[Federal Register Volume 65, Number 87 (Thursday, May 4, 2000)]
[Rules and Regulations]
[Pages 25864-25865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11101]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 97-21, and 98-171; FCC 00-118]


Federal-State Joint Board on Universal Service; Division 
Announces Release of Revised Universal Worksheet, FCC for 457

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document concerning the Federal-State Joint Board on 
Universal Service addresses challenges filed by several parties of the 
Commission's decision to include in the universal service contribution 
base those charges identified by carriers on end-user bills as 
recovering state or federal universal service contributions. The 
Commission denies the parties' challenges.

DATES: Effective May 4, 2000.

FOR FURTHER INFORMATION CONTACT: Jack Zinman, Attorney, Common Carrier 
Bureau, Accounting Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Twenty-First Order on Reconsideration in CC Docket No. 96-45, and 
Memorandum Opinion and Order in CC Docket Nos. 96-45, 97-21, and 98-
171; FCC 00-118, released on April 11, 2000. The full text of this 
document is available for public inspection during regular business 
hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, 
SW, Washington, DC 20554.

Introduction

    1. Several parties have challenged the Commission's decision to 
include in the universal service contribution base those charges 
identified by carriers on end-user bills as recovering state or federal 
universal service contributions. As described, these challenges are 
pending before the Commission at various procedural stages. Because all 
of the challenges concern the same issue, we address them together in 
this order. For the reasons that follow, we deny the parties' 
challenges.

II. Discussion

A. Alleged Procedural Violations

    2. The Commission's rules provide that contributions to the 
universal service support mechanisms shall be based on ``revenues 
derived from domestic end users for telecommunications or 
telecommunications services.'' The parties claim that charges assessed 
on end users to recover a carrier's contributions to state or federal 
universal service support mechanisms do not qualify as revenues derived 
from telecommunications or telecommunications services. Thus, the 
parties assert that Line 48 on the 1998 Universal Service Worksheet 
(FCC Form 457), which treats universal service charges as 
telecommunications revenues, constitutes a new substantive rule. Based 
on the assertion that Line 48 is a new substantive rule, the parties 
further allege that APD committed two procedural violations in adding 
Line 48 to the 1998 Worksheet. First, the parties claim that APD 
exceeded the authority delegated to the Bureau by adopting a new 
substantive rule, which is a task reserved to the Commission in Part 1, 
Subpart C, of the Commission's rules. Second, the parties allege that 
APD violated section 553 of the Administrative Procedure Act (APA) by 
adopting a new substantive rule without an opportunity for notice and 
comment. We disagree.
    3. The parties have erred in their underlying assertion that Line 
48 constitutes a new substantive rule. In the First Report and Order, 
62 FR 32862 (June 17, 1997), released on May 8, 1997, the Commission 
decided to assess contributions to the universal service support 
mechanisms on telecommunications revenues that carriers derive from end 
users. The Commission permitted carriers to recover their universal 
service contributions from their customers and ``to specify that fact 
on customers' bills,'' e.g., through a line-item charge. The Commission 
codified the contribution requirement at Sec. 54.709(a)(1) of its 
rules, which states that contributions to the universal service support 
mechanisms shall be based on ``revenues derived from domestic end users 
for telecommunications or telecommunications services.'' The 1996 Act 
defines telecommunications as ``the transmission, between or among 
points specified by the user, of information of the user's choosing, 
without change in the form or content of the information sent and 
received.'' The 1996 Act also defines telecommunications services as 
``the offering of telecommunications for a fee directly to the public * 
* *.'' The charge assessed on an end-user to recover a carrier's 
contributions to state or federal universal service support mechanisms 
is simply one part of the carrier's fee for the provision of 
telecommunications to that end-user. Although a carrier may choose to 
assess a particular cost of providing telecommunications or 
telecommunications services separately from other such costs, the 
carrier's choice does not change the nature of the revenues received 
from the end-user. Thus, carrier-imposed universal service charges are, 
and always have been, revenues derived from the provision of 
telecommunications. As such, carrier-imposed universal service charges 
are part of the universal service contributions base.
    4. Moreover, we believe that the parties misapprehend the nature of 
carrier-imposed universal service charges. Instead of forcing carriers 
to recover their universal service contributions through a mandatory 
surcharge on their customers, the Commission gave carriers the 
flexibility to decide whether, how, and how much to recover from their 
customers. For example, carriers may recover their universal service 
contributions by raising their rates or by adding a separate line-item 
universal service charge to their customers' bills. In either event, 
the carrier is recovering its contribution from its end-users. Merely 
because the Commission allowed carriers to identify a portion of their 
fees as recovering the carriers' universal service contributions, the 
monies so collected are not somehow rendered non-telecommunications 
revenues. Indeed, but for the provision of telecommunications to its 
customers, a carrier would not have a telecommunications revenues, 
would not be required to contribute to the universal service support 
mechanisms, and would not have any lawful basis to assess a universal 
service charge on its customers.
    5. Because carrier-imposed universal service charges are end-user 
telecommunications revenues, the addition of Line 48 on the 1998 
Worksheet does not constitute a new substantive rule. Rather, Line 48 
is

[[Page 25865]]

merely the Bureau's implementation and clarification of the existing 
Commission rule requiring that contributions be based on end-user 
telecommunications revenues. Because Line 48 is not a new substantive 
rule, the Bureau neither exceeded its delegated authority nor violated 
the notice and comment requirements of the APA. Accordingly, we reject 
the parties' procedural claims.

B. Substantiative Arguments Regarding the Inclusion of Carrier-Imposed 
Universal Service Charges in the Contribution Base

    6. The parties argue that including carrier-imposed universal 
service charges in the contribution base creates a circular formula 
that drives up the contribution base, causing increased contributions, 
which result in higher carrier-imposed universal service charges that 
further drive up the contribution base. Thus, the parties claim that 
the inclusion of carrier-imposed universal service charges in the 
contribution base disserves the public interest because it results in 
an upwardly spiraling ``vicious cycle'' of perpetual increases in 
carrier contributions to the universal service support mechanisms. For 
example, PCIA supplies the following descriptions of this alleged 
effect:

    [I]f a carrier receives $100 in revenues for flat-rated services 
from an end-user over a given period, and assuming a 10 percent 
contribution rate, the carrier's contribution would be $10. If the 
carrier passes the $10 through to the customer, the revenues 
received from the customer (in the next comparable period) would 
increase to $110. If the $10 pass through is considered ``end user 
telecommunications revenues,'' the contribution would increase to 
$11, as an assessment would be included on the recovery of 
contributions from the customer.

    Metrocall and Blooston provide similar examples. Upon closer 
examination, however, the inclusion of carrier-imposed universal 
service charges in the contribution base does not have the effect 
claimed by the parties.
    7. In each of their examples, the parties assume that, all other 
things being equal, the contribution factor remains constant as the 
contribution base increases. This assumption, however, is 
mathematically impossible. The contribution factor is the ratio of 
total universal service program costs to the contribution base. Stated 
as a mathematical equation, the contribution factor can be described as 
follows:
[GRAPHIC] [TIFF OMITTED] TR04MY00.000

    The total program costs and the contribution base are independent 
variables in this equation. The contribution factor, on the other hand, 
is the dependent variable, i.e., the contribution factor is dependent 
on the amount of the total program costs and the contribution base. 
Because the contribution base is the denominator in this equation, the 
contribution factor is inversely proportional to the contribution base. 
In other words, as the contribution base increases, all other things 
being equal,the contribution factor must decrease.
    8. As demonstrated by the exhibit, all other things being equal, 
when carrier-imposed universal service charges are included in the 
contribution base, the contribution base increases, the contribution 
factor decreases in proportion to the increase in the contribution 
base, and the amount of each carrier's contribution remains constant. 
Therefore, the parties' ``vicious cycle'' argument is unfounded. 
Moreover, if carrier-imposed universal service charges were not 
included in the contribution base, there would be a competitive 
imbalance in the Commission's contribution methodology. All other 
things being equal, a carrier that chose to recover its contributions 
by increasing its rates would have an increased individual contribution 
base and an increased contribution. A carrier that chose to recover its 
contributions by imposing a line-item charge would not have an 
increased individual contribution base or an increased contribution. 
Such a result would put carriers choosing to raise their rates at a 
disadvantage compared to carriers choosing to impose a line-item 
charge, would render illusory the ``choice'' of recovery methods, and 
would violate the universal service principle of competitive 
neutrality. Accordingly, for all of the foregoing reasons, we reject 
the parties' claims that carrier-imposed universal service charges 
should be excluded from the contribution base.

III. Ordering Clauses

    9. The authority contained in sections 1-4, 201-205, 218-220, 254, 
303(r), 403, and 405 of the Communications Act of 1934, as amended, and 
section 1.429 of the Commission's rules, Twenty-First Order on 
Reconsideration in CC Docket No. 96-45 and the Memorandum Opinion and 
order in CC Docket Nos. 96-45, 97-21, and 98-171 are adopted.
    10. The authority contained in sections 4(i) and 405 of the 
Communications Act of 1934, as amended, and section 1.429 of the 
Commission's rules, the Petition for Partial Reconsideration and 
Clarification filed by the Personal Communications Industry Association 
on July 17, 1997 is denied to the extent stated.
    11. The authority contained in sections 4(i) and 405 of the 
Communications Act of 1934, as amended, and section 1.106 of the 
Commission's rules, the Petition for Reconsideration filed by the 
Personal Communications Industry Association on August 31, 1998 is 
denied.
    12. The authority contained in sections 4(i) and 405 of the 
Communications Act of 1934, as amended, and section 1.106 of the 
Commission's rules, the Petition for Reconsideration filed by 
Metrocall, Inc. on August 31, 1998 is denied.

List of Subjects in 47 CFR Part 54

    Universal service.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 00-11101 Filed 5-3-00; 8:45 am]
BILLING CODE 6712-01-M