[Federal Register Volume 75, Number 90 (Tuesday, May 11, 2010)]
[Rules and Regulations]
[Pages 26137-26147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11153]


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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.

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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 <a href="/cdn-cgi/l/email-protection#f4929797c1c4c0b4929797da939b82"><span class="__cf_email__" data-cfemail="c1a7a2a2f4f1f581a7a2a2efa6aeb7">[email protected]</span></a> 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 non-rural 
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

[[Page 26138]]

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 over-subsidizing 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

[[Page 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 high-cost 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 non-rural 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 non-rural 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 carrier-of-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'' non-rural 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

[[Page 26140]]

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 non-rural 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 four-fold 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 high-cost 
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 non-rural 
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.

[[Page 26141]]

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, case-by-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 
all-distance 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

[[Page 26142]]

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 non-rural 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 non-
rural 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 high-cost. 
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,

[[Page 26143]]

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 non-rural high-cost support for the long term. Not only are the 
model inputs out-of-date, but the technology assumed by the model no 
longer reflects ``the least-cost, 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 forward-looking 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 
high-cost 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 non-rural 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

[[Page 26144]]

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 non-rural 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 
line-drawing 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 high-cost 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 stand-alone 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 
high-cost support mechanisms, rural as well as non-rural. Since the 
Commission originally adopted the non-rural high-cost 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

[[Page 26145]]

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 high-cost 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 data-driven 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 high-cost 
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 high-cost 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 
long-standing 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 
non-rural 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 non-rural 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.

[[Page 26146]]

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 high-cost 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, 
case-by-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

[[Page 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


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