4446 Federal Register / Vol. 80, No. 17 / Tuesday, January 27, 2015 / Rules and Regulations 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 54 

[WC Docket Nos. 10–90, 14–58, 14–192; FCC 

14–190] 

Connect America Fund, ETC Annual 

Reports and Certifications, Petition of 

USTelecom for Forbearance From 

Obsolete ILEC Regulatory Obligations 

That Inhibit Deployment of NextGeneration Networks 

AGENCY: Federal Communications 

Commission. 

ACTION: Final rule. 

SUMMARY: In this document, the Federal 

Communications Commission 

(Commission) takes momentous strides 

towards fully implementing a 

modernized universal service regime 

capable of meeting consumer demands 

for 21st century networks. The 

Commission also finalizes decisions 

necessary to proceed with the offer of 

support to price cap carriers in early 

2015. 

DATES: Effective February 26, 2015, 

except for §§ 54.313(a)(e) and 54.320 

which contain new or modified 

information collection requirements that 

will not be effective until approved by 

the Office of Management and Budget. 

The Federal Communications 

Commission will publish a document in 

the Federal Register announcing the 

effective date for those sections. 

FOR FURTHER INFORMATION CONTACT: 

Alexander Minard, Wireline 

Competition Bureau, (202) 418–0428 or 

TTY: (202) 418–0484. 

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Report 

and Order, WC Docket Nos. 10–90, 14– 

58, 14–192; FCC 14–190, adopted on 

December 11, 2014 and released on 

December 18, 2014. The full text of this 

document is available for public 

inspection during regular business 

hours in the FCC Reference Center, 

Room CY–A257, 445 12th Street SW., 

Washington, DC 20554. Or at the 

following Internet address: https://

apps.fcc.gov/edocs_public/attachmatch/

FCC-14-190A1.pdf. 

I. Introduction 

1. With this Report and Order (Order), 

the Commission takes another 

momentous stride towards fully 

implementing a modernized universal 

service regime capable of meeting 

consumer demands for 21st century 

networks. The Commission finalizes the 

decisions necessary to proceed with the 

offer of support to price cap carriers in 

early 2015, thereby paving the way for 

the deployment of new broadband 

infrastructure to millions of unserved 

Americans. In the coming months, the 

Commission will turn our attention to 

finalizing the rules for the Phase II 

competitive bidding process that will 

occur in those states where the price cap 

carrier declines the offer of model-based 

support. 

2. Throughout the universal service 

reform process, the Commission has 

sought to ensure that all consumers 

‘‘have access to . . . advanced 

telecommunications and information 

services’’ and benefit from the historic 

technology transitions that are 

transforming our nation’s 

communications services. This Report 

and Order continues down that path. 

The Commission adopts several 

revisions to Connect America Phase II to 

account for changes in the marketplace 

since the USF/ICC Transformation 

Order, 76 FR 73830, November 29, 2011, 

was adopted. In particular, the 

Commission revises the minimum speed 

requirement that recipients of high-cost 

universal service must offer. The 

Commission finds that it is in the public 

interest to require recipients of high-cost 

support subject to broadband 

performance obligations to serve fixed 

locations to provide at least a minimum 

broadband speed of 10 Mbps 

downstream. 

3. The Commission adopts targeted 

changes to the framework established 

for the offer of model-based support to 

price cap carriers. Specifically, the 

Commission makes an adjustment to the 

term of support, adopts more evenly 

spaced interim deployment milestones, 

and concludes that adjustments of up to 

five percent in the number of locations 

that must be served with corresponding 

support reductions are appropriate to 

ensure that deployment obligations 

recognize conditions in the real world. 

The Commission also forbears from the 

federal high-cost universal service 

obligation of price cap carriers to offer 

voice service in low-cost areas where 

they do not receive high-cost support, in 

areas served by an unsubsidized 

competitor, and in areas where the price 

cap carrier is replaced by another 

eligible telecommunications carrier 

(ETC). 

4. In addition, the Commission 

addresses where Phase II support will 

be available, both for the offer of modelbased support to price cap carriers and 

the subsequent Phase II competitive 

bidding process. First, the Commission 

will exclude from the offer of Phase II 

model-based support any census block 

served by a subsidized facilities-based 

terrestrial competitor that offers fixed 

residential voice and broadband 

services meeting or exceeding 4 Mbps 

downstream and 1 Mbps upstream (4/1 

Mbps), using 3 Mbps downstream/768 

kbps upstream (3 Mbps/768 kbps) as a 

proxy for this standard, as determined 

by the Wireline Competition Bureau 

(Bureau) upon completion of the Phase 

II challenge process. The Commission 

also reaffirms its decision to exclude 

from the offer of model-based support 

any census block served by an 

unsubsidized competitor that meets or 

exceeds the 3 Mbps/768 kbps 

performance metrics. Second, the 

Commission concludes that those highcost blocks served by a subsidized 

carrier that are excluded from the offer 

of model-based support—including 

blocks with service meeting or 

exceeding the new 10 Mbps 

downstream/1 Mbps upstream (10/1 

Mbps) speed requirement—will be 

eligible for support in the Phase II 

competitive bidding process. Third, the 

Commission concludes that any area 

served by an unsubsidized facilitiesbased terrestrial competitor that offers 

10/1 Mbps will be ineligible for support 

in the Phase II competitive bidding 

process. 

5. In the April 2014 Connect America 

Fund FNPRM, 79 FR 39196, July 9, 

2014, the Commission sought comment 

on a number of near-term and longerterm reforms for rate-of-return carriers, 

including developing and implementing 

a ‘‘Connect America Fund’’ for rate-ofreturn carriers. Although a number of 

parties have submitted proposals that 

may have promise, the Commission 

finds that further analysis and 

development of these proposals is 

necessary. The Commission will 

continue to explore the possibility of a 

voluntary path to model-based support 

for those rate-of-return carriers that 

choose to pursue it. The Commission 

also expects to continue to develop the 

record and act in the coming year on 

alternatives for those who do not elect 

to receive model-based support. 

6. In this Order, the Commission 

focuses on near-term reforms for rate-ofreturn carriers. Specifically, the 

Commission adopts a revised 

methodology for applying the cap on 

high-cost loop support to distribute that 

support on a more equitable basis. The 

Commission also addresses the 

proposals from the April 2014 Connect 

America FNPRM regarding the 100 

percent overlap rule. 

7. In the USF/ICC Transformation 

Order, the Commission established a 

‘‘uniform national framework for 

accountability’’ that replaced the 

various data and certification filing 

deadlines that carriers previously were 


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required to meet. In this Order, the 

Commission takes several steps to 

strengthen that framework, including 

codifying the reasonable comparability 

pricing requirement for broadband 

services, adjusting the reductions in 

support for late-filed annual ETC reports 

and certifications, and providing greater 

specificity regarding how the 

Commission will address noncompliance with the Commission’s 

service obligations for voice and 

broadband. 

8. The actions the Commission takes 

in this Order, combined with the 

implementation of the rural broadband 

experiments and the reforms the 

Commission implemented earlier in the 

year, will allow the Commission to 

continue to advance further down the 

path outlined in the USF/ICC 

Transformation Order. The Commission 

expects the Bureau to complete the 

Connect America Phase II challenge 

process and then make a final 

determination as to which census blocks 

will be eligible for the offer of modelbased Phase II support by early 2015. 

That final determination will allow the 

Commission to extend the offers of 

Phase II model-based support to price 

cap carriers to fund the deployment of 

voice and broadband-capable 

infrastructure in their territories. The 

carriers will then have 120 days to 

consider the offer, and in those states 

where the price cap carrier declines the 

offer of support, the Commission will 

move forward with the Phase II 

competitive bidding process to 

determine support recipients. 

II. Public Interest Obligations 

A. Evolving Speed Obligations 

9. Discussion. In this section, the 

Commission adopts a new minimum 

speed standard of 10 Mbps downstream 

and 1 Mbps upstream (10/1 Mbps) to 

further the statutory goal in section 254 

of ensuring that consumers in rural and 

high-cost areas of the country have 

access to advanced telecommunications 

and information services that are 

reasonably comparable to those services 

in urban areas, at reasonably 

comparable rates. The marketplace for 

broadband has continued to evolve 

since the Commission established its 

initial minimum speed benchmark of 

4/1 Mbps in 2011, and will continue to 

do so, given consumer demand for an 

ever growing range of services and 

applications. Our task is to implement 

policies with our available funds that 

will extend broadband to high-cost and 

rural areas where the marketplace alone 

does not currently provide a minimum 

level of broadband connectivity. 

10. The most recent State Broadband 

Initiative (SBI) data for December 2013 

show that 99 percent of Americans 

living in urban areas have access to 

fixed broadband with speeds of at least 

10 Mbps downstream/768 kbps 

upstream (10 Mbps/768 kbps), and a 

majority of Americans have already 

chosen to adopt such service. Moreover, 

fixed broadband services with even 

higher speeds, such as 25 Mbps 

downstream/3 Mbps upstream (25/3 

Mbps) or higher, are available to the vast 

majority of urban households. In 

contrast, the SBI data indicate that 31 

percent of the population residing in 

rural census blocks lack access to fixed 

broadband providing at least 10 Mbps/ 

768 kbps speeds. 

11. Our objective with high-cost 

support is to extend broadband-capable 

infrastructure to as many high-cost 

locations as efficiently as possible, and 

at the same time ensure that the 

Commission is best utilizing the funds 

that consumers and businesses pay into 

the universal service system. The 

Commission finds that raising the 

minimum downstream speed 

requirement to 10 Mbps is an 

appropriate way at the present time to 

implement the statutory language in 

section 254 regarding reasonable 

comparability. As noted above, where 

available, a majority of households 

adopt fixed broadband with speeds of at 

least 10 Mbps/768 kbps. This is not 

surprising, as fixed broadband with 

speeds of at least 10 Mbps downstream 

offers more functionality to consumers 

than 4 Mbps downstream, particularly 

when multiple users are relying upon 

the broadband connection. For users 

browsing the Web, the total time needed 

to load a page decreases with higher 

speeds up to about 10 Mbps. High 

definition video requires 5 Mbps 

downstream. Although VoIP services are 

adequately supported by lower speeds, 

VoIP quality may suffer when 

household bandwidth is shared by other 

services. When rural households have 

access to speeds of 10 Mbps or more, 

they are just as likely to adopt a 10 

Mbps service as households in urban 

areas. 

12. The Commission is setting a 

standard that is achievable in the near 

term with support from the Connect 

America Fund, while mindful of the 

need to balance the interests of both 

recipients and contributors to the Fund. 

The Commission encourages recipients 

of funding to deploy to the extent 

possible future proof infrastructure that 

will be capable of meeting evolving 

broadband performance obligations over 

the longer term. That will ensure that 

our policies will continue to support an 

evolving level of universal service in the 

future. 

13. Based on the record before us, the 

Commission finds ample basis for 

revising the current broadband 

performance obligations to require 

minimum speeds of 10 Mbps 

downstream. In contrast, while a few 

commenters supported raising the 

upstream speed, there is little analysis 

in this docket regarding the potential 

advantages and disadvantages 

associated with raising the minimum 

upstream speed above 1 Mbps for 

purposes of high-cost funding. The 

Commission therefore does not adjust 

the minimum upstream speed required 

for high-cost support recipients at this 

time, but expect to consider the matter 

again when the Commission revisits our 

broadband performance obligations for 

recipients of high-cost support in the 

future. Accordingly, pursuant to section 

254, the Commission adopts a minimum 

speed standard of 10/1 Mbps to ensure 

that Connect America funding is used 

efficiently, to deploy broadband-capable 

networks to meet ever evolving 

consumer demand. 

14. As the Commission explained in 

the April 2014 Connect America 

FNPRM, by increasing the current 

broadband downstream speed 

benchmark, the Commission is 

primarily focusing on the minimum 

standard for new deployments of 

broadband-capable infrastructure. 

Consistent with the approach the 

Commission adopted for the previous 

speed benchmark, high-cost support 

recipients will be expected to achieve 

the new standard over a period of years, 

as they utilize that support to extend 

and upgrade networks in high-cost areas 

that are otherwise uneconomic to serve. 

Price cap carriers accepting a state-level 

commitment will be required to offer at 

least 10/1 Mbps broadband service to 

the requisite number of high-cost 

locations in a given state by the end of 

the support term. Rate-of-return carriers 

will be required to offer at least 10/1 

Mbps broadband service upon 

reasonable request, consistent with past 

guidance regarding our expectations 

regarding the reasonable request 

standard. If a request for 10/1 Mbps is 

not reasonable in a given circumstance, 

but offering 4/1 Mbps is reasonable, the 

Commission would expect a rate-ofreturn carrier to offer 4/1 Mbps. 

15. The Commission is not persuaded 

by arguments that increasing the 

downstream speed benchmark to 10 

Mbps requires fundamental changes in 

the terms of the offer to price cap 

carriers that accept a state-level 

commitment. Although price cap 

carriers generally support a 10 Mbps 


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speed benchmark, they contend 

concurrent changes should be made to 

other terms of the state-level offer. The 

Commission does not agree that by 

increasing the required broadband 

speed the Commission is upending the 

‘‘delicate balance’’ adopted by the 

Commission in the USF/ICC 

Transformation Order. The Commission 

made clear in 2011 that it expected 

broadband performance obligations to 

evolve, committed to initiating a 

proceeding in three years to re-examine 

the standard, and noted that carriers 

were expected to build ‘‘robust, scalable 

networks.’’ Moreover, at that time, the 

Commission delegated authority to the 

Bureau to require price cap carriers 

accepting model-based support to 

deploy service delivering at least 6/1.5 

Mbps to a number of supported 

locations. Thus, the framework adopted 

by the Commission in 2011 expressly 

anticipated that a higher minimum 

speed standard would be necessary in 

the future to provide an evolving level 

of universal service. 

16. Although the Commission 

recognizes that carriers upgrading their 

networks may incur additional capital 

investment costs to offer 10/1 Mbps as 

opposed to 4/1 Mbps, how much more 

costly this is in the real world depends 

on circumstances that vary by carrier, 

such as the location of existing facilities 

and distances to unserved locations. 

The fact that achieving this revised 

standard may require additional 

network investment than would be the 

case if the speed standard remained 4/1 

Mbps is not a justification, however, for 

not adjusting the standard at all. Rather 

as discussed more fully below, the 

Commission makes other modest 

adjustments to the Phase II framework 

to ensure that the support provided is 

sufficient to meet the obligations that 

are accepted through the state-level 

commitment. To the extent a carrier 

believes the support offered is 

insufficient to meet the obligations, it 

may turn down the offer of Phase II 

model-based support. 

17. The Commission expects carriers 

planning upgrades to their networks 

today would take into account near term 

and future consumer demand. As noted 

above, current data show that a majority 

of broadband subscribers today 

purchase at least 10/1 Mbps. A 

comparison of adoption rates from 2011 

to 2013 show a steady increase in 

adoption for this level of service. The 

Commission therefore finds that it is 

reasonable to assume that many carriers 

upgrading their networks with Phase II 

support would aim to provide the 

capability to provide at least 10/1 Mbps, 

with higher speeds available to a subset 

of locations. 

18. Rate-of-return carriers are 

expected to take into account the 

revised 10/1 Mbps speed standard when 

considering whether and where to 

upgrade existing plant in the ordinary 

course of business and will be required 

to report on progress toward this goal in 

annual updates to their five-year service 

quality plans. As the Commission 

emphasized in proposing the revised 

speed standard, however, a rate-ofreturn carrier will only be required to 

meet the higher speed standard if the 

request for service is reasonable. Rateof-return carriers will be able to comply 

with the revised speed standard because 

the Commission already has adopted a 

more flexible approach to determining 

compliance with our broadband 

performance obligations for this 

segment of the industry. The 

Commission previously have stated that 

a ‘‘reasonable request is one where the 

carrier could cost-effectively extend a 

voice and broadband-capable network to 

that location. In determining whether a 

particular upgrade is cost effective, the 

carrier should not consider only its 

anticipated end-user revenues, for the 

services to be offered over that network, 

both voice and broadband internet 

access, but also other sources of 

support, such as federal and, where 

available, state universal service 

funding.’’ Among other things, the 

Commission has explained that a 

request would not be reasonable if the 

incremental cost of undertaking the 

necessary upgrades to a particular 

location exceed the revenues that could 

be expected from that upgraded line. 

The Commission has determined that 

carriers may take into account backhaul 

costs or other unique circumstance that 

make it cost-prohibitive to extend 

service to particular customers. 

Moreover, rate-of-return carriers have no 

obligation to extend broadband-capable 

infrastructure in any census block that 

is served by a competitor that meets the 

Commission’s revised performance 

standards. 

19. Nor is the Commission persuaded 

that increasing the broadband speed 

requirement requires enlarging the 

budget for rate-of-return carriers. As 

discussed above, carriers evaluating 

whether or not a request for service is 

reasonable may consider the cost of 

upgrading the network and the support 

available. If, for instance, the cost of 

extending fiber sufficiently close to a 

requesting customer to be able to offer 

10/1 Mbps service is more than a rateof-return carrier could cover with 

existing universal service support and 

anticipated end-user revenues, but it 

would be able to cover the cost of 

extending fiber to provide 4/1 Mbps 

service, the Commission would expect 

the carrier to extend 4/1 Mbps service. 

20. The Commission is confident that 

these carriers will deploy broadbandcapable infrastructure meeting these 

new requirements to the extent 

economically feasible in their 

communities and will continue to work 

on creative ways to partner with each 

other and other entities to provide 

service meeting these requirements. The 

Commission notes that rate-of-return 

carriers have continued to deploy 

broadband-capable infrastructure since 

the Commission adopted the landmark 

reforms in the USF/ICC Transformation 

Order, and the Commission expects they 

will continue to do so in the future. As 

discussed below, the Commission 

adopts modifications to the current 

high-cost loop support mechanism to 

provide a more equitable method of 

distributing funding among carriers 

serving high-cost areas, ensuring that 

some carriers in high-cost areas do not 

precipitously lose support. In the April 

2014 Connect America FNPRM, the 

Commission proposes longer-term 

reforms for rate-of-return carriers, 

including a voluntary path to modelbased support. The Commission 

remains interested in finding a way to 

distribute support on an equitable basis 

that will provide support for investment 

in infrastructure capable of delivering 

10/1 Mbps where reasonable in areas 

served by rate-of-return carriers. 

21. The Commission also rejects 

arguments that the Commission should 

increase the high-cost universal service 

budget, as a means of advancing 

broadband deployment in rural areas to 

an even greater degree than the 

Commission already does in this Order. 

‘‘[T]he Commission has to balance the 

principles of section 254(b) to ensure 

that support is sufficient but does not 

impose an excessive burden on all 

ratepayers.’’ The Commission 

previously conducted just such a 

balancing in adopting the budget at 

issue here, and the Commission is not 

persuaded to depart from it at this time. 

In particular, ‘‘any determination about 

whether the Commission has adequately 

implemented section 254 must look at 

the cumulative effect of the four support 

programs, acting together.’’ The 

Commission has been undertaking 

comprehensive reforms of its universal 

service programs to facilitate broadband 

deployment, and the Commission 

continues to advance that objective 

through the reforms adopted in this 

Order. Although the Commission 

recognizes that there are possible 

broadband goals the Commission could 


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advance even more broadly here, the 

ratepayer impact that already will occur 

as a result of its universal service 

programs collectively, coupled with the 

particular circumstances here, persuade 

the Commission to proceed cautiously 

when weighing any benefits from 

increased support against the burden on 

ratepayers. 

22. In that regard, the record here 

does not persuade the Commission that 

an increased high-cost budget is 

warranted. When comprehensively 

reforming the high-cost support 

mechanism to better advance broadband 

deployment, the Commission began 

implementing certain reforms 

immediately, while setting out a plan to 

advance broadband even more widely 

over time through additional initiatives. 

For example, noting that some areas 

may be too costly to serve with 

traditional wireline or terrestrial 

wireless broadband technologies, the 

Commission established the Remote 

Areas Fund to provide support for such 

‘‘extremely high-cost’’ areas and set a 

budget of ‘‘at least’’ $100 million. In 

April 2014, the Commission concluded 

that extremely high-cost areas would be 

eligible for the Phase II competitive 

bidding process. In the coming year, the 

Commission expects to develop the 

rules for the Phase II auction and how 

to address the areas that remain 

unserved after that competitive bidding 

process. The Commission also is 

considering, among other things, long 

term high-cost universal service reforms 

for rate-of-return study areas. Against 

the backdrop of these and other existing 

and planned efforts, some commenters 

nonetheless advocate making increased 

high-cost support available here, but fail 

to meaningfully quantify or 

demonstrate—even in an aggregate 

way—the incremental cost (and 

associated burden on ratepayers) 

required to achieve an incremental 

advancement of broadband deployment 

beyond what the Commission already is 

achieving through the reforms adopted 

here and through our universal service 

programs more broadly. The 

Commission thus is not persuaded to 

increase high-cost universal service 

support further. Instead, the 

Commission advances our broadband 

universal service goals through the highcost fund to the extent the Commission 

is able within the existing budget. The 

Commission also notes that the states 

have an important role to play in 

advancing universal service goals. The 

Commission welcomes and encourages 

states to supplement our federal 

funding, whether through state 

universal service funds or other 

mechanisms. 

23. Finally, the Commission 

concludes that recipients of support 

through the Phase II competitive 

bidding process will be required to meet 

an evolving broadband speed standard 

over the ten-year term. Given the 

historical and anticipated trajectory of 

broadband speeds, the Commission 

anticipates that consumers will 

increasingly demand greater upstream 

speeds as well as downstream speeds. 

The Commission would expect to 

initiate a proceeding to review the 

performance standards for the Connect 

America Fund no later than 2018. While 

the Commission will establish the 

specific performance obligations and 

auction design in an upcoming order 

regarding the Phase II competitive 

bidding process, the Commission 

decides now that 10/1 Mbps should not 

be our end goal for recipients of support 

over a ten-year term. The Commission 

recognizes that competitive bidding is 

likely to be more efficient if potential 

bidders can predict what their 

performance obligations will be for the 

length of the term. The Commission 

therefore now adopts a methodology for 

determining the minimum speeds that 

will be required by the end of the tenyear term for entities receiving support 

through the Phase II competitive 

bidding process. The Commission 

concludes that the minimum speed 

shall be based on the highest speed 

adopted by a majority of households, as 

reported in the most recent Form 477 

data available at the time the 

Commission next revisits the specific 

performance obligations for the Connect 

America Fund. The Commission 

encourages parties receiving ten years of 

support through the Phase II 

competitive bidding process to deploy 

future-proof networks that are capable 

of meeting future demand. 

B. Term of Support for Price Cap 

Carriers Accepting Phase II ModelBased Support 

24. The Commission makes a modest 

adjustment to the framework the 

Commission adopted in 2011 for the 

Connect America Fund and adopts a 

six-year term of support, which will 

begin in 2015 and extend through 2020, 

with an option for a seventh year in 

certain circumstances. The Commission 

recognizes that upgrading existing 

networks to provide 10/1 Mbps requires 

deploying fiber further into the 

distribution network. The Commission 

is not persuaded, however, that the tenyear term advocated by some is 

warranted. When the Commission 

adopted the five-year term it 

emphasized ‘‘the limited scope and 

duration of the state-level commitment 

procedure’’ and expected that ‘‘support 

after such five-year period will be 

awarded through a competitive bidding 

process in which all eligible providers 

will be given an equal opportunity to 

compete.’’ The Commission continues 

to believe that it should move to 

competitive bidding processes in a 

timely manner in those areas where 

support initially is awarded through the 

acceptance of state-level commitments. 

In particular, the Commission expects to 

conduct a competitive bidding process 

no later than the end of 2019 to ensure 

there is continuity and a transition path 

to Connect America Phase III. 

25. To the extent a price cap carrier 

that accepts the offer of Phase II modelbased support in a particular state is a 

winning bidder in the Phase III auction, 

it will commence receiving that support 

in 2021. In the event that carrier either 

does not win in the Phase III auction, or 

chooses not to bid on such support, its 

term of Phase II support will be 

completed at the end of 2020. The 

Commission will provide such carriers 

the option to elect one additional year 

of support, however, with Phase II 

support continuing in calendar year 

2021 as a gradual transition to the 

elimination of support. This is 

consistent with the principle 

established in the USF/ICC 

Transformation Order of ‘‘no flash 

cuts,’’ while also recognizing that 

additional funding may be appropriate 

in particular circumstances in those 

states where six years of support is 

insufficient to cover the capital 

investment necessary to meet the 

revised 10 Mbps downstream standard. 

The Commission also notes that even if 

a new entrant is authorized to begin 

receiving Phase III support in 2020, 

there will be a certain amount of time 

before that new provider will be able to 

deploy its network and begin offering 

service. Providing another year of Phase 

II support to the incumbent provider 

through the end of 2021 will ensure that 

there is an appropriate transition from 

the incumbent to new ETCs. 

C. Flexibility in Meeting Deployment 

Obligations 

26. In the April 2014 Connect 

America FNPRM, the Commission 

sought comment on a number of 

measures that would provide recipients 

of Phase II support greater flexibility in 

meeting their deployment obligations. 

In response, price cap carriers argue that 

if the Commission requires 10 Mbps, it 

should increase the build-out period of 

the state-level commitment to eight or 

ten years. They claim that building 


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networks capable of providing 10/1 

Mbps will take more time and more 

funding than networks meeting the 

current 4/1 Mbps speed requirement, 

because it will require extending fiber 

further into the network and deploying 

additional remote terminals. In addition 

to taking more time for planning 

network upgrades and obtaining 

necessary permits, they also argue that 

the broadband construction industry as 

a whole may not be capable of meeting 

the demand in a shorter timeframe. 

27. Here, the Commission addresses 

flexibility for price cap carriers 

accepting Phase II model-based support. 

The Commission expects to provide 

similar flexibility to recipients of 

support awarded through the Phase II 

competitive bidding process, which will 

be addressed in a future order adopting 

the rules for the competitive bidding 

process. 

1. Interim Deployment Obligations 

28. The Commission modifies the 

build-out requirements established for 

price cap carriers accepting modelbased support to create straight line 

interim milestones over the revised sixyear term, rather than front-loading the 

deployment obligations in the first three 

years of the term. When the Commission 

adopted the interim deployment 

milestone of deploying to 85 percent of 

locations by the end of the third year, 

it noted that ‘‘there were few concrete 

suggestions in the record on what those 

interim milestones should be.’’ The 

Commission recognizes that the first 

task for any major network upgrade is to 

complete an overall plan and then 

undertake detailed engineering analyses 

in the field to plan the construction of 

particular routes. Recipients of 

support—whether price cap carriers or 

bidders in a competitive auction—will 

likely then proceed incrementally, route 

by route, working to complete 

construction evenly over the course of 

the term required for deployment. For 

that reason, rather than requiring price 

cap carriers accepting a state-level 

commitment to offer broadband service 

meeting the minimum requirements to 

at least 85 percent of their high-cost 

locations by the end of the third year, 

the Commission instead adopts evenly 

spaced annual interim milestones for 

price cap carriers to offer at least 10/1 

Mbps to an additional 20 percent of the 

requisite number of high-cost locations 

each year, as shown in Table 1 below. 

Completing construction to 40 percent 

of the requisite number of locations in 

a state by the end of calendar year 2017, 

instead of 85 percent by mid-2018 year, 

is a more realistic expectation, given 

that carriers will not accept the offer of 

support until mid-year in 2015 and once 

authorized to receive support, will then 

be developing detailed network 

construction plans. 

TABLE 1—DEPLOYMENT MILESTONES

FOR PRICE CAP CARRIERS ACCEPTING PHASE II MODEL-BASED SUPPORT

Current 

requirement 

Revised 

interim 

milestones 

Year 1 .. ............................ **%. 

Year 2 .. ............................ **%. 

Year 3 .. 85% of locations 40%. 

End of 2017. 

Year 4 .. ............................ 60%. 

End of 2018. 

Year 5 .. 100% of locations 80%. 

End of 2019. 

Year 6 .. ............................ 100% 

End of 2020. 

29. The Commission recognizes that 

price cap carriers may choose to 

prioritize construction in certain states 

in any given year and therefore do not 

expect them to be deploying new 

facilities in every state in every year of 

the Phase II term. However, the 

Commission does require that carriers 

annually deploy new infrastructure to 

some locations that previously lacked 

4/1 Mbps in the earlier years of the 

Phase II term so that consumers benefit 

from the availability of new broadband 

services as early as possible. By the end 

of calendar year 2017, the Commission 

requires that, at the holding company 

level, at least five percent of the 

nationwide total of funded locations 

that have been reported as newly served 

in the annual reports must be locations 

that previously lacked 4/1 Mbps. 

2. Number of Locations 

30. In addition, the Commission 

recognizes that the ‘‘facts on the 

ground’’ when price cap carriers are 

deploying facilities may necessitate 

some additional flexibility regarding the 

scope of the deployment obligations. At 

the outset, the Commission notes that 

there may be some variance between the 

number of funded locations as specified 

by the forward-looking cost model 

adopted by the Bureau and the actual 

number of locations in a given area. For 

instance, the price cap carrier model 

utilizes GeoResults study area 

boundaries, which in some instances 

may be inaccurate, which in turn may 

result in the inaccurate assignment of 

certain locations to a particular price 

cap territory. The model also utilizes 

GeoResults business location data, 

which in some instances may be 

inaccurate in terms of either business 

counts or actual physical locations; this 

in turn may result in too many or too 

few locations in a given census block. 

While these minor inaccuracies should 

cancel one another out in most 

instances across multiple census blocks, 

the Commission recognizes that in 

particular areas that may not be the 

case, and the total number of locations 

assigned to a particular price cap carrier 

in a given state according to the model 

simply does not necessarily reflect the 

actual number of locations. The 

Commission also recognizes that there 

may be a variety of unforeseen factors, 

after the initial planning stage, that can 

cause significant changes as a network 

is actually being deployed in the field, 

and a variety of factors that can affect 

the time needed to deploy a planned 

route. Finally, the Commission notes 

that the customer location data utilized 

in the model reflect location data at a 

particular point in time. The precise 

number of locations in some funded 

census blocks is likely to change over 

time for a variety of reasons, which may 

impact the orderly progress of the 

planned construction cycle. 

31. Given all of these factors, rather 

than requiring deployment to 100 

percent of funded locations as identified 

by the model in a given state, the 

Commission will permit a modest 

adjustment to the number of modeldetermined funded locations in a given 

state with a corresponding reduction in 

support in certain instances. Price cap 

carriers taking advantage of this 

flexibility will be required to refund 

support based on the number of 

required locations without access to 

broadband. The Commission balances 

this flexibility with our goal of 

advancing the availability of broadband 

to these high-cost locations. Therefore, 

the Commission will require 

deployment to at least 95 percent of the 

funded locations, but in order for a price 

cap carrier to take advantage of this 

flexibility, the Commission requires 

them to identify by December 31, 2015, 

any specific census blocks where they 

do not intend to meet their deployment 

commitments, with those blocks 

covering at least two percent of their 

total eligible locations in a state. The 

Commission recognizes there may be 

discrete census blocks identified during 

the early planning stages that will be 

challenging to serve. By requiring the 

price cap carriers to identify up front 

those particular census blocks that they 

know they will not deploy to during 

Phase II, the Commission can make 

those census blocks eligible for support 

in the Phase II competitive bidding 

process. For those carriers that elect to 


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take advantage of this flexibility, the 

Commission then allows them to 

identify an additional number of the 

eligible locations left unserved at of the 

end of the term, up to three percent. 

32. The Commission finds that 

requiring deployment to at least 95 

percent of the number of funded 

locations will provide some flexibility 

to price cap carriers in meeting their 

deployment obligations. The 

Commission is not persuaded by 

commenters who argue that the 

Commission should provide much more 

flexibility. For example, price cap 

carriers argue that those accepting a 

state-level commitment should be 

permitted to deploy to as few as 90 

percent of their funded locations. 

Although they propose to forego 

funding on a pro rata basis for the 

remaining locations, the Commission is 

concerned that providing that degree of 

flexibility across the board is 

inconsistent with the Commission’s 

rationale for providing these carriers the 

offer of model-based support in the first 

instance: to ensure ubiquitous coverage. 

Rather, the Commission may address 

unique situations through the waiver 

process where specific circumstances 

justify additional flexibility. 

33. Nor is the Commission persuaded 

by commenters who argue that requiring 

anything less than 100 percent would 

allow recipients to ‘‘cherry pick’’ and 

opt out of serving the highest-cost 

locations. As discussed above, there are 

a number of legitimate reasons why it 

may not be possible for a provider— 

whether a price cap carrier or a 

competitive provider awarded support 

in a competitive bidding process—to 

deploy to 100 percent of the funded 

locations in Phase II areas by the end of 

the deployment term. The Commission 

concludes that the benefits of providing 

some flexibility to a price cap carrier to 

address any variance between the cost 

model and real world circumstances 

outweigh the theoretical risk that the 

carrier could systematically identify and 

exclude the five percent of locations 

that are highest-cost and are likely 

sprinkled throughout its funded 

territory. 

34. The Commission will require 

price cap Phase II recipients that have 

deployed to at least 95 percent, but less 

than 100 percent, of the number of 

funded locations to refund support 

based on the number of funded 

locations left unserved in the state at the 

end of their support term. The 

Commission recognizes that many 

factors determine a carrier’s deployment 

decisions, and affect costs even after 

those decisions are made, so the 

Commission doubts that a carrier would 

or could systematically exclude the 

highest cost locations. At the same time, 

it is reasonable to assume that many of 

the locations left unserved would have 

higher than the average costs calculated 

by the model. A higher amount per 

location than the average therefore is 

appropriate. Moreover, the Commission 

wants to provide more incentive to 

carriers to build out to 100 percent of 

the required number of locations. On a 

nationwide basis, the average support 

for the top five percent of the highestcost funded locations is 3.77 times the 

average support for all funded locations. 

The Commission recognizes that costs 

will vary by state and carrier, but find 

that the administrative simplicity of 

using one-half of the nationwide 

aggregate factor outweighs the benefits 

of false precision. Accordingly, the 

Commission will require a price cap 

carrier at the end of its support term to 

refund an amount based on the number 

of locations left unserved and the 

average Phase II support the carrier 

receives in a state multiplied by 1.89. 

35. The Commission concludes that 

the administrative simplicity of this 

method outweighs the potential benefit 

of reducing support based on a more 

complicated determination based on the 

relative costs of particular locations as 

determined by the forward-looking cost 

model. As discussed below, the 

Commission will require price cap 

carriers to include in the final annual 

progress report that they submit with 

their section 54.313 reports the total 

number and geocodes of all funded 

locations to which they have deployed 

facilities capable of delivering 

broadband meeting the requisite 

requirements, which will provide an 

objective, easily verifiable basis for 

USAC to determine the amount of 

support to recover in the event there is 

less than 100 percent compliance with 

the deployment obligation. 

36. Finally, for those carriers 

accepting Phase II model-based support, 

the Commission declines to adopt the 

proposal to substitute unserved 

locations within partially served census 

blocks for locations within funded 

census blocks. While the Commission 

will continue to explore this issue, 

questions remain in the record how best 

to determine whether or not a particular 

location in a partially served block is 

served or unserved without placing 

significant burdens on interested parties 

and Bureau staff. The Commission notes 

that all parties potentially interested in 

Connect America support—both 

incumbents and new entrants alike— 

have an interest in building 

economically efficient networks, and 

those networks do not neatly align with 

census boundaries. Therefore, the 

Commission encourages all stakeholders 

interested in the Phase II competitive 

bidding process to work together to 

propose for future Commission 

consideration an administratively 

feasible method for ensuring that 

unserved consumers in partially served 

census blocks are not left behind. 

D. Obligations of Carriers Serving NonContiguous Areas That Elect Phase II 

Frozen Support 

37. Discussion. Based on the record 

before the Commission, it concludes 

that the best approach is to adopt 

tailored service obligations for each of 

the non-contiguous carriers that elect to 

continue to receive frozen support 

amounts for Phase II in lieu of the offer 

of model-based support. The 

Commission recognizes that noncontiguous carriers face unique 

circumstances in the areas they serve 

and experience different challenges in 

deploying broadband service in those 

areas. Consequently, a ‘‘one-size-fits-all’’ 

approach would leave some of these 

carriers potentially unable to fulfill their 

service obligations. The Commission 

believes that tailoring specific service 

obligations to the individual 

circumstances of each non-contiguous 

carrier that elects to continue receiving 

frozen support for Phase II will best 

ensure that Connect America funding is 

put to the best possible use. 

38. Because the amount of frozen 

support may in some cases be greater 

than the amount of model-based 

support, the Commission must reserve 

sufficient funds for frozen support 

before generally making the offer of 

support to price cap carriers in order to 

ensure that the Commission does not 

exceed the overall budget for the offer 

of model-based support. The 

Commission requires each noncontiguous carrier to notify the Bureau 

no later than 15 days after the release of 

this Order whether it is interested in 

Phase II frozen support in lieu of modelbased support. The Bureau then will be 

able to determine the appropriate 

maximum amount of money that should 

be reserved out of the $1.8 billion 

budget for those carriers. The 

Commission concludes that waiting to 

extend the offer of model-based support 

until it adopts tailored service 

obligations for each non-contiguous 

carrier would unnecessarily delay the 

offer of model-based support to all other 

price cap carriers. 

39. As the Commission stated in the 

April 2014 Connect America FNPRM, 

the Commission expects that any 

tailored service obligations would be 

consistent with the Commission’s goal 


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of ensuring universal availability of 

modern networks capable of providing 

voice and broadband service to homes, 

businesses, and community anchor 

institutions. The Commission 

anticipates being able to adopt these 

tailored service obligations no later than 

the time the Commission adopts the 

rules for the Phase II competitive 

bidding process. The non-contiguous 

carriers then will have 60 days to 

determine whether to accept or decline 

the Phase II frozen support. If any noncontiguous carrier declines Phase II 

frozen support with tailored service 

obligations, those areas may be eligible 

in the Phase II competitive bidding 

process. 

40. Though the Commission does not 

determine at this time specific service 

obligations for non-contiguous carriers 

receiving Phase II frozen support, the 

Commission concludes that carriers 

serving non-contiguous areas will not be 

permitted to use Phase II frozen support 

in any areas where there is a terrestrial 

provider of fixed residential voice and 

broadband service that meets Phase II 

requirements, as modified in this Order. 

Therefore, the Commission prohibits 

non-contiguous carriers receiving frozen 

support from using that support in any 

census block where there is a 

competitor providing service of 10/1 

Mbps or greater. If a carrier is unable to 

meet this requirement in certain areas, 

the Commission requires it to relinquish 

the relevant Phase II frozen support for 

those areas. 

E. ETC Obligations as Funding 

Transitions to New Mechanisms 

41. Discussion. Based on the 

Commission’s consideration of the 

relevant statutory framework and the 

record before it, the Commission now 

concludes that it is in the public interest 

to forbear, pursuant to section 10 of the 

Communications Act of 1934, as 

amended (the Act) from enforcing a 

federal high-cost requirement that price 

cap carriers offer voice telephony 

service throughout their service areas 

pursuant to section 214(e)(1)(A) in three 

types of geographic areas: (1) Census 

blocks that are determined to be lowcost, (2) all census blocks served by an 

unsubsidized competitor, as defined in 

our rules, offering voice and broadband 

at speeds of 10/1 Mbps to all eligible 

locations, and (3) census blocks where 

a subsidized competitor—i.e., another 

ETC—is receiving federal high-cost 

support to deploy modern networks 

capable of providing voice and 

broadband to fixed locations. They will 

remain obligated, however, to maintain 

existing voice service unless and until 

they receive authority under section 

214(a) to discontinue that service. They 

also will remain subject to the 

obligation to offer Lifeline service to 

qualifying low-income households 

throughout their service territory. 

42. Effectively, as a result of this 

limited forbearance, price cap carriers 

that accept the state-level commitment 

for Phase II support will continue to 

have a federal high-cost universal 

service obligation to offer voice 

telephony services in those census 

blocks that are deemed to be extremely 

high-cost, unless and until they are 

replaced by another ETC in those areas. 

The Commission does not address at 

this time and in particular do not 

forbear from enforcing the section 214(e) 

obligation of a price cap carrier to offer 

voice telephony services in extremely 

high-cost areas where it is not receiving 

support, except for the two 

circumstances expressly described 

herein: Those extremely high-cost 

census blocks served by an 

unsubsidized competitor or where the 

price cap carrier is replaced by another 

ETC selected through a competitive 

bidding process that is required to offer 

voice and broadband services to fixed 

locations that meet the Commission’s 

public service obligations. Price cap 

carriers that decline the state-level 

commitment will have the federal highcost universal service obligation to offer 

voice telephony services in those census 

blocks that are determined to be highcost or extremely high-cost, and 

unserved by an unsubsidized 

competitor, until they are replaced by 

another ETC that is required to offer 

voice and broadband service to fixed 

locations that meet the Commission’s 

public service obligations. 

43. As the Commission explained in 

the USF/ICC Transformation FNPRM, 

76 FR 78384, December 16, 2011, states 

have primary authority for designating 

ETCs and defining their service areas 

except in cases where they lack 

jurisdiction over the entity seeking 

designation. In such situations, the Act 

gives the Commission responsibility for 

designating the entity as an ETC. Once 

an entity is designated as an ETC it must 

‘‘throughout the service area for which 

the designation is received . . . offer the 

services that are supported by Federal 

universal service support mechanisms 

under section 254(c).’’ The Commission 

defined the service supported by 

universal service support mechanisms 

under section 254(c)(1) to be ‘‘voice 

telephony’’ in the USF/ICC 

Transformation Order. An ETC’s 

‘‘service area’’ is defined to be the 

geographic area as established by the 

relevant state commission within which 

an ETC has universal service obligations 

and may receive universal service 

support. 

44. The Commission previously 

interpreted section 214(e) of the Act to 

require that an ETC offer voice 

telephony service throughout its 

designated service area. But with the 

Bureau’s adoption of the CAM, the 

Commission is now able to determine 

on a more granular level which areas are 

low-cost and therefore do not need a 

subsidy because price cap carriers can 

recoup their costs through reasonable 

end-user rates. The Commission notes 

that these low-cost census blocks 

already have voice telephony service 

with rates well below the reasonable 

comparability benchmark for voice 

service. And in the other census blocks 

where the Commission now grants 

limited forbearance, an unsubsidized 

competitor exists that is offering voice 

telephony service at reasonably 

comparable rates, or there is another 

ETC with an obligation to offer 

reasonably comparable voice telephony 

service. Thus, the Commission no 

longer finds that it is necessary as a 

matter of federal universal service 

policy to require price cap carriers to 

offer voice telephony service in these 

areas to achieve the section 254(b)(3) 

principle of ensuring that ‘‘[c]onsumers 

in all regions of the Nation . . . should 

have access to telecommunications . . . 

services, . . . that are reasonably 

comparable to those services provided 

in urban areas and that are available at 

rates that are reasonably comparable to 

rates charged for similar services in 

urban areas.’’ 

45. Accordingly, as discussed below, 

the Commission concludes that 

forbearance from the federal high-cost 

requirement that price cap carriers offer 

voice telephony services throughout 

their service area is warranted in these 

limited circumstances. The Act requires 

the Commission to forbear from 

applying any requirement of the Act or 

our regulations to a telecommunications 

carrier if the Commission determines 

that: (1) Enforcement of the requirement 

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 that requirement is not 

necessary for the protection of 

consumers; and (3) forbearance from 

applying that requirement is consistent 

with the public interest. The 

Commission concludes each of these 

statutory criteria is met for the specific 

types of areas described above. 


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46. Just and Reasonable. The 

Commission concludes that 

enforcement of the section 214(e)(1)(A) 

federal requirement that price cap 

carriers offer voice telephony 

throughout their service areas is not 

necessary to ensure that the charges, 

practices, or classifications of price cap 

carriers are just and reasonable and not 

unjustly or unreasonably discriminatory 

in specific geographic areas. The areas 

where the Commission forbears from 

enforcing the federal requirement that 

price cap carriers offer voice telephony 

services are census blocks (1) that have 

been deemed low-cost, (2) where there 

is an unsubsidized competitor meeting 

the Commission’s standards, or (3) 

where there is another ETC required to 

offer voice and broadband services to 

fixed locations that meet the 

Commission’s public service 

obligations. 

47. ETCs receiving Connect America 

support will be required to offer 

reasonably comparable voice and 

broadband services in their funded 

high-cost census blocks at rates that are 

reasonably comparable to urban areas. 

Therefore, there is no need to require a 

price cap carrier that declines the offer 

of model-based support to offer voice 

telephony in those census blocks where 

another ETC is subject to that reasonable 

comparability requirement. 

48. Moreover, in all the census blocks 

where the Commission grants 

forbearance, the price cap carrier will 

remain subject to other Title II 

requirements that ensure that voice 

telephony rates remain just and 

reasonable and not unjustly or 

unreasonably discriminatory. Price cap 

carriers will continue to be subject to 

sections 201 and 202 of the Act, which 

place nondiscrimination obligations on 

common carriers. Additionally, the 

Commission defers to the states’ 

judgment in assuring that the local rates 

that price cap carriers offer in the areas 

from which the Commission forbears 

remain just and reasonable. It also is 

reasonable to expect that the rates that 

price cap carriers charge in these areas 

for voice telephony will constrain the 

rates of other providers. And finally, in 

the event that the price cap carrier seeks 

to cease offering voice telephony in 

these areas, it will be subject to the 

section 214(a) discontinuance process 

that the Commission addresses more 

fully below, during which any concerns 

that may be raised by the price cap 

carrier’s decision to cease offering voice 

service can be addressed if necessary. 

The Commission concludes that these 

circumstances ensure just, reasonable, 

and nondiscriminatory offerings in the 

areas where the Commission grants 

forbearance. For these reasons, the 

Commission finds that the first prong of 

section 10(a) is met. 

49. Protection of Consumers. The 

Commission finds that, in the three 

types of census blocks subject to this 

forbearance determination, other 

mechanisms will be sufficient to protect 

consumers, and therefore it is 

unnecessary to enforce the obligation of 

price cap carriers to offer voice 

telephony services to ensure that 

consumers are protected. 

50. First, there are several safeguards 

that will prevent the consumers living 

in these areas from losing access to 

voice telephony services. Not enforcing 

the high-cost ETC obligation of price 

cap carriers to offer voice telephony 

services in these areas does not mean 

that price cap carriers can immediately 

cease providing voice telephony service. 

Pursuant to section 214(a) of the Act 

and section 63.71 of the Commission’s 

rules, all carriers must provide notice to 

their customers and the relevant states 

in writing that they plan to discontinue 

service and then file an application with 

the Commission before discontinuing 

voice telephony service in an area. 

Outside parties have the opportunity to 

provide comment on the application, 

and the Commission may then decide 

that the application should not be 

automatically granted. The 

discontinuance rules are designed to 

ensure that customers are fully informed 

of any proposed change that will reduce 

or end service, ensure appropriate 

oversight by the Commission of such 

changes, and provide an orderly 

transition of service, as appropriate. 

This process allows the Commission to 

minimize harm to customers and to 

satisfy its obligation under the Act to 

protect the public interest. 

51. The Commission has discretion to 

grant a discontinuance request in whole 

or in part, and may attach conditions as 

necessary to protect consumers and the 

public interest. Given the fact-intensive 

nature of this inquiry for each affected 

market, the Commission is not 

persuaded by suggestions in the record 

that it should grant blanket 

discontinuance to price cap carriers in 

the areas where it grants forbearance. 

Where there is a question as to 

appropriate alternatives available to 

consumers or whether the present or 

future public convenience and necessity 

will be adversely affected, the 

Commission will scrutinize the 

discontinuance application, consistent 

with its statutory obligations. In 

evaluating a section 214 discontinuance 

application, the Commission generally 

considers a number of factors, including 

the existence, availability, and adequacy 

of alternatives. Through consideration 

of these factors, the Commission ensures 

that the removal of a choice from the 

marketplace occurs in a manner that 

respects consumer expectations and 

needs. The Commission will not 

authorize a proposed discontinuance of 

service if customers or other end users 

would be unable to receive service or a 

reasonable alternative, or the public 

convenience and necessity would be 

otherwise adversely affected. In such 

circumstances, the Commission will 

require price cap carriers to continue 

offering voice telephony services in 

those areas in those instances where 

there is no reasonable alternative. 

Moreover, if an area is unserved and no 

common carrier will serve that area, the 

relevant state commission (or the 

Commission if applicable) is directed by 

the Act to designate an ETC to serve the 

area with voice telephony service. 

52. Second, it is reasonable to expect 

that price cap carriers will continue to 

offer voice service in these areas even 

after they have been relieved of the 

federal ETC requirement to do so. They 

already have existing networks and 

customers in these areas. They have an 

economic incentive to continue to serve 

these customers and to offer them 

innovative new services. 

53. Third, even if price cap carriers 

were to exit these areas, in areas where 

there is an unsubsidized competitor or 

another ETC receiving federal high-cost 

support to deploy modern networks 

capable of providing voice and 

broadband to fixed locations, there will 

be at least one provider in that area 

offering a voice telephony service that is 

reasonably comparable to service 

available in urban areas. Because 

consumers in these areas will have at 

least one other option for fixed voice 

telephony service at reasonable rates, 

there is no need to require price cap 

carriers to continue to offer such 

services as a federal ETC obligation. 

And as explained above, whether 

appropriate substitutes exist in all of the 

geographic areas in which the 

Commission grants limited forbearance 

will be addressed through the section 

214(a) discontinuance process; thus, the 

Commission is comfortable that there is 

no need to continue to apply ETC 

obligations in these areas. 

54. The Commission disagrees with 

the claim that the Commission should 

not forbear from section 214(e) because 

the Commission should ensure that 

there is at least one carrier that has a 

federal obligation to provide voice 

telephony service to all consumers in a 

particular area. As explained above, 

there are existing regulatory protections 

that provide reasonable assurance that 


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consumers in the areas where the 

Commission forbears from the federal 

high-cost ETC obligation to provide 

voice telephony service will continue to 

have access to voice telephony service. 

And as the Commission explains below, 

our decision to grant forbearance in 

these limited circumstances does not 

disturb existing state carrier of last 

resort obligations and does not preclude 

states that do not have carrier of last 

resort obligations from imposing such 

obligations. In sum, the Commission 

finds that consumers will be protected, 

and the second prong of section 10(a) is 

satisfied. 

55. Public Interest. The Commission 

concludes that it is in the public interest 

to forbear from the federal high-cost 

obligation to offer voice service 

throughout the service territory because 

enforcement of that obligation is 

unnecessary to preserve voice service. 

As noted above, the section 214 

discontinuance process will ensure that 

consumers will continue to have access 

to voice service. Price cap carriers that 

are granted the ability to discontinue 

their voice telephony service as a matter 

of federal law because there are 

alternatives available will no longer be 

required to spend their resources on 

maintaining existing voice telephony 

services or deploying new infrastructure 

to offer voice telephony service in 

newly constructed homes where there 

are already reasonable substitutes. 

Instead, price cap carriers can reallocate 

their resources towards making 

upgrades to their networks to meet the 

broadband needs of their existing or 

new customers. 

56. The Commission also finds that 

limited forbearance from section 

214(e)(1)(A) will promote competitive 

market conditions by giving price cap 

carriers the flexibility to compete on a 

more equal regulatory footing in the 

voice telephony market with 

competitors that already have the 

opportunity to make business decisions 

about how best to offer voice telephony 

service. Accordingly, the Commission’s 

decision is consistent with the principle 

that universal service policies be 

equitable and nondiscriminatory and 

the principle of competitive neutrality. 

57. The Commission does not take the 

further steps suggested by some 

commenters of reinterpreting section 

214(e)(1) to sunset all existing ETC 

designations and require states to redesignate ETCs so that their service 

areas include only high-cost funded 

areas, imposing rules on state ETC 

designations, adopting a federal process 

to redefine service areas, or preempting 

states. State commenters argue that 

these approaches would give 

insufficient consideration to the 

important role that Congress has given 

the states in defining service areas and 

designating ETCs. The Commission’s 

decision to grant limited forbearance 

does not redefine price cap carriers’ 

service areas or revoke price cap 

carriers’ ETC designations in these 

areas, and the Commission emphasizes 

that it does not preempt price cap 

carriers’ obligation to continue to 

comply with any state requirements, 

including carrier of last resort 

obligations to the extent applicable. The 

Commission also notes that it does not 

relieve ETCs of their other ‘‘incumbentspecific obligations’’ like 

interconnection and negotiating 

unbundled network elements pursuant 

to sections 251 and 252 of the Act. The 

continued existence of these obligations 

supports the Commission’s finding that 

the forbearance it grants in this Order is 

consistent with the public interest. 

58. The Commission’s public-interest 

finding is also supported by the fact that 

any incumbent price cap carrier must 

still comply with the requirements of 

section 214(e)(4) of the Act regarding 

relinquishment of ETC designation. The 

Commission is not persuaded that its 

decision to not preempt state obligations 

constitutes a taking. The Commission 

notes that no party has articulated 

which specific state obligations 

constitute a taking, submitted specific 

evidence to show how those state 

obligations are burdensome, or provided 

detailed analysis as to how the 

preemption standard has been met for 

these obligations. 

59. Timing. Because many ETCs will 

no longer receive support for discrete 

census blocks upon full implementation 

of Phase II in price cap territories, the 

Commission believes that it is 

appropriate to clarify its expectations 

regarding the specific timing of this 

forbearance. The Commission finds that 

in the first month that support is 

disbursed to another ETC that is 

required to serve particular census 

blocks with voice and broadband 

service to fixed locations, incumbent 

price cap carriers not receiving such 

support will be immediately relieved of 

their federal high-cost ETC obligation to 

offer voice telephony in those specific 

census blocks. Also, incumbent price 

cap carrier ETCs will be relieved of the 

federal high-cost ETC obligation to offer 

voice telephony service in the low-cost 

census blocks where Phase II support is 

not available and also in census blocks 

where the average cost is above the 

funding benchmark where an 

unsubsidized provider is already 

providing service. Incumbent price cap 

carriers shall be relieved of their 

existing federal high-cost universal 

service obligations to offer voice 

telephony service in low-cost census 

blocks beginning on the date on which 

they accept or decline to make a statelevel commitment. Incumbent price cap 

carriers shall be relieved of their 

existing federal high-cost universal 

service obligations to offer voice 

telephony service in census blocks 

served by unsubsidized competitors on 

the date that there is a determination 

that there is an unsubsidized competitor 

offering 10/1 Mbps in those census 

blocks. 

60. Price cap carriers subject to this 

limited forbearance in these three 

specific types of census blocks must 

continue to satisfy all Lifeline ETC 

obligations. Therefore, they will 

effectively become Lifeline-only ETCs in 

the specific census blocks that are the 

subject of this forbearance. As such, 

they must continue to offer voice 

telephony service to qualifying lowincome households in those areas 

unless or until they relinquish their ETC 

designations in those areas pursuant to 

section 214(e)(4), and, in any event, 

must continue to offer voice more 

generally until they receive 

discontinuance authority under section 

214. 

III. Eligibilty of Areas for Phase II 

Support 

A. Areas Served by Competitors 

61. Discussion. Upon consideration of 

the record, the Commission now adopts 

these proposals with certain 

modifications. First, to ensure support is 

targeted to areas lacking 4/1 Mbps, the 

Commission will exclude from the offer 

of Phase II model-based support to price 

cap carriers any census block served by 

a subsidized facilities-based terrestrial 

competitor that offers fixed residential 

voice and broadband services meeting 

or exceeding 3 Mbps/768 kbps speed 

requirement, as determined by the 

Bureau. Second, the Commission 

concludes that any such high-cost 

blocks served by a subsidized carrier 

that are excluded from the offer of 

model-based support—including blocks 

with service meeting or exceeding the 

new 10/1 Mbps speed requirement— 

will instead be eligible for support in 

the Phase II competitive bidding 

process. Third, the Commission 

concludes that any area served by an 

unsubsidized facilities-based terrestrial 

competitor that offers 10/1 Mbps will be 

ineligible for support in the Phase II 

competitive bidding process. 

62. The Commission excludes areas 

served by subsidized competitors 

providing 3 Mbps/768 kbps or greater 


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service from the offer of model-based 

support because the Commission is 

persuaded that whether another 

provider receives high-cost universal 

service support should not be the 

determining factor in excluding a highcost census block from the offer of 

model-based support. In the USF/ICC 

Transformation Order, the Commission 

eliminated the identical support rule 

and established Phase II of the Mobility 

Fund as the mechanism to provide 

ongoing support for mobile services. 

Competitive ETCs offering broadband 

services that meet the performance 

standards, however, only have the 

opportunity to compete for ongoing 

support if price cap companies decline 

the state-level commitment. Upon 

further consideration, the Commission 

now concludes that areas served by a 

subsidized facilities-based terrestrial 

competitor offering fixed residential 

voice and broadband services meeting 

or exceeding 3 Mbps/768 kbps should 

not be part of the price cap carrier statelevel commitment. 

63. By excluding these areas from the 

offer of Phase II model-based support 

and instead including them in the Phase 

II competitive bidding process, the 

Commission gives competitive ETCs 

serving these areas the opportunity to 

compete for ongoing support in their 

high-cost areas, regardless of whether a 

price cap incumbent accepts or declines 

the state-level commitment. This 

modification recognizes that these areas 

are high-cost and, absent such ongoing 

support, it may not be economically 

feasible for providers in these areas to 

continue providing service. Removing 

these census blocks from the offer of 

model-based support and instead 

immediately opening these areas to 

competitive bidding allows competition 

to drive support to efficient levels, to be 

awarded to the provider that will most 

effectively use funds. 

64. Changing the minimum speed 

threshold for network deployment to 

10/1 Mbps does not mean, however, that 

the Commission should use the 10/1 

Mbps coverage map in determining 

what areas are served by either 

unsubsidized or subsidized competitors 

for purposes of the offer of Phase II 

model-based support. The version of the 

CAM adopted by the Bureau for 

purposes of identifying the initial list of 

eligible census blocks provides support 

for census blocks with an average cost 

per location per month of between 

$52.50 and $207.81 and that are 

unserved by an unsubsidized 

competitor offering 3 Mbps/768 kbps 

broadband service. While adjusting the 

CAM to provide support for census 

blocks not served with 10/1 Mbps 

service would increase the number of 

locations eligible for the offer of modelbased support, this increase would be 

predominately the result of the 

extremely high-cost threshold shifting 

downwards. The end result would be 

that locations in those blocks that are 

more expensive to serve, relatively 

speaking, that currently do not receive 

even 3 Mbps/768 kbps service would no 

longer be eligible for the offer of modelbased support. In contrast, using the 

same 3 Mbps/768 kbps coverage map to 

target the offer of Phase II model-based 

support to locations in these higher cost 

census blocks will result in Connect 

America model-based funding being 

targeted to the very same areas that the 

Commission intended to be subject to 

the offer of model-based support when 

it adopted the USF/ICC Transformation 

Order in 2011—those lacking the most 

basic Internet access. 

65. The Commission is not persuaded 

by the suggestion that it would be more 

efficient to use the 10/1 Mbps coverage 

map because that will result in more 

locations being served. The fact that 

areas that currently have 3 Mbps/768 

kbps service but not 10/1 Mbps are 

excluded from the offer of model-based 

support does not mean there is no 

mechanism to ensure that consumers in 

those areas have access to service 

meeting the newly established standard. 

Instead, the Commission concludes that 

any area lacking service from a 

facilities-based terrestrial competitor 

that meets our new 10/1 Mbps standard 

and existing latency/usage/pricing 

requirements will be eligible for support 

in the Phase II competitive bidding 

process. The Commission concludes it 

is preferable to address these areas in 

the competitive bidding process, as 

competitive forces will drive support to 

efficient levels in those geographic areas 

that now lack broadband by virtue of 

our adjustment of the minimum speed 

threshold. 

66. The Commission also is not 

persuaded by arguments that using the 

10/1 Mbps coverage map to determine 

eligibility for the offer of model-based 

support is necessary to enable price cap 

carriers to build more efficient 

networks. The Commission notes that 

price cap carriers—like all other 

providers—will be able to bid on these 

census blocks in the Phase II 

competitive bidding process, providing 

them with an opportunity to gain 

additional territory for network 

efficiency. 

67. Utilizing the 3 Mbps/768 kbps 

coverage map to exclude areas eligible 

for model-based support also is 

administratively efficient. Excluding 

areas served by qualifying competitors 

providing at least 10/1 Mbps service 

would require the Bureau to conduct a 

new challenge process to determine 

which areas that have 3 Mbps/768 kbps 

lack 10/1 Mbps service. The Phase II 

challenge process has been underway 

since June 2014, and with the record 

now closed, the Bureau is poised to 

complete these adjudications. The 

Commission believes that undertaking 

such an effort to conduct a 

supplemental challenge process would 

unnecessarily delay the offer of modelbased support that otherwise would 

occur in early 2015. The Commission 

therefore directs the Bureau to complete 

the challenge process for the offer of 

model-based support and to remove 

from eligibility any blocks it determines 

are served by a qualifying competitor 

providing service of at least 3 Mbps/768 

kbps. 

68. Finally, the Commission 

concludes that any area served by an 

unsubsidized facilities-based terrestrial 

competitor that offers 10/1 Mbps will be 

ineligible for support in the Phase II 

competitive bidding process. Because 

these areas already have service that 

meets or exceeds the new speed 

requirement without receiving high-cost 

funding, the Commission does not have 

the same concern as it does for areas 

served by subsidized competitors—that 

it may not be economically feasible for 

providers in these areas to continue 

providing service absent support. The 

Commission believes that it would be an 

inefficient use of Connect America 

support to provide funding in these 

areas. The Commission expects to 

update the list of census blocks that will 

be excluded from eligibility from the 

Phase II competitive bidding process 

based on the most current data available 

at the time shortly before that auction to 

take into account any new deployment 

that is completed in the coming year. 

69. The Commission also notes that 

any areas left unserved after the Phase 

II competitive bidding process will be 

addressed through the Remote Areas 

Fund. The Commission does not 

establish a separate Remote Areas Fund 

at this time, as the Commission has 

concluded that parties should be free in 

the Phase II competitive bidding process 

to submit bids to bring service to the 

highest cost, most remote areas of the 

nation. Once that Phase II competitive 

bidding process occurs, and the 

Commission has determined which 

winning bidders are authorized to 

receive support, the Commission will be 

in a much better position to determine 

what areas, if any, remain unserved and 

can be addressed through a separate 

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B. Rural Broadband Experiments 

70. Discussion. The Commission now 

establishes a process to enable the 

selection of next-in-line bidders for 

rural broadband experiments support, in 

the event any of the provisionally 

selected bidders defaults by failing to 

meet our technical and financial 

requirements before the time the Bureau 

finalizes the list of census blocks that 

will be offered to the price cap carriers. 

All bidders in the rural broadband 

experiments that wished to remain in 

consideration for rural broadband 

experiment support should have filed 

their financial and technical 

information no later than 7 p.m. EST on 

Tuesday, January 6, 2015, in WC Docket 

No. 14–259. In particular, they must file 

the most recent three consecutive years 

of audited financial statements, 

including balance sheets, net income, 

and cash flow, in order to enable a 

thorough financial review. They also 

must submit a description of the 

technology and system design that 

would be used to deliver voice and 

broadband service meeting the requisite 

speeds to all locations in the funded 

census blocks, including a network 

diagram, which must be certified by a 

professional engineer. This will enable 

Bureau staff quickly to identify 

additional provisionally selected 

bidders in the event that any of the 

initially selected bidders default before 

the Bureau finalizes the list of eligible 

census blocks for the offer of modelbased support, which the Commission 

expects may occur in early 2015. All 

bidders that wish to remain under 

consideration must seek confidential 

treatment of their filing in order to 

protect the integrity of the competitive 

bidding process. 

71. The Commission concludes that 

excluding from the offer of model-based 

support any census block included in a 

non-winning rural broadband 

experiment application submitted in 

funding category one will ensure the 

more efficient use of Connect America 

support. The Commission will only 

exclude those census blocks where a 

losing bidder has indicated that it 

wishes to remain in consideration for 

rural broadband experiment support as 

described above. The Commission will 

not exclude from the offer of modelbased support any area where the rural 

broadband experiment applicant is 

seeking a waiver of one or more 

requirements established for rural 

broadband experiments, including the 

submission of the requisite financial 

and technical information. The 

Commission concludes that the time 

necessary to resolve such waiver 

requests to determine which blocks to 

remove from the offer of model-based 

support would unnecessarily delay the 

implementation of Phase II. The 

Commission emphasizes that it has no 

intention of delaying the offer of modelbased support to the price cap carriers, 

and expect to proceed with that offer in 

early 2015. 

72. The Commission determines that 

rural broadband experiment proposals 

submitted in funding category one that 

facially meet the requirements for 

submission of financial and technical 

information could help us achieve our 

universal service goals in a costeffective manner. Though all rural 

broadband experiment proposals seek 

an amount of support at or below 

model-calculated levels, proposals in 

funding category one are required to 

commit to constructing networks that 

are capable of providing 100/25 Mbps. 

The Commission is not convinced that 

providing model-based support to a 

price cap carrier in an area where 

another entity has demonstrated an 

interest to provide service that so 

significantly exceeds the Commission’s 

new speed requirements, for an amount 

at or below the model-determined 

support, would be an efficient use of 

funding. Further, because the proposals 

the Commission received in funding 

category one requested support below 

the level of support that the model 

would otherwise provide, excluding 

these areas from the offer of modelbased support and instead making them 

available in the Phase II competitive 

bidding process should enable us to 

stretch our finite Connect America 

budget even further. 

73. The Commission is not persuaded 

by concerns that this approach could 

result in an opportunity for gaming by 

allowing a party to submit a rural 

broadband experiments application that 

the party never intended to honor 

simply to reserve its opportunity to 

participate in the Phase II competitive 

bidding process. The Commission 

believes that the parameters it 

establishes above—that only rural 

broadband experiment proposals in 

category one for which the applicant 

submits the required technical and 

financial information will be excluded 

from the offer of model-based support— 

alleviate any concerns that the 

Commission’s decision would enable 

applicants to game the system. The 

submission of a network engineering 

diagram certified by a professional 

engineer and audited financial 

statements as described above provides 

some assurance that these are serious 

bidders prepared to participate in the 

Phase II competitive bidding process. 

Through such action, these parties will 

demonstrate a baseline understanding of 

Commission regulations and 

procedures. Moreover, entities with 

three years of audited financial 

statements by definition are ongoing 

businesses. 

74. This decision also reflects our 

balancing of section 254(b) principles 

under the circumstances here. In the 

USF/ICC Transformation Order, the 

Commission concluded—and it now 

reaffirms—that the CAF ‘‘should 

ultimately rely on market-based 

mechanisms, such as competitive 

bidding, to ensure the most efficient and 

effective use of public resources.’’ The 

Commission adopted a mechanism to 

offer incumbent price cap carriers a 

right of first refusal to provide service in 

exchange for model-based support due 

to its recognition that the continued 

existence of legacy obligations could 

complicate the transition to competitive 

bidding and might cause consumer 

disruption. The Commission also 

reasoned that the offer would generally 

include only areas where the incumbent 

price cap carrier would likely have the 

only wireline facilities, and that other 

bidders may have the ability to deliver 

scalable broadband meeting the 

Commission’s requirements over time. It 

was also ‘‘our predictive judgment that 

the incumbent LEC is likely to have at 

most the same, and sometimes lower, 

costs compared to a new entrant in 

many of these areas.’’ Under the 

analysis in the USF/ICC Transformation 

Order, these considerations weighed 

against strict application of the 

competitive neutrality principle and 

other factors that might, on their own, 

otherwise have led us to move more 

quickly to competitive bidding. 

75. The Commission is persuaded to 

revisit that balancing in certain targeted 

ways here. Today, the rural broadband 

experiments give the Commission more 

of an ability to identify areas that are 

likely to be candidates to transition 

more quickly to competitive bidding, 

and it is the Commission’s predictive 

judgment that those areas will be better 

served, and the Connect America budget 

better used, by excluding those areas 

from price cap carrier’s right of first 

refusal, enabling both incumbents and 

competitors to seek support through a 

competitive process. In light of these 

new circumstances, and against the 

backdrop of other changes adopted in 

this Order, the Commission finds that 

moving more quickly to competitive 

bidding in certain respects as a result of 

the changes adopted here is warranted 

under the Commission’s reevaluation of 

the balancing of the competitive 


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neutrality principle against other 

universal service goals. 

76. The Commission does recognize 

the possibility that if it removes these 

areas from the offer of model-based 

support, both the price cap carrier and 

the rural broadband experiment 

applicant ultimately may opt not to bid 

on such areas in the Phase II 

competitive bidding process. That risk 

exists as well for areas where the price 

cap carrier declines the offer of modelbased support. On balance, however, the 

Commission concludes that this risk is 

outweighed by the public policy 

benefits potentially, and the 

Commission believes likely, to be 

gained of having consumers in these 

areas receive higher-quality service from 

a competitor at or below the amount of 

model-based support and being able to 

ensure that additional consumers are 

served with that unused funding. The 

Commission also notes that any areas 

left unserved after the Phase II 

competitive bidding process will be 

addressed through the Remote Areas 

Fund. 

IV. Phase II Transitions 

77. In this section, the Commission 

addresses several issues relating to the 

implementation of Phase II in areas 

currently served by price cap carriers. 

First, the Commission adopts our 

proposal to align the funding years for 

price cap carriers accepting modelbased Phase II support with the calendar 

year, but clarify that the deployment 

obligation will commence on the date of 

public notice of authorization for Phase 

II funding. Second, the Commission 

eliminates the transition year formerly 

adopted by the Commission in the USF/ 

ICC Transformation Order. Third, the 

Commission clarifies that Phase I 

incremental support should not be 

included in the calculations of 

transitional support for those price cap 

carriers that choose to accept modelbased support that is less than frozen 

support in a given state. 

A. Aligning Connect America Phase II 

Funding and Calendar Years 

78. Discussion. The Commission 

adopts its proposal to align the funding 

years for the offer of model-based 

support with the calendar year. Thus, 

the Commission adopts its proposal to 

disburse a lump sum amount to those 

carriers for whom model-based support 

in a given state will be greater than 

Connect America Phase I support. This 

lump sum will represent the additional 

amount of model-based support (above 

the frozen support that price cap 

carriers already receive) that would 

accrue for the beginning months of the 

year while price cap carriers are 

considering the offer of model-based 

support. Thus, as discussed above, 

carriers accepting model-based support 

will receive such support in calendar 

years 2015 through 2020. 

79. The Commission anticipates 

extending the offer of model-based 

support in early 2015, with carriers 

responding 120 days later. Then, the 

Bureau will issue a Public Notice 

authorizing USAC to disburse the new 

funding amounts for those providers 

electing model-based support. The 

Commission directs USAC to disburse 

the lump sum payment in the month 

after the issuance of this Public Notice, 

drawing the funds from the broadband 

reserve account. The Commission will, 

however, provide an option for a carrier 

to elect to defer this lump sum payment 

until calendar year 2016, in recognition 

that may be the first year in which 

significant capital investments are made 

to meet the deployment obligations 

established for Phase II. 

80. The Commission clarifies that 

while carriers will receive a full year of 

Phase II support in calendar year 2015, 

the deployment obligation commences 

on the date of the Public Notice 

authorizing Phase II-model based 

support. The Commission acknowledges 

recipients that accept model-based 

support thus will be subject to different 

obligations for the time periods before 

and after they are authorized to receive 

Phase II support in calendar year 2015, 

and direct USAC to take that into 

account when conducting beneficiary 

compliance reviews of price cap carrier 

ETCs for calendar year 2015. 

B. Transition Where Model-Based 

Support is Greater Than Connect 

America Phase I Support 

81. Discussion. The Commission 

adopts its proposal to eliminate the 

transition period for price cap carriers 

that elect to receive model-based 

support in states where such support is 

greater than the frozen support they 

receive under Phase I. Because the 

affected price cap carriers will be 

receiving more support in these states 

than they did in Phase I, the 

Commission finds that it is unnecessary 

to provide a transition year for these 

carriers to adjust to receiving Phase II 

support. Instead, it is in the public 

interest and will further our Connect 

America goals immediately to provide 

these price cap carriers with their full 

Phase II support, recognizing that 

significant capital investments will be 

required to deploy voice and broadband 

capable networks to unserved areas. The 

Commission also concludes that it will 

lessen administrative costs for USAC: 

once the Bureau issues the Public 

Notice authorizing model-based support 

for those entities electing to make a 

state-level commitment, that monthly 

support amount will remain unchanged 

for the duration of the term of support, 

rather than making adjustments to 

account for a transition year. 

C. Base Support Amount for Transition 

To Connect America Phase II 

82. Discussion. The Commission 

adopts its proposal to clarify that for 

purposes of transitioning from Connect 

America Phase I to Phase II, the 

Commission will only provide a 

percentage of Connect America Phase I 

frozen support; Phase I incremental 

support will not be included in this 

transition. Because Phase I incremental 

support was intended to be a one-time 

‘‘immediate boost to broadband 

deployment’’ while the Commission 

worked on implementing Phase II, the 

Commission concludes that there is no 

need for price cap carriers to continue 

to receive a percentage of that support 

as ongoing support as they transition to 

Phase II. 

V. Reforms in Rate-of-Return Study 

Areas 

83. In the April 2014 Connect 

America FNPRM, the Commission 

sought comment on several proposals 

for near-term reform of high-cost 

universal service support for rate-ofreturn carriers. The Commission 

addresses these here. First, the 

Commission adopts a revised 

methodology for applying the cap on 

HCLS so that support is distributed 

more equitably among all high-cost 

carriers, and so that carriers with the 

highest loop costs have better incentives 

to curb waste in the operation of their 

study areas. Second, the Commission 

adopts its proposals regarding the 100 

percent overlap rule, concluding that 

the Bureau should determine whether 

there is a 100 percent overlap every 

other year, and the prior year’s support 

should be used as the basis for the 

phase-down in support for any study 

area with a 100 percent overlap. The 

Commission concludes that the Bureau 

should not determine 100 percent 

overlap based on the existence of a 

subsidized provider. 

84. The Commission does not, at this 

time, take action with regard to any of 

the proposals for long term reform for 

rate-of-return carriers. Although a 

number of parties have submitted 

proposals that may have promise, the 

Commission find that further analysis 

and development of these proposals is 

necessary. The Commission expects to 


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continue to develop the record and act 

on long-term reform in the coming year. 

A. HCLS Reimbursement Rates Under 

the Cap 

85. In the April 2014 Connect 

America FNPRM, the Commission noted 

that it ‘‘continues to have significant 

concerns regarding the structure and 

incentives created under the existing 

high-cost mechanisms for rate-of-return 

carriers, such as the ‘race to the top’ 

incentives that exist under HCLS and 

the ‘cliff effect’ of the annual adjustment 

of the HCLS cap.’’ The Commission 

addresses this concern for the near-term 

by modifying the methodology for 

reimbursements under HCLS. 

86. The indexed cap on HCLS has 

seen steady reductions in recent years as 

a result of decreasing numbers of 

working loops and low inflation rates. 

As a result, carriers with costs close to 

the ever rising NACPL risk losing all 

HCLS for prior investments, while 

carriers with a higher cost per loop are 

sheltered from the impact of the HCLS 

cap. The carriers with the highest loop 

costs relative to the national average 

have minimal incentive to reduce their 

expenses and eliminate waste: between 

HCLS and interstate common line 

support, it is possible for 100 percent of 

their incremental loop costs to be 

recovered through universal service. 

The Commission observes that these 

carriers with the highest HCLS 

reimbursement rates have steadily 

increased their reported loop costs (by 

36 percent since 2004), while carriers 

with lower reimbursement rates have 

had stable or reduced loop costs. In 

combination, the decreasing HCLS cap 

and the increasing demand from the 

carriers reporting the highest cost per 

loop create yearly increases in the 

NACPL used to calculate HCLS, 

precluding many carriers from receiving 

any HCLS and significantly reducing 

support for others with costs per loop 

close to the NACPL. A comparison of 

the 646 study areas that submitted cost 

studies for each year from 2004 to 2013 

shows what has occurred over the last 

decade: in 2006, 579 of the 646 study 

areas were receiving HCLS support, but 

by 2015, only 461 of them are projected 

to receive support, meaning that 118 or 

20 percent of these study areas fell ‘‘off 

the cliff’’ over this ten-year period. 

These features of the HCLS rule were 

not altered in the USF/ICC 

Transformation Order. 

87. In the April 2014 Connect 

America FNPRM, the Commission 

proposed to mitigate these deficiencies 

by reducing support proportionally 

among all HCLS recipients through 

decreased reimbursement percentages 

for all carriers instead of adjusting the 

NACPL. Specifically, the Commission 

proposed to freeze the NACPL that is 

used to determine support and instead 

to decrease HCLS proportionately 

among all HCLS recipients. As specified 

in the proposed rule, the reduction 

would be achieved by multiplying each 

carrier’s calculated HCLS by the ratio of 

the indexed HCLS cap to the aggregate 

amount of HCLS initially calculated for 

all carriers using the frozen NACPL. 

This effectively would freeze the 

NACPL at the capped amount as a date 

certain, such as December 31, 2014. 

88. This proposal initially received 

widespread support from commenters 

responding to the FNPRM. Subsequent 

to the closing of the comment cycle, 

however, the Rural Associations argued 

the Commission’s proposed 

methodology should be modified to 

lessen the impact on the companies 

with the highest reported cost per loop 

by continuing to raise the NACPL as is 

done under the current methodology. In 

particular, the Rural Associations 

propose that if HCLS as initially 

calculated based on the frozen NACPL 

exceeds the indexed cap, then the 

NACPL would be adjusted so the HCLS 

amounts equal the indexed cap plus half 

of the difference between the initially 

calculated amount and the indexed cap. 

The HCLS amounts calculated using 

this adjusted NACPL would then be 

reduced proportionally so that total 

HCLS matched the indexed cap. The 

Rural Associations argue that their 

proposal would mitigate what they 

consider disproportionate effects on the 

carriers with the highest cost per loop. 

89. Discussion. After full 

consideration of the record, the 

Commission now adopts their proposal, 

as described in the April 2014 Connect 

America Order and FNPRM, 79 FR 

39164, July 9, 2014 and 79 FR 39196, 

July 9, 2014. The Commission finds that 

this targeted rule change will be 

effective in addressing the lack of 

incentives to curb waste that results 

from the race to the top and providing 

a more equitable distribution of support 

to all high-cost rate-of-return carriers, 

including those currently facing a loss 

of support due to the cliff effect. 

90. The Commission declines to adopt 

the Rural Associations’ proposed 

modification. Under their proposal 

current recipients of HCLS would 

continue to lose HCLS as the HCLS cap 

is lowered, albeit not to the same extent 

as occurs today. Yet addressing the cliff 

effect was one of the core objectives of 

the Commission’s proposal. Although 

the Rural Associations’ proposal may, to 

some degree, mitigate both the cliff 

effect and the race to the top as 

compared to our current methodology, 

based on the record before the 

Commission, it finds it would be less 

effective at addressing both objectives 

than the Commission’s proposal. In a set 

of examples provided by the Rural 

Associations, the two lowest cost 

companies in the set each would receive 

approximately 40 percent less in the 

first year after implementation of the 

proposed rule than they would under 

the Commission’s proposals and would 

have their HCLS entirely eliminated by 

the fifth year of operation. Indeed, 

under NTCA’s proposal, the cliff effect 

would immediately eliminate support 

from 11 study areas that would continue 

to receive support under the 

Commission’s proposal. In other words, 

the cliff effect would remain significant 

if the Rural Associations’ proposal were 

implemented. Similarly, the Rural 

Associations’ proposal significantly 

preserves the advantages under HCLS of 

being a company reporting a relatively 

higher cost per loop, even if it does 

eliminate the possibility that a carrier 

could recover 100 percent of any 

marginal loops costs it incurs. 

91. Although the Rural Associations 

express concern that the Commission’s 

proposal may have a disproportionate 

effect on the carriers with the highest 

cost per loop, in their own examples, 

the Commission does not believe that 

this will result in insufficient support 

for any carrier. Using NTCA’s analysis, 

the highest cost carrier would lose only 

seven percent of HCLS as compared to 

the current rules (and receives only 

three percent less than it would receive 

under the Commission’s proposal). 

Because that carrier would likely also be 

receiving a significant amount of ICLS, 

the reduction as a fraction of total 

support would be even less than seven 

percent. Moreover, the fact that reported 

costs have increased for some high-cost 

recipients at rates substantially above 

that for other high-cost recipients 

suggests that the current construct of the 

rule does not create structural 

incentives for these carriers to take 

measures to reduce their expenses to the 

extent possible. There are several 

potential reasons why reported costs per 

loop for certain carriers are increasing at 

rates in excess of that for other high-cost 

recipients: They are investing more, 

they are subject to greater competition 

and therefore experiencing line loss, or 

they are spending imprudently. One of 

the Commission’s goals as it considers 

proposals for longer-term reform is to 

provide a more equitable opportunity 

for all carriers in high-cost areas to 

invest in broadband-capable 

infrastructure. In the meanwhile, the 


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rule change the Commission is adopting 

in this Order will strengthen the 

incentive for the carriers with the 

highest reported costs per loop to 

manage their expenditures in light of 

the existence of the cap on HCLS. 

92. The Commission also is not 

persuaded by commenters arguing that 

these changes are unnecessary. TCA 

argues that the $250 per-line per month 

cap effectively addresses the race to the 

top. In fact, the $250 per-line cap affects 

only a small number of the very highest 

cost carriers and, for the reasons 

explained above, does not, it concludes, 

comprehensively address the race to the 

top or the cliff effect. Those higher cost 

carriers not subject to the $250 per-line 

cap still have limited incentive to curb 

waste, and numerous others are hurt by 

the cliff effect. 

93. The Commission does not agree 

with the Concerned Rural ILECs that the 

race to the top is a budgetary problem 

and could be solved by increasing the 

size of the HCLS budget. Although 

significantly increasing the HCLS 

budget might address the cliff effect, it 

would, if anything, exacerbate the race 

to the top by eliminating the limited 

constraints the HCLS mechanism 

currently has on carrier spending and 

undermining the carriers’ incentives to 

curb wasteful expenses related to 

common line costs. 

94. The Commission disagrees with 

TCA’s contention that it should not 

adopt its proposal due to retroactivity. 

As a matter of law, the proposed rule is 

not impermissibly retroactive. The 

Commission notes that the Tenth Circuit 

recently rejected arguments that the 

changes the Commission made to the 

HCLS and Safety Net Additive (SNA) 

rules in the USF/ICC Transformation 

Order violated the presumption against 

retroactivity. The court there found that 

‘‘the Order . . ., which makes only 

prospective changes to the 

reimbursement framework, including 

the elimination of SNA, is not 

retroactive.’’ A rule does not operate 

retroactively merely because it is 

‘‘applied in a case arising from conduct 

antedating [its] enactment’’ or ‘‘upsets 

expectations based on prior law.’’ 

Rather, a rule operates retroactively if it 

‘‘takes away or impairs vested rights 

acquired under existing law, or creates 

a new obligation, imposes a new duty, 

or attaches a new disability in respect to 

transactions or considerations already 

past.’’ The application of the rules 

adopted here will not take away or 

impair a vested right, create a new 

obligation, impose a new duty, or attach 

a new disability in respect to the 

carriers’ previous expenditures. There is 

no statutory provision or Commission 

rule that provides companies with a 

vested right to continue to receive 

support at particular levels or through 

the use of a specific methodology. 

Although application of these rules may 

affect the amount of support a carrier 

receives for expenditures made in 2013, 

it does not change the legal landscape 

in which those expenditures were made. 

Rather, as the Commission observed in 

the USF/ICC Transformation Order, 

‘‘section 254 directs the Commission to 

provide support that is sufficient to 

achieve universal service goals, [but] 

that obligation does not create any 

entitlement or expectation that ETCs 

will receive any particular level of 

support or even any support at all.’’ 

95. Moreover, as a matter of policy, 

the Commission is not persuaded that 

even the highest cost rate-of-return 

carriers will be unduly harmed by this 

rule. As noted above, in the Rural 

Associations’ examples, the highest cost 

company sees a reduction of only six 

percent of its HCLS (and a smaller 

fraction of its total high-cost support) as 

a result of this rule. TCA nonetheless 

argues that this rule change ‘‘unfairly 

penalizes’’ rate-of-return carriers ‘‘that 

have made investments to bring 

broadband to their customers in 

accordance with the FCC’s goals.’’ TCA 

provides no basis, however, for 

distinguishing between carriers that 

have, in fact, prudently invested in 

broadband facilities and those that have 

failed to curb wasteful expenses. The 

Commission notes that if any rate-ofreturn carrier suffers significant harm as 

a result of this rule change and the 

carrier’s earlier prudent investment, it 

may seek waiver of our rules. 

96. The Commission declines to adopt 

the Eastern Rural Telecom Association’s 

(ERTA) proposal that the frozen NACPL 

be indexed to inflation or some other 

low-growth factor as a method of 

removing the cliff effect. The 

Commission finds that the other steps 

taken here will effectively address this 

issue. Moreover, because the 

Commission anticipates that it will 

adopt more comprehensive reforms for 

rate-of-return carriers in the coming 

year, indexing the NACPL is unlikely to 

have a material effect. 

97. The Commission recognizes that 

NTCA’s analysis is sensitive to a 

number of forecasting assumptions, 

including line growth or loss and 

changes in cost per loop. For that 

reason, the Commission will closely 

monitor the effects of this rule change 

on rate-of-return carriers and will revisit 

this issue in the event that it has 

unanticipated results. In sum, however, 

the Commission is not convinced based 

on the record before us that the Rural 

Associations’ proposal is superior to 

what the Commission proposed in the 

April 2014 Connect America NPRM. 

B. 100 Percent Overlap Rule 

98. Discussion. The Commission 

previously directed the Bureau ‘‘to 

publish a finalized methodology for 

determining areas of overlap and a list 

of companies for which there is a 100 

percent overlap.’’ The Commission 

expects the Bureau will, in 2015, review 

study area boundary data in conjunction 

with other data collected via FCC Form 

477 or the State Broadband Initiative to 

determine whether and where 100 

percent overlaps exist. The Bureau will 

publish its preliminary determination of 

those areas subject to 100 percent 

overlap and then provide an 

opportunity for comment on these 

preliminary determinations, building on 

experience gained in conducting the 

Phase II challenge process in price cap 

areas. Once the comment period is 

complete, the Bureau then will finalize 

its determination of where there is a 100 

percent overlap. The Commission 

directs the Bureau to repeat this process 

every other year to determine whether 

additional study areas have become 

subject to the 100 percent overlap rule. 

Finally, the Commission adopts its 

proposal to base support reduction 

phase down on the amount of support 

awarded in the year prior to the 

determination, rather than 2010. 

Because implementation of the 100 

percent overlap determinations for rateof-return carriers has taken longer than 

initially anticipated, the Commission 

believes that basing reductions on 

current support will lead to a smoother 

transition. 

99. The Commission declines to 

modify the 100 percent overlap rule to 

eliminate support in any study area 

with a qualifying competitor, as 

opposed to an unsubsidized competitor. 

As explained above, the reason the 

Commission is removing high-cost 

census blocks with a qualifying 

competitor from eligibility for Connect 

America Phase II model support is to 

provide an opportunity for all parties to 

compete for support for those areas 

through a competitive bidding process. 

There is no comparable process in place 

in rate-of-return study areas for several 

subsidized competitors to compete with 

each other for support to serve the study 

area. In the case of rate-of-return 

carriers, removing study areas from 

eligibility where there are qualifying 

competitors would mean that there is no 

mechanism to provide support for highcost areas that presumably need support 

in order for consumers to have access to 

voice and broadband services, once the 


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phase-down in competitive ETC support 

is complete. 

VI. Accountability and Oversight 

100. In this section, the Commission 

takes several steps to strengthen the 

uniform national framework for 

accountability that the Commission 

adopted in the USF/ICC Transformation 

Order. First, the Commission codifies a 

broadband reasonable comparability 

rates certification requirement for all 

recipients of high-cost support that are 

subject to obligations to deploy 

broadband to fixed locations. Second, 

the Commission requires price cap 

carriers that accept model-based support 

to submit specific location information 

with their service quality improvement 

plans and progress reports to enhance 

the Commission’s ability to monitor 

their use of Connect America support. 

Third, the Commission adjusts the 

framework for reduction in support for 

late-filed section 54.313 and 54.314 

reports and certifications. Fourth, the 

Commission adopts measures to be used 

in the event specific ETCs do not meet 

certain terms and conditions of highcost support. 

A. Reasonably Comparable Rates 

Certification for Broadband 

101. Discussion. The Commission 

amends section 54.313(a) to include a 

new subsection 12 that requires 

recipients of high-cost and/or Connect 

America Fund support that are subject 

to broadband performance obligations to 

submit a broadband reasonable 

comparability rate certification with 

their annual section 54.313 report (FCC 

Form 481). In that certification, support 

recipients must certify that the pricing 

of the broadband offering they are 

relying upon to meet their broadband 

performance obligation is no more than 

the applicable benchmark as specified 

in a public notice annually issued by 

the Bureau, or is no more than the nonpromotional prices charged for a 

comparable fixed wireline service in 

urban areas in the state or U.S. Territory 

where that high-cost support recipient 

receives support. Recognizing that highcost support recipients are permitted to 

offer a variety of broadband service 

offerings as long as they offer at least 

one standalone voice service plan and 

one service plan that provides 

broadband that meets our requirements, 

the Commission only requires that they 

make the above certification for one of 

their broadband service offerings that 

satisfies all of the Commission’s 

requirements, including that the service 

be offered throughout the high-cost 

support recipient’s supported area in 

the relevant state or U.S. Territory, or 

for rate-of-return carriers, be made 

available upon reasonable request. The 

Commission concludes that requiring 

high-cost support recipients to make 

this certification will ensure that the 

Commission can monitor their 

compliance with conditions that fulfill 

the section 254(b) principle that 

‘‘[c]onsumers in all regions of the 

Nation . . . should have access to 

telecommunications and information 

services . . . that are available at rates 

that are reasonably comparable to rates 

charged for similar services in urban 

areas.’’ 

102. The Commission requires highcost support recipients that elect to 

certify that their pricing of services in 

rural areas is no greater than their 

pricing in urban areas to rely upon the 

non-promotional prices charged for 

comparable fixed wireline services. The 

Commission declines to permit highcost support recipients to certify that the 

pricing they offer for their broadband 

services is no more than the nonpromotional prices charged for 

comparable ‘‘broadband’’ services. The 

Commission notes that the applicable 

benchmark adopted by the Bureau is 

two standard deviations above the 

average urban rates for a specific set of 

service characteristics, consistent with 

the Commission’s precedent for the 

voice reasonable comparability 

benchmark. The Commission also 

already provides a presumption for 

high-cost support recipients that offer 

rates that exceed the applicable 

benchmark that those rates are 

reasonably comparable if they are the 

same as rates being offered in urban 

areas for a comparable fixed wireline 

service. Fixed wireless services tend to 

be more expensive than fixed wireline 

services even when data usage 

allowances and the speeds offered are 

taken into account. Moreover, 

consumers living in urban areas 

typically have the choice of obtaining 

broadband service from at least one 

fixed wireline provider. The 

Commission therefore concludes it is 

appropriate to use fixed wireline 

services in urban areas as the reference 

point for reasonably comparable rates, 

recognizing that rates in rural areas may 

be higher than urban areas. 

103. This certification will be 

included in the FCC Form 481 to be 

filed in 2016, addressing performance 

during 2015, after the requirement has 

received Paperwork Reduction Act 

(PRA) approval from the Office of 

Management and Budget. All parties 

subject to a broadband public interest 

requirement to serve fixed locations that 

file this report in 2016 will be required 

to make the certification, and annually 

thereafter. 

104. Recipients of funding through 

the Phase II competitive bidding process 

must submit their first certification with 

the first section 54.313 annual report 

they are required to submit after support 

is authorized, and each year thereafter 

with their annual report. 

B. Monitoring Progress in Meeting 

Deployment Obligations 

105. Discussion. Here, the 

Commission takes action to enhance our 

ability to monitor the use of Connect 

America support and ensure that price 

cap carriers that accept model-based 

support use that support for its intended 

purpose. Specifically, as proposed by 

USTelecom, the Commission requires 

all price cap carriers accepting modelbased support to include in the annual 

progress report that they submit each 

year with their section 54.313 annual 

reports a list of the geocoded locations 

to which they have newly deployed 

facilities capable of delivering 

broadband meeting the requisite 

requirements with Connect America 

support in the prior year. The list must 

identify which locations are located in 

a Phase II-funded block and which 

locations are located in extremely highcost census blocks. The first list must be 

submitted with their July 2016 annual 

report, reflecting deployment status 

through the end of 2015. This first list 

should also include the geocoded 

locations that a price cap carrier had 

already built out to with service meeting 

the Commission’s requirements before 

receiving Phase II support. In 

subsequent years, the list should 

provide the relevant information for 

newly built locations in the prior 

calendar year. The last list that price cap 

carriers submit with their July 2021 

annual reports must include the total 

number and geocodes of all supported 

locations to which they have deployed 

facilities capable of delivering 

broadband meeting the requisite 

requirements. 

106. The Commission concludes that 

it is in the public interest to require 

price cap carriers accepting modelbased support to provide this data on an 

annual basis. The Commission and 

USAC will analyze the data to 

determine how Connect America 

support is being used to ‘‘improve 

broadband availability, service quality, 

and capacity,’’ consistent with a recent 

recommendation of the Government 

Accountability Office. The Commission 

also intends to make such data available 

to the public on its Web site in a userfriendly manner so that the public will 

be able to see at a granular level how 


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high-cost funds are being used to invest 

in new broadband infrastructure to 

bring new services to the area. The 

Commission finds that the benefits in 

collecting this data outweigh any 

potential burdens on the price cap 

carriers in reporting this data annually, 

given that the Commission expects that 

price cap carriers will already be 

collecting such data for their own 

business purposes and to be prepared to 

respond to the compliance reviews that 

the Commission directs USAC to 

undertake. 

107. The Commission will also collect 

from price cap carriers in their annual 

section 54.313 reports the total amount 

of Connect America Phase II support, if 

any, they used for capital expenditures 

in the previous calendar year. The 

Commission concludes that the benefit 

to the Commission of being able to 

determine how price cap carriers are 

using Phase II funding outweighs any 

potential burden on price cap carriers in 

submitting this information given that it 

expects that price cap carriers will track 

their capital expenditures for Phase II in 

the regular course of business. 

108. The Commission directs USAC to 

review Phase II recipients’ compliance 

with deployment obligations and the 

Commission’s public interest 

obligations at the state level—that is, 

whether the carrier is meeting interim 

and final deployment obligations for the 

total number of locations required for 

the state. As discussed above, the 

Commission concludes that conducting 

compliance reviews at the state level 

would be less administratively 

burdensome for the Commission, USAC, 

and the recipients of Phase II support 

than at the census block level. The 

Commission expects USAC to review 

compliance with the deployment 

obligations for all price cap recipients 

over the course of the Phase II support 

term. This will ensure the Commission 

is able to fulfill our responsibility to 

monitor each Phase II recipient’s use of 

high-cost support in areas subject to the 

state-level commitment. 

C. Reduction in Support for Late Filing 

109. Discussion. The Commission 

adopts a rule to reduce on a pro-rata 

daily basis the support for ETCs that 

miss certification and data submission 

deadlines. Based on the Commission’s 

experience to date with the current 

support reduction scheme, it has 

determined that reducing support for 

late filers on a quarterly basis is unduly 

harsh given that most late filings are 

inadvertent, particularly for those 

recipients that file closer to the 

beginning of the quarter than the end of 

the quarter. The Commission concludes 

that readjusting the support reductions 

to more closely calibrate the reduction 

of support with the period of noncompliance is a more reasonable 

approach for handling the recurring 

problem of an occasional failure to file. 

110. The Commission will impose a 

minimum reduction of support of seven 

days given the importance of ETCs 

meeting filing deadlines. After the 

initial seven days, support will be 

reduced further on a day-by-day basis 

until the high-cost recipient files the 

required report or certification, plus the 

minimum seven-day reduction. 

Reducing support on a day-by-day basis 

plus an additional seven-day reduction 

is an appropriate measure to create 

incentives for high-cost recipients to 

make their filings as soon as they have 

determined that they have missed the 

applicable deadlines. 

111. The Commission recognizes that 

despite its best efforts, an ETC may miss 

a deadline due to an administrative 

oversight but still file within a few days 

of the deadline. For a late filer, the 

Commission finds that it is appropriate 

to provide a one-time grace period of 

three days so that an ETC that quickly 

rectifies its error within three days of 

the deadline will not be subject to the 

seven-day minimum loss of support. 

The Commission directs USAC to send 

a letter to such an ETC notifying the 

ETC that its filing was late but cured 

within the grace period. If the ETC again 

files any high-cost filing late, the grace 

period will not be available. Repeated 

mistakes, even inadvertent, are 

indicative of a lack of adequate policies 

and procedures to ensure timely filing. 

If an ETC misses a filing deadline more 

than once due to its inadvertence, the 

Commission finds that the support 

reductions that it adopts should provide 

an incentive to ETCs to revise their 

procedures to ensure that such 

inadvertence does not become a pattern. 

112. The Commission disagrees with 

arguments that it should lengthen the 

one-time grace period because new 

ETCs receiving support may be 

unfamiliar with high-cost filing 

requirements or that ETCs may 

inadvertently forget to file. The 

Commission imposes support 

reductions on late filers to impress upon 

high-cost recipients the importance of 

understanding obligations that come 

with high-cost funding and the need for 

the Commission and USAC to receive 

the data in a timely manner so that it 

can properly administer the Universal 

Service Fund. A one-time grace period 

of three days achieves an appropriate 

balance between requiring strict 

compliance with our rules and 

providing an opportunity for ETCs that 

may be first time filers or that make an 

uncharacteristic mistake to rectify 

quickly an error. 

113. Although ETCs are required to 

submit separate filings for each 

operating company, the Commission 

notes that many holding companies 

administer the filings for all of their 

operating companies that may hold an 

ETC designation. The Commission 

expects that holding companies will 

take measures to ensure that all of their 

operating companies meet the required 

deadlines. Thus, the Commission will 

apply the grace period at the holding 

company level. If an ETC misses the 

deadline and exercises the grace period 

in a prior year, that grace period will not 

be available for all subsequent years to 

another one of the holding company’s 

operating companies that holds an ETC 

designation to serve a different study 

area. 

114. The Commission is not 

persuaded by the Rural Associations’ 

argument, relying on precedent related 

to the Eighth Amendment to the 

Constitution ‘‘Excessive Fines’’ clause, 

that the support reductions are 

‘‘unreasonable’’ and ‘‘excessive 

penalties.’’ Because ETCs have no 

property interest in or right to continued 

universal service support, nor any right 

to support other than as provided for by 

the Commission’s rules, the reduction of 

an ETC’s universal support payment 

does not constitute a payment by the 

ETC to the government that is subject to 

the Excessive Fines clause of the Eighth 

Amendment. 

115. In any case, even if that 

framework were viewed as applicable, 

given the important role these data and 

certifications play in the administration 

of the Universal Service Fund, the 

Commission finds that the support 

reductions that it adopts are sufficiently 

proportional to the harm caused by late 

filings. The reductions increase as the 

length in delay of the filings increase, 

and thus are proportional to the amount 

of harm that is caused when the 

Commission, state commissions, and 

USAC are delayed in being able to 

monitor the use of universal service 

funds. Moreover, by basing the support 

reductions on each ETC’s daily support 

amount, the Commission has calibrated 

the amount of support that a late filer 

will have reduced with the benefit they 

receive from the Universal Service 

Fund. Contrary to the arguments of 

some commenters, the Commission 

finds that the benefits for consumers 

nationwide of an effective oversight 

scheme outweigh the potential impact 

of support reductions on the customers 

of late filing ETCs. Congress gave the 

Commission broad discretion under 


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section 254 to determine support levels 

and adjust them as needed, and hence 

any reductions in support provided for 

under the Commission’s rules are well 

within our legislative mandate. 

116. The Commission is not 

persuaded by suggestions that the 

Commission should refrain from 

imposing support reductions for 

untimely filings and instead rely on 

Commission enforcement authority in 

the event of non-compliance. If the 

Commission were to conduct an 

enforcement proceeding every time an 

ETC misses a deadline, that would 

divert Commission resources from other 

Commission priorities. Instead, by 

adopting a clear and predictable support 

reduction scheme, the Commission, 

USAC, and ETCs will know exactly 

what consequences will result under the 

rules if filings are missed, rather than 

having to handle each issue on a caseby-case basis. Similarly, the 

Commission is not persuaded that 

support reductions are unnecessary 

because ETCs are already motivated to 

file on time to avoid a delay in receiving 

their support. Support reductions 

provide more of an incentive to file on 

time because ETCs actually lose support 

under the mechanism established in our 

rules rather than simply have it delayed 

if they do not meet a deadline. 

117. Given the Commission’s decision 

to modify the support reductions for late 

filings, the Commission adopts its 

proposal to require strict adherence to 

filing deadlines. The Commission will 

cease the practice of finding there is 

good cause for a waiver of high-cost 

filing deadlines in circumstances where 

an ETC has missed the deadline due to 

an administrative or clerical oversight 

and where that ETC has promised to 

revise its procedures to ensure future 

compliance, as proposed in the April 

2014 Connect America FNPRM. The 

Commission expects all ETCs, even 

those new to the Commission’s 

processes or with small staffs, to 

implement appropriate procedures to 

ensure compliance with the 

Commission’s filing deadlines and other 

regulatory requirements. 

D. Measures To Address NonCompliance 

118. Discussion. In this Order the 

Commission adopts specific measures 

that the Bureau will take in the event 

that certain ETCs do not meet their 

high-cost support deployment 

obligations for fixed services or do not 

offer rates for fixed services that are 

reasonably comparable to rates offered 

in urban areas. 

119. In addition, the Commission 

reminds all ETCs that they may also be 

subject to other sanctions for noncompliance with the terms and 

conditions of high-cost funding, 

including, but not limited to, potential 

revocation of ETC designation and 

suspension or debarment. The 

Commission emphasizes that it will 

enforce the terms and conditions of 

high-cost support vigorously. The 

Enforcement Bureau may initiate an 

enforcement proceeding in situations 

where waiver is not appropriate. In 

proposing any forfeiture, consistent 

with the Commission’s rules, the 

Enforcement Bureau shall take into 

account the nature, circumstances, 

extent, and gravity of the violations. 

1. Non-Compliance With Deployment 

Obligations 

120. For ETCs that must meet specific 

build-out milestones, the Commission 

adopts a framework for support 

reductions that are calibrated to the 

extent of an ETC’s non-compliance with 

these deployment milestones. The 

Commission concludes that adopting 

support reductions that scale with the 

extent of an ETC’s non-compliance will 

create incentives for ETCs to come into 

compliance as soon as possible, and that 

a support reduction scheme that is tied 

to specific milestones is a clear, 

straightforward approach. 

121. The Commission has given rateof-return carriers greater flexibility to 

build out their networks by requiring 

that they deploy service meeting the 

Commission’s requirements upon 

reasonable request. Because rate-ofreturn carriers are not at this time 

required to build out to a certain 

number of locations, the Commission 

concludes it is appropriate to handle 

matters regarding their potential noncompliance on a case-by-case basis. 

122. Trigger for Default. A default will 

occur if an ETC is receiving support and 

then fails to meet its high-cost support 

deployment obligations. For example, a 

default will occur if a recipient of Phase 

II funding fails to meet a build-out 

milestone. The Commission directs 

USAC to confirm that Phase II ETCs are 

in fact meeting the terms and conditions 

of that support by verifying the buildout certifications that recipients of 

Phase II support are required to provide 

to ensure that Connect America funds 

are being used to deploy infrastructure 

to eligible locations. 

123. To the extent that an ETC 

determines that it will not meet a buildout milestone, that ETC must notify the 

Commission, USAC, and the relevant 

state or U.S. Territory, and Tribal 

government as appropriate, no later than 

ten business days after the relevant 

deadline, rather than waiting until the 

filing of the next annual report. The 

Commission also expects that the states, 

U.S. Territories, and Tribal governments 

will continue to aid us in our joint 

oversight role and notify the 

Commission when an ETC is not 

meeting its obligations. 

124. Support Reductions for ETCs 

with Defined Build-Out Milestones. If an 

ETC begins receiving support and the 

Bureau subsequently determines that 

the ETC has defaulted, the Bureau will 

issue a letter documenting the default, 

and USAC will take the steps outlined 

below in the following month. The 

measures that will be taken will be 

dependent on the extent of an ETC’s 

non-compliance. 

125. Specifically, for interim 

milestones that occur during the 

support term: 

• Tier 1: If an ETC has a compliance 

gap of at least five percent but less than 

15 percent of the number of locations 

that the ETC is required to have built 

out to by the interim milestone, the 

Bureau will issue a letter to that effect. 

The ETC will then be required to file 

quarterly reports identifying the 

geocoded locations to which the ETC 

has newly deployed facilities capable of 

delivering broadband meeting the 

requisite requirements with Connect 

America support in the previous 

quarter. The ETC must continue to file 

these quarterly reports until the ETC 

reports that it has reduced the 

compliance gap to less than five percent 

of the required number of locations for 

that interim milestone and the Bureau 

issues a letter to that effect. 

• Tier 2: If an ETC has a compliance 

gap of at least 15 percent but less than 

25 percent of the number of locations 

that the ETC is required to have built 

out to by the interim milestone, USAC 

will withhold 15 percent of the ETC’s 

monthly support for the state and the 

ETC will be required to file quarterly 

reports. Once the ETC has reported that 

it has reduced the compliance gap to 

less than 15 percent of the required 

number of locations for that interim 

milestone for that state, the Bureau will 

issue a letter to that effect, USAC will 

stop withholding support, and the ETC 

will receive all of the support that had 

been withheld. The ETC will then move 

to Tier 1 status. 

• Tier 3: If an ETC has a compliance 

gap of at least 25 percent but less than 

50 percent of the number of locations 

that the ETC is required to have built 

out to by the interim milestone, USAC 

will withhold 25 percent of the ETC’s 

monthly support for the state and the 

ETC will be required to file quarterly 

reports. Once the ETC has reported that 

it has reduced the compliance gap to 


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less than 25 percent of the required 

number of locations for that interim 

milestone, the Bureau will issue a letter 

to that effect, the ETC will move to Tier 

2 status, and USAC will withhold 15 

percent of its monthly support for that 

state until the ETC reports that it is 

eligible to move to Tier 1 status. Once 

the ETC has reported that it qualifies for 

Tier 1 status, and the Bureau issues a 

letter to that effect, it will be eligible to 

have all of its support restored, the ETC 

will receive all of the support that had 

been withheld, and it will move to Tier 

1. 

• Tier 4: If an ETC has a compliance 

gap of 50 percent or more of the number 

of locations that the ETC is required to 

have built out to by the interim 

milestone, USAC will withhold 50 

percent of the ETC’s monthly support 

for the state, and the ETC will be 

required to file quarterly reports. As 

with the other tiers, as the ETC reports 

that it has lessened the extent of its noncompliance, and the Bureau issues a 

letter to that effect, it will move down 

the tiers until it reaches Tier 1 (or no 

longer is out of compliance with the 

relevant interim milestone). At that 

point, the ETC will be eligible to have 

all of its support restored, the ETC will 

receive all of the support that had been 

withheld, and, if it now is meeting the 

interim milestone, it will no longer be 

required to file quarterly reports. 

On the other hand, if after having 50 

percent of its support withheld for six 

months the ETC has not reported that it 

is eligible for Tier 3 status (or one of the 

other lower tiers), USAC will withhold 

100 percent of the ETC’s support for that 

state and will commence recovery 

action for a percentage of support that 

is equal to the ETC’s compliance gap 

plus ten percent of the ETC’s support 

that has been paid to that point. For 

example, if an ETC has not built out to 

75 percent of the required number of 

locations in a state, USAC would 

recover 85 percent of the ETC’s support 

that had been paid to that point. The 

Commission concludes that recovering 

the additional ten percent of the ETC’s 

support that has been disbursed up to 

that point will deter ETCs from deciding 

that they would rather return the 

support than meet their commitments 

for the supported area. Because these 

are high-cost areas that lack 

unsubsidized providers at the outset of 

the support term, an ETC’s refusal to 

serve these locations could potentially 

leave the locations with no options for 

reasonably comparable service. 

• If at any point during the support 

term the ETC reports that it is eligible 

for Tier 1 status, it will have its support 

fully restored including any support 

that had been withheld, USAC will 

repay any funds that were recovered, 

and the ETC will move to Tier 1 status. 

126. As noted above, the Commission 

requires ETCs to report to the 

Commission, USAC, and the relevant 

state or U.S. Territory, and Tribal 

government as appropriate, within ten 

business days of the final build-out 

milestone if they have missed this 

milestone. If an ETC misses the final 

build-out milestone, it must identify by 

what percentage it has missed the final 

build-out milestone. Absent an 

extension of time for circumstances 

beyond the ETC’s control, the ETC will 

then have twelve months from the date 

of the final build-out milestone deadline 

to come into full compliance with this 

milestone. If an ETC does not report that 

it has come into full compliance within 

twelve months, the Bureau will issue a 

letter to this effect. USAC will then 

recover an amount of support that is 

equal to 1.89 times the average amount 

of support per location received in the 

state over the six-year term for the 

relevant number of locations that the 

ETC has failed to deploy to, plus ten 

percent of the ETC’s total Phase II 

support received in the state over the 

six-year term. As explained above, the 

Commission concludes that recovering 

an additional ten percent of the ETC’s 

total Phase II support will deter ETCs 

from deciding to return their support 

rather than build out to more than a de 

minimis number of locations. 

127. If after the ETC’s support term 

has ended, USAC determines in the 

course of a compliance review that the 

ETC has not retained sufficient evidence 

to demonstrate that it has built out to all 

of the locations required by the final 

build-out milestone, USAC must recover 

support from that ETC. Specifically, if 

the ETC does not have sufficient 

evidence to demonstrate that it has built 

out to the total number of required 

locations, USAC will recover an amount 

of support that is equal to 1.89 times the 

average amount of support per location 

received in the state over the six-year 

term for the relevant number of 

locations for which the ETC has failed 

to retain sufficient evidence, plus ten 

percent of the ETC’s total support 

received in that state over the six-year 

term. The Commission expects that 

ETCs will have strong incentives to 

adopt policies and procedures to retain 

sufficient evidence to aid the 

Commission and USAC in our oversight 

responsibility. 

128. Table 2 below summarizes the 

regime the Commission adopts in this 

Order. 

TABLE 2—NON-COMPLIANCE MEASURES

Tier Compliance gap Non-compliance measure 

1 .............................. 5% to less than 15% .............................................................. Quarterly reporting. 

2 .............................. 15% to less than 25% ............................................................ Quarterly reporting + withhold 15% of monthly support. 

3 .............................. 25% to less than 50% ............................................................ Quarterly reporting + withhold 25% of monthly support. 

4 .............................. 50% or more .......................................................................... Quarterly reporting + withhold 50% of monthly support for 

six months; after six months withhold 100% of monthly 

support and recover percentage of support equal to compliance gap plus 10% of support disbursed to date. 

Recovery after Last 

Milestone.

If carrier elects the flexibility option: its compliance gap will 

be determined by the percentage of total locations it does 

not build to after subtracting the percentage of locations it 

has identified it will not serve (e.g., if a carrier is offered 

100 total locations, and it elects not to serve 4 locations 

but by the end of the term it has not served 20 locations, 

its compliance gap is 16% (20% minus 4% = 16%)). If 

carrier does not elect flexibility option: anything less than 

100% compliance.

Twelve months to come into full compliance; after twelve 

months recover support equal to 1.89 times the average 

amount of support per location received in the state over 

the six-year term for the relevant locations, plus 10% of 

total Phase II support. 


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129. The Commission provides the 

following example in Table 3 of how 

these compliance measures will be 

implemented for a price cap carrier that 

accepts the state-level commitment. For 

simplicity, the Commission assumes the 

price cap carrier must serve 100 total 

locations and does not elect the 

flexibility option. 

TABLE 3—NON-COMPLIANCE MEASURES EXAMPLE

Milestone Tier Compliance gap 

December 31, 2017—40% of total locations (40 locations) ........................................... 1 ............................... Serves 35 to 38 locations. 

2 ............................... Serves 31 to 34 locations. 

3 ............................... Serves 21 to 30 locations. 

4 ............................... Serves 20 locations or fewer. 

December 31, 2018—60% of total locations (60 locations) ........................................... 1 ............................... Serves 52 to 57 locations. 

2 ............................... Serves 46 to 51 locations. 

3 ............................... Serves 31 to 45 locations. 

4 ............................... Serves 30 locations or fewer. 

December 31, 2019—80% of total locations (80 locations) ........................................... 1 ............................... Serves 69 to 76 locations. 

2 ............................... Serves 61 to 68 locations. 

3 ............................... Serves 41 to 60 locations. 

4 ............................... Serves 40 locations or fewer. 

December 31, 2020—100% of total locations (100 locations) ....................................... Recovery .................. Serves 99 locations or fewer. 

130. The Commission concludes that 

the approach it adopts in the Order is 

preferable to the other alternative the 

Commission sought comment on— 

permitting ETCs to submit a plan to 

USAC for coming into compliance 

before support reductions would begin. 

Such an approach would likely to be 

resource-intensive for Commission staff 

and USAC because each default would 

need to be handled on a case-by-case 

basis. When there are clear milestones 

that must be met, such an approach is 

unnecessary. Moreover, it likely would 

take a significant amount of time for an 

ETC to develop a compliance plan and 

for the plan to be approved, and then it 

will take even more time for the ETC to 

come into full compliance. During this 

extended period consumers will be 

without service meeting the 

Commission’s requirements. The 

Commission finds that the more 

automatic support reduction scheme it 

adopts above will more quickly 

motivate ETCs to come into compliance 

and is a clearer, less resource-intensive 

process for the Commission, USAC, and 

ETCs. 

131. Non-Compliance Measures for 

Rate-of-Return Carriers. The 

Commission will determine on a caseby-case basis whether rate-of-return 

carriers are fulfilling their obligation to 

provide voice and broadband services 

meeting the Commission’s requirements 

upon reasonable request. The 

Commission clarifies that rate-of-return 

carriers should report any requests that 

are deemed unreasonable as unfulfilled 

requests in their section 54.313 annual 

reports. The Commission expects that 

USAC will verify that rate-of-return 

carriers have sufficient evidence to 

demonstrate that any unfulfilled 

requests were in fact unreasonable. 

Rate-of-return carriers should consult 

the Declaratory Ruling contained in the 

April 2014 Connect America Order, 79 

FR 39164, July 9, 2014, for guidance on 

what constitutes an unreasonable 

request to determine the types of 

evidence they should retain to 

demonstrate that unfilled requests were 

unreasonable. The Commission declines 

at this time to specify a schedule of 

support reductions for rate-of-return 

carriers because they are not subject to 

defined build-out milestones. To the 

extent USAC determines in the course 

of an audit that a carrier has insufficient 

evidence to support a decision to deny 

a request for service, such findings shall 

be reported as ‘‘other matters.’’ Because 

rate-of-return carriers are not required to 

serve a set number of locations, and the 

Commission only recently issued 

guidance on the reasonable request 

standard, the Commission does not have 

sufficient experience to create specific 

milestones that would require support 

reductions. However, the Commission 

reserves the right to adopt a more 

automatic support reduction framework 

for rate-of-return carriers at a future 

date. 

132. Adjustment of Deployment 

Obligations. In the event an ETC is 

unable to meet the required deployment 

obligations due to circumstances 

beyond its control (e.g., a severe weather 

event, an inability to secure a right of 

way, or an unforeseen obstacle that 

prevents building to a location), that 

ETC may petition for an extension of 

time or waiver of the relevant build-out 

milestone pursuant to section 1.3 of the 

Commission’s rules. The Commission 

notes that to the extent the ETC is 

seeking an extension or waiver of a 

specific build-out milestone, the 

Commission expects that the ETC would 

file its petition seeking that relief no 

later than 30 days prior to the build-out 

milestone. The Commission encourages 

ETCs that submit such petitions to 

continue to work diligently towards 

meeting the terms and conditions of 

their support while their petitions are 

pending. If the petitioning ETC is 

unable to meet the terms and conditions 

by the time the build-out milestone 

occurs, then the Bureau will issue a 

letter finding default, and if applicable, 

reporting obligations and support 

reductions will begin as described 

above. If an extension of time or waiver 

subsequently is granted, the petitioning 

ETC will have all of the funds that have 

been withheld or recovered restored and 

will be entitled to receive its subsequent 

disbursements. 

2. Non-Compliance With Reasonably 

Comparable Pricing Obligations 

133. The Commission concludes that 

this issue is best dealt with on a caseby-case basis for the time being for all 

ETCs that must certify that the rates 

they offer are reasonably comparable. 

The Commission finds that it would not 

be appropriate to apply a uniform 

support reduction to all ETCs that fail 

to offer reasonably comparable prices. It 

would be inequitable to reduce support 

by the same percentage amount 

regardless of whether the ETC was 

charging prices a few dollars above what 

is considered to be reasonably 

comparable or charging much higher 

prices. Similarly, because the pricing 

benchmarks for voice and broadband are 


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presumptions, not mandates, the 

Commission must provide an 

opportunity for affected ETCs to present 

information to rebut the presumption. 

Because there may be a variety of factors 

that go into determining whether prices 

are reasonably comparable (e.g., speeds 

and data usage limits being offered), the 

Commission is not prepared at this time 

to establish a method for scaling the 

support reductions based on a level of 

non-compliance. The Commission finds 

that it would be beneficial to consider 

each potential instance of noncompliance separately and gather more 

information to inform future judgments 

as to what is a reasonable approach. 

134. The Commission directs USAC to 

gather additional information when 

ETCs fail to make the reasonably 

comparable certification about their 

voice or broadband rates in their section 

54.313 annual report and transmit that 

information to the Commission. The 

ETC may present factual evidence 

explaining the unique circumstances 

that preclude it from offering service at 

a rate meeting the requisite benchmark. 

Based on this information, the 

Commission will be in a better position 

at a future date to determine the 

appropriate steps to take when there is 

non-compliance with this requirement. 

VII. Procedural Matters 

A. Paperwork Reduction Act Analysis 

135. This document contains new 

information collection requirements 

subject to the PRA. It will be submitted 

to the Office of Management and Budget 

(OMB) for review under section 3507(d) 

of the PRA. OMB, the general public, 

and other Federal agencies are invited to 

comment on the new information 

collection requirements contained in 

this proceeding. In addition, the 

Commission notes that pursuant to the 

Small Business Paperwork Relief Act of 

2002, the Commission previously 

sought specific comment on how the 

Commission might further reduce the 

information collection burden for small 

business concerns with fewer than 25 

employees. The Commission describes 

impacts that might affect small 

businesses, which includes most 

businesses with fewer than 25 

employees, in the Final Regulatory 

Flexibility Analysis (FRFA). 

B. Final Regulatory Flexibility Analysis 

136. As required by the Regulatory 

Flexibility Act of 1980 (RFA), as 

amended, an Initial Regulatory 

Flexibility Analyses (IRFA) was 

incorporated in the April 2014 Connect 

America FNPRM. The Commission 

sought written public comment on the 

proposals in the April 2014 Connect 

America FNPRM, including comment 

on the IRFA. The Commission did not 

receive any relevant comments on the 

April 2014 Connect America FNPRM 

IRFA. This Final Regulatory Flexibility 

Analysis (FRFA) conforms to the RFA. 

1. Need for, and Objectives of, the 

Report and Order 

137. With this Order, the Commission 

takes another momentous stride towards 

fully implementing a modernized 

universal service regime capable of 

meeting consumer demands for 21st 

century networks. The Commission 

finalizes the decisions necessary to 

proceed with the offer of support to 

price cap carriers in early 2015, thereby 

paving the way for the deployment of 

new broadband infrastructure to 

millions of unserved Americans. In the 

coming months, the Commission will 

turn its attention to finalizing the rules 

for the Phase II competitive bidding 

process that will occur in those states 

where the price cap carrier declines the 

offer of model-based support. 

138. Throughout the universal service 

reform process, the Commission has 

sought to ensure that all consumers 

‘‘have access to . . . advanced 

telecommunications and information 

services’’ and benefit from the historic 

technology transitions that are 

transforming our nation’s 

communications services. The Order 

continues down that path. The 

Commission adopts several revisions to 

Connect America Phase II to account for 

changes in the marketplace since the 

USF/ICC Transformation Order was 

adopted. In particular, the Commission 

revises the minimum speed requirement 

that recipients of high-cost universal 

service must offer. The Commission 

finds that it is in the public interest to 

require recipients of high-cost support 

subject to broadband performance 

obligations to serve fixed locations to 

provide at least a minimum broadband 

speed of 10 Mbps downstream. 

139. The Commission adopts targeted 

changes to the framework established 

for the offer of model-based support to 

price cap carriers. Specifically, the 

Commission makes an adjustment to the 

term of support, adopts more evenly 

spaced interim deployment milestones, 

and concludes that adjustments of up to 

five percent in the number of locations 

that must be served with corresponding 

support reductions are appropriate to 

ensure that deployment obligations 

recognize conditions in the real world. 

The Commission also forbears from the 

federal high-cost universal service 

obligation of price cap carriers to offer 

voice service in low-cost areas where 

they do not receive high-cost support, in 

areas served by an unsubsidized 

competitor, and in areas where the price 

cap carrier is replaced by another ETC. 

140. In addition, the Commission 

addresses where Phase II support will 

be available, both for the offer of modelbased support to price cap carriers and 

the subsequent Phase II competitive 

bidding process. First, the Commission 

will exclude from the offer of Phase II 

model-based support any census block 

served by a subsidized facilities-based 

terrestrial competitor that offers fixed 

residential voice and broadband 

services meeting or exceeding the 3 

Mbps downstream/768 kbps upstream 

(3 Mbps/768 kbps) performance metrics, 

as determined by the Bureau upon 

completion of the Phase II challenge 

process. The Commission also reaffirms 

its decision to exclude from the offer of 

model-based support any census block 

served by an unsubsidized competitor 

that meets or exceeds the 3 Mbps/768 

kbps performance metrics. Second, the 

Commission concludes that those highcost blocks served by a subsidized 

carrier that are excluded from the offer 

of model-based support—including 

blocks with service meeting or 

exceeding the new 10 Mbps 

downstream/1 Mbps upstream (10/1 

Mbps) speed requirement—will be 

eligible for support in the Phase II 

competitive bidding process. Third, the 

Commission concludes that any area 

served by an unsubsidized facilitiesbased terrestrial competitor that offers 

10/1 Mbps will be ineligible for support 

in the Phase II competitive bidding 

process. Fourth, the Commission 

excludes from the offer of model-based 

support those areas that are the subject 

of category one bids that were not 

selected for the rural broadband 

experiments and where a losing bidder 

has filed specific information indicating 

that it wishes to remain in consideration 

for rural broadband experiment support. 

141. In the Connect America Fund 

FNPRM, the Commission sought 

comment on a number of near-term and 

longer-term reforms for rate-of-return 

carriers, including developing and 

implementing a ‘‘Connect America 

Fund’’ for rate-of-return carriers. 

Although a number of parties have 

submitted proposals that may have 

promise, the Commission finds that 

further analysis and development of 

these proposals is necessary. The 

Commission will continue to explore 

the possibility of a voluntary path to 

model-based support for those rate-ofreturn carriers that choose to pursue it. 

The Commission also expects to 

continue to develop the record and act 

in the coming year on alternatives for 


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those who do not elect to receive modelbased support. 

142. In this Order, the Commission 

focuses on near-term reforms for rate-ofreturn carriers. Specifically, the 

Commission adopts a revised 

methodology for applying the cap on 

high-cost loop support to distribute that 

support on a more equitable basis. The 

Commission also addresses the 

proposals from the April 2014 Connect 

America FNPRM regarding the 100 

percent overlap rule. 

143. In the USF/ICC Transformation 

Order, the Commission established a 

‘‘uniform national framework for 

accountability’’ that replaced the 

various data and certification filing 

deadlines that carriers previously were 

required to meet. In the Order, the 

Commission takes several steps to 

strengthen that framework, including 

codifying the reasonable comparability 

pricing requirement for broadband 

services, adjusting the reductions in 

support for late-filed annual ETC reports 

and certifications, and providing greater 

specificity regarding how the 

Commission will address noncompliance with the Commission’s 

service obligations for voice and 

broadband. 

144. The actions the Commission 

takes in this Order, combined with the 

implementation of the rural broadband 

experiments and the reforms the 

Commission implemented earlier in the 

year, will allow the Commission to 

continue to advance further down the 

path outlined in the USF/ICC 

Transformation Order. The Commission 

expects the Bureau to complete the 

Connect America Phase II challenge 

process and then make a final 

determination as to which census blocks 

will be eligible for the offer of modelbased Phase II support by early 2015. 

That final determination will allow the 

Commission to extend the offers of 

Phase II model-based support to price 

cap carriers to fund the deployment of 

voice and broadband-capable 

infrastructure in their territories. The 

carriers will then have 120 days to 

consider the offer, and in those states 

where the price cap carrier declines the 

offer of support, the Commission will 

move forward with the Phase II 

competitive bidding process to 

determine support recipients. 

2. Summary of Significant Issues Raised 

by Public Comments in Response to the 

IRFA 

145. There were no relevant 

comments filed that specifically 

addressed the rules and policies 

proposed in the April 2014 Connect 

America FNPRM IRFA. Nonetheless, the 

agency considered the potential impact 

of the rules proposed in the IRFA on 

small entities and reduced the 

compliance burden for all small entities 

in order to reduce the economic impact 

of the rules enacted herein on such 

entities. 

3. Description and Estimate of the 

Number of Small Entities to Which the 

Proposed Rules Will Apply 

146. The RFA directs agencies to 

provide a description of, and where 

feasible, an estimate of the number of 

small entities that may be affected by 

the rules adopted herein. The RFA 

generally defines the term ‘‘small 

entity’’ as having the same meaning as 

the terms ‘‘small business,’’ ‘‘small 

organization,’’ and ‘‘small governmental 

jurisdiction.’’ In addition, the term 

‘‘small business’’ has the same meaning 

as the term ‘‘small-business concern’’ 

under the Small Business Act. A ‘‘smallbusiness 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 SBA. 

147. Small Businesses. Nationwide, 

there are a total of approximately 28.2 

million small businesses, according to 

the SBA. 

148. 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. According to 

Census Bureau data for 2007, there were 

3,188 firms in this category, total, that 

operated for the entire year. Of this 

total, 3144 firms had employment of 999 

or fewer employees, and 44 firms had 

employment of 1000 employees or 

more. Thus, under this size standard, 

the majority of firms can be considered 

small. 

149. 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. According to 

Commission data, 1,307 carriers 

reported that they were incumbent local 

exchange service providers. Of these 

1,307 carriers, an estimated 1,006 have 

1,500 or fewer employees and 301 have 

more than 1,500 employees. 

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 Order. 

150. 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. According to 

Commission data, 1,307 carriers 

reported that they were incumbent local 

exchange service providers. Of these 

1,307 carriers, an estimated 1,006 have 

1,500 or fewer employees and 301 have 

more than 1,500 employees. 

Consequently, the Commission 

estimates that most providers of 

incumbent local exchange service are 

small businesses that may be affected by 

rules adopted pursuant to the Order 

151. The Commission has 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.’’ The 

SBA’s 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. The 

Commission has therefore included 

small incumbent LECs in this RFA 

analysis, although it emphasizes that 

this RFA action has no effect on 

Commission analyses and 

determinations in other, non-RFA 

contexts. 

152. 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. According to Commission 

data, 1,442 carriers reported that they 

were engaged in the provision of either 

competitive local exchange services or 

competitive access provider services. Of 

these 1,442 carriers, an estimated 1,256 

have 1,500 or fewer employees and 186 

have more than 1,500 employees. In 

addition, 17 carriers have reported that 

they are Shared-Tenant Service 

Providers, and all 17 are estimated to 

have 1,500 or fewer employees. In 

addition, 72 carriers have reported that 


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they are Other Local Service Providers. 

Of the 72, seventy have 1,500 or fewer 

employees and two have more than 

1,500 employees. 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 Order. 

153. 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. According to 

Commission data, 359 companies 

reported that their primary 

telecommunications service activity was 

the provision of interexchange services. 

Of these 359 companies, an estimated 

317 have 1,500 or fewer employees and 

42 have more than 1,500 employees. 

Consequently, the Commission 

estimates that the majority of 

interexchange service providers are 

small entities that may be affected by 

rules adopted pursuant to the Order. 

154. 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. According to Commission 

data, 193 carriers have reported that 

they are engaged in the provision of 

prepaid calling cards. Of these, an 

estimated all 193 have 1,500 or fewer 

employees and none have more than 

1,500 employees. 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 Order. 

155. 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. 

According to Commission data, 213 

carriers have reported that they are 

engaged in the provision of local resale 

services. Of these, an estimated 211 

have 1,500 or fewer employees and two 

have more than 1,500 employees. 

Consequently, the Commission 

estimates that the majority of local 

resellers are small entities that may be 

affected by rules adopted pursuant to 

the Order. 

156. 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. 

According to Commission data, 881 

carriers have reported that they are 

engaged in the provision of toll resale 

services. Of these, an estimated 857 

have 1,500 or fewer employees and 24 

have more than 1,500 employees. 

Consequently, the Commission 

estimates that the majority of toll 

resellers are small entities that may be 

affected by rules adopted pursuant to 

the Order. 

157. 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. According to 

Commission data, 284 companies 

reported that their primary 

telecommunications service activity was 

the provision of other toll carriage. Of 

these, an estimated 279 have 1,500 or 

fewer employees and five have more 

than 1,500 employees. 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 Order. 

158. 800 and 800-Like Service 

Subscribers. 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. 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. 

According to our data, as of September 

2009, the number of 800 numbers 

assigned was 7,860,000; the number of 

888 numbers assigned was 5,588,687; 

the number of 877 numbers assigned 

was 4,721,866; and the number of 866 

numbers assigned was 7,867,736. The 

Commission does 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, the Commission 

estimates that there are 7,860,000 or 

fewer small entity 800 subscribers; 

5,588,687 or fewer small entity 888 

subscribers; 4,721,866 or fewer small 

entity 877 subscribers; and 7,867,736 or 

fewer small entity 866 subscribers. 

159. Wireless Telecommunications 

Carriers (except Satellite). Since 2007, 

the SBA has recognized wireless firms 

within this new, broad, economic 

census category. Prior to that time, such 

firms were within the now-superseded 

categories of Paging and Cellular and 

Other Wireless Telecommunications. 

Under the present and prior categories, 

the SBA has deemed a wireless business 

to be small if it has 1,500 or fewer 

employees. For this category, census 

data for 2007 show that there were 1,383 

firms that operated for the entire year. 

Of this total, 1,368 firms had 

employment of 999 or fewer employees 

and 15 had employment of 1000 

employees or more. Similarly, according 

to Commission data, 413 carriers 

reported that they were engaged in the 

provision of wireless telephony, 

including cellular service, Personal 

Communications Service (PCS), and 

Specialized Mobile Radio (SMR) 

Telephony services. Of these, an 

estimated 261 have 1,500 or fewer 

employees and 152 have more than 

1,500 employees. Consequently, the 

Commission estimates that 

approximately half or more of these 

firms can be considered small. Thus, 

using available data, the Commission 

estimates that the majority of wireless 

firms can be considered small. 

160. 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. 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. These standards 

defining ‘‘small entity’’ in the context of 

broadband PCS auctions have been 

approved by the SBA. No small 


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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. In 1999, 

the Commission re-auctioned 347 C, E, 

and F Block licenses. There were 48 

small business winning bidders. In 

2001, the Commission completed the 

auction of 422 C and F Broadband PCS 

licenses in Auction 35. Of the 35 

winning bidders in this 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. In 

2005, the Commission completed an 

auction of 188 C block licenses and 21 

F block licenses in Auction 58. There 

were 24 winning bidders for 217 

licenses. Of the 24 winning bidders, 16 

claimed small business status and won 

156 licenses. In 2007, the Commission 

completed an auction of 33 licenses in 

the A, C, and F Blocks in Auction 71. 

Of the 14 winning bidders, six were 

designated entities. In 2008, the 

Commission completed an auction of 20 

Broadband PCS licenses in the C, D, E 

and F block licenses in Auction 78. 

161. Advanced Wireless Services. In 

2008, the Commission conducted the 

auction of Advanced Wireless Services 

(‘‘AWS’’) licenses. This auction, which 

as designated as Auction 78, offered 35 

licenses in the AWS 1710–1755 MHz 

and 2110–2155 MHz bands (AWS–1). 

The AWS–1 licenses were licenses for 

which there were no winning bids in 

Auction 66. That same year, the 

Commission completed Auction 78. A 

bidder with attributed average annual 

gross revenues that exceeded $15 

million and did not exceed $40 million 

for the preceding three years (‘‘small 

business’’) received a 15 percent 

discount on its winning bid. A bidder 

with attributed average annual gross 

revenues that did not exceed $15 

million for the preceding three years 

(‘‘very small business’’) received a 25 

percent discount on its winning bid. A 

bidder that had combined total assets of 

less than $500 million and combined 

gross revenues of less than $125 million 

in each of the last two years qualified 

for entrepreneur status. Four winning 

bidders that identified themselves as 

very small businesses won 17 licenses. 

Three of the winning bidders that 

identified themselves as a small 

business won five licenses. 

Additionally, one other winning bidder 

that qualified for entrepreneur status 

won 2 licenses. 

162. Narrowband Personal 

Communications Services. In 1994, the 

Commission conducted an auction for 

Narrowband PCS licenses. A second 

auction was also conducted later in 

1994. For purposes of the first two 

Narrowband PCS auctions, ‘‘small 

businesses’’ were entities with average 

gross revenues for the prior three 

calendar years of $40 million or less. 

Through these auctions, the 

Commission awarded a total of 41 

licenses, 11 of which were obtained by 

four small businesses. To ensure 

meaningful participation by small 

business entities in future auctions, the 

Commission adopted a two-tiered small 

business size standard in the 

Narrowband PCS Second Report and 

Order, 65 FR 35843, June 6, 2000. 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. A third 

auction was conducted in 2001. Here, 

five bidders won 317 (Metropolitan 

Trading Areas and nationwide) licenses. 

Three of these claimed status as a small 

or very small entity and won 311 

licenses. 

163. Paging (Private and Common 

Carrier). In the Paging Third Report and 

Order, 64 FR 33762, June 24, 1999, the 

Commission developed 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. 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. The SBA has approved 

these small business size standards. 

According to Commission data, 291 

carriers have reported that they are 

engaged in Paging or Messaging Service. 

Of these, an estimated 289 have 1,500 or 

fewer employees, and two have more 

than 1,500 employees. 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 2,499 licenses auctioned, 

985 were sold. Fifty-seven companies 

claiming small business status won 440 

licenses. A subsequent auction of MEA 

and Economic Area (‘‘EA’’) licenses was 

held in the year 2001. Of the 15,514 

licenses auctioned, 5,323 were sold. 

One hundred thirty-two companies 

claiming small business status 

purchased 3,724 licenses. A third 

auction, consisting of 8,874 licenses in 

each of 175 EAs and 1,328 licenses in 

all but three of the 51 MEAs, was held 

in 2003. Seventy-seven bidders claiming 

small or very small business status won 

2,093 licenses. A fourth auction, 

consisting of 9,603 lower and upper 

paging band licenses was held in the 

year 2010. Twenty-nine bidders 

claiming small or very small business 

status won 3,016 licenses. 

164. 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, the Commission applies the 

small business size standard under the 

SBA rules applicable to Wireless 

Telecommunications Carriers (except 

Satellite). Under this category, the SBA 

deems a wireless business to be small if 

it has 1,500 or fewer employees. The 

Commission estimates that nearly all 

such licensees are small businesses 

under the SBA’s small business size 

standard that may be affected by rules 

adopted pursuant to the Order. 

165. 220 MHz Radio Service—Phase II 

Licensees. The 220 MHz service has 

both Phase I and Phase II licenses. The 

Phase II 220 MHz service is subject to 

spectrum auctions. In the 220 MHz 

Third Report and Order, 62 FR 15978, 

April 3, 1997, the Commission 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. 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. A ‘‘very small 

business’’ is an entity that, together with 


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its affiliates and controlling principals, 

has average gross revenues that do not 

exceed $3 million for the preceding 

three years. The SBA has approved 

these small business size standards. 

Auctions of Phase II licenses 

commenced on September 15, 1998, and 

closed on October 22, 1998. 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. 

166. Specialized Mobile Radio. The 

Commission awards small business 

bidding credits in auctions for 

Specialized Mobile Radio (‘‘SMR’’) 

geographic area licenses in the 800 MHz 

and 900 MHz bands to entities that had 

revenues of no more than $15 million in 

each of the three previous calendar 

years. The Commission awards very 

small business bidding credits to 

entities that had revenues of no more 

than $3 million in each of the three 

previous calendar years. The SBA has 

approved these small business size 

standards for the 800 MHz and 900 MHz 

SMR Services. The Commission has 

held auctions for geographic area 

licenses in the 800 MHz and 900 MHz 

bands. The 900 MHz SMR auction was 

completed in 1996. Sixty bidders 

claiming that they qualified as small 

businesses under the $15 million size 

standard won 263 geographic area 

licenses in the 900 MHz SMR band. The 

800 MHz SMR auction for the upper 200 

channels was conducted in 1997. Ten 

bidders claiming that they qualified as 

small businesses under the $15 million 

size standard won 38 geographic area 

licenses for the upper 200 channels in 

the 800 MHz SMR band. A second 

auction for the 800 MHz band was 

conducted in 2002 and included 23 BEA 

licenses. One bidder claiming small 

business status won five licenses. 

167. The auction of the 1,053 800 

MHz SMR geographic area licenses for 

the General Category channels was 

conducted in 2000. Eleven bidders won 

108 geographic area licenses for the 

General Category channels in the 800 

MHz SMR band qualified as small 

businesses under the $15 million size 

standard. In an auction completed in 

2000, a total of 2,800 Economic Area 

licenses in the lower 80 channels of the 

800 MHz SMR service were awarded. Of 

the 22 winning bidders, 19 claimed 

small business status and won 129 

licenses. Thus, combining all three 

auctions, 40 winning bidders for 

geographic licenses in the 800 MHz 

SMR band claimed status as small 

business. 

168. In addition, there are numerous 

incumbent site-by-site SMR licensees 

and licensees with extended 

implementation authorizations in the 

800 and 900 MHz bands. The 

Commission does not know how many 

firms provide 800 MHz or 900 MHz 

geographic area SMR 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. In 

addition, the Commission does not 

know how many of these firms have 

1,500 or fewer employees. The 

Commission assumes, for purposes of 

this analysis, that all of the remaining 

existing extended implementation 

authorizations are held by small 

entities, as that small business size 

standard is approved by the SBA. 

169. Broadband Radio Service and 

Educational Broadband Service. 

Broadband Radio Service systems, 

previously referred to as Multipoint 

Distribution Service (‘‘MDS’’) and 

Multichannel Multipoint Distribution 

Service (‘‘MMDS’’) systems, and 

‘‘wireless cable,’’ transmit video 

programming to subscribers and provide 

two-way high speed data operations 

using the microwave frequencies of the 

Broadband Radio Service (‘‘BRS’’) and 

Educational Broadband Service (‘‘EBS’’) 

(previously referred to as the 

Instructional Television Fixed Service 

(‘‘ITFS’’)). In connection with the 1996 

BRS auction, the Commission 

established a small business size 

standard as an entity that had annual 

average gross revenues of no more than 

$40 million in the previous three 

calendar years. The BRS auctions 

resulted in 67 successful bidders 

obtaining licensing opportunities for 

493 Basic Trading Areas (‘‘BTAs’’). Of 

the 67 auction winners, 61 met the 

definition of a small business. BRS also 

includes licensees of stations authorized 

prior to the auction. At this time, the 

Commission estimates that of the 61 

small business BRS auction winners, 48 

remain small business licensees. In 

addition to the 48 small businesses that 

hold BTA authorizations, there are 

approximately 392 incumbent BRS 

licensees that are considered small 

entities. After adding the number of 

small business auction licensees to the 

number of incumbent licensees not 

already counted, the Commission finds 

that there are currently approximately 

440 BRS licensees that are defined as 

small businesses under either the SBA 

or the Commission’s rules. The 

Commission has adopted three levels of 

bidding credits for BRS: (i) A bidder 

with attributed average annual gross 

revenues that exceed $15 million and do 

not exceed $40 million for the preceding 

three years (small business) is eligible to 

receive a 15 percent discount on its 

winning bid; (ii) a bidder with 

attributed average annual gross revenues 

that exceed $3 million and do not 

exceed $15 million for the preceding 

three years (very small business) is 

eligible to receive a 25 percent discount 

on its winning bid; and (iii) a bidder 

with attributed average annual gross 

revenues that do not exceed $3 million 

for the preceding three years 

(entrepreneur) is eligible to receive a 35 

percent discount on its winning bid. In 

2009, the Commission conducted 

Auction 86, which offered 78 BRS 

licenses. Auction 86 concluded with ten 

bidders winning 61 licenses. Of the ten, 

two bidders claimed small business 

status and won 4 licenses; one bidder 

claimed very small business status and 

won three licenses; and two bidders 

claimed entrepreneur status and won 

six licenses. 

170. In addition, the SBA’s Cable 

Television Distribution Services small 

business size standard is applicable to 

EBS. There are presently 2,032 EBS 

licensees. All but 100 of these licenses 

are held by educational institutions. 

Educational institutions are included in 

this analysis as small entities. Thus, the 

Commission estimates that at least 1,932 

licensees are small businesses. Since 

2007, Cable Television Distribution 

Services have been defined within the 

broad economic census category of 

Wired Telecommunications Carriers; 

that category is defined as follows: 

‘‘This industry comprises 

establishments primarily engaged in 

operating and/or providing access to 

transmission facilities and infrastructure 

that they own and/or lease for the 

transmission of voice, data, text, sound, 

and video using wired 

telecommunications networks. 

Transmission facilities may be based on 

a single technology or a combination of 

technologies.’’ The SBA defines a small 

business size standard for this category 

as any such firms having 1,500 or fewer 

employees. The SBA has developed a 

small business size standard for this 

category, which is: All such firms 

having 1,500 or fewer employees. 

According to Census Bureau data for 

2007, there were a total of 955 firms in 

this previous category that operated for 

the entire year. Of this total, 939 firms 

had employment of 999 or fewer 


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employees, and 16 firms had 

employment of 1000 employees or 

more. Thus, under this size standard, 

the majority of firms can be considered 

small and may be affected by rules 

adopted pursuant to the Order. 

171. Lower 700 MHz Band Licenses. 

The Commission previously adopted 

criteria for defining three groups of 

small businesses for purposes of 

determining their eligibility for special 

provisions such as bidding credits. The 

Commission defined a ‘‘small business’’ 

as an entity that, together with its 

affiliates and controlling principals, has 

average gross revenues not exceeding 

$40 million for the preceding three 

years. A ‘‘very small business’’ is 

defined as an entity that, together with 

its affiliates and controlling principals, 

has average gross revenues that are not 

more than $15 million for the preceding 

three years. Additionally, the Lower 700 

MHz Band had a third category of small 

business status for Metropolitan/Rural 

Service Area (‘‘MSA/RSA’’) licenses, 

identified as ‘‘entrepreneur’’ and 

defined as an entity that, together with 

its affiliates and controlling principals, 

has average gross revenues that are not 

more than $3 million for the preceding 

three years. The SBA approved these 

small size standards. The Commission 

conducted an auction in 2002 of 740 

Lower 700 MHz Band licenses (one 

license in each of the 734 MSAs/RSAs 

and one license in each of the six 

Economic Area Groupings (EAGs)). Of 

the 740 licenses available for auction, 

484 licenses were sold to 102 winning 

bidders. Seventy-two of the winning 

bidders claimed small business, very 

small business or entrepreneur status 

and won a total of 329 licenses. The 

Commission conducted a second Lower 

700 MHz Band auction in 2003 that 

included 256 licenses: 5 EAG licenses 

and 476 Cellular Market Area licenses. 

Seventeen winning bidders claimed 

small or very small business status and 

won 60 licenses, and nine winning 

bidders claimed entrepreneur status and 

won 154 licenses. In 2005, the 

Commission completed an auction of 5 

licenses in the Lower 700 MHz Band, 

designated Auction 60. There were three 

winning bidders for five licenses. All 

three winning bidders claimed small 

business status. 

172. In 2007, the Commission 

reexamined its rules governing the 700 

MHz band in the 700 MHz Second 

Report and Order, 72 FR 48814, August 

24, 2007. The 700 MHz Second Report 

and Order revised the band plan for the 

commercial (including Guard Band) and 

public safety spectrum, adopted services 

rules, including stringent build-out 

requirements, an open platform 

requirement on the C Block, and a 

requirement on the D Block licensee to 

construct and operate a nationwide, 

interoperable wireless broadband 

network for public safety users. An 

auction of A, B and E block licenses in 

the Lower 700 MHz band was held in 

2008. Twenty winning bidders claimed 

small business status (those with 

attributable average annual gross 

revenues that exceed $15 million and do 

not exceed $40 million for the preceding 

three years). Thirty three winning 

bidders claimed very small business 

status (those with attributable average 

annual gross revenues that do not 

exceed $15 million for the preceding 

three years). In 2011, the Commission 

conducted Auction 92, which offered 16 

Lower 700 MHz band licenses that had 

been made available in Auction 73 but 

either remained unsold or were licenses 

on which a winning bidder defaulted. 

Two of the seven winning bidders in 

Auction 92 claimed very small business 

status, winning a total of four licenses. 

173. Upper 700 MHz Band Licenses. 

In the 700 MHz Second Report and 

Order, the Commission revised its rules 

regarding Upper 700 MHz band 

licenses. In 2008, the Commission 

conducted Auction 73 in which C and 

D block licenses in the Upper 700 MHz 

band were available. Three winning 

bidders claimed very small business 

status (those with attributable average 

annual gross revenues that do not 

exceed $15 million for the preceding 

three years). 

174. 700 MHz Guard Band Licensees. 

In the 700 MHz Guard Band Order, 65 

FR 17594, April 4, 2000, the 

Commission 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. 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. 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 $15 million for the preceding 

three years. An auction of 52 Major 

Economic Area (MEA) licenses 

commenced on September 6, 2000, and 

closed on September 21, 2000. 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. 

175. Cellular Radiotelephone Service. 

Auction 77 was held to resolve one 

group of mutually exclusive 

applications for Cellular Radiotelephone 

Service licenses for unserved areas in 

New Mexico. Bidding credits for 

designated entities were not available in 

Auction 77. In 2008, the Commission 

completed the closed auction of one 

unserved service area in the Cellular 

Radiotelephone Service, designated as 

Auction 77. Auction 77 concluded with 

one provisionally winning bid for the 

unserved area totaling $25,002. 

176. Private Land Mobile Radio 

(‘‘PLMR’’). PLMR systems serve an 

essential role in a range of industrial, 

business, land transportation, and 

public safety activities. These radios are 

used by companies of all sizes operating 

in all U.S. business categories, and are 

often used in support of the licensee’s 

primary (non-telecommunications) 

business operations. For the purpose of 

determining whether a licensee of a 

PLMR system is a small business as 

defined by the SBA, the Commission 

uses the broad census category, Wireless 

Telecommunications Carriers (except 

Satellite). This definition provides that 

a small entity is any such entity 

employing no more than 1,500 persons. 

The Commission does not require PLMR 

licensees to disclose information about 

number of employees, so the 

Commission does not have information 

that could be used to determine how 

many PLMR licensees constitute small 

entities under this definition. The 

Commission notes that PLMR licensees 

generally use the licensed facilities in 

support of other business activities, and 

therefore, it would also be helpful to 

assess PLMR licensees under the 

standards applied to the particular 

industry subsector to which the licensee 

belongs. 

177. As of March 2010, there were 

424,162 PLMR licensees operating 

921,909 transmitters in the PLMR bands 

below 512 MHz. The Commission notes 

that any entity engaged in a commercial 

activity is eligible to hold a PLMR 

license, and that any revised rules in 

this context could therefore potentially 

impact small entities covering a great 

variety of industries. 

178. Rural Radiotelephone Service. 

The Commission has not adopted a size 

standard for small businesses specific to 

the Rural Radiotelephone Service. A 

significant subset of the Rural 

Radiotelephone Service is the Basic 

Exchange Telephone Radio System 

(BETRS). In the present context, the 

Commission will use the SBA’s small 


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business size standard applicable to 

Wireless Telecommunications Carriers 

(except Satellite), i.e., an entity 

employing no more than 1,500 persons. 

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 proposed herein. 

179. Air-Ground Radiotelephone 

Service. The Commission has not 

adopted a small business size standard 

specific to the Air-Ground 

Radiotelephone Service. The 

Commission will use SBA’s small 

business size standard applicable to 

Wireless Telecommunications Carriers 

(except Satellite), i.e., an entity 

employing no more than 1,500 persons. 

There are approximately 100 licensees 

in the Air-Ground Radiotelephone 

Service, and the Commission estimates 

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 Order. 

180. 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 Wireless Telecommunications 

Carriers (except Satellite), which is 

1,500 or fewer employees. Census data 

for 2007, which supersede data 

contained in the 2002 Census, show that 

there were 1,383 firms that operated that 

year. Of those 1,383, 1,368 had fewer 

than 100 employees, and 15 firms had 

more than 100 employees. 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 the 

Commission’s evaluations in this 

analysis, it estimates 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) 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. 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. 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 Order. 

181. Fixed Microwave Services. Fixed 

microwave services include common 

carrier, private operational-fixed, and 

broadcast auxiliary radio services. 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 

Wireless Telecommunications Carriers 

(except Satellite), which is 1,500 or 

fewer employees. 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 SBA’s 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. The 

Commission notes, however, that the 

common carrier microwave fixed 

licensee category includes some large 

entities. 

182. 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. There are presently 

approximately 55 licensees in this 

service. The Commission is unable to 

estimate at this time the number of 

licensees that would qualify as small 

under the SBA’s small business size 

standard for the category of Wireless 

Telecommunications Carriers (except 

Satellite). Under that SBA small 

business size standard, a business is 

small if it has 1,500 or fewer employees. 

Census data for 2007, which supersede 

data contained in the 2002 Census, 

show that there were 1,383 firms that 

operated that year. Of those 1,383, 1,368 

had fewer than 100 employees, and 15 

firms had more than 100 employees. 

Thus, under this category and the 

associated small business size standard, 

the majority of firms can be considered 

small. 

183. 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. 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. The SBA has approved 

these small business size standards. 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 Order. 

184. Local Multipoint Distribution 

Service. Local Multipoint Distribution 

Service (LMDS) is a fixed broadband 

point-to-multipoint microwave service 

that provides for two-way video 

telecommunications. The auction of the 

986 LMDS licenses began and closed in 

1998. The Commission established a 

small business size standard for LMDS 

licenses as an entity that has average 

gross revenues of less than $40 million 

in the three previous calendar years. An 

additional small business size standard 

for ‘‘very small business’’ was added as 

an entity that, together with its affiliates, 

has average gross revenues of not more 

than $15 million for the preceding three 

calendar years. The SBA has approved 

these small business size standards in 

the context of LMDS auctions. There 

were 93 winning bidders that qualified 

as small entities in the LMDS auctions. 

A total of 93 small and very small 

business bidders won approximately 

277 A Block licenses and 387 B Block 

licenses. In 1999, the Commission reauctioned 161 licenses; there were 32 

small and very small businesses 

winning that won 119 licenses. 

185. 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 


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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. In 

the 218–219 MHz Report and Order and 

Memorandum Opinion and Order, 64 

FR 59656, November 3, 1999, the 

Commission 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. 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. 

These size standards will be used in 

future auctions of 218–219 MHz 

spectrum. 

186. 2.3 GHz Wireless 

Communications Services. This service 

can be used for fixed, mobile, 

radiolocation, and digital audio 

broadcasting satellite uses. The 

Commission defined ‘‘small business’’ 

for the wireless communications 

services (‘‘WCS’’) auction as an entity 

with average gross revenues of $40 

million for each of the three preceding 

years, and a ‘‘very small business’’ as an 

entity with average gross revenues of 

$15 million for each of the three 

preceding years. The SBA has approved 

these definitions. The Commission 

auctioned geographic area licenses in 

the WCS service. In the auction, which 

was conducted in 1997, there were 

seven bidders that won 31 licenses that 

qualified as very small business entities, 

and one bidder that won one license 

that qualified as a small business entity. 

187. 1670–1675 MHz Band. An 

auction for one license in the 1670–1675 

MHz band was conducted in 2003. The 

Commission defined a ‘‘small business’’ 

as an entity with attributable average 

annual gross revenues of not more than 

$40 million for the preceding three 

years and thus would be eligible for a 

15 percent discount on its winning bid 

for the 1670–1675 MHz band license. 

Further, the Commission defined a 

‘‘very small business’’ as an entity with 

attributable average annual gross 

revenues of not more than $15 million 

for the preceding three years and thus 

would be eligible to receive a 25 percent 

discount on its winning bid for the 

1670–1675 MHz band license. One 

license was awarded. The winning 

bidder was not a small entity. 

188. 3650–3700 MHz band. In March 

2005, the Commission released a Report 

and Order and Memorandum Opinion 

and Order that provides for nationwide, 

non-exclusive licensing of terrestrial 

operations, utilizing contention-based 

technologies, in the 3650 MHz band 

(i.e., 3650–3700 MHz). As of April 2010, 

more than 1270 licenses have been 

granted and more than 7433 sites have 

been registered. The Commission has 

not developed a definition of small 

entities applicable to 3650–3700 MHz 

band nationwide, non-exclusive 

licensees. However, the Commission 

estimates that the majority of these 

licensees are Internet Access Service 

Providers (ISPs) and that most of those 

licensees are small businesses. 

189. 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. For this service, the 

Commission uses the SBA small 

business size standard for the category 

‘‘Wireless Telecommunications Carriers 

(except satellite),’’ which is 1,500 or 

fewer employees. To gauge small 

business prevalence for these cable 

services the Commission must, 

however, use the most current census 

data. Census data for 2007, which 

supersede data contained in the 2002 

Census, show that there were 1,383 

firms that operated that year. Of those 

1,383, 1,368 had fewer than 100 

employees, and 15 firms had more than 

100 employees. Thus under this 

category and the associated small 

business size standard, the majority of 

firms can be considered small. The 

Commission notes that the Census’ use 

of the classifications ‘‘firms’’ does not 

track the number of ‘‘licenses’’. The 

Commission believes that there are only 

two licensees in the 24 GHz band that 

were relocated from the 18 GHz band, 

Teligent 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. 

190. 24 GHz—Future Licensees. With 

respect to new applicants in the 24 GHz 

band, the 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. ‘‘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. The SBA has approved 

these small business size standards. 

These size standards will apply to a 

future 24 GHz license auction, if held. 

191. Satellite Telecommunications. 

Since 2007, the SBA has recognized 

satellite firms within this revised 

category, with a small business size 

standard of $15 million. The most 

current Census Bureau data are from the 

economic census of 2007, and the 

Commission 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 the 

‘‘Satellite Telecommunications’’ 

category, a business is considered small 

if it had $15 million or less in average 

annual receipts. Under the ‘‘Other 

Telecommunications’’ category, a 

business is considered small if it had 

$25 million or less in average annual 

receipts. 

192. 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.’’ For this category, 

Census Bureau data for 2007 show that 

there were a total of 512 firms that 

operated for the entire year. Of this 

total, 464 firms had annual receipts of 

under $10 million, and 18 firms had 

receipts of $10 million to $24,999,999. 

Consequently, the Commission 

estimates that the majority of Satellite 

Telecommunications firms are small 

entities that might be affected by rules 

adopted pursuant to the Order. 

193. The second category of Other 

Telecommunications ‘‘primarily 

engaged in providing specialized 

telecommunications services, such as 

satellite tracking, communications 

telemetry, and radar station operation. 

This industry also includes 

establishments primarily engaged in 

providing satellite terminal stations and 

associated facilities connected with one 

or more terrestrial systems and capable 

of transmitting telecommunications to, 

and receiving telecommunications from, 

satellite systems. Establishments 

providing Internet services or voice over 

Internet protocol (VoIP) services via 

client-supplied telecommunications 

connections are also included in this 

industry.’’ For this category, Census 


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Bureau data for 2007 show that there 

were a total of 2,383 firms that operated 

for the entire year. Of this total, 2,346 

firms had annual receipts of under $25 

million. Consequently, the Commission 

estimates that the majority of Other 

Telecommunications firms are small 

entities that might be affected by our 

action. 

194. Cable and Other Program 

Distribution. Since 2007, these services 

have been defined within the broad 

economic census category of Wired 

Telecommunications Carriers; that 

category is defined as follows: ‘‘This 

industry comprises establishments 

primarily engaged in operating and/or 

providing access to transmission 

facilities and infrastructure that they 

own and/or lease for the transmission of 

voice, data, text, sound, and video using 

wired telecommunications networks. 

Transmission facilities may be based on 

a single technology or a combination of 

technologies.’’ The SBA has developed 

a small business size standard for this 

category, which is: All such firms 

having 1,500 or fewer employees. 

According to Census Bureau data for 

2007, there were a total of 955 firms in 

this previous category that operated for 

the entire year. Of this total, 939 firms 

had employment of 999 or fewer 

employees, and 16 firms had 

employment of 1000 employees or 

more. Thus, under this size standard, 

the majority of firms can be considered 

small and may be affected by rules 

adopted pursuant to the Order. 

195. Cable Companies and Systems. 

The Commission has developed its own 

small business size standards, for the 

purpose of cable rate regulation. Under 

the Commission’s rules, a ‘‘small cable 

company’’ is one serving 400,000 or 

fewer subscribers, nationwide. Industry 

data indicate that, of 1,076 cable 

operators nationwide, all but eleven are 

small under this size standard. In 

addition, under the Commission’s rules, 

a ‘‘small system’’ is a cable system 

serving 15,000 or fewer subscribers. 

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. Thus, under this 

second size standard, most cable 

systems are small and may be affected 

by rules adopted pursuant to the Order. 

196. 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.’’ 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. Industry data indicate that, of 

1,076 cable operators nationwide, all 

but ten are small under this size 

standard. The Commission notes that it 

neither requests nor collects information 

on whether cable system operators are 

affiliated with entities whose gross 

annual revenues exceed $250 million, 

and therefore the Commission is unable 

to estimate more accurately the number 

of cable system operators that would 

qualify as small under this size 

standard. 

197. Open Video Services. The open 

video system (‘‘OVS’’) framework was 

established in 1996, and is one of four 

statutorily recognized options for the 

provision of video programming 

services by local exchange carriers. The 

OVS framework provides opportunities 

for the distribution of video 

programming other than through cable 

systems. Because OVS operators provide 

subscription services, OVS falls within 

the SBA small business size standard 

covering cable services, which is 

‘‘Wired Telecommunications Carriers.’’ 

The SBA has developed a small 

business size standard for this category, 

which is: all such firms having 1,500 or 

fewer employees. According to Census 

Bureau data for 2007, there were a total 

of 955 firms in this previous category 

that operated for the entire year. Of this 

total, 939 firms had employment of 999 

or fewer employees, and 16 firms had 

employment of 1000 employees or 

more. Thus, under this second size 

standard, most cable systems are small 

and may be affected by rules adopted 

pursuant to the Order. In addition, the 

Commission notes that it has certified 

some OVS operators, with some now 

providing service. Broadband service 

providers (‘‘BSPs’’) are currently the 

only significant holders of OVS 

certifications or local OVS franchises. 

The Commission does not have 

financial or employment information 

regarding the entities authorized to 

provide OVS, some of which may not 

yet be operational. Thus, again, at least 

some of the OVS operators may qualify 

as small entities. 

198. Internet Service Providers. Since 

2007, these services have been defined 

within the broad economic census 

category of Wired Telecommunications 

Carriers; that category is defined as 

follows: ‘‘This industry comprises 

establishments primarily engaged in 

operating and/or providing access to 

transmission facilities and infrastructure 

that they own and/or lease for the 

transmission of voice, data, text, sound, 

and video using wired 

telecommunications networks. 

Transmission facilities may be based on 

a single technology or a combination of 

technologies.’’ The SBA has developed 

a small business size standard for this 

category, which is: All such firms 

having 1,500 or fewer employees. 

According to Census Bureau data for 

2007, there were 3,188 firms in this 

category, total, that operated for the 

entire year. Of this total, 3144 firms had 

employment of 999 or fewer employees, 

and 44 firms had employment of 1000 

employees or more. Thus, under this 

size standard, the majority of firms can 

be considered small. In addition, 

according to Census Bureau data for 

2007, there were a total of 396 firms in 

the category Internet Service Providers 

(broadband) that operated for the entire 

year. Of this total, 394 firms had 

employment of 999 or fewer employees, 

and two firms had employment of 1000 

employees or more. Consequently, the 

Commission estimates that the majority 

of these firms are small entities that may 

be affected by rules adopted pursuant to 

the Order. 

199. Internet Publishing and 

Broadcasting and 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 

‘‘primarily engaged in (1) publishing 

and/or broadcasting content on the 

Internet exclusively or (2) operating 

Web sites that use a search engine to 

generate and maintain extensive 

databases of Internet addresses and 

content in an easily searchable format 

(and known as Web search portals).’’ 

The SBA has developed a small 

business size standard for this category, 

which is: all such firms having 500 or 

fewer employees. According to Census 

Bureau data for 2007, there were 2,705 

firms in this category that operated for 

the entire year. Of this total, 2,682 firms 

had employment of 499 or fewer 

employees, and 23 firms had 

employment of 500 employees or more. 

Consequently, the Commission 

estimates that the majority of these firms 

are small entities that may be affected 

by rules adopted pursuant to the Order. 


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200. Data Processing, Hosting, and 

Related Services. Entities in this 

category ‘‘primarily . . . provid[e] 

infrastructure for hosting or data 

processing services.’’ The SBA has 

developed a small business size 

standard for this category; that size 

standard is $25 million or less in 

average annual receipts. According to 

Census Bureau data for 2007, there were 

8,060 firms in this category that 

operated for the entire year. Of these, 

7,744 had annual receipts of under $ 

$24,999,999. Consequently, the 

Commission estimates that the majority 

of these firms are small entities that may 

be affected by rules adopted pursuant to 

the Order. 

201. All Other Information Services. 

The Census Bureau defines this industry 

as including ‘‘establishments primarily 

engaged in providing other information 

services (except news syndicates, 

libraries, archives, Internet publishing 

and broadcasting, and Web search 

portals).’’ Our action pertains 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 

SBA has developed a small business 

size standard for this category; that size 

standard is $7.0 million or less in 

average annual receipts. According to 

Census Bureau data for 2007, there were 

367 firms in this category that operated 

for the entire year. Of these, 334 had 

annual receipts of under $5.0 million, 

and an additional 11 firms had receipts 

of between $5 million and $9,999,999. 

Consequently, the Commission 

estimates that the majority of these firms 

are small entities that may be affected 

by our action. 

4. Description of Projected Reporting, 

Recordkeeping, and Other Compliance 

Requirements 

202. In the Order, the Commission 

amends section 54.313(a) to include a 

new subsection 12 that requires 

recipients of high-cost and/or Connect 

America Fund support that are subject 

to broadband performance obligations to 

submit a broadband reasonable 

comparability certification with their 

annual section 54.313 report (FCC Form 

481). In that certification, support 

recipients must certify that the pricing 

of the broadband offering they are 

relying upon to meet their broadband 

performance obligation is no more than 

the applicable benchmark as specified 

in a public notice issued by the Bureau, 

or is no more than the non-promotional 

prices charged for a comparable fixed 

wireline service in urban areas in the 

states or U.S. Territories where the highcost support recipient receives support. 

For purposes of the latter certification, 

the Commission does not require that 

the high-cost support recipient offer a 

particular rate nationwide; rather it is 

sufficient if for each state or U.S. 

Territory where the high-cost support 

recipient receives funding, the high-cost 

support recipient or another provider 

offers the same rate for a comparable 

fixed wireline service in an urban area 

in that state or U.S. Territory. 

Recognizing that high-cost support 

recipients are permitted to offer a 

variety of broadband service offerings as 

long as they offer at least one standalone 

voice service plan and one service plan 

that provides broadband that meets the 

Commission’s requirements, it only 

requires that they make the above 

certification for one of their broadband 

service offerings that satisfies all of the 

Commission’s requirements, including 

that the service be offered throughout 

the high-cost support recipient’s 

supported area, or for rate-of-return 

carriers, be made available upon 

reasonable request. 

203. The Commission concludes that 

requiring high-cost support recipients to 

make this certification will ensure that 

the Commission can monitor their 

compliance with the section 254(b) 

principle that ‘‘[c]onsumers in all 

regions of the Nation . . . should have 

access to telecommunications and 

information services that are reasonably 

comparable to rates charged for similar 

services in urban areas.’’ 

204. The Commission requires that 

high-cost support recipients that elect to 

certify that their pricing of services in 

rural areas is no greater than their 

pricing in urban areas to rely upon the 

non-promotional prices charged for 

comparable fixed wireline services. This 

certification will be included in the FCC 

Form 481 to be filed in 2016, addressing 

performance during 2015, after the 

requirement has received Paperwork 

Reduction Act (PRA) approval from the 

Office of Management and Budget. All 

parties subject to a broadband public 

interest requirement that file this report 

in 2016 will be required to make the 

certification, and annually thereafter. 

Recipients of funding through the Phase 

II competitive bidding process must 

submit their first certification with the 

first section 54.313 annual report they 

are required to submit after support is 

authorized, and each year thereafter 

with their annual report. 

205. In the Order, the Commission 

requires all price cap carriers accepting 

model-based support to include in the 

annual progress report that they submit 

with their section 54.313 annual reports 

a list of the geocoded locations to which 

they have newly deployed facilities 

capable of delivering broadband 

meeting the requisite requirements with 

Connect America support in the prior 

year. The list must identify which 

locations are located in a Phase IIfunded block and which locations are 

located in extremely high-cost census 

blocks. The first list must be submitted 

with their July 2016 annual report, 

reflecting deployment status through the 

end of 2015. This first list should also 

include the geocoded locations that a 

price cap carrier had already built out 

to with service meeting the 

Commission’s requirements before 

receiving Phase II support. The 

Commission will also collect from price 

cap carriers accepting model-based 

support in their annual section 54.313 

reports the total amount of Connect 

America Phase II support, if any, they 

used for capital expenditures in the 

previous calendar year. In the Order, the 

Commission finds that it is in the public 

interest to require price cap carriers 

accepting model-based support to 

provide this data on an annual basis. 

206. In the Order, the Commission 

also takes a necessary step to ensure the 

most efficient use of high-cost support 

by reducing on a pro-rata daily basis the 

support of any ETC that misses 

certification or data submission 

deadlines. The Commission recognizes 

that despite its best efforts, an ETC may 

miss a deadline due to an administrative 

oversight but still file within a few days 

of the deadline, and therefore 

implement a one-time grace period of 

three days. A one-time grace period of 

three days achieves an appropriate 

balance between requiring strict 

compliance with our rules and 

providing an opportunity for ETCs that 

may be first time filers or that make an 

uncharacteristic mistake to rectify 

quickly an error. 

207. Given our decision to modify the 

support reductions for late filings, the 

Order announces that the Commission 

otherwise requires strict adherence to 

filing deadlines. The Commission will 

cease the practice of finding there is 

good cause for a waiver of high-cost 

filing deadlines in circumstances where 

an ETC has missed the deadline due to 

an administrative or clerical oversight 

and where that ETC has promised to 

revise it procedures to ensure future 

compliance. 

208. Lastly, the Commission adopts 

specific measures in the event that 

certain ETCs do not meet their high-cost 

obligations for fixed services. 

Specifically, in the Order, the 

Commission adopts a support reduction 

regime for ETCs that fail to meet their 


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deployment obligations subsequent to 

accepting Connect America Phase II 

support. For price cap ETCs the 

Commission adopts a framework for 

support reductions that are calibrated to 

the extent of an ETC’s non-compliance 

with these deployment milestones. 

Because rate-of-return carriers are not at 

this time required to build out to a 

certain number of locations, the 

Commission concludes it is appropriate 

to handle matters regarding their 

potential non-compliance on a case-bycase basis. Additionally, the 

Commission concludes that noncompliance of the reasonable 

comparability requirement is best dealt 

with on a case-by-case basis for all ETCs 

that must certify that the rates they offer 

are reasonably comparable. The 

Commission finds that it would not be 

appropriate to apply a uniform support 

reduction to all ETCs that fail to offer 

reasonably comparable prices. 

5. Steps Taken To Minimize Significant 

Economic Impact on Small Entities, and 

Significant Alternatives Considered 

209. The RFA requires an agency to 

describe any significant alternatives that 

it has considered in reaching its 

approach, which may include the 

following four alternatives, among 

others: (1) The establishment of 

differing compliance or reporting 

requirements or timetables that take into 

account the resources available to small 

entities; (2) the clarification, 

consolidation, or simplification of 

compliance or reporting requirements 

under the rule for small entities; (3) the 

use of performance, rather than design, 

standards; and (4) an exemption from 

coverage of the rule, or any part thereof, 

for small entities. 

210. The rules that the Commission 

adopts in the Order provide flexibility 

in meeting the public interest 

obligations that are a condition of the 

receipt of high-cost support for those 

price cap carriers accepting the offer of 

model-based support, the Commission 

adopts targeted adjustments to the 

framework established by the 

Commission in the USF/ICC 

Transformation Order to provide 

carriers flexibility. Specifically, the 

Commission adopts evenly spaced 

annual interim milestones for price cap 

carriers to offer at least 10/1 Mbps to an 

additional 20 percent of the requisite 

number of high-cost locations each year. 

The Commission also modifies the 

build-out requirements established for 

price cap carriers accepting modelbased support to create evenly spaced 

annual interim milestones. The 

Commission requires price cap carriers 

accepting model-based support to 

complete construction to 40 percent of 

the requisite number of locations in a 

state by the end of calendar year 2017, 

instead of 85 percent by the mid-2018, 

which is a more realistic expectation, 

given that carriers will not accept the 

offer of support until mid-year in 2015 

and then will be developing detailed 

network construction plans. The 

Commission also will permit a modest 

adjustment to the number of modeldetermined funded locations in a given 

state with a corresponding reduction in 

support. The Commission expects the 

flexibility in deployment for price-cap 

carriers accepting model-based Phase II 

support will minimize the economic 

impact on small entities. 

211. Additionally, as the Commission 

did in 2011, it continues to offer a more 

flexible approach to deploying 

broadband for rate-of-return carriers. 

Rate-of-return carriers are only required 

to meet the higher speed if the request 

for service is reasonable—meaning that 

the carrier could cost effectively extend 

voice and broadband-capable network to 

that location, given its anticipated enduser revenues and other sources of 

support. Rate-of-return carriers will be 

required to offer at least 10/1 Mbps 

broadband service upon reasonable 

request, consistent with past guidance 

regarding our expectations regarding the 

reasonable request standard. If a request 

for 10/1 Mbps is not reasonable in a 

given circumstance, but offering 4/1 

Mbps is reasonable, the Commission 

would expect a rate-of-return carrier to 

offer 4/1 Mbps. 

212. The Commission also concludes, 

based on our consideration of the 

relevant statutory framework and the 

record before us, that it is in the public 

interest to forbear from enforcing a 

federal high-cost requirement that price 

cap carriers offer voice telephony 

service throughout their service areas 

pursuant to section 214(e)(1)(A) of the 

Act in three types of geographic areas: 

(1) Census blocks that are determined to 

be low-cost, (2) census blocks served by 

an unsubsidized competitor, and (3) 

census blocks where a subsidized 

competitor—i.e., another ETC—is 

receiving federal high-cost support to 

deploy modern networks capable of 

providing voice and broadband to fixed 

locations. The Commission finds that 

limited forbearance from section 

214(e)(1)(A) will promote competitive 

market conditions by giving affected 

carriers the flexibility to compete on a 

more equal regulatory footing in the 

voice telephony market with 

competitors that already have the 

opportunity to make decisions about 

how best to offer voice telephone 

service. 

213. For those price cap carriers 

serving non-contiguous areas that elect 

to continue receiving frozen support 

amounts in lieu of the offer of modelbased support, the Commission 

recognizes that such carriers face unique 

circumstances in the areas they serve 

and experience different challenges in 

deploying broadband service in those 

areas. Consequently, a ‘‘one-size-fits-all’’ 

approach would leave some of these 

carriers potentially unable to fulfill their 

service obligations. The Commission is 

confident that tailoring specific service 

obligations to the individual 

circumstances of each non-contiguous 

carrier that elects to continue receiving 

frozen support will best ensure that 

Connect America funding is put to the 

best possible use. 

214. The Commission institutes a 

broadband reasonably comparable rate 

certification on all ETCs that receive 

ongoing high-cost support in areas 

served by price cap carriers and rate-ofreturn carriers. Although the 

Commission notes that filing deadlines 

will be strictly enforced, it adjusts the 

reduction of support for all ETCs, 

including small entities, and provides a 

grace period to ensure it is not unduly 

punitive given the nature of noncompliance. 

215. The Commission also adopts 

specific measures that the Bureau will 

take in the event that certain ETCs do 

not meet their high-cost support 

deployment obligations for fixed 

services or does not offer rates that are 

reasonably comparable to rates offered 

in urban areas. The reductions represent 

a detailed calculus to ensure that no 

carrier is penalized inappropriately for 

its non-compliance. As such, price cap 

ETC support reductions scale with the 

extent of an ETC’s non-compliance, and 

create incentives for ETCs to come into 

compliance as soon as possible. For 

rate-of-return ETCs, given that their 

obligation is to provide voice and 

broadband service upon reasonable 

request and the Commission does not 

have sufficient experience to create 

specific deployment milestones, the 

Commission finds it appropriate to 

handle matters regarding their potential 

non-compliance on a case-by-case basis. 

Additionally, determined that noncompliance with the reasonable 

comparability requirement is best dealt 

with on a case-by-case basis for all ETCs 

because of the variety of factors that go 

into determining whether prices are 

reasonably comparable. Accordingly, 

the Commission determined that it 

would not be appropriate to apply a 

uniform support reduction to all ETCs 

that fail to offer reasonably comparable 

prices. 


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6. Report to Congress 

216. The Commission will send a 

copy of the Order, including this FRFA, 

in a report to be sent to Congress and 

the Government Accountability Office 

pursuant to the Small Business 

Regulatory Enforcement Fairness Act of 

1996. In addition, the Commission will 

send a copy of the Report and Order, 

including this FRFA, to the Chief 

Counsel for Advocacy of the Small 

Business Administration. A copy of the 

Report and Order and FRA (or 

summaries thereof) will also be 

published in the Federal Register. 

7. Additional Information 

217. People with Disabilities. To 

request materials in accessible formats 

for people with disabilities (braille, 

large print, electronic files, audio 

format), send an email to fcc504@fcc.gov 

or call the Consumer & Governmental 

Affairs Bureau at 202–418–0530 (voice), 

202–418–0432 (tty). 

218. Additional Information. For 

additional information on this 

proceeding, contact Alexander Minard 

of the Wireline Competition Bureau, 

Telecommunications Access Policy 

Division, Alexander.Minard@fcc.gov, 

(202) 418–7400, or Suzanne Yelen of the 

Wireline Competition Bureau, Industry 

Analysis and Technology Division, 

Suzanne.Yelen@fcc.gov, (202) 418– 

7400. 

VIII. Ordering Clauses 

219. Accordingly, IT IS ORDERED, 

pursuant to the authority contained in 

sections 1, 2, 4(i), 5, 10, 201–206, 214, 

218–220, 251, 252, 254, 256, 303(r), 332, 

403, and 405 of the Communications 

Act of 1934, as amended, and section 

706 of the Telecommunications Act of 

1996, 47 U.S.C. 151, 152, 154(i), 155, 

160, 201–206, 214, 218–220, 251, 252, 

254, 256, 303(r), 332, 403, 405, 1302, 

and sections 1.1, 1.427, and 1.429 of the 

Commission’s rules, 47 CFR 1.1, 1.427, 

and 1.429, that this Report and Order, 

IS ADOPTED, effective thirty (30) days 

after publication of the text or summary 

thereof in the Federal Register, except 

for those rules and requirements 

involving Paperwork Reduction Act 

burdens, which shall become effective 

immediately upon announcement in the 

Federal Register of OMB approval, and 

except as otherwise provided below. It 

is the Commission’s intention in 

adopting these rules that if any of the 

rules that it retains, modify, or adopt 

herein, or the application thereof to any 

person or circumstance, are held to be 

unlawful, the remaining portions of the 

rules not deemed unlawful, and the 

application of such rules to other 

persons or circumstances, shall remain 

in effect to the fullest extent permitted 

by law. 

220. IT IS FURTHER ORDERED that 

the requirement for non-contiguous 

carriers that wish to elect Phase II frozen 

support in lieu of model-based support 

discussed in paragraph 39 and the 

requirement that bidders in the rural 

broadband experiments that wish to 

remain in consideration for rural 

broadband experiment support 

discussed in paragraph 71 are effective 

upon release. 

221. IT IS FURTHER ORDERED that 

for the reasons stated in paragraph 71 

the Commission finds good cause exists 

to make excluding from the offer of 

model-based support any census block 

included in a non-winning rural 

broadband experiment application 

submitted in funding category one 

discussed in paragraph 72 effective 

upon Federal Register publication. 

222. IT IS FURTHER ORDERED that 

Part 54 of the Commission’s rules, 47 

CFR part 54, IS AMENDED as set forth 

below, and such rule amendments 

SHALL BE EFFECTIVE February 26, 

2015, except for §§ 54.313(a)(e) and 

54.320 which contain new or modified 

information collection requirements that 

will not be effective until approved by 

the Office of Management and Budget. 

The Federal Communications 

Commission will publish a document in 

the Federal Register announcing the 

effective date for those sections. 

223. IT IS FURTHER ORDERED that, 

pursuant to the authority contained in 

sections 4(i), 4(j), 10, 214, and 254 of the 

Communications Act of 1934, as 

amended, 47 U.S.C. 154(i), 154(j), 160, 

214 and 254, the petition for forbearance 

filed by the United States Telecom 

Association on October 6, 2014, IS 

GRANTED IN PART to the extent 

described herein. 

224. IT IS FURTHER ORDERED that, 

pursuant to the authority contained in 

section 405 of the Communications Act 

of 1934, as amended, 47 U.S.C. 405, and 

section 1.429 of the Commission’s rules, 

47 CFR 1.429, the Petition for 

Reconsideration filed by the United 

States Telecom Association on August 

8, 2014, IS DISMISSED to the extent 

described herein. 

225. IT IS FURTHER ORDERED that, 

pursuant to the authority contained in 

section 405 of the Communications Act 

of 1934, as amended, 47 U.S.C. 405, and 

section 1.429 of the Commission’s rules, 

47 CFR 1.429, the Petition for 

Reconsideration filed by the National 

Exchange Carrier Association, Inc., et al. 

on August 8, 2014, IS DISMISSED to the 

extent described herein. 

226. IT IS FURTHER ORDERED that 

the Commission SHALL SEND a copy of 

this Report and Order to Congress and 

the Government Accountability Office 

pursuant to the Congressional Review 

Act, see 5 U.S.C. 801(a)(1)(A). 

227. IT IS FURTHER ORDERED, that 

the Commission’s Consumer and 

Governmental Affairs Bureau, Reference 

Information Center, SHALL SEND a 

copy of this Report and Order, including 

the Final Regulatory Flexibility 

Analysis, to the Chief Counsel for 

Advocacy of the Small Business 

Administration. 

List of Subjects in 47 CFR Part 54 

Communications common carriers, 

Reporting and recordkeeping 

requirements, Telecommunications, 

Telephone. 

Federal Communications Commission. 

Marlene H. Dortch, 

Secretary. 

Final Rules 

For the reasons discussed in the 

preamble, the Federal Communications 

Commission amends 47 CFR part 54 as 

follows: 

PART 54—UNIVERSAL SERVICE 

■ 1. The authority citation for part 54 is 

revised to read as follows: 

Authority: 47 U.S.C. 151, 154(i), 155, 201, 

205, 214, 219, 220, 254, 303(r), 403, and 1302 

unless otherwise noted. 

■ 2. Amend § 54.5 by adding the 

following term and definition 

‘‘Qualifying competitor’’ in alphabetical 

order to read as follows: 

§ 54.5 Terms and definitions. 

* * * * * 

Qualifying competitor. A ‘‘qualifying 

competitor’’ is a facilities-based 

terrestrial provider of residential fixed 

voice and broadband service access 

meeting or exceeding 3 Mbps 

downstream and 768 kbps upstream. 

* * * * * 

■ 3. Amend § 54.201 by revising 

paragraph (d) introductory text and 

adding paragraph (d)(3) to read as 

follows: 

§ 54.201 Definitions of eligible 

telecommunications carriers, generally. 

* * * * * 

(d) A common carrier designated as 

an eligible telecommunications carrier 

under this section shall be eligible to 

receive universal service support in 

accordance with section 254 of the Act 

and, except as described in paragraph 

(d)(3) of this section, shall throughout 


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the service area for which the 

designation is received: 

* * * * * 

(3) Exception. Price cap carriers that 

serve census blocks that are identified 

by the forward-looking cost model as 

low-cost, census blocks that are served 

by an unsubsidized competitor as 

defined in § 54.5 meeting the requisite 

public interest obligations specified in 

§ 54.309, or census blocks where a 

subsidized competitor is receiving 

federal high-cost support to deploy 

modern networks capable of providing 

voice and broadband to fixed locations, 

are not required to comply with 

paragraphs (d)(1) and (2) of this section 

in these specific geographic areas. Such 

price cap carriers remain obligated to 

maintain existing voice telephony 

service in these specific geographic 

areas unless and until a discontinuance 

is granted pursuant to § 63.71 of this 

chapter. 

* * * * * 

■ 4. Add § 54.308 to read as follows: 

§ 54.308 Broadband public interest 

obligations for recipients of high-cost 

support. 

(a) Rate-of-return carrier recipients of 

high-cost support are required to offer 

broadband service at actual speeds of at 

least 10 Mbps downstream/1 Mbps 

upstream, with latency suitable for realtime applications, including Voice over 

Internet Protocol, and usage capacity 

that is reasonably comparable to 

comparable offerings in urban areas, at 

rates that are reasonably comparable to 

rates for comparable offerings in urban 

areas, upon reasonable request. If a 

request for broadband service at actual 

speeds of at least 10 Mbps downstream/ 

1 Mbps upstream is unreasonable, and 

offering broadband service at actual 

speeds of at least 4 Mbps downstream/ 

1 Mbps upstream is reasonable, rate-ofreturn recipients of high-cost support 

are required to offer broadband service 

at actual speeds of at least 4 Mbps 

downstream/1 Mbps upstream. For 

purposes of determining reasonable 

comparability of rates, recipients are 

presumed to meet this requirement if 

they offer rates at or below the 

applicable benchmark to be announced 

annually by public notice issued by the 

Wireline Competition Bureau, or no 

more than the non-promotional prices 

charged for a comparable fixed wireline 

service in urban areas in the state or 

U.S. Territory where the eligible 

telecommunications carrier receives 

support. 

(b) [Reserved] 

■ 5. Revise § 54.309 to read as follows: 

§ 54.309 Connect America Fund Phase II 

Public Interest Obligations. 

(a) Recipients of Connect America 

Phase II model-based support are 

required to offer broadband service at 

actual speeds of at least 10 Mbps 

downstream/1 Mbps upstream, with 

latency suitable for real-time 

applications, including Voice over 

Internet Protocol, and usage capacity 

that is reasonably comparable to 

comparable offerings in urban areas, at 

rates that are reasonably comparable to 

rates for comparable offerings in urban 

areas. For purposes of determining 

reasonable comparability of rates, 

recipients are presumed to meet this 

requirement if they offer rates at or 

below the applicable benchmark to be 

announced annually by public notice 

issued by the Wireline Competition 

Bureau, or no more than the nonpromotional prices charged for a 

comparable fixed wireline service in 

urban areas in the state or U.S. Territory 

where the eligible telecommunications 

carrier receives support. 

(b) [Reserved] 

■ 6. Amend § 54.310 by revising 

paragraphs (b) and (c) to read as follows: 

§ 54.310 Connect America Fund for Price 

Cap Territories—Phase II. 

* * * * * 

(b) Term of support. Connect America 

Phase II model-based support shall be 

provided to price cap carriers that elect 

to make a state-level commitment for six 

years. Connect America Phase II support 

awarded through a competitive bidding 

process shall be provided for ten years. 

(c) Deployment obligation. Recipients 

of Connect America Phase II modelbased support must complete 

deployment to 40 percent of supported 

locations by December 31, 2017, to 60 

percent of supported locations by 

December 31, 2018, to 80 percent of 

supported locations by December 31, 

2019, and to 100 percent of supported 

locations by December 31, 2020. 

Compliance shall be determined based 

on the total number of supported 

locations in a state. 

(1) For purposes of meeting the 

obligation to deploy to the requisite 

number of supported locations in a 

state, recipients may serve unserved 

locations in census blocks with costs 

above the extremely high-cost threshold 

instead of locations in eligible census 

blocks, provided that they meet the 

public interest obligations set forth in 

§ 54.309 for those locations and 

provided that the total number of 

locations covered is greater than or 

equal to the number of supported 

locations in the state. 

(2) Recipients of Connect America 

Phase II model-based support may elect 

to deploy to 95 percent of the number 

of supported locations in a given state 

with a corresponding reduction in 

support computed based on the average 

support per location in the state times 

1.89. 

* * * * * 

■ 7. Amend § 54.313 by adding 

paragraph (a)(12) and revising 

paragraphs (e) and (j) to read as follows: 

§ 54.313 Annual reporting requirements 

for high-cost recipients. 

(a) * * * 

(12) A certification that the pricing of 

a service that meets the Commission’s 

broadband public interest obligations is 

no more than the applicable benchmark 

to be announced annually in a public 

notice issued by the Wireline 

Competition Bureau, or is no more than 

the non-promotional price charged for a 

comparable fixed wireline service in 

urban areas in the states or U.S. 

Territories where the eligible 

telecommunications carrier receives 

support. 

* * * * * 

(e) In addition to the information and 

certifications in paragraph (a) of this 

section, any price cap carrier that elects 

to receive Connect America Phase II 

model-based support shall provide: 

(1) On July 1, 2016 an initial service 

quality improvement plan that includes 

a list of the geocoded locations already 

meeting the § 54.309 public interest 

obligations at the end of calendar year 

2015, and the total amount of Phase II 

support, if any, the price cap carrier 

used for capital expenditures in 2015. 

(2) On July 1, 2017 and every year 

thereafter ending July 1, 2021, a 

progress report on the company’s 

service quality improvement plan, 

including the following information: 

(i) A certification that it is meeting the 

interim deployment milestones as set 

forth; 

(ii) The number, names, and 

addresses of community anchor 

institutions to which the eligible 

telecommunications carrier newly began 

providing access to broadband service 

in the preceding calendar year; 

(iii) A list of the geocoded locations 

to which the eligible 

telecommunications carrier newly 

deployed facilities capable of delivering 

broadband meeting the § 54.309 public 

interest obligations with Connect 

America support in the prior year. The 

final progress report filed on July 1, 

2021 must include the total number and 

geocodes of all the supported locations 

that a price cap carrier has built out to 


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with service meeting the § 54.309 public 

interest obligations; and 

(iv) The total amount of Phase II 

support, if any, the price cap carrier 

used for capital expenditures in the 

previous calendar year. 

(3) On July 1, 2018, a certification that 

the recipient offered broadband meeting 

the requisite public interest obligations 

specified in § 54.309 to 40% of its 

supported locations in the state on 

December 31, 2017. 

(4) On July 1, 2019, a certification that 

the recipient offered broadband meeting 

the requisite public interest obligations 

specified in § 54.309 to 60% of its 

supported locations in the state on 

December 31, 2018. 

(5) On July 1, 2020, a certification that 

the recipient offered broadband meeting 

the requisite public interest obligations 

specified in § 54.309 to 80% of its 

supported locations in the state on 

December 31, 2019. 

(6) On July 1, 2021, a certification that 

the recipient offered broadband meeting 

the requisite public interest obligations 

specified in § 54.309 to 100% of its 

supported locations in the state on 

December 31, 2020. 

* * * * * 

(j) Filing deadlines. (1) In order for a 

recipient of high-cost support to 

continue to receive support for the 

following calendar year, or retain its 

eligible telecommunications carrier 

designation, it must submit the annual 

reporting information required by this 

section annually by July 1 of each year. 

Eligible telecommunications carriers 

that file their reports after the July 1 

deadline shall receive a reduction in 

support pursuant to the following 

schedule: 

(i) An eligible telecommunications 

carrier that files after the July 1 

deadline, but by July 8, will have its 

support reduced in an amount 

equivalent to seven days in support; 

(ii) An eligible telecommunications 

carrier that files on or after July 9 will 

have its support reduced on a pro-rata 

daily basis equivalent to the period of 

non-compliance, plus the minimum 

seven-day reduction. 

(2) Grace period. An eligible 

telecommunications carrier that submits 

the annual reporting information 

required by this section after July 1 but 

before July 5 will not receive a 

reduction in support if the eligible 

telecommunications carrier and its 

holding company, operating companies, 

and affiliates as reported pursuant to 

paragraph (a)(8) of this section have not 

missed the July 1 deadline in any prior 

year. 

* * * * * 

■ 8. Amend § 54.314 by revising 

paragraph (d) to read as follows: 

§ 54.314 Certification of support for 

eligible telecommunications carriers. 

* * * * * 

(d) Filing deadlines. (1) In order for an 

eligible telecommunications carrier to 

receive federal high-cost support, the 

state or the eligible telecommunications 

carrier, if not subject to the jurisdiction 

of a state, must file an annual 

certification, as described in paragraph 

(c) of this section, with both the 

Administrator and the Commission by 

October 1 of each year. If a state or 

eligible telecommunications carrier files 

the annual certification after the October 

1 deadline, the carrier subject to the 

certification shall receive a reduction in 

its support pursuant to the following 

schedule: 

(i) An eligible telecommunications 

carrier subject to certifications filed after 

the October 1 deadline, but by October 

8, will have its support reduced in an 

amount equivalent to seven days in 

support; 

(ii) An eligible telecommunications 

carrier subject to certifications filed on 

or after October 9 will have its support 

reduced on a pro-rata daily basis 

equivalent to the period of noncompliance, plus the minimum sevenday reduction. 

(2) Grace period. If an eligible 

telecommunications carrier or state 

submits the annual certification 

required by this section after October 1 

but before October 5, the eligible 

telecommunications carrier subject to 

the certification will not receive a 

reduction in support if the eligible 

telecommunications carrier and its 

holding company, operating companies, 

and affiliates as reported pursuant to 

§ 54.313(a)(8) have not missed the 

October 1 deadline in any prior year. 

■ 9. Revise § 54.319 to read as follows: 

§ 54.319 Elimination of high-cost support 

in areas with 100 percent coverage by an 

unsubsidized competitor. 

(a) Universal service support shall be 

eliminated in an incumbent rate-ofreturn local exchange carrier study area 

where an unsubsidized competitor, or 

combination of unsubsidized 

competitors, as defined in § 54.5, offers 

to 100 percent of residential and 

business locations in the study area 

voice and broadband service at speeds 

of at least 10 Mbps downstream/1 Mbps 

upstream, with latency suitable for realtime applications, including Voice over 

Internet Protocol, and usage capacity 

that is reasonably comparable to 

comparable offerings in urban areas, at 

rates that are reasonably comparable to 

rates for comparable offerings in urban 

areas. 

(b) After a determination there is a 

100 percent overlap, the incumbent 

local exchange carrier shall receive the 

following amount of high-cost support: 

(1) In the first year, two-thirds of the 

lesser of the incumbent’s total high-cost 

support in the immediately preceding 

calendar year or $3000 times the 

number of reported lines as of year-end 

for the immediately preceding calendar 

year; 

(2) In the second year, one-third of the 

lesser of the incumbent’s total high-cost 

support in the immediately preceding 

calendar year or $3000 times the 

number of reported lines as of year-end 

for the immediately preceding calendar 

year; 

(3) In the third year and thereafter, no 

support shall be paid. 

(c) The Wireline Competition Bureau 

shall update its analysis of where there 

is a 100 percent overlap on a biennial 

basis. 

■ 10. Amend § 54.320 by adding 

paragraph (d) to read as follows: 

§ 54.320 Compliance and recordkeeping 

for the high-cost program. 

* * * * * 

(d) Eligible telecommunications 

carriers subject to defined build-out 

milestones must notify the Commission 

and USAC, and the relevant state, U.S. 

Territory, or Tribal government, if 

applicable, within 10 business days 

after the applicable deadline if they 

have failed to meet a build-out 

milestone. 

(1) Interim build-out milestones. Upon 

notification that an eligible 

telecommunications carrier has 

defaulted on an interim build-out 

milestone after it has begun receiving 

high-cost support, the Wireline 

Competition Bureau will issue a letter 

evidencing the default. The issuance of 

this letter shall initiate reporting 

obligations and withholding of a 

percentage of the eligible 

telecommunication carrier’s total 

monthly high-cost support, if 

applicable, starting the month following 

the issuance of the letter: 

(i) Tier 1. If an eligible 

telecommunications carrier has a 

compliance gap of at least five percent 

but less than 15 percent of the number 

of locations that the eligible 

telecommunications carrier is required 

to have built out to by the interim 

milestone, the Wireline Competition 

Bureau will issue a letter to that effect. 

Starting three months after the issuance 

of this letter, the eligible 

telecommunications carrier will be 

required to file a report every three 


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months identifying the geocoded 

locations to which the eligible 

telecommunications carrier has newly 

deployed facilities capable of delivering 

broadband meeting the requisite 

requirements with Connect America 

support in the previous quarter. Eligible 

telecommunications carriers that do not 

file these quarterly reports on time will 

be subject to support reductions as 

specified in § 54.313(j). The eligible 

telecommunications carrier must 

continue to file quarterly reports until 

the eligible telecommunications carrier 

reports that it has reduced the 

compliance gap to less than five percent 

of the required number of locations for 

that interim milestone and the Wireline 

Competition Bureau issues a letter to 

that effect. 

(ii) Tier 2. If an eligible 

telecommunications carrier has a 

compliance gap of at least 15 percent 

but less than 25 percent of the number 

of locations that the eligible 

telecommunications carrier is required 

to have built out to by the interim 

milestone, USAC will withhold 15 

percent of the eligible 

telecommunications carrier’s monthly 

support for that state and the eligible 

telecommunications carrier will be 

required to file quarterly reports. Once 

the eligible telecommunications carrier 

has reported that it has reduced the 

compliance gap to less than 15 percent 

of the required number of locations for 

that interim milestone for that state, the 

Wireline Competition Bureau will issue 

a letter to that effect, USAC will stop 

withholding support, and the eligible 

telecommunications carrier will receive 

all of the support that had been 

withheld. The eligible 

telecommunications carrier will then 

move to Tier 1 status. 

(iii) Tier 3. If an eligible 

telecommunications carrier has a 

compliance gap of at least 25 percent 

but less than 50 percent of the number 

of locations that the eligible 

telecommunications carrier is required 

to have built out to by the interim 

milestone, USAC will withhold 25 

percent of the eligible 

telecommunications carrier’s monthly 

support for that state and the eligible 

telecommunications carrier will be 

required to file quarterly reports. Once 

the eligible telecommunications carrier 

has reported that it has reduced the 

compliance gap to less than 25 percent 

of the required number of locations for 

that interim milestone for that state, the 

Wireline Competition Bureau will issue 

a letter to that effect, the eligible 

telecommunications carrier will move to 

Tier 2 status. 

(iv) Tier 4. If an eligible 

telecommunications carrier has a 

compliance gap of 50 percent or more of 

the number of locations that the eligible 

telecommunications carrier is required 

to have built out to by the interim 

milestone: 

(A) USAC will withhold 50 percent of 

the eligible telecommunications 

carrier’s monthly support for that state, 

and the eligible telecommunications 

carrier will be required to file quarterly 

reports. As with the other tiers, as the 

eligible telecommunications carrier 

reports that it has lessened the extent of 

its non-compliance, and the Wireline 

Competition Bureau issues a letter to 

that effect, it will move down the tiers 

until it reaches Tier 1 (or no longer is 

out of compliance with the relevant 

interim milestone). 

(B) If after having 50 percent of its 

support withheld for six months the 

eligible telecommunications carrier has 

not reported that it is eligible for Tier 3 

status (or one of the other lower tiers), 

USAC will withhold 100 percent of the 

eligible telecommunications carrier’s 

monthly support and will commence a 

recovery action for a percentage of 

support that is equal to the eligible 

telecommunications carrier’s 

compliance gap plus 10 percent of the 

ETC’s support that has been disbursed 

to that date. 

(v) If at any point during the support 

term, the eligible telecommunications 

carrier reports that it is eligible for Tier 

1 status, it will have its support fully 

restored, USAC will repay any funds 

that were recovered or withheld, and it 

will move to Tier 1 status. 

(2) Final build-out milestone. Upon 

notification that the eligible 

telecommunications carrier has not met 

a final build-out milestone, the eligible 

telecommunications carrier will have 

twelve months from the date of the final 

build-out milestone deadline to come 

into full compliance with this 

milestone. If the eligible 

telecommunications carrier does not 

report that it has come into full 

compliance with this milestone within 

twelve months, the Wireline 

Competition Bureau will issue a letter to 

this effect. USAC will then recover the 

percentage of support that is equal to 

1.89 times the average amount of 

support per location received in the 

state over the six-year term for the 

relevant number of locations plus 10 

percent of the eligible 

telecommunications carrier’s total Phase 

II support over the six-year term for that 

state. 

(3) Compliance reviews. If subsequent 

to the eligible telecommunications 

carrier’s support term, USAC 

determines in the course of a 

compliance review that the eligible 

telecommunications carrier does not 

have sufficient evidence to demonstrate 

that it has built out to all of the locations 

required by the final build-out 

milestone, USAC shall recover a 

percentage of support from the eligible 

telecommunications carrier as specified 

in paragraph (d)(2) of this section. 

■ 11. Amend § 54.1309 by revising 

paragraphs (a) introductory text, (c) 

introductory text, and (c)(2) and adding 

paragraph (d) to read as follows: 

§ 54.1309 National and study area average 

unseparated loop costs. 

(a) National average unseparated loop 

cost per working loop. Except as 

provided in paragraphs (c) and (d) of 

this section, this is equal to the sum of 

the Loop Costs for each study area in the 

country as calculated pursuant to 

§ 54.1308(a) divided by the sum of the 

working loops reported in § 54.1305(h) 

for each study area in the country. The 

national average unseparated loop cost 

per working loop shall be calculated by 

the National Exchange Carrier 

Association. Until June 30, 2015 the 

national average unseparated loop cost 

for purposes of calculating expense 

adjustments for rural incumbent local 

exchange carriers, as that term is 

defined in § 54.5 is frozen at $240.00. 

* * * * * 

(c) Until June 30, 2015, the national 

average unseparated loop Cost per 

working loop shall be the greater of: 

* * * * * 

(2) An amount calculated to produce 

the maximum rural incumbent local 

exchange carrier portion of the 

nationwide loop cost expense 

adjustment allowable pursuant to 

§ 54.1302(a). 

(d) Beginning July 1, 2015, the 

national average unseparated loop cost 

per working loop shall be frozen at the 

national average unseparated loop cost 

per working loop as recalculated by the 

National Exchange Carrier Association 

to reflect the March 2015 update filing. 

■ 12. Revise § 54.1310 to read as 

follows: 

§ 54.1310 Expense adjustment. 

(a) Until June 30, 2015, for study areas 

reporting 200,000 or fewer working 

loops pursuant to § 54.1305(h), the 

expense adjustment (additional 

interstate expense allocation) is equal to 

the sum of paragraphs (a)(1) and (2) of 

this section. 

(1) Sixty-five percent of the study area 

average unseparated loop cost per 

working loop as calculated pursuant to 

§ 54.1309(b) in excess of 115 percent of 

the national average for this cost but not 


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greater than 150 percent of the national 

average for this cost as calculated 

pursuant to § 54.1309(a) multiplied by 

the number of working loops reported in 

§ 54.1305(h) for the study area; and 

(2) Seventy-five percent of the study 

area average unseparated loop cost per 

working loop as calculated pursuant to 

§ 54.1309(b) in excess of 150 percent of 

the national average for this cost as 

calculated pursuant to § 54.1309(a) 

multiplied by the number of working 

loops reported in § 54.1305(h) for the 

study area. 

(b) Beginning July 1, 2015, the 

expense adjustment for each study area 

calculated pursuant to paragraph (a) of 

this section will be adjusted as follows: 

(1) If the aggregate expense 

adjustments for all study areas exceed 

the maximum rural incumbent local 

exchange carrier portion of nationwide 

loop cost expense adjustment allowable 

pursuant to § 54.1302(a) (the HCLS cap), 

then each study area’s expense 

adjustment will be reduced by 

multiplying it by the ratio of the HCLS 

cap to the aggregate expense 

adjustments for all study areas. 

(2) If the aggregate expense 

adjustments for all study areas are less 

than the HCLS cap set pursuant to 

§ 54.1302(a), then the expense 

adjustments for all study areas pursuant 

to paragraph (a) of this section shall be 

recalculated using a cost per loop 

calculated to produce an aggregate 

amount equal to the HCLS cap in place 

of the national average cost per loop. 

(c) The expense adjustment calculated 

pursuant to paragraphs (a) and (b) of 

this section shall be adjusted each year 

to reflect changes in the amount of highcost loop support resulting from 

adjustments calculated pursuant to 

§ 54.1306(a) made during the previous 

year. If the resulting amount exceeds the 

previous year’s fund size, the difference 

will be added to the amount calculated 

pursuant to paragraphs (a) and (b) of 

this section for the following year. If the 

adjustments made during the previous 

year result in a decrease in the size of 

the funding requirement, the difference 

will be subtracted from the amount 

calculated pursuant to paragraphs (a) 

and (b) of this section for the following 

year. 

[FR Doc. 2015–00939 Filed 1–26–15; 8:45 am] 

BILLING CODE 6712–01–P 


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