Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Rules and Regulations 26137 

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

waste, Hazardous substances, 

Intergovernmental relations, Penalties, 

Reporting and recordkeeping 

requirements, Superfund, Water 

pollution control, Water supply. 

Dated: April 1, 2010. 

Judith A. Enck, 

Regional Administrator, Region 2. 

■ For the reasons set out in this 

document, 40 CFR part 300 is amended 

as follows: 

PART 300—[AMENDED] 

■ 1. The authority citation for part 300 

continues to read as follows: 

Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. 

9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, 

1991 Comp., p. 351; E.O. 12580, 52 FR 2923; 

3 CFR, 1987 Comp., p. 193. 

■ 2. Table 1 of Appendix B to part 300 

is amended by removing ‘‘Asbestos 

Dump, Millington, NJ’’ from the table. 

[FR Doc. 2010–10849 Filed 5–10–10; 8:45 am] 

BILLING CODE 6560–50–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 54 

[WC Docket No. 05–337, CC Docket No. 96– 

45; FCC 10–56] 

High-Cost Universal Service Support, 

Federal-State Joint Board on Universal 

Service 

AGENCY: Federal Communications 

Commission. 

ACTION: Final rule. 

SUMMARY: In this document, the Federal 

Communications Commission 

(Commission) defines ‘‘sufficient’’ under 

section 254(e) of the Communications 

Act as an affordable and sustainable 

amount of support that is adequate, but 

no greater than necessary, to achieve the 

goals of the universal service program. 

The Commission finds that rural rates 

are ‘‘reasonably comparable’’ to urban 

rates if they fall within a reasonable 

range of the national average urban rate. 

The Commission concludes, on the 

basis of undisputed empirical evidence 

in the record, that the current non-rural 

high-cost support mechanism comports 

with the requirements of section 254. 

The Commission also grants, with 

modifications, the joint petition filed by 

the Wyoming Public Service 

Commission and the Wyoming Office of 

Consumer Advocate for supplemental 

high-cost universal service support for 

rural residential customers of Qwest, 

Wyoming’s non-rural incumbent local 

exchange carrier. 

DATES: Effective June 10, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Katie King, Wireline Competition 

Bureau, Telecommunications Access 

Policy Division, (202) 418–7491 or TTY: 

(202) 418–0484. 

SUPPLEMENTARY INFORMATION: This is a 

synopsis of the Commission’s Order on 

Remand and Memorandum Opinion and 

Order (Order) in WC Docket No. 05–337, 

CC Docket No. 96–45, FCC 10–56, 

adopted April 16, 2010, and released 

April 16, 2010. The complete text of this 

document is available for inspection 

and copying during normal business 

hours in the FCC Reference Information 

Center, Portals II, 445 12th Street, SW., 

Room CY–A257, Washington, DC 20554. 

The document may also be purchased 

from the Commission’s duplicating 

contractor, Best Copy and Printing, Inc., 

445 12th Street, SW., Room CY–B402, 

Washington, DC 20554, telephone (800) 

378–3160 or (202) 863–2893, facsimile 

(202) 863–2898, or via the Internet at 

http://www.bcpiweb.com. It is also 

available on the Commission’s Web site 

at http://www.fcc.gov. 

People with Disabilities: To request 

materials in accessible formats for 

people with disabilities (braille, large 

print, electronic files, audio format), 

send an e-mail to fcc504@fcc.gov or call 

the Consumer & Governmental Affairs 

Bureau at 202–418–0530 (voice), 202– 

418–0432 (tty). 

I. Order on Remand 

A. The Current Non-Rural Mechanism 

Comports With Section 254 

1. On remand, the Tenth Circuit 

directed the Commission to address 

three issues. First, the court held that 

the Commission ‘‘must articulate a 

definition of ‘sufficient’ that 

appropriately considers the range of 

principles in the text of the statute.’’ 

Second, the Commission ‘‘must define 

the term ‘reasonably comparable’ in a 

manner that comports with its 

concurrent duties to preserve and 

advance universal service.’’ And finally, 

the court directed the Commission ‘‘to 

utilize its unique expertise to craft a 

support mechanism taking into account 

all of the factors that Congress identified 

in drafting the Act and its statutory 

obligation to preserve and advance 

universal service.’’ With respect to this 

last mandate, the court stated that ‘‘the 

FCC must fully support its final 

decision on the basis of the record 

before it.’’ We address each of these 

issues in turn. After careful analysis and 

review of the record, we conclude that 

the non-rural support mechanism, as 

currently structured, comports with the 

requirements of section 254 of the Act. 

1. ‘‘Sufficient’’ 

a. An Assessment of Whether Support Is 

‘‘Sufficient’’ Must Take Into Account the 

Entire Universal Service Fund 

2. Section 254(e) of the Act provides 

that Federal universal service support 

‘‘should be explicit and sufficient to 

achieve the purposes of [section 254].’’ 

In the context of determining high-cost 

support for non-rural carriers, the 

Commission previously defined 

‘‘sufficient’’ as ‘‘enough Federal support 

to enable States to achieve reasonable 

comparability of rural and urban rates in 

high-cost areas served by non-rural 

carriers.’’ In Qwest II, the Tenth Circuit 

held that the Commission did not 

adequately demonstrate how its nonrural universal service support 

mechanism was ‘‘sufficient’’ within the 

meaning of section 254(e). The court 

noted that ‘‘reasonable comparability’’ 

was just one of several principles that 

Congress directed the Commission to 

consider when crafting policies to 

preserve and advance universal service. 

The court was ‘‘troubled by the 

Commission’s seeming suggestion that 

other principles, including affordability, 

do not underlie Federal non-rural 

support mechanisms.’’ ‘‘On remand,’’ the 

court concluded, ‘‘the FCC must 

articulate a definition of ‘sufficient’ that 

appropriately considers the range of 

principles identified in the text of the 

statute.’’ 

3. Congress, in section 254(b) of the 

Act, set forth a number of principles for 

the Commission to consider when 

implementing the universal service 

policy. These principles include: (1) 

‘‘[q]uality service should be available at 

just, reasonable, and affordable rates’’; 

(2) ‘‘access to advanced 

telecommunications and information 

services should be provided in all 

regions of the Nation’’; (3) ‘‘low-income 

consumers and those in rural, insular, 

and high cost areas, should have access 

to telecommunications services and 

information 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 * * * in 

urban areas’’; (4) ‘‘[a]ll providers of 

telecommunications services should 

make an equitable and 

nondiscriminatory contribution to the 

preservation and advancement of 

universal service’’; (5) ‘‘[t]here should be 

specific, predictable and sufficient 

Federal and State mechanisms to 


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preserve and advance universal service’’; 

and (6) ‘‘[e]lementary and secondary 

schools and classrooms, health care 

providers, and libraries should have 

access to advanced telecommunications 

services.’’ In addition, section 254(b) 

permits the Joint Board and the 

Commission to adopt ‘‘[s]uch other 

principles as the Joint Board and the 

Commission determine are necessary 

and appropriate for the protection of the 

public interest, convenience, and 

necessity and are consistent with this 

Act.’’ 

4. The Commission developed four 

universal service support programs to 

implement all of the statutory 

requirements set forth in section 254 of 

the Act. While the principles in section 

254(b), collectively informed and 

guided the Commission’s decisions, 

each support program necessarily 

addresses some of the principles more 

directly than others. For example, the 

Commission implemented an E-rate 

program and a rural health care 

mechanism to provide support for 

schools, libraries, and rural health care 

providers, as set forth in section 

254(b)(6). The Commission expanded 

the Lifeline and Link-up programs to 

assist low-income consumers and help 

ensure affordable rates, as set forth in 

section 254(b)(3). While the 

Commission kept the larger statutory 

goals in mind as it developed the four 

support programs, it did not attempt to 

fully address each universal service 

principle in section 254(b) through each 

support mechanism. Nor is there any 

indication that Congress intended each 

principle to be fully addressed by each 

separate support mechanism. The 

Commission believes that any 

determination about whether the 

Commission has adequately 

implemented section 254 must look at 

the cumulative effect of the four support 

programs, acting together. 

5. The non-rural high-cost support 

mechanism thus is just one segment of 

the Commission’s comprehensive 

scheme to preserve and advance 

universal service. The ‘‘sufficiency’’ of 

the non-rural high-cost mechanism to 

achieve its purpose cannot fairly be 

judged in isolation. The four universal 

service programs work in tandem to 

accomplish the principles set forth in 

section 254(b). For instance, while the 

basic purpose of high-cost support is to 

ensure that telephone service is not 

prohibitively expensive for consumers 

in rural, insular, and high-cost areas, 

some consumers in those areas will still 

need additional assistance due to their 

low household income. Low-income 

support, provided through the Lifeline 

and Link-up programs, supplements 

high-cost support in those 

circumstances to remove the additional 

affordability barriers faced by 

economically disadvantaged individuals 

living in rural and other high-cost areas. 

A fair assessment of whether the 

Commission has reasonably 

implemented the section 254 principles, 

and whether support is ‘‘sufficient’’ for 

purposes of section 254(e), must 

therefore encompass the entirety of 

universal service support programs. 

This approach to assessing ‘‘sufficiency’’ 

is consistent with the Tenth Circuit’s 

analysis in Qwest I. The court there 

recognized that it could not 

satisfactorily perform the ‘‘task of 

reviewing the sufficiency of the FCC’s 

actions’’ without knowing ‘‘the full 

extent of Federal support for universal 

service.’’ 

6. Moreover, whether the Commission 

has satisfied the goal of ‘‘sufficiency,’’ as 

required by section 254(e), must be 

evaluated in the larger context of section 

254. The various objectives of section 

254 impose practical limits on the fund 

as a whole. If the universal service fund 

grows too large, it will jeopardize other 

statutory mandates, such as ensuring 

affordable rates in all parts of the 

country, and ensuring that contributions 

from carriers are fair and equitable. This 

issue is not theoretical. With the 

contribution factor above 15 percent, the 

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. For the reasons discussed 

herein, we conclude that in designing 

its non-rural high-cost mechanism, the 

Commission must balance the statutory 

principles of reasonable comparability 

and affordability, taking into account 

both affordability of rates in high-cost 

areas served by non-rural carriers and 

affordability of rates in other areas 

where customers are net contributors to 

universal service funding. 

7. Several courts, including the Tenth 

Circuit, have recognized that oversubsidizing universal service programs 

can actually undermine the statutory 

principles set forth in section 254(b). 

The Tenth Circuit acknowledged that 

‘‘excessive subsidization arguably may 

affect the affordability of 

telecommunications services, thus 

violating the principle in section 

254(b)(1).’’ The United States Court of 

Appeals for the District of Columbia 

Circuit (DC Circuit) recently found, 

when it upheld the Commission’s 

interim cap on high-cost support 

disbursements to competitive ETCs’ 

support, that the concept of 

‘‘sufficiency’’ can reasonably encompass 

‘‘not just affordability for those 

benefited, but fairness for those 

burdened.’’ The DC Circuit explained 

that, in assessing whether universal 

service subsidies are excessive, the 

Commission ‘‘must consider not only 

the possibility of pricing some 

customers out of the market altogether, 

but the need to limit the burden on 

customers who continue to maintain 

telephone service.’’ Further, in Alenco 

Communications, Inc. v. FCC , the Fifth 

Circuit found that ‘‘[t]he agency’s broad 

discretion to provide sufficient 

universal service funding includes the 

decision to impose cost controls to 

avoid excessive expenditures that will 

detract from universal service.’’ We thus 

conclude that a proper balancing 

inquiry must take into account our 

generally applicable responsibility to be 

a prudent guardian of the public’s 

resources. 

8. In light of all these considerations, 

we respond to the Tenth Circuit’s 

remand by defining ‘‘sufficient’’ as an 

affordable and sustainable amount of 

support that is adequate, but no greater 

than necessary, to achieve the goals of 

the universal service program. Unlike 

the Commission’s prior definition, 

which the court stated ‘‘ignore[d] all but 

one principle in [section] 254(b),’’ this 

definition is ‘‘tied explicitly to all the 

principles underlying the universal 

service program.’’ It also ‘‘expressly 

incorporates the principle of 

‘affordability’ by ensuring that universal 

service [support] levels are ‘sufficient’ 

without growing so large as to be 

unsustainable and without rendering 

the rates for supported services 

‘unaffordable.’ ’’ Having considered the 

principles set forth in section 254(b) and 

the Commission’s interpretation and 

application of those principles, we now 

turn to applying those principles to the 

non-rural high-cost support mechanism. 

b. The Commission’s Universal Service 

Programs Provide ‘‘Sufficient’’ Support 

9. We find that the non-rural high-cost 

support mechanism, acting in 

conjunction with the Commission’s 

other universal service programs, 

provides sufficient support to achieve 

the universal service principles set forth 

in section 254(b) of the Act. These 

programs have produced almost 

ubiquitous access to 

telecommunications services and very 

high telephone subscribership rates. The 

Commission’s most recent report on 

telephone subscribership, released in 

February 2010, found that, as of 

November 2009, the telephone 

subscribership penetration rate in the 

United States was 95.7 percent—the 

highest reported penetration rate since 

the Census Bureau began collecting 


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Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Rules and Regulations 26139 

such data in November 1983. The fact 

that subscribership has increased 

indicates that the Commission is 

preserving and advancing universal 

service. 

10. In particular, the current 

telephone subscribership penetration 

rate is strong evidence that our 

universal service programs provide 

support that is sufficient to ensure that 

rates are affordable, as required by 

section 254(b)(1). This finding is 

buttressed by data showing that average 

consumer expenditures on telephone 

service as a percentage of household 

expenditures have been relatively stable 

over time—approximately 2 percent— 

even while the amount of telephone 

service consumers are purchasing has 

increased. Moreover, rural consumers 

and urban consumers spent a 

comparable percentage of their 

household expenditures on telephone 

service. We agree with Qwest that ‘‘the 

current level of telephone 

subscribership suggests that universal 

service subsidies as a whole are 

enabling affordable rates * * * .’’ We 

disagree, however, that the Commission 

is required to ‘‘present[] data * * * to 

demonstrate that non-rural high-cost 

support’’ by itself ‘‘is actually 

contributing to affordable rates’’ in order 

to satisfy the court. As we explained 

above, the Commission cannot—and is 

not required to—evaluate the non-rural 

high-cost fund in isolation. Sufficient 

support that satisfies the universal 

service principles of section 254(b)— 

including affordable rates—can only 

reasonably be achieved through the 

totality of the Commission’s universal 

service programs, not by the non-rural 

high-cost mechanism standing alone. 

Indeed, we believe that the public 

interest would not be well-served if we 

attempted to determine sufficiency by 

considering a single support mechanism 

in a vacuum, while ignoring the support 

provided by the other support 

mechanisms. 

11. Significantly, the court in Qwest II 

did not find that non-rural high-cost 

support was insufficient to achieve the 

statutory principles in section 254(b). 

Rather, it held that the Commission 

failed to consider all of those principles 

in its analysis of whether support is, in 

fact, sufficient. We have now considered 

those principles and adopted a 

definition of ‘‘sufficient’’ that is tied 

explicitly to all of those principles. We 

further find, based on record evidence, 

that the Commission’s universal service 

programs, including the non-rural highcost support mechanism, provide 

‘‘sufficient’’ support. Given the 

unprecedented level of telephone 

subscribership, the increased utilization 

of service, and the steady share of 

consumer expenditures, we conclude 

that current subsidy levels are at least 

sufficient to ensure reasonably 

comparable and affordable rates that 

have resulted in widespread access to 

telephone service. Contrary to the 

assertion of some parties, we did not 

‘‘start[] with a premise that in fixing the 

non-rural high-cost support fund [the 

Commission] must not increase the size 

of the [universal service fund].’’ Instead, 

after reviewing the data, we have 

concluded that it is not necessary to 

expand funding for the non-rural 

mechanism to ensure that support is 

‘‘sufficient.’’ 

12. While some commenters assert 

that the non-rural high-cost support 

mechanism, as currently structured, 

provides insufficient support, none has 

made any effort to demonstrate that its 

current support is actually insufficient. 

In particular, we are not persuaded that 

incumbent LEC line losses due to 

competitive entry in urban areas have 

resulted in diminished service for 

consumers in rural areas. No commenter 

has presented evidence that customers 

will be left without service absent an 

increase in Federal high-cost support for 

non-rural carriers. A similar lack of 

evidence caused the D.C. Circuit to 

reject a challenge to the interim cap the 

Commission imposed on high-cost 

support disbursements to competitive 

ETCs. The court in that case found that 

petitioners produced ‘‘no cost data 

showing they would, in fact, have to 

leave customers without service as a 

result of the cap’’ and therefore gave the 

court ‘‘no valid reason to believe the 

principle of ‘sufficiency’ ’’ would be 

‘‘violated by the cap.’’ Likewise, in 

Alenco, the Fifth Circuit held that a 

single provider’s reduced rate of return 

‘‘does not establish that the cap [on 

certain incumbent LEC high-cost 

support mechanisms] fails to provide 

sufficient service’’ to customers. We 

therefore reject the argument that 

competition has rendered non-rural 

high-cost support insufficient. 

13. Qwest and AT&T complain that 

they receive less high-cost support than 

other providers, including rural 

incumbent LECs. But it does not follow 

that Qwest and AT&T receive 

insufficient support simply because 

they receive less support than other 

providers. Compared to non-rural 

carriers, rural carriers generally serve 

fewer subscribers, serve more sparsely 

populated areas, and generally do not 

benefit from economies of scale and 

scope to the same extent as non-rural 

carriers. 

14. Commenters alleging that nonrural high-cost support is insufficient 

also ignore the millions of dollars of 

growth in disbursements under this 

mechanism. For example, when the 

Tenth Circuit issued Qwest II in 2005, 

carriers received $292 million annually 

in Federal universal service support 

from the non-rural mechanism. In 2009, 

carriers received $331 million in 

Federal universal service support from 

the non-rural mechanism. While most of 

that increase is attributable to support 

paid to non-incumbent LECs, the 

majority of which are wireless 

competitive ETCs, those carriers also 

provide supported services within each 

State’s boundaries and therefore 

advance the principles set forth in 

section 254(b) of the Act. As the Fifth 

Circuit recognized, ‘‘[t]he purpose of 

universal service is to benefit the 

customer, not the carrier,’’ so 

‘‘ ‘[s]ufficient’ funding of the customer’s 

right to adequate telephone service can 

be achieved regardless of which carrier 

ultimately receives the subsidy.’’ 

Accordingly, we disagree with the Rural 

States’ argument that the non-rural 

mechanism provides insufficient 

support in the face of record evidence 

showing increases in both total nonrural high-cost support and overall 

telephone subscribership since the 

Commission adopted the Remand Order 

in 2003. 

15. The Maine, Vermont, and 

Montana State commissions have also 

made allegations about problems related 

to service quality and service 

availability. At the outset, we note that 

States (not the Commission) are 

primarily responsible for ensuring 

service quality and service availability 

through their regulation of intrastate 

services and administration of carrierof-last-resort obligations. In any event, 

we find these claims unpersuasive. 

First, the State commissions have not 

provided substantial empirical evidence 

that service quality is worse in areas 

where non-rural LECs receive high-cost 

support, relative to either areas where 

rural LECs receive support, or areas that 

do not receive any high-cost support. 

Second, with regard to service 

availability, they have failed to 

‘‘systematically analyze[] the effect of’’ 

non-rural support on the availability of 

services, including broadband, and 

instead ‘‘provide[d] only anecdotal 

evidence of the possible effect of’’ nonrural high-cost support ‘‘on particular 

deployments.’’ Third, the State 

commissions have not demonstrated 

that more support would in fact 

improve service quality or service 

availability, nor have they quantified, in 

a verifiable manner, what level of 

support would ensure adequate service 


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26140 Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Rules and Regulations 

quality and service availability. Without 

such evidence, the Commission would 

be subject to the same criticisms raised 

in Qwest II if it were to modify the nonrural support mechanism in response to 

the State commission proposals. 

16. The DC Circuit held, and we 

agree, that the Commission has an 

obligation to ‘‘strike an appropriate 

balance between the interests of widely 

dispersed customers with small stakes 

and a concentrated interest group 

seeking to increase its already large 

stake’’ in the fund. Several parties have 

proposed reforms to the non-rural high 

cost support mechanism. Our analysis 

of these proposals finds that each would 

significantly increase the size of the 

fund, the quarterly universal service 

contribution factor, and the amount that 

end users ultimately pay. Moreover, 

advocates of these proposals have failed 

to demonstrate how consumers living in 

rural areas would be harmed absent the 

proposed increase in funding. Qwest 

projects that its proposal, if adopted, 

would increase the size of the non-rural 

high-cost mechanism from $322 million 

to approximately $1.2 billion, a fourfold increase that would cause the 

contribution factor to surge to 17.1 

percent. Although the Rural States 

assert, without support, that ‘‘[n]o 

option currently under consideration in 

this proceeding seems likely to produce 

a significant increase in the contribution 

rate,’’ we estimate that the Rural States’ 

proposal would increase the universal 

service fund by $2.725 billion (or more 

than nine times the total current amount 

of non-rural high-cost support). If 

enacted today, this proposal would 

cause the contribution factor to leap 

from 15.3 percent to 21.0 percent— 

hardly a modest increase from a 

consumer’s perspective. If adopted, 

consumers throughout the nation would 

be asked to fund this massive expansion 

of the non-rural high-cost mechanism 

through an even larger universal service 

surcharge on their monthly telephone 

bill, making telecommunications 

services less affordable. Given our 

finding that the non-rural high-cost 

mechanism already provides sufficient 

support, and in the absence of any 

contrary empirical evidence that we 

need to augment that support to ensure 

sufficient funding, we decline to add to 

the already heavy universal service 

contribution burden placed on 

consumers. 

17. We recognize that some 

commenters requesting an increase in 

non-rural high-cost support seek to 

mitigate the impact of their proposals on 

consumers by asking the Commission to 

reduce universal service funding 

elsewhere. Most of these 

recommendations involve eliminating 

high-cost support for certain providers 

or adopting other regulatory reforms 

that are unrelated to the non-rural highcost mechanism. At the outset, we 

reiterate that the non-rural mechanism, 

as currently structured, provides 

sufficient support, so we are not 

obligated to undertake any of the 

reforms proposed by commenters—all of 

which would expand the size of the 

universal service fund. But even if that 

were not the case, we note that all of the 

proposed methods to offset the resulting 

increase fall outside the narrow scope of 

this proceeding, which is limited to 

responding to the issues raised by the 

Tenth Circuit in Qwest II. Moreover, no 

party has demonstrated how reducing 

funding for other programs or providers 

would advance, and not frustrate, the 

universal service objectives set forth in 

section 254 of the Act. If anything, the 

parties’ attempt to lessen the significant 

financial impact of their alternative 

proposals highlights the inherent 

tension between the principles of 

sufficiency and affordability. It also 

underscores the reasonableness of the 

Commission’s view that the non-rural 

high-cost support mechanism can only 

be evaluated properly in the context of 

all the universal service programs. 

18. We further conclude that the 

Commission’s non-rural high-cost 

support mechanism is consistent with 

the statutory principle that ‘‘[t]here 

should be specific, predictable and 

sufficient Federal and State mechanisms 

to preserve and advance universal 

service.’’ We continue to believe that the 

Commission’s cost-based formula 

provides a specific and predictable 

methodology for determining when nonrural carriers qualify for high-cost 

support. 

2. ‘‘Reasonably Comparable’’ 

a. Urban and Rural Rates Are 

Reasonably Comparable 

19. Section 254(b)(3) provides that: 

‘‘Consumers in all regions of the Nation, 

including low-income consumers and 

those in rural, insular, and high cost 

areas, should have access to 

telecommunications and information 

services, including interexchange 

services and advanced 

telecommunications and information 

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.’’ In 2003, the Commission 

determined that rural rates were 

‘‘reasonably comparable’’ if they fell 

within two standard deviations of the 

national average urban rate contained in 

the Wireline Competition Bureau’s 

annual rate survey. The record in this 

proceeding contains evidence that our 

current non-rural high-cost mechanism, 

which incorporates this definition of 

‘‘reasonably comparable,’’ has in fact 

produced rural rates that are reasonably 

comparable to urban rates. 

20. Contrary to the assertion of some 

commenters, the Tenth Circuit did not 

find that the non-rural high-cost support 

mechanism failed to produce reasonably 

comparable rates. Rather, the court’s 

fundamental criticism in Qwest II was 

that the Commission failed to provide 

empirical evidence that its non-rural 

high-cost support mechanism has 

produced reasonably comparable rates. 

The court indicated that it ‘‘would be 

inclined to affirm’’ the existing non-rural 

high-cost support mechanism if the 

Commission could present ‘‘empirical 

findings’’ demonstrating that the 

mechanism ‘‘indeed resulted in 

reasonably comparable rates.’’ We can 

now make that showing on the basis of 

unrefuted empirical evidence in the 

record. 

21. The only comprehensive rate data 

in the record support the Commission’s 

conclusion that rates for traditional 

wireline telephone service are 

reasonably comparable across rural and 

urban areas. The data show that average 

rates are similar in urban and rural 

areas, and that the standard deviation of 

the rates is similar between rural and 

urban areas. Specifically, the data show 

that urban and rural rates often are the 

same. To the extent there are 

differences, however, the data show that 

urban rates within most States tend to 

be higher. In addition, because the range 

of rates and standard deviation of the 

rates are similar in rural and urban 

areas, the difference among urban rates 

is similar to the difference between 

urban and rural rates. 

22. Data filed by NASUCA in 

response to the 2005 Remand NPRM, 71 

FR 1721, January 11, 2006, demonstrate 

that rural and urban rates are reasonably 

comparable. NASUCA submitted data 

on rates (as of February 2006) in 11,252 

wire centers nationwide that are served 

by non-rural carriers, ranging from zero 

percent urban to 100 percent urban. The 

average price of flat-rate residential 

service (plus the subscriber line charge 

and Federal universal service charge) 

does not vary greatly as a function of the 

degree of urbanization. In fact, NASUCA 

found that there is no statistically 

significant difference in average price as 

a function of the percent of the 

population living in urban areas. In 

addition, the range of prices is similar 

between rural and urban areas. 


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Moreover, the standard deviation of the 

prices is similar between rural and 

urban areas. 

23. Our own State-by-State review of 

NASUCA’s data revealed that rural wire 

centers generally had lower rates than 

urban wire centers, holding the State 

constant. In 42 of the 50 States, the 

average rate in rural wire centers was 

less than or equal to the average rate in 

urban wire centers. 

24. Data filed by Verizon in response 

to the 2009 Remand NOI confirms 

NASUCA’s findings and our conclusion 

that rural and urban rates are reasonably 

comparable. Verizon submitted a 

declaration by Alan Buzacott, which 

contains a survey and analysis of 

tariffed rural and urban rates (in effect 

as of May 2009) charged by non-rural 

carriers in all 50 States, plus the District 

of Columbia and Puerto Rico. The 

Buzacott declaration finds that in 18 

States and the District of Columbia, the 

largest non-rural carrier offers basic 

residential local exchange service at the 

same rate in all exchanges throughout 

the State. In States where a non-rural 

carrier does charge different basic 

residential local exchange rates within 

the State, the Buzacott declaration finds 

that rates in urban areas tend to be 

higher than rates in rural areas. 

25. In Qwest II, the Tenth Circuit 

focused on the disparity between rural 

rates and the lowest urban rate, and 

noted that a rural rate could be 100 

percent more than the lowest urban rate. 

Such an anomaly can be explained by 

the variability of rate policies among the 

States and does not undermine our 

conclusion that rural and urban rates are 

reasonable comparable. Because States 

exercise considerable discretion in 

setting rural and urban rates, there is 

considerable variation among States. A 

comparison of rural rates to the lowest 

urban rate would be heavily influenced 

by a particular State’s rate policies. For 

this reason, the general consensus in the 

record—even among those parties that 

ask the Commission to adjust the rate 

benchmark—is that the average urban 

rate—and not the lowest urban rate—is 

the appropriate point of comparison for 

purposes of determining ‘‘reasonable 

comparability.’’ 

b. Where a State Demonstrates That 

Rates Are Not Reasonably Comparable 

and That Further Federal Action Is 

Required, We Will Provide Appropriate 

Relief 

26. Only one State—Wyoming—has 

demonstrated that its rural rates are not 

reasonably comparable to nationwide 

urban rates and requested relief based 

on that demonstration. In light of 

Wyoming’s unique circumstances, in 

section III, below, we grant, with 

modifications, the joint petition filed by 

the Wyoming Public Service 

Commission and the Wyoming Office of 

Consumer Advocate for supplemental 

high-cost universal service support for 

rural residential customers of Qwest, 

Wyoming’s non-rural incumbent LEC. 

27. We see no reason to revise our 

non-rural high-cost support mechanism 

just to address Wyoming’s unique 

needs. Rather, we believe that unique 

situations like Wyoming’s can best be 

addressed on an individualized, caseby-case basis. In the future, if any other 

State presents us with documentation 

that unique circumstances prevent the 

achievement of reasonably comparable 

rates in that State, we can provide 

appropriate relief, just as we have done 

in the case of Wyoming. 

c. Because Rural Rates Are Reasonably 

Comparable to Urban Rates, They Have 

Advanced Universal Service, Evidenced 

by An Overall Increase in Telephone 

Subscribership 

28. When the Tenth Circuit remanded 

the Commission’s definition of 

‘‘reasonably comparable’’ in Qwest II, the 

court expressed concern that the 

definition did not take into account the 

Commission’s statutory duty to advance 

universal service. The court noted that 

section 254(b) referred to ‘‘policies for 

the preservation and advancement of 

universal service.’’ The court reasoned 

that the Commission, by adopting a 

definition of ‘‘reasonably comparable’’ 

that preserved existing rate disparities, 

was ‘‘ignoring its concurrent obligation 

to advance universal service, a concept 

that certainly could include a narrowing 

of the existing gap between urban and 

rural rates.’’ The court directed the 

Commission on remand to ‘‘define the 

term ‘reasonably comparable’ in a 

manner that comports with its 

concurrent duties to preserve and 

advance universal service.’’ 

29. On remand, we adopt a new 

definition of ‘‘reasonably comparable.’’ 

We find that rural rates are ‘‘reasonably 

comparable’’ to urban rates under 

section 254(b)(3) if they fall within a 

reasonable range of the national average 

urban rate. In our judgment, our existing 

rate benchmark ensures that rural rates 

will fall within a reasonable range (i.e., 

two standard deviations) of the national 

average urban rate. The record in this 

proceeding demonstrates that rates 

within this range have generally 

resulted in an increase in overall 

telephone subscribership, thereby 

‘‘advancing’’ the most fundamental goal 

of universal service. We further 

conclude that the non-rural support 

mechanism, as currently configured, 

produces rates that meet the 

requirements of section 254(b)(3). This 

conclusion is supported by our 

demonstration above that the rural and 

urban rates are, in fact, reasonably 

comparable and by evidence of an 

increase in telephone subscribership 

penetration rates nationwide. 

30. In Qwest II, the Tenth Circuit 

seemed concerned that, unless the 

Commission took action to reduce the 

existing variance in rates between rural 

and urban areas, rural rates would be 

too high to ensure universal access to 

basic service. ‘‘Rates cannot be divorced 

from a consideration of universal 

service,’’ the court said, ‘‘nor can the 

variance between rates paid in rural and 

urban areas. If rates are too high, the 

essential telecommunications services 

encompassed by universal service may 

indeed prove unavailable.’’ The fact that 

telephone subscribership penetration 

rates have increased since Congress 

enacted section 254 demonstrates that 

rates are not too high under the 

Commission’s universal service 

program; indeed, the essential 

telecommunications services 

encompassed by universal service have 

become more available than ever before, 

with telephone subscribership rates 

recently reaching an all-time high. The 

overall increase in the telephone 

subscribership penetration rates since 

the enactment of our universal service 

policies in 1996 demonstrates that the 

Commission has satisfied its duty to 

advance universal service. 

31. We further find that the 

development of new 

telecommunications technologies has 

furthered the universal service 

principles in the Act, particularly 

reasonable comparability. New services 

are increasingly replacing traditional 

wireline telephone service, and 

universal service funding, primarily 

high-cost support, has helped subsidize 

their deployment. Consumers now enjoy 

a variety of competitive options for alldistance voice services—including 

services provided by mobile wireless 

service providers, large cable operators, 

and over-the-top VoIP providers. The 

rates for these nationwide ‘‘all distance’’ 

services do not typically vary between 

urban and rural areas. This provides the 

Commission even greater assurance that 

telecommunications services will be 

available in rural areas at rates that are 

reasonably comparable to rates in urban 

areas, even as customers migrate from 

traditional wireline voice service. 

32. The Tenth Circuit directed the 

Commission on remand to define 

‘‘reasonably comparable’’ in a manner 

that both preserves and advances 

universal service. Since the Remand 


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Order, telephone subscribership 

penetration rates have increased, 

consumer expenditures on telephone 

service have remained stable, and, as a 

result of increased broadband and 

wireless deployment, consumers can 

now choose among multiple universal 

service providers, not just traditional 

wireline telephone companies. We 

conclude that these marketplace 

developments demonstrate that the nonrural mechanism results in reasonably 

comparable rates that have advanced 

universal service. 

33. We disagree with the Rural States’ 

argument that our current mechanism 

does not do enough to ensure the 

availability of reasonably comparable 

‘‘non-dial-tone’’ or ‘‘advanced’’ services 

in rural areas. As an initial matter, 

neither the Rural States nor any other 

commenter has systematically analyzed 

the effect of the current non-rural 

mechanism on the deployment of such 

services, so we have no data upon 

which to assess their claims. Moreover, 

to date, the Commission has designated 

only basic local telephone service as 

eligible for universal service support. 

Our analysis of whether the current 

non-rural high-cost support mechanism 

achieves the principle of reasonable 

comparability must therefore focus on 

the service that the mechanism was 

designed to fund, i.e., basic local 

telephone service. The record in this 

proceeding shows that basic telephone 

service of reasonably comparable 

quality is available in rural and urban 

areas at reasonably comparable rates. 

3. The Non-Rural High-Cost Support 

Mechanism 

34. In Qwest II, the court deemed the 

non-rural high-cost support mechanism 

invalid because it rested on the 

application of the definition of 

‘‘reasonably comparable’’ rates 

invalidated by the court. While the 

court acknowledged that it ‘‘would be 

inclined to affirm the FCC’s cost-based 

funding mechanism if it indeed resulted 

in reasonably comparable rates,’’ it 

found that the Commission had failed to 

provide ‘‘empirical findings supporting 

this conclusion.’’ The court further 

noted that the Commission based the 

two standard deviations cost benchmark 

on a finding that rates were reasonably 

comparable, without empirically 

demonstrating in the record a 

relationship between costs and rates. 

‘‘On remand,’’ the court directed the 

Commission to ‘‘utilize its unique 

expertise to craft a support mechanism 

taking into account all the factors that 

Congress identified in drafting the Act 

and its statutory obligation to preserve 

and advance universal service.’’ Below 

we explain and support the decision to 

utilize variations in cost to determine 

the level of high-cost support for nonrural carriers. 

35. We agree with Verizon that ‘‘the 

Tenth Circuit did not have a problem 

with use of the [non-rural mechanism]— 

it merely wanted evidence of results.’’ 

The court in Qwest II emphasized that 

regardless of what the Commission 

ultimately decided about its non-rural 

high-cost support mechanism on 

remand, ‘‘the FCC must fully support its 

final decision on the basis of the record 

before it.’’ The record in this proceeding 

contains precisely the sort of evidence 

that the court previously found lacking. 

Unrefuted empirical evidence in the 

record shows that wireline telephone 

rates are reasonably comparable in 

urban and rural areas, and where there 

is a discrepancy, rural rates tend to be 

lower. Rates are also affordable, as 

demonstrated by the fact that telephone 

subscribership penetration rates have 

increased while average consumer 

expenditures on telephone service have 

remained stable. This same evidence 

confirms that the non-rural high-cost 

support mechanism, working in 

conjunction with the Commission’s 

other universal service programs, 

provides sufficient support. The record 

also shows that the non-rural 

mechanism has both preserved and 

advanced the universal service 

objectives in section 254(b) of the Act, 

as demonstrated by increasing 

subscription rates and increasing access 

to different types of services. 

36. Consequently, we conclude that 

no further action is required of the 

Commission to comply with the Tenth 

Circuit’s Qwest II decision, and we 

decline to adopt the handful of 

proposals to ‘‘reform’’ the non-rural 

mechanism. The Commission 

previously rejected several of these 

proposals in the Remand Order, and we 

do so again here. 

a. Cost-Based Support Mechanism 

37. We find that it is appropriate to 

distribute universal service support in 

high-cost areas based on estimated 

forward-looking economic cost rather 

than on retail rates, because costs are a 

major factor affecting retail rates. There 

is overwhelming support in the record 

for the continued use of a non-rural 

support mechanism based on costs, 

even though there is disagreement over 

the design of the cost-based mechanism. 

None of the commenters seriously 

suggested that the Commission adopt a 

‘‘rate-based’’ approach. 

38. There are numerous factors 

demonstrating that basing a support 

mechanism on costs represents a 

reasonable proxy to ensure that rural 

rates remain reasonably comparable. 

Economists have long recognized the 

close relationship between costs and 

rates. Basic principles of economics 

demonstrate that, in perfectly 

competitive markets, competition will 

drive prices to long-run average total 

cost. Similarly, in the case of regulated 

monopolies, regulators have 

traditionally set prices such that 

revenues will cover total regulated 

costs, including a normal return. Given 

this close relationship between costs 

and prices, it follows that, if costs rise, 

so should prices. In addition, because 

the States retain jurisdiction over 

intrastate rates, the Joint Board and the 

Commission always have looked at cost 

differences, not rate differences, in 

determining high-cost support. We 

believe that costs are a necessary 

component in setting the level of 

regulated rates because the underlying 

purpose of rates is to recover, at a 

minimum, the cost of providing 

services. States with high costs would 

have higher rates in the aggregate than 

other States would, were it not for 

Federal support. 

39. In contrast, it makes little sense to 

base support on current retail rates, 

which are the result of the interplay of 

underlying costs and other factors that 

are unrelated to whether an area is highcost. Retail rates in many States remain 

regulated, and State regulators differ in 

their treatment of regulated carriers’ 

recovery of their intrastate regulated 

costs. For example, some States still 

require carriers to charge business 

customers higher rates to create implicit 

subsidies for residential customers, 

while other regulators have eliminated 

such implicit subsidies in the face of 

increasing competition for business 

customers. Similarly, State regulators 

vary in the extent to which they have 

rebalanced rates by reducing intrastate 

access charges and increasing local 

rates. In addition, some States have 

ceased regulating local retail rates. 

Moreover, basing support on retail rates 

would create perverse incentives for 

State commissions and carriers to the 

extent that rate levels dictate the 

amount of Federal universal service 

support available in a State. State 

commissions or carriers would have an 

incentive to set local rates well above 

cost simply to increase their States’ 

carriers’ Federal universal service 

support. A rate-based approach could 

thus undermine our ability to comply 

with the court’s prior mandate that we 

develop mechanisms to induce the 

States ‘‘to assist in implementing the 

goals of universal service.’’ Similarly, 


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where States have deregulated retail 

rates, carriers facing competition may 

have an incentive to raise certain local 

rates to increase their support rather 

than to cut rates to meet competition. 

40. Finally, we note that the Tenth 

Circuit did not reject the concept of 

non-rural support based on costs, rather 

than rates, so long as the non-rural 

mechanism produced the desired 

results. Since we have unrefuted 

empirical evidence demonstrating that 

rates are reasonably comparable, we 

find that Qwest II presents no obstacle 

to the use of a cost-based approach. 

b. Forward-Looking Cost Model 

(i) Cost Model Inputs 

41. In the Remand NOI, the 

Commission acknowledged that many of 

the inputs in the forward-looking 

economic cost model have not been 

updated since they were adopted a 

decade ago, and sought comment on the 

extent to which the Commission should 

continue to use its model in 

determining high-cost support without 

updating, changing, or replacing the 

model. Virtually all commenters that 

addressed this issue argued that the 

model should be updated. We agree that 

the model should be updated or 

replaced if a forward-looking cost model 

continues to be used to compute nonrural high-cost support for the long 

term. Not only are the model inputs outof-date, but the technology assumed by 

the model no longer reflects ‘‘the leastcost, most-efficient, and reasonable 

technology for providing the supported 

services that is currently being 

deployed.’’ The Commission’s cost 

model essentially estimates the costs of 

a narrowband, circuit-switched network 

that provides plain old telephone 

service (POTS), whereas today’s most 

efficient providers are constructing 

fixed or mobile networks that are 

capable of providing broadband as well 

as voice services. 

42. Much progress has been made in 

developing computer cost models that 

estimate the cost of constructing a 

broadband network, such as the 

CostQuest model, and we note that staff 

has developed an economic model to 

estimate the financial implications 

(costs and revenues) associated with 

providing broadband to areas presently 

unserved by adequate broadband speed 

and capacity for purposes of the 

National Broadband Plan. Nevertheless, 

we are unable to evaluate adequately 

any alternative cost model or to develop 

a new cost model in time to meet our 

commitment to respond to the Tenth 

Circuit’s Qwest II remand. As the 

Commission noted in the Remand NOI, 

the Commission’s current model was 

developed over a multi-year period 

involving dozens of public workshops, 

and it would take a similar period to 

evaluate or develop a new cost model 

and to establish new input values. 

Rather than attempt to update a model 

that estimates the cost of a legacy, 

circuit-switched, voice-only network, 

we intend to focus our efforts going 

forward on developing a forwardlooking cost model to estimate the cost 

of providing broadband over a modern 

multi-service network, consistent with 

the recommendations in the National 

Broadband Plan. Accordingly, we 

conclude that we should continue to use 

the existing model to estimate non-rural 

high-cost support on an interim basis, 

pending the development of an updated 

and more advanced model that will 

determine high-cost support for 

broadband. We expect to initiate a 

proceeding to seek comment on such a 

model in the second quarter of 2010. 

(ii) Cost Benchmark 

43. We also conclude that we should 

continue to determine non-rural highcost support by comparing the statewide 

average cost of non-rural carriers to a 

nationwide cost benchmark set at two 

standard deviations above the national 

average cost per line. As discussed 

above, we have found that the non-rural 

high-cost support mechanism comports 

with the principles of section 254(b). 

Thus, we conclude that we are not 

obligated to modify our current 

mechanism to base support on average 

wire center costs per line. Some of those 

proposing a shift to wire center costs, 

such as Qwest, would set thresholds in 

a manner that would result in a 

significant increase in the size of the 

fund. We find that it would not be in the 

public interest to impose such a heavy 

financial burden on consumers 

nationwide when no party has 

documented any need for such a 

dramatic expansion of universal service 

funding. Record evidence shows that 

the current non-rural mechanism has 

produced affordable and reasonably 

comparable rural rates, and no party has 

provided any substantial evidence to the 

contrary. In addition, the Commission’s 

existing model estimates the costs of a 

narrowband, circuit-switched network 

that essentially provides only POTS, 

rather than the costs of the multi-service 

networks that providers are deploying 

today. If the Commission were to decide 

to calculate support on the basis of the 

per-line costs for a narrower geographic 

area, such as wire centers, we find that 

the Commission should do so based on 

an updated model that incorporates the 

least-cost, most efficient technologies 

currently being deployed. Finally, we 

note that the Tenth Circuit rejected the 

notion ‘‘that the use of statewide and 

national averages is necessarily 

inconsistent with [section] 254.’’ While 

we believe that there may be merit to an 

approach that distributes high-cost 

support on a more disaggregated basis 

rather than on statewide average costs, 

we do not believe that it would be 

prudent to change this aspect of the 

mechanism without addressing other 

aspects. Nor do we believe that we are 

required to adopt this approach to 

satisfy the Qwest II remand, or that it 

would serve the public interest to do so 

at this time. Accordingly, we conclude 

that, until the Commission adopts an 

updated cost model, non-rural high-cost 

support should continue to be based on 

statewide average costs. 

44. We also reject proposals to 

compare statewide average cost to an 

urban average cost (instead of the 

national average cost) to determine nonrural high-cost support. The 

Commission previously found that 

comparing statewide average cost to a 

national average cost ‘‘reflects the 

appropriate division of Federal and 

State responsibility for determining 

high-cost support for non rural carriers.’’ 

We maintain that view. Using urban 

average cost instead of national average 

cost, while maintaining the two 

standard deviation benchmark, would 

increase Federal support substantially. 

As noted, this increase would burden all 

ratepayers, without evidence that such 

an increase is necessary to fulfill our 

statutory obligations. Qwest II did not 

condemn statewide and national 

averaging, and we find that our 

continued use of national average cost 

produces results that comport with 

section 254. 

45. We further decline to adopt a 

lower cost benchmark. As set forth 

above, the only comprehensive rate data 

in the record shows that there is little 

difference between urban and rural 

rates. No party has demonstrated how a 

different cost benchmark would affect 

the variance between urban and rural 

rates, much less produce rates that are 

reasonably comparable. The Rural States 

argue that the Commission must lower 

the cost benchmark from two standard 

deviations to 125 percent of average 

urban cost to satisfy the Tenth Circuit. 

This benchmark suffers from the same 

defect the court identified in Qwest II: 

there is no empirical evidence in the 

record that a 125 percent cost 

benchmark would produce more 

comparable rates. While the 

Commission could provide more 

universal service funding to non-rural 

carriers by arbitrarily lowering the cost 


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benchmark to 125 percent, no party that 

supports such a change has analyzed the 

extent to which the resulting increase in 

high-cost support would actually reduce 

the alleged gap between rural and urban 

rates. Instead, the Rural States’ proposal 

would increase the size of the universal 

service fund without the benefit of 

empirical evidence that the non-rural 

high-cost support mechanism would 

produce reasonably comparable rates. In 

fact, there is a risk that the Rural States’ 

proposal would reduce both urban and 

rural rates in a recipient State, not the 

variance between the two, which could 

needlessly increase the financial burden 

imposed on consumers that live in 

States that are net contributors to the 

universal service fund. The bottom line 

is that the Commission has no assurance 

that increased non-rural high-cost 

support would produce lower rural 

rates, rather than be used for other 

purposes, because the use of that 

support will depend on 50 different 

State policies, none of which have been 

described in the record. We therefore 

decline to adjust the cost benchmark 

because we lack the empirical data to 

justify such an adjustment, and because 

the record shows that the existing cost 

benchmark already provides support 

that yields reasonably comparable and 

affordable rates. 

(iii) Rate Benchmark 

46. Finally, we conclude that we 

should retain a comparability standard 

based on a national rate benchmark set 

at two standard deviations above the 

average urban rate. In Qwest II, the 

Tenth Circuit focused on the disparity 

between rural rates and the lowest 

urban rate. There is strong support in 

the record, however, for the continued 

use of an average urban rate. Even those 

parties that ask the Commission to 

adjust the rate benchmark support the 

use of an average urban rate—and not 

the lowest urban rate—as the point of 

comparison. The general consensus on 

this issue reflects the common sense 

conclusion that the average urban rate 

offers the most reasonable baseline for 

comparison. Because urban rates 

themselves vary greatly, a rate 

benchmark that measures divergence 

from the lowest urban rate could be too 

heavily influenced by a particular 

State’s rate policies. By contrast, 

measuring divergence from the national 

average urban rate more accurately 

captures the variability of rate policies 

among the States. 

47. We decline to adopt a new, lower 

rate benchmark in order to ‘‘narrow’’ the 

unsubstantiated ‘‘gap’’ between rural and 

urban rates. Proposals to adjust the rate 

benchmark presuppose the existence of 

a rate gap without offering any 

empirical evidence to demonstrate that 

such a rate gap exists. Qwest, for 

example, merely describes an increase 

in the disparity between rural rates and 

the lowest urban rate. As discussed 

above, this comparison is misleading 

because the average urban rate is the 

appropriate point of comparison for 

purposes of determining ‘‘reasonable 

comparability.’’ The Rural States note 

that the difference between rural rates 

and the average urban rate has 

fluctuated from 34 percent to 43 

percent. However, urban rates also vary 

compared to the average urban rate. And 

most of that fluctuation is explained by 

the fact that the range of urban rates 

widened because the highest urban rate 

increased; rural rates, by contrast, have 

remained stable over the last few years. 

In any event, even under the arbitrary 

rate benchmark proposed by the Rural 

States (i.e., 125 percent of the average 

urban rate), rural rates would still be 25 

percent greater than the average urban 

rate, a difference that is not dramatically 

dissimilar to the 34–43 percent 

difference that results under the 

Commission’s current mechanism. In 

the end, we see no reason to modify the 

current rate benchmark because rate 

data in the record establishes that rural 

and urban rates today are reasonably 

comparable, either when compared 

nationally or within a State. 

48. Moreover, as with their proposal 

to lower the cost benchmark, the Rural 

States’ proposal to lower the rate 

benchmark would not answer the 

questions posed by the Tenth Circuit on 

remand; it would simply increase nonrural high-cost support without 

guaranteeing any change in the rates 

paid by consumers in rural areas. We 

note that the court already rejected this 

approach, holding that section 254(b) 

‘‘calls for reasonable comparability 

between rural and urban rates,’’ which 

cannot be satisfied ‘‘simply [by] 

substitut[ing] different standards.’’ 

Given the inherent imprecision of the 

statutory phrase ‘‘reasonably 

comparable,’’ the task of defining 

‘‘reasonably comparable’’ rates is a linedrawing exercise that falls within the 

unique expertise of the Commission. 

The line the Commission drew in this 

case, i.e., two standard deviations above 

the average urban rate, is entitled to 

deference because it falls within a 

reasonable range, as confirmed by the 

high telephone subscribership rates and 

the overall advancement of universal 

service goals while the non-rural highcost mechanism has been in effect. No 

commenter proposing a different rate 

benchmark has made a comparable 

evidentiary showing. 

c. Rate Comparability Review and 

Certification Process 

49. We conclude that we should 

continue requiring the States to review 

annually their residential local rates in 

rural areas served by non-rural carriers 

and certify that their rural rates are 

reasonably comparable to urban rates 

nationwide, or explain why they are 

not. Commenters support the continued 

use of our rate certification process. 

50. Currently, the Commission defines 

reasonably comparable rates in terms of 

incumbent LEC rates only. In the 

Remand NPRM, we sought comment on 

whether the Commission should define 

‘‘reasonably comparable’’ rural and 

urban rates in terms of rates for bundled 

telecommunications services. Given the 

changes in consumer buying patterns, 

the competitive marketplace, and the 

variety of pricing plans offered by 

carriers today, we asked whether standalone local telephone rates were the 

most accurate measure of whether rural 

and urban consumers have access to 

reasonably comparable 

telecommunications services at 

reasonably comparable rates. We invited 

commenters to submit data on the rates 

and availability of bundled service 

offerings, identify sources of such data, 

and propose methods of analyzing such 

data. 

51. While there was support for this 

approach in the abstract, no party 

submitted data upon which the 

Commission could make such a 

comparison. Given the scant evidentiary 

record on this issue, we decline at this 

time to define ‘‘reasonably comparable’’ 

rural and urban rates in terms of the 

rates for bundled services. 

B. Comprehensive Reform and the 

National Broadband Plan 

52. The Commission has previously 

recognized the need for review and 

possible comprehensive reform of its 

universal service program, and has 

sought comment on various proposals 

for comprehensive reform of the highcost support mechanisms, rural as well 

as non-rural. Since the Commission 

originally adopted the non-rural highcost support mechanism in 1999, the 

telecommunications marketplace has 

undergone significant changes. As 

discussed above, while in 1996 the 

majority of consumers subscribed to 

separate local and long distance 

providers, today the majority of 

consumers subscribe to local/long 

distance bundles offered by a single 

provider. In addition, the vast majority 

of subscribers have wireless phones as 


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well as wireline phones, and an 

increasing percentage of consumers are 

dropping their wireline phones in favor 

of wireless or broadband-based VoIP 

phone services. Finally, an increasing 

percentage of carriers are converting 

their networks from circuit-switched to 

Internet protocol (IP) technology. 

53. Against this backdrop, the 

Commission in the Remand NOI sought 

comment on the relationship between 

the Commission’s resolution of the 

narrow issues raised in this remand 

proceeding; comprehensive reform of 

the high-cost universal service support 

system; and our independent obligation 

under the Recovery Act to develop a 

comprehensive National Broadband 

Plan. Many commenters argued that the 

Commission should use this remand 

proceeding to begin transitioning highcost funding from support for voice 

services to support for broadband in 

light of the changes in technology and 

the marketplace. 

54. On the same day that the 

Commission issued the Remand NOI, it 

began the process of developing a 

National Broadband Plan that seeks ‘‘to 

ensure that all people of the United 

States have access to broadband 

capability,’’ as required by the Recovery 

Act. Since then, the Commission staff 

has undertaken an intensive and datadriven effort to develop a plan to ensure 

that our country has a broadband 

infrastructure appropriate to the 

challenges and opportunities of the 21st 

century. The Commission conducted 36 

workshops and released 31 public 

notices to obtain public input on the 

various facets of the Recovery Act as 

they relate to the National Broadband 

Plan. Several of the public notices 

sought comments on different aspects of 

the universal service programs, and one 

specifically invited comment on 

transitioning the current universal 

service high-cost support mechanism to 

support advanced broadband 

deployment. 

55. On March 16, 2010, the 

Commission adopted a Joint Statement 

on Broadband, which sets forth the 

overarching vision and goals for U.S. 

broadband policy, and delivered to 

Congress the National Broadband Plan, 

which contains specific 

recommendations for universal service 

reform. According to the National 

Broadband Plan, filling the gaps in the 

nation’s broadband network will require 

financial support from Federal, State, 

and local governments. The National 

Broadband Plan identifies the Federal 

universal service fund—and the highcost universal service program in 

particular—as a key source of Federal 

support. The National Broadband Plan 

acknowledges, however, that the 

existing high-cost universal service 

program is not designed to fund 

broadband services. Therefore, the 

National Broadband Plan recommends a 

comprehensive reform program to shift 

the high-cost universal service program 

from primarily supporting voice 

communications to supporting 

broadband platforms that enable many 

applications, including voice. 

56. In light of these recommendations, 

we conclude that fundamental reform 

limited to only the non-rural high-cost 

support mechanism should not be 

undertaken at this time. Now that the 

Commission has released the National 

Broadband Plan, we are in a better 

position to determine how to reform the 

high-cost support mechanism consistent 

with our broadband policies. In 

response to the mandamus petition in 

the Tenth Circuit, the Commission 

committed to issue an order responding 

to the court’s remand by April 16, 2010. 

We have had insufficient time, between 

release of the National Broadband Plan 

in March and our deadline for 

responding to the court, to implement 

reforms to the high-cost universal 

service mechanisms consistent with the 

overall recommendations in the 

National Broadband Plan. While we 

believe we have fully addressed the 

remand, as discussed above, we 

anticipate that our efforts to revise and 

improve high-cost support will be 

advanced further through proceedings 

that follow from the National Broadband 

Plan. The Commission will soon release 

a notice of proposed rulemaking that 

sets the stage for comprehensive reform 

of the high-cost universal service 

mechanism as recommended in the 

Joint Statement on Broadband and the 

National Broadband Plan. 

57. We also decline to adopt proposed 

interim changes to the non-rural highcost support mechanism that would 

increase significantly the amount of 

support non-rural carriers would 

receive. Instead, we will maintain the 

current non-rural high-cost support 

mechanism on a transitional basis until 

comprehensive universal service reform 

is adopted. As set forth above, the 

Commission has a substantial interest in 

limiting the size of the universal service 

fund to preserve the affordability of 

telecommunications services for 

consumers. Any substantial increases in 

non-rural high-cost support 

disbursements would increase the 

contribution factor above its current 

level of 15.3 percent of interstate 

revenues, thereby increasing the size of 

universal service contribution 

assessments, which are ultimately paid 

by consumers. The Commission’s 

authority to take measures to limit the 

size of the universal service fund is well 

established. Indeed, the Commission 

has long used cost controls—including 

caps—as a means of limiting the growth 

of its universal service program. We find 

that maintaining non-rural high-cost 

support at existing levels pending 

comprehensive universal service reform 

quite reasonably follows this longstanding agency practice. 

58. Moreover, if carriers were to 

receive significant additional high-cost 

support on an interim basis as a result 

of this proceeding, it likely would be 

more difficult to transition that support 

to focus on areas unserved or 

underserved by broadband, if called for 

in future proceedings. The Commission 

may ‘‘act[] to maintain the status quo so 

that the objectives of a pending 

rulemaking proceeding will not be 

frustrated.’’ In fact, on several occasions, 

the Commission has exercised that 

authority to maintain existing rules on 

a transitional basis to ensure the 

sustainability of the universal service 

program pending comprehensive reform 

of a larger regulatory framework. We 

conclude that it would not be prudent 

to increase the overall amount of nonrural high-cost support significantly 

above current levels at this time. 

59. We wish to emphasize, however, 

that even if the Commission had no 

plans to reform existing high-cost 

universal service support programs in 

an effort to achieve the objectives set 

forth in the National Broadband Plan, 

we would still make no changes in the 

non-rural high-cost mechanism. As we 

explained above, record evidence 

demonstrates that funding under the 

current mechanism is sufficient to 

achieve reasonably comparable rates 

and to advance the universal service 

principles set forth in section 254(b), 

including the principles of reasonable 

comparability and affordability. It also 

has both preserved and advanced 

universal service. Therefore, we see no 

need to alter the non-rural high-cost 

support mechanism at this time. The 

Commission’s decision to pursue 

fundamental universal service reform to 

promote greater broadband deployment, 

as required by the Recovery Act, 

provides a separate and independent 

ground for keeping the existing nonrural high-cost support mechanism in 

place. Under the circumstances, we 

believe that it is entirely reasonable to 

maintain the status quo on a transitional 

basis until the Commission is ready to 

implement its new universal service 

support program for the deployment of 

networks capable of providing voice and 

broadband service. 


jlentini on DSKJ8SOYB1PROD with RULES
26146 Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Rules and Regulations 

II. Memorandum Opinion and Order: 

Wyoming Petition for Supplemental 

High-Cost Universal Service Support 

A. Discussion 

60. We find that the Wyoming 

Petitioners have demonstrated that 

supplemental universal service highcost support is warranted at this time in 

Wyoming’s rural areas served by Qwest, 

the non-rural incumbent LEC. The 

Wyoming Petitioners have met the 

requirements in section 54.316 of the 

Commission’s rules by demonstrating 

that such rural residential rates are not 

comparable to the nationwide urban rate 

benchmark. Specifically, the Wyoming 

Commission reviewed and compared 

the residential rates in rural areas served 

by Qwest to the nationwide urban rate 

benchmark, certified to the Commission 

and to USAC that such rates are not 

reasonably comparable because they are 

124 percent of the nationwide urban 

rate benchmark, explained why such 

rates are not comparable, and stated that 

it intended to request further Federal 

action to achieve rate comparability as 

set forth in the Order on Remand. We 

also find that the Wyoming Petitioners’ 

request for supplemental high-cost 

universal service support is consistent 

with the requirements in the Order on 

Remand for requests for further Federal 

action to achieve rate comparability. 

The Wyoming Petitioners demonstrated 

that Wyoming’s rural rates are not 

reasonably comparable to urban rates 

nationwide and that Wyoming has taken 

all reasonably possible steps to achieve 

reasonable comparability through State 

action and existing Federal support. As 

we acknowledged in the Order on 

Remand, ‘‘Wyoming has rebalanced its 

residential and business rates, while 

other States have not rebalanced rates.’’ 

Wyoming requires cost-based pricing for 

all retail telecommunications services in 

Wyoming and prohibits cross subsidies 

and implicit subsidies. Moreover, Qwest 

has de-averaged cost-based residential 

rates. Finally, Wyoming has 

implemented an explicit subsidy 

support program—the Wyoming 

Universal Service Fund. 

61. Based on the record, however, we 

modify the Wyoming Petitioners’ 

proposed calculation of supplemental 

high-cost support. Specifically, we agree 

with NASUCA’s recommendation that 

any supplemental universal service 

high-cost support should cover 76 

percent of the difference between the 

rural local rates and the comparability 

benchmark, and not 100 percent of the 

difference. We find that funding 76 

percent of the difference between 

Qwest’s rural customers’ rates 

(including mandatory surcharges) and 

the nationwide urban rate benchmark is 

reasonable because it is consistent with 

the percentage of support provided 

using the Commission’s forward-looking 

cost model for non-rural incumbent 

LECs. Funding 76 percent of the 

difference strikes a reasonable balance 

between Federal and State 

responsibilities of facilitating affordable 

local rates. Further, we are concerned 

that funding 100 percent of the 

difference could provide inappropriate 

incentives to increase rates or 

surcharges in order to shift such costs to 

the Federal universal service fund. 

Although we acknowledge that Qwest’s 

Wyoming subscribers may continue to 

pay high local service rates, we must 

balance the need for additional support 

in Wyoming against the already heavy 

universal service contribution burden 

placed on consumers nationwide. We 

disagree, however, with NASUCA’s 

recommendation that the Wyoming 

general sales tax should not be included 

in the rate comparability calculation. 

We find that the Wyoming sales tax 

should be included in the calculation 

because the nationwide urban rate 

benchmark, resulting from a rate survey 

of 95 sample cites, instructed survey 

respondents to include such sales taxes. 

62. Accordingly, we authorize and 

direct USAC to provide $2,370,629 in 

additional annualized universal service 

high-cost support to Qwest in Wyoming 

beginning in the third quarter of 2010. 

One-twelfth of this amount shall be paid 

each month through December 2010. 

63. To remain eligible for 

supplemental high-cost support going 

forward, beginning with the Wyoming 

Commission’s next rate comparability 

certification due October 1, 2010, and 

each October 1 thereafter, the Wyoming 

Commission shall provide the 

Commission and USAC with updated 

line counts and other rate data 

consistent with and in the same format 

as the Wyoming 2010 Update. Such data 

shall be used by the Commission and 

USAC to verify the additional high-cost 

support, if any, that is necessary to 

maintain rural rates in Qwest’s service 

territory at reasonably comparable levels 

with the nationwide urban benchmark. 

USAC is required to notify the Wireline 

Competition Bureau by letter of any 

concerns regarding future submissions 

from the Wyoming Commission. Each 

year after the receipt of the Wyoming 

Commission’s rate comparability 

certification, any revised supplemental 

support shall take effect the following 

January. 

B. Procedures for State Requests for 

Further Federal Action 

64. In the Order on Remand, the 

Commission sought comment on how to 

treat State requests for further Federal 

action to achieve reasonable 

comparability of basic service rates, 

including: (1) The timing of State 

requests for further Federal action; (2) 

the showing that a State should be 

required to make in order to 

demonstrate a need for further Federal 

action; and (3) the types of further 

Federal action that may be provided to 

requesting States if the Commission 

determines that further Federal action is 

necessary in a particular instance, 

including possible methods of 

calculating any additional targeted 

Federal support. We decline to adopt 

such procedures at this time. Unique 

situations like Wyoming’s can best be 

addressed on an individualized, caseby-case basis. Moreover, we expect to 

undertake comprehensive reform of the 

universal service high-cost mechanisms 

in proceedings that follow from the Joint 

Statement on Broadband and the 

National Broadband Plan. In the 

meantime, if any other State 

demonstrates, consistent with section 

54.316 of our rules and the Order on 

Remand, that unique circumstances 

prevent the achievement of reasonably 

comparable rates in that State, we are 

prepared to provide appropriate relief, 

as we have done in the case of 

Wyoming. 

III. Procedural Matters 

A. Paperwork Reduction Analysis 

65. This Order on Remand and 

Memorandum Opinion and Order does 

not contain new, modified, or proposed 

information collections subject to the 

Paperwork Reduction Act of 1995, 

Public Law 104–13. In addition, 

therefore, it does not contain any new, 

modified, or proposed ‘‘information 

collection burden for small business 

concerns with fewer than 25 

employees,’’ pursuant to the Small 

Business Paperwork Relief Act of 2002, 

Public Law 107–198, see 44 U.S.C. 

3506(c)(4). 

B. Final Regulatory Flexibility Act 

Certification 

66. As we are adopting no rules in 

this Order on Remand and 

Memorandum Opinion and Order, no 

regulatory flexibility analysis is 

required. 

C. Congressional Review Act 

67. The Commission will not send a 

copy of this Order on Remand and 

Memorandum Opinion and Order in a 


jlentini on DSKJ8SOYB1PROD with RULES
Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Rules and Regulations 26147 

report to Congress and the Government 

Accountability Office pursuant to the 

Congressional Review Act because no 

rules are being adopted. 

IV. Ordering Clauses 

68. Accordingly, it is ordered that, 

pursuant to the authority contained in 

sections 1, 2, 4(i), 4(j), 201–205, 214, 

220, and 254 of the Communications 

Act of 1934, as amended, 47 U.S.C. 151, 

152, 154(i), 154(j), 201–205, 214, 220, 

and 254, this Order on Remand and 

Memorandum Opinion and Order is 

adopted. 

69. It is further ordered that, pursuant 

to the authority contained in sections 1, 

2, 4(i), 4(j), 201–205, 214, 220, and 254 

of the Communications Act of 1934, as 

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

154(j), 201–205, 214, 220, and 254, the 

Joint Petition of the Wyoming Public 

Service Commission and the Wyoming 

Office of Consumer Advocate for 

Supplemental Federal Universal Service 

Funds for Customers of Wyoming’s 

Non-rural Incumbent Local Exchange 

Carrier, filed December 21, 2004, IS 

granted to the extent described herein. 

70. It is further ordered that this Order 

on Remand and Memorandum Opinion 

and Order shall be effective 30 days 

after publication in the Federal 

Register, pursuant to 5 U.S.C. 553(d)(3) 

and section 1.427(b) of the 

Commission’s rules, 47 CFR 1.427(b). 

Federal Communications Commission. 

Marlene H. Dortch, 

Secretary. 

[FR Doc. 2010–11153 Filed 5–10–10; 8:45 am] 

BILLING CODE 6712–01–P 


jlentini on DSKJ8SOYB1PROD with RULES