[Federal Register Volume 66, Number 108 (Tuesday, June 5, 2001)]
[Rules and Regulations]
[Pages 30080-30090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14008]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 36 and 54

[CC Docket Nos. 96-45 and 00-256; FCC 01-157]


Federal-State Joint Board on Universal Service; Multi-Association 
Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap 
Incumbent Local Exchange Carriers and Interexchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission takes actions in response to 
the Rural Task Force's recommended reforms to rural high-cost universal 
service support and the proposals made by the Multi-Association Group 
(MAG) relating to this universal service support mechanism.

DATES: Effective June 5, 2001, except for Secs. 36.605(c)(2), 36.611, 
54.305(f), the amendments to Sec. 54.307(b), Secs. 54.313(b) and (c), 
54.314, and 54.315, which contain information collection requirements 
that have not been approved by the Office of Management Budget (OMB). 
The Commission will publish a document in the Federal Register 
announcing the effective date of those sections.

FOR FURTHER INFORMATION CONTACT: Genaro Fullano, Paul Garnett, or Greg 
Guice, Attorney, Common Carrier Bureau, Accounting Policy Division, 
(202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Fourteenth Report and Order, Twenty-Second Order on Reconsideration in 
CC Docket No. 96-45 and Report and Order in CC Docket No. 00-256 
released on May 23, 2001. The full text of this document is available 
for public inspection during regular business hours in the FCC 
Reference Center, Room CY-A257, 445 Twelfth Street, SW., Washington, 
DC, 20554.

I. Executive Summary

    1. In this Order, we take the following actions in response to the 
Rural Task Force's recommended reforms to rural high-cost universal 
service support and the proposals made by the Multi-Association Group 
(MAG) relating to this mechanism:
    <bullet> We adopt the Rural Task Force's recommendation to re-base 
the high-cost loop support fund for rural telephone companies and 
retain an indexed cap on the fund. We conclude that re-basing the 
indexed fund will ensure that rural carriers are able to are able 
tocontinue providing supported services at affordable and reasonably 
comparable rates during the transition to a more permanent high-cost 
support mechanism for rural carriers.
    <bullet> We adopt a ``rural growth factor'' that allows the high-
cost loop support fund to grow based on annual changes in the Gross 
Domestic Product-Chained Price Index (GDP-CPI) and the total number of 
working loops of rural carriers. We find that allowing the fund to grow 
in this fashion over the next five years will enable rural carriers to 
make prudent investments in rural America.
    <bullet> We adopt the Rural Task Force's recommendation to freeze 
the national average loop cost at $240.00. We conclude that freezing 
the national average loop cost will provide rural carriers with greater 
certainty as to their eligibility for high-cost loop support.
    <bullet> We adopt a modified version of the Rural Task Force's 
proposal as it relates to corporate operations expenses. We revise the 
corporate operations expense limitation calculation so that the dollar 
values in the formula are re-based and indexed by the GDP-CPI.
    <bullet> We also raise the minimum cap in the revised corporate 
operations expense limitation formula. Specifically, we permit small 
rural carriers to receive support for corporate operations expenses of 
up to $600,000 or amounts derived from the revised corporate operations 
expense formula, whichever is greater. We find that raising the minimum 
cap from $300,000 to $600,000 will enable small rural carriers to 
receive more support for corporate operations expenses without having 
to file for waiver of our rules.
    <bullet> We adopt a modified version of the Rural Task Force's 
proposed ``safety net additive'' so that a carrier will receive

[[Page 30081]]

support for its incremental expense adjustment associated with new 
investment, rather than 50 percent of the difference between capped and 
uncapped support in a given year as proposed by the Rural Task Force. 
By modifying safety net support in this way, we ensure that carriers 
that meet the threshold requirement for eligibility will receive 
support for their incremental investment, but do not recover more than 
the costs incurred as a result of the additional investment.
    <bullet> Consistent with the Rural Task Force's recommendation, we 
retain Sec. 54.305 of the Commission's rules, which provides that a 
carrier acquiring exchanges from an unaffiliated carrier shall receive 
the same per-line levels of high-cost support for which the acquired 
exchanges were eligible prior to their transfer. We modify the rule, 
however, to provide a ``safety valve'' that provides support for 
additional investment made in the acquired exchanges.
    <bullet> We decline at this time to adopt the Rural Task Force's 
proposal to freeze high-cost loop support upon competitive entry in 
rural carrier study areas. The proposal may be of limited benefit in 
serving its intended purpose of preventing excessive fund growth, and 
in some circumstances might increase high-cost loop support levels. We 
also conclude that the Rural Task Force's proposal would be 
administratively burdensome and may have the unintended consequence of 
discouraging investment in rural America.
    <bullet> We address the Rural Task Force's concerns regarding 
frequency of reporting and the lag in support in study areas with 
competitive eligible telecommunications carriers. First, we require all 
eligible telecommunications carriers serving such areas to report 
updated line counts on a regular quarterly basis. Second, we clarify 
that competitive eligible telecommunications carriers may submit data 
and receive high-cost loop support on a regular quarterly basis.
    <bullet> We adopt, with certain modifications, the three paths for 
the disaggregation and targeting of high-cost universal service support 
proposed by the Rural Task Force. We also adopt the general 
requirements that the Rural Task Force proposed for all disaggregation 
plans. We find that providing rural carriers flexibility in the methods 
of disaggregation and targeting is a reasonable approach to address the 
significant diversity among such carriers and will facilitate 
competitive entry in rural areas.
    <bullet> We find that the Rural Task Force's proposed framework, 
with certain modifications, shall remain in place for five years and 
implementation shall begin as of July 1, 2001.
    <bullet> We adopt the use of a wireless mobile customer's billing 
address as the basis for determining the customer's location for 
purposes of delivering high-cost universal service support.
    <bullet> We conclude that states should file annual certifications 
with the Commission to ensure that eligible telecommunications carriers 
providing service in the service area of a rural carrier use universal 
service support ``only for the provision, maintenance and upgrading of 
facilities and services for which the support is intended'' consistent 
with section 254(e) of the Act.
    <bullet> Consistent with the Rural Task Force's recommendation, the 
Joint Board on Universal Service is currently considering the 
definition of supported services. We agree with the Rural Task Force 
that our universal service policies should not inadvertently create 
barriers to the provision of access to advanced services, and believe 
that our current universal service system does not create such 
barriers. We commit to further consideration of the Rural Task Force's 
proposed ``no barriers to advanced services'' policy in the future.
    <bullet> We find the Rural Task Force's recommended principles for 
access reform to be reasonable and generally consistent with prior 
Commission actions to reform the access rate structure of price cap 
carriers. These principles will aid our consideration of access charge 
reform issues in the pending MAG proceeding. We recognize the 
importance of completing access reform for rate-of-return carriers and 
intend to act expeditiously to resolve issues raised in the MAG 
proceeding.

II. Procedural Matters

A. Final Regulatory Flexibility Analysis

    2. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the Further 
Notice of Proposed Rulemaking (FNPRM), 66 FR 7725, January 25, 2001. 
The Commission sought written public comment on the proposals in the 
FNPRM, including comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Order
    3. The 1996 Act requires the Commission to consult with the Joint 
Board in implementing section 254, which establishes a number of 
principles for the preservation and advancement of universal service in 
a competitive telecommunications environment. The Commission initiated 
this proceeding to consider the Recommended Decision of the Joint Board 
regarding a rural universal service plan developed by the Rural Task 
Force. In this Order, consistent with the recommendation of the Joint 
Board, we adopt interim rules for determining high-cost universal 
service support for rural telephone companies based upon the modified 
embedded cost mechanism proposed by the Rural Task Force. These rules 
should benefit all rural carriers because they will result in 
predictable levels of support so that rural carriers can continue to 
provide affordable service in rural America, while ensuring that 
consumers in all regions of the Nation, including rural areas, have 
access to affordable and quality telecommunications services.
    4. In this Order, we take the following actions in response to the 
Rural Task Force's recommended reforms to the rural high-cost loop 
support mechanism and the proposals made by the MAG relating to these 
rules. First, we adopt the Rural Task Force's recommendation to re-base 
the high-cost loop support fund for rural telephone companies and 
retain an indexed cap on the fund. Second, we adopt a rural growth 
factor that allows growth in the high-cost loop support fund based on 
the annual increases in the Gross Domestic Product-Chained Price Index 
(GDP-CPI) and growth in the total number of working loops of rural 
carriers. Third, we adopt a modified version of the Rural Task Force's 
proposal as it relates to corporate operations expense. We revise the 
corporate operations expense limitation calculation so that the dollar 
values in the formula are re-based and indexed by the GDP-CPI. We also 
raise the minimum cap for those carriers with 6,000 or fewer loops. In 
the revised corporate operations expense formula, we allow these 
carriers to receive support for corporate operations expenses of up to 
$600,000 or amounts derived from the revised corporate operations 
expense formula, whichever is greater. Fourth, we adopt a modified 
version of the Rural Task Force's proposed safety net additive so that 
if certain criteria are met, a carrier may receive support for its 
incremental expense adjustment associated with new investment. Fifth, 
while we retain Sec. 54.305 of the Commission's rules which provides 
that a carrier acquiring exchanges from an unaffiliated carrier shall 
receive the same per-line levels of

[[Page 30082]]

high-cost support for which the acquired exchanges were eligible prior 
to their transfer, we also modify the rule to provide safety valve 
support for additional investment made in the acquired exchanges. 
Sixth, we adopt, with certain modifications, the three paths for the 
disaggregation and targeting of high-cost universal service support 
proposed by the Rural Task Force. We also adopt the general 
requirements that the Rural Task Force proposed for all disaggregation 
plans. Seventh, we adopt the Rural Task Force's proposed framework, 
with the noted modifications, and it shall remain in place for five 
years. Finally, we conclude that states should file annual 
certifications with the Commission to ensure that rural carriers and 
competitive eligible telecommunications carriers providing service in 
the service area of a rural local exchange carrier use universal 
service support ``only for the provision, maintenance and upgrading of 
facilities and services for which the support is intended'' consistent 
with section 254(e) of the Act.
    5. In this Order, the Commission also addresses certain issues 
raised in the MAG proceeding. Specifically, we find that the MAG 
proposal to remove the indexed cap entirely and to eliminate the limits 
on corporate operations expenses is unwarranted. We also decide against 
the MAG proposal to the extent that it recommends elimination of 
Sec. 54.305 entirely. Finally, we disagree with the MAG proposal to 
allow rural carriers to disaggregate universal service support up to 
three zones per wire center. We find the Rural Task Force's recommended 
principles for access reform to be reasonable and generally consistent 
with prior Commission actions to reform the access rate structure of 
price cap carriers. These principles will aid our consideration of 
access charge reform issues in the pending MAG proceeding.
    6. We find that the interim rules strike a fair and reasonable 
balance among the principles and goals enumerated in section 254 of the 
Communications Act of 1934, as amended by the Telecommunications Act of 
1996. Specifically, as the Commission continues to develop a long-term 
coordinated universal service plan, this interim plan will provide 
predictable levels of support so that rural carriers can make prudent 
investments in rural America.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    7. No comments were submitted in response to the IRFA, nor did 
commenters address the potential impact of these interim rules on small 
business. The Commission, however, did consider the burden that certain 
provisions contained in the Order may have on smaller carriers and 
sought to minimize that burden. For example, as the Commission states 
in this Order, to reduce the need for small carriers to seek a waiver 
under the corporate operations expense rules, we raise the minimum cap 
on allowable corporate operations expenses supported by universal 
service to $600,000 or amounts derived from the revised corporate 
operations expense formulas, whichever is greater. This eliminates the 
burden and expense associated with the waiver process for those 
carriers.
3. Description and Estimate of the Number of Small Entities to Which 
the Notice Will Apply
    8. The RFA directs agencies to provide a description of, and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules 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. Under the Small Business Act, a ``small business 
concern'' is one that: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) meets any additional 
criteria established by the Small Business Administration (SBA).
    9. We have included small incumbent local exchange carriers in this 
RFA analysis. As noted, 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 local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    10. Local Exchange Carriers. Neither the Commission nor the SBA has 
developed a definition for small providers of local exchange services. 
The closest applicable definition under the SBA rules is for telephone 
communications companies other than radiotelephone (wireless) 
companies. According to the most recent Trends in Telephone Service 
report, 1,335 incumbent carriers reported that they were engaged in the 
provision of local exchange services. We do not have data specifying 
the number of these carriers that are either dominant in their field of 
operations, 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 local exchange carriers that would 
qualify as small business concerns under the SBA's definition. Of the 
1,335 incumbent carriers, 13 entities are price cap carriers that are 
not subject to these rules. Consequently, we estimate that fewer than 
1,322 providers of local exchange service are small entities or small 
incumbent local exchange carriers that may be affected.
    11. Competitive Access Providers. Neither the Commission nor the 
SBA has developed a definition of small entities specifically 
applicable to competitive access services providers (CAPs). The closest 
applicable definition under the SBA rules is for telephone 
communications companies other than radiotelephone (wireless) 
companies. According to the most recent Trends in Telephone Service 
data, 349 CAPs/competitive local exchange carriers and 60 other local 
exchange carriers reported that they were engaged in the provision of 
competitive local exchange services. We do not have data specifying the 
number of these carriers that are not independently owned and operated, 
or have more than 1,500 employees, and thus are unable at this time to 
estimate with greater precision the number of CAPs that would qualify 
as small business concerns under the SBA's definition. Consequently, we 
estimate that there are less than 349 small entity CAPs and 60 other 
local exchange carriers that may be affected.
    12. Cellular Licensees. Neither the Commission nor the SBA has 
developed a definition of small entities applicable to cellular 
licensees. Therefore, the applicable definition of small entity is the 
definition under the SBA rules applicable to radiotelephone (wireless) 
companies. This provides that a small entity is a radiotelephone 
company

[[Page 30083]]

employing no more than 1,500 persons. According to the Bureau of the 
Census, only twelve radiotelephone firms from a total of 1,178 such 
firms which operated during 1992 had 1,000 or more employees. 
Therefore, even if all twelve of these firms were cellular telephone 
companies, nearly all cellular carriers were small businesses under the 
SBA's definition. In addition, we note that there are 1,758 cellular 
licenses; however, a cellular licensee may own several licenses. In 
addition, according to the most recent Trends Report data, 806 carriers 
reported that they were engaged in the provision of either cellular 
service or Personal Communications Service (PCS) services, which are 
placed together in the data. We do not have data specifying the number 
of these carriers that are not independently owned and operated or have 
more than 1,500 employees, and thus are unable at this time to estimate 
with greater precision the number of cellular service carriers that 
would qualify as small business concerns under the SBA's definition. 
Consequently, we estimate that there are fewer than 808 small cellular 
service carriers that may be affected.
    13. Broadband Personal Communications Service (PCS). The broadband 
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 less than $40 million 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 their affiliates, has average gross revenues of not more than $15 
million for the preceding three calendar years. These regulations 
defining ``small entity'' in the context of broadband PCS auctions have 
been approved by the SBA. No small businesses within the SBA-approved 
definition bid successfully for licenses in Blocks A and B. There were 
90 winning bidders that qualified as small entities in the Block C 
auctions. A total of 93 small and very small business bidders won 
approximately 40 percent of the 1,479 licenses for Blocks D, E, and F. 
Based on this information, we conclude that the number of small 
broadband PCS licensees will include the 90 winning C Block bidders and 
the 93 qualifying bidders in the D, E, and F blocks, for a total of 183 
small entity PCS providers as defined by the SBA and the Commission's 
auction rules.
    14. Rural Radiotelephone Service. The Commission has not adopted a 
definition of small entity specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio Systems (BETRS). We will use the 
SBA's definition applicable to radiotelephone companies, i.e., an 
entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and we estimate 
that almost all of them qualify as small entities under the SBA's 
definition.
    15. Specialized Mobile Radio (SMR). The Commission awards bidding 
credits in auctions for geographic area 800 MHz and 900 MHz SMR 
licenses to firms that had revenues of no more than $15 million in each 
of the three previous calendar years. In the context of both the 800 
MHz and 900 MHz SMR, a definition of ``small entity'' has been approved 
by the SBA.
    16. These fees apply to SMR providers in the 800 MHz and 900 MHz 
bands that either hold geographic area licenses or have obtained 
extended implementation authorizations. We do not know how many firms 
provide 800 MHz or 900 MHz geographic area SMR service pursuant to 
extended implementation authorizations, nor how many of these providers 
have annual revenues of no more than $15 million. One firm has over $15 
million in revenues. We assume, for purposes of this FRFA, that all of 
the remaining existing extended implementation authorizations are held 
by small entities, as that term is defined by the SBA.
    17. For geographic area licenses in the 900 MHz SMR band, there are 
60 who qualified as small entities. For the 800 MHz SMRs, 38 are small 
or very small entities.
    18. Fixed Microwave Services. 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 yet defined a small business with respect to 
microwave services. For purposes of this FRFA, we utilize the SBA's 
definition applicable to radiotelephone companies--i.e., an entity with 
no more than 1,500 persons. We estimate, for this purpose, that all of 
the Fixed Microwave licensees (excluding broadcast auxiliary licensees) 
would qualify as small entities under the SBA definition for 
radiotelephone companies.
    19. 39 GHz Licensees. Neither the Commission nor the SBA has 
developed a definition of small entities applicable to 39 GHz 
licensees. Therefore, the applicable definition of small entity is the 
definition under the SBA rules applicable to radiotelephone (wireless) 
companies. This provides that a small entity is a radiotelephone 
company employing no more than 1,500 persons. For purposes of the 39 
GHz license auction, the Commission defined ``small entity'' as an 
entity that has average gross revenues of less than $40 million in the 
three previous calendar years, and ``very small entity'' as an entity 
that has average gross revenues of not more that $15 million for the 
preceding three calendar years. The Commission has granted licenses to 
29 service providers in the 39 GHz service. We do not have data 
specifying the number of these carriers that are not independently 
owned and operated or have more than 1,500 employees, and thus are 
unable at this time to estimate with greater precision the number of 39 
GHz licensees that would qualify as small business concerns under the 
SBA's definition. Consequently, we estimate that there are no more than 
29 service providers in the 39 GHz service that may be affected.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    20. In the Order, we adopt the Rural Task Force's proposal that 
rural carriers be given a choice of three different options for 
disaggregating and targeting per-line universal service high-cost 
support, including high-cost loop support, Long Term Support (LTS), and 
Local Switching Support (LSS). Rural carriers are required to choose 
one of the paths detailed within 270 days of the effective date of the 
new rules through submission to the state commissions. Rural carriers 
not subject to the jurisdiction of the state are required to make such 
submissions to the Commission. Rural carriers that elect to 
disaggregate and target per-line support under either Path Two or Three 
are required to report loops at the cost-zone level, which is a 
modification of the current requirement that carriers report loops at 
the study-area level. This change will require only minor increases in 
a carrier's reporting burdens, and predominantly only in the first year 
that the carrier revises its method of reporting. Path 1 is available 
to rural carriers that do not want to target high-cost support. Path 
Two is available to rural carriers that want state commission review 
and approval of a disaggregation plan. Path Three is available to rural 
carriers interested in self-certifying a method for

[[Page 30084]]

disaggregating universal service support into a maximum of two cost 
zones per wire center. Only a disaggregation plan filed under Path 
Three requires additional reporting requirements to the Commission. 
Under Path Three, a carrier must use a rationale that is reasonably 
related to the cost of providing service for each cost zone within each 
disaggregation category (high-cost loop support, LSS, and LTS). We 
estimate that the annual burden hours in the first year would be 60 
hours. We estimate subsequent annual burden hours at 8 hours. We 
believe the burden associated with this reporting requirement is 
appropriately balanced with the benefits reporting rural carriers will 
receive.
    21. The Commission also adopted the Rural Task Force's proposal to 
extend the section 254(e) certification process to rural carriers. 
Under this process, state regulatory commissions provide the Commission 
with annual certifications indicating that the rural carriers in their 
states receiving federal universal service support will use the support 
``only for the provision, maintenance, and upgrading of facilities and 
services for which the support is intended.'' Carriers not subject to 
the jurisdiction of the state must submit a sworn affidavit to the 
Commission stating that they will use support ``only for the provision, 
maintenance, and upgrading of facilities and services for which the 
support is intended.'' This reporting requirement will provide states 
and carriers with access to federal universal service support in a way 
that ensures the integrity of the universal service fund. We estimate 
that the annual burden hours associated with the section 254(e) 
certification process would be 12 hours per carrier. This is a nominal 
burden on rural carriers and is balanced against the high degree of 
federal universal service benefits rural carriers would receive.
    22. Finally, the Commission adopted a modification to an existing 
reporting requirement regarding working loops. Under the current rules, 
rural carriers are required to submit, on an annual basis, the number 
of working loops it has for each study area it serves. In this Order, 
we modify this reporting requirement to require that once a competitor 
enters a rural carriers study area, working loops are required to be 
reported on a quarterly basis. The Commission determined that this was 
necessary to prevent the overpayment of support to incumbent rural 
carriers, which occurs under the current rule because competitors have 
an incentive to update quarterly, while the incumbent has an incentive 
to only update annually.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    23. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    24. The Order adopted herein is the result of an analysis of a 
number of options for distributing federal universal service support to 
rural carriers. Throughout the Order, it is evident that the Commission 
took great strides in balancing the burdens associated with 
modification of the existing embedded cost mechanism and the benefits 
these modifications confer on rural carriers and competitive eligible 
telecommunications carriers. In this regard, it is important to note 
that we make these modifications with only minimal reporting 
requirements.
    25. Among the significant alternatives, we considered whether 
modification of the corporate operations expense cap would minimize the 
burden and expense associated with seeking a waiver for smaller 
carriers. In this Order, we decide to raise the existing cap for 
carriers with 6,000 or fewer working loops so they can receive support 
for up to $600,000 or amounts derived from the revised corporate 
operations expense formula adopted herein, whichever is greater. We 
thus decrease the need of smaller carriers to request a waiver. In 
addition, we adopt a modified version of the safety net additive 
mechanism proposed by the Rural Task Force. We conclude that a 
modification to the safety net additive is warranted because as 
proposed, the mechanism potentially allowed for the recovery of more 
than 100 percent of incremental costs. We also consider alternative 
measurements of ``meaningful investment'' for purposes of calculating 
safety valve support. We conclude that the alternatives considered 
would, in some instances, deny the recovery of such meaningful 
investments.
    26. Report to Congress: The Commission will send a copy of the 
Order, including this FRFA, in a report to be sent to Congress pursuant 
to the Congressional Review Act. In addition, the Commission will send 
a copy of the Order, including the FRFA, to the Chief Counsel for 
Advocacy of the SBA. A copy of the Order and FRFA (or summaries 
thereof) will also be published in the Federal Register.

B. Paperwork Reduction Act

    27. As described, the rules we adopt in this Order reflect our 
efforts to balance the needs of rural carriers, while minimizing the 
burden on those entities that must comply with our reporting 
requirements. The information we request should not require significant 
additional resources as they are a modification of current reporting 
requirements. Additionally, by freezing the national average loop cost 
at $240, we eliminate the need for non-rural carriers to file loop cost 
data on a quarterly basis, thus alleviating those carriers of an 
administrative burden.
    28. The action contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1995 and found to impose new or modified 
reporting and recordkeeping requirements or burdens on the public. 
Implementation of these new or modified reporting and recordkeeping 
requirements will be subject to approval by the Office of Management 
and Budget (OMB) as prescribed by the Act, and will go into effect once 
OMB approves the collection requirements. Once OMB approves the 
required collections the Commission will publish a document in the 
Federal Register announcing the effective date of those sections.

C. Effective Date of Final Rules

    29. We conclude that the amendments to our rules adopted herein 
shall be effective June 5, 2001, except for Secs. 36.605(c)(2), 36.611, 
54.305(f), 54.307(b), 54.313(b) and (c), 54.314, and 54.315, which 
contain information collection requirements that have not been approved 
by the Office of Management Budget (OMB). The Commission will publish a 
document in the Federal Register announcing the effective date of those 
sections. The final rules must take effect prior to 30 days after their 
publication in the Federal Register in order for NECA to be able to 
implement the necessary changes to the high-cost loop support mechanism 
by July 1, 2001.

[[Page 30085]]

III. Ordering Clauses

    30. Pursuant to the authority contained in sections 1-4, 201-205, 
214, 218-220, 254, 303(r), 403, 405, and 410 of the Communications Act 
of 1934, as amended, this Fourteenth Report and Order and Twenty-Second 
Order on Reconsideration in CC Docket No. 96-45, and Report and Order 
in CC Docket No. 00-256 is adopted.
    31. Parts 36 and 54 of the Commission's rules, are amended as set 
forth hereto, effective June 5, 2001, except for Secs. 36.605(c)(2), 
36.611, 54.305(f), 54.307(b), 54.313(b) and (c), 54.314, and 54.315, 
which contain information collection requirements that have not been 
approved by the Office of Management Budget (OMB). The Commission will 
publish a document in the Federal Register announcing the effective 
date of those sections.
    32. The Commission's Consumer Information Bureau, Reference 
Information Center, shall send a copy of this Order, including the 
Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 36

    Jurisdictional separations, Reporting and recordkeeping 
requirements, Telecommunications, Telephone.

47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 36 and 54 as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

    1. The authority citation for part 36 continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 403, 
and 410.


    2. Amend Sec. 36.601 by revising the first sentence of paragraph 
(c) to read as follows.


Sec. 36.601  General.

* * * * *
    (c) Until June 30, 2001, the annual amount of the total nationwide 
expense adjustment shall consist of the amounts calculated pursuant to 
Sec. 54.309 of this chapter and the amounts calculated pursuant to this 
subpart F.* * *
* * * * *

    3. Add Secs. 36.602, 36.603, 36.604, and 36.605 to subpart F under 
the center heading ``General'' to read as follows:


Sec. 36.602  Calculation of non-rural carrier portion of nationwide 
loop cost expense adjustment.

    Effective July 1, 2001, for purposes of determining non-rural 
carrier interim hold-harmless support, pursuant to Sec. 54.311 of this 
chapter, the annual amount of the total nationwide loop cost expense 
adjustment calculated pursuant to this subpart F shall not exceed the 
amount of the total loop cost expense adjustment for the immediately 
preceding calendar year, increased by a rate equal to the rate of 
increase in the total number of working loops during the calendar year 
preceding the July 31st filing. The total loop cost expense adjustment 
shall consist of the loop cost expense adjustments, including amounts 
calculated pursuant to Secs. 36.612(a) and 36.631. The rate of increase 
in total working loops shall be based upon the difference between the 
number of total working loops on December 31 of the calendar year 
preceding the July 31st filing and the number of total working loops on 
December 31 of the second calendar year preceding that filing, both 
determined by the company's submissions pursuant to Sec. 36.611. Non-
rural incumbent local exchange carriers and eligible telecommunications 
carriers serving lines in the service area of non-rural incumbent local 
exchange carriers shall only receive support pursuant to this subpart F 
to the extent that they qualify pursuant to Sec. 54.311 of this chapter 
for interim hold-harmless support. Support amounts calculated pursuant 
to this subpart F but not received due to the phase down of interim 
hold-harmless support or the receipt of forward-looking support 
pursuant to Sec. 54.311 of this chapter shall not be redistributed to 
other carriers.


Sec. 36.603  Calculation of rural incumbent local exchange carrier 
portion of nationwide loop cost expense adjustment.

    (a) Effective July 1, 2001, the rural incumbent local exchange 
carrier portion of the annual nationwide loop cost expense adjustment 
will be recomputed by the fund administrator as if the indexed cap 
calculated pursuant to Sec. 36.601(c) and the corporate operations 
expense limitation calculated pursuant to Sec. 36.621 had not been in 
effect for the calendar year 2000. For the period July 1, 2001, to 
December 31, 2001, the annualized amount of the rural incumbent local 
exchange carrier portion of the nationwide loop cost expense adjustment 
calculated pursuant to this subpart F shall not exceed the non-capped 
amount of the total rural incumbent local exchange carrier loop cost 
expense adjustment for the calendar year 2000, multiplied times one 
plus the Rural Growth Factor calculated pursuant to Sec. 36.604. 
Beginning January 1, 2002, the annual amount of the rural incumbent 
local exchange carrier portion of the nationwide loop cost expense 
adjustment calculated pursuant to this subpart F shall not exceed the 
amount of the total rural incumbent local exchange carrier loop cost 
expense adjustment for the immediately preceding calendar year, 
multiplied times one plus the Rural Growth Factor calculated pursuant 
to Sec. 36.604.
    (b) The annual rural incumbent local exchange carrier portion of 
the nationwide loop cost expense adjustment shall be reduced to reflect 
the transfer of rural incumbent local exchange carrier access lines 
that are eligible for expense adjustments pursuant to Sec. 36.631. The 
reduction shall equal the amount of the Sec. 36.631 expense adjustment 
available to the transferred access lines at the time of the transfer 
and shall be effective in the next calendar quarter after the access 
lines are transferred.
    (c) Safety net additive support calculated pursuant to Sec. 36.605, 
and transferred high-cost support and safety valve support calculated 
pursuant to Sec. 54.305 of this chapter shall not be included in the 
rural incumbent local exchange carrier portion of the annual nationwide 
loop cost expense adjustment.


Sec. 36.604  Calculation of the rural growth factor.

    The Rural Growth Factor (RGF) is equal to the sum of the annual 
percentage change in the United States Department of Commerce's Gross 
Domestic Product--Chained Price Index (GPD-CPI) plus the percentage 
change in the total number of rural incumbent local exchange carrier 
working loops during the calendar year preceding the July 31st filing 
submitted pursuant to Sec. 36.611. The percentage change in total rural 
incumbent local exchange carrier working loops shall be based upon the 
difference between the total number of

[[Page 30086]]

rural incumbent local exchange carrier working loops on December 31 of 
the calendar year preceding the July 31st filing and the total number 
of rural incumbent local exchange carrier working loops on December 31 
of the second calendar year preceding that filing, both determined by 
the company's submissions pursuant to Sec. 36.611. Loops acquired by 
rural incumbent local exchange carriers shall not be included in the 
RGF calculation.


Sec. 36.605  Calculation of safety net additive.

    (a) ``Safety net additive support.'' A rural incumbent local 
exchange carrier shall receive safety net additive support if it 
satisfies the conditions set forth in paragraph (c) of this section. 
Safety net additive support is support available to rural telephone 
companies, as conditioned in paragraph (c) of this section, in addition 
to support calculated pursuant to Sec. 36.631. Safety net additive 
support shall not be available to rural telephone companies for 
exchange(s) that are subject to Sec. 54.305 of this chapter.
    (b) Calculation of safety net additive support: Safety net additive 
support is equal to the amount of capped support calculated pursuant to 
this subpart F in the qualifying year minus the amount of support in 
the year prior to qualifying for support subtracted from the difference 
between the uncapped expense adjustment for the study area in the 
qualifying year minus the uncapped expense adjustment in the year prior 
to qualifying for support as shown in the following equation: Safety 
net additive support = (Uncapped support in the qualifying 
year-Uncapped support in the base year)-(Capped support in the 
qualifying year-Amount of support received in the base year).
    (c) Operation of safety net additive support: (1) In any year in 
which the total carrier loop cost expense adjustment is limited by the 
provisions of Sec. 36.603 a rural incumbent local exchange carrier 
shall receive safety net additive support as calculated in paragraph 
(b) of this section, if in any study area, the rural incumbent local 
exchange carrier realizes growth in end of period Telecommunications 
Plant in Service (TPIS), as prescribed in Sec. 32.2001 of this chapter, 
on a per loop basis, of at least 14 percent more than the study area's 
TPIS per loop investment at the end of the prior period.
    (2) If paragraph (c)(1) of this section is met, the rural incumbent 
local exchange carrier must notify the Administrator; failure to 
properly notify the Administrator of eligibility shall result in 
disqualification of that study area for safety net additive, requiring 
the rural incumbent local exchange carrier to again meet the 
eligibility requirements in paragraph (c)(1) of this section for that 
study area in a subsequent period.
    (3) Upon completion of verification by the Administrator that the 
study area meets the stated criterion in paragraphs (a), (b), (c) of 
this section, the Administrator shall:
    (i) Pay to any qualifying rural telephone company, safety net 
additive support for the qualifying study area in accordance with the 
calculation set forth in paragraph (b) of this section; and
    (ii) Continue to pay safety net additive support for the succeeding 
four years. Support in the four succeeding years shall be the lesser 
of:
    (A) The amount of support paid in the qualifying year; or
    (B) The amount of support based on recalculation of support 
pursuant to paragraph (b) in this section.

    4. Amend Sec. 36.611 by revising the introductory text to read as 
follows:


Sec. 36.611  Submission of information to the National Exchange Carrier 
Association (NECA).

    In order to allow determination of the study areas and wire centers 
that are entitled to an expense adjustment pursuant to Sec. 36.631, 
each incumbent local exchange carrier (LEC) must provide the National 
Exchange Carrier Association (NECA) (established pursuant to part 69 of 
this chapter) with the information listed for each study area in which 
such incumbent LEC operates, with the exception of the information 
listed in paragraph (h) of this section, which must be provided for 
each study area and, if applicable, for each wire center, as defined in 
part 54 of this chapter, and each disaggregation zone as established 
pursuant to Sec. 54.315 of this chapter. This information is to be 
filed with NECA by July 31st of each year. The information provided 
pursuant to paragraph (h) of this section must be updated pursuant to 
Sec. 36.612. Rural telephone companies that acquired exchanges 
subsequent to May 7, 1997, and incorporated those acquired exchanges 
into existing study areas shall separately provide the information 
required by paragraphs (a) through (h) of this section for both the 
acquired and existing exchanges.
* * * * *

    5. Amend Sec. 36.612 by revising paragraph (a) introductory text to 
read as follows:


Sec. 36.612  Updating information submitted to the National Exchange 
Carrier Association.

    (a) Any rural telephone company, as that term is defined in 
Sec. 51.5 of this chapter, may update the information submitted to the 
National Exchange Carrier Association (NECA) on July 31st pursuant to 
Secs. 36.611 (a) through (h) one or more times annually on a rolling 
year basis according to the schedule, except that rural telephone 
companies in service areas where an eligible telecommunications carrier 
has initiated service and has reported line count data pursuant to 
Sec. 54.307(c) of this chapter must update the information submitted to 
NECA on July 31st pursuant to Sec. 36.611(h) according to the schedule. 
Every non-rural telephone company must update the information submitted 
to NECA on July 31st pursuant to Sec. 36.611 (h) according to the 
schedule.
* * * * *
    6. Amend Sec. 36.621 by revising the last sentence of paragraph 
(a)(4) introductory text, by revising paragraph (a)(4)(i), and the 
first sentence of paragraph (a)(4)(ii), by revising paragraphs 
(a)(4)(ii)(A) through (a)(4)(ii)(C), and adding paragraph (a)(4)(ii)(D) 
to read as follows:


Sec. 36.621  Study area total unseparated loop cost.

    (a) * * *
    (4) * * * Total Corporate Operations Expense, for purposes of 
calculating universal service support payments beginning July 1, 2001, 
shall be limited to the lesser of:
    (i) The actual average monthly per-loop Corporate Operations 
Expense; or
    (ii) A monthly per-loop amount computed according to paragraphs 
(a)(4)(ii)(A), (a)(4)(ii)(B), (a)(4)(ii)(C), and (a)(4)(ii)(D) of this 
section.* * *
    (A) For study areas with 6,000 or fewer working loops the amount 
monthly per working loop shall be $33.30853-(.00246  x  the number of 
working loops), or, $50,000 <divide> the number of working loops, 
whichever is greater;
    (B) For study areas with more than 6,000 but fewer than 18,006 
working loops, the monthly amount per working loop shall be $3.83195 + 
(88,429.20 <divide> the number of working loops); and
    (B) For study areas with more than 6,000 but fewer than 18,006 
working loops, the monthly amount per working loop shall be $3.83195 + 
(88,429.20 <divide> the number of working loops); and
    (C) For study areas with 18,006 or more working loops, the monthly 
amount per working loop shall be $8.74472.

[[Page 30087]]

    (D) Beginning January 1, 2002, the monthly per-loop amount computed 
according to paragraphs (a)(4)(ii)(A), (a)(4)(ii)(B), and (a)(4)(ii)(C) 
of this section shall be adjusted each year to reflect the annual 
percentage change in the United States Department of Commerce's Gross 
Domestic Product-Chained Price Index (GDP-CPI).
* * * * *

    7. Amend Sec. 36.622 by adding a sentence at the end of paragraph 
(a) introductory text to read as follows:


Sec. 36.622  National and study area average unseparated loop costs.

    (a) * * * Effective July 1, 2001, the national average unseparated 
loop cost for purposes of calculating expense adjustments for rural 
incumbent local exchange carriers, as that term is defined in Sec. 54.5 
of this chapter, is frozen at $240.00.
* * * * *

PART 54--UNIVERSAL SERVICE

    8. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otherwise noted.


    9. Amend Sec. 54.5 by adding the following definition in 
alphabetical order:


Sec. 54.5  Terms and definitions.

* * * * *
    Rural Incumbent Local Exchange Carrier. ``Rural incumbent local 
exchange carrier'' is a carrier that meets the definitions of ``rural 
telephone company'' and ``incumbent local exchange carrier,'' as those 
terms are defined in Sec. 51.5 of this chapter.

    10. Amend Sec. 54.305 by designating the undesignated text as 
paragraph (a) and by adding paragraphs (b), (c), (d), (e), and (f) to 
read as follows:


Sec. 54.305  Sale or transfer of exchanges.

* * * * *
    (b) Transferred exchanges in study areas operated by rural 
telephone companies that are subject to the limitations on the transfer 
of high-cost universal service support in paragraph (a) of this section 
may be eligible for a safety valve loop cost expense adjustment based 
on the difference between a rural incumbent local exchange carrier's 
index year expense adjustment and subsequent year expense adjustments 
for the acquired exchanges. Safety valve loop cost expense adjustments 
shall only be available to rural incumbent local exchange carriers 
that, in the absence of restrictions on the transfer of high-cost 
support in Sec. 54.305(a), would qualify for high-cost loop support for 
acquired exchanges under Sec. 36.631 of this chapter.
    (c) The index year expense adjustment for acquired exchange(s) 
shall be equal to the rural incumbent local exchange carrier's high-
cost loop cost expense adjustment for acquired exchanges calculated at 
the end of the company's first year operating the acquired exchange(s). 
The index year expense adjustment for the acquired exchange(s) shall be 
established through cost data submitted in accordance with Secs. 36.611 
and 36.612 of this chapter and shall be calculated in accordance with 
Sec. 36.631 of this chapter. For carriers establishing an index year 
for acquired exchanges pursuant to Sec. 36.611 of this chapter, the 
index year for the acquired exchange(s) shall commence at the beginning 
of the next calendar year after the transfer of said exchanges. For 
carriers establishing an index year for acquired exchanges pursuant to 
Sec. 36.612 of this chapter, the index year for the acquired 
exchange(s) shall commence at the beginning of the next calendar 
quarter after the transfer of said exchanges. The index year expense 
adjustment for rural telephone companies that have operated exchanges 
subject to this section for more than a full year on the effective date 
of this paragraph shall be based on loop cost data submitted in 
accordance with Sec. 36.612 of this chapter for the year ending on the 
nearest calendar quarter following the effective date of this 
paragraph. At the end of each subsequent year, a loop cost expense 
adjustment for the acquired exchanges will be calculated pursuant to 
Sec. 36.631 of this chapter and will be compared to the index year 
expense adjustment. A rural incumbent local exchange carrier's 
subsequent year expense adjustments shall end on the same calendar 
quarter as its index year expense adjustment. If acquired exchanges are 
incorporated into an existing rural incumbent local exchange carrier 
study area, the rural incumbent local exchange carrier shall exclude 
costs associated with the acquired exchanges from the costs associated 
with its pre-acquisition study area in its universal service data 
submissions filed in accordance with Secs. 36.611 and 36.612 of this 
chapter. Such excluded costs shall be used to calculate the rural 
incumbent local exchange carrier's safety valve loop cost expense 
adjustment.
    (d) Up to fifty (50) percent of any positive difference between the 
subsequent year loop cost expense adjustment and the index year expense 
adjustment will be designated as the study area's safety valve loop 
cost expense adjustment and will be available in addition to the 
amounts available to the study area under Sec. 54.305. In no event 
shall a study area's safety valve loop cost expense adjustment exceed 
the difference between the carrier's uncapped study area loop cost 
expense adjustment calculated pursuant to Sec. 36.631 of this chapter 
and transferred support amounts available to the acquired exchange(s) 
under paragraph (a) of this section. Safety valve support shall not 
transfer with acquired exchanges.
    (e) The sum of the safety valve loop cost expense adjustment for 
all eligible study areas operated by rural telephone companies shall 
not exceed five (5) percent of the total rural incumbent local exchange 
carrier portion of the annual nationwide loop cost expense adjustment 
calculated pursuant to Sec. 36.603 of this chapter. The five (5) 
percent cap on the safety valve mechanism shall be based on the lesser 
of the rural incumbent local exchange carrier portion of the annual 
nationwide loop cost expense adjustment calculated pursuant to 
Sec. 36.603 of this chapter or the sum of rural incumbent local 
exchange carrier expense adjustments calculated pursuant to Sec. 36.631 
of this chapter. The percentage multiplier used to derive study area 
safety valve loop cost expense adjustments for rural telephone 
companies shall be the lesser of fifty (50) percent or a percentage 
calculated to produce the maximum total safety valve loop cost expense 
adjustment for all eligible study areas pursuant to this paragraph. The 
safety valve loop cost expense adjustment of an individual rural 
incumbent local exchange carrier also may be further reduced as 
described is paragraph (d) of this section.
    (f) Once an acquisition is complete, the acquiring rural incumbent 
local exchange carrier shall provide written notice to the 
Administrator that it has acquired access lines that may be eligible 
for safety valve support. Rural telephone companies also shall provide 
written notice to the Administrator of when their index year has been 
established for purposes of calculating the safety valve loop cost 
expense adjustment.
    11. Amend Sec. 54.307 by revising paragraph (a)(1), and by revising 
the second sentence in paragraph (b), by adding a sentence at the end 
of paragraph (b), and by revising the first sentence in paragraph (c) 
introductory text to read as follows:

[[Page 30088]]

Sec. 54.307  Support to a competitive eligible telecommunications 
carrier.

    (a) * * *
    (1) A competitive eligible telecommunications carrier serving loops 
in the service area of a rural incumbent local exchange carrier, as 
that term is defined in Sec. 54.5 of this chapter, shall receive 
support for each line it serves in a particular service area based on 
the support the incumbent LEC would receive for each such line, 
disaggregated by cost zone if disaggregation zones have been 
established within the service area pursuant to Sec. 54.315 of this 
subpart. A competitive eligible telecommunications carrier serving 
loops in the service area of a non-rural incumbent local exchange 
carrier shall receive support for each line it serves in a particular 
wire center based on the support the incumbent LEC would receive for 
each such line.
* * * * *
    (b) * * * For a competitive eligible telecommunications carrier 
serving loops in the service area of a rural incumbent local exchange 
carrier, as that term is defined in Sec. 54.5 of this chapter, the 
carrier must report the number of working loops it serves in the 
service area disaggregated by cost zone if disaggregation zones have 
been established within the service area pursuant to Sec. 54.315 of 
this subpart. * * * Competitive eligible telecommunications carriers 
providing mobile wireless service in an incumbent LEC's service area 
shall use the customer's billing address for purposes of identifying 
the service location of a mobile wireless customer in a service area.
    (c) A competitive eligible telecommunications carrier must submit 
the data required pursuant to paragraph (b) of this section according 
to the schedule. * * *
* * * * *

    12. Amend Sec. 54.313 as follows:
    a. Revise the section heading.
    b. Redesignate paragraphs (b) and (c) as paragraphs (c) and (d).
    c. Add a new paragraph (b).
    d. Revise newly designated paragraph (c).
    e. In newly redesignated paragraph (d), the reference to 
``paragraph (b)'' is revised to read `` paragraph (c)''.
    The addition and revisions read as follows:


Sec. 54.313  State certification of support for non-rural carriers.

* * * * *
    (b) Carriers not subject to State jurisdiction. A non-rural 
incumbent local exchange carrier not subject to the jurisdiction of a 
state or an eligible telecommunications carrier not subject to the 
jurisdiction of a state serving lines in the service area of a non-
rural incumbent local exchange carrier that desires to receive support 
pursuant to Secs. 54.309 and/or 54.311 of this subpart must file an 
annual certification with the Administrator and the Commission stating 
that all federal high-cost support provided to such carriers will be 
used only for the provision, maintenance, and upgrading of facilities 
and services for which the support is intended. Support provided 
pursuant to Secs. 54.309 and/or 54.311 of this subpart shall only be 
provided to the extent that the carrier has filed the requisite 
certification pursuant to this section.
    (c) Certification format. A certification pursuant to this section 
may be filed in the form of a letter from the appropriate regulatory 
authority for the State, and must be filed with both the Office of the 
Secretary of the Commission clearly referencing CC Docket No. 96-45, 
and with the Administrator of the high-cost universal service support 
mechanism, on or before the deadlines set forth in paragraph (d) of 
this section. If provided by the appropriate regulatory authority for 
the state, the annual certification must identify which carriers in the 
State are eligible to receive federal support during the applicable 12-
month period, and must certify that those carriers will only use 
support for the provision, maintenance, and upgrading of facilities and 
services for which support is intended. A State may file a supplemental 
certification for carriers not subject to the State's annual 
certification. All certificates filed by a State pursuant to this 
section shall become part of the public record maintained by the 
Commission. Non-rural incumbent local exchange carriers not subject to 
the jurisdiction of a state or eligible telecommunications carrier not 
subject to the jurisdiction of a state serving lines in the service 
area of a non-rural incumbent local exchange carrier, shall file a 
sworn affidavit executed by a corporate officer attesting to the use of 
the support for the provision, maintenance, and upgrading of facilities 
and services for which support is intended. The affidavit must be filed 
with both the Office of the Secretary of the Commission clearly 
referencing CC Docket No. 96-45, and with the Administrator of the 
high-cost universal service support mechanism, on or before the 
deadlines set forth in paragraph (d) of this section. All affidavits 
filed pursuant to this section shall become part of the public record 
maintained by the Commission.
* * * * *

    13. Add Sec. 54.314 to subpart D to read as follows:


Sec. 54.314  State certification of support for rural carriers.

    (a) State certification. States that desire rural incumbent local 
exchange carriers and/or eligible telecommunications carriers serving 
lines in the service area of a rural incumbent local exchange carrier 
within their jurisdiction to receive support pursuant to Secs. 54.301, 
54.305, and/or 54.307 and/or part 36, subpart F of this chapter must 
file an annual certification with the Administrator and the Commission 
stating that all federal high-cost support provided to such carriers 
within that State will be used only for the provision, maintenance, and 
upgrading of facilities and services for which the support is intended. 
Support provided pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or 
part 36, subpart F of this chapter shall only be provided to the extent 
that the State has filed the requisite certification pursuant to this 
section.
    (b) Carriers not subject to State jurisdiction. A rural incumbent 
local exchange carrier not subject to the jurisdiction of a state or an 
eligible telecommunications carrier not subject to the jurisdiction of 
a state serving lines in the service area of a rural incumbent local 
exchange carrier that desires to receive support pursuant to 
Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart F of this 
chapter shall file an annual certification with the Administrator and 
the Commission stating that all federal high-cost support provided to 
such carriers will be used only for the provision, maintenance, and 
upgrading of facilities and services for which the support is intended. 
Support provided pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or 
part 36, subpart F of this chapter shall only be provided to the extent 
that the carrier has filed the requisite certification pursuant to this 
section.
    (c) Certification format. A certification pursuant to this section 
may be filed in the form of a letter from the appropriate regulatory 
authority for the State, and shall be filed with both the Office of the 
Secretary of the Commission clearly referencing CC Docket No. 96-45, 
and with the Administrator of the high-cost universal service support 
mechanism, on or before the deadlines set forth in paragraph (d) of 
this section. If provided by the appropriate regulatory authority for 
the state, the annual certification must identify which carriers in the 
State

[[Page 30089]]

are eligible to receive federal support during the applicable 12-month 
period, and must certify that those carriers will only use support for 
the provision, maintenance, and upgrading of facilities and services 
for which support is intended. A State may file a supplemental 
certification for carriers not subject to the State's annual 
certification. All certificates filed by a State pursuant to this 
section shall become part of the public record maintained by the 
Commission. Rural incumbent local exchange carriers not subject to the 
jurisdiction of a state or eligible telecommunications carriers not 
subject to the jurisdiction of a state serving lines in the service 
area of a rural incumbent local exchange carrier, shall file a sworn 
affidavit executed by a corporate officer attesting to the use of the 
support for the provision, maintenance, and upgrading of facilities and 
services for which support is intended. The affidavit must be filed 
with both the Office of the Secretary of the Commission clearly 
referencing CC Docket No. 96-45, and with the Administrator of the 
high-cost universal service support mechanism, on or before the 
deadlines set forth in paragraph (d) of this section. All affidavits 
filed pursuant to this section shall become part of the public record 
maintained by the Commission.
    (d) Filing Deadlines. Upon the filing of the certification 
described in paragraph (c) of this section, support shall be provided 
pursuant to the following schedule:
    (1) Certifications filed on or before October 1. Carriers for which 
certifications are filed on or before October 1 shall receive support 
pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart 
F of this chapter, in the first, second, third, and fourth quarters of 
the succeeding year.
    (2) Certifications filed on or before January 1. Carriers for which 
certifications are filed on or before January 1 shall receive support 
pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart 
F of this chapter, in the second, third, and fourth quarters of that 
year. Such carriers shall not receive support pursuant to Secs. 54.301, 
54.305, and/or 54.307 and/or part 36, subpart F of this chapter in the 
first quarter of that year.
    (3) Certifications filed on or before April 1. Carriers for which 
certifications are filed on or before April 1 shall receive support 
pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart 
F of this chapter, in the third and fourth quarters of that year. Such 
carriers shall not receive support pursuant to Secs. 54.301, 54.305, 
and/or 54.307 and/or part 36, subpart F of this chapter in the first 
and second quarters of that year.
    (4) Certifications filed on or before July 1. Carriers for which 
certifications are filed on or before July 1 shall receive support 
pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart 
F of this chapter, in the fourth quarter of that year. Such carriers 
shall not receive support pursuant to Secs. 54.301, 54.305, and/or 
54.307 and/or part 36, subpart F of this chapter in the first, second, 
or third quarters of that year.
    (5) Certifications filed after July 1. Carriers for which 
certifications are filed after July 1 shall not receive support 
pursuant to Secs. 54.301, 54.305, and/or 54.307 and/or part 36, subpart 
F of this chapter, in that year.
    14. Add Sec. 54.315 to subpart D as follows:


Sec. 54.315  Disaggregation and targeting of support by rural incumbent 
local exchange carriers.

    (a) Within 270 days of the effective date of this rule, all rural 
incumbent local exchange carriers for which high-cost universal service 
support pursuant to Secs. 54.301, 54.303, and/or 54.305 and/or part 36, 
subpart F of this chapter is available must select a disaggregation 
path as described in paragraphs (b), (c), or (d) of this section. In 
study areas in which a competitive carrier has been designated as a 
competitive eligible telecommunications carrier prior to the effective 
date of this rule, the rural incumbent local exchange carrier may only 
disaggregate support pursuant to paragraph (b), (c), or (d)(1)(iii) of 
this section. A rural incumbent local exchange carrier failing to 
select a disaggregation path as described in paragraphs (b), (c), or 
(d) of this section within 270 days of the effective date of this rule 
will not be permitted to disaggregate and target federal high-cost 
support unless ordered to do so by the state commission as that term is 
defined in Sec. 54.5.
    (b) Path 1: Carriers Not Disaggregating and Targeting High-Cost 
Support:
    (1) A carrier may certify to the state commission that it will not 
disaggregate and target high-cost universal service support.
    (2) A carrier's election of this path becomes effective upon 
certification by the carrier to the state commission.
    (3) This path shall remain in place for such carrier for at least 
four years from the date of certification to the state commission 
except as provided in paragraph (b)(4) of this section.
    (4) A state commission may require, on its own motion, upon 
petition by an interested party, or upon petition by the rural 
incumbent local exchange carrier, the disaggregation and targeting of 
support under paragraphs (c) or (d) of this section.
    (5) A carrier not subject to the jurisdiction of a state, e.g., 
certain tribally owned carriers, may select Path 1, but must certify to 
the Federal Communications Commission as described in paragraphs (1) 
through (4) of this section.
    (c) Path 2: Carriers Seeking Prior Regulatory Approval for the 
Disaggregation and Targeting of Support:
    (1) A carrier electing to disaggregate and target support under 
this paragraph must file a disaggregation and targeting plan with the 
state commission.
    (2) Under this paragraph a carrier may propose any method of 
disaggregation and targeting of support consistent with the general 
requirements detailed in paragraph (e) of this section.
    (3) A disaggregation and targeting plan under this paragraph 
becomes effective upon approval by the state commission.
    (4) A carrier shall disaggregate and target support under this path 
for at least four years from the date of approval by the state 
commission except as provided in paragraph (c)(5) of this section.
    (5) A state commission may require, on its own motion, upon 
petition by an interested party, or upon petition by the rural 
incumbent local exchange carrier, the disaggregation and targeting of 
support in a different manner.
    (6) A carrier not subject to the jurisdiction of a state, e.g., 
certain tribally owned carriers, may select Path 2, but must seek 
approval from the Federal Communications Commission as described in 
paragraphs (c)(1) through (5) of this section.
    (d) Path 3: Self-Certification of the Disaggregation and Targeting 
of Support:
    (1) A carrier may file a disaggregation and targeting plan with the 
state commission along with a statement certifying each of the 
following:
    (i) It has disaggregated support to the wire center level; or
    (ii) It has disaggregated support into no more than two cost zones 
per wire center; or
    (iii) That the carrier's disaggregation plan complies with a prior 
regulatory determination made by the state commission.
    (2) Any disaggregation plan submitted pursuant to this paragraph 
must meet the following requirements:
    (i) The plan must be supported by a description of the rationale 
used, including the methods and data relied

[[Page 30090]]

upon to develop the disaggregation zones, and a discussion of how the 
plan complies with the requirements of this paragraph. Such filing must 
provide information sufficient for interested parties to make a 
meaningful analysis of how the carrier derived its disaggregation plan.
    (ii) The plan must be reasonably related to the cost of providing 
service for each disaggregation zone within each disaggregated category 
of support.
    (iii) The plan must clearly specify the per-line level of support 
for each category of high-cost universal service support provided 
pursuant to Secs. 54.301, 54.303, and/or 54.305 and/or part 36, subpart 
F of this chapter in each disaggregation zone.
    (iv) If the plan uses a benchmark, the carrier must provide 
detailed information explaining what the benchmark is and how it was 
determined. The benchmark must be generally consistent with how the 
total study area level of support for each category of costs is derived 
to enable a competitive eligible telecommunications carrier to compare 
the disaggregated costs used to determine support for each cost zone.
    (3) A carrier's election of this path becomes effective upon 
certification by the carrier to the state commission.
    (4) A carrier shall disaggregate and target support under this path 
for at least four years from the date of certification to the state 
commission except as provided in paragraph (d)(5) of this section.
    (5) A state commission may require, on its own motion, upon 
petition by an interested party, or upon petition by the rural 
incumbent local exchange carrier, modification to the disaggregation 
and targeting of support selected under this path.
    (6) A carrier not subject to the jurisdiction of a state, e.g., 
certain tribally owned carriers, may select Path 3, but must certify to 
the Federal Communications Commission as described in paragraphs (d)(1) 
through (5) of this section.
    (e) Additional Procedures Governing the Operation of Path 2 and 
Path 3: Disaggregation and targeting plan adopted under paragraphs (c) 
or (d) of this section shall be subject to the following general 
requirements:
    (1) Support available to the rural incumbent local exchange 
carrier's study area under its disaggregation plan shall equal the 
total support available to the study area without disaggregation.
    (2) The ratio of per-line support between disaggregation zones for 
each disaggregated category of support shall remain fixed over time, 
except as changes are allowed pursuant to paragraph (c) and (d) of this 
section.
    (3) The ratio of per-line support shall be publicly available.
    (4) Per-line support amounts for each disaggregation zone shall be 
recalculated whenever the rural incumbent local exchange carrier's 
total annual support amount changes using the changed support amount 
and lines at that point in time.
    (5) Per-line support for each category of support in each 
disaggregation zone shall be determined such that the ratio of support 
between disaggregation zones is maintained and that the product of all 
of the rural incumbent local exchange carrier's lines for each 
disaggregation zone multiplied by the per-line support for those zones 
when added together equals the sum of the rural incumbent local 
exchange carrier's total support.
    (6) Until a competitive eligible telecommunications carrier is 
certified in a study area, monthly payments to the rural incumbent 
local exchange carrier will be made based on total annual amounts for 
its study area divided by 12.
    (7) When a competitive eligible telecommunications carrier is 
certified in a study area, per-line amounts used to determine the 
competitive eligible telecommunications carrier's disaggregated support 
shall be based on the rural incumbent local exchange carrier's then-
current total support levels, lines, and disaggregated support 
relationships.
    (f) Submission of Information to the Administrator:
    (1) A rural incumbent local exchange carrier certifying under 
paragraph (b) of this section that it will not disaggregate and target 
high-cost universal service support shall submit to the Administrator a 
copy of the certification submitted to the state commission, or the 
Federal Communications Commission, when not subject to state 
jurisdiction.
    (2) A rural incumbent local exchange carrier electing to 
disaggregate and target support under paragraph (c) of this section 
shall submit to the Administrator a copy of the order approving the 
disaggregation and targeting plan submitted by the carrier to the state 
commission, or the Federal Communications Commission, when not subject 
to state jurisdiction, and a copy of the disaggregation and targeting 
plan approved by the state commission or the Federal Communications 
Commission.
    (3) A rural incumbent local exchange carrier electing to 
disaggregate and target support under paragraph (d) of this section 
shall submit to the Administrator a copy of the self-certification plan 
including the information submitted to the state commission pursuant to 
(d)(2)(i) and (d)(2)(iv) of this section or the Federal Communications 
Commission.
    (4) A rural incumbent local exchange carrier electing to 
disaggregate and target support under paragraph (c) or (d) of this 
section must submit to the Administrator maps which precisely identify 
the boundaries of the designated disaggregation zones of support within 
the carrier's study area.

[FR Doc. 01-14008 Filed 6-4-01; 8:45 am]
BILLING CODE 6712-01-P