the incremental cost of a 
service, 722 the cost studies must exclude all common costs, including overhead costs. Third, all nontraffic-
sensitive costs must be excluded from the cost studies.723 Cost studies using the TELRIC 
methodology do not meet these requirements, given the differences between TELRIC and the traditional 
economic methodology for determining the incremental cost of a service discussed above.724 Available 
evidence suggests that the incremental costs of terminating traffic, as determined using this methodology, 
are likely to be extremely close to zero. 
274. We also require each state to set a single, uniform rate for all carriers in that state through 
their pricing proceedings. We find this approach warranted for several reasons. First, softswitches are 
easily scalable, and thus the incremental cost of termination does not vary with the number of lines the 
switch serves. Second, because carriers tend to deploy significant excess capacity when deploying fiber, 
the incremental cost of adding traffic is likely to approach, or equal, zero. Third, we find that setting a 
single uniform rate for all incumbent LECs and interconnecting carriers in a state simplifies the regulatory 
process, minimizes arbitrage that could arise, and reduces the likelihood that unidentifiable traffic would 
remain a problem. Finally, setting rates based on the costs of the current, least cost, most efficient 
technology creates incentives for carriers with less efficient networks to migrate more quickly to those 
more efficient technologies. 
275. Following the transition, once carriers are charging the final uniform reciprocal 
compensation rate, we establish the following default rules regarding the network edge.725 These 
718 See supra section V.B.4.c. 
719 See supra section V.B.4.c. 
720 See supra section V.B.4.c. 
721 See, e.g., Federal-State Joint Board on Universal Service; Forward-Looking Mechanism for High Cost Support 
for Non-Rural LECs, CC Docket Nos. 96-45, 97-160, Tenth Report and Order, 14 FCC Rcd 20156, 20237, para. 186 
(1999) (subsequent history and citation omitted) (As we explained in the Inputs Further Notice, in determining 
appropriate cable sizes, network engineers include a certain amount of spare capacity to accommodate 
administrative functions, such as testing and repair, and some expected amount of growth.); Triennial Review 
Order, 18 FCC Rcd at 17166, para. 312 n.919 (citing evidence that the first carrier to lay fiber to a particular 
location will lay significantly more than it will need because the incremental cost of burying additional fibers is 
negligible). 
722 See supra section V.B.4.c. 
723 We thus go beyond the requirement in the Local Competition First Report and Order that only required states to 
exclude the cost of line ports, see 11 FCC Rcd at 16025, para. 1057, and mandate that all non-traffic sensitive costs 
be excluded. 
724 See, e.g., supra section V.B.4.c. 
725 See Letter from Hank Hultquist, AT&T Services, Inc., and Donna Epps, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 12 (filed Oct. 14, 2008) (AT&T and Verizon Oct. 14, 2008 Ex Parte 
Letter) (providing seven default rules). We reject PAETECs assertion that the Commission lacked notice to adopt 
(continued.)

Federal Communications Commission FCC 08-262 
A-124 
default rules would not require changes to physical points of interconnection, but would simply define 
functions governed by a uniform terminating rate.726 
 For every call, the calling party service provider (e.g., the calling partys LEC for a local call or 
the calling partys IXC for a long distance call) is responsible for the transmission and routing of 
the call to the network edge of the called party service provider. 
 The calling party service provider may fulfill its responsibility for the transmission and routing of 
a call to the called party service provider network edge via its own facilitates and services, the 
facilities and service of another entity (including the called partys service provider), or any 
combination. 
 The calling party service provider is also responsible for the payment of the uniform terminating 
rate to the called party service provider. The called party service provider is responsible for 
performing all network functions to deliver traffic from the network edge to the called party, 
including dedicated transport, common transport, tandem switching, end office switching, and 
SS7 messaging. 
 The reciprocal compensation regime of section 251(b)(5) will apply to traffic from the called 
party service provider network edge to the called party. 
 The called party service providers network edge is the location of its end office, MSC, point of 
presence, or trunking media gateway, which PSTN routing conventions (e.g., NPAC or LERG) 
associate with the called party telephone number unless that location subtends a tandem switched 
owned or controlled by the called party service provider, in which case that tandem is the network 
edge for that call. A service provider that utilizes a tandem as its edge may require, upon 
reasonable request consistent with standard industry network interconnection principles, that 
calling party service providers groom their traffic onto segregated trunk groups. 
 The called party service provider must either permit interconnection at its edge for purposes of 
exchanging traffic with the calling party service provider or provide transport at no charge to that 
edge from a location in the same LATA where it does permit such interconnection. 
 The calling party service provider may at its sole discretion choose whether to interconnect 
directly or indirectly with the called party service provider. 
b. Symmetry 
(continued from previous page) 
such rules. See Letter from Jonathan S. Frankel and Michael A. Romano, Counsel for PAETEC, CC Docket Nos. 
99-68, 01-92 at 2-3 (Oct. 28, 2008) (PAETEC Oct. 28, 2008 Ex Parte Letter). The Commission expressly sought 
comment on this issue in the Intercarrier Compensation FNPRM. Intercarrier Compensation FNPRM, 20 FCC Rcd 
at 4687, 4702-03, 4712-13, 4727-30, paras. 4, 34, 40-44, 54, 91-97. 
726 Thus, the default edge rule we adopt today does not alter any obligations of incumbent LECs to interconnect 
at any technically feasible point, nor does the rule alter carriers ability to request interconnection. See, e.g., Letter 
from Susanne A. Guyer, Verizon, to Chairman Kevin J. Martin, FCC, CC Docket Nos. 96-45, 01-92, WC Docket 
Nos. 05-337, 06-112 at 5 (filed Oct. 5, 2008). See also, e.g., PAETEC Oct. 28, 2008 Ex Parte Letter at 5-6 
(expressing concern that the adoption of rules regarding a network edge not alter existing rules and obligations 
regarding physical interconnection). Moreover, the edge rules we adopt, which will apply at the end of the 
transition period, are merely a default, and carriers are free to negotiate alternative arrangements.

Federal Communications Commission FCC 08-262 
A-125 
276. We conclude that final uniform reciprocal compensation rates should be symmetrical.727 
In contrast to the approach taken in the Local Competition First Report and Order, we require, for the 
reasons described below, symmetry in all cases once the final uniform reciprocal compensation rates 
become effective. 
277. Background. In the Local Competition First Report and Order, the Commission 
concluded that charges for reciprocal compensation were to be presumptively symmetrical and that it was 
reasonable to adopt the incumbent LECs transport and termination prices as a presumptive proxy for 
other telecommunications carriers additional costs of transport and termination.728 The Commission 
observed that [b]oth the incumbent LEC and the interconnecting carriers usually will be providing 
service in the same geographic area, so the forward-looking economic costs should be similar in most 
cases.729 Moreover, by using the incumbent LECs costs of transport and termination, the Commission 
found that symmetry would provide an incentive for interconnected carriers to minimize costs because if 
the interconnected carrier could reduce its costs below the costs of the incumbent LEC, then it could 
realize additional termination revenue.730 Symmetrical compensation also provided the incumbent LECs 
an incentive to minimize costs. The Commission further found that symmetry reduced incumbent LECs 
bargaining strength because asymmetrical rates could have allowed incumbent LECs to negotiate high 
charges for traffic terminating on their networks and low charges for traffic originating on their networks, 
citing as an example incumbent LECs treatment of CMRS providers.731 A presumption of symmetric 
rates was administratively efficient and did not require a competing carrier to conduct a forward-looking 
cost study to enter the market, lowering the cost of entry and thus increasing competition.732 
278. The Commission, however, carved out an exception to the presumption of symmetry. In 
the Local Competition First Report and Order, the Commission permitted interconnecting carriers to 
rebut the presumption of symmetry by submitting a forward-looking cost study to show that their costs of 
727 Symmetrical compensation arrangements are those in which the rate paid by an incumbent LEC to another 
telecommunications carrier for transport and termination of traffic originated by the incumbent LEC is the same as 
the rate the incumbent LEC charges to transport and terminate traffic originated by the other telecommunications 
carrier. Local Competition First Report and Order, 11 FCC Rcd at 1603132, para. 1069. 
728 Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1085. The Commission provided the 
following findings supporting its conclusion: (1) using the incumbent LECs forward-looking costs for transport 
and termination of traffic as a proxy for the costs incurred by interconnected carriers satisfies the requirements of 
section 252(d)(2) and is consistent with section 252(d)(2)(B)(ii); (2) [i]f both parties are incumbent LECs, . . . 
the larger LECs forward-looking costs should be used to establish the symmetrical rate for transport and 
termination; (3) larger LECs are generally in a better position to conduct a forward-looking economic cost study; 
(4) imposing symmetrical rates based on the incumbent LECs additional forward-looking costs will not 
substantially reduce carriers incentives to minimize those costs; and (5) states may establish transport and 
termination rates in the arbitration process that vary according to whether the traffic is routed through a tandem 
switch or directly to the end-office switch. Id. at 1604042, paras. 108586, 1090. 
729 See Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1085. 
730 See Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1086 (A symmetric compensation 
rule gives the competing carriers correct incentives to minimize its own costs of termination because its termination 
revenues do not vary directly with changes in its own costs.). 
731 See Local Competition First Report and Order, 11 FCC Rcd at 16041, para. 1087 (noting that incumbent LECs 
have used their greater bargaining power to negotiate asymmetrical rates with CMRS providers and to charge 
CMRS providers origination, as well as termination, charges). 
732 See Local Competition First Report and Order, 11 FCC Rcd at 1604142, para. 1088.

Federal Communications Commission FCC 08-262 
A-126 
termination were higher than the incumbent LECs.733 If the interconnecting carrier established that the 
costs of efficiently configured and operated systems [were] not symmetrical, the state commission could 
adopt a different compensation rate for the interconnecting carrier.734 
279. Discussion. We now require symmetric rates and conclude that the exception that 
permitted asymmetric rates under certain circumstances is no longer warranted.735 We note that there is 
scant evidence of any competitive LECs seeking to establish their own, higher, costs during the last 12 
years, let alone being successful in doing so.736 We conclude that asymmetric rates could undermine the 
comprehensive reform we adopt by permitting different termination rates for traffic in the same 
geographic area, which could open the door for continued regulatory arbitrage and thwart the intended 
public interest benefits associated with reforming the patchwork of existing intercarrier compensation 
payments. 
280. As noted above, symmetrical rates promote efficiency. Symmetry will encourage 
interconnecting carriers to deploy more efficient technology to reduce their costs. Notably, the 
Commission of the European Communities (European Communities) has also found that divergent 
regulatory treatment between different technology termination rates, as this rebuttable presumption 
exception allows, creates distortions among markets.737 In the context of fixed versus mobile telephony, 
the European Communities recognized that some European countries have allowed smaller CMRS 
carriers to charge higher termination rates to compensate for these carriers lack of economies of scale.738 
The European Communities concluded that these higher termination rates for mobile technology led to 
higher retail rates for customers and lower usage of this technology.739 As the European experience 
shows, allowing the present exception to the symmetry rule could encourage higher termination rates, and 
asymmetric termination ratesparticularly if such termination rates were high for one carriercould 
reduce consumer welfare and lead to higher prices. 
281. We conclude that requiring symmetrical compensation arrangements without any 
733 See Local Competition First Report and Order, 11 FCC Rcd at 16042, para. 1089. 
734 See Local Competition First Report and Order, 11 FCC Rcd at 16042, para. 1089. 
735 We note that the rates that will apply under our transition plan, discussed supra Part V.B.2, will not necessarily 
be symmetric. For example, we do not permit CMRS providers to assess access charges during the transition. See 
supra para. 197; 47 U.S.C.  251(f)(2). Our symmetry rules thus apply outside the transition framework, i.e., for 
carriers exchanging traffic at the final, uniform reciprocal compensation rate, or for carriers that have received a 
suspension or modification of our intercarrier compensation requirements pursuant to 251(f)(2). 
736 Indeed, we are only aware of one case where a competitive LEC attempted to rebut the presumption and, in that 
case, the state commission found that the competitive LEC had failed to do so. See Petition of Sprint Spectrum L.P. 
d/b/a Sprint PCS, Pursuant to Section 252(b) of the Telecommunications Act of 1996, for Arbitration to Establish an 
Intercarrier Agreement with Verizon New York Inc., Case 01-C-0767, Arbitration Order, 2002 WL 31505732 (N.Y. 
P.S.C. 2002) (holding that Sprint did not rebut the presumption that its costs were higher than the incumbent 
LECs). 
737 See THE COMMISSION OF THE EUROPEAN COMMUNITIES, DRAFT COMMISSION RECOMMENDATION ON THE 
REGULATORY TREATMENT OF FIXED AND MOBILE TERMINATION RATES IN THE EU 3, para. 3 (2008), available at 
http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/termination_rates/termination.pdf 
(last visited Oct. 24, 2008) (EUROPEAN COMMUNITIES). 
738 See EUROPEAN COMMUNITIES at 2, para. 2. 
739 See EUROPEAN COMMUNITIES at 3, para. 3.

Federal Communications Commission FCC 08-262 
A-127 
exceptions is proper under section 252(d)(2)(A)(ii) of the Act.740 We also confirm that this mandatory 
symmetry requirement applies without regard to whether traffic exchanged by the interconnected carriers 
is balanced or not. Given the substantial benefits of symmetrical rates as described above, the likelihood 
that allowing asymmetrical rates would give carriers an incentive to find ways to arbitrage the higher 
rates, and the minimal costs associated with terminating calls,741 we find that an exception to symmetrical 
rates where traffic is out of balance is not warranted. 
c. Modifications and Suspensions under Section 251(f)(2) 
282. In light of the importance of bringing uniformity and symmetry to intercarrier 
compensation, eliminating opportunities for regulatory arbitrage, and providing regulatory certainty to 
carriers in making investment plans, we find it appropriate to adopt guidelines regarding the application 
of section 251(f)(2). Section 251(f)(2) of the Act gives state commissions the ability to suspend or 
modify our intercarrier compensation rules implementing section 251(b) and (c) under certain conditions. 
Specifically, section 251(f)(2) of the Act permits a local exchange carrier with fewer than 2 percent of 
the Nations subscriber lines installed in the aggregate nationwide to petition a State commission for a 
suspension or modification of the application of a requirement or requirements of [section 251] (b) or 
(c).742 The state commission shall grant such petition to the extent that, and for such duration as, the 
State commission determines that such suspension or modification (A) is necessary (i) to avoid a 
significant adverse economic impact on users of telecommunications services generally; (ii) to avoid 
imposing a requirement that is unduly economically burdensome; or (iii) to avoid imposing a requirement 
that is technically infeasible; and (B) is consistent with the public interest, convenience, and necessity.743 
In the Local Competition First Report and Order, the Commission decline[d] . . . to adopt national rules 
or guidelines regarding the specific implementation of section 251(f), but explained that the Commission 
may offer guidance on these issues at a later date, if we believe it is necessary and appropriate. 744 The 
Supreme Court subsequently confirmed that the Commission has the authority to interpret section 
251(f).745 The only existing Commission guideline regarding section 251(f)(2) provides that the burden 
of proof is on the LEC seeking suspension or modification of particular requirements.746 
740 This section requires that, in setting rates under interconnection agreements, states must ensure that reciprocal 
compensation charges are a reasonable approximation of the additional costs of terminating such calls. See 47 
U.S.C.  252(d)(2)(A)(ii). In the Local Competition First Report and Order, the Commission found that the 
incumbent LECs costs were a reasonable proxy for other carriers costs. 11 FCC Rcd at 16040, para. 1085. We 
reaffirm that finding, especially given that our pricing methodology focuses on the costs of the least cost, most 
efficient network technology. Moreover, per the express terms of the Act, the additional costs standard applies 
only to the costs of the incumbent LEC, not the competitive LEC. This interpretation of the Act promotes efficiency 
and therefore bolsters competition, consistent with the goals of the Act. See 1996 Act, Preamble (declaring the 
purpose of the Act to be to promote competition and reduce regulation in order to secure lower prices and higher 
quality services for American telecommunications consumers and encourage the rapid deployment of new 
telecommunications technologies). 
741 See supra section V.B.4.c. 
742 47 U.S.C.  251(f)(2). 
743 47 U.S.C.  251(f)(2). 
744 Local Competition First Report and Order, 11 FCC Rcd at 16118, para. 1263; 47 U.S.C.  251(f)(2). 
745 AT&T v. Iowa Utils. Bd., 525 U.S. at 385. 
746 See 47 C.F.R.  51.405(b). In the Local Competition First Report and Order, the Commission held that, in 
petitions under section 251(f)(2), a LEC must offer evidence that application of those requirements would be likely 
to cause undue economic burdens beyond the economic burdens typically associated with efficient competitive 
(continued.)

Federal Communications Commission FCC 08-262 
A-128 
283. As an initial matter, we conclude that any suspension or modification granted pursuant to 
section 251(f)(2) must be for a limited duration and cannot be indefinite. This interpretation follows 
directly from the express language of section 251(f)(2). Specifically, section 251(f)(2) provides that the 
state should grant a suspension or modification to the extent that, and for such duration as, the State 
commission determines that such suspension or modification747 satisfies the statutory test. Congress thus 
expected that the conditions warranting suspension or modification of a requirement would not be 
permanent, and it permitted the states to continue such modifications or suspensions only for a particular 
duration, rather than remaining in place indefinitely. In contrast, Congress adopted the opposite 
approach in section 251(f)(1), where it provided a default exemption for rural telephone companies 
from section 251(c) that continues indefinitely until certain statutory criteria are met.748 Accordingly, 
we conclude that the LEC requesting the suspension or modification under section 251(f)(2) has the 
burden of demonstrating the appropriate duration of any suspension or modification. To the extent that a 
state grants a suspension or modification for a particular duration, the Commission encourages the state to 
impose a timeline or other requirements on the LEC to ensure that it is taking concrete steps to enable it to 
comply with the relevant requirements once the suspension or modification ends.749 If a state finds that a 
LEC is not taking such steps necessary to ensure compliance on a date certain, we find that such a 
determination would be sufficient for the state immediately to revoke the suspension or modification as 
no longer satisfying the public interest criteria. 
284. We also offer guidance regarding the substantive standards that state commissions must 
apply when evaluating requests pursuant to section 251(f)(2) for a suspension or modification of section 
251(b) or (c). The first prong of section 251(f)(2)(A) directs state commissions to determine whether the 
LEC establishes that absence of the requested suspension or modification would cause a significant 
adverse economic impact on users of telecommunications services generally.750 The term significant 
is ambiguous. According to Websters Dictionary, significant means having or likely to have 
influence or effect; of a noticeably or measurably large amount.751 We find this to be a reasonable 
definition, and conclude that for an adverse economic impact to be significant requires that such harm 
be measurably large. Moreover, the state commission must evaluate the net impact on users of 
telecommunications services generally.752 We conclude that state commissions must consider users of 
(continued from previous page) 
entry. 11 FCC Rcd at 16118, para. 1262. The Commission also placed the burden of proof on the carrier seeking 
the relief under section 251(f)(2). Id. at 16118, para. 1263. Although the Supreme Court ultimately upheld the 
Commissions authority to interpret section 251(f), see AT&T v. Iowa Utils. Bd., 525 U.S. at 385, the Eighth Circuit 
subsequently vacated the Commissions interpretation of undue economic burden, finding that the Act requires a 
state to look at the entire economic burden not just the additional burden of complying with sections 251(b) or 
251(c). See Iowa Utils. II, 219 F.3d at 75962. The Eighth Circuit also found that the Commission erred in placing 
the burden of proof on the rural LEC when a requesting carrier seeks to remove the section 251(f)(1) exemption 
from section 251(c). The Eighth Circuit therefore vacated sections 51.405(a), (c), and (d) of our rules, id. at 762, but 
did not disturb the allocation of burden of proof under section 251(f)(2) as set forth in 47 C.F.R.  51.405(b). 
747 47 U.S.C.  251(f)(2) (emphasis added). 
748 47 U.S.C.  251(f)(1). 
749 Moreover, if, in the future, we have evidence that states are granting arbitrarily long suspensions/modifications to 
requesting LECs, the Commission will consider imposing a limit on the number of years that a 
suspension/modification is appropriate. 
750 47 U.S.C.  251(f)(2)(A)(i) (emphasis added). 
751 WEBSTERS NINTH NEW COLLEGIATE DICTIONARY 1096 (1991). 
752 47 U.S.C.  251(f)(2)(A)(i) (emphasis added).

Federal Communications Commission FCC 08-262 
A-129 
telecommunications services more broadly, rather than focusing narrowly on impacts on isolated groups 
of users, such as customers of the LEC requesting the suspension or modification. Further, state 
commissions must weigh the overall impact on such users, including not only any adverse impacts on 
particular users, but whether there are other associated benefits of the regulatory requirements to 
telecommunications users. For example, the reduction in intercarrier compensation payments might lead 
some carriers to increase some rates, but also should reduce long distance rates, stimulate additional 
competition in local markets, consistent with the goals of the 1996 Act, and provide additional benefits to 
end users. We direct states to consider the totality of the circumstances in evaluating the impact on 
telecommunications users. 
285. The second prong of section 251(f)(2)(A) requires a state commission to determine 
whether the LEC has demonstrated that the requested suspension or modification is necessary to avoid 
imposing a requirement that is unduly economically burdensome.753 The Eighth Circuit has interpreted 
the phase unduly economically burdensome to require a state to examine the full economic burden on 
the ILEC.754 Consistent with this interpretation, and our interpretation of section 251(f)(2)(A)(i) above, 
we conclude that states must evaluate the totality of the circumstances in evaluating the net burden. For 
example, in evaluating the impact of section 251(b)(5) as we interpret it today, states cannot simply look 
at the LECs loss of intercarrier compensation revenues. Rather, the state must consider the full economic 
impact on the LEC of all the comprehensive reforms we adopt, including the ability of carriers to recover 
revenues by raising other rates, including the federal SLC, the potential economic savings due to reduced 
billing costs, fewer disputes and litigation regarding the classification of traffic, and the possibility that a 
carrier may receive universal service support if its financial integrity is threatened. 
286. The third prong under section 251(f)(2)(A) requires a state commission to determine 
whether the LEC has demonstrated that compliance with section 251(b) or (c) may be technically 
infeasible.755 We do not believe that any carrier will be able to establish that implementation of our 
intercarrier compensation reforms is technically infeasible, considering that carriers generally are 
exchanging and billing for traffic today, and our rules adopted in this order should merely simplify this 
process. Thus, we recommend that state commissions scrutinize rigorously any claims of technical 
infeasibility, particularly if the LEC is paying and/or receiving intercarrier compensation today. 
287. Even if a state finds that a LEC satisfies the requirements for a temporary suspension or 
modification under section 251(f)(2)(A), section 251(f)(2)(B) provides that a state commission cannot 
grant a petition for suspension or modification unless it also finds that granting the requested petition is 
consistent with the public interest, convenience, and necessity.756 In light of the compelling need to 
adopt comprehensive reform of existing intercarrier compensation regimes as described above,757 the 
Commission urges states to use caution and consider carefully the ramifications of granting any 
suspension or modification, particularly regarding petitions seeking relief from section 251(b)(5). Indeed, 
any suspension or modification that continues to treat traffic under different rate structures opens the door 
for continued regulatory arbitrage and disputes. Such action would undermine the tremendous public 
753 See 47 U.S.C.  251(f)(2)(A)(ii). 
754 Iowa Utils. II, 219 F.3d at 761. The Commission initially interpreted undue economic burden to mean the 
undue economic burden beyond the economic burden that is typically associated with efficient competitive entry. 
47 C.F.R.  51.405(d). The Eighth Circuit vacated this reading of the statute. See Iowa Utils. II, 219 F.3d at 760 
61. 
755 47 U.S.C.  251(f)(2)(A)(iii). 
756 47 U.S.C.  251(f)(2)(B). 
757 See supra section V.A.3.

Federal Communications Commission FCC 08-262 
A-130 
interest benefit associated with treating all traffic the same. 
288. The Act is silent on what occurs if a state grants a suspension or modification of the 
section 251(b) or (c) obligations. We find that this silence creates ambiguities and could lead to 
inconsistent results following a modification or suspension under section 251(f)(2). We are concerned 
that a suspension or modification of section 251(b)(5) could result in exactly the kind of disparate 
treatment that we intend to correct with our actions today. Pursuant to our authority under section 201(b), 
as well as our authority to interpret section 251(f),758 we therefore adopt rules specifically addressing 
certain of the implications of a suspension or modification of our intercarrier compensation rules.759 
289. First, to minimize inconsistency and the possibility that the reforms we adopt today could 
be undermined, we extend our symmetry requirement for reciprocal compensation rates at the end of the 
transition period described in Part V.B to any suspension or modification of our section 251(b)(5) 
reciprocal compensation rules and requirements. If a LEC receives a suspension or modification of our 
reciprocal compensation pricing methodology, for example, all other LECs and CMRS providers that 
exchange traffic with the LEC receiving the suspension or modification will likewise be entitled to charge 
that LEC those same rates that the LEC charges them for the duration of such suspension or modification. 
We conclude that this symmetry requirement is in the public interest and will reduce disputes, arbitrage, 
and transaction costs. Indeed, a contrary result that would permit different terminating rates in the same 
geographic area would not be in the public interest and likely would lead to the same disputes we have 
today. If a state attempts to avoid this symmetry requirement by granting a LEC a suspension or 
modification of any section 251(b)(5) reciprocal compensation obligation and the state fails to require 
symmetric rates, we will invoke our authority under sections 201 and 332 of the Act to ensure that all 
carriers exchanging traffic with that LEC pay the same rate for terminating all traffic. 
290. Second, if a state grants any suspension or modification that is more than 1 year in 
duration, we require the state to take a fresh look to determine whether such suspension/modification 
continues to satisfy the statutory test in light of possible changes in circumstances. To this end, 90 days 
before the 1-year anniversary of the grant of the suspension or modification, the LEC must file a petition 
demonstrating that the suspension or modification continues to satisfy the statutory criteria. In the 
intervening time, for example, a state may have rebalanced rates, the LEC may have increased its enduser 
charges, or other relevant changes may have occurred. Those actions may have obviated the need for 
the suspension or modification or, at a minimum, could result in the need for changes to the terms and 
duration of the suspension or modification. In such a review, the LEC continues to have the burden of 
demonstrating that the section 251(f)(2) criteria remain satisfied. We conclude that states should act upon 
such a fresh look within the 180 days for new petitions set forth in section 251(f)(2).760 
758 AT&T v. Iowa Utils. Bd., 525 U.S. at 385. 
759 Section 201(b) authorizes the Commission to prescribe such rules and regulations as may be necessary in the 
public interest to carry out the provisions of this Act. 47 U.S.C.  201(b); see also 47 U.S.C.  154(i) (The 
Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent 
with this Act, as may be necessary in the execution of its functions.). [T]he grant in  201(b) means what it 
says: The FCC has rulemaking authority to carry out the provisions of this Act. AT&T v. Iowa Utils. Bd., 525 
U.S. at 378. As the Supreme Court has confirmed, this grant of authority necessarily includes section 251(f). AT&T 
v. Iowa Utils. Bd., 525 U.S. at 385 (holding that the Commission has jurisdiction to promulgate rules . . . regarding 
rural exemptions); see also id. at 378 n.6 ([T]he question in theses cases is not whether the Federal Government 
has taken the regulation of local telecommunications competition away from the States. With regard to the matters 
addressed by the 1996 Act, it unquestionably has.). 
760 47 U.S.C.  251(f)(2) (The State commission shall act upon any petition filed under this paragraph within 180 
days after receiving such petition.). 

Federal Communications Commission FCC 08-262 
A-131 
d. Existing Agreements 
291. Below we discuss the effect of our intercarrier compensation reforms on certain types of 
existing agreements. 
292. Interconnection agreements. With respect to interconnection agreements, we do not 
disturb the processes established by section 252 of the Act. As discussed above, the intercarrier 
compensation reforms we adopt will necessitate that states implement our new reciprocal compensation 
methodology. We expect that incumbent LECs and competing carriers will implement the reciprocal 
compensation changes as directed by section 252 of the Act.761 We make clear that our actions today 
constitute a change in law, and we recognize that interconnection agreements may contain change of law 
provisions that allow for renegotiation and/or may contain some mechanism to resolve disputes about 
new agreement language implementing new rules.762 Verizon raises a concern regarding the impact on 
contracts in evergreen status, which Verizon describes as contracts that have reached the end of their 
terms but remain in effect pending entry into new contracts.763 Given that the comprehensive reforms 
today are necessary to eliminate arbitrage and reduce disputes, we believe it is appropriate for carriers to 
take a fresh look at their interconnection agreements in evergreen status, including agreements that 
lack a change-of-law provision, and follow the section 252 process of negotiation and arbitration. We 
also note that, pursuant to section 251(a)(1), carriers remain free to negotiate alternative arrangements.764 
293. Commercial arrangements. As discussed above, the intercarrier compensation reforms 
will require carriers to make certain changes to their tariffs relating to carrier-to-carrier charges, and 
potentially also SLCs. We do not, however, abrogate existing contracts or otherwise allow for a fresh 
look in light of our reforms.765 As the Commission has recognized, for example, early termination 
provisions can be mutually beneficial by giving providers greater assurance of cost recovery, and giving 
761 See 47 U.S.C.  252. 
762 See Triennial Review Order, 18 FCC Rcd at 17404, para. 700. Although section 252(a)(1) and section 252(b)(1) 
refer to requests that are made to incumbent LECs, we have interpreted that in the interconnection agreement 
context to mean that either the incumbent or the competitive LEC may make such a request, consistent with the 
parties duty to negotiate in good faith pursuant to section 251(c)(1). See Triennial Review Order, 18 FCC Rcd at 
17405, para. 703 n.2087; see also 47 U.S.C.  251(c)(1), 252(a)(1), (b)(1). We believe that this adequately 
addresses concerns about existing interconnection agreements that do not include express change of law provisions. 
763 See, e.g., Verizon Sept. 12, 2008 Ex Parte Letter, Attach. at 56 (urging that any new intercarrier compensation 
regime displace such contracts). By the same token, we decline to insulate existing interconnection agreements 
from the section 252 processes to the extent that some commenters propose that they remain in effect. See, e.g., 
Letter from Melissa E. Newman, Vice PresidentFederal Regulatory, Qwest, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 05-337, 04-36, 06-122, 05-195, CC Docket Nos. 01-92, 96-45, 99-68, Attach. at 13 (filed 
Oct. 7, 2008) (proposing that the Commission order that those prior arrangements should at least presumptively 
remain in force after the implementation of a new, unified . . . rate regime). 
764 47 U.S.C.  251(a)(1). 
765 Several commenters request that the Commission give them a fresh look at existing contracts. See, e.g., Letter 
from Richard R. Cameron and Teresa D. Baer, Counsel for Global Crossing, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 08-152; CC Docket Nos. 01-92, 99-68, 96-45 at 2 (filed Sept. 18, 2008) (asking that the 
Commission provide an 18-month window within which carriers can reconfigure their interconnection facilities 
without incurring reconfiguration charges or early termination liabilities under existing transport contracts); Ad 
Hoc ICC FNPRM Comments at 2224 (arguing that customers should be allowed to opt out of existing contracts); 
Earthlink ICC FNPRM Reply at 7 (arguing that end users should have the opportunity to negotiate different terms 
and, if renegotiation is not possible, be permitted to terminate existing contracts without liability).

Federal Communications Commission FCC 08-262 
A-132 
customers (whether wholesale or end-users) discounted and stable prices over the relevant term.766 
Indeed, allowing for a fresh look could result in a windfall for customers that entered long-term 
arrangements, in exchange for lower prices, as compared to other customers that avoided early 
termination fees by electing shorter contract periods at higher prices.767 Rather than adopt a rule that 
these commercial arrangements must be reopened, we will leave such issues to any change-of-law 
provisions in these commercial arrangements, or to commercial negotiations among the parties.768 
2. Revenue Recovery Opportunities 
294. In the preceding sections of this order, we adopt fundamental changes to the existing 
intercarrier compensation regimes. These reforms are designed to unify and simplify these mechanisms, 
consistent with the framework Congress adopted in the 1996 Act. This new approach will result in 
overall reductions in interstate and intrastate intercarrier compensation rates.769 In this section, we 
address the extent to which revenue reductions from carrier-to-carrier charges may be replaced through 
end-user charges and new universal service support. In prior intercarrier compensation reforms, the 
Commission largely replaced reductions in intercarrier compensation revenues through a combination of 
increased end-user charges and new universal service funding.770 Our actions here carefully balance the 
need to ensure reasonable revenue recovery by carriers against the potential adverse impact on consumers 
of increased end-user charges, and the pressure placed on the universal service program to the extent that 
new subsidies are made available. 
295. As an initial matter, we increase the caps on interstate SLCs, and we permit incumbent 
LECs to increase their SLCs up to the new caps to recover lost interstate and intrastate intercarrier 
compensation revenues. We also enlist the aid of the Separations Joint Board to evaluate the need for 
further increases in interstate end-user charges to recover any net loss in interstate and intrastate 
intercarrier compensation revenues, and to evaluate the conditions under which carriers may seek 
additional universal service funding. To limit the increase in the total universal service fund, we establish 
certain preconditions that carriers must satisfy before they can receive additional universal service 
funding to compensate for lost intercarrier compensation revenues. 
a. End-User Charges 
296. In this section, we consider whether revenue reductions from reformed carrier-to-carrier 
766 See, e.g., Triennial Review Order, 18 FCC Rcd at 17400, 1740203, paras. 692, 69799; see also, e.g., AT&T 
ICC FNPRM Reply at 1719 (arguing against giving end users a fresh look at existing contracts). To the extent that 
there is evidence that particular termination penalties are inappropriate, the Commission can resolve such a matter 
through an enforcement proceeding. See Triennial Review Order, 18 FCC Rcd at 17403, para. 698. 
767 See Triennial Review Order, 18 FCC Rcd at 17403, para. 699. 
768 This situation is thus different than cases where the Commission found that certain contract provisions might 
adversely affect competition or where end-user customers would be denied the benefits of new Commission policy 
absent a fresh look opportunity. See, e.g., Local Competition First Report and Order, 11 FCC Rcd at 16044, para. 
1094; Expanded Interconnection with Local Telephone Company Facilities, CC Docket No. 91-141, Second 
Memorandum Opinion and Order on Reconsideration, 8 FCC Rcd 7341, 7350, para. 21 (1993) (allowing a fresh 
look at agreements in situations where excessive termination liabilities would affect competition for a significant 
period of time); Competition in the Interstate Interexchange Marketplace, CC Docket No. 90-132, Report and 
Order, 6 FCC Rcd 5880, 5907, para. 151 (1991) (giving customers of AT&T 90 days to terminate their contracts 
without penalty to let them tak[e] advantage of 800 number portability when it arrives). 
769 See supra paras. 186268. 
770 See supra paras. 159185.

Federal Communications Commission FCC 08-262 
A-133 
charges should be replaced to any extent by increases in end-user charges, as the Commission has done in 
some prior intercarrier compensation reform proceedings.771 The Commission has acknowledged that 
[t]he concept that users of the local telephone network should be responsible for the costs they actually 
cause is sound from a public policy perspective and rings of fundamental fairness, and also helps ensure 
that ratepayers will be able to make rational choices in their use of telephone service.772 Importantly, 
however, the Commission also has maintained safeguards that ensure that the rates consumers pay . . . 
remain well within a zone of reasonableness.773 To permit carriers to recover at least part of their lost 
intercarrier compensation revenues, we raise the caps on interstate SLCs as described below, which we 
find to be within the zone of reasonableness and which should not have a significant adverse effect on 
telephone penetration. We also enlist the help of the Separations Joint Board to consider the need, if any, 
for further increases in end-user charges and certain other revenue recovery issues. 
297. The record reveals a wide variety of proposals for modifying interstate end-user charges 
in response to reductions in intercarrier compensation rates. The majority of these proposals advocate 
increasing the caps on the interstate SLCs. The interstate SLC is a flat-rated charge that recovers the 
interstate portion of local loop costs from an end user. Under our current rules governing incumbent 
LECs, SLCs are subject to a cap that varies based upon whether the line is: (a) a primary residential or 
single-line business line; (b) a non-primary residential line; or (c) a multi-line business or Centrex line.774 
Some parties propose specific increases in SLC caps to offset a portion of the revenues lost through 
mandated reductions in intercarrier compensationincluding both reductions in interstate and intrastate 
revenues.775 Other parties contend that most or all of a carriers replacement of lost intercarrier 
compensation revenues should come from increased SLCs.776 On the other hand, some consumer groups 
assert that no increase in SLC caps is warranted in response to reductions in intercarrier compensation 
771 See, e.g., First Reconsideration of 1983 Access Charge Order, 97 FCC 2d 682; Access Charge Reform Order, 12 
FCC Rcd 15982; CALLS Order, 15 FCC Rcd 12962; MAG Order, 16 FCC Rcd 19613. 
772 First Reconsideration of 1983 Access Charge Order, 97 FCC 2d at 686, para. 7. 
773 CALLS Order, 15 FCC Rcd at 12976, para. 33; see also, e.g., 1983 Access Charge Order, 93 FCC 2d at 243, 
para. 4 (finding that a transitional plan is necessary in part because [i]mmediate recovery of high fixed costs 
through flat end user charges might cause a significant number of local exchange service subscribers to cancel local 
exchange service despite the existence of a Universal Service Fund and [s]uch a result would not be consistent 
with the goals of the Communications Act). 
774 For price cap and rate-of-return carriers, the current SLC cap for residential and single-line business lines is 
$6.50, 47 C.F.R.  69.104(n)(1)(ii)(C), 69.152(d)(1)(ii)(D), and the current SLC cap for multi-line business and 
Centrex lines is $9.20, 47 C.F.R.  69.104(o)(1)(i); 69.152(k)(1)(i). Price cap carriers currently also have a SLC 
cap of $7.00 for non-primary residential lines. 47 C.F.R.  69.152(e)(1)(i). 
775 See, e.g., ICF ICC FNPRM Comments, App. C at C-7; NARUC Task Force July 24, 2006 Ex Parte Letter, 
Attach. 2 at 7; Letter from Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01- 
92, Attach at 23 (filed Sept. 19, 2008); Verizon Sept. 12, 2008 Ex Parte Letter, Attach. at 67; Letter from Mary L. 
Henze, Executive DirectorFederal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01- 
92; WC Docket Nos. 05-337, 06-112, 99-68, 07-135, Attach. at 2 (filed Oct. 9, 2008). 
776 See, e.g., Letter from Anna M. Gomez, Vice President of Government Affairs, Sprint, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 5 (filed Oct. 7, 2008); Letter from 
Kathleen OBrien Ham et al., Federal Regulatory Affairs, T-Mobile USA, Inc., to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 8 (filed Oct. 3, 2008); Cox ICC FNPRM Comments at 56; Eschelon ICC FNPRM 
Comments at 12.

Federal Communications Commission FCC 08-262 
A-134 
rates.777 
(i) Current Availability of End-User Charges for Revenue 
Recovery 
298. As an initial matter, we permit incumbent LECs to increase their SLCs up to new caps to 
recover reductions in interstate intercarrier compensation revenues. In particular, we increase the SLC 
cap for residential and single-line business lines from $6.50 to $8.00, the non-primary residential line 
SLC cap from $7.00 to $8.50, and the multi-line business SLC cap from $9.20 to $11.50. We believe that 
these modest increases in the SLC caps continue to ensure that the rates consumers pay for the SLC 
remain well within a zone of reasonableness.778 Moreover, we believe that these SLC cap increases also 
address commenters concerns about the need for some end-user recovery in light of lost intercarrier 
compensation revenues. Although some commenters argue for more substantial increases in the SLC 
caps, we note that there is evidence that incumbent LECs charge rates below even the existing caps in a 
number of instances. For example, the primary residential and single-line business SLC cap is $6.50, but 
the national average SLC for those lines is $5.93 based on recent Commission data.779 Similarly, the nonprimary 
residential line SLC cap is $7.00, but the national average SLC for those lines is $5.81.780 
Further, the multi-line business and Centrex line SLC cap is $9.20, but the national average SLC for those 
lines is $6.30nearly $3.00 below the cap.781 We therefore find it reasonable in the first instance to raise 
the interstate SLC cap and to allow carriers whose current SLCs are below the new caps to increase those 
SLCs to recover revenues lost from interstate and intrastate access charge reductions.782 
299. To the extent that an incumbent LEC increases its SLCs to recover reductions in its 
interstate intercarrier compensation revenues and any of its SLCs are still below the relevant caps, we 
allow those carriers to raise their SLCs further, up to the caps, to recover any net loss in intrastate 
intercarrier compensation revenues, at least on an interim basis.783 As a prerequisite for incumbent LECs 
to increase their SLCs in this manner, we require that the LECs state retail rates and any intrastate SLC 
777 See Letter from Ben Scott, Policy Director, Free Press, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 
05-337, CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); Letter from David C. Bergmann, 
Assistant Consumers Counsel Chair, NASUCA Telecommunications Committee, to Marlene H. Dortch, Secretary, 
FCC, WC Dockets Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36, 03-109, 02-60, CC Dockets Nos. 02-6, 01- 
92, 00-256, 99-68, 96-262, 96-45, 80-286 at 10 (filed Sept. 30, 2008); Letter from James S. Blaszak, Counsel for Ad 
Hoc Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC 
Docket Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008). 
778 CALLS Order, 15 FCC Rcd at 12976, para. 33. We note that section 54.403 of the Commissions rules provides 
for Tier 1 lifeline support to cover the tariffed SLCs established by rate-of-return and price cap carriers pursuant to 
sections 69.104 and 69.152 of the Commissions rules. 47 C.F.R.  54.403. 
779 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1 (providing national weighted average SLCs for price cap carriers 
and all LECs in the NECA pool as of June 30, 2008). 
780 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1. 
781 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1 
782 Should a carrier agree to (or tariff) intercarrier charges below those that would be required by the reforms 
adopted in this order, the difference between the charges it sets and the maximum charges it is allowed to set may 
not be recovered through increased SLCs, nor may such carriers seek to obtain supplemental universal service 
support, as described in Part V.C.2, based on that difference. 
783 As discussed below, we are referring to the Joint Board, among other things, the question of whether, and to what 
extent, net reductions in intrastate intercarrier compensation revenues should be offset by revenues from interstate 
end-user charges. See infra paras. 303310.

Federal Communications Commission FCC 08-262 
A-135 
be set at the maximum level permitted under state regulations.784 This will ensure that revenues from 
interstate end-user charges will not be used to recover intrastate revenue requirements until the carrier has 
fully availed itself of all available intrastate revenue opportunities under existing law. We also mandate 
that any increase in interstate SLC revenues that are intended to recover lost intrastate intercarrier 
compensation revenues be used by the state in ratemaking to reduce costs or revenue requirements to be 
recovered in the intrastate jurisdiction.785 
300. We find that we have authority to allow recovery of intrastate revenue requirements in 
this manner. For one, the legacy separations regime does not preclude this action. The Commission 
historically has provided federal funds to cover at least a portion of costs assigned to the intrastate 
jurisdiction.786 Although those decisions relied on the Commissions universal service authority pursuant 
to section 254, we find that we have authority under section 251(g) to allow recovery of intrastate revenue 
requirements through interstate SLC rates. Section 251(g) empowers the Commission to subject traffic 
previously encompassed by section 251(g) to the reciprocal compensation regime of section 251(b)(5), 
including providing for an orderly transition. Allowing incumbent LECs the option to recover certain lost 
intrastate intercarrier compensation revenues through increases in the interstate SLC, subject to the new 
caps, furthers such a transition. In particular, this option helps mitigate any need incumbent LECs might 
have to seek increases in state rates due to decreases in intrastate intercarrier compensation revenues 
during the initial stages of the transition, pending the Separations Joint Board referral and subsequent 
Commission action. We also acknowledge that interstate SLC charges are governed by sections 201 and 
202 of the Act, and that the just and reasonable rates required by Sections 201 and 202 . . . must 
ordinarily be cost-based, absent a clear explanation of the Commissions reasons for a departure from 
cost-based ratemaking.787 In the past, the Commission has, in fact, adopted regulatory approaches that 
deviated from cost-based ratemaking.788 We find such an approach warranted here to help mitigate 
regulatory burdens during the transition, as described above. 
301. In sum, we adopt increased SLC caps to allow incumbent LECs to recover some or all of 
their net loss in intercarrier compensation revenues resulting from rate reductions pursuant to this order. 
In particular, to recover those lost revenues, we permit incumbent LECs to increase each of their SLCs up 
to the new caps. 
784 To the extent that a carriers state retail rates have been deregulated, that carrier may not increase its SLCs to 
recover any net loss in intrastate intercarrier compensation revenues. 
785 Cf. Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Ninth Report and Order and 
Eighteenth Order on Reconsideration, 14 FCC Rcd 20432, 2048687, para. 106 (1999) (Universal Service Ninth 
Report and Order) (specifying that hold-harmless universal service support should continue to operate through 
the jurisdictional separations process to reduce book costs to be recovered in the intrastate jurisdiction.). 
786 See, e.g., Universal Service Ninth Report and Order, 14 FCC Rcd 20432 (providing high-cost universal service 
support for intrastate costs). 
787 Access Charge Reform Second Order, 12 FCC Rcd at 1661920, para. 44 (citing Competitive Telecomms. Ass'n 
v. FCC, 87 F.3d 522, 529 (D.C. Cir. 1996)). 
788 See, e.g., LEC Price Cap Order, 5 FCC Rcd 6786 (adopting price cap regulation, under which rates are not tied 
directly to cost); Pricing Flexibility Order, 14 FCC Rcd 14221, 14307, para. 168 (once price cap carriers are granted 
pricing flexibility, they lose the option of a low end adjustment, which would permit incumbent LECs earning rates 
of return less than 10.25% in a given year to increase their price cap indices to a level that would enable them to 
earn 10.25%.); MCI Telecomms. Corp. v. U S WEST Commcns, Inc., File Nos. E-97-08, E-97-20 through 24, 
Memorandum Opinion and Order, 15 FCC Rcd 9328, 9334, para. 14 (2000) (finding that incumbent LECs noncost-
based PICC did not violate section 201(b) given the Commissions prior establishment of a safe harbor).

Federal Communications Commission FCC 08-262 
A-136 
302. With respect to non-incumbent LECs, we note that most interstate rates of such providers 
are not subject to ex ante regulation by the Commission. Thus, we allow those carriers to recover any net 
loss in intercarrier compensation revenues in any lawful manner.789 
(ii) Joint Board Referral of Possible Changes to End-User 
Charges 
303. We enlist the aid of the Separations Joint Board to evaluate the need for any additional 
increases in interstate end-user rates for carriers to recover any net loss in interstate and/or intrastate 
intercarrier compensation revenues as a result of the reform measures we adopt today. There are a range 
of widely divergent proposals in the record regarding the need for additional changes to the SLC caps 
adopted above as part of comprehensive intercarrier compensation reform. We believe that the 
information and analysis developed by the Separations Joint Board will be extremely valuable in 
evaluating these issues. 
304. Our decision to seek input from the Separations Joint Board is consistent with section 410 
of the Act. Section 410(c) of the Act requires the Commission to refer to the Separations Joint Board any 
changes to the separations rules being considered through a rulemaking proceeding. Although no changes 
to the separations rules are at issue here, section 410(c) also authorizes the Commission to refer matters 
relating to common carrier communications of joint Federal-State concern to a Federal-State Joint 
Board.790 We believe that recommendations from a Joint Board regarding these issues are important to 
striking the right balance among the various policy goals at stake, relating to traffic that historically has 
been regulated, in part, by both federal and state jurisdictions. Moreover, the issue of using revenues 
from interstate end-user charges to recover intrastate revenue requirements is sufficiently related to the 
underlying separations requirements themselves that we believe the Separations Joint Board possesses 
highly relevant expertise to provide recommendations on these issues.791 
305. As described in greater detail below, we refer to the Separations Joint Board certain 
specific issues regarding possible increases in interstate end-user charges: (i) whether SLC caps should be 
increased by a fixed amount to recover any net loss in intercarrier compensation revenues; (ii) whether a 
flexible SLC cap should be used in conjunction with an overall benchmark or threshold; or (iii) some 
combination of those options. 
306. Quantifying Any Increase in End-User Charges. We refer to the Separations Joint Board 
several possible approaches for establishing any additional permissible increases in interstate end-user 
charges, to the extent that any are warranted. First, the Separations Joint Board could directly recommend 
789 Cf. Telephone Number Portability, CC Docket No. 95-116, Third Report and Order, 13 FCC Rcd 11701, 11725 
26, 1177380, paras. 39, 13549 (1998) (carriers other than incumbent LECs permitted to recover such costs in any 
lawful manner). 
790 47 U.S.C.  410(c). 
791 The Commission has referred non-separations issues to the Separations Joint Board previously. See, e.g., MTS 
and WATS Market Structure and Amendment of Part 67 of the Commission's Rules, CC Docket Nos. 78-72, 80-286, 
Further Notice of Proposed Rulemaking, 49 Fed. Reg. 18318, 18318, para. 1 (1984) (referring to a Separations Joint 
Board issues including: (1) the subscriber line charge for residential and single-line business customers; (2) the 
transition mechanism for implementing subscriber line charges for these customers; (3) an exemption from the 
subscriber line charge or other assistance for low income households; and (4) additional assistance for small 
telephone companies.); MTS and WATS Market Structure and Amendment of Part 67 of the Commission's Rules, CC 
Docket Nos. 78-72, 80-286, Recommended Decision, 49 Fed. Reg. 48325, 48327, para. 9 n.20 (1984) (noting that 
[s]ince these issues do not involve the allocation of costs between the jurisdictions, preparation of a Joint Board 
recommendation is not mandatory.).

Federal Communications Commission FCC 08-262 
A-137 
particular further increases in the SLC caps. Parties here have proposed various levels of SLC cap 
increases, and different ways to distribute those increases across the different SLC caps. For example, the 
ICF proposal would result in all SLC caps being increased to $10.00 by the end of a transition period.792 
Under the Missoula Plans initial proposal, SLC cap increases vary for the three tracks or categories of 
carriers defined in the plan.793 ITTA proposes a $2.25 increase in each SLC cap by the end of a transition 
period, subject to a benchmark consisting of SLCs, retail rates, and certain other charges.794 Other parties, 
such as CTIA, contend that recovery of lost intercarrier compensation revenues by incumbent LECs 
should come solely from end-user charges.795 In contrast, Free Press, NASUCA, and Ad Hoc propose 
that SLC caps not be increased at all.796 
307. Second, the Separations Joint Board could recommend a flexible SLC cap that would 
vary depending upon a carriers other end-user rates and an overall benchmark or threshold. For example, 
under a recent Verizon proposal, the default SLC caps all would increase to $10.00 by the end of a 
transition period.797 However, to the extent that a carriers relevant end-user rates still are below a 
proposed benchmark, that carriers SLC cap would increase as much as needed to reach the benchmark.798 
Thus, the Separations Joint Board could determine a particular benchmark or threshold and allow the SLC 
cap to vary for each carrier, depending upon how much headroom that carrier has under the benchmark, 
in light of the carriers other rates. To the extent that the Separations Joint Board recommends this 
approach, it should specify which carrier rates should be included in the relevant benchmark or threshold. 
308. Third, the Separations Joint Board could recommend some combination of the first and 
second options. 
309. In making recommendations on these issues, the Separations Joint Board will consider 
the extent to which any recommended increases in interstate end-user charges should be used to offset lost 
intrastate intercarrier compensation, to the extent that decreases in interstate intercarrier compensation 
revenues already have been recovered. Most comprehensive reform proposals in the record assume that 
SLC cap increases will be used to offset at least some intrastate revenues.799 Logically, however, another 
alternative is for any increases in the SLC caps to be used only to recover reductions in interstate 
intercarrier compensation revenues, and to leave it to each state to address lost intrastate intercarrier 
compensation revenues as appropriate under state law. 
792 ICF ICC FNPRM Comments, App. C at C-7. 
793 NARUC Task Force July 24, 2006 Ex Parte Letter, Attach. 2 at 7. 
794 ITTA Sept. 19, 2008 Ex Parte Letter, Attach. at 23. 
795 CTIA Oct. 2, 2008 Ex Parte Letter, Attach. at 10. See also, e.g., Letter from Norina Moy, Director, Government 
Affairs, Sprint, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 04-36, CC Docket No. 01-92 at 2 (filed Aug. 
7, 2008). 
796 Letter from Ben Scott, Policy Director, Free Press, Washington Office, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); NASUCA Sept. 30, 
2008 Ex Parte Letter at 10; Letter from James S. Blaszak, Counsel for Ad Hoc Telecommunications Users 
Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. 
at 4 (filed Oct. 14, 2008). 
797 Verizon Sept. 12, 2008 Ex Parte Letter at 67. 
798 Verizon Sept. 12, 2008 Ex Parte Letter. 
799 To the extent that interstate end-user charges are used to offset any lost intrastate intercarrier compensation 
revenues, we mandate that the states take account of those revenues in their state ratemaking by reducing the 
intrastate costs or revenue requirement to be recovered through intrastate rates.

Federal Communications Commission FCC 08-262 
A-138 
310. Timing. We direct the Separations Joint Board to issue its recommended decision not 
later than one year from the effective date of this order. In light of that timetable, we limit the Separations 
Joint Board to consideration of specific issues we refer in this order. 
b. Universal Service Support 
(i) Policy Approach 
311. We recognize that the actions we take to reform intercarrier compensation will result in 
reduced revenues for many carriers. As discussed above, carriers have the opportunity to replace certain 
of those lost revenues through end-user charges.800 We also acknowledge that, in the past, the 
Commission has sometimes provided new universal service support to replace reductions in intercarrier 
compensation revenues.801 As the Fifth Circuit has recognized, however, [b]ecause universal service is 
funded by a general pool subsidized by all telecommunications providersand thus indirectly by 
customers - excess subsidization in some cases may detract from universal service by causing rates 
unnecessarily to rise, thereby pricing some consumers out of the market. 802 Thus, excessive universal 
service subsidization could, perversely, cause undesirable increases in consumers bills. 
312. We note that many companiesin particular price cap carriersconsistently are paying 
dividends and are using the same supported network to provide both regulated services and non-regulated 
services. Throughout the course of our comprehensive reform proceedings, commenters have identified 
this as a concern to be weighed carefully when evaluating the need for universal service support. For 
example, following the 2005 intercarrier compensation Further Notice, CTIA contended that some rural 
incumbent LECs already are overcompensated by universal service support based on evidence that their 
stocks generate returns, measured by market-to-book ratios, far in excess of, and exhibit significantly 
lower risk premiums than, the supposedly more secure RBOCs.803 Commenters continue to express 
concern that existing universal service subsidies too often lead simply to high overhead, sumptuous 
earnings, [and] rich dividends.804 For example, recent news reports indicate that CenturyTel and 
Embarq still remain highly profitable  operating margins for both are 27 percent notwithstanding any 
competition they face.805 Parties have argued that there continues to be evidence that [i]nvestors place a 
higher value on RLEC earnings than on other ILEC earnings. In todays market, the larger ILECs, which 
do not generate much of their revenues from federal subsidies, are valued much less highly per dollar of 
profit.806 While there are various factors in play this suggests that [m]illions of dollars in extra 
wealth end up in the hands of private investors by transferring income from telephone users to phone 
800 In this order, we do not decide the maximum amount that incumbent LECs ultimately may charge customers in 
the form of interstate end-user charges. As discussed above, that will depend upon further Commission action based 
on recommendations from the Joint Board. 
801 See, e.g., CALLS Order, 15 FCC Rcd 12962; MAG Order, 16 FCC Rcd 19613; see also MAG Second FNPRM, 
19 FCC Rcd 4122. 
802 Alenco, 201 F.3d at 620. 
803 CTIA ICC FNPRM Comments at 37 citing Western Wireless Reply, CC Docket No. 96-45, Attach. at 25 (filed 
Dec. 14, 2004) (attaching Economics and Technology, Inc., Reforming Universal Service Funding for Rural ILECs: 
An Idea Whose Time Has Come). 
804 Thomas W. Hazlett, Universal Service Telephone Subsidies: What Does $7 Billion Buy? (Universal Service 
Telephone Subsidies) at 33, attached to Core Missoula Phantom Traffic Comments, Tab B (quotation omitted). 
805 A Fair Copper, FINANCIAL TIMES, Oct. 28, 2008, at 16. 
806 Universal Service Telephone Subsidies at 34.

Federal Communications Commission FCC 08-262 
A-139 
company stockholders.807 Indeed, commenters note that some carriers owned by co-ops pay their 
members annual dividends that exceed their members local phone charges.808 In light of these concerns 
and the mandates of section 254, we agree with commenters that it is not appropriate to require all 
universal service contributors to pay into the fund so that these carriers can continue to pay dividends.809 
313. Thus, rather than guaranteeing revenue neutrality, as some commenters propose,810 we 
take steps here to ensure that any new universal service subsidies are targeted carefully to situations 
where they are most crucially needed. In particular, far from the regulated monopolies of years past, 
significant marketplace developments have resulted in additional revenue opportunities for carriers. As 
NASUCA observes, [i]ntercarrier compensation, SLCs and the USF are but three of the numerous 
spigots from which dollars flow to fill up the telephone companies revenue buckets.811 By way of 
illustration, NASUCA points out that using their common local loop platform, carriers are now 
generating billions of dollars in digital subscriber line (DSL) revenues that they did not generate five or 
ten years ago.812 Indeed, Time Warner Telecom has pointed to evidence that, for some carriers, 
revenue derived from the ILECs advanced services more than doubles the revenue from switched access 
807 Universal Service Telephone Subsidies at 34, 70. See also Julie Tanner, General Counsel, Chinook Wireless, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket Nos. 05-337, 08-10, Attach. 1 at 7 (filed 
Feb. 22, 2008) (arguing that incumbent LECs receiving universal service support send a comfortable return on 
investment to investors (and rural cooperative members) with no accountability); NTCH, CC Docket No. 96-45, 
WC Docket Nos. 05-337, 08-10 at 8 (filed Feb. 22, 2008) (The object of the [universal service] subsidy is not to 
prop up high cost legacy companies and technologies or assure their profitability, nor to add to the profits of 
wireless carriers.). 
808 Universal Service Telephone Subsidies at 70. 
809 See, e.g., GCI Missoula Phantom Traffic Comments at 68 (Even if excessive support does not lead to 
unaffordable increases in rates for non-subsidized subscribers, requiring those customers to pay more than is 
necessary in order to excessively subsidize rates for other [services] (or worse yet, to finance high dividend 
payments to owners of rural ILECs) is not consistent with maintaining just and reasonable rates.); Time Warner 
Telecom Missoula Phantom Traffic Comments at 10 (noting that RBOCs are already realizing substantial profits 
from [network] investments, easily compensating for any loss in access payments that they may face and that a 
high [universal service] contribution level may approach the point at which the USF charges imposed upon endusers 
actually threaten the goal of universal service). 
810 See, e.g., CenturyTel Sept. 19, 2008 Ex Parte Letter, Attach. at 5 (arguing that revenue neutrality should be a 
fundamental goal of comprehensive intercarrier compensation reform); Letter from Stuart Polikoff, Director of 
Government Relations, OPASTCO, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC 
Docket Nos. 04-36, 05-337, 06-122, Attach. at 3 (filed Sept. 16, 2008) (arguing that, if the Commission does not 
adopt the Missoula Plan, it should establish a mechanism for rural RoR ILECs that allows for full recovery of the 
revenues lost as a result of the change in intrastate access rates and structure, on a revenue neutral basis.). See also 
Rural Alliance ICC FNPRM Comments at 21 (arguing that decreases in intercarrier compensation rate levels should 
be offset from the USF or another revenue replacement mechanism). 
811 NASUCA Sept. 30, 2008 Ex Parte Letter at 6. 
812 Comments of the National Association of State Utility Consumer Advocates to Refresh the Record, CC Docket 
Nos. 96-45, 02-6, 01-92, 00-256, 96-262, 99-68, 80-256, WC Docket Nos. 05-337, 07-135, 06-122, 05-195, 03-109, 
02-60 at 6 (filed July 7, 2008) (NASUCA July 7, 2008 Supp. Comments). See also id. at 10 (Adding insult to 
injury, there is no consideration in the Missoula Plan of the additional revenues that ILECs gain from serving new 
broadband lines which are outside of the current ICC system. In other words, ILECs are losing lines and MOU as 
consumers drop traditional landlines and add broadband lines to access the Internet. However, the revenue gains 
from broadband line additions are totally out of the picture as far as the Missoula Plan is concerned.).

Federal Communications Commission FCC 08-262 
A-140 
services.813 Thus, Free Press observes that the unregulated revenue streams of rate-of-return and price 
cap Local Exchange Carriers serving in high-cost areas are the 500 pound gorilla in the room, and it 
contends that these revenues should be considered in the discussions of need for the purposes of 
universal service.814 We agree that such new and growing source[s] of revenues should mitigate the 
impact of intercarrier compensation reform for rural and other carriers.815 
314. We are concerned that universal service support be targeted to those companies whose 
reduced intercarrier compensation revenues truly are needed to continue providing quality service at 
affordable rates, and that it should not simply enable the company to pay bigger dividends to shareholders 
or pad a companys bottom line. Therefore, for price cap carriers, we adopt the proposal of various 
commenters to consider all a companys costs and revenuesboth regulated and non-regulatedbefore 
providing new universal service support.816 Thus, price cap incumbent LEC seeking universal service 
funding to replace lost intercarrier compensation revenues must make such a showing to the Commission 
when petitioning for such support. We recognize that rate-of-return carriers present a special situation, 
because under our rules they must be provided an opportunity to earn the rate of return established by our 
orders.817 As a result, we do not impose a similar condition before rate-of-return carriers can recover 
universal service support. 
315. We also agree with proposals that carriers fully avail themselves of existing opportunities 
for end-user recovery before collecting new universal service subsidies.818 To the extent that regulators 
813 Time Warner Telecom Missoula Phantom Traffic Comments at 10 (According to AT&T, the revenue derived 
from the ILECs advanced services more than doubles the revenue from switched access services. As AT&T stated 
in its Annual Report, [w]e have found that when customers add broadband to a basic package, they are 40 percent 
less likely to switch to another provider, and average revenue per customer jumps nearly 120 percent. It would 
make little sense for the ratepayers to subsidize the ILECs already profitable business decisions.). 
814 Free Press Oct. 13, 2008 Ex Parte Letter at 6. See also id. at 67 (While wed like the Commission to consider 
a carriers entire revenue stream before allowing increased USF support to offset lost access revenues to the extent 
that there is such support it should be confined to rate-of-return carriers only.). 
815 NASUCA July 7, 2008 Supp. Comments at 6. Indeed, there is some indication that carriers may be earning 
excessive returns even with respect to their regulated services. See, e.g., GCI Missoula Phantom Traffic Comments 
at 6667 (asserting that ACS of Anchorage has regularly earned returns in excess of an 11.25% rate of return on its 
regulated interstate switched access services, including 32.12% for 199798, 30.26% for 19992000; 35.29% for 
200102; and 15.01% for 200304). 
816 See, e.g., Letter from Mary C. Albert, Assistant General Counsel, COMPTEL, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92, WC Docket Nos. 05-337, 04-36 at 1 (filed Oct. 2, 2008); NASUCA July 7, 2008 Supp. 
Comments at 3234; Letter from Anna M. Gomez, Vice President of Government Affairs, Sprint Nextel, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 12 (filed Oct. 7, 2008). 
817 See, e.g., Free Press Oct. 13, 2008 Ex Parte Letter at 67 (noting that, to the extent that there is universal service 
support to address any net loss in intercarrier compensation revenues, it should be confined to rate-of-return 
carriers only.). But see, e.g., GCI Missoula Phantom Traffic Comments at 6667 (asserting that ACS of Anchorage 
has regularly earned returns in excess of an 11.25% rate of return on its regulated interstate switched access 
services). 
818 See, e.g., Letter from Donna Epps, Vice PresidentFederal Regulatory, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 12 (filed Oct. 2, 2008); Letter from 
Robert W. Quinn, Jr., Senior Vice PresidentFederal Regulatory, AT&T, to Kevin Martin, Chairman, FCC, CC 
Docket Nos. 01-92, 99-68, 96-45, WC Docket Nos. 07-135, 05-337 at 57 (filed July 17, 2008); Letter from 
Anthony M. Alessi, Senior Counsel, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, 
WC Docket No. 05-337 at 35 (filed May 23, 2008); Cox ICC FNPRM Comments at 1213.

Federal Communications Commission FCC 08-262 
A-141 
have determined that rates at a particular level are reasonable, we find it appropriate for carriers to charge 
those rates in the first instance, rather than pricing below those levels in order to foist recovery of the 
additional revenues on universal service contributors. Consequently, as additional preconditions for 
receiving new universal service support, any carrierwhether price cap or rate-of-returnmust show 
that its federal SLC, state SLC (if any), and state retail local service rates are at the maximum levels 
permitted under existing applicable law.819 
316. In conjunction, we conclude that the conditions we adopt as prerequisites for obtaining 
new universal service support adequately target that support to carriers with a genuine need without 
unduly burdening consumers with excessive new universal service contribution burdens.820 
(ii) Legal Authority 
317. Consistent with our mandate to ensure that universal service is available at rates that are 
just, reasonable, and affordable, we establish a new supplement to IAS and ICLS universal service 
funding mechanism.821 As we did recently in two other Commission orders that reformed interstate 
switched access charges, we include here additional universal service funding to keep retail rates 
affordable while ensuring that maintaining affordable rates does not unduly threaten the financial viability 
of rate-regulated incumbent LECs.822 Our decision to establish a new funding mechanism is also 
consistent with our general authority under section 4(i) of the Act because it furthers our universal service 
objectives.823 Mindful of our obligation to ensure that these new subsidies are made available only where 
essential, however we make new universal service subsidies available subject to specific conditions that 
will target the support to only those carriers whose circumstances merit it. 
(iii) Access to Universal Service Support 
318. As discussed below, we limit access to universal service support to incumbent LECs that 
meet certain preconditions. As an initial matter, we find that limiting such support to incumbent LECs is 
consistent with their position in the marketplace and the resulting regulatory constraints on their pricing 
behavior. In a series of orders in the Competitive Carrier proceeding, the Commission distinguished two 
kinds of carriersthose with individual market power (dominant carriers) and those without market 
819 Although we do not adopt a particular revenue benchmark here, as some commenters propose, the Joint Board 
may well recommend such an approach. Thus, depending upon the Joint Boards proposal, and the Commissions 
subsequent action, maximum federal SLCs and/or state retail local rates might be determined, in part, by such a 
benchmark. 
820 For these same reasons, should a carrier agree to (or tariff) intercarrier charges below those that would be 
required by the reforms adopted in this order, that carrier may not seek to obtain supplemental universal service 
support based on the difference between the charges it sets and the maximum charges it is allowed to set. 
821 47 U.S.C.  254(i) (requiring that [t]he Commission and the States should ensure that universal service is 
available at rates that are just, reasonable, and affordable.); see also 47 U.S.C. 254(b)(1) (stating that [q]uality 
services should be available at just, reasonable, and affordable rates). 
822 See, e.g., CALLS Order, 15 FCC Rcd at 12971, para. 24; MAG Order, 16 FCC Rcd at 1966970, para. 132. 
823 Section 4(i) provides that the Commission may perform any and all acts, make such rules and regulations, and 
issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions. 47 
U.S.C.  154(i). Prior to the enactment of section 254 (as part of the 1996 Act), sections 1 and 4(i) provided 
authority for the Commissions adoption of a universal service fund. See Rural Telephone Coalition v. FCC, 838 
F.2d 1307 (D.C. Cir. 1988). See also New England Telephone and Telegraph Co. v. FCC, 826 F.2d 1101, 1107 
(D.C. Cir. 1987) (describing section 4(i) as a wide-ranging source of authority), cert. denied, 490 U.S. 1039 
(1989).

Federal Communications Commission FCC 08-262 
A-142 
power (non-dominant carriers).824 The Commission found it appropriate to continue to subject dominant 
carriers to full regulation under Title II of the Communications Act.825 Incumbent LECs are dominant 
carriers in their provision of switched access services and, as a result, are subject to rate regulation.826 
This rate regulation comes in two formsregulation of intercarrier charges and regulation of end user 
charges. The Commission regulates interstate end-user charges of incumbent LECs, while the states 
generally regulate those carriers intrastate end-user rates. Unlike incumbent LECs, competitive carriers 
(e.g., such as competitive LECs, CMRS providers, and non-dominant IXCs) lack market power and are 
considered non-dominant. As a result, their end-user charges are not subject to comparable rate 
regulation by the Commission and the states.827 
319. Because incumbent LECs, as a result of their classification as dominant carriers, have had 
their end-user charges regulated (both in terms of rate levels and rate structures), they have less flexibility 
than other carriers to recover decreased intercarrier revenues through end-user charges. As a result, they 
are less likely to be able to recover reductions in intercarrier compensation revenues resulting from the 
actions we take today. Accordingly, we conclude that access to universal service support should be 
limited to incumbent LECs that meet the necessary preconditions. For this reason, we disagree with 
parties that advocate making funding available to all carriers, both incumbent and competitive828 or to all 
824 Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations 
Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); First Report 
and Order, 85 FCC 2d 1 (1980) (Competitive Carrier First Report and Order); Further Notice of Proposed 
Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed Rulemaking, FCC 82-187, 47 Fed. Reg. 
17308 (1982); Second Report and Order, 91 FCC 2d 59 (1982) (Competitive Carrier Second Report and Order); 
Order on Reconsideration, 93 FCC 2d 54 (1983); Third Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 
(1983); Third Report and Order, 48 Fed. Reg. 46791 (1983); Fourth Report and Order, 95 FCC 2d 554 (1983) 
(Competitive Carrier Fourth Report and Order), vacated, AT&T v. FCC, 978 F.2d 727 (D.C. Cir. 1992), Fifth 
Report and Order, 98 FCC 2d 1191 (1984) (Competitive Carrier Fifth Report and Order); Sixth Report and Order, 
99 FCC 2d 1020 (1985), vacated, MCI Telecomms. Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985) (Competitive 
Carrier Sixth Report and Order), aff'd, MCI v. AT&T, 512 U.S. 218 (1994) (collectively, the Competitive Carrier 
proceeding); see 47 C.F.R.  61.3(q), (y). 
825 Competitive Carrier First Report and Order, 85 FCC 2d at 1011, para. 26. 
826 See Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related Requirements; 2000 Biennial Regulatory 
Review Separate Affiliate Requirements of Section 64.1903 of the Commissions Rules, WC Docket No. 02-112; CC 
Docket No. 00-175, Report and Order and Memorandum Opinion and Order, 22 FCC Rcd 16440, 16484, para. 90 
(2007). 
827 For instance, the Commission has declined to regulate the SLCs of competitive LECs. See Cost Review 
Proceeding for Residential and Single-Line Business Subscriber Line Charge (SLC) Caps; Price Cap Performance 
Review for Local Exchange Carriers, CC Docket Nos. 96-262, 94-1, Order, 17 FCC Rcd 10868, 10870 n.8 (2002) 
(subsequent history omitted); see also CLEC Access Charge Order, 16 FCC Rcd at 9955, para. 81 (stating that 
competitive LECs competing with CALLS incumbent LECs are free to build into their end-user rates a component 
equivalent to the incumbent LECs SLC). 
828 See, e.g., T-Mobile Oct. 3, 2008 Ex Parte Letter at 9 & n.14 (arguing that any ICC replacement mechanism be 
fully portable to competitive carriers in order to fulfill the principles of competitive and technological neutrality.). 
Sprint argues that a fund that compensates only incumbent LECs (and not competitive LECs, wireless carriers, and 
IXCs) for lost access revenues is blatantly anti-competitive. Letter from Anna M. Gomez, Vice President of 
Government Affairs, Sprint Nextel Corp., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45; 
WC Docket No. 04-36 at 4 (filed Oct. 1, 2008). Many CMRS carriers maintain that any replacement mechanism 
must be fully portable to competitive carriers in order to fulfill the principles of competitive and technological 
neutrality. See, e.g., Leap ICC FNPRM Reply at 18; Allied National ICC FNPRM Comments at 10; CTIA ICC 
FNPRM Comments at 37; SouthernLINC ICC FNPRM Reply at 9; RCA ICC FNPRM Comments at 4; US Cellular 
(continued.)

Federal Communications Commission FCC 08-262 
A-143 
carriers that currently receive access charge revenues.829 As discussed above, competitive carrier enduser 
charges are not subject to rate regulation, and those carriers have the opportunity to recover lost 
access revenue through any legally permissible means.830 We also reject an approach that would limit 
funding to rural rate-of-return carriers.831 Incumbent LECs subject to price cap regulation also are subject 
to regulatory constraints on end-user charges, and we therefore decline to categorically deny universal 
service funding to particular types of incumbent LECs.832 
320. Consistent with the policy approach discussed above, we further find it necessary to 
establish certain requirements that an incumbent LEC must satisfy to receive the new universal service 
subsidies. Before seeking universal service funding, incumbent LECs must first demonstrate that their 
end-user charges are at the maximum allowable rate levels. Thus, incumbent LECs must show that they 
are charging the maximum interstate SLCs permitted under applicable law, and they must make the same 
showing with respect to any intrastate SLCs. In addition, incumbent LECs must demonstrate that their 
retail local rates are at the maximum allowable amount based on applicable state regulation. Incumbent 
LECs operating in states where retail rates are deregulated are not entitled to the new universal service 
(continued from previous page) 
ICC FNPRM Comments at 4; T-Mobile ICC FNPRM Comments at 26; Dobson and American ICC FNPRM 
Comments at 10. 
829 See, e.g., ICF ICC FNPRM Comments at 3233 (stating that any funding should be temporary and limited to 
those that lose access revenue because of intercarrier compensation reform); USTA ICC FNPRM Comments at 40 
(arguing that funding should not compensate wireless carriers and that it should not be portable); CCAP ICC 
FNPRM Reply at 14 (stating that funding should not be portable to competitive eligible telecommunications 
carriers.); Letter from Susanne A. Guyer, Senior Vice President of Federal Regulatory Affairs, Verizon, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, Attach. at 7 (filed Oct. 12, 2008) (asserting that funding 
should compensate only LECs that have lost revenues because of intercarrier compensation reform); Letter from 
Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, Docket Nos. 01-92, 04-36, 96-45, 05-337, 
Attach. at 9 (filed Oct. 3, 2008) (arguing that the Commission should limit duplicative networks by prohibiting 
wireless carriers and other carriers that do not receive access compensation from benefiting from the fund); Letter 
from Alex J. Harris, Vice PresidentRegulatory, Frontier, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92, Attach. at 16, 18 (filed May 11, 2005) (proposing that the funding be confined to incumbent LECs in rural 
study areas but available to all carriers that lost access revenues in non-rural study areas); see also Letter from Brad 
E. Mutschelknaus, Counsel to XO Communications, Kelley Drye & Warren LLP, to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 06-122, Attach. at 4 (filed Oct. 3, 2008) (contending that 
revenue replacement funding should either be competitively neutral or limited to only rate-of-return carriers). 
830 Some competitive LECs claim that, in practice, they have little opportunity to recover their costs because the 
incumbent LEC, whose prices are regulated, effectively sets a ceiling on the prices they charge. See, e.g., 
COMPTEL Missoula Phantom Traffic Comments at 7. Although we acknowledge that, in a homogeneous goods 
market with a single price, such an argument might be plausible, we do not find such assumptions apply in modern 
telecommunications markets. In particular, with modern telecommunications technology, carriers are offering an 
expanding number of new services and marketing them through a variety of bundled service offerings. As a result, 
telecommunications services are becoming much more of a differentiated product, and competitors have greater 
opportunity to offer niche services. In light of these developments, we find unpersuasive arguments that competitors 
are effectively price regulated and thus do not have an opportunity to recover lost access revenues. 
831 See, e.g., NCTA ICC FNPRM Comments at 11 (arguing that funding should be limited to non-Tier 1 rural 
carrier[s]); NTCA ICC FNPRM Comments at 56 (asserting that funding should be targeted at rural ILECs 
exclusively); Comments of the Rural Alliance, CC Docket No. 01-92 at 4 (filed Jun. 27, 2008) (stating that the fund 
should only compensate rural rate-of-return carriers that lose access revenues). 
832 For these same reasons, should a carrier agree to (or tariff) intercarrier charges below those that would be 
required by the reforms adopted in this order, that carrier may not seek to obtain supplemental universal service 
support based on the difference between the charges it sets and the maximum charges it is allowed to set.

Federal Communications Commission FCC 08-262 
A-144 
funding adopted here. In this case, these incumbent LECs will be similarly situated to competitive 
carriers, because without regulation, they have the opportunity to recover lost access revenues due to 
intercarrier compensation reform through increased end-user charges. 
321. As discussed below, there are additional requirements to qualify for universal funding 
that vary depending on whether a carrier is subject to price cap or rate-of-return regulation. In either case, 
the incumbent LEC bears the burden of demonstrating that it is entitled to such funding based on the 
following criteria. 
322. Rate-of-Return Incumbent LECs. For incumbent LECs subject to rate-of-return 
regulation, a carrier may qualify for universal service funding if it can demonstrate that, it will not have a 
reasonable opportunity to earn its authorized rate of return as a result of its net loss of revenues caused by 
the changes in intercarrier compensation rates resulting from this order, even after having increased its 
interstate SLC, state SLC (if any), and state retail local rates to the maximum permitted by applicable law. 
323. Price Cap Incumbent LECs. For incumbent LECs subject to price cap regulation, a 
carrier may qualify for universal service funding if it can demonstrate that, as a result of reduced and 
reformed intercarrier charges, and after accounting for increased end-user charges, it is still unable to earn 
a normal profit. In the Local Competition First Report and Order, the Commission discussed the 
concept of normal profit and defined it as the total revenue required to cover all the costs of a firm, 
including its opportunity costs.833 
324. As described above, many companiesin particular, price cap carriersconsistently are 
paying dividends and are using the same supported network to provide both regulated services and nonregulated 
services.834 We do not find it appropriate to require all universal service contributors to pay 
into the fund to provide for high overhead, sumptuous earnings, [and] rich dividends on the part of 
these carriers.835 Indeed, as discussed above,836 [i]ntercarrier compensation, SLCs and the USF are but 
three of the numerous spigots from which dollars flow to fill up the telephone companies revenue 
buckets837 in addition to other nonregulated services that use their common local loop platform.838 . 
Therefore, in determining whether this criterion is met, the Commission will evaluate the total costs and 
total revenues of the company as a whole, including those from both regulated and non-regulated 
sources.839 While this is a more stringent showing than that required of rate-of-return carriers, we find 
such differences warranted by the different rate regulation frameworks. In light of our reforms, we find it 
appropriate, upon request, to allow price cap carriers to make a one-way election of rate-of-return 
regulation.840 
833 Local Competition First Report and Order, 11 FCC Rcd at 15854, para. 699. 
834 See supra para. 312. 
835 Universal Service Telephone Subsidies at 33. 
836 See supra para. 313. 
837 NASUCA Sept. 30, 2008 Ex Parte Letter at 6. 
838 NASUCA July 7, 2008 Ex Parte Letter at 6. 
839 The non-regulated costs and revenues to be included in this calculation are those associated with non-regulated 
activities involving the common or joint use of assets or resources in the provision of both regulated and nonregulated 
products and services. 
840 Pursuant to section 61.41(d) of the Commissions rules, once a carrier is subject to price cap regulation, it may 
not withdraw from such regulation. 47 C.F.R.  61.41(d); see also 47 C.F.R.  61.41(b), (c) (requiring conversion 
from rate-of-return to price cap regulation under certain circumstances). Under section 1.3 of the Commissions 
(continued.)

Federal Communications Commission FCC 08-262 
A-145 
325. We recognize that the conditions by which we would make universal service funding 
available may not ensure that all carriers recover all reduced intercarrier compensation revenues that 
result from the reforms we adopt here. We reject the assertion by some carriers that any revenue 
replacement mechanism adopted by the Commission in the context of intercarrier compensation reform 
must ensure absolute revenue neutrality.841 We agree with commenters who maintain that the 
Commission has no legal obligation to ensure that carriers recover every dollar in access revenues lost as 
a result of reform, absent a showing of a taking.842 We conclude that certain increased end-user charges 
and narrowly targeted supplemental IAS or ICLS universal service support will provide a reasonable 
opportunity to recover revenues lost as a result of our intercarrier compensation reform, and to earn a 
reasonable profit. Such recovery, however, is not automatic and whether a particular carrier is entitled to 
any revenue recovery will be considered on a case-by-case basis based on the criteria outlined here. 
D. Measures to Ensure Proper Billing 
1. Introduction 
326. As explained in Part V.A., the current disparity of rates under existing intercarrier 
compensation mechanisms presents service providers843 with the opportunity and the incentive to 
misidentify or otherwise conceal the source of traffic to avoid or reduce payments to other service 
providers. In this Part, we amend our rules to help ensure the ability of service providers to receive the 
appropriate compensation for traffic terminated on their networks.844 More importantly, we believe that 
(continued from previous page) 
rules, however, any provision of the Commissions rules may be waived by the Commission . . . if good cause 
therefore is shown. 47 C.F.R.  1.3. As interpreted by the courts, this requires that a petitioner demonstrate that 
special circumstances warrant a deviation from the general rule and that such a deviation will serve the public 
interest. Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164 (D.C. Cir. 1990) (citing WAIT Radio v. FCC, 
418 F.2d 1153, 1158 (D.C. Cir. 1969)). In other circumstances in the past, the Commission has found good cause to 
waiver section 61.41(d) and other related provisions of the Commissions rules to enable operations subject to price 
cap regulation to convert to rate-of-return regulation. See, e.g., ALLTEL Corp. Petition for Waiver of Section 61.41 
of the Commission's Rules and Application for Transfer of Control, CCB/CPD No. 99-1, Memorandum Opinion and 
Order, 14 FCC Rcd. 14191 (1999); CenturyTel of Northwest Arkansas, LLC et al., Joint Petition for Waiver of 
Definition of Study Area Contained in the Part 36 Appendix-Glossary of the Commission's Rules, Petition for 
Waiver of Sections 61.41(c) and 69.3(g)(2) of the Commissions Rules, CC Docket No. 96-45, Memorandum 
Opinion and Order, 15 FCC Rcd 25437 (Acc. Pol. Div. 2000); ALLTEL Service Corporation, Petition for Waiver of 
Section 61.41 of the Commission's Rules, Order, 8 FCC Rcd 7054 (Com. Car. Bur. 1993) (granting waiver of 
sections 61.41(c), (d) of the Commissions rules). Likewise, as noted above, we find it appropriate, upon request, to 
allow price cap carriers to make a one-way election of rate-of-return regulation. 
841 See supra para. 313. 
842 See, e.g., Ad Hoc ICC FNPRM Reply at 1011 (arguing that the Commission has no legal obligation to allow 
revenue neutrality); CTIA ICC FNPRM Comments at 46; Nextel ICC FNPRM Comments at 20; T-Mobile ICC 
FNPRM Comments at 13 (intercarrier compensation was not intended to guarantee an ILEC revenue stream or 
preserve low local rates for a given industry segment, doing so would perpetuate inefficiencies); NASUCA ICC 
FNPRM Reply at 3438 (arguing that the Commission is not required to provide for revenue neutrality and that 
revenue neutrality deviates from the Commissions past policy). 
843 We use the term service providers in this section to refer both to carriers that provide telecommunications 
services and to providers of services that originate calls on IP networks and terminate them on circuit switched 
networks. 
844 Parties frequently use the term phantom traffic in describing this problem. We will not use that term in the 
regulations we adopt here because there is no consensus as to how it should be defined, nor is such a definition 
necessary for us to address the underlying issues faced by service providers in billing for traffic they receive.

Federal Communications Commission FCC 08-262 
A-146 
the comprehensive compensation reforms we adopt today should significantly reduce service providers 
incentives to mislabel traffic or otherwise to try to avoid their financial obligations.845 Nonetheless, we 
balance a desire to facilitate resolution of billing disputes with a reluctance to regulate in areas where 
industry resolution has, in many cases, proven effective. We find that the requirements we adopt here 
will facilitate the transfer of information to terminating service providers, and improve their ability to 
identify providers from whom they receive traffic, without imposing burdensome costs. In the event that 
traffic does not contain the information required by our rules, or the provider delivering the traffic does 
not otherwise provide the required call information, for example by providing an industry-standard billing 
record, to the provider receiving it, we allow the terminating service provider to charge its highest 
terminating rate to the service provider delivering the traffic. To the extent that a provider acting simply 
as an intermediate provider (such as a transit provider) becomes subject to a charge under this provision, 
that intermediate provider can charge the rate it was charged to the provider that delivered the improperly 
labeled traffic to it. This will ensure that providers are paid for terminating traffic in those instances, and 
gives financial incentives for upstream providers in the call path to ensure that the traffic includes proper 
information in the first instance. 
2. Background 
327. Problems related to traffic arriving for termination with insufficient identification 
information arise from the technical systems and processes used to create, transfer, and gather intercarrier 
compensation billing information. To bill for termination of traffic, a terminating service provider must 
be able to identify the appropriate upstream service provider, and the location of the caller (or a proxy for 
the callers location) in order to determine jurisdiction, which is necessary to determine the appropriate 
charge under existing intercarrier compensation rules.846 Calls frequently traverse several networks to 
connect the calling and called parties. When the originating and terminating networks are not directly 
connected, as is the case when calls are delivered via tandem transit service, complications with 
transmitting and receiving billing information related to a call can arise.847 Terminating service providers 
that are not directly connected to originating service providers receive information about calls sent to their 
networks for termination from two sources: Signaling System 7 (SS7) signaling streams848 and industry 
845 Similarly, we believe that the transition to a uniform intercarrier compensation rate based on the additional costs 
methodology described above also will address the access stimulation concerns that have recently been raised. See 
supra para. 185. In the unlikely event that service providers persist in these activities, however, we note that the 
Commission has an open proceeding in which appropriate responses to such actions may be considered. See 
generally Access Stimulation NPRM, 22 FCC Rcd 17989. 
846 This order initiates a process of unifying terminating intercarrier compensation rates, thereby eliminating the rate 
distinctions between local and long distance calls. Although knowing the origination point of a call remains 
important, especially during the period of transition to a unified terminating rate, the origination point is less 
significant for the purpose of determining intercarrier compensation due. 
847 See, e.g., Letter from Patrick J. Donovan, Counsel for PacWest Telecomm, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 34 (filed Oct. 14, 2005). 
848 SS7 is an out-of-band signaling system that is separate from, but runs parallel to, the public switched telephone 
network (PSTN) and is used to set up call paths between calling and called parties. The following steps typically 
occur when SS7 sets up a call path for a wireline LEC to wireline LEC call originating and terminating on the 
PSTN. When a wireline LEC customer dials a call destined for an end user served by a different wireline LEC, the 
calling partys LEC determines, based on the dialed digits, that it cannot terminate the call. The SS7 call signaling 
system then begins the process of identifying a path that the call will take to reach the called partys network. SS7 
identifies each service provider in the call path and provides each with the called partys telephone number and other 
information related to the call, including message type and nature of connection indicators, forward call indicators, 
calling partys category, and user service information if that information was correctly populated and not altered 
(continued.)

Federal Communications Commission FCC 08-262 
A-147 
standard billing records,849 which typically are provided by the intermediate service provider connecting 
the terminating provider to the originating provider.850 
328. One significant source of billing problems is traffic routed through an intermediate 
provider that does not include calling party number (CPN) or other information identifying the calling 
party.851 In addition, commenters describe several examples of other situations where traffic arrives for 
termination with insufficient information to identify the originating service provider.852 Another source 
of disputes occurs when terminating service providers find differences when attempting to reconcile SS7 
(continued from previous page) 
during the signaling process. See Letter from L. Charles Keller, Counsel for Verizon Wireless, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Sept. 13, 2005) (Verizon Wireless Sept. 13, 2005 Ex Parte 
Letter). SS7 was designed to facilitate call routing and was not designed to provide billing information to 
terminating carriers. See Verizon, Verizons Proposed Regulatory Action to Address Phantom Traffic at 57 
(Verizon Phantom Traffic White Paper), attached to Letter from Donna Epps, Vice President, Federal Regulatory 
Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Dec. 20, 2005). Technical 
content and format of SS7 signaling is governed by industry standards rather than by Commission rules, although 
Commission rules require carriers using SS7 to transmit calling party number (CPN) to subsequent carriers on 
interstate calls where it is technically feasibly to do so. 47 C.F.R.  64.1601. 
849 Industry standard billing records are the other common source of information that terminating service providers 
not directly connected to originating service providers receive about calls sent to their networks for termination. 
Billing records are typically created by a tandem switch that receives a call for delivery to a terminating network via 
tandem transit service. Tandem switches create billing records by combining CPN or Charge Number (CN) 
information from the SS7 signaling stream with information identifying the originating service provider to provide 
terminating service providers with information necessary for billing. See Verizon Phantom Traffic White Paper at 
57. The tandem switch creating the billing record identifies service providers from whom it receives traffic using 
the trunk group number (TGN) of the trunk on which a call arrives. See Verizon Phantom Traffic White Paper at 4; 
see also Letter from Glenn T. Reynolds, Vice PresidentFederal Regulatory, BellSouth, to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 01-92, Attach. at 5 (filed Jan. 12, 2006) (BellSouth Jan. 12, 2006 Ex Parte Letter). 
The tandem switch translates the TGN into one of two codes identifying the originating the service provider: Carrier 
Identification Code (CIC) if the originating service provider is an IXC, or Operating Company Number (OCN) for 
non-IXC calls. The appropriate CIC or OCN is then added, by the tandem switch, if it is equipped to record such 
information, to the billing record for the call, which is then forwarded to the terminating service provider. See 
Verizon Phantom Traffic White Paper at 57; see also Verizon ICC FNPRM Reply at 16. Service providers 
delivering billing records typically use the Exchange Message Interface (EMI) format created and maintained by the 
Alliance for Telecommunications Industry Solutions Ordering and Billing Forum (ATIS/OBF), an industry 
standards setting group. See ATIS Exchange Message Interface 22 Revision 2, ATIS Document number 0406000- 
02200 (July 2005). 
850 See Verizon Phantom Traffic White Paper at 57. 
851 The Commission recognized that the ability of service providers to identify the provider to bill appropriate 
intercarrier compensation payments depends, in part, on billing records generated by intermediate service providers. 
Thus, the Commission sought comment on whether current rules and industry standards create billing records that 
are sufficiently detailed to permit determinations of the appropriate compensation due. See Intercarrier 
Compensation FNPRM, 20 FCC Rcd at 4743, para. 133. 
852 For example, when a call bound for a number that has been ported to a different service provider is delivered 
without the responsible service provider performing a local number portability (LNP) query, the call may be 
delivered to the wrong end office and then may be re-routed to a tandem switch for delivery to the correct end 
office. See Verizon Phantom Traffic White Paper at 1819. According to Verizon, neither the end office that reroutes 
the call nor the tandem switch receiving the rerouted call are able to route the call over an access trunk; the 
call must be sent over a local interconnection trunk. See id. In this scenario, the terminating carrier may have 
difficulty billing the appropriate charges to the IXC that sent the call.

Federal Communications Commission FCC 08-262 
A-148 
data they record and billing records they receive.853 Such a reconciliation process will likely be inexact, 
because SS7 streams were not designed to provide billing information.854 Similarly, at least one 
commenter asserts that problems arise when terminating service providers second guess tandem traffic 
reports and generate their own billing statements for carriers with whom they are indirectly 
interconnected.855 In addition to unidentifiable traffic caused by unintended network routing 
circumstances, as described above, several commenters allege that they receive traffic in which the billing 
information intentionally has been altered or stripped before the call reaches the terminating service 
provider.856 Indeed, numerous parties have described experiencing problems of the sort described 
above.857 Several proposals suggesting how the Commission should address this problem have been filed 
in the record in this proceeding in recent years.858 Recently, the United States Telecom Association 
(USTelecom) filed a proposal that appears to enjoy the broadest industry support of any filed to date.859 
For reasons detailed below, we agree that traffic that lacks sufficient information to enable proper billing 
of intercarrier compensation charges is a problem. Consequently, we take steps to address the problem 
853 See Letter from Stephen T. Perkins, General Counsel, Cavalier Telephone, LLC, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 1 (filed Sept. 29, 2005). See also Letter from Donna Epps, Vice President, 
Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 10 (filed 
Oct. 21, 2005). 
854 See Letter from Donna Epps, Vice PresidentFederal Regulatory Advocacy, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92, Attach. at 5 (filed Aug. 1, 2005); Verizon Wireless Sept. 13, 2005 Ex Parte 
Letter at 2. 
855 Verizon Wireless Sept. 13, 2005 Ex Parte Letter at 3. 
856 See, e.g., Balhoff and Rowe ICC FNPRM Reply at 10; California Small LECs ICC FNPRM Comments at 9; ITCI 
ICC FNPRM Reply at 7; Montana Independent Telecommunications Systems (MITS) et al. ICC FNPRM Comments 
at 14, 20; MITS et al. ICC FNPRM Reply at 2324, 33; NECA ICC FNPRM Comments at 16; Rural Alliance ICC 
FNPRM Comments at 108; SureWest ICC FNPRM Comments at 7; TDS ICC FNPRM Comments at 10; BellSouth 
Jan. 11, 2006 Ex Parte Letter at 6. 
857 See, e.g., Letter from Glenn T. Reynolds, Vice President, Policy, USTA, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 (filed Feb. 12, 2008) (USTA Feb. 12, 2008 Proposal). See Developing a Unified Intercarrier 
Compensation Regime, CC Docket No. 01-92, NECA Petition for Interim Order (filed Jan. 22, 2008) (NECA 
Petition). 
858 See, e.g., NARUC Task Force July 24, 2006 Ex Parte Letter, Attach. 2; Letter from Supporters of the Missoula 
Plan to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 6, 2006) (Missoula Plan Supporters 
Nov. 6 Ex Parte Letter or Missoula Plan Call Signaling Proposal); Letter from Donna Epps, Vice President, Federal 
Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Apr. 4, 2006); 
Letter from Jeffrey S. Lanning, Associate General Counsel, USTA, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92 (filed Mar. 30, 2006) (MCC/USTA Proposal); Letter from Karen Brinkmann, Attorney for the 
MidSize Carrier Coalition, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 31, 2006) 
(supporting MCC/USTA Proposal). 
859 See USTA Feb. 12, 2008 Proposal; see also Letter from Melissa E. Newman, Vice PresidentFederal 
Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept. 24, 2008); Letter from 
Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2, filed Sept. 19, 
2008); Letter from Eric Einhorn, Vice president, Federal Government Affairs, Windstream, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 et al. (filed Sept. 24, 2008); Comments of Windstream, CC Docket Nos. 99- 
68, 01-92, 96-45, WC Docket Nos. 08-152, 07-135, 04-36, 06-122, 05-337 at 16 (filed Aug. 21, 2008); Letter from 
Gregory J. Vogt, Counsel for CenturyTel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Aug. 
6, 2008); Letter from Henry Hultquist, Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 (filed July 17, 2008).

Federal Communications Commission FCC 08-262 
A-149 
and help ensure proper functioning of the intercarrier compensation system.860 
3. Discussion 
329. We amend our rules as described below to facilitate the transfer of necessary information 
to terminating service providers, particularly in cases where traffic is delivered through indirect 
interconnection arrangements. These new requirements will assist in determining the appropriate service 
provider to bill for any call. We note that these new requirements generally reflect standard industry 
practice, as recommended by several commenters.861 We also amend our rules to establish payment 
obligations for service providers that send traffic that lacks the information required by our amended call 
signaling rules to intermediate or terminating service providers or that does not otherwise provide the 
required call information to the recipient. Incorporating these practices into our rules will facilitate 
resolution of billing disputes, will provide incentives to help prevent manipulation or deletion of 
information from signaling streams, and will provide incentives for service providers to ensure that traffic 
traversing their networks is properly labeled and identifiable, in compliance with the rules we adopt in 
this order.862 
a. Signaling Information 
330. We agree with the USTelecom Feb. 12, 2008 Proposal concerning the importance of call 
signaling obligations.863 CPN is a critical component of call signaling information. When CPN is 
populated in the SS7 stream by an originating service provider and passed, unaltered, along a call path to 
a terminating service provider, the terminating provider can use the CPN information to help determine 
the applicable intercarrier compensation. 
331. We agree with commenters864 that assert that the best way to ensure that complete and 
accurate information about a call gets to the terminating service provider for that call is to require 
providers to populate, and to prohibit them from stripping or altering, CPN information in the SS7 call 
signaling stream.865 In an environment where numerous service providers may be involved in the 
860 The rules we adopt herein reflect the Commissions determinations regarding how to address call signaling 
problems as they relate to unidentified and unbillable traffic. Therefore, we disagree with commenters requesting 
that we adopt alternative proposals such as the NECA petition or the Missoula Plan Call Signaling Proposal. See, 
e.g., Letter from Robert F. Aldrich, Counsel to the American Public Communications Council, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92 (filed Oct. 21, 2008). 
861 See, e.g., Letter from Paul Garnett, Director, Regulatory Policy, CTIA, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 at 3 (filed Jan. 3, 2006); Letter from Donna Epps, Vice President, Federal Regulatory 
Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006). 
862 The rules we amend in this order were adopted in a 1995 order addressing Caller ID services. See Rules and 
Policies Regarding Calling Number Identification Service  Caller ID, CC Docket No. 91-281, Memorandum 
Opinion and Order on Reconsideration, Second Report and Order and Third Further Notice of Proposed 
Rulemaking, 10 FCC Rcd 11700, 11728, para. 79 (1995) (Caller ID Order). In the Caller ID Order, the 
Commission found, inter alia, that the CPN based services to which the rules adopted apply are jurisdictionally 
mixed and the Commission therefore preempted an inconsistent state statute. Id. at 1172223, paras. 62, 85. For 
these same reasons, to the extent the amendments we make to our call signaling rules in this order conflict with any 
current or future state statutes, those statutes are preempted. See id. at 1172834, paras. 7895. 
863 See USTA Feb. 12, 2008 Proposal. 
864 See, e.g., USTA Feb. 12, 2008 Proposal; NECA Petition. 
865 Because we agree that requiring population of CPN is the best way to ensure that complete and accurate 
information about a call gets to the terminating service provider for that call, we disagree with proposals to exclude 
(continued.)

Federal Communications Commission FCC 08-262 
A-150 
completion of a call, this SS7 signaling information must be passed, unaltered, from one to the next in a 
call path until it reaches the terminating service provider. We therefore modify our rules to prohibit 
stripping or altering information in the SS7 call signaling stream. We do not, however, make any changes 
to the designation of particular fields as mandatory or optional, nor do we otherwise intend to change 
industry standards that govern the population of the SS7 signaling stream.866 
332. The record also makes clear that we must expand the scope of our existing rule regarding 
passing CPN,867 which currently applies only to service providers using SS7 and only to interstate traffic. 
We therefore extend these requirements to all traffic originating or terminating on the PSTN, including 
jurisdictionally intrastate traffic.868 We also amend our rules to require service providers using MF 
signaling to pass CPN information, or the charge number (CN) if it differs from the CPN, in the Multi 
Frequency Automatic Number Identification (MF ANI) field.869 This rule change will ensure that 
information identifying the calling party is included in call signaling information for all calls. 
333. In addition, we agree with commenters who suggest that our call signaling rules should 
address CN as well as CPN.870 Verizon states that, in accordance with industry practice, the CN 
parameter is not populated in the SS7 stream when it is the same as CPN, but that when the CN parameter 
is populated, CN is included in billing records in place of CPN.871 We therefore clarify that populating a 
CN field with information other than the charge number to be billed for the call, consistent with industry 
standards, falls within this prohibition. This clarification is not intended to disrupt standard industry 
practice with regard to using CN in the signaling stream and in billing records. But, we also clarify that 
the prohibition on altering or stripping signaling information applies to CN as well as CPN. The 
prohibition on altering or stripping SS7, MF ANI, or CN signaling information obligates intermediate 
service providers to pass, unaltered, whatever signaling information they receive. 
(continued from previous page) 
certain types of traffic from this requirement. See, e.g., Letter from Jim Kohlenberger, Executive Director, The 
VON Coalition, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket 04-36 at 6 (filed Oct. 28, 
2008). We note that parties are free to contract with third parties to ensure that these requirements are met. Cf., e.g., 
LNP Order, 22 FCC Rcd 19531 (holding that, where interconnected VoIP providers rely on other carriers for access 
to numbers, both parties must take the steps needed to comply with the number porting obligations established in 
that order); Interconnected VoIP 911 Order, 20 FCC Rcd 10245 (finding that interconnected VoIP providers might 
elect to comply with their 911 obligations in party by relying on services provided by third parties). 
866 We take a cautious approach in considering any new or revised signaling requirements. SS7 was designed to 
facilitate call setup and routing, and action we take here is not intended to interfere with the ability of calls to reach 
their intended recipient. As Verizon Wireless explains, certain SS7 fields are considered mandatory, while others 
(including CPN, CN, and JIP) are considered optional. See Verizon Wireless Sept. 13, 2005 Ex Parte Letter at 2. 
The distinction is significant, because a call will not be completed if a mandatory field has not been populated. See 
Letter from Thomas Goode, Associate General Counsel, ATIS, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 01-92, Attach. (filed Feb. 10, 2006). Although CPN is considered optional in the industry standard, our rules, 
before and after amendment pursuant to this order, require service providers to pass CPN in specified circumstances. 
See 47 C.F.R  64.1601. 
867 See 47 C.F.R.  64.1601. 
868 See supra note 862. 
869 See Missoula Plan at 56; Letter from Brad E. Mutschelknaus, Counsel for XO, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 1112 (filed Feb. 14, 2006). 
870 See, e.g., NECA Petition; Letter from Cheryl A. Tritt, Counsel for T-Mobile USA, Inc. to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 6 (filed Feb. 2, 2006); Verizon Phantom Traffic White Paper at 810. 
871 See Verizon Phantom Traffic White Paper at 8.

Federal Communications Commission FCC 08-262 
A-151 
334. The call signaling rules we adopt in this order will help ensure that signaling information 
is passed completely and accurately to terminating service providers. These rules are not intended to 
affect existing agreements between service providers regarding how to jurisdictionalize traffic when 
traditional call identifying parameters are missing, as long as such agreements are not inconsistent with 
the rules adopted in this order. 
335. We find that some very limited exceptions to these new rules are needed. We agree with 
Verizon, for example, that a limited exception is needed in situations where industry standards permit, or 
even require, some alteration in signaling information by an intermediate service provider.872 As noted 
above, we do not intend to change standard industry practice with respect to the content of the signaling 
stream. Service providers that follow standard industry practice in this way will not be considered in 
violation of the prohibition on altering signaling information. We also note that the exemptions from our 
existing call signaling requirements described in section 64.1601(d) remain necessary for their limited 
purposes, and will continue to apply.873 
b. Financial Responsibilities 
336. We also impose financial responsibilities that will work in step with our amended 
signaling rules to give service providers financial incentives to ensure that they, and the providers whose 
traffic they carry, comply with the signaling obligations. We find that these requirements will 
significantly reduce any existing incentives to avoid compliance by substantially eliminating any financial 
benefits of noncompliance. 
337. We agree with commenters who propose that we permit service providers that terminate 
traffic lacking sufficient information to bill the service provider that delivered the traffic to the 
terminating provider.874 In particular, we require that a service provider, e.g., transit provider, delivering 
traffic that lacks any of the signaling information required by our rules as amended herein, or that does 
not otherwise provide the required call information, for example by providing an industry standard billing 
record, to the recipient, must pay the terminating service providers highest termination rate in effect at 
the time the traffic is delivered to the terminating service provider.875 By making intermediate service 
872 See Verizon Phantom Traffic White Paper at 910. For example, Verizon states that on a call to a party that has 
forwarded its number, the called partys service provider will replace the callers CN with the called partys CN 
before sending the call to the forward location. 
873 47 C.F.R.  64.1601(d). 
874 See, e.g., EPG Proposal at 2 (All messages that are not properly labeled would be billed at the highest prevailing 
intercarrier compensation rate to the interconnecting carrier delivering the traffic.); ARIC Plan at 55; CenturyTel 
ICC FNRPM Comments at 6; Hickory ICC FNPRM Comments at 2 ; JSI ICC FNPRM Comments at 46; Colorado 
Telecom Assn et al. ICC FNPRM Reply at 13, TDS Telecom ICC FNPRM Reply 14, JSI Missoula Phantom Traffic 
Comments at 46; RICA Missoula Phantom Traffic Comments at 23; TexalTel Missoula Phantom Traffic 
Comments at 78; Cavalier Missoula Phantom Traffic Comments at 23; PAPUC Missoula Phantom Traffic Reply 
at 8. 
875 We agree with commenters who note that intermediate service providers that provide, to subsequent service 
providers in a call path, information sufficient to identify the provider that delivered the traffic to the intermediate 
provider should not be responsible for terminating intercarrier payments for that traffic. See, e.g., Letter from 
Susanne A. Guyer, Senior Vice President  Federal Regulatory Affairs, Verizon, to Chairman Kevin Martin et al., 
FCC, CC Docket Nos. 96-45, 01-92 at 2 (filed Oct. 28, 2008); Letter from Mark D. Schneider, Counsel, Neutral 
Tandem, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008); Letter from Tamar 
E. Finn, Counsel, Zayo Group, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 2 
(filed Oct. 28, 2008).

Federal Communications Commission FCC 08-262 
A-152 
providers financially responsible in these circumstances, we ensure that service providers are 
compensated for terminating traffic. 
338. We also permit those intermediate service providers, in turn, to pass along the 
termination charges to the provider that delivered the applicable traffic to them, in addition to any 
otherwise-applicable charge for their services. We agree with commenters that the providers delivering 
traffic are in a better position than the terminating service provider to know which carriers are routing 
improperly or incompletely identified traffic876 and to recover the termination charges from them. 
Moreover, by permitting intermediate service providers to pass along those charges on top of their 
otherwise-applicable rates, we create disincentives for service providers who might otherwise originate, 
or act as a pass through for mislabeled or unidentifiable traffic. 
339. We are unpersuaded by the objections to imposing such financial obligations on 
intermediate service providers.877 For example, one objection is based on the assumption that transit 
providers will be the only intermediate service providers subject to such liability, and will be unable to 
pass along those charges.878 The financial responsibility under this order for traffic that lacks sufficient 
billing information is not limited to transit service providers, however. Rather, any service provider that 
passes traffic lacking sufficient billing information becomes responsible for intercarrier payments to the 
receiving provider. Additionally, we expressly permit service providers subject to this charge to pass it 
along to the service provider that delivered the applicable traffic to them. 
340. Another commenter objects to any proposal that gives . . . [ILECs] the authority to 
impose new rates based on their own interpretation of the sufficiency of data received or interpretation of 
jurisdictional parameters.879 Under our amended rules, service providers will not be able to impose rates 
based on their own interpretation of the sufficiency of data received. Instead, our amended rules set the 
standard for what information must be included and passed. 
341. We also disagree with commenters who suggest that imposing liability on intermediate 
service providers implies that the problem is the result of transiting service providers altering call detail 
information.880 The financial obligations we impose on intermediate service providers are triggered by 
passing traffic that does not comply with the call signaling rules, regardless of whether the traffic was 
originated or altered by the passing service provider. Accordingly, any service provider, not just a 
provider who stripped or altered traffic signaling, who is not taking steps to ensure that traffic carried on 
their network is properly labeled and identifiable could be held responsible for payment by the provider to 
whom it delivered traffic. 
342. In addition to call signaling, the USTelecom Feb. 12, 2008 proposal seeks Commission 
action related to routing traffic, local number portability queries, and providing incumbent LECs with 
876 ARIC Plan at 55. 
877 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 (filed July 7, 2007); Letter from Charles W. McKee, DirectorGovernment Affairs, 
Federal Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Apr. 20, 
2007) (Sprint Nextel April 20, 2007 Ex Parte Letter); Letter from Charon Phillips, DirectorGovernment Affairs, 
Federal Regulatory, Verizon Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Mar. 
13, 2007). 
878 See, e.g., Verizon Missoula Phantom Traffic Reply at 56. 
879 See Sprint Nextel April 20, 2007 Ex Parte Letter at 2. 
880 See Missoula Plan Supporters Missoula Phantom Traffic Reply at 1112.

Federal Communications Commission FCC 08-262 
A-153 
certain rights with regard to the section 251 and 252 negotiation and arbitration processes.881 Although a 
broad cross section of the industry supports the USTelecom Feb. 12, 2008 proposal in its entirety, several 
commenters objected to the section 251 and 252 negotiation and arbitration provisions.882 In light of the 
lack of consensus on some of these issues and the changes to the intercarrier compensation system 
adopted in this order we are not persuaded that the other specific actions sought in the USTelecom Feb 
12, 2008 proposal are necessary at this time.883 
VI. FURTHER NOTICE OF PROPOSED RULEMAKING 
A. Universal Service Contributions 
343. As we explain above, an assessment methodology based solely on telephone numbers 
would not require certain business services to equitably contribute to the universal service fund.884 We, 
therefore, determine that universal service contributions for business services will be based on 
connections as opposed to numbers. We seek comment on how best to implement a connection-based 
mechanism for business services, and whether that mechanism should be based solely on connections or 
on a combination of Assessable Numbers and connections. 
344. We also seek comment on expanding our NRUF data collection to all providers who are 
required to contribute to the universal service fund based on Assessable Numbers. At present, our NRUF 
reporting rules require reporting carriers to file reports. A reporting carrier is defined as a 
telecommunications carrier that receives numbering resources from the NANPA, a Pooling Administrator 
or another telecommunications carrier.885 Reporting carriers file reports regarding six categories of 
numbers, the descriptions of some of which refer to telecommunications carriers or 
telecommunications services.886 We seek comment on whether we should amend our rules to require 
all providers who assign numbers or otherwise make numbers available to end users to file NRUF reports. 
Would such an expansion assist the Commission and the fund administrator with monitoring and 
enforcing universal service contribution requirements? What modifications would the Commission need 
to make to its rules to effectuate this kind of policy change? 
881 See USTA Feb. 12, 2008 Proposal. 
882 See, e.g., Letter from Brad Mutschelknaus, Counsel to Broadview Networks et al. to Kevin J. Martin et al., FCC, 
CC Docket No. 01-92 (filed Oct. 22, 2008); Letter from Henry T. Kelly, Counsel to Peerless Networks to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92 et al. (filed Sept. 16, 2008); Letter from Charles W. McKee, 
DirectorGovernment Affairs, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed 
Apr. 16, 2008); Letter from Thomas Cohen, Edward A. Yorkgitis, Jr., Counsel for NuVox Communications et al., to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Mar. 11, 2008); Letter from Daniel L. Brenner, 
Senior Vice President, Law and Regulatory Policy, NCTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92 at 2 (filed Feb. 29, 2008); Letter from Paul Garnett, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 01-92 at 2 (filed Feb. 25, 2008). 
883 The USTA Feb 12, 2008 Proposal also sought certain enforcement commitments related to our call signaling 
rules. In this regard, USTAs proposal did not seek anything beyond the ordinary course of business. As with any 
of our rules, the Commission is committed to resolving complaints expeditiously and will not hesitate to initiate 
enforcement proceedings against rule violators. 
884 See supra para. 130. 
885 47 C.F.R.  52.12(f)(2). 
886 E.g., 47 C.F.R.  52.12(e)(i) (Administrative numbers are numbers used by telecommunications carriers . . . .); 
id.  52.12(e)(v) (Intermediate numbers are numbers that are made available . . . for the purpose of providing 
telecommunications service . . . .).

Federal Communications Commission FCC 08-262 
A-154 
B. Intercarrier Compensation Further Notice 
345. In this Further Notice of Proposed Rulemaking (Further Notice) we seek comment on 
certain additional issues not resolved in our accompanying order. 
346. Originating Access. In this order, we conclude that retention of originating access 
charges would be inconsistent with our new regulatory approach to intercarrier compensation.887 
Accordingly, we find that originating charges for all telecommunications traffic subject to our 
comprehensive intercarrier compensation framework must be eliminated by the conclusion of the 
transition to the new regime. We seek comment on issues relating to the transition for the elimination of 
originating access. 
347. Transit Traffic. Transiting occurs when two carriers that are not directly interconnected 
exchange traffic by routing the traffic through an intermediary carriers network.888 We request comment 
on whether the reforms we adopt today necessitate the adoption of any rules or guidelines governing 
transit service. 
348. Universal Service Rules Applicable to Rate-of-Return Carriers. In this order, we 
conclude that under certain circumstances, rate-of-return carriers will be able to receive universal service 
support to recover net reduced revenues from intercarrier compensation as a result of reforms adopted in 
this order that they do not otherwise recover through SLC increases or other revenue increases. We seek 
comment on what rule changes are necessary to allow rate-of-return carriers to receive universal service 
support in this manner. 
349. Parts 51, 54, 61 and 69. Part 51 of the Commissions rules contain requirements 
applicable to interconnection, including reciprocal compensation.889 Part 54 of the Commissions rules 
describe universal service programs and administration.890 Part 61 of the Commissions rules prescribes 
the framework for the initial establishment of and subsequent revisions to tariff publications.891 Part 69 of 
the rules governs the Commissions access charge regulations for interstate or foreign access services.892 
We solicit comment on the need to revise the rules set forth in Parts 51, 54, 61 and/or 69, or any other 
rules, as a result of the reforms we adopt today. 
VII. PROCEDURAL MATTERS 
A. Ex Parte Presentations 
350. The rulemaking this Further Notice initiates shall be treated as a permit-but-disclose 
proceeding in accordance with the Commissions ex parte rules.893 Persons making oral ex parte 
presentations are reminded that memoranda summarizing the presentations must contain summaries of the 
887 See supra para. 229. 
888 Intercarrier Compensation FNPRM, 20 FCC Rcd at 473738, para. 120. Typically, the intermediary carrier is an 
incumbent LEC and the transited traffic is routed from the originating carrier through the incumbent LECs tandem 
switch to the terminating carrier. The intermediary (transiting) carrier then charges a fee for use of its facilities. See 
id. We note that carriers have various agreements governing the provision of transit traffic. See id. 
889 See 47 C.F.R. Part 51. 
890 See 47 C.F.R. Part 54. 
891 See 47 C.F.R. Part 61. 
892 See 47 C.F.R. Part 69. 
893 47 C.F.R.  1.200 et seq.

Federal Communications Commission FCC 08-262 
A-155 
substance of the presentations and not merely a listing of the subjects discussed. More than a one or two 
sentence description of the views and arguments presented generally is required.894 Other requirements 
pertaining to oral and written presentations are set forth in section 1.1206(b) of the Commissions rules.895 
B. Comment Filing Procedures 
351. Pursuant to sections 1.415 and 1.419 of the Commissions rules,896 interested parties may 
file comments and reply comments regarding the Further Notice on or before the dates indicated on the 
first page of this document. All filings related to the intercarrier compensation Further Notice of 
Proposed Rulemaking should refer to CC Docket No. 01-92. All filings related to the universal 
service contributions Further Notice of Proposed Rulemaking should refer to WC Docket No. 06- 
122. All filings related to numbering reporting issues of the universal service contributions Further 
Notice of Proposed Rulemaking should refer to CC Docket No. 99-200. Comments may be filed 
using: (1) the Commissions Electronic Comment Filing System (ECFS), (2) the Federal Governments e- 
Rulemaking Portal, or (3) by filing paper copies. See Electronic Filing of Documents in Rulemaking 
Proceedings, 63 FR 24121 (1998). 
352. Electronic Filers: Comments may be filed electronically using the Internet by accessing 
the ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal e-Rulemaking Portal: http://www.regulations.gov. 
Filers should follow the instructions provided on the website for submitting comments. 
353. ECFS filers must transmit one electronic copy of the comments for CC Docket Nos. 
01-92, 99-200, or WC Docket No. 06-122, respectively. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, and the applicable docket number. 
Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should 
send an e-mail to ecfs@fcc.gov, and include the following words in the body of the message, get form. 
A sample form and directions will be sent in response. 
354. Paper Filers: Parties who choose to file by paper must file an original and four copies of 
each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by 
first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving 
U.S. Postal Service mail). All filings must be addressed to the Commissions Secretary, Marlene H. 
Dortch, Office of the Secretary, Federal Communications Commission, 445 12th Street, S.W., 
Washington, D.C. 20554. 
355. The Commissions contractor will receive hand-delivered or messenger-delivered paper 
filings for the Commissions Secretary at 236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 
20002. The filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held 
together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. 
356. Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority 
Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. 
357. U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th 
Street, S.W., Washington D.C. 20554. 
358. Parties should send a copy of their filings in CC Docket No. 01-92 to Victoria Goldberg, 
Pricing Policy Division, Wireline Competition Bureau, Federal Communications Commission, Room 5- 
894 See 47 C.F.R.  1.1206(b)(2). 
895 47 C.F.R.  1.1206(b). 
896 47 C.F.R.  1.415, 1.419.

Federal Communications Commission FCC 08-262 
A-156 
A266, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. Parties shall 
also serve one copy with the Commissions copy contractor, Best Copy and Printing, Inc. (BCPI), Portals 
II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or via e-mail to 
fcc@bcpiweb.com. 
359. Parties should send a copy of their filings in WC Docket No. 06-122 to Jennifer McKee, 
Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications 
Commission, Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to 
cpdcopies@fcc.gov. Parties shall also serve one copy with the Commissions copy contractor, Best Copy 
and Printing, Inc. (BCPI), Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, 
(202) 488-5300, or via e-mail to fcc@bcpiweb.com. 
360. Parties should send a copy of their filings in WC Docket No. 99-200 to Marilyn Jones, 
Competition Policy Division, Wireline Competition Bureau, Federal Communications Commission, 
Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. 
Parties shall also serve one copy with the Commissions copy contractor, Best Copy and Printing, Inc. 
(BCPI), Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or 
via e-mail to fcc@bcpiweb.com. 
361. Documents in CC Docket Nos. 01-92, 99-200, and WC Docket No. 06-122 will be 
available for public inspection and copying during business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street S.W., Room CY-A257, Washington, D.C. 20554. The documents may 
also be purchased from BCPI, telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-5562, 
e-mail fcc@bcpiweb.com. 
C. Initial Regulatory Flexibility Analysis 
362. As required by the Regulatory Flexibility Act of 1980,897 the Commission has prepared 
an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small 
entities of the policies and rules addressed in this document. The IRFA is set forth in Appendix E. 
Written public comments are requested on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines for comments on the Notice provided on or before the dates 
indicated on the first page of this Notice. 
D. Final Regulatory Flexibility Analysis 
363. Pursuant to the Regulatory Flexibility Act (RFA),898 the Commission has prepared a Final 
Regulatory Flexibility Analysis (FRFA) for the Report and Order concerning the possible significant 
economic impact on small entities by the policies and actions considered in the Report and Order. 
E. Paperwork Reduction Act 
364. This document contains proposed new or modified information collection requirements. 
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public 
and the Office of Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107- 
897 See 5 U.S.C.  603. 
898 See 5 U.S.C.  603. The RFA, see 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 (Small Business Act).

Federal Communications Commission FCC 08-262 
A-157 
198,899 we seek specific comment on how we might further reduce the information collection burden for 
small business concerns with fewer than 25 employees. 
F. Accessible Formats 
365. To request materials in accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental 
Affairs Bureau at 202-418-0530 (voice) or 202-418-0432 (TTY). Contact the FCC to request reasonable 
accommodations for filing comments (accessible format documents, sign language interpreters, CART, 
etc.) by e-mail: FCC504@fcc.gov; phone: 202-418-0530 or TTY: 202-418-0432. 
G. Congressional Review Act 
366. The Commission will include a copy of this Order on Remand and Report and Order and 
Further Notice of Proposed Rulemaking in a report to be sent to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act. See 5 U.S.C.  801(a)(1)(A). 
VIII. ORDERING CLAUSES 
367. Accordingly, IT IS ORDERED that, pursuant to Sections 14, 201209, 214, 218-220, 
224, 251, 252, 254, 303(r), 332, 403, 502, and 503 of the Communications Act of 1934, as amended, and 
Sections 601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.  151154, 157 nt, 201209, 
214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503, and sections 1.1, 1.4111.429, and 1.1200 
1.1216 of the Commissions rules, 47 C.F.R.  1.1, 1.4111.429, 1.12001.1216, the ORDER ON 
REMAND AND REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING 
ARE ADOPTED. 
368. IT IS FURTHER ORDERED that Parts [__] of the Commissions rules, 47 C.F.R.  [__] 
are AMENDED as set forth in Appendix A hereto. 
369. IT IS FURTHER ORDERED, in light of the opinion of the United States Court of 
Appeals for the District of Columbia Circuit in WorldCom v. FCC, 288 F.3d 429 (D.C. Cir. 2002), we 
consider our obligations met from the writ of mandamus issued in In re Core Communications, Inc. on 
Petition for Writ of Mandamus to the Federal Communications Commission, D.C. Cir. No. 07-1446 
(decided July 8, 2008). 
370. IT IS FURTHER ORDERED that this ORDER ON REMAND AND REPORT AND 
ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING shall become effective 30 days 
after publication of the text of a summary thereof in the Federal Register, pursuant to 47 C.F.R.  1.4, 
1.13, except for the information collections, which require approval by OMB under the PRA and which 
shall become effective after the Commission publishes a notice in the Federal Register announcing such 
approval and the relevant effective date(s). 
371. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this REPORT AND ORDER AND 
ORDER ON REMAND, including the Final Regulatory Flexibility Analyses and Final Regulatory 
Flexibility Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. 
372. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this FURTHER NOTICE OF 
PROPOSED RULEMAKING, including the Initial Regulatory Flexibility Analyses and Initial Regulatory 
Flexibility Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. 
899 See 44 U.S.C.  3506(c)(4).

Federal Communications Commission FCC 08-262 
A-158 
FEDERAL COMMUNICATIONS COMMISSION 
Marlene H. Dortch 
Secretary

Federal Communications Commission FCC 08-262 
APPENDIX B 
Narrow Universal Service Reform Proposal 
In the Matter of 
High-Cost Universal Service Support 
Federal-State Joint Board on Universal Service 
Universal Service Contribution Methodology 
))))))) 
WC Docket No. 05-337 
CC Docket No. 96-45 
WC Docket No. 06-122 
REPORT AND ORDER 
Adopted: [insert date] Released: [insert date] 
By the Commission 
TABLE OF CONTENTS 
Heading Paragraph # 
I. INTRODUCTION................................................................................................................................. 1 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT ....................................................... 5 
A. Background ..................................................................................................................................... 5 
B. Discussion ..................................................................................................................................... 12 
1. Controlling the Growth of the High-Cost Fund....................................................................... 14 
2. Reverse Auctions..................................................................................................................... 18 
a. Geographic Area ............................................................................................................... 22 
b. Reserve Price .................................................................................................................... 23 
c. Auctioned Support ............................................................................................................ 25 
d. Selecting a Winning Bid ................................................................................................... 29 
e. Bidder Qualifications ........................................................................................................ 32 
III. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS ............................................................. 39 
A. Background ................................................................................................................................... 40 
B. Discussion ..................................................................................................................................... 44 
1. Legal Authority ....................................................................................................................... 45 
2. The New Numbers-Based Assessment Methodology ............................................................. 52 
a. Benefits of a Numbers-Based Contribution Methodology................................................ 53 
b. Assessable Numbers ......................................................................................................... 62 
3. Additional Contribution Assessment Methodology for Business Services............................. 78 
4. Wireless Prepaid Plans ............................................................................................................ 83 
5. Exceptions to Contribution Obligations .................................................................................. 89 
6. Reporting Requirements and Recordkeeping .......................................................................... 95 
7. Transition to New Methodology............................................................................................ 102 
IV. PROCEDURAL MATTERS.............................................................................................................. 105 
A. Final Regulatory Flexibility Analysis .......................................................................................... 105 
B. Paperwork Reduction Act ............................................................................................................ 106

Federal Communications Commission FCC 08-262 
B-2 
C. Accessible Formats ...................................................................................................................... 107 
D. Congressional Review Act........................................................................................................... 108 
V. ORDERING CLAUSES..................................................................................................................... 109 
I. INTRODUCTION 
1. In enacting the Telecommunications Act of 1996 (1996 Act),1 Congress sought to 
introduce competition into local telephone service, which traditionally was provided through regulated 
monopolies. Recognizing that in introducing such competition, it was threatening the implicit subsidy 
system that had traditionally supported universal service, it directed the Commission to reform its 
universal service program to make support explicit and sustainable in the face of developing competition. 
2. The resulting development of competition and the rapid development of Internet protocol 
(IP)-based networks have challenged the outdated regulatory assumptions underlying our universal 
service programs, forcing us to reassess our existing approaches. We have seen unprecedented growth in 
the universal service fund, driven in significant part by increased support for competitive eligible 
telecommunications carriers (ETCs). The growth of competition also has eroded the universal service 
contribution base as the prices for interstate and international services have dropped, and, with the growth 
of the Internet, the very definition of interstate and international traffic has been called into question. 
3. At the same time, universal service distributions have continued to grow to support 
legacy telecommunications networks. In many cases, support is used to offset the increasing revenue 
losses to these incumbent carriers as the gap between legacy technology and more efficient technologies 
has widened. Moreover, our method of distributing support even to new competitive carriers is not 
designed to bring those competitive choices to all Americans, but, rather, it has created incentives for 
multiple competitive carriers to avail themselves of identical support in areas where the legacy network 
provider receives the largest subsidies. 
4. In short, we are spending more and more of contributors universal service dollars, with 
less and less to show for it. That stops today. Today we adopt a comprehensive approach that stabilizes 
the universal service fund and directs universal service dollars to the most efficient provider so that 
Americans in rural and high-cost areas can have access to reasonably comparable services at affordable 
rates. First, we cap the high-cost fund, and move expeditiously to adopt a reverse auction approach to 
better target high-cost support to high-cost areas. Then we broaden and stabilize our universal service 
contribution base through equitable and non-discriminatory contributions. 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT 
A. Background 
5. The 1996 Act amended the Communications Act of 1934 (the Act) with respect to the 
provision of universal service.2 Congress sought to preserve and advance universal service, while at the 
same time opening all telecommunications markets to competition.3 Section 254(b) of the Act directs the 
Federal-State Joint Board on Universal Service (Joint Board) and the Commission to base policies for the 
preservation and advancement of universal service on several general principles, plus other principles that 
the Commission may establish.4 Among other things, section 254(b) directs that there should be specific, 
1 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (1996 Act). 
2 47 U.S.C.  254 (added by the 1996 Act). 
3 47 U.S.C.  254. 
4 See 47 U.S.C.  254(b). 

Federal Communications Commission FCC 08-262 
B-3 
predictable, and sufficient federal and state universal service support mechanisms; quality services should 
be available at just, reasonable, and affordable rates; and access to advanced telecommunications and 
information services should be provided in all regions of the nation.5 
6. The Commission implemented the universal service provisions of the 1996 Act in the 
1997 Universal Service First Report and Order.6 In considering methods to determine universal service 
support in rural, insular, and high-cost areas, the Commission examined the use of competitive bidding, 
and identified several advantages of competitive bidding as a method for allocating high-cost universal 
service support.7 First, the Commission found that a compelling reason to use competitive bidding is its 
potential as a market-based approach to determining universal service support, if any, for any given 
area.8 Second, by encouraging more efficient carriers to submit bids reflecting their lower costs, 
another advantage of a properly structured competitive bidding system would be its ability to reduce the 
amount of support needed for universal service.9 Despite these advantages, the Commission determined 
that the record at the time was insufficient to support adoption of a competitive bidding mechanism.10 
Moreover, the Commission found it unlikely that competitive bidding mechanisms would be useful at that 
time because there likely would be no competition in a significant number of rural, insular, or high-cost 
areas in the near future.11 The Commission, therefore, declined to adopt a competitive bidding 
mechanism at that time, but found that competitive bidding warranted further consideration as a potential 
mechanism for determining levels of high-cost support in the future.12 
7. Pursuant to section 254(e) of the Act, an entity must be designated as an ETC to receive 
high-cost universal service support.13 ETCs may be incumbent local exchange carriers (LECs), or nonincumbent 
LECs, which are referred to as competitive ETCs.14 Under the existing high-cost support 
distribution mechanism, incumbent LEC ETCs receive high-cost support for their intrastate services 
5 47 U.S.C.  254(b)(1), (2), (5). 
6 See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 
878088, paras. 120 (1997) (Universal Service First Report and Order) (subsequent history omitted). 
7 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320. 
8 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (agreeing with the Joint Board). The 
Commission also agreed with the Joint Board that competitive bidding is consistent with section 254, and comports 
with the intent of the 1996 Act to rely on market forces and to minimize regulation. Id. at 8951, para. 325. 
9 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (In that regard, the bidding process 
should also capture the efficiency gains from new technologies or improved productivity, converting them into cost 
savings for universal service.). 
10 See Universal Service First Report and Order, 12 FCC Rcd at 894950, paras. 32223. Only GTE had proposed 
a detailed competitive bidding plan, which it characterized as an outline rather than a final proposal. See GTEs 
Comments in Response to Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996). 
11 See Universal Service First Report and Order, 12 FCC Rcd at 8950, para. 324. 
12 See Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320. 
13 47 U.S.C.  254(e). The statutory requirements for ETC designation are set out in section 214(e) of the Act. 47 
U.S.C.  214(e). 
14 See 47 C.F.R.  54.5 (A competitive eligible telecommunications carrier is a carrier that meets the definition of 
eligible telecommunications carrier below and does not meet the definition of an incumbent local exchange 
carrier in  51.5 of this chapter.).

Federal Communications Commission FCC 08-262 
B-4 
based on their costs.15 Competitive ETCs, on the other hand, receive support for each of their lines based 
on the per-line support the incumbent LEC receives in the service area.16 This support to competitive 
ETCs is known as identical support. The Commissions universal service high-cost support rules do 
not distinguish between primary and secondary lines; therefore, high-cost support may go to a single end 
user for multiple connections.17 Further, the Commissions rules may result in multiple competitors in the 
same high-cost area receiving identical per-line support. 
8. High-cost support for competitive ETCs has grown rapidly over the last several years, 
which has placed extraordinary pressure on the federal universal service fund.18 In 2001, high-cost 
universal service support totaled approximately $2.6 billion.19 By 2007, the amount of high-cost support 
had grown to approximately $4.3 billion per year.20 In recent years, this growth has been due mostly to 
increased support provided to competitive ETCs, which pursuant to the identical support rule receive 
high-cost support based on the incumbent LECs per-line support. Competitive ETC support, in the six 
years from 2001 through 2007, has grown from under $17 million to $1.18 billionan annual growth rate 
of over 100 percent.21 This funded competition has grown significantly in a large number of rural, 
insular, or high-cost areas; in some study areas, more than 20 competitive ETCs currently receive 
support.22 
9. To address the growth in competitive ETC support, the Joint Board recommended an 
15 Non-rural incumbent LEC ETCs receive support for their intrastate supported services based on the forwardlooking 
economic cost of providing the services. 47 C.F.R.  54.309. Rural incumbent LEC ETCs receive support 
based on their loop costs, as compared to a national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R.  54.305. 
Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines receive support based on their local 
switching costs. 47 C.F.R.  54.301. Additionally, incumbent LEC ETCs that are subject to price cap or rate-ofreturn 
regulation receive interstate access support based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, 
K. 
16 47 C.F.R.  54.307(a). 
17 See Universal Service First Report and Order, 12 FCC Rcd at 882830, paras. 9496. 
18 Support for the fund derives from assessments paid by providers of interstate telecommunications services and 
certain other providers of interstate telecommunications. See 47 C.F.R.  54.706. Fund contributors are permitted 
to, and almost always do, pass those assessments though to their end-user customers. See 47 C.F.R.  54.712. Fund 
assessments paid by contributors are determined by applying the quarterly contribution factor to the contributors 
contribution base revenues. In the second quarter of 2007, the contribution factor reached 11.7%, which is the 
highest level since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor has since declined 
to 11.4% in the fourth quarter of 2008. Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008). 
19 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 3.2 (2007) (2007 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf. 
20 UNIVERSAL SERVICE ADMINISTRATIVE COMPANY, 2007 ANNUAL REPORT 43 (2007) (USAC 2007 ANNUAL 
REPORT), available at http://www.usac.org/_res/documents/about/pdf/usac-annual-report-2007.pdf. 
21 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 3.2; USAC 2007 ANNUAL REPORT at 45. 
22 See USAC Quarterly Administrative Filings for 2008, Fourth Quarter (4Q) Appendices, HC03Rural Study 
Areas with Competition4Q2008, available at http://www.usac.org/about/governance/fccfilings/
2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls (showing 
24 competitive ETCs in the study area of incumbent LEC Iowa Telecom North (study area code 351167), and 22 
competitive ETCs in the study area of incumbent LEC Iowa Telecom Systems (study area code 351170)).

Federal Communications Commission FCC 08-262 
B-5 
interim cap on the amount of high-cost support available to competitive ETCs, pending comprehensive 
high-cost universal service reform. The Commission adopted this recommendation in 2008.23 
10. For the past several years, the Joint Board and the Commission have been exploring ways 
to reform the Commissions high-cost program. In the most recent high-cost support comprehensive 
reform efforts, the Joint Board issued a recommended decision on November 20, 2007.24 The Joint Board 
recommended that the Commission address reforms to the high-cost program and make fundamental 
revisions in the structure of existing Universal Service mechanisms.25 Specifically, the Joint Board 
recommended that the Commission should: (1) deliver high-cost support through a provider of last resort 
fund, a mobility fund, and a broadband fund;26 (2) cap the high-cost fund at $4.5 billion, the approximate 
level of 2007 high-cost support;27 (3) reduce the existing funding mechanisms during a transition period;28 
(4) add broadband and mobility to the list of services eligible for support under section 254 of the Act;29 
(5) eliminate the identical support rule;30 and (6) explore the most appropriate auction mechanisms to 
determine high-cost universal service support.31 
11. On January 29, 2008, the Commission released three notices of proposed rulemaking 
addressing proposals for comprehensive reform of high-cost universal service support.32 In the Identical 
Support NPRM, the Commission sought comment on the Commissions rules governing the amount of 
high-cost universal service support provided to competitive ETCs.33 It tentatively concluded that the 
23 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No.96-45, Recommended Decision, 22 FCC Rcd 8998, 89999001, paras. 47 (JB 2007) (Interim Cap 
Recommended Decision); High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, 
WC Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834 (2008) (Interim Cap Order). As 
recommended by the Joint Board, the Commission capped competitive ETC support for each state. Interim Cap 
Recommended Decision, 22 FCC Rcd at 9002, para. 9; Interim Cap Order, 23 FCC Rcd at 8846, paras. 2628. The 
Commission set the cap at the level of support competitive ETCs were eligible to receive during March 2008. 
Interim Cap Order, 23 FCC Rcd at 8850, para. 38. 
24 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (Comprehensive Reform 
Recommended Decision). 
25 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 1. 
26 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048081, para. 11. 
27 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. 
28 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 27. 
29 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048182, paras. 1218. 
30 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20486, para. 35. 
31 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, paras. 16. 
32 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (Identical Support NPRM); High- 
Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC 
Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008) (Reverse Auctions NPRM); High-Cost 
Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC Docket 
No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1531 (2008) (Joint Board Comprehensive Reform NPRM) 
(collectively the High-Cost Reform NPRMs). 
33 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1.

Federal Communications Commission FCC 08-262 
B-6 
Commission should eliminate the identical support rule.34 The Commission also tentatively concluded 
that support to a competitive ETC should be based on the competitive ETCs own costs of providing the 
supported services, and it sought comment on how the support should be calculated, the reporting 
obligations to be applied, and whether the Commission should cap such support at the level of the 
incumbent LECs support.35 In the Reverse Auctions NPRM, the Commission tentatively concluded that 
reverse auctions offer several potential advantages over current high-cost mechanisms and sought 
comment on whether they should be used as the disbursement mechanism to determine the amount of 
high-cost universal service support for ETCs serving rural, insular, and high-cost areas, and it sought 
comment on how to implement reverse auctions for this purpose.36 The Commission also sought 
comment on a number of specific issues regarding auctions and auction design.37 The Commission also 
released the Joint Board Comprehensive Reform NPRM, seeking comment on the Joint Boards 
Comprehensive Reform Recommended Decision and incorporating by reference the Identical Support 
NPRM and the Reverse Auctions NPRM.38 The discussion that follows represents our response to the 
Joint Boards Comprehensive Reform Recommended Decision, pursuant to section 254(a)(2).39 
B. Discussion 
12. Today we comprehensively reform the high-cost universal service support mechanism. 
First, we cap the overall size of the high-cost mechanism to protect customers in all areas of the nation 
from increasing universal service contribution assessments. Second, we conclude that we will use a 
reverse auction to distribute both incumbent LEC ETC and competitive ETC support, with such auctions 
to conclude within one year of the effective date of the order. 
13. The requirements that we adopt for disbursement of high-cost universal service support 
do not apply to providers operating in Alaska, Hawaii, or any U.S. Territories and possessions.40 We find 
that these areas have very different attributes and related cost issues than do the continental states.41 For 
34 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1. 
35 Identical Support NPRM, 23 FCC Rcd at 147378, paras. 1225. 
36 Reverse Auctions NPRM, 23 FCC Rcd at 1495, para. 1. 
37 Reverse Auctions NPRM, 23 FCC Rcd at 150012, paras. 1050. 
38 Joint Board Comprehensive Reform NPRM, 23 FCC Rcd at 1531, para. 1. 
39 47 U.S.C.  254(a)(2). Pursuant to that section, the Commission shall complete any proceeding to implement a 
Joint Board recommendation within one year after receiving it. The Commission has acted on the Comprehensive 
Reform Recommended Decision prior to the November 20, 2008 one-year statutory deadline. 
40 Providers operating in U.S. Territories and possessions, such as Puerto Rico and Guam, are not subject to the 
requirements adopted in this order. See Letter from Earl Comstock, Comstock Consulting LLC, to Marlene Dortch, 
Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-377 at 1 (dated Oct. 15, 2008) (asking the Commission 
to recognize the higher costs and lower income levels in Puerto Rico in any reform efforts it may take); Letter from 
Eric N. Votaw, Vice President-Marketing & Regulatory, GTA Telecom, Inc., to Marlene H. Dortch, Secretary, FCC, 
CC Docket Nos. 99-68, 96-45, WC Docket No. 05-337 at 12 (filed Oct. 24, 2008) (asking the Commission to 
recognize that Guams costs are higher than the continental United States and that Guam should be treated 
separately, along with Alaska and Hawaii, for reform purposes). 
41 E.g., Verizon Commcns, Inc., Transferor, and Amrica Mvil, S.A. de C.V., Transferee, WT Docket No. 06-113, 
Memorandum Opinion and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36 (2007) 
(Verizon/Amrica Mvil Transfer Order) (describing difficult to serve terrain and dramatic urban/rural differences 
in Puerto Rico); Integration of Rates and Services for Provision of Communications by Authorized Common 
Carriers between the Contiguous States and Alaska, Hawaii, Puerto Rico and the Virgin Islands, CC Docket No. 
(continued.)

Federal Communications Commission FCC 08-262 
B-7 
this reason,42 we are exempting providers in Alaska, Hawaii and U.S. Territories and possessions from the 
requirements and rules adopted herein with respect to the disbursement of high-cost support, and we will 
address changes to the high-cost support disbursement mechanism in these areas in a subsequent 
proceeding.43 
1. Controlling the Growth of the High-Cost Fund 
14. Consistent with the recommendation of the Joint Board, we cap the total amount of highcost 
universal service support at 2007 levels.44 As the Joint Board recognized, high-cost support currently 
accounts for more than half of total federal universal service support.45 Since 1997, when the 
Commission implemented the universal service requirements of section 254 of the Act, high-cost support 
has increased by 240 percent.46 Although, earlier this year, we took an initial step to address high-cost 
fund growth by capping support to competitive ETCs, that cap was an interim, emergency measure, 
pending a closer examination of the steps necessary to achieve comprehensive reform.47 Many 
commenters have urged the Commission to cap the overall amount of high-cost support, rather than 
limiting the cap only to competitive ETCs.48 Although other commenters oppose the adoption of a cap on 
(continued from previous page) 
83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd 395, 396, paras. 78 (1989) (Rates and Services 
Integration Order) (describing the unique market conditions and structure in Alaska); Letter from Brita D. 
Strandberg, Counsel for General Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01- 
92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008) (discussing Alaskas particular service needs and network 
architecture). 
42 Cf. The Establishment of Policies and Service Rules for the Broadcasting-Satellite Service at the 17.3-17.7 GHz 
Frequency Band and at the 17.7-17.8 GHz Frequency Band Internationally, and at the 24.75-25.25 GHz Frequency 
Band for Fixed Satellite Services Providing Feeder Links to the Broadcasting-Satellite Service and for the Satellite 
Services Operating Bi-directionally in the 17.3-17.8 GHz Frequency Band, IB Docket No. 06-123, Report and Order 
and Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para. 47 (2007) (Policies and Service Rules 
for the Broadcasting-Satellite Service Order) (The Commission is committed to establishing policies and rules that 
will promote service to all regions in the United States, particularly to traditionally underserved areas, such as 
Alaska and Hawaii, and other remote areas.). 
43 The rules and requirements adopted in this order for universal service contributions will apply to these areas. 
44 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, 20481, 20484, paras. 2, 11, 26. 
45 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. In 2007, total federal universal 
service disbursements amounted to approximately $6.95 billion. Of that amount, approximately $4.29 billion, 62%, 
was disbursed as high-cost support. USAC 2007 ANNUAL REPORT at 51. 
46 See 2007 UNIVERSAL SERVICE MONITORING REPORT at 3-14, tbl. 3.1 (high-cost support in 1997 was 
approximately $1.26 billion, compared with approximately $4.29 billion in 2007). Even taking into account the fact 
that additional interstate support mechanisms, Interstate Access Support (IAS) and Interstate Common Line Support 
(ICLS), were created in 2000 and 2001, respectively, high-cost support has still increased by more than 45%, from 
approximately $2.94 billion in 2002 to its current level of approximately $4.29 billion. Id. 
47 See Interim Cap Order, 23 FCC Rcd at 8834, para. 1. 
48 See CenturyTel High-Cost Reform NPRMs Comments at 18 (existing high-cost support mechanisms should be 
frozen at the study area level or on a statewide basis to provide funding certainty and encourage investment); 
Chinook High-Cost Reform NPRMs Comments, Attach. at 56 (any cap on universal service support should apply to 
all ETCs, including incumbent LECs); Connecticut Dept of Pub. Util. Control High-Cost Reform NPRMs 
Comments at 5 (supporting a cap on high-cost support set at the 2007 level); Florida PSC High-Cost Reform NPRMs 
Comments at 2 (supporting the recommendation to cap the overall size of the high-cost fund); Information 
Technology Industry Council (ITI) High-Cost Reform NPRMs Comments at 7 (an overall cap should be applied to 
control the size of the high-cost mechanism); NCTA High-Cost Reform NPRMs Comments at 19 (the Joint Boards 
(continued.)

Federal Communications Commission FCC 08-262 
B-8 
the total amount of high-cost support or on the amount of support available to incumbent LEC ETCs,49 we 
find that, to manage the high-cost support mechanism effectively, we must control its growth.50 
15. We find it necessary to cap the high-cost mechanism as a first step toward fulfilling our 
statutory obligation to create specific, predictable and sufficient universal service support mechanisms.51 
As the United States Court of Appeals for the Fifth Circuit held in Alenco: [t]he agencys broad 
discretion to provide sufficient universal service funding includes the decision to impose cost controls to 
avoid excessive expenditures that will detract from universal service.52 The Alenco court also found that 
excessive funding may itself violate the sufficiency requirements,53 and the United States Court of 
Appeals for the Tenth Circuit has stated that excessive subsidization arguably may affect the 
affordability of telecommunications services for unsubsidized users, thus violating the principle in 
[section] 254(b)(1).54 Given the excessive growth in high-cost support, we find it necessary to cap this 
mechanism to ensure that unsubsidized users who contribute to the fund are not harmed by excessive 
subsidization. 
16. In addition to capping the overall high-cost fund at the total amount of high-cost support 
disbursed by the Universal Service Administrative Company (USAC) for 2007, consistent with the Joint 
Boards recommendation, we take a number of other steps to limit the growth of high-cost support. We 
also eliminate the identical support rule for competitive ETCs. 
17. Consistent with section 254(b)(5) of the Act, we find that capping high-cost support and 
(continued from previous page) 
proposal to cap the overall size of the high-cost mechanism is a welcome dose of fiscal responsibility); National 
Consumer Law Center Joint Board Comprehensive Reform NPRM Comments at 23 (supporting the Joint Boards 
proposal to cap the overall high-cost fund); Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 23, 
69 (Commission should cap the overall high-cost fund). 
49 See Frontier High-Cost Reform NPRMs Comments at 67; JSI High-Cost Reform NPRMs Comments at 6; 
Montana Telecommunications Assn High-Cost Reform NPRMs Comments at 2122; NECA High-Cost Reform 
NPRMs Comments at 1720; TCA High-Cost Reform NPRMs Comments at 1011; TDS High-Cost Reform NPRMs 
Comments at 89; Missouri Small Telephone Company Group (MSTC) High-Cost Reform NPRMs Reply at 57; 
Utah Rural Telecom Assn High-Cost Reform NPRMs Reply at 5. 
50 47 U.S.C.  254(b)(5); see CenturyTel High-Cost Reform NPRMs Comments at 18; Comcast High-Cost Reform 
NPRMs Comments at 3, 11; Florida PSC High-Cost Reform NPRMs Comments at 89; National Consumer Law 
Center Joint Board Comprehensive Reform NPRM Comments at 2; NCTA High-Cost Reform NPRMs Comments at 
46; New Jersey Division of Rate Counsel High-Cost Reform NPRMs Comments at 5254; Oregon PUC High-Cost 
Reform NPRMs Comments at 23; Sprint Nextel High-Cost Reform NPRMs Comments at 3; USTelecom High-Cost 
Reform NPRMs Comments at 2; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 7; New Jersey 
Division of Rate Counsel High-Cost Reform NPRMs Reply at 6465; Sprint Nextel High-Cost Reform NPRMs 
Reply at 89; State Commissioners High-Cost Reform NPRMs Reply at 2; Texas Office of Public Utility Counsel 
Joint Board Comprehensive Reform NPRM Reply at 2; Virgin Mobile High-Cost Reform NPRMs Reply at 34. The 
Commission has already implemented caps on the schools and libraries and rural health care universal service 
mechanisms. Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a 
$2.25 billion annual cap for the schools and libraries mechanism and a $400 million annual cap for the rural health 
care mechanism); see also 47 C.F.R.  54.507(a), 54.623(a). 
51 47 U.S.C.  254(b)(5); see also Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 
704. 
52 Alenco Commcns, Inc. v. FCC, 201 F.3d 608, 62021 (5th Cir. 2000) (Alenco). 
53 Alenco, 201 F.3d at 620. 
54 Qwest Commcns Intl Inc. v. FCC, 398 F.3d 1222, 1234 (10th Cir. 2005).

Federal Communications Commission FCC 08-262 
B-9 
using a reverse auction to distribute that support to an entity capable of meeting all ETC requirements at 
or below the capped amount will enable ETCs to predict the specific level of support that they will 
receive should they choose to participate in the program.55 In fact, through the reverse auction process, it 
will be the bidders, not the Commission, that determine how much support they need to offer service. 
Finally, as discussed below, if the reverse auction process does not yield a winning bidder, the 
Commission will reexamine whether it needs to take further action with regard to this situation, should it 
arise. 
2. Reverse Auctions 
18. We sought comment in our Reverse Auctions NPRM on the merits of using reverse 
auctions, a form of competitive bidding, to decide how much high-cost support to provide to ETCs 
serving rural, insular, and high-cost areas.56 In a reverse auction, support generally would be determined 
by the lowest bid to serve the auctioned area.57 We conclude that using a reverse auction method for 
identifying both the recipient of high-cost support for a study area, as well as the amount of support, is 
appropriate because the winning bid should approach the minimum level of subsidy required to achieve 
our universal service goals.58 In contrast, a support mechanism based on cost or on a cost model provides 
little incentive for an ETC to provide supported services at the minimum possible cost.59 In addition, a 
reverse auction provides a fair and efficient means of eliminating or reducing the subsidization of 
multiple ETCs in a given region.60 For these reasons, we find that a reverse auction offers advantages 
over the current high-cost support distribution mechanisms and we adopt a reverse auction plan, as 
discussed below.61 
19. In the Identical Support NPRM, the Commission tentatively concluded that it should 
eliminate the current identical support rule for competitive ETCs, because the rule bears no relationship to 
the amount of money competitive ETCs have invested in rural and other high-cost areas of the country.62 
55 47 U.S.C.  254(b)(5). 
56 See Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 10. 
57 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11. 
58 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Connecticut Commission High-Cost Reform NPRMs 
Comments at 7 (supports reverse auctions as a means of controlling and reducing the size of the universal service 
fund, while putting the burden on providers to estimate bid amounts); Comcast High-Cost Reform NPRMs 
Comments at 7 (noting that the use of reverse auctions could reduce the size of the high-cost fund significantly). 
59 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Letter from Grover Norquist, Americans for Tax 
Reform, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45 and WC Docket No. 05-337 at 1 (filed Apr. 14, 
2008) (reverse auctions will create incentives to invest in rural communities and will not finance and subsidize 
wasteful carriers). 
60 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11. 
61 Several commenters, in particular those representing rural telephone companies, oppose the use of reverse 
auctions to award high-cost support to carriers of last resort in rural areas. See, e.g., ATA High-Cost Reform 
NPRMs Comments at 1315; Alexicon Reverse Auctions NPRM Comments at 23; NTCA High-Cost Reform 
NPRMs Comments at 30-46; OPASTCO High-Cost Reform NPRMs Comments at 16-21. None of these 
commenters, however, present a compelling reason justifying why we should not ensure that universal service funds 
are properly spent where needed to further the goals of universal service. If these companies are making efficient 
use of these funds today, there is no reason that they cannot effectively compete in a reverse auction to remain the 
provider of last resort. 
62 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5.

Federal Communications Commission FCC 08-262 
B-10 
In that notice, the Commission tentatively concluded that a competitive ETC should receive high-cost 
support based on its own costs, which better reflect real investment in rural and other high-cost areas of 
the country, and which create greater incentives for investment in those areas.63 
20. In this order, we adopt the first tentative conclusion, and eliminate the identical support 
rule. However, we reject our tentative conclusion that a competitive ETC should receive high-cost 
support based on its own costs, and we conclude, instead, that support for competitive ETCs should be 
awarded in the same manner as incumbent LEC ETC support, via reverse auction.64 
21. To implement the reverse auctions, there are several issues that must be addressed. We 
describe in this part: (1) the geographic area to be auctioned; (2) the reserve price for the reverse auction; 
(3) what a winning bidder will receive; (4) how the winning bidder will be selected; and (5) the 
qualifications a bidder must demonstrate before it may participate in a reverse auction. 
a. Geographic Area 
22. In the Reverse Auctions NPRM, we sought comment on whether we should use the study 
area65 as the geographic area for reverse auctions.66 We observed that high-cost support today is 
generally based on the wireline incumbent LECs study area.67 We tentatively concluded that the wireline 
incumbent LECs study area would be the appropriate geographic area on which to base reverse 
auctions.68 We adopt our tentative conclusion that the study area is the best geographic area to use for 
several reasons. First, if we allowed bidders to bid to provide service in smaller geographic areas, we 
would encourage bidders to bid on areas that are easier or cheaper to serve, leaving our most difficult-toserve 
populations still without comparable service.69 Conversely, if we required bidders to bid on even 
larger geographic areas, we might discourage bidders from entering the auction because of the difficulty 
in committing to serve a larger area. Although some commenters oppose using the incumbent LECs 
63 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5. 
64 As of the effective date of this order, a competitive ETC will no longer receive high-cost support based on the 
identical support rule, and will receive high-cost support only to the extent it is a winning bidder in a reverse 
auction. 
65 A study area is a geographic segment of an incumbent LECs telephone operations. Generally, a study area 
corresponds to an incumbent LECs entire service territory within a state. Direct Communications Cedar Valley, 
LLC and Qwest Corporation Joint Petition for Waiver of the Definition of Study Area of the Appendix-Glossary 
of Part 36 of the Commissions Rules, Petition for Waiver of Section 69.2(hh) and 69.605(c) of the Commissions 
Rules, CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB 2005). Section 54.207 of the 
Commissions rules provides that a rural telephone companys service area will be its study area unless and until 
the Commission and the states, after taking into account recommendations of a Federal-State Joint Board instituted 
under section 410(c) of this Act, establish a different definition of service area for such company. 47 C.F.R.  
54.207(b); 47 U.S.C.  214(e)(5). 
66 See Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20. 
67 Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20. 
68 Reverse Auctions NPRM, 23 FCC Rcd at 1504, para. 21. 
69 Thus, we disagree with commenters arguments that we should hold auctions for small geographic areas, such as 
counties, census block groups, or zip codes. See, e.g., Comcast High-Cost Reform NPRMs Comments at 9; NCTA 
High-Cost Reform NPRMs Comments at 16; SouthernLINC High-Cost Reform NPRMs Comments at 2425; 
TracFone High-Cost Reform NPRMs Comments at 6.

Federal Communications Commission FCC 08-262 
B-11 
study area as the auction area,70 use of the study area is consistent with the area on which support is 
currently based, and it permits a rational basis on which to set the reserve price for the auction. Finally, 
selecting smaller geographic areas for auction would increase the number of auctions to be held, 
potentially delaying the conduct of the auction and, therefore, the proper targeting of support to areas of 
need.71 For these reasons, we conclude that the study area is the best available geographic area to 
consider for the auction. We will conduct a reverse auction for each study area for which the incumbent 
LEC receives high-cost support. 
b. Reserve Price 
23. In the Reverse Auctions NPRM, we noted that we should establish a reserve pricea 
maximum level of high-cost support that participants in the auction would be allowed to place as a bid.72 
We observed that a reserve price that is set too low is likely to discourage bidders from participating, 
while one that is set too high raises the possibility of providing too much support.73 We conclude that the 
reserve price should be the amount of high-cost support received by the incumbent LEC for 2007. 
24. We set the reserve price in each study area at the incumbent LECs 2007 level of highcost 
support for several reasons. First, we are capping the overall high-cost fund at this level. Setting a 
reserve price will help ensure that overall high-cost funding remains within the cap. In addition, setting a 
reserve price at this level will ensure that, even in reverse auctions for particular study areas that do not 
garner many bids, those bids will be made by providers who are confident that they can assume all the 
obligations of the carrier of last resort (COLR)74 and provide service more efficiently than the incumbent 
LEC.75 Indeed, we expect that bidders frequently will offer to provide service using newer and more 
efficient technologies than the incumbent LEC uses today. For these reasons, we set the reserve price at 
the level described above. 
c. Auctioned Support 
25. We will award high-cost support in each study area to a winning bidder capable of 
providing all supported services to the entire study area, on a COLR basis, consistent with the 
requirements of this order. The award amount is conditioned on the winning bidders providing all 
70 See, e.g., Comcast High-Cost Reform NPRMs Comments at 89; NCTA High-Cost Reform NPRMs Comments at 
16; SouthernLINC High-Cost Reform NPRMs Comments at 25; TracFone High-Cost Reform NPRMs Comments at 
5. 
71 See Ohio PUC Reverse Auctions NPRM Comments at 67 (generally agreeing that the incumbent LECs study 
area is the appropriate geographic area on which to base reverse auctions because further disaggregation could add 
cost and delays, and increase the opportunity for creamskimming). 
72 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36. 
73 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36. 
74 Carrier of last resort obligations for incumbent LECs are a matter of state law. Under section 214(e)(6) of the 
Act, when the state lacks jurisdiction, the Commission shall make the public interest determination on whether to 
designate a carrier an ETC. 47 U.S.C.  214(e)(6). The ETC requirements include a requirement to provide 
supported services throughout the service area. 47 U.S.C.  214(e)(1). 
75 Some commenters oppose setting the reserve price at incumbent LEC support levels, or setting any reserve price. 
See OPASTCO High-Cost Reform NPRMs Comments at 1920; MSTC Group High-Cost Reform NPRMs 
Comments at 1718; North Dakota PSC High-Cost Reform NPRMs Comments at 5. We find that setting the reserve 
price at the incumbent LEC support level will provide certainty to bidders and enable bidders with more efficient 
technologies to provide service at lower levels of support. 

Federal Communications Commission FCC 08-262 
B-12 
supported services as a COLR, as the incumbent LEC does today under state law, and meeting the ETC 
requirements set forth in the ETC Designation Order.76 
26. Competitive ETCs are currently required to provide supported services throughout their 
service area, even though they may not be, under state law, the COLR.77 In the ETC Designation Order, 
the Commission adopted additional requirements for ETC designation proceedings in which the 
Commission acts pursuant to section 214(e)(6).78 The Commission requires that applicants seeking ETC 
designation from this Commission demonstrate the following: (1) a commitment and ability to provide 
services, including providing service to all customers within its proposed service area; (2) that it will 
remain functional in emergency situations; (3) that it will satisfy consumer protection and service quality 
standards; (4) that it offers local usage comparable to that offered by the incumbent LEC; and (5) an 
understanding that it may be required to provide equal access if all other ETCs in the designated service 
area relinquish their designations pursuant to section 214(e)(4).79 We find that the universal service 
obligations in the ETC Designation Order will apply to all competitive ETCs winning reverse auctions. 
Also, we find that, as a condition of receiving support, the auction winner must accept all of the COLR 
obligations of the incumbent LEC for that study area, whether such obligations are imposed on the LEC 
pursuant to state or federal law. 
27. We recognize that a transition mechanism is needed to shift high-cost support from the 
incumbent LEC currently receiving it to another ETC that wins an award amount. A flash cut would be 
harmful in at least two ways. First, the incumbent LEC would immediately lose support upon which it 
may rely to maintain supported services as a carrier of last resort to consumers today.80 It is possible that 
removing support from the incumbent LEC would, in some cases, jeopardize its provision of services to 
some users. In addition, granting a full award amount immediately to a winning ETC would provide little 
incentive for the competitive ETC to build out new facilities to difficult-to-serve areas until the last 
possible moment, as in many cases those areas will be the most expensive to serve. As a result, we 
conclude that, prior to the initiation of an auction, the incumbent LEC for the study area will be required 
to identify the distribution of support by geographic area for purposes of the auction and the transfer of 
support to the winning bidder. As the winning ETC builds out to those geographic areas and certifies that 
it complies with all its obligations under this order for that area, it will receive high-cost support for that 
portion of the study area, and the incumbent LEC will no longer receive such support for that area.81 As 
76 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, 20 FCC Rcd 6371 (2005) (ETC 
Designation Order). Section 214(e)(6) of the Act gives the Commission authority to designate carriers as ETCs 
when those carriers are not subject to the jurisdiction of a state commission. 47 U.S.C.  214(e)(6). The 
requirements in the ETC Designation Order currently apply only to Commission-designated ETCs, although the 
Commission, in that order, encouraged state commissions to adopt similar requirements. ETC Designation Order, 
20 FCC Rcd at 6372, 6379, paras. 1, 19. 
77 See 47 U.S.C.  214(e)(1). 
78 ETC Designation Order, 20 FCC Rcd at 6380, para. 20. 
79 ETC Designation Order, 20 FCC Rcd at 6380, para. 20; 47 U.S.C.  214(e)(4). 
80 Competitive ETCs are not carriers of last resort, and loss of support would not jeopardize the provision of basic 
phone service to consumers in the study area. In fact, maintaining current levels of support to competitive ETCs 
pending a reverse auction is not necessary. Therefore, and consistent with our elimination of identical support to 
competitive ETCs, as of the effective date of this order, competitive ETCs are only entitled to support awarded via 
reverse auction. 
81 The amount of support to be awarded to the winning bidder most likely will be less than the amount of support 
received by the incumbent LEC for that same area. The transfer of support will be based on the amount of support, 
(continued.)

Federal Communications Commission FCC 08-262 
B-13 
the winning bidder takes on COLR obligations and obtains high-cost support for an area, the incumbent 
LEC will no longer receive high-cost support for that area and will be relieved of its COLR obligations at 
both the state and federal levels. We require winning auction bidders to comply fully with all the 
requirements of this order by the end of a ten-year build-out period. 
28. Finally, we address the question of transferability of the award amount. We conclude 
that auction winners may transfer their right to the award amount. This transfer could take one of several 
formsan auction winner could be purchased by another entity, the winner could sell assets used to 
provide the supported services, or the auction winner could transfer just the right to the award amount 
itself. The transferee will, in all events, step into the shoes of the auction winner and will be responsible 
for meeting all obligations as if it had been the original auction winner. Any such transfer, however, must 
be authorized by the Commission before it is consummated. 
d. Selecting a Winning Bid 
29. In the Reverse Auctions NPRM, we sought comment on whether the reverse auction 
should award high-cost support to a single winner or to multiple winners.82 We observed that if only one 
winner receives support, this could provide a fair and efficient means of eliminating the subsidization of 
multiple ETCs in a region, particularly in areas in which costs are prohibitive.83 We tentatively concluded 
that universal service support auctions should award high-cost support to a single winner.84 We now 
conclude that the single winner format will provide the most effective mechanism for determining the 
support amount sufficient to meet the universal service goals in any given area.85 We therefore adopt our 
tentative conclusion to select one winner in each reverse auction. 
30. We will evaluate bids simply, based on the bidder who meets all applicable service 
obligations at the lowest level of support. To qualify for consideration, a bid must be equal to or less than 
the reserve price. 
31. If a particular reverse auction produces no winner, the Commission will reexamine any 
such study area to determine what further actions should be taken to ensure that the study area is served 
by a provider that will meet the applicable ETC and COLR requirements. For example, the Commission 
may consider disaggregating the study area on a wire center basis for reverse auction purposes. To ensure 
continued service to customers during the limited period of time in which the Commission examines these 
issues, the existing incumbent LEC will continue to have all COLR and ETC obligations, and it will 
continue to receive high-cost support pending transfer of such support to the winning bidder of the reverse 
auction. There shall be no interim support in any study area to an existing competitive ETC pending the 
(continued from previous page) 
relative to support for the entire study area, received by the incumbent LEC for the area to be transferred; that same 
relative percentage will be used to calculate the amount of award support the auction winner should receive for the 
same area. In no event will an incumbent LEC who is not an auction winner continue to receive support for an area 
once an auction winner begins to receive support for that same area. 
82 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 13. 
83 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14. 
84 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14. 
85 See, e.g., Florida PSC High-Cost Reform NPRMs Comments at 45; New York PSC Identical Support and 
Reverse Auctions NPRMs Comments at 23; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 
2122, App. at 12. We disagree with commenters who support multiple winner auctions. See, e.g., Alltel High-Cost 
Reform NPRMs Comments at 4041; Atlantic Tele-Network Identical Support and Reverse Auctions NPRMs 
Comments at 13. We find that supporting a single auction winner is a more efficient use of universal service 
support.

Federal Communications Commission FCC 08-262 
B-14 
completion of the reverse auction. 
e. Bidder Qualifications 
32. We adopt a number of conditions that bidders must meet before they can participate in 
any auction. We adopt these requirements to help ensure that any bidder who wins an auction will be 
capable of meeting the commitments that flow from being a winning bidder. 
33. First, we require that a bidder be an ETC, certified by the Commission or by a state. In 
the Reverse Auctions NPRM, we tentatively concluded that an auction bidder must be an ETC covering 
the relevant geographic area prior to participating in the auction.86 We hereby adopt that tentative 
conclusion. Winning bidders must be designated as ETCs before receiving high-cost support pursuant to 
sections 214 and 254 of the Act; therefore, requiring bidders to receive this designation prior to 
participating in an auction entails only a small additional burden. This burden is offset by the potential 
abuse and delay that could result if a non-ETC were to bid on and win the auction, but then be ineligible 
for support.87 We note that ETCs are not required to provide all supported services with their own 
facilities.88 ETCs may enter into contracts with other entities to provide some supported services in part 
or all of the study area. 
34. As a general matter, in our spectrum auctions we require an upfront payment to deter 
frivolous or insincere bidding.89 In the reverse auctions we adopt today, we are not requiring an upfront 
payment. Instead, we are requiring participants to demonstrate to the Commission financial capability to 
undertake the construction of facilities necessary to meet ETC requirements and to satisfy COLR 
obligations. In addition, in areas where the bidder does not currently offer telecommunications services, 
we will require the bidder to submit a plan demonstrating the timetable for building the necessary 
facilities and obtaining any required permits. 
35. Milestones for Auction Winners. To ensure that auction winners make good progress 
toward meeting their obligation to become fully compliant with the requirements of this order, we require 
every auction winner to be capable of serving 10 percent of the potential customers in the service area by 
the end of year two, 25 percent by the end of year three, 50 percent by the end of year four, 65 percent by 
the end of year five, 75 percent by the end of year six, 85 percent by the end of year seven, 90 percent by 
the end of year eight, 95 percent by the end of year nine, 100 percent by the end of year ten. The absence 
of a milestone at the end of year one is intended to allow new service providers sufficient time to plan 
their network and to start deploying and marketing it within some parts of the service area. Similarly, the 
ascending milestones in the remaining years are intended to permit the auction winner a reasonable time 
in which to build its network and services while ensuring that it does not delay in reaching customers who 
86 Reverse Auctions NPRM, 23 FCC Rcd at 150001, para. 12; see also, e.g., Florida PSC High-Cost Reform 
NPRMs Comments at 5; Indiana Util. Reg. Commn High-Cost Reform NPRMs Comments at 12; MSTC Group 
High-Cost Reform NPRMs Comments at 12; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments, App. 
at 8. 
87 For this reason, we disagree with commenters who argue that we should not require bidders to be ETCs. See GCI 
High-Cost Reform NPRMs Comments at 89; Consumers Union (CU), et al. High-Cost Reform NPRMs Reply at 17. 
88 Pursuant to section 214(e)(1)(A) of the Act, a common carrier designated as an ETC must offer the services 
supported by the federal universal service mechanisms throughout the designated service area either by using its 
own facilities or by using a combination of its own facilities and resale of another carriers services (including the 
services offered by another ETC). 47 U.S.C.  214(e)(1)(A). 
89 See, e.g., Auction of LPTV and TV Translator Digital Companion Channels Scheduled for November 5, 2008, AU 
Docket No. 08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008).

Federal Communications Commission FCC 08-262 
B-15 
need this vital service. The ten-year build-out period starts on the date on which that carrier wins the 
auction.
36. Consequences of Not Meeting Milestones. For all ETCs receiving high-cost support, 
failure to achieve any milestone will result in loss of eligibility for support (and, where this Commission 
has jurisdiction over the designation of ETC status, loss of ETC status) for that service area. If the 
auction winner loses its eligibility for support, the study area will be subject to re-auction. If at the end of 
the build-out period, the ETC is not fully compliant with all its obligations under this order, the ETC will 
forfeit its eligibility for support and, if its ETC designation was made by this Commission, lose its ETC 
status. 
37. Milestone Audits. All milestone data will be subject to audit by the Commissions Office 
of Inspector General and, if necessary, investigated by the Office of Inspector General, to determine 
compliance with the build-out requirements, the Act, and Commission rules and orders.90 Service 
providers will be required to comply fully with the Office of Inspector Generals audit requirements, 
including, but not limited to, providing full access to all accounting systems, records, reports, and source 
documents of the service providers and their employees, contractors, and other agents, in addition to all 
other internal and external audit reports that are involved, in whole or in part, in the administration of this 
program.91 Such audits or investigations may provide information showing that a service provider failed 
to comply with the Act or the Commissions rules, and thus may reveal instances in which universal 
service support was improperly distributed or used. 
38. We emphasize that we retain the discretion to evaluate the uses of monies disbursed 
through the high-cost program and to determine on a case-by-case basis whether waste, fraud, or abuse of 
program funds occurred and whether recovery is warranted. We remain committed to ensuring the 
integrity of the universal service program and will aggressively pursue instances of waste, fraud, and 
abuse under the Commissions procedures and in cooperation with law enforcement agencies. In doing 
so, we intend to use any and all enforcement measures, including criminal and civil statutory remedies, 
available under law.92 
III. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS 
39. In this order, we adopt a telephone numbers-based methodology under which contributors 
will contribute based on the number of telephone numbers they have assigned to end users (Assessable 
Numbers) and dedicated access connections for business customers. The new contribution methodologies 
will be implemented beginning on January 1, 2010. 
A. Background 
90 See Comprehensive Review of the Universal Service Fund Management, Administration, and Oversight, Federal- 
State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, Rural Health 
Care Support Mechanism, Lifeline and Link-Up, Changes to the Board of Directors for the National Exchange 
Carrier Association, Inc., WC Docket No. 03-109, Report and Order, 22 FCC Rcd 16372, 1638384, para. 24 
(Comprehensive Review Report and Order) (requiring recipients of universal service support for high-cost 
providers to retain all records that they may require to demonstrate to auditors that the support they received was 
consistent with the Act and the Commissions rules, assuming that the audits are conducted within five years of 
disbursement of such support.). The term service provider includes any participating subcontractors. 
91 This includes presenting personnel to testify, under oath, at a deposition if requested by of the Office of Inspector 
General. 
92 See, e.g., 41 U.S.C.  5158 (Anti-Kickback Act of 1986); 31 U.S.C.  3729 (False Claims Act).

Federal Communications Commission FCC 08-262 
B-16 
40. In implementing the universal service requirements of the 1996 Act, the Commission 
established a method for collecting funds to be disbursed through the various universal service support 
mechanisms. Specifically, the Commission determined that contributions to the universal service fund 
would be assessed on telecommunications providers based on their interstate and international end-user 
telecommunications revenues.93 The Commission concluded that basing providers universal service 
contributions on their revenues would be competitively neutral, easy to administer, and explicit.94 
41. When the Commission adopted the revenue-based contribution system, assessable 
interstate revenues were growing. The total assessable revenue base has declined in recent years, 
however, from about $79.0 billion in 2000 to about $74.5 billion in 2006,95 while universal service 
disbursements grew over that same time period from approximately $4.5 billion in 2000 to over $6.6 
billion in 2006.96 Declines in assessable contribution revenues combined with growth in universal service 
disbursements have increased the contribution factor applied to determine universal service contribution 
amounts.97 This upward pressure jeopardizes the stability and sustainability of the support mechanisms, 
demonstrating the need for long-term fundamental reform of the contribution methodology.98 
42. In addition, interstate end-user telecommunications service revenues are becoming 
increasingly difficult to identify as customers migrate to bundled packages of interstate and intrastate 
telecommunications and non-telecommunications products and services.99 The integration of local and 
93 See Universal Service First Report and Order, 12 FCC Rcd at 920607, paras. 84344; 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) (Fifth Circuit Remand Order) (establishing a single contribution for all universal service support mechanisms 
based on interstate and international revenues). 
94 Universal Service First Report and Order, 12 FCC Rcd at 920608, 9211, paras. 843, 84548, 854. 
95 Compare JIM LANDE & KENNETH LYNCH, FCC, 2000 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 (2002), 
available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf with JIM 
LANDE & KENNETH LYNCH, FCC, 2006 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf. But see Letter from David C. Bergmann, 
Chair, NASUCA Telecommunications Committee, to Chairman Kevin Martin et al., FCC, WC Docket Nos. 08-152, 
07-135, 06-122, 05-337, 05-195, 04-36, 03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262, 96-45, 
80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008 Ex Parte Letter) (arguing that the growth in the 
contribution factor is almost entirely due to the growth in universal service disbursement requirements). 
96 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 1.2a (2001) (2001 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01- 
0.pdf; 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.11; see also USAC 2007 ANNUAL REPORT at 3, 51 
(detailing universal service disbursements for 2007 at approximately $6.9 billion). 
97 The contribution factor grew from 5.9% in the first quarter of 2000 to 11.3% for the fourth quarter of 2008. See 
Proposed First Quarter 2000 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, 15 FCC 
Rcd 3660 (WCB 1999); Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC Docket No. 96- 
45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (Fourth Quarter 2008 Contribution Factor Public Notice). 
98 See 47 U.S.C.  254(b), (d). 
99 Although the Commission has established safe harbors for the reporting of interstate telecommunications revenues 
derived from interstate telecommunications services bundled with customer premises equipment (CPE) or 
information services, it has not established guidelines for reporting interstate telecommunications service revenues 
for flat-rated bundles of wireline interstate and intrastate services. See Policy and Rules Concerning the Interstate, 
Interexchange Marketplace; Implementation of Section 254(g) of the Communications Act of 1934, as amended; 
1998 Biennial Regulatory ReviewReview of Customer Premises Equipment and Enhanced Local Exchange 
(continued.)

Federal Communications Commission FCC 08-262 
B-17 
long-distance wireline services into packages that allow customers to purchase buckets of long distance 
minutes and local service for a single price blurs the distinction between revenue derived from intrastate 
telecommunications service and interstate telecommunications service. Similarly, the availability of 
mobile wireless calling plans that allow customers to purchase buckets of minutes on a nationwide 
network without incurring roaming or long-distance charges also makes it difficult for providers and the 
Commission to identify the amount of revenue derived from interstate telecommunications service.100 
Further, migration to interconnected voice over Internet protocol (VoIP) services complicates the 
distinctions that serve as the basis for current contribution obligations.101 
43. In 2001 and 2002, the Commission sought comment on modifications to the 
existing revenue-based contribution methodology, and on replacing that methodology with one 
that assesses contributions on the basis of a flat-fee charge, such as a per-line charge.102 The 
Commission also sought comment on other universal service contribution methodologies, including 
moving to a numbers-based methodology.103 Finally, in May 2008, the Commission encouraged 
commenters to refresh the record in several pending proceedings, including the contribution methodology 
proceeding.104 
B. Discussion 
44. The system of contributions to the universal service fund is broken. The Commission has 
repeatedly patched the current system to accommodate decreasing interstate revenues, a trend toward allyou-
can-eat services that make distinguishing interstate from other revenues difficult if not impossible, 
(continued from previous page) 
Markets, CC Docket Nos. 96-61, 98-183, Report and Order, 16 FCC Rcd 7418, 744648, paras. 4754 (2001) (CPE 
Bundling Order). 
100 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, 2125859, paras. 1315 (1998) (First Wireless 
Safe Harbor Order); see also Federal-State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90- 
571, 92-237, 99-200, 95-116, 98-170, Report and Order and Second Further Notice of Proposed Rulemaking, 17 
FCC Rcd 24952, 2496567, paras. 2125 (2002) (Second Wireless Safe Harbor Order). 
101 See Universal Service Contribution Methodology, WC Docket Nos. 06-122, 04-36, CC Docket Nos. 96-45, 98- 
171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and Order and Notice of Proposed Rulemaking, 21 FCC Rcd 
7518 (2006) (2006 Interim Contribution Methodology Order); affd in part, vacated in part sub nom. Vonage 
Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 2007). 
102 See Federal-State Joint Board on Universal Service, 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 Contribution NPRM); see also Federal- 
State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, 
Further Notice of Proposed Rulemaking and Report and Order, 17 FCC Rcd 3752, 3765, para. 31, 376689, paras. 
3483 (2002) (Contribution First FNPRM). 
103 Second Wireless Safe Harbor Order, 17 FCC Rcd at 2498397, paras. 66100 (seeking comment on capacitybased 
proposals that had been developed in the record and on telephone-number proposals advocated by certain 
parties); Commission Seeks Comment on Staff Study Regarding Alternative Contribution Methodologies, CC Docket 
Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public Notice, 18 FCC Rcd 3006 (2003) 
(Contribution Staff Study) (seeking comment on a Commission staff study that estimated potential contribution 
assessment levels under the then-newly modified revenue-based method and the three connection-based proposals in 
the further notice portion of the Second Wireless Safe Harbor Order). 
104 Interim Cap Clears Path for Comprehensive Reform: Commission Poised to Move Forward on Difficult 
Decisions Necessary to Promote and Advance Affordable Telecommunications for All Americans, News Release 
(May 2, 2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

Federal Communications Commission FCC 08-262 
B-18 
and changes in technology. While the service developments that precipitated these changes have 
enormous consumer benefits, they have also severely strained the contributions system.105 We therefore 
adopt today a system of contributions that will assess all telephone numbers, and dedicated access 
connections for business services. 
1. Legal Authority 
45. The Commission has ample authority to require contributions from the variety of 
providers discussed below. The Commissions authority derives from several sections of the Act: section 
254(d), Title I, and section 251(e). These sections of the statute provide us authority to require 
contributions from the kinds of service providers we address below in our discussions of the new 
numbers-based and business connections-based approach. 
46. Section 254 is the cornerstone of the Commissions universal service program. Section 
254(d) first provides 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.106 
Under this mandatory contribution provision, every provider of telecommunications services107 must 
contribute, although the Commission has authority to exempt a carrier or class of carriers if their 
contributions would be de minimis.108 
47. Section 254(d) also provides that the Commission may require [a]ny other provider of 
interstate telecommunications . . . to contribute to the preservation and advancement of universal service 
if the public interest so requires.109 The Commission has relied on this permissive authority to require 
various providers of telecommunications,110 but not necessarily telecommunications services,111 to 
contribute. For example, the Commission has required entities that provide interstate telecommunications 
105 We agree with commenters who argue that the contribution methodology requires a comprehensive overhaul. 
See e.g., Letter from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and 
Verizon Sept. 11, 2008 Ex Parte Letter); Letter from Roger C. Sherman, Director, Government AffairsWireless 
Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 04-36 at 1 
(filed June 14, 2006) (Sprint Nextel June 14, 2006 Ex Parte Letter); Letter from Susanne A. Guyer, Senior Vice 
President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96- 
45, WC Docket Nos. 05-337, 06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 Ex Parte Letter); Letter from 
Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and Verizon Oct. 20, 2008 Ex Parte Letter). 
106 47 U.S.C.  254(d). 
107 Section 254(d) refers to telecommunications carriers, which are defined as any provider of 
telecommunications services. 47 U.S.C.  153(44). 
108 47 U.S.C.  254(d). 
109 47 U.S.C.  254(d). 
110 Telecommunications is defined as the 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. 
47 U.S.C.  153(43). 
111 Telecommunications service is defined 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. 47 
U.S.C.  153(46).

Federal Communications Commission FCC 08-262 
B-19 
to others on a private contractual basis to contribute to the universal service fund,112 as well as payphone 
aggregators.113 Most recently, we required interconnected VoIP providers to contribute even though the 
Commission has not determined that they are telecommunications carriers. Specifically, in the 2006 
Interim Contribution Methodology Order, we used our permissive authority under section 254(d) to 
require interconnected VoIP providers to contribute, and we noted that they provide 
telecommunications to their end users.114 We also noted that in some cases, the interconnected VoIP 
provider may be providing telecommunications even if it arranges for the end user to have access to the 
public switched telephone network (PSTN) through a third party.115 
48. The Commission also has authority under Title I to require other service providers to 
contribute. In general, the Commission can rely on its ancillary jurisdiction under Title I when the 
Commission has subject matter jurisdiction over the service to be regulated, and the assertion of 
jurisdiction is reasonably ancillary to the effective performance of [its] various responsibilities. 116 The 
Commission relied on this authority before section 254 was added by the 1996 Act to establish a highcost 
support fund,117 which the U.S. Court of Appeals for the D.C. Circuit found to be a permissive 
exercise of Title I authority.118 And more recently in the 2006 Interim Contribution Methodology Order, 
the Commission relied on its ancillary jurisdiction under Title I as an additional source of authority to 
require contributions from interconnected VoIP providers.119 In that order, the Commission noted that the 
Act grants subject matter jurisdiction over interconnected VoIP because it involves transmission of 
voice by wire or radio,120 and that imposing contribution obligations on interconnected VoIP providers 
was reasonably ancillary to the effective performance of the Commissions responsibilities to establish 
112 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918384, paras. 79495. 
We note that private service providers that provide interstate connections solely to meet their internal needs (i.e., 
self-providers) will not be required to contribute under the new methodology. This is consistent with our current 
policy. In the Universal Service First Report and Order, the Commission reasoned that, for self-providers of 
interstate telecommunications, the telecommunications is incidental to their primary non-telecommunications 
business. See Universal Service First Report and Order, 12 FCC Rcd at 9185, para. 799. 
113 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918485, paras. 79698. 
But see Letter from Robert F. Aldrich, Counsel for the American Public Communications Council (APCC), to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23, 2008). 
114 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753840, paras. 3941; 47 C.F.R.  54.706(a). 
115 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41 (To provide this capability 
[telecommunications], interconnected VoIP providers may rely on their own facilities or provide access to the PSTN 
through others.). 
116 See United States v. Southwestern Cable Co., 392 U.S. 157, 17778 (1968); United States v. Midwest Video 
Corp., 406 U.S. 649, 66768 (1972); FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979); see also American 
Library Assn v. FCC, 406 F.3d 689 (D.C. Cir. 2005). 
117 See Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, CC Docket No. 80- 
286, Decision and Order, 96 F.C.C.2d 781, (1984), affd sub nom. Rural Tel. Coalition v. FCC, 838 F.2d 1307 (D.C. 
Cir. 1988). 
118 Rural Tel. Coalition, 838 F.2d at 1315. 
119 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 754143, paras. 4649. 
120 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 47 & n.160 (citing IP-Enabled 
Services, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005) (VoIP 911 Order), 
affd sub nom. Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); 47 U.S.C.  152(a)).

Federal Communications Commission FCC 08-262 
B-20 
specific, predictable, and sufficient mechanisms . . . to preserve and advance universal service.121 In 
particular, the Commission noted that interconnected VoIP providers benefit from their interconnection 
to the PSTN.122 
49. In addition, Congress provided the Commission with plenary authority over numbering 
in section 251(e). Specifically, the Commission has exclusive jurisdiction over those portions of the 
North American Numbering Plan [NANP] that pertain to the United States.123 The Commission relied 
on its authority under section 251(e) to support its action to require interconnected VoIP providers to 
provide E911 services.124 The Commission noted that it exercised its authority under section 251(e) 
because, among other reasons, interconnected VoIP providers use NANP numbers to provide their 
services.125 
50. These sections of the Act provide the Commission ample authority to require 
contributions from all providers subject to the new numbers-based and connections-based approaches 
described in more detail below. These methodologies may require some providers to contribute directly 
to universal service when in the past they may have been contributing only indirectly or not at all. For 
example, under the numbers-based approach, any provider who assigns an Assessable Number to an end 
user must contribute.126 Providers such as VoIP providers who are not interconnected VoIP providers, 
electronic facsimile service providers, unified messaging service providers, Internet-based TRS providers, 
one-way and two-way paging service providers, and telematics providers may assign Assessable Numbers 
to and maintain the retail relationship with the end users.127 Not all of these providers are 
telecommunications carriers subject to the mandatory contribution obligation of section 254(d). 
Nonetheless, we have authority to require them to contribute. First, all of these providers provide 
directly or indirectlysome amount of interconnection to the PSTN, the network that universal service 
supports. Interconnection to the PSTN benefits the consumers of each of these types of services by 
facilitating communication (even if just one-way communication) between the end user and PSTN users. 
As we noted in the 2006 Interim Contribution Methodology Order, interconnected VoIP providers often 
provide access to the PSTN via third parties128 and this is sufficient to permit the Commission to rely on 
its authority to require contributions from other provider[s] of interstate telecommunications.129 And as 
we explain below, it is in the public interest (as required by section 254(d)) that these providers 
contribute. Furthermore, the prerequisites for the use of our Title I ancillary jurisdiction unquestionably 
are met here. All the services that rely on assignment of an Assessable Number to an end user come 
within the Commissions broad subject matter jurisdiction because they involve in some manner 
121 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48 (quoting 47 U.S.C.  254(d)). 
122 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48. 
123 47 U.S.C.  251(e)(1). 
124 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
125 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
126 The term Assessable Number is defined below. See infra paras. 62-77. 
127 This list is meant to be illustrative, not exhaustive. Other providers may also have to contribute to the universal 
service fund based on the criteria described in this order. 
128 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41. 
129 47 U.S.C.  254(d).

Federal Communications Commission FCC 08-262 
B-21 
interstate . . . communication by wire or radio.130 And similar to our explanation in the 2006 Interim 
Contribution Methodology Order, requiring contributions from providers who take advantage of PSTN 
connectivity whether directly or indirectly makes sense because their end users benefit from the ubiquity 
of that network and from being somehow interconnected with it.131 Finally, our plenary authority over 
numbering supports our actions here with regard to a numbers-based methodology. The purpose of a 
uniform system of numbering is to facilitate communication on interconnected networks based on a 
standardized system of identifierstelephone numbers. Those customers who are assigned telephone 
numbers, whether for plain old telephone service (POTS) or for any other service, are using the number to 
take advantage of some feature of the PSTN, whether it is the capability to be called, to have their 
locations automatically relayed to emergency call handlers, to be faxed from anywhere, or for some other 
reason. Because customers are receiving this benefit, it is appropriate that their service providers (and 
ultimately, likely, the customers themselves) contribute to the ubiquity and support of the network from 
which they are benefiting. 
51. We reject suggestions that we do not have authority to require contributions based on 
numbers or connections because we lack authority over intrastate services.132 The same number typically 
is used for both interstate and intrastate services. The Commission and courts have rejected the assertion 
that simply because a single facility has the capacity to provide both interstate and intrastate services, the 
Commission lacks authority to regulate any aspect of the facility.133 In fact, the subscriber line charge 
(SLC) that the Commission established is intended to capture the interstate cost of the local loop.134 The 
contribution methodologies we adopt are thus limited to assessments on services that can provide 
interstate service. We will only require providers to contribute to universal service based on the number 
of Assessable Numbers that are capable of originating or terminating interstate or international 
communications.135 
2. The New Numbers-Based Assessment Methodology 
52. As discussed above, we adopt a new contribution methodology based on assessing 
telephone numbers, rather than interstate and international services revenue. We find that this change will 
benefit contributors and end users by simplifying the contribution process and providing predictability as 
to the amount of universal service contributions and pass-through charges for end users. We set the 
contribution amount per telephone number initially at $0.85 per number per month. 
a. Benefits of a Numbers-Based Contribution Methodology 
53. We find that adoption of a telephone number-based methodology, in conjunction with the 
130 47 U.S.C.  152(a); see also VoIP 911 Order, 20 FCC Rcd 1026162, para. 28 (providing detailed explanation of 
why interconnected VoIP falls within the Commissions subject matter jurisdiction). 
131 Compare 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7540, para. 43. 
132 See, e.g., American Association of Paging Carriers (AAPC) Contribution First FNPRM Comments at 7; Alaska 
Communication Systems (ACS) Contribution First FNPRM Reply at 67; Allied Personal Communications 
Industry Association of California (Allied) Contribution First FNPRM Comments at 67; National ALEC 
Association/Prepaid Communications Association (NALA/PCA) Contribution First FNPRM Reply at 3. 
133 See, e.g., NARUC v. FCC, 737 F.2d 1095, 1113 (D.C. Cir. 1984) (The same loop that connects a telephone 
subscriber to the local exchange necessarily connects that subscriber into the interstate network as well.). 
134 NARUC v. FCC, 737 F.2d at 111314. 
135 Services that provide only intrastate communications and do not traverse a public interstate network will not be 
required to contribute under the new assessment methodology. See supra para. 63.

Federal Communications Commission FCC 08-262 
B-22 
business access connections contributions explained below, will help preserve and advance universal 
service by ensuring a specific, predictable, and sufficient funding source, consistent with the universal 
service principles of section 254(b) of the Act.136 Changes in technology and services have made the 
revenue-based contribution mechanism difficult to administer. As commenters have noted, the distinction 
between intrastate and interstate revenues is blurring as providers move from their traditional roles as 
pure LECs or interexchange carriers (IXCs) to businesses that offer consumers the choice of purchasing 
their telecommunications needs from a single source.137 Additionally, these providers are offering 
consumers greater flexibility, such as bundling of local and long distance service at a flat rate.138 
Moreover, technologies such as wireless and interconnected VoIP have emerged that provide voice and 
data services that know no jurisdictional boundaries.139 Consumers benefit from the opportunity to obtain 
bundled services, and the universal service contribution mechanism should reflect and complement those 
marketplace and technological developments as much as possible. Our decision to use numbers as a basis 
for assessing contributions will enhance the specificity and predictability of entities contributions. 
54. Our adoption of a numbers-based contribution methodology will benefit both consumers 
and contributors by simplifying the basis for assessments at an amount per month per telephone 
number.140 Contributors are allowed, and in most cases do, recover their universal service contribution 
costs from fees assessed on their end-user customers.141 Under the revenue-based contribution 
mechanism, providers revenues fluctuated from quarter to quarter, causing consumers universal service 
fees to fluctuate not only to meet fund demands, but also based on the fluctuation of a providers revenues 
as well. A simple per-number contribution assessment is simple and predictable for both contributors and 
for consumers. To the extent a contributor elects to recover its contribution costs through end-user fees, 
its customers will pay one assessment on each telephone number each month, making the assessment 
simple and predictable.142 
55. A numbers-based contribution methodology also benefits end users because it is 
technologically and competitively neutral. A consumer will pay the same universal service charge 
regardless of whether the consumer receives residential service from a cable provider, an interconnected 
136 47 U.S.C.  254(b)(5). 
137 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1. 
138 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also Letter from James S. Blaszak, 
Counsel for Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 
06-122, at 5 (filed Nov. 19, 2007) (Ad Hoc Nov. 19, 2007 Ex Parte Letter) (discussing the convergence of different 
applications for business and residential customers onto a single integrated network with bundled pricing). 
139 See Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public 
Utilities Commission, 19 FCC Rcd 22404, 2241214, paras. 1618 (2004) (Vonage Order), affd sub nom. 
Minnesota Pub. Utils. Commn v. FCC, 483 F.3d 570 (8th Cir. 2007). 
140 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2. 
141 Contributors are prohibited from passing through to subscribers more than their contribution cost. 47 C.F.R.  
54.712. 
142 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2; see also Information Technology Industry 
Council (ITI) 2006 Contribution FNPRM Comments at 6; NCTA 2006 Contribution FNPRM Comments at 5; Small 
Business Administration Office of Advocacy (SBA) 2006 Contribution FNPRM Comments at 8; Vonage 2006 
Contribution FNPRM Comments at 78; Letter from Gregory V. Haledjian, Regulatory and Governmental 
Relations, Counsel to IDT Corporation and USF By the Numbers Coalition, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 06-122, Attach. at 34 (filed Jan. 30, 2007).

Federal Communications Commission FCC 08-262 
B-23 
VoIP provider, a wireless provider, or a wireline provider. This will enable residential consumers to 
choose the providers and provider types they want without regard to any artificial distortions that would 
otherwise be caused by differing contribution charges.143 In a marketplace characterized by increased 
competition within and between different technology platforms, residential consumers will receive 
the same universal service charge regardless of the type of service the customer chooses. 
56. Similarly, by subjecting contributors to the same regulatory framework for assessments 
regardless of technology, the numbers-based methodology will eliminate incentives under the current 
revenue-based system for providers to migrate to services and technologies that are either exempt from 
contribution obligations or are subject to safe harbors.144 The elimination of such incentives will result in 
a more competitively and technologically neutral marketplace and a more predictable source of funding 
for the universal service mechanisms. 
57. The adoption of a per number per month contribution assessment is specific and 
predictable and will simplify the administration of universal service contributions. Interstate end-user 
telecommunications revenues have become increasingly difficult to identify, particularly for 
residential services, due to increased bundling of local and long distance service and the growth 
of consumer interconnected VoIP offerings.145 In contrast, telephone numbers provide an easily 
identifiable basis for contribution.146 The amount of NANP telephone numbers in use has shown 
steady, stable growth, providing a fairly constant basis for estimating universal service support 
amounts.147 The new methodology will be easier to administer, facilitating greater regulatory compliance. 
A numbers-based contribution methodology will also be readily applicable to emerging service offerings. 
The new methodology minimizes the potential for providers to avoid contributions by bundling intrastate 
revenues with interstate revenues or engaging in other bypass activities.148 
58. Further, assessing universal service contributions based on telephone numbers will 
promote number conservation.149 Telephone numbers are a finite, public resource. If contributors are 
assessed based on the telephone numbers they have assigned to end users, they will have an incentive to 
efficiently manage their numbering resources in a manner that minimizes their costs. We expect that this 
143 See, e.g., NCTA 2006 Contribution FNPRM Comments at 5; Vonage 2006 Contribution FNPRM Comments at 
6; Letter from Grace E. Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch, Secretary, FCC, WC Docket 
Nos. 06-122, 05-337, 01-92, CC Docket Nos. 96-45, 99-68, 96-262 at 2 (filed July 15, 2008). 
144 See AT&T 2006 Contribution FNPRM Comments at 4. 
145 See 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.1. 
146 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also ALEXANDER BELINFANTE, FCC, 
TELEPHONE SUBSCRIBERSHIP IN THE UNITED STATES, tbl. 1 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf. 
147 See CRAIG STROUP AND JOHN VU, FCC, NUMBERING RESOURCE UTILIZATION IN THE UNITED STATES, tbl. 12 
(2008) (showing number utilization from December 2000 to December 2007), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf. 
148 See Ad Hoc Contribution First FNPRM Comments at 67; Coalition for Sustainable Universal Service (CoSUS) 
Contribution First FNPRM Comments at 38; Sprint Contribution First FNPRM Comments at 89. Because 
numbers-based contribution assessments will no longer be assessed based on revenues, contributors may not markup 
or otherwise adjust the Assessable Number per month residential contribution assessment in response to 
uncollectible revenues. 
149 See, e.g., ITI 2006 Contribution FNPRM Comments at 6; Vonage 2006 Contribution FNPRM Comments at 7.

Federal Communications Commission FCC 08-262 
B-24 
will result in the need for fewer area code splits or overlays due to number exhaust.150 
59. Our adoption of a numbers-based contribution methodology is consistent with the goal of 
ensuring just, reasonable, and affordable rates.151 The initial per-number assessment of $0.85 per number 
per month will represent a reduction in pass-through charges for many residential customers.152 Although 
an $0.85 per number per month assessment may represent an increase in universal service charges for 
residential customers that make few or no long distance calls, this increase should be slight. Under the 
current revenue-based contribution mechanism, providers may assess a federal universal service fee on 
the basis of the customers SLC. The residential SLC may be as high as $6.50 per month.153 Based on 
the most recent contribution factor of 11.4 percent, even a customer who made no long distance calls 
could thus be assessed $0.74 per month in universal service charges under the existing revenue-based 
methodology.154 Thus, the potential increase for a customer who makes no long distance calls could be as 
little as $0.11 per month. In addition, we have separate protections to ensure that telephone service 
remains affordable for low-income subscribers.155 
60. Some commenters assert that assessing a per-number universal service charge is 
inherently unfair because it does not take into account the fact that some people make many interstate and 
international calls, while others make few if any such calls in a given month.156 We disagree. We find 
that imposition of a flat charge per number is warranted because all contributors and their subscribers 
receive a benefit from being connected to the public network, enabling them to make and receive 
interstate calls.157 The ability to make or receive interstate calls over a public network is a significant 
benefit and it is reasonable to assess universal service contributions for customers based on access to the 
150 See Numbering Resource Optimization, CC Docket No. 99-200, Report and Order and Further Notice of 
Proposed Rulemaking, 15 FCC Rcd 7574, 7625, para. 122 (2000) (NRO I Order) (determining that implementation 
of thousands-block number pooling is essential to extending the life of the NANP by making the assignment and use 
of NXX codes more efficient); see also Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, 
Fourth Report and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (NRO IV Order) (explaining further that 
thousands-block number pooling is a numbering resource optimization measure in which 10,000 numbers in an 
NXX are divided into ten sequential blocks of 1,000 numbers and allocated to different service providers (or 
different switches) within a rate center). 
151 47 U.S.C.  254(b)(1). 
152 See Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to IDT Telecom, to Marlene H. Dortch, Secretary, 
FCC, WC Docket No. 06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 Ex Parte Letter) (showing that the 
average residential household paid about $1.37 in universal service fees in 2006). IDT claims the data show that the 
lowest-income consumers paid an average of $1.09 in universal service fees for wireline telephone bills. Id. at 6. 
153 47 C.F.R.  69.104(n)(1), 69.152(d)(1). The SLC is referred to as the End User Common Line Charge in the 
Commissions rules. 
154 The revenue from the $6.50 SLC would be multiplied by the 11.4% contribution factor, resulting in a 
contribution amount and corresponding assessment of $0.74. See Fourth Quarter 2008 Contribution Factor Public 
Notice at 1; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 3. 
155 See 47 C.F.R.  54.400 et seq.; infra para. 90 (describing contribution exemptions for services to low-income 
consumers). 
156 See, e.g., Letter from Maureen A. Thompson, Executive Director, Keep USF Fair Coalition, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 57 (filed Mar. 27, 2006) (Keep USF Fair Mar. 27, 2006 
Ex Parte Letter); see also NASUCA Sept. 30, 2008 Ex Parte Letter at 9. 
157 Universal Service First Report and Order, 12 FCC Rcd at 8783, para. 8.

Federal Communications Commission FCC 08-262 
B-25 
network. Customers who do not make any interstate calls still receive the benefit of accessing the 
network to receive interstate calls. The per month per number assessment reflects our finding that it is 
equitable for providers to contribute a fixed amount based on the ability to access and utilize a ubiquitous 
public network. 
61. Some commenters allege that changing from the current revenue-based methodology to a 
new mechanism based on telephone numbers would not be equitable because it could reduce 
contributions from certain industry segments and increase them for others.158 Although the change to a 
numbers-based contribution methodology will result in changes in the relative contribution obligations of 
industry segments, the new contribution methodology is not inequitable or discriminatory. The evolving 
nature of the telecommunications marketplace and of its participants requires the Commission 
periodically to review and revise the contribution methodology to ensure that providers continue to be 
assessed on an equitable and non-discriminatory basis. We find that, given the difficulties in continuing 
to assess contributions entirely on a revenue-based methodology and the benefit to consumers of access to 
the public network, it is equitable to adopt a numbers-based contribution methodology that assesses $0.85 
per month per number. 
b. Assessable Numbers 
62. Below, we describe the telephone numbers for which service providers are obligated to 
contribute to the universal service fund. We call these Assessable Numbers. The Commission has 
addressed certain reporting based on telephone numbers in other contexts. In the number 
utilization context, the Commission requires that each telecommunications carrier that receives 
numbering resources from the North American Numbering Plan Administrator (NANPA), the 
Pooling Administrator, or another telecommunications carrier report its numbering resources in 
each of six defined categories of numbers set forth in section 52.15(f) of our rules.159 In the 
158 See, e.g., FW&A Contribution First FNPRM Comments at 1315; NRTA and OPASTCO Contribution First 
FNPRM Comments at 711; SBC Contribution First FNPRM Comments at 18; Verizon Contribution First FNPRM 
Reply at 6; Verizon Wireless Contribution First FNPRM Comments at 56. 
159 These six categories of numbers are defined as follows: 
(i) Administrative numbers are numbers used by telecommunications carriers to perform internal 
administrative or operational functions necessary to maintain reasonable quality of service standards. 
(ii) Aging numbers are disconnected numbers that are not available for assignment to another end user or 
customer for a specified period of time. Numbers previously assigned to residential customers may be aged 
for no more than 90 days. Numbers previously assigned to business customers may be aged for no more 
than 365 days. 
(iii) Assigned numbers are numbers working in the Public Switched Telephone Network under an 
agreement such as a contract or tariff at the request of specific end users or customers for their use, or 
numbers not yet working but having a customer service order pending. Numbers that are not yet working 
and have a service order pending for more than five days shall not be classified as assigned numbers. 
(iv) Available numbers are numbers that are available for assignment to subscriber access lines, or their 
equivalents, within a switching entity or point of interconnection and are not classified as assigned, 
intermediate, administrative, aging, or reserved. 
(v) Intermediate numbers are numbers that are made available for use by another telecommunications 
carrier or non-carrier entity for the purpose of providing telecommunications service to an end user or 
customer. Numbers ported for the purpose of transferring an established customers service to another 
service provider shall not be classified as intermediate numbers. 
(continued.)

Federal Communications Commission FCC 08-262 
B-26 
regulatory fee context, the Commission used the category of assigned numbers as the starting point for 
determining how to assess fees on certain providers, but found it necessary to modify that definition to 
account for the different regulatory contexts. Specifically, in assessing regulatory fees for commercial 
mobile radio service (CMRS) providers that report number utilization to NANPA based on the reported 
assigned number count in their Numbering Resource Utilization and Forecast (NRUF) data, the 
Commission requires these providers to adjust their assigned number count to account for number 
porting. The Commission found that adjusting the NRUF data to account for porting was necessary for 
the data to be sufficiently accurate and reliable for purposes of regulatory fee assessment.160 
63. We adopt a new term based on the category of assigned numbers to represent the 
numbers being assessed for universal service contribution purposesAssessable Numbers. The 
definition of Assessable Numbers that we adopt focuses on those numbers that are actually in use by end 
users for services that traverse a public interstate network. Specifically, we define an Assessable Number 
as a NANP telephone number or functional equivalent identifier161 in a public or private network that is in 
use by an end user and that enables the end user to receive communications from or terminate 
communications to (1) an interstate public telecommunications network or (2) a network that traverses (in 
any manner) an interstate public telecommunications network.162 Assessable Numbers include 
geographic as well as non-geographic telephone numbers (such as toll-free numbers and 500-NXX 
numbers) so long as they meet the other criteria described in this part for Assessable Numbers. 
64. The provider with the retail relationship to the end user is the entity responsible for 
contributing.163 We impose the contribution obligation on the provider with the retail relationship to the 
end user for several reasons. First, this provider will have the most accurate and up-to-date information 
about how many Assessable Numbers it currently has assigned to end users. Also, this provider, and its 
users, are benefiting from a supported PSTN, and thus it is sound policy to require them to contribute to 
(continued from previous page) 
(vi) Reserved numbers are numbers that are held by service providers at the request of specific end users or 
customers for their future use. Numbers held for specific end users or customers for more than 180 days 
shall not be classified as reserved numbers. 
47 C.F.R.  52.15(f) 
160 See Assessment and Collection of Regulatory Fees for Fiscal Year 2005, Assessment and Collection of 
Regulatory Fees for Fiscal Year 2004, MD Dockets No. 05-59, 04-73, Report and Order and Order on 
Reconsideration, 20 FCC Rcd 12259, 12271, paras. 3940 (2005). 
161 Functional equivalent identifier means an identifier used in place of and with the same PSTN access capability 
as a NANP number; it is not intended to capture identifiers used in conjunction with NANP numbers, such as 
internal extensions that cannot be directly dialed from the PSTN. Nor is functional equivalent identifier intended 
to capture routing identifiers used for routing of Internet traffic, unless such identifiers are used in place of a NANP 
number to provide the ability to make or receive calls on the PSTN. 
162 For purposes of the definition of Assessable Numbers, we include only the NANP telephone numbers used in the 
United States and its Territories and possessions. 
163 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844; see also, e.g., Letter from Melissa 
E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06- 
122, at 7 (filed Sept. 24, 2008) (Qwest Sept. 24, 2008 Ex Parte Letter); AT&T and Verizon Sept. 11, 2008, Ex Parte 
Letter, Attach. 1 at 12; Letter from Brad E. Mutschelknaus, Counsel for XO Communications, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36, Attach. at 9 (filed Oct. 3, 2008); 
Letter from Donna N. Lampert, Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct. 3, 2008) 
(Google Oct. 3, 2008 Ex Parte Letter); see also 47 C.F.R.  54.5 (defining contributor as an entity required to 
contribute to the universal service support mechanism pursuant to  54.706 [of the Commissions rules]).

Federal Communications Commission FCC 08-262 
B-27 
its support.164 We note that today, providers are permitted to pass through their contribution assessments 
to end users, and we understand that they typically do so.165 Under the new methodologies, they may 
continue to do so, subject to the same requirement that they will not pass through more than their 
contribution amount.166 
65. We also continue to define an end user for universal service contribution purposes as 
any purchaser of interstate services that is not itself a direct contributor to universal service.167 For 
example, under this definition, a reseller that offers local exchange service to an end user would be 
assessed for that telephone number, not the incumbent LEC whose service is being resold.168 We 
recognize that, in some situations, the entity with the direct relationship with the ultimate end user may 
not be an entity over which the Commission has exercised its mandatory or permissive authority under 
section 254(d). In such situations, we will treat that entity as the end user and its underlying carrier or 
telecommunications provider as the contributor. This approach ensures that each Assessable Number will 
be assessed its appropriate universal service contribution, while also ensuring that the Commission does 
not exceed its authority under section 254(d).169 
66. Next, we specify whether certain types of numbers are included in the definition of 
Assessable Numbers. First, numbers used for intermittent or cyclical purposes are included in the 
definition of Assessable Numbers. Numbers used for cyclical purposes are numbers designated for use 
that are typically working or in use by the end user for regular intervals of time. These numbers 
include, for example, an end users summer home telephone number that is in service for six months out 
of the year.170 In the NRO III Order, the Commission clarified that these types of numbers should 
generally be categorized as assigned numbers if they meet certain thresholds and that, if they do not 
meet these thresholds, they must be made available for use by other customers (i.e., they are available 
numbers).171 Because these numbers are assigned to end users, we find they should be included in the 
164 See supra para. 50 (discussing the public interest in requiring these entities to support the network). 
165 See e.g., AT&T and Verizon Sept. 23, 2008 Ex Parte Letter, Attach. 2 at 2; see also Second Wireless Safe 
Harbor Order, 17 FCC Rcd at 24978, para. 50. 
166 47 C.F.R.  54.712. 
167 See Universal Service First Report and Order, 12 FCC Rcd at 9206-07, para. 843-44; 9179-80, para. 788; see 
also Google Oct. 3, 2008 Ex Parte Letter at 1. 
168 Universal Service First Report and Order, 12 FCC Rcd at 9206-07, paras. 843-45. For universal service 
contribution purposes, a reseller is a telecommunications carrier or telecommunications provider that incorporates 
purchased telecommunications services into its own telecommunications offerings. See FCC, INSTRUCTIONS TO THE 
TELECOMMUNICATIONS REPORTING WORKSHEET, FCC Form 499-A, at 11, 15 (Feb. 2008) (FCC Form 499-A 
Instructions), available at http://www.fcc.gov/Forms/Form499-A/499a-2008.pdf. 
169 See 47 U.S.C.  254(d). 
170 See Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, Third Report and Order and 
Second Order on Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17 FCC Rcd 252, 303, para. 
119 (2001) (NRO III Order). 
171 NRO III Order, 17 FCC Rcd at 304, para. 122 (With this requirement, we seek to limit the amount of numbers 
that are set aside for use by a particular customer, but are not being used to provide service on a regular basis. Thus, 
in order to categorize such blocks of numbers as assigned numbers, carriers may have to decrease the amount [of] 
numbers set aside for a particular customer. We also clarify that numbers working periodically for regular 
intervals of time, such as numbers assigned to summer homes or student residences, may be categorized as assigned 
numbers, to the extent that they are working for a minimum of 90 days during each calendar year in which they are 
(continued.)

Federal Communications Commission FCC 08-262 
B-28 
definition of Assessable Numbers we adopt today. 
67. We exclude from our definition of Assessable Numbers those telephone numbers that 
satisfy the section 52.15 definition of assigned numbers solely because the numbers [are] not yet 
working but hav[e] a customer service order pending for five days or less.172 Providers generally do not 
bill for services that have yet to be provisioned and therefore are not compensated for services during the 
pendency of the service order. Moreover, such numbers are not yet operational to send or receive calls. 
Thus, under the existing contribution methodology, providers would not contribute for services they are 
about to provide (but have not yet provided) under a pending service order. We continue to find it 
appropriate for contributors not to be required to contribute to the universal service fund for pending 
service orders. 
68. We exclude from the definition of Assessable Numbers those telephone numbers that 
telecommunications providers have transferred or ported to a carrier using resale or the unbundled 
network element platform. Under prior numbering orders, such telephone numbers would still be 
included in the NRUF assigned number count of the transferring-out carrier.173 Consistent with our 
definition of Assessable Numbers, because the underlying provider no longer maintains the retail 
relationship with the end user, the provider should not include these numbers in its Assessable Number 
count. Conversely, the receiving provider of such transferred customers would include the associated 
telephone numbers in its count of Assessable Numbers. 
69. We exclude from the definition of Assessable Numbers those numbers that meet the 
definition of an Available Number, an Administrative Number, an Aging Number, or an Intermediate 
Number as those terms are defined in section 52.15(f) of the Commissions rules.174 For a particular 
carrier, the carrier will not have an end user associated with a number in any of these categories of 
numbers. For example, an intermediate number is a number that is made available for use by another 
telecommunications carrier or non-carrier entity for the purpose of providing telecommunications service 
to an end user or customer.175 The receiving provider will be responsible for including the number as an 
Assessable Number once it provides the number to an end user.176 
70. We exclude non-working telephone numbers from the definition of Assessable Number. 
(continued from previous page) 
assigned to a particular customer. Any numbers used for intermittent or cyclical purposes that do not meet these 
requirements may not be categorized as assigned numbers, and must be made available for use by other 
customers.). 
172 See 47 C.F.R.  52.15(f)(iii). 
173 NRO I Order, 15 FCC Rcd at 758687, para. 18. Ported-out numbers, a subcategory of assigned numbers, are 
not reported to NANPA although NRUF reporting carriers are required to maintain internal records associated with 
these numbers for five years. Id. at 7592, 7601, paras. 36, 62. 
174 See 47 C.F.R.  52.15(f); see also Qwest Sept. 24, 2008 Ex Parte Letter at 7 (arguing, among other things, that 
numbers used for administrative purposes and numbers that are not actively working, such as aging, unassigned, 
reserved numbers, and numbers donated back to the industry pool should be excluded from the contributors base). 
175 See 47 C.F.R.  52.15(f)(v). 
176 See NRO I Order, 15 FCC Rcd at 7587, para. 21 (2000) (We agree with commenters who opine that 
[intermediate] numbers should not be categorized as assigned numbers because they have not been assigned to an 
end user. . . . We therefore conclude that numbers that are made available for use by another carrier or non-carrier 
entity for the purpose of providing telecommunications service to an end user or customer should be categorized as 
intermediate [numbers].).

Federal Communications Commission FCC 08-262 
B-29 
Carriers report as assigned numbers for NRUF purposes entire codes or blocks of numbers dedicated to 
specific end-user customers if at least fifty percent of the numbers in the code or block are working in the 
PSTN.177 Consistent with our definition of Assessable Numbers, carriers should not include the nonworking 
numbers in these blocks in their Assessable Number counts, because the non-working numbers 
portion of these blocks are not providing service to the end user. 
71. We exclude from the definition of Assessable Number those numbers that are used 
merely for routing purposes in a network, so long as such numbers are alwayswithout exception 
provided without charge to the end user, are used for routing only to Assessable Numbers for which a 
universal service contribution has been paid, and the ratio of such routing numbers to Assessable 
Numbers is no greater than 1:1. For example, a NANP number used solely to route or forward calls to a 
residential number, office number, and/or mobile number would be excluded from our definition of 
Assessable Number if such routing number were provided for free, and such number routes calls only to 
Assessable Numbers. If, however, such routing or forwarding is provided for a fee, such as with remote 
call forward service or foreign exchange service, both the routing number and the end user number to 
which calls are routed or forwarded would be considered Assessable Numbers. 
72. In addition, incumbent LECs need not include numbers assigned to wireless providers 
that interconnect at the end office of an incumbent LEC and have obtained numbers directly from the 
incumbent LEC.178 Because the incumbent LEC does not have the retail relationship with the end user, it 
should not include these numbers in its Assessable Number count. The wireless carriers that have the 
retail relationship with the end users must include these telephone numbers in their Assessable Number 
count. 
73. Finally, we exclude from the definition of Assessable Numbers those numbers associated 
with Lifeline services for the reasons described below.179 
74. We do not restrict our definition to numbers that exclusively use the PSTN.180 Evolution 
in communications technology away from the PSTN to alternative networks that may only partially (if at 
all) traverse the PSTN is one of the causes in the erosion of the contribution base under the current 
revenue-based methodology. As more service providers migrate to alternative networks that partially 
access the PSTN, continuing to assess universal service contributions based only on traffic that 
exclusively traverses the PSTN will not account for this migration; nor will it allow us to meet our 
principle of competitive neutrality.181 Moreover, if a service provider connects a private network to a 
177 NRO III Order, 17 FCC Rcd at 304, para. 122. 
178 When a wireless carrier interconnects at an incumbent LEC end office it is known as a Type 1 interconnection. 
See Federal Communications Commission Seeks Comment on Initial Regulatory Flexibility Analysis in Telephone 
Number Portability Proceeding, CC Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at para. 19 
n.53 (2005) (Type 1 numbers reside in an end office of a LEC and are assigned to a Type 1 interconnection group, 
which connects the wireless carrier's switch and the LEC's end office switch.). 
179 See infra para. 90. 
180 The record is split over whether the definition of an assessable number should be restricted to the PSTN. AT&T 
and Verizon, for example, do not include such a requirement in their proposed definitions. See AT&T and Verizon 
Sept. 23, 2008 Ex Parte Letter, Attach. 1. Other commenters, however, argue for such a requirement. See Google 
Oct. 3, 2008 Ex Parte Letter at 1 (the definition of an assessable number should be premised on a telephone 
number acting as a proxy for an underlying two-way PSTN connection). As we explain herein, such a restriction is 
not warranted. 
181 Universal Service First Report and Order, 12 FCC Rcd at 9207, paras. 84546. 

Federal Communications Commission FCC 08-262 
B-30 
public network, the service provider and its customers benefit from the connection to the PSTN. Because 
universal service supports the PSTN and these parties connect to the PSTN, they benefit from universal 
service.182 Thus, it is increasingly important that we conform our regulatory definitions to recognize this 
reality. Indeed, the Commission has already begun to recognize the need to create a level regulatory 
playing field. For example, calls to end users that utilize interconnected VoIP service are not wholly 
within the PSTN. Indeed, calls between two interconnected VoIP users may not touch the PSTN at all. 
Yet we found in 2006 that interconnected VoIP providers must contribute to the universal service fund.183 
For these reasons, we conclude that our definition must account for public or private interstate 
networks, regardless of the technology of the network (e.g., circuit-switched, packet-switched) or 
the transmission medium of the network (e.g., wireline, wireless). 
75. Finally, we recognize that, by declining to adopt for contribution purposes verbatim the 
definition of assigned numbers in section 52.15(f) of our rules, which is used by carriers to file NRUF 
reports,184 we may nominally increase some of the administrative burden associated with universal service 
contribution filings. We find, however, that any minor administrative cost increases arising from not 
using the pre-existing definition are outweighed by the benefits of modifying the definition to achieve 
sound universal service policy. For example, as stated above, the existing definition of assigned 
numbers would not enable us to meet our universal service contribution goal of ensuring that the provider 
with the retail relationship to the end user be the one responsible for contributing.185 
76. Under our numbers-based approach, certain providers will be required to contribute to the 
universal service fund based on Assessable Numbers even though they are not today required to submit 
NRUF data. Section 52.15(f) of the Commissions rules requires only reporting carriers to submit 
NRUF data to the NANPA.186 A reporting carrier is defined as a telecommunications carrier that 
receives numbering resources from the NANPA, the Pooling Administrator, or another 
telecommunications carrier.187 In the case of numbers provided by a telecommunications carrier to a noncarrier 
entity, the carrier providing the numbers to such entities must report NRUF data to the NANPA 
for those numbers. Thus, non-carrier entities that use telephone numbers in a manner that meets our 
definition of Assessable Numbers do not report NRUF data yet must contribute.188 For example, 
interconnected VoIP providers may use telephone numbers that meet our definition of Assessable 
Numbers even though these providers do not report NRUF data.189 These non-carrier entities that use 
numbers in a manner that meets our definition of Assessable Number will be required to determine their 
Assessable Number count based on their internal records (e.g., billing system records) and will be 
182 Universal Service First Report and Order, 12 FCC Rcd at 9184, para. 796. 
183 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753637, paras. 33-34. 
184 See 47 C.F.R.  52.15(f)(iii). 
185 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844. 
186 47 C.F.R.  52.15(f). 
187 47 C.F.R.  52.15(f)(2). 
188 NRO I Order, 15 FCC Rcd at 7587, para. 21. 
189 See Administration of the North American Numbering Plan, CC Docket No. 99-200, Order, 20 FCC Rcd 2957, 
296162, para. 9 (2005) (SBCIS Waiver Order) (noting that most VoIP providers numbering utilization data are 
embedded in the NRUF data of the LEC). In the SBCIS Waiver Order, the Commission granted SBCIS, an Internet 
service provider, permission to obtain numbering resources directly from the NANPA and/or Pooling Administrator, 
conditioned on, among other things, SBCIS reporting NRUF data. Id. at 2959, para. 4.

Federal Communications Commission FCC 08-262 
B-31 
required to report such numbers to USAC.190 
77. We are mindful that our move to a numbers-based contribution methodology may 
encourage entities to try to avoid their contribution obligations by developing ways to bypass the use of 
NANPA-issued numbers.191 To the extent, however, these alternative methods are the functional 
equivalent of numbers and otherwise meet our definition of Assessable Numbers, such entities must 
report these functional equivalents as Assessable Numbers to the universal service fund administrator. 
3. Additional Contribution Assessment Methodology for Business Services 
78. Although we find that a numbers-based contribution mechanism is superior to the 
existing revenue-based mechanism for residential services, applying a pure numbers-based approach to 
business services would result in inequitable contribution obligations. Specifically, certain business 
services that do not utilize numbers, or that utilize them to a lesser extent, would not be contributing to 
the universal service fund on an equitable basis.192 Section 254(d) of the Act requires every carrier that 
provides interstate telecommunications services to contribute to the universal service fund.193 Thus, 
providers of business services, including non-numbers based services, must continue to contribute. We 
conclude that these services should be assessed based on their connection to the public network. 
79. A number of commenters supported moving to a methodology that would assess 
telephone numbers for those services that are associated with a telephone number and assess based on 
capacity of the connection to the public switched network those services not associated with a telephone 
number.194 Other commenters supported retaining a revenue-based methodology for these services.195 As 
190 See infra paras. 95-101. 
191 See Letter from Jeanine Poltronieri, Vice President, Federal Regulatory, BellSouth D.C., Inc, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) (If voice service is provided 
without using telephone numbers, but with IP address or other identifier, FCC will need to establish a functional 
equivalency test.). 
192 Business services such as private line and special access services do not typically utilize telephone numbers in 
the same manner as residential services, and would not contribute equitably to the universal service fund under a 
numbers-based approach. See, e.g., Letter from James S. Blaszak, Counsel to Ad Hoc Telecommunications Users 
Committee, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 
98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from Robert Quinn, Vice President Federal 
Government Affairs, AT&T, to Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 
99-200, 95-116, 98-170, NSD File No. L-00-72, at 2 (filed Oct. 22, 2002). Moreover, unlike residential services, 
which usually have one telephone number assigned per access line, business services do not usually have a number 
of telephone numbers assigned that aligns with the number of access lines utilized. 
193 47 U.S.C.  254(d). Therefore, we disagree with those parties that continue to support a numbers-only based 
approach because we find such an approach would be inconsistent with the statutory requirement that every 
telecommunications carrier must contribute to the universal service fund. See, e.g., Letter from James S. Blaszak, 
Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 
05-337, 07-135, Attach. at 5 (filed Oct. 14, 2008). 
194 See Contribution Staff Study; see also Ad Hoc Telecommunications Users Committee 2003 Staff Study Reply; 
Letter from John Nakahata, Counsel for the Coalition for Sustainable Universal Service, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, at 1 (filed Oct. 31, 2002). 
195 See Letter from Melissa E. Newman, Vice PresidentFederal Regulatory, Qwest, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006 Ex Parte Letter); 
see also Qwest Sept. 24, 2008 Ex Parte Letter at 2.

Federal Communications Commission FCC 08-262 
B-32 
discussed above, a revenue-based contribution methodology is no longer sustainable in todays 
telecommunications marketplace.196 Additionally, a connections-based contribution methodology will 
provide a basis for assessing services not associated with telephone numbers, and will recognize the 
greater utility derived by business end users from these high capacity business service offerings.197 
Further, in contrast to the revenues on which contributions are currently based, the number and capacity 
of connections continues to grow over time, providing a contribution base that is more stable than the 
current revenue-based methodology. Moreover, a connections-based mechanism can be easily applied to 
all business services. We, therefore, conclude that a connections-based contribution mechanism is the 
better option for business services. 
80. We find that it is equitable and nondiscriminatory, consistent with the requirements of 
section 254(d) of the Act, to establish different contribution methodologies based on numbers and 
connections.198 Although the statute states that [a]ll providers of telecommunications services should 
make an equitable and nondiscriminatory contribution to the preservation and advancement of universal 
service, it does not require that all contributors or all services be assessed in the same manner.199 Under 
the current revenue-based mechanism, the Commission has established different contribution 
methodologies through the use of proxies for wireless and interconnected VoIP services.200 As noted 
above, continuing to use a revenues-based contribution methodology has become increasingly complex, 
and a numbers-based system would avoid many of those complexities.201 At the same time, however, if 
we relied exclusively on a numbers-based contribution methodology, there are some business services 
such as private line and special accessthat would escape contribution requirements entirely. That result 
would be inconsistent with the obligation that all providers of interstate telecommunications services 
contribute to universal service, and would impose an unfair burden on providers that contribute on the 
basis of numbers.202 We therefore conclude that adopting different contribution assessment 
methodologies for residential and business services will result in equitable and nondiscriminatory 
contribution obligations. 
81. We hereby find that business access connections should be assessed based on 
Assessable Connections. An Assessable Connection is defined as an interstate telecommunications 
service or an interstate service with a telecommunications component that connects a business end-users 
physical location (e.g., premises) on a dedicated basis to the contributors network or the PSTN. 
Assessable Connections up to 64 kbps will be assessed a fixed amount, set at $5.00 per dedicated 
connection, and Assessable Connections over 64 kbps will be assessed a flat amount, set at $35.00 per 
dedicated connection. This approach will ensure a specific, predictable, and sufficient funding source for 
196 See supra para. 44. 
197 Time Warner 2006 Contribution FNPRM Comments at 2. 
198 47 U.S.C.  254(d). 
199 47 U.S.C.  254(b)(4). 
200 The proxies offer an alternative to contributions assessed on actual interstate revenues; they are intended to 
approximate the portion of revenues derived from the provision of interstate telecommunications services. First 
Wireless Safe Harbor Order, 13 FCC Rcd at 2125860, paras. 1315 (establishing safe harbors for wireless service 
providers); Second Wireless Safe Harbor Order, 17 FCC Rcd at 14954, para. 1 (modifying the wireless safe 
harbors); 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7532, 7545, paras. 23, 53 (revising the 
wireless safe harbor and establishing a safe harbor for interconnected VoIP providers). 
201 See supra para. 42. 
202 47 U.S.C.  254(b)(4), (d).

Federal Communications Commission FCC 08-262 
B-33 
the Commissions universal service mechanisms. 
82. We set the initial contribution amounts, as explained above, at $0.85 per Assessable 
Number, $5.00 per Assessable Connection up to 64 kbps, and $35.00 per Assessable Connection over 64 
kbps. Any adjustments to these contribution amounts necessary to meet funding requirements of the 
universal service program shall be applied by USAC fairly to Assessable Numbers and Assessable 
Connections, in a manner proportional to the percentage of total contribution paid by each at the aboveset 
amounts. 
4. Wireless Prepaid Plans 
83. We adopt an alternative methodology for telephone numbers assigned to handsets under a 
wireless prepaid plan. Certain commenters that offer prepaid wireless services argue that the Commission 
should adopt a discounted numbers-based assessment for these services. For example, prepaid wireless 
providers argue that their customers are typically low-income or low-volume consumers and, as such, 
should be subject to a lesser assessment.203 Verizon and TracFone further assert that prepaid wireless 
providers may have difficulty administering a per-number assessment.204 They, therefore, recommend 
that any new contribution methodology accommodate prepaid wireless service providers by adopting a 
per-number assessment that reflects the unique characteristics of [the] service.205 Finally, CTIA argues 
that the sheer number of prepaid wireless end usersover 44 millioncombined with the likelihood that 
most of these end users would see a rise in their pass-through assessments warrants an exception.206 
84. To accommodate the unique situation of prepaid wireless service providers, we find it 
appropriate to create a limited modification in contribution assessments for providers of prepaid wireless 
services and their end users. We agree with commenters that it is considerably more difficult for wireless 
prepaid providers to pass-through their contribution assessments in light of their pay-as-you-go service 
offerings.207 Because of this significant practical issue, we will modify the numbers-based assessment for 
prepaid wireless providers with regard to their offering of these services. Further, we note that, just as 
with Lifeline customers, many prepaid wireless end users are low income consumers. For example, 
TracFone states that about half of its customers have incomes of $25,000 or less.208 
203 Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
96-45, Attach. at 2 (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 Ex Parte Letter); CTIA 2006 Contribution 
FNPRM Comments at 6; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex 
Parte Letter at 34; Letter from John M. Beahn and Malcolm Tuesley, Counsel to Virgin Mobile USA, to Marlene 
H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 47 (filed June 12, 2006) (Virgin Mobile June 12, 
2006 Ex Parte Letter). 
204 See, e.g., Verizon Mar. 28, 2006 Ex Parte Letter, Attach. at 3; TracFone Sept. 17, 2008 Ex Parte Letter, Attach. 
at 2; Virgin Mobile June 12, 2006 Ex Parte Letter, Attach. at 7. 
205 See TracFone Sept. 17, 2008 Ex Parte Letter, Attach; Letter from Antoinette Bush, Counsel for Virgin Mobile, to 
Marlene H. Dortch, Secretary, FCC, Docket No. 96-45, Attach. at 11 (filed Mar. 18, 2005) (Virgin Mobile Mar. 18, 
2005 Ex Parte Letter); see also AT&T and Verizon Sept. 23, 2008 Ex Parte Letter, at 6. 
206 See CTIA Oct. 2, 2008 Ex Parte Letter at 1 (raising a concern that current proposals could harm the large number 
of prepaid wireless customers). 
207 See Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, at 3 (filed June 15, 2007) (TracFone June 15 Ex Parte Letter). 
208 TracFone June 15, 2007 Ex Parte Letter at 3. TracFone also asserts that an exception is warranted because it 
provides service to low volume end users (i.e., end users that do make a small amount of calls, measured in 
(continued.)

Federal Communications Commission FCC 08-262 
B-34 
85. We find that TracFones USF by the Minute proposal best addresses the concerns of 
prepaid wireless providers within the context of the numbers-based contribution methodology we adopt 
today.209 TracFones proposed USF by the Minute Plan would calculate universal service contribution 
assessments on prepaid wireless services by dividing the per-number assessment by the number of 
minutes used by the average postpaid wireless customer in a month. This per-minute number would then 
be multiplied by the number of monthly prepaid minutes generated by the provider. This amount would 
be the providers monthly universal service contribution obligation. The per-minute assessment, 
however, would be capped at an amount equal to the current per month contribution per Assessable 
Number, established as set forth above.210 We illustrate the proposal below. 
86. According to CTIA data submitted by TracFone, the average wireless postpaid customer 
used 826 minutes per month for the period ending December 2007.211 A per-number assessment of, for 
example $0.85 would be divided by 826 minutes to calculate a per-minute assessment of 
$0.00102905569. The wireless prepaid providers contribution obligation would be calculated by 
multiplying the per-minute assessment by the number of prepaid minutes generated for the month. If the 
wireless prepaid provider generated a billion prepaid minutes in a month, its contribution for that month 
would be $1,029,056.212 If the prepaid provider had 10 million prepaid customers that month, the average 
contribution per customer would be $0.1029 and its contribution obligation would remain at $1,029,056. 
If, on the other hand, it had only 1 million customers, the average contribution per-customer would be 
$1.03, which exceeds the current per number contribution at $0.85. In this case, because the per-customer 
contribution amount under the calculation would exceed the per-number assessment established by the 
Commission, the prepaid providers contribution obligation would be capped at $850,000, which is the 
per-number assessment of $0.85 multiplied by the 1 million monthly prepaid customers. Under this 
scenario, the average per-customer contribution for the prepaid wireless provider would be equal to a pernumber 
contribution of $0.85 for non-prepaid wireless residential numbers. 
87. We find the TracFone discount approach superior to other forms of a discount proposed 
by parties. For example, CTIA proposed a fifty percent discount for prepaid wireless providers.213 The 
TracFone approach is based on actual wireless calling data, whereas the CTIA approach represents a more 
arbitrary half-off discount. Moreover, the CTIA proposal makes no allowance for the type of end user 
that is using the prepaid wireless service. This contrasts with the TracFone proposal, which would not 
provide any discount to those end users that use more than the average monthly post-paid number of 
minutes. As explained above, for those customers whose usage would result in more than the allowable 
per Assessable Number pass-through, the assessment on the provider and the pass-through would be 
(continued from previous page) 
minutes). Id. However, as explained below, we decline to provide a contribution exception for low-volume users. 
See infra para. 91. 
209 AT&T and Verizon support the TracFone discount approach for prepaid wireless providers. AT&T and Verizon 
Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 3; see also Letter from David L. Sieradzki, Counsel to OnStar Corp., to 
Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28, 2008) (OnStar 
strongly supports the TracFone per-minute of use proposal for prepaid wireless services) (OnStar Oct. 28, 2008 Ex 
Parte Letter). 
210 TracFone Sept. 17, 2008 Ex Parte Letter, Attach. at 45. 
211 See TracFone Sept. 17, 2008 Ex Parte Letter at 5. We use these data because they are the most recent publicly 
available data. 
212 To the extent that the prepaid wireless subscriber is a Lifeline customer for the prepaid service, the prepaid 
provider should exclude prepaid minutes associated with the qualifying Lifeline customer. See infra para. 90. 
213 CTIA Oct. 2, 2008 Ex Parte Letter at 5.

Federal Communications Commission FCC 08-262 
B-35 
capped at the contribution amount month per Assessable Number. Thus, high volume users would neither 
benefit from, nor be penalized by, the discount mechanism. Finally, we make clear that if the prepaid 
provider is an ETC and is providing service to qualifying Lifeline customers, the provider is exempt from 
contribution assessments on the qualifying Lifeline customers and we prohibit the provider from 
assessing any universal service pass-through charges on their Lifeline customers. 
88. We find that prepaid calling cards, which will be assessed on Assessable Numbers and 
Assessable Connections by their underlying access provider, are different from prepaid wireless providers 
in that these providers do not assign a telephone number to their end users. Thus, prepaid calling card 
providers shall be considered end users for purposes of determination of Assessable Connections and 
Assessable Numbers. 
5. Exceptions to Contribution Obligations 
89. A number of parties have asked for exceptions from the contribution obligation. We find 
that, in general, providing an exception or exemption to a particular provider or to a particular category of 
end users would complicate the administration of the numbers-based methodology we adopt today. The 
result would unfairly favor certain groups by reducing or eliminating their contribution obligations, while 
increasing the contribution obligations on providers that are not exempted from contributing. Therefore, 
we conclude that grant of an exemption from the contribution obligations is only warranted for those who 
are truly unable to bear the burden of contributing to the universal service fundlow-income consumers. 
As discussed below, we exempt providers from contribution assessments on their qualifying Lifeline 
program customers and prohibit contributors from assessing any universal service pass-through charges 
on their Lifeline customers. As explained below, an exception for low-income consumers is consistent 
with the Commissions policies underlying the low-income universal service program and targets 
universal service benefits to those consumers most in need of those benefits.214 
90. We conclude that telephone numbers assigned to Lifeline customers should be excluded 
from the universal service contribution base and providers of Lifeline service may not pass-through 
contribution assessments to Lifeline customers.215 The Lifeline program provides an opportunity for the 
Commission to ensure that low-income families are not denied access to telephone service. We find that 
an exception for Lifeline customers satisfies the high threshold necessary to justify an exception to the 
new numbers-based contribution methodology we adopt today. Lifeline customers are, by definition, 
among the poorest individuals in the country. As such, they are in the greatest need of relief from 
regulatory assessments. Prohibiting recovery of universal service contributions from Lifeline customers 
helps to increase subscribership by reducing qualifying low-income consumers monthly basic local 
service charges.216 The record, moreover, overwhelmingly supports the creation of an exception for 
Lifeline customers. Consumer groups, large telecommunications customers, LECs, and wireless 
providers all support creating an exemption for Lifeline customers, and no commenter opposes an 
exemption for Lifeline customers.217 We therefore adopt an exemption to our numbers-based contribution 
methodology for Lifeline customers. 
214 Alenco, 201 F.3d at 621. 
215 See, e.g., AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 4 (proposing that numbers assigned to Lifeline 
customers be excluded from the monthly number count for contribution purposes). 
216 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24982, para. 62. 
217 See, e.g., CTIA 2006 Contribution FNPRM Comments at 5; Consumers Union et al. High-Cost Reform NPRMs 
Reply at 58; Ad Hoc Nov. 19, 2007 Ex Parte Letter at 4; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 
1 at 5.

Federal Communications Commission FCC 08-262 
B-36 
91. Although commenters have sought contribution exceptions for other groups of consumers 
or service providers, we decline to adopt any further exceptions. Some parties argue that consumers who 
make few or no calls, i.e., low-volume users, should be exempt from the numbers-based contribution 
assessment mechanism.218 As discussed above, all users of the network, even those who make few or no 
calls, receive a benefit by being able to receive calls, and therefore it is appropriate for these consumers to 
contribute to universal service.219 Also as discussed above, to the extent low-volume consumers may see 
an increase in the amount of their universal service contribution pass-through fee,220 any such increase 
should be slight.221 
92. We also decline to exempt telematics providers,222 stand-alone voice mail providers,223 
one-way service providers,224 and two-way paging services225 from contributing based on numbers. We 
disagree with commenters arguing for special treatment for these services.226 Granting exceptions for 
218 See, e.g., Consumers Union et al. Contribution First FNPRM Comments at 12; NASUCA Contribution First 
FNPRM Comments at 14; Keep USF Fair Mar. 27, 2006 Ex Parte Letter, Attach. at 1. 
219 See supra para. 60; see also Sprint Contribution First FNPRM Comments at 7. 
220 But see IDT Aug. 2, 2007 Ex Parte Letter at 67 (arguing that low-volume consumers who make no long 
distance calls pay about $1.40 in universal service contribution assessments). 
221 See supra para. 59. 
222 Telematics is a service that is provided through a transceiver, which is usually built into a vehicle but can also be 
a handheld device, that provides public safety information to public safety answering points (PSAPs) using global 
positioning satellite data to provide location information regarding accidents, airbag deployments, and other 
emergencies in real time. See, e.g., Letter from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch, FCC, 
CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006); Revision of the Commissions Rules To Ensure 
Compatibility with Enhanced 911 Emergency Systems, CC Docket No. 94-102, Order, 18 FCC Rcd 21531, 21531 
33, paras. 2, 8 (2003). 
223 See Letter from Jennifer D. Brandon, Executive Director, Community Voice Mail National, to Tom Navin, 
Wireline Competition Bureau, FCC, CC Docket No. 96-45 at 1 (filed May 30, 2006) (Community Voice Mail May 
30, 2006 Ex Parte Letter) (arguing for an exemption for these services). 
224 One-way services include, but are not limited to, one-way paging, electronic facsimile (e-fax), and voice mail 
services. See j2 Global 2003 Comments at 9 (describing its offering as a free unified messaging service that uses 
telephone numbers to allow subscribers to receive faxes and voice mail into their personal e-mail accounts). 
225 See, e.g., Letter from Matthew Brill, Counsel for USA Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing the assessment of a numbers-based 
fee on paging carriers and their customers); Letter from Kenneth Hardman, representing the American Association 
of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 
Attach. (filed Oct. 22, 2008). 
226 See Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz USA, LLC, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 96-45, at 1 (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 Ex Parte Letter); see also Letter 
from John E. Logan, ATX Group, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed 
Mar. 16, 2006) (ATX Mar. 16, 2006 Ex Parte Letter); Letter from David M. Don, Counsel for j2 Global 
Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18, 2005) (j2 
Global Nov. 18, 2005 Ex Parte Letter); Letter from William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom 
Navin, Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb. 13, 2006) (Bonfire Feb. 13, 2006 Ex 
Parte Letter); j2 Global Contribution Second FNPRM Comments at 2; Letter from Kenneth E. Hardman, Counsel 
for American Association of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. 
at 1 (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 Ex Parte Letter); Letter from Frederick M. Joyce, Counsel for USA 
(continued.)

Federal Communications Commission FCC 08-262 
B-37 
these services would provide them with an advantage over other services that are required to contribute 
based on telephone numbers. These services are receiving the benefit of accessing the public network and 
therefore assessing universal service contributions on these entities is appropriate.227 These service 
providers have not shown that grant of a contribution exception is warranted.228 Accordingly, providers 
of these services will be assessed the full per-number charge. 
93. We also decline to adopt an exception from the numbers-based contribution mechanism 
for additional handsets provided through a wireless family plan. We do not agree with commenters who 
argue that telephone numbers assigned to the additional handsets in family wireless plans should be 
assessed at a reduced rate, either permanently or for a transitional period.229 These commenters assert that 
assessing contributions at the full per-number rate would cause family plan customers to experience rate 
shock.230 Although family plan customers may see an increase in universal service contribution passthrough 
charges on their monthly bills, we are not persuaded that the fear of rate shock justifies special 
treatment. We find that each number associated with a family plan obtains the full benefits of accessing 
the public network, and thus it is fair to assess each number with a separate contribution obligation. We 
also note that wireless service is one of the fastest-growing sectors of the industry and the record does not 
include persuasive data showing that a move to a numbers-based contribution methodology would have a 
significant, detrimental impact on wireless subscribership.231 We agree with Qwest that an exception for 
(continued from previous page) 
Mobility, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 13 (filed Mar. 22, 2006) (USA 
Mobility Mar. 22, 2006 Ex Parte Letter). 
227 We similarly decline to adopt an exemption from the numbers-based contribution assessment method for services 
provided by alarm companies. See Letter from Donald J. Evans, Counsel for Corr Wireless Communications, LLC, 
to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No. 05-194, at 2 
(filed Oct. 23, 2008). These services are receiving the benefit of having access to the PSTN and should therefore 
contribute to universal service. 
228 Telematics providers argue against imposition of a $1.00 per number per month contribution assessment on 
telematics numbers due to the services critical role in advancing public safety, and because the $1.00 assessment 
would be prohibitively expensive. See, e.g., Letter from Gary Wallace, Vice President Corporate Relations, ATX 
Group, Inc., to Kevin Martin, Chairman, FCC, CC Docket No. 96-45, WC Docket No. 06-122 at 12 (filed Oct. 28, 
2008); OnStar Oct. 28, 2008 Ex Parte Letter at 34; Letter from Matthew Brill, Counsel for Toyota Motor Sales 
USA, Inc., to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at 12 (filed Oct. 24, 
2008). We find, however, that treating these services differently than other residential services would not be 
equitable, given their use of the PSTN and the ability of telematics providers to recover the assessment from their 
end users. Given the public safety benefit to consumers, we find unpersuasive the telematics providers assertions 
that consumers will discontinue use of the service based on an assessment of only $1.00 per number. Furthermore, 
we disagree with commenters who argue that telematics service should be treated as a business service, and 
conclude that telematics service is a residential service that should be assessed under the $1.00 per number per 
month residential contribution methodology. See OnStar Oct. 28, 2008 Ex Parte Letter at 2; Letter from Tamara 
Preiss, Legal and External Affairs, Verizon Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, 
CC Docket No. 96-45 at 1 (filed Oct. 29, 2008). 
229 See e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter at 4; CTIA 2006 Contribution FNPRM Comments at 
56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte Letter at 2. 
230 E.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 4; CTIA 2006 Contribution FNPRM 
Comments at 56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte 
Letter at 23. But see AAPC Oct. 9, 2008 Ex Parte Letter at 2. 
231 There are, as of December 2007, 249,235,715 mobile wireless subscribers, a more than 9% increase from the 
previous year. See FCC, LOCAL TELEPHONE COMPETITION: STATUS AS OF DECEMBER 31, 2007, tbl. 14 at 18 (2008), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf. Moreover, where a wireless 
(continued.)

Federal Communications Commission FCC 08-262 
B-38 
additional family plan handsets would not be competitively neutral and would advantage approximately 
70 million wireless family plan consumers over other service consumers.232 Multiple wireline lines in a 
household are not given a discounted contribution assessment rate. We therefore decline to adopt a 
reduced assessment for wireless family plan numbers. 
94. Some parties seek an exception to the contribution methodology we adopt today to 
exclude Internet-based telecommunications relay services (TRS), including video relay services (VRS) 
and IP Relay services.233 We decline to adopt an exception for such providers at this time. The 
Commission has an open proceeding on a number of issues related to these providers, including whether 
certain costs to these providers related to the acquisition of ten-digit numbers by their customers should 
be reimbursed by the TRS fund.234 We defer to that proceeding consideration of whether to adopt an 
exception to the contribution methodology we adopt today for numbers assigned to Internet-based TRS 
users.235 
6. Reporting Requirements and Recordkeeping 
95. Under the existing revenue-based contribution methodology, contributors report their 
historical gross-billed, projected gross-billed, and projected collected end-user interstate and international 
revenues quarterly on the FCC Form 499-Q and their gross-billed and actual collected end-user interstate 
and international revenues annually on the FCC Form 499-A.236 Contributors are billed for their 
universal service contribution obligations on a monthly basis based on their quarterly projected collected 
revenue.237 Actual revenues reported on the FCC Form 499-A are used to perform true-ups to the 
(continued from previous page) 
provider is eligible to receive universal service support, it receives the same level of support for each handset. See 
WTA/OPASTCO/ITTA Oct. 10, 2008 Ex Parte Letter at 2. 
232 Qwest Sept. 24, 2008 Ex Parte Letter, Attach. at 7; Qwest May 4, 2006 Ex Parte Letter, Attach. at 9; see also 
CTIA Oct. 2, 2008 Ex Parte Letter at 1. 
233 See Letter from Deb MacLean, Communication Access Center for the Deaf and Hard of Hearing, et al. to 
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 12 (filed Sept. 29, 2008) 
(CSDVRS Sept. 29, 2008 Ex Parte Letter). 
234 See Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech 
Disabilities, CG Docket No. 03-123, WC Docket No. 05-196, Report and Order and Further Notice of Proposed 
Rulemaking, 23 FCC Rcd 11591, 11646, para. 149 (2008) (We . . . seek comment on whether, and to what extent, 
the costs of acquiring numbers, including porting fees, should be passed on to the Internet-based TRS users, and not 
paid for by the [TRS] Fund. . . . We also seek comment on whether there are other specific costs that result from the 
requirements adopted in the Order that, mirroring voice telephone consumers, should be passed on to consumers, 
including, for example, E911 charges.). 
235 To the extent that Internet-based TRS users utilize a proxy number or identifier other than an assigned ten-digit 
number during/pending the transition to ten-digit numbering for Internet-based TRS services, we make clear that 
those numbers or identifiers are NOT subject to universal service contribution at this time. This treatment is 
necessary to ensure the smooth transition to ten-digit numbering for these services, and to prevent duplicative 
charges for end users of these services. 
236 See, e.g., Second Wireless Safe Harbor Order, 17 FCC Rcd at 24969, para. 29. Filers are required to file 
revisions to FCC Form 499-Q within 45 calendar days of the original filing date. See FCC, INSTRUCTIONS TO THE 
TELECOMMUNICATIONS REPORTING WORKSHEET, FCC Form 499-Q, at 10 (Feb. 2008) (FCC Form 499-Q 
Instructions), available at http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers are required to file revisions to 
FCC Form 499-A by March 31 of the year after the original filing date. See FCC Form 499-A Instructions at 1112. 
237 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 35.

Federal Communications Commission FCC 08-262 
B-39 
quarterly projected revenue data.238 
96. We will develop a new and unified reporting system to accommodate our new 
contribution methodology.239 Contributors will report their Assessable Number and Assessable 
Connections counts on a monthly basis. Contributors must report as an Assessable Number any such 
number that is in use by an end user during any point in the relevant month. The Commission will 
develop an additional version of the FCC Form 499 for use in reporting Assessable Numbers and 
Assessable Connections. 
97. Under the new contribution system we adopt today, contributors will report historical 
Assessable Numbers and Assessable Connections monthly. Contributors will then be invoiced and 
required to contribute the following month. By reporting actual, historical numbers and connections, our 
contribution methodology remains simple and straightforward. As explained above, a key reason to move 
to the modified contribution approach adopted herein is its simplicity. Indeed, several commenters 
propose monthly reporting of historical number counts.240 We find that reporting Assessable Numbers 
and Assessable Connections on a projected collected basis would unnecessarily complicate the 
contribution system. Although we are mindful of the issues inherent in historical reporting,241 we find 
that a one month lag between the reported Assessable Numbers and Assessable Connections and the 
contribution based on those data is minimal and will not unfairly disadvantage any provider, even those 
with a declining base. 
98. We allow contributors to self-certify which telephone numbers are, consistent with this 
order, considered Assessable Numbers. Contributors will be subject to audit, however, and their method 
for distinguishing Assessable Numbers other numbers must be reasonable and supportable. 
99. Each contributor must maintain the necessary internal records to justify, in response to an 
audit or otherwise, its reported Assessable Number and Assessable Connections counts and the data 
reported on the Commissions contribution forms.242 Contributors are responsible for accurately 
including all Assessable Numbers in their Assessable Number counts and all Assessable Connections in 
their Assessable Connections component of the methodology. Failure to file the required form by the 
applicable deadline, or failure to file accurate information on the form, could subject a contributor to 
enforcement action.243 In addition, as with the current FCC Forms 499-A and 499-Q, we will require that 
an officer of the filer certify to the truthfulness and accuracy of the forms submitted to the administrator. 
100. To ensure that filers report correct information, we continue to require all reporting 
238 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 36. 
239 We decline to adopt the suggestion by AT&T and Verizon to transition the Telecommunications Relay Services 
Fund, local number portability cost recovery, and numbering administration to a numbers/connections-based 
assessment methodology. See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 6. Although these programs rely 
on the revenue information reported in the current FCC Form 499-A, they do not rely on many of the revenue 
distinctions, such as interstate and intrastate, that necessitate the change from a revenue-based assessment for the 
universal service fund. 
240 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 2-3; CTIA Oct. 2, 2008 Ex Parte Letter, 
Attach. at 5; USF by the Numbers Oct. 3, 2008 Ex Parte Letter. 
241 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 2496970, paras. 2932. 
242 Comprehensive Review Report and Order, 22 FCC Rcd at 16387, para. 27. 
243 Pursuant to section 1.80 of the Commissions rules, failure to file required forms or information carries a base 
forfeiture amount of $3,000 per instance and is subject to adjustment criteria. See 47 C.F.R.  1.80.

Federal Communications Commission FCC 08-262 
B-40 
entities to maintain records and documentation to justify the information reported in these forms, and to 
provide such records and documentation to the Commission and to USAC upon request.244 All universal 
service fund contributors are required to retain their records for five years.245 Specifically, contributors to 
the universal service fund must retain all documents and records that they may require to demonstrate to 
auditors that their contributions were made in compliance with the program rules, assuming that the audits 
are conducted within five years of such contribution. Contributors further must make available all 
documents and records that pertain to them, including those of contractors and consultants working on 
their behalf, to the Office of Inspector General, to USAC, and to their respective auditors. These 
documents and records should include without limitation the following: financial statements and 
supporting documentation; accounting records; historical customer records; general ledgers; and any other 
relevant documentation.246 
101. Finally, we direct the Wireline Competition Bureau (Bureau), and delegate to the Bureau 
the authority, to develop or modify the necessary forms to ensure proper contribution reporting occurs, 
consistent with this order. 
7. Transition to New Methodology 
102. The new reporting procedures discussed above will require reporting entities to adjust 
their record-keeping and reporting systems in order to provide reports to USAC regarding the number of 
Assessable Numbers and Assessable Connections. Accordingly, we implement a 12-month transition 
period for the new contribution mechanisms.247 This transition period will give contributors ample time 
to adjust their record-keeping and reporting systems so that they may comply with modified reporting 
procedures. As explained below, a 12-month transition period will also allow reporting entities to submit 
several reports for informational purposes before being assessed on the basis of projected Assessable 
Numbers and Assessable Connections.248 We find, therefore, that a 12-month transition period balances 
administrative burdens on contributors with the need to implement the new contribution methodologies in 
a balanced and equitable manner. 
103. During 2009, filers will continue reporting their interstate telecommunications revenue 
on a quarterly basis and USAC will continue assessing contributions to the federal universal service 
mechanisms based on those quarterly reports. This one-year period and, in particular, the first six months 
of that period, should be used by contributors to adjust their internal and reporting systems to prepare for 
244 Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; see also 47 C.F.R.  54.706(e), 
54.711(a). 
245 See Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; 47 C.F.R.  54.706(e). 
246 See Comprehensive Review Report and Order, 22 FCC Rcd at 16387, paras. 2728. We note that contributors 
who also report NRUF data to the NANPA are currently required to maintain internal records of their numbering 
resources for audit purposes. NRO I Order, 15 FCC Rcd at 7601, para. 62. 
247 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (proposing a 12-month transition to the new 
mechanism taking effect). 
248 See CTIA 2006 Contribution FNPRM Comments at 7; see also Verizon and AT&T Sept. 11, 2008 Ex Parte 
Letter, Attach. at 2 (advocating a 12-month implementation period followed by a 6-month transition period). Some 
parties advocated for a transition period as short as possible. See, e.g., Letter from Gregory J. Vogt, Counsel for 
CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) 
(CenturyTel Sept. 19, 2008 Ex Parte Letter); Sprint Nextel June 14, 2006 Ex Parte Letter. Others advocated for a 
longer transition period. See, e.g., Qwest Mar. 21, 2006 Ex Parte Letter, Attach. at 3 (advocating 18 months); XO 
Communications Oct. 3, 2008 Ex Parte Letter, Attach. at 11 (advocating at least 18 months).

Federal Communications Commission FCC 08-262 
B-41 
the reporting of Assessable Numbers and Assessable Connections. 
104. Beginning in July 2009, contributors will continue to report and contribute based on their 
quarterly reported interstate and international revenues for the last two quarters of the year, but they will 
also begin filing with USAC monthly reports of their Assessable Numbers and Assessable Connections. 
USAC will thus collect data under the old revenue-based methodology, while collecting and reviewing 
data under the new Assessable Number and Assessable Connections methodologies for the last six 
months of 2009. We find that this six-month period of double-reporting is necessary to help reporting 
entities, Commission staff, and USAC identify implementation issues that may arise under this new 
methodology prior to it taking effect.249 Although only the December 2009 Assessable Numbers and 
Assessable Connections will be used to compute contributors January 2010 assessments, we find it is 
reasonable to require contributors to begin filing under the new methodologies prior to these periods to 
ensure that there is adequate time for all affected parties to address any implementation issues that may 
arise. Moreover, we conclude that the short overlap of reporting under both the old and new 
methodologies will not be unduly burdensome for contributors given the limited duration of the dual 
reporting. 
IV. PROCEDURAL MATTERS 
A. Final Regulatory Flexibility Analysis 
105. Pursuant to the Regulatory Flexibility Act (RFA),250 the Commission has prepared a Final 
Regulatory Flexibility Analysis (FRFA) for the report and order concerning the possible significant 
economic impact on small entities by the policies and actions considered in the report and order. The text 
of the FRFA is included in Appendix [__]. 
B. Paperwork Reduction Act 
106. This document contains proposed new or modified information collection requirements. 
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public 
and the Office of Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107- 
198,251 we seek specific comment on how we might further reduce the information collection burden for 
small business concerns with fewer than 25 employees. 
C. Accessible Formats 
107. To request materials in accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental 
Affairs Bureau at 202-418-0530 (voice) or 202-418-0432 (TTY). Contact the FCC to request reasonable 
accommodations for filing comments (accessible format documents, sign language interpreters, CART, 
etc.) by e-mail: FCC504@fcc.gov; phone: 202-418-0530 or TTY: 202-418-0432. 
D. Congressional Review Act 
249 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (recommending a six-month transition period 
for filers and USAC to test and calibrate the new system prior to its taking effect). 
250 See 5 U.S.C.  603. The RFA, see 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 (Small Business Act). 
251 See 44 U.S.C.  3506(c)(4).

Federal Communications Commission FCC 08-262 
B-42 
108. The Commission will include a copy of this report and order in a report to be sent to 
Congress and the Government Accountability Office pursuant to the Congressional Review Act. See 5 
U.S.C.  801(a)(1)(A). 
V. ORDERING CLAUSES 
109. Accordingly, IT IS ORDERED that, pursuant to sections 14, 201209, 214, 218-220, 
224, 251, 252, 254, 303(r), 332, 403, 502, and 503 of the Communications Act of 1934, as amended, and 
sections 601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.  151154, 157 nt, 201209, 
214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503, 601 and 706, and sections 1.1, 1.4111.429, 
and 1.12001.1216 of the Commissions rules, 47 C.F.R.  1.1, 1.4111.429, 1.12001.1216, the 
REPORT AND ORDER IS ADOPTED. 
110. IT IS FURTHER ORDERED that Parts [__] of the Commissions rules, 47 C.F.R.  [__] 
are AMENDED as set forth in Appendix A hereto. 
111. IT IS FURTHER ORDERED that this report and order shall become effective 30 days 
after publication of the text of a summary thereof in the Federal Register, pursuant to 47 C.F.R.  1.4, 
1.13, except for the information collections, which require approval by OMB under the PRA and which 
shall become effective after the Commission publishes a notice in the Federal Register announcing such 
approval and the relevant effective date(s). 
112. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this report and order, including the Final 
Regulatory Flexibility Analyses, to the Chief Counsel for Advocacy of the Small Business 
Administration. 
FEDERAL COMMUNICATIONS COMMISSION 
Marlene H. Dortch 
Secretary

Federal Communications Commission FCC 08-262 
APPENDIX C 
Alternative Proposal 
In the Matter of 
High-Cost Universal Service Support 
Federal-State Joint Board on Universal Service 
Lifeline and Link Up 
Universal Service Contribution Methodology 
Implementation of the Local Competition 
Provisions in the Telecommunications Act of 1996 
Developing a Unified Intercarrier Compensation 
Regime 
Intercarrier Compensation for ISP-Bound Traffic 
IP-Enabled Services 
Numbering Resource Optimization 
))))))))))))))))))))) 
WC Docket No. 05-337 
CC Docket No. 96-45 
WC Docket No. 03-109 
WC Docket No. 06-122 
CC Docket No. 96-98 
CC Docket No. 01-92 
CC Docket No. 99-68 
WC Docket No. 04-36 
CC Docket No. 99-200 
ORDER ON REMAND AND REPORT AND ORDER 
AND FURTHER NOTICE OF PROPOSED RULEMAKING 
Adopted: "Insert Adopted Date" Released: "Insert Release Date" 
Comment Date: [XX days after date of publication in the Federal Register] 
Reply Comment Date: [XX days after date of publication in the Federal Register] 
By the Commission: 
TABLE OF CONTENTS 
Heading Paragraph # 
I. INTRODUCTION................................................................................................................................. 1 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT ....................................................... 4 
A. Background ..................................................................................................................................... 5 
B. Discussion ..................................................................................................................................... 12 
1. Controlling the Growth of the High-Cost Fund....................................................................... 14 
2. Conditioning Support on Offering Broadband Internet Access Service.................................. 19 
a. Definition of Broadband Internet Access Service............................................................. 24

Federal Communications Commission FCC 08-262 
C-2 
b. Broadband Internet Access Service Obligations............................................................... 25 
3. Incumbent LECs Commitment to Offer Broadband .............................................................. 28 
4. Reverse Auctions for Study Areas Unserved by Broadband................................................... 32 
a. Geographic Area ............................................................................................................... 35 
b. Reserve Price .................................................................................................................... 36 
c. Auctioned Support ............................................................................................................ 38 
d. Selecting a Winning Bid ................................................................................................... 43 
e. Bidder Qualifications ........................................................................................................ 48 
5. Competitive Eligible Telecommunications Carriers ............................................................... 51 
6. Build-Out Milestones and Monitoring, Compliance, and Enforcement.................................. 53 
III. BROADBAND FOR LIFELINE/LINK UP CUSTOMERS................................................................ 60 
A. Background ................................................................................................................................... 61 
B. Discussion ..................................................................................................................................... 67 
1. Available Funding ................................................................................................................... 73 
2. Eligible Services and Equipment............................................................................................. 76 
3. Selection Criteria..................................................................................................................... 81 
4. Implementation and Reporting Requirements......................................................................... 84 
5. Program Oversight................................................................................................................... 87 
IV. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS ............................................................. 88 
A. Background ................................................................................................................................... 89 
B. Discussion ..................................................................................................................................... 93 
1. Legal Authority ....................................................................................................................... 94 
2. The New Numbers-Based Assessment Methodology for Residential Services .................... 101 
a. Benefits of a Numbers-Based Contribution Methodology.............................................. 102 
b. Assessable Numbers ....................................................................................................... 111 
3. Contribution Assessment Methodology for Business Services ............................................. 126 
4. Wireless Prepaid Plans .......................................................................................................... 131 
5. Exceptions to Contribution Obligations ................................................................................ 136 
6. Reporting Requirements and Recordkeeping ........................................................................ 142 
7. Transition to New Methodology............................................................................................ 149 
V. REFORM OF INTERCARRIER COMPENSATION ....................................................................... 152 
A. A Brief History of Intercarrier Compensation ............................................................................. 154 
1. Intercarrier Compensation Regulation Before the Telecommunications Act of 1996 .......... 155 
2. Intercarrier Compensation Regulation Since the 1996 Act ................................................... 164 
3. Problems Associated With the Existing Intercarrier Compensation Regimes ...................... 173 
B. Comprehensive Reform ............................................................................................................... 181 
1. Introduction ........................................................................................................................... 181 
2. A New Approach to Intercarrier Compensation.................................................................... 183 
3. Legal Authority ..................................................................................................................... 202 
a. Legal Authority for Comprehensive ReformInterpretation of Sections 
251(b)(5) and 251(g)....................................................................................................... 202 
b. Legal Authority for the Transition.................................................................................. 225 
4. Additional Costs Standard..................................................................................................... 231 
a. Background..................................................................................................................... 232 
b. The Importance of Incremental Cost In Regulated Pricing............................................. 235 
c. The Incremental Cost of Call Termination on Modern Networks .................................. 248 
d. Reconsideration of Additional Costs Standard ............................................................... 257 
C. Implementation ............................................................................................................................ 264 
1. Direction to the States ........................................................................................................... 265

Federal Communications Commission FCC 08-262 
C-3 
a. Setting Final Reciprocal Compensation Rates Based on Incremental Cost.................... 266 
b. Symmetry....................................................................................................................... 271 
c. Modifications and Suspensions under Section 251(f)(2) ................................................ 277 
d. Existing Agreements....................................................................................................... 286 
2. Revenue Recovery Opportunities.......................................................................................... 289 
a. End-User Charges ........................................................................................................... 291 
b. Universal Service Support .............................................................................................. 306 
D. Measures to Ensure Proper Billing .............................................................................................. 322 
1. Introduction ........................................................................................................................... 322 
2. Background........................................................................................................................... 323 
3. Discussion............................................................................................................................. 325 
a. Signaling Information ..................................................................................................... 326 
b. Financial Responsibilities ............................................................................................... 332 
VI. FURTHER NOTICE OF PROPOSED RULEMAKING................................................................... 339 
A. Universal Service ......................................................................................................................... 339 
B. Intercarrier Compensation Further Notice ................................................................................... 342 
VII. PROCEDURAL MATTERS........................................................................................................... 347 
A. Ex Parte Presentations ................................................................................................................. 347 
B. Comment Filing Procedures......................................................................................................... 348 
C. Initial Regulatory Flexibility Analysis......................................................................................... 359 
D. Final Regulatory Flexibility Analysis .......................................................................................... 360 
E. Paperwork Reduction Act ............................................................................................................ 361 
F. Accessible Formats ...................................................................................................................... 362 
G. Congressional Review Act........................................................................................................... 363 
VIII. ORDERING CLAUSES .............................................................................................................. 364 
I. INTRODUCTION 
1. In enacting the Telecommunications Act of 1996 (1996 Act),1 Congress sought to introduce 
competition into local telephone service, which traditionally was provided through regulated monopolies. 
Recognizing that in introducing such competition, it was threatening the implicit subsidy system that had 
traditionally supported universal service, it directed the Commission to reform its universal service 
program to make support explicit and sustainable in the face of developing competition. 
2. For the most part, Congresss vision has been realized. Competition in local telephone 
markets has thrived. At the same time, the communications landscape has undergone many fundamental 
changes that were scarcely anticipated when the 1996 Act was adopted. The Internet was only briefly 
mentioned in the 1996 Act,2 but now has come into widespread use, with broadband Internet access 
service increasingly viewed as a necessity. Consistent with this trend, carriers are converting from 
circuit-switched networks to Internet Protocol (IP)-based networks. These changes have benefited 
consumers and should be encouraged. Competition has resulted in dramatically lower prices for 
telephone service, and the introduction of innovative broadband products and services has fundamentally 
changed the way we communicate, work, and obtain our education, news, and entertainment. At the same 
time, however, these developments have challenged the outdated regulatory assumptions underlying our 
universal service and intercarrier compensation regimes, forcing us to reassess our existing approaches. 
We have seen unprecedented growth in the universal service fund, driven in significant part by increased 
1 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (1996 Act). 
2 See 47 U.S.C.  230; 47 U.S.C.  157 nt.

Federal Communications Commission FCC 08-262 
C-4 
support for competitive eligible telecommunications carriers (ETCs). The growth of competition also has 
eroded the universal service contribution base as the prices for interstate and international services have 
dropped. Finally, we have seen numerous competitors exploit arbitrage opportunities created by a 
patchwork of above-cost intercarrier compensation rates. Although the Commission has attempted to 
address many of these issues on a case-by-case basis, it has become increasingly clear that piecemeal 
efforts to respond to these developments are inadequateonly comprehensive reform can address the 
fundamental challenges that they present.3 
3. Today we adopt a comprehensive approach to addressing these difficult, but critical 
issues. First, we spur widespread deployment of broadband by ensuring that carriers receiving universal 
service high-cost support offer broadband throughout their service areas. Second, we help Lifeline/Link 
Up customers participate in this new broadband world by creating a pilot program to provide discounted 
access to broadband services. Third, we broaden and stabilize our universal service contribution base 
through equitable and non-discriminatory contributions. Fourth, having placed our universal service fund 
on solid footing, we now take the long-overdue step of moving toward uniform intercarrier compensation 
rates that provide efficient incentives for the investment in and use of broadband networks. Finally, our 
approach minimizes disruptions to carriers and safeguards universal service for consumers by adopting 
sensible transition plans and ensuring that universal service is used to support service in high-cost areas, 
not carriers dividends. 
II. REFORM OF HIGH-COST UNIVERSAL SERVICE SUPPORT 
4. Today we take a monumental step toward our goal of ensuring that broadband is 
available to all Americans. We do this by requiring that all recipients of high-cost support offer 
broadband Internet access service to all customers within their supported areas as a condition of receiving 
future support. Taking this action will promote the deployment of broadband Internet access service to all 
areas of the nation, including high-cost, rural, and insular areas where customers may not currently have 
access to such services. In particular, as a condition of receiving continued high-cost support, we will 
require all incumbent local exchange carriers (LECs) to commit to offer broadband Internet access service 
within five years to all customers in study areas where the incumbent LECs receive high-cost support. 
Incumbent LECs that do not make this commitment will gradually lose their high-cost support, as this 
support will be awarded via reverse auction to an ETC who will meet carrier of last resort obligations and 
will commit to offering broadband Internet access to all customers in the entire study area within ten 
years. We also adopt a five year transition plan for existing high-cost support received by competitive 
ETCs. With these reforms, we take great strides toward ensuring that all Americans, regardless of where 
they live, will have broadband Internet access service available to them, without increasing the size of the 
high-cost fund. 
A. Background 
3 We thus conclude that there is a compelling need to proceed with comprehensive reform at this time, as we 
describe below. See, e.g., infra Parts II.A, III.A, IV.A, and V.B. Given that we have notice and an extensive 
record, going back in some cases seven years, we are unpersuaded by commenters proposing that we delay reform to 
seek further comment, or that we issue a Further Notice of Proposed Rulemaking on questions beyond those raised 
in Part VI. See, e.g., Letter from Ray Baum, Chairman, NARUC Communications Committee, to Chairman Kevin 
J. Martin, et al., FCC, CC Docket Nos. 01-92, 80-286, WC Docket Nos. 08-152, 04-32, 06-122, WT Docket No. 05- 
194 at 2 (filed Oct. 21, 2008) (NARUC Oct. 21, 2008 Ex Parte Letter); Letter from Jeffery S. Lanning, Embarq, to 
Chairman Kevin J. Martin, et al., FCC, CC Docket Nos. 01-92, 99-68, WC Docket No. 04-36 at 2 (filed Oct. 28, 
2008) (Embarq Oct. 28, 2008 Ex Parte Letter); Letter from Eric N. Einhorn, Windstream, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 06-122, 07-135, 08-152 at 1 (filed October 
27, 2008) (Windstream Oct. 27, 2008 Ex Parte Letter).

Federal Communications Commission FCC 08-262 
C-5 
5. The 1996 Act amended the Communications Act of 1934 (the Act) with respect to the 
provision of universal service.4 Congress sought to preserve and advance universal service, while at the 
same time opening all telecommunications markets to competition.5 Section 254(b) of the Act directs the 
Federal-State Joint Board on Universal Service (Joint Board) and the Commission to base policies for the 
preservation and advancement of universal service on several general principles, plus other principles that 
the Commission may establish.6 Among other things, section 254(b) directs that there should be specific, 
predictable, and sufficient federal and state universal service support mechanisms; quality services should 
be available at just, reasonable, and affordable rates; and access to advanced telecommunications and 
information services should be provided in all regions of the nation.7 
6. The Commission implemented the universal service provisions of the 1996 Act in the 
1997 Universal Service First Report and Order.8 In considering methods to determine universal service 
support in rural, insular, and high-cost areas, the Commission examined the use of competitive bidding, 
and identified several advantages of competitive bidding as a method for allocating high-cost universal 
service support.9 First, the Commission found that a compelling reason to use competitive bidding is its 
potential as a market-based approach to determining universal service support, if any, for any given 
area.10 Second, by encouraging more efficient carriers to submit bids reflecting their lower costs, 
another advantage of a properly structured competitive bidding system would be its ability to reduce the 
amount of support needed for universal service.11 Despite these advantages, the Commission determined 
that the record at the time was insufficient to support adoption of a competitive bidding mechanism.12 
Moreover, the Commission found it unlikely that competitive bidding mechanisms would be useful at that 
time because there likely would be no competition in a significant number of rural, insular, or high-cost 
areas in the near future.13 The Commission, therefore, declined to adopt a competitive bidding 
mechanism at that time, but found that competitive bidding warranted further consideration as a potential 
mechanism for determining levels of high-cost support in the future.14 
4 47 U.S.C.  254 (added by the 1996 Act). 
5 47 U.S.C.  254. 
6 See 47 U.S.C.  254(b). 
7 47 U.S.C.  254(b)(1), (2), (5). 
8 See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 
878088, paras. 120 (1997) (Universal Service First Report and Order) (subsequent history omitted). 
9 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320. 
10 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (agreeing with the Joint Board). The 
Commission also agreed with the Joint Board that competitive bidding is consistent with section 254, and comports 
with the intent of the 1996 Act to rely on market forces and to minimize regulation. Id. at 8951, para. 325. 
11 Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320 (In that regard, the bidding process 
should also capture the efficiency gains from new technologies or improved productivity, converting them into cost 
savings for universal service.). 
12 See Universal Service First Report and Order, 12 FCC Rcd at 894950, paras. 32223. Only GTE had proposed 
a detailed competitive bidding plan, which it characterized as an outline rather than a final proposal. See GTEs 
Comments in Response to Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996). 
13 See Universal Service First Report and Order, 12 FCC Rcd at 8950, para. 324. 
14 See Universal Service First Report and Order, 12 FCC Rcd at 8948, para. 320.

Federal Communications Commission FCC 08-262 
C-6 
7. Pursuant to section 254(e) of the Act, an entity must be designated as an eligible 
telecommunications carrier (ETC) to receive high-cost universal service support.15 ETCs may be 
incumbent LECs, or non-incumbent LECs, which are referred to as competitive ETCs.16 Under the 
existing high-cost support distribution mechanism, incumbent LEC ETCs receive high-cost support for 
their intrastate services based on their costs.17 Competitive ETCs, on the other hand, receive support for 
each of their lines based on the per-line support the incumbent LEC receives in the service area.18 This 
support to competitive ETCs is known as identical support. The Commissions universal service highcost 
support rules do not distinguish between primary and secondary lines; therefore, high-cost support 
may go to a single end user for multiple connections.19 Further, the Commissions rules may result in 
multiple competitors in the same high-cost area receiving identical per-line support. 
8. High-cost support for competitive ETCs has grown rapidly over the last several years, 
which has placed extraordinary pressure on the federal universal service fund.20 In 2001, high-cost 
universal service support totaled approximately $2.6 billion.21 By 2007, the amount of high-cost support 
had grown to approximately $4.3 billion per year.22 In recent years, this growth has been due mostly to 
increased support provided to competitive ETCs, which pursuant to the identical support rule receive 
high-cost support based on the incumbent LECs per-line support. Competitive ETC support, in the six 
years from 2001 through 2007, has grown from under $17 million to $1.18 billionan annual growth rate 
15 47 U.S.C.  254(e). The statutory requirements for ETC designation are set out in section 214(e) of the 
Communications Act of 1934, as amended (Communications Act or Act). 47 U.S.C.  214(e). 
16 See 47 C.F.R.  54.5 (A competitive eligible telecommunications carrier is a carrier that meets the definition of 
eligible telecommunications carrier below and does not meet the definition of an incumbent local exchange 
carrier in  51.5 of this chapter.). 
17 Non-rural incumbent LEC ETCs receive support for their intrastate supported services based on the forwardlooking 
economic cost of providing the services. 47 C.F.R.  54.309. Rural incumbent LEC ETCs receive support 
based on their loop costs, as compared to a national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R.  54.305. 
Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines receive support based on their local 
switching costs. 47 C.F.R.  54.301. Additionally, incumbent LEC ETCs that are subject to price cap or rate-ofreturn 
regulation receive interstate access support based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, 
K. 
18 47 C.F.R.  54.307(a). 
19 See Universal Service First Report and Order, 12 FCC Rcd at 882830, paras. 9496. 
20 Support for the fund derives from assessments paid by providers of interstate telecommunications services and 
certain other providers of interstate telecommunications. See 47 C.F.R.  54.706. Fund contributors are permitted 
to, and almost always do, pass those assessments though to their end-user customers. See 47 C.F.R.  54.712. Fund 
assessments paid by contributors are determined by applying the quarterly contribution factor to the contributors 
contribution base revenues. In the second quarter of 2007, the contribution factor reached 11.7%, which is the 
highest level since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor has since declined 
to 11.4% in the fourth quarter of 2008. Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC 
Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008). 
21 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 3.2 (2007) (2007 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf. 
22 UNIVERSAL SERVICE ADMINISTRATIVE COMPANY, 2007 ANNUAL REPORT 43 (2007) (USAC 2007 ANNUAL 
REPORT), available at http://www.usac.org/_res/documents/about/pdf/usac-annual-report-2007.pdf. 

Federal Communications Commission FCC 08-262 
C-7 
of over 100 percent.23 This funded competition has grown significantly in a large number of rural, 
insular, or high-cost areas; in some study areas, more than 20 competitive ETCs currently receive 
support.24 
9. To address the growth in competitive ETC support, the Joint Board recommended an 
interim cap on the amount of high-cost support available to competitive ETCs, pending comprehensive 
high-cost universal service reform. The Commission adopted this recommendation in 2008.25 
10. For the past several years, the Joint Board and the Commission have been exploring ways 
to reform the Commissions high-cost program. In the most recent high-cost support comprehensive 
reform efforts, the Joint Board issued a recommended decision on November 20, 2007.26 The Joint Board 
recommended that the Commission address reforms to the high-cost program and make fundamental 
revisions in the structure of existing Universal Service mechanisms.27 Specifically, the Joint Board 
recommended that the Commission should: (1) deliver high-cost support through a provider of last resort 
fund, a mobility fund, and a broadband fund28; (2) cap the high-cost fund at $4.5 billion, the approximate 
level of 2007 high-cost support29; (3) reduce the existing funding mechanisms during a transition period30; 
(4) add broadband and mobility to the list of services eligible for support under section 254 of the Act31; 
(5) eliminate the identical support rule32; and (6) explore the most appropriate auction mechanisms to 
determine high-cost universal service support.33 
11. On January 29, 2008, the Commission released three notices of proposed rulemaking 
23 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 3.2; USAC 2007 ANNUAL REPORT at 45. 
24 See USAC Quarterly Administrative Filings for 2008, Fourth Quarter (4Q) Appendices, HC03Rural Study 
Areas with Competition4Q2008, available at http://www.usac.org/about/governance/fccfilings/
2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls (showing 
24 competitive ETCs in the study area of incumbent LEC Iowa Telecom North (study area code 351167), and 22 
competitive ETCs in the study area of incumbent LEC Iowa Telecom Systems (study area code 351170)). 
25 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No.96-45, Recommended Decision, 22 FCC Rcd 8998, 89999001, paras. 47 (JB 2007) (Interim Cap 
Recommended Decision); High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, 
WC Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834 (2008) (Interim Cap Order). As 
recommended by the Joint Board, the Commission capped competitive ETC support for each state. Interim Cap 
Recommended Decision, 22 FCC Rcd at 9002, para. 9; Interim Cap Order, 23 FCC Rcd at 8846, paras. 2628. The 
Commission set the cap at the level of support competitive ETCs were eligible to receive during March 2008. 
Interim Cap Order, 23 FCC Rcd at 8850, para. 38. 
26 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (Comprehensive Reform 
Recommended Decision). 
27 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 1. 
28 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048081, para. 11. 
29 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. 
30 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 27. 
31 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2048182, paras. 1218. 
32 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20486, para. 35. 
33 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, paras. 16.

Federal Communications Commission FCC 08-262 
C-8 
addressing proposals for comprehensive reform of high-cost universal service support.34 In the Identical 
Support NPRM, the Commission sought comment on the Commissions rules governing the amount of 
high-cost universal service support provided to competitive ETCs.35 It tentatively concluded that the 
Commission should eliminate the identical support rule.36 The Commission also tentatively concluded 
that support to a competitive ETC should be based on the competitive ETCs own costs of providing the 
supported services, and it sought comment on how the support should be calculated, the reporting 
obligations to be applied, and whether the Commission should cap such support at the level of the 
incumbent LECs support.37 In the Reverse Auctions NPRM, the Commission tentatively concluded that 
reverse auctions offer several potential advantages over current high-cost mechanisms and sought 
comment on whether they should be used as the disbursement mechanism to determine the amount of 
high-cost universal service support for ETCs serving rural, insular, and high-cost areas, and it sought 
comment on how to implement reverse auctions for this purpose.38 The Commission also sought 
comment on a number of specific issues regarding auctions and auction design.39 The Commission also 
released the Joint Board Comprehensive Reform NPRM, seeking comment on the Joint Boards 
Comprehensive Reform Recommended Decision and incorporating by reference the Identical Support 
NPRM and the Reverse Auctions NPRM.40 The discussion that follows represents our response to the 
Joint Boards Comprehensive Reform Recommended Decision, pursuant to section 254(a)(2).41 
B. Discussion 
12. Today we comprehensively reform the high-cost universal service support mechanism, 
and take steps to ensure that broadband Internet access service is deployed quickly to all areas of the 
country, including rural and insular areas. The steps we take today will provide certainty to providers as 
to the levels of support available to them in providing supported services and broadband Internet access 
service to all customers within the supported areas. This will assist providers in creating business plans to 
deploy services in currently unserved areas and will ensure efficiency in the deployment of services to 
these areas. Specifically, we are defining the level of high-cost support available to providers that commit 
to offer broadband to all customers within a service area. For incumbent LECs, other than rural rate-ofreturn 
incumbent LECs, support in incumbent LEC service areas will be set at the total amount of high- 
34 High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (Identical Support NPRM); High- 
Cost Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC 
Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008) (Reverse Auctions NPRM); High-Cost 
Universal Service Support; Federal-State Joint Board on Universal Service, WC Docket No. 05-337, CC Docket 
No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1531 (2008) (Joint Board Comprehensive Reform NPRM) 
(collectively the High-Cost Reform NPRMs). 
35 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1. 
36 Identical Support NPRM, 23 FCC Rcd at 1468, para. 1. 
37 Identical Support NPRM, 23 FCC Rcd at 147378, paras. 1225. 
38 Reverse Auctions NPRM, 23 FCC Rcd at 1495, para. 1. 
39 Reverse Auctions NPRM, 23 FCC Rcd at 150012, paras. 1050. 
40 Joint Board Comprehensive Reform NPRM, 23 FCC Rcd at 1531, para. 1. 
41 47 U.S.C.  254(a)(2). Pursuant to that section, the Commission shall complete any proceeding to implement a 
Joint Board recommendation within one year after receiving it. The Commission has acted on the Comprehensive 
Reform Recommended Decision prior to the November 20, 2008 one-year statutory deadline.

Federal Communications Commission FCC 08-262 
C-9 
cost support disbursed to the incumbent LEC ETC in December 2008 on an annualized basis. For rural 
rate-of-return incumbent LECs, all high-cost universal service mechanisms will continue to operate as 
they do today through 2010, and then will be frozen at that level. Incumbent LEC ETCs will continue to 
receive this level of support if they commit to offer broadband Internet access services to all customers 
within the service area within five years. If an incumbent LEC does not make this broadband 
commitment for a particular service area, the support will be transitioned to the winning bidder of a 
reverse auction that will commit to deploy broadband throughout the service area within ten years, and to 
take on carrier of last resort obligations. For competitive ETCs, we adopt a five-year transition, during 
which their support will be reduced 20 percent each year. While ensuring that broadband Internet access 
service is made available to customers in rural and high-cost areas, with the exception of high-cost 
support for rural rate-of-return incumbent LECs, we also cap the overall size of the high-cost mechanism 
to protect customers in all areas of the nation from increasing universal service contribution assessments. 
13. The requirements that we adopt for disbursement of high-cost universal service support 
do not apply to providers operating in Alaska, Hawaii, or any U.S. Territories and possessions.42 We find 
that these areas have very different attributes and related cost issues than do the continental states.43 For 
this reason, we are exempting providers in Alaska, Hawaii and U.S. Territories or possessions from the 
high-cost support requirements and rules adopted herein, and we will address them in a subsequent 
proceeding.44 
1. Controlling the Growth of the High-Cost Fund 
14. Consistent with the recommendation of the Joint Board, we cap the total amount of highcost 
universal service support, with the exception of high-cost support for rural rate-of-return incumbent 
42 Providers operating in U.S. Territories and possessions, such as Puerto Rico and Guam, are not subject to the 
high-cost support requirements adopted in this order. See Letter from Earl Comstock, Comstock Consulting LLC, to 
Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-377 at 1 (dated Oct. 15, 2008) (asking 
the Commission to recognize the higher costs and lower income levels in Puerto Rico in any reform efforts it may 
take); Letter from Eric N. Votaw, Vice President-Marketing & Regulatory, GTA Telecom, Inc., to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-45, WC Docket No. 05-337 at 12 (filed Oct. 24, 2008) (asking 
the Commission to recognize that Guams costs are higher than the continental United States and that Guam should 
be treated separately, along with Alaska and Hawaii, for reform purposes). 
43 E.g., Verizon Commcns, Inc., Transferor, and Amrica Mvil, S.A. de C.V., Transferee, WT Docket No. 06-113, 
Memorandum Opinion and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36 (2007) 
(Verizon/Amrica Mvil Transfer Order) (describing difficult to serve terrain and dramatic urban/rural differences 
in Puerto Rico); Integration of Rates and Services for Provision of Communications by Authorized Common 
Carriers between the Contiguous States and Alaska, Hawaii, Puerto Rico and the Virgin Islands, CC Docket No. 
83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd 395, 396, paras. 78 (1989) (Rates and Services 
Integration Order) (describing the unique market conditions and structure in Alaska); Letter from Brita D. 
Strandberg, Counsel for General Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01- 
92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008) (discussing Alaskas particular service needs and network 
architecture). 
44 Cf. The Establishment of Policies and Service Rules for the Broadcasting-Satellite Service at the 17.3-17.7 GHz 
Frequency Band and at the 17.7-17.8 GHz Frequency Band Internationally, and at the 24.75-25.25 GHz Frequency 
Band for Fixed Satellite Services Providing Feeder Links to the Broadcasting-Satellite Service and for the Satellite 
Services Operating Bi-directionally in the 17.3-17.8 GHz Frequency Band, IB Docket No. 06-123, Report and Order 
and Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para. 47 (2007) (Policies and Service Rules 
for the Broadcasting-Satellite Service Order) (The Commission is committed to establishing policies and rules that 
will promote service to all regions in the United States, particularly to traditionally underserved areas, such as 
Alaska and Hawaii, and other remote areas.).

Federal Communications Commission FCC 08-262 
C-10 
LECs.45 As the Joint Board recognized, high-cost support currently accounts for more than half of total 
federal universal service support.46 Since 1997, when the Commission implemented the universal service 
requirements of section 254 of the Act, high-cost support has increased by 240 percent.47 Although, 
earlier this year, we took an initial step to address high-cost fund growth by capping support to 
competitive ETCs, that cap was an interim, emergency measure, pending a closer examination of the steps 
necessary to achieve comprehensive reform.48 Many commenters have urged the Commission to cap the 
overall amount of high-cost support, rather than limiting the cap only to competitive ETCs.49 Although 
other commenters oppose the adoption of a cap on the total amount of high-cost support or on the amount 
of support available to incumbent LEC ETCs,50 we find that, to manage the high-cost support mechanism 
effectively, we must control its growth, and that capping support in the manner discussed below will 
provide specific, predictable, and sufficient support to preserve and advance universal service.51 
45 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, 20481, 20484, paras. 2, 11, 26. 
46 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20484, para. 26. In 2007, total federal universal 
service disbursements amounted to approximately $6.95 billion. Of that amount, approximately $4.29 billion, 62%, 
was disbursed as high-cost support. USAC 2007 ANNUAL REPORT at 51. 
47 See 2007 UNIVERSAL SERVICE MONITORING REPORT at 3-14, tbl. 3.1 (high-cost support in 1997 was 
approximately $1.26 billion, compared with approximately $4.29 billion in 2007). Even taking into account the fact 
that additional interstate support mechanisms, Interstate Access Support (IAS) and Interstate Common Line Support 
(ICLS), were created in 2000 and 2001, respectively, high-cost support has still increased by more than 45%, from 
approximately $2.94 billion in 2002 to its current level of approximately $4.29 billion. Id. 
48 See Interim Cap Order, 23 FCC Rcd at 8834, para. 1. 
49 See CenturyTel High-Cost Reform NPRMs Comments at 18 (existing high-cost support mechanisms should be 
frozen at the study area level or on a statewide basis to provide funding certainty and encourage investment); 
Chinook High-Cost Reform NPRMs Comments, Attach. at 56 (any cap on universal service support should apply to 
all ETCs, including incumbent LECs); Connecticut Dept of Pub. Util. Control High-Cost Reform NPRMs 
Comments at 5 (supporting a cap on high-cost support set at the 2007 level); Florida PSC High-Cost Reform NPRMs 
Comments at 2 (supporting the recommendation to cap the overall size of the high-cost fund); Information 
Technology Industry Council (ITI) High-Cost Reform NPRMs Comments at 7 (an overall cap should be applied to 
control the size of the high-cost mechanism); NCTA High-Cost Reform NPRMs Comments at 19 (the Joint Boards 
proposal to cap the overall size of the high-cost mechanism is a welcome dose of fiscal responsibility); National 
Consumer Law Center Joint Board Comprehensive Reform NPRM Comments at 23 (supporting the Joint Boards 
proposal to cap the overall high-cost fund); Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 23, 
69 (Commission should cap the overall high-cost fund). 
50 See Frontier High-Cost Reform NPRMs Comments at 67; JSI High-Cost Reform NPRMs Comments at 6; 
Montana Telecommunications Assn High-Cost Reform NPRMs Comments at 2122; NECA High-Cost Reform 
NPRMs Comments at 1720; TCA High-Cost Reform NPRMs Comments at 1011; TDS High-Cost Reform NPRMs 
Comments at 89; Missouri Small Telephone Company Group (MSTC) High-Cost Reform NPRMs Reply at 57; 
Utah Rural Telecom Assn High-Cost Reform NPRMs Reply at 5. 
51 47 U.S.C.  254(b)(5); see CenturyTel High-Cost Reform NPRMs Comments at 18; Comcast High-Cost Reform 
NPRMs Comments at 3, 11; Florida PSC High-Cost Reform NPRMs Comments at 89; National Consumer Law 
Center Joint Board Comprehensive Reform NPRM Comments at 2; NCTA High-Cost Reform NPRMs Comments at 
46; New Jersey Division of Rate Counsel High-Cost Reform NPRMs Comments at 5254; Oregon PUC High-Cost 
Reform NPRMs Comments at 23; Sprint Nextel High-Cost Reform NPRMs Comments at 3; USTelecom High-Cost 
Reform NPRMs Comments at 2; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 7; New Jersey 
Division of Rate Counsel High-Cost Reform NPRMs Reply at 6465; Sprint Nextel High-Cost Reform NPRMs 
Reply at 89; State Commissioners High-Cost Reform NPRMs Reply at 2; Texas Office of Public Utility Counsel 
Joint Board Comprehensive Reform NPRM Reply at 2; Virgin Mobile High-Cost Reform NPRMs Reply at 34. The 
(continued.)

Federal Communications Commission FCC 08-262 
C-11 
15. We find it necessary to cap the high-cost mechanism as a first step toward fulfilling our 
statutory obligation to create specific, predictable and sufficient universal service support mechanisms.52 
As the United States Court of Appeals for the Fifth Circuit held in Alenco: [t]he agencys broad 
discretion to provide sufficient universal service funding includes the decision to impose cost controls to 
avoid excessive expenditures that will detract from universal service.53 The Alenco court also found that 
excessive funding may itself violate the sufficiency requirements,54 and the United States Court of 
Appeals for the Tenth Circuit has stated that excessive subsidization arguably may affect the 
affordability of telecommunications services, thus violating the principle in [section] 254(b)(1).55 Given 
the excessive growth in high-cost support, we find it necessary to cap this mechanism to ensure that 
unsubsidized users who contribute to the fund are not harmed by excessive subsidization. 
16. Therefore, we take several steps to limit the growth of high-cost support. First, excluding 
support to rural rate-of-return incumbent LECs, we cap the overall high-cost fund at the total amount of 
high-cost support disbursed by the Universal Service Administrative Company (USAC) for December 
2008 on an annualized basis, net of any prior or past period adjustments. Although we agree with the 
Joint Boards recommendation to cap the high-cost mechanism, rather than set such a cap at the 2007 
level of high-cost support as the Joint Board recommended, we find it is more appropriate to set the cap at 
the level of support disbursed by USAC in December 2008 on an annualized basis. Furthermore, for 
incumbent LECs other than rural rate-of-return incumbent LECs, we freeze each incumbent LEC ETCs 
individual, annual high-cost support at the amount of support, on a lump sum basis, that the ETC received 
in December 2008 annualized, net of any prior or past period adjustments, on a study area or service area 
basis.56 For rural rate-of-return incumbent LECs, all high-cost universal service support mechanisms 
utilized by rural rate-of-return incumbent LECs continue to operate as the do today through 2010. This 
includes high-cost loop support (HCLS), local switching support (LSS), interstate common line support 
(ICLS), safety net additive support, and safety valve support. Support from these mechanisms will be 
frozen by study area at 2010 levels.57 
(continued from previous page) 
Commission has already implemented caps on the schools and libraries and rural health care universal service 
mechanisms. Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a 
$2.25 billion annual cap for the schools and libraries mechanism and a $400 million annual cap for the rural health 
care mechanism); see also 47 C.F.R.  54.507(a), 54.623(a). 
52 47 U.S.C.  254(b)(5); see also Universal Service First Report and Order, 12 FCC Rcd at 9054, 9140, paras. 529, 
704. 
53 Alenco Commcns, Inc. v. FCC, 201 F.3d 608, 62021 (5th Cir. 2000) (Alenco). 
54 Alenco, 201 F.3d at 620. 
55 Qwest Commcns Intl Inc. v. FCC, 398 F.3d 1222, 1234 (10th Cir. 2005). 
56 Pursuant to section 214(e)(5) of the Act, the term service area is used to refer to the geographic area established 
by a state commission or this Commission for the purpose of determining universal service obligations and support 
mechanisms. 47 U.S.C.  214(e)(5). For a rural telephone company, section 214(e)(5) states that service area 
shall mean the rural companys study area unless and until the Commission and the states establish a different 
definition of service area for such company. Id. In this order, we use the terms service area and study area 
interchangeably. Nothing in this order is meant to change any redefinitions of service area previously established by 
the Commission and/or the state commissions. 
57 Letter from John N. Rose, President, OPASTCO, and Kelly Worthingon, Executive Vice President, WTA, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, 01-92, WC Docket No. 05-337, Attach. at 2 (filed Oct. 
29, 2008) (Corrected OPASTCO/WTA Oct. 29, 2008 Ex Parte Letter).

Federal Communications Commission FCC 08-262 
C-12 
17. As discussed below, for competitive ETCs, we provide a five year transition, during 
which their support is reduced in equal steps.58 More specifically, for each competitive ETC, a base-line 
level of support will be determined based on the total support received by that competitive ETC for the 
twelve months prior to the effective date of the order. For the twelve months following the effective date 
of the order, each competitive ETC will receive support equal to 80 percent of its baseline support 
amount. In year two, each competitive ETC will receive support equal to 60 percent of its baseline 
support amount. In year three, each competitive ETC will receive support equal to 40 percent of its 
baseline support amount. In year four, each competitive ETC will receive support equal to 20 percent of 
its baseline support amount. Finally, in year five, existing high-cost support for competitive ETCs will be 
eliminated. 
18. Consistent with section 254(b)(5) of the Act, we find that capping high-cost support in 
this manner will enable ETCs to predict the specific level of support that they will receive should they 
choose to participate in the program.59 To the extent that an incumbent LEC ETC determines that it 
cannot offer broadband Internet access service throughout its service area at the specified level of support, 
as discussed below, that particular study area will be deemed an Unserved Study Area, and we will 
conduct a reverse auction to determine the entity capable of meeting our service requirements and the 
amount of support to provide for that area. In fact, through the reverse auction process, it will be the 
bidders, not the Commission, that determine how much support they would need to offer service. Finally, 
as discussed below, if the reverse auction process does not yield a winning bidder, the Commission will 
reexamine whether it needs to take further action with regard to this situation, should it arise. 
2. Conditioning Support on Offering Broadband Internet Access Service 
19. The broadband era is here. Those of us who have broadband Internet access service use 
it to communicate, to work, to get vital information, to be educated, and to be entertained. Broadband 
Internet access servicea novelty at the time of the passage of the 1996 Actis now mainstream. Yet 
some Americans still lack access to this vital service, and as Commissioner Copps has said, does 
America at the beginning of the 21st century become technologically stagnant or the leader of the Digital 
Age? For me, the answer to that question depends in some significant measure upon whether we succeed 
in bringing high-speed, high-value broadband and an open Internet to all Americans . . . rural as well as 
urban folks . . . .60 
20. Today, we modify our high-cost support system fundamentally to spur deployment and 
ensure that all Americans have access to broadband. Specifically, for incumbent LECs, we make offering 
broadband Internet access service a condition of being eligible to receive high-cost support. As we 
explain below, we will require all incumbent LECs to certify whether or not they will commit to offering 
broadband Internet access throughout their supported study areas in five years.61 Those who make that 
58 Letter from Paul W. Garnett, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket 
Nos. 04-36, 05-337, 06-122 at 1 (filed Oct. 22, 2008) (CTIA Oct. 22, 2008 Ex Parte Letter). 
59 47 U.S.C.  254(b)(5). 
60 Remarks of Commissioner Michael J. Copps, Pike & Fischers Broadband Policy Summit IV, Washington, DC 
(June 12, 2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-282890A1.pdf. 
61 See supra note 56 (explaining use of the terms study area and service area in this order). We understand the 
concern of commenters who point out the need for more granular information on broadband availability. See 
Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20481, para. 13; see also Comcast High-Cost 
Reform NPRMs Comments at 1316; GCI High-Cost Reform NPRMs Comments at 3436; NCTA High-Cost 
Reform NPRMs Comments at 20; New Jersey Rate Counsel High-Cost Reform NPRMs Comments at 2122; New 
York State PSC Joint Board Comprehensive Reform NPRM Comments at 1, 56; TCA High-Cost Reform NPRMs 
(continued.)

Federal Communications Commission FCC 08-262 
C-13 
commitment will continue to receive their current levels of support. Auction winners, as well, must 
commit to offering broadband Internet access service throughout their supported areas as a condition of 
receiving even initial support. We also explain the obligations related to this condition, including carrierof-
last-resort-type obligations. 
21. We believe that imposing this condition on the receipt of high-cost support for incumbent 
LECs and auction winners is fully consistent with and indeed promotes Congresss overall objectives as 
stated in section 254 of the Communications Act and section 706 of the 1996 Act.62 Section 254(b)(2) of 
the Act instructs the Commission to base policies for the advancement of universal service on the 
principle that [a]ccess to advanced telecommunications and information services should be provided in 
all regions of the Nation.63 Similarly, section 254(b)(3) states that [c]onsumers . . . in rural, insular, and 
high-cost areas, should have access to . . . advanced telecommunications and information services, that 
are reasonably comparable to those services provided in urban areas and that are available at rates charged 
for similar services in urban areas.64 Indeed, Congress even established the definition of universal 
service as an evolving level of telecommunications services . . . taking into account advances in 
telecommunications and information technologies and services.65 We believe that imposing a broadband 
condition on receipt of high-cost support by incumbent LECs and auction winners advances the general 
purposes of section 254 of the Act as just described and also advances Congresss objective stated in 
section 706 of the 1996 Act to encourage the deployment on a reasonable and timely basis of advanced 
(continued from previous page) 
Comments at 1112; USTelecom High-Cost Reform NPRMs Comments at 36; Embarq High-Cost Reform NPRMs 
Reply at 810. The Commission has recently undertaken a major effort to gather more specific and granular data 
about broadband subscribership and availability. See Development of Nationwide Broadband Data to Evaluate 
Reasonable and Timely Deployment of Advanced Services to All Americans, Improvement of Wireless Broadband 
Subscribership Data, and Development of Data on Interconnected Voice over Internet Protocol (VoIP) 
Subscribership, WC Docket No. 07-38, Report and Order and Further Notice of Proposed Rulemaking, 23 FCC Rcd 
9691, 970809, paras. 3435 (2008) (Broadband Data Gathering Order) (seeking comment on, among other things, 
adopting a national broadband mapping program). We believe our refined broadband data gathering program will 
help all of us better assess where our broadband availability needs are greatest. For purposes of implementing the 
broadband deployment program of this order, we ask incumbent LECs to identify where they will and will not 
commit to broadband availability, thus identifying where we need to proceed to a reverse auction. 
62 47 U.S.C.  157 nt, 254. Some commenters suggest that adding broadband Internet access service to the list of 
supported services would be inconsistent with section 254(c)(1) of the Act because broadband Internet access 
service is an information service, not a telecommunications service. See SouthernLINC High-Cost Reform NPRMs 
Comments at 3031; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 3132; SouthernLINC 
High-Cost Reform NPRMs Reply at 4243; Sprint Nextel High-Cost Reform NPRMs Reply at 1617. Using the 
universal service program to ensure universal broadband availability, however, is fully consistent with the statute as 
explained above. In addition, section 254(c)(2) provides that [t]he Joint Board may, from time to time, recommend 
to the Commission modifications in the definition of the services that are supported by Federal universal service 
support mechanisms. 47 U.S.C.  254(c)(2). The Joint Board did just that in the Comprehensive Reform 
Recommended Decision, in which it recommended that we add broadband Internet access service to the list of 
services eligible for support under section 254. See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 
20491, para. 56. In this order, we achieve the Joint Boards goal by conditioning receipt of federal high-cost support 
on an ETCs commitment to offer broadband Internet access service throughout its service area, but we do not add 
broadband Internet access service to the list of universal service supported services. 
63 47 U.S.C.  254(b)(2) (emphasis added). 
64 47 U.S.C.  254(b)(3) (emphasis added). 
65 47 U.S.C.  254(c)(1) (emphasis added).

Federal Communications Commission FCC 08-262 
C-14 
telecommunications capability to all Americans.66 We also see no reason why conditioning the receipt 
of high-cost support on offering broadband Internet access service is not permissible under the 
Commissions authority to promulgate general rules related to universal service.67 
22. Broadband Internet Access As a Condition to Receiving High-Cost Support. Consistent 
with the objectives of sections 254 and 706 as just described, all incumbent LECs and auction winners 
must offer broadband Internet access service to all customers in their supported service areas as a 
condition of receiving universal service high-cost support. Since the Commission adopted universal 
service rules in response to the 1996 Act, broadband Internet access service has evolved into a critical 
service for American consumers. The importance of this evolution is reflected in Congresss recent 
finding that [t]he deployment and adoption of broadband technology has resulted in enhanced economic 
development and public safety for communities across the Nation, improved heath care and education 
opportunities, and a better quality of life for all Americans, [and] [c]ontinued progress in the deployment 
and adoption of broadband technology is vital to ensuring that our Nation remains competitive and 
continues to create business and job growth.68 The majority of consumers who use broadband Internet 
access service today rely on it for telework, access to banking services, interaction with government, 
entertainment, shopping, access to news and other information, and so many other uses.69 Broadband 
Internet access plays a special role in rural areas, reducing the burdens of distance.70 For example, highspeed 
connections to the Internet allow children in rural areas to have access to the same information as 
school children in urban areas. Telemedicine networks made possible by broadband Internet access 
service also save lives and improve the standard of healthcare in sparsely populated, rural areas that may 
lack access to the breadth of medical expertise and advanced medical technologies available in other 
66 47 U.S.C.  157 nt, 254. 
67 The Commission has previously considered imposing conditions on the receipt of high-cost support. See 
Universal Service First Report and Order, 12 FCC Rcd at 8831, para. 98. And of course, todays recipients of highcost 
support must comply with many obligations that are not explicitly spelled out in the statute. For example, to be 
designated as an ETC, an applicant must demonstrate that it has back-up power. See Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Report and Order, 20 FCC Rcd 6371, 6382, para. 25 (2005) (ETC 
Designation Order). 
68 Broadband Data Improvement Act, Pub. L. No. 100-385, 122 Stat. 4096,  102(1)(2) (2008). 
69 A recent survey finds that, compared to Internet users with dial-up service at home, those with broadband service 
at home are far more likely to engage in 14 different types of Internet-related activities on a typical day. These 
activities include using an online search engine, checking for weather reports, getting news, visiting a state or local 
government Web site, obtaining job information, watching a video, and downloading a podcast. The daily use of a 
search engine, for example, is reported by 57% of the broadband users as compared to only 26% of the dial-up users. 
See JOHN B. HORRIGAN, PEW INTERNET & AMERICAN LIFE PROJECT, HOME BROADBAND ADOPTION 2008 at 19 
(2008) (2008 PEW BROADBAND ADOPTION STUDY), available at 
http://www.pewinternet.org/pdfs/PIP_Broadband_2008.pdf. 
70 For example, the California Broadband Task Force Report finds broadband service critical to expanding job 
opportunities for rural residents. It observes, for example, that broadband has facilitated the use of homeshoring, 
or the use of home-based workers for providing customer service, instead of requiring employees to adhere to a 
strict work schedule at a centralized location. This report also finds that broadband offers farmers better access to 
market information and allows them to expand their potential customer base. See FINAL REPORT OF THE 
CALIFORNIA BROADBAND TASK FORCE at 13 (Jan. 2008) (CALIFORNIA 2008 BROADBAND REPORT), available at 
http://www.calink.ca.gov/taskforcereport/. 

Federal Communications Commission FCC 08-262 
C-15 
areas.71 Broadband service also enables the sharing of critical, time-sensitive information with first 
responders, government officials, and health care providers, thereby improving the governments ability 
to provide a comprehensive and cohesive response to a public health crisis in coordination.72 
23. Despite the advances in broadband technology and the deployment of infrastructure to 
accommodate higher bandwidth speeds, ubiquitous broadband availability does not exist throughout the 
nationespecially for those consumers in rural areas.73 In March 2008, the Commissions most recent 
data revealed that more than half of the households in the United States now subscribe to a high-speed 
service provider and at least one high-speed service provider is providing service in excess of 200 kbps in 
at least one direction in 99.9 percent of zip codes in the country.74 The broadband subscription rate is 
much lower in rural areas, however. A 2008 survey finds that the percentage of rural households 
subscribing to broadband service is only 38 percentwell below the 57 percent and 60 percent 
subscription rates found in urban and suburban areas, respectively.75 This survey concludes that the lack 
of broadband availability very likely accounts for some of this disparity.76 Moreover, this conclusion is 
consistent with the results of residential surveys in several states.77 We find that making the offering of 
71 See Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111, 11112, para. 5 
(2006); see also SUSANNAH FOX, PEW INTERNET & AMERICAN LIFE PROJECT, THE ENGAGED E-PATIENT 
POPULATION at 1 (2008) (finding that home broadband users are twice as likely as home dial-up users to do health 
research on a typical day), available at http://www.pewinternet.org/pdfs/PIP_Health_Aug08.pdf. 
72 A recent report to Congress concludes that [m]odern broadband communications networks and applications 
present an enormous opportunity to radically improve the manner in which emergency information is shared by 
health officials. Broadband services enable bandwidth intensive information such as video, pictures, and graphics to 
be transmitted faster and in a more reliable and secure manner. JOINT ADVISORY COMMITTEE ON 
COMMUNICATIONS CAPABILITIES OF EMERGENCY MEDICAL AND PUBLIC HEALTH CARE FACILITIES, REPORT TO 
CONGRESS 2 (Feb. 4, 2008), available at 
http://energycommerce.house.gov/Press_110/JAC.Report_FINAL%20Jan.3.2008.pdf. 
73 See, e.g., Cellular South High-Cost Reform NPRMs Comments at 10; see also generally 2008 PEW BROADBAND 
ADOPTION STUDY at 1112. 
74 See FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF DECEMBER 31, 2006, tbl. 15 (2007), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf. 
75 See 2008 PEW BROADBAND ADOPTION STUDY at 34. The survey was conducted by phone from April 8, 2008 to 
May 11, 2008 among 2,251 American adults, 1,153 of whom were broadband users. Id. 
76 Pew acknowledges that the participants in its 2008 survey may report incorrectly as to whether broadband service 
is available where they live. 2008 PEW BROADBAND ADOPTION STUDY at 11. Pew nonetheless concludes that the 
fact that rural residents are more likely to report that broadband isnt available where they live indicates that 
infrastructure availability comes into play in broadband adoption. Some 28% of rural adult Americans without 
home high-speed say broadband isnt available where they live, in contrast to 22% of non-rural Americans without 
broadband who say this. Moreover, 24% of dial-up users in rural areas say having the service available where they 
live would prompt a switch to broadband; this compares to the 14% figure for all respondents. Id. at 1112. 
77 In Ohio, a March 2008 survey of 1,200 residents found broadband service available in 96% of urban homes but in 
only 79% of rural homes. See CONNECT OHIO TECHNOLOGY ASSESSMENT: EXECUTIVE SUMMARY at 2 (June 27, 
2008), available at http://connectoh.org/_documents/Res_OHExecutiveSummary06252008_FINAL.pdf. In 
California, a state-commissioned task force recently found that approximately 500,000 California households, or 
almost 1.4 million California residents, are unable to subscribe to broadband service with a speed of at least 500 
kbps. The task force identified 1,975 communities without broadband service and concluded that many California 
communities do not have access to the higher broadband speeds. See CALIFORNIA 2008 BROADBAND REPORT at 33. 
In Tennessee, a July 2007 survey of 1,787 residents having dial-up service at home found that 36% of them did not 
subscribe to broadband service because it was unavailable to their homes. See CONNECTED TENNESSEE, TENNESSEE 
(continued.)

Federal Communications Commission FCC 08-262 
C-16 
broadband Internet access service a condition of receiving universal service high-cost support can bring 
this critical service to the remainder of Americans who await its deployment.78 In addition, doing so will 
further the objective of section 254(b)(3) that consumers in rural, insular, and high-cost areas have access 
to advanced telecommunications and information services that are reasonably comparable to those 
services provided in urban areas and that are available at rates charged for similar services in urban 
areas.79 
a. Definition of Broadband Internet Access Service 
24. For purposes of satisfying the condition to receive high-cost support, we adopt a 
definition of broadband Internet access service that focuses on the end users experience, without regard 
to the types of facilities, protocols, or other technologies used to deliver that experience. Broadband 
Internet access service is therefore defined as an always on service that combines computer processing, 
information provision, and computer interactivity with data transport, enabling end users to access the 
Internet and use a variety of applications, at speeds discussed elsewhere in this order.80 We refer 
specifically to broadband Internet access servicean information serviceand not to broadband 
transmission alone because our goal is to ensure that all Americans have access to the Internet.81 
b. Broadband Internet Access Service Obligations 
25. Section 254(b)(1) instructs the Commission to base policies for the advancement of 
universal service on the principle that quality services should be offered at just, reasonable, and affordable 
rates.82 Below we provide requirements for offering broadband Internet access service as a condition of 
receiving universal service high-cost support. In sum, all incumbent LECs and auction winners must 
offer broadband Internet access service, along with all supported services, to all customers throughout 
their service areas by the end of a five- or ten-year build-out period consistent with the requirements of 
this order. 
26. Except as described just below, an incumbent LEC or auction winner may offer 
broadband Internet access service using any technology, or combination of technologies, that meets the 
(continued from previous page) 
RESIDENTIAL CONSUMERS at 22 (2007), available at 
http://www.connectedtn.org/_documents/CTResidentialSurvey100107.FINAL.pdf. 
78 We disagree with commenters who suggest that it is premature or ill-advised to require all ETCs to offer 
broadband because, as discussed below, we do so in a manner that does not increase the size of the high-cost fund. 
See, e.g., SouthernLINC High-Cost Reform NPRMs Comments at 30; Sprint Nextel High-Cost Reform NPRMs 
Comments at 1617; USTelecom High-Cost Reform NPRMs Comments at 3334; Western Telecomms. Alliance 
(WTA) High-Cost Reform NPRMs Comments at 73; SouthernLINC High-Cost Reform NPRMs Reply at 41. 
Similarly, we disagree with commenters who argue that government action at the current time would be wasteful as 
the market is already taking steps to reach currently underserved areas. See, e.g., NCTA High-Cost Reform NPRMs 
Comments at 1920; SouthernLINC High-Cost Reform NPRMs Comments at 30; SouthernLINC High-Cost Reform 
NPRMs Reply at 42. We cannot wait indefinitely for the benefits of broadband to reach all Americans. 
79 See 47 U.S.C.  254(b)(3). 
80 See infra paras. 28, 45; see also Appropriate Framework for Broadband Access to the Internet over Wireline 
Facilities, CC Docket No. 02-33, Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14853, 
1486061, para. 9 (2005) (Wireline Broadband Internet Access Order), affd sub nom. Time Warner Telecom, Inc. v. 
FCC, 507 F.3d 205 (3d Cir. 2007). 
81 As explained below, nothing in this order changes the choice that providers have today to offer broadband 
transmission on a common carrier basis. See infra para. 26. 
82 47 U.S.C.  254(b)(1).

Federal Communications Commission FCC 08-262 
C-17 
requirements for speed set forth in this order. An incumbent LEC or auction winner may also combine 
services provided over its own facilities with those provided over another providers facilities pursuant to 
agreement. Indeed, there may be service areas where it is more economic to offer broadband Internet 
access service via one technology than another and we explicitly provide for even a single provider to 
take advantage of the inherent benefits of different technologies for different areas.83 Furthermore, an 
incumbent LEC or auction winner can combine a common carrier offering of broadband transmission84 
with the information processing capabilities described above,85 so long as what the end user receives is in 
fact broadband Internet access service. 
27. In general, an incumbent LEC or auction winner cannot use satellite broadband 
technology to meet its obligations under this order absent a waiver from the Commission. We are 
concerned that broadband Internet access service provided via satellite differs from broadband Internet 
access provided over other technologies in two important ways. First, satellite-provided broadband 
Internet access service is subject to latency due to the amount of time it takes a signal to travel between 
the satellite and the user. 86 Latency ranges from a quarter of a second to almost a second, making the use 
of applications that require a very fast response difficult or impossible, and substantially degrading the 
quality of other applications like voice over Internet protocol. 87 Second, satellite-provided broadband 
Internet access service is subject to degradation due to weather events (rain fade) to a greater degree 
than other wireless technologies.88 For these reasons, we find that satellite-provided broadband Internet 
83 Thus, we are not favoring wireline technology over another. But see Virgin Mobile High-Cost Reform NPRMs 
Reply at 56. 
84 See Wireline Broadband Internet Access Order, 20 FCC Rcd at 1490001, paras. 8990 (giving providers of 
wireline broadband Internet access the choice to offer broadband transmission on a common carrier basis or a noncommon 
carrier basis). 
85 See supra para. 24. 
86 See, e.g., COMPUTER SCIENCE AND TELECOMMUNICATIONS BOARD, NATIONAL RESEARCH COUNCIL, BROADBAND: 
BRINGING HOME THE BITS 145 (2002) (BRINGING HOME THE BITS); BroadbandInfo.com, Inside the World of 
Satellite Broadband, BroadbandInfo.com, http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last visited 
Nov. 3, 2008) (stating that because the satellites providing broadband signals orbit the earth approximately 22,300 
miles above the surface, there is a lag time between the sending and receiving of the satellite broadband signal). 
87 See BRINGING HOME THE BITS 145 (explaining that for Internet telephony, the delay can cause a real degradation 
in usability); Jon Norwood, Overview of Satellite InternetComparing the Main Features of Broadband Satellite 
(Oct. 17, 2006), available at http://www.velocityguide.com/satellite/satellite-internet-comparison.html (last visited 
Oct. 24, 2008) (stating that signal delay to a satellite ranges from around 500 to 900 milliseconds, and that this 
latency can render any software that requires real-time user input problematic at best); BroadbandInfo.com, Inside 
the World of Satellite Broadband, available at http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last 
visited Oct. 24, 2008) (stating that for certain broadband Internet real-time applications, such as e-gaming, the 
latency is enough to cause severe interference with the application). 
88 See, e.g., Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a 
Reasonable and Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to Section 706 of the 
Telecommunications Act of 1996, CC Docket No. 98-146, Second Report, 15 FCC Rcd 20913, 20938, para. 59 
(2000) (explaining that areas subject to extreme rain or snow may have difficulty receiving satellite signals in those 
conditions, and describing it as a limitation to satellite Internet last-mile facilities); see also Howstuffworks.com, 
How Does Satellite Internet Operate?, http://computer.howstuffworks.com/question606.html (last visited Oct. 24, 
2008) (explaining that, as for satellite TV, heavy rains can affect reception of Internet signals); Skycasters, 
Broadband Satellite Internet: 99.44% System Reliability, http://www.skycasters.com/satellite-internet-servicespecs/
system-reliability.html (last visited Oct. 31, 2008) (explaining that rain fade is a short duration period during 
(continued.)

Federal Communications Commission FCC 08-262 
C-18 
access service cannot be the primary means by which we serve rural America. We recognize, however, 
that for certain customers, satellite-provided broadband may be the only economic means of reaching 
them. Therefore, all incumbent LECs and auction winners may apply to the Commission for a waiver to 
be able to meet their commitments under this order by offering broadband Internet access service via 
satellite to certain customers, based on a specific, detailed showing that there is no other economic option 
for serving those customers.89 If the Commission grants such a waiver with regard to particular 
customers, that waiver may be transferred if a different ETC becomes subject to the obligation to offer 
broadband to those customers. In addition, we adopt the OPASTCO/WTA proposal that we create a 
limited automatic exception for high-cost loops for rural rate-of-return incumbent LECs. More 
specifically, OPASTCO/WTA propose: The broadband build-out requirement has a limited automatic 
exception for very high-cost loops and allows rural RoR ILECs to serve those customers by satellite 
without filing a waiver request. A very high-cost loop is defined as a loop in which the additional cost to 
provide broadband is in excess of 150 percent of the carriers study area average loop cost. The 
automatic exception cannot apply to more than two percent of a carriers total loops within a study 
area.90 
3. Incumbent LECs Commitment to Offer Broadband 
28. As discussed above, as a condition of receiving federal high-cost universal service 
support, all incumbent LECs and auction winners must offer broadband Internet access service.91 
Therefore, incumbent LECs receiving high-cost support must certify to the Commission, for each study 
area92 for which they receive high-cost support, whether or not they will offer broadband Internet access 
service to all customers within that study area, consistent with the requirements of this order, within five 
years of the due date of their commitment.93 This certification must include a commitment to offer 
broadband Internet access service with download speeds equal to or greater than 768 kbps and upload 
speeds greater than 200 kbps.94 
29. Incumbent LECs that file a certification for a particular study area indicating that they 
will offer broadband Internet access service under the terms specified in this order will continue to receive 
their current levels of high-cost support for that study area, which will be deemed a Committed Study 
Area. We specify the precise benchmarks that the incumbent LEC must meet over the five-year buildout 
period, and the consequences for failure to do so, below.95 
(continued from previous page) 
which the loss of satellite service occurs when intense storm cells are located directly between the satellite and the 
satellite dish). 
89 If an incumbent LEC or auction winner is permitted to use satellite service, the ETC may not charge a higher price 
to customers served by satellite than it charges to customers served by another broadband technology. 
90 Corrected OPASTCO/WTA Oct. 29 Ex Parte Letter, Attach. at 2. 
91 See supra paras. 1927. 
92 See supra note 56 (explaining the use of the terms study area and service area in this order). 
93 The Wireline Competition Bureau (Bureau) will release a public notice at a future date specifying the manner and 
due date of the certification. Other reporting, monitoring, and milestone requirements are set forth below. See infra 
paras. 5763. 
94 This tier of broadband is similar to the tier described as Basic Broadband Tier 1 in our Broadband Data 
Gathering Order. See Broadband Data Gathering Order, 23 FCC Rcd at 970001, para. 20 & n.66. 
95 See infra paras. 5763.

Federal Communications Commission FCC 08-262 
C-19 
30. As discussed above, except for rural rate-of-return incumbent LECs, we freeze each 
incumbent LEC ETCs individual high-cost support at the amount of support, on a lump sum basis, the 
ETC received in December 2008 annualized, net of any prior or past period adjustments, on a study area 
or service area basis.96 For rural rate-of-return incumbent LECs, all high-cost universal service 
mechanisms will continue to operate as they do today through 2010, and then will be frozen at that level. 
Incumbent LEC ETCs committing to offer broadband Internet access service within a study area 
consistent with the requirements of this order will continue to receive the frozen high-cost support amount 
for that study area.97 
31. Study areas for which incumbent LECs either certify that they will not offer broadband in 
five years as described herein, or for which the incumbent LECs fail to file any certification at all, will be 
deemed Unserved Study Areas. For these areas, the Commission will conduct a reverse auction as 
described below, awarding high-cost support to a bidder that will commit to take on carrier of last resort 
obligations and to offer broadband Internet access service throughout the study area. 
4. Reverse Auctions for Study Areas Unserved by Broadband 
32. The Joint Board recommended that the Commissions universal service goals include 
universal availability of broadband Internet service at affordable and comparable rates for all rural and 
non-rural areas.98 While we are not adopting the Joint Boards recommendation to create a separate 
broadband fund, we agree with the Joint Boards goal that broadband Internet access service should be 
universally and affordably available. We are therefore allowing incumbent LECs receiving high-cost 
support to continue to receive such support if they commit to offer broadband services throughout their 
supported service areas by the end of a five-year build-out period. We anticipate, however, that in some 
study areas, the incumbent LEC may decline to make that commitment. For these Unserved Study Areas, 
we will conduct a reverse auction for the right to receive high-cost support.99 
96 See supra para. 16. 
97 Some incumbent LECs assert that they will not be able to commit to provide broadband Internet access service to 
all customers within their study areas at the frozen level of support. See, e.g., Letter from Eric N. Einhorn, V.P. 
Federal Government Affairs, Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 
99-68, WC Docket Nos. 05-337, 06-122, 08-152, 07-135, at 3 (filed Oct. 27, 2008); Letter from Gregory J. Vogt, 
Counsel for CenturyTel, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC 
Docket No. 05-337, at 2 (filed Oct. 20, 2008); Letter from Daniel Mitchell, Vice President Legal & Industry, NTCA, 
to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337, 04-36, at 1-2 (filed 
Oct. 28, 2008). First, to the extent incumbent LECs cannot build out their networks to provide broadband to all 
customers in their study areas, they may seek a waiver to provide service via satellite technology, as discussed 
above. Second, universal service support is not meant to subsidize high-cost carriers, but rather it is meant to 
support customers in high-cost areas. See Alenco, 201 F.3d at 620 (The Act only promises universal service, and 
that is a goal that requires sufficient funding of customers, not providers. So long as there is sufficient and 
competitively-neutral funding to enable all customers to receive basic telecommunications services, the FCC has 
satisfied the Act and is not further required to ensure sufficient funding of every local telephone provider as well.). 
Therefore, if an incumbent LEC cannot provide broadband service at the frozen support levels, support will go to a 
reverse auction winning bidder who can provide such service at or below that level on a more efficient basis. Third, 
as discussed below, to the extent that a reverse auction does not produce a winning bidder, the Commission will 
reexamine support to that study area. Finally, for rural rate-of-return incumbent LECs, all high-cost universal 
service mechanisms will continue to operate as they do today through 2010, and then will be frozen at that level. 
98 See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 2049192, paras. 5662. 
99 Many commenters, in particular those representing rural telephone companies, opposed the use of reverse 
auctions to award high-cost support to carriers of last resort in rural areas. See, e.g., OPASTCO Reverse Auctions 
(continued.)

Federal Communications Commission FCC 08-262 
C-20 
33. We sought comment in our Reverse Auctions NPRM on the merits of using reverse 
auctions, a form of competitive bidding, to decide how much high-cost support to provide to ETCs 
serving rural, insular, and high-cost areas.100 In a reverse auction, support generally would be determined 
by the lowest bid to serve the auctioned area.101 We conclude that using a reverse auction method for 
identifying both the recipient of high-cost support for an Unserved Study Area, as well as the amount of 
support, is appropriate because the winning bid should approach the minimum level of subsidy required 
to achieve our universal service goals.102 In contrast, a support mechanism based on cost or on a cost 
model provides no incentive for an ETC to provide supported services at the minimum possible cost.103 
In addition, a reverse auction provides a fair and efficient means of eliminating or reducing the 
subsidization of multiple ETCs in a given region.104 For these reasons, we find that a reverse auction 
offers advantages over the current high-cost support distribution mechanisms and we adopt a reverse 
auction plan, as discussed below.105 
34. To implement the reverse auctions, there are several issues that must be addressed. We 
describe in this part: (1) the geographic area to be auctioned; (2) the reserve price for the reverse auction; 
(3) what a winning bidder will receive; (4) how the winning bidder will be selected; and (5) the 
qualifications a bidder must demonstrate before it may participate in a reverse auction. 
a. Geographic Area 
35. In the Reverse Auctions NPRM, we sought comment on whether we should use the study 
area106 as the geographic area for reverse auctions.107 We observed that high-cost support today is 
(continued from previous page) 
Comments at 1621; NTCA Reverse Auctions Comments at 3046. Under the measures we adopt today, reverse 
auctions will be conducted only in study areas for which the incumbent LEC receiving high-cost support has not 
committed to offer broadband Internet access service. 
100 See Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 10. 
101 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11. 
102 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Connecticut Dept of Pub. Util. Control High-Cost 
Reform NPRMs Comments at 7 (supporting reverse auctions as a means of controlling and reducing the size of the 
universal service fund, while putting the burden on providers to estimate bid amounts); Comcast High-Cost Reform 
NPRMs Comments at 7 (noting that the use of reverse auctions could reduce the size of the high-cost fund 
significantly). 
103 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11; see Letter from Grover Norquist, Americans for Tax 
Reform, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-337 at 1 (filed Apr. 14, 
2008) (arguing that reverse auctions will create incentives to invest in rural communities and will not finance and 
subsidize wasteful carriers). 
104 Reverse Auctions NPRM, 23 FCC Rcd at 1500, para. 11. 
105 Although several rural LEC commenters oppose the use of reverse auctions to distribute high-cost support, as 
discussed above, incumbent LECs will not be required to participate in a reverse auction to receive support, so long 
as they commit to deploy broadband throughout their study areas. See, e.g., ATA High-Cost Reform NPRMs 
Comments at 1315 (opposing the use of reverse auctions); Alexicon Reverse Auctions NPRM Comments at 23 
(opposing reverse auctions for rural LECs). 
106 A study area is a geographic segment of an incumbent LECs telephone operations. Generally, a study area 
corresponds to an incumbent LECs entire service territory within a state. Direct Communications Cedar Valley, 
LLC and Qwest Corporation Joint Petition for Waiver of the Definition of Study Area of the Appendix-Glossary 
of Part 36 of the Commissions Rules, Petition for Waiver of Section 69.2(hh) and 69.605(c) of the Commissions 
Rules, CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB 2005). Section 54.207 of the 
Commissions rules provides that a rural telephone companys service area will be its study area unless and until 
(continued.)

Federal Communications Commission FCC 08-262 
C-21 
generally based on the wireline incumbent LECs study area.108 We tentatively concluded that the 
wireline incumbent LECs study area would be the appropriate geographic area on which to base reverse 
auctions.109 We adopt our tentative conclusion that the study area is the best geographic area to use for 
several reasons. First, if we allowed bidders to bid to provide service in smaller geographic areas, we 
would encourage bidders to bid on areas that are easier or cheaper to serve, leaving our most difficult-toserve 
populations still without broadband service.110 Conversely, if we required bidders to bid on even 
larger geographic areas, we might discourage bidders from entering the auction because of the difficulty 
in committing to serve an even larger area. Although some commenters oppose using the incumbent 
LECs study area,111 use of the study area is consistent with the area we ask incumbent LECs to consider 
in making their commitments. Finally, selecting smaller geographic areas for auction would increase the 
number of auctions to be held, potentially delaying the conduct of the auction and, therefore, the 
deployment of broadband to unserved areas.112 For these reasons, we conclude that the study area is the 
best available geographic area to consider for the auction. We will conduct a reverse auction for each 
study area for which the incumbent LEC receiving high-cost support has not committed to offer 
broadband Internet access service pursuant to the requirements explained above (Unserved Study 
Areas).113 
b. Reserve Price 
36. In the Reverse Auctions NPRM, we noted that we should establish a reserve pricea 
maximum level of high-cost support that participants in the auction would be allowed to place as a bid.114 
We observed that a reserve price that is set too low is likely to discourage bidders from participating, 
while one that is set too high raises the possibility of providing too much support.115 We conclude that 
the reserve price should be the amount of high-cost support that the incumbent LEC would have been 
(continued from previous page) 
the Commission and the states, after taking into account recommendations of a Federal-State Joint Board instituted 
under section 410(c) of this Act, establish a different definition of service area for such company. 47 C.F.R.  
54.207(b); 47 U.S.C.  214(e)(5). As discussed above, we use the terms study area and service area 
interchangeably in this order. See supra note 56. 
107 See Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20. 
108 Reverse Auctions NPRM, 23 FCC Rcd at 1503, para. 20 
109 Reverse Auctions NPRM, 23 FCC Rcd at 1504, para. 21. 
110 Thus, we disagree with commenters arguments that we should hold auctions for small geographic areas, such as 
counties, census block groups, or zip codes. See, e.g., Comcast High-Cost Reform NPRMs Comments at 9; NCTA 
High-Cost Reform NPRMs Comments at 16; SouthernLINC High-Cost Reform NPRMs Comments at 2425; 
TracFone High-Cost Reform NPRMs Comments at 6. 
111 See, e.g., Comcast High-Cost Reform NPRMs Comments at 89; NCTA High-Cost Reform NPRMs Comments at 
16; SouthernLINC High-Cost Reform NPRMs Comments at 25; TracFone High-Cost Reform NPRMs Comments at 
5. 
112 See Ohio PUC Reverse Auctions NPRM Comments at 67 (generally agreeing that the incumbent LECs study 
area is the appropriate geographic area on which to base reverse auctions because further disaggregation could add 
cost and delays, and increase the opportunity for creamskimming). 
113 See supra paras. 1931. 
114 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36. 
115 Reverse Auctions NPRM, 23 FCC Rcd at 1509, para. 36.

Federal Communications Commission FCC 08-262 
C-22 
entitled to receive had it committed to offer broadband Internet access service within the study area.116 
37. We set the reserve price in each study area at the incumbent LECs current level of highcost 
support for several reasons. First, we are adopting caps on the overall high-cost fund. Setting a 
reserve price will help ensure that overall high-cost funding remains within the caps, because the highcost 
funding for each Unserved Study Area will merely be transferred to another ETC, not increased. In 
addition, setting a reserve price at this level will ensure that, even in reverse auctions for particular 
Unserved Study Areas that do not garner many bids, those bids will be made by providers who are 
confident that they can assume all the obligations of the carrier of last resort,117 as well as the new 
broadband service obligations, and provide service more efficiently than the incumbent LEC.118 Indeed, 
we expect that bidders frequently will offer to provide service using newer and more efficient 
technologies than the incumbent LEC uses today. For these reasons, we set the reserve price at the level 
described above. 
c. Auctioned Support 
38. For Unserved Study Areas, we will auction the award of high-cost support to provide all 
supported services to the entire Unserved Study Area, on a carrier of last resort basis, consistent with the 
requirements of this order. The maximum annual award amount will be equal to the amount of the 
winning bid (Award Amount), paid out as described in more detail below as certain geographic areas are 
built out.119 
39. The Award Amount is conditioned on the winning bidder providing all supported 
services as a carrier of last resort, as the incumbent LEC does today under state law, and meeting the ETC 
requirements set forth in the ETC Designation Order.120 Competitive ETCs are currently required to 
116 See SouthernLINC High-Cost Reform NPRMs Comments at 22 n.63 (The Commission would start bidding at 
current support levels.). As discussed above, each incumbent LEC ETCs individual high-cost support is frozen at 
the amount of support, on a lump sum basis, the ETC received in December 2008 annualized, net of any prior or 
past period adjustments, on a study area basis. See supra paras. 16, 30. 
117 Carrier of last resort obligations for incumbent LECs are a matter of state law. Under section 214(e)(6), when 
the state lacks jurisdiction, the Commission shall make the public interest determination on whether to designate a 
carrier an ETC. 47 U.S.C.  214(e)(6). The ETC requirements include a requirement to provide supported services 
throughout the service area. 47 U.S.C.  214(e)(1). 
118 Some commenters oppose setting the reserve price at current incumbent LEC levels, or setting any reserve price. 
See OPASTCO High-Cost Reform NPRMs Comments at 1920; MSTC Group High-Cost Reform NPRMs 
Comments at 1718; North Dakota PSC High-Cost Reform NPRMs Comments at 5. We find that setting the reserve 
price at the incumbent LEC support level will provide certainty to bidders and enable bidders with more efficient 
technologies to provide broadband in areas where incumbent LECs do not commit to do so. Furthermore, as 
discussed below, if a reverse auction provides no winner, the Commission will examine the need for further action. 
See infra para. 47. 
119 A competitive ETC that currently serves all or a portion of an Unserved Study Area will not receive high-cost 
support for the same service area as both a winning bidder and based upon a showing of its own costs. If a 
competitive ETC that already receives high-cost support within this study area wins the auction, it will lose its 
existing high-cost support for particular geographic areas as it begins to receive its Award Amount for those areas. 
120 ETC Designation Order, 20 FCC Rcd 6371. Section 214(e)(6) of the Act gives the Commission authority to 
designate carriers as ETCs when those carriers are not subject to the jurisdiction of a state commission. 47 U.S.C.  
214(e)(6). The requirements in the ETC Designation Order currently apply only to Commission-designated ETCs, 
although the Commission, in that order, encouraged state commissions to adopt similar requirements. ETC 
Designation Order, 20 FCC Rcd at 6372, 6379, paras. 1, 19. 

Federal Communications Commission FCC 08-262 
C-23 
provide supported services throughout their service area, even though they may not be, under state law, 
the carrier of last resort.121 In the ETC Designation Order, the Commission adopted additional 
requirements for ETC designation proceedings in which the Commission acts pursuant to section 
214(e)(6).122 The Commission requires that applicants seeking ETC designation from this Commission 
demonstrate the following: (1) a commitment and ability to provide services, including providing service 
to all customers within its proposed service area; (2) that it will remain functional in emergency 
situations; (3) that it will satisfy consumer protection and service quality standards; (4) that it offers local 
usage comparable to that offered by the incumbent LEC; and (5) an understanding that it may be required 
to provide equal access if all other ETCs in the designated service area relinquish their designations 
pursuant to section 214(e)(4).123 We find that the universal service obligations in the ETC Designation 
Order will apply to all competitive ETCs winning reverse auctions; in addition, the auction winner must 
accept all of the carrier of last resort obligations of the incumbent LEC for that study area, whether such 
obligations are imposed on the LEC pursuant to state or federal law. 
40. In addition to the ETC Designation Order requirements, we add two additional 
requirements to competitive ETCs winning reverse auctions. First, they must, as a condition of receiving 
the Award Amount, offer broadband Internet access service to all customers within the Unserved Study 
Area. Second, competitive ETCs winning reverse auctions must offer supported services at a retail price 
comparable to the retail price charged by the incumbent LEC in that same study area for the same or 
equivalent service.124 In this manner, we ensure that competitive ETCs receiving high-cost support will 
continue to make supported services at least as affordable and available as they are today. 
41. We recognize that a transition mechanism is needed to shift high-cost support from the 
incumbent LEC currently receiving it to another ETC that wins an Award Amount. A flash cut would be 
harmful in at least two ways. First, the incumbent LEC would immediately lose support upon which it 
may rely to maintain supported services as a carrier of last resort to consumers today. It is possible that 
removing support from the incumbent LEC would, in some cases, jeopardize its provision of services to 
some users. In addition, granting a full Award Amount immediately to a winning ETC would provide 
little incentive for the competitive ETC to build out new facilities to difficult-to-serve areas until the last 
possible moment, as in many cases those areas will be the most expensive to serve. As a result, we 
conclude that, prior to the initiation of an auction, the incumbent LEC for the Unserved Study Area will 
be required to identify the distribution of support by geographic area for purposes of the auction and the 
transfer of support to the winning bidder. As the winning ETC builds out to those geographic areas and 
certifies that it complies with all its obligations under this order for that area, it will receive high-cost 
support for that portion of the Unserved Study Area, and the incumbent LEC will no longer receive such 
support for that area.125 As the winning bidder takes on carrier of last resort obligations and obtains high- 
121 See 47 U.S.C.  214(e)(1). 
122 ETC Designation Order, 20 FCC Rcd at 6380, para. 20. 
123 ETC Designation Order, 20 FCC Rcd at 6380, para. 20; 47 U.S.C.  214(e)(4). 
124 In adopting this requirement, we are not setting any specific rates, nor does this requirement conflict with the 
states jurisdiction over intrastate rates. Instead, we are conditioning the receipt of federal universal service support 
on an ETCs provision, on a voluntary basis, of rates comparable to the incumbent LECs for equivalent services. 
125 The amount of support to be awarded to the winning bidder could be less than the amount of support received by 
the incumbent LEC for that same area. The transfer of support will be based on the amount of support, relative to 
support for the entire study area, received by the incumbent LEC for the area to be transferred; that same relative 
percentage will be used to calculate the amount of award support the auction winner should receive for the same 
(continued.)

Federal Communications Commission FCC 08-262 
C-24 
cost support for an area, the incumbent LEC will no longer receive high-cost support for that area and will 
be relieved of its carrier of last resort obligations at both the state and federal levels. We require winning 
auction bidders to comply fully with all the requirements of this order by the end of a ten-year build-out 
period. 
42. Finally, we address the question of transferability of the Award Amount. We conclude 
that auction winners may transfer their right to the Award Amount. This transfer could take one of 
several formsan auction winner could be purchased by another entity, the winner could sell assets used 
to provide the supported services, or the auction winner could transfer just the right to the Award Amount 
itself. The transferee will, in all events, step into the shoes of the auction winner and will be responsible 
for meeting all obligations as if it had been the original auction winner. Any such transfer, however, must 
be authorized by the Commission before it is consummated. 
d. Selecting a Winning Bid 
43. In the Reverse Auctions NPRM, we sought comment on whether the reverse auction 
should award high-cost support to a single winner or to multiple winners.126 We observed that if only one 
winner receives support, this could provide a fair and efficient means of eliminating the subsidization of 
multiple ETCs in a region, particularly in areas in which costs are prohibitive.127 We tentatively 
concluded that universal service support auctions should award high-cost support to a single winner.128 
We now conclude that the single winner format will provide the most effective mechanism for 
determining the support amount sufficient to meet the universal service goals in any given area.129 We 
therefore adopt our tentative conclusion to select one winner in each reverse auction. 
44. As we have explained above, in requiring the offering of broadband Internet access 
service as a condition of receiving high-cost support, one of our main goals is to ensure that all Americans 
have access to affordable, quality broadband services.130 Achieving this goal will require careful 
selection of the winning bidder for a particular Unserved Study Area. As explained in more detail below, 
the winning bidder will be the one who commits to offer the highest speed of broadband service 
throughout the entire Unserved Study Areaat a bid amount that is equal to or less than the reserve price 
(the incumbent LECs current high-cost support amount). In so doing, we work towards making quality, 
technologically advanced broadband services available to all Americans, including those in difficult- or 
expensive-to-serve areas, rather than settling for lesser broadband service for those Americans who live in 
high-cost areas. We acknowledge that, in many cases, the winning bid will not be the cheapest one. But 
we believe that encouraging bidders to offer better broadband services at or below a set reserve price will 
(continued from previous page) 
area. In no event will an incumbent LEC who is not an auction winner continue to receive support for an area once 
an auction winner begins to receive support for that same area. 
126 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 13. 
127 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14. 
128 Reverse Auctions NPRM, 23 FCC Rcd at 1501, para. 14 
129 See, e.g., Florida PSC High-Cost Reform NPRMs Comments at 45; New York PSC Identical Support and 
Reverse Auctions NPRMs Comments at 23; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments at 
2122, App. at 12. We disagree with commenters who support multiple winner auctions. See, e.g., Alltel High-Cost 
Reform NPRMs Comments at 4041; Atlantic Tele-Network Identical Support and Reverse Auctions NPRMs 
Comments at 13. We find that supporting a single auction winner is a more efficient means of ensuring the 
provision of broadband Internet access in areas where the incumbent LEC has determined that the costs of serving 
all customers in the area is prohibitive. 
130 See supra paras. 1923.

Federal Communications Commission FCC 08-262 
C-25 
help us achieve our broadband goals, while keeping an appropriate limit on the amount of high-cost 
support disbursed to achieve that goal. 
45. For purposes of our reverse auction, we establish three tiers of broadband service. We 
will use the term Basic Broadband Tier 1 to refer to service with download speeds equal to or greater 
than 768 kbps but less than 1.5 mbps, and upload speeds greater than 200 kbps. We will use the term 
Broadband Tier 2 to refer to service with download speeds equal to or greater than 1.5 mbps and less 
than 3 mbps, and upload speeds greater than 200 kbps. We will use the term Broadband Tier 3 to refer 
to service with download speeds equal to or greater than 3 mbps, and upload speeds greater than 200 
kbps.131 
46. We will evaluate bids as follows: for any Unserved Study Area, a bidder will submit a 
bid to commit to offering a service falling within Basic Broadband Tier 1, Broadband Tier 2, or 
Broadband Tier 3 to all customers in the Unserved Study Area. To qualify for an award, the bid must be 
equal to or less than the reserve pricethat is, equal to or less than the amount of high-cost support 
received by the incumbent LEC for that Unserved Study Area.132 The bidder need not specify a specific 
speed to which it will commit in any of the three tiers, but it must disclose in which tier its proposed 
service will fall. The bid amount will be an amount of high-cost support to provide all supported services 
in the Unserved Study Area as carrier of last resort, subject to all the requirements of this order, including 
the condition to offer broadband throughout the Unserved Study Area. The winning bid will be selected 
through a two-step process. First, we will identify the highest speed tier for which there is a valid bid. If 
there is only one bid for that tier, then that is the winning bid. If there are multiple bids within that tier, 
then the winning bid will be the lowest price bid within that tier.133 
47. If a particular reverse auction produces no winner, the study area will be identified as a 
truly high-cost study area. The fact that there is no winning bidder may indicate that the reserve price was 
set at too low an amount of support. The Commission will reexamine any such study area to determine 
whether the frozen high-cost support amount is sufficient, and, if it is not, the Commission will determine 
what further actions should be taken to ensure that the study area is served by a provider that will meet the 
broadband commitment and carrier of last resort requirements. For example, the Commission may 
consider disaggregating the study area on a wire center basis for reverse auction purposes, or increasing 
the amount of high-cost support set as the reserve price for the study area.134 To ensure continued service 
to customers during the limited period of time in which the Commission examines these issues, the 
existing incumbent LEC will continue to have all carrier of last resort and ETC obligations, and will 
continue to receive high-cost support frozen at its current level pending transfer of such support to the 
winning bidder of the reverse auction. 
e. Bidder Qualifications 
48. We adopt a number of conditions that bidders must meet before they can participate in 
131 These terms are similar, but not identical, to terms used in our latest Broadband Data Gathering Order. See 
Broadband Data Gathering Order, 23 FCC Rcd at 970001, para. 20 & n.66. 
132 See supra paras. 16, 36. 
133 For example, assume the Commission conducted a reverse auction for an Unserved Study Area with a reserve 
price of $5 and received four bids: $1 to offer Basic Broadband Tier 1, $2 to offer Broadband Tier 2, $3 to offer 
Broadband Tier 3, and $4 to offer Broadband Tier 3. In that scenario, the winning bid amount would be $3 to offer 
Broadband Tier 3. 
134 See Free Press Oct. 24, 2008 Ex Parte Letter at 12 (arguing that, if a study area receives no winning bidder in a 
reverse auction, then the study area should be disaggregated).

Federal Communications Commission FCC 08-262 
C-26 
any auction. We adopt these requirements to help ensure that any bidder who wins an auction will be 
capable of meeting the commitments that flow from being a winning bidder. 
49. First, we require that a bidder be an ETC, certified by the Commission or by a state. In 
the Reverse Auctions NPRM, we tentatively concluded that an auction bidder must be an ETC covering 
the relevant geographic area prior to participating in the auction.135 We hereby adopt that tentative 
conclusion. Winning bidders must be designated as ETCs before receiving high-cost support pursuant to 
sections 214 and 254 of the Act; therefore, requiring bidders to receive this designation prior to 
participating in an auction entails only a small additional burden. This burden is offset by the potential 
delay in deploying broadband Internet access service that would result while a non-ETC winning bidder 
seeks and obtains ETC designation.136 We note that ETCs are not required to provide all supported 
services with their own facilities.137 ETCs may enter into contracts with other entities to provide some 
supported services in part or all of the study area. 
50. As a general matter, in our spectrum auctions we require an upfront payment to deter 
frivolous or insincere bidding.138 In the reverse auctions we adopt today, we are not requiring an upfront 
payment. Instead, we are requiring participants to demonstrate to the Commission a capability to meet 
the milestone requirements. This showing will include, for example, evidence of financial resources with 
which to undertake the construction or upgrading of facilities necessary to offer broadband Internet access 
service. In addition, in areas where the bidder does not currently offer telecommunications services, we 
will require the bidder to submit a plan demonstrating the timetable for building the necessary facilities 
and obtaining any required permits. 
5. Competitive Eligible Telecommunications Carriers 
51. In the Identical Support NPRM, the Commission tentatively concluded that it should 
eliminate the current identical support rule for competitive ETCs, because the rule bears no relationship to 
the amount of money competitive ETCs have invested in rural and other high-cost areas of the country.139 
In that notice, the Commission tentatively concluded that a competitive ETC should receive high-cost 
135 Reverse Auctions NPRM, 23 FCC Rcd at 150001, para. 12; see also, e.g., Florida PSC High-Cost Reform 
NPRMs Comments at 5; Indiana Util. Reg. Commn High-Cost Reform NPRMs Comments at 12; MSTC Group 
High-Cost Reform NPRMs Comments at 12; Verizon/Verizon Wireless High-Cost Reform NPRMs Comments, App. 
at 8. 
136 For this reason, we disagree with commenters who argue that we should not require bidders to be ETCs. See 
GCI High-Cost Reform NPRMs Comments at 89; Consumers Union (CU) et al. High-Cost Reform NPRMs Reply at 
17. 
137 Pursuant to section 214(e)(1)(A) of the Act, a common carrier designated as an ETC must offer the services 
supported by the federal universal service mechanisms throughout the designated service area either by using its 
own facilities or by using a combination of its own facilities and resale of another carriers services (including the 
services offered by another ETC). 47 U.S.C.  214(e)(1)(A). 
138 See, e.g., Auction of LPTV and TV Translator Digital Companion Channels Scheduled for November 5, 2008, 
AU Docket No. 08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008). 
139 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5; see, e.g., Embarq High-Cost Reform NPRMs Comments 
at 10 (It is logically inconsistent to compensate a carrier for serving high-cost areas when there is no evidencein 
the form of cost studies, filings, or model resultsthat the areas being supported are indeed high-cost for that 
carrier.); Frontier High-Cost Reform NPRMs Comments at 4 (asserting that identical support is merely a subsidy to 
competitive ETCs, and there is no basis to tell whether consumers are getting any [u]niversal [s]ervice benefits 
whatsoever from subsidizing competitive ETCs in this manner).

Federal Communications Commission FCC 08-262 
C-27 
support based on its own costs, which better reflect real investment in rural and other high-cost areas of 
the country, and which create greater incentives for investment in those areas.140 Because a competitive 
ETCs per-line support is based solely on the per-line support received by the incumbent LEC, rather than 
its own network investments in an area, the competitive ETC has little incentive to invest in, or expand, 
its own facilities in areas with low population densities, thereby contravening the Acts universal service 
goal of improving the access to telecommunications services in rural, insular and high-cost areas.141 
Instead, competitive ETCs have a greater incentive to expand the number of subscribers, particularly 
those located in the lower-cost parts of high-cost areas, rather than to expand the geographic scope of 
their networks. As discussed above, the Joint Board recommended elimination of the identical support 
rule; we agree with the Joint Board and adopt this recommendation and our tentative conclusion.142 
52. For competitive ETCs, we provide a five-year transition, during which their existing 
support is reduced in equal steps.143 More specifically, for each competitive ETC, a base-line level of 
support will be determined based on the total support received by that competitive ETC for the twelve 
months prior to the effective date of the order. For the twelve months following the effective date of the 
order, each competitive ETC will receive support equal to 80 percent of its baseline support amount. In 
year two, each competitive ETC will receive support equal to 60 percent of its baseline support amount. 
In year three, each competitive ETC will receive support equal to 40 percent of its baseline support 
amount. In year four, each competitive ETC will receive support equal to 20 percent of its baseline 
support amount. Finally, in year five, existing high-cost support for competitive ETCs will be eliminated. 
In the Further Notice we seek comment on an appropriate universal service mechanism (or mechanisms) 
focused on the deployment and maintenance of advanced mobile wireless services in high-cost and rural 
areas. 
6. Build-Out Milestones and Monitoring, Compliance, and Enforcement 
53. We find that a rigorous monitoring, compliance and enforcement program is necessary to 
ensure that all incumbent LECs and auction winners receiving high-cost support adhere to their obligation 
to offer broadband Internet access service throughout their supported service areas by the end of their 
respective build-out periods. We therefore establish build-out requirements to monitor providers 
progress toward their build-out commitment. Specifically, and as described in detail below, we require 
each provider receiving high-cost support to meet specific milestones with regard to broadband 
deployment in the years preceding completion. 
54. Applicability of Requirements. As an initial matter, we find that the monitoring, 
compliance and enforcement requirements we adopt today will apply equally to all recipients of high-cost 
support that commit to offer broadband Internet access service as a condition of receiving support. 
140 Identical Support NPRM, 23 FCC Rcd at 1470, para. 5. 
141 See 47 U.S.C.  254(b)(3); Alabama PSC High-Cost Reform NPRMs Comments at 3 (The identical support rule 
provides little incentive for ETCs to invest in building their own facilities in rural areas with low population 
densities because their support currently is based solely on the per-line support received by the incumbent, instead of 
investment in the network.). 
142 Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 5 (recommending elimination of 
the identical support rule, which bears little or no relationship to the amount of money competitive ETCs have 
invested in rural and other high-cost areas of the country). 
143 CTIA Oct. 22, 2008 Ex Parte Letter at 1. The calculation of support provisions in this Part apply to competitive 
ETCs that do not receive high-cost support as the result of winning a reverse auction. Support for winning auction 
bidders, including competitive ETCs, will be based on the bid amount, as discussed above. See supra paras 4347. 

Federal Communications Commission FCC 08-262 
C-28 
Consumers should expect to receive the benefits of todays order, irrespective of whether an incumbent 
LEC or winning auction bidder receives high-cost support in their area. We find that the milestone 
obligations we impose today will not unduly burden any company; rather, they represent efforts we 
believe carriers would undertake in the normal course of constructing a broadband network. We therefore 
apply the monitoring, compliance, and enforcement requirements below to all incumbent LECs and 
auction winners that receive high-cost support. 
55. Milestones for Committed Incumbent LECs. To ensure that incumbent LECs that commit 
to offering broadband make steady progress towards offering broadband Internet access service 
throughout their entire service areas as required in this order, we adopt milestones based on customer 
locations where the incumbent LEC is not yet offering broadband Internet access service (Unserved 
Customers).144 Specifically, we require incumbent LECs to be capable of providing broadband Internet 
access service to an additional 20 percent of their Unserved Customers by the end of each year of the 
five-year build-out period. This requirement means that, of the total number of Unserved Customers in 
the service area, these carriers must offer broadband to 20 percent by the end of year one, 40 percent by 
the end of year two, 60 percent by the end of year three, 80 percent by the end of year four, and 100 
percent by the end of year five. This five-year period starts from the due date of the incumbent LEC 
commitment. 
56. Milestones for Auction Winners. To ensure that auction winners make good progress 
toward meeting their obligation to become fully compliant with the requirements of this order, we require 
every auction winner to be capable of serving 10 percent of the potential customers in the service area by 
the end of year two, 25 percent by the end of year three, 50 percent by the end of year four, 65 percent by 
the end of year five, 75 percent by the end of year six, 85 percent by the end of year seven, 90 percent by 
the end of year eight, 95 percent by the end of year nine, 100 percent by the end of year ten. The absence 
of a milestone at the end of year one is intended to allow new service providers sufficient time to plan 
their network and to start deploying and marketing it within some parts of the service area. Similarly, the 
ascending milestones in the remaining years are intended to permit the auction winner a reasonable time 
in which to build its network and services while ensuring that it does not delay in reaching customers who 
need this vital service. The ten-year build-out period starts on the date on which that carrier wins the 
auction.
57. Consequences of Not Meeting Milestones. For all incumbent LECs and auction winners 
receiving high-cost support, failure to achieve any milestone will result in loss of eligibility for support 
(and, where this Commission has jurisdiction over the designation of ETC status, loss of ETC status) for 
that service area. If the incumbent LEC or auction winner loses its eligibility for support, the study area 
will be subject to re-auction. If at the end of the build-out period, the incumbent LEC or auction winner is 
not fully compliant with all its obligations under this order, including its obligation to offer broadband 
Internet service throughout the service area, it will forfeit its eligibility for support and, if its ETC 
designation was made by this Commission, lose its ETC status. 
58. Milestone Audits. All milestone data will be subject to audit by the Commissions Office 
of Inspector General and, if necessary, investigated by the Office of Inspector General, to determine 
compliance with the build-out requirements, the Act, and Commission rules and orders.145 Service 
144 Customer locations include both residential and business locations within the ETCs service area. 
145 See Comprehensive Review of the Universal Service Fund Management, Administration, and Oversight, Federal- 
State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, Rural Health 
Care Support Mechanism, Lifeline and Link-Up, Changes to the Board of Directors for the National Exchange 
Carrier Association, Inc., WC Docket No. 03-109, Report and Order, 22 FCC Rcd 16372, 1638384, para. 24 
(continued.)

Federal Communications Commission FCC 08-262 
C-29 
providers will be required to comply fully with the Office of Inspector Generals audit requirements, 
including, but not limited to, providing full access to all accounting systems, records, reports, and source 
documents of the service providers and their employees, contractors, and other agents, in addition to all 
other internal and external audit reports that are involved, in whole or in part, in the administration of this 
program.146 Such audits or investigations may provide information showing that a service provider failed 
to comply with the Act or the Commissions rules, and thus may reveal instances in which universal 
service support was improperly distributed or used. 
59. We emphasize that we retain the discretion to evaluate the uses of monies disbursed 
through the high-cost program and to determine on a case-by-case basis whether waste, fraud, or abuse of 
program funds occurred and whether recovery is warranted. We remain committed to ensuring the 
integrity of the universal service program and will aggressively pursue instances of waste, fraud, and 
abuse under the Commissions procedures and in cooperation with law enforcement agencies. In doing 
so, we intend to use any and all enforcement measures, including criminal and civil statutory remedies, 
available under law.147 
III. BROADBAND FOR LIFELINE/LINK UP CUSTOMERS 
60. In this Part, pursuant to section 254(b) of the Act, we establish a Broadband Lifeline/Link 
Up Pilot Program (Pilot Program) to examine how the Lifeline and Link Up universal service support 
mechanism can be used to enhance access to broadband Internet access services for low-income 
Americans.148 Specifically, we conclude that we will make available $300 million each year for the next 
three years to enable ETCs to support broadband Internet access service and the necessary access devices. 
In particular, if an ETC provides Lifeline service to an eligible customer, the Pilot Program will support 
50 percent of the cost of broadband Internet access installation, including a broadband Internet access 
device, up to a total amount of $100. In addition, if an ETC provides Lifeline service to an eligible 
household, the Pilot Program will double, up to an additional $10, the households current monthly 
subsidy to offset the cost of broadband Internet access service. 
A. Background 
61. Since 1985, the Commission, pursuant to its general authority under sections 1, 4(i), 201, 
and 205 of the Act and in cooperation with state regulators and local telephone companies, has 
administered two programs designed to increase subscribership by reducing charges to low-income 
(continued from previous page) 
(Comprehensive Review Report and Order) (requiring recipients of universal service support for high-cost 
providers to retain all records that they may require to demonstrate to auditors that the support they received was 
consistent with the Act and the Commissions rules, assuming that the audits are conducted within five years of 
disbursement of such support.). The term service provider includes any participating subcontractors. 
146 This includes presenting personnel to testify, under oath, at a deposition if requested by of the Office of Inspector 
General. 
147 See, e.g., 41 U.S.C.  5158 (Anti-Kickback Act of 1986); 31 U.S.C.  3729 (False Claims Act). 
148 The Commission has established a similar universal service pilot program under the Rural Health Care support 
mechanism. See Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111(2006) 
(2006 Rural Health Care Pilot Program Order) (establishing a Rural Health Care pilot program to examine how the 
Rural Health Care funding mechanism can be used to enhance public and non-profit health care providers access to 
advanced telecommunications and information services); Rural Heath Care Support Mechanism, WC Docket No. 
02-60, Order, 22 FCC Rcd 20,360 (2007) (selecting Rural Health Care pilot program participants eligible to receive 
up to 85% of the costs associated with the construction of state or regional broadband health care networks and with 
the advanced telecommunications and information services provided over those networks).

Federal Communications Commission FCC 08-262 
C-30 
consumers.149 The Commission's Lifeline program reduces qualifying consumers' monthly charges, and 
Link Up provides federal support to reduce eligible consumers initial connection charges by up to one 
half.150 
62. Under the Commissions current rules, states and territories have the authority to 
establish their own Lifeline/Link Up programs that provide additional support to low-income consumers 
that incorporate the unique characteristics of each state or territory.151 For example, in establishing 
eligibility criteria, states have the flexibility to consider federal and state-specific public assistance 
programs with high rates of participation among low-income consumers in the state. State certification 
procedures and outreach efforts can also take into account existing state laws and budgetary limits. Some 
states and territories, however, have elected to use the federal criteria as their default standard. These 
federal default states include not only states and territories with their own Lifeline/Link Up programs 
that have adopted the federal default criteria, but also states and territories that have not adopted their own 
Lifeline/Link Up program. In April 2004, the Commission released an order expanding the federal 
default eligibility criteria to include an income-based criterion and additional means-tested programs.152 
63. Eligibility for Lifeline and Link Up. In states that provide state Lifeline and Link Up 
support, Lifeline and Link Up are available to all subscribers who meet state eligibility requirements. 
Although states have some latitude in selecting means tests, state commissions must establish narrowly 
targeted qualification criteria that are based solely on income or factors directly related to income for lowincome 
residents to be eligible for Lifeline and Link Up. In addition, states with eligible residents of 
tribal lands must ensure that their qualification criteria are reasonably designed to apply to residents of 
tribal lands, if applicable.153 To receive Lifeline and Link Up in a state that does not mandate state 
Lifeline support, consumers must certify that their household income is at or below 135 percent of the 
Federal Poverty Guidelines, or that they participate in one of the following seven federal programs: 
Medicaid, Food Stamps, Supplemental Security Income (SSI), Federal Public Housing Assistance 
(Section 8), the Low-Income Home Energy Assistance Program (LIHEAP), the National School Lunch 
Programs free lunch program, or Temporary Assistance for Needy Families (TANF).154 Subscribers 
149 47 U.S.C.  151, 154(i), 201, 205. 
150 Lifeline currently provides low-income consumers with discounts of up to $10.00 off of the monthly cost of 
telephone service for a single telephone line in their principal residence, though this amount adjusts, in part, to 
reflect the carriers tariffed federal subscriber line charge. See 47 C.F.R.  54.403. Link Up provides low-income 
consumers with discounts of up to $30.00 off of the initial costs of installing telephone service. See 47 C.F.R.  
54.411(a). Under the Commissions rules, there are four tiers of federal Lifeline support. All eligible subscribers 
receive Tier 1 support which provides a discount equal to the ETCs subscriber line charge. Tier 2 support provides 
an additional $1.75 per month in federal support, available if all relevant state regulatory authorities approve such a 
reduction. (All fifty states have approved this reduction.) Tier 3 of federal support provides one half of the 
subscribers state Lifeline support, up to a maximum of $1.75. Only subscribers residing in a state that has 
established its own Lifeline/Link Up program may receive Tier 3 support, assuming that the ETC has all necessary 
approvals to pass on the full amount of this total support in discounts to subscribers. Tier 4 support provides eligible 
subscribers living on tribal lands up to an additional $25 per month towards reducing basic local service rates, but 
this discount cannot bring the subscribers cost for basic local service to less than $1. See 47 C.F.R.  54.403. 
151 See 47 C.F.R.  54.409(a), 54.415(a). 
152 See Lifeline and Link Up, WC Docket No. 03-109, Report and Order and Further Notice of Proposed 
Rulemaking, 19 FCC Rcd 8302 (2004). 
153 47 C.F.R.  54.409(a). 
154 47 C.F.R.  54.409(b).

Federal Communications Commission FCC 08-262 
C-31 
living on tribal lands qualify to receive federal Lifeline support if: (1) they qualify under state criteria in a 
state that provides Lifeline support; (2) they certify that their household income is at or below 135 percent 
of the Federal Poverty Guidelines; (3) they certify that they receive benefits from one of the seven federal 
programs listed above; or (4) they certify that they participate in one of the following additional federal 
assistance programs: Bureau of Indian Affairs General Assistance (GA), Tribally administered Temporary 
Assistance for Needy Families (Tribal TANF), or Head Start (meeting the income-qualifying standard).155 
64. TracFone and Computer and Communications Industry Association Petitions. On 
October 9, 2008, TracFone Wireless, Inc. (TracFone) submitted a petition requesting that the Commission 
establish a trial basis program to support broadband Internet access service and the devices that support 
this service.156 Citing data demonstrating that a significant amount of low-income families are unable to 
afford broadband Internet access, TracFone proposes that the Commission, on a temporary basis, provide 
affordable access to low-income consumers by supporting broadband Internet access service and the 
devices used to access these services.157 TracFone proposes limiting the program to 500,000 to 100,000 
low-income households in Florida, Virginia, Tennessee, and the District of Columbia.158 Doing so, 
according to TracFone, will enable to the Commission to examine how to better make available 
broadband Internet access service to low-income consumers throughout the Nation.159 
65. On October 7, 2008, the Computer and Communications Industry Association (CCIA) 
filed a petition requesting the Commission revise the definition of universal service supported services to 
allow low-income consumers receive support for broadband Internet access services.160 CCIA states that, 
despite a critical need for broadband Internet access service, low-income consumers still have a 
considerably low broadband Internet access deployment rate. Accordingly, CCIA argues the definition of 
supported services for purposes of universal service should be revised to provide support for broadband 
Internet access service to low-income consumers.161 
66. In recent proceedings, other parties have also urged the Commission to provide lowincome 
consumers with support for broadband services. For example, Windstream argues that the 
Commission should direct broadband support to low-income consumers where such support is most 
needed.162 AARP also concludes that the Commission should provide Lifeline/Link Up support for 
broadband services and urges the Commission to conduct a proceeding to examine the matter.163 AARP 
155 47 C.F.R.  54.409(a)(d). 
156 See Lifeline and Link Up, Federal-State Joint Board on Universal Service, WC Docket No. 03-109, CC Docket 
No. 96-45, Petition to Establish A Trial Broadband Lifeline/Link Up Program (filed Oct. 9, 2008) (TracFone 
Petition). 
157 See TracFone Petition at 34. 
158 See TracFone Petition at 3. 
159 See TracFone Petition at 5. 
160 See Petition for Rulemaking to Enable Low-Income Consumers to Access Broadband Through the Universal 
Service Lifeline and Link Up Programs, WC Docket No. 03-109 (filed Oct. 7, 2008) (CCIA Petition). 
161 See CCIA Petition at 7. 
162 See Letter from Eric Einhorn, Vice President Governmental Affairs, Windstream Communications Inc., to 
Marlene Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 99-68, 08-122, 05-337, 08-152 
(Sept. 24, 2008) (Windstream Sept. 24, 2008 Ex Parte Letter). 
163 AARP Joint Board Comprehensive Reform NPRM Comments at 55.

Federal Communications Commission FCC 08-262 
C-32 
proposes that in addition to examining supporting broadband services, the Commission should also 
examine how to increase low-income consumers access to devices that support broadband services and 
education on how to use such devices.164 Many consumer groups and service providers have also 
commented in support of TracFone and CCIAs proposals to support the provision to low-income 
consumers of broadband Internet access service and the devices used to access these services.165 
B. Discussion 
67. Consistent with the Commissions authority under sections 1, 4(i), 201, 205, and 254 of 
the Act, we establish a Lifeline and Link Up pilot program to support the provision of broadband Internet 
access service and the devices used to access this service to low-income consumers.166 In doing so, we 
explain the justification for establishing this program and provide criteria and obligations applicants must 
satisfy for selection to participate in this program. Further, we establish requirements for oversight and 
administration of the Pilot Program. 
68. Broadband Internet Access Service and Devices Eligible for Low Income Support. In the 
Universal Service First Report and Order, consistent with its statutory obligations, the Commission 
maintained the authority to adopt changes to the Lifeline program to make it more consistent with 
Congresss mandates in the 1996 Act if such changes would serve the public interest.167 We believe that a 
Lifeline and Link Up pilot program comports with the goals of universal service, and advances the public 
164 AARP Joint Board Comprehensive Reform NPRM Comments at 55. 
165 See, e.g., Letter from Dale R. Schmick, CEO, YourTel America, Inc., to Marlene H. Dortch, Secretary, FCC, CC 
Docket Nos. 96-45, 01-92, WC Docket Nos. 03-109, 05-337, at 2 (filed Oct. 21, 2008) (YourTel Oct. 21, 2008 Ex 
Parte Letter); Letter from Thomas J. Sugrue, Vice President Government Affairs, T-Mobile, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket Nos. 04-356, 07-195 at 3 (filed Oct. 17, 
2008) (urging the Commission to adopt quickly TracFones and CCIAs proposals); Letter from Karyne Jones, 
President & CEO, National Caucus and Center on Black Aged, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 03-109 at 1 (filed Oct. 29, 2008) (NCBA Oct. 29, 2008 Ex Parte Letter); Letter from 
Donnie Ruby, Staff Associate, Telecommunications Research and Action Center, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 28, 2008); Letter from Bill Newton, Executive 
Director, Florida Consumer Action Network, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC 
Docket No. 03-109 (filed Oct. 27, 2008); Letter from Robert D. Atkinson, Chair Public Policy Committee, Alliance 
for Public Technology, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed 
Oct. 24, 2008) (APT Oct. 24, 2008 Ex Parte Letter); Letter from John Breyault, Vice President of Public Policy 
Telecommunications and Fraud, National Consumers League, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 03-109 (filed Oct. 23, 2008) (NCL Oct. 23, 2008 Ex Parte Letter); Letter from Mark 
Richert, Director, Public Policy, American Foundation for the Blind, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 28, 2008) (AFB Oct. 28, 2008 Ex Parte Letter). 
166 To the extent that our adoption of the Pilot Program adds broadband to the list of universal service supported 
services, we clarify that this inclusion is limited only to the Pilot Programbroadband is not a supported service for 
other low-income or high-cost support purposes. Pursuant to section 254(c)(1) of the Act, the Joint Board has 
recommended adding broadband as a supported service, and we do so for the limited purpose of the Pilot Program. 
See Comprehensive Reform Recommended Decision, 22 FCC Rcd at 20478, para. 4 (The Joint Board now 
recommends that the nations communications goals include achieving . . . universal availability of broadband 
Internet services). Furthermore, the Commissions authority to provide universal service support to low-income 
consumers pre-dates the adoption in 1996 of section 254 of the Act, and arises out of sections 1, 4(i), 201, and 205 
of the Act. 47 U.S.C.  151, 154, 201, 205; Universal Service First Report and Order, 12 FCC Rcd at 895657, 
paras. 33840. Pursuant to our authority to regulate low-income support under these sections, as well as under 
section 254, we provide universal service support for broadband Internet access services through the Pilot Program. 
167 Universal Service First Report and Order, 12 FCC Rcd at 8956, para. 339.

Federal Communications Commission FCC 08-262 
C-33 
interest by providing new technologies and services to low-income consumers. Section 254(b)(2) of the 
Act instructs the Commission to base policies for the advancement of universal service on the principle 
that [a]ccess to advanced telecommunications and information services should be provided in all regions 
of the Nation.168 Similarly, section 254(b)(3) states that low-income consumers . . . should have access 
to . . . advanced telecommunications and information services, that are reasonably comparable to those 
services provided in urban areas and that are available at rates charged for similar services in urban 
areas.169 
69. Since the Commission first adopted its universal service rules in response to the 1996 
Act, broadband Internet access service has evolved into a critical service for American consumers.170 The 
majority of consumers who use broadband Internet access service today rely on it for telework, access to 
banking services, interaction with government, entertainment, shopping, access to news and other 
information, and many other uses. Access to broadband Internet access service is especially important to 
low-income consumers for purposes of education, public health and public safety.171 High-speed 
connections to the Internet allow children in low-income families access to distance learning and 
research.172 Telemedicine networks made possible by broadband Internet access service also save lives 
and improve the standard of healthcare to low-income families living in areas that may lack access to the 
breadth of medical expertise and advanced medical technologies available in other areas.173 Broadband 
Internet access service also enables the sharing of critical, time-sensitive information with first 
responders, government officials, and health care providers, thereby improving the governments ability 
to provide a comprehensive and cohesive response to a public health crisis. 
70. Despite the advances in broadband technology, broadband availability still lags for lowincome 
consumers.174 The Commissions most recent data reveal that where the median income is under 
$21,000, approximately 99.5 percent of households have high-speed service available with speeds in 
excess of 200 kbps in at least one direction.175 Yet, according to the Pew Internet & American Life 
168 47 U.S.C.  254(b)(2) (emphasis added). 
169 See 47 U.S.C.  254(b)(3) (emphasis added). 
170 See APT Oct. 24, 2008 Ex Parte Letter at 2; NCBA Oct. 29, 2008 Ex Parte Letter at 1; NCL Oct. 23, 2008 Ex 
Parte Letter at 1. 
171 According to the National Caucus and Center on Black Aged, older low-income Americans have difficulty 
affording broadband services and many do not have Internet access. NCBA Oct. 29, 2008 Ex Parte Letter at 1 
(citing Older Americans, Broadband and the Future of the Net, SeniorNet, 2008). Commenters also assert that 
broadband connections are particularly necessary for consumers who are blind, visually impaired, deaf or hard of 
hearing. See APT Oct. 24, 2008 Ex Parte Letter at 1 (citing ALLIANCE FOR PUBLIC TECHNOLOGY, ACHIEVING 
UNIVERSAL BROADBAND: POLICIES FOR STIMULATING DEPLOYMENT AND DEMAND 27 (2007)); AFB Oct. 28, 2008 
Ex Parte Letter. 
172 See Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a 
Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the 
Telecommunications Act of 1996, GN Docket No. 07-45, Notice of Inquiry, 22 FCC Rcd 7816, 7817, para. 3 (2007) 
(706 Fifth NOI). 
173 See 2006 Rural Health Care Pilot Program Order, 21 FCC Rcd at 11112, para. 5; 706 Fifth NOI, 22 FCC Rcd at 
7817, para. 4. 
174 See Cellular South High-Cost Reform NPRMs Comments at 10. 
175 See FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STATUS AS OF DECEMBER 31, 2006, tbl. 19 (2007), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf. 

Federal Communications Commission FCC 08-262 
C-34 
Project, only 25 percent of households with annual incomes below $20,000 have broadband service.176 In 
contrast, among those living in households with annual incomes in excess of $100,000, broadband 
adoption is approximately 85 percent.177 
71. According to the Commissions data, there are approximately 6.9 million consumers 
participating in the Lifeline universal service program.178 Providing an additional $300 million in annual 
support through the low-income universal service support mechanisms over a three-year period should 
increase the broadband subscribership for low-income customers to over fifty percent.179 
72. We therefore find that this Pilot Program furthers the universal service objectives of 
section 254 of the Act and serves the public interest by making this critical service available to the lowincome 
Americans who cannot otherwise afford it. In addition, the Pilot Program will provide the 
Commission with a more complete and practical understanding of how to ensure the best use of Lifeline 
and Link Up universal service support to deploy advanced services to low-income consumers.180 
1. Available Funding 
73. We establish a maximum annual funding level for this broadband Lifeline and Link Up 
Pilot Program at $300 million for each of the next three years. In its petition, TracFone proposes that a 
pilot program should fund up to either $180 million or $360 million per year for Lifeline broadband 
Internet access service support, and up to $125 million or $250 million for the Link Up portion of the 
program, for a total of either $305 million or $610 million, depending on whether the program would 
support 500,000 participants or one million participants.181 
74. While we recognize the importance of making sufficient funds available for this Pilot 
Program to enable us to determine whether and, if so, how to make broadband Internet access service 
funding a permanent part of the Lifeline and Link Up programs, we find that the levels of funding 
proposed by TracFone are not sufficiently tied to a specific improvement in the adoption of broadband by 
Lifeline subscribers, as discussed above. In 2007, the overall size of the universal service funds 
176 See 2008 PEW BROADBAND ADOPTION STUDY ii. 
177 See 2008 PEW BROADBAND ADOPTION STUDY at 2. 
178 See 2007 UNIVERSAL SERVICE MONITORING REPORT. 
179 Desktop computers can be purchased for as low as $200. See Walmart Consumer Products, 
http://www.walmart.com/catalog/catalog.gsp?cat=3951&fromPageCatId=14503 (last visited Oct. 24, 2008). For 
$267, a consumer can purchase a new ASUS Eee PC 2G Surf laptop. See Amazon ASUS Eee PC 2G Surf Product 
Page, http://www.amazon.com/gp/product/B00114T9WY/ref=noref?ie=UTF8&s=pc (last visited Oct. 24, 2008). 
Personal computers and wireless devices will continue to become available at even lower rates. Throughout the 
world, there are $100 laptops and wireless devices. See Michael Trucano, InfoDev.org, Quick guide: Low-cost 
computing devices and initiatives for developing world (Apr. 2008), 
http://www.infodev.org/en/Publication.107.html (last visited Oct. 25, 2008). For example, Candlebox, being 
developed for use in India by Qualcom, is a low-cost, low-power device that uses mobile technology to provide 
wireless Internet access and supports e-mail, social networking, e-commerce and distance learning applications. 
RICHARD P. ADLER &MAHESH UPPAL, ASPEN INSTITUTE INDIA, M-POWERING INDIA:MOBILE COMMUNICATIONS 
FOR INCLUSIVE GROWTH at 21 (2008), available at http://www.aspeninstitute.org/atf/cf/%7Bdeb6f227-659b-4ec8- 
8f84-8df23ca704f5%7D/2008INDIA.pdf. 
180 See NCBA Oct. 29, 2008 Ex Parte Letter at 2 (suggesting that the Pilot Program should be modeled after the 
existing Lifeline program and can be studied and evaluated to develop future broadband Lifeline/Link Up support 
programs). 
181 See TracFone Petition at 5.

Federal Communications Commission FCC 08-262 
C-35 
disbursement mechanisms was approximately $7.0 billion.182 Of that amount, approximately $823 
million went to fund the universal service low-income program.183 TracFones proposal represents a 
potential 74 percent increase over existing low-income program disbursements, and would be limited to 
targeting low-income consumers in only three states and the District of Columbia.184 We are concerned 
that such a large funding commitment for a limited geographic area would not provide the Commission 
with sufficient information to assess the benefits of expanding the low-income support mechanisms upon 
the conclusion of the Pilot Program. When extrapolated to all states and territories, the low-income pilot 
program proposed by TracFone could potentially double the size of the $7 billion universal service 
fund.185 We find it more appropriate to fund a pilot program that better correlates with providing 
broadband Internet access service to all eligible low-income support recipients as this provides better 
information regarding the permanent adoption of such support. 
75. Instead, we set the size of the Lifeline and Link Up Pilot Program at up to $300 million 
per year over the next three years. We find that this amount provides benefits to low-income consumers 
while not overly increasing the amount of low-income support disbursed from the universal service fund. 
Specifically, this level of funding should enable the program to increase the broadband subscribership for 
these customers to over fifty percent.186 
2. Eligible Services and Equipment 
76. For the broadband Lifeline/Link Up Pilot Program we adopt today, we limit support to 
one subsidy per household. For purposes of this order, we define household as one adult and his/her 
dependants, living together in the same residence.187 Participating households who remain eligible for the 
program will be entitled to remain in the program beyond the first year, subject to the requirement that 
participating ETCs verify their customers continued eligibility under the applicable income-based or 
program-based criteria, as they are required to do for their current voice Lifeline customers. We do not 
require state or carrier matching requirements. The Pilot Program is exempt from fees and taxes to the 
same degree as the current Lifeline programs. 
77. Under the Link Up portion of the Pilot Program we adopt today, we seek to overcome 
barriers that low-income households might face in subscribing to broadband services, such as lacking the 
equipment necessary to connect to broadband services. Therefore, if an ETC currently provides or seeks 
to provide Lifeline voice service to an eligible customer, the Pilot Program will support 50 percent of the 
cost of broadband Internet access service installation, including a broadband Internet access device, up to 
a total amount of $100. The device can be a laptop computer, a desktop computer, or a handheld device, 
so long as the equipment has the capability to access the Internet at the speeds established per this order, 
182 See USAC 2007 ANNUAL REPORT at 51. USACs administrative expenses for 2007 were $104,073,000. Id. at 3. 
183 USAC 2007 ANNUAL REPORT at 3. 
184 See TracFone Petition at 3. 
185 Assuming $250 is provided to each consumer, the total cost of the TracFone proposal could reach almost $7 
billion. 
186 See supra para. 71. 
187 Federal-State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, 
Rural Health Care Support Mechanism, Lifeline and Link-up, CC Docket Nos. 96-45, 02-6 and WC Docket Nos. 
02-60, 03-109, Order, 20 FCC Rcd 16883, 16890, para. 12 (2005) (Hurricane Katrina Order). Also, service 
agreements of longer than the lesser of one year or the remaining Pilot Program funding period are prohibited. 

Federal Communications Commission FCC 08-262 
C-36 
and the equipment carries at least a warranty.188 The device subsidy is a one-time subsidy and is limited 
to one unit per qualified household.189 The subsidy amount will be paid by USAC to the participating 
ETC that provides the device and the service to the customer, utilizing the same process that USAC uses 
for the current Link Up program.190 
78. Once low-income households have the ability to connect to the Internet, we seek to 
ensure that they can afford to subscribe to broadband Internet access service. Under the Lifeline portion 
of the program, if an ETC currently provides or seeks to provide Lifeline voice service to an eligible 
household, and that ETC provides broadband Internet access service, the Pilot Program will double the 
current monthly subsidy for the Lifeline subscriber up to $10 per month to offset the cost of broadband 
Internet access service.191 As defined in this order, broadband Internet access service is an always on 
service that combines computer processing, information provision, and computer interactivity with data 
transport, enabling end users to access the Internet and use a variety of applications, at speeds discussed 
below.192 This monthly support provided to participating customers under the Pilot Program is separate 
from and in addition to their monthly Lifeline support for voice telephone service.193 
79. All ETCs participating in the existing low-income programs are eligible to participate, 
provided that they notify the Commission and USAC of their election to participate at least a month in 
advance and certify that they will comply with all program requirements, including those set forth herein. 
Such certification must identify the service area in which the ETC plans to offer such Lifeline/Link Up 
broadband services, the costs of such service and broadband device, and all costs, both recurring and 
nonrecurring, to the customer participating in the program. The ETC must offer the services supported in 
the Pilot Program throughout the entire service area. The Wireline Competition Bureau will release a 
public notice establishing a deadline by which ETCs must notify the Commission of their intention to 
participate. 
80. The program we adopt today is technologically and competitively neutral; however, we 
establish minimum speeds at which participating ETCs must be able to provide broadband service. ETCs 
participating in the Pilot Program must offer broadband Internet access service with download speeds 
equal to or greater than 768 kbps and upload speeds greater than 200 kbps.194 
3. Selection Criteria 
188 Where such device costs $100 or less, the Pilot Program will support 90% of the cost of the broadband Internet 
access device. 
189 47 C.F.R.  54.411(b). 
190 See USAC, Low Income: Overview of the Process, http://www.universalservice.org/li/about/overviewprocess.
aspx (last visited Oct. 11, 2008). 
191 Because $10 is the maximum federal support under Tier 1 to Tier 3 of the existing Lifeline program, we find this 
to be the appropriate support amount for purposes of the Pilot Program. See 2007 UNIVERSAL SERVICE MONITORING 
REPORT, tbl. 2.3. Ten dollars is also above the average Lifeline support amount of $8.46, which includes both tribal 
and non-tribal recipients. See id., tbl. 2.12. 
192 See infra para. 84. 
193 Pilot Program participants may not receive support for the same services from both the Pilot Program and the 
existing universal service programswhich consist of the rural health care, E-rate, high-cost, and low-income 
programs. 
194 See supra para. 28. 

Federal Communications Commission FCC 08-262 
C-37 
81. TracFone suggests that all ETCs notifying the Commission of their intent to participate in 
the Pilot Program should be allowed to provide the broadband Internet access service and devices under 
the Pilot Program.195 TracFone also argues that the Commission should limit the Pilot Program to 
500,000 to 100,000 low-income households in Florida, Virginia, Tennessee and the District of 
Columbia.196 We agree with TracFone that all ETCs should be allowed to provide services under the 
Pilot Program, but we disagree that the consumers who are eligible to participate should be limited to 
three states and the District of Columbia.197 Instead, it is consistent with the public interest to allow all 
ETCs and consumers that meet the criteria discussed in this order to participate in the Pilot Program, 
limited only by the availability of funds. Support will be disbursed on a first come, first served basis 
where priority is established according to ETCs submission of reimbursement requests to USAC and 
compliance with program eligibility. 
82. Consumer Qualifications. To receive reimbursement under the Pilot Program, an ETC 
must provide support to a consumer eligible for support under the current Lifeline and Link Up programs. 
Specifically, the consumer must meet the eligibility criteria specified in section 54.409 of the 
Commissions rules.198 We agree with TracFone that only one connection and device per household 
should be funded. Accordingly, we limit Pilot Program support to one new connection and device per 
household. Lifeline consumers who currently have a broadband connection and related Internet device 
are excluded from participation in this Pilot Program. In addition to their obligations under section 
54.409 of our rules, consumers must demonstrate that they do not currently have a broadband Internet 
access service subscription or broadband Internet access device.199 
83. ETC Obligation to Offer Pilot Program Services. Prior to participation, ETCs must 
notify the Commission and USAC of their intention to participate. A participating ETC must offer the 
services and supported devices to all qualifying low-income consumers throughout its service areas. It 
must also follow the carrier obligations identified in section 54.405, as applicable, of the Commissions 
rules.200 Consumers and ETCs must follow the framework and requirements of the existing Lifeline and 
Link Up program.201 
4. Implementation and Reporting Requirements 
84. To be eligible for support, ETCs must submit a reimbursement request to USAC 30 days 
from the date a customer subscribes to service or purchases a device. We require participating each ETC 
to file with USAC on a monthly basis the number of Pilot Program consumers it is serving, the types and 
prices of devices offered, the type of technology used (including make and model of equipment used) and 
the speeds at which it is providing service to each of those consumers. ETCs in their monthly submission 
must also report the number of subscribers served for the past month and projections for the number of 
195 TracFone Petition at 4. 
196 TracFone Petition at 3. 
197 See, e.g., YourTel Oct. 21, 2008 Ex Parte Letter at 2 (urging the Commission to allow low-income consumers 
living in Missouri to be eligible for Pilot Program support). 
198 See 47 C.F.R.  54.409. 
199 As discussed above, for purposes of this Pilot Program we define household as one adult and his/her 
dependants living together in the same residence. See supra para 76; Hurricane Katrina Order, 20 FCC Rcd at 
16890, para. 12. 
200 See 47 C.F.R.  54.405. 
201 47 C.F.R.  54.400.417.

Federal Communications Commission FCC 08-262 
C-38 
subscribers for the next 2 months. Such monthly reporting is required to allow USAC to monitor 
availability of funds under the Pilot Program and notify participating ETCs when funds may no longer be 
available for additional customers. In determining and/or projecting funds availability, USAC should 
consider the recurring costs of existing customers; we decline to specifically allocate the available 
funding between Lifeline and Link Up, relying instead on the certification and reporting requirements 
herein to enable USAC to properly administer the Pilot Program. 
85. Similar to current recordkeeping requirements, we also require ETCs to maintain records 
to document compliance with all Commission requirements governing this Pilot Program for the three full 
preceding calendar years and provide that documentation to the Commission or USAC upon request.202 
Additionally, ETCs must maintain documentation for as long as the consumer is receiving broadband 
Lifeline service from that ETC pursuant to the Pilot Program, and for three additional years after the 
consumer stops receiving service pursuant to the Pilot Program. 
86. ETCs may receive reimbursement for the revenue they forego in reducing the price of 
any qualified consumers broadband Internet access service and related device. As a condition of 
participation, it is the ETCs responsibility to make available a wide array of cost efficient broadband 
Internet access devices capable of providing the speeds described above to qualified consumers under this 
program. ETCs must also comply with the self-certification procedures, and submit certifications with 
their monthly submissions, consistent with sections 54.410 and 54.416 of the Commissions rules.203 Any 
services or equipment supported under this order are non-transferable and the devices must be returned to 
the ETC if they are not used in compliance with the terms of this order or other applicable laws or 
regulations. We delegate to the Wireline Competition Bureau the authority to disqualify an ETC or 
consumer from the Pilot Program and seek recovery of support not used in a manner consistent with this 
order. 
5. Program Oversight 
87. We are committed to guarding against waste, fraud, and abuse, and ensuring that funds 
disbursed through the Pilot Program are used for appropriate purposes. In particular, each Pilot Program 
participant shall be subject to audit by the Office of Inspector General and, if necessary, investigated by 
the Office of Inspector General, to determine compliance with the Pilot Program, Commission rules and 
orders, as well as section 254 of the Act.204 The Pilot Program participant will be required to comply 
fully with the Office of Inspector Generals audit requirements including, but not limited to, providing 
full access to all accounting systems, records, reports, and source documents of itself and its employees, 
contractors, and other agents in addition to all other internal and external audit reports that are involved, 
in whole or in part, in the administration of this Pilot Program.205 Such audits or investigations may 
provide information showing that a Pilot Program participant or vendor failed to comply with the Act or 
the Commission rules, and thus may reveal instances in which Pilot Program awards were improperly 
distributed or used. To the extent the Commission finds that funds were distributed and/or used 
improperly, the Commission will require USAC to recover such funds though its normal processes, 
including adjustment of support amounts in other universal service programs from which Pilot Program 
202 See 47 C.F.R.  54.417(a). 
203 See 47 C.F.R.  54.410, 54.416. 
204 See 47 C.F.R.  54.619; Comprehensive Review Report and Order, 22 FCC Rcd at 16387, para. 26. 
205 This includes presenting personnel to testify, under oath, at a deposition if requested by the Office of Inspector 
General.

Federal Communications Commission FCC 08-262 
C-39 
participants receive support.206 If any participant fails to comply with Commission rules or orders, or 
fails to timely submit filings required by such rules or orders, the Commission also has the authority to 
assess forfeitures for violations of such Commission rules and orders. In addition, any participant or 
service provider that willfully makes a false statement can be punished by fine or forfeiture under sections 
502 and 503 of the Act,207 or by fine or imprisonment under Title 18 of the United States Code (U.S.C.) 
including, but not limited to, criminal prosecution pursuant to section 1001 of Title 18 of the U.S.C.208 
We emphasize that we retain the discretion to evaluate the uses of monies disbursed through the Pilot 
Program and to determine on a case-by-case basis whether waste, fraud, or abuse of program funds 
occurred and whether recovery is warranted. We remain committed to ensuring the integrity of the 
universal service program and will aggressively pursue instances of waste, fraud, and abuse under the 
Commissions procedures and in cooperation with law enforcement agencies. In doing so, we intend to 
use any and all enforcement measures, including criminal and civil statutory remedies, available under 
law.209 The Commission will also monitor the use of awarded monies and develop rules and processes as 
necessary to ensure that funds are used in a manner consistent with the goals of this Pilot Program. 
Finally, we remind participants that nothing in this order relieves them of their obligations to comply with 
other applicable federal laws and regulations. 
IV. REFORM OF UNIVERSAL SERVICE CONTRIBUTIONS 
88. In this Part, we adopt a telephone numbers-based methodology under which contributors 
will pay a constant, flat-rate assessment based on the number of telephone numbers they have assigned to 
residential end users. We set this per-number assessment at the fixed rate of $1.00 per residential number 
per month. We conclude that providers of business services should contribute to the universal service 
fund on a connection basis, and we seek comment on implementation of that methodology. In the 
interim, providers of business services will continue to contribute based on interstate and international 
revenues for these services. The separate contribution methodologies for residential and business services 
will be implemented beginning on January 1, 2010. 
A. Background 
89. In implementing the universal service requirements of the 1996 Act, the Commission 
established a method for collecting funds to be disbursed through the various universal service support 
mechanisms. Specifically, the Commission determined that contributions to the universal service fund 
would be assessed on telecommunications providers based on their interstate and international end-user 
telecommunications revenues.210 The Commission concluded that basing providers universal service 
206 We intend that funds disbursed in violation of a Commission rule that implements section 254 or a substantive 
program goal will be recovered. Sanctions, including enforcement action, are appropriate in cases of waste, fraud, 
and abuse, but not in cases of clerical or ministerial errors. See Comprehensive Review Report and Order, 22 FCC 
Rcd at 1638889, para. 30. 
207 47 U.S.C.  502, 503(b). 
208 18 U.S.C.  1001. Further, the Commission has found that debarment of applicants, service providers, 
consultants, or others who have defrauded the USF is necessary to protect the integrity of the universal service 
programs. Comprehensive Review Report and Order, 22 FCC at 16390, para. 32. Therefore, the Commission 
intends to suspend and debar parties from the Pilot Program who are convicted of or held civilly liable for the 
commission or attempted commission of fraud and similar offenses arising out of their participation in the Pilot 
Program or other universal service programs. See id. paras. 3132. 
209 See, e.g., 41 U.S.C.  5158 (Anti-Kickback Act of 1986); 31 U.S.C.  3729 (False Claims Act). 
210 See Universal Service First Report and Order, 12 FCC Rcd at 920607, paras. 84344; Federal-State Joint 
Board on Universal Service; Access Charge Reform, Sixteenth Order on Reconsideration and Eighth Report and 
(continued.)

Federal Communications Commission FCC 08-262 
C-40 
contributions on their revenues would be competitively neutral, easy to administer, and explicit.211 
90. When the Commission adopted the revenue-based contribution system, assessable 
interstate revenues were growing. The total assessable revenue base has declined in recent years, 
however, from about $79.0 billion in 2000 to about $74.5 billion in 2006,212 while universal service 
disbursements grew over that same time period from approximately $4.5 billion in 2000 to over $6.6 
billion in 2006.213 Declines in assessable contribution revenues combined with growth in universal 
service disbursements have increased the contribution factor applied to determine universal service 
contribution amounts.214 This upward pressure jeopardizes the stability and sustainability of the support 
mechanisms, demonstrating the need for long-term fundamental reform of the contribution 
methodology.215 
91. In addition, interstate end-user telecommunications service revenues are becoming 
increasingly difficult to identify as customers migrate to bundled packages of interstate and intrastate 
telecommunications and non-telecommunications products and services.216 The integration of local and 
long-distance wireline services into packages that allow customers to purchase buckets of long distance 
minutes and local service for a single price blurs the distinction between revenue derived from intrastate 
telecommunications service and interstate telecommunications service. Similarly, the availability of 
(continued from previous page) 
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) (Fifth Circuit Remand Order) (establishing a single contribution for all universal service support 
mechanisms based on interstate and international revenues). 
211 Universal Service First Report and Order, 12 FCC Rcd at 920608, 9211, paras. 843, 84548, 854. 
212 Compare JIM LANDE & KENNETH LYNCH, FCC, 2000 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 
(2002), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf with 
JIM LANDE & KENNETH LYNCH, FCC, 2006 TELECOMMUNICATIONS INDUSTRY REVENUES, tbl. 4 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf. But see Letter from David C. Bergmann, 
Chair, NASUCA Telecommunications Committee, to Chairman Kevin Martin et al., FCC, WC Docket Nos. 08-152, 
07-135, 06-122, 05-337, 05-195, 04-36, 03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262, 96-45, 
80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008 Ex Parte Letter) (arguing that the growth in the 
contribution factor is almost entirely due to the growth in universal service disbursement requirements). 
213 See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 1.2a (2001) (2001 UNIVERSAL SERVICE MONITORING 
REPORT), available at http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01- 
0.pdf; 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.11; see also USAC 2007 ANNUAL REPORT at 3, 51 
(detailing universal service disbursements for 2007 at approximately $6.9 billion). 
214 The contribution factor grew from 5.9% in the first quarter of 2000 to 11.3% for the fourth quarter of 2008. See 
Proposed First Quarter 2000 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, 15 FCC 
Rcd 3660 (WCB 1999); Proposed Fourth Quarter 2008 Universal Service Contribution Factor, CC Docket No. 96- 
45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (Fourth Quarter 2008 Contribution Factor Public Notice). 
215 See 47 U.S.C.  254(b), (d). 
216 Although the Commission has established safe harbors for the reporting of interstate telecommunications 
revenues derived from interstate telecommunications services bundled with customer premises equipment (CPE) or 
information services, it has not established guidelines for reporting interstate telecommunications service revenues 
for flat-rated bundles of wireline interstate and intrastate services. See Policy and Rules Concerning the Interstate, 
Interexchange Marketplace; Implementation of Section 254(g) of the Communications Act of 1934, as amended; 
1998 Biennial Regulatory ReviewReview of Customer Premises Equipment and Enhanced Local Exchange 
Markets, CC Docket Nos. 96-61, 98-183, Report and Order, 16 FCC Rcd 7418, 744648, paras. 4754 (2001) (CPE 
Bundling Order).

Federal Communications Commission FCC 08-262 
C-41 
mobile wireless calling plans that allow customers to purchase buckets of minutes on a nationwide 
network without incurring roaming or long-distance charges also makes it difficult for providers and the 
Commission to identify the amount of revenue derived from interstate telecommunications service.217 
Further, migration to interconnected VoIP services complicates the distinctions that serve as the basis for 
current contribution obligations.218 
92. In 2001 and 2002, the Commission sought comment on modifications to the existing 
revenue-based contribution methodology, and on replacing that methodology with one that assesses 
contributions on the basis of a flat-fee charge, such as a per-line charge.219 The Commission also sought 
comment on other universal service contribution methodologies, including moving to a numbers-based 
methodology.220 Finally, in May 2008, the Commission encouraged commenters to refresh the record in 
several pending intercarrier compensation and universal service reform proceedings, including the 
contribution methodology proceeding.221 
B. Discussion 
93. The system of contributions to the universal service fund is broken. The Commission has 
repeatedly patched the current system to accommodate decreasing interstate revenues, a trend toward allyou-
can-eat services that make distinguishing interstate from other revenues difficult if not impossible 
and changes in technology. While the service developments that precipitated these changes have 
enormous consumer benefits, they have also severely strained the contributions system.222 We therefore 
217 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, 2125859, paras. 1315 (1998) (First Wireless 
Safe Harbor Order); see also Federal-State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90- 
571, 92-237, 99-200, 95-116, 98-170, Report and Order and Second Further Notice of Proposed Rulemaking, 17 
FCC Rcd 24952, 2496567, paras. 2125 (2002) (Second Wireless Safe Harbor Order). 
218 See Universal Service Contribution Methodology, WC Docket Nos. 06-122, 04-36, CC Docket Nos. 96-45, 98- 
171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and Order and Notice of Proposed Rulemaking, 21 FCC Rcd 
7518 (2006) (2006 Interim Contribution Methodology Order); affd in part, vacated in part sub nom. Vonage 
Holdings Corp. v. FCC, 489 F.3d 1232 (D.C. Cir. 2007). 
219 See Federal-State Joint Board on Universal Service, 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 Contribution NPRM); see also Federal- 
State Joint Board on Universal Service, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, 
Further Notice of Proposed Rulemaking and Report and Order, 17 FCC Rcd 3752, 3765, para. 31, 376689, paras. 
3483 (2002) (Contribution First FNPRM). 
220 Second Wireless Safe Harbor Order, 17 FCC Rcd at 2498397, paras. 66100 (seeking comment on capacitybased 
proposals that had been developed in the record and on telephone-number proposals advocated by certain 
parties); Commission Seeks Comment on Staff Study Regarding Alternative Contribution Methodologies, CC Docket 
Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public Notice, 18 FCC Rcd 3006 (2003) 
(Contribution Staff Study) (seeking comment on a Commission staff study that estimated potential contribution 
assessment levels under the then-newly modified revenue-based method and the three connection-based proposals in 
the further notice portion of the Second Wireless Safe Harbor Order). 
221 Interim Cap Clears Path for Comprehensive Reform: Commission Poised to Move Forward on Difficult 
Decisions Necessary to Promote and Advance Affordable Telecommunications for All Americans, News Release 
(May 2, 2008), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf. 
222 We agree with commenters who argue that the contribution methodology requires a comprehensive overhaul. 
See, e.g., Letter from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and 
Verizon Sept. 11, 2008 Ex Parte Letter); Letter from Roger C. Sherman, Director, Government AffairsWireless 
(continued.)

Federal Communications Commission FCC 08-262 
C-42 
adopt today a system of contributions that will assess a $1.00 contribution per residential telephone 
number per month, and we will move to a connections-based system for business services. In this part, 
we explain our legal authority to move to these new methodologies, why we have decided to move to 
these methodologies, and how the residential numbers-based system will work. 
1. Legal Authority 
94. The Commission has ample authority to require contributions from the variety of 
providers discussed below. The Commissions authority derives from several sections of the Act: section 
254(d), Title I, and section 251(e). These sections of the statute provide us authority to require 
contributions from the kinds of service providers we address below in our discussions of the new 
numbers-based approach for residential services and the connections-based approach for business 
services.
95. Section 254 is the cornerstone of the Commissions universal service program. Section 
254(d) first provides 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.223 
Under this mandatory contribution provision, every provider of telecommunications services224 must 
contribute, although the Commission has authority to exempt a carrier or class of carriers if their 
contributions would be de minimis.225 
96. Section 254(d) also provides that the Commission may require [a]ny other provider of 
interstate telecommunications . . . to contribute to the preservation and advancement of universal service 
if the public interest so requires.226 The Commission has relied on this permissive authority to require 
various providers of telecommunications,227 but not necessarily telecommunications services,228 to 
contribute. For example, the Commission has required entities that provide interstate telecommunications 
to others on a private contractual basis to contribute to the universal service fund,229 as well as payphone 
(continued from previous page) 
Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 04-36 at 1 
(filed June 14, 2006) (Sprint Nextel June 14, 2006 Ex Parte Letter); Letter from Susanne A. Guyer, Senior Vice 
President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96- 
45, WC Docket Nos. 05-337, 06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 Ex Parte Letter); Letter from 
Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and Verizon Oct. 20, 2008 Ex Parte Letter). 
223 47 U.S.C.  254(d). 
224 Section 254(d) refers to telecommunications carriers, which are defined as any provider of 
telecommunications services. 47 U.S.C.  153(44). 
225 47 U.S.C.  254(d). 
226 47 U.S.C.  254(d). 
227 Telecommunications is defined as the 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. 
47 U.S.C.  153(43). 
228 Telecommunications service is defined 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. 47 
U.S.C.  153(46). 
229 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918384, paras. 79495. 
We note that private service providers that provide interstate connections solely to meet their internal needs (i.e., 
self-providers) will not be required to contribute under the new methodology. This is consistent with our current 
(continued.)

Federal Communications Commission FCC 08-262 
C-43 
aggregators.230 Most recently, we required interconnected VoIP providers to contribute even though the 
Commission has not determined that they are telecommunications carriers. Specifically, in the 2006 
Interim Contribution Methodology Order, we used our permissive authority under section 254(d) to 
require interconnected VoIP providers to contribute, and we noted that they provide 
telecommunications to their end users.231 We also noted that in some cases, the interconnected VoIP 
provider may be providing telecommunications even if it arranges for the end user to have PSTN access 
through a third party.232 
97. The Commission also has authority under Title I to require other service providers to 
contribute. In general, the Commission can rely on its ancillary jurisdiction under Title I when the 
Commission has subject matter jurisdiction over the service to be regulated, and the assertion of 
jurisdiction is reasonably ancillary to the effective performance of [its] various responsibilities. 233 The 
Commission relied on this authority before section 254 was added by the 1996 Act to establish a highcost 
support fund,234 which the U.S. Court of Appeals for the D.C. Circuit found to be a permissive 
exercise of Title I authority.235 And more recently in the 2006 Interim Contribution Methodology Order, 
the Commission relied on its ancillary jurisdiction under Title I as an additional source of authority to 
require contributions from interconnected VoIP providers.236 In that order, the Commission noted that the 
Act grants subject matter jurisdiction over interconnected VoIP because it involves transmission of 
voice by wire or radio,237 and that imposing contribution obligations on interconnected VoIP providers 
was reasonably ancillary to the effective performance of the Commissions responsibilities to establish 
specific, predictable, and sufficient mechanisms . . . to preserve and advance universal service.238 In 
particular, the Commission noted that interconnected VoIP providers benefit from their interconnection 
(continued from previous page) 
policy. In the Universal Service First Report and Order, the Commission reasoned that, for self-providers of 
interstate telecommunications, the telecommunications is incidental to their primary non-telecommunications 
business. See Universal Service First Report and Order, 12 FCC Rcd at 9185, para. 799. 
230 See 47 C.F.R.  54.706(a); Universal Service First Report and Order, 12 FCC Rcd at 918485, paras. 79698. 
But see Letter from Robert F. Aldrich, Counsel for the American Public Communications Council (APCC), to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23, 2008). 
231 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753840, paras. 3941; 47 C.F.R.  54.706(a). 
232 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41 (To provide this capability 
[telecommunications], interconnected VoIP providers may rely on their own facilities or provide access to the PSTN 
through others.). 
233 See United States v. Southwestern Cable Co., 392 U.S. 157, 17778 (1968); United States v. Midwest Video 
Corp., 406 U.S. 649, 66768 (1972); FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979); see also American 
Library Assn v. FCC, 406 F.3d 689 (D.C. Cir. 2005). 
234 See Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, CC Docket No. 80- 
286, Decision and Order, 96 F.C.C.2d 781, (1984), affd sub nom. Rural Tel. Coalition v. FCC, 838 F.2d 1307 (D.C. 
Cir. 1988). 
235 Rural Tel. Coalition, 838 F.2d at 1315. 
236 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 754143, paras. 4649. 
237 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 47 & n.160 (citing IP-Enabled 
Services, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005) (VoIP 911 Order), 
affd sub nom. Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); 47 U.S.C.  152(a)). 
238 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48 (quoting 47 U.S.C.  254(d)).

Federal Communications Commission FCC 08-262 
C-44 
to the PSTN.239 
98. In addition, Congress provided the Commission with plenary authority over numbering 
in section 251(e). Specifically, the Commission has exclusive jurisdiction over those portions of the 
North American Numbering Plan that pertain to the United States.240 The Commission relied on its 
authority under section 251(e) to support its action to require interconnected VoIP providers to provide 
E911 services.241 The Commission noted that it exercised its authority under section 251(e) because, 
among other reasons, interconnected VoIP providers use NANP numbers to provide their services.242 
99. These sections of the Act provide the Commission ample authority to require 
contributions from all providers subject to the new numbers-based and connections-based approaches 
described in more detail below. These methodologies may require some providers to contribute directly 
to universal service when in the past they may have been contributing only indirectly or not at all. For 
example, under the numbers-based approach, any provider who assigns an Assessable Number to a 
residential user must contribute $1.00 per number per month.243 Providers such as VoIP providers who 
are not interconnected VoIP providers, electronic facsimile service providers, Internet-based TRS 
providers, one-way and two-way paging service providers, and telematics providers may assign 
Assessable Numbers to residential users and maintain the retail relationship with the end users.244 Not all 
of these providers are telecommunications carriers subject to the mandatory contribution obligation of 
section 254(d). Nonetheless, we have authority to require them to contribute. First, all of these providers 
providedirectly or indirectlysome amount of interconnection to the public switched telephone 
network (PSTN), the network that universal service supports. Interconnection to the PSTN benefits the 
consumers of each of these types of services, facilitating communication (even if just one-way 
communication) between the end user and PSTN users. As we noted in the 2006 Interim Contribution 
Methodology Order, interconnected VoIP providers often provide access to the PSTN via third parties245 
and this is sufficient to permit the Commission to rely on its authority to require contributions from other 
provider[s] of interstate telecommunications.246 And as we explain below, it is in the public interest (as 
required by section 254(d)) that these providers contribute. Furthermore, the prerequisites for the use of 
our Title I ancillary jurisdiction are unquestionably met here. All the services that rely on assignment of 
an Assessable Number to a residential end user come within the Commissions broad subject matter 
jurisdiction because they involve in some manner interstate . . . communication by wire or radio.247 
And similar to our explanation in the 2006 Interim Contribution Methodology Order, requiring 
contributions from providers who take advantage of PSTN connectivity whether directly or indirectly 
239 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7542, para. 48. 
240 47 U.S.C.  251(e)(1). 
241 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
242 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33. 
243 The term Assessable Number is defined below. See infra paras. 115129. 
244 This list is meant to be illustrative, not exhaustive. Other providers may also have to contribute to the universal 
service fund based on the criteria described in this order. 
245 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7539, para. 41. 
246 47 U.S.C.  254(d). 
247 47 U.S.C.  152(a); see also VoIP 911 Order, 20 FCC Rcd 1026162, para. 28 (providing detailed explanation of 
why interconnected VoIP falls within the Commissions subject matter jurisdiction).

Federal Communications Commission FCC 08-262 
C-45 
makes sense because their end users benefit from the ubiquity of that network and from being somehow 
interconnected with it.248 Finally, our plenary authority over numbering supports our actions here with 
regard to a numbers-based methodology for residential services. The purpose of a uniform system of 
numbering is to facilitate communication on interconnected networks based on a standardized system of 
identifierstelephone numbers.249 Those customers who are assigned telephone numbers, whether for 
plain old telephone service (POTS) or for any other service, are using the numbers to take advantage of 
some feature of the PSTN, whether it is the capability to be called, to have their locations automatically 
relayed to emergency call handlers, to be faxed from anywhere, or for some other reason. Because 
customers are receiving this benefit, it is appropriate that their service providers (and ultimately, likely, 
the customers themselves) contribute to the ubiquity and support of the network from which they are 
benefiting. 
100. We reject suggestions that we do not have authority to require contributions based on 
numbers or connections because we lack authority over intrastate services.250 The same number or 
connection typically is used for both interstate and intrastate services. The Commission and courts have 
rejected the assertion that simply because a single facility has the capacity to provide both interstate and 
intrastate services, the Commission lacks authority to regulate any aspect of the facility.251 In fact, the 
subscriber line charge (SLC) that the Commission established is intended to capture the interstate cost of 
the local loop.252 The contribution methodologies we adopt are thus limited to assessments on services 
that can provide interstate service. We will only require providers to contribute to universal service based 
on the Assessable Numbers or connections that are capable of originating or terminating interstate or 
international communications.253 
2. The New Numbers-Based Assessment Methodology for Residential Services 
101. As discussed above, we adopt a new contribution methodology for residential services 
based on assessing telephone numbers, rather than interstate and international services revenue. We find 
248 Compare 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7540, para. 43. 
249 Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96- 
98, Second Report and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, 19404, 19407, paras. 19, 
25 (1996) (noting that numbering administration ensures the creation of a nationwide, uniform system of numbering 
essential to the efficient delivery of interstate and international telecommunications services and the development of 
a competitive telecommunications services market) (subsequent history omitted); see also Administration of the 
North American Numbering Plan, CC Docket No. 95-283, Report and Order, 11 FCC Rcd 2588, 2591, para. 4 
(1995) (Adequate telephone numbers, available through a uniform numbering plan, are essential to provide 
consumers efficient access to new telecommunications services and technologies and to support continued growth of 
an economy increasingly dependent upon those services and technologies.); Administration of the North American 
Numbering Plan, CC Docket No. 92-237, Notice of Proposed Rulemaking, 11 FCC Rcd 2068, para. 2 (1994). 
250 See, e.g., American Association of Paging Carriers (AAPC) Contribution First FNPRM Comments at 7; Alaska 
Communication Systems (ACS) Contribution First FNPRM Reply at 67; Allied Personal Communications 
Industry Association of California (Allied) Contribution First FNPRM Comments at 67; National ALEC 
Association/Prepaid Communications Association (NALA/PCA) Contribution First FNPRM Reply at 3. 
251 See, e.g., NARUC v. FCC, 737 F.2d 1095, 1113 (D.C. Cir. 1984) (The same loop that connects a telephone 
subscriber to the local exchange necessarily connects that subscriber into the interstate network as well.). 
252 NARUC v. FCC, 737 F.2d at 111314. 
253 Services that provide only intrastate communications and do not traverse a public interstate network will not be 
required to contribute under the new assessment methodology. 

Federal Communications Commission FCC 08-262 
C-46 
that this change will benefit contributors and end users by simplifying the contribution process and 
providing predictability as to the amount of universal service contributions and pass-through charges for 
residential services. For residential services, we set the contribution amount at a flat $1.00 per month 
charge for each number associated with residential services. 
a. Benefits of a Numbers-Based Contribution Methodology 
102. We find that adoption of a telephone number-based methodology for residential services 
will help preserve and advance universal service by ensuring a specific, predictable, and sufficient 
funding source, consistent with the universal service principles of section 254(b) of the Act.254 Changes 
in technology and services have made the revenue-based contribution mechanism difficult to administer. 
As commenters have noted, the distinction between intrastate and interstate revenues is blurring as 
providers move from their traditional roles as pure LECs or interexchange carriers (IXCs) to businesses 
that offer consumers the choice of purchasing their telecommunications needs from a single source.255 
Additionally, these providers are offering consumers greater flexibility, such as bundling of local and long 
distance service at a flat rate.256 Moreover, technologies such as wireless and interconnected VoIP have 
emerged that provide voice and data services that know no jurisdictional boundaries.257 Consumers 
benefit from the opportunity to obtain bundled services, and the universal service contribution mechanism 
should reflect and complement those marketplace and technological developments as much as possible. 
Our decision to use numbers as the basis for assessing contributions for residential services will enhance 
the specificity and predictability of entities contributions. 
103. Our adoption of a numbers-based contribution methodology will benefit both residential 
consumers and contributors by simplifying the basis for assessments and stabilizing assessments at a set 
amount of $1.00 per month per residential telephone number.258 Contributors are allowed, and in most 
cases do, recover their universal service contribution costs from fees assessed on their end-user 
customers.259 Under the revenue-based contribution mechanism, a provider's contribution costs fluctuated 
from quarter to quarter, causing consumers universal service fees to fluctuate as well. These fluctuations 
did not allow customers to anticipate changes to their fees. A set $1.00-per-number contribution 
assessment is simple and predictable for both contributors and for consumers. To the extent a contributor 
elects to recover its contribution costs through end-user fees, its residential customers will pay the same 
$1.00 fee per number each month, making the assessment simple and predictable.260 
254 47 U.S.C.  254(b)(5). 
255 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1. 
256 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also Letter from James S. Blaszak, 
Counsel for Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 
06-122, at 5 (filed Nov. 19, 2007) (Ad Hoc Nov. 19, 2007 Ex Parte Letter) (discussing the convergence of different 
applications for business and residential customers onto a single integrated network with bundled pricing). 
257 See Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public 
Utilities Commission, 19 FCC Rcd 22404, 2241214, paras. 1618 (2004) (Vonage Order), affd sub nom. 
Minnesota Pub. Utils. Commn v. FCC, 483 F.3d 570 (8th Cir. 2007). 
258 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2. 
259 Contributors are prohibited from passing through to subscribers more than their contribution cost. 47 C.F.R.  
54.712. 
260 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2; see also Information Technology Industry 
Council (ITI) 2006 Contribution FNPRM Comments at 6; NCTA 2006 Contribution FNPRM Comments at 5; Small 
(continued.)

Federal Communications Commission FCC 08-262 
C-47 
104. A numbers-based contribution methodology also benefits residential end users because it 
is technologically and competitively neutral. A consumer will pay the same universal service charge 
regardless of whether the consumer receives residential service from a cable provider, an interconnected 
VoIP provider, a wireless provider, or a wireline provider. This will enable residential consumers to 
choose the providers and provider types they want without regard to any artificial distortions that would 
otherwise be caused by differing contribution charges.261 In a marketplace characterized by increased 
competition within and between different technology platforms, residential consumers will receive the 
same universal service charge regardless of the type of service the customer chooses. 
105. Similarly, by subjecting contributors to the same regulatory framework for assessments 
on residential services regardless of technology, the numbers-based methodology will eliminate 
incentives under the current revenue-based system for providers to migrate to services and technologies 
that are either exempt from contribution obligations or are subject to safe harbors.262 The elimination of 
such incentives will result in a more competitively and technologically neutral marketplace and a more 
predictable source of funding for the universal service mechanisms. 
106. The adoption of a fixed $1.00 per residential number per month contribution assessment 
is specific and predictable and will simplify the administration of universal service contributions.263 
Interstate end-user telecommunications revenues have become increasingly difficult to identify, 
particularly for residential services, due to increased bundling of local and long distance service and the 
growth of consumer interconnected VoIP offerings.264 In contrast, telephone numbers provide an easily 
identifiable basis for contribution.265 The amount of North American Numbering Plan (NANP) telephone 
numbers in use has shown steady, stable growth, providing a fairly constant basis for estimating universal 
(continued from previous page) 
Business Administration Office of Advocacy (SBA) 2006 Contribution FNPRM Comments at 8; Vonage 2006 
Contribution FNPRM Comments at 78; Letter from Gregory V. Haledjian, Regulatory and Governmental 
Relations, Counsel to IDT Corporation and USF By the Numbers Coalition, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 06-122, Attach. at 34 (filed Jan. 30, 2007). 
261 See, e.g., NCTA 2006 Contribution FNPRM Comments at 5; Vonage 2006 Contribution FNPRM Comments at 
6; Letter from Grace E. Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch, Secretary, FCC, WC Docket 
Nos. 06-122, 05-337, 01-92, CC Docket Nos. 96-45, 99-68, 96-262 at 2 (filed July 15, 2008). 
262 See AT&T 2006 Contribution FNPRM Comments at 4. 
263 In addition to being easily administrable, the record supports adoption of $1.00 per month as the residential pernumber 
assessment amount. See, e.g., Letter from James S. Blaszak, Counsel for Ad Hoc Telecommunications 
Users Committee, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 
95-116, 98-170, NSD File No. L-00-72, Attach. at 3 (filed Oct. 25, 2005); See Letter from Mary L. Henze, AT&T 
Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket 
No. 96-45, at 3 (filed Sept. 23, 2008) (AT&T and Verizon Sept. 23, 2008 Ex Parte Letter) (estimating a $1.01 pernumber 
per-month assessment under a numbers-based contribution methodology); see also Letter from Paul Garnett, 
Assistant Vice President, CTIAThe Wireless Association, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
96-45 at 1 (filed Oct. 2, 2008) (CTIA Oct. 2, 2008 Ex Parte Letter), Attach. at 5 (supporting the AT&T and Verizon 
proposal); Letter from David B. Cohen, Vice President, Policy, USTelecom, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 06-122, CC Docket No. 96-45, Attach. at 1 (filed Sept. 25, 2008). 
264 See 2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 1.1. 
265 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1; see also ALEXANDER BELINFANTE, FCC, 
TELEPHONE SUBSCRIBERSHIP IN THE UNITED STATES, tbl. 1 (2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf.

Federal Communications Commission FCC 08-262 
C-48 
service support amounts.266 The new methodology, based on a flat $1.00 per residential number per 
month, will be easier to administer, facilitating greater regulatory compliance. A numbers-based 
contribution methodology will also be readily applicable to emerging service offerings. The new 
methodology minimizes the potential for providers to avoid contributions by bundling intrastate revenues 
with interstate revenues or engaging in other bypass activities.267 
107. Further, assessing universal service contributions based on residential telephone numbers 
will promote number conservation.268 Telephone numbers are a finite, public resource. If contributors 
are assessed based on the residential telephone numbers assigned to them, they will have an incentive to 
efficiently manage their numbering resources in a manner that minimizes their costs. We expect that this 
will result in the need for fewer area code splits or overlays due to number exhaust.269 
108. Our adoption of a numbers-based contribution methodology for residential services is 
consistent with the goal of ensuring just, reasonable, and affordable rates.270 The per-number assessment 
of $1.00 per number per month will represent a reduction in pass-through charges for many residential 
customers.271 Although the $1.00 per number per month assessment may represent an increase in 
universal service charges for residential customers that make few or no long distance calls, this increase 
should be slight. Under the current revenue-based contribution mechanism, providers may assess a 
federal universal service fee on the basis of the customers SLC. The residential SLC may be as high as 
$6.50 per month.272 Based on the most recent contribution factor of 11.4 percent, even a customer who 
made no long distance calls could thus be assessed $0.74 per month in universal service charges under the 
266 See CRAIG STROUP AND JOHN VU, FCC, NUMBERING RESOURCE UTILIZATION IN THE UNITED STATES, tbl. 12 
(2008) (showing number utilization from December 2000 to December 2007), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf. 
267 See Ad Hoc Contribution First FNPRM Comments at 67; Coalition for Sustainable Universal Service (CoSUS) 
Contribution First FNPRM Comments at 38; Sprint Contribution First FNPRM Comments at 89. Because 
residential services will no longer be assessed based on revenues, contributors may not mark-up or otherwise adjust 
the $1.00 per Assessable Number per month residential contribution assessment in response to uncollectible 
revenues. 
268 See, e.g., ITI 2006 Contribution FNPRM Comments at 6; Vonage 2006 Contribution FNPRM Comments at 7. 
269 See Numbering Resource Optimization, CC Docket No. 99-200, Report and Order and Further Notice of 
Proposed Rulemaking, 15 FCC Rcd 7574, 7625, para. 122 (2000) (NRO I Order) (determining that implementation 
of thousands-block number pooling is essential to extending the life of the NANP by making the assignment and use 
of NXX codes more efficient); see also Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, 
Fourth Report and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (NRO IV Order) (explaining further that 
thousands-block number pooling is a numbering resource optimization measure in which 10,000 numbers in an 
NXX are divided into ten sequential blocks of 1,000 numbers and allocated to different service providers (or 
different switches) within a rate center). 
270 47 U.S.C.  254(b)(1). 
271 See Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to IDT Telecom, to Marlene H. Dortch, Secretary, 
FCC, WC Docket No. 06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 Ex Parte Letter) (showing that the 
average residential household paid about $1.37 in universal service fees in 2006). IDT claims the data show that the 
lowest-income consumers paid an average of $1.09 in universal service fees for wireline telephone bills. Id. at 6. 
272 47 C.F.R.  69.104(n)(1), 69.152(d)(1). The SLC is referred to as the End User Common Line Charge in the 
Commissions rules.

Federal Communications Commission FCC 08-262 
C-49 
existing revenue-based methodology.273 Thus, the potential increase for a customer who makes no long 
distance calls could be as little as $0.26 per month under the $1.00 per number methodology. In addition, 
we have separate protections to ensure that telephone service remains affordable for low-income 
subscribers.274 
109. Some commenters assert that assessing a flat universal service charge is inherently unfair 
because it does not take into account the fact that some people make many interstate and international 
calls, while others make few if any such calls in a given month.275 We disagree. We find that imposition 
of a flat charge is warranted because all contributors and their subscribers receive a benefit from being 
connected to the public network, enabling them to make and receive interstate calls.276 The ability to 
make or receive interstate calls over a public network is a significant benefit and it is reasonable to assess 
universal service contributions for residential customers based on access to the network. Customers who 
do not make any interstate calls still receive the benefit of accessing the network to receive interstate 
calls. The $1.00 per month per number assessment reflects our finding that it is equitable for providers to 
contribute a fixed amount based on the ability to access and utilize a ubiquitous public network. 
110. Some commenters allege that changing from the current revenue-based methodology to a 
new mechanism based on telephone numbers would not be equitable because it could reduce 
contributions from certain industry segments and increase them for others.277 Although the change to a 
numbers-based contribution methodology for residential services will result in changes in the relative 
contribution obligations of industry segments, the new contribution methodology is not inequitable or 
discriminatory. The evolving nature of the telecommunications marketplace and of its participants 
requires the Commission to periodically review and revise the contribution methodology to ensure that 
providers continue to be assessed on an equitable and non-discriminatory basis. We find that, given the 
difficulties in continuing to assess contributions entirely on a revenue-based methodology and the benefit 
to residential consumers of access to the public network, it is equitable to adopt a numbers-based 
contribution methodology that assesses a $1.00 per month per number fee for residential services. 
b. Assessable Numbers 
111. Below, we describe the telephone numbers for which service providers are obligated to 
contribute to the universal service fund. We call these Assessable Numbers. The Commission has 
addressed certain reporting based on telephone numbers in other contexts. In the number utilization 
context, the Commission requires that each telecommunications carrier that receives numbering resources 
from the North American Numbering Plan Administrator (NANPA), the Pooling Administrator, or 
another telecommunications carrier report its numbering resources in each of six defined categories of 
273 The revenue from the $6.50 SLC would be multiplied by the 11.4% contribution factor, resulting in a 
contribution amount and corresponding assessment of $0.74. See Fourth Quarter 2008 Contribution Factor Public 
Notice at 1; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 3. 
274 See 47 C.F.R.  54.400 et seq.; infra para. 141 (describing contribution exemptions for services to low-income 
consumers). 
275 See, e.g., Letter from Maureen A. Thompson, Executive Director, Keep USF Fair Coalition, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 57 (filed Mar. 27, 2006) (Keep USF Fair Mar. 27, 2006 
Ex Parte Letter); see also NASUCA Sept. 30, 2008 Ex Parte Letter at 9. 
276 Universal Service First Report and Order, 12 FCC Rcd at 8783, para. 8 
277 See, e.g., FW&A Contribution First FNPRM Comments at 1315; NRTA and OPASTCO Contribution First 
FNPRM Comments at 711; SBC Contribution First FNPRM Comments at 18; Verizon Contribution First FNPRM 
Reply at 6; Verizon Wireless Contribution First FNPRM Comments at 56.

Federal Communications Commission FCC 08-262 
C-50 
numbers set forth in section 52.15(f) of our rules.278 In the regulatory fee context, the Commission used 
the category of assigned numbers as the starting point for determining how to assess fees on certain 
providers, but found it necessary to modify that definition to account for the different regulatory contexts. 
Specifically, in assessing regulatory fees for commercial mobile radio service (CMRS) providers that 
report number utilization to NANPA based on the reported assigned number count in their Numbering 
Resource Utilization and Forecast (NRUF) data, the Commission requires these providers to adjust their 
assigned number count to account for number porting. The Commission found that adjusting the NRUF 
data to account for porting was necessary for the data to be sufficiently accurate and reliable for purposes 
of regulatory fee assessment.279 
112. We adopt a new term based on the category of assigned numbers to represent the 
numbers being assessed for universal service contribution purposesAssessable Numbers. The 
definition of Assessable Numbers that we adopt focuses on those numbers that are actually in use by end 
users for services that traverse a public interstate network. Specifically, we define an Assessable Number 
as a NANP telephone number or functional equivalent identifier280 in a public or private network that is in 
use by a residential end user and that enables the residential end user to receive communications from or 
278 These six categories of numbers are defined as follows: 
(i) Administrative numbers are numbers used by telecommunications carriers to perform internal 
administrative or operational functions necessary to maintain reasonable quality of service standards. 
(ii) Aging numbers are disconnected numbers that are not available for assignment to another end user or 
customer for a specified period of time. Numbers previously assigned to residential customers may be aged 
for no more than 90 days. Numbers previously assigned to business customers may be aged for no more 
than 365 days. 
(iii) Assigned numbers are numbers working in the Public Switched Telephone Network under an 
agreement such as a contract or tariff at the request of specific end users or customers for their use, or 
numbers not yet working but having a customer service order pending. Numbers that are not yet working 
and have a service order pending for more than five days shall not be classified as assigned numbers. 
(iv) Available numbers are numbers that are available for assignment to subscriber access lines, or their 
equivalents, within a switching entity or point of interconnection and are not classified as assigned, 
intermediate, administrative, aging, or reserved. 
(v) Intermediate numbers are numbers that are made available for use by another telecommunications 
carrier or non-carrier entity for the purpose of providing telecommunications service to an end user or 
customer. Numbers ported for the purpose of transferring an established customers service to another 
service provider shall not be classified as intermediate numbers. 
(vi) Reserved numbers are numbers that are held by service providers at the request of specific end users or 
customers for their future use. Numbers held for specific end users or customers for more than 180 days 
shall not be classified as reserved numbers. 
47 C.F.R.  52.15(f) 
279 See Assessment and Collection of Regulatory Fees for Fiscal Year 2005, Assessment and Collection of 
Regulatory Fees for Fiscal Year 2004, MD Dockets No. 05-59, 04-73, Report and Order and Order on 
Reconsideration, 20 FCC Rcd 12259, 12271, paras. 3940 (2005). 
280 Functional equivalent identifier means an identifier used in place of and with the same PSTN access capability 
as a NANP number; it is not intended to capture identifiers used in conjunction with NANP numbers, such as 
internal extensions that cannot be directly dialed from the PSTN. Nor is functional equivalent identifier intended 
to capture routing identifiers used for routing of Internet traffic, unless such identifiers are used in place of a NANP 
number to provide the ability to make or receive calls on the PSTN.

Federal Communications Commission FCC 08-262 
C-51 
terminate communications to (1) an interstate public telecommunications network or (2) a network that 
traverses (in any manner) an interstate public telecommunications network.281 Assessable Numbers 
include geographic as well as non-geographic telephone numbers (such as toll-free numbers and 500- 
NXX numbers) so long as they meet the other criteria described in this part for Assessable Numbers. 
113. The provider with the retail relationship to the residential end user is the entity 
responsible for contributing.282 We impose the contribution obligation on the provider with the retail 
relationship to the end user for several reasons. First, this provider will have the most accurate and up-todate 
information about how many Assessable Numbers it currently has assigned to end users. Second, 
this provider is also in the best position to distinguish residential users from business users, and thus to 
determine how many of its telephone numbers in use are Assessable Numbers. Finally, this provider, and 
its users, are benefiting from a supported PSTN, and thus it is sound policy to require them to contribute 
to its support.283 We note that today, providers are permitted to pass through their contribution 
assessments to end users, and we understand that they typically do so.284 Under the new methodologies, 
they may continue to do so, subject to the same requirement that they will not pass through more than 
their contribution amount.285 
114. Next, we specify whether certain types of numbers are included in the definition of 
Assessable Numbers. First, numbers used for intermittent or cyclical purposes are included in the 
definition of Assessable Numbers. Numbers used for cyclical purposes are numbers designated for use 
that are typically working or in use by the end user for regular intervals of time. These numbers 
include, for example, an end users summer home telephone number that is in service for six months out 
of the year.286 In the NRO III Order, the Commission clarified that these types of numbers should 
generally be categorized as assigned numbers if they meet certain thresholds and that, if they do not 
meet these thresholds, they must be made available for use by other customers (i.e., they are available 
numbers).287 Because these numbers are assigned to end users, we find they should be included in the 
281 For purposes of the definition of Assessable Numbers, we include only the NANP telephone numbers used in the 
United States and its Territories and possessions. 
282 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844; see also, e.g., Letter from Melissa 
E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06- 
122, at 7 (filed Sept. 24, 2008) (Qwest Sept. 24, 2008 Ex Parte Letter); AT&T and Verizon Sept. 11, 2008, Ex Parte 
Letter, Attach. 1 at 12; Letter from Brad E. Mutschelknaus, Counsel for XO Communications, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36, Attach. at 9 (filed Oct. 3, 2008); 
Letter from Donna N. Lampert, Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct. 3, 2008) 
(Google Oct. 3, 2008 Ex Parte Letter); see also 47 C.F.R.  54.5 (defining contributor as an entity required to 
contribute to the universal service support mechanism pursuant to  54.706 [of the Commissions rules]). 
283 See supra para. 103 (discussing the public interest in requiring these entities to support the network). 
284 See, e.g., AT&T and Verizon Sept. 23, 2008 Ex Parte Letter, Attach. 2 at 2; see also Second Wireless Safe 
Harbor Order, 17 FCC Rcd at 24978, para. 50. 
285 47 C.F.R.  54.712. 
286 See Numbering Resource Optimization, CC Docket Nos. 99-200, 96-98, 95-116, Third Report and Order and 
Second Order on Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17 FCC Rcd 252, 303, para. 
119 (2001) (NRO III Order). 
287 NRO III Order, 17 FCC Rcd at 304, para. 122 (With this requirement, we seek to limit the amount of numbers 
that are set aside for use by a particular customer, but are not being used to provide service on a regular basis. Thus, 
in order to categorize such blocks of numbers as assigned numbers, carriers may have to decrease the amount [of] 
numbers set aside for a particular customer. We also clarify that numbers working periodically for regular 
(continued.)

Federal Communications Commission FCC 08-262 
C-52 
definition of Assessable Numbers we adopt today. 
115. We exclude from our definition of Assessable Numbers those telephone numbers that 
satisfy the section 52.15 definition of assigned numbers solely because the numbers [are] not yet 
working but hav[e] a customer service order pending for five days or less.288 Providers generally do not 
bill for services that have yet to be provisioned and therefore are not compensated for services during the 
pendency of the service order. Moreover, such numbers are not yet operational to send or receive calls. 
Thus, under the existing contribution methodology, providers would not contribute for services they are 
about to provide (but have not yet provided) under a pending service order. We continue to find it 
appropriate for contributors not to be required to contribute to the universal service fund for pending 
service orders. 
116. We exclude from the definition of Assessable Numbers those telephone numbers that 
telecommunications providers have transferred or ported to a carrier using resale or the unbundled 
network element platform. Under prior numbering orders, such telephone numbers would still be 
included in the NRUF assigned number count of the transferring-out carrier.289 Consistent with our 
definition of Assessable Numbers, because the underlying provider no longer maintains the retail 
relationship with the end user, the provider should not include these numbers in its Assessable Number 
count. Conversely, the receiving provider of such transferred customers would include the associated 
telephone numbers in their count of Assessable Numbers. 
117. We exclude from the definition of Assessable Numbers those numbers that meet the 
definition of an Available Number, an Administrative Number, an Aging Number, or an Intermediate 
Number as those terms are defined in section 52.15(f) of the Commissions rules.290 For a particular 
carrier, the carrier will not have an end user associated with a number in any of these categories of 
numbers. For example, an intermediate number is a number that is made available for use by another 
telecommunications carrier or non-carrier entity for the purpose of providing telecommunications service 
to an end user or customer.291 The receiving provider will be responsible for including the number as an 
Assessable Number once it provides the number to an end user.292 
(continued from previous page) 
intervals of time, such as numbers assigned to summer homes or student residences, may be categorized as assigned 
numbers, to the extent that they are working for a minimum of 90 days during each calendar year in which they are 
assigned to a particular customer. Any numbers used for intermittent or cyclical purposes that do not meet these 
requirements may not be categorized as assigned numbers, and must be made available for use by other 
customers.). 
288 See 47 C.F.R.  52.15(f)(iii). 
289 NRO I Order, 15 FCC Rcd at 758687, para. 18. Ported-out numbers, a subcategory of assigned numbers, are 
not reported to NANPA although NRUF reporting carriers are required to maintain internal records associated with 
these numbers for five years. Id. at 7592, 7601, paras. 36, 62. 
290 See 47 C.F.R.  52.15(f); see also Qwest Sept. 24, 2008 Ex Parte Letter at 7 (arguing, among other things, that 
numbers used for administrative purposes and numbers that are not actively working, such as aging, unassigned, 
reserved numbers, and numbers donated back to the industry pool should be excluded from the contributors base). 
291 See 47 C.F.R.  52.15(f)(v). 
292 See NRO I Order, 15 FCC Rcd at 7587, para. 21 (2000) (We agree with commenters who opine that 
[intermediate] numbers should not be categorized as assigned numbers because they have not been assigned to an 
end user. . . . We therefore conclude that numbers that are made available for use by another carrier or non-carrier 
entity for the purpose of providing telecommunications service to an end user or customer should be categorized as 
intermediate [numbers].).

Federal Communications Commission FCC 08-262 
C-53 
118. We exclude non-working telephone numbers from the definition of Assessable Number. 
Carriers report as assigned numbers for NRUF purposes entire codes or blocks of numbers dedicated to 
specific end-user customers if at least fifty percent of the numbers in the code or block are working in the 
PSTN.293 Consistent with our definition of Assessable Numbers, carriers should not include the nonworking 
numbers in these blocks in their Assessable Number counts, because the non-working numbers 
portion of these blocks are not providing service to the end user. 
119. We exclude from the definition of Assessable Number those numbers that are used 
merely for routing purposes in a network, so long as such numbers are alwayswithout exception 
provided without charge to the end user, are used for routing only to Assessable Numbers for which a 
universal service contribution has been paid, and the ratio of such routing numbers to Assessable 
Numbers is no greater than 1:1. For example, a NANP number used solely to route or forward calls to a 
residential number, office number, and/or mobile number would be excluded from our definition of 
Assessable Number if such routing number were provided for free, and such number routes calls only to 
Assessable Numbers. If, however, such routing or forwarding is provided for a fee, such as with remote 
call forward service or foreign exchange service, both the routing number and the end user number to 
which calls are routed or forwarded would be considered Assessable Numbers. 
120. In addition, incumbent LECs need not include numbers assigned to wireless providers 
that interconnect at the end office of an incumbent LEC and have obtained numbers directly from the 
incumbent LEC.294 Because the incumbent LEC does not have the retail relationship with the end user, it 
should not include these numbers in its Assessable Number count. The wireless carriers that have the 
retail relationship with the end users must include these telephone numbers in their Assessable Number 
count. 
121. Finally, we exclude from the definition of Assessable Numbers those numbers associated 
with Lifeline services for the reasons described below.295 
122. We do not restrict our definition to numbers that exclusively use the PSTN.296 As noted 
above, evolution in communications technology away from the PSTN to alternative networks that may 
only partially (if at all) traverse the PSTN is one of the causes in the erosion of the contribution base 
under the current revenue-based methodology. As more service providers migrate to alternative networks 
that partially access the PSTN, continuing to assess universal service contributions based only on traffic 
that exclusively traverses the PSTN will not account for this migration; nor will it allow us to meet our 
principle of competitive neutrality.297 Moreover, if a service provider connects a private network to a 
293 NRO III Order, 17 FCC Rcd at 304, para. 122. 
294 When a wireless carrier interconnects at an incumbent LEC end office it is known as a Type 1 interconnection. 
See Federal Communications Commission Seeks Comment on Initial Regulatory Flexibility Analysis in Telephone 
Number Portability Proceeding, CC Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at para. 19 
n.53 (2005) (Type 1 numbers reside in an end office of a LEC and are assigned to a Type 1 interconnection group, 
which connects the wireless carrier's switch and the LEC's end office switch.). 
295 See infra paras. 14046. 
296 The record is split over whether the definition of an assessable number should be restricted to the PSTN. AT&T 
and Verizon, for example, do not include such a requirement in their proposed definitions. See AT&T and Verizon 
Sept. 23, 2008 Ex Parte Letter, Attach. 1. Other commenters, however, argue for such a requirement. See Google 
Oct. 3, 2008 Ex Parte Letter at 1 (the definition of an assessable number should be premised on a telephone 
number acting as a proxy for an underlying two-way PSTN connection). As we explain herein, such a restriction is 
not warranted. 
297 Universal Service First Report and Order, 12 FCC Rcd at 9207, paras. 84546. 

Federal Communications Commission FCC 08-262 
C-54 
public network, the service provider and its customers benefit from the connection to the PSTN. Because 
universal service supports the PSTN and these parties connect to the PSTN, they benefit from universal 
service.298 Thus, it is increasingly important that we conform our regulatory definitions to recognize this 
reality. Indeed, the Commission has already begun to recognize the need to create a level regulatory 
playing field. For example, calls to end users that utilize interconnected VoIP service are not wholly 
within the PSTN. Indeed, calls between two interconnected VoIP users may not touch the PSTN at all. 
Yet we found in 2006 that interconnected VoIP providers must contribute to the universal service fund.299 
For these reasons, we conclude that our definition must account for public or private interstate networks, 
regardless of the technology of the network (e.g., circuit-switched, packet-switched) or the transmission 
medium of the network (e.g., wireline, wireless). 
123. Finally, we recognize that, by declining to adopt for contribution purposes verbatim the 
definition of assigned numbers in section 52.15(f) of our rules, which is used by carriers to file NRUF 
reports,300 we may nominally increase some of the administrative burden associated with universal service 
contribution filings. We find, however, that any minor administrative cost increases arising from not 
using the pre-existing definition are outweighed by the benefits of modifying the definition to achieve 
sound universal service policy. For example, as stated above, the existing definition of assigned numbers 
would not enable us to meet our universal service contribution goal of ensuring that the provider with the 
retail relationship to the end user be the one responsible for contributing.301 
124. Under our numbers-based approach, certain providers will be required to contribute to the 
universal service fund based on Assessable Numbers even though they are not today required to submit 
NRUF data. Section 52.15(f) of the Commissions rules requires only reporting carriers to submit 
NRUF data to the NANPA.302 A reporting carrier is defined as a telecommunications carrier that 
receives numbering resources from the NANPA, the Pooling Administrator, or another 
telecommunications carrier.303 In the case of numbers provided by a telecommunications carrier to a noncarrier 
entity, the carrier providing the numbers to such entities must report NRUF data to the NANPA for 
those numbers. Thus, non-carrier entities that use telephone numbers in a manner that meets our 
definition of Assessable Numbers do not report NRUF data yet must contribute.304 For example, 
interconnected VoIP providers may use telephone numbers that meet our definition of Assessable 
Numbers even though these providers do not report NRUF data.305 These non-carrier entities that use 
numbers in a manner that meets our definition of Assessable Number will be required to determine their 
Assessable Number count based on their internal records (e.g., billing system records) and will be 
298 Universal Service First Report and Order, 12 FCC Rcd at 9184, para. 796. 
299 See 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 753637, paras. 33-34. 
300 See 47 C.F.R.  52.15(f)(iii). 
301 See Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 844. 
302 47 C.F.R.  52.15(f). 
303 47 C.F.R.  52.15(f)(2). 
304 NRO I Order, 15 FCC Rcd at 7587, para. 21. 
305 See Administration of the North American Numbering Plan, Order, 20 FCC Rcd 2957, 296162, para. 9 (2005) 
(SBCIS Waiver Order) (noting that most VoIP providers numbering utilization data are embedded in the NRUF 
data of the LEC). In the SBCIS Waiver Order, the Commission granted SBCIS, an Internet service provider, 
permission to obtain numbering resources directly from the NANPA and/or Pooling Administrator, conditioned on, 
among other things, SBCIS reporting NRUF data. Id. at 2959, para. 4.

Federal Communications Commission FCC 08-262 
C-55 
required to report such numbers to USAC.306 
125. We are mindful that our move to a numbers-based contribution methodology may 
encourage entities to try to avoid their contribution obligations by developing ways to bypass the use of 
NANPA-issued numbers.307 To the extent, however, these alternative methods are the functional 
equivalent of numbers and otherwise meet our definition of Assessable Numbers, such entities must 
report these functional equivalents as Assessable Numbers to the universal service fund administrator. 
3. Contribution Assessment Methodology for Business Services 
126. Although we find that a numbers-based contribution mechanism is superior to the 
existing revenue-based mechanism for residential services, applying a numbers-based approach to 
business services would result in inequitable contribution obligations. Specifically, certain business 
services that do not utilize numbers, or that utilize them to a lesser extent, would not be contributing to 
the universal service fund on an equitable basis.308 Section 254(d) of the Act requires every carrier that 
provides interstate telecommunications services to contribute to the universal service fund.309 Thus, 
providers of business services, including non-numbers based services, must continue to contribute. We 
conclude that these services should be assessed based on their connection to the public network. 
127. A number of commenters supported moving to a methodology that would assess 
telephone numbers for those services that are associated with a telephone number and assess based on 
capacity of the connection to the public switched network those services not associated with a telephone 
number.310 Other commenters supported retaining a revenue-based methodology for these services.311 As 
306 See infra paras. 14753. 
307 See Letter from Jeanine Poltronieri, Vice President, Federal Regulatory, BellSouth D.C., Inc, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) (If voice service is provided 
without using telephone numbers, but with IP address or other identifier, FCC will need to establish a functional 
equivalency test.). 
308 Business services such as private line and special access services do not typically utilize telephone numbers in 
the same manner as residential services, and would not contribute equitably to the universal service fund under a 
numbers-based approach. See, e.g., Letter from James S. Blaszak, Counsel to Ad Hoc Telecommunications Users 
Committee, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 
98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from Robert Quinn, Vice President Federal 
Government Affairs, AT&T, to Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 
99-200, 95-116, 98-170, NSD File No. L-00-72, at 2 (filed Oct. 22, 2002). Moreover, unlike residential services, 
which usually have one telephone number assigned per access line, business services do not usually have a number 
of telephone numbers assigned that aligns with the number of access lines utilized. 
309 47 U.S.C.  254(d). Therefore, we disagree with those parties that continue to support a numbers-only based 
approach because we find such an approach would be inconsistent with the statutory requirement that every 
telecommunications carrier must contribute to the universal service fund. See, e.g., Letter from James S. Blaszak, 
Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 
05-337, 07-135, Attach. at 5 (filed Oct. 14, 2008). 
310 See Staff Study; see also Ad Hoc Telecommunications Users Committee 2003 Staff Study Reply; Letter from 
John Nakahata, Counsel for the Coalition for Sustainable Universal Service, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 96-45, at 1 (filed Oct. 31, 2002). 
311 See Letter from Melissa E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006 Ex Parte Letter); 
see also Qwest Sept. 24, 2008 Ex Parte Letter at 2.

Federal Communications Commission FCC 08-262 
C-56 
discussed above, a revenue-based contribution methodology is no longer sustainable in todays 
telecommunications marketplace.312 Additionally, a connections-based contribution methodology will 
provide a basis for assessing services not associated with telephone numbers, and will recognize the 
greater utility derived by business end users from these high capacity business service offerings.313 
Further, in contrast to the revenues on which contributions are currently based, the number and capacity 
of connections continues to grow over time, providing a contribution base that is more stable than the 
current revenue-based methodology. Moreover, a connections-based mechanism can be easily applied to 
all business services. We, therefore, conclude that a connections-based contribution mechanism is the 
better option for business services. We seek comment below on the implementation of the connectionsbased 
contribution mechanism for business services.314 
128. We find that it is equitable and nondiscriminatory, consistent with the requirements of 
section 254(d) of the Act, to establish different contribution methodologies for residential and business 
services.315 Although the statute states that [a]ll providers of telecommunications services should make 
an equitable and nondiscriminatory contribution to the preservation and advancement of universal 
service, it does not require that all contributors or all services be assessed in the same manner.316 Under 
the current revenue-based mechanism, the Commission has established different contribution 
methodologies through the use of proxies for wireless and interconnected VoIP services.317 As noted 
above, continuing to use a revenues-based contribution methodology has become increasingly complex, 
and a numbers-based system would avoid many of those complexities.318 At the same time, however, if 
we relied exclusively on a numbers-based contribution methodology, there are some business services 
such as private line and special accessthat would escape contribution requirements entirely. That result 
would be inconsistent with the obligation that all providers of interstate telecommunications services 
contribute to universal service, and would impose an unfair burden on providers that contribute on the 
basis of numbers.319 We therefore conclude that adopting different contribution assessment 
methodologies for residential and business services will result in equitable and nondiscriminatory 
contribution obligations. 
129. On an interim basis, while we conduct a proceeding to implement the connections-based 
contribution methodology, we continue to require providers to contribute to the universal service fund 
312 See supra para. 97. 
313 Time Warner 2006 Contribution FNPRM Comments at 2. 
314 We decline at this time to adopt AT&T and Verizons proposal for assessing contributions on connections based 
on flat rate charges that would differ based on the speed of the connection. AT&T and Verizon Oct. 20, 2008 Ex 
Parte Letter at 2. Instead, we seek further comment on implementing assessments based on connections. 
315 47 U.S.C.  254(d). 
316 47 U.S.C.  254(b)(4). 
317 The proxies offer an alternative to contributions assessed on actual interstate revenues; they are intended to 
approximate the portion of revenues derived from the provision of interstate telecommunications services. First 
Wireless Safe Harbor Order, 13 FCC Rcd at 2125860, paras. 1315 (establishing safe harbors for wireless service 
providers); Second Wireless Safe Harbor Order, 17 FCC Rcd at 14954, para. 1 (modifying the wireless safe 
harbors); 2006 Interim Contribution Methodology Order, 21 FCC Rcd at 7532, 7545, paras. 23, 53 (revising the 
wireless safe harbor and establishing a safe harbor for interconnected VoIP providers). 
318 See supra para. 95. 
319 47 U.S.C.  254(b)(4), (d).

Federal Communications Commission FCC 08-262 
C-57 
using the current revenue-based methodology for their business services.320 We find that providers of 
business services should continue to bear their portion of the universal service contribution obligation to 
ensure the sufficiency of the fund while the connections-based contribution mechanism is being 
implemented.321 
130. During the interim period in which the revenue-based contribution assessment for 
business services remains in place, the contribution factor for providers of business services will be 
determined based on the funding requirements not covered by the $1.00 assessment on Assessable 
Numbers. We will hold constant the contribution assessment on Assessable Numbers and determine the 
revenue contribution factor based on the quarterly projected demand of the universal service mechanisms 
divided by the quarterly projected-collected interstate and international end user telecommunications 
revenues from business services in the same manner in which the current contribution factor is 
calculated.322 This approach will ensure a specific, predictable, and sufficient funding source for the 
Commissions universal service mechanisms. 
4. Wireless Prepaid Plans 
131. We adopt an alternative methodology for telephone numbers assigned to handsets under a 
wireless prepaid plan. Some commenters assess prepaid wireless services on a per-minute-of-use basis.323 
For example, prepaid wireless providers argue that their customers are typically low-income or lowvolume 
consumers and, as such, should be subject to a lesser assessment.324 Verizon and TracFone 
further assert that prepaid wireless providers may have difficulty administering a per-number 
320 Contributors will base their contributions on business service revenues in the same manner as they do currently. 
We make no change to the de minimis exemption or to the Limited International Revenue Exception (LIRE) for 
business contributions based on revenues. 47 U.S.C.  254(d); 47 C.F.R.  54.708; Fifth Circuit Remand Order, 15 
FCC Rcd at 168788, para. 19; Contribution First FNPRM, 17 FCC Rcd at 380607, paras. 12528. These 
exceptions do not apply to residential contributions based on numbers. 
321 See 47 U.S.C.  254(d). Prepaid calling card providers, as well as any other current contributors who provide 
services to residential consumers but do not assign Assessable Numbers, shall continue to contribute based on their 
revenues during the interim period until these business services are assessed on the basis of connections and/or 
numbers. Despite IDTs recent request that its prepaid calling card services be treated as residential for purposes of 
universal service contribution assessments, we find that, consistent with arguments made over the years by such 
providers, these calling card services are provided to businesses. See Request for Review of Decision of the 
Universal Service Administrator by IDT Corporation and IDT Telecom, CC Docket No. 96-45 at 3 (filed June 30, 
2008) (The vast majority of [prepaid calling card sales] are completed through a network of distributors and 
resellers before being purchased by the ultimate end user consumer.). But see Letter from Tamar E. Finn, Counsel, 
IDT Corporation, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 06-122 (filed Oct. 28, 
2008) (asking the Commission to treat prepaid calling cards as residential services if the Commission adopts a 
numbers-based methodology limited to residential numbers). 
322 The Commission may revise the specific per-number residential assessment amount in the future, if market 
conditions warrant. 
323 AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 4. 
324 Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
96-45, Attach. at 2 (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 Ex Parte Letter); CTIA 2006 Contribution 
FNPRM Comments at 6; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex 
Parte Letter at 34; Letter from John M. Beahn and Malcolm Tuesley, Counsel to Virgin Mobile USA, to Marlene 
H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 47 (filed June 12, 2006) (Virgin Mobile June 12, 
2006 Ex Parte Letter).

Federal Communications Commission FCC 08-262 
C-58 
assessment.325 Verizon, therefore, recommends that any new contribution methodology accommodate 
prepaid wireless service providers by adopting a per-number assessment that reflects the unique 
characteristics of [the] service, and TracFone similarly agrees.326 Finally, CTIA essentially argues that 
the sheer number of prepaid wireless end usersover 44 millioncombined with the likelihood that 
most of these end users would see a rise in their pass-through assessments warrants an exception.327 
132. To accommodate the unique situation of prepaid wireless service providers, we find it 
appropriate to create a limited modification in contribution assessments for providers of prepaid wireless 
services and their end users.328 We agree with commenters that it is considerably more difficult for 
wireless prepaid providers to pass-through their contribution assessments in light of their pay-as-you-go 
service offerings.329 Because of this significant practical issue, we will modify the numbers-based 
assessment for prepaid wireless providers with regard to their offering of these services. Further, we note 
that, just as with Lifeline customers, many prepaid wireless end users are low income consumers. For 
example, TracFone states that about half of its customers have incomes of $25,000 or less.330 
133. We find that TracFones USF by the Minute proposal best addresses the concerns of 
prepaid wireless providers within the context of the new numbers-based contribution methodology we 
adopt today.331 TracFones proposed USF by the Minute Plan would calculate universal service 
contribution assessments on prepaid wireless services by dividing the residential per-number assessment 
(the $1.00 flat fee adopted above) by the number of minutes used by the average postpaid wireless 
customer in a month. This per-minute number would then be multiplied by the number of monthly 
prepaid minutes generated by the provider. This amount would be the providers monthly universal 
service contribution obligation. The per-minute assessment, however, would be capped at an amount 
equal to the current per month contribution per Assessable Number, the per-number assessment amount 
adopted above.332 We illustrate the proposal below. 
325 See, e.g., Verizon Mar. 28, 2006 Ex Parte Letter, Attach. at 3; TracFone Sept. 17, 2008 Ex Parte Letter, Attach. 
at 2; Virgin Mobile June 12, 2006 Ex Parte Letter, Attach. at 7. 
326 See Verizon Mar. 28, 2006 Ex Parte Letter, Attach. at 3; TracFone Sept. 17, 2008 Ex Parte Letter, Attach.; see 
also Letter from Antoinette Bush, Counsel for Virgin Mobile, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, Attach. at 11 (filed Mar. 18, 2005) (Virgin Mobile Mar. 18, 2005 Ex Parte Letter); AT&T and Verizon 
Sept. 23, 2008 Ex Parte Letter at 6. 
327 See CTIA Oct. 2, 2008 Ex Parte Letter at 1 (raising a concern that current proposals could harm the large number 
of prepaid wireless customers). 
328 See supra para. 141. 
329 See Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 96-45, at 3 (filed June 15, 2007) (TracFone June 15 Ex Parte Letter). 
330 TracFone June 15, 2007 Ex Parte Letter at 3. TracFone also asserts that an exception is warranted because it 
provides service to low volume end users (i.e., end users that do make a small amount of calls, measured in 
minutes). Id. However, as explained below, we decline to provide a contribution exception for low-volume users. 
See infra para. 143. 
331 AT&T and Verizon support the TracFone discount approach for prepaid wireless providers. AT&T and Verizon 
Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 3; see also Letter from David L. Sieradzki, Counsel to OnStar Corp., to 
Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28, 2008) (OnStar 
strongly supports the TracFone per-minute of use proposal for prepaid wireless services) (OnStar Oct. 28, 2008 Ex 
Parte Letter). 
332 TracFone Sept. 17, 2008 Ex Parte Letter, Attach. at 45.

Federal Communications Commission FCC 08-262 
C-59 
134. According to CTIA data submitted by TracFone, the average wireless postpaid customer 
used 826 minutes per month for the period ending December 2007.333 The residential per-number 
assessment of $1.00 would be divided by 826 minutes to calculate a per-minute assessment of 
$0.001210654. The wireless prepaid providers contribution obligation would be calculated by 
multiplying the per-minute assessment by the number of prepaid minutes generated for the month. If the 
wireless prepaid provider generated a billion prepaid minutes in a month, its contribution for that month 
would be $1,210,654.334 If the prepaid provider had 10 million prepaid customers that month, the average 
contribution per customer would be $0.12 and its contribution obligation would remain at $1,210,654. If, 
on the other hand, it had only 1 million customers, the average contribution per-customer would be $1.20, 
which exceeds the residential per-number assessment of $1.00. In this case, because the per-customer 
contribution amount under the calculation would exceed the residential per-number assessment 
established by the Commission, the prepaid providers contribution obligation would be capped at 
$1,000,000, which is the residential per-number assessment of $1.00 multiplied by the 1 million monthly 
prepaid customers. Under this scenario, the average per-customer contribution for the prepaid wireless 
provider would be equal to the per-number contribution of $1.00 for non-prepaid residential numbers. 
135. We find the TracFone discount approach superior to other forms of a discount proposed 
by parties. For example, CTIA proposed a fifty percent discount for prepaid wireless providers.335 The 
TracFone approach is based on actual wireless calling data, whereas the CTIA approach represents a more 
arbitrary half-off discount. Moreover, the CTIA proposal makes no allowance for the type of end user 
that is using the prepaid wireless service. This contrasts with the TracFone proposal, which would not 
provide any discount to those end users that use more than the average monthly post-paid number of 
minutes. As explained above, for those customers whose usage would result in more than the $1.00 passthrough, 
the assessment on the provider and the pass-through would be capped at $1.00 per month per 
Assessable Number. Thus, high volume users would neither benefit from, nor be penalized by, the 
discount mechanism. Finally, we make clear that if the prepaid provider is an ETC and is providing 
service to qualifying Lifeline customers, the provider is exempt from contribution assessments on the 
qualifying Lifeline customers and we prohibit the provider from assessing any universal service passthrough 
charges on their Lifeline customers. 
5. Exceptions to Contribution Obligations 
136. A number of parties have asked for exceptions from the contribution obligation. We find 
that, in general, providing an exception or exemption to a particular provider or to a particular category of 
end users would complicate the administration of the numbers-based methodology we adopt today. The 
result would unfairly favor certain groups by reducing or eliminating their contribution obligations, while 
increasing the contribution obligations on providers that are not exempted from contributing. Therefore, 
we conclude that grant of an exemption from the contribution obligations is only warranted for those who 
are truly unable to bear the burden of contributing to the universal service fundlow-income consumers. 
As discussed below, we exempt providers from contribution assessments on their qualifying Lifeline 
program customers and prohibit contributors from assessing any universal service pass-through charges 
on their Lifeline customers. As explained below, an exception for low-income consumers is consistent 
with the Commissions policies underlying the low-income universal service program and targets 
333 See TracFone Sept. 17, 2008 Ex Parte Letter at 5. We use these data because they are the most recent publicly 
available data. 
334 To the extent that the prepaid wireless subscriber is a Lifeline customer for the prepaid service, the prepaid 
provider should exclude prepaid minutes associated with the qualifying Lifeline customer. See infra para. 141. 
335 CTIA Oct. 2, 2008 Ex Parte Letter at 5.

Federal Communications Commission FCC 08-262 
C-60 
universal service benefits to those consumers most in need of those benefits.336 
137. We conclude that telephone numbers assigned to Lifeline customers should be excluded 
from the universal service contribution base and providers of Lifeline service may not pass-through 
contribution assessments to Lifeline customers.337 The Lifeline program provides an opportunity for the 
Commission to ensure that low-income families are not denied access to telephone service. We find that 
an exception for Lifeline customers satisfies the high threshold necessary to justify an exception to the 
new numbers-based contribution methodology we adopt today. Lifeline customers are, by definition, 
among the poorest individuals in the country. As such, they are in the greatest need of relief from 
regulatory assessments. Prohibiting recovery of universal service contributions from Lifeline customers 
helps to increase subscribership by reducing qualifying low-income consumers monthly basic local 
service charges.338 The record, moreover, overwhelmingly supports the creation of an exception for 
Lifeline customers. Consumer groups, large telecommunications customers, LECs, and wireless 
providers all support creating an exemption for Lifeline customers, and no commenter opposes an 
exemption for Lifeline customers.339 We therefore adopt an exemption to our numbers-based contribution 
methodology for Lifeline customers. 
138. Although commenters have sought contribution exceptions for other groups of consumers 
or service providers, we decline to adopt any further exceptions.340 Some parties argue that consumers 
who make few or no calls, i.e., low-volume users, should be exempt from the numbers-based residential 
contribution assessment mechanism.341 As discussed above, all users of the network, even those who 
make few or no calls, receive a benefit by being able to receive calls, and therefore it is appropriate for 
these consumers to contribute to universal service.342 Also as discussed above, to the extent low-volume 
consumers may see an increase in the amount of their universal service contribution pass-through fee,343 
any such increase should be slight.344 
139. We also decline to exempt telematics providers,345 stand-alone voice mail providers,346 
336 Alenco v. FCC, 201 F.3d at 621. 
337 See, e.g., AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 4 (proposing that numbers assigned to Lifeline 
customers be excluded from the monthly number count for contribution purposes). 
338 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24982, para. 62. 
339 See, e.g., CTIA 2006 Contribution FNPRM Comments at 5; CU et al. High-Cost Reform NPRMs Reply at 58; Ad 
Hoc Nov. 19, 2007 Ex Parte Letter at 4; AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 5. 
340 We do not prejudge whether additional exceptions should apply if the Commission were to assess contributions 
based on numbers for business services. We note that certain businesses, such as non-profit health care providers, 
libraries, and colleges and universities, support such exemptions. We do not address those exemptions at this time. 
341 See, e.g., CU et al. Contribution First FNPRM Comments at 12; NASUCA Contribution First FNPRM 
Comments at 14; Keep USF Fair Mar. 27, 2006 Ex Parte Letter, Attach. at 1. 
342 See supra para. 113; see also Sprint Contribution First FNPRM Comments at 7. 
343 But see IDT Aug. 2, 2007 Ex Parte Letter at 67 (arguing that low-volume consumers who make no long 
distance calls pay about $1.40 in universal service contribution assessments). 
344 See supra para. 112. 
345 Telematics is a service that is provided through a transceiver, which is usually built into a vehicle but can also be 
a handheld device, that provides public safety information to public safety answering points (PSAPs) using global 
positioning satellite data to provide location information regarding accidents, airbag deployments, and other 
emergencies in real time. See, e.g., Letter from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch, FCC, 
(continued.)

Federal Communications Commission FCC 08-262 
C-61 
one-way service providers,347 and two-way paging services348 from contributing based on numbers. We 
disagree with commenters arguing for special treatment for these services.349 Granting exceptions for 
these services would provide them with an advantage over other services that are required to contribute 
based on residential telephone numbers. These services are receiving the benefit of accessing the public 
network and therefore assessing universal service contributions on these entities is appropriate.350 These 
service providers have not shown that grant of a contribution exception is warranted.351 Accordingly, 
(continued from previous page) 
CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006); Revision of the Commissions Rules To Ensure 
Compatability with Enhanced 911 Emergency Systems, CC Docket No. 94-102, Order, 18 FCC Rcd 21531, 21531 
33, paras. 2, 8 (2003). 
346 Letter from Jennifer D. Brandon, Executive Director, Community Voice Mail National, to Tom Navin, Wireline 
Competition Bureau, FCC, CC Docket No. 96-45 at 1 (filed May 30, 2006) (Community Voice Mail May 30, 2006 
Ex Parte Letter) (arguing for an exemption for these services). 
347 One-way services include, but are not limited to, one-way paging, electronic facsimile (e-fax), and voicemail 
services (other than stand-alone voicemail services, as discussed above). 
348 See, e.g., Letter from Matthew Brill, Counsel for USA Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing the assessment of a numbers-based 
fee on paging carriers and their customers); Letter from Kenneth Hardman, representing the American Association 
of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 
Attach. (filed Oct. 22, 2008). 
349 See Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz USA, LLC, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 96-45, at 1 (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 Ex Parte Letter); see also Letter 
from John E. Logan, ATX Group, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed 
Mar. 16, 2006) (ATX Mar. 16, 2006 Ex Parte Letter); Letter from David M. Don, Counsel for j2 Global 
Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18, 2005) (j2 
Global Nov. 18, 2005 Ex Parte Letter); Letter from William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom 
Navin, Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb. 13, 2006) (Bonfire Feb. 13, 2006 Ex 
Parte Letter); j2 Global Contribution Second FNPRM Comments at 2; Letter from Kenneth E. Hardman, Counsel 
for American Association of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. 
at 1 (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 Ex Parte Letter); Letter from Frederick M. Joyce, Counsel for USA 
Mobility, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 13 (filed Mar. 22, 2006) (USA 
Mobility Mar. 22, 2006 Ex Parte Letter). 
350 We similarly decline to adopt an exemption from the numbers-based contribution assessment method for services 
provided by alarm companies. See Letter from Donald J. Evans, Counsel for Corr Wireless Communications, LLC, 
to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No. 05-194, at 2 
(filed Oct. 23, 2008). These services are receiving the benefit of having access to the PSTN and should therefore 
contribute to universal service. 
351 Telematics providers argue against imposition of a $1.00 per number per month contribution assessment on 
telematics numbers due to the services critical role in advancing public safety, and because the $1.00 assessment 
would be prohibitively expensive. See, e.g., Letter from Gary Wallace, Vice President Corporate Relations, ATX 
Group, Inc., to Kevin Martin, Chairman, FCC, CC Docket No. 96-45, WC Docket No. 06-122 at 12 (filed Oct. 28, 
2008); OnStar Oct. 28, 2008 Ex Parte Letter at 34; Letter from Matthew Brill, Counsel for Toyota Motor Sales 
USA, Inc., to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at 12 (filed Oct. 24, 
2008). We find, however, that treating these services differently than other residential services would not be 
equitable, given their use of the PSTN and the ability of telematics providers to recover the assessment from their 
end users. Given the public safety benefit to consumers, we find unpersuasive the telematics providers assertions 
that consumers will discontinue use of the service based on an assessment of only $1.00 per number. Furthermore, 
we disagree with commenters who argue that telematics service should be treated as a business service, and 
conclude that telematics service is a residential service that should be assessed under the $1.00 per number per 
(continued.)

Federal Communications Commission FCC 08-262 
C-62 
providers of these services will be assessed the full per-number charge. Some one-way service providers 
argue that their services are currently offered on a free, or nearly-free basis, and if these services are 
assessed on a per telephone number basis, providers will no longer be able to offer them.352 We disagree 
that our change in contribution policy necessitates this result. Although these services may be marketed 
as free to the end user, these services are not truly free. Commercial providers of free or nearly-free 
services generate revenue in other ways, such as advertising or through more sophisticated paid service 
offerings or product offerings, and, therefore, whether they continue to offer free services would be a 
business decision based upon the circumstances of the particular business.353 Indeed, we find that 
assessing a per-number contribution obligation on these services is consistent with our determination that 
services that benefit from a ubiquitous public network are fairly charged with supporting the network. 
140. We also decline to adopt an exception from the residential numbers-based contribution 
mechanism for additional handsets provided through a wireless family plan. We do not agree with 
commenters who argue that telephone numbers assigned to the additional handsets in family wireless 
plans should be assessed at a reduced rate, either permanently or for a transitional period.354 These 
commenters assert that assessing contributions at the full per-number rate would cause family plan 
customers to experience rate shock.355 Although family plan customers may see an increase in 
universal service contribution pass-through charges on their monthly bills, we are not persuaded that the 
fear of rate shock justifies special treatment. We find that each number associated with a family plan 
obtains the full benefits of accessing the public network, and thus it is fair to assess each number with a 
separate contribution obligation. We also note that wireless service is one of the fastest-growing sectors 
of the industry and the record does not include persuasive data showing that a move to a numbers-based 
contribution methodology would have a significant, detrimental impact on wireless subscribership.356 We 
agree with Qwest that an exception for additional family plan handsets would not be competitively neutral 
and would advantage approximately 70 million wireless family plan consumers over other residential 
service consumers.357 Multiple wireline lines in a household are not given a discounted contribution 
assessment rate. We therefore decline to adopt a reduced assessment for wireless family plan numbers. 
(continued from previous page) 
month residential contribution methodology. See OnStar Oct. 28, 2008 Ex Parte Letter at 2; Letter from Tamara 
Preiss, Legal and External Affairs, Verizon Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122, 
CC Docket No. 96-45 at 1 (filed Oct. 29, 2008). 
352 See, e.g., j2 Global Contribution Second FNPRM Comments at 7 (arguing that a connections-based universal 
service methodology would force many heavily used one-way communications services out of existence). 
353 See, e.g., j2 Global Contribution Second FNPRM Comments at 8 (describing a free service supported by 
advertising revenue). 
354 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter at 4; CTIA 2006 Contribution FNPRM Comments 
at 56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte Letter at 2. 
355 E.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 4; CTIA 2006 Contribution FNPRM 
Comments at 56; Leap Wireless 2006 Contribution FNPRM Comments at 23; T-Mobile Apr. 4, 2006 Ex Parte 
Letter at 23. But see AAPC Oct. 9, 2008 Ex Parte Letter at 2. 
356 There are, as of December 2007, 249,235,715 mobile wireless subscribers, a more than 9% increase from the 
previous year. See FCC, LOCAL TELEPHONE COMPETITION: STATUS AS OF DECEMBER 31, 2007, tbl. 14 at 18 (2008), 
available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf. Moreover, where a wireless 
provider is eligible to receive universal service support, it receives the same level of support for each handset. See 
WTA/OPASTCO/ITTA Oct. 10, 2008 Ex Parte Letter at 2. 
357 Qwest Sept. 24, 2008 Ex Parte Letter, Attach. at 7; Qwest May 4, 2006 Ex Parte Letter, Attach. at 9; see also 
CTIA Oct. 2, 2008 Ex Parte Letter at 1.

Federal Communications Commission FCC 08-262 
C-63 
141. Some parties seek an exception to the contribution methodology we adopt today to 
exclude Internet-based telecommunications relay services (TRS), including video relay services (VRS) 
and IP Relay services.358 We decline to adopt an exception for such providers at this time. The 
Commission has an open proceeding on a number of issues related to these providers, including whether 
certain costs to these providers related to the acquisition of ten-digit numbers by their customers should 
be reimbursed by the TRS fund.359 We defer to that proceeding consideration of whether to adopt an 
exception to the contribution methodology we adopt today for numbers assigned to Internet-based TRS 
users.360 
6. Reporting Requirements and Recordkeeping 
142. Under the existing revenue-based contribution methodology, contributors report their 
historical gross-billed, projected gross-billed, and projected collected end-user interstate and international 
revenues quarterly on the FCC Form 499-Q and their gross-billed and actual collected end-user interstate 
and international revenues annually on the FCC Form 499-A.361 Contributors are billed for their universal 
service contribution obligations on a monthly basis based on their quarterly projected collected 
revenue.362 Actual revenues reported on the FCC Form 499-A are used to perform true-ups to the 
quarterly projected revenue data.363 
143. We will develop a new and unified reporting system to accommodate our new universal 
service contribution methodology.364 Contributors will report their Assessable Number counts on a 
358 See Letter from Deb MacLean, Communication Access Center for the Deaf and Hard of Hearing, et al. to 
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 12 (filed Sept. 29, 2008) 
(CSDVRS Sept. 29, 2008 Ex Parte Letter). 
359 See Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech 
Disabilities, CG Docket No. 03-123, WC Docket No. 05-196, Report and Order and Further Notice of Proposed 
Rulemaking, 23 FCC Rcd 11591, 11646, para. 149 (2008) (We . . . seek comment on whether, and to what extent, 
the costs of acquiring numbers, including porting fees, should be passed on to the Internet-based TRS users, and not 
paid for by the [TRS] Fund. . . . We also seek comment on whether there are other specific costs that result from the 
requirements adopted in the Order that, mirroring voice telephone consumers, should be passed on to consumers, 
including, for example, E911 charges.). 
360 To the extent that Internet-based TRS users utilize a proxy number or identifier other than an assigned ten-digit 
number during/pending the transition to ten-digit numbering for Internet-based TRS services, we make clear that 
those numbers or identifiers are NOT subject to universal service contribution at this time. This treatment is 
necessary to ensure the smooth transition to ten-digit numbering for these services, and to prevent duplicative 
charges for end users of these services. 
361 See, e.g., Second Wireless Safe Harbor Order, 17 FCC Rcd at 24969, para. 29. Filers are required to file 
revisions to FCC Form 499-Q within 45 calendar days of the original filing date. See FCC, INSTRUCTIONS TO THE 
TELECOMMUNICATIONS REPORTING WORKSHEET, FCC Form 499-Q, at 10 (Feb. 2008), available at 
http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers are required to file revisions to FCC Form 499-A by March 
31 of the year after the original filing date. See FCC, INSTRUCTIONS TO THE TELECOMMUNICATIONS REPORTING 
WORKSHEET, FCC Form 499-A, at 1112 (Feb. 2008), available at http://www.fcc.gov/Forms/Form499-A/499a- 
2008.pdf. 
362 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 35. 
363 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 24972, para. 36. 
364 We decline to adopt the suggestion by AT&T and Verizon to transition the Telecommunications Relay Services 
Fund, local number portability cost recovery, and numbering administration to a numbers/connections-based 
assessment methodology. See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter at 6. Although these programs rely 
(continued.)

Federal Communications Commission FCC 08-262 
C-64 
monthly basis. Contributors must report as an Assessable Number any such number that is in use by an 
end user during any point in the relevant month. The Commission will develop an additional version of 
the FCC Form 499 for use in reporting Assessable Numbers. Under the interim business revenue-based 
reporting component, contributors will report their revenue information on the modified FCC Forms 499- 
A and 499-Q. 
144. Under the new numbers-based system we adopt today, contributors will report historical 
Assessable Numbers monthly. Contributors will then be invoiced and required to contribute the 
following month. By reporting actual, historical numbers, the numbers-based component of our 
contribution methodology remains simple and straightforward. As explained above, a key reason to move 
to a primarily numbers-based approach is its simplicity. Indeed, several commenters propose monthly 
reporting of historical number counts.365 We find that reporting Assessable Numbers on a projected 
collected basis would unnecessarily complicate the numbers-reporting system. Although we are mindful 
of the issues inherent in historical reporting,366 we find that a one month lag between the reported 
Assessable Numbers and the contribution based on those numbers is minimal and will not unfairly 
disadvantage any provider, even those with a declining base. 
145. We allow contributors to self-certify which telephone numbers are, consistent with this 
order, considered residential. Contributors will be subject to audit, however, and their method for 
distinguishing residential from other numbers must be reasonable and supportable. For example, in the 
Commissions Broadband Data Gathering Order released earlier this year, the Commission directed 
mobile wireless service providers to report as residential subscriptions those subscriptions that are not 
billed to a corporate account, to a non-corporate business customer account, or to a government or 
institutional account.367 We added that [f]or purposes of Form 477, subscriptions billed to a federal 
government department or agency, for example, will not be residential subscriptions, while 
subscriptions to a service plan offered to all federal government employees will be considered to be 
residential subscriptions.368 For purposes of identifying numbers associated with business services 
(which are not Assessable Numbers), contributors may rely on the fact that the line associated with that 
number is assessed a multi-line end user common line charge (i.e., SLC); provided, however, that the SLC 
must be a mandatory charge, rather than a discretionary charge.369 For determining residential numbers 
(which are Assessable Numbers), however, a contributor may not rely on the assessment of a residential 
SLC, because SLC rates are the same for residential and single-line business end users. Therefore, the 
(continued from previous page) 
on the revenue information reported in the current FCC Form 499-A, they do not rely on many of the revenue 
distinctions, such as interstate and intrastate, that necessitate the change from a revenue-based assessment for the 
universal service fund. 
365 See AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 2-3; CTIA Oct. 2, 2008 Ex Parte Letter, 
Attach. at 5; USF by the Numbers Oct. 3, 2008 Ex Parte Letter. 
366 See Second Wireless Safe Harbor Order, 17 FCC Rcd at 2496970, paras. 2932. 
367 Development of Nationwide Broadband Data to Evaluate Reasonable and Timely Deployment of Advanced 
Services to All Americans, Improvement of Wireless Broadband Subscribership Data, and Development of Data on 
Interconnected Voice over Internet Protocol (VoIP) Subscribership, WC Docket No. 07-38, 23 FCC Rcd 9691, 
9704, para. 24 (2008) (Broadband Data Gathering Order), Order on Reconsideration, 23 FCC Rcd 9800 (2008). 
368 Broadband Data Gathering Order at para. 24 n.91. 
369 In other words, the SLC type and rate must be established pursuant to the Commissions rules. 47 C.F.R.  
69.104(o)(1), 69.152(k)(1). To the extent that the contributor is not required to charge a SLC (e.g., is not rateregulated 
by the Commission), a voluntary business choice to include a subscriber line charge on a customers bill 
may not be dispositive of the type of service, residential or business, being provided.

Federal Communications Commission FCC 08-262 
C-65 
fact that a contributor charges the single-line business/residential SLC may not accurately indicate 
whether the service provided is a business or residential service.370 
146. Each contributor must maintain the necessary internal records to justify, in response to an 
audit or otherwise, its reported Assessable Number counts and the data reported on the Commissions 
contribution forms.371 Contributors are responsible for accurately including all Assessable Numbers 
associated with residential services in their Assessable Number counts and revenues from all business 
services in the interim business services revenue component of the methodology. Failure to file the 
required form by the applicable deadline, or failure to file accurate information on the form, could subject 
a contributor to enforcement action.372 In addition, as with the current FCC Forms 499-A and 499-Q, we 
will require that an officer of the filer certify to the truthfulness and accuracy of the forms submitted to 
the administrator. 
147. To ensure that filers report correct information, we continue to require all reporting 
entities to maintain records and documentation to justify the information reported in these forms, and to 
provide such records and documentation to the Commission and to USAC upon request.373 All universal 
service fund contributors are required to retain their records for five years.374 Specifically, contributors to 
the universal service fund must retain all documents and records that they may require to demonstrate to 
auditors that their contributions were made in compliance with the program rules, assuming that the audits 
are conducted within five years of such contribution. Contributors further must make available all 
documents and records that pertain to them, including those of contractors and consultants working on 
their behalf, to the Office of Inspector General, to USAC, and to their respective auditors. These 
documents and records should include without limitation the following: financial statements and 
supporting documentation; accounting records; historical customer records; general ledgers; and any other 
relevant documentation.375 
148. Further, we make clear that for purposes of the interim business revenue component, we 
retain all existing reporting requirements associated with the filing of the FCC Forms 499-A and 499-Q 
for business service revenue. Finally, we direct the Bureau, and delegate to the Bureau the authority, to 
develop or modify the necessary forms to ensure proper contribution reporting occurs, consistent with this 
order. 
7. Transition to New Methodology 
149. The new reporting procedures discussed above will require reporting entities to adjust 
their record-keeping and reporting systems in order to provide reports to USAC regarding the number of 
Assessable Numbers and to adjust their revenue information to include only business service revenue. 
370 47 C.F.R.  69.104(n)(1), 69.152(d)(1). 
371 Comprehensive Review Report and Order, 22 FCC Rcd at 16387, para. 27. 
372 Pursuant to section 1.80 of the Commissions rules, failure to file required forms or information carries a base 
forfeiture amount of $3,000 per instance and is subject to adjustment criteria. See 47 C.F.R.  1.80. 
373 Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; see also 47 C.F.R.  54.706(e), 
54.711(a). 
374 See Comprehensive Review Report and Order, 22 FCC Rcd at 16372, para. 27; 47 C.F.R.  54.706(e). 
375 See Comprehensive Review Report and Order, 22 FCC Rcd at 16387, paras. 2728. We note that contributors 
who also report NRUF data to the NANPA are currently required to maintain internal records of their numbering 
resources for audit purposes. NRO I Order, 15 FCC Rcd at 7601, para. 62. 

Federal Communications Commission FCC 08-262 
C-66 
Accordingly, we implement a 12-month transition period for the new contribution mechanisms.376 This 
transition period will give contributors ample time to adjust their record-keeping and reporting systems so 
that they may comply with modified reporting procedures. As explained below, a 12-month transition 
period will also allow reporting entities to submit several reports for informational purposes before being 
assessed on the basis of projected Assessable Numbers for residential services.377 We find, therefore, that 
a 12-month transition period balances administrative burdens on contributors with the need to implement 
the new contribution methodologies in a balanced and equitable manner. 
150. During 2009, filers will continue reporting their interstate telecommunications revenue 
on a quarterly basis and USAC will continue assessing contributions to the federal universal service 
mechanisms based on those quarterly reports. This one-year period and, in particular, the first six months 
of that period, should be used by contributors to adjust their internal and reporting systems to prepare for 
the reporting of Assessable Numbers and business revenues. 
151. Beginning in July 2009, contributors will continue to report and contribute based on their 
quarterly reported interstate and international revenues for the last two quarters of the year, but they will 
also begin filing with USAC monthly reports of their Assessable Numbers and quarterly reports of their 
business revenues. USAC will thus collect data under the old revenue-based methodology, while 
collecting and reviewing data under the new Assessable Number and business revenues methodologies 
for the last six months of 2009. We find that this six-month period of double-reporting is necessary to 
help reporting entities, Commission staff, and USAC identify implementation issues that may arise under 
this new methodology prior to it taking effect.378 Although only the December 2009 Assessable Numbers 
and the fourth quarter 2009 business revenue data will be used to compute contributors January 2010 and 
first quarter 2010 assessments, we find it is reasonable to require contributors to begin filing under the 
new methodologies prior to these periods to ensure that there is adequate time for all affected parties to 
address any implementation issues that may arise. Moreover, we conclude that the short overlap of 
reporting under both the old and new methodologies will not be unduly burdensome for contributors 
given the limited duration of the dual reporting. 
V. REFORM OF INTERCARRIER COMPENSATION 
152. Since Congress first passed the Communications Act in 1934, the Commission has 
sought to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, 
Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable 
charges.379 To promote universal service, regulators have long relied on a complex array of intercarrier 
compensation mechanisms, which generally have included implicit subsidies. Through the years, the 
introduction of competition into first long-distance and then local markets, as well as the development and 
376 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (proposing a 12-month transition to the new 
mechanism taking effect). 
377 See CTIA 2006 Contribution FNPRM Comments at 7; see also Verizon and AT&T Sept. 11, 2008 Ex Parte 
Letter, Attach. at 2 (advocating a 12-month implementation period followed by a 6-month transition period). Some 
parties advocated for a transition period as short as possible. See, e.g., Letter from Gregory J. Vogt, Counsel for 
CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) 
(CenturyTel Sept. 19, 2008 Ex Parte Letter); Sprint Nextel June 14, 2006 Ex Parte Letter. Others advocated for a 
longer transition period. See, e.g., Qwest Mar. 21, 2006 Ex Parte Letter, Attach. at 3 (advocating 18 months); XO 
Communications Oct. 3, 2008 Ex Parte Letter, Attach. at 11 (advocating at least 18 months). 
378 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (recommending a six-month transition period 
for filers and USAC to test and calibrate the new system prior to its taking effect). 
379 47 U.S.C.  151.

Federal Communications Commission FCC 08-262 
C-67 
deployment of new technologies, have eroded the fundamental economic underpinnings of the current 
intercarrier compensation regimes. The reforms we adopt in this order are designed to unify and simplify 
the myriad intercarrier compensation systems in existence today. This unification and simplification will 
encourage the efficient use of, and investment in, advanced telecommunications and broadband networks, 
spur intermodal competition throughout the United States, and minimize the need for future regulatory 
intervention. 
153. Today, we adopt a new approach to intercarrier compensation and establish the blueprint 
for moving to new uniform termination rates that are economically efficient and sustainable in our 
increasingly competitive telecommunications markets. At the same time, we recognize, as the 
Commission has in the past, that we need to be cognizant of market disruptions and potential adverse 
effects on consumers and carriers of moving too quickly from the existing intercarrier compensation 
regimes to our new uniform approach to intercarrier compensation. Accordingly, we adopt here a gradual 
ten-year transition plan, with separate stages, designed to reduce rates over a sufficient period to minimize 
market disruptions and to cushion the impact of our reform on both customers and carriers. At the end of 
the transition period, all telecommunications traffic will be treated as falling within the reciprocal 
compensation provisions of section 251(b)(5), and states will set default reciprocal compensation rates 
pursuant to the new methodology we adopt herein. 
A. A Brief History of Intercarrier Compensation 
154. This section provides an overview of the development of intercarrier compensation 
regulation in the United States. Although not comprehensive, it highlights several important goals that 
have emerged in Commission precedent, which are relevant to intercarrier compensation reform. 
 Promoting universal service. The Commission has sought to promote universal service, and, in 
furtherance of that objective, an intricate web of implicit subsidies evolved that were intended to keep 
the price of residential local telephone service affordable, even if that price was below cost. With the 
introduction of competition for long-distance telephone service, regulators sought to maintain implicit 
subsidies of local service when they created regulated intercarrier compensation charges, known as 
access charges, that long-distance service providers paid local telephone companies to originate and 
terminate long-distance calls. 
 Encouraging efficient use of the network. The Commission has long recognized that requiring endusers 
to bear a greater proportion of the cost of the local network encourages them to make rational 
choices in their use of telephone service. The Commission nevertheless has declined to shift a 
significant percentage of the cost of the network to those end users in light of universal service 
concerns. 
 Realigning cost recovery in response to competition. For much of the twentieth century, telephone 
service was viewed as a natural monopoly. The emergence of competition for long-distance services 
in the 1970s and for local services, particularly after the 1996 Act, has placed pressure on above-cost 
intercarrier compensation charges. Although the Commission, in response to competitive entry, 
sought to develop intercarrier compensation rules that align more closely with the economic principle 
that costs should be recovered in the way they are incurred, marketplace developments confirm that 
those efforts were incomplete. As new competitors entered, a series of regulatory arbitrage strategies 
developed, some of which the Commission has attempted to address on a case-by-case basis. 
 Technological advancements. As carriers shift from circuit-switched telephone-only networks to 
packet-switched broadband networks supporting numerous services and applications, it is important 
that intercarrier compensation rules create the proper incentives for carriers to invest in new 

Federal Communications Commission FCC 08-262 
C-68 
broadband technology and that consumers have the opportunity to take full advantage of the new 
capabilities of this broadband world. 
1. Intercarrier Compensation Regulation Before the Telecommunications Act 
of 1996 
155. When AT&T began offering telephone service in 1877,380 it held all the essential patents 
and effectively operated as a legal monopoly. When the original patents expired in 1894, however, 
thousands of independent telephone companies began offering competing local telephone service.381 This 
new competition led to lower rates,382 and reduced AT&Ts average return on investments by over 80 
percent.383 AT&T responded by refusing to interconnect with any independent telephone company to 
exchange long-distance or local traffic.384 Without interconnection, independent telephone companies 
could not offer a viable service unless such entities duplicated the AT&T system, which was not 
economically feasible. As a result, independent telephone companies began to go out of business or were 
acquired by AT&T.385 
156. AT&Ts predatory strategy led the Department of Justice to file an antitrust suit against 
AT&T in 1913. The government alleged that AT&Ts interconnection and acquisition policies violated 
Section 2 of the Sherman Act.386 The case was eventually dropped after AT&T committed to abide by 
certain principles in what became known as the Kingsbury Commitment of 1913. Under the Kingsbury 
380 The company that became AT&T was originally called the Bell Telephone Company. See AT&T, A Brief 
History: Origins, http://www.corp.att.com/history/history1.html (last visited Sept. 11, 2008) (AT&T Brief History). 
For simplicity, we use the term AT&T to include all predecessor companies. 
381 Between 1894 and 1904, over six thousand independent telephone companies went into business in the United 
States, and the number of telephones boomed from 285,000 to 3,317,000. See AT&T Brief History. By 1900, 
independent telephone companies controlled 38 percent of the phones installed in the United States. GERALD W. 
BROCK, THE TELECOMMUNICATIONS INDUSTRY, THE DYNAMICS OF MARKET STRUCTURE 148 (1981) (THE 
TELECOMMUNICATIONS INDUSTRY). And, by 1902, 451 out of 1002 cities with telephone service had two or more 
competing providers. See MICHAEL K. KELLOGG ET AL. FEDERAL TELECOMMUNICATIONS LAW 11 (1992) (FEDERAL 
TELECOMMUNICATIONS LAW). 
382 THE TELECOMMUNICATIONS INDUSTRY at 116. 
383 FEDERAL TELECOMMUNICATIONS LAW at 11; see also Adam D. Thierer, Unnatural Monopoly: Critical Moments 
In The Development Of The Bell System Monopoly, 14 CATO J. 2 (1994), available at 
http://www.cato.org/pubs/journal/cjv14n2-6.html (Unnatural Monopoly). Although independent companies 
competed with AT&T for local service, AT&T had the only long-distance network operating at the time and 
possessed important long-distance technology patents. See THE TELECOMMUNICATIONS INDUSTRY at 148. 
According to Brock, there is some evidence that the independent companies had planned on starting a separate longdistance 
network until AT&T refused interconnection. GERALD W. BROCK, THE SECOND INFORMATION 
REVOLUTION 3032 (2003) (SECOND INFORMATION REVOLUTION). 
384 FEDERAL TELECOMMUNICATIONS LAW at 1112; THE TELECOMMUNICATIONS INDUSTRY at 148; David F. 
Weiman & Richard C. Levin, Preying for Monopoly? The Case of Southern Bell Telephone Company, 18941912, 
102 J. POL. ECON. 103, 10326 (1994). 
385 FEDERAL TELECOMMUNICATIONS LAW at 11. In 1912 alone, AT&T purchased 136,000 telephone companies and 
sold 43,000. See THE TELECOMMUNICATIONS INDUSTRY at 156. 
386 Original Petition, United States v. AT&T, No. 6082 (D. Or. 1913); United States v. AT&T, No. 6082, 1 DECREES 
AND JUDGMENT IN CIVIL ACTION CASES 483 (D. Or. 1914); see also PETER TEMIN, THE FALL OF THE BELL SYSTEM: 
A STUDY IN PRICES AND POLITICS 910 (1987); ROBERT W. GARNET, THE TELEPHONE ENTERPRISE: THE EVOLUTION 
OF THE BELL SYSTEMS HORIZONTAL STRUCTURE, 18761909 15253 (1985).

Federal Communications Commission FCC 08-262 
C-69 
Commitment, AT&T agreed to: (i) allow independent telephone companies to interconnect with AT&Ts 
long-distance network; and (ii) not acquire any additional independent telephone companies absent 
regulatory approval.387 In exchange, the government sanctioned AT&Ts monopoly control over markets 
where it already offered service. 
157. In essence, the Kingsbury Commitment and subsequent regulation assumed that both the 
local and long-distance telephone businesses were natural monopolies.388 Policymakers embraced the 
view that, because of economies of scale, a natural monopoly could provide service more efficiently than 
would occur in a competitive market.389 Rates for these natural monopolies were subject to rate-of-return 
regulation.390 In setting regulated rates, a primary policy objective of regulators was to promote universal 
service to all consumers through affordable local telephone rates for residential customers. To 
accomplish this objective, however, regulators created a patchwork of what has become known as implicit 
subsidies. Thus, for example, regulators permitted higher rates to business customers so that residential 
rates could be lower, and they frequently required similar rates to urban and rural customers, even though 
the cost of serving rural customers was higher.391 Similarly, AT&T was permitted to charge artificially 
high long-distance toll rates, and its interstate toll revenues were placed into an interstate settlements 
pool.392 AT&T then shared a portion of these interstate revenues with independent telephone companies 
387 The Kingsbury Commitment was a unilateral letter rather than an actual consent decree. See THE 
TELECOMMUNICATIONS INDUSTRY at 155. The Kingsbury Commitment was republished in AT&Ts 1913 Annual 
Report at 2426, available at http://www.porticus.org/bell/pdf/1913ATTar_Complete.pdf. AT&T also agreed to 
sell off its Western Union stock, a large independent telephone company that AT&T had recently acquired. See id. 
at 24. See FEDERAL TELECOMMUNICATIONS LAW at 1112; see also Unnatural Monopoly. 
388 See, e.g., Unnatural Monopoly (noting that a Senate Commerce Committee hearing in 1921 stating that 
telephoning is a natural monopoly and a House of Representative committee report stated that [t]here is nothing 
to be gained by local competition in the telephone business.) (quoting G. H. Loeb, The Communications Act Policy 
Toward Competition: A Failure to Communicate, 1 DUKE LAW J. 14 (1978)); see also id. (explaining that many state 
regulatory agencies began refusing requests by telephone companies to construct new lines in areas already served 
by another carrier and continued to encourage monopoly swapping and consolidation in the name of efficient 
service) (citing Warren G. Lavey, The Public Policies That Changed the Telephone Industry Into Regulated 
Monopolies: Lessons From Around 1915, 39 FED. COMM. L.J. 171, 18485 (1987)); FEDERAL 
TELECOMMUNICATIONS LAW at 17. 
389 A natural monopoly arises when a single firm can efficiently serve the entire market because average costs are 
lower with one firm than with two firms. R. PRESTON MCAFEE, INTRODUCTION TO ECONOMIC ANALYSIS 6241 
(2006), available at http://www.mcafee.cc/Introecon/IEA.pdf; see also DANIEL F. SPULBER, REGULATION AND 
MARKETS 34 (1989) (Natural monopoly generally refers to a property of productive technology, often in 
conjunction with market demand, such that a single firm is able to serve the market at less cost than two or more 
firms. Natural monopoly is due to economies of scale or economies of multiple-output production.). 
390 For discussions of rate of return regulation, see, e.g., JAMES C. BONBRIGHT ET AL., PRINCIPLES OF PUBLIC 
UTILITY RATES 197376 (1988); CHARLES F. PHILLIPS, JR., THE ECONOMICS OF REGULATION: THEORY AND 
PRACTICE IN THE TRANSPORTATION AND PUBLIC UTILITY INDUSTRIES 260302 (1969) (PHILLIPS, THE ECONOMICS 
OF REGULATION); 1 ALFRED E. KAHN, THE ECONOMICS OF REGULATION: PRINCIPLES AND INSTITUTIONS 2058 
(1970) (THE ECONOMICS OF REGULATION). 
391 See, e.g., JONATHAN E. NUECHTERLEIN & PHILIP J.WEISER, DIGITAL CROSSROADS: AMERICAN 
TELECOMMUNICATIONS POLICY IN THE INTERNET AGE 1015 (2007) (DIGITAL CROSSROADS). 
392 See Economic Implications and Interrelationships Arising from Policies and Practices Relating to Customer 
Information, Jurisdictional Separations and Rate Structures, Docket No. 20003, First Report, 61 FCC 2d 766, 796 
97, paras. 8182 (1976).

Federal Communications Commission FCC 08-262 
C-70 
and AT&Ts affiliated Bell Operating Companies (BOCs).393 These high long-distance rates enabled 
regulators to set lower local rates for the BOCs and independent local telephone companies. 
158. The use of microwave technology by Microwave Communications, Inc. (MCI), to offer a 
competitive alternative to AT&Ts switched long-distance service beginning in the 1970s cast into doubt 
the assumption that long-distance telecommunications was a natural monopoly.394 MCI focused initially 
on private line service, where AT&Ts rates were above cost. MCIs service offerings grew after a series 
of Commission and court decisions rejected AT&Ts objections to MCIs entry.395 Despite these 
victories, MCI was not entitled to equal access to local exchange service,396 and MCI and other IXCs 
were dependent on the BOCs and independent local telephone companies to complete long-distance calls 
to the end users.397 
159. For a number of reasons, including AT&Ts resistance to the introduction of competition 
in the long-distance market, the Department of Justice in 1974 filed an antitrust suit alleging that AT&T 
had engaged in unlawful monopolization in the local, long-distance, and equipment manufacturing 
markets.398 After eight years of litigation, AT&T and the Department of Justice entered into a consent 
decree, which federal District Court Judge Greene approved in 1982.399 Under the Modification of Final 
Judgment (MFJ), AT&T agreed to divest its affiliated BOCs from AT&T long distance, and the BOCs 
393 Under the settlements process, the local exchange companies were allowed to recover the portion of their costs 
allocated to the interstate jurisdiction from the interstate toll revenues. The process for affiliated companies was a 
process of intracorporate accounting known as division of revenues, while the process for unaffiliated companies 
represented real payments from AT&T to the independent companies. See THE SECOND INFORMATION REVOLUTION 
at 188. According to Brock, the revenue sharing settlements process was a major source of support for small rural 
companies, which often could recover a large share of their costs from the interstate toll revenue pool (in some cases 
as much as 85 % of their non-traffic sensitive costs). See id. 
394 See DIGITAL CROSSROADS at 6064. 
395 AT&T argued that MCI would cherry pick the most profitable customers (those paying above-cost rates) and 
force AT&T to increase local rates thereby undermining the goal of universal service. AT&T opposed the entry of 
MCI before the Commission and the courts. See FEDERAL TELECOMMUNICATIONS LAW at 60214; Bell System 
Tariff Offerings of Local Distribution Facilities for Use by Other Common Carriers, Docket No. 19896, Decision, 
46 FCC 2d 413 (1974), affd Bell Tel. Co. of Pa. v. FCC, 503 F.2d 1250 (3d Cir. 1974); see also DIGITAL 
CROSSROADS at 6064 (noting that AT&T fought tooth and nail to deprive MCI of effective access and even 
unplugged certain MCI lines from AT&Ts network). 
396 Equal access requires that all long-distance carriers be accessible by dialing a 1 and not a string of long-distance 
codes before dialing the called partys telephone number. See, e.g., HARRY NEWTON, NEWTONS TELECOM 
DICTIONARY 326 (16th ed. 2000). 
397 During much of the 1970s, AT&T and MCI debated before the Commission and courts about the charges that 
MCI should pay the BOCs for originating and terminating interstate calls placed by or to end users on the BOCs 
local networks. In December 1978, under the Commissions supervision, AT&T, MCI, and other IXCs entered into 
a comprehensive interim agreement, known as Exchange Network Facilities for Interstate Access (ENFIA), which 
set the rates that AT&Ts affiliated BOCs would charge IXCs for originating and terminating access to local 
exchange networks. See Exchange Network Facilities for Interstate Access (ENFIA), CC Docket No. 78-371, 
Memorandum Opinion and Order, 71 FCC 2d 440 (1979) (subsequent history omitted). 
398 See United States v. AT&T, 524 F. Supp. 1336, 1346 (D.D.C. 1981). 
399 See United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), affd sub nom. Maryland v. United States, 460 U.S. 
1001 (1983). The 1982 consent decree, as entered by the court, was called the Modification of Final Judgment 
because it modified a 1956 Final Judgment against AT&T stemming from a 1949 antitrust lawsuit. See THE 
TELECOMMUNICATIONS INDUSTRY at 11620.

Federal Communications Commission FCC 08-262 
C-71 
were required to provide equal access and dialing parity.400 In addition, the MFJ barred the BOCs from 
entering the long-distance, information services, equipment manufacturing, or other competitive markets 
to prevent predatory cross subsidization by their regulated monopoly local telephone service.401 Although 
the MFJ applied only to the BOCs, the Commission subsequently extended interconnection and 
nondiscriminatory equal access obligations to all incumbent LECs.402 As a result of the MFJ, MCI, and 
other competitors were able to compete directly with AT&T to provide long-distance or interstate service, 
and all IXCs paid interstate access charges to the BOCs and other incumbent LECs to originate and 
terminate service to end users. 
160. While the AT&T antitrust suit was pending, the Commission began to take the first steps 
toward reforming intercarrier compensation. In 1978, the Commission commenced a review of 
intercarrier compensation for originating and terminating access.403 In 1983, following the MFJ, the 
Commission eliminated the existing potpourri of [compensation] mechanisms,404 and replaced it with a 
single uniform mechanism . . . through which local carriers [could] recover the cost of providing access 
services needed to complete interstate and foreign telecommunications.405 The access charge rules 
adopted by the Commission provided for the recovery of incumbent LECs costs assigned to the interstate 
jurisdiction and detailed the precise manner in which [incumbent LECs] may assess charges on IXCs 
and end users.406 In designing the interstate access charge rules, the Commission sought to balance a 
number of competing objectives.407 For one, the Commission recognized that [a]rtificial pricing 
structures, while perhaps appropriate for use in achieving social objectives under the right conditions, 
cannot withstand the pressures of a competitive marketplace.408 Consequently, the Commission sought 
to follow more closely the principle that costs should be recovered in the way they are incurred, consistent 
400 The Act defines dialing parity to mean that a person that is not an affiliate of a local exchange carrier is able 
to provide telecommunications services in such a manner that customers have the ability to route automatically, 
without the use of any access code, their telecommunications to telecommunications services provider of the 
customers designation from among 2 or more telecommunications services providers (including such local 
exchange carrier). 47 U.S.C.  153(15). 
401 See United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982). 
402 MTS and WATS Market Structure, CC Docket No. 78-72, Phase I, Third Report and Order, 93 FCC 2d 241 
(1983) (1983 Access Charge Order), modified on recon., 97 FCC 2d 682 (1983), modified on further recon., 97 FCC 
2d 834 (1983), affd in part and remanded in part, Natl Assn of Regulatory Util. Commissioners v. FCC, 737 F.2d 
1095 (D.C. Cir. 1984). 
403 See MTS and WATS Market Structure, CC Docket No. 78-72, Notice of Inquiry and Proposed Rulemaking, 67 
FCC 2d 757 (1978); Supplemental Notice of Inquiry and Proposed Rulemaking, 73 FCC 2d 222 (1979); Second 
Supplemental Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 224 (1980); Report and Third Supplemental 
Notice of Inquiry and Proposed Rulemaking, 81 FCC 2d 177 (1980); and Fourth Supplemental Notice of Inquiry 
and Proposed Rulemaking, 90 FCC 2d 135 (1982). 
404 See MTS and WATS Market Structure, CC Docket No. 78-72, Memorandum Opinion and Order, 97 FCC 2d 682, 
683, para. 2 (1983) (First Reconsideration of 1983 Access Charge Order). 
405 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d 682. 
406 See Access Charge Reform Order, 12 FCC Rcd at 1599192, para. 22. 
407 See, e.g., First Reconsideration of 1983 Access Charge Order, 97 FCC 2d at 683, para. 3 (identifying the four 
primary objectives of: (1) elimination of unreasonable discrimination and undue preferences among rates for 
interstate services; (2) efficient use of the local network; (3) prevention of uneconomic bypass; and (4) preservation 
of universal service). 
408 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d. at 686, para. 7.

Federal Communications Commission FCC 08-262 
C-72 
with principles of cost-causation.409 Under this rate structure principle, the cost of facilities that do not 
vary based on the amount of traffic carried over those facilities (i.e., non-traffic-sensitive costs) should be 
recovered through fixed, flat-rated charges, while only costs that vary with usage of facilities (i.e., trafficsensitive 
costs) should be recovered through corresponding per-minute rates.410 
161. Despite these rate structure principles, the Commission concluded that a sudden 
introduction of large flat-rated charges on end-users could have adverse effects on subscribership. It 
therefore adopted a plan [that] provides for the gradual introduction of these end-user charges.411 Thus, 
the Commission limited the amount of the interstate loop costs assessed to residential and business 
customers as a flat-rated monthly charge, and it recovered the remaining interstate loop costs through a 
per-minute charge imposed on IXCs.412 Moreover, the Commission continued to apply traditional rate-ofreturn 
regulation based on carriers embedded, fully distributed costs, including common costs and 
overhead.413 
162. In 1991, the Commission took another step toward intercarrier compensation reform by 
replacing rate-of-return regulation with an incentive-based system of regulation for the BOCs and GTE.414 
This new regulatory regime, known as price cap regulation, was designed to replicate some of the 
efficiency incentives found in competitive markets. In particular, price caps were designed to encourage 
companies to: (1) improve their efficiency by creating incentives to reduce costs; (2) invest efficiently in 
new plant and facilities; and (3) develop and deploy innovative service offerings.415 Although many 
409 See First Reconsideration of 1983 Access Charge Order, 97 FCC 2d. at 68889, para. 10; see also Access 
Charge Reform Order, 12 FCC Rcd at 15992, para. 24 (The Commission has recognized in prior rulemaking 
proceedings that, to the extent possible, costs of interstate access should be recovered in the same way that they are 
incurred, consistent with principles of cost-causation.). 
410 Access Charge Reform Order, 12 FCC Rcd at 15992, para. 23. 
411 1983 Access Charge Order, 93 FCC 2d at 253, para. 35; see also id. at 243, para. 4 (finding that a transitional 
plan is necessary in part because [i]mmediate recovery of high fixed costs through flat end user charges might 
cause a significant number of local exchange service subscribers to cancel local exchange service despite the 
existence of a Universal Service Fund and [s]uch a result would not be consistent with the goals of the 
Communications Act.). As a result, the Commission initially limited the flat rate charge imposed on end users, also 
known as the subscriber line charge or SLC, to $1.00 (subsequent orders raised the cap on the subscriber line charge 
for residential users to $6.50). 
412 This per-minute charge was called the carrier common line charge. See Access Charge Reform Order, 12 FCC 
Rcd at 15992, para. 24. Additional charges were imposed on IXCs to recover the interstate portion of the costs of 
other parts of a local exchange carriers network, such as local switches and transport. See First Reconsideration of 
1983 Access Charge Order, 97 FCC 2d at 73540, paras. 12934, 13743. 
413 See 47 C.F.R.  69.301.502; see also Policy and Rules Concerning Rates for Dominant Carriers, CC Docket 
No. 87-313, Second Report and Order, 5 FCC Rcd 6786, 6787, para. 1 (1990) (LEC Price Cap Order). The rate-ofreturn 
regulations are set forth in Part 69 of our rules. See generally 47 C.F.R.  69.1701. 
414 Price cap regulation was mandatory for the BOCs and GTE and optional for other incumbent local exchange 
carriers. See LEC Price Cap Order, 5 FCC Rcd at 681820, paras. 25779; see also Access Charge Reform; Price 
Cap Performance Review for Local Exchanges Carriers; Interexchange Carrier Purchases of Switch Access 
Services Offered by Competitive Local Exchange Carriers; Petition of U.S. West Commcns, Inc. for Forbearance 
from Regulation as a Dominant Carrier in the Phoenix, Arizona MSA, CC Docket Nos. 96-262, 94-1, 98-157, Fifth 
Report and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221, 14224 n.1 (1999) (Pricing 
Flexibility Order). 
415 LEC Price Cap Order, 5 FCC Rcd at 678991, paras. 2137; Special Access Rates for Price Cap Carriers, WC 
Docket No. 05-25, Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 199899, para. 11 (2005); Section 
(continued.)

Federal Communications Commission FCC 08-262 
C-73 
smaller and rural incumbent LECs remain subject to the Part 69 rate-of-return rules, most of the larger 
incumbent LECs are now subject to price cap regulation.416 
163. The Commissions reforms during the 1980s and early 1990s yielded many public 
interest benefits. For example, economists have estimated that above-cost access charges reduced U.S. 
economic welfare by an estimated $1017 billion annually during the late 1980s, but that the annual 
welfare loss declined substantially to between $2.5 billion and $7 billion following the Commissions 
access charge reforms in the 1980s and early 1990s.417 Despite these reforms, however, per-minute 
access rates remained high.418 These high switched access rates created an opportunity for competitive 
access providers (CAPs) to begin offering facilities-based competition. CAPs could offer carriers a 
competitive alternative to the BOCs, often with lower rates and higher quality.419 The entry of CAPs and 
the potential entry of cable companies into local residential telephone markets created pressure toward 
opening the local telephone markets to competition, which ultimately resulted in the passage of the 1996 
Act. 
2. Intercarrier Compensation Regulation Since the 1996 Act 
164. Recognizing these fundamental market changes, Congresss goals in passing the 1996 
Act were to: (1) open local exchange and exchange access markets to competition; (2) promote increased 
competition in telecommunications markets that were already open to competition; and (3) reform the 
existing universal service system to be consistent with competitive markets.420 With respect to the last 
(continued from previous page) 
272(b)(1)s Operate Independently Requirement for Section 272 Affiliates, WC Docket No. 03-228, CC Docket 
Nos. 96-149, 98-141, 96-149, 01-337, Report and Order, Memorandum Opinion and Order, 19 FCC Rcd 5102, 
5115, para. 22 (2004); Access Charge Reform; Price Cap Performance Review for LECs; Low-Volume Long 
Distance Users; Federal-State Joint Board on Universal Service, CC Docket Nos. 96-262, 94-1, 99-249, 96-45, 
Order on Remand, 18 FCC Rcd 14976, 14979, para. 4 (2003); Cost Review Proceeding for Residential and Single- 
Line Business Subscriber Line Charge (SLC) Caps; Price Cap Performance Review for Local Exchange Carriers, 
CC Docket Nos. 96-262, 94-1, Order, 17 FCC Rcd 10868, 10873, para. 9 (2002). See also Windstream Petition for 
Conversion to Price Cap Regulation and for Limited Waiver Relief, WC Docket No. 07-171, Order, 23 FCC Rcd 
5294 (2008); Petition of Puerto Rico Telephone Company, Inc, for Election of Price Cap Regulation and Limited 
Waiver of Pricing and Universal Service Rules; Consolidated Communications Petition for Conversion to Price Cap 
Regulation and for Limited Waiver Relief; Frontier Petition for Limited Waiver Relief upon Conversion of Global 
Valley Networks, Inc., to Price Cap Regulation, WC Docket Nos. 07-291, 07-292, 08-18, Order, 23 FCC Rcd 7353 
(2008). 
416 See generally 47 C.F.R.  61.1.193, 69.1.701. 
417 See Letter from Jerry Ellig, Senior Research Fellow, Mercatus Center, to Marlene H. Dortch, Secretary, FCC, CC 
Docket Nos. 01-92, 96-45, WC Docket Nos. 08-183, 07-135, 05-337, 99-68 at 2 (filed Sept. 22, 2008) (Mercatus 
Center Sept. 22, 2008 Ex Parte Letter) (citing ROBERT W. CRANDALL, AFTER THE BREAKUP: U.S. 
TELECOMMUNICATIONS IN AMORE COMPETITIVE ERA 141 (1991) and ROBERT W. CRANDALL & LEONARD 
WAVERMAN,WHO PAYS FOR UNIVERSAL SERVICE? 120 (2000)). 
418 Among the reasons that switched access rates remained high were that they were based on fully distributed costs 
and included a large allocation of common and overhead network costs. See supra note 414. 
419 See, e.g., Expanded Interconnection with Local Telephone Company Facilities, CC Docket No. 91-141, 
Memorandum Opinion and Order, 9 FCC Rcd 5154, 5158, para. 8 (1994) (recognizing that local competition should 
lead to more efficient operations, the deployment of new technologies facilitating innovative service offerings, 
increase the choices available to access customers, and reduce the prices of services subject to competition). 
420 See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and 
Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket 
(continued.)

Federal Communications Commission FCC 08-262 
C-74 
goal, Congress recognized that implicit subsidies, which were implemented when the industry was 
considered a natural monopoly, were neither consistent with, nor sustainable in, a competitive market, and 
that they should be replaced with explicit support where necessary.421 It also recognized, however, that 
conversion of the existing web of implicit subsidies to a system of explicit support would be a difficult 
task that could not be accomplished immediately.422 Accordingly, when Congress established the 
statutory scheme to open local markets to competition,423 it included a transitional mechanism in section 
251(g) providing for the continued enforcement of certain pre-Act obligations.424 Notably, section 251(g) 
provides for the continued enforcement of exchange access and interconnection obligations only until 
such restrictions and obligations are explicitly superseded by regulations prescribed by the Commission 
after the date of such enactment, suggesting that such obligations would be re-evaluated based on the 
requirements imposed by the 1996 Act. 425 
165. Congress also recognized the need to impose new obligations on carriers to open local 
telephone markets to competition, and directed the Commission to adopt implementing rules. 
Specifically, section 251(b) imposed certain obligations on all LECs, while section 251(c) imposed 
additional obligations on incumbent LECs, including the obligation to provide access to network elements 
on an unbundled basis.426 Of relevance here, section 251(b)(5) of the 1996 Act imposed on all LECs a 
duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.427 
166. In requiring LECs to enter into reciprocal compensation agreements with requesting 
carriers, Congress introduced another mechanism through which carriers compensate each other for the 
exchange of traffic besides the access charge regime preserved under section 251(g). Although Congress 
expressed a preference for negotiated interconnection agreements to implement the requirements of 
section 251, section 252 provided procedures for the resolution of interconnection disputes involving 
incumbent LECs, including standards governing arbitration of such disputes by state regulatory 
commissions.428 For such state arbitrations, section 252(d) also established general pricing guidelines for 
(continued from previous page) 
Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 15505, para. 3 (1996) (subsequent history omitted) 
(Local Competition First Report and Order). 
421 Specifically, Congress directed that universal service support should be explicit and sufficient to achieve the 
purposes of section 254. 47 U.S.C.  254(e); see also S. REP. NO. 104-230, at 131 (1996) (Conf. Rep) (stating that, 
[t]o the extent possible, . . . any support mechanisms continued or created under new section 254 should be explicit, 
rather than implicit as many support mechanisms are today). 
422 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9. 
423 See 47 U.S.C.  25152; Local Competition First Report and Order, 11 FCC Rcd at 15505, para. 3. 
424 See 47 U.S.C.  251(g); WorldCom, Inc. v. FCC, 288 F.3d 429, 432 (D.C. Cir. 2002) (WorldCom) (subsequent 
history omitted) (holding that section 251(g) appears to provide for the continued enforcement of certain pre-Act 
regulatory interconnection restrictions and obligations); see also Competitive Telecomms. Assn v. FCC, 117 F.3d 
1068, 1072 (8th Cir. 1997) (finding that section 251(g) preserves certain rate regimes already in place and leaves 
the door open for the promulgation of new rates at some future date). 
425 47 U.S.C.  251(g). 
426 See 47 U.S.C.  251(b)(c). Certain rural carriers were exempt from section 251(c) until such time as a 
requesting carrier met the statutory test for removing the so-called rural exemption. See 47 U.S.C.  251(f)(1). 
427 47 U.S.C.  251(b)(5). 
428 47 U.S.C.  252.

Federal Communications Commission FCC 08-262 
C-75 
incumbent LECs, including guidelines for setting the price of unbundled network elements (UNEs)429 and 
reciprocal compensation rates.430 
167. In the Local Competition First Report and Order, the Commission adopted pricing rules 
for states to use in setting the price of interconnection and UNEs when arbitrating interconnection 
disputes.431 In particular, the Commission directed the states to employ a forward-looking, long-run 
average incremental cost methodology, which it called Total Element Long-Run Incremental Cost or 
TELRIC.432 The Commission found that TELRIC prices should include a reasonable allocation of 
forward-looking common costs, including overheads.433 Although the Commission recognized that peakload 
pricing was the most efficient way to recover the cost of traffic-sensitive facilities, it did not require 
states to adopt peak-load pricing because of the administrative difficulties associated with such an 
approach.434 In interpreting the statutory pricing rules for reciprocal compensation contained in section 
252(d)(2)(A) of the 1996 Act,435 the Commission found that costs for transport and termination should 
429 47 U.S.C.  252(d)(1). 
430 See 47 U.S.C.  252(d)(2). 
431 See Local Competition First Report and Order, 11 FCC Rcd at 15812929, paras. 618862 (implementing the 
pricing principles contained in sections 251(c)(2) and (c)(3) and section 252(d)(1) of the 1996 Act); see also 47 
U.S.C.  251(c)(2)(3), 252(d)(1). Among other things, the 1996 Act required incumbent LECs to make portions 
of their networks (the physical facilities and features, functions, and capabilities associated with those facilities) 
available to requesting competitive carriers on an unbundled basis. See Local Competition First Report and Order, 
11 FCC Rcd at 15624, 15631, paras. 241, 258. 
432 See Local Competition First Report and Order, 11 FCC Rcd at 1584456, paras. 672703. 
433 See Local Competition First Report and Order, 11 FCC Rcd at 1585154, paras. 69498; 47 C.F.R.  51.503, 
51.505. The term common costs refers to costs that are incurred in connection with the production of multiple 
products or services, and remains unchanged as the relative proportion of those products or services varies. Local 
Competition First Report and Order, 11 FCC Rcd at 15845, para. 676. In its rules, the Commission defines 
forward-looking common costs as economic costs efficiently incurred in providing a group of elements or 
services . . . that cannot be attributed directly to individual elements or services. 47 C.F.R.  51.505(c)(1). The 
term overhead costs refers to common costs incurred by the firms operations as a whole, such as the salaries of 
executives. Local Competition First Report and Order, 11 FCC Rcd at 15851, para. 694. 
434 The Commission recognized that, [b]ecause the cost of capacity is determined by the volume of traffic that the 
facilities are able to handle during peak load periods, we believe, as a matter of economic theory, that if usagesensitive 
rates are used, then somewhat higher rates should apply to peak period traffic, with lower rates for nonpeak 
usage. Local Competition First Report and Order, 11 FCC Rcd at 15878, para. 755. The Commission 
recognized that higher costs are incurred to carry additional traffic at peak volumes, because additional capacity is 
required to carry that traffic. Id. at 15878, para. 755. In contrast, off-peak traffic imposes relatively little additional 
cost because it does not require any incremental capacity to be added to base plant. Id. at 15878, para. 755. The 
Commission found that there would be administrative difficulties with establishing peak-load prices, however, and 
did not require or forbid states from adopting that approach. Id. at 1587879, paras. 75657. 
435 See generally Local Competition First Report and Order, 11 FCC Rcd at 1600858, paras. 1027118 
(implementing the reciprocal compensation obligations contained in section 251(b)(5) of the 1996 Act). The 
reciprocal compensation rules currently require the calling partys LEC to compensate the called partys LEC for the 
additional costs associated with transporting a call subject to section 251(b)(5) from the carriers interconnection 
point to the called partys end office, and for the additional costs of terminating the call to the called party. Section 
51.701(c) of the Commissions rules defines transport as the transmission and any necessary tandem switching of 
telecommunications traffic subject to section 251(b)(5) of the Act from the interconnection point between the two 
carriers to the terminating carriers end office switch that directly serves the called party, or equivalent facility 
provided by a carrier other than an incumbent LEC. 47 C.F.R.  51.701(c). Section 51.701(d) of the 
(continued.)

Federal Communications Commission FCC 08-262 
C-76 
be recovered in a cost-causative manner and that usage based charges should be limited to situations 
where costs are usage sensitive.436 In particular, the Commission found that the additional costs to the 
LEC of terminating a call that originates on another carriers network primarily consists of the trafficsensitive 
component of local switching and that non traffic-sensitive costs, such as the costs of local 
loops and line ports, should not be considered additional costs.437 The Commission further found that 
the additional costs standard of section 252(d)(2) permits the use of the same TELRIC standard that it 
established for interconnection and unbundled elements.438 The pricing rules governing reciprocal 
compensation that the Commission adopted in the Local Competition First Report and Order remain in 
effect today.439 
168. Following passage of the 1996 Act, the Commission also began reforming both interstate 
access charges and federal universal service support mechanisms by moving the implicit subsidies 
contained in interstate access charges into explicit universal service support, consistent with the 1996 
Acts directives. In particular, in the 1997 Access Charge Reform Order, the Commission modified the 
price cap rules for larger incumbent LECs by aligning the price cap LECs rate structure more closely 
with the manner in which costs are incurred.440 Recognizing Congresss direction that universal service 
(continued from previous page) 
Commissions rules defines termination as the switching of telecommunications traffic at the terminating carriers 
end office switch, or equivalent facility, and delivery of such traffic to the called partys premises. 47 C.F.R. 
 51.701(d). In the Local Competition First Report and Order, the Commission also concluded that the new 
transport and termination rules should be applied to LECs and CMRS providers. 11 FCC Rcd at 1601617, para. 
1043. 
436 Local Competition First Report and Order, 11 FCC Rcd at 16028, para. 1063. This determination led to perminute 
pricing for transport and termination, except in the case of dedicated facilities, which may be flat-rated. Id. 
at 16028, para. 1063. Specifically, the Commission required that all interconnecting parties be offered the option of 
purchasing dedicated facilities on a flat-rated basis. Id. at 16028, para. 1063. 
437 Local Competition First Report and Order, 11 FCC Rcd at 1602425, para. 1057. Although the Commission 
concluded that non-traffic sensitive costs should not be considered additional costs, the only non-traffic sensitive 
costs specifically identified and required to be removed were the costs of local loops and line ports. Id. at 16025, 
para. 1057. 
438 Local Competition First Report and Order, 11 FCC Rcd at 1602325, paras. 105458. As with its pricing rules 
for UNEs, the Commission determined that termination rates established pursuant to the TELRIC methodology 
should include a reasonable allocation of forward-looking common costs. Id. at 16025, para. 1058. Similarly, the 
Commission again noted that the costs of transporting and terminating traffic during peak and off-peak hours may 
not be the same. Id. at 1602829, para. 1064. In light of administrability concerns, the Commission once again 
neither required nor forbid states from adopting rates that reflected peak and off-peak costs, but expressed hope that 
some states or negotiating parties would consider peak-load pricing. Id. at 1602829, para. 1064. 
439 A number of parties appealed the Commissions Local Competition First Report and Order, including the rules it 
adopted governing the setting of rates for unbundled network elements and reciprocal compensation. In AT&T v. 
Iowa Utilities Board, the Supreme Court upheld the Commissions jurisdiction to design a pricing methodology to 
govern state rate setting under section 252 of the Act. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 397 (1999) 
(AT&T v. Iowa Utils. Bd.). Subsequently, in Verizon Commcns, Inc. v. FCC, the Supreme Court affirmed the 
Commissions choice of TELRIC as a permissible methodology for states to use in ratemaking proceedings. 
Verizon Commcns, Inc. v. FCC, 535 U.S. 467, 497529 (2002) (Verizon v. FCC). The court held that the 
Commissions decision to adopt a forward-looking cost methodology was a reasonable interpretation of the statute 
and that the Commission did not err in rejecting alternative methodologies advocated by the incumbent LECs. 
Verizon v. FCC, 535 U.S. at 50708. The Court also rejected arguments that various aspects of the TELRIC 
methodology were unlawful. Verizon v. FCC, 535 U.S. at 523. 
440 See Access Charge Reform Order, 12 FCC Rcd at 1600407, paras. 5466 (summarizing the rate structure 
changes).

Federal Communications Commission FCC 08-262 
C-77 
support should be explicit, the Commission adopted rules to reduce usage-sensitive interstate access 
charges by phasing out local loop and other non-traffic sensitive costs from those charges and directing 
incumbent LECs to recover those NTS [non-traffic sensitive] costs through more economically efficient, 
flat-rated charges.441 
169. The Commission acknowledged, however, that the measures it adopted in the Access 
Charge Reform Order would not remove all implicit support from all access charges immediately.442 
Rejecting suggestions that all implicit subsidies be eliminated from access charges immediately, the 
Commission noted that it did not have the tools to identify the existing subsidies precisely, and it 
expressed concern that eliminating all implicit subsidies at once might have an inequitable impact on the 
incumbent LECs.443 Moreover, while stating its desire to rely on competition to drive access charges 
toward cost,444 the Commission recognized that some services may prove resistant to competition, and 
it reserved the right to adjust rates in the future to bring them into line with forward-looking costs.445 
170. To limit possible rate shock to retail customers, the Commission also limited the amount 
of allocated interstate cost of a local loop that could be assessed directly on residential and business 
customers as a flat-rated monthly charge.446 Although the Access Charge Reform Order started the 
process toward establishing explicit subsidies, the Commission concluded that a process that eliminates 
implicit subsidies from access charges over time [was] warranted.447 
441 Access Charge Reform Order, 12 FCC Rcd at 15986, para. 6. 
442 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9. 
443 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9; see also id. at 1600203, paras. 4547. 
444 Explaining its reliance on a market-based approach to access reform, it stated its belief that emerging 
competition in the local exchange markets would provide a more accurate means of identifying implicit subsidies 
and moving access rates to economically sustainable levels. Access Charge Reform Order, 12 FCC Rcd at 16001 
02, para. 44. 
445 Access Charge Reform Order, 12 FCC Rcd at 16003, para. 48. The Commission also applied its market-based 
approach to the terminating access rates charged by competitive LECs and declined to adopt any regulations 
governing competitive LEC access charges. Id. at 16141, para. 363. It reasoned that the possibility of 
competitive responses by IXCs will have a constraining effect on non-incumbent LEC pricing. Id. at 16141, para. 
362. This reliance on a market-based approach proved misplaced. In subsequent years, competitive LECs, instead 
of reducing access charges, frequently raised them above the regulated rates of incumbent LECs. As a result, the 
Commission was forced to regulate competitive LEC access charges. See 47 C.F.R.  61.26; Access Charge 
Reform, Reform of Access Charges Imposed by Competitive Local Exchange Carriers, CC Docket No. 96-262, 
Seventh Report and Order, 16 FCC Rcd 9923, 9924, paras. 13 (2001) (CLEC Access Charge Order) (establishing 
benchmark rates for competitive LEC access charges), recon., Access Charge Reform, Reform of Access Charges 
Imposed by Competitive Local Exchange Carriers, Petition of Z-Tel Commcns Inc. For Temporary Waiver of 
Commission Rule 61.26(d) to Facilitate Deployment of Competitive Service in Certain Metropolitan Statistical 
Areas, CC Docket No. 96-262, CCB/CPD File No. 01-19, Eighth Report and Order and Fifth Order on 
Reconsideration, 19 FCC Rcd 9108 (2004) (CLEC Access Charge Recon. Order). 
446 See, e.g., Access Charge Reform Order, 12 FCC Rcd at 1601011, para 73. To reduce per-minute carrier 
common line (CCL) charges, the Commission created the presubscribed interexchange carrier charge (PICC), a flatrated, 
monthly charge imposed on IXCs on a per-line basis. Id. at 1599816000, paras. 3740. The Commission 
also shifted the cost of line ports from per-minute local switching charges to the common line category and 
established a mechanism to phase out the per-minute Transport Interconnection Charge (TIC). Id. at 1603540, 
1607386, paras. 12534, 21043. 
447 Access Charge Reform Order, 12 FCC Rcd at 15987, para. 9.

Federal Communications Commission FCC 08-262 
C-78 
171. In the 2000 CALLS Order,448 the Commission continued its effort to remove implicit 
subsidies and replace them with explicit universal service support for price cap LECs by, among other 
things, reducing per-minute intercarrier charges, raising the SLC cap, phasing out the Presubscribed 
Interexchange Carrier Charge (PICC),449 and permitting price-cap LECs to deaverage the SLC once the 
affected carrier charges were eliminated.450 The Commission also created a new universal service fund to 
compensate price-cap incumbent LECs, in part, for lost interstate access revenues.451 
172. In the MAG Order, the Commission extended similar reforms to incumbent LECs subject 
to rate-of-return regulation.452 As with the CALLS Order, these reforms were designed to rationalize the 
interstate access rate structure by aligning it more closely with the manner in which costs are incurred.453 
Among other things, the MAG Order increased the SLC caps for rate-of-return carriers and phased out the 
per-minute CCL charge from the common line rate structure.454 The Commission also created a universal 
service support mechanism to replace implicit support with explicit support, in order to foster competition 
and more efficient pricing.455 Many, but not all, states have also addressed intercarrier compensation 
448 See CALLS Order, 15 FCC Rcd 12962. 
449 See supra note 455 (discussing the PICC). 
450 See generally CALLS Order, 15 FCC Rcd at 1302528, paras. 15159 (reducing interstate switched access rates); 
id. at 1299113007, paras. 76112 (raising SLC caps and eliminating PICCs); id. at 1300714, paras. 11328 
(deaveraging SLCs). 
451 See CALLS Order, 15 FCC Rcd at 1304649, paras. 20105 (establishing a $650 million interstate access 
universal service support mechanism). 
452 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, Second Report and Order and Further 
Notice of Proposed Rulemaking, 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 From Interstate 
Services of Local Exchange Carriers, CC Docket No. 98-166, Report and Order, 16 FCC Rcd 19613 (2001) (MAG 
Order), recon. in part, Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent Local 
Exchange Carriers and Interexchange Carriers, CC Docket No. 00-256, First Order on Reconsideration, Federal- 
State Joint Board on Universal Service, CC Docket 96-45, Twenty-Fourth Order on Reconsideration, 17 FCC Rcd 
5635 (2002), amended on recon., Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent 
Local Exchange Carriers and Interexchange Carriers, CC Docket No. 00-256, Federal-State Joint Board on 
Universal Service, CC Docket 96-45, Third Order on Reconsideration, 18 FCC Rcd 10284 (2003); see also Multi- 
Association Group (MAG) Plan for Regulation of Non-Price Cap Incumbent Local Exchange Carriers and 
Interexchange Carriers; Federal-State Joint Board on Universal Service, CC Docket Nos. 00-256, 96-45, Report 
and Order and Second Further Notice of Proposed Rulemaking, 19 FCC Rcd 4122 (2004). 
453 MAG Order, 16 FCC Rcd at 19617, para. 3. 
454 MAG Order, 16 FCC Rcd at 19621, para. 15. 
455 MAG Order, 16 FCC Rcd at 19617, para. 3. A new universal service support mechanism, Interstate Common 
Line Support (ICLS), was implemented to replace the CCL charge beginning July 1, 2002. Id. at 19621, para. 15. 
This mechanism recovers any shortfall between the allowed common line revenue requirement of rate-of-return 
carriers and their SLC and other end-user revenues, thereby ensuring that changes in the rate structure did not affect 
the overall recovery of interstate access costs by rate-of-return carriers serving high-cost areas. Id. at 19642, 19667 
73, paras. 61, 12841. To reform the local switching and transport rate structure of rate-of-return carriers, the 
Commission shifted the non-traffic sensitive costs of local switch line ports to the common line category, and 
reallocated the remaining costs contained in the TIC to other access rate elements, thus reducing per-minute 
switched access charges. Id. at 1964961, paras. 76111.

Federal Communications Commission FCC 08-262 
C-79 
regulation. In addition to setting rates for reciprocal compensation, many states have revised their rules 
governing intrastate access charges. Although some states have chosen to mirror interstate access 
charges, 456 others continue to maintain intrastate access charges that far exceed interstate charges.457 
3. Problems Associated With the Existing Intercarrier Compensation Regimes 
173. The introduction of competition into local telephone markets revealed weaknesses in the 
existing intercarrier compensation regimes that remained notwithstanding the efforts of the Commission 
and certain states to reform interstate and intrastate access charges. As the Commission observed in 2001, 
[i]nterconnection arrangements between carriers are currently governed by a complex system of 
intercarrier compensation regulations . . . [that] treat different types of carriers and different types of 
services disparately, even though there may be no significant differences in the costs among carriers or 
services.458 We have seen numerous examples of regulatory arbitrage in the marketplace both because 
of the different rates for similar functions under different intercarrier compensation regimes and because 
none of these regimes currently set rate levels in an economically efficient manner.459 
174. One example of regulatory arbitrage involves traffic to dial-up ISPs. Following adoption 
of the Local Competition First Report and Order, state commissions set reciprocal compensation rates for 
the exchange of local traffic. These reciprocal compensation rates were sufficiently high that many 
competitive LECs found it profitable to target and serve ISP customers who were large recipients of local 
traffic, since dial-up Internet customers would call their ISP and then stay on the line for hours. This 
practice led to significant traffic imbalances, with competitive LECs seeking billions of dollars in 
reciprocal compensation payments from other LECs.460 The Commission responded by adopting a 
separate interim intercarrier compensation regime for this traffic. 
175. On February 26, 1999, the Commission issued a Declaratory Ruling and Notice of 
Proposed Rulemaking in which it held that ISP-bound traffic is jurisdictionally interstate because end 
users access websites across state lines. Because the Local Competition First Report and Order 
concluded that the reciprocal compensation obligation in section 251(b)(5) applied to only local traffic, 
456 See, e.g., BA-WVs Intrastate Access Charges, Case No. 00-0318-T-GI, Commission Order, 2001 WL 935643 
(West Virginia PSC June 1, 2001) (ordering that the traffic-sensitive intrastate access charges of Verizon-WV shall 
be modified to mirror the interstate rate structure and rate elements); Tariff Filing of BellSouth 
Telecommunications, Inc to Mirror Interstate Rates, Case No. 98-065, Order (Kentucky PSC Mar. 31, 1999) 
(requiring BellSouth to eliminate the state-specific Non-Traffic Sensitive Revenue Requirement . . . , thus moving 
its aggregate intrastate switched access rate to the FCCs CALLS interstate rate); Establishment of Carrier-to- 
Carrier Rules, Case No. 06-1344-TP-ORD, Order, 2007 WL 3023991 (Ohio PUC Oct. 17, 2007) ([T]his 
Commission requires ILECs to mirror their interstate switched access rate on the intrastate side . . . .). 
457 See, e.g., Letter from David C. Bartlett, Vice President of Federal Government Affairs, Embarq, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92, Exh. C (filed Aug. 1, 2008) (noting intrastate terminating switched 
access rates five to ten times higher than interstate rates in Missouri, Washington, Virginia, and several other States). 
458 Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Notice of Proposed 
Rulemaking, 16 FCC Rcd 9610 (2001) (Intercarrier Compensation NPRM). 
459 The phrase regulatory arbitrage refers to profit-seeking behavior that can arise when a regulated firm is 
required to set difference prices for products or services with a similar cost structure. See, e.g., PATRICK DEGRABA, 
BILL AND KEEP AT THE CENTRAL OFFICE AS THE EFFICIENT INTERCONNECTION REGIME 1, para. 2 n.3 (Federal 
Communications Commission, OPP Working Paper No. 33, 2000), available at 
http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp33.pdf. 
460 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket Nos. 96-98, 99-68, Order on Remand and 
Report and Order, 16 FCC Rcd 9151, 9183, para. 70 (2001) (subsequent history omitted) (ISP Remand Order).

Federal Communications Commission FCC 08-262 
C-80 
the Commission found in the Declaratory Ruling that ISP-bound traffic is not subject to section 
251(b)(5).461 On March 24, 2000, in the Bell Atlantic decision, the United States Court of Appeals for the 
District of Columbia Circuit (D.C. Circuit) vacated certain provisions of the Declaratory Ruling.462 The 
court did not question the Commissions finding that ISP-bound traffic is interstate. Rather, the court 
held that the Commission had not adequately explained how its end-to-end jurisdictional analysis was 
relevant to determining whether a call to an ISP is subject to reciprocal compensation under section 
251(b)(5).463 In particular, the court noted that a LEC serving an ISP appears to perform the function of 
termination because the LEC delivers traffic from the calling party through its end office switch to the 
called party, the ISP.464 
176. On April 27, 2001, the Commission released the ISP Remand Order, which concluded 
that section 251(g) excludes ISP-bound traffic from the scope of section 251(b)(5).465 The Commission 
explained that section 251(g) maintains the pre-1996 Act compensation requirements for exchange 
access, information access, and exchange services for such access, thereby excluding such traffic from 
the reciprocal compensation requirements that the 1996 Act imposed. The Commission concluded that 
ISP-bound traffic is information access and, therefore, is subject instead to the Commissions section 
201 jurisdiction over interstate communications.466 The Commission concluded that a bill-and-keep 
regime might eliminate incentives for arbitrage and force carriers to look to their own customers for cost 
recovery.467 To avoid a flash cut to bill-and-keep, however, the Commission adopted an interim 
compensation regime pending completion of the Intercarrier Compensation proceeding.468 
461 See Intercarrier Compensation for ISP-Bound Traffic, CC Docket Nos. 96-98, 99-68, Declaratory Ruling and 
Notice of Proposed Rulemaking, 14 FCC Rcd 3689, 370306, paras. 2127 (1999) (Declaratory Ruling), vacated 
and remanded, Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) (Bell Atlantic). 
462 Bell Atlantic, 206 F.3d at 1. 
463 See Bell Atlantic, 206 F.3d at 5. 
464 Bell Atlantic, 206 F.3d at 6. 
465 See ISP Remand Order, 16 FCC Rcd at 917172, para. 44. 
466 See ISP Remand Order, 16 FCC Rcd at 9175, para. 52. Thus, the Commission affirmed its prior finding in the 
Declaratory Ruling that ISP-bound traffic is jurisdictionally interstate. See id; see also Declaratory Ruling, 14 FCC 
Rcd at 370103, paras. 1820. 
467 ISP Remand Order, 16 FCC Rcd at 918485, paras. 7475. The Commission discussed at length the market 
distortions and regulatory arbitrage opportunities created by the application of per-minute reciprocal compensation 
rates to ISP-bound traffic. In particular, the Commission found that requiring compensation for this type of traffic at 
existing reciprocal compensation rates undermined the operation of competitive markets because competitive LECs 
were able to recover a disproportionate share of their costs from other carriers, thereby distorting the price signals 
sent to their ISP customers. See id. at 918186, paras. 6776. 
468 See ISP Remand Order, 16 FCC Rcd at 915557, paras. 78. The interim regime adopted by the Commission 
consisted of: (1) a gradually declining cap on intercarrier compensation for ISP-bound traffic, beginning at $.0015 
per minute-of-use and declining to $.0007 per minute-of-use; (2) a growth cap on total ISP-bound minutes for which 
a LEC may receive this compensation; (3) a new markets rule requiring bill-and-keep for the exchange of this 
traffic if two carriers were not exchanging traffic pursuant to an interconnection agreement prior to the adoption of 
the interim regime; and (4) a mirroring rule that gave incumbent LECs the benefit of the rate cap only if they 
offered to exchange all traffic subject to section 251(b)(5) at the same rates. Id. at 918789, 919394, paras. 78, 80, 
89. In a subsequent order, the Commission granted forbearance to all telecommunications carriers with respect to 
the growth caps and the new markets rule. See Petition of Core Commcns Inc. for Forbearance Under 47 U.S.C. 
 160(c) from Application of the ISP Remand Order, WC Docket No. 03-171, Order, 19 FCC Rcd 20179 (2004) 
(Core Forbearance Order). Thus, only the rate caps and mirroring rule remain in effect today.

Federal Communications Commission FCC 08-262 
C-81 
177. On May 3, 2002, the D.C. Circuit found that the Commission had not provided an 
adequate legal basis for the rules it adopted in the ISP Remand Order.469 Once again, the court did not 
question the Commissions finding that ISP-bound traffic is jurisdictionally interstate. Rather, the court 
held that section 251(g) of the Act did not provide a basis for the Commissions decision. The court held 
that section 251(g) is simply a transitional device that preserved obligations that predated the 1996 Act 
until the Commission adopts superseding rules, and there was no pre-1996 Act obligation with respect to 
intercarrier compensation for ISP-bound traffic.470 Although the court rejected the legal rationale for the 
interim compensation rules, the court remanded, but did not vacate, the ISP Remand Order to the 
Commission, and it observed that there is plainly a non-trivial likelihood that the Commission has 
authority to adopt the rules.471 Accordingly, the interim rules adopted in the ISP Remand Order have 
remained in effect. 
178. On November 5, 2007, Core filed a petition for writ of mandamus with the D.C. Circuit 
seeking to compel the Commission to enter an order resolving the courts remand in the WorldCom 
decision.472 On July 8, 2008, the court granted a writ of mandamus and directed the Commission to 
respond to the WorldCom remand in the form of a final, appealable order that explains the legal authority 
for the Commissions interim intercarrier compensation rules that exclude ISP-bound traffic from the 
reciprocal compensation requirement . . . .473 The court directed the Commission to respond to the writ 
of mandamus by November 5, 2008.474 
179. Another regulatory arbitrage opportunity arose as a result of the Commissions 1997 
decision not to regulate the interstate access charges of competitive LECs. As a result, many competitive 
LECs filed tariffs with access charges that were well above the rates charged by incumbent LECs for 
similar services.475 In response, the Commission adopted new rules that effectively capped the interstate 
access charges that competitive LECs could tariff.476 
469 See WorldCom, 288 F.3d at 429. 
470 See WorldCom, 288 F.3d at 433. 
471 See WorldCom, 288 F.3d at 434. 
472 Pet. for Writ of Mandamus, In re Core Communications Inc., No. 07-1446 (D.C. Cir. Nov. 5, 2007). 
473 In re Core Commcns Inc., 531 F.3d 849, at 86162 (D.C. Cir. 2008) (Core Decision). 
474 See Core Decision, 531 F.3d at 86162. If the Commission fails to comply with the writ by the November 5th 
deadline, the interim rules will be vacated on November 6, 2008. See id. at 862. 
475 See CLEC Access Charge Order, 16 FCC Rcd at 9931, para. 22. For instance, the Commission found that certain 
competitive LECs charged $0.09 per minute and that the weighted average of competitive LEC access rates was 
above $0.04 per minute. Id. In contrast, the same underlying data showed a composite incumbent LEC rate of 
$0.0056 for that same traffic. See AT&T Additional Comments, CC Docket Nos. 96-262, 97-146, CCB/CPD File 
No. 98-63, App. A. (Jan. 11, 2001). The Commission found that competitive LECs could impose excessive charges 
due to two factors. First, the Commission observed that access charges are paid by the IXC rather than the end-user 
customer. Because the IXC has no ability to affect the calling or called partys choice of service providers, it cannot 
avoid carriers with high access charges. CLEC Access Charge Order, 16 FCC Rcd at 9935, para. 31. Second, the 
Commission found that the rate averaging requirements in section 254(g) of the Act precluded IXCs from passing 
through particular competitive LECs excessive access charges to the end user customers of those competitive 
LECs. Id. As a result, the Commission found the existing regulatory regime did not effectively create the incentives 
for the end users to select a lower-priced access provider. Id. 
476 See 47 C.F.R.  61.26 (containing rules governing the tariffing of competitive LEC interstate switched exchange 
access services). As a general matter, the Commissions rules governing competitive LEC access charges limit 
these rates to those charged by the competing incumbent LEC. Id. 

Federal Communications Commission FCC 08-262 
C-82 
180. Two more recent examples of regulatory arbitrage involve billing problems and the 
Access Stimulation problem. Commenters describe problems billing for traffic when it arrives for 
termination with insufficient identifying information.477 Because the existing intercarrier compensation 
mechanisms have vastly disparate rates that apply to different types of traffic, carriers have both the 
opportunity and incentive to disguise the nature, or conceal the source, of the traffic being sent in order to 
avoid or reduce payments to other carriers.478 Access Stimulation refers to allegations that certain 
LECs may have entered into agreements with providers of services that generate large volumes of 
incoming calls to substantially increase the number of calls sent to the LEC.479 It has been alleged that 
this significantly increased growth in terminating access traffic may be causing carriers rates to become 
unjust or unreasonable in violation of section 201 of the Act.480 In the Access Stimulation NPRM, the 
Commission has sought information about the extent of this practice, its potential impact on the rates of 
price cap, rate-of-return, and competitive LECs, and how this practice should be addressed.481 
B. Comprehensive Reform 
1. Introduction 
181. Evidence of increasing regulatory arbitrage, as well as increased competition and changes 
in technology, has led the Commission to consider comprehensive reform of intercarrier compensation. 
In 2001, the Commission adopted a Notice of Proposed Rulemaking to examine possible alternatives to 
existing intercarrier regimes with the intent of moving toward a more unified system.482 The notice 
generated extensive comments that generally confirmed the need for comprehensive intercarrier 
compensation reform, including a number of competing proposals.483 In 2005, the Commission adopted a 
477 See infra Part V.D. 
478 See infra para. 326. 
479 See, e.g., Qwest Commcns Corp. v. Farmers and Merchs. Mut. Tel. Co., File No. EB-07-MD-001, Memorandum 
Opinion and Order, 22 FCC Rcd 17973, para. 1 (2007) (addressing Qwests allegations that Farmers deliberately 
planned to increase dramatically the amount of terminating access traffic delivered to its exchange, via agreements 
with conference calling companies). 
480 See Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135, Notice of 
Proposed Rulemaking, 22 FCC Rcd 17989, para. 1 (2007) (Access Stimulation NPRM). 
481 Access Stimulation NPRM, 22 FCC Rcd 17989. 
482 See Intercarrier Compensation NPRM, 16 FCC Rcd 9610. The Commission acknowledged a number of 
problems with the existing regimes, including inefficient rates and different rates for the same types of calls. Id. at 
961618, paras. 1118. The Commission thus sought comment on alternative approaches to reforming intercarrier 
compensation, including moving to a bill-and-keep approach to intercarrier compensation. Id. at 961113, paras. 2 
4. 
483 See, e.g., Regulatory Reform Proposal of the Intercarrier Compensation Forum (ICF Proposal), attached to Letter 
from Gary M. Epstein and Richard R. Cameron, Counsel for the Intercarrier Compensation Forum, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92, App. A (filed Oct. 5, 2004) (ICF Oct. 5, 2004 Ex Parte Letter); 
Comprehensive Plan For Intercarrier Compensation Reform of Expanded Portland Group (EPG Proposal), attached 
to Letter from Glenn H. Brown, EPG Facilitator, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed 
Nov. 2, 2004); Intercarrier Compensation Reform Plan of Alliance for Rational Intercarrier Compensation (ARIC 
Plan), attached to Letter from Wendy Thompson Fast, President, Consolidated Companies, and Ken Pfister, Vice 
PresidentStrategic Policy, Great Plains Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 
01-92, 96-45, 99-68, 96-98, WC Docket No. 04-36 (filed Oct. 25, 2004); Cost-Based Intercarrier Compensation 
Coalition (CBICC Proposal), attached to Letter from Richard M. Rindler, Counsel for the Cost-Based Intercarrier 
Compensation Coalition, to Marlene Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept. 2, 2004); Updated 
Ex Parte of Home Telephone Company, Inc. and PBT Telecom (Home/PBT Proposal), attached to Letter from 
(continued.)

Federal Communications Commission FCC 08-262 
C-83 
Further Notice of Proposed Rulemaking seeking comment on the various industry proposals.484 In 2006, 
another industry coalition submitted an alternative comprehensive intercarrier compensation reform 
proposal, known as the Missoula Plan.485 The Commission separately requested and received comments 
on the Missoula Plan proposal.486 Finally, in 2008, the Commission stabilized the universal service fund 
by adopting an interim cap on payments to competitive ETCs, helping pave the way for comprehensive 
intercarrier compensation and universal service reform, and leading to a number of new reform 
proposals.487 
182. As a result of the Intercarrier Compensation NPRM, the Intercarrier Compensation 
FNPRM, the filing of the Missoula Plan, and the more recent proposals that have been filed, the 
Commission has compiled an extensive record over the past seven years. The Commission has received 
comments or proposals from a wide variety of interested parties, including, states, incumbent LECs, 
competitive LECs, rural companies, IXCs, new technology companies, consumer advocates, business 
customers, and industry associations. As demonstrated throughout this order, the Commission has 
thoroughly reviewed and analyzed the voluminous record, has considered the evidence submitted by the 
parties supporting the alternatives, and has carefully evaluated each of the proposals that have been 
presented. Based on this examination of the options, we find that the approach we describe below and 
adopt in this order best achieves the goals of promoting universal service, encouraging the efficient use 
of, and investment in, broadband technologies, spurring competition, and ultimately, further reducing the 
need for regulation. 
2. A New Approach to Intercarrier Compensation 
183. Since the introduction of competition into long-distance telephone service, the 
Commission has moved toward eliminating implicit subsidies from intercarrier charges. At every stage, 
however, the Commission has had to balance the desire to establish more efficient intercarrier charges 
(continued from previous page) 
Keith Oliver, Vice President, Finance, Home Telephone Company, and Ben Spearman, Vice President, Chief 
Regulatory Officer, PBT Telecom, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 2, 
2004); NASUCA Intercarrier Compensation Proposal at 1 (NASUCA Proposal), attached to Letter from Philip F. 
McClelland, Senior Assistant Consumer Advocate, NASUCA, to Marlene Dortch, Secretary, FCC, CC Docket No. 
01-92 (filed Dec. 14, 2004); Western Wireless Intercarrier Compensation Reform Plan at 9 (Western Wireless 
Proposal), attached to Letter from David L. Sieradzki, Counsel for Western Wireless Corp., to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 (filed Dec. 1, 2004). 
484 See Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Further Notice of Proposed 
Rulemaking, 20 FCC Rcd 4685, 4687, para. 4 (2005) (Intercarrier Compensation FNPRM). 
485 See Missoula Plan for Intercarrier Compensation Reform (Missoula Plan), attached to Letter from Tony Clark, 
Commissioner and Chair, NARUC Committee on Telecommunications, Ray Baum, Commissioner and Chair, 
NARUC Task Force, and Larry Landis, Commissioner and Vice-Chair, NARUC Task Force, to Hon. Kevin Martin, 
Chmn., FCC, CC Docket No. 01-92 (filed July 24, 2006) (NARUC Task Force July 24, 2006 Ex Parte Letter). 
486 Comment Sought on Missoula Intercarrier Compensation Reform Plan, CC Docket No. 01-92, Public Notice, 21 
FCC Rcd 8524 (2006). Subsequently, the Missoula Plan supporters filed additional details concerning specific 
aspects of the plan, on which the Commission continued to seek comment. See Comment Sought on Missoula Plan 
Phantom Traffic Interim Process and Call Detail Records Proposal, CC Docket No. 01-92, Public Notice, 21 FCC 
Rcd 13179 (2006); Comment Sought on Amendments to the Missoula Plan Intercarrier Compensation Proposal to 
Incorporate a Federal Benchmark Mechanism, CC Docket No. 01-92, Public Notice, 22 FCC Rcd 3362 (2007). 
487 The Commission invited parties to refresh the record in these and other relevant dockets. Interim Cap Clears 
Path for Comprehensive Reform: Commission Poised to Move Forward on Difficult Decisions Necessary to 
Promote and Advance Affordable Telecommunications for All Americans, News Release (May 2, 2008), available at 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf. 

Federal Communications Commission FCC 08-262 
C-84 
against the potential adverse effects on consumers (in the form of higher flat-rated charges) and carriers 
(in the form of reduced intercarrier revenues). The introduction of competition into local telephone 
markets accelerated the need for reform. As discussed above, since the implementation of the 1996 Act, 
not only has local competition increased, but so has the incidence and severity of regulatory arbitrage. 
184. We conclude today that, with the universal service fund now stabilized, we can wait no 
longer to begin the process of comprehensive intercarrier compensation reform. The differences in 
existing intercarrier compensation regimes impose significant inefficiencies on users and distort carriers 
investment incentives, which can result in losses of billions of dollars in consumers and producers 
surplus. Possibly more important, these legacy regulatory regimes pose an obstacle to the transition to an 
all-IP broadband world. Because carriers currently can receive significant revenues from charging abovecost 
rates to terminate telecommunications traffic, they have a reduced incentive to upgrade their 
networks to the most efficient technology or to negotiate interconnection agreements that are designed to 
accommodate the efficient exchange of IP traffic, as both actions would likely lead to reduced intercarrier 
payments.488 
185. In this order, we therefore adopt a new approach to intercarrier compensation and 
establish the blueprint for moving to new uniform termination rates that are economically efficient and 
sustainable in our increasingly competitive telecommunications markets. At the same time, we recognize, 
as the Commission has in the past, the need to be cognizant of market disruptions and potential adverse 
effects on consumers and carriers of moving too quickly from the existing intercarrier compensation 
regimes to our new uniform approach to intercarrier compensation. Accordingly, we adopt here a gradual 
ten-year transition plan with separate stages, designed to reduce rates over a sufficient period to minimize 
market disruptions and to cushion the impact of our reform on both customers and carriers. At the end of 
the transition period, all telecommunications traffic will be treated as falling within the reciprocal 
compensation provisions of section 251(b)(5), and states will set default reciprocal compensation rates 
pursuant to the new methodology we adopt herein. 
186. The requirements that we adopt for intercarrier compensation do not apply to providers 
operating in Alaska, Hawaii, or any U.S. Territories and possessions. We find that these areas have very 
different attributes and related cost issues than the continental states.489 For this reason, we are exempting 
providers in Alaska, Hawaii and U.S. Territories and possessions from the requirements and rules adopted 
herein, and we will address them in a subsequent proceeding.490 
187. Transition Plan. As described below, we adopt a ten-year transition plan.491 In the first 
488 See, e.g., T. RANDOLPH BEARD & GEORGE S. FORD, DO HIGH CALL TERMINATION RATES DETER BROADBAND 
DEPLOYMENT? (Phoenix Center Policy Bulletin No. 22, Oct. 2008), available at http://www.phoenixcenter.
org/PolicyBulletin/PCPB22Final.pdf. 
489 See, e.g., Verizon/Amrica Mvil Transfer Order, 22 FCC Rcd at 6211, para. 36 (describing difficult to serve 
terrain and dramatic urban/rural differences in Puerto Rico); Rates and Services Integration Order, 4 FCC Rcd at 
396, paras. 78 (describing the unique market conditions and structure in Alaska); GCI Oct. 3, 2008 Ex Parte Letter 
(citing cost distinctions between Alaska and the continental United States). 
490 Cf. Policies and Service Rules for the Broadcasting-Satellite Service Order, 22 FCC Rcd at 8860, para. 47 (The 
Commission is committed to establishing policies and rules that will promote service to all regions in the United 
States, particularly to traditionally underserved areas, such as Alaska and Hawaii, and other remote areas.). 
491 A number of parties argue for a shorter transition period than that provided here. See, e.g., Letter from Robert W. 
Quinn, Senior Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92 (filed Oct. 23, 2008) (AT&T Oct. 23, 2008 Ex Parte Letter); Letter from Kyle McSlarrow, President and 
CEO, NCTA, to Kevin J. Martin, Chairman, FCC, CC Docket No. 01-92 (filed Oct. 28, 2008) (NCTA Oct. 28, 2008 
(continued.)

Federal Communications Commission FCC 08-262 
C-85 
stage, intrastate access rates are reduced to the levels of interstate rates. During stage two, carriers will 
reduce their rates to an interim uniform termination rate, set by the state. Carriers whose current rates are 
below the interim uniform rate set by the state, however, may not increase their rates. During stage three, 
the rates carriers charge at the end of stage two (either the interim uniform rates or their prior rates, 
whichever are lower) will be gradually reduced to the rates that will apply at the end of the transition. 
This transition will be designed by the state so as to minimize market disruptions and adverse economic 
effects. This transition is described in more detail below. 
188. Intrastate Rate Reductions. One year from the effective date of this order, we require 
that all LECs reduce their terminating intrastate switched access rates by 50 percent of the difference 
between their intrastate switched access rates and their interstate switched access rates.492 Two years 
from the effective date of this order, we require that all LECs reduce their terminating intrastate switched 
access rates by the remaining 50 percent of the difference between their intrastate switched access rates 
and their interstate switched access rates so that their intrastate rates equal their interstate rates. Carriers 
will comply with state tariffing requirements or other applicable state law in effectuating those changes in 
intrastate terminating access rates. 
189. State Establishment of Interim, Uniform Reciprocal Compensation Rates. Within two 
years from the effective date of this order, states must adopt a state-wide interim, uniform reciprocal 
compensation rate applicable to all carriers (except carriers whose rates are below the interim, uniform 
rate, in which case, those carriers rates shall be capped at those lower, existing rates). Three years from 
the effective date of this order, we require that all LECs reduce their terminating rates by 50 percent of the 
difference between their current terminating rate and the interim, uniform reciprocal compensation rate 
established by the state. Four years from the effective date of this order we require that all LECs reduce 
their terminating rates by the remaining 50 percent of the difference between their current terminating rate 
and the interim, uniform reciprocal compensation rate established by the state so that their terminating 
rates equal the state-set interim, uniform reciprocal compensation rate. This rate will become the starting 
point for stage threea six-year gradual downward transition to the final uniform reciprocal 
compensation rate, which the states will also set, consistent with the methodology we adopt in this order. 
The states will have discretion to determine the glide path, which begins four years from the effective date 
of this order and ends ten years from the effective date of this order. This glide path will determine the 
trajectory of the interim reciprocal compensation rate as it trends down to the final reciprocal 
compensation rate. All carriers are subject to this glide path. However, if a carriers rate is below the rate 
specified in the glide path, such carrier cannot raise its rates, but is subject to the trajectory when the 
interim rate equals that carriers rate. At the end of ten years (i.e., at the end of stage two), all the 
terminating rates of all carriers in each state will be reduced to the new final, uniform reciprocal 
compensation rate established by each state. We believe that, by establishing this ten-year, multiple-stage 
transition to a state-set final uniform reciprocal compensation rate, we will provide a sufficiently smooth 
and gradual glide path so that carriers will be able to adjust their other rates and revenues in a measured 
way over time, as allowed by the reforms adopted in this order, without creating unacceptable rate or 
(continued from previous page) 
Ex Parte Letter); Letter from Paul W. Garnett, Assistant Vice-President, CTIAThe Wireless Association, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed October 27, 2008) (CTIA October 27, 2008 Ex 
Parte Letter); Small Business Administration Office of Advocacy (SBA) ICC FNPRM Comments at 57. We note 
that the reforms adopted today do not preclude carriers from entering into agreements that would reduce intercarrier 
charges more quickly, (See, e.g., Letter from Susanne A. Guyer, Senior Vice-President, Verizon, to Kevin J. Martin, 
Chairman, FCC, CC Docket No. 01-92 (filed October 28, 2008) at 6.) nor do they prevent state commissions from 
accelerating the glide path toward the final reciprocal compensation rate if they deem it appropriate. 
492 To the extent that a carriers intrastate terminating access rate already is below its interstate terminating access 
rate, it will not change that rate.

Federal Communications Commission FCC 08-262 
C-86 
revenue effects. 
190. Although we permit the states to establish the particular interim, uniform reciprocal 
compensation rate for each step of the final six years of the transition, we establish certain conditions on 
the interim, uniform reciprocal compensation rate and on the terminating intercarrier rates that carriers 
may charge. First, although we do not set forth a methodology that states must use in setting the interim, 
uniform reciprocal compensation rates, we do require that, within each state, there must be a single, statewide 
interim, uniform reciprocal compensation rate during each year and at each stage of the transition.493 
Therefore, in establishing interim, uniform reciprocal compensation rates, a state may wish to consider 
the impact of those rates on all the carriers in the state. States are permitted to adopt an interim, uniform 
reciprocal compensation rate that may be higher at the beginning of the transition than some existing 
incumbent LEC rates today. If they do so, however, carriers with lower termination rates may not raise 
them to the interim uniform rate. Second, states may determine the glide path for moving from the 
interim, uniform reciprocal compensation rate to the final, uniform reciprocal compensation rate, subject 
to the requirement that the interim uniform rate be identical for all carriers at each step in the transition. 
By the end of the transition period, the interim, uniform reciprocal compensation rates must decrease to a 
single final, uniform reciprocal compensation rate for all carriers established pursuant to the 
Commissions new additional costs methodology. 
191. Transition of Rates During Stage Three. Beginning four years from the effective date of 
this order, and through the remainder of the transition, each carrier must set each of its terminating rates at 
the lower of: (i) its current rate; or (ii) the state-set interim, uniform reciprocal compensation rate 
applicable at that stage of the transition. Thus, for example, if a carrier has an interstate terminating 
access rate above the interim, uniform reciprocal compensation rate applicable at that stage of the 
transition, but a current reciprocal compensation rate below the interim, uniform reciprocal compensation 
rate, the carrier will reduce its interstate rate to the interim rate but leave its current reciprocal 
compensation rate unchanged. That carrier will continue to have two separate termination rates until such 
time as the applicable interim, uniform reciprocal compensation rate is adjusted lower and becomes less 
than its current reciprocal compensation rate. At that time, all the carriers rates will be set at the level of 
the interim, uniform reciprocal compensation rate for that state. 
192. We emphasize that under no circumstances shall a carrier be permitted to increase its 
current rates, even if the interim, uniform reciprocal compensation rate is higher than one or more of its 
current rates. In this respect, the applicable interim, uniform reciprocal compensation rate set by the 
states will act as a ceiling or cap on such rates. We do not permit a carrier to charge a rate for terminating 
interstate or intrastate access, reciprocal compensation, or ISP-bound traffic that is higher than the 
interim, uniform reciprocal compensation rate, but we will permit a carrier to continue to charge a rate 
that is lower than the interim, uniform reciprocal compensation rate. We note that because CMRS 
providers may not tariff terminating access today,494 and we do not permit a carrier to increase rates 
during the transition, CMRS providers therefore will not be permitted to charge for terminating access 
493 We recognize that the state-wide interim, uniform reciprocal compensation rates may vary state-by-state as state 
commissions consider the best means of transitioning to a final, uniform reciprocal compensation rate. 
494 Although CMRS providers may not tariff access charges, they are not prohibited from entering into contracts 
with interexchange carriers that provide for the payment of such charges. Petitions of Sprint PCS and AT&T Corp. 
For Declaratory Ruling Regarding CMRS Access Charges, WT Docket No. 01-316, Declaratory Ruling, 17 FCC 
Rcd 13192 (2002) (CMRS Access Charges Declaratory Ruling).

Federal Communications Commission FCC 08-262 
C-87 
until the end of the transition period.495 
193. We note that we already have an interim intercarrier compensation regime for ISP-bound 
traffic, and to avoid disruption in the marketplace, we will apply on a transitional basis the pricing 
standards we adopted for ISP-bound traffic in the ISP Remand Order,496 as modified by the Core 
Forbearance Order.497 Currently, two rules remain in effect: (1) ISP-bound traffic is currently subject to 
a reciprocal compensation rate cap of $.0007 per minute-of-use; and (2) under the mirroring rule, the 
$.0007 cap applies to traffic exchanged with an incumbent LEC only if it offers to exchange all traffic 
subject to section 251(b)(5) at the same rate. As explained below, we conclude that it is appropriate to 
retain these rules, but only on a transitional basis until a state commission, applying the additional costs 
standards adopted in this order, has established reciprocal compensation rates that are at or below $.0007 
per minute-of-use. 
194. In the ISP Remand Order in 2001, based on convincing evidence in the record that 
carriers had targeted ISPs as customers merely to take advantage of . . . intercarrier paymentsoffering 
free service to ISPs, paying ISPs to be their customers, and sometimes engaging in outright fraudthe 
Commission adopted an interim ISP payment regime to limit, if not end, the opportunity for regulatory 
arbitrage.498 The Commission adopted a gradually declining cap on intercarrier compensation for ISPbound 
traffic, beginning at $.0015 per minute-of-use and declining to $.0007 per minute-of-use.499 These 
rate caps reflected the downward trend in intercarrier compensation rates contained in then-recently 
negotiated interconnection agreements.500 We have previously recognized that evidence that carriers 
have agreed to ratesthrough voluntary, arms-length negotiationsconstitutes substantial evidence that 
rates are just and reasonable.501 
495 Consistent with our conclusion that CMRS providers are unable to assess access charges during the transition, we 
make clear that our symmetry rule, set forth in Part V.C.1.b, will not apply until the transition is over. Even so, we 
clarify that, to the extent that any carrier has a terminating rate above the permissible rate, such carrier must reduce 
the rate to the permissible level. Specifically, in the first year of the transition, all carriers with intrastate access 
charges higher than their interstate access charges must reduce such charges by 50 percent of the difference between 
its interstate switched access rate and its intrastate switched access rate. Similarly, once the state-set interim, 
uniform rate is in effect, all carriers must reduce terminating rates, whether interstate access, reciprocal 
compensation, or ISP-bound traffic, by 50 percent of the difference between the current terminating switched access 
rate and the interim, uniform rate (as it is reduced over time). Even though rates during the transition will not reflect 
true symmetry, rates for most carriers should be symmetric before the transition is over as all carriers reduce charges 
to the final, uniform rate. 
496 See ISP Remand Order, 16 FCC Rcd at 9153, 918693, paras. 21, 7788. 
497 See Core Forbearance Order, 19 FCC Rcd at 2018489, paras. 1626. 
498 ISP Remand Order, 16 FCC Rcd at 9187, para. 77. 
499 ISP Remand Order, 16 FCC Rcd at 9187, para. 78. 
500 ISP Remand Order, 16 FCC Rcd at 919091, para. 85. 
501 ISP Remand Order, 16 FCC Rcd at 919091, para. 85; see also Petition of ACS of Anchorage, Inc. Pursuant to 
Section 10 of the Communications Act of 1934, as Amended, for Forbearance from Sections 251(c)(3) and 252(d)(1) 
in the Anchorage Study Area, WC Docket No. 05-281, 22 FCC Rcd 1958, 198485, paras. 39, 40 n.136 (2007) 
(finding that commercially negotiated rates provide just and reasonable prices); Review of the Section 251 
Unbundling Obligations of Incumbent Local Exchange Carriers; Implementation of the Local Competition 
Provisions of the Telecommunications Act of 1996; Deployment of Wireline Services Offering Advanced 
Telecommunications Capability, CC Docket Nos. 01-338, 98-147, 96-98, Report and Order and Order on Remand 
and Further Notice of Proposed Rulemaking, 18 FCC Rcd 16978, 17389, para. 664 (2003) (subsequent history 
(continued.)

Federal Communications Commission FCC 08-262 
C-88 
195. Most commenters urge the Commission to maintain the interim compensation rules 
governing ISP-bound traffic until the Commission is able to transition to comprehensive intercarrier 
compensation reform.502 These parties contend that a higher compensation rate would create new 
opportunities for arbitrage503 and impose substantial financial burdens on wireless companies, incumbent 
LECs and state public utility commissions.504 They further claim that the existing regime has simplified 
interconnection negotiations.505 
196. We share these commenters concerns. The record also suggests that eliminating the 
$.0007 cap and instead applying higher reciprocal compensation rates that may be set by the states during 
the transition period to the adoption of our new methodology would have a significant negative impact on 
(continued from previous page) 
omitted) (Triennial Review Order) (finding that arms-length agreements . . . to provide [an] element at [a] rate 
demonstrate[s] that the rate is just and reasonable). 
502 See, e.g., Letter from Gregory J. Vogt, Counsel for CenturyTel, Inc. to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8, 2008) (asking the Commission to 
maintain the existing compromises reached with respect to ISP-bound traffic); Letter from Gary L. Phillips, 
Associate General Counsel, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 
8 (filed May 9, 2008) (asserting that the public interest would be best served by maintaining the existing transitional 
rates pending broader intercarrier compensation reform); Letter from L. Charles Keller, Counsel for Sage Telecom, 
to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 Ex 
Parte Letter) (stating that retaining the ISP rate serves broad policy goals); Letter from John T. Nakahata, Counsel 
for Level 3 Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 1 (filed May 
7, 2008) (supporting continuation of the interim compensation rules); Letter from Joshua Seidmann, Vice President 
of Regulatory Affairs, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 2 
(filed Apr. 28, 2008) (ITTA Apr. 28, 2008 Ex Parte Letter) (asking the Commission to retain the current $0.0007 
rate for ISP-bound traffic); Letter from Donna Epps, Vice President of Federal Regulatory Affairs, Verizon, to 
Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 at 1 (filed Apr. 7, 2008) (urging the Commission 
to support its earlier finding that $0.0007 is appropriate compensation for dial-up ISP traffic); Letter from L. Charles 
Keller, Counsel for Verizon Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, Attach. 
(filed May 1, 2008) (describing how elimination of the existing ISP rate would create substantial burdens on a 
number of carriers and state commissions) (Verizon Wireless May 1, 2008 Ex Parte Letter); Letter from Glenn 
Reynolds, Vice President, Policy, USTelecom, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99- 
68, 96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) (noting that the Commissions existing rules have 
largely mitigated the debate around compensation for ISP-bound traffic, but there is every reason to believe the 
same problems would arise if the Commission were to reverse direction on this issue) (USTelecom Apr. 29, 2008 
Ex Parte Letter). 
503 See, e.g., USTelecom Apr. 29, 2008 Ex Parte Letter at 2; Letter from Melissa E. Newman, Vice President, 
Federal Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, WC Docket No. 
07-135, Attach. at 35 (filed Apr. 25, 2008) (Qwest April 25, 2008 Ex Parte Letter); Verizon and BellSouth, Further 
Supplemental White Paper on ISP Reciprocal Compensation at 20 (Verizon/BellSouth Further Supp. ISP White 
Paper), attached to Letter from Donna Epps, Vice President, Federal Regulatory Advocacy, Verizon, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-98, 99-68 (filed Sept. 27, 2004). 
504 See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter, Attach. 
505 See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter (stating that the [m]irroring [r]ule simplified wireless- 
ILEC interconnection negotiations tremendously.); Supplemental Comments of Verizon and Verizon Wireless on 
Intercarrier Payments for ISP-Bound Traffic and the WorldCom Remand, CC Docket Nos. 01-92, 96-98, 99-68 at 
3840 (filed Oct. 2, 2008) (Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments) (indicating that Verizon 
entered into multiple agreements using the $.0007 rate cap established in the ISP Remand Order).

Federal Communications Commission FCC 08-262 
C-89 
carriers serving rural markets and broadband deployment.506 The record demonstrates that dial-up 
minutes remain at high levels in rural areas and that the application of reciprocal compensation to these 
minutes would generate significant costs to carriers serving these rural areas.507 Thus, it remains the case 
that the rate caps help avoid arbitrage and market distortions that otherwise would result from the 
availability of reciprocal compensation for ISP-bound traffic.508 We further believe that maintaining the 
cap on a transitional basis will minimize the disruptive effects and regulatory uncertainty that otherwise 
would result from the abrupt elimination of clear compensation rules for ISP-bound traffic. 
197. We expect that state commissions, applying the new additional costs standard adopted 
in this order, will set final reciprocal compensation rates at or below $.0007 per minute-of-use. As noted 
below, the evidence in the record suggests that the incremental cost of call termination on modern 
switches is de minimis.509 We have given state commissions up to ten years to transition to new rates 
based on the additional costs standard. Accordingly, the rate cap will only have an impact in a 
particular state on a transitional basis until that state sets rates at or below $.0007. 
198. The mirroring rule has also succeeded in promoting the Commissions goal of a more 
unified intercarrier compensation regime by requiring LECs to offer similar rates for like traffic.510 Most 
intraMTA traffic is now exchanged pursuant to the rate caps, and a substantial portion of wireline 
intraexchange traffic is being exchanged at rates at or below the rate caps as well.511 Eliminating the 
mirroring rule and allowing carriers to charge higher transitional reciprocal compensation rates for traffic 
currently subject to the mirroring rule would significantly increase the cost carriers incur in exchanging 
that traffic. Those increased costs would divert funds from investment in next generation wireless 
networks and likely would be borne by consumers, through increases in the costs of wireless offerings.512 
199. We reject arguments that the Commission unlawfully delegated its authority in the ISP 
Remand Order and arguments that the Commission addressed previously in the Core Forbearance 
506 See, e.g., ITTA April 28, 2008 Ex Parte Letter, Attach. at 3, 5; Embarq May 1, 2008 Ex Parte Letter, Attach. at 
2, 57. 
507 See, e.g., Letter from Tamar E. Finn, Counsel for Earthlink, to Marlene H. Dortch, Secretary, FCC, CC Docket 
Nos. 99-68, 01-92, Attach. at iii, 1112 (filed Aug. 14, 2008) (estimating that 24% of dial-up users in rural America 
say that broadband service is not available where they live); Sage Telecom May 9, 2008 Ex Parte Letter at 34; 
Embarq May 1, 2008 Ex Parte Letter, Attach. at 6 (calculating its cost to be $100 million if all ISP-bound minutes 
were subject to TELRIC-based rates under section 251(b)(5)); ITTA Apr. 28, 2008 Ex Parte Letter (noting that dialup 
usage remains strong in rural areas); USTelecom Apr. 29, 2008 Ex Parte Letter (noting a recent study from the 
Pew Internet & American Life Project that indicated that while the number of dial-up subscribers had dropped 63% 
since 2001, the number of minutes spent online by each dial-up subscriber had increased approximately 70%. As a 
result, some USTelecom member companies are actually seeing an increase in dial-up minutes.) (emphasis in 
original); Letter from Bennett L. Ross, General CounselD.C., BellSouth D.C., to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 01-92, 99-68, WC Docket No. 03-171 (filed Aug. 29, 2005) (attaching a chart showing that 
dial-up subscribers would continue to generate substantial minutes of dial-up ISP calls, notwithstanding projections 
of a continued decline in the number of dial-up subscribers.). 
508 Core Forbearance Order, 19 FCC Rcd at 2081516, para. 18. 
509 See infra para. 250. 
510 Core Forbearance Order, 19 FCC Rcd at 20816, para. 19. 
511 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 40. 
512 Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments. at 40. 

Federal Communications Commission FCC 08-262 
C-90 
Order.513 We also disagree with parties who suggest that the Commission, in responding to the D.C. 
Circuits remand in WorldCom, must offer detailed new justifications for each of the four features of the 
ISP intercarrier payment regime: the rate caps, the mirroring rule, the growth cap, and the new markets 
rule.514 The prior policy justifications offered for those rules by the Commission have not been 
overturned by any court, and our current policy justification for retaining these rules is simply to maintain 
the status quo in this area on a transitional basis until our new additional costs methodology has been 
fully implemented. Indeed, pursuant to our new additional costs methodology, we believe that the rate 
caps set forth in 2001 may well be higher than the final, uniform reciprocal compensation rates set by the 
states. However, discarding these rules during the transition to our new methodology would be unwise 
and unwarranted because the rate caps are necessary to prevent discrimination between dial-up Internet 
access customers and basic telephone service customers, those caps protect consumers of basic 
telephone service from being forced to subsidize dial-up Internet access service, and the rate caps 
minimize the classic regulatory arbitrage that reciprocal compensation for ISP-bound traffic had made 
possible.515 
200. In sum, we maintain the $.0007 cap and the mirroring rule, on a transitional basis, 
pursuant to our section 201 authority. These interim rules shall remain in place in a state until the state 
commission, applying the additional costs standard adopted in this order, has established reciprocal 
compensation rates that are at or below $.0007 per minute-of-use. 
201. We find that our transition plan is necessary and appropriate to prevent undue economic 
hardships to carriers caused by a too-rapid reduction in intercarrier compensation rates. If there is 
evidence that carriers are attempting to abuse the interim, uniform reciprocal compensation rate and/or 
transition process to create arbitrage opportunities, we encourage carriers to bring such evidence to our 
attention or that of the state commission so such claims can be investigated and, if appropriate, action 
taken. 
3. Legal Authority 
a. Legal Authority for Comprehensive ReformInterpretation of 
Sections 251(b)(5) and 251(g) 
202. The history of intercarrier compensation reveals many policy reasons for 
comprehensively reforming intercarrier compensation rates, including reducing arbitrage, promoting 
competition, facilitating the introduction of new technologies, and benefiting consumers. The dual 
structure of separate federal and state jurisdiction over communications has made accomplishing such 
reforms more complex, however. Although our reform does not disturb those fundamental jurisdictional 
distinctions, we find that, through the tools made available by the 1996 Act, we have the means to 
accomplish this reform by electing to partner with the states. 
513 See Letter from Michael B. Hazzard, Counsel for Core Communications, to Marlene H. Dortch, Secretary, FCC, 
CC Docket Nos. 99-68, 01-92, Attach. at 18 & n.8 (filed May 14, 2008) (Core May 14, 2008 Ex Parte Letter). We 
also reject Cores argument that the ISP Remand Order unlawfully delegates to incumbent LECs the decision of 
whether the ISP Remand Order applies. See id. at 1920. The Commission did not delegate its authority in the ISP 
Remand Order but rather provided options that were not mandatory. See, e.g., ISP Remand Order, 16 FCC Rcd at 
9193, para. 89. Additionally, Core argues that the Commission provided no reasoned explanation for the growth cap 
and new market rules adopted in the ISP Remand Order and never provided notice or an opportunity for comment 
on those specific rules. These rules, as applicable to all carriers, were forborne from in the Core Forbearance 
Order. See Core Forbearance Order, 19 FCC Rcd at 2018687, paras. 2021. As such, this argument is moot. 
514 See Core May 14, 2008 Ex Parte Letter, Attach. at 2026. 
515 In re Core Commcns 455 F.3d at 27780 (internal quotation marks omitted). 

Federal Communications Commission FCC 08-262 
C-91 
203. The Commission unquestionably has authority to reform intercarrier compensation with 
respect to interstate access services, rates charged by CMRS providers, and IP/PSTN traffic. Section 2(a) 
of the Act establishes the Commissions jurisdiction over interstate services, for which the Commission 
ensures just, reasonable, and not unjustly and unreasonably discriminatory rates under section 201 and 
202.516 Likewise, the Commission has authority over the rates of CMRS providers pursuant to section 
332 of the Act.517 We also make clear that authority to impose economic regulation with respect to 
IP/PSTN traffic rests exclusively with this Commission. The Commission has adopted a number of 
regulatory requirements applicable to interconnected VoIP services and providers.518 With respect to the 
statutory classification of IP-enabled services, however, the Commission only has addressed two 
situations.519 
204. We now classify as information services those services that originate calls on IP 
networks and terminate them on circuit-switched networks, or conversely that originate calls on circuitswitched 
networks and terminate them on IP networks (collectively IP/PSTN services).520 Such traffic 
516 47 U.S.C.  152(a), 201, 202. 
517 47 U.S.C.  332. 
518 See, e.g., Telephone Number Requirements for IP-Enabled Services Providers; Local Number Portability Porting 
Interval and Validation Requirements; IP-Enabled Services; CTIA Petitions for Declaratory Ruling on Wireline- 
Wireless Porting Issues, CC Docket Nos. 99-200, 95-116, WC Docket Nos. 07-243, 07-244, 04-36, Report and 
Order, Declaratory Ruling, Order on Remand, and Notice of Proposed Rulemaking, 22 FCC Rcd 19531, 1953840, 
paras. 14, 16 (2008) (LNP Order) (imposing LNP requirements, and noting that the Commission previously imposed 
the requirement to provide 911 service, to contribute to universal service, to protect the privacy of customers, to 
comply with disability access and telecommunications relay service requirements, and to satisfy certain CALEA 
obligations). 
519 On one hand, the Commission classified as an information service Pulver.coms free service that did not 
provide transmission and offers a number of computing capabilities. Petition for Declaratory Ruling that 
Pulver.com's Free World Dialup is Neither Telecommunications nor a Telecommunications Service, WC Docket 
No. 03-45, Memorandum Order and Opinion, 19 FCC Rcd 3307 (2004) (Pulver.com Order). On the other hand, the 
Commission found that certain IP-in-the-middle services were telecommunications services where they: : (1) 
use ordinary customer premises equipment (CPE) with no enhanced functionality; (2) originate and terminate on the 
public switched telephone network (PSTN); and (3) undergo no net protocol conversion and provide no enhanced 
functionality to end users due to the provider's use of IP technology. See, e.g., Petition for Declaratory Ruling that 
AT&T's Phone-to-Phone IP Telephony Services are Exempt from Access Charges, WC Docket No. 02-361, Order, 
19 FCC Rcd 7457 (2004) (IP-in-the-Middle Order). See also, e.g., Regulation of Prepaid Calling Card Services, 
WC Docket No. 05-68, Declaratory Ruling and Report and Order, 21 FCC Rcd 7290 (2006) (Prepaid Calling Card 
Order). 
520 We use the term IP/PSTN as a shorthand, without reaching any universal conclusions regarding the technology 
underlying the PSTN. Today the PSTN continues to rely primarily on circuit-switched technology to connect to 
end-user customers, although we recognize that carriers increasingly are converting portions of their networks to IP 
technology. See, e.g., IP-Enabled Services; E911 Requirements for IP-Enabled Service Providers, WC Docket Nos. 
04-36, 05-196, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245, 10258, para. 24 & 
n.77 (2005) (distinguishing the specialized CPE required for interconnected VoIP services from the standard CPE 
used for typical telephone calls); Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to 
Congress, 13 FCC Rcd 11501, 11532, para. 84 (1998) (IP telephony services enable real-time voice transmission 
using Internet protocols. The services can be provided in two basic ways: through software and hardware at 
customer premises, or through gateways that enable applications originating and/or terminating on the PSTN. 
Gateways are computers that transform the circuit-switched voice signal into IP packets, and vice versa, and perform 
associated signaling, control, and address translation functions.). Insofar as a service allows a customer to originate 
a communication on an IP network and terminate it on a circuit-switched network, or vice versa, it involves a net 
(continued.)

Federal Communications Commission FCC 08-262 
C-92 
today involves a net protocol conversion between end-users, and thus constitutes an enhanced or 
information service.521 
205. Although there are certain exceptions to this treatment, we do not find them applicable.522 
In particular, we do not find this to be protocol conversion in connection with the introduction of new 
technology to implement existing services that would be treated as a basic, rather than enhanced 
service.523 That exception was designed to address situations involving no change in an existing service, 
but merely a change in electrical interface characteristics to facilitate transitional introduction of new 
technology.524 By contrast, we find that IP/PSTN services are not mere changes to the underlying 
technology used for existing basic services, but are entirely new services with characteristics in many 
ways distinct from pre-existing telephone services.525 
(continued from previous page) 
protocol conversion, and we classify it as an information service today. Insofar as that service allows 
communications with no net protocol conversion, it is not subject to our information service classification here. 
We note that the presence of a net protocol conversion is not the only basis for classifying a service as an 
enhanced or information service. See, e.g., 47 C.F.R.  64.702(a); Computer II Final Decision, 77 FCC 2d at 
42021, para. 97. We do not reach those issues at this time, however. 
521 See, e.g., Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act 
of 1934, as Amended, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 
11 FCC Rcd 21905, 2195758, para. 106 (1996) (Non-Accounting Safeguards Order). Interpreting the 1996 Acts 
definition of information services, the Commission held that all of the services that the Commission has 
previously considered to be enhanced services are information services. Non-Accounting Safeguards Order, 11 
FCC Rcd at 21956, para. 103. For the all reasons discussed in Part V.B.2, we decline to defer the classification of 
IP/PSTN services, as requested by some parties, instead finding it appropriate to address this issue as part of our 
comprehensive reforms. See, e.g., Letter from Ben Scott, Policy Director, Free Press, to Marlene H. Dortch, 
Secretary, FCC, WC Docket Nos. 05-337, 06-122, CC Docket Nos. 96-45, 01-92 at 15 (filed Oct. 24, 2008) (Free 
Press Oct. 24, 2008 Ex Parte Letter); Letter from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for 
Broadview Networks, et al., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008). 
522 Two of the exceptions are: (1) protocol processing involving communications between an end user and the 
network itself (e.g., for initiation, routing, and termination of calls) rather than between or among users; and (2) 
protocol conversion to facilitate the interconnection of networks. Non-Accounting Safeguards Order, 11 FCC Rcd 
at 2195758, para. 106. These categories of protocol processing services may involve protocol conversions, but 
they result in no net protocol conversion between the end users. Implementation of the Non-Accounting Safeguards 
of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket No. 96-149, Order on 
Reconsideration, 12 FCC Rcd 2297, 229799, para. 2 (1997). Thus, they are not relevant here. 
523 Amendment to Sections 64.702 of the Commissions Rules and Regulations (Third Computer Inquiry); and Policy 
and Rules Concerning Rates for Competitive Common Phase II Carrier Service and Facilities Authorization 
Thereof; Communications Protocols Under Section 64.702 of the Commissions Rules and Regulations, CC Docket 
No. 85-229, Report and Order, 2 FCC Rcd 3072, 3081, para. 65 (1987) (Computer III Phase II Order). See also 
Non-Accounting Safeguards Order, 11 FCC Rcd at 2195758, para. 106. 
524 Communications Protocols under Section 64.702 of the Commissions Rules and Regulations, GN Docket No. 
80-756, Memorandum Opinion, Order, and Statement Of Principles, 95 FCC 2d 584, para. 16 (1983) (Protocols 
Order). 
525 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 911 (filed Sept. 19, 2008); Letter from 
Susanne A. Guyer, Senior Vice President, Federal Regulatory Affairs, Verizon, to Chairman Kevin J. Martin, FCC, 
WC Docket No. 04-36, at 1011 (filed Aug. 6, 2007); Letter from AT&T et al., to Chairman Kevin J. Martin, FCC, 
et al., WC Docket No. 04-36, CC Docket No. 01-92 at 23 (filed Aug. 6, 2008); VON Coalition IP-Enabled 
Services NPRM Comments at 316; AT&T IP-Enabled Services NPRM Comments at 1317. We thus disagree with 
parties who suggest, in essence, that IP/PSTN services are no different than basic services. See, e.g., Letter from 
(continued.)

Federal Communications Commission FCC 08-262 
C-93 
206. Consistent with the Pulver.com Order and the Vonage Order, we preempt any state 
efforts to impose traditional telephone company regulations as they relate to IP/PSTN information 
services as inconsistent with our generally unregulated treatment of information services.526 Of course, 
neither the Vonage Order, the Pulver.com Order, nor our actions here preempt state actions that are 
consistent with federal policy.527 Moreover, as we describe below, we allow states to establish reciprocal 
compensation rates, pursuant to our methodology, including for IP/PSTN traffic. 
207. In sections 251 and 252 of the Act, Congress altered the traditional regulatory framework 
based on jurisdiction by expanding the applicability of national rules to historically intrastate issues and 
state rules to historically interstate issues.528 In the Local Competition First Report and Order, the 
Commission found that the 1996 Act created parallel jurisdiction for the Commission and the states over 
interstate and intrastate matters under sections 251 and 252.529 The Commission and the states are to 
address the same matters through their parallel jurisdiction over both interstate and intrastate matters 
under sections 251 and 252.530 Moreover, section 251(i) provides that [n]othing in this section shall be 
construed to limit or otherwise affect the Commissions authority under section 201.531 The Commission 
concluded that section 251(i) affirms that the Commissions preexisting authority under section 201 
continues to apply for purely interstate activities.532 
208. In implementing sections 251 and 252 in the Local Competition First Report and Order, 
the Commissions treatment of LEC-CMRS traffic provides an instructive approach. Prior to the 1996 
Act, the Commission expressly preempted state and local regulations of the kind of interconnection to 
which CMRS providers are entitled based on its authority under section 201 and 332 of the Act.533 
Nevertheless, in the Local Competition First Report and Order, the Commission brought LEC-CMRS 
(continued from previous page) 
Thomas Jones and Jonathan Lechter, Counsel for tw telecom et al., to Marlene H Dortch, Secretary, FCC, CC 
Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337, 99-68, 04-36, Attach. at 2 (filed Oct. 28, 2008) (tw telecom et. 
al Oct. 28, 2008 Ex Parte Letter). We note that whether a service is viewed by consumers as a possible substitute 
for a basic service is a distinct question from whether, as a matter of technology and the nature of the service 
offering, the service simply replaces the technology underlying a pre-existing basic service. Thus, our conclusion 
here is not inconsistent with the Commissions recognition that interconnected VoIP services increasingly are 
viewed by consumers as a substitute for traditional telephone services. See, e.g., LNP Order, 22 FCC Rcd at 19547, 
para. 28. 
526 Vonage Order, 19 FCC Rcd at 22404; see also Pulver.com Order, 19 FCC Rcd at 3316, para. 15 (We 
determine, consistent with our precedent regarding information services, that FWD is an unregulated information 
service and any state regulations that seek to treat FWD as a telecommunications service or otherwise subject it to 
public-utility type regulation would almost certainly pose a conflict with our policy of nonregulation.). 
527 For example, states are free to require contributions to state universal service or telecommunications relay service 
funds through methodologies that are consistent with federal policy. See, e.g., Letter from Robert W. Quinn, Jr. 
Senior Vice President, Federal Regulatory, AT&T, to Chairman Kevin J. Martin, FCC, WC Docket Nos. 04-36, 06- 
122, CC Docket No. 96-45 at 1116 (filed July 23, 2008) (describing ways that states could require contributions to 
state universal service or telecommunications relay service funds in a manner that is consistent with federal policy). 
528 See Local Competition First Report and Order, 11 FCC Rcd at 15544, para. 83. 
529 Local Competition First Report and Order, 11 FCC Rcd at 1554445, para. 85. 
530 Local Competition First Report and Order, 11 FCC Rcd at 1554647, para. 91. 
531 47 U.S.C.  251(i). 
532 Local Competition First Report and Order, 11 FCC Rcd at 1554647, para. 91. 
533 Implementation of Sections 3(n) and 332, Second Report and Order, 9 FCC Rcd 1411, 1498, para. 230 (1994).

Federal Communications Commission FCC 08-262 
C-94 
interconnection within the section 251 framework as it relates to intraMTA (including interstate 
intraMTA) traffic.534 The Commission recognized, however, that it continued to retain separate authority 
over CMRS traffic.535 
209. Courts confirmed that, in permitting LEC-CMRS interconnection to be addressed through 
the section 251 framework, the Commission did not in any way lose its independent jurisdiction or 
authority to regulate that traffic under other provisions of the Act. Thus, although the Eighth Circuit 
invalidated the Commissions TELRIC pricing rules in general,536 it recognized that because section 
332(c)(1)(B) gives the FCC the authority to order LECs to interconnect with CMRS carriers, we believe 
that the Commission has the authority to issue the rules of special concern to the CMRS providers, 
[including the reciprocal compensation rules] but only as these provisions apply to CMRS providers. 
Thus, [the pricing] rules . . . remain in full force and effect with respect to the CMRS providers, and our 
order of vacation does not apply to them in the CMRS context.537 Subsequently, the D.C. Circuit held 
that CMRS providers were entitled to pursue formal complaints under section 208 of the Act for 
violations of the Commissions reciprocal compensation rules.538 
210. We build upon our actions in the Local Competition First Report and Order, and now 
permit states to establish a uniform reciprocal compensation rate, in accordance with the new 
methodology we establish in this order, pursuant to the section 251(b)(5) and 252(d)(2) framework. In 
particular, section 251(b)(5) imposes on all LECs a duty to establish reciprocal compensation 
arrangements for the transport and termination of telecommunications.539 Section 252(d)(2)(A) sets 
forth an additional costs standard that state commissions, in arbitrating interconnection disputes 
involving incumbent LECs, should apply in setting the charges for transport and termination of 
traffic.540 Although we allow states to set new uniform termination rates under this framework, pursuant 
to our methodology, we retain our authority under section 201 to find that reciprocal compensation 
charges are unjust and unreasonable as they relate to interstate, CMRS, and IP/PSTN traffic within our 
jurisdiction.541 We expect that states will faithfully implement the pricing standards adopted in this order, 
534 See Local Competition First Report and Order, 11 FCC Rcd at 16005, para. 1023. 
535 Local Competition First Report and Order, 11 FCC Rcd at 16005, para. 1023 (By opting to proceed under 
sections 251 and 252, we are not finding that section 332 jurisdiction over interconnection has been repealed by 
implication, or rejecting it as an alternative basis for jurisdiction.). 
536 We note that the Supreme Court later reversed this decision and affirmed the TELRIC methodology. See Verizon 
v. FCC, 535 U.S. at 467. 
537 Iowa Utils. Bd. v. FCC, 120 F.3d 753, 800 n.21 (8th Cir. 1997) (Iowa Utils. I), revd in part and remanded on 
other grounds, AT&T v. Iowa Utils. Bd., 525 U.S. 366. 
538 Qwest Corp. v. FCC, 252 F.3d 462, 46566 (D.C. Cir. 2001) (describing the Eighth Circuits analysis of 
section 332(c)(1)(B) in Iowa Utils. I and concluding that an attempt to relitigate the issue was barred by the doctrine 
of issue preclusion). 
539 47 U.S.C.  251(b)(5). 
540 47 U.S.C.  252(d)(2)(A). 
541 See supra paras. 20309. See also, e.g., Letter from John T. Nakahata, Counsel for Level 3 Communications, to 
Marlene H. Dortch, Secretary, FCC, WC Docket No. 01-92 at 911 (filed on Aug. 18, 2008) (Level 3 Aug. 18, 2008 
Ex Parte Letter). Contrary to Verizons claims, we thus find no tension between permitting states to set reciprocal 
compensation rates for interstate traffic under the section 251 and 252 framework and the Commissions continuing 
authority over traffic subject to its jurisdiction, including section 201 authority expressly preserved under section 
251(i). 

Federal Communications Commission FCC 08-262 
C-95 
and thus it will not be necessary for us to exercise that authority.542 
211. The Commission unquestionably has authority to interpret and adopt rules implementing 
sections 251(b)(5) and 252(d)(2). Congress delegated to the Commission the task of administering the 
Communications Act. Section 201(b) authorizes the Commission to prescribe such rules and regulations 
as may be necessary in the public interest to carry out the provisions of this Act.543 [T]he grant in 
 201(b) means what it says: The FCC has rulemaking authority to carry out the provisions of this 
Act.544 The Commissions rulemaking authority is not limited to interstate matters; it extends to all 
provisions of the Communications Act.545 
212. In addition, we find that the section 251(b)(5) and 252(d)(2) framework is broad enough 
to facilitate our intercarrier compensation reform. We acknowledge that, in the Local Competition First 
Report and Order, the Commission found that section 251(b)(5) applies only to local traffic,546 and some 
commenters continue to press for such an interpretation.547 As other commenters recognize, however, the 
Commission, in the ISP Remand Order, reconsidered that judgment and concluded that it was a mistake 
to read section 251(b)(5) as limited to local traffic, given that local is not a term used in section 
251(b)(5).548 We recognize, as the Supreme Court noted in AT&T Corp. v. Iowa Utilities Board, that [i]t 
542 We recognize that the just and reasonable rates required by Sections 201 and 202 . . . must ordinarily be costbased, 
absent a clear explanation of the Commissions reasons for a departure from cost-based ratemaking. Access 
Charge Reform, CC Docket Nos. 96-262, 94-1, 91-213, Second Order on Reconsideration and Memorandum 
Opinion and Order, 12 FCC Rcd 16606, 1661920, para. 44 (Access Charge Reform Second Order) (citing 
Competitive Telecomms. Ass'n v. FCC, 87 F.3d 522, 529 (D.C. Cir. 1996)). In this order, we adopt an incremental 
cost methodology for setting termination rates. We find that the proper application of that methodology produces 
rates that are just and reasonable under section 201. As discussed below, we find it appropriate to adopt a 
transition before carriers begin charging rates set pursuant to our incremental cost methodology. 
543 47 U.S.C.  201(b) (The Commission may prescribe such rules and regulations as may be necessary in the 
public interest to carry out the provisions of this Act.). 
544 AT&T v. Iowa Utils. Bd., 525 U.S. at 378. 
545 AT&T v. Iowa Utils. Bd., 525 U.S. at 378 n.6 ([T]he question in these cases is not whether the Federal 
Government has taken the regulation of local telecommunications competition away from the States. With regard to 
the matters addressed by the 1996 Act, it unquestionably has.). 
546 Local Competition First Report and Order, 11 FCC Rcd at 1601213, para. 1033. 
547 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 2432; Letter from Daniel Mitchell, Vice 
President, Legal and Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 9 (filed Sept. 
30, 2008) (NCTA Sept. 30, 2008 Ex Parte Letter); Verizon ICC FNPRM Comments at 3842; NARUC ICC 
FNPRM Comments at 67; Rural Alliance ICC FNPRM Comments at 14449; Cincinnati Bell ICC FNPRM 
Comments at 511; Maine PUC and Vermont Pub. Serv. Bd. ICC FNPRM Comments at 7; New York State PSC 
ICC FNPRM Comments at 7; Verizon and BellSouth, Supplemental White Paper on ISP Reciprocal Compensation, 
CC Docket No. 96-98, 99-68 at 1620 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP White Paper); NARUCs 
Initial Comments at 7 n.13 (May 23, 2004). But see, e.g., ICF ICC FNPRM Comments at 39. 
548 ISP Remand Order, 16 FCC Rcd at 916667, para. 35. See also, e.g., Qwest, Legal Authority for Comprehensive 
Intercarrier Compensation Reform at 24, attached to Letter from Melissa Newman, Counsel for Qwest, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos. 04-36, 05-337, 05-195, 06-122 
(filed Oct. 7, 2008); Letter from Kathleen OBrien Ham et al., Counsel for T-Mobile, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 910 (filed Oct. 3, 2008); Level 3 Aug. 18, 2008 Ex Parte Letter at 2, 15 
18; AT&T Missoula Phantom Traffic Reply at 3541; Brief from Gary M. Epstein, Counsel for ICF, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92 at 2935 (filed Oct. 5, 2004)

Federal Communications Commission FCC 08-262 
C-96 
would be a gross understatement to say that the 1996 Act is not a model of clarity.549 Nevertheless, we 
find that the better view is that section 251(b)(5) is not limited to local traffic. 
213. We begin by looking at the text of the statute. Section 251(b)(5) imposes on all LECs the 
duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.550 The Act broadly defines telecommunications as the 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.551 Its scope is not limited geographically (local, 
intrastate, or interstate) or to particular services (telephone exchange service,552 telephone toll 
service,553 or exchange access554). We find that the traffic we elect to bring within this framework fits 
squarely within the meaning of telecommunications.555 Had Congress intended to preclude the 
Commission from bringing certain types of telecommunications traffic within the section 251(b)(5) 
framework, it could have easily done so by incorporating restrictive terms in section 251(b)(5). Because 
Congress used the term telecommunications, the broadest of the statutes defined terms, we conclude 
that section 251(b)(5) is not limited only to the transport and termination of certain types of 
telecommunications traffic, such as local traffic. 
214. In the Local Competition First Report and Order the Commission concluded that section 
251(b)(5) applies only to local traffic, but recognized that [u]ltimately . . . the rates that local carriers 
impose for the transport and termination of local traffic and for the transport and termination of long 
distance traffic should converge.556 In the ISP Remand Order, the Commission reversed course on the 
scope of section 251(b)(5), finding that the phrase local traffic created unnecessary ambiguities, and we 
correct that mistake here.557 The ISP Remand Order noted that the term local, not being a statutorily 
defined category, . . . is not a term used in section 251(b)(5).558 The Commission found that the scope of 
section 251(b)(5) is limited only by section 251(g), which temporarily grandfathered the pre-1996 Act 
rules governing exchange access, information access, and exchange services for such access provided 
to IXCs and information service providers until explicitly superseded by regulations prescribed by the 
Commission.559 On appeal, the D.C. Circuit left intact the Commissions findings concerning the scope 
549 AT&T v. Iowa Utils. Bd., 525 U.S. at 397. 
550 47 U.S.C.  251(b)(5). 
551 47 U.S.C.  153(43). 
552 Id. at  153(47). 
553 Id. at  153(48). 
554 Id. at  153(16). 
555 As discussed above, we classify IP/PSTN services as information services. We note, however, that information 
services, by definition, are provided via telecommunications, enabling us to bring IP/PSTN traffic within the 
section 251(b)(5) framework. 47 U.S.C.  153(20). Moreover, given that we retain independent authority under 
section 201, we find it reasonably ancillary to that authority to regulate IP/PSTN services in this regard, consistent 
with our efforts to ensure uniform treatment of all traffic on the PSTN for intercarrier compensation purposes. Thus, 
IP/PSTN traffic ultimately will be subject to the final uniform reciprocal compensation rates established pursuant to 
the methodology adopted in this order. We maintain the status quo for this traffic during the transition, however. 
556 Local Competition First Report and Order, 11 FCC Rcd at 16012, para. 1033. 
557 ISP Remand Order, 16 FCC Rcd at 9173, para. 46. 
558 ISP Remand Order, 16 FCC Rcd at 9167, para. 34. 
559 47 U.S.C.  251(g). 

Federal Communications Commission FCC 08-262 
C-97 
of section 251(b)(5), although it took issue with other aspects of the ISP Remand Order.560 
215. We agree with the finding in the ISP Remand Order that traffic encompassed by section 
251(g) is excluded from section 251(b)(5) except to the extent that the Commission acts to bring that 
traffic within its scope. Section 251(g) preserved the pre-1996 Act regulatory regime that applies to 
access traffic, including rules governing receipt of compensation.561 There would have been no need 
for Congress to have preserved these compensation rules against the effects of section 251 if the scope of 
section 251(b)(5) was not broad enough for the Commission to bring within its scope the traffic covered 
by section 251(g), i.e., access traffic. Because Congress is presumed not to have wasted its breath, 
particularly with a provision as lengthy and detailed as section 251(g), we find that section 251(g) 
confirms that section 251(b)(5) applies to the transport and termination of all telecommunications traffic 
exchanged with LECs, including ISP-bound traffic. And because section 251(g) is worded simply as a 
transitional device, preserving various LEC duties that antedated the 1996 Act until such time as the 
Commission should adopt new rules pursuant to the Act,562 we clearly have authority under the Act to 
adopt regulations superseding that regime. We exercise that authority today. 563 
216. By placing all traffic under the umbrella of one compensation scheme, we eliminate 
jurisdictional and regulatory distinctions that are not tied to economic or technical differences between 
services. As the Commission observed in the Intercarrier Compensation NPRM, regulatory arbitrage 
arises from different rates that different types of providers must pay for essentially the same functions.564 
Our current classifications require carriers to treat identical uses of the network differently, even though 
such disparate treatment usually has no economic or technical basis. These artificial distinctions distort 
the telecommunications markets at the expense of healthy competition. Similar types of traffic should be 
subject to similar rules. Similar types of functions should be subject to similar cost recovery mechanisms. 
We achieve that result by moving away from the regime preserved by section 251(g) and bringing that 
traffic within the section 251(b)(5) framework. 
217. We disagree with commenters who argue that section 251(b)(5) only can be applied to 
traffic exchanged between LECs, and not traffic exchanged between a LEC and another carrier.565 The 
560 See WorldCom, 288 F.3d at 429. 
561 47 U.S.C. 251(g). 
562 WorldCom, 288 F.3d at 430. 
563 Verizon notes that although the Commission in the ISP Remand Order deleted the word local from its 
regulations governing reciprocal compensation, the regulations continued to exclude access services from the scope 
of section 251(b)(5). See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 2432; 47 C.F.R.  
51.701(b)(1). At that time, it made sense to retain the access exemption because the Commission had not issued 
rules superseding the access regime preserved by section 251(g). We supersede the grandfathered access regime in 
this order, at least in part. 
564 Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 12. 
565 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments (The best interpretation of  251(b)(5)  read 
in light of the text, structure, and history of the 1996 Act  is that the reciprocal compensation obligation applies 
only to intraexchange (or local) voice calls that originate on the network of one LEC (or wireless provider) and 
terminate on the network of another LEC (or wireless provider) operating in the same exchange (or, in the case of 
wireless providers, the same MTA.); Verizon and BellSouth, Internet-Bound Traffic is Not Compensable Under 
Sections 251(b)(5) and 252(d)(2) at 26 (Verizon/BellSouth ISP White Paper) (By its nature, reciprocal 
compensation must . . . apply to telecommunications exchanged between LECs (or carriers, like CMRS providers, 
that the Commission is authorized to treat as LECs), not to traffic that is exchanged between LECs and non-LECs.), 
attached to Letter from Ann D. Berkowitz, Associate Director, Federal Regulatory Advocacy, Verizon, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed May 17, 2004).

Federal Communications Commission FCC 08-262 
C-98 
Commission rejected that argument in the Local Competition Order, finding that section 251(b)(5) 
applies to traffic exchanged by a LEC and any other telecommunications carrier, and adopted rules 
implementing that finding.566 In a specific application of that principle, the Commission concluded that 
CMRS providers will not be classified as LECs,567 but nevertheless found that LECs are obligated, 
pursuant to section 251(b)(5) (and the corresponding pricing standards of section 252(d)(2)), to enter into 
reciprocal compensation agreements with all CMRS providers.568 No one challenged that finding on 
appeal, and it has been settled law for the past 12 years. We see no reason to revisit that conclusion now. 
Although section 251(b)(5) indisputably imposes the duty to establish reciprocal compensation 
arrangements on LECs alone, Congress did not limit the class of potential beneficiaries of that obligation 
to LECs.569 
218. We also disagree with commenters who argue that section 252(d)(2)(A)(i) limits the 
scope of section 251(b)(5).570 Section 252(d)(2)(A)(i) provides that a state commission shall not 
consider the terms and conditions for reciprocal compensation to be just and reasonable unless such 
terms and conditions provide for the mutual and reciprocal recovery by each carrier of costs associated 
with the transport and termination on each carriers network facilities of calls that originate on the 
network facilities of the other carrier.571 Verizon and others argue that this provision necessarily 
excludes interexchange traffic from the scope of section 251(b)(5) because at the time the 1996 Act was 
passed, calls neither originated nor terminated on an IXCs network.572 We reject this reasoning because 
it erroneously assumes that Congress intended the pricing standards in section 252(d)(2) to limit the 
otherwise broad scope of section 251(b)(5). We do not believe that Congress intended the tail to wag the 
dog. 
566 See Local Competition First Report and Order, 11 FCC Rcd at 1601316, paras. 103441. See also 47 C.F.R. 
51.703(a) (Each LEC shall establish reciprocal compensation arrangements for transport and termination of 
telecommunications traffic with any requesting telecommunications carrier.); ISP Remand Order, 16 FCC Rcd at 
919394, para. 89 n.177 (Section 251(b)(5) applies to telecommunications traffic between a LEC and a 
telecommunications carrier . . . .). 
567 Local Competition First Report and Order, 11 FCC Rcd at 15996, para. 1005. In this regard, we note that, absent 
a determination that CMRS providers are LECs, IXC-CMRS traffic would not be encompassed by section 251(b)(5), 
since neither are LECs. Nevertheless, it is our intention that, at the end of the transition, CMRS providers be 
entitled to reciprocal compensation for all the traffic they terminate. As the Commission has observed, [t]here are 
three ways in which a carrier seeking to impose charges on another carrier can establish a duty to pay such charges: 
pursuant to (1) Commission rule; (2) tariff; or (3) contract. Petitions of Sprint PCS and AT&T Corp. For 
Declaratory Ruling Regarding CMRS Access Charges, Declaratory Ruling, 17 FCC Rcd 13192, 13196, para. 8 
(2002). 
568 Local Competition First Report and Order, 11 FCC Rcd at 15997, para. 1008. 
569 If Congress had intended to limit the class of potential beneficiaries of LECs duty to establish reciprocal 
obligation arrangements, it would have said so explicitly. See 47 U.S.C.  251(b)(3) (describing the duty to 
provide dialing parity to competing providers of telephone exchange service and telephone toll service). 
570 See, e.g., Verizon/BellSouth ISP White Paper at 4143; New York State PSC ICC FNPRM Comments at 89; 
TDS ICC FNPRM Comments at 19 n.27; Qwest ICC FNPRM Comments at 39; NASUCA ICC FNPRM Reply at 
1718. 
571 47 U.S.C.  252(d)(2)(A)(i). 
572 See, e.g., Maine PUC and Vermont Pub. Serv. Bd. ICC FNPRM Comments at 78; New York State PSC ICC 
FNPRM Comments at 710; Verizon/BellSouth Supp. ISP White Paper at 1620; NARUC ICC FNPRM Comments 
at 7 n.13.

Federal Communications Commission FCC 08-262 
C-99 
219. Section 251(b)(5) defines the scope of traffic that is subject to reciprocal compensation. 
Section 252(d)(2)(A)(i), in turn, deals with the mechanics of who owes what to whom, it does not define 
the scope of traffic to which section 251(b)(5) applies. Section 252(d)(2)(A)(i) provides that, at a 
minimum, a reciprocal compensation arrangement must provide for the recovery by each carrier of costs 
associated with the transport and termination on each carriers network of calls that originate on the 
network of the other carrier.573 Section 252(d)(2)(A)(i) does not address what happens when carriers 
exchange traffic that originates or terminates on a third carriers network. This does not mean, as Verizon 
suggests, that section 251(b)(5) must be read as limited to traffic involving only two carriers. Rather, it 
means that there is a gap in the pricing rules in section 252(d)(2), and the Commission has authority under 
section 201(b) to adopt rules to fill that gap. 
220. We reject Verizons argument that a telecommunications carrier that delivers traffic to an 
ISP is not eligible for reciprocal compensation because the carrier does not terminate 
telecommunications traffic at the ISP.574 In the Local Competition Order, the Commission defined 
termination as the switching of traffic that is subject to section 251(b)(5) at the terminating carriers 
end office switch . . . and delivery of that traffic to the called partys premises.575 As the D.C. Circuit 
suggested in the Bell Atlantic decision, Calls to ISPs appear to fit this definition: the traffic is switched 
by the LEC whose customer is the ISP and then delivered to the ISP, which is clearly the called 
party.576 We agree.577 Consequently, ISP-bound traffic is subject to our new intercarrier compensation 
framework.578 
221. We reject opponents other arguments that the context and history of the 1996 Act 
compel a finding that section 251(b)(5) could not be applied to access traffic. Verizon argues, for 
example, that section 251(g) demonstrates that Congress did not intend to displace the existing access 
pricing regime.579 This argument ignores that Congress preserved the access regime only until such 
573 47 U.S.C.  252(d)(2)(A)(i). 
574 See, e.g., Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 3334; Verizon/BellSouth ISP White Paper 
at 3132. 
575 Local Competition First Report and Order, 11 FCC Rcd at 16015, para. 1040. See also 47 C.F.R.  51.701(d). 
576 206 F.3d at 6. 
577 Because ISP-bound traffic did not fall within the section 251(g) carve out from section 251(b)(5) as there had 
been no pre-Act obligation relating to intercarrier compensation for ISP-bound traffic, WorldCom, 288 F.3d at 433, 
ISP-bound traffic is, and always has been, subject to section 251(b)(5), although clearly interstate in nature and 
subject to our section 201 authority. 
578 We reject Verizons argument against the application of section 251(b)(5) to ISP-bound traffic because this 
traffic is one-way traffic and as such is not reciprocal. See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments 
at 26; Verizon/BellSouth ISP White Paper at 4143. As Level 3 points out, these arguments have been rejected by 
the Commission and the U.S. Court of Appeals for the Ninth Circuit. See Level 3 Aug. 18, 2008 Ex Parte Letter at 
18; Pacific Bell v. Cook Telecom, Inc., 197 F.3d 1236, 124244 (9th Cir. 1999) (reciprocal compensation applies to 
paging traffic); TSR Wireless, LLC v. U.S. West Commcns, Inc., 15 FCC Rcd 11166, 11178, para. 21 (2000) (the 
Commissions reciprocal compensation rules draw no distinction between one-way and two-way carriers). 
Because our conclusion in this order concerning the scope of section 251(b)(5) is no longer tied to whether this 
traffic is local or long distance, we need not address arguments made by the parties as to whether ISP-bound traffic 
constitutes telephone exchange service under the Act. See, e.g., Letter from John T. Nakahata, Counsel for Level 
3 Communications, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed 
Sept. 24, 2004). We note, however, that we retain our interim ISP-bound traffic rules. See supra paras. 194200. 
579 See Verizon ICC FNPRM Comments at 41. 

Federal Communications Commission FCC 08-262 
C-100 
restrictions and obligations are explicitly superseded by regulations prescribed by the Commission.580 
As noted above, we find that section 251(g) actually supports a finding that section 251(b)(5) is broad 
enough to cover access traffic. Verizon also argues that the reference to reciprocal compensation in the 
competitive checklist in section 271,581 which was designed to ensure that local markets are open to 
competition, somehow shows that Congress intended to limit the scope of section 251(b)(5) to local 
traffic.582 We do not see how this argument sheds any light on the scope of section 251(b)(5). Congress 
no doubt included the reference to reciprocal compensation in section 271 because section 251(b)(5) 
applies to local traffic, a point that no one disputes. That does not suggest, however, that section 
251(b)(5) applies only to local traffic. 
222. We need not respond to every other variation of the argument that the history and 
structure of the Act somehow demonstrate that section 251(b)(5) does not apply to access traffic. At best, 
these arguments show that one plausible interpretation of the statute is that section 251(b)(5) applies only 
to local traffic, a view that the Commission embraced in the Local Competition First Report and Order. 
These arguments do not persuade us, however, that this is the only plausible reading of the statute. 
Moreover, many of the same arguments based on the history and context of the adoption of section 251 to 
limit its scope to local traffic were rejected by the D.C. Circuit in the context of section 251(c).583 We 
find that the better reading of the Act as a whole, in particular the broad language of section 251(b)(5) and 
the grandfather clause in section 251(g), supports our view that the transport and termination of all 
telecommunications exchanged with LECs is subject to the reciprocal compensation regime in sections 
251(b)(5) and 252(d)(2). 
223. The approach we adopt here provides a sound basis for comprehensive reform, and we 
thus decline to adopt alternative proposals. On one hand, we note that some commenters advocate that 
the Commission adopt an intercarrier compensation rate or cap of $0.0007 per minute of use for all 
traffic.584 To implement this reform proposal, parties have suggested that it would likely be necessary for 
580 47 U.S.C.  251(g). 
581 See 47 U.S.C.  271(c)(2)(B)(xiii). 
582 See Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at 26; Verizon/BellSouth ISP White Paper at 9. 
583 United States Telecom Assn v. FCC, 359 F.3d 554, 592 (D.C. Cir. 2004) (USTA II) (Even under the deferential 
Chevron standard of review, an agency cannot, absent strong structural or contextual evidence, exclude from 
coverage certain items that clearly fall within the plain meaning of a statutory term. The argument that long distance 
services are not telecommunications services has no support.). In USTA II, the D.C. Circuit was addressing 
whether the term telecommunications services was limited to local telecommunications services under section 
251(c), while here we consider the analogous question of whether telecommunications is limited to local 
telecommunications under section 251(b). 
584 See, e.g., Letter from Grace E. Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92, Attach. A at 1 (filed Oct. 6, 2008); Letter from Teresa D. Bauer and Richard R. Cameron, 
Counsel for Global Crossing North America, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 1 
(filed Sept. 18, 2008); Letter from Susanne A. Guyer, Senior Vice President of Federal Regulatory Affairs, Verizon, 
to Kevin Martin et al., Commissioners, FCC, CC Docket. 01-92 at 4 (filed Sept. 12, 2008) (Verizon Sept. 12, 2008 
Ex Parte Letter). But see, e.g., Letter from Richard A. Askoff, Executive DirectorRegulatory, NECA, to Marlene 
H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 3 (filed Oct. 7, 2008) (Prescription of a nationwide uniform 
default rate of $0.0007 is unnecessary to solve the rate arbitrage problems identified by Verizon. It would also 
represent bad policy.); Letter from Lawrence Zawalick, Senior Vice President, Rural Telephone Finance 
Cooperative, to Kevin Martin et al., Commissioners, FCC, CC Docket 01-92 at 1 (filed Sept. 30, 2008) (The Rural 
Telephone Finance Cooperative (RTFC) strongly opposes [the $0.0007] proposal.).

Federal Communications Commission FCC 08-262 
C-101 
the Commission to preempt state regulation of intrastate access charges.585 We believe that such a 
significant step is not currently warranted, and elect instead to allow states to continue setting rates for 
intrastate traffic, as well as permitting them to set rates for traffic subject to federal jurisdiction, pursuant 
to our methodology. We fully expect the new pricing methodology to achieve the goals of our continuing 
intercarrier compensation reform. On the other hand, some parties contend that the Commission should 
leave matters of intrastate intercarrier compensation reform entirely to the states.586 These proposals 
evidence a pre-1996 Act worldview, however. Given the tools that the 1996 Act put at our disposal, we 
find it possible to move forward with truly comprehensive intercarrier compensation reform under an 
approach which still provides for a state role. 
224. We note that, in the Local Competition First Report and Order, the Commission 
observed that section 251(b)(5) does not address charges payable to a carrier that originates traffic and 
concluded, therefore, that such charges were prohibited under that provision of the Act.587 Because we 
elect to have the states set rates under section 251(b)(5), pursuant to our methodology, we find that 
retention of originating charges would be inconsistent with that statutory scheme and our new regulatory 
approach. Accordingly, we find that originating charges for all telecommunications traffic subject to our 
comprehensive intercarrier compensation framework must be eliminated at the conclusion of the 
transition to the new regime. We recognize, however, that changes to originating access charge rates may 
raise issues distinct from terminating charges. Moreover, several parties urge the Commission to delay 
any changes to originating charges.588 For these reasons, we ask parties to comment on the appropriate 
transition for eliminating originating access charges in the accompanying Further Notice.589 Although we 
ask parties to comment on the appropriate transition for eliminating originating access charges, we clarify 
that, under the transitional mechanism we adopt today, carriers are not permitted to increase any of their 
585 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 1425 (filed Sept. 19, 2008) (Verizon Sept. 
19, 2008 Ex Parte Letter). 
586 In some cases, parties propose that the Commission make available universal service support as an enticement 
for states to reform intrastate rates, but ultimately the decisions would be left to the individual states. See Letter 
from Tom Karalis, Counsel for Rural Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, 
Attach. at 7 (filed Sept. 26, 2008). 
587 See Local Competition First Report and Order, 11 FCC Rcd at 16016, para. 1042. See also 47 C.F.R. 
 51.703(b) (stating that a LEC may not assess charges on any other telecommunications carrier for 
telecommunications traffic that originates on the LECs network). 
588 See, e.g., Verizon Sept. 12, 2008 Ex Parte Letter at 5 (asking the Commission to defer reform of originating 
access); Letter from Grace E. Kohl, Policy Counsel, Cox, to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 
06-122, 05-337, CC Docket Nos. 96-45, 01-92, 99-68, 96-262 at 2 (filed Oct. 6, 2008) (supporting proposals to 
delay reform of originating access) (Cox Oct. 6, 2008 Ex Parte Letter); Letter from Brian Benison, Director 
Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC 
Docket Nos. 05-337, 07-135, Attach. at 3 (filed Oct. 7, 2008) (describing model with No Change to Current 
Structure and Rates for originating access); Letter from Kathleen OBrien Ham, Federal Regulatory Affairs, TMobile, 
to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 5 (filed Oct. 3, 2008); cf. Letter from Mary 
C. Albert, Assistant General Counsel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket 
Nos. 04-36, 05-337, Attach. at 1 (filed Oct. 2, 2008) (urging the Commission to delay any changes to intercarrier 
compensation). But see Letter from Anna M. Gomez, Vice President, Government Affairs, COMPTEL, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 7 (filed Oct. 1, 2008) (urging 
the Commission to reform originating access immediately) (Sprint Oct. 1, 2008 Ex Parte Letter). 
589 See infra para 343.

Federal Communications Commission FCC 08-262 
C-102 
current rates, including their originating access rates.590 Thus, both interstate and intrastate originating 
switched access rates will remain capped at current levels until further action by the Commission 
addressing the appropriate transition for this traffic. This approach is consistent with our transition of 
terminating rates591 and with our goal of eliminating originating access charges at the conclusion of the 
transition to the new regime. 
b. Legal Authority for the Transition 
225. Although we comprehensively reform intercarrier compensation, we do not flash cut to 
our new regime, but provide for a measured transition.592 The goal of this transition is to avoid overly 
rapid rate changes for consumers while providing carriers with sufficient means to preserve their financial 
integrity as we move to the new intercarrier compensation regime.593 For many of the same reasons that 
we have authority to adopt comprehensive reform, we find that the Commission has clear authority to 
establish such a transitional structure to serve as a glide path to the new methodology we have developed 
in this order. 
226. We find it reasonable to adopt a transition plan under these circumstances. As the D.C. 
Circuit has recognized, avoiding market disruption pending broader reforms is, of course, a standard and 
accepted justification for a temporary rule,594 and here temporary rules setting forth a glide path are 
needed to mitigate potentially adverse rate or revenue effects that may be caused by our comprehensive 
intercarrier compensation reform, including the elimination of implicit universal service subsidies in those 
rates. Therefore, the Commissions exercise of its authority to create a transition plan is especially 
appropriate here, where the Commission is acting to reconcile the Acts implicit tension between . . . 
moving toward cost-based rates and protecting universal service.595 Not surprisingly, most commenters 
have affirmatively recognized the need for a transitional regime.596 Indeed, every major plan submitted to 
590 This prohibition on increasing access rates also applies to the Primary Interexchange Carrier Charge in section 
69.153 of the Commissions rules, the per-minute Carrier Common Line charge in section 69.154 of the 
Commissions rules, and the per-minute Residual Interconnection Charge in section 69.155 of the Commissions 
rules. 47 C.F.R.  69.153, 69.154, 69.155. 
591 See supra para. 194 (prohibiting carriers from increasing their current rates, even if the interim, uniform 
reciprocal compensation rate is higher than one or more of its current rates). 
592 See supra section V.B.2. 
593 This approach is consistent with Commission precedent set forth in Part V.A, which started reforming intercarrier 
compensation in the 1980s. There the Commission found that a transitional plan is necessary in part because 
[i]mmediate recovery of high fixed costs through flat end-user charges might cause a significant number of local 
exchange service subscribers to cancel local exchange service despite the existence of a Universal Service Fund 
and [s]uch a result would not be consistent with the goals of the Communications Act. 1983 Access Charge 
Order, 93 FCC 2d at 243, para. 4. As a result, the Commission initially limited the flat rate charge imposed on end 
users, also known as the subscriber line charge or SLC, to $1.00 (subsequent orders raised the cap on the subscriber 
line charge for residential users to $6.50). 
594 Competitive Telecomms. Assn v. FCC, 309 F.3d 8, 14 (D.C. Cir. 2002). 
595 Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523, 538 (8th Cir. 1998). 
596 See, e.g., BellSouth ICC FNPRM Comments at 17 (In order to avoid the market disruption and dislocation that 
would be associated with instantaneous implementation of a unified plan, BellSouth proposes a two-phase transition 
plan.); CCG ICC FNPRM Comments at 2 (Any plan that reduces access rates should be phased-in over as long a 
period as possible, at least for rural carriers, so these companies have time to prepare for and adjust to the economic 
impact.); Cincinnati Bell ICC FNPRM Comments at 12 (The Commission must allow carriers the opportunity to 
earn this lost access revenue in the transition to a new compensation regime in order to make any regime change 
(continued.)

Federal Communications Commission FCC 08-262 
C-103 
us in this proceeding, whether the Missoula plan,597 the ICF plan,598 Verizons plan,599 AT&Ts plan,600 or 
the plan from CBICC,601 ARIC,602 NARUC,603 or NASUCA,604 has called for the Commission to establish 
an orderly transition period. We take heed of these commenters and of our statutory responsibilities to 
ensure a smooth transition to the new regime by setting forth a multi-stage transition plan as part of our 
comprehensive reform of intercarrier compensation. 
227. Moreover, we have several independent sources of legal authority to adopt the transition 
plan established in this order. For one, section 251 explicitly contemplates our authority to adopt a 
transitional scheme with regard to access charges. We agree with the United States Court of Appeals for 
the District of Columbia Circuit that section 251(g) created a transitional enforcement mechanism605 
preserving the access charge regimes that pre-dated the 1996 Act until . . . explicitly superseded by 
regulations prescribed by the Commission.606 Thus, section 251(g), by its terms, anticipates that the 
Commission may take action to end the regimes grandfathered by section 251(g), and inherent within the 
power to supersede the grandfathered access regime is the lesser power to prescribe regulations that 
determine how to transition to a cost-based pricing mechanisma power that we have twice employed in 
(continued from previous page) 
revenue neutral to the affected carriers.); CCAP ICC FNPRM Comments at 23 (The CCAP believes that any 
reform of the existing intercarrier compensation regimes should take place over a three-to-five-year period . . . .). 
597 Missoula Plan, Executive Summary at 3 (Recognizing the vast differences among carriers, the Plan creates three 
different transition schedules for intercarrier compensation rates.). 
598 Letter from Gary M. Epstein and Richard R. Cameron, Counsel for ICF, to Marlene H. Dortch, Secretary, FCC, 
CC Docket 01-92, Attach. 2 at 3 (filed Aug. 16, 2004). 
599 Verizon Sept. 12, 2008 Ex Parte Letter at 910. 
600 Letter from Henry Hultquist, Federal Regulatory Vice-President, AT&T, to Marlene H. Dortch, Secretary, FCC, 
CC Docket 01-92, Attach 1 at 4 (filed July 17, 2008). 
601 Letter from Richard M. Rindler, Counsel for CBICC, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, 
Attach. 1 at 2. 
602 ARIC ICC FNPRM Comments, Attach. 1 at 33. 
603 NARUC ICC FNPRM Comments, Attach. C at 6. 
604 Letter from Philip F. McClelland, Senior Assistant Consumer Advocate, NASUCA, to Marlene H. Dortch, 
Secretary, FCC, CC Docket 01-92, Attach. 1 at 1 (filed Dec. 14, 2004). 
605 WorldCom, 288 F.3d at 433. 
606 47 U.S.C.  251(g) (emphasis added). At the least, section 251(g) preserved the interstate access regime the 
Commission had prescribed for all carriers (see id. (preserving obligations (including receipt of compensation) . . . 
under any . . . regulation, order, or policy of the Commission . . . .)) and the intrastate access regime the Bell 
Operating Companies had agreed to in the Modified Final Judgment. See United States v. AT&T, 552 F. Supp. at 
169. Recognizing, however, that it would be incongruous to conclude that Congress was concerned about the 
effects of potential disruption to the interstate access charge system, but had no such concerns about the effects on 
analogous intrastate mechanisms, the Commission has consistently interpreted section 251(g) to preserve the 
intrastate access regime pre-dating the Act for all carriers. ISP Remand Order, 16 FCC Rcd at 9168 n.66 (quoting 
Local Competition First Report and Order, 11 FCC Rcd at 15869, para. 732); see also Competitive Telecomms. 
Assn v. FCC, 117 F.3d 1068, 1072 (8th Cir. 1997) ([I]t is clear from the Act that Congress did not intend all access 
charges to move to cost-based pricing, at least not immediately. The Act plainly preserves certain rate regimes 
already in place.).

Federal Communications Commission FCC 08-262 
C-104 
the past to reduce access charges without explicitly superseding that regime.607 
228. In addition, as the Supreme Court has further held, the Commission has authority to 
prescribe the requisite pricing methodology that the States will apply in setting rates under section 
252(d)(2).608 Consistent with our authority, the Commission here is providing for a transitional regime in 
the public interest to smooth the transition to the new pricing standard adopted by this order. The goal of 
this transition is to allow gradual changes to consumer rates while providing carriers with sufficient 
means to preserve their financial integrity as we move to the new intercarrier compensation regime. 
229. Significantly, as discussed in greater detail above, although we elect to rely on the 
sections 251(b)(5) and 252(d)(2) framework for reform, that does not affect the Commissions jurisdiction 
over traffic or services otherwise subject to federal authority. 609 With respect to interstate services, the 
Act has long provided us with the authority to establish just and reasonable charges, practices, 
classifications, and regulations.610 The Commission also has authority over the rates of CMRS providers 
pursuant to section 332 of the Act.611 The Commission thus retains full authority to adopt transition plans 
for traffic and services subject to federal jurisdiction, even when it is within the sections 251(b)(5) and 
252(d)(2) framework. Because we re-affirm our findings concerning the interstate nature of ISP-bound 
traffic, it follows that such traffic falls under the Commissions section 201 authority preserved by the 
Act.612 This conclusion is reinforced by section 251(i) of the Act. As the Commission explained in the 
607 See MAG Order, 16 FCC Rcd 19613 (reducing interstate access charges for rate-of-return carriers); CALLS 
Order, 15 FCC Rcd 12962 (reducing interstate access charges for price-cap carriers), affd in relevant part by Texas 
Office of Pub. Util. Counsel v. FCC, 265 F.3d at 324 (reasoning that because the Commission had not yet 
superseded the pre-Act interstate access regime, it retained authority under section 201(b) to set just and reasonable 
rates for interstate access); see also WorldCom, 288 F.3d at 433 (We will assume without deciding that under 
 251(g) the Commission might modify LECs pre-Act restrictions or obligations, pending full implementation 
of relevant sections of the Act. The Fifth Circuit appeared to make that assumption . . . .). 
608 AT&T v. Iowa Utils. Bd., 525 U.S. at 384; see also id. at 378 (The FCC has rulemaking authority to carry out the 
provisions of this Act, which include  251 and 252, added by the Telecommunications Act of 1996.) 
609 See supra para. 207. 
610 47 U.S.C.  201(b). 
611 47 U.S.C.  332. 
612 We have consistently found that ISP-bound traffic is jurisdictionally interstate. ISP-bound traffic melds a 
traditional circuit-switched local telephone call over the PSTN to packet switched IP-based Internet communication 
to Web sites. Declaratory Ruling, 14 FCC Rcd at 3702, para. 18; ISP Remand Order, 16 FCC Rcd at 9175, para. 
52. This conclusion has not been questioned by the D.C. Circuit. See WorldCom, 288 F.3d at 431; Bell Atlantic v. 
FCC, 206 F.3d at 5 (There is no dispute that the Commission has historically been justified in relying on this 
method when determining whether a particular communication is jurisdictionally interstate). In other contexts, the 
Commission has likewise found that services that offer access to the Internet are jurisdictionally interstate services. 
In 1998, for example, the Commission found that ADSL service is jurisdictionally interstate. See GTE Tel. 
Operating Cos., CC Docket No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd 22466, 22481, para. 28 
(1998) (finding that GTEs ADSL service is subject to federal jurisdiction and is an interstate service). More 
recently, the Commission has confirmed this ruling for a variety of broadband Internet access services. See Inquiry 
Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GN Docket No. 00-185, CS Docket 
No. 02-52, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4832, para. 59 (2002) 
(finding that, on an end-to-end analysis, cable modem service is an interstate information service); Wireline 
Broadband Internet Access Order, 20 FCC Rcd at 14914, para. 110, affd by Natl Cable & Telecomms. Assn v. 
Brand X Internet Servs. (Brand X), 545 U.S. 967 (2005); Appropriate Regulatory Treatment for Broadband Access 
to the Internet Over Wireless Networks, WT 07-53, Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007); 
United Power Line Councils Petition for Declaratory Ruling Regarding the Classification of Broadband over 
(continued.)

Federal Communications Commission FCC 08-262 
C-105 
ISP Remand Order, section 251(i) expressly affirms the Commissions role in an evolving 
telecommunications marketplace, in which Congress anticipates that the Commission will continue to 
develop appropriate pricing and compensation mechanisms for traffic that falls within the purview of 
section 201.613 It concluded that section 251(i), together with section 201, equips the Commission with 
the tools necessary to keep pace with regulatory developments and new technologies.614 When read 
together, these statutory sections preserve the Commissions authority to address new issues that fall 
within its section 201 authority over interstate traffic, including compensation for the exchange of ISPbound 
traffic. Consequently, in the ISP Remand Order, the Commission properly exercised its authority 
under section 201(b) to issue interim pricing rules governing the payment of compensation between 
carriers for ISP-bound traffic.615 
230. This result is consistent with the D.C. Circuits opinion in Bell Atlantic, which concluded 
that the jurisdictional nature of traffic is not dispositive of whether reciprocal compensation is owed under 
section 251(b)(5).616 It is also consistent with the courts WorldCom decision, in which the court rejected 
the Commissions view that section 251(g) excluded ISP-bound traffic from the scope of section 
251(b)(5), but made no other findings.617 Finally, this result does not run afoul of the Eighth Circuits 
decision on remand from the Supreme Court in the Iowa Utilities Board litigation, which held that the 
FCC does not have the authority to set the actual prices for the state commissions to use under section 
251(b)(5).618 At the time of that decision, under the Local Competition First Report and Order, section 
251(b)(5) applied only to local traffic. Thus, the Eighth Circuit merely held that the Commission could 
not set reciprocal compensation rates for local traffic. The court did not address the Commissions 
authority to set reciprocal compensation rates for interstate traffic.619 In sum, the Commission plainly has 
authority to establish pricing rules for interstate traffic, including ISP-bound traffic, under section 201(b), 
and that authority was preserved by section 251(i). 
4. Additional Costs Standard 
231. We now turn to reconsideration of our additional costs standard for implementing 
section 252(d)(2). Before describing our new standard, we briefly review the relevant statutory language 
(continued from previous page) 
Power Line Internet Access Service as an Information Service, WC 06-10, Memorandum Opinion and Order, 21 
FCC Rcd 13281, 13288, para. 11 (2006). In the Vonage Order, the Commission likewise found that VoIP services 
are jurisdictionally interstate, employing the same end-to-end analysis reflected in those other orders. Vonage 
Order, 19 FCC Rcd at 2241314, paras. 1718. 
613 ISP Remand Order, 16 FCC Rcd at 9174, para. 50. 
614 See ISP Remand Order, at 9175, para. 51. 
615 We thus respond to the D.C. Circuits remand order in WorldCom, 288 F.3d at 434, and the courts writ of 
mandamus in Core Communications, 531 F.3d at 86162, which directed the Commission to explain its legal 
authority to issue the interim pricing rules for ISP-bound traffic adopted in the ISP Remand Order. Specifically, we 
find, for the reasons set forth above and in Part V.B.3, that the Commission had the authority to adopt the interim 
pricing regime pursuant to our broad authority under section 201(b) to issue rules governing interstate traffic. 
616 See Bell Atlantic, 206 F.3d at 5. 
617 See WorldCom, 288 F.3d at 434. 
618 Iowa Utils. Bd. v. FCC, 219 F.3d 744, 757 (8th Cir. 2000) (Iowa Utils. II), revd in part sub nom. Verizon v. FCC, 
535 U.S. 467. 
619 Indeed, as discussed above, the court expressly confirmed the Commissions independent authority to set rates 
for CMRS traffic pursuant to section 332 and declined to vacate the Commissions pricing rules as they applied in 
the context of CMRS service. See supra para. 214; Iowa Utils. I, 120 F.3d at 800 n.21.

Federal Communications Commission FCC 08-262 
C-106 
and the Commission's implementation of the additional costs standard in the Local Competition First 
Report and Order. We then explain the importance of incremental cost in regulated pricing. Next we 
examine the incremental cost of call termination on modern networks. Finally we describe in detail the 
additional costs standard we adopt in this order. 
a. Background 
232. Section 252(d)(2)(A) sets forth the standard that state commissions, in arbitrating 
interconnection disputes, should apply in setting the charges for transport and termination of traffic. 
That section states that [f]or the purposes of compliance  with section 251(b)(5), a State commission 
shall not consider the terms and conditions for reciprocal compensation to be just and reasonable unless 
(i) such terms and conditions provide for the mutual and reciprocal recovery by each carrier of costs 
associated with the transport and termination on each carriers network facilities of calls that originate on 
the network facilities of the other carrier; and (ii) such terms and conditions determine such costs on the 
basis of a reasonable approximation of the additional costs of terminating such calls.620 Section 
252(d)(2)(B) provides that the preceding standard shall not be construed (i) to preclude arrangements 
that afford the mutual recovery of costs through offsetting of reciprocal obligations, including 
arrangements that waive mutual recover (such as bill and keep arrangements); or (ii) to authorize the 
Commission or any State commission to engage in any rate regulation proceedings to establish with 
particularity the additional costs of transporting or terminating calls, or to require carriers to maintain 
records with respect to the additional costs of such calls.621 
233. In the Local Competition First Report and Order, the Commission adopted implementing 
rules interpreting section 252s pricing standards for interconnection and UNEs (section 252(d)(1)), and 
for reciprocal compensation (section 252(d)(2)). In setting the pricing methodology for interconnection 
and UNEs, the Commission directed the states to employ a forward-looking, long-run average 
incremental cost methodology, known as TELRIC.622 The TELRIC methodology assumes that the 
relevant increment of output is all current and reasonably projected future demand, (i.e., it is designed to 
calculate the total cost of building a new, efficient network).623 The Commission found that TELRIC 
rates should also include a reasonable allocation of forward-looking common costs, including overhead 
costs. Thus, TELRIC calculates the long-run average incremental cost of a network element. In setting 
the pricing methodology for reciprocal compensation, the Commission concluded that the statutory 
pricing standards for interconnection and UNEs (section 252(d)(1)), and for transport and termination of 
traffic (section 252(d)(2)), were sufficiently similar to permit the use of the same TELRIC methodology 
for establishing rates under both statutory provisions.624 
620 47 U.S.C.  252(d)(2)(A). 
621 47 U.S.C.  252(d)(2)(B). 
622 Local Competition First Report and Order, 11 FCC Rcd at 15515, 1584496, paras. 29, 672732. 
623 Local Competition First Report and Order, 11 FCC Rcd at 1585057, paras. 690703, see also 47 C.F.R. 
 51.505. 
624 Local Competition First Report and Order, 11 FCC Rcd at 16023, para. 1054. In applying the TELRIC 
methodology to reciprocal compensation, the Commission found that the additional costs to the LEC of 
terminating a call that originates on another carriers network primarily consists of the traffic-sensitive component 
of local switching. For purposes of setting rates, the Commission concluded that only that portion of the forwardlooking, 
economic cost of end-office switching that is recovered on a usage-sensitive basis constitutes an additional 
cost to be recovered through termination charges. Id. at 1602425, para. 1057. The Commission excluded nontraffic 
sensitive costs, such as the costs of local loops and line ports. Id. Further, the Commission concluded that 
termination rates established pursuant to the TELRIC methodology should include a reasonable allocation of 
(continued.)

Federal Communications Commission FCC 08-262 
C-107 
234. Market developments since the adoption of the Local Competition First Report and 
Order demonstrate that application of the TELRIC methodology to reciprocal compensation has led to 
excessively high reciprocal compensation rates.625 More specifically, following the Commissions 
order, certain carriers began designing business plans to take advantage of above-cost reciprocal 
compensation payments by becoming a net recipient of local traffic. The most prevalent example of 
regulatory arbitrage for reciprocal compensation is ISP-bound traffic where the Commission found 
evidence that CLECs appear to have targeted customers that primarily or solely receive traffic, 
particularly ISPs, in order to become net recipients of reciprocal compensation payments.626 As a result, 
the Commission has found that reciprocal compensation rates do not simply compensate the terminating 
network, but also appear to generate profits for each minute that is terminated, thus creating a potential 
windfall.627 In short, the evidence indicates that application of the TELRIC methodology to reciprocal 
compensation has not led to rates that accurately reflect a carriers additional costs as the Commission 
initially envisioned and Congress intended. Rather, the Commissions existing pricing standard has led to 
rates that not only vary significantly among states,628 but are generally too high, and which ultimately 
create regulatory arbitrage opportunities. Based on this evidence, and as detailed further below, we 
therefore conclude that we need to revise the current reciprocal compensation pricing methodology to 
align our standard more closely with the statutory text and with economic theory to eliminate, as far as 
possible, opportunities for regulatory arbitrage. 
b. The Importance of Incremental Cost In Regulated Pricing 
235. To provide a framework for our reconsideration of the proper additional costs 
methodology, we begin with a brief overview of long-standing principles for public utility pricing. As 
explained below, we believe the traditional economic definition of incremental cost, as applied to 
multiproduct firms, is most appropriate for setting intercarrier compensation rates. The Commissions 
existing TELRIC standard governing reciprocal compensation deviates from this more efficient version of 
(continued from previous page) 
forward-looking common costs because, the Commission reasoned, a rate equal to incremental costs may not 
compensate carriers fully when common costs are present. Id. at 16025, para. 1058. For transport, the Commission 
required the calling partys LEC to compensate the called partys LEC for the additional costs associated with 
transporting a call subject to section 251(b)(5) from the carriers interconnection point to the called partys end 
office and for the additional costs of terminating the call to the called party. Id. at 1600858, paras. 1027118; see 
also 47 C.F.R.  51.701(c), (d). 
625 ISP Remand Order, 16 FCC Rcd at 9185, para. 75); see also Letter from Norina Moy, Director, Government 
Affairs, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket No. 04-36 (filed 
Sept. 26, 2008) (Sprint Nextel Sept. 26, 2008 Ex Parte Letter). 
626 Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 11. 
627 See, e.g., Intercarrier Compensation NPRM, 16 FCC Rcd at 9616, para. 11; see also Intercarrier Compensation 
FNPRM, 20 FCC Rcd at 4698 n.67 ([R]eciprocal compensation rates often substantially exceed the per-minute 
incremental cost of terminating a call and therefore create a potential windfall for carriers that serve customers that 
primarily or exclusively receive traffic.); ISP Remand Order, 16 FCC Rcd at 9192, para. 87 ([T]here may be a 
considerable margin between current reciprocal compensation rates and the actual costs of transport and 
termination.); BellSouth ICC NPRM Comments at 9 ([R]eciprocal compensation payments enabled carriers to 
offer services to their customers at rates that bore little relationship to actual costs and provided the recipients of 
reciprocal compensation an advantage over their competitors.); Verizon 2000 Remand of ISP Declaratory Ruling 
Public Notice Comments at 1112 (noting that competitive LECs with ISP customers reap a windfall profit 
because of high reciprocal compensation rates). 
628 See, e.g., Eastern Rural Telecom Assn ICC FNPRM Comments at 23 (Depending on the assumptions used to 
develop a companys TELRIC study, the results can vary significantly and be open to challenge.).

Federal Communications Commission FCC 08-262 
C-108 
incremental cost, and is likely to lead to rates that significantly exceed efficient levels. We also consider 
evidence in the record concerning costs of switches and fiber. 
236. In economic theory generally and in its application to regulation, the relationship of price 
and marginal cost is of fundamental importance. Marginal cost can be simply defined as the rate of 
change in total cost when output changes by an infinitesimal unit. In economics, the term incremental 
cost refers to a discrete change in total cost when output changes by any non-infinitesimal amount, which 
might range from a single unit to a large increment representing a firms entire output.629 The terms 
additional costs and avoidable costs are commonly used to refer to incremental costs resulting from an 
increase or a decrease in output respectively.630 
237. In a competitive market, it is assumed that both consumers and producers independently 
will choose outputs to purchase or to supply on the basis of a market price. In standard economic 
analysis, this price is determined by the intersection of a downward sloping demand function, which 
represents consumer valuations for additional units of consumption, and an upward sloping supply 
function, which represents the marginal cost of supplying an additional unit. The competitive price is 
efficient in the following sense. At any other price, consumer demands would no longer be equal to 
producer supply, and market transactions would be limited to the smaller of the two terms.631 At this 
level of output, consumers would value an additional unit of output more than the cost of producing it as 
determined by the marginal cost function. Hence both consumers and producers could be made better off 
by increasing output by a small amount.632 When price is equal to the competitive price, no alternative 
price can be found such that both consumer and producers are better off. 
238. Forward-looking versus Historical Cost: When prices are determined in a regulated 
market, similar reasoning applies. In this context, there is a large amount of literature on practical rules 
and procedures that must be considered to achieve an outcome that is as close as possible to a fully 
efficient one.633 The cost of any economic resource is equal to its value in the best alternative use. The 
cost which a regulated firm incurs in producing a particular output is therefore equal to the value of the 
economic resources that are used to produce it, and which are therefore no longer available for the 
production of alternative goods and services. It follows that from the standpoint of economic efficiency, 
629 If C(q) represents the cost of producing an output q and Dq represents an increment of output, then incremental 
cost is equal to C(q+Dq)  C(q). If incremental cost is used as a guide to pricing, then price should be set equal to 
the average incremental cost 
( ) ( ) 
q 
C q q C q 
D 
+ D - 
. If there are no fixed costs and initial output q = 0, then 
incremental cost pricing is equivalent to average cost pricing. If Dq is small, then incremental cost pricing 
approximates marginal cost pricing. Cf. Local Competition First Report and Order, 11 FCC Rcd at 15844, para. 
675. 
630 1 KAHN, THE ECONOMICS OF REGULATION at 6566. See also PRINCIPLES OF PUBLIC UTILITY RATES at 393. 
631 If price is greater than the competitive level, consumer demand is less than supply, and demand would determine 
market volume. If price is less than the competitive level, then producers voluntarily would supply no more than the 
amount at which marginal cost is equal to price. 
632 Where the market price exceeds marginal cost, there will be an associated deadweight loss in social welfare. The 
deadweight loss represents the loss in consumer plus producer surplus caused by a deviation from the competitive 
equilibrium. See, e.g., DENNIS W. CARLTON & JEFFREY M. PERLOFF,MODERN INDUSTRIAL ORGANIZATION 84 
(1990); KENNETH E. TRAIN, OPTIMAL REGULATION 185 (1992) (OPTIMAL REGULATION). 
633 See, e.g., Ronald. H. Coase, The Theory of Public Utility Pricing and Its Applications, 1 BELL J. ECON. 113, 113 
128 (1970) (Theory of Public Utility Pricing); 1 KAHN, THE ECONOMICS OF REGULATION at 6386.

Federal Communications Commission FCC 08-262 
C-109 
the only costs that are relevant in pricing decisions of a regulated firm are current or future costs, and that 
historical costs can be ignored.634 We acknowledge that economists and industry experts have often 
debated the relative merits of forward-looking (or reproduction) cost versus historical (or original) capital 
cost in administering rate-of-return regulation,635 and that regulators, including state regulators and this 
Commission, have continued to use historical cost in rate setting for smaller, primarily rural telephone 
companies. Nevertheless, since the adoption of the Local Competition First Report and Order, the 
Commission has consistently concluded that it believes that forward-looking costs are the most 
appropriate measure of cost.636 In this order, we reaffirm our conclusion that forward-looking costs 
should form the basis for regulation in a uniform intercarrier compensation regime. 
239. Short-Run versus Long-Run Incremental Cost: Economists have also debated whether it 
is appropriate to use short-run or long-run incremental cost as a guide for regulatory pricing.637 Short-run 
incremental cost refers to the cost of an increment of demand when some inputs to production are in fixed 
supply. Long-run incremental cost refers to the cost of an increment when all inputs are variable. In 
order to set prices so as to maximize economic efficiency at any particular point in time, it is clear that 
short-run incremental cost is the appropriate concept.638 For example, if an airline carrier has empty seats 
for a particular scheduled flight, then it would make sense to sell capacity for those seats at any price that 
would recover the small additional costs of fuel and amenities for an additional passenger. Pricing based 
on short-run incremental cost, however, necessarily implies that prices can be adjusted freely and perhaps 
continuously during the day.639 Moreover, in a regulatory context, such flexibility is likely infeasible. 
240. Short- or intermediate-run costs might also be advocated on practical grounds, since 
some productive inputs (e.g., poles and conduits) can have extremely long lives. Nevertheless, regulators 
have traditionally relied on long-run incremental costs rather than short-run incremental costs in setting 
regulated prices. First, setting prices on the basis of short-run incremental cost may mean that a carrier 
would not recover its average total cost of investment over the life of the asset.640 Second, to the extent 
that forward-looking costs are used, long-run incremental costs are more naturally and easily 
accommodated, since a forward looking cost study can legitimately assume that all inputs are variable. In 
the Local Competition First Report and Order, the Commission, in adopting its TELRIC methodology, 
explained that [t]his long run approach ensures that rates recover not only the operating costs that vary 
in the short run, but also the fixed investment costs that, while not variable in the short term, are necessary 
inputs directly attributable to providing the element.641 We reaffirm here the Commissions decision in 
the Local Competition First Report and Order that long-run incremental cost rather than short-run 
634 Theory of Public Utility Pricing, 1 BELL J. ECON. at 122; Alexander C. Larson, An Economic Guide to 
Competitive Standards in Telecommunications Regulation, 1 COMMLAW CONSPECTUS 31, 47 n.100 (1993) (quoting 
Theory of Public Utility Pricing, 1 BELL J. ECON. at 12122). 
635 See, e.g., 1 KAHN, THE ECONOMICS OF REGULATION at 10916. 
636 Local Competition First Report and Order, 11 FCC Rcd at 15813, 15846, paras. 620, 679. 
637 See 1 KAHN, THE ECONOMICS OF REGULATION at 7075, 83103; see also PHILLIPS, THE ECONOMICS OF 
REGULATION at 39091 (rev. ed. 1969); PRINCIPLES OF PUBLIC UTILITY RATES at 41725. 
638 1 KAHN, THE ECONOMICS OF REGULATION at 71; DANIEL F. SPULBER, REGULATION AND MARKETS 234 (1989) 
(REGULATION AND MARKETS). 
639 1 KAHN, THE ECONOMICS OF REGULATION at 84. 
640 1 KAHN, THE ECONOMICS OF REGULATION at 88. 
641 Local Competition First Report and Order, 11 FCC Rcd at 15851, para. 692.

Federal Communications Commission FCC 08-262 
C-110 
incremental cost is the appropriate cost concept. 642 
241. Peak Load Pricing: Closely related to the question of short-run versus long-run costing is 
the issue of peak load pricing. When demand varies systematically by time of day, day of the week, or 
over longer periods, there may be periods of time when there is significant excess capacity, since 
productive inputs clearly cannot vary with such frequency. In such cases, economic efficiency might 
require that prices should vary by time or day or over longer periods even in the long run.643 For 
example, many wireless telephone carriers offer free minutes of usage during weekends or evenings. 
Although these arguments are indisputable, it has proven difficult in practice to incorporate peak load 
pricing principles into regulated rate proceedings.644 Accordingly, we conclude, as the Commission did in 
the Local Competition First Report and Order, that we should not require peak-load pricing as part of an 
intercarrier compensation regime, although we affirm that carriers should be free to voluntarily negotiate 
agreements including peak pricing principles. 
242. Common Costs: Telecommunications carriers are multiproduct firms which provide a 
large array of services to different groups of consumers. Within the category of traditional telephony, 
these services include call origination, call termination, local transport, and either access to long distance 
transport or long distance service through an affiliated carrier. As networks evolve, the number of 
services that a telecommunications network can provide is rapidly expanding to include Internet access 
and other data services and, in some cases, video distribution. Many of these services share common 
facilities.645 For example, a copper loop can be used to provide analog voice service as well as data 
service using DSL technology. The cost of the loop is therefore common to both voice and DSL services. 
The incremental cost of voice service, assuming that DSL is already provided, therefore does not include 
any of the long run incremental cost of the loop itself. Similarly, the incremental cost of DSL, assuming 
voice is already provided, includes only that portion of the loop cost that may be required to condition the 
loop to meet the higher quality standards that may be required for data transmission. 
243. Methodology for Computing Incremental Cost in Multiproduct Firms: Common cost and 
its relationship to incremental cost in multiproduct firms can be more precisely defined as follows using 
an analysis developed by Faulhaber, Baumol, and others.646 Under this approach, one imagines a 
multiproduct firm in which a forward looking cost function is known, which allows one to compute the 
stand alone cost of any possible subset of products. For example, if the set of products is indexed by 
the set N = {1 , . . . , n}, then the stand alone cost of the entire firm can be represented by the value C(N). 
The incremental cost of any individual product j contained in N can then be represented by the value IC(j) 
= C(N)  C(N  j), where C(N  j) represents the stand alone cost of producing every product in the set N 
642 Local Competition First Report and Order, 11 FCC Rcd at 16023, para. 1054. 
643 1 KAHN, THE ECONOMICS OF REGULATION at 89. 
644 See Local Competition First Report and Order at 15878, paras. 75557. See also 1 KAHN, THE ECONOMICS OF 
REGULATION at 9193. 
645 Cf. Local Competition First Report and Order, 11 FCC Rcd at 15845, para. 676 (The term common costs 
refers to costs that are incurred in connection with the production of multiple products or services, and remains 
unchanged as the relative proportion of those products or services varies (e.g., the salaries of corporate managers).). 
646 See, e.g., Gerald R. Faulhaber, Cross-Subsidization: Pricing in Public Enterprises, 65 AM. ECON. REV. 966, 966 
77 (1975). Faulhabers objective in the paper was to define a test for cross subsidy, which could precisely define the 
maximum and minimum prices that a regulated firm should be allowed to charge to any subset of customers; 
WILLIAM J. BAUMOL ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE 35156 (1982); 
William J. Baumol, Minimum and Maximum Pricing Principles for Residual Regulation, in Current Issues in 
PUBLIC UTILITY ECONOMICS (A. Danielson & D. Kamerschen eds., 1983).

Federal Communications Commission FCC 08-262 
C-111 
except product j. Under this definition, the incremental cost may be viewed as the additional costs of 
adding product j to a firm currently producing products (N  j). Alternatively, it may be viewed as the 
cost that may be avoided if the firm, currently producing products 1 through n, decides not to produce 
product j. The common cost for the firm as a whole is then equal to ( ) ( ) 
- 
j N 
C N IC j . When there is 
significant sharing of facilities used in providing groups of services to customers, common costs are 
typically positive, and may be a significant portion of the firms total cost. 
244. Multiproduct Incremental Cost versus TELRIC: In the Local Competition First Report 
and Order, the Commission adopted a pricing methodology, which it called Total Element Long Run 
Incremental Cost or TELRIC. Under the TELRIC methodology, prices for UNEs and interconnection 
would be determined by estimating the forward-looking cost of individual network elements, which the 
Commission defined as physical facilities of the network, together with the features, functions, and 
capabilities associated with those facilities.647 In adopting the TELRIC methodology, the Commission 
determined that forward-looking costs should be based on the least cost, most efficient network . . . 
technology, assuming current wire center locations.648 It further determined that the relevant increment 
should be the entire quantity of the network element provided.649 The Commission concluded that 
forward-looking common costs shall be allocated among elements and services in a reasonable manner 
 . 650 In choosing to estimate the forward-looking cost of the entire network element, the Commission 
acknowledged that, when a requesting carrier leased access to that element, it would have exclusive 
control over that element.651 
245. With respect to reciprocal compensation, the Commission determined that the 
additional cost of terminating a call . . . primarily consists of the traffic-sensitive component of local 
switching.652 Nevertheless, the only non traffic-sensitive cost of the local switch that the Commission 
required states to exclude was the cost of line ports.653 Similarly, in the rules that the Commission 
adopted regarding shared transmission facilities between tandem switches and end offices, the 
Commission allowed the full forward-looking cost of those facilities to be recovered through usage 
sensitive charges.654 Thus, with the exception of requiring recovery of the cost of line ports through flatrated 
charges, the Commissions TELRIC rules permitted the full forward-looking cost of the local 
switch, tandem switch, and shared interoffice transmission facilities, including a reasonable allocation of 
common costs, to be recovered through usage-based charges. In effect, the Commissions TELRIC 
methodology permitted average-cost pricing using a forward-looking cost methodology. 
246. The TELRIC methodology thus differs significantly from the definition of incremental 
cost for multiproduct firms proposed by Faulhaber and others. First, unlike TELRIC, the traditional 
647 Local Competition First Report and Order, 11 FCC Rcd at 15631, para. 258. 
648 Local Competition First Report and Order, 11 FCC Rcd at 1584849, paras. 68385. 
649 Local Competition First Report and Order, 11 FCC Rcd at 15850, para. 690. 
650 Local Competition First Report and Order, 11 FCC Rcd at 1585253, para. 696. 
651 Local Competition First Report and Order, 11 FCC Rcd at 15693, para. 385. 
652 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. 
653 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. Cf. 47 U.S.C.  51.509(b) 
(requiring only that line port costs of the unbundled local switching element be recovered through a flat-rated 
charge). 
654 47 U.S.C.  51.509(d).

Federal Communications Commission FCC 08-262 
C-112 
economic approach for determining the incremental cost of a single service excludes all common costs. 
Second, although the TELRIC methodology is essentially an average cost methodology, the traditional 
economic approach focuses on identifying the additional forward-looking cost that a network would incur 
if it provided an additional servicein this case call termination. Under the traditional economic 
definition, the incremental cost of call termination would be determined by estimating the stand alone cost 
of a network which incorporates all existing services except call termination (including call origination, 
switching, etc.) and then subtracting this amount from a comparable estimate of the total cost of providing 
all the same existing services, including call termination. As should be obvious, the incremental cost of 
call termination under the traditional economic definition should be significantly lower than that 
calculated under a TELRIC methodology. 
247. The Relevance of Multi-part Pricing: One common criticism of incremental cost pricing 
is that it may not permit a firm to recover its total costs, particularly if there are significant common 
costs.655 Economists have pointed out, however, that multi-part pricing regimes can potentially lead to 
more efficient outcomes than uniform prices set equal to either marginal cost or average cost. 656 For 
example, if the firm is able to charge a fixed monthly fee and a variable usage charge, then it is possible 
for the firm to set the usage charge at or close to marginal cost and recover any residual costs through the 
fixed charge. In this case, the regulator must take account of both subscription and usage elasticities in 
order to minimize the possibility that higher fixed fees will cause some subscribers to drop off the 
network.657 We note that, in the access charge regime, the Commission recognized the efficiencies 
associated with multi-part pricing, even if it failed to reduce usage-based charges to marginal or 
incremental cost. 
c. The Incremental Cost of Call Termination on Modern Networks 
248. We now consider the evidence in the record concerning the incremental cost of 
terminating calls on modern telecommunications networks. We note at the outset that there appear to be 
no cost studies or analyses in the record that attempt to estimate the termination costs using Faulhabers 
definition of incremental cost. Thus, we would expect the cost estimates in the record to be significantly 
lower if they had been calculated using Faulhabers definition. 
249. We consider first evidence concerning the cost of termination on modern circuit switches. 
We note that, in 1996, when the Commission adopted the TELRIC methodology, circuit switches and 
fiber optic transmission facilities were generally considered the least-cost, most efficient currently 
available technology. And it appears that state commissions in interconnection arbitrations analyzed the 
forward-looking costs of circuit switches and fiber optic transmission facilities in developing TELRIC 
rates. Sprint Nextel filed an ex parte in which it analyzed state UNE rates for unbundled switching and 
common transport.658 Sprint Nextel reports that the national weighted average price per minute for 
unbundled local switching was $0.00058 (with individual rates ranging from a low of $0.00004 to a high 
655 See, e.g., REGULATION AND MARKETS at 12223. 
656 See, e.g., Theory of Public Utility Pricing, 1 BELL J. ECON. at 11720; OPTIMAL REGULATION at 191213. 
657 Demand for subscription is generally estimated to be significantly less elastic than demand for usage. See 
Mercatus Center Sept. 22, 2008 Ex Parte Letter at 3 n.15; Jerry Hausman & Howard Shelanski, Economic Welfare 
and Telecommunications Regulation: The E-Rate Policy for Universal-Service Subsidies, 16 YALE J. ON REG. 19, 39 
(1999) (estimating elasticity of demand for subscription to be -.005, whereas elasticity of demand for long-distance 
service is closer to -0.7); Effects of Breakup of AT&T, 83 AM. ECON. REV. at 182 (estimating elasticity of demand 
for basic access at -0.005 and elasticity of demand for long-distances service between -0.25 and -1.2). 
658 See Sprint Nextel Sept. 26, 2008 Ex Parte Letter. The data used in the analysis were obtained from the March 
2006 Survey of Unbundled Network Element Prices in the United States.

Federal Communications Commission FCC 08-262 
C-113 
of $0.0061). Similarly the national weighted average price per minute for common transport was 
$0.00057 (with individual rates ranging from a low of $0.00010 to a high of $0.00727). Sprint Nextel 
further observes that the rates for companies in the survey with a relatively small number of lines were 
often lower than the rates for companies with a large number of lines, indicating scale and scope 
economies do not significantly affect the cost of traffic termination.659 As Sprint Nextel notes, these 
rates are all based on the TELRIC methodology and thus represent estimates of average, traffic-sensitive 
forwarding-looking costs, plus an allocation of common cost and overheads.660 These estimates, by 
definition, will significantly exceed incremental cost estimates using the Faulhaber definition; therefore 
they provide an upper bound on the rates that may result under a Faulhaber approach to incremental cost. 
250. Some additional evidence concerning the incremental cost of terminating calls on modern 
circuit switches can be gleaned from a declaration filed by three economists in support of the Intercarrier 
Compensation Forum (ICF) plan. 661 The economists contend that modern circuit switches are to a large 
extent non-traffic sensitive.662 According to the authors, whereas earlier generations of switching 
technologies had large shared resources that could be commandeered by any line needing to place or 
receive a telephone call, most of the resources in a digital switch are dedicated to individual lines through 
line ports and trunk ports.663 In addition, according to the authors, because of the massive increases in 
computing power offered by modern microchips, modern circuit switches include call processing 
capacity . . . [that] is adequate to serve all reasonably offered demand.664 In other words, modern 
switches are designed to be non-blocking, which would suggest that the incremental cost of termination is 
zero. The declaration thus concludes that the incremental cost of call termination on modern circuit 
switches should be de minimis. 
251. The economists declaration further argues that the incremental costs of adding additional 
fiber optic transmission capacity similarly are low. They contend that fiber optic technologies have large 
fixed costs associated with supporting structures (poles, trenches and conduits) and relatively low 
incremental costs of increasing the capacity of each fiber cable by installing improved laser transmission 
equipment (which in many cases is based on technological advances made subsequent to the initial fiber 
deployment). For these reasons, they conclude that once a fiber cable has been laid on a route, the costs 
of increasing its transmission capacity are relatively small, so extra minutes of demand result in very little 
incremental costs. We note that this analysis suggests, at a minimum, that the incremental cost of adding 
capacity is significantly lessand likely orders of magnitude lessthan the forward looking average cost 
of capacity, as estimated under TELRIC. 
252. AT&T submitted evidence that attempts to estimate the incremental cost of a modern 
659 Sprint Nextel Sept. 26, 2008 Ex Parte Letter, Attach. at 34. 
660 We note that NuVox disputes some of Sprint Nextels assumptions. See, e.g., Letter from Brad Mutschelknaus 
& John J. Heitmann, Counsel to NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 and WC 
Docket No. 04-36 (filed Oct. 27, 2008) (NuVox Oct. 27 Ex Parte Letter). There is insufficient information in the 
two ex parte submissions for us to resolve this dispute. Carriers remain free to raise issues for consideration in the 
course of state proceedings. 
661 Richard N. Clarke et al., Economic Benefits from Reform of Intercarrier Compensation (ICF Economists), 
attached to ICF ICC FNPRM Reply, Errata, App. A. 
662 ICF Economists at 22. 
663 ICF Economists at 2021. 
664 ICF Economists at 21.

Federal Communications Commission FCC 08-262 
C-114 
softswitch.665 AT&T maintains that, to estimate the incremental cost of a softswitch, it is necessary to 
estimate two parameters: the total investment associated with a softswitch, and the percentage of this 
investment that is traffic-sensitive.666 Using what it claims are conservative estimates, AT&T first 
compares the estimated investment cost per line of a Class 5 circuit switch with the estimated investment 
cost per line of a modern softswitch and finds that the investment cost per-line of a softswitch is 
significantly lower.667 Although it estimates that the investment cost of a Class 5 switch is approximately 
$100 per line, it finds that the likely investment cost of a softswitch is between $34 and $80 per line.668 
AT&T then considers the likely percentage of the investment costs per line that are traffic-sensitive, and 
concludes that, depending on the particular softswitch, the traffic-sensitive costs are likely to be between 
zero and 20 percent of the total investment cost of the switch.669 Using the higher estimate of 20 percent 
traffic-sensitive costs, and assuming that each line carries an average of 1400 minutes a month, AT&T 
derives a traffic sensitive incremental cost per minute of between $0.00010 and $0.00024.670 For the 
other softswitch that AT&T considers, however, the traffic-sensitive incremental costs of termination 
would be zero. Although we do not necessarily accept the precise estimates contained in AT&Ts ex 
parte letter, we note that its analysis suggests that the incremental traffic-sensitive costs of modern 
softswitches are likely to be significantly lower than those of circuit switches and possibly zero, both 
because the investment cost per line is lower and because the percentage of traffic-sensitive costs to total 
costs is lower for modern softswitches. 
253. Windstream Communications, Inc. and NuVox subsequently filed ex parte letters 
criticizing AT&Ts analysis of the traffic sensitive costs of a softswitch,671 and AT&T filed a response.672 
Essentially, both Windstream and NuVox criticize specific elements of AT&Ts analysis. In addition, 
Windstream argues that it would be grossly inefficient for a rural carrier to immediately replace circuit 
switching equipment with softswitch technology, while NuVox contends that even a forward-looking 
network design would not consist entirely of soft switches. Significantly, NuVox criticizes AT&T for 
failing to apply the TELRIC methodology, and NuVox recalculates AT&Ts estimates using TELRIC. 
Because we expressly reject use of the TELRIC methodology for purposes of setting reciprocal 
compensation rates, we conclude that many of the NuVox challenges are moot. To the extent that NuVox 
and Windstream are challenging cost assumptions that may be applied by states pursuant to our new 
additional costs methodology, such issues may be raised for consideration by the state commission during 
665 Letter from Henry Hultquist, Vice President-Regulatory Affairs, AT&T Services, Inc., to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 05-337, 96-45, 99-68, 07-135 (filed Oct. 4, 2008) (AT&T Oct. 4, 2008 Ex 
Parte Letter). 
666 AT&T Oct. 4, 2008 Ex Parte Letter at 2. 
667 AT&T Oct. 4, 2008 Ex Parte Letter at 3. 
668 AT&T Oct. 4, 2008 Ex Parte Letter at 23. 
669 AT&T Oct. 4, 2008 Ex Parte Letter at 34. 
670 AT&T Oct. 4, 2008 Ex Parte Letter at 4. 
671 Letter from Eric N. Einhorn, Vice President, Federal Government Affairs, Windstream Communications, to 
Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 06-122, 07- 
135, 08-152 (filed Oct. 27, 2008) (Windstream Oct. 27, 2008 Ex Parte Letter); Letter from John J. Heitmann, 
Counsel for NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Oct. 24, 2008) (NuVox 
Oct. 24, 2008 Ex Parte Letter). 
672 See Letter from Henry Hultquist, Vice President Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 07-135 (Oct. 28, 2008) (AT&Ts response 
appears specific to the NuVox Oct. 24, 2008 Ex Parte Letter).

Federal Communications Commission FCC 08-262 
C-115 
the cost proceeding to establish the uniform reciprocal compensation rate. We feel compelled, however, 
to point out a few of the most critical mistakes and misconceptions contained in the Windstream and 
NuVox ex parte letters. 
254. First, Windstream argues that it is somehow inappropriate to consider the additional costs 
of softswitches in setting termination rates because it would be economically infeasible for an incumbent 
LEC to replace all its existing circuit switches with softswitches.673 This argument fundamentally 
misconstrues the purpose of a forward-looking cost methodology. The adoption of a forward-looking 
cost standard does not imply in any way that existing carriers should replace fully functional plant and 
equipment simply because a more recent vintage of replacement equipment is available. Forward-looking 
costs are simply a measure of the economic value of future investments, and in a competitive 
marketplace, these values should determine the appropriate investment decisions regarding replacement 
of existing plant. More importantly, these values should be used as an appropriate guide in setting 
efficient prices for the utilization of existing plant and equipment. Second, although both Windstream 
and NuVox raise objections to AT&Ts cost analysis, neither they nor AT&T actually attempt to estimate 
the incremental cost of call termination. For example, both Windstream and NuVox argue that AT&Ts 
estimates of the cost of investment in forward-looking softswitch technologies are flawed because of the 
assumptions made about the number of lines served per switch.674 Although this is may be a valid issue, 
as it relates to the extent to which softswitch technologies are scalable for deployment in wire centers 
with different numbers of final customers, the dispute does not really address the issue of the incremental 
cost of call termination. Third, NuVox claims that the absence of line cards in softswitches is evidence 
that all switch costs are traffic sensitive.675 This analysis ignores the potentially large fixed costs 
associated with a softswitch that are not related to line ports. Since softswitches resemble small 
computers, the appropriate analogy for estimating incremental cost would be the cost of additional 
memory cards, which could be inserted into the CPU. Fourth, NuVox maintains that both common costs 
to the firm as a whole and land and building costs associated with switching equipment should be 
included in any traffic sensitive cost computed for purposes of reciprocal compensation.676 As explained 
above, we conclude that common costs should no longer be included in calculating the incremental cost 
of call termination. 
255. Another approach to estimating the incremental cost of call termination is to examine the 
technology of next generation networks in which voice calls are carried on the same network platform as 
data and video services delivered to the same customer. Telecommunications carriers are currently 
deploying such networks at a rapid pace, although the transition to the new technology is far from 
complete. Nevertheless, most experts believe that IP technologies will be used to deliver the predominant 
share of voice and data traffic within a few years. Packet technologies, and the resulting commingling of 
voice and data traffic, make possible a dramatic reduction in the cost of originating and terminating voice 
traffic in the network. In addition, although the costs of circuit based switching technologies are difficult 
to quantify using public data sources, the Internet itself provides a variety of sources which can be used to 
provide at least a rough estimate of the costs associated with a next generation network. 
256. Consider the case of a single customer who subscribes to a next generation network 
offering a full range of voice, video and data services. Suppose that this customer makes exactly one 
voice call lasting five minutes during each hour of the busy period (which we will unrealistically assume 
673 See Windstream Oct. 27, 2008 Ex Parte Letter at 2. 
674 See Windstream Oct. 27, 2008 Ex Parte Letter at 23; NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 89. 
675 See NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 1415. 
676 See NuVox Oct. 24, 2008 Ex Parte Letter, Attach. at 18 & n.40.

Federal Communications Commission FCC 08-262 
C-116 
to last for 16 hours every day of the month). High quality (ISDN level) voice service requires a channel 
capacity of 64 kbps. Ignoring the possibility of signal compression, and making a conservative allowance 
for packet header overhead,677 we assume that the single call per hour requires a network capacity of 100 
kbps. This capacity requirement translates to 12,800 bytes per second, or 0.0000128 Gigabytes to be 
available for the duration of the call.678 Publicly available estimates of the cost of serving residential 
customers on a broadband network range from $0.1 Gigabytes per month to $0.5 Gigabytes per month.679 
These estimates include the cost of the servers, routers and fiber links necessary to provide service to the 
residential customer, but do not include the substantial cost of the local broadband loop.680 The 
hypothetical consumer described above places a demand of 0.000512 Gigabytes per month, and using the 
upper limit on the estimated cost, we estimate a monthly incremental cost to the consumer of delivering 
this level of voice service at 0.0256 cents per month.681 Under these conservative assumptions the cost, 
on a per-minute basis, would be 0.00001 cents per minute.682 Even if the cost estimates used above are 
wrong by several orders of magnitude, it is clear that the cost of voice traffic on a broadband network is 
vanishingly small.683 Although we are not directing the states to consider the incremental cost of 
terminating voice telecommunications on such next generation networks,684 we find that, as carriers move 
to an all IP broadband world, the incremental costs of terminating voice calls should drop dramatically. 
d. Reconsideration of Additional Costs Standard 
677 See, e.g., VoIP-Info.org, Bandwidth Consumption, http://www.voip-info.org/wiki-Bandwidth+consumption (last 
visited Oct. 25, 2008); Westbay, Voice over IP Bandwidth, http://www.erlang.com/bandwidth.html (last visited Oct. 
24, 2008) (investigating bandwidth requirements for the transmission of voice over an IP based network). 
678 In this analysis, we ignore the additional economies that can result because multiple packet streams for voice 
traffic can be transmitted simultaneously over the same channel capacity. 
679 The lower estimate is contained in the Wikipedia entry Broadband Internet Access, 
http://en.wikipedia.org/wiki/Broadband_Internet_access (last visited Oct. 11, 2008). The higher estimate is 
contained the trade publication Telephony Online, OFC: BellSouth Chief Architect warns of HD VOD costs, 
March 7, 2006, http://telephonyonline.com/iptv/news/BellSouth_VOD_costs_030706 (last visited Oct. 11, 2008). 
Both estimates are also reported in David Clark, A Simple Cost Model for Broadband Access: What Will Video 
Cost?, Presentation at the Telecommunications Policy Research Conference (Sept. 28, 2008), available at 
http://tprcweb.com/files/Cost%20analysis%20TPRC.pdf. 
680 The cost of the local loop is clearly a common cost that is shared by all of the voice, video, and data services 
consumed by the subscriber and should not be included under any reasonable definition of incremental cost. 
681 Broadband Internet service is typically priced on the basis of capacityeither the maximum instantaneous 
upload and download speed or, as in this example, total monthly traffic. A rigorous application of true incremental 
cost pricing would require measuring each customers contribution to system costs, which primarily consists of the 
delays or packet losses imposed on other users. For this purpose, minutes of use are largely irrelevant. 
682 These estimated costs do not include the costs of billing, advertising, or other customer care expenses. As with 
the case of the local loop, we believe that such costs should not be included in any measure of long run incremental 
cost of call termination. 
683 It is very unlikely that the cost estimates are significantly low. Telecommunications carriers continue to upgrade 
their networks to provide precisely the range of video and data services that the articles in a previous footnote were 
concerned with. Indeed, the BellSouth estimate was given with concern that such services would not be viable 
unless that estimate of cost could be reduced in the near future. Very similar arguments were made exactly 20 years 
ago in ROBERT M. PEPPER, THROUGH THE LOOKING GLASS: INTEGRATED BROADBAND NETWORKS, REGULATORY 
POLICY, AND INSTITUTIONAL CHANGE (FCC, OPP Working Paper No. 24, Nov. 1988), available at 
http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp24.pdf. 
684 See infra section V.C.1.

Federal Communications Commission FCC 08-262 
C-117 
257. We adopt a new additional costs methodology using the traditional economic definition 
of the incremental cost of a service produced by a multiproduct firm, rather than continuing to rely on the 
TELRIC methodology.685 The Supreme Court has made clear that an initial agency interpretation is not 
instantly carved in stone. On the contrary, the agency  must consider varying interpretations and the 
wisdom of its policy on a continuing basis, for example in response to changed factual circumstance, or a 
change in administrations.686 Consistent with this, the Commission, in its 2005 Intercarrier 
Compensation FNPRM, solicited comment on whether the Commission should reinterpret additional 
costs to mean incremental cost in light of the need to reform intercarrier compensation due to market 
distortions.687 In response, several commenters supported such a proposal noting that the additional 
incremental cost of terminating traffic is de minimis.688 Based on the evidence highlighted above and for 
the reasons set forth below, we revise our interpretation of the additional costs language in section 
252(d)(2) to mean incremental costs as traditionally defined. We believe that this conclusion is 
supported by the economic theory discussed above, and represents a more appropriate interpretation of 
the additional costs standard than the TELRIC methodology.689 
258. As an initial matter, the Commission plainly has the authority to revise its interpretation 
of additional costs.690 Indeed, the Supreme Court has recognized that the phrase additional costs is 
ambiguous.691 Words like additional cost give ratesetting commissions broad methodological 
685 We find it preferable to shift entirely to an approach based on the traditional economic definition of incremental 
cost, rather than trying to achieve the same result through extensive revisions to the TELRIC methodology as some 
commenters suggest. See, e.g., Rural Alliance ICC FNPRM Comments at 5054 (calling for a more precise 
definition of TELRIC for purposes of reciprocal compensation). 
686 Brand X, 545 U.S. at 981 (quoting Chevron U.S.A. Inc. v. Natl Res. Def. Council (Chevron), 467 U.S. 837, 863 
64 (1984) and citing Motor Vehicle Mfrs. Assn of United States, Inc. v. State Farm Mut. Automobile Ins. Co. (State 
Farm), 463 U.S. 29, 59 (1983) (Rehnquist, J., concurring in part and dissenting in part)). 
687 Intercarrier Compensation FNPRM, 20 FCC Rcd at 4719, para. 71. 
688 See, e.g., CTIA ICC FNPRM Comments at 16 (Because a call does not impose significant incremental costs on 
either the calling partys or called partys network, there is no justification for allowing the terminating network to 
impose any charge on the non-terminating network.); Frontier ICC FNPRM Comments at 7 (However, there is 
virtually NO additional incremental cost of sending a minute-of-use across [dedicated hardware interfaces].); 
Western Wireless ICC FNPRM Comments at 16 (Independent Wireless Carriers urge the Commission to confine 
its analysis of additional cost only to the incremental traffic-sensitive switching and transport costs actually 
incurred by the parties exchanging traffic for purposes of intercarrier compensation.). 
689 We reaffirm that the TELRIC methodology is appropriate for setting interconnection and network element rates 
pursuant to section 252(d)(1), where Congress directed the Commission to consider a reasonable profit. 
690 The Supreme Court affirmed the Commissions authority to apply a cost methodology for the states to 
implement. AT&T v. Iowa Utils. Bd., 525 U.S. at 378. See also id. at 378 n.6 ([T]he question in these cases is not 
whether the Federal Government has taken the regulation of local telecommunications competition away from the 
States. With regard to the matters addressed by the 1996 Act, it unquestionably has.); 47 U.S.C.  201(b); United 
Telegraph Workers, AFL-CIO v. FCC, 436 F.2d 920, 923 (D.C. Cir. 1970) (citations and quotations omitted) 
(finding that section 201(b) authorizes the Commission to prescribe such rules and regulations as may be necessary 
in the public interest to carry out the provisions of this Act). 
691 See Verizon v. FCC, 535 U.S. at 499501 ([W]ithout any better indication of meaning than the unadorned term, 
the word cost in section 252(d)(1), as in accounting generally, is a chameleon, a virtually meaningless term 
. . . .) (citations omitted).

Federal Communications Commission FCC 08-262 
C-118 
leeway,692 and courts owe substantial deference to the interpretation the Commission accords them.693 
The Commission, consistent with its obligation to consider varying interpretations and the wisdom of its 
policy on a continuing basis now revises its definition of additional costs.694 
259. Revising our interpretation of additional costs to follow the traditional economic 
definition of the incremental cost of a service is supported by the Commissions interpretation of the term 
additional costs in section 224 of the Act. Section 224, which addresses the pricing of pole 
attachments, is the only other place in the Act that uses the term additional costs. The Commission 
consistently has found that the term additional costs in section 224 means incremental cost,695 and that 
the legislative history for section 224 makes clear that Congress intended such a result.696 Interpreting the 
term additional costs as used in two parts of the Act in the same manner is consistent with the 
presumption that identical words used in different parts of the same act are intended to have the same 
meaning.697 
260. In contrast, the statutory pricing standard for reciprocal compensation (additional costs) 
is not the same as the statutory pricing standard for UNEs (cost plus a reasonable profit).698 Even 
though the two statutory provisions may, as the Commission found previously, be similar, our 
subsequent experience indicates that TELRIC is not consistent with the additional costs standard. First, 
as discussed above, evidence indicates that reciprocal compensation rates based on TELRIC methodology 
were excessive.699 If reciprocal compensation rates truly reflected the incremental additional costs, 
regulatory arbitrage should not occur because a carrier would not make a profit by recovering its 
incremental cost. 700 
692 See Verizon v. FCC, 535 U.S. at 499501 (quoting AT&T Corp. v. Iowa Utils. Bd., 525 U.S. at 423 (Breyer, J., 
concurring in part and dissenting in part)). 
693 Capital Network System, Inc. v. FCC, 28 F.3d 201, 204 (D.C. Cir. 1994). 
694 Brand X, 545 U.S. at 981 (quoting Chevron, 467 U.S. at 86364 and citing State Farm, 463 U.S. at 59 
(Rehnquist, J., concurring in part and dissenting in part)). 
695 See, e.g., Adoption Of Rules For The Regulation Of Cable Television Pole Attachments, CC Docket No. 78-144, 
Memorandum and Opinion and Second Report and Order, 72 FCC 2d 59, 62, para. 8 (1979); Adoption Of Rules For 
The Regulation Of Cable Television Pole Attachments, CC Docket No. 78-144, Notice of Proposed Rulemaking, 68 
FCC 2d 3, 15, App. (1978) (Cable Television Pole Attachment NPRM). 
696 Cable Television Pole Attachment NPRM, CC Docket No. 78-144, Notice of Proposed Rulemaking, 68 FCC 2d 
at 15, App. (Additional costs are generally equivalent to what is referred to as incremental cost, and the 
proportional part of Operating expenses and actual capital costs are generally equivalent to fully allocated costs. 
(quoting S. Rep. No. 95-580 at 1921 (1977)). 
697 See, e.g., Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932). 
698 Compare 47 U.S.C.  252(d)(1) with 47 U.S.C.  252(d)(2). 
699 See, e.g., Intercarrier Compensation FNPRM, 20 FCC Rcd at 4694, 469798, 4717, 4719, paras. 16, 2324, 66, 
7172; Intercarrier Compensation NPRM, 16 FCC Rcd at 9616-18, paras. 1118; ISP Remand Order, 16 FCC Rcd 
at 916162, paras. 1820. 
700 For the same reasons, we reject suggestions that TELRIC should be used to set a unified rate for intercarrier 
compensation. See, e.g., Ohio PUC ICC FNPRM Comments at 20 ([T]he Ohio Commission recommends the use 
of the TELRIC standard for setting intercarrier compensation rates.); Pac West et al. ICC FNPRM Comments at 9 
(The additional cost standard should continue to be tied to TELRIC); Time Warner Telecom et al. ICC FNPRM 
Comments at 12 ([A] central component of reform must be the requirement that, to the extent possible, each 
carrier charge a single, cost-based rate for the exchange of all types of traffic. . . . [T]he Commission arguably has 
the authority to mandate that states use a cost-based methodology, in particular TELRIC, as the basis for setting all 
(continued.)

Federal Communications Commission FCC 08-262 
C-119 
261. Second, TELRIC includes the cost of the total element and, as a result, measures the 
long run incremental average cost of the switch including common costs and overhead, not just the 
additional costs of using the function to terminate another carriers traffic. In other words, TELRIC 
measures the average cost of providing a function, which is not necessarily the same as the additional 
costs of providing that function. Because of this, we expect that the TELRIC methodology would 
continue to produce reciprocal compensation rates above the true additional costs of terminating such 
traffic, in light of evidence that the cost of terminating traffic today is low701 and is decreasing even 
further as carriers transition to softswitches702 and ultimately pure packet switches. Consistent with our 
change in methodology, we also disavow our finding in the Local Competition First Report and Order 
that only that portion of the forward-looking, economic cost of end-office switching that is recovered on 
a usage-sensitive basis constitutes an additional costs to be recovered through termination charges.703 
In particular, as explained above, we specifically exclude common costs and overhead allocations from 
the calculation of what constitutes additional costs under our new pricing methodology. 
262. We thus end our reliance on the TELRIC methodology for setting reciprocal 
compensation rates, and instead require that such rates be set pursuant to our new incremental cost 
methodology.704 In our Implementation section below, we provide specific guidance to the states 
(continued from previous page) 
intercarrier termination rates.); Integra ICC FNPRM Comments at 3 (Integra urges the Commission to . . . [u]nify 
access and reciprocal compensation rates at TELRIC based levels on a company-by-company basis.); KMC and 
Xspedius ICC FNPRM Reply at 3 ([T]he Commission should support tariffed-based intercarrier compensation 
arrangements that: (i) set rates no higher than the comparable TELRIC (or similar cost-based) rates.); XO ICC 
FNPRM Reply at 11 ([T]he only appropriate intercarrier compensation regime must include TELRIC-based 
rates.). 
701 The national average of TELRIC rates for transport and termination of calls was $0.00212 in 2004, which likely 
overstates the actual incremental costs because, as noted above, TELRIC includes common and overhead costs and 
examines the average cost of the function, not the additional cost of terminating traffic. Letter from Richard M. 
Rindler, Counsel for the Cost-Based Intercarrier Compensation Coalition, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 at 3 (filed Sept. 2, 2004) (CBICC Sept. 9 Ex Parte Letter); see also Sprint Nextel Sept. 26, 
2008 Ex Parte Letter. 
702 See T-Mobile ICC FNPRM Comments at 2930. 
703 Local Competition First Report and Order, 11 FCC Rcd at 16025, para. 1057. 
704 A number of parties advocate for or against Commission adoption of bill-and-keep for intercarrier compensation. 
See, e.g., Letter from Jonathan Askin, Counsel for FeatureGroup IP, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92 at 34 (filed Oct. 7, 2008); Letter from Paul W. Garnett, Assistant Vice President of Regulatory 
Affairs, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 1 (filed Oct. 7, 2008); Corr ICC 
FNPRM Comments at 8; Cox ICC FNPRM Comments at 89; ICF ICC FNPRM Comments at 26, 30; Western 
Wireless et al. ICC FNPRM Comments at 68. But see, e.g., Letter from Tamar E. Finn, Counsel for PAETEC, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, Attach. at 10 (filed Oct. 7, 2008) (Mandatory Bill-and- 
Keep Is Not A Viable or Fair Solution); Letter from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for 
Cavalier Telephone et al., to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 3, 2008) 
([T]he adoption of mandatory bill-and-keep arrangements is extremely ill advised as a policy matter.); BellSouth 
ICC FNPRM Comments at 9 ([A] plan to transition rates ultimately to bill-and-keep would not promote economic 
efficiency or preserve universal service, nor is bill-and-keep competitively neutral.); CCG Consulting Inc. (CCG) 
ICC FNPRM Comments at 7 ([A]ccess rates should not be reduced to zero through implementation of a Bill and 
Keep mechanism.); CenturyTel ICC FNPRM Comments at 4 (. . . CenturyTel unequivocally opposes replacing 
intercarrier compensation with a bill and keep regime.); CCAP ICC FNPRM Comments at 11 (The CCAP urges 
the Commission to avoid implementation of a bill and keep regime . . . .); Frontier ICC FNPRM Comments at 6 
(arguing that bill and keep is inappropriate because it does not account for asymmetric traffic patterns); SBA ICC 
FNPRM Comments at 7 (arguing that bill-and-keep is inappropriate between rural and larger LECs due to various 
(continued.)

Federal Communications Commission FCC 08-262 
C-120 
regarding how to apply this new methodology. We note that this Commission takes seriously its 
responsibility to ensure that rates for carriers are just, reasonable, and not confiscatory. In this order, we 
have set in motion mechanisms to help ensure that the financial viability of carriers will not be 
undermined. We feel confident that these mechanisms, in combination with the other avenues available 
for carriers to offset declines in access revenues, will be sufficient to achieve this result.705 
263. Moreover our decision to adopt a unified intercarrier compensation methodology is in no 
way arbitrary or adopted with any confiscatory purpose. In fact, the determinations made in this order 
reveal just the contrary, our decision to raise the cap on SLCs, our referral to the Federal-State Joint 
Board on Separations (Separations Joint Board) of the issue of whether to allow additional increases in 
SLC caps in Part V.C below, and our acknowledgment of the ability of a carrier to establish entitlement to 
supplemental universal service to help ensure that carriers can maintain their financial integrity.706 
Although in most cases the rates for intrastate and interstate terminating access will drop substantially, 
that alone is not the test for whether a taking has occurred; rather, a primary consideration for takings 
claims is whether the rates ultimately adopted will produce a reasonable return sufficient to enable a 
company to maintain its financial integrity.707 
C. Implementation 
264. In this section, we detail certain implementation items. First, we provide guidance to 
states with regard to their implementation responsibilities for the intercarrier compensation regime we 
adopt today. Importantly, this includes setting reciprocal compensation rates using the new incremental 
cost pricing methodology. We also provide guidelines for the states application of the modification and 
suspension provisions of section 251(f)(2) of the Act. We explain the need to require symmetrical 
compensation arrangements without any exceptions under section 252(d)(2)(A)(ii) of the Act. And we 
discuss the effect of our intercarrier compensation reforms on existing interconnection and commercial 
agreements. Finally, we address the extent to which reduced revenue from carrier-to-carrier charges may 
(continued from previous page) 
asymmetries). We believe the reforms we adopt here are preferable to a pure bill-and-keep requirement and more 
appropriately balance the interests of consumers and carriers at this time. The approach we adopt in this order 
avoids the need to resolve disputes in the record regarding bill-and-keep in various circumstances because it allows 
parties to advocate for such an approach before state commissions and parties may negotiate such arrangements. 
705 Some carriers have suggested that our changes in ratemaking methodology will necessarily produce confiscatory 
rates and constitute a taking. See, e.g., NTCA, Interim Universal Service & Intercarrier Compensation Reform 
Proposal (NTCA Interim Proposal) at 1922, attached to Letter from Daniel Mitchell, Vice President, Legal & 
Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92 
(filed Oct. 6, 2008) (NTCA Oct. 6, 2008 Ex Parte Letter) (contending that the Commissions current access regime, 
not to mention any reductions in access rates, threatens rate-of-return carriers with unconstitutional takings). See 
also Cincinnati Bell ICC FNPRM 1112 (The elimination of interstate switched access charges without an 
opportunity to earn the revenue in another fashion could be confiscatory . . . .); GVNW Consulting ICC FNPRM 
Comments at 9 (The existing system of cost recovery consisting of three equally important components of access 
charges, universal service support, and local rates is the only approach available to the Commission that will enable 
it to avoid valid claims of confiscation.). This argument lacks merit. Faced with a similar challenge to the 
TELRIC methodology previously adopted by the Commission, the Supreme Court stated unequivocally that this 
Court has never considered a taking challenge on a ratesetting methodology without being presented with specific 
rate orders alleged to be confiscatory . . . . Verizon v. FCC, 535 U.S. at 524 (citations omitted). 
706 See FPC v. Hope Natural Gas Co., 320 U.S. 591, 605 (1944) (Rates which enable the company to operate 
successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks 
assumed certainly cannot be condemned as invalid, even though they might produce only a meager return . . . .). 
707 FPC v. Hope Natural Gas Co., 320 U.S. at 605.

Federal Communications Commission FCC 08-262 
C-121 
be replaced through end-user charges or new universal service support, where needed. 
1. Direction to the States 
265. We set forth the timeline for states to implement our comprehensive reform and adopt an 
interim, uniform reciprocal compensation rate along with a transition plan in section [III.B.2] above. In 
this section, we set forth additional parameters for states to follow in implementing the reforms adopted in 
this order. 
a. Setting Final Reciprocal Compensation Rates Based on Incremental 
Cost 
266. Under our new methodology for setting final reciprocal compensation rates, states will 
need to set prices according to a forward-looking economic cost study or computer cost model using the 
Faulhaber principles to identify the traffic-sensitive incremental cost of transport and termination of 
traffic.708 First, states will need to evaluate a forward-looking economic cost analysis of a stand-alone 
network that performs all functions of a modern telecommunications network, including transport and 
termination of other carriers traffic. Second, states will need to evaluate a forward looking economic 
cost analysis of a stand-alone network that performs all the same functions except for the transport and 
termination of other carriers traffic. Third, states must compare the costs of these two networks. The 
difference between the costs of the two networks is the additional costs of termination of traffic subject to 
the additional costs standard we adopt in this order.709 
267. We offer further guidance regarding specific aspects of these cost studies. First, these 
cost studies must use the least cost, most efficient network technology. We find that the least cost, most 
efficient switch today is a softswitch.710 We further find that the least cost, most efficient technology for 
transport is fiber optic cable.711 We observe that, when carriers deploy fiber, they typically deploy 
capacity significantly in excess of current needs.712 
268. Second, consistent with the traditional economic definition of the incremental cost of a 
service, 713 the cost studies must exclude all common costs, including overhead costs. Third, all non- 
708 We recognize that the incremental cost of terminating traffic may include certain non-traffic-sensitive costs, such 
as the cost of a trunk port. Consistent with cost-causation principles, however, such non-traffic-sensitive costs may 
not be recovered through per-minute charges, but must rather be recovered through flat-rated monthly charges 
associated with interconnection trunks. 
709 See supra section V.B.4.c. 
710 See supra section V.B.4.c. 
711 See supra section V.B.4.c. 
712 See, e.g., Federal-State Joint Board on Universal Service; Forward-Looking Mechanism for High Cost Support 
for Non-Rural LECs, CC Docket Nos. 96-45, 97-160, Tenth Report and Order, 14 FCC Rcd 20156, 20237, para. 186 
(1999) (subsequent history and citation omitted) (As we explained in the Inputs Further Notice, in determining 
appropriate cable sizes, network engineers include a certain amount of spare capacity to accommodate 
administrative functions, such as testing and repair, and some expected amount of growth.); Triennial Review 
Order, 18 FCC Rcd at 17166, para. 312 n.919 (citing evidence that the first carrier to lay fiber to a particular 
location will lay significantly more than it will need because the incremental cost of burying additional fibers is 
negligible). 
713 See supra section V.B.4.c.

Federal Communications Commission FCC 08-262 
C-122 
traffic-sensitive costs must be excluded from the cost studies.714 Cost studies using the TELRIC 
methodology do not meet these requirements, given the differences between TELRIC and the traditional 
economic methodology for determining the incremental cost of a service discussed above.715 Available 
evidence suggests that the incremental costs of terminating traffic, as determined using this methodology, 
are likely to be extremely close to zero. 
269. We also require each state to set a single, uniform rate for all carriers in that state through 
their pricing proceedings. We find this approach warranted for several reasons. First, softswitches are 
easily scalable, and thus the incremental cost of termination does not vary with the number of lines the 
switch serves. Second, because carriers tend to deploy significant excess capacity when deploying fiber, 
the incremental cost of adding traffic is likely to approach, or equal, zero. Third, we find that setting a 
single uniform rate for all incumbent LECs and interconnecting carriers in a state simplifies the regulatory 
process, minimizes arbitrage that could arise, and reduces the likelihood that unidentifiable traffic would 
remain a problem. Finally, setting rates based on the costs of the current, least cost, most efficient 
technology creates incentives for carriers with less efficient networks to migrate more quickly to those 
more efficient technologies. 
270. Following the transition, once carriers are charging the final uniform reciprocal 
compensation rate, we establish the following default rules regarding the network edge.716 These 
default rules would not require changes to physical points of interconnection, but would simply define 
functions governed by a uniform terminating rate.717 
 For every call, the calling party service provider (e.g., the calling partys LEC for a local call or 
the calling partys IXC for a long distance call) is responsible for the transmission and routing of 
the call to the network edge of the called party service provider. 
 The calling party service provider may fulfill its responsibility for the transmission and routing of 
714 We thus go beyond the requirement in the Local Competition First Report and Order that only required states to 
exclude the cost of line ports, see 11 FCC Rcd at 16025, para. 1057, and mandate that all non-traffic sensitive costs 
be excluded. 
715 See, e.g., supra section V.B.4.c. 
716 See Letter from Hank Hultquist, AT&T Services, Inc., and Donna Epps, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 12 (filed Oct. 14, 2008) (AT&T and Verizon Oct. 14, 2008 Ex Parte 
Letter) (providing seven default rules); Letter from John N. Rose, President, OPASTCO, and Kelly Worthingon, 
Executive Vice President, WTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, 01-92, WC Docket 
No. 05-337, Attach. at 2 (filed Oct. 29, 2008) (Corrected OPASTCO/WTA Oct. 29, 2008 Ex Parte Letter) 
(discussing a rural transport rule for rural rate-of-return incumbent LECs). We reject PAETECs assertion that the 
Commission lacked notice to adopt such rules. See Letter from Jonathan S. Frankel and Michael A. Romano, 
Counsel for PAETEC, CC Docket Nos. 99-68, 01-92 at 2-3 (Oct. 28, 2008) (PAETEC Oct. 28, 2008 Ex Parte 
Letter). The Commission expressly sought comment on this issue in the Intercarrier Compensation FNPRM. 
Intercarrier Compensation FNPRM, 20 FCC Rcd at 4687, 4702-03, 4712-13, 4727-30, paras. 4, 34, 40-44, 54, 91- 
97. 
717 Thus, the default edge rule we adopt today does not alter any obligations of incumbent LECs to interconnect 
at any technically feasible point, nor does the rule alter carriers ability to request interconnection. See, e.g., Letter 
from Susanne A. Guyer, Verizon, to Chairman Kevin J. Martin, FCC, CC Docket Nos. 96-45, 01-92, WC Docket 
Nos. 05-337, 06-112 at 5 (filed Oct. 5, 2008). See also, e.g., PAETEC Oct. 28, 2008 Ex Parte Letter at 5-6 
(expressing concern that the adoption of rules regarding a network edge not alter existing rules and obligations 
regarding physical interconnection). Moreover, the edge rules we adopt, which will apply at the end of the 
transition period, are merely a default, and carriers are free to negotiate alternative arrangements.

Federal Communications Commission FCC 08-262 
C-123 
a call to the called party service provider network edge via its own facilitates and services, the 
facilities and service of another entity (including the called partys service provider), or any 
combination. 
 The calling party service provider is also responsible for the payment of the uniform terminating 
rate to the called party service provider. The called party service provider is responsible for 
performing all network functions to deliver traffic from the network edge to the called party, 
including dedicated transport, common transport, tandem switching, end office switching, and 
SS7 messaging. 
 The reciprocal compensation regime of section 251(b)(5) will apply to traffic from the called 
party service provider network edge to the called party. 
 The called party service providers network edge is the location of its end office, MSC, point of 
presence, or trunking media gateway, which PSTN routing conventions (e.g., NPAC or LERG) 
associate with the called party telephone number unless that location subtends a tandem switched 
owned or controlled by the called party service provider, in which case that tandem is the network 
edge for that call. A service provider that utilizes a tandem as its edge may require, upon 
reasonable request consistent with standard industry network interconnection principles, that 
calling party service providers groom their traffic onto segregated trunk groups. 
 The called party service provider must either permit interconnection at its edge for purposes of 
exchanging traffic with the calling party service provider or provide transport at no charge to that 
edge from a location in the same LATA where it does permit such interconnection. 
 The calling party service provider may at its sole discretion choose whether to interconnect 
directly or indirectly with the called party service provider. 
 Notwithstanding the forgoing, for local and extended area service (EAS) calls made by a rural 
rate-of-return incumbent LECs customer to a non-rural carriers customer, the rural rate-ofreturn 
incumbent LEC will be responsible for transport to a non-rural terminating carriers point 
of presence (POP) when it is located within the rural rate-of-return incumbent LECs service area. 
When the non-rural terminating carriers POP is located outside the rural rate-of-return incumbent 
LECs service area, the rural rate-of-return incumbent LECs transport and provisioning 
obligation stops at its meet point and the non-rural terminating carrier is responsible for the 
remaining transport to its POP. 
b. Symmetry 
271. We conclude that final uniform reciprocal compensation rates should be symmetrical.718 
In contrast to the approach taken in the Local Competition First Report and Order, we require, for the 
reasons described below, symmetry in all cases once the final uniform reciprocal compensation rates 
become effective. 
718 Symmetrical compensation arrangements are those in which the rate paid by an incumbent LEC to another 
telecommunications carrier for transport and termination of traffic originated by the incumbent LEC is the same as 
the rate the incumbent LEC charges to transport and terminate traffic originated by the other telecommunications 
carrier. Local Competition First Report and Order, 11 FCC Rcd at 1603132, para. 1069.

Federal Communications Commission FCC 08-262 
C-124 
272. Background. In the Local Competition First Report and Order, the Commission 
concluded that charges for reciprocal compensation were to be presumptively symmetrical and that it was 
reasonable to adopt the incumbent LECs transport and termination prices as a presumptive proxy for 
other telecommunications carriers additional costs of transport and termination.719 The Commission 
observed that [b]oth the incumbent LEC and the interconnecting carriers usually will be providing 
service in the same geographic area, so the forward-looking economic costs should be similar in most 
cases.720 Moreover, by using the incumbent LECs costs of transport and termination, the Commission 
found that symmetry would provide an incentive for interconnected carriers to minimize costs because if 
the interconnected carrier could reduce its costs below the costs of the incumbent LEC, then it could 
realize additional termination revenue.721 Symmetrical compensation also provided the incumbent LECs 
an incentive to minimize costs. The Commission further found that symmetry reduced incumbent LECs 
bargaining strength because asymmetrical rates could have allowed incumbent LECs to negotiate high 
charges for traffic terminating on their networks and low charges for traffic originating on their networks, 
citing as an example incumbent LECs treatment of CMRS providers.722 A presumption of symmetric 
rates was administratively efficient and did not require a competing carrier to conduct a forward-looking 
cost study to enter the market, lowering the cost of entry and thus increasing competition.723 
273. The Commission, however, carved out an exception to the presumption of symmetry. In 
the Local Competition First Report and Order, the Commission permitted interconnecting carriers to 
rebut the presumption of symmetry by submitting a forward-looking cost study to show that their costs of 
termination were higher than the incumbent LECs.724 If the interconnecting carrier established that the 
costs of efficiently configured and operated systems [were] not symmetrical, the state commission could 
adopt a different compensation rate for the interconnecting carrier.725 
274. Discussion. We now require symmetric rates and conclude that the exception that 
719 Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1085. The Commission provided the 
following findings supporting its conclusion: (1) using the incumbent LECs forward-looking costs for transport 
and termination of traffic as a proxy for the costs incurred by interconnected carriers satisfies the requirements of 
section 252(d)(2) and is consistent with section 252(d)(2)(B)(ii); (2) [i]f both parties are incumbent LECs, . . . 
the larger LECs forward-looking costs should be used to establish the symmetrical rate for transport and 
termination; (3) larger LECs are generally in a better position to conduct a forward-looking economic cost study; 
(4) imposing symmetrical rates based on the incumbent LECs additional forward-looking costs will not 
substantially reduce carriers incentives to minimize those costs; and (5) states may establish transport and 
termination rates in the arbitration process that vary according to whether the traffic is routed through a tandem 
switch or directly to the end-office switch. Id. at 1604042, paras. 108586, 1090. 
720 See Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1085. 
721 See Local Competition First Report and Order, 11 FCC Rcd at 16040, para. 1086 (A symmetric compensation 
rule gives the competing carriers correct incentives to minimize its own costs of termination because its termination 
revenues do not vary directly with changes in its own costs.). 
722 See Local Competition First Report and Order, 11 FCC Rcd at 16041, para. 1087 (noting that incumbent LECs 
have used their greater bargaining power to negotiate asymmetrical rates with CMRS providers and to charge 
CMRS providers origination, as well as termination, charges). 
723 See Local Competition First Report and Order, 11 FCC Rcd at 1604142, para. 1088. 
724 See Local Competition First Report and Order, 11 FCC Rcd at 16042, para. 1089. 
725 See Local Competition First Report and Order, 11 FCC Rcd at 16042, para. 1089.

Federal Communications Commission FCC 08-262 
C-125 
permitted asymmetric rates under certain circumstances is no longer warranted.726 We note that there is 
scant evidence of any competitive LECs seeking to establish their own, higher, costs during the last 12 
years, let alone being successful in doing so.727 We conclude that asymmetric rates could undermine the 
comprehensive reform we adopt by permitting different termination rates for traffic in the same 
geographic area, which could open the door for continued regulatory arbitrage and thwart the intended 
public interest benefits associated with reforming the patchwork of existing intercarrier compensation 
payments. 
275. As noted above, symmetrical rates promote efficiency. Symmetry will encourage 
interconnecting carriers to deploy more efficient technology to reduce their costs. Notably, the 
Commission of the European Communities (European Communities) has also found that divergent 
regulatory treatment between different technology termination rates, as this rebuttable presumption 
exception allows, creates distortions among markets.728 In the context of fixed versus mobile telephony, 
the European Communities recognized that some European countries have allowed smaller CMRS 
carriers to charge higher termination rates to compensate for these carriers lack of economies of scale.729 
The European Communities concluded that these higher termination rates for mobile technology led to 
higher retail rates for customers and lower usage of this technology.730 As the European experience 
shows, allowing the present exception to the symmetry rule could encourage higher termination rates, and 
asymmetric termination ratesparticularly if such termination rates were high for one carriercould 
reduce consumer welfare and lead to higher prices. 
276. We conclude that requiring symmetrical compensation arrangements without any 
exceptions is proper under section 252(d)(2)(A)(ii) of the Act.731 We also confirm that this mandatory 
726 We note that the rates that will apply under our transition plan, discussed supra Part V.B.2, will not necessarily 
be symmetric. For example, we do not permit CMRS providers to assess access charges during the transition. See 
supra para. 197; 47 U.S.C.  251(f)(2). Our symmetry rules thus apply outside the transition framework, i.e., for 
carriers exchanging traffic at the final, uniform reciprocal compensation rate, or for carriers that have received a 
suspension or modification of our intercarrier compensation requirements pursuant to 251(f)(2). 
727 Indeed, we are only aware of one case where a competitive LEC attempted to rebut the presumption and, in that 
case, the state commission found that the competitive LEC had failed to do so. See Petition of Sprint Spectrum L.P. 
d/b/a Sprint PCS, Pursuant to Section 252(b) of the Telecommunications Act of 1996, for Arbitration to Establish an 
Intercarrier Agreement with Verizon New York Inc., Case 01-C-0767, Arbitration Order, 2002 WL 31505732 (N.Y. 
P.S.C. 2002) (holding that Sprint did not rebut the presumption that its costs were higher than the incumbent 
LECs). 
728 See THE COMMISSION OF THE EUROPEAN COMMUNITIES, DRAFT COMMISSION RECOMMENDATION ON THE 
REGULATORY TREATMENT OF FIXED AND MOBILE TERMINATION RATES IN THE EU 3, para. 3 (2008), available at 
http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/termination_rates/termination.pdf 
(last visited Oct. 24, 2008) (EUROPEAN COMMUNITIES). 
729 See EUROPEAN COMMUNITIES at 2, para. 2. 
730 See EUROPEAN COMMUNITIES at 3, para. 3. 
731 This section requires that, in setting rates under interconnection agreements, states must ensure that reciprocal 
compensation charges are a reasonable approximation of the additional costs of terminating such calls. See 47 
U.S.C.  252(d)(2)(A)(ii). In the Local Competition First Report and Order, the Commission found that the 
incumbent LECs costs were a reasonable proxy for other carriers costs. 11 FCC Rcd at 16040, para. 1085. We 
reaffirm that finding, especially given that our pricing methodology focuses on the costs of the least cost, most 
efficient network technology. Moreover, per the express terms of the Act, the additional costs standard applies 
only to the costs of the incumbent LEC, not the competitive LEC. This interpretation of the Act promotes efficiency 
and therefore bolsters competition, consistent with the goals of the Act. See 1996 Act, Preamble (declaring the 
purpose of the Act to be to promote competition and reduce regulation in order to secure lower prices and higher 
(continued.)

Federal Communications Commission FCC 08-262 
C-126 
symmetry requirement applies without regard to whether traffic exchanged by the interconnected carriers 
is balanced or not. Given the substantial benefits of symmetrical rates as described above, the likelihood 
that allowing asymmetrical rates would give carriers an incentive to find ways to arbitrage the higher 
rates, and the minimal costs associated with terminating calls,732 we find that an exception to symmetrical 
rates where traffic is out of balance is not warranted. 
c. Modifications and Suspensions under Section 251(f)(2) 
277. In light of the importance of bringing uniformity and symmetry to intercarrier 
compensation, eliminating opportunities for regulatory arbitrage, and providing regulatory certainty to 
carriers in making investment plans, we find it appropriate to adopt guidelines regarding the application 
of section 251(f)(2). Section 251(f)(2) of the Act gives state commissions the ability to suspend or 
modify our intercarrier compensation rules implementing section 251(b) and (c) under certain conditions. 
Specifically, section 251(f)(2) of the Act permits a local exchange carrier with fewer than 2 percent of 
the Nations subscriber lines installed in the aggregate nationwide to petition a State commission for a 
suspension or modification of the application of a requirement or requirements of [section 251] (b) or 
(c).733 The state commission shall grant such petition to the extent that, and for such duration as, the 
State commission determines that such suspension or modification (A) is necessary (i) to avoid a 
significant adverse economic impact on users of telecommunications services generally; (ii) to avoid 
imposing a requirement that is unduly economically burdensome; or (iii) to avoid imposing a requirement 
that is technically infeasible; and (B) is consistent with the public interest, convenience, and necessity.734 
In the Local Competition First Report and Order, the Commission decline[d] . . . to adopt national rules 
or guidelines regarding the specific implementation of section 251(f), but explained that the Commission 
may offer guidance on these issues at a later date, if we believe it is necessary and appropriate. 735 The 
Supreme Court subsequently confirmed that the Commission has the authority to interpret section 
251(f).736 The only existing Commission guideline regarding section 251(f)(2) provides that the burden 
of proof is on the LEC seeking suspension or modification of particular requirements.737 
278. As an initial matter, we conclude that any suspension or modification granted pursuant to 
(continued from previous page) 
quality services for American telecommunications consumers and encourage the rapid deployment of new 
telecommunications technologies). 
732 See supra section V.B.4.c. 
733 47 U.S.C.  251(f)(2). 
734 47 U.S.C.  251(f)(2). 
735 Local Competition First Report and Order, 11 FCC Rcd at 16118, para. 1263; 47 U.S.C.  251(f)(2). 
736 AT&T v. Iowa Utils. Bd., 525 U.S. at 385. 
737 See 47 C.F.R.  51.405(b). In the Local Competition First Report and Order, the Commission held that, in 
petitions under section 251(f)(2), a LEC must offer evidence that application of those requirements would be likely 
to cause undue economic burdens beyond the economic burdens typically associated with efficient competitive 
entry. 11 FCC Rcd at 16118, para. 1262. The Commission also placed the burden of proof on the carrier seeking 
the relief under section 251(f)(2). Id. at 16118, para. 1263. Although the Supreme Court ultimately upheld the 
Commissions authority to interpret section 251(f), see AT&T v. Iowa Utils. Bd., 525 U.S. at 385, the Eighth Circuit 
subsequently vacated the Commissions interpretation of undue economic burden, finding that the Act requires a 
state to look at the entire economic burden not just the additional burden of complying with sections 251(b) or 
251(c). See Iowa Utils. II, 219 F.3d at 75962. The Eighth Circuit also found that the Commission erred in placing 
the burden of proof on the rural LEC when a requesting carrier seeks to remove the section 251(f)(1) exemption 
from section 251(c). The Eighth Circuit therefore vacated sections 51.405(a), (c), and (d) of our rules, id. at 762, but 
did not disturb the allocation of burden of proof under section 251(f)(2) as set forth in 47 C.F.R.  51.405(b).

Federal Communications Commission FCC 08-262 
C-127 
section 251(f)(2) must be for a limited duration and cannot be indefinite. This interpretation follows 
directly from the express language of section 251(f)(2). Specifically, section 251(f)(2) provides that the 
state should grant a suspension or modification to the extent that, and for such duration as, the State 
commission determines that such suspension or modification738 satisfies the statutory test. Congress thus 
expected that the conditions warranting suspension or modification of a requirement would not be 
permanent, and it permitted the states to continue such modifications or suspensions only for a particular 
duration, rather than remaining in place indefinitely. In contrast, Congress adopted the opposite 
approach in section 251(f)(1), where it provided a default exemption for rural telephone companies 
from section 251(c) that continues indefinitely until certain statutory criteria are met.739 Accordingly, 
we conclude that the LEC requesting the suspension or modification under section 251(f)(2) has the 
burden of demonstrating the appropriate duration of any suspension or modification. To the extent that a 
state grants a suspension or modification for a particular duration, the Commission encourages the state to 
impose a timeline or other requirements on the LEC to ensure that it is taking concrete steps to enable it to 
comply with the relevant requirements once the suspension or modification ends.740 If a state finds that a 
LEC is not taking such steps necessary to ensure compliance on a date certain, we find that such a 
determination would be sufficient for the state immediately to revoke the suspension or modification as 
no longer satisfying the public interest criteria. 
279. We also offer guidance regarding the substantive standards that state commissions must 
apply when evaluating requests pursuant to section 251(f)(2) for a suspension or modification of section 
251(b) or (c). The first prong of section 251(f)(2)(A) directs state commissions to determine whether the 
LEC establishes that absence of the requested suspension or modification would cause a significant 
adverse economic impact on users of telecommunications services generally.741 The term significant 
is ambiguous. According to Websters Dictionary, significant means having or likely to have 
influence or effect; of a noticeably or measurably large amount.742 We find this to be a reasonable 
definition, and conclude that for an adverse economic impact to be significant requires that such harm 
be measurably large. Moreover, the state commission must evaluate the net impact on users of 
telecommunications services generally.743 We conclude that state commissions must consider users of 
telecommunications services more broadly, rather than focusing narrowly on impacts on isolated groups 
of users, such as customers of the LEC requesting the suspension or modification. Further, state 
commissions must weigh the overall impact on such users, including not only any adverse impacts on 
particular users, but whether there are other associated benefits of the regulatory requirements to 
telecommunications users. For example, the reduction in intercarrier compensation payments might lead 
some carriers to increase some rates, but also should reduce long distance rates, stimulate additional 
competition in local markets, consistent with the goals of the 1996 Act, and provide additional benefits to 
end users. We direct states to consider the totality of the circumstances in evaluating the impact on 
telecommunications users. 
738 47 U.S.C.  251(f)(2) (emphasis added). 
739 47 U.S.C.  251(f)(1). 
740 Moreover, if, in the future, we have evidence that states are granting arbitrarily long suspensions/modifications to 
requesting LECs, the Commission will consider imposing a limit on the number of years that a 
suspension/modification is appropriate. 
741 47 U.S.C.  251(f)(2)(A)(i) (emphasis added). 
742 WEBSTERS NINTH NEW COLLEGIATE DICTIONARY 1096 (1991). 
743 47 U.S.C.  251(f)(2)(A)(i) (emphasis added).

Federal Communications Commission FCC 08-262 
C-128 
280. The second prong of section 251(f)(2)(A) requires a state commission to determine 
whether the LEC has demonstrated that the requested suspension or modification is necessary to avoid 
imposing a requirement that is unduly economically burdensome.744 The Eighth Circuit has interpreted 
the phase unduly economically burdensome to require a state to examine the full economic burden on 
the ILEC.745 Consistent with this interpretation, and our interpretation of section 251(f)(2)(A)(i) above, 
we conclude that states must evaluate the totality of the circumstances in evaluating the net burden. For 
example, in evaluating the impact of section 251(b)(5) as we interpret it today, states cannot simply look 
at the LECs loss of intercarrier compensation revenues. Rather, the state must consider the full economic 
impact on the LEC of all the comprehensive reforms we adopt, including the ability of carriers to recover 
revenues by raising other rates, including the federal SLC, the potential economic savings due to reduced 
billing costs, fewer disputes and litigation regarding the classification of traffic, and the possibility that a 
carrier may receive universal service support if its financial integrity is threatened. 
281. The third prong under section 251(f)(2)(A) requires a state commission to determine 
whether the LEC has demonstrated that compliance with section 251(b) or (c) may be technically 
infeasible.746 We do not believe that any carrier will be able to establish that implementation of our 
intercarrier compensation reforms is technically infeasible, considering that carriers generally are 
exchanging and billing for traffic today, and our rules adopted in this order should merely simplify this 
process. Thus, we recommend that state commissions scrutinize rigorously any claims of technical 
infeasibility, particularly if the LEC is paying and/or receiving intercarrier compensation today. 
282. Even if a state finds that a LEC satisfies the requirements for a temporary suspension or 
modification under section 251(f)(2)(A), section 251(f)(2)(B) provides that a state commission cannot 
grant a petition for suspension or modification unless it also finds that granting the requested petition is 
consistent with the public interest, convenience, and necessity.747 In light of the compelling need to 
adopt comprehensive reform of existing intercarrier compensation regimes as described above,748 the 
Commission urges states to use caution and consider carefully the ramifications of granting any 
suspension or modification, particularly regarding petitions seeking relief from section 251(b)(5). Indeed, 
any suspension or modification that continues to treat traffic under different rate structures opens the door 
for continued regulatory arbitrage and disputes. Such action would undermine the tremendous public 
interest benefit associated with treating all traffic the same. 
283. The Act is silent on what occurs if a state grants a suspension or modification of the 
section 251(b) or (c) obligations. We find that this silence creates ambiguities and could lead to 
inconsistent results following a modification or suspension under section 251(f)(2). We are concerned 
that a suspension or modification of section 251(b)(5) could result in exactly the kind of disparate 
treatment that we intend to correct with our actions today. Pursuant to our authority under section 201(b), 
as well as our authority to interpret section 251(f),749 we therefore adopt rules specifically addressing 
744 See 47 U.S.C.  251(f)(2)(A)(ii). 
745 Iowa Utils. II, 219 F.3d at 761. The Commission initially interpreted undue economic burden to mean the 
undue economic burden beyond the economic burden that is typically associated with efficient competitive entry. 
47 C.F.R.  51.405(d). The Eighth Circuit vacated this reading of the statute. See Iowa Utils. II, 219 F.3d at 760 
61. 
746 47 U.S.C.  251(f)(2)(A)(iii). 
747 47 U.S.C.  251(f)(2)(B). 
748 See supra section V.A.3. 
749 AT&T v. Iowa Utils. Bd., 525 U.S. at 385. 

Federal Communications Commission FCC 08-262 
C-129 
certain of the implications of a suspension or modification of our intercarrier compensation rules.750 
284. First, to minimize inconsistency and the possibility that the reforms we adopt today could 
be undermined, we extend our symmetry requirement for reciprocal compensation rates at the end of the 
transition period described in Part V.B to any suspension or modification of our section 251(b)(5) 
reciprocal compensation rules and requirements. If a LEC receives a suspension or modification of our 
reciprocal compensation pricing methodology, for example, all other LECs and CMRS providers that 
exchange traffic with the LEC receiving the suspension or modification will likewise be entitled to charge 
that LEC those same rates that the LEC charges them for the duration of such suspension or modification. 
We conclude that this symmetry requirement is in the public interest and will reduce disputes, arbitrage, 
and transaction costs. Indeed, a contrary result that would permit different terminating rates in the same 
geographic area would not be in the public interest and likely would lead to the same disputes we have 
today. If a state attempts to avoid this symmetry requirement by granting a LEC a suspension or 
modification of any section 251(b)(5) reciprocal compensation obligation and the state fails to require 
symmetric rates, we will invoke our authority under sections 201 and 332 of the Act to ensure that all 
carriers exchanging traffic with that LEC pay the same rate for terminating all traffic. 
285. Second, if a state grants any suspension or modification that is more than 1 year in 
duration, we require the state to take a fresh look to determine whether such suspension/modification 
continues to satisfy the statutory test in light of possible changes in circumstances. To this end, 90 days 
before the 1-year anniversary of the grant of the suspension or modification, the LEC must file a petition 
demonstrating that the suspension or modification continues to satisfy the statutory criteria. In the 
intervening time, for example, a state may have rebalanced rates, the LEC may have increased its enduser 
charges, or other relevant changes may have occurred. Those actions may have obviated the need for 
the suspension or modification or, at a minimum, could result in the need for changes to the terms and 
duration of the suspension or modification. In such a review, the LEC continues to have the burden of 
demonstrating that the section 251(f)(2) criteria remain satisfied. We conclude that states should act upon 
such a fresh look within the 180 days for new petitions set forth in section 251(f)(2).751 
d. Existing Agreements 
286. Below we discuss the effect of our intercarrier compensation reforms on certain types of 
existing agreements. 
287. Interconnection agreements. With respect to interconnection agreements, we do not 
disturb the processes established by section 252 of the Act. As discussed above, the intercarrier 
compensation reforms we adopt will necessitate that states implement our new reciprocal compensation 
methodology. We expect that incumbent LECs and competing carriers will implement the reciprocal 
750 Section 201(b) authorizes the Commission to prescribe such rules and regulations as may be necessary in the 
public interest to carry out the provisions of this Act. 47 U.S.C.  201(b); see also 47 U.S.C.  154(i) (The 
Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent 
with this Act, as may be necessary in the execution of its functions.). [T]he grant in  201(b) means what it 
says: The FCC has rulemaking authority to carry out the provisions of this Act. AT&T v. Iowa Utils. Bd., 525 
U.S. at 378. As the Supreme Court has confirmed, this grant of authority necessarily includes section 251(f). AT&T 
v. Iowa Utils. Bd., 525 U.S. at 385 (holding that the Commission has jurisdiction to promulgate rules . . . regarding 
rural exemptions); see also id. at 378 n.6 ([T]he question in theses cases is not whether the Federal Government 
has taken the regulation of local telecommunications competition away from the States. With regard to the matters 
addressed by the 1996 Act, it unquestionably has.). 
751 47 U.S.C.  251(f)(2) (The State commission shall act upon any petition filed under this paragraph within 180 
days after receiving such petition.). 

Federal Communications Commission FCC 08-262 
C-130 
compensation changes as directed by section 252 of the Act.752 We make clear that our actions today 
constitute a change in law, and we recognize that interconnection agreements may contain change of law 
provisions that allow for renegotiation and/or may contain some mechanism to resolve disputes about 
new agreement language implementing new rules.753 Verizon raises a concern regarding the impact on 
contracts in evergreen status, which Verizon describes as contracts that have reached the end of their 
terms but remain in effect pending entry into new contracts.754 Given that the comprehensive reforms 
today are necessary to eliminate arbitrage and reduce disputes, we believe it is appropriate for carriers to 
take a fresh look at their interconnection agreements in evergreen status, including agreements that 
lack a change-of-law provision, and follow the section 252 process of negotiation and arbitration. We 
also note that, pursuant to section 251(a)(1), carriers remain free to negotiate alternative arrangements.755 
288. Commercial arrangements. As discussed above, the intercarrier compensation reforms 
will require carriers to make certain changes to their tariffs relating to carrier-to-carrier charges, and 
potentially also SLCs. We do not, however, abrogate existing contracts or otherwise allow for a fresh 
look in light of our reforms.756 As the Commission has recognized, for example, early termination 
provisions can be mutually beneficial by giving providers greater assurance of cost recovery, and giving 
customers (whether wholesale or end-users) discounted and stable prices over the relevant term.757 
Indeed, allowing for a fresh look could result in a windfall for customers that entered long-term 
arrangements, in exchange for lower prices, as compared to other customers that avoided early 
termination fees by electing shorter contract periods at higher prices.758 Rather than adopt a rule that 
752 See 47 U.S.C.  252. 
753 See Triennial Review Order, 18 FCC Rcd at 17404, para. 700. Although section 252(a)(1) and section 252(b)(1) 
refer to requests that are made to incumbent LECs, we have interpreted that in the interconnection agreement 
context to mean that either the incumbent or the competitive LEC may make such a request, consistent with the 
parties duty to negotiate in good faith pursuant to section 251(c)(1). See Triennial Review Order, 18 FCC Rcd at 
17405, para. 703 n.2087; see also 47 U.S.C.  251(c)(1), 252(a)(1), (b)(1). We believe that this adequately 
addresses concerns about existing interconnection agreements that do not include express change of law provisions. 
754 See, e.g., Verizon Sept. 12, 2008 Ex Parte Letter, Attach. at 56 (urging that any new intercarrier compensation 
regime displace such contracts). By the same token, we decline to insulate existing interconnection agreements 
from the section 252 processes to the extent that some commenters propose that they remain in effect. See, e.g., 
Letter from Melissa E. Newman, Vice PresidentFederal Regulatory, Qwest, to Marlene H. Dortch, Secretary, 
FCC, WC Docket Nos. 05-337, 04-36, 06-122, 05-195, CC Docket Nos. 01-92, 96-45, 99-68, Attach. at 13 (filed 
Oct. 7, 2008) (proposing that the Commission order that those prior arrangements should at least presumptively 
remain in force after the implementation of a new, unified . . . rate regime). 
755 47 U.S.C.  251(a)(1). 
756 Several commenters request that the Commission give them a fresh look at existing contracts. See, e.g., Letter 
from Richard R. Cameron and Teresa D. Baer, Counsel for Global Crossing, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 08-152; CC Docket Nos. 01-92, 99-68, 96-45 at 2 (filed Sept. 18, 2008) (asking that the 
Commission provide an 18-month window within which carriers can reconfigure their interconnection facilities 
without incurring reconfiguration charges or early termination liabilities under existing transport contracts); Ad 
Hoc ICC FNPRM Comments at 2224 (arguing that customers should be allowed to opt out of existing contracts); 
Earthlink ICC FNPRM Reply at 7 (arguing that end users should have the opportunity to negotiate different terms 
and, if renegotiation is not possible, be permitted to terminate existing contracts without liability). 
757 See, e.g., Triennial Review Order, 18 FCC Rcd at 17400, 1740203, paras. 692, 69799; see also, e.g., AT&T 
ICC FNPRM Reply at 1719 (arguing against giving end users a fresh look at existing contracts). To the extent that 
there is evidence that particular termination penalties are inappropriate, the Commission can resolve such a matter 
through an enforcement proceeding. See Triennial Review Order, 18 FCC Rcd at 17403, para. 698. 
758 See Triennial Review Order, 18 FCC Rcd at 17403, para. 699. 

Federal Communications Commission FCC 08-262 
C-131 
these commercial arrangements must be reopened, we will leave such issues to any change-of-law 
provisions in these commercial arrangements, or to commercial negotiations among the parties.759 
2. Revenue Recovery Opportunities 
289. In the preceding sections of this order, we adopt fundamental changes to the existing 
intercarrier compensation regimes. These reforms are designed to unify and simplify these mechanisms, 
consistent with the framework Congress adopted in the 1996 Act. This new approach will result in 
overall reductions in interstate and intrastate intercarrier compensation rates.760 In this section, we 
address the extent to which revenue reductions from carrier-to-carrier charges may be replaced through 
end-user charges and new universal service support. In prior intercarrier compensation reforms, the 
Commission largely replaced reductions in intercarrier compensation revenues through a combination of 
increased end-user charges and new universal service funding.761 Our actions here carefully balance the 
need to ensure reasonable revenue recovery by carriers against the potential adverse impact on consumers 
of increased end-user charges, and the pressure placed on the universal service program to the extent that 
new subsidies are made available. 
290. As an initial matter, we increase the caps on interstate SLCs, and we permit incumbent 
LECs to increase their SLCs up to the new caps to recover lost interstate and intrastate intercarrier 
compensation revenues. We also enlist the aid of the Separations Joint Board to evaluate the need for 
further increases in interstate end-user charges to recover any net loss in interstate and intrastate 
intercarrier compensation revenues, and to evaluate the conditions under which carriers may seek 
additional universal service funding. To limit the increase in the total universal service fund, we establish 
certain preconditions that carriers must satisfy before they can receive additional universal service 
funding to compensate for lost intercarrier compensation revenues. 
a. End-User Charges 
291. In this section, we consider whether revenue reductions from reformed carrier-to-carrier 
charges should be replaced to any extent by increases in end-user charges, as the Commission has done in 
some prior intercarrier compensation reform proceedings.762 The Commission has acknowledged that 
[t]he concept that users of the local telephone network should be responsible for the costs they actually 
cause is sound from a public policy perspective and rings of fundamental fairness, and also helps ensure 
that ratepayers will be able to make rational choices in their use of telephone service.763 Importantly, 
however, the Commission also has maintained safeguards that ensure that the rates consumers pay . . . 
759 This situation is thus different than cases where the Commission found that certain contract provisions might 
adversely affect competition or where end-user customers would be denied the benefits of new Commission policy 
absent a fresh look opportunity. See, e.g., Local Competition First Report and Order, 11 FCC Rcd at 16044, para. 
1094; Expanded Interconnection with Local Telephone Company Facilities, CC Docket No. 91-141, Second 
Memorandum Opinion and Order on Reconsideration, 8 FCC Rcd 7341, 7350, para. 21 (1993) (allowing a fresh 
look at agreements in situations where excessive termination liabilities would affect competition for a significant 
period of time); Competition in the Interstate Interexchange Marketplace, CC Docket No. 90-132, Report and 
Order, 6 FCC Rcd 5880, 5907, para. 151 (1991) (giving customers of AT&T 90 days to terminate their contracts 
without penalty to let them tak[e] advantage of 800 number portability when it arrives). 
760 See supra paras. 186268. 
761 See supra paras. 159185. 
762 See, e.g., First Reconsideration of 1983 Access Charge Order, 97 FCC 2d 682; Access Charge Reform Order, 12 
FCC Rcd 15982; CALLS Order, 15 FCC Rcd 12962; MAG Order, 16 FCC Rcd 19613. 
763 First Reconsideration of 1983 Access Charge Order, 97 FCC 2d at 686, para. 7.

Federal Communications Commission FCC 08-262 
C-132 
remain well within a zone of reasonableness.764 To permit carriers to recover at least part of their lost 
intercarrier compensation revenues, we raise the caps on interstate SLCs as described below, which we 
find to be within the zone of reasonableness and which should not have a significant adverse effect on 
telephone penetration. We also enlist the help of the Separations Joint Board to consider the need, if any, 
for further increases in end-user charges and certain other revenue recovery issues. 
292. The record reveals a wide variety of proposals for modifying interstate end-user charges 
in response to reductions in intercarrier compensation rates. The majority of these proposals advocate 
increasing the caps on the interstate SLCs. The interstate SLC is a flat-rated charge that recovers the 
interstate portion of local loop costs from an end user. Under our current rules governing incumbent 
LECs, SLCs are subject to a cap that varies based upon whether the line is: (a) a primary residential or 
single-line business line; (b) a non-primary residential line; or (c) a multi-line business or Centrex line.765 
Some parties propose specific increases in SLC caps to offset a portion of the revenues lost through 
mandated reductions in intercarrier compensationincluding both reductions in interstate and intrastate 
revenues.766 Other parties contend that most or all of a carriers replacement of lost intercarrier 
compensation revenues should come from increased SLCs.767 On the other hand, some consumer groups 
assert that no increase in SLC caps is warranted in response to reductions in intercarrier compensation 
rates.768 
(i) Current Availability of End-User Charges for Revenue 
Recovery 
293. As an initial matter, we permit incumbent LECs to increase their SLCs up to new caps to 
764 CALLS Order, 15 FCC Rcd at 12976, para. 33; see also, e.g., 1983 Access Charge Order, 93 FCC 2d at 243, 
para. 4 (finding that a transitional plan is necessary in part because [i]mmediate recovery of high fixed costs 
through flat end user charges might cause a significant number of local exchange service subscribers to cancel local 
exchange service despite the existence of a Universal Service Fund and [s]uch a result would not be consistent 
with the goals of the Communications Act). 
765 For price cap and rate-of-return carriers, the current SLC cap for residential and single-line business lines is 
$6.50, 47 C.F.R.  69.104(n)(1)(ii)(C), 69.152(d)(1)(ii)(D), and the current SLC cap for multi-line business and 
Centrex lines is $9.20, 47 C.F.R.  69.104(o)(1)(i); 69.152(k)(1)(i). Price cap carriers currently also have a SLC 
cap of $7.00 for non-primary residential lines. 47 C.F.R.  69.152(e)(1)(i). 
766 See, e.g., ICF ICC FNPRM Comments, App. C at C-7; NARUC Task Force July 24, 2006 Ex Parte Letter, 
Attach. 2 at 7; Letter from Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01- 
92, Attach at 23 (filed Sept. 19, 2008); Verizon Sept. 12, 2008 Ex Parte Letter, Attach. at 67; Letter from Mary L. 
Henze, Executive DirectorFederal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01- 
92; WC Docket Nos. 05-337, 06-112, 99-68, 07-135, Attach. at 2 (filed Oct. 9, 2008). 
767 See, e.g., Letter from Anna M. Gomez, Vice President of Government Affairs, Sprint, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 5 (filed Oct. 7, 2008); Letter from 
Kathleen OBrien Ham et al., Federal Regulatory Affairs, T-Mobile USA, Inc., to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 8 (filed Oct. 3, 2008); Cox ICC FNPRM Comments at 56; Eschelon ICC FNPRM 
Comments at 12. 
768 See Letter from Ben Scott, Policy Director, Free Press, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 
05-337, CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); Letter from David C. Bergmann, 
Assistant Consumers Counsel Chair, NASUCA Telecommunications Committee, to Marlene H. Dortch, Secretary, 
FCC, WC Dockets Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36, 03-109, 02-60, CC Dockets Nos. 02-6, 01- 
92, 00-256, 99-68, 96-262, 96-45, 80-286 at 10 (filed Sept. 30, 2008); Letter from James S. Blaszak, Counsel for Ad 
Hoc Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC 
Docket Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008). 

Federal Communications Commission FCC 08-262 
C-133 
recover reductions in interstate intercarrier compensation revenues. In particular, we increase the SLC 
cap for residential and single-line business lines from $6.50 to $8.00, the non-primary residential line 
SLC cap from $7.00 to $8.50, and the multi-line business SLC cap from $9.20 to $11.50. We believe that 
these modest increases in the SLC caps continue to ensure that the rates consumers pay for the SLC 
remain well within a zone of reasonableness.769 Moreover, we believe that these SLC cap increases also 
address commenters concerns about the need for some end-user recovery in light of lost intercarrier 
compensation revenues. Although some commenters argue for more substantial increases in the SLC 
caps, we note that there is evidence that incumbent LECs charge rates below even the existing caps in a 
number of instances. For example, the primary residential and single-line business SLC cap is $6.50, but 
the national average SLC for those lines is $5.93 based on recent Commission data.770 Similarly, the nonprimary 
residential line SLC cap is $7.00, but the national average SLC for those lines is $5.81.771 
Further, the multi-line business and Centrex line SLC cap is $9.20, but the national average SLC for those 
lines is $6.30nearly $3.00 below the cap.772 We therefore find it reasonable in the first instance to raise 
the interstate SLC cap and to allow carriers whose current SLCs are below the new caps to increase those 
SLCs to recover revenues lost from interstate and intrastate access charge reductions.773 
294. To the extent that an incumbent LEC increases its SLCs to recover reductions in its 
interstate intercarrier compensation revenues and any of its SLCs are still below the relevant caps, we 
allow those carriers to raise their SLCs further, up to the caps, to recover any net loss in intrastate 
intercarrier compensation revenues, at least on an interim basis.774 As a prerequisite for incumbent LECs 
to increase their SLCs in this manner, we require that the LECs state retail rates and any intrastate SLC 
be set at the maximum level permitted under state regulations.775 This will ensure that revenues from 
interstate end-user charges will not be used to recover intrastate revenue requirements until the carrier has 
fully availed itself of all available intrastate revenue opportunities under existing law. We also mandate 
that any increase in interstate SLC revenues that are intended to recover lost intrastate intercarrier 
compensation revenues be used by the state in ratemaking to reduce costs or revenue requirements to be 
recovered in the intrastate jurisdiction.776 
769 CALLS Order, 15 FCC Rcd at 12976, para. 33. We note that section 54.403 of the Commissions rules provides 
for Tier 1 lifeline support to cover the tariffed SLCs established by rate-of-return and price cap carriers pursuant to 
sections 69.104 and 69.152 of the Commissions rules. 47 C.F.R.  54.403. 
770 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1 (providing national weighted average SLCs for price cap carriers 
and all LECs in the NECA pool as of June 30, 2008). 
771 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1. 
772 2008 TRENDS IN TELEPHONE SERVICE, tbl. 1.1 
773 Should a carrier agree to (or tariff) intercarrier charges below those that would be required by the reforms 
adopted in this order, the difference between the charges it sets and the maximum charges it is allowed to set may 
not be recovered through increased SLCs, nor may such carriers seek to obtain supplemental universal service 
support, as described in Part V.C.2, based on that difference. 
774 As discussed below, we are referring to the Joint Board, among other things, the question of whether, and to what 
extent, net reductions in intrastate intercarrier compensation revenues should be offset by revenues from interstate 
end-user charges. See infra paras. 303310. 
775 To the extent that a carriers state retail rates have been deregulated, that carrier may not increase its SLCs to 
recover any net loss in intrastate intercarrier compensation revenues. 
776 Cf. Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Ninth Report and Order and 
Eighteenth Order on Reconsideration, 14 FCC Rcd 20432, 2048687, para. 106 (1999) (Universal Service Ninth 
(continued.)

Federal Communications Commission FCC 08-262 
C-134 
295. We find that we have authority to allow recovery of intrastate revenue requirements in 
this manner. For one, the legacy separations regime does not preclude this action. The Commission 
historically has provided federal funds to cover at least a portion of costs assigned to the intrastate 
jurisdiction.777 Although those decisions relied on the Commissions universal service authority pursuant 
to section 254, we find that we have authority under section 251(g) to allow recovery of intrastate revenue 
requirements through interstate SLC rates. Section 251(g) empowers the Commission to subject traffic 
previously encompassed by section 251(g) to the reciprocal compensation regime of section 251(b)(5), 
including providing for an orderly transition. Allowing incumbent LECs the option to recover certain lost 
intrastate intercarrier compensation revenues through increases in the interstate SLC, subject to the new 
caps, furthers such a transition. In particular, this option helps mitigate any need incumbent LECs might 
have to seek increases in state rates due to decreases in intrastate intercarrier compensation revenues 
during the initial stages of the transition, pending the Separations Joint Board referral and subsequent 
Commission action. We also acknowledge that interstate SLC charges are governed by sections 201 and 
202 of the Act, and that the just and reasonable rates required by Sections 201 and 202 . . . must 
ordinarily be cost-based, absent a clear explanation of the Commissions reasons for a departure from 
cost-based ratemaking.778 In the past, the Commission has, in fact, adopted regulatory approaches that 
deviated from cost-based ratemaking.779 We find such an approach warranted here to help mitigate 
regulatory burdens during the transition, as described above. 
296. In sum, we adopt increased SLC caps to allow incumbent LECs to recover some or all of 
their net loss in intercarrier compensation revenues resulting from rate reductions pursuant to this order. 
In particular, to recover those lost revenues, we permit incumbent LECs to increase each of their SLCs up 
to the new caps. 
297. With respect to non-incumbent LECs, we note that most interstate rates of such providers 
are not subject to ex ante regulation by the Commission. Thus, we allow those carriers to recover any net 
loss in intercarrier compensation revenues in any lawful manner.780 
(ii) Joint Board Referral of Possible Changes to End-User 
Charges 
298. We enlist the aid of the Separations Joint Board to evaluate the need for any additional 
increases in interstate end-user rates for carriers to recover any net loss in interstate and/or intrastate 
(continued from previous page) 
Report and Order) (specifying that hold-harmless universal service support should continue to operate through 
the jurisdictional separations process to reduce book costs to be recovered in the intrastate jurisdiction.). 
777 See, e.g., Universal Service Ninth Report and Order, 14 FCC Rcd 20432 (providing high-cost universal service 
support for intrastate costs). 
778 Access Charge Reform Second Order, 12 FCC Rcd at 1661920, para. 44 (citing Competitive Telecomms. Ass'n 
v. FCC, 87 F.3d 522, 529 (D.C. Cir. 1996)). 
779 See, e.g., LEC Price Cap Order, 5 FCC Rcd 6786 (adopting price cap regulation, under which rates are not tied 
directly to cost); Pricing Flexibility Order, 14 FCC Rcd 14221, 14307, para. 168 (once price cap carriers are granted 
pricing flexibility, they lose the option of a low end adjustment, which would permit incumbent LECs earning rates 
of return less than 10.25% in a given year to increase their price cap indices to a level that would enable them to 
earn 10.25%.); MCI Telecomms. Corp. v. U S WEST Commcns, Inc., File Nos. E-97-08, E-97-20 through 24, 
Memorandum Opinion and Order, 15 FCC Rcd 9328, 9334, para. 14 (2000) (finding that incumbent LECs noncost-
based PICC did not violate section 201(b) given the Commissions prior establishment of a safe harbor). 
780 Cf. Telephone Number Portability, CC Docket No. 95-116, Third Report and Order, 13 FCC Rcd 11701, 11725 
26, 1177380, paras. 39, 13549 (1998) (carriers other than incumbent LECs permitted to recover such costs in any 
lawful manner).

Federal Communications Commission FCC 08-262 
C-135 
intercarrier compensation revenues as a result of the reform measures we adopt today. There are a range 
of widely divergent proposals in the record regarding the need for additional changes to the SLC caps 
adopted above as part of comprehensive intercarrier compensation reform. We believe that the 
information and analysis developed by the Separations Joint Board will be extremely valuable in 
evaluating these issues. 
299. Our decision to seek input from the Separations Joint Board is consistent with section 410 
of the Act. Section 410(c) of the Act requires the Commission to refer to the Separations Joint Board any 
changes to the separations rules being considered through a rulemaking proceeding. Although no changes 
to the separations rules are at issue here, section 410(c) also authorizes the Commission to refer matters 
relating to common carrier communications of joint Federal-State concern to a Federal-State Joint 
Board.781 We believe that recommendations from a Joint Board regarding these issues are important to 
striking the right balance among the various policy goals at stake, relating to traffic that historically has 
been regulated, in part, by both federal and state jurisdictions. Moreover, the issue of using revenues 
from interstate end-user charges to recover intrastate revenue requirements is sufficiently related to the 
underlying separations requirements themselves that we believe the Separations Joint Board possesses 
highly relevant expertise to provide recommendations on these issues.782 
300. As described in greater detail below, we refer to the Separations Joint Board certain 
specific issues regarding possible increases in interstate end-user charges: (i) whether SLC caps should be 
increased by a fixed amount to recover any net loss in intercarrier compensation revenues; (ii) whether a 
flexible SLC cap should be used in conjunction with an overall benchmark or threshold; or (iii) some 
combination of those options. 
301. Quantifying Any Increase in End-User Charges. We refer to the Separations Joint Board 
several possible approaches for establishing any additional permissible increases in interstate end-user 
charges, to the extent that any are warranted. First, the Separations Joint Board could directly recommend 
particular further increases in the SLC caps. Parties here have proposed various levels of SLC cap 
increases, and different ways to distribute those increases across the different SLC caps. For example, the 
ICF proposal would result in all SLC caps being increased to $10.00 by the end of a transition period.783 
Under the Missoula Plans initial proposal, SLC cap increases vary for the three tracks or categories of 
carriers defined in the plan.784 ITTA proposes a $2.25 increase in each SLC cap by the end of a transition 
period, subject to a benchmark consisting of SLCs, retail rates, and certain other charges.785 Other parties, 
such as CTIA, contend that recovery of lost intercarrier compensation revenues by incumbent LECs 
781 47 U.S.C.  410(c). 
782 The Commission has referred non-separations issues to the Separations Joint Board previously. See, e.g., MTS 
and WATS Market Structure and Amendment of Part 67 of the Commission's Rules, CC Docket Nos. 78-72, 80-286, 
Further Notice of Proposed Rulemaking, 49 Fed. Reg. 18318, 18318, para. 1 (1984) (referring to a Separations Joint 
Board issues including: (1) the subscriber line charge for residential and single-line business customers; (2) the 
transition mechanism for implementing subscriber line charges for these customers; (3) an exemption from the 
subscriber line charge or other assistance for low income households; and (4) additional assistance for small 
telephone companies.); MTS and WATS Market Structure and Amendment of Part 67 of the Commission's Rules, CC 
Docket Nos. 78-72, 80-286, Recommended Decision, 49 Fed. Reg. 48325, 48327, para. 9 n.20 (1984) (noting that 
[s]ince these issues do not involve the allocation of costs between the jurisdictions, preparation of a Joint Board 
recommendation is not mandatory.). 
783 ICF ICC FNPRM Comments, App. C at C-7. 
784 NARUC Task Force July 24, 2006 Ex Parte Letter, Attach. 2 at 7. 
785 ITTA Sept. 19, 2008 Ex Parte Letter, Attach. at 23.

Federal Communications Commission FCC 08-262 
C-136 
should come solely from end-user charges.786 In contrast, Free Press, NASUCA, and Ad Hoc propose 
that SLC caps not be increased at all.787 
302. Second, the Separations Joint Board could recommend a flexible SLC cap that would 
vary depending upon a carriers other end-user rates and an overall benchmark or threshold. For example, 
under a recent Verizon proposal, the default SLC caps all would increase to $10.00 by the end of a 
transition period.788 However, to the extent that a carriers relevant end-user rates still are below a 
proposed benchmark, that carriers SLC cap would increase as much as needed to reach the benchmark.789 
Thus, the Separations Joint Board could determine a particular benchmark or threshold and allow the SLC 
cap to vary for each carrier, depending upon how much headroom that carrier has under the benchmark, 
in light of the carriers other rates. To the extent that the Separations Joint Board recommends this 
approach, it should specify which carrier rates should be included in the relevant benchmark or threshold. 
303. Third, the Separations Joint Board could recommend some combination of the first and 
second options. 
304. In making recommendations on these issues, the Separations Joint Board will consider 
the extent to which any recommended increases in interstate end-user charges should be used to offset lost 
intrastate intercarrier compensation, to the extent that decreases in interstate intercarrier compensation 
revenues already have been recovered. Most comprehensive reform proposals in the record assume that 
SLC cap increases will be used to offset at least some intrastate revenues.790 Logically, however, another 
alternative is for any increases in the SLC caps to be used only to recover reductions in interstate 
intercarrier compensation revenues, and to leave it to each state to address lost intrastate intercarrier 
compensation revenues as appropriate under state law. 
305. Timing. We direct the Separations Joint Board to issue its recommended decision not 
later than one year from the effective date of this order. In light of that timetable, we limit the Separations 
Joint Board to consideration of specific issues we refer in this order. 
b. Universal Service Support 
(i) Policy Approach 
306. We recognize that the actions we take to reform intercarrier compensation will result in 
reduced revenues for many carriers. As discussed above, carriers have the opportunity to replace certain 
786 CTIA Oct. 2, 2008 Ex Parte Letter, Attach. at 10. See also, e.g., Letter from Norina Moy, Director, Government 
Affairs, Sprint, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 04-36, CC Docket No. 01-92 at 2 (filed Aug. 
7, 2008). 
787 Letter from Ben Scott, Policy Director, Free Press, Washington Office, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); NASUCA Sept. 30, 
2008 Ex Parte Letter at 10; Letter from James S. Blaszak, Counsel for Ad Hoc Telecommunications Users 
Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket Nos. 96-45, 01-92, Attach. 
at 4 (filed Oct. 14, 2008). 
788 Verizon Sept. 12, 2008 Ex Parte Letter at 67. 
789 Verizon Sept. 12, 2008 Ex Parte Letter. 
790 To the extent that interstate end-user charges are used to offset any lost intrastate intercarrier compensation 
revenues, we mandate that the states take account of those revenues in their state ratemaking by reducing the 
intrastate costs or revenue requirement to be recovered through intrastate rates.

Federal Communications Commission FCC 08-262 
C-137 
of those lost revenues through end-user charges.791 We also acknowledge that, in the past, the 
Commission has sometimes provided new universal service support to replace reductions in intercarrier 
compensation revenues.792 As the Fifth Circuit has recognized, however, [b]ecause universal service is 
funded by a general pool subsidized by all telecommunications providersand thus indirectly by 
customers - excess subsidization in some cases may detract from universal service by causing rates 
unnecessarily to rise, thereby pricing some consumers out of the market. 793 Thus, excessive universal 
service subsidization could, perversely, cause undesirable increases in consumers bills. 
307. We note that many companiesin particular price cap carriersconsistently are paying 
dividends and are using the same supported network to provide both regulated services and non-regulated 
services. Throughout the course of our comprehensive reform proceedings, commenters have identified 
this as a concern to be weighed carefully when evaluating the need for universal service support. For 
example, following the 2005 intercarrier compensation Further Notice, CTIA contended that some rural 
incumbent LECs already are overcompensated by universal service support based on evidence that their 
stocks generate returns, measured by market-to-book ratios, far in excess of, and exhibit significantly 
lower risk premiums than, the supposedly more secure RBOCs.794 Commenters continue to express 
concern that existing universal service subsidies too often lead simply to high overhead, sumptuous 
earnings, [and] rich dividends.795 For example, recent news reports indicate that CenturyTel and 
Embarq still remain highly profitable  operating margins for both are 27 percent notwithstanding any 
competition they face.796 Parties have argued that there continues to be evidence that [i]nvestors place a 
higher value on RLEC earnings than on other ILEC earnings. In todays market, the larger ILECs, which 
do not generate much of their revenues from federal subsidies, are valued much less highly per dollar of 
profit.797 While there are various factors in play this suggests that [m]illions of dollars in extra 
wealth end up in the hands of private investors by transferring income from telephone users to phone 
company stockholders.798 Indeed, commenters note that some carriers owned by co-ops pay their 
791 In this order, we do not decide the maximum amount that incumbent LECs ultimately may charge customers in 
the form of interstate end-user charges. As discussed above, that will depend upon further Commission action based 
on recommendations from the Joint Board. 
792 See, e.g., CALLS Order, 15 FCC Rcd 12962; MAG Order, 16 FCC Rcd 19613; see also MAG Second FNPRM, 
19 FCC Rcd 4122. 
793 Alenco, 201 F.3d at 620. 
794 CTIA ICC FNPRM Comments at 37 citing Western Wireless Reply, CC Docket No. 96-45, Attach. at 25 (filed 
Dec. 14, 2004) (attaching Economics and Technology, Inc., Reforming Universal Service Funding for Rural ILECs: 
An Idea Whose Time Has Come). 
795 Thomas W. Hazlett, Universal Service Telephone Subsidies: What Does $7 Billion Buy? (Universal Service 
Telephone Subsidies) at 33, attached to Core Missoula Phantom Traffic Comments, Tab B (quotation omitted). 
796 A Fair Copper, FINANCIAL TIMES, Oct. 28, 2008, at 16. 
797 Universal Service Telephone Subsidies at 34. 
798 Universal Service Telephone Subsidies at 34, 70. See also Julie Tanner, General Counsel, Chinook Wireless, to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket Nos. 05-337, 08-10, Attach. 1 at 7 (filed 
Feb. 22, 2008) (arguing that incumbent LECs receiving universal service support send a comfortable return on 
investment to investors (and rural cooperative members) with no accountability); NTCH, CC Docket No. 96-45, 
WC Docket Nos. 05-337, 08-10 at 8 (filed Feb. 22, 2008) (The object of the [universal service] subsidy is not to 
prop up high cost legacy companies and technologies or assure their profitability, nor to add to the profits of 
wireless carriers.).

Federal Communications Commission FCC 08-262 
C-138 
members annual dividends that exceed their members local phone charges.799 In light of these concerns 
and the mandates of section 254, we agree with commenters that it is not appropriate to require all 
universal service contributors to pay into the fund so that these carriers can continue to pay dividends.800 
308. Thus, rather than guaranteeing revenue neutrality, as some commenters propose,801 we 
take steps here to ensure that any new universal service subsidies are targeted carefully to situations 
where they are most crucially needed. In particular, far from the regulated monopolies of years past, 
significant marketplace developments have resulted in additional revenue opportunities for carriers. As 
NASUCA observes, [i]ntercarrier compensation, SLCs and the USF are but three of the numerous 
spigots from which dollars flow to fill up the telephone companies revenue buckets.802 By way of 
illustration, NASUCA points out that using their common local loop platform, carriers are now 
generating billions of dollars in digital subscriber line (DSL) revenues that they did not generate five or 
ten years ago.803 Indeed, Time Warner Telecom has pointed to evidence that, for some carriers, 
revenue derived from the ILECs advanced services more than doubles the revenue from switched access 
services.804 Thus, Free Press observes that the unregulated revenue streams of rate-of-return and price 
cap Local Exchange Carriers serving in high-cost areas are the 500 pound gorilla in the room, and it 
contends that these revenues should be considered in the discussions of need for the purposes of 
799 Universal Service Telephone Subsidies at 70. 
800 See, e.g., GCI Missoula Phantom Traffic Comments at 68 (Even if excessive support does not lead to 
unaffordable increases in rates for non-subsidized subscribers, requiring those customers to pay more than is 
necessary in order to excessively subsidize rates for other [services] (or worse yet, to finance high dividend 
payments to owners of rural ILECs) is not consistent with maintaining just and reasonable rates.); Time Warner 
Telecom Missoula Phantom Traffic Comments at 10 (noting that RBOCs are already realizing substantial profits 
from [network] investments, easily compensating for any loss in access payments that they may face and that a 
high [universal service] contribution level may approach the point at which the USF charges imposed upon endusers 
actually threaten the goal of universal service). 
801 See, e.g., CenturyTel Sept. 19, 2008 Ex Parte Letter, Attach. at 5 (arguing that revenue neutrality should be a 
fundamental goal of comprehensive intercarrier compensation reform); Letter from Stuart Polikoff, Director of 
Government Relations, OPASTCO, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC 
Docket Nos. 04-36, 05-337, 06-122, Attach. at 3 (filed Sept. 16, 2008) (arguing that, if the Commission does not 
adopt the Missoula Plan, it should establish a mechanism for rural RoR ILECs that allows for full recovery of the 
revenues lost as a result of the change in intrastate access rates and structure, on a revenue neutral basis.). See also 
Rural Alliance ICC FNPRM Comments at 21 (arguing that decreases in intercarrier compensation rate levels should 
be offset from the USF or another revenue replacement mechanism). 
802 NASUCA Sept. 30, 2008 Ex Parte Letter at 6. 
803 Comments of the National Association of State Utility Consumer Advocates to Refresh the Record, CC Docket 
Nos. 96-45, 02-6, 01-92, 00-256, 96-262, 99-68, 80-256, WC Docket Nos. 05-337, 07-135, 06-122, 05-195, 03-109, 
02-60 at 6 (filed July 7, 2008) (NASUCA July 7, 2008 Supp. Comments). See also id. at 10 (Adding insult to 
injury, there is no consideration in the Missoula Plan of the additional revenues that ILECs gain from serving new 
broadband lines which are outside of the current ICC system. In other words, ILECs are losing lines and MOU as 
consumers drop traditional landlines and add broadband lines to access the Internet. However, the revenue gains 
from broadband line additions are totally out of the picture as far as the Missoula Plan is concerned.). 
804 Time Warner Telecom Missoula Phantom Traffic Comments at 10 (According to AT&T, the revenue derived 
from the ILECs advanced services more than doubles the revenue from switched access services. As AT&T stated 
in its Annual Report, [w]e have found that when customers add broadband to a basic package, they are 40 percent 
less likely to switch to another provider, and average revenue per customer jumps nearly 120 percent. It would 
make little sense for the ratepayers to subsidize the ILECs already profitable business decisions.).

Federal Communications Commission FCC 08-262 
C-139 
universal service.805 We agree that such new and growing source[s] of revenues should mitigate the 
impact of intercarrier compensation reform for rural and other carriers.806 
309. We are concerned that universal service support be targeted to those companies whose 
reduced intercarrier compensation revenues truly are needed to continue providing quality service at 
affordable rates, and that it should not simply enable the company to pay bigger dividends to shareholders 
or pad a companys bottom line. We find that, because of their different regulatory treatment, price cap 
incumbent LECs and rate-of-return incumbent LECs should be treated differently. For price cap carriers, 
we adopt the proposal of various commenters to consider all a companys costs and revenuesboth 
regulated and non-regulatedbefore providing new universal service support.807 Thus, price cap 
incumbent LEC seeking universal service funding to replace lost intercarrier compensation revenues must 
make such a showing to the Commission when petitioning for such support. 
310. We also agree with proposals that carriers fully avail themselves of existing opportunities 
for end-user recovery before collecting new universal service subsidies.808 To the extent that regulators 
have determined that rates at a particular level are reasonable, we find it appropriate for carriers to charge 
those rates in the first instance, rather than pricing below those levels in order to foist recovery of the 
additional revenues on universal service contributors. Consequently, as additional preconditions for 
receiving new universal service support, a price cap carrier must show that its federal SLC, state SLC (if 
any), and state retail local service rates are at the maximum levels permitted under existing applicable 
law.809 
311. In conjunction, we conclude that the conditions we adopt as prerequisites for obtaining 
new universal service support adequately target that support to carriers with a genuine need without 
unduly burdening consumers with excessive new universal service contribution burdens.810 
805 Free Press Oct. 13, 2008 Ex Parte Letter at 6. See also id. at 67 (While wed like the Commission to consider 
a carriers entire revenue stream before allowing increased USF support to offset lost access revenues to the extent 
that there is such support it should be confined to rate-of-return carriers only.). 
806 NASUCA July 7, 2008 Supp. Comments at 6. Indeed, there is some indication that carriers may be earning 
excessive returns even with respect to their regulated services. See, e.g., GCI Missoula Phantom Traffic Comments 
at 6667 (asserting that ACS of Anchorage has regularly earned returns in excess of an 11.25% rate of return on its 
regulated interstate switched access services, including 32.12% for 199798, 30.26% for 19992000; 35.29% for 
200102; and 15.01% for 200304). 
807 See, e.g., Letter from Mary C. Albert, Assistant General Counsel, COMPTEL, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92, WC Docket Nos. 05-337, 04-36 at 1 (filed Oct. 2, 2008); NASUCA July 7, 2008 Supp. 
Comments at 3234; Letter from Anna M. Gomez, Vice President of Government Affairs, Sprint Nextel, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 12 (filed Oct. 7, 2008). 
808 See, e.g., Letter from Donna Epps, Vice PresidentFederal Regulatory, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 12 (filed Oct. 2, 2008); Letter from 
Robert W. Quinn, Jr., Senior Vice PresidentFederal Regulatory, AT&T, to Kevin Martin, Chairman, FCC, CC 
Docket Nos. 01-92, 99-68, 96-45, WC Docket Nos. 07-135, 05-337 at 57 (filed July 17, 2008); Letter from 
Anthony M. Alessi, Senior Counsel, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, 
WC Docket No. 05-337 at 35 (filed May 23, 2008); Cox ICC FNPRM Comments at 1213. 
809 Although we do not adopt a particular revenue benchmark here, as some commenters propose, the Joint Board 
may well recommend such an approach. Thus, depending upon the Joint Boards proposal, and the Commissions 
subsequent action, maximum federal SLCs and/or state retail local rates might be determined, in part, by such a 
benchmark. 
810 For these same reasons, should a carrier agree to (or tariff) intercarrier charges below those that would be 
(continued.)

Federal Communications Commission FCC 08-262 
C-140 
312. We recognize that interstate rate-of-return carriers present a special situation, because 
under our rules they must be provided an opportunity to earn the rate of return established by our 
orders.811 As a result, we find it inappropriate to impose the same conditions before interstate rate-ofreturn 
carriers can recover universal service support.812 
(ii) Legal Authority 
313. Consistent with our mandate to ensure that universal service is available at rates that are 
just, reasonable, and affordable, we establish a new supplement to IAS and ICLS universal service 
funding mechanism.813 As we did recently in two other Commission orders that reformed interstate 
switched access charges, we include here additional universal service funding to keep retail rates 
affordable while ensuring that maintaining affordable rates does not unduly threaten the financial viability 
of rate-regulated incumbent LECs.814 Our decision to establish a new funding mechanism is also 
consistent with our general authority under section 4(i) of the Act because it furthers our universal service 
objectives.815 Mindful of our obligation to ensure that these new subsidies are made available only where 
essential, however we make new universal service subsidies available subject to specific conditions that 
will target the support to only those carriers whose circumstances merit it. 
(iii) Access to Universal Service Support 
314. As discussed below, we limit access to universal service support to incumbent LECs that 
meet certain preconditions. As an initial matter, we find that limiting such support to incumbent LECs is 
consistent with their position in the marketplace and the resulting regulatory constraints on their pricing 
behavior. In a series of orders in the Competitive Carrier proceeding, the Commission distinguished two 
kinds of carriersthose with individual market power (dominant carriers) and those without market 
(continued from previous page) 
required by the reforms adopted in this order, that carrier may not seek to obtain supplemental universal service 
support based on the difference between the charges it sets and the maximum charges it is allowed to set. 
811 See, e.g., Free Press Oct. 13, 2008 Ex Parte Letter at 67 (noting that, to the extent that there is universal service 
support to address any net loss in intercarrier compensation revenues, it should be confined to rate-of-return 
carriers only.). But see, e.g., GCI Missoula Phantom Traffic Comments at 6667 (asserting that ACS of Anchorage 
has regularly earned returns in excess of an 11.25 percent rate of return on its regulated interstate switched access 
services). 
812 See, e.g., Corrected OPASTCO/WTA Oct. 29, 2008 Ex Parte Letter, Attach. at 2 (requesting, among other 
things, that the Commission ensure that [s]upplemental interstate common line support (ICLS) (i.e., the restructure 
mechanism) is automatically available for carriers that are currently under RoR regulation in the interstate 
jurisdiction without any other conditions applying). 
813 47 U.S.C.  254(i) (requiring that [t]he Commission and the States should ensure that universal service is 
available at rates that are just, reasonable, and affordable.); see also 47 U.S.C. 254(b)(1) (stating that [q]uality 
services should be available at just, reasonable, and affordable rates). 
814 See, e.g., CALLS Order, 15 FCC Rcd at 12971, para. 24; MAG Order, 16 FCC Rcd at 1966970, para. 132. 
815 Section 4(i) provides that the Commission may perform any and all acts, make such rules and regulations, and 
issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions. 47 
U.S.C.  154(i). Prior to the enactment of section 254 (as part of the 1996 Act), sections 1 and 4(i) provided 
authority for the Commissions adoption of a universal service fund. See Rural Telephone Coalition v. FCC, 838 
F.2d 1307 (D.C. Cir. 1988). See also New England Telephone and Telegraph Co. v. FCC, 826 F.2d 1101, 1107 
(D.C. Cir. 1987) (describing section 4(i) as a wide-ranging source of authority), cert. denied, 490 U.S. 1039 
(1989).

Federal Communications Commission FCC 08-262 
C-141 
power (non-dominant carriers).816 The Commission found it appropriate to continue to subject dominant 
carriers to full regulation under Title II of the Communications Act.817 Incumbent LECs are dominant 
carriers in their provision of switched access services and, as a result, are subject to rate regulation.818 
This rate regulation comes in two formsregulation of intercarrier charges and regulation of end user 
charges. The Commission regulates interstate end-user charges of incumbent LECs, while the states 
generally regulate those carriers intrastate end-user rates. Unlike incumbent LECs, competitive carriers 
(e.g., such as competitive LECs, CMRS providers, and non-dominant IXCs) lack market power and are 
considered non-dominant. As a result, their end-user charges are not subject to comparable rate 
regulation by the Commission and the states.819 
315. Because incumbent LECs, as a result of their classification as dominant carriers, have had 
their end-user charges regulated (both in terms of rate levels and rate structures), they have less flexibility 
than other carriers to recover decreased intercarrier revenues through end-user charges. As a result, they 
are less likely to be able to recover reductions in intercarrier compensation revenues resulting from the 
actions we take today. Accordingly, we conclude that access to universal service support should be 
limited to incumbent LECs that meet the necessary preconditions. For this reason, we disagree with 
parties that advocate making funding available to all carriers, both incumbent and competitive820 or to all 
816 Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations 
Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); First Report 
and Order, 85 FCC 2d 1 (1980) (Competitive Carrier First Report and Order); Further Notice of Proposed 
Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed Rulemaking, FCC 82-187, 47 Fed. Reg. 
17308 (1982); Second Report and Order, 91 FCC 2d 59 (1982) (Competitive Carrier Second Report and Order); 
Order on Reconsideration, 93 FCC 2d 54 (1983); Third Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 
(1983); Third Report and Order, 48 Fed. Reg. 46791 (1983); Fourth Report and Order, 95 FCC 2d 554 (1983) 
(Competitive Carrier Fourth Report and Order), vacated, AT&T v. FCC, 978 F.2d 727 (D.C. Cir. 1992), Fifth 
Report and Order, 98 FCC 2d 1191 (1984) (Competitive Carrier Fifth Report and Order); Sixth Report and Order, 
99 FCC 2d 1020 (1985), vacated, MCI Telecomms. Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985) (Competitive 
Carrier Sixth Report and Order), aff'd, MCI v. AT&T, 512 U.S. 218 (1994) (collectively, the Competitive Carrier 
proceeding); see 47 C.F.R.  61.3(q), (y). 
817 Competitive Carrier First Report and Order, 85 FCC 2d at 1011, para. 26. 
818 See Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related Requirements; 2000 Biennial Regulatory 
Review Separate Affiliate Requirements of Section 64.1903 of the Commissions Rules, WC Docket No. 02-112; CC 
Docket No. 00-175, Report and Order and Memorandum Opinion and Order, 22 FCC Rcd 16440, 16484, para. 90 
(2007). 
819 For instance, the Commission has declined to regulate the SLCs of competitive LECs. See Cost Review 
Proceeding for Residential and Single-Line Business Subscriber Line Charge (SLC) Caps; Price Cap Performance 
Review for Local Exchange Carriers, CC Docket Nos. 96-262, 94-1, Order, 17 FCC Rcd 10868, 10870 n.8 (2002) 
(subsequent history omitted); see also CLEC Access Charge Order, 16 FCC Rcd at 9955, para. 81 (stating that 
competitive LECs competing with CALLS incumbent LECs are free to build into their end-user rates a component 
equivalent to the incumbent LECs SLC). 
820 See, e.g., T-Mobile Oct. 3, 2008 Ex Parte Letter at 9 & n.14 (arguing that any ICC replacement mechanism be 
fully portable to competitive carriers in order to fulfill the principles of competitive and technological neutrality.). 
Sprint argues that a fund that compensates only incumbent LECs (and not competitive LECs, wireless carriers, and 
IXCs) for lost access revenues is blatantly anti-competitive. Letter from Anna M. Gomez, Vice President of 
Government Affairs, Sprint Nextel Corp., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45; 
WC Docket No. 04-36 at 4 (filed Oct. 1, 2008). Many CMRS carriers maintain that any replacement mechanism 
must be fully portable to competitive carriers in order to fulfill the principles of competitive and technological 
neutrality. See, e.g., Leap ICC FNPRM Reply at 18; Allied National ICC FNPRM Comments at 10; CTIA ICC 
FNPRM Comments at 37; SouthernLINC ICC FNPRM Reply at 9; RCA ICC FNPRM Comments at 4; US Cellular 
(continued.)

Federal Communications Commission FCC 08-262 
C-142 
carriers that currently receive access charge revenues.821 As discussed above, competitive carrier enduser 
charges are not subject to rate regulation, and those carriers have the opportunity to recover lost 
access revenue through any legally permissible means.822 We also reject an approach that would limit 
funding to rural rate-of-return carriers.823 Incumbent LECs subject to price cap regulation also are subject 
to regulatory constraints on end-user charges, and we therefore decline to categorically deny universal 
service funding to particular types of incumbent LECs.824 
316. Supplemental IAS for price cap carriers. Consistent with the policy approach discussed 
above, we further find it necessary to establish certain requirements that an incumbent LEC must satisfy 
to receive the new universal service subsidies. Before seeking universal service funding, interstate price 
cap incumbent LECs must first demonstrate that their end-user charges are at the maximum allowable rate 
levels. Thus, price cap incumbent LECs must show that they are charging the maximum interstate SLCs 
permitted under applicable law, and they must make the same showing with respect to any intrastate 
SLCs. In addition, price cap incumbent LECs must demonstrate that their retail local rates are at the 
maximum allowable amount based on applicable state regulation. Price cap incumbent LECs operating in 
(continued from previous page) 
ICC FNPRM Comments at 4; T-Mobile ICC FNPRM Comments at 26; Dobson and American ICC FNPRM 
Comments at 10. 
821 See, e.g., ICF ICC FNPRM Comments at 3233 (stating that any funding should be temporary and limited to 
those that lose access revenue because of intercarrier compensation reform); USTA ICC FNPRM Comments at 40 
(arguing that funding should not compensate wireless carriers and that it should not be portable); CCAP ICC 
FNPRM Reply at 14 (stating that funding should not be portable to competitive eligible telecommunications 
carriers.); Letter from Susanne A. Guyer, Senior Vice President of Federal Regulatory Affairs, Verizon, to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, Attach. at 7 (filed Oct. 12, 2008) (asserting that funding 
should compensate only LECs that have lost revenues because of intercarrier compensation reform); Letter from 
Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, Docket Nos. 01-92, 04-36, 96-45, 05-337, 
Attach. at 9 (filed Oct. 3, 2008) (arguing that the Commission should limit duplicative networks by prohibiting 
wireless carriers and other carriers that do not receive access compensation from benefiting from the fund); Letter 
from Alex J. Harris, Vice PresidentRegulatory, Frontier, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92, Attach. at 16, 18 (filed May 11, 2005) (proposing that the funding be confined to incumbent LECs in rural 
study areas but available to all carriers that lost access revenues in non-rural study areas); see also Letter from Brad 
E. Mutschelknaus, Counsel to XO Communications, Kelley Drye & Warren LLP, to Marlene H. Dortch, Secretary, 
FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 06-122, Attach. at 4 (filed Oct. 3, 2008) (contending that 
revenue replacement funding should either be competitively neutral or limited to only rate-of-return carriers). 
822 Some competitive LECs claim that, in practice, they have little opportunity to recover their costs because the 
incumbent LEC, whose prices are regulated, effectively sets a ceiling on the prices they charge. See, e.g., 
COMPTEL Missoula Phantom Traffic Comments at 7. Although we acknowledge that, in a homogeneous goods 
market with a single price, such an argument might be plausible, we do not find such assumptions apply in modern 
telecommunications markets. In particular, with modern telecommunications technology, carriers are offering an 
expanding number of new services and marketing them through a variety of bundled service offerings. As a result, 
telecommunications services are becoming much more of a differentiated product, and competitors have greater 
opportunity to offer niche services. In light of these developments, we find unpersuasive arguments that competitors 
are effectively price regulated and thus do not have an opportunity to recover lost access revenues. 
823 See, e.g., NCTA ICC FNPRM Comments at 11 (arguing that funding should be limited to non-Tier 1 rural 
carrier[s]); NTCA ICC FNPRM Comments at 56 (asserting that funding should be targeted at rural ILECs 
exclusively); Comments of the Rural Alliance, CC Docket No. 01-92 at 4 (filed Jun. 27, 2008) (stating that the fund 
should only compensate rural rate-of-return carriers that lose access revenues). 
824 For these same reasons, should a carrier agree to (or tariff) intercarrier charges below those that would be 
required by the reforms adopted in this order, that carrier may not seek to obtain supplemental universal service 
support based on the difference between the charges it sets and the maximum charges it is allowed to set.

Federal Communications Commission FCC 08-262 
C-143 
states where retail rates are deregulated are not entitled to the new universal service funding adopted here. 
In this case, these price cap incumbent LECs will be similarly situated to competitive carriers, because 
without regulation, they have the opportunity to recover lost access revenues due to intercarrier 
compensation reform through increased end-user charges. 
317. In addition, a price cap incumbent LEC may qualify for universal service funding if it can 
demonstrate that, as a result of reduced and reformed intercarrier charges, and after accounting for 
increased end-user charges, it is still unable to earn a normal profit. In the Local Competition First 
Report and Order, the Commission discussed the concept of normal profit and defined it as the total 
revenue required to cover all the costs of a firm, including its opportunity costs.825 
318. As described above, many companiesin particular, price cap carriersconsistently are 
paying dividends and are using the same supported network to provide both regulated services and nonregulated 
services.826 We do not find it appropriate to require all universal service contributors to pay 
into the fund to provide for high overhead, sumptuous earnings, [and] rich dividends on the part of 
these carriers.827 Indeed, as discussed above,828 [i]ntercarrier compensation, SLCs and the USF are but 
three of the numerous spigots from which dollars flow to fill up the telephone companies revenue 
buckets829 in addition to other nonregulated services that use their common local loop platform.830 . 
Therefore, in determining whether this criterion is met, the Commission will evaluate the total costs and 
total revenues of the company as a whole, including those from both regulated and non-regulated 
sources.831 While this is a more stringent showing than that required of rate-of-return carriers, we find 
such differences warranted by the different rate regulation frameworks. In light of our reforms, we find it 
appropriate, upon request, to allow price cap carriers to make a one-way election of rate-of-return 
regulation.832 
825 Local Competition First Report and Order, 11 FCC Rcd at 15854, para. 699. 
826 See supra para. 312. 
827 Universal Service Telephone Subsidies at 33. 
828 As discussed below, Lifeline customers are exempt from contribution assessments. See infra para. 137. 
829 NASUCA Sept. 30, 2008 Ex Parte Letter at 6. 
830 NASUCA July 7, 2008 Ex Parte Letter at 6. 
831 The non-regulated costs and revenues to be included in this calculation are those associated with non-regulated 
activities involving the common or joint use of assets or resources in the provision of both regulated and nonregulated 
products and services. 
832 Pursuant to section 61.41(d) of the Commissions rules, once a carrier is subject to price cap regulation, it may 
not withdraw from such regulation. 47 C.F.R.  61.41(d); see also 47 C.F.R.  61.41(b), (c) (requiring conversion 
from rate-of-return to price cap regulation under certain circumstances). Under section 1.3 of the Commissions 
rules, however, any provision of the Commissions rules may be waived by the Commission . . . if good cause 
therefore is shown. 47 C.F.R.  1.3. As interpreted by the courts, this requires that a petitioner demonstrate that 
special circumstances warrant a deviation from the general rule and that such a deviation will serve the public 
interest. Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164 (D.C. Cir. 1990) (citing WAIT Radio v. FCC, 
418 F.2d 1153, 1158 (D.C. Cir. 1969)). In other circumstances in the past, the Commission has found good cause to 
waiver section 61.41(d) and other related provisions of the Commissions rules to enable operations subject to price 
cap regulation to convert to rate-of-return regulation. See, e.g., ALLTEL Corp. Petition for Waiver of Section 61.41 
of the Commission's Rules and Application for Transfer of Control, CCB/CPD No. 99-1, Memorandum Opinion and 
Order, 14 FCC Rcd. 14191 (1999); CenturyTel of Northwest Arkansas, LLC et al., Joint Petition for Waiver of 
Definition of Study Area Contained in the Part 36 Appendix-Glossary of the Commission's Rules, Petition for 
Waiver of Sections 61.41(c) and 69.3(g)(2) of the Commissions Rules, CC Docket No. 96-45, Memorandum 
(continued.)

Federal Communications Commission FCC 08-262 
C-144 
319. We recognize that the conditions by which we would make universal service funding 
available may not ensure that all carriers recover all reduced intercarrier compensation revenues that 
result from the reforms we adopt here. We reject the assertion by some carriers that any revenue 
replacement mechanism adopted by the Commission in the context of intercarrier compensation reform 
must ensure absolute revenue neutrality.833 We agree with commenters who maintain that the 
Commission has no legal obligation to ensure that carriers recover every dollar in access revenues lost as 
a result of reform, absent a showing of a taking.834 We conclude that certain increased end-user charges 
and narrowly targeted supplemental IAS universal service support will provide a reasonable opportunity 
to recover revenues lost as a result of our intercarrier compensation reform, and to earn a reasonable 
profit. Whether a particular price cap incumbent LEC is entitled to any revenue recovery, however, will 
be considered on a case-by-case basis based on the criteria outlined here. 
320. Supplemental ICLS for rate-of-return carriers. As discussed above, we recognize that 
interstate rate-of-return carriers present a special situation, because under our rules they must be provided 
an opportunity to earn their regulated rate of return. In this regard, we adopt the proposal of 
OPASTCO/WTA, which we find strikes the proper balance regarding supplemental ICLS support. Thus, 
the only precondition to an incumbent LEC receiving supplemental ICLS support is that the incumbent 
LEC is under rate-of-return regulation in the interstate jurisdiction.835 
321. In addition, we adopt the OPASTCO/WTA proposal that supplemental ICLS consist of 
two components. The first component compensates rural rate-of-return incumbent LECs for all of the 
revenues lost as a result of the mandated reductions in intercarrier compensation rates that are not 
otherwise recoverable through increases in SLCs.836 The second component is available only to those 
rural rate-of-return incumbent LECs that have committed to the five-year broadband build-out 
requirement.837 This component is intended to ensure that those rural rate-of-return incumbent LECs 
continue to have an opportunity to earn their authorized interstate rate of return, subject to a cap. This 
component will provide compensation for unrecoverable revenue losses attributable to losses in access 
lines and interstate and intrastate minutes of use, using 2008 as a base year. The second component 
remains in effect for the first five years of the transition and is capped at $100 million in year one, $200 
million in year two, $300 million in year three, $400 million in year four, and $500 million in year five. 
Prior to year five, the Commission shall conduct a proceeding to determine if modifications are required. 
(continued from previous page) 
Opinion and Order, 15 FCC Rcd 25437 (Acc. Pol. Div. 2000); ALLTEL Service Corporation, Petition for Waiver of 
Section 61.41 of the Commission's Rules, Order, 8 FCC Rcd 7054 (Com. Car. Bur. 1993) (granting waiver of 
sections 61.41(c), (d) of the Commissions rules). Likewise, as noted above, we find it appropriate, upon request, to 
allow price cap carriers to make a one-way election of rate-of-return regulation. 
833 See supra para. 313. 
834 See, e.g., Ad Hoc ICC FNPRM Reply at 1011 (arguing that the Commission has no legal obligation to allow 
revenue neutrality); CTIA ICC FNPRM Comments at 46; Nextel ICC FNPRM Comments at 20; T-Mobile ICC 
FNPRM Comments at 13 (intercarrier compensation was not intended to guarantee an ILEC revenue stream or 
preserve low local rates for a given industry segment, doing so would perpetuate inefficiencies); NASUCA ICC 
FNPRM Reply at 3438 (arguing that the Commission is not required to provide for revenue neutrality and that 
revenue neutrality deviates from the Commissions past policy). 
835 Corrected OPASTCO/WTA Oct. 29, 2008 Ex Parte Letter, Attach. at 2. 
836 Corrected OPASTCO/WTA Oct. 29, 2008 Ex Parte Letter, Attach. at 2. This support will remain available at 
least through the ten year transition period adopted in this order. 
837 See supra Part II.B.3 (describing broadband build-out requirement). See also Corrected OPASTCO/WTA Oct. 
29, 2008 Ex Parte Letter, Attach. at 2. 

Federal Communications Commission FCC 08-262 
C-145 
Overall, we find that this approach to supplemental ICLS properly addresses the needs of rural rate-ofreturn 
carriers, and their right to an opportunity to recover their authorized rate of return. 
D. Measures to Ensure Proper Billing 
1. Introduction 
322. As explained in Part V.A., the current disparity of rates under existing intercarrier 
compensation mechanisms presents service providers838 with the opportunity and the incentive to 
misidentify or otherwise conceal the source of traffic to avoid or reduce payments to other service 
providers. In this Part, we amend our rules to help ensure the ability of service providers to receive the 
appropriate compensation for traffic terminated on their networks.839 More importantly, we believe that 
the comprehensive compensation reforms we adopt today should significantly reduce service providers 
incentives to mislabel traffic or otherwise to try to avoid their financial obligations.840 Nonetheless, we 
balance a desire to facilitate resolution of billing disputes with a reluctance to regulate in areas where 
industry resolution has, in many cases, proven effective. We find that the requirements we adopt here 
will facilitate the transfer of information to terminating service providers, and improve their ability to 
identify providers from whom they receive traffic, without imposing burdensome costs. In the event that 
traffic does not contain the information required by our rules, or the provider delivering the traffic does 
not otherwise provide the required call information, for example by providing an industry-standard billing 
record, to the provider receiving it, we allow the terminating service provider to charge its highest 
terminating rate to the service provider delivering the traffic. To the extent that a provider acting simply 
as an intermediate provider (such as a transit provider) becomes subject to a charge under this provision, 
that intermediate provider can charge the rate it was charged to the provider that delivered the improperly 
labeled traffic to it. This will ensure that providers are paid for terminating traffic in those instances, and 
gives financial incentives for upstream providers in the call path to ensure that the traffic includes proper 
information in the first instance. 
2. Background 
323. Problems related to traffic arriving for termination with insufficient identification 
information arise from the technical systems and processes used to create, transfer, and gather intercarrier 
compensation billing information. To bill for termination of traffic, a terminating service provider must 
be able to identify the appropriate upstream service provider, and the location of the caller (or a proxy for 
the callers location) in order to determine jurisdiction, which is necessary to determine the appropriate 
charge under existing intercarrier compensation rules.841 Calls frequently traverse several networks to 
838 We use the term service providers in this section to refer both to carriers that provide telecommunications 
services and to providers of services that originate calls on IP networks and terminate them on circuit switched 
networks. 
839 Parties frequently use the term phantom traffic in describing this problem. We will not use that term in the 
regulations we adopt here because there is no consensus as to how it should be defined, nor is such a definition 
necessary for us to address the underlying issues faced by service providers in billing for traffic they receive. 
840 Similarly, we believe that the transition to a uniform intercarrier compensation rate based on the additional costs 
methodology described above also will address the access stimulation concerns that have recently been raised. See 
supra para. 185. In the unlikely event that service providers persist in these activities, however, we note that the 
Commission has an open proceeding in which appropriate responses to such actions may be considered. See 
generally Access Stimulation NPRM, 22 FCC Rcd 17989. 
841 This order initiates a process of unifying terminating intercarrier compensation rates, thereby eliminating the rate 
distinctions between local and long distance calls. Although knowing the origination point of a call remains 
(continued.)

Federal Communications Commission FCC 08-262 
C-146 
connect the calling and called parties. When the originating and terminating networks are not directly 
connected, as is the case when calls are delivered via tandem transit service, complications with 
transmitting and receiving billing information related to a call can arise.842 Terminating service providers 
that are not directly connected to originating service providers receive information about calls sent to their 
networks for termination from two sources: Signaling System 7 (SS7) signaling streams843 and industry 
standard billing records,844 which typically are provided by the intermediate service provider connecting 
the terminating provider to the originating provider.845 
(continued from previous page) 
important, especially during the period of transition to a unified terminating rate, the origination point is less 
significant for the purpose of determining intercarrier compensation due. 
842 See, e.g., Letter from Patrick J. Donovan, Counsel for PacWest Telecomm, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 34 (filed Oct. 14, 2005). 
843 SS7 is an out-of-band signaling system that is separate from, but runs parallel to, the public switched telephone 
network (PSTN) and is used to set up call paths between calling and called parties. The following steps typically 
occur when SS7 sets up a call path for a wireline LEC to wireline LEC call originating and terminating on the 
PSTN. When a wireline LEC customer dials a call destined for an end user served by a different wireline LEC, the 
calling partys LEC determines, based on the dialed digits, that it cannot terminate the call. The SS7 call signaling 
system then begins the process of identifying a path that the call will take to reach the called partys network. SS7 
identifies each service provider in the call path and provides each with the called partys telephone number and other 
information related to the call, including message type and nature of connection indicators, forward call indicators, 
calling partys category, and user service information if that information was correctly populated and not altered 
during the signaling process. See Letter from L. Charles Keller, Counsel for Verizon Wireless, to Marlene H. 
Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Sept. 13, 2005) (Verizon Wireless Sept. 13, 2005 Ex Parte 
Letter). SS7 was designed to facilitate call routing and was not designed to provide billing information to 
terminating carriers. See Verizon, Verizons Proposed Regulatory Action to Address Phantom Traffic at 57 
(Verizon Phantom Traffic White Paper), attached to Letter from Donna Epps, Vice President, Federal Regulatory 
Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Dec. 20, 2005). Technical 
content and format of SS7 signaling is governed by industry standards rather than by Commission rules, although 
Commission rules require carriers using SS7 to transmit calling party number (CPN) to subsequent carriers on 
interstate calls where it is technically feasibly to do so. 47 C.F.R.  64.1601. 
844 Industry standard billing records are the other common source of information that terminating service providers 
not directly connected to originating service providers receive about calls sent to their networks for termination. 
Billing records are typically created by a tandem switch that receives a call for delivery to a terminating network via 
tandem transit service. Tandem switches create billing records by combining CPN or Charge Number (CN) 
information from the SS7 signaling stream with information identifying the originating service provider to provide 
terminating service providers with information necessary for billing. See Verizon Phantom Traffic White Paper at 
57. The tandem switch creating the billing record identifies service providers from whom it receives traffic using 
the trunk group number (TGN) of the trunk on which a call arrives. See Verizon Phantom Traffic White Paper at 4; 
see also Letter from Glenn T. Reynolds, Vice PresidentFederal Regulatory, BellSouth, to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 01-92, Attach. at 5 (filed Jan. 12, 2006) (BellSouth Jan. 12, 2006 Ex Parte Letter). 
The tandem switch translates the TGN into one of two codes identifying the originating the service provider: Carrier 
Identification Code (CIC) if the originating service provider is an IXC, or Operating Company Number (OCN) for 
non-IXC calls. The appropriate CIC or OCN is then added, by the tandem switch, if it is equipped to record such 
information, to the billing record for the call, which is then forwarded to the terminating service provider. See 
Verizon Phantom Traffic White Paper at 57; see also Verizon ICC FNPRM Reply at 16. Service providers 
delivering billing records typically use the Exchange Message Interface (EMI) format created and maintained by the 
Alliance for Telecommunications Industry Solutions Ordering and Billing Forum (ATIS/OBF), an industry 
standards setting group. See ATIS Exchange Message Interface 22 Revision 2, ATIS Document number 0406000- 
02200 (July 2005). 
845 See Verizon Phantom Traffic White Paper at 57.

Federal Communications Commission FCC 08-262 
C-147 
324. One significant source of billing problems is traffic routed through an intermediate 
provider that does not include calling party number (CPN) or other information identifying the calling 
party.846 In addition, commenters describe several examples of other situations where traffic arrives for 
termination with insufficient information to identify the originating service provider.847 Another source 
of disputes occurs when terminating service providers find differences when attempting to reconcile SS7 
data they record and billing records they receive.848 Such a reconciliation process will likely be inexact, 
because SS7 streams were not designed to provide billing information.849 Similarly, at least one 
commenter asserts that problems arise when terminating service providers second guess tandem traffic 
reports and generate their own billing statements for carriers with whom they are indirectly 
interconnected.850 In addition to unidentifiable traffic caused by unintended network routing 
circumstances, as described above, several commenters allege that they receive traffic in which the billing 
information intentionally has been altered or stripped before the call reaches the terminating service 
provider.851 Indeed, numerous parties have described experiencing problems of the sort described 
above.852 Several proposals suggesting how the Commission should address this problem have been filed 
in the record in this proceeding in recent years.853 Recently, the United States Telecom Association 
846 The Commission recognized that the ability of service providers to identify the provider to bill appropriate 
intercarrier compensation payments depends, in part, on billing records generated by intermediate service providers. 
Thus, the Commission sought comment on whether current rules and industry standardscreate billing records that 
are sufficiently detailed to permit determinations of the appropriate compensation due. See Intercarrier 
Compensation FNPRM, 20 FCC Rcd at 4743, para. 133. 
847 For example, when a call bound for a number that has been ported to a different service provider is delivered 
without the responsible service provider performing a local number portability (LNP) query, the call may be 
delivered to the wrong end office and then may be re-routed to a tandem switch for delivery to the correct end 
office. See Verizon Phantom Traffic White Paper at 1819. According to Verizon, neither the end office that reroutes 
the call nor the tandem switch receiving the rerouted call are able to route the call over an access trunk; the 
call must be sent over a local interconnection trunk. See id. In this scenario, the terminating carrier may have 
difficulty billing the appropriate charges to the IXC that sent the call. 
848 See Letter from Stephen T. Perkins, General Counsel, Cavalier Telephone, LLC, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 1 (filed Sept. 29, 2005). See also Letter from Donna Epps, Vice President, 
Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 10 (filed 
Oct. 21, 2005). 
849 See Letter from Donna Epps, Vice PresidentFederal Regulatory Advocacy, Verizon, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92, Attach. at 5 (filed Aug. 1, 2005); Verizon Wireless Sept. 13, 2005 Ex Parte 
Letter at 2. 
850 Verizon Wireless Sept. 13, 2005 Ex Parte Letter at 3. 
851 See, e.g., Balhoff and Rowe ICC FNPRM Reply at 10; California Small LECs ICC FNPRM Comments at 9; ITCI 
ICC FNPRM Reply at 7; Montana Independent Telecommunications Systems (MITS) et al. ICC FNPRM Comments 
at 14, 20; MITS et al. ICC FNPRM Reply at 2324, 33; NECA ICC FNPRM Comments at 16; Rural Alliance ICC 
FNPRM Comments at 108; SureWest ICC FNPRM Comments at 7; TDS ICC FNPRM Comments at 10; BellSouth 
Jan. 11, 2006 Ex Parte Letter at 6. 
852 See, e.g., Letter from Glenn T. Reynolds, Vice President, Policy, USTA, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 (filed Feb. 12, 2008) (USTA Feb. 12, 2008 Proposal). See Developing a Unified Intercarrier 
Compensation Regime, CC Docket No. 01-92, NECA Petition for Interim Order (filed Jan. 22, 2008) (NECA 
Petition). 
853 See, e.g., NARUC Task Force July 24, 2006 Ex Parte Letter, Attach. 2; Letter from Supporters of the Missoula 
Plan to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 6, 2006) (Missoula Plan Supporters 
Nov. 6 Ex Parte Letter or Missoula Plan Call Signaling Proposal); Letter from Donna Epps, Vice President, Federal 
(continued.)

Federal Communications Commission FCC 08-262 
C-148 
(USTelecom) filed a proposal that appears to enjoy the broadest industry support of any filed to date.854 
For reasons detailed below, we agree that traffic that lacks sufficient information to enable proper billing 
of intercarrier compensation charges is a problem. Consequently, we take steps to address the problem 
and help ensure proper functioning of the intercarrier compensation system.855 
3. Discussion 
325. We amend our rules as described below to facilitate the transfer of necessary information 
to terminating service providers, particularly in cases where traffic is delivered through indirect 
interconnection arrangements. These new requirements will assist in determining the appropriate service 
provider to bill for any call. We note that these new requirements generally reflect standard industry 
practice, as recommended by several commenters.856 We also amend our rules to establish payment 
obligations for service providers that send traffic that lacks the information required by our amended call 
signaling rules to intermediate or terminating service providers or that does not otherwise provide the 
required call information to the recipient. Incorporating these practices into our rules will facilitate 
resolution of billing disputes, will provide incentives to help prevent manipulation or deletion of 
information from signaling streams, and will provide incentives for service providers to ensure that traffic 
traversing their networks is properly labeled and identifiable, in compliance with the rules we adopt in 
this order.857 
(continued from previous page) 
Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Apr. 4, 2006); 
Letter from Jeffrey S. Lanning, Associate General Counsel, USTA, to Marlene H. Dortch, Secretary, FCC, CC 
Docket No. 01-92 (filed Mar. 30, 2006) (MCC/USTA Proposal); Letter from Karen Brinkmann, Attorney for the 
MidSize Carrier Coalition, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 31, 2006) 
(supporting MCC/USTA Proposal). 
854 See USTA Feb. 12, 2008 Proposal; see also Letter from Melissa E. Newman, Vice PresidentFederal 
Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept. 24, 2008); Letter from 
Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2, filed Sept. 19, 
2008); Letter from Eric Einhorn, Vice president, Federal Government Affairs, Windstream, to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 et al. (filed Sept. 24, 2008); Comments of Windstream, CC Docket Nos. 99- 
68, 01-92, 96-45, WC Docket Nos. 08-152, 07-135, 04-36, 06-122, 05-337 at 16 (filed Aug. 21, 2008); Letter from 
Gregory J. Vogt, Counsel for CenturyTel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Aug. 
6, 2008); Letter from Henry Hultquist, Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 (filed July 17, 2008). 
855 The rules we adopt herein reflect the Commissions determinations regarding how to address call signaling 
problems as they relate to unidentified and unbillable traffic. Therefore, we disagree with commenters requesting 
that we adopt alternative proposals such as the NECA petition or the Missoula Plan Call Signaling Proposal. See, 
e.g., Letter from Robert F. Aldrich, Counsel to the American Public Communications Council, to Marlene H. 
Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92 (filed Oct. 21, 2008). 
856 See, e.g., Letter from Paul Garnett, Director, Regulatory Policy, CTIA, to Marlene H. Dortch, Secretary, FCC, 
CC Docket No. 01-92 at 3 (filed Jan. 3, 2006); Letter from Donna Epps, Vice President, Federal Regulatory 
Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006). 
857 The rules we amend in this order were adopted in a 1995 order addressing Caller ID services. See Rules and 
Policies Regarding Calling Number Identification Service  Caller ID, CC Docket No. 91-281, Memorandum 
Opinion and Order on Reconsideration, Second Report and Order and Third Further Notice of Proposed 
Rulemaking, 10 FCC Rcd 11700, 11728, para. 79 (1995) (Caller ID Order). In the Caller ID Order, the 
Commission found, inter alia, that the CPN based services to which the rules adopted apply are jurisdictionally 
mixed and the Commission therefore preempted an inconsistent state statute. Id. at 1172223, paras. 62, 85. For 
these same reasons, to the extent the amendments we make to our call signaling rules in this order conflict with any 
current or future state statutes, those statutes are preempted. See id. at 1172834, paras. 7895.

Federal Communications Commission FCC 08-262 
C-149 
a. Signaling Information 
326. We agree with the USTelecom Feb. 12, 2008 Proposal concerning the importance of call 
signaling obligations.858 CPN is a critical component of call signaling information. When CPN is 
populated in the SS7 stream by an originating service provider and passed, unaltered, along a call path to 
a terminating service provider, the terminating provider can use the CPN information to help determine 
the applicable intercarrier compensation. 
327. We agree with commenters859 that assert that the best way to ensure that complete and 
accurate information about a call gets to the terminating service provider for that call is to require 
providers to populate, and to prohibit them from stripping or altering, CPN information in the SS7 call 
signaling stream.860 In an environment where numerous service providers may be involved in the 
completion of a call, this SS7 signaling information must be passed, unaltered, from one to the next in a 
call path until it reaches the terminating service provider. We therefore modify our rules to prohibit 
stripping or altering information in the SS7 call signaling stream. We do not, however, make any changes 
to the designation of particular fields as mandatory or optional, nor do we otherwise intend to change 
industry standards that govern the population of the SS7 signaling stream.861 
328. The record also makes clear that we must expand the scope of our existing rule regarding 
passing CPN,862 which currently applies only to service providers using SS7 and only to interstate traffic. 
We therefore extend these requirements to all traffic originating or terminating on the PSTN, including 
jurisdictionally intrastate traffic.863 We also amend our rules to require service providers using MF 
signaling to pass CPN information, or the charge number (CN) if it differs from the CPN, in the Multi 
Frequency Automatic Number Identification (MF ANI) field.864 This rule change will ensure that 
858 See USTA Feb. 12, 2008 Proposal. 
859 See, e.g., USTA Feb. 12, 2008 Proposal; NECA Petition. 
860 Because we agree that requiring population of CPN is the best way to ensure that complete and accurate 
information about a call gets to the terminating service provider for that call, we disagree with proposals to exclude 
certain types of traffic from this requirement. See, e.g., Letter from Jim Kohlenberger, Executive Director, The 
VON Coalition, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket 04-36 at 6 (filed Oct. 28, 
2008). We note that parties are free to contract with third parties to ensure that these requirements are met. Cf., e.g., 
LNP Order, 22 FCC Rcd 19531 (holding that, where interconnected VoIP providers rely on other carriers for access 
to numbers, both parties must take the steps needed to comply with the number porting obligations established in 
that order); Interconnected VoIP 911 Order, 20 FCC Rcd 10245 (finding that interconnected VoIP providers might 
elect to comply with their 911 obligations in party by relying on services provided by third parties). 
861 We take a cautious approach in considering any new or revised signaling requirements. SS7 was designed to 
facilitate call setup and routing, and action we take here is not intended to interfere with the ability of calls to reach 
their intended recipient. As Verizon Wireless explains, certain SS7 fields are considered mandatory, while others 
(including CPN, CN, and JIP) are considered optional. See Verizon Wireless Sept. 13, 2005 Ex Parte Letter at 2. 
The distinction is significant, because a call will not be completed if a mandatory field has not been populated. See 
Letter from Thomas Goode, Associate General Counsel, ATIS, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 01-92, Attach. (filed Feb. 10, 2006). Although CPN is considered optional in the industry standard, our rules, 
before and after amendment pursuant to this order, require service providers to pass CPN in specified circumstances. 
See 47 C.F.R  64.1601. 
862 See 47 C.F.R.  64.1601. 
863 See supra note 862. 
864 See Missoula Plan at 56; Letter from Brad E. Mutschelknaus, Counsel for XO, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 at 1112 (filed Feb. 14, 2006).

Federal Communications Commission FCC 08-262 
C-150 
information identifying the calling party is included in call signaling information for all calls. 
329. In addition, we agree with commenters who suggest that our call signaling rules should 
address CN as well as CPN.865 Verizon states that, in accordance with industry practice, the CN 
parameter is not populated in the SS7 stream when it is the same as CPN, but that when the CN parameter 
is populated, CN is included in billing records in place of CPN.866 We therefore clarify that populating a 
CN field with information other than the charge number to be billed for the call, consistent with industry 
standards, falls within this prohibition. This clarification is not intended to disrupt standard industry 
practice with regard to using CN in the signaling stream and in billing records. But, we also clarify that 
the prohibition on altering or stripping signaling information applies to CN as well as CPN. The 
prohibition on altering or stripping SS7, MF ANI, or CN signaling information obligates intermediate 
service providers to pass, unaltered, whatever signaling information they receive. 
330. The call signaling rules we adopt in this order will help ensure that signaling information 
is passed completely and accurately to terminating service providers. These rules are not intended to 
affect existing agreements between service providers regarding how to jurisdictionalize traffic when 
traditional call identifying parameters are missing, as long as such agreements are not inconsistent with 
the rules adopted in this order. 
331. We find that some very limited exceptions to these new rules are needed. We agree with 
Verizon, for example, that a limited exception is needed in situations where industry standards permit, or 
even require, some alteration in signaling information by an intermediate service provider.867 As noted 
above, we do not intend to change standard industry practice with respect to the content of the signaling 
stream. Service providers that follow standard industry practice in this way will not be considered in 
violation of the prohibition on altering signaling information. We also note that the exemptions from our 
existing call signaling requirements described in section 64.1601(d) remain necessary for their limited 
purposes, and will continue to apply.868 
b. Financial Responsibilities 
332. We also impose financial responsibilities that will work in step with our amended 
signaling rules to give service providers financial incentives to ensure that they, and the providers whose 
traffic they carry, comply with the signaling obligations. We find that these requirements will 
significantly reduce any existing incentives to avoid compliance by substantially eliminating any financial 
benefits of noncompliance. 
333. We agree with commenters who propose that we permit service providers that terminate 
traffic lacking sufficient information to bill the service provider that delivered the traffic to the 
terminating provider.869 In particular, we require that a service provider, e.g., transit provider, delivering 
865 See, e.g., NECA Petition; Letter from Cheryl A. Tritt, Counsel for T-Mobile USA, Inc. to Marlene H. Dortch, 
Secretary, FCC, CC Docket No. 01-92 at 6 (filed Feb. 2, 2006); Verizon Phantom Traffic White Paper at 810. 
866 See Verizon Phantom Traffic White Paper at 8. 
867 See Verizon Phantom Traffic White Paper at 910. For example, Verizon states that on a call to a party that has 
forwarded its number, the called partys service provider will replace the callers CN with the called partys CN 
before sending the call to the forward location. 
868 47 C.F.R.  64.1601(d). 
869 See, e.g., EPG Proposal at 2 (All messages that are not properly labeled would be billed at the highest prevailing 
intercarrier compensation rate to the interconnecting carrier delivering the traffic.); ARIC Plan at 55; CenturyTel 
ICC FNRPM Comments at 6; Hickory ICC FNPRM Comments at 2 ; JSI ICC FNPRM Comments at 46; Colorado 
Telecom Assn et al. ICC FNPRM Reply at 13, TDS Telecom ICC FNPRM Reply 14, JSI Missoula Phantom Traffic 
(continued.)

Federal Communications Commission FCC 08-262 
C-151 
traffic that lacks any of the signaling information required by our rules as amended herein, or that does 
not otherwise provide the required call information, for example by providing an industry standard billing 
record, to the recipient, must pay the terminating service providers highest termination rate in effect at 
the time the traffic is delivered to the terminating service provider.870 By making intermediate service 
providers financially responsible in these circumstances, we ensure that service providers are 
compensated for terminating traffic. 
334. We also permit those intermediate service providers, in turn, to pass along the 
termination charges to the provider that delivered the applicable traffic to them, in addition to any 
otherwise-applicable charge for their services. We agree with commenters that the providers delivering 
traffic are in a better position than the terminating service provider to know which carriers are routing 
improperly or incompletely identified traffic871 and to recover the termination charges from them. 
Moreover, by permitting intermediate service providers to pass along those charges on top of their 
otherwise-applicable rates, we create disincentives for service providers who might otherwise originate, 
or act as a pass through for mislabeled or unidentifiable traffic. 
335. We are unpersuaded by the objections to imposing such financial obligations on 
intermediate service providers.872 For example, one objection is based on the assumption that transit 
providers will be the only intermediate service providers subject to such liability, and will be unable to 
pass along those charges.873 The financial responsibility under this order for traffic that lacks sufficient 
billing information is not limited to transit service providers, however. Rather, any service provider that 
passes traffic lacking sufficient billing information becomes responsible for intercarrier payments to the 
receiving provider. Additionally, we expressly permit service providers subject to this charge to pass it 
along to the service provider that delivered the applicable traffic to them. 
336. Another commenter objects to any proposal that gives . . . [ILECs] the authority to 
impose new rates based on their own interpretation of the sufficiency of data received or interpretation of 
jurisdictional parameters.874 Under our amended rules, service providers will not be able to impose rates 
(continued from previous page) 
Comments at 46; RICA Missoula Phantom Traffic Comments at 23; TexalTel Missoula Phantom Traffic 
Comments at 78; Cavalier Missoula Phantom Traffic Comments at 23; PAPUC Missoula Phantom Traffic Reply 
at 8. 
870 We agree with commenters who note that intermediate service providers that provide, to subsequent service 
providers in a call path, information sufficient to identify the provider that delivered the traffic to the intermediate 
provider should not be responsible for terminating intercarrier payments for that traffic. See, e.g., Letter from 
Susanne A. Guyer, Senior Vice President  Federal Regulatory Affairs, Verizon, to Chairman Kevin Martin et al., 
FCC, CC Docket Nos. 96-45, 01-92 at 2 (filed Oct. 28, 2008); Letter from Mark D. Schneider, Counsel, Neutral 
Tandem, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008); Letter from Tamar 
E. Finn, Counsel, Zayo Group, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 2 
(filed Oct. 28, 2008). 
871 ARIC Plan at 55. 
872 See, e.g., Letter from Donna Epps, Vice President, Federal Regulatory, Verizon, to Marlene H. Dortch, Secretary, 
FCC, CC Docket No. 01-92 (filed July 7, 2007); Letter from Charles W. McKee, DirectorGovernment Affairs, 
Federal Regulatory, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Apr. 20, 
2007) (Sprint Nextel April 20, 2007 Ex Parte Letter); Letter from Charon Phillips, DirectorGovernment Affairs, 
Federal Regulatory, Verizon Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Mar. 
13, 2007). 
873 See, e.g., Verizon Missoula Phantom Traffic Reply at 56. 
874 See Sprint Nextel April 20, 2007 Ex Parte Letter at 2. 

Federal Communications Commission FCC 08-262 
C-152 
based on their own interpretation of the sufficiency of data received. Instead, our amended rules set the 
standard for what information must be included and passed. 
337. We also disagree with commenters who suggest that imposing liability on intermediate 
service providers implies that the problem is the result of transiting service providers altering call detail 
information.875 The financial obligations we impose on intermediate service providers are triggered by 
passing traffic that does not comply with the call signaling rules, regardless of whether the traffic was 
originated or altered by the passing service provider. Accordingly, any service provider, not just a 
provider who stripped or altered traffic signaling, who is not taking steps to ensure that traffic carried on 
their network is properly labeled and identifiable could be held responsible for payment by the provider to 
whom it delivered traffic. 
338. In addition to call signaling, the USTelecom Feb. 12, 2008 proposal seeks Commission 
action related to routing traffic, local number portability queries, and providing incumbent LECs with 
certain rights with regard to the section 251 and 252 negotiation and arbitration processes.876 Although a 
broad cross section of the industry supports the USTelecom Feb. 12, 2008 proposal in its entirety, several 
commenters objected to the section 251 and 252 negotiation and arbitration provisions.877 In light of the 
lack of consensus on some of these issues and the changes to the intercarrier compensation system 
adopted in this order we are not persuaded that the other specific actions sought in the USTelecom Feb 
12, 2008 proposal are necessary at this time.878 
VI. FURTHER NOTICE OF PROPOSED RULEMAKING 
A. Universal Service 
339. In the above order, we adopted a five year plan for phasing out current competitive ETC 
support. Here we seek comment on an appropriate universal service mechanism (or mechanisms) focused 
on the deployment and maintenance of advanced mobile wireless services in high-cost and rural areas. 
340. With respect to contribution methodology, as we explain above, an assessment 
methodology based solely on telephone numbers would not require certain business services to equitably 
contribute to the universal service fund.879 We, therefore, determine that universal service contributions 
for business services will be based on connections as opposed to numbers. We seek comment on how 
best to implement a connection-based mechanism for business services, and whether that mechanism 
875 See Missoula Plan Supporters Missoula Phantom Traffic Reply at 1112. 
876 See USTA Feb. 12, 2008 Proposal. 
877 See, e.g., Letter from Brad Mutschelknaus, Counsel to Broadview Networks et al. to Kevin J. Martin et al., FCC, 
CC Docket No. 01-92 (filed Oct. 22, 2008); Letter from Henry T. Kelly, Counsel to Peerless Networks to Marlene 
H. Dortch, Secretary, FCC, CC Docket Nos. 01-92 et al. (filed Sept. 16, 2008); Letter from Charles W. McKee, 
DirectorGovernment Affairs, Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed 
Apr. 16, 2008); Letter from Thomas Cohen, Edward A. Yorkgitis, Jr., Counsel for NuVox Communications et al., to 
Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Mar. 11, 2008); Letter from Daniel L. Brenner, 
Senior Vice President, Law and Regulatory Policy, NCTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 
01-92 at 2 (filed Feb. 29, 2008); Letter from Paul Garnett, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket 
No. 01-92 at 2 (filed Feb. 25, 2008). 
878 The USTA Feb 12, 2008 Proposal also sought certain enforcement commitments related to our call signaling 
rules. In this regard, USTAs proposal did not seek anything beyond the ordinary course of business. As with any 
of our rules, the Commission is committed to resolving complaints expeditiously and will not hesitate to initiate 
enforcement proceedings against rule violators. 
879 See supra para. 130.

Federal Communications Commission FCC 08-262 
C-153 
should be based solely on connections or on a combination of Assessable Numbers and connections. 
341. We also seek comment on expanding our NRUF data collection to all providers who are 
required to contribute to the universal service fund based on Assessable Numbers. At present, our NRUF 
reporting rules require reporting carriers to file reports. A reporting carrier is defined as a 
telecommunications carrier that receives numbering resources from the NANPA, a Pooling Administrator 
or another telecommunications carrier.880 Reporting carriers file reports regarding six categories of 
numbers, the descriptions of some of which refer to telecommunications carriers or 
telecommunications services.881 We seek comment on whether we should amend our rules to require 
all providers who assign numbers or otherwise make numbers available to end users to file NRUF reports. 
Would such an expansion assist the Commission and the fund administrator with monitoring and 
enforcing universal service contribution requirements? What modifications would the Commission need 
to make to its rules to effectuate this kind of policy change? 
B. Intercarrier Compensation Further Notice 
342. In this Further Notice of Proposed Rulemaking (Further Notice) we seek comment on 
certain additional issues not resolved in our accompanying order. 
343. Originating Access. In this order, we conclude that retention of originating access 
charges would be inconsistent with our new regulatory approach to intercarrier compensation.882 
Accordingly, we find that originating charges for all telecommunications traffic subject to our 
comprehensive intercarrier compensation framework must be eliminated by the conclusion of the 
transition to the new regime. We seek comment on issues relating to the transition for the elimination of 
originating access. 
344. Transit Traffic. Transiting occurs when two carriers that are not directly interconnected 
exchange traffic by routing the traffic through an intermediary carriers network.883 We request comment 
on whether the reforms we adopt today necessitate the adoption of any rules or guidelines governing 
transit service. 
345. Universal Service Rules Applicable to Rate-of-Return Carriers. In this order, we 
conclude that under certain circumstances, rate-of-return carriers will be able to receive universal service 
support to recover net reduced revenues from intercarrier compensation as a result of reforms adopted in 
this order that they do not otherwise recover through SLC increases or other revenue increases. We seek 
comment on what rule changes are necessary to allow rate-of-return carriers to receive universal service 
support in this manner. 
346. Parts 51, 54, 61, and 69. Part 51 of the Commissions rules contain requirements 
applicable to interconnection, including reciprocal compensation.884 Part 54 of the Commissions rules 
880 47 C.F.R.  52.12(f)(2). 
881 E.g., 47 C.F.R.  52.12(e)(i) (Administrative numbers are numbers used by telecommunications carriers . . . .); 
id.  52.12(e)(v) (Intermediate numbers are numbers that are made available . . . for the purpose of providing 
telecommunications service . . . .). 
882 See supra para. 229. 
883 Intercarrier Compensation FNPRM, 20 FCC Rcd at 473738, para. 120. Typically, the intermediary carrier is an 
incumbent LEC and the transited traffic is routed from the originating carrier through the incumbent LECs tandem 
switch to the terminating carrier. The intermediary (transiting) carrier then charges a fee for use of its facilities. See 
id. We note that carriers have various agreements governing the provision of transit traffic. See id. 
884 See 47 C.F.R. Part 51.

Federal Communications Commission FCC 08-262 
C-154 
describe universal service programs and administration.885 Part 61 of the Commissions rules prescribes 
the framework for the initial establishment of and subsequent revisions to tariff publications.886 Part 69 of 
the rules governs the Commissions access charge regulations for interstate or foreign access services.887 
We solicit comment on the need to revise the rules set forth in Parts 51, 54, 61 and/or 69, or any other 
rules, as a result of the reforms we adopt today. 
VII. PROCEDURAL MATTERS 
A. Ex Parte Presentations 
347. The rulemaking this Further Notice initiates shall be treated as a permit-but-disclose 
proceeding in accordance with the Commissions ex parte rules.888 Persons making oral ex parte 
presentations are reminded that memoranda summarizing the presentations must contain summaries of the 
substance of the presentations and not merely a listing of the subjects discussed. More than a one or two 
sentence description of the views and arguments presented generally is required.889 Other requirements 
pertaining to oral and written presentations are set forth in section 1.1206(b) of the Commissions rules.890 
B. Comment Filing Procedures 
348. Pursuant to sections 1.415 and 1.419 of the Commissions rules,891 interested parties may 
file comments and reply comments regarding the Further Notice on or before the dates indicated on the 
first page of this document. All filings related to the intercarrier compensation Further Notice of 
Proposed Rulemaking should refer to CC Docket No. 01-92. All filings related to the universal 
service contributions Further Notice of Proposed Rulemaking should refer to WC Docket No. 06- 
122. Comments may be filed using: (1) the Commissions Electronic Comment Filing System (ECFS), 
(2) the Federal Governments e-Rulemaking Portal, or (3) by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (1998). 
349. Electronic Filers: Comments may be filed electronically using the Internet by accessing 
the ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal e-Rulemaking Portal: http://www.regulations.gov. 
Filers should follow the instructions provided on the website for submitting comments. 
350. ECFS filers must transmit one electronic copy of the comments for CC Docket Nos. 
01-92, 99-200, or WC Docket No. 06-122, respectively. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, and the applicable docket number. 
Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should 
send an e-mail to ecfs@fcc.gov, and include the following words in the body of the message, get form. 
A sample form and directions will be sent in response. 
351. Paper Filers: Parties who choose to file by paper must file an original and four copies of 
each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by 
first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving 
885 See 47 C.F.R. Part 54. 
886 See 47 C.F.R. Part 61. 
887 See 47 C.F.R. Part 69. 
888 47 C.F.R.  1.200 et seq. 
889 See 47 C.F.R.  1.1206(b)(2). 
890 47 C.F.R.  1.1206(b). 
891 47 C.F.R.  1.415, 1.419.

Federal Communications Commission FCC 08-262 
C-155 
U.S. Postal Service mail). All filings must be addressed to the Commissions Secretary, Marlene H. 
Dortch, Office of the Secretary, Federal Communications Commission, 445 12th Street, S.W., 
Washington, D.C. 20554. 
352. The Commissions contractor will receive hand-delivered or messenger-delivered paper 
filings for the Commissions Secretary at 236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 
20002. The filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held 
together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. 
353. Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority 
Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. 
354. U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th 
Street, S.W., Washington D.C. 20554. 
355. Parties should send a copy of their filings in CC Docket No. 01-92 to Victoria Goldberg, 
Pricing Policy Division, Wireline Competition Bureau, Federal Communications Commission, Room 5- 
A266, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. Parties shall 
also serve one copy with the Commissions copy contractor, Best Copy and Printing, Inc. (BCPI), Portals 
II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or via e-mail to 
fcc@bcpiweb.com. 
356. Parties should send a copy of their filings in WC Docket No. 06-122 to Jennifer McKee, 
Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications 
Commission, Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to 
cpdcopies@fcc.gov. Parties shall also serve one copy with the Commissions copy contractor, Best Copy 
and Printing, Inc. (BCPI), Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, 
(202) 488-5300, or via e-mail to fcc@bcpiweb.com. 
357. Parties should send a copy of their filings in WC Docket No. 99-200 to Marilyn Jones, 
Competition Policy Division, Wireline Competition Bureau, Federal Communications Commission, 
Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. 
Parties shall also serve one copy with the Commissions copy contractor, Best Copy and Printing, Inc. 
(BCPI), Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or 
via e-mail to fcc@bcpiweb.com. 
358. Documents in CC Docket Nos. 01-92, 99-200, and WC Docket No. 06-122 will be 
available for public inspection and copying during business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street S.W., Room CY-A257, Washington, D.C. 20554. The documents may 
also be purchased from BCPI, telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-5562, 
e-mail fcc@bcpiweb.com. 
C. Initial Regulatory Flexibility Analysis 
359. As required by the Regulatory Flexibility Act of 1980,892 the Commission has prepared 
an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small 
entities of the policies and rules addressed in this document. The IRFA is set forth in Appendix [[__]]. 
Written public comments are requested on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines for comments on the Notice provided on or before the dates 
indicated on the first page of this Notice. 
892 See 5 U.S.C.  603.

Federal Communications Commission FCC 08-262 
C-156 
D. Final Regulatory Flexibility Analysis 
360. Pursuant to the Regulatory Flexibility Act (RFA),893 the Commission has prepared a Final 
Regulatory Flexibility Analysis (FRFA) for the Report and Order concerning the possible significant 
economic impact on small entities by the policies and actions considered in the Report and Order. The 
text of the FRFA is included in Appendix [[_]]. 
E. Paperwork Reduction Act 
361. This document contains proposed new or modified information collection requirements. 
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public 
and the Office of Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107- 
198,894 we seek specific comment on how we might further reduce the information collection burden for 
small business concerns with fewer than 25 employees. 
F. Accessible Formats 
362. To request materials in accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental 
Affairs Bureau at 202-418-0530 (voice) or 202-418-0432 (TTY). Contact the FCC to request reasonable 
accommodations for filing comments (accessible format documents, sign language interpreters, CART, 
etc.) by e-mail: FCC504@fcc.gov; phone: 202-418-0530 or TTY: 202-418-0432. 
G. Congressional Review Act 
363. The Commission will include a copy of this Order on Remand and Report and Order and 
Further Notice of Proposed Rulemaking in a report to be sent to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act. See 5 U.S.C.  801(a)(1)(A). 
VIII. ORDERING CLAUSES 
364. Accordingly, IT IS ORDERED that, pursuant to Sections 14, 201209, 214, 218-220, 
224, 251, 252, 254, 303(r), 332, 403, 502, and 503 of the Communications Act of 1934, as amended, and 
Sections 601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.  151154, 157 nt, 201209, 
214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503, and sections 1.1, 1.4111.429, and 1.1200 
1.1216 of the Commissions rules, 47 C.F.R.  1.1, 1.4111.429, 1.12001.1216, the ORDER ON 
REMAND AND REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING 
ARE ADOPTED. 
365. IT IS FURTHER ORDERED that Parts [[__]] of the Commissions rules, 47 C.F.R.  
[[__]] are AMENDED as set forth in Appendix A hereto. 
366. IT IS FURTHER ORDERED, in light of the opinion of the United States Court of 
Appeals for the District of Columbia Circuit in WorldCom v. FCC, 288 F.3d 429 (D.C. Cir. 2002), we 
consider our obligations met from the writ of mandamus issued in In re Core Communications, Inc. on 
Petition for Writ of Mandamus to the Federal Communications Commission, D.C. Cir. No. 07-1446 
(decided July 8, 2008). 
893 See 5 U.S.C.  603. The RFA, see 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 (Small Business Act). 
894 See 44 U.S.C.  3506(c)(4).

Federal Communications Commission FCC 08-262 
C-157 
367. IT IS FURTHER ORDERED that this REPORT AND ORDER, ORDER ON REMAND, 
AND FURTHER NOTICE OF PROPOSED RULEMAKING shall become effective 30 days after 
publication of the text of a summary thereof in the Federal Register, pursuant to 47 C.F.R.  1.4, 1.13, 
except for the information collections, which require approval by OMB under the PRA and which shall 
become effective after the Commission publishes a notice in the Federal Register announcing such 
approval and the relevant effective date(s). 
368. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this REPORT AND ORDER AND 
ORDER ON REMAND, including the Final Regulatory Flexibility Analyses and Final Regulatory 
Flexibility Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. 
369. IT IS FURTHER ORDERED that the Commissions Consumer & Governmental Affairs 
Bureau, Reference Information Center, SHALL SEND a copy of this FURTHER NOTICE OF 
PROPOSED RULEMAKING, including the Initial Regulatory Flexibility Analyses and Initial Regulatory 
Flexibility Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. 
FEDERAL COMMUNICATIONS COMMISSION 
Marlene H. Dortch 
Secretary

Federal Communications Commission FCC 08-262 
APPENDIX D

Ms. Marlene H. Dortch, Secretary 
Federal Communications Commission 
445 Twelfth Street, SW 
Washington, DC 20554 
October 24, 2008 
Re: Notice of Written Ex Parte Presentation (WC Docket 05-337; CC Docket 96-45; WC 
Docket 06-122; CC Docket 01-92) 
Dear Ms. Dortch, 
Free Press submits this written ex parte filing to update the record on particular issues in the 
Commissions open dockets on Developing a Unified Intercarrier Compensation Regime (CC 
Docket No. 01-92), and related Universal Service Fund (USF) dockets (WC Docket No. 05-337 and 
CC Docket No. 96-45). 
In this ex parte we provide our analysis and recommendations on the draft ICC-USF reform 
proposal (Draft Proposal) currently scheduled for a full Commission vote on November 4th. We 
first outline the Draft Proposal (as we understand it), then offer recommendations on how to modify 
and implement this plan in a manner that is fair, efficient, reasonable, and consumer friendly. 
Ultimately, with our recommendations incorporated, we feel that the Commission can and should 
adopt both a Report and Order and a Further Notice of Proposed Rulemaking at the November 4th 
open meeting. We recommend that the Report and Order establish a solid framework for 
transitioning the ICC system to cost-based rates and establish a solid framework for incorporating 
broadband into the USF. The Further Notice should then deal with most of the implementation 
details of these frameworks (and do so in a three to six month comment cycle with three to six 
additional months to move to a final Order). While there is general consensus in the record that 
ICC rates should be lowered and that USF must be modernized, the implementation details that 
achieve these outcomes are what causes much of the dispute. A Report and Order with a solid 
transition framework and a Further Notice with firm tentative conclusions will move this debate 
beyond the current impasse while still addressing many of the concerns of the commenters who 
would rather the Commission delay this entire matter. 
Bifurcation of Commission action on November 4th into these two items recognizes that even if 
every element of the policy were to be contained in a single Order, the administrative mechanisms 
needed to implement the Order and transition the regulatory regimes would take time and further 
input to devise and settle. An Order will delimit the start and end points of reform, establishes the 
first steps, and chart a clear path forwardwhile an FNPRM opens an opportunity for further 
deliberation on the means. 
Our primary interest in these proceedings is to ensure consumers are treated fairly and not unduly 
burdened. We want to make certain that consumers, not just particular private companies, benefit 
from these reforms. With the appropriate changes made to the Draft Proposal, the Commission can 
usher in long-overdue reforms that are equitable, minimize consumer burden, increase efficiency, 
and bring affordable high-quality broadband to every region of the nation.

The Commissions Draft ICC-USF Reform Proposal 
The draft ICC-USF reform proposal on circulation at the Commission is designed to achieve two 
important policy objectives: reforming the system of intercarrier compensation (albeit only on the 
terminating side) and modernizing the Universal Service Fund. Our understanding of the elements 
of the Draft Proposal is based on our conversations with the Chairmans office on October 17, 2008, 
and on various media reports and analyst statements.1 Trying to glean the details of such a 
comprehensive proposal in this fashion is far from ideal. However, we recognize that most of the 
ideas on the table are present in the record in some form. Based on what we do know, the proposal 
needs further modifications in order to adequately achieve the policy objectives in a manner that is 
consistent with the public interest principles of the Communications Act. 
ICC Reform Elements of the Commissions Draft Proposal 
The Commission proposes a 10-year phase down of all terminating access rates to a unified 
reciprocal compensation rate within each state, set by state regulators. In the first two years of the 
10-year path, intrastate rates are lowered to interstate levels. In the fifth year, the states will have 
set a rate that is close to reciprocal compensation levels (RC). By the end of the 10-year process, all 
rates within each state must be uniform, at a level of forward-looking reciprocal compensation. 
This lowering of terminating access charges will result in a reduction in revenues for those 
companies who are current net recipients of access fees -- local exchange carriers (though we 
should note here that access minutes will likely continue to decline as the rates are phased down, an 
aspect we comment on in detail below). In order to offset this decline in revenue, the 
Commission proposes to raise the Federal Subscriber Line Charge (SLC) for primary residential and 
single-line businesses by $1.50, to a total of $8.00 per month. The multi-line business SLC will 
increase to $11.50 per month. These increases will come as the Federal-State Joint Board is tasked 
with the determining an appropriate national rate benchmark, and deciding whether further SLC 
increases will be allowed. 
Since there is a widely-held belief that above-cost access charges are an implicit subsidy for 
universal service, the Commissions Draft Proposal also offers a recovery mechanism for certain 
carriers operating in high-cost areas. Rate-of-Return (RoR) carriers operating in these areas will be 
able to access increased universal service support from the interstate common line support program 
(ICLS). The Commission estimates that this will amount to $500 million in total additional funds 
over the entire first 5-year period, and will be approximately $200 million to $300 million in each 
year following. We do not know if this additional funding is capped, or remains uncapped like the 
current ICLS funds. We also do not know the details on how the amount of support for each carrier 
is calculated (i.e. whether or not it is based on forward-looking costs, or embedded costs as 
 
1 See Ex Parte communication of Free Press, WC Docket 05-337; CC Docket 96-45; WC Docket 06 122; CC Docket 
01-92, October 20, 2008; see also e.g., Joelle Tessler, FCC chair eyes fallow TV airwaves for broadband, Associated 
Press, October 15, 2008. Therefore, we alone are responsible for the characterization of the Commissions Draft 
Proposal in this ex parte, and make no claims as to the accuracy of our characterization, since we have never actually 
seen the circulated draft. 
2

currently calculated for ICLS). Under the Draft Proposal, price-cap (PC) regulated carriers will not 
be able to obtain any access recovery funds (ARF) unless they petition the Commission and show 
their costs. It is unclear to us whether this cost-showing process will rely solely on the regulated 
cost-structure of a carriers business, or if it considers all revenue and costs (e.g. broadband, IPTV, 
directory services, etc...) 
We understand the Draft Proposal will deal with the issue of phantom traffic by requiring that all 
providers identify their traffic, or face the possibility of being charged the highest possible access 
rate. 
We also understand that voice-over-Internet-protocol (VoIP) traffic will be classified as an 
information service. This change in policy has substantial implications for the ability of VoIP 
providers to obtain reasonable interconnection arrangements with other carriers. This move would 
likely increase the level of uncertainty in the access charge regime precisely at a time when the 
Commission is seeking to provide certainty. By declaring VoIP an information service, the 
structure of Section 251 and the entire industrial interconnection regime is called into question. 
This is a very dangerous move, as there is no parallel regime under Title I to ensure competitive 
access. This element of the reform package must be reviewed in a Further Notice to prevent 
substantial unintended consequences. 
USF Reform Elements of the Commissions Draft Proposal 
The Commissions Draft Proposal aims to reform the Federal Universal Service Fund (USF) by 
making fundamental changes to the contribution methodology, and requiring the offering of 
broadband service as a condition for USF support. 
First, the Commission proposes to move the contributions system away from reliance on interstate 
telecommunications revenues to a numbers-based assessment. As we understand it, there will be a 
flat $1 per month fee assessed on all assigned telephone numbers, exempting pre-paid wireless 
numbers and Lifeline program numbers, but no exemption for additional family-plan numbers. 
According to NRUF, this amounts to nearly 617 million numbers.2 At a $1 per month per number, 
this equates to about $7.4 billion per year, or approximately $100 million short of the 2008 
projected total size of the Fund. Because of this and likely future shortfalls, the Commissions 
Draft Proposal will place some revenue-based assessment on businesses. The Commission believes 
that under this methodology the consumers USF burden will decrease from approximately 48 
percent of the fund to 42 percent of the fund. 
On the distributions side, the Commissions Draft Proposal will freeze High Cost Fund support at 
the current level for each study area. The Commission will eliminate the Identical Support Rule 
(see below). The Commissions proposal will require that all USF-supported providers offer 
broadband to 100 percent of customers in their service areas within 5-years, with broadband defined 
 
2 Numbering Resource Utilization in the United States, NRUF data as of December 31, 2007, Industry Analysis and 
Technology Division, Wireline Competition Bureau, Federal Communications Commission, August 2008. 
3

as a service capable of providing a 768 kilobit per second (kbps) or higher connection in onedirection. 
Carriers are obligated to cover at least 20 percent of their unserved territory in the first 
year, and an additional 20 percent in each of years 2-5 (leading to 100 percent at the end of year 
five). 
If a carrier is unable to meet these obligations at the current level of study-area level support, then 
the study area is put up for a reverse auction, with the reserve price being the current level of 
support. Bidders who participate in the reverse auction will be first ranked by the speed of their 
proposed broadband service, then by the level of their bid (i.e. broadband speed is given priority 
over the bid price). If a winning bidder is a new entrant, they will not be under the same buildout 
timeline as the incumbent. We are uncertain as to the length in time between reverse auctions, or if 
there will be future auctions at all for a given study area. 
If no entity bids to offer support, then the study area is declared unserved. We understand that in 
this situation, the current carrier of last resort (COLR) for an un-bid study area will maintain their 
current level of High Cost support and will not be under any broadband obligations for that study 
area. 
The Commissions Draft Proposal also creates a $300 per year Broadband Low-Income pilot 
project. We are uncertain as to how this program will be administered, but we believe it is intended 
to lower the cost of residential broadband for qualifying participants to the same price as lifelinesupported 
telephony service. 
Finally, we understand that while the Commissions Draft Proposal eliminates the current Identical 
Support Rule, it does not envision a one-supported-provider per study area approach. The proposal 
caps the level of wireless CETC support at $1.25 billion per year (the estimated current level), but 
requires all CETCs to file cost studies to determine if they qualify for support. Support will only be 
provided if a CETCs costs exceeds a national benchmark (we believe in the Draft Proposal this is 
established as the average cost per line benchmark of approximately 135 percent).3 We are 
uncertain as to the details of the process for a CETC to file cost information. 
If in a given study are no wireless CETC agrees to make a cost-showing, then that study area 
undergoes a mobility reverse auction with the reserve price set at the lowest total amount of support 
given to a CETC in a particular study area.4 CETCs would still have the same broadband 
obligations as incumbents. 
Ultimately, it is assumed that the total amount of money going to wireless CETCs will be reduced 
substantially, and these funds redirected to meet the increased obligations on ICLS due to the 
changes in ICC. 
 
3 We are actually unsure if this was the benchmark (i.e. the Ninth Order benchmark) or if it was the 138 percent 
national urban rate benchmark established in the 2003 Order on Remand, or some other benchmark entirely. 
4 We are uncertain about this particular aspect, since under the Identical Support Rule, per-line support is identical 
across CETCs in a given study area. However, it could be that since each ETC serves a different amount of customers, 
the reserve price to serve the entire area would be set at the least total amount of support among current CETCs (i.e. the 
amount going to the CETC with the fewest amount of customers), with the winner required to offer service to any 
requesting customer within the study area. 
4

Free Press Assessment of and Recommendations to Improve 
The Commissions Draft ICC-USF Reform Proposal 
Below we offer our opinions on the Commissions Draft Proposal and recommendations for 
improving the plan in a manner that is consistent with the public interest principles of the 
Communications Act. We must stress that the recommendations we offer here are bound by the 
framework of the current Draft Proposal. That is, were we starting from scratch and working in a 
world free of path-dependency, we would likely offer a substantially different-looking package of 
reform policies. However, it is clear that idealism is not a luxury we can afford at this point. We 
are choosing to participate constructively in this process in an effort to minimize the burden that this 
reform package will place on consumers, and to ensure that these policy changes result in 
substantial long-term benefits for all consumers. 
Improving the ICC Reform Elements of 
The Commissions Draft Proposal: Terminating Access Rates 
At its core, the ICC reform elements of the Commissions Draft Proposal results in a very-low 
terminating access rate that is uniform among all carriers within a given state. We fully support the 
notion that the price of terminating a call should not differ based solely on the arbitrary regulatory 
classification of the carriers involved in the transaction, nor should it differ based on the calls 
geographic origin. 
However, this does not mean that we should throw the cost-based principles of the Act out the 
window. If a proper forward-looking cost study demonstrates a real difference in call termination 
cost between certain exchanges, then a unified rate across all calls fails to adhere to the cost-based 
principles of Section 252 and is economically inefficient. However, it may be the case that the 
transaction costs associated with a varying (but cost-based) rate structure exceed the efficiency 
gains from having cost-based rates. It is plausible that a unified rate structure reduces transaction 
costs and discourages arbitrage opportunities at a level that outweighs the efficiency losses and 
equity concerns of a unified rate. This is a central question that must be addressed. 
Thus, we recommend that the Commission establish a framework that drives terminating access 
rates lower, but relies on the states to decide the issue of where the final rates should land. Thus, 
working within the structure of the current Draft Proposal, state regulators would establish a process 
where rates would decline in years 1 and 2 to the current interstate level; in years 3, 4 and 5 they 
would decline further to a carrier-specific, cost-based reciprocal compensation rate. The states 
would then decide whether or not to move to a unified forward-looking reciprocal compensation 
rate across all carries over the following 5-year period. We envision that in the November 4th 
Report and Order, the Commission puts a firm rule on the years 1 and 2 process, and seeks input on 
the implementation for years 3-10. 
This approach to shaping the path to lower rates should address many of the concerns of the non- 
RBOC carriers, who dont dispute the need for a lower rate, but are opposed to a uniform $0.0007 
rate. 
5

Improving the ICC Reform Elements of 
The Commissions Draft Proposal: Subscriber Line Charge Increases 
A central feature of the Commissions Draft Proposal is a $1.50 increase in the Subscriber Line 
Charge (SLC), to a maximum of $8.00 per primary residential line, and to $11.50 for business lines. 
The Commission has the statutory authority to impose Subscriber Line Charges to recover the 
portion of loop costs placed in the interstate jurisdiction. Thus, in the Draft Proposal, we have 
increases in the SLC designed to offset reductions in all terminating access charges -- both interand 
intrastate.5 
SLCs are appropriate if they do not result in an over-recovery of costs. However, we are concerned 
that the current SLCs charged by carriers already result in an over-recovery of costs on a substantial 
portion of lines, and any further increases -- while offsetting access charge reductions -- could result 
in an even greater level of over-recovery. When the Commission adopted the current $6.50 SLC 
cap in the CALLS Order6 it ruled that a further cost review proceeding would have to be undertaken 
in order to determine if SLCs should rise above $5.00. Specifically, the Commission stated that in 
this cost review proceeding it would examine, forward-looking cost information associated with 
the provision of retail voice grade access to the public switched telephone network.7 When the 
review proceeding was concluded, it became apparent that very little verifiable actual forwardooking 
cost information had been submitted to the Commission.8 In the June 2002 Order, the 
Commission ruled that the $6.50 cap was reasonable, despite the conclusion that approximately 82 
percent of residential and single-line business price-cap lines had forward-looking costs below 
$6.50.9 
Therefore, we would prefer that the Commission revisit this issue in a comprehensive manner prior 
to implementing any SLC increases. However, we recognize the high likelihood of the Commission 
acting as it did in the CALLS Order, where it ordered an immediate SLC increase. If the 
 
5 Because of this, the Commission must be explicit as to why this particular SLC increase is allowed under current law. 
See 47 U.S.C.  4(i), 201-205; see also National Association of Regulatory Utility Commissioners v. Federal 
Communications Commission, 737 F.2d 1095, 1114 (D.C. Cir. 1984) (NARUC v. FCC). 
6 Access Charge Reform, Sixth Report and Order in CC Docket Nos. 96-262 and 94-1, Report and Order in CC 
Docket No. 99-249, Eleventh Report and Order in CC Docket No. 96-45, 15 FCC Rcd 12962 (2000) (CALLS 
Order), affd in part, revd in part, and remanded in part, Texas Office of Public Util. Counsel v. FCC, 265 F.3d 
313 (5th Cir. 2001), cert. denied, Natl Assn of State Util. Consumer Advocates v. FCC, 70 U.S.L.W. 3444 (U.S. 
Apr. 15, 2002). 
7 Ibid.  83 
8 In his dissenting statement, Commissioner Michael J. Copps stated, [a] significant number of carriers, however, 
submitted summary data without disclosing the inputs used, cost models that were not transparent, or in some cases, 
models that have been rejected by the state commissions... The Commission then failed to conduct its own independent 
analysis of the cost data. By failing to undertake the thorough analysis of cost data that was promised in the access 
reform order, we are neglecting our obligation to consumers. 
9 See footnote 82, In the Matter of Cost Review Proceeding for Residential and Single-Line Business Subscriber Line 
Charge (SLC) Caps; Access Charge Reform; Price Cap Performance Review for Local Exchange Carriers, CC Docket 
Nos. 96-262, 94-1, Order, FCC 02-161, rel. June 5, 2002. 
6

Commission is determined to act in this fashion, we have several recommendations that will 
mitigate consumer harm. 
First, given that the Draft Proposal calls for a phase in of access rate reductions, there should be a 
commensurate phase in of SLC increases. There is absolutely no reason why LECs should be 
permitted on day one to charge a full $1.50 in additional SLCs when they have not experienced any 
declines in access revenues. If the Commission is adamant that a $1.50 SLC increase is appropriate 
while the Federal-State Joint Board (FSJB) considers the issue of a national rate benchmark, then 
the Commission needs to provide some justification of how this $1.50 increase relates to reduced 
access charges, and phase in the SLC increase commensurate with the access charge decreases. 
For example, in a recent ex parte, AT&T provides some estimates of the potential access shifts 
resulting from a move to a recip comp proxy to be $2.3 billion per year.10 They also estimate that 
there are 81 million primary residential lines. Thus, under this scenario a SLC increase of $1.50 
results in an offset of $1.46 billion annually from primary residential lines alone (we can also 
assume a substantial additional offset revenues from the increase in the multi-line business SLC 
from $9.20 to $11.50 -- perhaps as much as $1.1 billion annually).11 But the full force of the $2.3 
billion in annual access revenue reductions resulting from a decline to a recip comp proxy wont 
even be felt for many years -- potentially 10 years. 
Why then should SLCs increase now? Plainly, they shouldnt. If they do, it should be very little 
while the access charges are phased down. Thus for example, if the phase down of access charges 
in year one results in a $500 million annual access shift, then the SLC increase for primary 
residential and single-line businesses should be no more than 25 cents.12 
Therefore we request that in addition to delegating to the FSJB the issue of determining a national 
rate benchmark and final SLC cap, that the Commission, in the forthcoming Report and Order and 
Further Notice, begin a cost-review proceeding to determine the proper level for SLCs, based on 
forward-looking cost models that are detailed and transparent (and available for public review under 
cover of confidentiality). 
We also strongly recommend that the Commission determine the net access shift that will result 
from a reduction in access rates to interstate levels by the end of year two of the ICC transition plan. 
We then recommend the Commission calculate the appropriate temporary SLC increase (for these 
 
10 Ex Parte communication of AT&T, Re: Developing a Unified Intercarrier Compensation Regime, CC Docket No. 
01-92; High-Cost Universal Service Support, WC Docket No. 05-337; Universal Service Contribution Mechanism, WC 
Docket No. 06-122; Intercarrier Compensation for ISP-Bound Traffic, WC Docket 99-68; Establishing Just and 
Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135, October 20, 2008. 
11 The Commission estimates there were about 40 million multi-line business lines that companies reported as qualified 
to receive Subscriber Line Charges in 2006, and another 9.7 non-primary residential lines. See Table 1.3 in Trends in 
Telephone Service, Industry Analysis Division, August 2008. 
12 Here we assume 86 million SLC-qualified primary residential and single line business lines, 9 million non-primary 
residential lines, and 40 million multi-line business access lines. Based on the current ratios of the residential-to-multiline 
SLCs ($6.50/$9.20 = 0.7), the increase in the multi-line business SLC under this scenario would be about 40 cents 
per month. 
7

two years) based on this amount of access revenue shift (minus any imputed to vertically integrated 
LECs; see below) -- and that this SLC increase be itself phased in over the two year period. The 
Commission must approach the initial SLC increases in this fashion, for if it does not it is harming 
consumers by saddling them with plainly unjustifiable SLC increases. This method of parallel 
phase-in (access charges declining as SLC charges increase) represents a fair and reasonable way to 
ensure that the burden of regulatory change is shared and not borne disproportionately by ratepayers. 
Our second recommendation is based upon the principle of fairness. We feel that the Commission 
must recognize the massive changes that have occurred in the telephony industry since it last 
undertook access charge reform in 2001. Since then, vertical integration between RBOCs, IXCs 
and wireless carriers has nearly reconstituted the former Ma Bell monopoly. Verizon and AT&T 
dominate the local exchange, long-distance and mobility markets. Their respective long-distance 
and wireless businesses will benefit substantially from the lowering of access charges. While it is 
true that the LEC side of their businesses will have declines in access revenues, it is a safe 
assumption (based on their eagerness for the Commission to lower access rates) that they stand to 
reap substantial net benefits from ICC reform. 
Therefore we strongly urge the Commission to only allow a carrier to increase their SLCs if they 
can show their business experiences a net decline in revenues as a result of ICC reforms. Thus, 
wireline customers of AT&T and Verizon should not be subjected to SLC increases unless those 
carriers are able to demonstrate net access revenue declines as well as rates that are below the 
benchmark set by the FSJB. In the event of such a showing, the increases should proceed on the 
parallel phase-in method described above. 
Improving the ICC Reform Elements of 
The Commissions Draft Proposal: Access Recovery from USF 
The other major feature of the Commissions Draft Proposal -- and most other ICC reform 
proposals -- is an Access Recovery Fund (ARF) for carriers who do not recover all of their revenue 
declines in increased SLCs. The reasoning here is that access charges contain an implicit universal 
service subsidy for high-cost carriers. However, there is no evidence whatsoever that the amount in 
ARF needed to make a carrier whole is in any way related to the amount of implicit USF support 
contained in access revenues. Therefore we are strongly opposed to any reform proposal that 
attempts to play a zero-sum-game. 
The Commission must be guided by the Act. Universal service support should be explicit, and 
sufficient enough to ensure reasonably comparable rates. It should not be excessive. In this light, 
we remind the Commission of the wild range various parties attributed to the implicit USF 
component of price cap carrier interstate access charges in the CALLS proceeding. Some claimed 
the amount was as high as $3.9 billion annually, while others claimed a low of $250 million. The 
Commission ultimately settled on a value of $650 million -- a number suggested by industry and not 
calculated by the Commission. This pool of Interstate Access Support (IAS) was due to be 
reevaluated after 5 years, with acknowledgement that the $650 million amount might be excessive 
8

after that time.13 This never happened, despite the fact that interstate access minutes have declined 
some 40 percent since then, and despite the fact that technology costs have continued to decline. 
The Commissions Draft Proposal would establish an ARF for rate of return carriers that would 
amount to a maximum of $200 million to $300 million per year. This pool of funds would be 
incorporated into the current program to offset reductions in interstate rates paid to rate-of-return 
carriers -- the Interstate Common Line Support program (ICLS). It is not clear to us what this $300 
million in increased ICLS ARF is based upon. If it is the total amount that rate-of-return carriers 
will need to be made whole after a SLC increase, then it is an inappropriate deviation from the 
cost-based and sufficiency principles of the Act. 
Under the Commissions Draft Proposal, price-cap regulated carriers will not be able to access this 
pool of money without first making a cost-showing (though were uncertain as to how this would 
actually be structured; e.g. would a carrier have to open the books on all revenue and cost 
streams, or merely on the regulated side of the business). We support this approach, and believe it 
should apply to all carriers, including rate-of-return carriers. However, we understand the concerns 
the Commission has in regards to triggering potential confiscation claims by rate-of-return regulated 
carriers (though we still feel a cost-showing is appropriate in all cases). 
Because the increased ICLS ARF will not be made available to price-cap carriers, the Commission 
must be cognizant of how this will impact these businesses. A quick look at the bottom line net 
profit margins (NPM) and Return on Equity (RE) of several major mid-size price cap carriers (i.e. 
non-vertically integrated RBOCs) reveals that most of these companies are already fairing better 
than the average for this industry sector (which is approximately 9.6 percent NPM over the past 5- 
years and a 11.9 percent RE over that time). Take for example the carrier Windstream. Their 5- 
year average NPM is above 17 percent, nearly two times the industry sector average. Windstreams 
5-year average Return on Equity is 50.2 percent, nearly five times the industry sector average. At 
the other extreme is a company like Fairpoint Communications, whose 5-year average NPM is 2.5 
percent, with a 5-year average RE of 16 percent. Also worth noting is the fact that many of these 
carriers have long-distance business segments that stand to reap substantial access charge savings. 
Since many of the price cap regulated companies earn returns far higher than the 11.25 percent for 
rate-of-return carriers, is it fair for USF funds to be awarded to these companies to offset revenue 
losses from reductions in above-cost access charges -- revenues that are in a natural free fall as a 
result of changing market conditions? Is it fair for these USF funds to be locked in and awarded in 
perpetuity despite the fact that the returns of many of these companies would still remain well 
above the industry sector average even in the absence of additional USF support? 
These companies chose the path of price cap incentive regulation -- a path that has rewards and 
risks. Thus, merely requiring them to show a true need of additional explicit subsidies for the 
purposes of universal service seems reasonable. After all, price cap carriers are generally less 
reliant than rate-of-return carriers on access revenues and are also able to take advantage of 
 
13 Supra note 6, at 203. 
9

economies of scale, unlike smaller RoR carriers. 
However, we must avoid punishing the customers of these companies, and therefore must provide a 
safety net -- not necessarily in the form of access recovery funds, but in a one-time path back to 
rate-of-return regulation. Thus we propose the Commission establish a forbearance mechanism for 
distressed price cap companies to violate the permanent choice rule and return to rate-of-return 
status.14 However, to avoid the enriching that the permanent choice rule was originally established 
to prevent, the rate-of-return allowed for a carrier exercising this option should be substantially 
lower than 11.25 percent. 
Ultimately, we recommend that any new access recovery funds be based on forward-looking cost 
estimates, even ARFs for rate-of-return carriers. The current ICLS funds available to rate-of-return 
carriers are based on embedded costs15, despite the fact that the Commission has previously 
concluded that universal service support for all carriers should be based on the forward-looking 
economic cost of constructing and operating the network used to provide the supported services, 
rather than each carriers embedded costs.16 When the Commission created the ICLS, it concluded 
that it was appropriate to base this support on embedded costs, but that this issue would be revisited 
in 5-years. Like the promise to revisit IAS, this never happened. 
We also recommend that as a part of the Further Notice issued in this proceeding, the Commission 
seek input on the continued need for locking in frozen implicit access revenue subsidies even as 
access minutes are in rapid decline. We proffer that the current $650 million in IAS (established in 
2000) and the current $1.5 billion in ICLS (established in 2001) are far in excess of actual need. 
The Further Notice should concur with this conclusion, and seek input on a phase down and 
eventual termination of these programs -- offset if needed with explicit broadband infrastructure 
support. 
Improving the USF Reform Elements of 
The Commissions Draft Proposal: Broadband 
The Commissions Draft Proposal requires all USF-supported carriers to deploy broadband, at a 
minimum level of 768 kbps, to 100 percent of their service areas within a 5-year period. Carriers 
are required to cover their unserved areas at a rate of 20 percent per year over the 5-years. If the 
USF-supported carrier fails to meet this obligation, the area is put up for a reverse auction, with the 
 
14 47 CFR 69.3(i)(4). 
15 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, Second Report and Order and Further Notice of 
Proposed Rulemaking, 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 From Interstate Services of Local 
Exchange Carriers, CC Docket No. 98-166, Report and Order, 16 FCC Rcd 19613, FCC 01-304 (2001) (MAG Order); 
at 125. 
16 MAG Order at 56 referencing Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and 
Order, 12 FCC Rcd 8776, 9164-65 (1997). 
10

reserve bid price set at the current study area per-line support level. 
While we support modernizing the fund by incorporating broadband, we have serious concerns 
about the practical outcomes of this particular proposal. 
First, we dont envision any non-rural carrier being able to meet their 100 percent obligation at the 
current level of support (which for most of these carriers consists of only minimal High-Cost Model 
(HCM) support and IAS support for geographically large study areas). We also dont envision 
other providers showing up to the reverse auction and meeting the reserve bid. This is simply 
because many of the non-rural study areas are geographically massive, such as the old Pac Bell 
study area which consists of 14 million access lines. 
In these situations with no bidder, there is no improvement in broadband deployment from the 
status quo. This is what we call the dead-end scenario. Because carriers in such study areas face 
no penalties from failure to meet the 100 percent broadband deployment benchmark, they have no 
incentive to deploy based on the current level of support. Furthermore, even in study areas where a 
non-incumbent bidder wins the reverse auction, theres a high-likelihood that USF monies will be 
used to build or maintain broadband infrastructure in locations where other unsubsidized services 
already exist. This outcome would result in an unnecessary use of scarce resources. 
The dead-end scenario is a very likely outcome. It is worth noting that no carrier has publicly 
stated that they will be able to meet the Draft Proposals 100 percent benchmark at current support 
levels; and we should assume that this silence means that they cannot or will not. 
If the Commission is determined to adopt a USF reform plan similar to that in the Draft Proposal, 
then we recommend the following changes. 
First, the Commission should not use a specific speed benchmark of 768kbps. Instead, the standard 
should be service speeds and qualities (i.e. latencies) that are reasonably comparable to those 
available in that particular state.17 This standard should also be flexible for the small portion of 
homes that are defined as extremely high cost (see next item). We recommend this issue be 
addressed in the Further Notice. 
Second, the Commission should recognize that a very small percent of homes might be 
prohibitively expensive to serve. In this instance, the cost of serving the last one percent of 
unserved homes could dwarf the other 99 percent. Thus we recommend the Commission establish a 
case-by-case forbearance process where these extremely high-cost homes can be served using 
alternative technologies such as fixed wireless or satellite. The Commission should seek input in the 
Further Notice as to what the cost-differential should be in order to qualify for forbearance. A 
reasonable value may be on the order of 5 to 10 times the current average per-line cost for a given 
study area. 
 
17 The issue of latency is perhaps just as important as speeds. While some satellite broadband offerings may have 
speeds that exceed 768kbps, the latency of these services results in a user experience that is far different from those 
using low-latency technologies. 
11

Third, carriers should be required to offer buildout plans once a year for the 5-year period leading to 
100 percent service deployment. If a carrier does not meet or does not plan to meet its obligations 
in any of the 5-years, then the auction process should commence immediately. Thus, if from day 
zero a carrier declares they cannot meet the buildout requirements, then the auction process should 
begin. 
Fourth, in order to avoid the dead-end scenario describe above, if a study area is put up for 
reverse auction and receives no winning bidders, then the study area should be disaggregated. We 
recommend disaggregation into Census Block Groups (CBGs). Then, using the new Form 477 
availability data (that we and others have urged the Commission to collect in a separate 
proceeding)18, the Commission should identify the CBGs within a particular study area that are not 
served by any broadband provider. 
Once the served and unserved areas of a study area are identified, the Commission or a state 
Commission should then designate a current broadband provider in the served portions of the study 
area as the Carrier of Last Resort (COLR). If there is one or more USF-supported broadband 
providers and one or more unsubsidized broadband providers in these served portions of a study 
area, then the unsubsidized provider should be designated by the Commission or state Commission 
as the COLR, either based on authority under Section 214(e)(3) of the Act or by negotiation. This 
newly designated COLR will not be eligible for USF support absent a showing of need (and need 
will be based on the cost of providing broadband and voice-grade service at retail rate reasonably 
comparable to the statewide average). 
The USF monies that were previously distributed to the COLR in these served portions of the study 
area will then be redirected to supporting broadband in the unserved portions of the study area. The 
unserved portions of a study area will be bid out in a request for proposal (RFP) process, with a 
general cost-guideline used instead of a reserve bid (i.e., support will not be bound by the current 
POTS per-line support amount, recognizing that these areas will require increased USF support). 
The scheme proposed in the above paragraphs is a carrot-and-stick approach that we believe will 
provide substantial incentives for current USF-supported carriers to meet the original 100 percent 
buildout obligations in order to avoid a dead-end first round auction and subsequent potential loss 
of support. This proposal -- by recognizing that many rural areas already have unsubsidized cable 
broadband service -- efficiently targets resources in the areas where the current USF-supported 
COLR cannot meet the buildout requirements. It also increases the amount of USF support 
available in the truly unserved areas by redirecting support away from areas where it is not needed. 
We strongly recommend the Commission adopt this disaggregation approach. While we recognize 
that some carriers may be worried about a net loss in USF support under this approach, we believe 
 
18 See for example Comments of Consumers Union, Consumer Federation of America, Free Press and Public 
Knowledge, In the Matter of Deployment of Nationwide Broadband Data to Evaluate Reasonable and Timely 
Deployment of Advanced Services to All Americans, Improvement of Wireless Broadband Subscribership Data, and 
Development of Data on Interconnected Voice over Internet Protocol (VoIP) Subscribership, WC Docket No. 07-38, 
July 17, 2008. 
12

that most rural and non-rural carriers will actually see little net change as a result of a more precise 
targeting of USF support. If the Commission simply adopts the current Draft Proposal without 
making these modifications, the end result will be no meaningful increase in broadband deployment 
and continued misallocation of scarce USF resources. 
Improving the USF Reform Elements of 
The Commissions Draft Proposal: Mobility 
The Commissions Draft Proposal caps support for mobile wireless CETCs at the current total level 
($1.25 billion annually), but eliminates the Identical Support Rule (ISR). This means that in order 
for a wireless CETC to continue to receive support, they must participate in a cost proceeding. We 
are uncertain if this requires a CETC to file part 32 accounting and part 64 allocation 
documentation, or if the Commission will create a new cost-showing mechanism. However a 
CETC makes a cost showing, support will not be available unless it substantially exceeds a national 
benchmark. If no CETC in a study area undergoes a cost showing, the Commissions Draft 
Proposal designates that area for a reverse mobility auction, with the reserve price set at the lowest 
total CETC support for that study area. CETCs are required to meet the same 100 percent 
broadband benchmarks as incumbent carriers. 
As supporters of universal affordable communications technologies, we support the idea that rural 
consumers should have access to mobility services at reasonably comparable qualities and rates. 
However, the framework established in the 1996 Act does not appear to square with the realities of 
todays communications marketplace, where mobility services are not in direct competition with 
wireline services; but are instead complementary services. Under the structure of the Act, if the 
Commission is forced to make choices on how to allocate scarce resources, we feel that the Acts 
principles lead the Commission down a path of supporting robust advanced telecommunications 
infrastructure, which may or may not have a mobility component. 
This is why we ultimately think Congress must directly address the issue of a separate mobility 
support structure. However, in the interim, as the Commission makes changes to the Universal 
Service Fund, it must ensure a basic level of universal mobile voice service. Thus we recommend 
that the Commission, during the first year interim transition period, determine the populated areas 
where no mobile voice service would be available absent USF support. The Commission should 
then target its mobility funds towards those areas. Thus, if an area is served by one or more 
unsubsidized mobility providers, then no USF support should be provided in that area (irrespective 
of a CETC cost-showing). In areas with only unsubsidized mobility providers, support for the 
lowest cost-carrier should be awarded. And in the areas where no provider currently exists, 
mobility funds should be targeted for voice-grade infrastructure investments. 
While we understand the Commissions desire to fund mobile broadband services, we dont think 
the case has been made that this is a necessary and efficient use of scarce USF resources. This is 
ultimately a threshold question that Congress must answer. 
13

Conclusion 
If the Commission makes the necessary changes outlined above, we believe it should move forward 
and adopt a Report and Order and Further Notice of Proposed Rulemaking at the November 4th 
open meeting. The question of which elements fall into which item remains open and to be 
determined by the commissioners. However, we favor a model in which the framework (starting 
points, end points, principles, and time-table) and initial steps appear in the Order, paired with an 
FNPRM that contains strong tentative conclusions for implementation and administration. 
On the issue of ICC rate reform, the Commission should rule that access rates will be set on a path 
of reduction, and delegate the decisions about where final rates should land to the states. States 
should have the flexibility to decide whether the final cost-based reciprocal compensation rate 
should be uniform across all carriers, or if it is economically appropriate to have some level of 
variation. A path to an intermediate step of interstate rates over two years can be firmly established 
in the Order, and the details of the states implementation process in the years after that can be 
examined in a Further Notice. 
On the issue of SLC increases, we strongly urge the Commission to undergo a cost-review process 
before implementing any such increases. However, if it does rule that a SLC increase is appropriate 
while the FSJB decides the issue of a national benchmark, then the SLC increases must be 
commensurate with the declines in access charges. The Commission must not allow an across the 
board SLC increase of $1.50 in the initial years of the access transition, because this (along with the 
proposed increase in the business SLC) would result in an immediate offset of the full value of the 
access shift -- a shift that will not occur for many years. Allowing the full SLC increases in the 
early years of the transition gives LECs additional revenues that have not yet been lost, and this is 
simply unacceptable. 
If the Commission is intent on immediate changes to the SLC, we urge it to determine the amount 
of access shift that will occur in the first two years of the transition (as rates go to interstate levels), 
and only allow SLC increases that offset this access decline. We estimate, based on very crude 
data, that the SLC increase needed during the first two years would be approximately 20 to 30 cents 
for primary residential lines. Finally, vertically integrated carriers who will be net beneficiaries of 
the decline in access charges should not be allowed to increase their SLCs. 
On the issue of access recovery funding for the purposes of universal service, we strongly 
recommend that such funding be based on actual need, not a desire to make a carrier whole. All 
carriers should be required to quantify the actual amount of implicit support contained within their 
current access revenues, and then demonstrate this support is actually needed, and is not already 
offset by off-the-books unregulated revenue streams. If the Commission establishes an additional 
access recovery mechanism, then the support should be based on a carriers forward-looking cost, 
and take into account declining access minutes. The Commission should conclude that these new 
funds, and all access replacement funds will sunset in five years, absent further Commission action. 
If a price cap carrier cannot or will not make a needs-based cost showing, then a one-time path back 
to rate of return regulation (at a rate lower than 11.25 percent) should be permitted. 
14

On the issue of declaring VoIP an information service, we strongly urge the Commission to leave 
this monumental decision to a Further Notice, as this change will completely upend the structure of 
Section 251 and create massive uncertainty as to the future of the entire industrial interconnection 
regime. There is simply no interconnection regime under Title I to ensure competitive access. 
Therefore this move would jeopardize the future of the advanced telecommunications market, 
something that is in direct conflict with Section 706 of the 1996 Act. 
On the issue of universal service reform, we support the Commissions general goal of modernizing 
the USF to support broadband. But we have substantial concerns that the current framework in the 
Draft Proposal will not result in much change from the status quo. Indeed, the fact that no carrier 
has indicated their willingness to meet the 100 percent benchmark outlined in the Draft Proposal is 
indicative that no such outcome should be expected. 
We feel that the reasonable comparability standard of the Act means that a 768kbps standard is 
arbitrary. A better approach would be to require services that are reasonably comparable those 
available in other areas within a given state. This, combined with a flexible approach to serving the 
last few very high-cost customers, will ensure that a substantial majority of consumers in a given 
study area have access to broadband services that are not of a quality which is years behind that 
available in urban areas. 
We recommend a carrot-and-stick incentive-based approach that leads to study area disaggregation 
in the instances where there is no winning bidder. Under this approach, current USF funding will 
be diverted away from areas where broadband services are currently deployed by unsubsidized 
carriers, to the truly unserved areas. 
Ultimately, we feel that the Commission should establish a solid framework in an Order, and issue a 
Further Notice with strong tentative conclusions that addresses the more difficult implementation 
issues. This approach is prudent, as many of the implementation details will need to be sorted out 
over the next year even if the Commission chooses to only issue a Report and Order. Thus many of 
the details that commenting parties are most concerned about (and are asking for an additional 
comment cycle on) can be dealt with in the Further Notice. We recommend a 3 to 6 month 
comment cycle and a 3 to 6 month deliberation cycle, culminating with a final Order on November 
4th 2009. 
15

Respectfully submitted, 
FREE PRESS 
By: 
Ben Scott 
Policy Director, Free Press 
S. Derek Turner 
Research Director, Free Press 
501 Third Street NW, 
Suite 875 
Washington, DC 20001 
202-265-1490 
dturner@freepress.net 
Dated: October 24, 2008 
16

21 Dupont Circle NW 
Suite 700 
Washington, DC 20036 
October 29, 2008 
Marlene H. Dortch, Secretary 
Federal Communications Commission 
Office of the Secretary 
445 12th Street SW 
Washington, DC 20554 
Ex Parte Notice 
Re: Developing a Unified Intercarrier Compensation Regime 
CC Docket No. 01-92 
High-Cost Universal Service Support 
WC Docket No. 05-337 
Federal-State Joint Board on Universal Service 
CC Docket No. 96-45 
Dear Ms. Dortch, 
Attached is a revised version of an ex parte filing made earlier today, with a modification 
to the second bullet on page two. Specifically, it clarifies that the second component of the 
supplemental interstate common line support (ICLS) is available only to those rural rate of 
return-regulated incumbent local exchange carriers (ILECs) that have committed to the five-year 
broadband build-out requirement. 
In accordance with FCC rules, this letter is being filed electronically in the abovecaptioned 
dockets. 
Sincerely, 
Stuart Polikoff 
Director of Government Relations 
OPASTCO
1

21 Dupont Circle NW 
Suite 700 
Washington, DC 20036 
October 29, 2008 
Marlene H. Dortch, Secretary 
Federal Communications Commission 
Office of the Secretary 
445 12th Street SW 
Washington, DC 20554 
Ex Parte Notice 
Re: Developing a Unified Intercarrier Compensation Regime 
CC Docket No. 01-92 
High-Cost Universal Service Support 
WC Docket No. 05-337 
Federal-State Joint Board on Universal Service 
CC Docket No. 96-45 
Dear Ms. Dortch, 
On October 28, 2008, H. Keith Oliver of Home Telephone Company, Inc., Mark Gailey 
of Totah Communications, Inc., Catherine Moyer of Pioneer Communications, Roger Nishi of 
Waitsfield & Champlain Valley Telecom, Robert DeBroux of TDS Telecom, John Rose and 
Stuart Polikoff of the Organization for the Promotion and Advancement of Small 
Telecommunications Companies (OPASTCO), and Derrick Owens and Jason Williams of the 
Western Telecommunications Alliance (WTA) held a conference call with Chairman Kevin 
Martin, his Chief of Staff, Daniel Gonzalez, his Legal Advisor, Amy Bender, and Dana Shaffer 
and Donald Stockdale of the Wireline Competition Bureau. The purpose of the conference call 
was to discuss Chairman Martins draft Order addressing the comprehensive reform of 
intercarrier compensation and universal service and its potential impacts on rural, rate of return 
(RoR)-regulated incumbent local exchange carriers (ILECs). 
1

Based on our understanding of the draft Order from our discussion, and subject to any 
major undisclosed modifications, OPASTCO and WTA support its adoption, provided that at a 
minimum, the following items are included to address the service areas of rural RoR ILECs. 
 Supplemental interstate common line support (ICLS) (i.e., the restructure mechanism) 
is automatically available for carriers that are currently under RoR regulation in the 
interstate jurisdiction without any other conditions applying, particularly those related to 
the way a carrier is regulated in the state jurisdiction. 
 Supplemental ICLS for rural RoR ILECs has two components. The first component 
compensates rural RoR ILECs for all of the revenues lost as a result of the mandated 
reductions in intercarrier compensation rates that are not otherwise recoverable through 
increases in subscriber line charges (SLCs). The first component remains in effect for the 
entire 10-year transition to the final state-established uniform terminating rates. The 
second component is available only to those rural RoR ILECs that have committed to the 
five-year broadband build-out requirement and is intended to ensure that those rural RoR 
ILECs continue to have an opportunity to earn their authorized interstate rate of return, 
subject to a cap. This component will provide compensation for unrecoverable revenue 
losses attributable to losses in access lines and interstate and intrastate minutes of use, 
using 2008 as a base year. The second component remains in effect for the first five 
years of the transition and is capped at $100 million in year one, $200 million in year 
two, $300 million in year three, $400 million in year four, and $500 million in year five. 
Prior to year five, the FCC shall conduct a proceeding to determine if modifications are 
required. 
 The Rural Transport Rule applies to rural RoR ILECs. This means that for local and 
extended area service (EAS) calls made by a rural RoR ILECs customer to a non-rural 
carriers customer, the rural RoR ILEC will be responsible for transport to a non-rural 
terminating carriers point of presence (POP) when it is located within the rural RoR 
ILECs service area. When the non-rural terminating carriers POP is located outside the 
rural RoR ILECs service area, the rural RoR ILECs transport and provisioning 
obligation stops at its meet point and the non-rural terminating carrier is responsible for 
the remaining transport to its POP. 
 The broadband build-out requirement has a limited automatic exception for very highcost 
loops and allows rural RoR ILECs to serve those customers by satellite without 
filing a waiver request. A very high-cost loop is defined as a loop in which the additional 
cost to provide broadband is in excess of 150 percent of the carriers study area average 
loop cost. The automatic exception cannot apply to more than two percent of a carriers 
total loops within a study area. 
 All high-cost universal service mechanisms utilized by rural RoR ILECs continue to 
operate as they do today through 2010. This includes high-cost loop support (HCLS), 
local switching support (LSS), interstate common line support (ICLS), safety net additive 
support, and safety valve support. Support from these mechanisms will be frozen by 
study area at 2010 levels. 
2

OPASTCO and WTA appreciate the opportunity to provide input on behalf of our 
membership. These issues are vital to our companies and rural consumers. We recognize that 
reform of intercarrier compensation and universal service is critical at this point in time. Again, 
with the inclusion of the modifications set forth above, and absent any major undisclosed 
changes, OPASTCO and WTA support the Chairmans proposal. 
Sincerely, 
John N. Rose, President Kelly Worthington, Executive Vice President 
OPASTCO WTA 
21 Dupont Circle NW P.O. Box 5655 
Suite 700 Helena, MT 59604 
Washington, DC 20036 
cc: Chairman Kevin Martin 
Commissioner Jonathan Adelstein 
Commissioner Michael Copps 
Commissioner Robert McDowell 
Commissioner Deborah Tate 
Amy Bender 
Nicholas Alexander 
Scott Deutchman 
Scott Bergmann 
Greg Orlando 
Dana R. Shaffer 
Julie Veach 
Kirk S. Burgee 
Donald Stockdale 
Marcus Maher 
Jeremy Marcus 
Randy Clarke 
Alexander Minard 
3

CTIA The Wireless Association Expanding the Wireless Frontier 
October 22, 2008 
Ms. Marlene H. Dortch, Secretary 
Federal Communications Commission 
445 12th Street, SW 
12th Street Lobby, TW-A325 
Washington, D.C. 20554 
Re: Notice of Ex Parte Communication: WC Docket Nos. 01-92, 04-36, 05-337, 
06-122 
Dear Ms. Dortch: 
CTIA  The Wireless Association (CTIA) takes this opportunity to underscore 
the need for fundamental reforms to the universal service and intercarrier compensation 
systems so that they better reflect consumer choice and the competitive marketplace. 
Specifically, CTIA supports: (1) Unification of the intercarrier compensation system, with a 
uniform termination rate no higher than $0.0007 per minute, as a transition to a bill-and-keep 
system; (2) Dedicated universal service support for the deployment and maintenance of 
advanced mobile wireless services in high-cost areas; (3) The establishment of Lifeline and 
Link Up discounts to enable lower-income individuals to purchase affordable broadband 
services utilizing the technology of their choice; and (4) A numbers-based universal service 
contribution system that does not unfairly treat over 44 million wireless prepaid and over 70 
million wireless family-plan customers. As the Commission considers how best to 
implement these changes, CTIA respectfully requests three changes to the draft Report and 
Order, Order on Remand, and Further Notice of Proposed Rulemaking currently under 
consideration. Namely, the Commission should: 
1. Reduce the proposed transition to unified cost-based rates for traffic termination from 
ten years, as has been proposed, to five years; 
2. Provide a five year transition from support currently provided to competitive eligible 
telecommunications carriers (ETCs) under the identical support rule to any 
successor mechanism(s); and 
3. Seek comment on an appropriate universal service mechanism (or mechanisms) 
focused on the deployment and maintenance of advanced mobile wireless services in 
high-cost and rural areas. 
These changes, while modest, will significantly increase the consumer benefits of the 
Commissions intercarrier compensation and universal service reform efforts. 
First, CTIA supports a five year transition to a unified cost-based rate for traffic 
termination. There is broad agreement in the record that unification of the intercarrier 
compensation system is long overdue. Parties agree that the current disparate intercarrier 
compensation system severely distorts the competitive marketplace and undermines the 
efficient deployment of next generation voice, data, and video services delivered over 
1400 16th Street, NW Suite 600 Washington, DC 20036 Main 202.785.0081 Fax 202.785.0721 www.ctia.org

broadband capable facilities.1 According to the Commission, a regulatory scheme based on 
these distinctions is increasingly unworkable in the current environment and creates 
distortions in the marketplace at the expense of healthy competition. Additional problems 
with the existing intercarrier compensation regimes result from changes in the way network 
costs are incurred today and how market developments affect carrier incentives. These 
developments and others . . . confirm the urgent need to reform the current intercarrier 
compensation rules."2 The transition to a unified intercarrier compensation system, 
therefore, should not take another decade to achieve. Instead, CTIA supports a more 
reasonable five year transition period, which will provide state commissions, as well as 
impacted carriers and customers more than sufficient time to transition to a modified 
compensation structure. 
Second, CTIA supports the same five year transition period for changes to the 
high-cost support available to competitive ETCs. The Federal-State Joint Board on 
Universal service (Joint Board) suggested such a transition period in its Recommended 
Decision on high-cost universal service reform.3 Over a specified period of time, the Joint 
Board envisioned that wireless ETCs would transition from existing funding sources to a 
successor Mobility Fund.4 Wireless ETCs have now invested billions of dollars to deploy 
wireless facilities in rural and high-cost areas with the expectation that high-cost support will 
be available to help defray both the initial deployment and ongoing maintenance and 
operations costs of these networks. Indeed, under the FCCs ETC designation guidelines, the 
FCC and many states require wireless ETCs to submit and comply with five year build out 
plans. As the FCC has stated, failure to comply with these build out commitments could 
result in revocation of an ETCs designation. In the wireline context, the Commission has 
provided reasonable transition periods for any significant changes in high-cost support 
amounts. Wireless ETCs, too, should be provided a reasonable transition period. To this 
end, CTIA supports a five-year period during which wireless carriers are transitioned off of 
the existing support mechanisms and onto any successor mechanisms.5 
Third, the Commission should shelve the interim wireless actual cost mechanism 
under consideration and seek comment on a more appropriate high-cost mechanism (or 
 
1 See Letter from AT&T, CompTIA, CTIA, Global Crossing, ITIC, NAM, New Global Telecom, PointOne, 
Sprint Nextel Corp., TIA, T-Mobile, Verizon, and the VON Coalition to Chairman Martin, Commissioner 
Copps, Commissioner McDowell, Commissioner Adelstein, and Commissioner Tate, FCC, CC Docket No. 01- 
92 (filed Aug. 6, 2008). See also, e.g., Comments of National Cable & Telecommunications Association, WC 
Docket No. 08-160, CC Docket No. 01-92 (Aug. 26, 2008) at 2 ("NCTA consistently has supported rational 
reform of the intercarrier compensation regime."); Comments of the National Association of State Utility 
Consumer Advocates to Refresh the Record, CC Docket No. 01-92 (July 7, 2008) at 7 ("NASUCA agrees that 
the current regime of widely varying rates for the same functionality depending on the type of call and the 
carriers involved creates opportunities for abuse and arbitrage, and cannot be sustained in the long run. 
NASUCA therefore also agrees that reform is needed."); Comments of The Rural Alliance, CC Docket No. 01- 
92 (June 27, 2008) at 7 ("If the Commission believes that the Missoula Plan cannot be adopted at this time, then 
the Commission should consider simplified, yet still comprehensive intercarrier compensation reform."). 
2 In re: Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Further Notice of 
Proposed Rulemaking, 20 FCC Rcd. 4685 at para. 3 (rel. Mar. 3, 2005). 
3 See High-Cost Universal Service Support, Federal-State Joint Board on Universal Service, WC Docket No. 
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-4. paras. 27-28 (rel. Nov. 20, 2007) 
(Recommended Decision). 
4 Id. at para. 28. 
5 Id. at para. 27. 
2

mechanisms) to permanently replace the identical support rule (if eliminated). Such a 
mechanism should provide dedicated universal service support for the deployment and 
maintenance of advanced mobile wireless services in high-cost areas. Initial comments in 
this proceeding presented extensive data demonstrating that technology and the marketplace 
have changed in fundamental ways since the current universal service mechanisms were 
adopted in 1997.6 These data show that consumers today primarily value mobility and 
broadband.7 As Verizon recently observed, an increasing percentage of U.S. households rely 
exclusively or almost exclusively on their mobile wireless services for their network 
connectivity and growth in wireless-only households is accelerating (especially in light of a 
challenging economic outlook).8 The marketplace developments demonstrate that any 
universal service policies must, consistent with section 254 of the Act, ensure that wireless 
carriers have competitively- and technologically-neutral access to high-cost funding. Section 
254 of Act also demands that such support mechanisms provide specific, predictable, and 
sufficient support that ensures consumers in high-cost rural areas have access to mobile 
wireless services that are comparable to those available in urban areas.9 
The initial comments in this proceeding reveal a striking level of acknowledgement 
that mobility and broadband are the services that consumers are demanding today. Even 
many rural incumbent local exchange carrier (rural ILEC) interests acknowledge the very 
strong consumer demand for broadband and mobility and the need to fund these services, 
which should be, but are not yet, ubiquitously available.10 State public utility commissions 
and NASUCA also point out their constituent citizens needs for broadband and mobility.11 
The Commissions reform efforts must be fundamentally driven by the need to ensure 
ubiquitous availability of mobile and broadband services. In light of these fundamental 
marketplace and technological realities, it is unsurprising that there is significant support in 
the record for the Joint Boards proposal to set aside universal service funding for areas 
where it is not economical to provide mobile wireless and broadband services absent 
support.12 
 
6 CTIA comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 2-11. 
7 Id. at 10. 
8 See Letter and Brief from Verizon and Verizon Wireless, in CC Docket No. 01-92, WC Docket Nos. 04-36, 
06-122, at 6-7 (filed Sep. 19, 2008). See also Simon Flannery et al., Telecom Services, Cutting the Cord: Voice 
First Broadband Close Behind, Morgan Stanley Research (Oct. 1, 2008). 
9 See 47 U.S.C.  254(b). 
10 See, e.g., ITTA comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 8-9; KRITC comments in WC 
Docket No. 05-337 (filed Apr. 17, 2008), at 4-7; Montana Independent comments in WC Docket No. 05-337 
(filed Apr. 17, 2008), at 17; OPASTCO comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 22; WTA 
comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 5-9, 22-23. See also USTelecom comments in 
WC Docket No. 05-337 (filed Apr. 17, 2008), at 24, 34; Rural Tel. Finance Coop. comments in WC Docket No. 
05-337 (filed Apr. 15, 2008), at 3. 
11 See, e.g., Connecticut comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 5; Oklahoma comments 
in WC Docket No. 05-337 (filed Apr. 17, 2008), at 17; NASUCA comments in WC Docket No. 05-337 (filed 
Apr. 17, 2008), at 21-22. 
12 See, e.g., OPASTCO comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 21-22; NASUCA 
comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 11-13; WTA comments in WC Docket No. 05- 
337 (filed Apr. 17, 2008), at 3; TIA comments in WC Docket No. 05-337 (filed Apr. 16, 2008), at 1-2; CoBank 
comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 4-5; Connecticut DPUC comments in WC Docket 
No. 05-337 (filed Apr. 17, 2008), at 4-5. 
3

Unfortunately, while the Commission appears ready to set aside between $3 and $4 
billion annually for the extension of ILEC broadband networks, as a practical matter, no 
funding is being set aside for the extension of mobile wireless broadband networks. The 
Commission is now considering a mechanism to determine support for wireless ETCs that is 
not focused on making sure that wireless services are ubiquitously available, but rather is 
inexplicably intended to eliminate almost all universal service support for wireless carriers. 
Contrary to the FCCs tentative conclusion in the Identical Support Rule NPRM, the wireless 
ETC actual cost formula currently under consideration is neither based on wireless 
carriers actual costs nor is it designed to direct appropriate amounts of high-cost support 
where it is needed. Rejecting another tentative conclusion, the Commission is considering a 
proposal to exclude spectrum costs from a wireless carriers actual cost calculation.13 
Spectrum costs should be included in any determination of a wireless carriers actual costs. 
Spectrum is a considerable cost of doing business for wireless carriers, akin to a LECs loop 
costs.14 As evidenced by the recent Advanced Wireless Services and 700 MHz auctions, 
wireless carriers are making considerable investments in spectrum assets in order to deploy 
the next generation, higher-bandwidth mobile wireless broadband services increasingly 
demanded by consumers. Just as it would be inappropriate to exclude a LECs loop costs 
from determination of its costs, it is inappropriate to excluded wireless carriers spectrum 
costs. 
It is also our understanding that the draft order inexplicably would divide a wireless 
ETCs costs by the relevant incumbent LECs switched access lines to arrive at the wireless 
ETCs average costs. Such a formula  which defies common sense  should instead divide a 
wireless ETCs costs by its number of subscribers residing in the relevant incumbent LECs 
service area to arrive at a truer estimation of a wireless ETCs average costs. 
Having determined a wireless ETCs average costs and comparing those costs to the 
relevant rural or non-rural incumbent LEC cost benchmark (strangely, instead of a wireless 
cost benchmark), the wireless ETC would still only qualify for the same support it currently 
receives under the interim CETC cap. In other words, the high-cost wireless ETC would 
receive no more support than it received under the cap, a result that in no way would reflect 
actual costs. Further, those high-cost rural areas that do not currently qualify for support 
under the interim cap would remain unsupported. 
The proposed actual cost formula would continue to penalize those rural consumers 
without access to mobile wireless services where they live or where they travel.15 As CTIA 
noted in its comments, roughly 23.2 million U.S. residents currently lack broadband-capable 
wireless service at their primary place of residence, and more than 2.5 million miles of roads 
are not covered by a broadband-capable wireless signal (amounting to 42% of the road miles 
in the United States). A recently study conducted by CostQuest Associates estimates the 
total cost of completing the initial effort to construct a dual-mode 3G (Evolution Data 
 
13 See High-Cost Universal Support: Federal-Sate Joint Board on Universal Service, WC Docket No. 05-337, 
CC Docket No. 96-45, Notice of Proposed Rulemaking, FCC 08-4 (rel. Jan. 29, 2008) (Identical Support Rule 
NPRM) at para. 17. 
14 If the Commission excludes spectrum costs, it should in fairness and consistent with competitive and 
technology neutrality principles exclude loop costs in ILEC support calculations. 
15 See CTIA Comments in WC Docket No. 05-337 and CC Docket No. 96-45 and accompanying study by 
CostQuest Associates, filed April 17, 2008. 
4

Optimized (EvDO) and High-Speed Downlink Packet Access (HSDPA)) 
broadband-capable network in these areas at approximately $22 billion. This estimate does 
not include the substantial costs of operating, maintaining, and upgrading those same 
networks. The mechanism for determining CETC support that is currently under 
consideration by the Commission would not address these challenges. 
Instead of pursuing another illusory bandaid mechanism such as is currently under 
consideration,16 at the outset of a five year transition period, the Commission should seek 
comment on and develop a successor universal service mechanism(s) specifically designed to 
ensure the deployment and maintenance of advanced mobile wireless services in high-cost 
areas. As part of that proceeding, CTIA respectfully requests that the Commission give 
serious consideration to the establishment of two mechanisms: (1) One grant-based 
mechanism focused on extending advanced mobile wireless networks to underserved areas; 
and (2) One mechanism focused on ensuring that advanced mobile wireless services are 
maintained in objectively identified high-cost rural areas. Both mechanisms could determine 
support amounts, if any, based on objectively verifiable measures of actual cost. CTIA 
welcomes the opportunity to discuss these proposed changes with the Commission and any 
other interested parties. 
Pursuant to Section 1.1206 of the Commissions rules, a copy of this letter is being 
filed via ECFS with your office. Should you have any questions, please do not hesitate to 
contact the undersigned. 
Sincerely, 
/s/ Paul W. Garnett 
Paul W. Garnett 
Chairman Kevin J. Martin 
Commissioner Michael J. Copps 
Commissioner Jonathan S. Adelstein 
Commissioner Deborah Taylor Tate 
Commissioner Robert M. McDowell 
Daniel Gonzalez 
Amy Bender 
Scott Deutchman 
Scott Bergmann 
Greg Orlando 
Nicholas Alexander 
Dana Shaffer 
Donald Stockdale 
Al Lewis 
Jeremy Marcus 
 
16 See Dissenting Statement of Commissioner Michael J. Copps to the CETC Cap Order issued April 29, 2008. 
5

Federal Communications Commission FCC 08-262 
APPENDIX E 
INITIAL REGULATORY FLEXIBILITY ACT ANALYSIS 
1. As required by the Regulatory Flexibility Act of 1980, as amended (RFA),1 the Commission 
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic 
impact on a substantial number of small entities by the policies and rules proposed in this Further Notice. 
Written public comments are requested on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines for comments on the Further Notice. The Commission will send 
a copy of the Further Notice, including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration (SBA).2 In addition, the Further Notice and IRFA (or summaries thereof) will 
be published in the Federal Register.3 
A. Need for, and Objectives of, the Proposed Rules 
2. Today, the Commission adopts a Further Notice on possible steps for the implementation 
of universal service and intercarrier compensation comprehensive reform. We believe it is best to leave 
the following topics to a Further Notice to help ensure the development of a reasoned and complete 
record on the issues. 
3. Specifically, the Commission seeks comment on the appropriate, applicable cost standard 
under section 252(d)(2) of the Act. We seek comment on whether comprehensive reform for intercarrier 
compensation should apply to providers operating in Alaska, Hawaii, or any U.S. Territory or possession. 
Additionally, we seek comment on how carriers current rates should be transitioned to a new intercarrier 
compensation regime. Also, we seek comment on whether the Commission should set any conditions on 
the reciprocal compensation rates set by states. Should any transitional rates apply to VoIP traffic? 
4. We also seek comment on the appropriate default rules regarding where a carriers 
network edge should be following any transition. The Further Notice also seeks comment on 
whether the reciprocal compensation rates between carriers should be symmetrical without 
exception and regardless of whether traffic exchanged between the carriers is balanced or not. In 
addition, we seek comment on the appropriate guidelines regarding the application of section 
251(f)(2) of the Act. 
5. We seek comment on the appropriate treatment of existing agreements between 
parties. We also seek comment on various revenue recovery opportunities for carriers and 
possible supplemental universal service recovery support that would be available where 
necessary. Should the Commission also require carriers to file an annual report showing how 
any net access savings are allocated? We also seek comment on whether or not the Commission 
should enlist the aid of the Separations Joint Board on possible changes to end-user charges. 
6. The Further Notice also seeks comment on measures to ensure the ability of 
carriers to receive the appropriate compensation for traffic terminated on their networks. We 
also seek comment on an interim solution to the access stimulation arbitrage problem. 
Additionally, we seek comment on whether originating access charges are inconsistent with 
comprehensive reform and the appropriate transition for the elimination of originating access. 
We also seek comment on whether or not any comprehensive reform warrants the adoption of rules or 
1 See 5 U.S.C.  603. The RFA, see 5 U.S.C.  601612, has been amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996). 
2 See 5 U.S.C.  603(a). 
3 See id.

Federal Communications Commission FCC 08-262 
E-2 
guidelines governing the terms and conditions of transit service. 
7. We also seek comment on how best to reform the distribution of high-cost 
universal service support. Specifically, we seek comment on ways to control the growth of the 
high-cost fund, including whether it is necessary to cap high-cost universal service support to 
fulfill our statutory obligation to create a specific, predictable, and sufficient universal service 
mechanism. We seek comment on how any such caps should be implemented. We seek 
comment on whether we should condition receipt of high-cost support on an eligible 
telecommunications carriers (ETC) commitment to provide broadband Internet access service 
throughout its service area. We seek comment on the use of reverse auctions as a method for 
disbursing high-cost support, either to areas where an incumbent LEC does not commit to 
provide broadband Internet access service, or for the distribution of high-cost support to all 
ETCs. We seek comment on eliminating the identical support rule for competitive ETCs, and on 
whether competitive ETC support should be based on their own costs or disbursed via reverse 
auctions. 
8. We seek comment on whether to adopt a pilot program to provide universal service 
support to low-income consumers for broadband Internet access service. Should low-income consumers 
receive support under the pilot program for discounts on broadband Internet access service and devices 
necessary to access such services? What implementation and reporting requirements associated with such 
a pilot program should the Commission adopt? 
9. We also seek comment on reforming the universal service contribution assessment 
methodology. Specifically, we seek comment on whether to adopt a contribution mechanism of $1.00 per 
residential telephone number, and move to a connections and/or numbers-based contribution mechanism 
for business services; or whether to adopt a contribution mechanism of $0.85 per telephone number for all 
numbers, and a connections-based contribution mechanism for business services of $5.00 per connection 
up to 64 kbps and $35.00 per connection over 64 kbps. We seek comment on what numbers should be 
assessable under a numbers-based contribution mechanism. We also seek comment on how to treat 
wireless prepaid plans, on exceptions to the contribution obligations, on reporting and recordkeeping 
requirements, and on a transition to the new contribution methodology. 
10. Finally, we seek comment on what revisions to our rules are needed to implement 
comprehensive reform. For example, what changes, if any, are needed to the rules contained in Parts 51, 
54, 61, and 69? 
B. Legal Basis 
11. The legal basis for any action that may be taken pursuant to the Further Notice is 
contained in sections 14, 201209, 214, 218220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503 of the 
Communications Act of 1934, as amended, and Sections 601 and 706 of the Telecommunications Act of 
1996, 47 U.S.C.  151154, 157 nt, 201209, 214, 218220, 224, 251, 252, 254, 303(r), 332, 403, 502, 
503 and sections 1.1, 1.4111.429 and 1.12001.1216 of the Commissions rules, 47 C.F.R.  1.1, 
1.4111.429 and 1.12001.1216. 
C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply 
12. 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 proposed rules, if adopted.4 The RFA generally 
defines the term small entity as having the same meaning as the terms small business, small 
4 See 5 U.S.C.  603(b)(3).

Federal Communications Commission FCC 08-262 
E-3 
organization, and small governmental jurisdiction.5 In addition, the term small business has the 
same meaning as the term small-business concern under the Small Business Act.6 A small-business 
concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of 
operation; and (3) satisfies any additional criteria established by the Small Business Administration.7 
13. Wired Telecommunications Carriers. The SBA has developed a small business size 
standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or 
fewer employees.8 According to Census Bureau data for 2002, there were 2,432 firms in this category, 
total, that operated for the entire year.9 Of this total, 2,395 firms had employment of 999 or fewer 
employees, and an additional 37 firms had employment of 1,000 employees or more.10 Thus, under this 
size standard, the majority of firms can be considered small. 
14. Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed 
a size standard for small businesses specifically applicable to local exchange services. The closest 
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees.11 According to Commission data, 
1,311 carriers reported that they were incumbent local exchange service providers.12 Of these 1,311 
carriers, an estimated 1,024 have 1,500 or fewer employees and 287 have more than 1,500 employees.13 
Consequently, the Commission estimates that most providers of local exchange service are small entities 
that may be affected by the rules and policies proposed in the Further Notice. 
15. Incumbent Local Exchange Carriers (incumbent LECs). Neither the Commission nor 
the SBA has developed a size standard for small businesses specifically applicable to incumbent local 
exchange services. The closest applicable size standard under SBA rules is for Wired 
Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer 
employees.14 According to Commission data, 1,311 carriers reported that they were engaged in the 
provision of local exchange services.15 Of these 1,307 carriers, an estimated 1,024 have 1,500 or fewer 
employees and 287 have more than 1,500 employees.16 Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small businesses that may be affected by rules 
5 See 5 U.S.C.  601(6). 
6 See 5 U.S.C.  601(3) (incorporating by reference the definition of small-business concern in the Small Business 
Act, 15 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(s) in the Federal Register. 
7 See 15 U.S.C.  632. 
8 13 C.F.R.  121.201, U.S. Census Bureau, 2002 Economic Census, Subject Series: Information, Establishment 
and Firm Size (Including Legal Form of Organization), North American Industry Classification System (NAICS) 
code 517110. 
9 13 C.F.R.  121.201, NAICS code 517110. 
10 See id. 
11 13 C.F.R.  121.201, NAICS code 517110. 
12 See Trends in Telephone Service, Federal Communications Commission, Wireline Competition Bureau, Industry 
Analysis and Technology Division at Table 5.3 (Aug. 2008) (Trends in Telephone Service). 
13 See id. 
14 See 13 C.F.R.  121.201, NAICS code 517110. 
15 See Trends in Telephone Service at Table 5.3. 
16 See id.

Federal Communications Commission FCC 08-262 
E-4 
adopted pursuant to the Further Notice. 
16. We have included small incumbent LECs in this present RFA analysis. As noted above, 
a small business under the RFA is one that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer employees), and is not dominant in its 
field of operation.17 The SBAs Office of Advocacy contends that, for RFA purposes, small incumbent 
LECs are not dominant in their field of operation because any such dominance is not national in 
scope.18 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.
17. Competitive Local Exchange Carriers (competitive LECs), Competitive Access 
Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither 
the Commission nor the SBA has developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications 
Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees.19 
According to Commission data, 1,005 carriers reported that they were engaged in the provision of either 
competitive local exchange services or competitive access provider services.20 Of these 1,005 carriers, an 
estimated 918 have 1,500 or fewer employees and 87 have more than 1,500 employees.21 In addition, 16 
carriers have reported that they are Shared-Tenant Service Providers, and all 16 are estimated to have 
1,500 or fewer employees.22 In addition, 89 carriers have reported that they are Other Local Service 
Providers.23 Of the 89, all 89 have 1,500 or fewer employees and none has more than 1,500 employees.24 
Consequently, the Commission estimates that most providers of competitive local exchange service, 
competitive access providers, Shared-Tenant Service Providers, and Other Local Service Providers are 
small entities that may be affected by rules adopted pursuant to the Further Notice. 
18. Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a 
size standard for small businesses specifically applicable to interexchange services. The closest 
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees.25 According to Commission data, 
300 companies reported that their primary telecommunications service activity was the provision of 
interexchange services.26 Of these 300 companies, an estimated 268 have 1,500 or fewer employees and 
32 have more than 1,500 employees.27 Consequently, the Commission estimates that the majority of 
17 5 U.S.C.  601(3). 
18 See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, FCC (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); see also 5 U.S.C.  601(3). SBA regulations 
interpret small business concern to include the concept of dominance on a national basis. See 13 C.F.R.  
121.102(b). 
19 See 13 C.F.R.  121.201, NAICS code 517110. 
20 See Trends in Telephone Service at Table 5.3. 
21 See id. 
22 See id. 
23 See id. 
24 See id. 
25 See 13 C.F.R.  121.201, NAICS code 517110. 
26 See Trends in Telephone Service at Table 5.3. 
27 See id.

Federal Communications Commission FCC 08-262 
E-5 
interexchange service providers are small entities that may be affected by rules adopted pursuant to the 
Further Notice. 
19. Operator Service Providers (OSPs). Neither the Commission nor the SBA has 
developed a small business size standard specifically for operator service providers. The appropriate size 
standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees.28 According to Commission data, 
28 carriers have reported that they are engaged in the provision of operator services.29 Of these, an 
estimated 27 have 1,500 or fewer employees and one has more than 1,500 employees.30 Consequently, 
the Commission estimates that the majority of OSPs are small entities that may be affected by rules 
adopted pursuant to the Further Notice. 
20. Payphone Service Providers (PSPs). Neither the Commission nor the SBA has 
developed a small business size standard specifically for payphone services providers. The appropriate 
size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees.31 According to Commission data, 
526 carriers have reported that they are engaged in the provision of payphone services.32 Of these, an 
estimated 524 have 1,500 or fewer employees and two have more than 1,500 employees.33 Consequently, 
the Commission estimates that the majority of payphone service providers are small entities that may be 
affected by rules adopted pursuant to the Further Notice. 
21. Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed 
a small business size standard specifically for prepaid calling card providers. The appropriate size 
standard under SBA rules is for the category Telecommunications Resellers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees.34 According to Commission data, 88 carriers 
have reported that they are engaged in the provision of prepaid calling cards.35 Of these, an estimated 85 
have 1,500 or fewer employees and three have more than 1,500 employees.36 Consequently, the 
Commission estimates that the majority of prepaid calling card providers are small entities that may be 
affected by rules adopted pursuant to the Further Notice. 
22. Local Resellers. The SBA has developed a small business size standard for the category 
of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or 
fewer employees.37 According to Commission data, 151 carriers have reported that they are engaged in 
the provision of local resale services.38 Of these, an estimated 149 have 1,500 or fewer employees and 
two have more than 1,500 employees.39 Consequently, the Commission estimates that the majority of 
28 See 13 C.F.R.  121.201, NAICS code 517110. 
29 See Trends in Telephone Service at Table 5.3. 
30 See id. 
31 See 13 C.F.R.  121.201, NAICS code 517110. 
32 See Trends in Telephone Service at Table 5.3. 
33 See id. 
34 See 13 C.F.R.  121.201, NAICS code 517911. 
35 See Trends in Telephone Service at Table 5.3. 
36 See id. 
37 See 13 C.F.R.  121.201, NAICS code 517911. 
38 See Trends in Telephone Service at Table 5.3. 
39 See id.

Federal Communications Commission FCC 08-262 
E-6 
local resellers are small entities that may be affected by rules adopted pursuant to the Further Notice. 
23. Toll Resellers. The SBA has developed a small business size standard for the category 
of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or 
fewer employees.40 According to Commission data, 815 carriers have reported that they are engaged in 
the provision of toll resale services.41 Of these, an estimated 787 have 1,500 or fewer employees and 28 
have more than 1,500 employees.42 Consequently, the Commission estimates that the majority of toll 
resellers are small entities that may be affected by rules adopted pursuant to the Further Notice. 
24. Other Toll Carriers. Neither the Commission nor the SBA has developed a size 
standard for small businesses specifically applicable to Other Toll Carriers. This category includes toll 
carriers that do not fall within the categories of interexchange carriers, operator service providers, prepaid 
calling card providers, satellite service carriers, or toll resellers. The closest applicable size standard 
under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is 
small if it has 1,500 or fewer employees.43 According to Commission data, 91 companies reported that 
their primary telecommunications service activity was the provision of other toll carriage.44 Of these 91 
companies, an estimated 88 have 1,500 or fewer employees and three have more than 1,500 employees.45 
Consequently, the Commission estimates that most Other Toll Carriers are small entities that may be 
affected by the rules and policies adopted pursuant to the Further Notice. 
25. 800 and 800-Like Service Subscribers.46 Neither the Commission nor the SBA has 
developed a small business size standard specifically for 800 and 800-like service (toll free) subscribers. 
The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under 
that size standard, such a business is small if it has 1,500 or fewer employees.47 The most reliable source 
of information regarding the number of these service subscribers appears to be data the Commission 
collects on the 800, 888, 877, and 866 numbers in use.48 According to our data, at the beginning of 
December 2007, the number of 800 numbers assigned was 7,860,000; the number of 888 numbers 
assigned was 5,210,184; the number of 877 numbers assigned was 4,388,682; and the number of 866 
numbers assigned was 7,029,116.49 We do not have data specifying the number of these subscribers that 
are not independently owned and operated or have more than 1,500 employees, and thus are unable at this 
time to estimate with greater precision the number of toll free subscribers that would qualify as small 
businesses under the SBA size standard. Consequently, we estimate that there are 7,860,000 or fewer 
small entity 800 subscribers; 5,210,184 or fewer small entity 888 subscribers; 4,388,682 or fewer small 
entity 877 subscribers; and 7,029,166 or fewer small entity 866 subscribers. 
1. Wireless Carriers and Service Providers 
26. Below, for those services subject to auctions, we note that, as a general matter, the 
number of winning bidders that qualify as small businesses at the close of an auction does not necessarily 
40 See 13 C.F.R.  121.201, NAICS code 517911. 
41 See Trends in Telephone Service at Table 5.3. 
42 See id. 
43 See 13 C.F.R.  121.201, NAICS code 517110. 
44 See Trends in Telephone Service at Table 5.3. 
45 See id. 
46 We include all toll-free number subscribers in this category, including those for 888 numbers. 
47 See 13 C.F.R.  121.201, NAICS code 517911. 
48 See Trends in Telephone Service at Tables 18.4, 18.5, 18.6, 18.7. 
49 See id.

Federal Communications Commission FCC 08-262 
E-7 
represent the number of small businesses currently in service. Also, the Commission does not generally 
track subsequent business size unless, in the context of assignments or transfers, unjust enrichment issues 
are implicated. 
27. Wireless Telecommunications Carriers (except Satellite). Since 2007, the SBA has 
recognized wireless firms within this new, broad, economic census category.50 Prior to that time, the 
SBA had developed a small business size standard for wireless firms within the now-superseded census 
categories of Paging and Cellular and Other Wireless Telecommunications.51 Under the present and prior 
categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. 
Because Census Bureau data are not yet available for the new category, we will estimate small business 
prevalence using the prior categories and associated data. For the first category of Paging, data for 2002 
show that there were 807 firms that operated for the entire year.52 Of this total, 804 firms had 
employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more.53 
For the second category of Cellular and Other Wireless Telecommunications, data for 2002 show that 
there were 1,397 firms that operated for the entire year.54 Of this total, 1,378 firms had employment of 
999 or fewer employees, and 19 firms had employment of 1,000 employees or more.55 Thus, using the 
prior categories and the available data, we estimate that the majority of wireless firms can be considered 
small. According to Commission data, 434 carriers reported that they were engaged in the provision of 
cellular service, Personal Communications Service (PCS), or Specialized Mobile Radio (SMR) 
Telephony services, which are placed together in the data.56 We have estimated that 222 of these are 
small, under the SBA small business size standard.57 Thus, under this category and size standard, 
approximately half of firms can be considered small. 
28. Broadband Personal Communications Service. The broadband personal 
communications service (PCS) spectrum is divided into six frequency blocks 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 $40 million or less in the three previous calendar 
years.58 For Block F, an additional classification for very small business was added and is defined as an 
entity that, together with its affiliates, has average gross revenues of not more than $15 million for the 
preceding three calendar years.59 These standards defining small entity in the context of broadband 
50 See 13 C.F.R.  121.201, NAICS code 517210. 2007 Census data are not yet available. 
51 See 13 C.F.R.  121.201, NAICS codes 517211, 517212. 
52 See 13 C.F.R.  121.201, NAICS code 517211. 
53 Id. The census data do not provide a more precise estimate of the number of firms that have employment of 
1,500 or fewer employees; the largest category provided is for firms with 1,000 employees or more. 
54 See 13 C.F.R.  121. 201, NAICS code 517212. 
55 See id. The census data do not provide a more precise estimate of the number of firms that have employment of 
1,500 or fewer employees; the largest category provided is for firms with 1,000 employees or more. 
56 See Trends in Telephone Service at Table 5.3. 
57 See id. 
58 See generally Amendment of Parts 20 and 24 of the Commissions Rules  Broadband PCS Competitive Bidding 
and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 96-59, GN Docket No. 90-314, Report 
and Order, 11 FCC Rcd 7824 (1996); see also 47 C.F.R.  24.720(b)(1). 
59 See generally Amendment of Parts 20 and 24 of the Commissions Rules  Broadband PCS Competitive Bidding 
and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 96-59, GN Docket No. 90-314, Report 
and Order, 11 FCC Rcd 7824 (1996); see also 47 C.F.R.  24.720(b)(2).

Federal Communications Commission FCC 08-262 
E-8 
PCS auctions have been approved by the SBA.60 No small businesses, within the SBA-approved small 
business size standards 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 percent of the 1,479 licenses for Blocks D, E, and F.61 On March 23, 
1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. There were 48 small business 
winning bidders. 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 that auction, 29 qualified as 
small or very small businesses. Subsequent events, concerning Auction 35, including judicial and 
agency determinations, resulted in a total of 163 C and F Block licenses being available for grant. 
29. Narrowband Personal Communications Services. To date, two auctions of 
narrowband PCS licenses have been conducted. For purposes of the two auctions that have been held, 
small businesses were entities with average gross revenues for the prior three calendar years of $40 
million or less. Through these auctions, the Commission has awarded a total of 41 licenses, out of which 
11 were obtained by small businesses. To ensure meaningful participation of small business entities in 
future auctions, the Commission has adopted a two-tiered small business size standard in the Narrowband 
PCS Second Report and Order.62 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. The SBA has 
approved these small business size standards.63 In the future, the Commission will auction 459 licenses to 
serve Metropolitan Trading Areas (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 actions. 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.64 The Commission assumes, for purposes of this analysis 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. 
30. Paging (Private and Common Carrier). The SBA has developed a small business size 
standard for Paging, under which a business is small if it has 1,500 or fewer employees.65 In addition, in 
the Paging Third Report and Order, we developed a small business size standard for small businesses 
and very small businesses for purposes of determining their eligibility for special provisions such as 
60 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 (1994). 
61 See FCC News, Broadband PCS, D, E and F Block Auction Closes, No. 71744 (rel. Jan. 14, 1997). See also 
Amendment of the Commissions Rules Regarding Installment Payment Financing for Personal Communications 
Services (PCS) Licensees, WT Docket No. 97-82, Second Report and Order and Further Notice of Proposed 
Rulemaking, 12 FCC Rcd 16436 (1997). 
62 See generally Amendment of the Commissions Rules to Establish New Personal Communications Services, 
Narrowband PCS, GEN Docket No. 90-314, ET Docket No. 92-100, PP Docket No. 93-253, Second Report and 
Order and Second Further Notice of Proposed Rulemaking, 15 FCC Rcd 10456 (2000). 
63 See Letter to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications 
Bureau, FCC, from Aida Alvarez, Administrator, SBA (Dec. 2, 1998). 
64 See 47 C.F.R.  24.321(a). 
65 See 13 C.F.R.  121.201, NAICS code 517211 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.).

Federal Communications Commission FCC 08-262 
E-9 
bidding credits and installment payments.66 A small business is 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 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.67 The SBA has approved these small business size standards.68 According to Commission 
data, 281 carriers have reported that they are engaged in Paging or Messaging Service.69 Of these, an 
estimated 279 have 1,500 or fewer employees, and two have more than 1,500 employees.70 
Consequently, the Commission estimates that the majority of paging providers are small entities that may 
be affected by our action. An auction of Metropolitan Economic Area licenses commenced on February 
24, 2000, and closed on March 2, 2000. Of the 985 licenses auctioned, 440 were sold. Fifty-seven 
companies claiming small business status won. 
31. Wireless Telephony. Wireless telephony includes cellular, PCS, and specialized mobile 
radio (SMR) telephony carriers. As noted earlier, the SBA has developed a small business size standard 
for Cellular and Other Wireless Telecommunications services.71 Under that SBA small business size 
standard, a business is small if it has 1,500 or fewer employees.72 According to Commission data, 434 
carriers reported that they were engaged in the provision of wireless telephony.73 We have estimated that 
222 of these are small under the SBA small business size standard.74 
32. 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 small business size standard for 
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 small business size standard under the 
SBA rules applicable to Cellular and Other Wireless Telecommunications companies. Under this 
category, the SBA deems a wireless business to be small if it has 1,500 or fewer employees. 75 The 
Commission estimates that nearly all such licensees are small businesses under the SBAs small business 
size standard that may be affected by rules adopted pursuant to the Further Notice. 
33. 220 MHz Radio Service  Phase II Licensees. The 220 MHz service has both Phase I 
66 See Amendment of Part 90 of the Commissions Rules to Provide for the Use of the 220-222 MHz Band by the 
Private Land Mobile Radio Service, PR Docket No. 89-552, GN Docket No. 93-252, PP Docket No. 93-253, Third 
Report and Order and Fifth Notice of Proposed Rulemaking, 12 FCC Rcd 10943, 1106870, paras. 291295 (1997) 
(220 MHz Third Report and Order). 
67 See Letter to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications 
Bureau, FCC, from A. Alvarez, Administrator, SBA (Dec. 2, 1998). 
68 See Revision of Part 22 and Part 90 of the Commissions Rules to Facilitate Future Development of Paging 
Systems, WT Docket No. 96-18, PR Docket No. 93-253, Memorandum Opinion and Order on Reconsideration and 
Third Report and Order, 14 FCC Rcd 10030, 1008588, paras. 98107 (1999) (Paging Third Report and Order). 
69 See Trends in Telephone Service at Table 5.3. 
70 See id. 
71 See 13 C.F.R.  121.201, NAICS code 517212. (This category will be changed for purposes of the 2007 Census 
to Wireless Telecommunications Carriers (except Satellite), NAICS code 517201.). 
72 See id. 
73 See Trends in Telephone Service at Table 5.3. 
74 See id. 
75 See 13 C.F.R.  121.201, NAICS code 517212.

Federal Communications Commission FCC 08-262 
E-10 
and Phase II licenses. 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 a small business size standard for small 
and very small businesses for purposes of determining their eligibility for special provisions such as 
bidding credits and installment payments.76 This small business size standard indicates that a small 
business is an entity that, together with its affiliates and controlling principals, has average gross 
revenues not exceeding $15 million for the preceding three years.77 A very small business is an entity 
that, together with its affiliates and controlling principals, has average gross revenues that do not exceed 
$3 million for the preceding three years.78 The SBA has approved these small business size standards.79 
Auctions of Phase II licenses commenced on September 15, 1998, and closed on October 22, 1998.80 In 
the first auction, 908 licenses were auctioned in three different-sized geographic areas: three nationwide 
licenses, 30 Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of 
the 908 licenses auctioned, 693 were sold. Thirty-nine small businesses won licenses in the first 220 
MHz auction. The second auction included 225 licenses: 216 EA licenses and 9 EAG licenses. Fourteen 
companies claiming small business status won 158 licenses.81 
34. 800 MHz and 900 MHz Specialized Mobile Radio Licenses. The Commission awards 
small entity and very small entity bidding credits in auctions for Specialized Mobile Radio (SMR) 
geographic area licenses in the 800 MHz and 900 MHz bands to firms that had revenues of no more than 
$15 million in each of the three previous calendar years, or that had revenues of no more than $3 million 
in each of the previous calendar years, respectively.82 These bidding credits apply to SMR providers in 
the 800 MHz and 900 MHz bands that either hold geographic area licenses or have obtained extended 
implementation authorizations. The Commission does 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. The Commission assumes, for purposes here, that all of the remaining existing 
extended implementation authorizations are held by small entities, as that term is defined by the SBA. 
The Commission has held auctions for geographic area licenses in the 800 MHz and 900 MHz SMR 
bands. There were 60 winning bidders that qualified as small or very small entities in the 900 MHz SMR 
auctions. Of the 1,020 licenses won in the 900 MHz auction, bidders qualifying as small or very small 
entities won 263 licenses. In the 800 MHz auction, 38 of the 524 licenses won were won by small and 
very small entities. 
35. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, we adopted a 
small business size standard for small businesses and very small businesses for purposes of 
determining their eligibility for special provisions such as bidding credits and installment payments.83 A 
small business is an entity that, together with its affiliates and controlling principals, has average gross 
revenues not exceeding $40 million for the preceding three years.84 Additionally, a very small business 
76 See 220 MHz Third Report and Order, 12 FCC Rcd at 1106870, at paras. 29195. 
77 See id. at 1106869, para. 291. 
78 See id. at 1106870, paras. 29195. 
79 See Letter to D. Phythyon, Chief, Wireless Telecommunications Bureau, FCC, from Aida Alvarez, Administrator, 
SBA (Jan. 6, 1998). 
80 See Phase II 220 MHz Service Auction Closes, Public Notice, 14 FCC Rcd 605 (1998). 
81 See Phase II 220 MHz Service Spectrum Auction Closes, Public Notice, 14 FCC Rcd 11218 (1999). 
82 See 47 C.F.R.  90.814(b). 
83 See Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commissions Rules, 
WT Docket No. 99-168, Second Report and Order, 15 FCC Rcd 5299 (2000) (700 MHz Guard Band Order). 
84 See id. at 534345 paras. 10610. 

Federal Communications Commission FCC 08-262 
E-11 
is an entity that, together with its affiliates and controlling principals, has average gross revenues that are 
not more than $15 million for the preceding three years.85 An auction of 52 Major Economic Area 
(MEA) licenses commenced on September 6, 2000, and closed on September 21, 2000.86 Of the 104 
licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small businesses that 
won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses commenced on February 
13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned were sold to three bidders. 
One of these bidders was a small business that won a total of two licenses.87 
36. Rural Radiotelephone Service. The Commission has not adopted a size standard for 
small businesses specific to the Rural Radiotelephone Service.88 A significant subset of the Rural 
Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS).89 The Commission 
uses the SBAs small business size standard applicable to Cellular and Other Wireless 
Telecommunications, i.e., an entity employing no more than 1,500 persons.90 There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that there are 1,000 
or fewer small entity licensees in the Rural Radiotelephone Service that may be affected by the rules and 
policies adopted herein. 
37. Air-Ground Radiotelephone Service. The Commission has not adopted a small 
business size standard specific to the Air-Ground Radiotelephone Service.91 We will use SBAs small 
business size standard applicable to Cellular and Other Wireless Telecommunications, i.e., an entity 
employing no more than 1,500 persons.92 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 small 
business size standard and may be affected by rules adopted pursuant to the Further Notice. 
38. Aviation and Marine Radio Services. Small businesses in the aviation and marine 
radio services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency 
position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has 
not developed a small business size standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business size standard for the category 
Cellular and Other Telecommunications, which is 1,500 or fewer employees.93 Most applicants for 
recreational licenses are individuals. Approximately 581,000 ship station licensees and 131,000 aircraft 
station licensees operate domestically and are not subject to the radio carriage requirements of any statute 
or treaty. For purposes of our evaluations in this analysis, we estimate that there are up to approximately 
712,000 licensees that are small businesses (or individuals) under the SBA standard. In addition, between 
December 3, 1998 and December 14, 1998, the Commission held an auction of 42 VHF Public Coast 
licenses in the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz (coast transmit) 
85 See id. 
86 See 700 MHz Guard Band Auction Closes, Public Notice, 15 FCC Rcd 18026 (2000). 
87 See 700 MHz Guard Band Auction Closes, Public Notice, 16 FCC Rcd 4590 (2001). 
88 See 47 C.F.R.  22.99. 
89 See 47 C.F.R.  22.757, 22.759. 
90 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 
91 See 47 C.F.R.  22.99. 
92 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 
93 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 

Federal Communications Commission FCC 08-262 
E-12 
bands. For purposes of the auction, the Commission defined a small business as an entity that, together 
with controlling interests and affiliates, has average gross revenues for the preceding three years not to 
exceed $15 million dollars.94 In addition, a very small business is one that, together with controlling 
interests and affiliates, has average gross revenues for the preceding three years not to exceed $3 million 
dollars.95 There are approximately 10,672 licensees in the Marine Coast Service, and the Commission 
estimates that almost all of them qualify as small businesses under the above special small business size 
standards and may be affected by rules adopted pursuant to the Further Notice. 
39. Fixed Microwave Services. Fixed microwave services include common carrier,96 
private operational-fixed,97 and broadcast auxiliary radio services.98 At present, there are approximately 
22,015 common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast 
auxiliary radio licensees in the microwave services. The Commission has not created a size standard for a 
small business specifically with respect to fixed microwave services. For purposes of this analysis, the 
Commission uses the SBA small business size standard for the category Cellular and Other 
Telecommunications, which is 1,500 or fewer employees.99 The Commission does not have data 
specifying the number of these licensees that have more than 1,500 employees, and thus is unable at this 
time to estimate with greater precision the number of fixed microwave service licensees that would 
qualify as small business concerns under the SBAs small business size standard. Consequently, the 
Commission estimates that there are up to 22,015 common carrier fixed licensees and up to 61,670 private 
operational-fixed licensees and broadcast auxiliary radio licensees in the microwave services that may be 
small and may be affected by the rules and policies adopted herein. We note, however, that the common 
carrier microwave fixed licensee category includes some large entities. 
40. Offshore Radiotelephone Service. This service operates on several UHF television 
broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico.100 There are approximately 55 licensees in this service. We are unable to estimate at this 
time the number of licensees that would qualify as small under the SBAs small business size standard for 
Cellular and Other Wireless Telecommunications services.101 Under that SBA small business size 
94 See generally Amendment of the Commissions Rules Concerning Maritime Communications, PR Docket No. 92- 
257, Third Report and Order and Memorandum Opinion and Order, 13 FCC Rcd 19853, 1988488 paras. 6473 
(1998). 
95 See id. 
96 See 47 C.F.R.  101 et seq. (formerly, Part 21 of the Commissions Rules) for common carrier fixed microwave 
services (except Multipoint Distribution Service). 
97 Persons eligible under parts 80 and 90 of the Commissions Rules can use Private Operational-Fixed Microwave 
services. See 47 C.F.R. Parts 80 and 90. Stations in this service are called operational-fixed to distinguish them 
from common carrier and public fixed stations. Only the licensee may use the operational-fixed station, and only for 
communications related to the licensees commercial, industrial, or safety operations. 
98 Auxiliary Microwave Service is governed by Part 74 of Title 47 of the Commissions Rules. See 47 C.F.R. Part 
74. This service is available to licensees of broadcast stations and to broadcast and cable network entities. 
Broadcast auxiliary microwave stations are used for relaying broadcast television signals from the studio to the 
transmitter, or between two points such as a main studio and an auxiliary studio. The service also includes mobile 
television pickups, which relay signals from a remote location back to the studio. 
99 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 
100 This service is governed by Subpart I of Part 22 of the Commissions Rules. See 47 C.F.R.  22.10011037. 
101 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.).

Federal Communications Commission FCC 08-262 
E-13 
standard, a business is small if it has 1,500 or fewer employees.102 
41. Wireless Communications Services. This service can be used for fixed, mobile, 
radiolocation, and digital audio broadcasting satellite uses. The Commission established small business 
size standards for the wireless communications services (WCS) auction. A small business is an entity 
with average gross revenues of $40 million for each of the three preceding years, and a very small 
business is an entity with average gross revenues of $15 million for each of the three preceding years. 
The SBA has approved these small business size standards.103 The Commission auctioned geographic 
area licenses in the WCS service. In the auction, there were seven winning bidders that that qualified as 
very small business entities, and one that qualified as a small business entity. We conclude that the 
number of geographic area WCS licenses affected by this analysis includes these eight entities. 
42. 39 GHz Service. The Commission created a special small business size standard for 39 
GHz licenses  an entity that has average gross revenues of $40 million or less in the three previous 
calendar years.104 An additional size standard for very small business is: an entity that, together with 
affiliates, has average gross revenues of not more than $15 million for the preceding three calendar 
years.105 The SBA has approved these small business size standards.106 The auction of the 2,173 39 GHz 
licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business 
status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are 
small entities that may be affected by rules adopted pursuant to the Further Notice. 
43. Wireless Cable Systems. Wireless cable systems use 2 GHz band frequencies of the 
Broadband Radio Service (BRS), formerly Multipoint Distribution Service (MDS),107 and the Educational 
Broadband Service (EBS), formerly Instructional Television Fixed Service (ITFS),108 to transmit video 
programming and provide broadband services to residential subscribers.109 These services were originally 
designed for the delivery of multichannel video programming, similar to that of traditional cable systems, 
but over the past several years licensees have focused their operations instead on providing two-way highspeed 
Internet access services.110 We estimate that the number of wireless cable subscribers is 
102 See id. 
103 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 
104 See Amendment of the Commissions Rules Regarding the 37.0-38.6 GHz and 38.6-40.0 GHz Bands, ET Docket 
No. 95-183, PP Docket No. 93-253, Report and Order, 12 FCC Rcd 18600, 1866164, paras. 149151 (1997). 
105 See id. 
106 See Letter to Kathleen OBrien Ham, Chief, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, FCC, from Aida Alvarez, Administrator, SBA (Feb. 4, 1998). 
107 MDS, also known as Multichannel Multipoint Distribution Service (MMDS) has been renamed the Broadband 
Radio Service (BRS) and is regulated by Part 27 of the Commissions rules; see 47 C.F.R. Part 27, subpart M. See 
Amendment of Parts 1, 21, 73, 74 and 101 of the Commissions Rules to Facilitate the Provision of Fixed and 
Mobile Broadband Access, Educational and Other Advanced Services in the 2150-2162 and 2500-2690 MHz Bands, 
WT Docket Nos. 03-66, 03-67, 02-68, 00-230, MM Docket No. 97-217, RM-10586, RM-9718, Report and Order 
and Further Notice of Proposed Rulemaking, 19 FCC Rcd 14165 (2004) (MDS/ITFS Order). 
108 ITFS, an educational service, has been renamed the Educational Broadband Service (EBS); see generally, 
MDS/ITFS Order, 19 FCC Rcd 14165 (2004). EBS systems are regulated by Part 76 of the Commissions rules; see 
47 C.F.R. Part 76. 
109 See generally Annual Assessment of the Status of Competition in the Market for the Delivery of Video 
Programming, MB Docket No. 06-189, Notice of Inquiry, 21 FCC Rcd 12229, 12253, para. 71 (2006) (in which the 
Commission seeks industry comment on new uses of traditional cable systems). 
110 See id.

Federal Communications Commission FCC 08-262 
E-14 
approximately 100,000, as of March 2005. Local Multipoint Distribution Service (LMDS) is a fixed 
broadband point-to-multipoint microwave service that provides for two-way video telecommunications.111 
As described below, the SBA small business size standard for the broad census category of Cable and 
Other Program Distribution, which consists of such entities generating $13.5 million or less in annual 
receipts, appears applicable to MDS, ITFS and LMDS.112 
44. The Commission has defined small MDS (now BRS) and LMDS entities in the context of 
Commission license auctions. In the 1996 MDS auction,113 the Commission defined a small business as 
an entity that had annual average gross revenues of less than $40 million in the previous three calendar 
years. This definition of a small entity in the context of MDS auctions has been approved by the SBA.114 
In the MDS auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61 claimed small business 
status. At this time, the Commission estimates that of the 61 small business MDS auction winners, 48 
remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, 
there are approximately 392 incumbent MDS licensees that have gross revenues that are not more than 
$40 million and are thus considered small entities.115 MDS licensees and wireless cable operators that did 
not receive their licenses as a result of the MDS auction fall under the SBA small business size standard 
for Cable and Other Program Distribution.116 Information available to us indicates that there are 
approximately 850 of these licensees and operators that do not generate revenue in excess of $13.5 
million annually. Therefore, we estimate that there are approximately 850 small entity MDS (or BRS) 
providers, as defined by the SBA and the Commissions auction rules that may be affected by rules 
adopted pursuant to the Further Notice. 
45. Educational institutions are included in this analysis as small entities; however, the 
Commission has not created a specific small business size standard for ITFS (now EBS).117 We estimate 
that there are currently 2,032 ITFS (or EBS) licensees, and all but 100 of the licenses are held by 
educational institutions. Thus, we estimate that at least 1,932 ITFS licensees are small entities that may 
be affected by rules adopted pursuant to the Further Notice. 
46. In the 1998 and 1999 LMDS auctions,118 the Commission defined a small business as an 
111 See Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commissions Rules to Redesignate the 27.5-29.5 GHZ 
Frequency Band, to Reallocate the 29.5-30.0 GHZ Frequency Band, to Establish Rules and Policies for Local 
Multipoint Distribution Service and for Fixed Satellite Services, CC Docket No. 92-297, Second Report and Order, 
Order on Reconsideration, Fifth Notice of Proposed Rulemaking, 12 FCC Rcd 12545 (1997) (LMDS Order). 
112 See 13 C.F.R.  121.201, NAICS code 517510. 
113 MDS Auction No. 6 began on Nov. 13, 1995, and closed on Mar. 28, 1996 (67 bidders won 493 licenses). 
114 See generally Amendment of Parts 21 and 74 of the Commissions Rules with Regard to Filing Procedures in the 
Multipoint Distribution Service and in the Instructional Television Fixed Service, MM Docket No. 94-131, Report 
and Order, 10 FCC Rcd 9589 (1995). 
115 Hundreds of stations were licensed to incumbent MDS licensees prior to implementation of Section 309(j) of the 
Communications Act of 1934. See 47 U.S.C.  309(j). For these pre-auction licenses, the applicable standard is 
SBAs small business size standards for other telecommunications (annual receipts of $13.5 million or less). See 
13 C.F.R.  121.201, NAICS code 517910. 
116 See 13 C.F.R.  121.201, NAICS code 517510. 
117 In addition, the term small entity under SBREFA applies to small organizations (nonprofits) and to small 
governmental jurisdictions (cities, counties, towns, townships, villages, school districts, and special districts with 
populations of less than 50,000). See 5 U.S.C.  601(4)(6). We do not collect annual revenue data on ITFS (now 
EBS) licensees. 
118 The Commission has held two LMDS auctions: Auction 17 and Auction 23. Auction No. 17, the first LMDS 
auction, began on Feb. 18, 1998, and closed on Mar. 25, 1998. (104 bidders won 864 licenses.) Auction No. 23, the 
LMDS re-auction, began on Apr. 27, 1999, and closed on May 12, 1999. (40 bidders won 161 licenses.)

Federal Communications Commission FCC 08-262 
E-15 
entity that has annual average gross revenues of less than $40 million in the previous three calendar 
years.119 Moreover, the Commission added an additional classification for a very small business, which 
was defined as an entity that had annual average gross revenues of less than $15 million in the previous 
three calendar years.120 These definitions of small business and very small business in the context of 
the LMDS auctions have been approved by the SBA.121 In the first LMDS auction, 104 bidders won 864 
licenses. Of the 104 auction winners, 93 claimed status as small or very small businesses. In the LMDS 
re-auction, 40 bidders won 161 licenses. Based on this information, we believe that the number of small 
LMDS licenses will include the 93 winning bidders in the first auction and the 40 winning bidders in the 
re-auction, for a total of 133 small entity LMDS providers as defined by the SBA and the Commissions 
auction rules. 
47. 218-219 MHz Service. The first auction of 218-219 MHz spectrum resulted in 170 
entities winning licenses for 594 Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses, 557 
were won by entities qualifying as a small business. For that auction, the small business size standard 
was an entity that, together with its affiliates, has no more than a $6 million net worth and, after federal 
income taxes (excluding any carry over losses), has no more than $2 million in annual profits each year 
for the previous two years.122 In the 218-219 MHz Report and Order and Memorandum Opinion and 
Order, we established a small business size standard for a small business as an entity that, together with 
its affiliates and persons or entities that hold interests in such an entity and their affiliates, has average 
annual gross revenues not to exceed $15 million for the preceding three years.123 A very small business 
is defined as an entity that, together with its affiliates and persons or entities that hold interests in such an 
entity and its affiliates, has average annual gross revenues not to exceed $3 million for the preceding three 
years.124 These size standards will be used in future auctions of 218-219 MHz spectrum. 
48. 24 GHz  Incumbent Licensees. This analysis may affect incumbent licensees who 
were relocated to the 24 GHz band from the 18 GHz band, and applicants who wish to provide services in 
the 24 GHz band. The applicable SBA small business size standard is that of Cellular and Other 
Wireless Telecommunications companies. This category provides that such a company is small if it 
employs no more than 1,500 persons.125 We believe that there are only two licensees in the 24 GHz band 
that were relocated from the 18 GHz band, Teligent126 and TRW, Inc. It is our understanding that 
Teligent and its related companies have less than 1,500 employees, though this may change in the future. 
TRW is not a small entity. Thus, only one incumbent licensee in the 24 GHz band is a small business 
entity. 
49. 24 GHz  Future Licensees. With respect to new applicants in the 24 GHz band, the 
119 See generally LMDS Order, 12 FCC Rcd 12545 (1997). 
120 See id. 
121 See Letter to Daniel Phythyon, Chief, Wireless Telecommunications Bureau (FCC) from A. Alvarez, 
Administrator, SBA (Jan. 6, 1998). 
122 See generally Implementation of Section 309(j) of the Communications Act  Competitive Bidding, PP Docket 
No. 93-253, Fourth Report and Order, 9 FCC Rcd 2330 (1994). 
123 See generally Amendment of Part 95 of the Commissions Rules to Provide Regulatory Flexibility in the 218-219 
MHz Service, WT Docket No. 98-169, Report and Order and Memorandum Opinion and Order, 15 FCC Rcd 1497 
(1999). 
124 See id. 
125 See 13 C.F.R.  121.201, NAICS code 517212 (This category will be changed for purposes of the 2007 Census to 
Wireless Telecommunications Carriers (except Satellite), NAICS code 517210.). 
126 Teligent acquired the DEMS licenses of FirstMark, the only licensee other than TRW in the 24 GHz band whose 
license has been modified to require relocation to the 24 GHz band.

Federal Communications Commission FCC 08-262 
E-16 
size standard for small business is an entity that, together with controlling interests and affiliates, has 
average annual gross revenues for the three preceding years not in excess of $15 million.127 Very small 
business in the 24 GHz band is an entity that, together with controlling interests and affiliates, has 
average gross revenues not exceeding $3 million for the preceding three years.128 The SBA has approved 
these small business size standards.129 These size standards will apply to a future 24 GHz license auction, 
if held. 
2. Satellite Service Providers 
50. Satellite Telecommunications. Since 2007, the SBA has recognized satellite firms 
within this revised category, with a small business size standard of $15 million.130 The most current 
Census Bureau data, however, are from the (last) economic census of 2002, and we will use those figures 
to gauge the prevalence of small businesses in this category. Those size standards are for the two census 
categories of Satellite Telecommunications and Other Telecommunications. Under both prior 
categories, such a business was considered small if it had, as now, $15 million or less in average annual 
receipts.131 
51. The first category of Satellite Telecommunications comprises establishments primarily 
engaged in providing point-to-point telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and receiving communications signals via 
a system of satellites or reselling satellite telecommunications.132 For this category, Census Bureau data 
for 2002 show that there were a total of 371 firms that operated for the entire year.133 Of this total, 307 
firms had annual receipts of under $10 million, and 26 firms had receipts of $10 million to 
$24,999,999.134 Consequently, we estimate that the majority of Satellite Telecommunications firms are 
small entities that might be affected by rules adopted pursuant to the Further Notice. 
52. The second category of Other Telecommunications comprises establishments primarily 
engaged in (1) providing specialized telecommunications applications, such as satellite tracking, 
communications telemetry, and radar station operations; or (2) providing satellite terminal stations and 
associated facilities operationally connected with one or more terrestrial communications systems and 
capable of transmitting telecommunications to or receiving telecommunications from satellite systems.135 
For this category, Census Bureau data for 2002 show that there were a total of 332 firms that operated for 
127 See Amendments to Parts 1, 2, 87 and 101 of the Commissions Rules to License Fixed Services at 24 GHz, WT 
Docket No. 99-327, Report and Order, 15 FCC Rcd 16934, 16967 at para. 77 (2000); see also 47 C.F.R. 
 101.538(a)(2). 
128 See Amendments to Parts 1, 2, 87 and 101 of the Commissions Rules to License Fixed Services at 24 GHz, WT 
Docket No. 99-327, Report and Order, 15 FCC Rcd 16934, 16967 at para. 77 (2000); see also 47 C.F.R. 
 101.538(a)(1). 
129 See Letter to Margaret W. Wiener, Deputy Chief, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, FCC, from Gary M. Jackson, Assistant Administrator, SBA (July 28, 2000). 
130 See 13 C.F.R.  121.201, NAICS code 517410. 
131 See 13 C.F.R.  121.201, NAICS codes 517410 and 517910. 
132 U.S. Census Bureau, 2002 NAICS Definitions, 517410 Satellite Telecommunications; 
http://www.census.gov/epcd/naics02/def/NDEF517.HTM. 
133 See 13 C.F.R.  121.201, NAICS code 517410. 
134 See id. An additional 38 firms had annual receipts of $25 million or more. 
135 U.S. Census Bureau, 2002 NAICS Definitions, 517910 Other Telecommunications; 
http://www.census.gov/epcd/naics02/def/NDEF517.HTM. 

Federal Communications Commission FCC 08-262 
E-17 
the entire year.136 Of this total, 303 firms had annual receipts of under $10 million and 15 firms had 
annual receipts of $10 million to $24,999,999.137 Consequently, we estimate that the majority of Other 
Telecommunications firms are small entities that might be affected by our action. 
3. Cable and OVS Operators 
53. In 2007, the SBA recognized new census categories for small cable entities.138 However, 
there is no census data yet in existence that may be used to calculate the number of small entities that fit 
these definitions. Therefore, we will use prior definitions of these types of entities in order to estimate 
numbers of potentially-affected small business entities. 
54. Cable and Other Program Distribution. The Census Bureau defines this category as 
third-party distribution systems for broadcast programming. . . . [that] deliver visual, aural, or textual 
programming received from cable networks, local television stations, or radio networks to consumers via 
cable or direct-to-home satellite systems on a subscription or fee basis. . . [and] do not generally originate 
programming material.139 The SBA has developed a small business size standard for Cable and Other 
Program Distribution, of firms having $13.5 million or less in annual receipts.140 According to Census 
Bureau data for 2002, there were a total of 1,191 firms in this category that operated for the entire year.141 
Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 
million or more but less than $25 million.142 Thus, under this size standard, the majority of firms can be 
considered small and may be affected by rules adopted pursuant to the Further Notice. 
55. Cable Companies and Systems. The Commission has developed its own small business 
size standards, for the purpose of cable rate regulation. Under the Commissions rules, a small cable 
company is one serving 400,000 or fewer subscribers, nationwide.143 Industry data indicate that, of 
1,076 cable operators nationwide, all but eleven are small under this size standard.144 In addition, under 
the Commissions rules, a small system is a cable system serving 15,000 or fewer subscribers.145 
Industry data indicate that, of 7,208 systems nationwide, 6,139 systems have under 10,000 subscribers, 
and an additional 379 systems have 10,000-19,999 subscribers.146 Thus, under this second size standard, 
136 See 13 C.F.R.  121.201, NAICS code 517910. 
137 See id. An additional 14 firms had annual receipts of $25 million or more. 
138 See 13 C.F.R.  121.201. 
139 U.S. Census Bureau, 2002 NAICS Definitions, 517510 Cable and Other Program Distribution; 
http://www.census.gov/epcd/naics02/def/NDEF517.HTM. 
140 See 13 C.F.R.  121.201, NAICS code 517510 (This category will be changed for purposes of the 2007 Census to 
Wired Telecommunications Carriers, NAICS code 517110.). 
141 See id. 
142 Id. An additional 61 firms had annual receipts of $25 million or more. 
143 See 47 C.F.R.  76.901(e). The Commission determined that this size standard equates approximately to a size 
standard of $100 million or less in annual revenues. See Implementation of Sections of the 1992 Cable Television 
Consumer Protection and Competition Act: Rate Regulation, Sixth Report and Order and Eleventh Order on 
Reconsideration, 10 FCC Rcd 7393, 7408 at para. 28 (1995). 
144 These data are derived from R.R. BOWKER, BROADCASTING & CABLE YEARBOOK 2006, Top 25 Cable/Satellite 
Operators, pages A-8 & C-2 (data current as of June 30, 2005); WARREN COMMUNICATIONS NEWS, TELEVISION & 
CABLE FACTBOOK 2006, Ownership of Cable Systems in the United States, pages D-1805 to D-1857. 
145 See 47 C.F.R.  76.901(c). 
146 WARREN COMMUNICATIONS NEWS, TELEVISION & CABLE FACTBOOK 2006, U.S. Cable Systems by Subscriber 
Size, page F-2 (data current as of Oct. 2005). The data do not include 718 systems for which classifying data were 
not available.

Federal Communications Commission FCC 08-262 
E-18 
most cable systems are small and may be affected by rules adopted pursuant to the Further Notice. 
56. Cable System Operators. The Act also contains a size standard for small cable system 
operators, which is a cable operator that, directly or through an affiliate, serves in the aggregate fewer 
than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose 
gross annual revenues in the aggregate exceed $250,000,000.147 The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual revenues, 
when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the 
aggregate.148 Industry data indicate that, of 1,076 cable operators nationwide, all but ten are small under 
this size standard.149 We note that the Commission neither requests nor collects information on whether 
cable system operators are affiliated with entities whose gross annual revenues exceed $250 million,150 
and therefore we are unable to estimate more accurately the number of cable system operators that would 
qualify as small under this size standard. 
57. Open Video Services. Open Video Service (OVS) systems provide subscription 
services.151 As noted above, the SBA has created a small business size standard for Cable and Other 
Program Distribution.152 This standard provides that a small entity is one with $13.5 million or less in 
annual receipts. The Commission has certified approximately 45 OVS operators to serve 75 areas, and 
some of these are currently providing service.153 Affiliates of Residential Communications Network, Inc. 
(RCN) received approval to operate OVS systems in New York City, Boston, Washington, D.C., and 
other areas. RCN has sufficient revenues to assure that they do not qualify as a small business entity. 
Little financial information is available for the other entities that are authorized to provide OVS and are 
not yet operational. Given that some entities authorized to provide OVS service have not yet begun to 
generate revenues, the Commission concludes that up to 44 OVS operators (those remaining) might 
qualify as small businesses that may be affected by rules adopted pursuant to the Further Notice. 
4. Internet Service Providers, Web Portals and Other Information Services 
58. In 2007, the SBA recognized two new small business, economic census categories: (1) 
Internet Publishing and Broadcasting and Web Search Portals154 and; (2) All Other Information 
Services.155 However, there is no census data yet in existence that may be used to calculate the number of 
small entities that fit these definitions. Therefore, we will use prior definitions of these types of entities in 
order to estimate numbers of potentially-affected small business entities. 
59. Internet Service Providers. The SBA has developed a small business size standard for 
147 47 U.S.C.  543(m)(2); see also 47 C.F.R.  76.901(f) & nn.13. 
148 47 C.F.R.  76.901(f); see FCC Announces New Subscriber Count for the Definition of Small Cable Operator, 
Public Notice, 16 FCC Rcd 2225 (Cable Services Bureau 2001). 
149 These data are derived from R.R. BOWKER, BROADCASTING & CABLE YEARBOOK 2006, Top 25 Cable/Satellite 
Operators, pages A-8 & C-2 (data current as of June 30, 2005);WARREN COMMUNICATIONS NEWS, TELEVISION & 
CABLE FACTBOOK 2006, Ownership of Cable Systems in the United States, pages D-1805 to D-1857. 
150 The Commission does receive such information on a case-by-case basis if a cable operator appeals a local 
franchise authoritys finding that the operator does not qualify as a small cable operator pursuant to  76.901(f) of 
the Commissions rules. 
151 See 47 U.S.C.  573. 
152 See 13 C.F.R.  121.201, NAICS code 517510 (This category will be changed for purposes of the 2007 Census to 
Wired Telecommunications Carriers, NAICS code 517110.). 
153 See http://www.fcc.gov/mb/ovs/csovscer.html (current as of Feb. 2007). 
154 See 13 C.F.R.  121.201, NAICS code 519130 (establishing a $500,000 revenue ceiling). 
155 See 13 C.F.R.  121.201, NAICS code 519190 (establishing a $6.5 million revenue ceiling).

Federal Communications Commission FCC 08-262 
E-19 
Internet Service Providers (ISPs). ISPs provide clients access to the Internet and generally provide 
related services such as web hosting, web page designing, and hardware or software consulting related to 
Internet connectivity.156 Under the SBA size standard, such a business is small if it has average annual 
receipts of $23 million or less.157 According to Census Bureau data for 2002, there were 2,529 firms in 
this category that operated for the entire year. 158 Of these, 2,437 firms had annual receipts of under $10 
million, and an additional 47 firms had receipts of between $10 million and $24,999,999. Consequently, 
we estimate that the majority of these firms are small entities that may be affected by rules adopted 
pursuant to the Further Notice. 
60. Web Search Portals. Our action may pertain to interconnected VoIP services, which 
could be provided by entities that provide other services such as email, online gaming, web browsing, 
video conferencing, instant messaging, and other, similar IP-enabled services. The Commission has not 
adopted a size standard for entities that create or provide these types of services or applications. 
However, the Census Bureau has identified firms that operate web sites that use a search engine to 
generate and maintain extensive databases of Internet addresses and content in an easily searchable 
format.159 The SBA has developed a small business size standard for this category of $6.5 million or 
less in average annual receipts.160 According to Census Bureau data for 2002, there were 342 firms in this 
category that operated for the entire year.161 Of these, 303 had annual receipts of under $5 million, and an 
additional 15 firms had receipts of between $5 million and $9,999,999. Consequently, we estimate that 
the majority of these firms are small entities that may be affected by rules adopted pursuant to the Further 
Notice. 
61. Data Processing, Hosting, and Related Services. Entities in this category primarily  
provid[e] infrastructure for hosting or data processing services.162 The SBA has developed a small 
business size standard for this category; that size standard is $23 million or less in average annual 
receipts.163 According to Census Bureau data for 2002, there were 6,877 firms in this category that 
operated for the entire year.164 Of these, 6,418 had annual receipts of under $10 million, and an additional 
251 firms had receipts of between $10 million and $24,999,999. Consequently, we estimate that the 
majority of these firms are small entities that may be affected by rules adopted pursuant to the Further 
Notice. 
62. All Other Information Services. The Census Bureau defines this industry as including 
establishments primarily engaged in providing other information services (except new syndicates and 
libraries and archives).165 Our action pertains to interconnected VoIP services, which could be provided 
156 U.S. Census Bureau, 2002 NAICS Definitions: 518111 Internet Service Providers; 
http://www.census.gov/epcd/naics02/def/NDEF518.HTM. 
157 See 13 C.F.R.  121.201, NAICS code 518111. 
158 See 13 C.F.R.  121.201, NAICS code 518111. 
159 U.S. Census Bureau, 2002 NAICS Definitions: 518112 Web Search Portals; 
http://www.census.gov/epcd/naics02/def/NDEF518.HTM. 
160 See 13 C.F.R.  121.201, NAICS code 518112. 
161 See 13 C.F.R.  121.201, NAICS code 518112. 
162 U.S. Census Bureau, 2002 NAICS Definitions: 518210 Data Processing, Hosting, and Related Services; 
http://www.census.gov/epcd/naics02/def/NDEF518.HTM. 
163 See 13 C.F.R.  121.201, NAICS code 518210. 
164 See 13 C.F.R.  121.201, NAICS code 518210. 
165 U.S. Census Bureau, 2002 NAICS Definitions: 519190 All Other Information Services; 
http://www.census.gov/epcd/naics02/def/NDEF519.HTM.

Federal Communications Commission FCC 08-262 
E-20 
by entities that provide other services such as email, online gaming, web browsing, video conferencing, 
instant messaging, and other, similar IP-enabled services. The SBA has developed a small business size 
standard for this category; that size standard is $6.5 million or less in average annual receipts.166 
According to Census Bureau data for 2002, there were 155 firms in this category that operated for the 
entire year.167 Of these, 138 had annual receipts of under $5 million, and an additional four firms had 
receipts of between $5 million and $9,999,999. Consequently, we estimate that the majority of these 
firms are small entities that may be affected by our action. 
63. Internet Publishing and Broadcasting. The Census Bureau defines this industry as 
establishments engaged in publishing and/or broadcasting content on the Internet exclusively. . . . [that . . 
.] do not provide traditional (non-Internet) versions of the content that they publish or broadcast.168 The 
SBA has developed a small business size standard for this Census category; that size standard is 500 or 
fewer employees.169 According to Census Bureau data for 2002, there were 1,362 firms in this category 
that operated for the entire year.170 Of these, 1,351 had employment of 499 or fewer employees, and 11 
firms had employment of between 500 and 999. Consequently, we estimate that the majority of these 
firms are small entities that may be affected by our action. 
D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities 
64. In the Further Notice, the Commission seeks comment on issues that must be addressed 
to comprehensively reform intercarrier compensation. These issues include the Commissions 
jurisdiction to adopt such reform, how relevant statutory provisions should be interpreted and applied, and 
if and how carriers should be allowed to recover revenues that might be reduced by any intercarrier 
compensation reforms. In addition, the Commission seeks comment on the transition to the elimination 
of originating access. Compliance with a transition away from originating access charges will apply to all 
carriers but may prove financially burdensome to some small entities and may include new or reduced 
administrative processes. 
65. The Commission currently does not regulate the provision of transit service between 
carriers and many carriers have entered into agreements governing the provision of transit traffic. Rules 
imposing transit service obligations will likely have no significant impact on carriers already providing, 
or carriers already using, transit service. For carriers that would be affected, the burdens may include 
determining the price of transit service purchased and/or provided, and developing additional 
administrative capabilities to account for providing and/or receiving transit service. 
66. In this Further Notice the Commission also seeks comment on whether carriers will be 
able to receive universal service support to recover net reduced revenues from intercarrier compensation 
as a result of reforms that could be adopted. To allow rate-of-return carriers to receive universal service 
support in this manner, we may need to modify existing rules. For carriers that may be affected, burdens 
may include certain reporting and recordkeeping requirements to determine and establish their eligibility 
to receive such universal service support. Additionally, these carriers may need to modify some 
administrative processes in order to comply with any new or revised rules the Commission adopts as a 
result of the Further Notice. 
166 See 13 C.F.R.  121.201, NAICS code 519190. 
167 See 13 C.F.R.  121.201, NAICS code 519190. 
168 U.S. Census Bureau, 2002 NAICS Definitions: 516110 Internet Publishing and Broadcasting; 
http://www.census.gov/epcd/naics02/def/NDEF516.HTM. 
169 See 13 C.F.R.  121.201, NAICS code 516110. 
170 See 13 C.F.R.  121.201, NAICS code 516110.

Federal Communications Commission FCC 08-262 
E-21 
67. Possible modifications to the rules in Part 51, if adopted, will affect all carriers. Possible 
modifications to the rules in Part 61 of the Commissions rules, if adopted, will affect all carriers that file 
and/or modify tariff filings. For example, modified rules may decrease or increase a carriers tariff filing 
requirements. Modifications to the rules in Part 69 of the Commissions rules, if adopted, will affect all 
carriers that receive and/or pay access charges. Such revisions could require modifications to carrier 
billing systems and associated reporting and recordkeeping systems. Additionally, modification of the 
Commissions Part 69 rules may require carriers to modify and/or establish intercarrier compensation 
agreements. 
68. As part of the Further Notice, the Commission seeks comment on reforming the high-cost 
disbursement mechanism, including the use of reverse auctions, and how best to implement changes to 
the universal service contribution mechanism. Compliance with a new universal service contribution 
mechanism will apply to all carriers, which may prove financially burdensome to small entities as they 
make changes from reporting information based on the revenue-based mechanism. Changes to the highcost 
mechanism, and adoption of a broadband pilot program for low-income consumers may also 
necessitate additional reporting and recordkeeping requirements. Additionally, these proposed changes 
necessary to implement comprehensive reform also may require changes to Part 54 of the Commissions 
rules and will affect carriers subject to those rules. 
E. Steps Taken to Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered 
69. The RFA requires an agency to describe any significant, specifically small business, 
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 and reporting requirements under the rules for 
such 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 such small entities.171 
70. The Further Notice seeks comment from all interested parties. Small entities are 
encouraged to bring to the Commissions attention any specific concerns they may have with the 
proposals outlined in the Further Notice. 
71. Throughout these proceedings the Commission has received proposals to treat small 
entities differently. We believe that consideration of commenters transition proposals for implementing 
intercarrier compensation reform, as well as alternatives for a carriers recovery of intercarrier revenues 
reduced as a result of any reforms that might be adopted could be consistent with our goals of a unified 
and simplified intercarrier compensation regime that will reduce arbitrage opportunities and promote 
innovation and competition and our statutory requirement to secure the viability of universal service. 
F. Federal Rules that May Duplicate, Overlap, or Conflict with the 
Proposed Rules 
72. None. 
171 5 U.S.C.  603(c)(1)(c)(4).

Federal Communications Commission FCC 08-262 
STATEMENT OF 
CHAIRMAN KEVIN J. MARTIN 
Re: High-Cost Universal Service Support, WC Docket No. 05-337; Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45; Lifeline and Link Up, WC Docket No. 03-109; 
Universal Service Contribution Methodology, WC Docket No. 06-122; Numbering Resource 
Optimization, CC Docket No. 99-200; Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, CC Docket No. 96-98; Developing a Unified Intercarrier 
Compensation Regime, CC Docket No. 01-92; Intercarrier Compensation for ISP-Bound Traffic, 
CC Docket No. 99-68; IP-Enabled Services, WC Docket No. 04-36 
Today we tell the U.S. Court of Appeals for the D.C. Circuit and the Federal-State Joint Board on 
Universal Service that, after years of deliberation, we are still unready to move forward with 
comprehensive reform of intercarrier compensation and universal service. Instead, we issue another 
open-ended Further Notice of Proposed Rulemaking on a variety of approaches for comprehensive 
reform, and my colleagues promise to act on it by December 18. 
I am disappointed by the Commissions unwillingness to step up and make tough choices to 
modernize our intercarrier compensation and universal service programs. I am also doubtful that the 
Commission will find itself any better equipped to act in another six weeks. However, I vote to approve 
this item because this is the only path my colleagues could agree on, and failure to respond to the Court in 
particular would result in an even sorrier state of affairs  immediate vacatur of our rules. 
First, I am skeptical of todays response to the Court, which directed us to justify the 
Commissions interim intercarrier compensation rules for ISP-bound traffic. The Order treats ISP-bound 
traffic differently than all other traffic, including other IP traffic. The Order retains the interim rate cap of 
$0.0007 for terminating this traffic indefinitely. I doubt that an Order that retains artificial and 
unsupported distinctions between types of IP traffic and maintains an interim rate without establishing an 
end game will be seen any more favorably by the Court than the Commissions two previous attempts. 
By singling out ISP-bound traffic for different treatment, we perpetuate the current patchwork of 
rates for different traffic. The Order argues that disparate treatment of ISP-bound traffic is justified to 
combat arbitrage. Yet arbitrage exists precisely because traffic is terminated at a variety of rates. 
In addition, the $0.0007 rate cap for ISP-bound traffic was intended to be an interim measure 
pending comprehensive reform of intercarrier compensation. Indeed, the record does not support a 
differential rate for ISP-bound traffic except on an interim basis. And even then, $0.0007 can only be 
justified as an interim rate under a cost standard that we fail to adopt. A rate of $0.0007 is inconsistent 
with the current TELRIC standard, and the Order does not adequately explain why we retain this rate in 
the absence of moving forward with adopting a cost standard consistent with $0.0007. However, the 
Order simply states that the $0.0007 cap shall remain in place until we adopt more comprehensive 
intercarrier compensation reform. That is, we are establishing a perpetual interim rate. Although the 
Order is silent as to whether the $0.0007 rate is interim, lets be clear  this is an interim rate to 
nowhere. I therefore believe that we have failed to respond to the Court. 
In 2005, the Court denied an earlier mandamus petition based on the Commissions 
representation that it was committed to comprehensive reform. The Commission pointed to its Further 
Notice on comprehensive reform, including permanent rules to succeed the interim intercarrier 
compensation regime for ISP-bound traffic. 
Three years later, the Commission once again finds itself asking the Court not to vacate our rules 
because the Commission remains committed to comprehensive reform. And once again, the Commission 
points to a Further Notice on comprehensive reform as evidence of its commitment.

Federal Communications Commission FCC 08-262 
I question whether my colleagues will be any more willing to adopt comprehensive reform in 
December. As explained below, I believe when December comes, the other Commissioners will simply 
pursue another Further Notice and another round of comment on the most difficult issues. If the Court 
wants a response  and is willing to give the Commission the benefit of the doubt rather than vacate our 
rules immediately  it should enforce our promise of reform on pain of automatic vacatur on December 
19. 
It is unfortunate that the Commission could not agree to adopt the comprehensive solution. I had 
proposed a comprehensive approach that would have transitioned all traffic to a final uniform rate, 
regardless of the type of traffic or jurisdiction. This approach would have answered the Courts direction 
 and I think it would have done so in a legally sustainable way. 
Specifically, I would have concluded that all traffic falls within section 251(b)(5) and called upon 
each state to set a glide path to a reciprocal compensation rate applicable to all traffic under section 
252(d)(2). Under this proposal, traffic terminated at rates below the glide path, such as ISP-bound traffic, 
would continue to be terminated at those rates, on an interim basis, until such traffic is swept into the 
glide path. Ultimately, the glide path would end at a lower, final uniform rate for all traffic. 
Second, I view our failure to implement the Joint Boards recommendations as a tremendous 
missed opportunity. In particular, I supported the Joint Boards determination that broadband should be 
included in the universal service program. As I have said before, to fully appreciate and take advantage 
of the Internet today, consumers need broadband connections. Without this underlying infrastructure, 
efforts to implement advances in how we communicate, work, and provide education cannot succeed. 
My proposal for implementing this recommendation would have spurred rapid and widespread 
deployment of broadband. I would have asked each carrier receiving high-cost universal service support 
to commit to provide broadband to all consumers in its study area within 5 years as a condition of 
continuing to receive support. If a carrier did not make that commitment, we would conduct a reverse 
auction to find out if any other carrier could do so. If nobody came forward, then we would have 
identified an unserved area, and could then determine what additional steps might be necessary to bring 
broadband to those consumers. In addition, I would have created a broadband Lifeline and Link Up 
program to ensure that low income consumers are not left out of our broadband future. 
Finally, I am disappointed with the Further Notice issued today. After a decade of comment on 
these issues, we begin again from square one. To be clear, this is not a targeted Further Notice on a 
specific reform proposal. We are putting out for comment several proposals that would lead to radically 
different outcomes. In the Further Notice and in my colleagues statement, my colleagues invite 
comment on conflicting questions, which reveal that they have no fundamental proposal for reform. 
 Do we include broadband within the universal service program  or not? 
 Do we provide support to competitive carriers based on their own costs? A reverse auction? Or 
do we phase out their support altogether? 
 Should terminating rates be uniform by state  or uniform by carrier? 
 Should we use an incremental cost standard for setting termination rates  or the existing 
TELRIC standard? 
These questions have been debated exhaustively in the record for years. I fail to see how further 
comment over the next six weeks will help us resolve these issues. 
Indeed, the longer we wait, the more difficult these issues become. Regulatory arbitrage will 
increase as long as rates differ by type of traffic and jurisdiction. Moreover, carriers are booking IP 

Federal Communications Commission FCC 08-262 
traffic at vastly different rates that must be reconciled eventually. This type of traffic will continue to 
grow as carriers invest in broadband networks. 
I would like to be encouraged by my colleagues commitment that they will truly be ready to 
complete this much needed reform on December 18. The nature of the questions they included in the 
Further Notice makes me doubt they will have found their answers within an additional six weeks. I 
believe the far more likely outcome is that, in December, the other Commissioners will merely want 
another Further Notice and another round of comment on the most difficult questions. I do not believe 
they will be prepared to address the most challenging issues and that the Commission will be negotiating 
over what further questions to ask in December. 
I recognize that few other issues before the Commission are as technically complex and involved, 
with as many competing interests, as are reforming the intercarrier compensation and universal service 
programs. But neither of those two realities are excuse for inaction. 

Federal Communications Commission FCC 08-262 
JOINT STATEMENT OF 
COMMISSIONERS MICHAEL J. COPPS, JONATHAN S. ADELSTEIN, DEBORAH TAYLOR 
TATE AND ROBERT M. MCDOWELL 
Re: High-Cost Universal Service Support, WC Docket No. 05-337; Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45; Lifeline and Link Up, WC Docket No. 03-109; 
Universal Service Contribution Methodology, WC Docket No. 06-122; Numbering Resource 
Optimization, CC Docket No. 99-200; Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, CC Docket No. 96-98; Developing a Unified Intercarrier 
Compensation Regime, CC Docket No. 01-92; Intercarrier Compensation for ISP-Bound Traffic, 
CC Docket No. 99-68; IP-Enabled Services, WC Docket No. 04-36 
Todays decision responds directly to the mandamus from the D.C. Circuit Court of Appeals 
regarding Core Communications, Inc. The item sets forth the Commissions legal justification for the 
rules it adopted in 2001 governing intercarrier compensation for telecommunications traffic bound for 
Internet service providers. It also preserves the ability to move towards a more unified intercarrier 
compensation regime. 
We also issue a Further Notice seeking comment on specific proposals to reform the intercarrier 
compensation and universal service systems. While we do not pre-judge any of the proposals set forth 
therein, we do believe that there is a tentative but growing measure of consensus on a number of issues, 
including: moving intrastate access rates to interstate access levels over a reasonable period of time; not 
unduly burdening consumers with increases in their rates untethered to reductions in access charges; 
addressing phantom traffic and traffic stimulation; implementing an alternative cost recovery mechanism 
in certain circumstances; eliminating the identical support rule and moving over time towards support 
based on a companys own costs; emphasizing the importance of broadband to the future of universal 
service; and clarifying the implementation of the Alaska Native regions and tribal lands exception to the 
CETC cap adopted on May 1, 2008, and the need for special consideration for such areas. We would 
appreciate stakeholders attention to these issues of concern and consideration of whether modifications 
along these lines to the attached proposals are warranted. This Further Notice reflects our commitment to 
comprehensive reform of the intercarrier compensation and universal service systems in an expedited 
fashion.
Finally, the Commission today has completed a proceeding to consider the recommendations of 
the Federal-State Joint Board on Universal Service. We appreciate all of the valuable input that the Board 
has provided the Commission. We however choose not to implement the Joint Boards recommendations 
at this time. We thank the Board members for their tireless efforts and look forward to obtaining their 
valuable input on an on-going basis. 
For the foregoing reasons, we are pleased to approve todays Report & Order and Further Notice 
of Proposed Rulemaking