Appendix — Core Communications, Inc. v. Federal Communications Commission

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reme Court, U.S.

2) Super e D

a No. F Aus 6- 2040

IN THIDFFICE OF THE CLERK

Supreme Court of the Anited States

CORE COMMUNICATIONS, INC.,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION

AND UNITED STATES OF AMERICA,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

APPENDIX TO THE

PETITION FOR A WRIT OF CERTIORARI

(VOLUME 1 OF IID)

CHRIS VAN DE VERG JEFFREY A. LAMKEN

General Counsel Counsel of Record

CORE COMMUNICATIONS, INC. ROBERT K. KRY

209 West Street MARTIN V. TOTARO

Suite 302 MoOLOLAMKEN LLP

Annapolis, MD 21401 The Watergate, Suite 660

(410) 216-9865 600 New Hampshire Ave., NW

Washington, D.C. 20037

(202) 556-2000

jlamken@mololamken.com

Counsel for Petitioner

Core Communications, Ine.

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

TABLE OF CONTENTS

Volume |

Appendix A — Court of Appeals Opinion in

Core Communications, Inc. v. FCC,

bu2 F oa 149 (D.C. Cir. 2010)................ la

Appendix B - Federal Communications

Commission Order in /n the Matter of

linplementation of the Local Competition

Provisions in the Telecommunications Act

of 1996, Developing a Unified Intercurrier

Compensation Regime, lntercarrier

Compensation for ISP-Bound Traffic,

24 ¥.C.C.R. 6475 (Nov. 5, 2008)...........ccccsesseoeess Da

Volume I]

Appendix b (continued) — Federal Communi

cations Commission Order in Jn the Matter

of Implementation of the Local Competz

tion Provisions in the Telecommunica-

trons Act of 1996, Developing a Unified

Intercarrier Compensation Regime,

Intercarrier Compensation for 1ISP-Bound

Traffic, 24 F.C.C.R. 6475 (Nov. 5, 2008)............. 399a

Volume II]

Appendix C -— Court of Appeals Opinion in

In re Core Communications, Inc.,

5a) F.0d 849 (D.C. Cir. 2008) ......0...0000006. 7T92u

Appendix D — Court of Appeals Opinion in

In re Core Communications, Ine.,

ee ee 009.0 CT, BOI) coccncccsccsvcccscccovescess LOR

TABLE Cr CONTENTS

Continued

Appendix Ii — Court of Appeals Order in

In re Core Communications, Inc.,

No. 04-1179 (D.C. Cir. May 24, 2005)........00.... 847a

Appendix F — Court of Appeals Order in

In re Core Communications, Ince.,

No. 04-1179 (D.C. Cir. Nov. 22, 2004) .............. 848u

Appendix G — Federal Communications

Commission Order in Petition of Core

Communications, Inc. for Forbearance

Under 47 U.S.C. § 160(c) from

Application of the ISP Remand Order,

19 F.C.C.R. 20,179 (Oct. 18, 2004) ...........0ecce0ee 849a

Appendix H - Court of Appeals Opinion in

WorldCom, Inc. v. FCC, 288 F.3d 429

BR pet te UE) RARER aR ORO ne 872a

Appendix I - I’ederal Communications

Commission Order in /mplementation of

the Local Competition Provisions in the

Telecommunications Act of 1996,

Intercarrier Compensation for ISP-

Bound Traffic, 16 F.C.C.R. 9151

SPIE, Seis HHOIE EP sbincncccintanpnsscscotncesntciaenbarisetelersnesiie S82a

Appendix J — Court of Appeals Opinion in

Bell Atlantic Telephone Cos. v. FCC,

Be ee 1 EIAs GAD, BPD accescnsnsanssavenevecestacrnins 1015a

ili

TABLE OF CONTENTS—Continued

Page

Appendix K — Federal Communications

Commission Order in J/mplementation of

the Local Competition Provisions in the

Telecommunications Act of 1996, Inter-

Carrier Compensation for ISP-Bound

Traffic, 14 F.C.C.R. 3689 (Feb. 26, 1999)........ 1032a

Appendix L — Court of Appeals Order

Denying Panel Rehearing in Core

Communications, Inc. v. FCC,

No. 08-1365 (Mar. 26, 2010)........cccceecscceeseeeeeees 10854

Appendix M — Court of Appeals Order

Denying k£'n Banc Rehearing in Core

Communications, Inc. v. FCC,

No. 08-1365 (Mar, 26, 2010)............cceceseeeseseeeees 1087a

Appendix N — Relevant Statutory Provisions ...... 1089a

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Nos. 08-1365, 09-1046, 08-1393, 09-1044

CORK COMMUNICATIONS, INC.,,

Petitioner,

Vv.

FEDERAL COMMUNICATIONS COMMISSION

AND UNITED STATES OF AMERICA,

Respondents.

KMARTHLINK, INC., ET AL..,

Intervenors,

ARGUED OCT. 16, 2009

DECIDED JAN. 12, 2010

On Petition for Review of Orders of the

lederal Communications Commission

scefore: SIENTELLE, Chief Judge, WILLIAMS and

RANDOLPH, Senior Circuit Judge:

Opinion for the Court filed by Senior Cireuit Judg

WILLIAMS,

WILLIAMS, Senior Circuit Judge:

When a customer accesses the internet via “dial-up,”

his or her call goes to a local exchanye carrier (“LEC”),

which commonly hands the call off to another LIC

(la)

which in turn connects the customer to an internet

service provider (“ISP”).' The ISP links the customer to

the web. At least as early as 1999 the Federal Communi-

‘ations Commission was concerned that the regulatory

procedures under which the sending LEC compensated

the recipient LEC were leading to the imposition of ex-

cessive rates, and that these rates in turn were distorting

the markets for internet and telephone services. The

Commission in due course responded with an alternative

reyulatory regime, principally taking the form of rate

caps set well below the rates that had prevailed before.

In the order under review here, /n the Matter of lm

plementation of the Local Competition Prowsions in the

Tclecommunications Act of 1996, Developing a Unified

Intercarrier Compensation Regime, Intercarrier Com

pensation for ISP-Bound Traffic (CC Docket Nos. 96-45,

96-98, 99-68, 99-200, 01-92), FCC 08-262, 24 FCC Red.

6475, 2008 WI 4821547 (Nov. 5, 2008) (the “Order’), the

Commission has set forth the basis of its authority to

institute the rate cap system, namely, 47 U.S.C. § 201

That section (excerpted in an appendix to this opinion)

requires that the charges of “every common carrier en

gayed in interstate or foreign communication by wire”

‘such Communication service” he “just and reason

for ‘

able,” and authorizes the Commission to “prescribe such

rules and regulations as may be necessary ... to carry

out the provisions of this chapter.” /d. Petitioners assail

the Commission’s analysis on a variety of grounds, most

powerfully on the theory that §§ 251-252 of Title 47,

added by the Telecommunications Act of 1996, Pub. L.

Data in the record suyyest that dial-up, though being rapidly

replaced by various forms of higher-speed service, still accounts for a

non-trivial share of internet access: about 20.4% in 2007, 10.5% in

2009, and (a prediction, obviously) 4.6% in 2014, Joint Appendix 102

The Commission’s first step into this arena was its

issuance of 77 the Matter of Implementation of the Local

Competition Provisions in the Telecommunications Act

of 1996, Inter-carrier Compensation for ISP-Bound

Traffic, 14 FCC Red 3689, 1999 WL 98037 (Feb. 26, 1999)

(“Declaratory Ruling’). There it applied its so-called

“end-to-end” analysis (as it does in the order under re-

view), under which the classification of a communication

as local or interstate turns on whether its origin and des-

tination are in the same state. Because a customer’s ven

ture into the web characteristically reaches servers out of

state (and often out of the country), the Commission

concluded that under the end-to-end principle dial-up

internet traffic was interstate. /d. 118. As such traffic

was “jurisdictionally mixed,” 7d. {! 19, however, the Com-

mission chose not to disturb state commissions’ applica-

tion of interconnection agreements to that traffic “pend-

ing adoption of a rule establishing an appropriate inter-

state compensation mechanism,” 7d. at 4] 21. In review of

the order in Bell Atlantic Tel/]. Cos. v. FCC, 206 F.3d 1

(D.C. Cir. 2000), we found the Commission’s conclusions

in apparent conflict with various prior statements, and

possibly with the statute; we vacated the order and

remanded the matter for its further analysis. /d. at 9.

On remand the Commission instituted substantially

the same rate cap system that it defends here. See /SP

Remand Order § 8. But it claimed as supporting author

itv 47 U.S.C. §$251(g), which required LECs to comply

with certain FCC regulations promulgated prior to the

enactment of the 1996 Act. In WorldCom, Inc. v. FCC,

288 F.3d 429 (D.C. Cir. 2002), we rejected that claim,

finding that § 251(g) was “worded simply as a transitional

device” and thus could not be relied on for authority to

promulgate new regulations. /d. at 430. Recognizing

that the Commission’s rules might well have other legal!

bases. however, we did not vaeate the order. /d. at 430,

434.

Between the JSP Remand Order and the present

Order there have been several additional visits to our

court. In July 2008 Core Communications, Ine. (“Core”)

petitioned the FCC to forbear from enforcing its rate

caps and associated provisions, a petition that the FCC

partly granted. Petition of Core Communications, 1ne.

for Forbearance Under 47 U.S.C. § 160(c) from Applica-

tion of the ISP Remand Order, 19 FCC Red 20179, 14 23-

24, 9 27, 2004 WL 2341235 (Oct. 18, 2004). We upheld the

order against challenges by both CLECs and ILECs.

Core 2006, 455 F.3d 267.

In June 2004 Core filed a petition seeking mandamus

requiring the FCC to respond to the WorldCom remand.

Based on the FCC’s representations about its efforts to

meet the remand, we denied Core’s petition “without pre-

judice to refiling in the event of significant additional de-

lay.” In re: Core Communications, Inc., No. 04-1179

(D.C. Cir. May 24, 2005). In October 2007 Core filed a

second petition, which we granted, “directling] the FCC

to explain the legal basis for its ISP-bound compensation

rules within six months of” May 5, 2008. Jn re Core

Communications, Ine., 531 F.3d 849, 850 (D.C. Cir. 2008)

(“Core 2008").

On the last permissible day, November 5, 2008, the

FCC released the current Order. Petitions for review

followed, filed by Core and by Public Service Commission

of the State of New York and National Association of

Regulatory Utility Commissioners (the “state petition-

ers”); we consolidated the petitions.

* >

As we noted at the outset, the Commission relies

primarily on § 201 for its authority to regulate ISP-bound

traffic. See Order 121. That seetion prohibits carriers

engaged in the delivery of interstate communications

from charging rates that are not “just and reasonable,”

and grants the FCC authority to preseribe regulations to

implement the 1934 Act, which include all provisions of

the 1996 Act. See AT&T Corp. v. lowa Utils. Bd., 525

U.S. 366, 377-78, 119 S. Ct. 721, 142 L. Ed. 2d 835 (1999)

(observing that “Congress expressly directed that the

1996 Act ... be inserted into the Communications Act of

1934” and ee ding that “the grant in $201(b) means .

[that] [t]he FCC has rulemaking authority to carry out

the ‘provisions of this Act,’ which inelude $$ 251 and

202"). A savings clause attached to § 251, namely § 251(4),

fortifies the Commission's position, providing: “Nothing

in this section shall be construed to limit or otherwise

affect the Commission’s authority under section 201.”

Further, all parties agree that the familiar principles of

Chevron USA v. Natural Resources Defense Council, 467

U.S. 887, 1048S. Ct. 2778, 81 L. Ed. 2d 694 (1984), apply to

the FCC’s construction of the Communications Act. State

Pet'rs Br. 8; Core Pet’r Br. 27-28; Resp. Br. 19-20.

I‘inally, except as discussed below, the petitioners accept

the end-to-end analysis and its application to ISP-bound

calls, as announced by the Commission in the Declara-

tory Ruling in 1999 (described above) and restated in the

Order, 121 & n.69.

Against the Commission's reliance on § 201, petition-

ers claim that “Congress's specific choice” on the matter

of interLEC compensation, manifested in §§ 251-252,

must trump the FCC’s “general rulemaking auteoely

under section 201." Core Interv. Br. 18. They cite Nor-

west bank Minnesota National Association v. FDIC,

312 F.3d 447, 451 (D.C. Cir. 2002), for the “cardinal rule

of statutory construction ... that where both a specific

and a reneral provision cover the same subject, the

specific provision controls.” State Pet’r Br. 27.

But it is inaccurate to characterize $201 as a general

grant of authority a $$ 251-252 as a specific one.

“When ... two statutes apply to intersecting sets

either is more specific.” Hemenway v. Peabody Coal

Co., 159 F.3d 264 (7th Cir. 1998). That is the case

here. Not all inter-LEC connections are used to deliver

interstate Re ae just as not all interstate com

munications involve an inter-LEC connection. A _ local

eall to chat with a schoolmate about the evening's home-

work would not—at least under conditions typical to

day—involve interstate communications; and a conven-

tional interstate long distance call, while it will usually

involve interconnection between the long distance provid-

er anda LEC, will often not involve two LECs connect

ing direetly with each other. And, as to a LEC’s pro

vision of aecess for completion of a long-distance call, the

parties agree that the link between the LEC and the

interexchange carrier is not governed by the reciprocal

compensation regime of §251(b)(5). See State Pet’rs Br.

95-26 (citing Global NAPS, Ine. v. Verizon New Eng

land, 444 F.3d 59, 62-63 (1st Cir. 2006), in turn quoting

the FCC’s Local Competition Provisions in the Tele-

communications Act of 1996, 11 FCC Red 15499, 1996

WL 452885 (Aug. &, 1996)).

Dial-up internet traffic is special because it involves

interstate communications that are delivered through

local ae it thus simultaneously implieates the regimes

of both § 201 and of §§ 251-252. Neither regime is a sub-

set of the other. They intersect, and dial-up internet

traffic falls within that intersection. Given this overlap,

$ 251(i)’s specific saving of the Commission’s authority

under § 201 against any negative implications from $251

renders the Commission’s reading of the provisions at

least reasonable.

Petitioners next argue that because the call to the ISP

terminates locally, the FCC’s authority over interstate

communications is inapplicable. State Pet’r Br. 30-53.

Section 251(b)(5) applies to “reciprocal compensation ar

rangements for the transport and termination of telecom-

munications.” Petitioners point to the FCC’s definition

(in the Order) of “terminatfion]” as “the switching of traf-

fic that is subject to Section 251(b)(5) at the terminating

carrier’s end office switeh ... and delivery of that traffic

to the called party’s premises.” See Order 1.13; see also

47 C.F.R. §51.701(d). State Pet’rs Br. 31-382. Because

the “ealled party” in the case of dial-up Internet traffic is

the ISP, petitioners say, the §251(b)(5) telecommuniea-

tions “terminat[e]” locally and thus the FCC cannot

apply its § 201 authority over these communications.

This argument fails because it implicitly assumes in-

applieability of the end-to-end analysis, which petitioners

have not challenged. And the FCC has consistently ap-

plied that analysis to determine whether communications

are interstate for purposes of §201. Petitioners do not

dispute that dial-up internet traffic extends from the ISP

subscriber to the internet, or that the communications,

viewed in that light, are interstate. Given that ISP-

bound traffie lies at the intersection of the $201 and

$$ 251-252 regime, it has no significance for the FCC's

$201 jurisdiction over interstate communications that

these teleeommunieations might be deemed to “termi-

nat[e]” at a LEC for purposes of § 251(b)(5).

Petitioners also appear indirectly to invoke the 8th

Cireuit’s conclusion that while the FCC has authority to

10a

impose a methodology on state commissions’ exercise of

power under § 252 (they specifically note “total element

long-run incremental cost” (““TELRIC”)), it has (for cer-

tain purposes) no power to set actual prices. See State

Pet’rs Br. 33, citing Jowa Utils. Bd. v. FCC, 219 F.3d 744,

757 (8th Cir. 2000). We take no position on the issue be-

fore the 8th Circuit. It reached its finding for purposes

quite different from the present subject (FCC ratesetting

authority for a leg of an interstate communication), and it

did not address the FCC’s power to implement “just and

reasonable” rates under §201 or how that power was

affected by §§ 251-252.

Petitioners further argue that it was “arbitrary and

eapricious” for the FCC to “discriminate” against dial-up

internet traffie by requiring that LI¢Cs be compensated

pursuant to the rate cap regime when terminating such

traffic, but otherwise in accordance with state commis

sions’ appheation of the FCC’s TELRIC methodology.

Core Pet’r Br. 43-47; Core Interv. Br. 22-23. See 5

U.S.C. § 706(2)(A). Our review under the arbitrary and

capricious standard is narrow. See Core 2006, 455 F.3d

at 277. Here the agency action passes handily.

The Commission has provided a solid grounding for

the differences between the treatment of inter-LEC com-

pensation for delivery of dial-up internet traffic and the

regime generally applicable to inter-LEC compensation

under §251(b)(5). (We assume arguendo that the con-

cept of discrimination is relevant to regimes created un-

der entirely different statutory provisions.) In the con-

text to which reciprocal compensation is ordinarily ap-

plied, it noted, outgoing calls are generally balanced by

incoming ones, so that it matters relatively little how

accurately rates reflect costs. JSP Remand Order 4 69.

Such balance is utterly absent from ISP-bound traffic.

lla

Moreover, the Commission found that in fact the rates

for such traffic were so distorted that CLECs were in

effect paying ISPs to become their customers. Jd. {70 &

n.134; see also zd. 11 21. To the extent that ILECs simply

passed the costs on to their customers generally (rather

than having a separate charge for those making ISP-

bound calls), they would foree their noninternet custo-

mers to subsidize those making ISP-bound calls, and the

system would send inaccurate price signals to those using

their facilities for internet access (in effect the ISPs and

their customers) and to those not doing so. /d. (11 68, 87.

On the other hand, the Commission believed that its

“failure to act... would lead to higher rates for Internet

access, as ILECs seek to recover their reciprocal com-

pensation liability ... from their customers to call ISPs,”

id. 187, presumably meaning rates “higher” than cost,

correctly computed. Thus the continued application of

the reciprocal compensation regime to ISP-bound traffic

would “undermine[ ] the operation of competitive mar

kets.” Jd. 9 71.

Core purports to find a discrepancy between our man-

damus order and the Commission’s response. Our order

required the FCC to “explain[ ] the legal authority for the

Commission’s interim interearrier compensation rules

that exclude ISP-bound traffic from the reciprocal

compensation requirement of § 251(b)(5).” Core 2008, 531

F.3d at 862. The Order, en route to finding that § 201

authorized the Commission to impose its rate cap system

on the communications in question, also expressed its

view that they were “subject to the reciprocal compen-

sation regime in sections 251(b)(5) and 252(d)(2).”” Order

115; see also 2d. 116. Core claims that in so finding the

Commission violated our mandate.

12a

In context it is perfectly plain that our order sought

simply to have the FCC explain the reasoning underlying

its exercise of authority, not to preempt its analytical

route. The sort of argument made by Core here gives

pettifoggery a bad name.

Finally, we note the presence of a number of argu-

ments introduced outside of the petitioners’ opening

briefs. Core intervened in the appeal filed by the state

petitioners before we consolidated its separate appeal

with the latter. Together with other intervenors, Core

filed a brief raising a number of arguments that it did not

raise as petitioner. As we explained in Ji/linois Bell

Telephone Company v. FCC, 911 F.2d 776 (D.C. Cir.

1990), “An intervening party may join issue only on a

matter that has been brought before the court by another

party.” 7d. at 786 (emphasis added). While we acknow

ledged in Synovus Financial Corporation v. Board of

Governors, 952 F.2d 426 (D.C. Cir. 1991), that this rule is

prudential and “should not be applied categorically,” the

grounds that Synovus mentioned for making exceptions

are absent here. Jd. at 434. Synovus allowed an inter-

venor who lacked incentive to petition for review of the

administrative action to present an additional issue that

was “an essential predicate to [a] question” raised by

petitioners. /d. at 434 (internal quotes omitted). But

Core not only had an incentive to petition for review itself

but did so. See United States Telephone Association. v.

FCC, 188 F.3d 521, 531 (D.C. Cir. 1999) (noting that

intervenors not only failed to qualify for the Synovus ex-

ception but “present[ed] no reason why it could not have

petitioned in its own right”). And the issues Core raises

as intervenor bear “no substantive connection” to the

challenges petitioners raise in their initial briefs. Syno-

vus, 952 F.2d at 434; Cir. Rule 28(d)(2). Accordingly, we

loa

do not consider the new arguments Core raises as

intervenor. Similarly, we do not consider arguments that

first appear in petitioners’ reply briefs. See, e.g., Bd. of

Regents of the Univ. of Washington v. HPA, 86 F.3d

1214, 1221 (D.C. Cir. 1996) (“By failing to make any

specific objection until their reply brief, petitioners de-

prived the [respondents] of the opportunity to respond.

To prevent this ..., we have generally held that issues

not raised until the reply brief are waived.)

The petitions for review are

Denied.

Appendix: Text of 47 U.S.C. § 201

§ 201. Services and Charges.

(a) It shall be the duty of every common carrier

engaged vn interstate or foreign communication by wire

or radio to furnish such communication service upon

reasonable request thercfor| |; and, in accordance with

the orders of the Commission, in cases where the Com

mission, after opportunity for hearing, finds such action

necessary or desirable in the publie interest, to establish

physical connections with other carriers, to establish

through routes and charges applicable thereto and the

divisions of such charges, and to establish and provide

facilities and regulations for operating such through

routes.

(b) All charges, practices, classifications, and regula-

tions for and in connection with such communication

service, shall be just and reasonable, and any such

charge, practice, classification, or regulation that is un-

just or unreasonable is declared to be unlawful: Provid-

‘nhapter may be classified into day, nignt, repeated,

inrepeated, letter, commercial, press, Government, and

ucn other Cla eC a tne (ommission may decide to be

IST ind reasonable ind dillerent charge may ne maat

r the different f communicatior Lhe

, ~)F ~ ] ] ;

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r j ‘ay ) 4 ary ) rhe ji i / ) / rr

APPENDIX B

BEFORE THE

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DEVELOPING A UNIFIED INTERGCARRIER

COMPENSATION REGIME

CC DockEeT No. 01-9?

INTIERCARRIER COMPENSATION

rORISP BOUND TRAFFI

CC DockerT No. 99-6

IP-ENABLED SERVIC!

WC DocKkET No. 04-26

ORDER ON REMAND AND REPORT

AND ORDER AND FURTHER NOTICE OF

PROPOSED RULEMAKING

ADOPTED: NOVEMBER 5, 2008

RELEASED: NOVEMBER 5, 2008

Comment Date: (14 days after publi-

cation in the Federal

Reyister)

Reply Cor:ment Date: (21 days after publi-

cation in the Federal

Reyister)

By the Commission: Chairman Martin issuing

a separate statement; Commissioners

Copps, Adelstein, Tate, and McDowell

issuing a joint slatement.,

Sb) ai

19a

Mareh 24, 2000, in the Bell Atlantic decision, the D.C.

Circuit vacated certain provisions of the Declaratory

Ruling The court did not question the Commission’s

finding that ISP-bound traffic is interstate. Rather, the

court held that the Commission had not adequately ex-

plained how its end-to-end jurisdictional analysis was

relevant to determining whether a call to an ISP is sub-

ject to reciprocal compensation under section 251(b)(5).

In particular, the court noted that a LEC serving an ISP

appears to perform the function of “termination” because

the LEC delivers traffie from the calling party through

its end office switch to the called party, the ISP.”

3. On April 27, 2001, the Commission released the

ISP Remand Order, which concluded that section 251(g)

excludes ISP-bound traffic from the scope of section

251(b)(5).’ The Commission explained that section 251(z)

maintains the pre-1996 Act compensation requirements

for “exchange access, information access, and exchange

services for such access,” thereby excluding: such traffie

from the reciprocal compensation requirements that the

1996 Act imposed.” The Commission coneluded that ISP-

' Bell Atlantic, 206 F.3d at 1

’ See id. at 5.

" pee 14. at 6.

' See Intercarrier Compensotion for ISP-Bound Lrathie, CC Doeket

Nos. 96-98, 99-68, Order on Remand and Report and Order, 16 FCC

Red 9151, 9171-72, para, 4A 2001) (SP aa mand Order), renianae |

but not vacated by WorldCom, Inc. v. FCC, 288 F.3d 429, 432 (D.C.

Cir, 2002) (WorldCom) (subsequent history omitted) (holding that

section 251(g) appears to provide for the continued enforcement “of

certain pre-Act regulatory ‘interconnection restrictions and obliga

tions’”).

~ The term “1996 Act” refers to the Telecommunications Act of 1996.

Pub. L. No. 104-104, 110 Stat. 56 (1996). The term “Act” refers to

the Communications Act of 1934, as amended. 47 U.S.C. § 151 et Seq.

20a

bound traffic was “information aceess” and, therefore,

was subject instead to the Commission’s section 201

jurisdiction over interstate communications.” The Com-

mission also found “convincing evidence in the record”

that carriers had “targeted ISPs as customers merely to

take advantage of ... intercarrier payments” (including

offering free service to ISPs, paying ISPs to be their

customers, and sometimes engaging in outright fraud).

It therefore adopted an ISP payment regime in order to

“limit, if not end, the opportunity for regulatory arbi-

trage.”"" The Commission concluded that a bill-and-keep

regime might eliminate incentives for arbitrage and foree

carriers to look to their own customers for cost reeov-

ery... To avoid a flash cut to bill-and-keep, however, the

Commission adopted a compensation regime pending

completion of the Jntercarrier Compensation proceed-

ing.” Specifically, the regime adopted by the Commis-

» See ISP Remand Order, 16 FCC Red at 9175, para. 52. Thus, the

Commission affirmed its prior finding in the Declaratory Ruling

that ISP-bound traffic is jurisdictionally interstate. See id: see also

Declaratory Ruling, 14 FCC Red at 3710-03, paras. 18-20.

” See ISP Remand Order, 16 FCC Red at 9187, para. 77.

ISP Remand Order, 16 FCC Red at 9184-85, paras. 74-75. The

Commission discussed at length the market distortions and regu-

latory arbitrage opportunities created by the application of per

minute reciprocal compensation rates to TSP-bound traffic. In par-

ticular, the Commission found that requiring compensation for this

type of traffic at existing reciprocal compensation rates undermined

the operation of competitive markets because competitive LECs

were able to recover a disproportionate share of their costs from

other carriers, thereby distorting the price signals sent to their ISP

customers. See JSP Remand Order, 16 FCC Red at 9181-86, paras

67-76.

~ See ISP Remand Order, 16 FCC Red at 91458, para. 2 (citing

Developing a Unified Intercarrier Compensation Regime, CC

21a

sion consisted of: (1) a gradually declining cap on inter-

carrier compensation for ISP-bound trafic, beginning at

$.0015 per minute-of-use and declining to $.0007 per

minute-of-use; (2) a growth cap on total ISP-bound min-

utes for which a LEC may receive this compensation;

(3) a “new markets rule” requiring bill-and-keep for the

exchange of this traffic if two carriers were not ex-

changing traffic pursuant to an interconnection agree-

ment prior to the adoption of the regime; and (4) a

“mirroring rule” that gave incumbent LECs the benefit

of the rate cap only if they offered to exchange all traffic

subject to section 251(b)(5) at the same rates.”

rate caps reflected the downward trend in interearrier

compensation rates contained in then-recently negotiated

interconnection agreements.”

These

4. On May 3, 2002, the D.C. Circuit found that the

Commission had not provided an adequate legal basis for

the rules it adopted in the JSP Remand Order." Once

again, the court. did not question the Commission's find-

ing that ISP-bound traffic is jurisdictionally interstate.

Rather, the court held that section 251(g) of the Act did

not provide a basis for the Commission’s decision. The

eourt held that section 251(¢7) is simply a transiUional

Docket No. 01-92, Notice of Proposed Rulemaking, 16 FCC Red 9610

(2001) Untercarnier Compensation NPRM)).

' ISP Remand Order, 16 FCC Red at 9187-89, 9193-94, paras. 78,

80, 89. In a subsequent order, the Commission granted forbearance

to all teleeommunic¢ations carriers with respect to the growth caps

and the new markets rule. See Petition of Core Communications,

Ine. tor Forbearance Under 47 U.S.C. § 160¢e) from Application of

the ISP Renvand Order, WC Docket No. 03-171, Order, 19 FCC Red

20179 (2004) (Core Forbearance Order). Thus, onty the rate caps and

mirroring rule remain in effect. today.

* See ISP Remand Order, 16 FCC Red at 9190-91, para. SO.

See WorldCom, 288 F.3d at 429.

device that preserved ooblugations tnat pre dated the 1996

Act until the Commission adopts superseding rules, and

that there was no pre-1996 Act obligation with respect t

intercarrier compensation for ISP-bound traffic." Al-

though the court reject d the legal rationale for the eom

pensation rules, the court remanded, but did not vacate

the JSP Remand Order to the Commission, and it ob

served that “there is plainly a non-trivial likelihood that

the Commission has authority” to adopt the rules

<9 +1, e ] — 4 Is + a [ ) ) ) }>*

Vv, the rules adopted in thi LST Ke RQ Ae Ee

According

of mandamus with the D.C. Cireuit seeking to compel the

Commission to enter an order resolving the court's re

1 in the WorldCom decision.” On July &, 2008, th:

eourt granted a writ of mandamus and directed the Com-

} ]

Ol a tina ippealable order whic explains ts iega

authority to issue the pricing rules tor ISP-bound traffic

. « + Parry) rT) ] \.. J T*| — ‘joss

adopted in the JSF Nheria) (Jade? he court directed

idop

tne Commission to rest na | Lf tL ot mandamus D\

November 5. ?%O0S8

f LAT os ‘

i Yy¥ y

mi) n, lc. Cy 14.4 N AUU

( “Oo | | ( it Ni r

Pe i ( on |

. .

INOVE wer | l PQ

pi EI

B. Discussion

6. In this order, we respond to the D.C. Circuit’s re-

mand order in WorldCom v. FCC," and the court's writ of

mandamus in Core Communications Ine.* Specifically,

we hold that although ISP-bound traffic falls within the

scope of section 251(b)(5), this interstate, interexchange

traffic is to be afforded different treatment from other

section 251(b)(5) traffic pursuant to our authority under

section 201 and 251(i) of the Act.

1. Scope of Section 25i(b)(5)

7. As an initial matter, we conclude that the scope of

section 251(b)(5) is broad enough to encompass ISP-

bound traffic. To be sure, we acknowledge that, in the

Local Competition First Report and Order, the Commis-

sion found that section 251(b)(5) applies only to local

traffic,” and some commenters continue to press for

such an interpretation.” As other commenters recognize,

«i

See 288 F.3d at 434.

See d31 °°.3d at 861-62.

Local Competition First Report and Order, 11 FCC Red at 16012-

135, para. 1033.

“* See. e.g., Suppl mental Comments of Verizon and Verizon Wire-

less at 24-32; Letter from Daniel Mitchell, Vice President, Legal and

Industry, Multonal Cable and Telecommunications Association

(NCTA), to Marlene H. Dorteh, Seeretary, FCC, CC Docket No. 01-

92 at 9 (filed Sept. 30, 2008) (NCTA Sept. 30, 2008 E’'r Parte Letter);

Verizon Jntercarrier Compensation FNPRM Comments at 38 42:

NARUC Intercarrier Compensation FNPRM Comments at 6-7;

Rural Alliance /xtercarrier Compensation FNPRMVM Comments at

144-49; Cincinnati Bell /rtercarrier Compensation FNPRM Com-

ments at 5-11; Maine Public Utilities Commission and Vermont Pub-

lic Service Board Jrtercarrier Compensation FNPRM Comments at

7; New York State Department of Publie Service /zterearrier Com

pensation FNPRM Comments at 7; Verizon and BellSouth, Supple-

mental White Paper on ISP Reciprocal Compensation, CC Docket

No. 96-98, 99-68 at 16-20 (fled July 20, 2004) (Verizon/BellSouth

24a

however, the Commission, in the /SP Remand Order, re-

considered that judgment and econeluded that it was a

mistake to read section 251(b)(5) as limited to local traf-

fic, given that “local” is not a term used in section

251(b)(5)." We recognize, as the Supreme Court noted in

AT&T Corp. v. lowa Utilities Board, that. “[i]t would be a

gross understatement to say that. the 1996 Act is not a

model of clarity.”"” Nevertheless, we find that the better

view is that section 251(b)(5) is not limited to local traffic.

8. We begin by looking at the text of the statute. Sec

tion 251(b)(5) imposes on all LECs the “duty to establish

reciprocal compensation arrangements for the transport

and termination of teleecommunications.”’ The Aet

broadly defines “telecommunications” as “the transmis-

sion, between or among points specified by the user, of

Supp. ISP White Paper); NARUC’s Initial Comments at 7 n.13 (May

23, 2004). But see, e.g., ICF Intercarrier Compensation FNPRM

Comments at 39.

” ISP Remand Order, 16 FCC Red at 9166-67, para. 35. See also,

e.g., Qwest, Legal Authority for Comprehensive Interearrier Com-

pensation Reform 2-4 (Qwest White Paper), attached to Letter from

Melissa Newman, Counsel for Qwest, to Marlene H. Dortch, Secre-

tary, FCC, CC Docket Nos. 01-92, 06-45, 99-68, WC Docket. Nos. 04-

36, 05-337, 05-194, 06-122 (filed Oct. 7, 2008) (Qwest Oct. 7, 2008 Ax

Parte Letter); Letter from Kathleen O’Brien Ham et al., Counsel for

T-Mobile, to Marlene H. Dortech, Secretary. FCC, CC Docket No. 01-

92 at 9-10 (filed Oct. 3, 2008) (T-Mobile Oct. 3, 2008 Ex Parte Letter);

Level 3 Aug. 18, 2008 Ex Parte Letter at 2, 15-18; AT&T Reply to

Comment Sought on Missoula Plan Phantom Trafhie Interim

Process Call Detail Records Proposal, CC Docket No. 01-92, Public

Notice, DA 06-2294 (WCB 2006) (Missoula Phantom. Traffic) at 35-

41; Brief from Gary M. Epstein, Counsel for ICF, to Marlene H.

Dortch, Secretary, FCC, CC Docket No. 01-92 at 29-35 (filed Oct. 5,

2004).

“a a~mprmy y ’ } >) rec ] ‘ ou

AT&T v. lowa Utils. Bd., 525 U.S. at 397.

“ 47 ULS.C. § 251(b)(5).

25a

information of the user’s choosing, without change in the

form or content of the information as sent and re-

ceived.”* Its scope is not limited geographically (“local,”

“intrastate,” or “interstate”) or to particular services

(“telephone exchange service,” telephone toll service,”

or “exchange access”). We find that the traffic we elect

to bring within this framework fits squarely within the

meaning of “teleeommunications.” We also observe that.

had Congress intended to preclude the Commission from

bringing certain types of teleeommunications traffic with-

in the section 251(b)(5) framework, it could have easily

done so by incorporating restrictive terms in section

251(b)(5). Because Congress used the term “telecom-

munications,” the broadest of the statutc’s defined terms,

we conclude that section 251(b)(5) is not limited only to

the transport and termination of certain types of tele-

communications traffic, such as local traffic.

9. In the Local Competition First Report and Order

the Commission concluded that section 251(b)(5) applies

only to local traffic, but recognized that “[uJltimately ...

the rates that local carriers impose for the transport and

termination of local traffic and for the transport and ter-

mination of long distance traffic should converge.”* In

the JSP Remand Order, the Commission reversed course

on the seope of section 251(b)(5), finding that “the phrase

‘local traffic’ created unnecessary ambiguities, and we

correct that mistake here.™ The JSP Remand Order

* 47 U.S.C. § 158(43).

™ Td. § 153(47).

" Td. § 153(48).

" Td. § 153(16).

* Local Competition First Report and Order, 11 FCC Red at 16012,

para. 10353.

* ISP Remand Order, 16 FCC Red at 9173, para. 46.

26a

noied that “the term ‘local,’ not being a_ statutorily

defined category, ... is not a term used in section

251(b)(5)."" = The Commission found that the scope of

section 251(b)(5) is limited only by section 251(g¢), which

temporarily grandfathered the pre-1996 Act rules gov-

erning “exchange access, information access, and ex-

change services for such access” provided to interex-

change carriers and information service providers until

“explicitly superseded by regulations prescribed by the

Commission.”” On appeal, the D.C. Circuit left intact the

Commission’s findings concerning the scope of section

251(b)(5), although it took issue with other aspects of the

ISP Remand Order."

10. We disagree with commenters who argue that

section 251(b)(5) only can be applied to traffic exchanged

between LECs, and not traffic exchanged between a

LEC and another carrier.” The Commission rejected

' Id. at 9167, para. 34.

* 47 U.S.C. § 251(g).

” See WorldCom v. FCC, 288 F.3d at 429.

See, ¢y., Supplemental Comments of Verizon and Verizon Wire

less (“The best interpretation of § 251(b)(5)}—read in light of the

text, structure, and history of the 1996 Act--is that the reciprocal

compensation obligation applies only to intraexchange (or ‘local’)

voice calls that originate on the network of one LEC (or wireless

provider) and terminate on the network of another LEC (or wireless

provider) operating in the same exchange (or, in the case of wireless

providers, the same MTA.”): Letter from Ann D. Berkowitz, Associ

ate Director, Federal Regulatory Advocacy, Verizon, to Marlene H

Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 26

(filed May 17, 2004) (attaching white paper entitled “Internet-Bound

Traffic is Not Compensable Under Sections 251(b)(5) and 252(d)(2)”)

(Verizon/BellSouth White Paper) (“By its nature, ‘reciprocal com-

pensation’ must [ ] apply to ‘teleeommunications’ exchanged between

LECs (or carriers, like CMRS providers, that the Commission

27a

that argument in the Local Competition Order, finding

that section 251(b)(5) applies to traffic exchanged by a

LEC and any other telecommunications carrier, and

adopted rules implementing that finding.” In a specific

application of that principle, the Commission concluded

that “CMRS providers will not be classified as LECs,’””

but nevertheless found that “LECs are obligated, pur-

suant to section 251(b)(5) (and the corresponding pricing

standards of section 252(d)(”)), to enter into reciprocal

compensation agreements with all CMRS providers.”

No one challenged that finding on appeal, and it has been

settled law for the past 12 years. We see no reason to

revisit that conclusion now. While section 251(b)(5) indis-

putably imposes the duty to establish reciprocal compen-

sation arrangements on ILECs alone, Congress did not

limit the class of potential beneficiaries of that obligation

to LECs.”

authorized to treat as LECs), not to traffie that is exchanged be

tween LECs and non-LECs.”) (emphasis in original).

™ See Local Competition First Report and Order, 11 FCC Red at

16013 16, paras. 1034-41, See also 47 C.F.R. 51.708(a) (“Each LEC

shall establish reciprocal compensation arrangements for transport

and termination of telecommuniecations traffic with any requesting

telecommunications carrier”); JSP Remand Order, 16 FCC Red

at, 9198-94, para. 89 n.177 (“Section 251(b)(5) applies to telecom

munications traffic between a LEC and a telecommunications car-

rier...)

“ Local Competition First Report and Order, 11 FCC Red at 15996,

para. 1005.

" Local Competition First Report and Order, 11 FCC Red at 15997,

para, 1008.

If Congress had intended to limit the class of potential benefi-

ciaries of LECs’ duty to establish reciprocal obligation arrange

ments, it would have said so explicitly. See 47 U.S.C. § 251(b)(3)

(deseribing the “duty to provide dialing parity to competing provid

ers of telephone exchange service and telephone toll service”).

28a

11. We also disagree with commenters who argue

that section 252(d)(2)(A)(i) limits the scope of section

251(b)(5).” Section 252(d)(2)(A)(i) provides that a state

commission “shall not consider the terms and conditions

for reciprocal compensation to be just and reasonable”

unless “such terms and conditions provide for the mutual

and reciprocal recovery by each carrier of costs asso-

ciated with the transport and termination on each car-

rier’s network facilities of calls that originate on the net-

work facilities of the other carrier.”” Verizon and others

argue that this provision necessarily excludes interex-

change traffic from the scope of section 251(b)(5), be-

cause at the time the 1996 Act was passed calls neither

originated nor terminated on an interexchange carrier’s

network.“ We reject this reasoning because it errone-

ously assumes that Congress intended the pricing stan-

dards in section 252(d)(2) to limit. the otherwise broad

scope of section 251(b)(5). We do not believe that Con-

yress intended the tail to wag the dog.

Department of Public Service /ntercarrier Compensation FNPRM

Comments at 8-9; TDS Intercarrier Compensation FNPRM Com-

ments at 19 n.27; VeriSign /ntercarrier Compensation FNPRM

Comments, Attach B. at 9, 12, 26-28; Qwest /nlercarrier Compensa-

tion FNPRM Comments at 39; NASUCA J/nltercarner Compensa-

tion FNPRM Reply at 17; Leap Wireless International, Inc. /nter-

carrier Compensation F'NPRM Reply, Ex. 5 at 8.

* 47 U.S.C. § 252(d)(2)(A)(i).

* See, e.g., Maine Publie Utilities Commission and Vermont Public

Service Board /ntercarrier Compensation FNPRM Comments at 7-

8; New York State Department of Public Service /ntercarrier

Compensation FNPRM Comments at 7-10; Verizon/BellSouth Supp.

ISP White Paper at 16-20; NARUC I/ntercarner Compensation

F NPRM Initial Comments at 7 1.13.

12. Section 251(b)(5) defines the scope of traffic that

is subject to reciprocal compensation Section

252(d)(Z)(A)(1), in turn, deals with the mechanics of who

owes what to whom, it does not define the scope of traffic

to which section 251(b)(5) applies. Section 252(d)(2)(A)(i)

provides that, at a minimum, a reciprocal compensation

arrangement must provide for the recovery by each car

rier of costs associated with the transport and termi

nation on each carrier’s network of calls that originate on

the network of the other carrier.” Section 252(d)(2)(A)@)

does not address what happens when carriers exchange

traffic that originates or terminates on a third carrier’

network. This does not mean, as Verizon sugyests, that

section 251(b)(5) must be read as limited to traffic involv

ing only two carriers. Rather, it means that there is a

gap in the pricing rules in section 252(d)(2), and the Com

mission has authority under section 201(b) to adopt rule

to fill that gap.

13. We also reject Verizon’s aryument that a telecom

munications carrier that delivers traffic to an ISP is not

eligible for reciprocal compensation because the carrier

does not “terminate” telecommunications traffic at the

ISP.” In the Local Competition Order, the Commission

defined “termination” as “the switching of traffic that i

subject to section 251(b)(5) at the terminating carrier’

end office switch ... and delivery of that traffic to the

called party’s premises.”” As the D.C. Circuit sugyested

in the Bell Atlantic decision, “Calls to ISPs appear to fit

this definition: the traffie is switched by the LEC whose

17 U.S.C, & 252(d)(2)(A)G)

See. Fis : upplementa! {“Lomment Ol Ver on ana Vi } Or Wir

less at 34-34; Verizon/BellSouth Whité Paper at 31-32

Local Competition Order, \1 FOC! Red ut 16015 para, 1OA0

alsa 47 CFR Hl 7Ol(d

‘ i

clearly the ‘ealled part We nvres

14 Verizon al O Arye Pnwt the rere) me ts ( }

i) COmpen ation in the competitive CneckKiHst i CCTIOI

ae . whit i Wa (i¢ by Tie a i() 7 }r'¢ Phat Ocal mMmAarKe

—

it’ Oper Lo compet |

ntended to limit the scope of ection ) ) y(

: — ’

rallic We do not e how this argument sheds al

; i

larnt on trie COP (*¢ on Aly] hy ) { CTI Te na aout

neluded the reference t reciprocal CompensaLion In see

bigon TT Tyee iLise CLIO? ith { )) Apple to local trall

r i

i point thal no one dispuls That does not yryesl, |

oy + } if gage , Aaa ' , ‘ ay 4 1 ‘ t» ‘4

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vv‘ [ if vy‘

itt io }? ( | TT) / ? ; ‘) rn

aa ct ’ yf 4 j ’ Cua ly ‘or gay { r ;

1 Verizon Wire it. At (Ode (4) Ver v\ I per al4

13 (May 17, 2004 evel 3 points out, these argument )

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| nara (}{)}) thy rom ‘ ’ ; |

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joa

isdiction by expanding the applicability of national rules

to historically intrastate issues and state rules to his-

torically interstate issues.” In the Local Competition

First Report and Order, the Commission found that the

1996 Act created parallel jurisdiction for the Commission

and the states over interstate and intrastate matters

under sections 251 and 242.“ The Commission and the

states “are to address the same matters through their

parallel jurisdiction over both interstate and intrastate

matters under sections 251 and 252.”" Moreover, section

251(1) provides that “[nJothing in this section shall be con-

strued to limit or otherwise affect the Commission’s au-

thority under section 201." In the Local Competition

First Report and Order, the Commission concluded that

section 251(1) “affirms that the Commission’s preexisting

authority under section 201 continues to apply for purely

interstate activities.””"

19. In implementing sections 251 and 252 in the Local

Competition First Report and Order, the Commission's

treatment of LEC-CMRS traffic provides an instructive

example. Prior to the 1996 Act, the Commission ex-

pressly preempted “state and local regulations of the

kind of interconnection to which CMRS providers are

entitled” based on its authority under section 201 and 332

of the Act.~ Nevertheless, in the Local Competition

First Report and Order, the Commission brought LEC-

* Local ( ompetition First Report and Order, 11 FCC Red at 15544,

para. 83.

~ Td. at 15544-45, para. So.

Ii.

47 U.S.C. § 251(i).

' Local Competition First Re port and Order at 15546-47, para. 91.

= Timple mentation of Se ctions 3(n) and 332, GN Docket Na, 93-252.

Second Report and Order, 9 FUC Red 1411, 1498, para. 230 (1994).

oda

CMRS interconnection within the seetion 251 framework

as it relates to intraMTA (including interstate intraMTA)

traffic.” The Commission recognized, een that it

continued to retain separate authority over CMRS traf-

20. Courts confirmed that, in permitting LEC-CMRS

terconnection to be addressed through the seetion 251

mane rk. Commission did not in any way lose its

eee teeta or authority to regulate that

traffic under other provisions of the Act. Thus, anOvey

the Eighth Circuit invalidated the Commission’s TEL-

RIC seek: gr bane In general,” it recognized that “bec ‘ause

HHH / : > = Lf * P i See - . rm

section 332(¢)(1)(B) ) gives the I ¢ authority to order

( LO

LECs to neauiaihes) with CMRS earriers, we beheve

that the Commission has the authority to issue the rulk

Mf special concern to the CMRS providers, [including the

Ciprocal compensation rules] but only as these provi-

SIONS apply to CMRS providers. Thus, {the pricing rules

remain in full foree and effeet with respect to the

CMRS providers, and our order of vacation does not

pply to them in the CMRS conteat.”™ Subsequently, the

D.C. Cireuit held that CMRS providers were entitled t

Ne { { \ | \ (

= wate)

OUU0, Para. JU)

; . +)

la By opt to proceed under sections 251 1 252 y

mo tft? " ? °F W1W7 t ? tor r » > }

l lat S@C » es UPFIsal¢ OVET LOTCONT€ ( TT} S

} )} : + +

repealed DV Impilcat reject S i l

IISGiecvlor

+ 7 +}, |

We note tnat the supren \ I é ed S dat -

a .

affirmed the TE LRIC method ‘ \ { .

( 35 | s. 40 {){} lV 2 r( {

yyy ) I, 7 ~- ) ~

“ b L ( 120 I qd iVvoO SU i Str \]T Pe

’ f \ jy > na ry yt > ’ . ,

C al sl Ot < Ui t Ai 1A ) } \ t =

4 ‘7 4 T FOr i’ ()}¢ 4

1/4 7 ( » | '. Of 10 } i A

tate of

35a

pursue formal complaints under section 208 of the Act for

violations of the Commission's reciprocal compensation

rules.”

21. We build upon our actions -in the Local Com-

petition First Report and Order and find here that ad-

dressing ISP-bound traffic through the section 25]

framework does not diminish the Commission’s indepen-

dent jurisdiction or authority to regulate traffie under

other provisions of the Act. Specifically, we retain our

authority under section 201 to regulate ISP-bound

traffic, despite acknowledging that such traffie is section

251(b)(5) traffic. With respect to interstate services, the

Act has long provided us with the authority to establish

just and reasonable “charges, practices, classifications,

and regulations.” The Commission thus retains full au-

thority to regulate charges for traffic and services sub

ject to federal jurisdiction, even when it is within the see-

tions 251(b)(5) and 252(d)(2) framework. Because we re-

affirm our findings concerning the interstate nature af

ISP-bound traffic, which have not been vacated by any

court, it follows that such traffie falls under the Commis

sion’s section 201 authority preserved by the Aet and that

we therefore have the authority to issue pricing rules

pursuant to that section.” This conelusion is reinforeed

See Qwest Corp. v. FCC, 252 F.8d 462, 465-66 (D.C. Cir. 2001)

(describing the Fighth Cireuit’s analysis of seetion 332(c)1)(B) in

fowa Utils. Bd. v. FCC and concluding that an attempt to relitigate

the issue was barred by the doctrine of issue preclusion).

“47 U.S.C. § 201(b).

™ We have consistently found that ISP-bound traffic is jurisdiction-

ally interstate. ISP-bound traffic melds a traditional cireuit-switehed

local telephone call over the PSTN to packet switehed IP-based

Internet communication to Web sites. See e.g. Declaratory Ruling.

14. FCC Red at 3702, para. 18; JSP Remand Onler, 16 FCC Red ai

9175, para. o2. This conclusion has not been questioned by the D.C.

> 4 ay ‘

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ne (ommii CMV e I Ma Una Vi r services are sdalecvlo

, - q } y | ¢ " | : ?

LiV nterslale, ¢ t Ving the same ¢ i-LoO-eNnd analys reriect

| } ) 1 > {

} the) ) | () r JQ RKC $1-14 i

he eS

n yA .

‘ 4 a» : I

ova

equips the Commission with the tools necessary to keep

pace with regulatory developments and new technolo-

gies." When read together, these statutory sections pre-

serve the Commission’s authority to address new issues

that fall within its section 201 authority over interstate

traffic, including compensation for the exchange of ISP-

bound traffic. Consequently, in the JSP Remand Order,

the Commission properly exercised its authority under

section 201(b) to issue pricing rules governing the pay

ment of compensation between carriers for ISP-bound

traffic.”

22. Our result today is consistent with the D.C. Cir-

cuit’s opinion in Bell Atlantic, which concluded that the

Jurisdictional nature of traffic is not dispositive of wheth-

er reeiprocal compensation is owed under section

251(b)(5)." It is also consistent with the D.C. Circuit's

WorldCom decision, in which the court rejeeted the Com-

mission’s view that section 251(g) exeluded ISP-bound

traffic from the scope of section 241(b)(5), but made no

other findings. Finally, this result does not run afoul of

the Kighth Circuit's decision on remand from the Su

preme Court in the Jowa Utilities Board litigation, which

held that “the FCC does not have the authority to set the

actual prices for the state commissions to use” under

" See ISP Remand Order, at 9179, para. 51.

“ We thus respond to the D.C. Cireuit's remand order in Worldt "om,

288 F.3d at 434, and the court's writ of mandamus in Core Communi-

cations, 581 F.8d at 861-62, which directed the Commission to ex-

plain its legal authority to issue the pricing rules for ISP-bound

traffic adopted in the 7SP Remand Order. Specifically, we find, for

the reasons set forth here that the Commission had the authority to

adopt the pricing regime pursuant to our broad authority under see-

tion 201(b) to issue rules governing interstate traffic.

™ See Bell Atlantic, 206 F.3d at 5.

asa

section 251(b)(5).° At the time of that decision, under the

Local Competition First Report and Order, section

251(b)(5) applied only to local traffic. Thus, the Eighth

Cireuit merely held that the Commission could not set

reciprocal compensation rates for local traffic. The court

did not address the Commission’s authority to set recip-

rocal compensation rates for interstate traffic.“ In sum,

the Commission plainly has authority to establish pricing

rules for interstate traffic, including ISP-bound traffic,

under section 201(b), and that authority was preserved

by section 251(i).

3. Other Issues

23. Most commenters urge the Commission to main-

tain the compensation rules governing ISP-bound traffic

until the Commission is able to complete comprehensive

interearrier compensation reform.” These parties con-

* Jowa Utils. Bd. v. FCC, 219 F.3d 744, 757 (8th Cir. 2000) Vowa

Utils. 11), rev'd in part sub nom. Verizon v. FCC, 535 U.S. 467.

* Indeed, above, the court expressly confirmed the Commission's

independent my to set rates for CMRS traffic pursuant to

section 332 and deelined to vacate the Commission's pricing rules as

they applied in the context of CMRS service. See Jowa Utils. 1, 120

F.3d at 800 n.21.

" See, eg., Letter from Gregory J. Vogt, Counsel for CenturyTel,

Inc. to Marlene H. Dorteh, Secretary, FCC, WC Docket No. 05-337;

CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8, 2008) (ask-

ing the Commission to maintain the existing compromisizs reached

with respect. to ISP-bound traffic); Letter from Gary L. Phillips,

Associate General Counsel, AT&T, to Marlene H. Dortch, Secretary,

FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 8 (led May 9, 2008)

(asserting that the public interest would be best served by main-

taining the existing transitional rates pending broader intercarrier

compensation reform); Letter from L. Charles Keller, Counsel for

Sage Telecom, to Marlene H. Dortch, Secretary, FCC, WC Docket

Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 Ex Parte

Letter) (stating that retaining the ISP rate serves broad policy

39a

tend that a higher compensation rate would create new

opportunities for arbitrage“ and impose substantial fi-

nancial burdens on wireless companies, incumbent LECs

goals); Letter from John T. Nakahata, Counsel for Level 3 Com

munications to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.

01-92, 99-68 at 1 (filed May 7, 2008) (supporting continuation of the

compensation rules); Letter from Joshua Seidmann, Vice President

of Regulatory Affairs, Independent Telephone & Telecommunica.

tions Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket

Nos. 99-68, 96-98, Attach. at 2 (filed Apr. 28, 2008) (ITTA Apr. 28,

2008 Ex Parte Letter) (asking the Commission to retain the current

$0.0007 rate for ISP-bound traffic); Letter from Donna Epps, Vice

President of Federal Regulatory Affairs, Verizon, to Marlene H.

Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed Apr. 7,

2008) (urging the Commission to support. its earlier finding that

$0.0007 is appropriate compensation for dial-up ISP traffic); Letter

from L. Charles Keller, Counsel to Verizon Wireless, to Marlene H.

Dorteh, Secretary, FCC, CC Docket Nos. 01-92, 99-68, Attach. (filed

May 1, 2008) (Verizon Wireless May 1, 2008 Fx Parte Letter)

(describing how elimination of the existing ISP rate would create

substantial burdens on a number of carriers and state commissions):

Letter from Glenn Reynolds, Vice President, Policy, USTelecom, to

Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68,

96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) (USTelecom

Apr. 29, 2008 Ex Parte Letter) (noting that the Commission’s exist-

ing rules have “largely mitigated the debate around compensation

for ISP-bound traffic, but there is every reason to believe the same

problems would arise if the Commission were to reverse direction on

this issue”).

* See. e.g., USTelecom Apr. 29, 2008 Ex Parte Letter at 2: Letter

from Melissa E. Newman, Vice President, Federal Regulatory,

Qwest Communications International, Inc., to Marlene H. Dortch,

Secretary, FCC, CC Docket Nos. 99-68, 96-98, WC Docket No. 07-

135, Attach. at 3-5 (filed Apr. 25, 2008) (Qwest April 25, 2008 Ex

Parte Letter); Verizon and BellSouth, Further Supplemental White

Paper on ISP Reciprocal Compensation at 20 (Verizon/BellSouth

Further Supp. ISP White Paper), attacked to Letter from Donna

Epps, Vice President, Federal Regulatory Advocacy, Verizon, to

Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-98, 99-68

(filed Sept. 27, 2004).

40a

and state public utility commissions.” They further claim

that the existing regime has simplified interconnection

negotiations.”

24. Inthe JSP Remand Order, the Commission found

that the one-way nature of ISP-bound traffic creates sig-

nificant arbitrage opportunities. Due to the unbalanced

nature of ISP-bound traffic, the Commission observed

that reciprocal compensation arrangements created

enormous incentives for competitive LICs to sign up

ISPs as customers." The Commission cited evidence that

competitive LECs, on average, terminated eighteen

times more traffic than they originated, resulting in an-

nual CLEC reciprocal compensation billings of approxi-

mately two billion dollars, 90 percent of which was for

[SP-bound traffic.” The Commission concluded that “the

record strongly suggests that CLECs target ISPs in

large part because of the availability of reciprocal com-

pensation payments.”™ This undermined the operation of

competitive markets because competitive LECs were

able to recover a disproportionate share of their costs

from other carriers.“ To limit arbitrage opportunities

* See, e.g., Verizon Wireless May 1, 2008 Ex Parte Letter, Attach.

” See, e.g., id. (stating that “the [mlirroring [rlule simplified wire-

less-ILEC interconnection negotiations tremendously”); Supplemen-

tal Comments of Verizon and Verizon Wireless on Intercarrier Pay-

ments for ISP-Bound Traffie and the WorldCom Remand, CC Dock-

et Nos. 01-92, 96-98, 99-68 at 38-40 (filed Oct. 2, 2008) (Supplemental

Comments of Verizon and Verizon Wireless) (indicating that Verizon

entered into multiple agreements using the $.0007 rate cap estab-

lished in the JSP Remand Order).

" Td. at 9182-83, para. 68-71,

Id.

™ Td. at. para. 71.

4la

that arose from “excessively high reciprocal compen-

sation rates,”” the Commission adopted a gradually de-

clining cap on intercarrier compensation for ISP-bound

traffic, beginning at $.0015 per minute of use and declin

ing to $.0007 per minute of use, the current cap.” The

Commission derived the rate caps from contemporancous

interconnection agreements, in which carriers voluntarily

agreed to rates comparable to the rate caps adopted by

the Commission.” The interconnection agreements in

cluded lower rates for unbalanced traffic than for bal-

anced traffic, and the rates declined over time, like the

rate caps.” Although the Commission made no specific

findings with regard to the actual costs associated with

delivering traffic to ISPs, it noted evidence in the record

that technological advances were reducing the costs in-

curred by carriers when handling all forms of traffic.”

The Commission also noted that “negotiated reciprocal

compensation rates continue to decline as ILI¢Cs and

CLECs negotiate new agreements.”

25. On July 14, 2003, Core Communications, Inc.

(“Core”) filed a petition pursuant to Section 10 of the

Communications Act" requesting that the Commission

™ Td. at 9185, para. 75,

” Jd. at 9187, para. 78.

’ Td. at 9190-91, para. 85.

™ Jd. at 9190, para. 84.

” Ia.

Yi ’ al 2. . ’ reerryy ™~ . . ‘~

See 47 U.S.C. § 160(a) (“T]he Commission shall forbear from ap

plying any regulation or any provision of [the Communications] Act

to a telecommunications carrier ... if the Commission determines

that (1) enforcement of such regulation or provision is not necessary

to ensure that the charges, practices, classifications or regulations

by, for, or in connection with that telecommunications carrier or tese-

42a

forbear from enforcing the rate caps and certain other

provisions set forth in the JSP Remand Order with

respect to the exchange of ISP-bound traffic between

telecommunications carriers. In 2004, the Commission

denied the petition with respect to rate caps and the mir-

roring rule, determining that Core had satisfied none of

the three prongs of the statutory test for forbearance.”

First, the Commission found that forbearance from en-

forcement of the rate caps was not consistent with the

public interest. To the contrary, the Commission con-

cluded that rate caps remained necessary to prevent

regulatory arbitrage and to promote efficient investment

in teleeommunieations services and facilities.” Second,

the Commission found limited potential for discrimina-

tion under the rate caps. The caps applied to ISP-bound

traffic only to the extent that an incumbent carrier of-

fered to exchange all traffic at the same rate under

communications service are just and reasonable, and are not unjustly

or unreasonably discriminatory; (2) enforcement of such regulation

or provision is not necessary for the protection of consumers; and

(3) forbearance from applying such provision or regulation is consis-

tent with the public interest.”).

See Petition of Core Communications, Inc. for Forbearance

Under 47 U.S.C. § 160(C) From Application of the ISP Remand

Order, 19 FCC Red 20179 (2004) (“Forbearance Order’).

® The Commission rejected as an initial matter Core’s argument

that the D.C. Circuit’s decision in WorldCom, Inc. v. FCC, 288 F.8d

429 (2002), cert. denied, 588 U.S. 1012 (2003), compelled the agency

to grant the petition, observing that the court remanded but did not

vaeate the rules adopted in the /SP Remand Order and specifically

found a “non-trivial likelihvod” that the Commission would be able to

justify the regime it adopted. See Forbearance Order, 19 FCC Red

at, 20185 para. 17 (quoting Worldcom, 288 F.3d at 434).

43a

Section 251(b)(5).” Accordingly, the Commission con-

cluded that Core had not proven that the rate caps

resulted in impermissible discrimination ayainst or be-

tween competitive carriers or services.” Finally, the

Commission found that Core had not demonstrated that

enforcement of the rate caps was not necessary for the

protection of consumers. Core advanced speculative pen-

eral claims that the caps caused artificially high rates,

had forced competitive carriers from the market, and had

deterred investment in telecommunications services, all

to consumers’ detriment. The Commission rejected these

unsupported claims, explaining that the rate caps were

designed to prevent the subsidization of dial-up Internet

access customers at the expense of consumers of basic

telephone service and to avoid regulatory arbitrage and

discrimination between services.” For these reasons, the

Commission denied Core’s petition for forbearance inso-

far as rate caps were concerned.”

26. In 2006, the D.C. Circuit affirmed our decision not

to forbear from the rate cap (and the mirroring rulc).”

The Court found reasonable the Commission's “view that.

the rate caps are necessary to prevent the subsidization

of dial-up Internet access consumers by consumers of

basic telephone service” that would occur if reciprocal

compensation rates applied to one-way ISP-bound traf-

fic.” The Court likewise rejected Core’s contention that

wa oo “fs ff ¢ , 4s . .

" See 47 U.S.C. § 251(b)(5) (imposing upon local exchange carriers

the “duty to establish reciprocal compensation arrangements for the

transport and termination of telecommunications”).

” See Forbearance Order, 19 FCC Red at 20187 para, 23.

” Td. at 20188 para. 25.

" Td. at 20189 para. 29.

In re Core Communications, Inc., 455 F.3d 267 (D.C. Cir. 2006).

” Td. at 278.

444

the rate cap was “unreasonably discriminatory,” both be

cause one-way ISP-bound calls were fundamentally dif

ferent from other forms of traffic and because the mir

“the caps apply to ISI’-bound

roring rule ensures that

traffic only if an incumbent LEC offers to exchange all

Section 251(b)(5) traffic at the same rate.”"” T*inally, the

Court concluded that the Commission’s concern that the

rate cap was necessary to prevent “regulatory arbitrage’

{

and ‘distorted economic incentives’” was reasonable.”

27. The policy justifications provided by the Com

mission in 2001 for the rules at issue here have not been

questioned by any court. In addition, the policy justifica

tions provided by the Commission for refusing to forbear

from enforcement of these rules were upheld by the D.C.

Circuit in 2006. We therefore disagree with parties who

supvesl that the Commission, in responding to the D.C,

Circuit’s remand in WorldCom, must offer detailed new

justifications for the ISP intercarrier payment regime;”

[wle have already offered our justifications for that re

gime. Moreover, both the WorldCom remand and Core

writ of mandamus focused on the issue of legal authority.

We also reject arguments that the Commission unlaw

fully delegated its authority in the /SP Remand Order

and arguments that the Commission addressed previ

ously in the Core Forbearance Order.”

” Id. (citing Forbearance Order, 19 FCC Red at 20187, para, 2%

™ Td. at 279,

™ See Letter from Michael B. Hazzard, Counsel to Core Communi

cations, to Marlene H. Dorteh, FCC, CC Docket Nos. 99-68, 01-92,

Attach. at 20-26 (May 14, 2008)

™ See Core May 14, 2008 Response at 18 & n&, 19-20. The

Commission did not delegate its authority in the 7S? Remand Order,

but rather provided options that were not mandatory, See, eg. (SP

Remand Order, 16 FCC Red at 9193, para, 89. Additionally, Core

il, REPORT AND ORDER REFORM OF TIIGI

COST UNIVERSAT, SERVICE SUPPOTCU

sett

47a

munications carrier (ETC) to receive high-cost universal!

service support.'” ETCs may be incumbent. LECs, or

non-ineumbent LECs, which are referred to as “com

petitive ETCs."™ Under the existing high-cost support

distribution mechanism, incumbent LEC ETCs receive

high-cost support for their intrastate services based on

their costs.'” Competitive TCs receive support for each

line based on the support the incumbent LIEC would re-

ceive for that line in the service area." This support to

competitive ETCs is known as “identical support.” The

Commission’s universal service high-cost support rules

do not distinguish between primary and secondary lines;

therefore, high-cost support may go to a single end user

for multiple connections.'"“ Further, the Commission's

rules result in subsidizing multiple competitors in the

same high-cost area.

110 land a me! > Ye P rT. ° » why. °

tion are set out in section 214(e) of the Act. 47 U.S.C. § 214(e).

'' See 47 C.F.LR. § 54.5 (“A ‘competitive eligible teleeommunications

carrier’ is a carrier that meets the definition of ‘eligible telecom

munications carrier’ below and does not meet. the definition of an

‘incumbent loeal exchange earrier’ in § 51.5 of this chapter.”).

'S Non-rural incumbent LEC ETCs receive support for their intra

state supported services based on the forward-looking economic cost

of providing the services. 47 C.EF_R. § 54.309. Rural incumbent LEC

ETCs receive support based on their loop costs, as compared to a

national average. 47 C.IF'.R. Part 36, sbpt. F; 47 C.PLR. § 54.305.

Incumbent LEC ETCs that serve study areas with 50,000 or fewer

lines receive support based on their local switehing costs. 47 C.FLR.

§ 54.301. Additionally, incumbent LEC E'TCs that are subject to

price cap or rate-of-return regulation receive interstate access sup-

port based on their revenue requirements. 47 C.F.R. Part. 54, sbpts.

J, K.

"S47 C.FLR. § 54.307(a).

114

See Universal Service First Report and Order, 12 FCC Red at

&S28-30, paras. 94-96.

48a

33. High-cost support for competitive ETCs has

grown rapidly over the last several years, placing extra-

ordinary pressure on the federal universal service fund.”

In 2001, high-cost universal service support totaled ap-

proximately $2.6 billion.’ By 2007, the amount of high-

eost support had grown to approximately $4.3 billion per

year." In recent years, this growth has been due mostly

to increased support provided to competitive ETCs,

which receive high-cost support based on the per-line

support that the incumbent LECs receive pursuant to

the identical support rule. Competitive ETC support, in

the six years from 2001 through 2007, has grown from

under $17 million to $1.18 billion—an annual growth rate

115 > 7 . ‘ Z

Support for the fund derives from assessments paid by providers

of interstate telecommunications services and certain other provid-

ers of interstate teleeommunieations. See 47 C.F.R. § 54.706. Fund

contributors are permitted to, and almost always do, pass those

assessments though to their end-user customers. See 47 C.F.R.

§ 54.712. Fund assessments paid by contributors are determined by

applying the quarterly contribution factor to the contributors’ contri-

bution base revenues. In the second quarter of 2007, the contri-

bution factor reached 11.7 pereent, which is the highest level since its

inception. See Proposed Second Quarter 2007 Universal Service

Contribution Factor, CC Docket. No. 96-45, Publie Notice, 22 FCC

Red 5074, 5077 (OQMD 2007). The eontribution factor has sinee de-

clined to 11.4% in the fourth quarter of 2008. Proposed Fourth

Quarter 2008 Universal Service Contribution Factor, CC Docket

No. 96445, Public Notice, DA 08-2091 (OMD 2008).

'’ See FCC, UNIVERSAL SERVICE MONITORING REPORT, tbl. 3.2

(2007) (2007 UNIVERSAL SERVICE MONITORING REPORT), available

at http://hraun-foss.fee.ov/edoes_publie/attachmateh/DOC-279226

Al.pdf.

' UNIVERSAL SERVICE ADMINISTRATIVE COMPANY, 2007 ANNUAL

REPORT 48 (2007) (USAC 2007 ANNUAL REPORT), available at

http://www.usac.org/ res/documents/about/pdf/usae. annual-report-

2007.pdf.

49a

of over 100 percent.'" This “funded competition” has

grown significantly in a large number of rural, insular, or

high-cost areas; In some study areas more than 20 eom-

petitive ETCs currently receive support.”

34. ‘To address the growth in competitive ETC sup-

port, the Joint Board recommended an interim eap on the

amount of high-cost suppert available to competitive

KTCs, pending comprehensive high-cost universal ser-

vice reform.'’ ‘The Commission adopted this reeom-

mendation on May 1, 2008."

35. For the past several years, the Joint Board and

the Commission have been exploring ways to reform the

Commission's high-cost program. In the most reeent

high-cost support comprehensive reform efforts, the

Lis

2007 UNIVERSAL SERVICE MONITORING REPORT at tbl. 3.2;

USAC 2007 ANNUAL REPORT at 45.

See USAC Quarterly Administrative Filings for 2008, Fourth

Quarter (4Q) Appendices, HC038—-Rural Study Areas with Compe-

tition—4Q2008, available at http://www.usac.org/about/govern

ance/fee-filings/2008/Q4/11C036020-Co20 Rural Se20Study %20Areas%

Z20Owith e20Competition20-%2041Q2008.xls (showing 24 competitive

KTCs in the study area of incumbent LIC lowa Telecom North

(study area code 351167), and 22 competitive ETCs in the study area

of incumbent LEC lowa Telecom Systems (study area code 351170)).

™ High-Cost Universal Service Support; Federal-State Joint Board

on Universal Service, WC Docket No. 05-337, CC Docket No. 96-45,

Recommended Decision, 22 FCC Red 8998, 8999-9001, paras. 4-7 (JB

2007) Urterim Cap Recommended Decision).

" Interim Cap Recommended Decision, 22 FCC Red at 8999-9001,

paras. 4-7; Interon Cap Order, 23 FCC Red at 8834. As recom

mended by the Joint Board, the Commission capped competitive

kK’ TC support for each state. /rterim Cap Recommended Decision,

22 FCC Red at 9002, para. 9; /nterim Cap Order, 23 FCC Red at

SS46, paras. 26 28. The Commission set the eap at the level of sup-

port competitive E'TCs were eligible to receive during March 2008.

Interim Cap Order, 23 FCC Red at 8850, para. 38.

50a

Joint Board issued a recommended decision on Novem-

ber 20, 2007.'* The Universal Service Joint Board's re-

eommended decision included several reeommendations

to address the growth in high cost support and to reform

the high cost mechanisms. Specifically, the Universal

Service Joint Board recommended that the Commission

should: (1) deliver high-cost support through a provider

of last resort fund, a mobility fund, and a broadband

fund; (2) eap the high-cost fund at $4.5 billion, the ap-

proximate level of 2007 high-cost support; (8) reduce

the existing funding mechanisms during a_ transition

period; (4) add broadband and mobility to the list. of ser-

vices eligible for support under section 254 of the Act;*

(5) eliminate the identical support rule; and (6) “explore

the most appropriate auction mechanisms to determine

high-cost universal service support.”

36. On January 29, 2008, the Commission released

the Joint Board Comprehensive Reform NPRM, seeking

comment. on the Joint Board's Comprehensive Reform

E22 ‘ . ° ) ye uN

{ omprehens iv Reform Recommended TD) cision, 22 FCC Red

20477.

123 : o») WAG

Comprehensive Reform Recommended Decision, 22 FCC Red at

20478, pura. 1.

vs ‘ ° ? "1 wv

( om prehe RSLVE Reform Recommended Decision, 22 FCC Red at

2048081, para. 11.

125 ’ . ) “ye a

Comprehensive Reform Recommended Decision, 22 FCC Red at

20484, para. 26.

“ Comprehensive Reform Reconomended Decision, 22 FCC Red at

20484, para. 27

17 . Sy NN

( omprehens2ve Reform Recommended Decision, 22 FCC Red at

20481-82, paras. 12-18.

Is pv ; : : ] hyde ce @ OB f

Comprehensive Reform Recommended Decision, 22 FCC Red at

20486, para. 35.

22 FCC Red at

| Feu Y . ) j

Comprehensive Reform Recommended Deci

20478, paras. 1-6

Ala

Recommended Decision.” Pursuant to seetion 251(a)(2),

the Commission “shall complete any proceeding to imple

ment subsequent recommendations from any Joint Board

on universal service within one year after receiving such

recommendations.”

BK. Discussion

We have carefully reviewed the Joint Board's

Comprehensive Reform Recommended Decision and the

comments that were filed in response to the Commis

sion’s Joint Board Comprehensive Reform NPRM. We

thank the Joint Board and its staff for them hard work tn

studying these difficult issues and in developing their

recommendations. We choose not to implement these

recommendations at this time, however.

Hl. FURTHER NOTICE OF PROPOSED RULE-

MAKING

as. In enacting the Aet, Congress sought to introduce

competition into local telephone service, whieh tradition-

ally was provided through regulated monopolies. Recog

nizing that in introducing such competition, it was threat

ening the implicit subsidy system that had traditionally

supported universal service, it directed the Commission

to reform its universal service program to make support

130 oy fy ’ : ¥ : ’ ra . ,

High-Cost Universal Service Support; Federal-State Joint Board

on Universal Service, WC Doeket No. 05 387, CC Docket No. 96-15,

Notice of Proposed Rulemaking, 23 FCC Red 1467 (2008) (/dentical

Support NPRM); High-Cost Universal Service Supvort; Federal

State Joint Board on Universal Service, WC Doeket No. 05-337, CC

Docket No. 96-45, Notice of Proposed Rulemaking, 28 FCC Red 1495

(2008) (Reverse Auctions NPRM); Joint Board Comprehensive

Reform NPRM, 23 FCC Red 1581 (colleetively the High-Cost Re

form NPRMs).

131 - To ‘ - or »

47 U.S.¢ eS. PAA AL )

explicit and sustainable in the face of developing competi-

tion.

39. The communications landscape has undergone

many fundamental changes that were seareely antici-

pated when the 1996 Act was adopted. The Internet was

only briefly mentioned in the 1996 Act,'~ but now has

come into widespread use, with broadband Internet ac

cess Service increasingly viewed as a necessity. Consist-

ent with this trend, carriers are converting from cireuit-

switched networks to IP-based networks. These changes

have benefited consumers and should be encouraged.

Competition has resulted in dramatically lower prices for

telephone service, and the introduction of innovative

broadband products and serviees has fundamentally

changed the way we communicate, work, and obtain our

education, news, and entertainment. At the same time,

however, these developments have challenged the out-

dated regulatory assumptions underlying our universal

service and interecarrier compensation regimes, foreing

us to reassess our existing approaches. We have seen un-

precedented growth in the universal service fund, driven

in significant part by increased support for competitive

KTCs. The growth of competition also has eroded the

universal service contribution base as the prices for inter

state and international services have dropped. Finally,

we have seen numerous competitors exploit arbitrage op

portunities ereated by a patchwork of above-cost inter-

carrier compensation rates.

10. We seek comment today on three specifie pro-

posals. The first, attached as Appendix A, is the Chair

man’s Draft Proposal circulated to the Commission on

October 15, 2008, which was placed on the Commission’s

See 47 U.S.C. § 230; 47 U.S.C. § 157 nt.

, Ooa

agenda for a vote on November 4, 2008. This item subse-

quently was removed from the Agenda on November 3,

2008." The second, attached as Appendix B, is a Narrow

Universal Service Reform Proposal circulated to the

Commission on October 31, 2008. The third, attached as

Appendix C, is a draft Alternative Proposal first cireu-

lated by the Chairman on the evening of November 5,

2008. Appendix C incorporates changes proposed in the

ex parte presentations attached as Appendix D. We note

that members of industry, Congress, and the general

public have urged the Commission to seek comment. on

these proposals.

41. We seek particular comment on two questions.

First, should the additiona! cost standard utilized under

§ 252(d)(2) of the Act be: (i) the existing TELRIC stan

dard; or Gi) the incremental cost standard described in

the draft order? Second, should the terminating rate for

all § 251(b)(5) traffie be set as: (i) a single, statewide rate;

or (il) asingle rate per operating company?

IV. PROCEDURAL MATTERS

A. Ex Parte Presentations

42. The rulemaking this Further Notice initiates shall

be treated as a “permit-but-disclose” proceeding in aecor-

dance with the Commission's ex parte rules." Persons

making oral ea parte presentations are reminded that

memoranda summarizing the presentations must contain

summaries of the substance of the presentations and not

merely a listing of the subjects discussed. More than a

one or two sentence deseription of the views and argu

™ See http://hraunfoss.fee.gov/edoes publie/attachmateh/DOC-2865

32A1.pdf,

Li ad ‘ . . ‘

47 ¢ FR. 8 1.200 ef se (j.

o4a

ments presented generally is required.'” Other require-

ments pertaining to oral and written presentations are

set forth in section 1.1206(b) of the Commission’s rules."

B. Comment Filing Procedures

43. Pursuant to sections 1.415 and 1.419 of the Com-

mission’s rules,'” interested parties may file comments

and reply comments regarding the Further Notice on or

before the dates indicated on the first page of this docu-

ment. All filings should refer to CC Docket Nos. 96-45,

96-98, 99-68, 99-200, 01-92 and WC Docket Nos. 03-109,

(4-36, 05-337, and 06-122. Comments may be filed using:

(1) the Commission’s Electronic Comment Filing System

(ECF); (2) the Federal Government’s e-Rulemaking

Portal, or; (3) by filing paper copies. See Electronic Fil-

ing of Documents in Rulemaking Proceedings, 63 FR

24121 (1998).

44, Electronic Filers: Comments may be filed elec-

tronieally using the Internet by accessing the ECFS:

http://www.fee.gov/egb/ecls/ or the Federal e-Rulemak-

ing Portal: http:/Awww.regulations.gov. Iilers should fol-

low the instructions provided on the website for submit-

ting comments.

45. ECFS filers must transmit one electronic copy of

the comments for CC Docket Nos. 96-45, 96-98, 99-68, 99-

200, 01-92 and WC Docket Nos. 03-109, 04-36, 05-337, and

06-122, respectively. In completing the transmittal

screen, filers should include their full name, U.S. Postal

Service mailing address, and the applicable docket num.

ber. Parties may also submit an electronic comment by

Internet e-mail. To get filing instructions, filers should

See 47 C.F.R. § 1.1206(b)(2).

' 47 C.F.R. § 1.1206(b).

"47 C.F.R. §§ 1.415, 1.419.

5da

send an e-mail to ecfs@fee.gov, and include the following

words in the body of the message, “get form.” A sample

form and directions will be sent in response.

46. Paper Filers: Parties who choose to file by paper

must file an original and four copies of each filing. Fil-

inys can be sent by hand or messenger delivery, by com-

mercial overnight courier, or by first-class or overnigiit

U.S. Postal Service mail (although we continue to experi-

ence delays in receiving U.S. Postal Service mail). All fil-

ings must be addressed to the Commission’s Secretary,

Marlene H. Dorteh, Office of the Secretary, Federal

Communications Commission, 445 12th Street, S.W.,

Washington, D.C. 20554.

47. The Commission’s contractor will receive hand-

delivered or messenger-delivered paper filings for the

Commission’s Secretary at 2386 Massachusetts Avenue,

N.E., Suite 110, Washington, D.C. 20002. The filing

hours at this location are 8:00 a.m. to 7:00 p.m. All hand

deliveries must be held together with rubber bands or

fasteners. Any envelopes must be disposed of before

entering the building.

48. Commercial overnight mail (other than U.S.

Postal Service Express Mail and Priority Mail) must be

sent to 9300 East Hampton Drive, Capitol Heights, MD

20743.

49. U.S. Postal Service first-class, Express, and Pri-

ority mail should be addressed to 445 12th Street, S.W.,

Washington D.C. 20554. Parties should send a copy of

their filings to Victoria Goldberg, Pricing Policy Division,

Wireline Competition Bureau, Federal Communications

Commission, Room 5-A266, 445 12th Street, S.W.,

Washington, D.C. 20554, and to Jennifer McKee, Tele-

communications Access Policy Division, Wireline Compe-

tition Bureau, Federal Communications Commission,

56a

Room 5-A423, 445 12th Street, S.W., Washington, D.C.

20554, or by e-mail to epdeopies@fce.gov. Parties shall

also serve one copy with the Commission’s copy contrac-

tor, Best Copy and Printing, Inc. (BCPI), Portals II, 445

12th Street, S.W., Room CY-B402, Washington, D.C.

20554, (202) 488-5300, or via e-mail to fee@bepiweb.com

50. Documents in CC Docket Nos. 96-45, 96-98, 99-68,

99-200, 01-92 and WC Docket Nos. 03-109, 04-36, 05-337,

and 06-122 will be available for public inspection and

copying during business hours at the FCC Reference

Information Center, Portals II, 445 12th Street S.W.,

Room CY-A257, Washington, D.C. 20554. The docu-

ments may also be purchased from BCPI, telephone

(202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-

5562, e-mail fee@bepiweb.com.

C. Initial Regulatory Flexibility Analysis

51. As required by the Regulatory Flexibility Act of

1980," the Commission has prepared an Initial Regula-

tory Flexibility Analysis (IRFA) of the possible signifi-

cant economic impact on small entities of the policies and

rules addressed in this document. The IRFA is set forth

as Appendix E. Written public comments are requested

on this IRFA. Comments must be identified as re-

sponses to the IRFA and must be filed by the deadlines

for comments on the Notice previded on or before the

dates indicated on the first page of this Notice.

D. Paperwork Reduction Act

52. This document contains proposed new or modified

information collection requirements. The Commission,

as part of its continuing effort to reduce paperwork bur-

dens, invites the general public and the Office of Manage-

ment and Budget (OMB) to comment on the information

™® See 5 U.S.C. § 603.

57a

collection requirements contained in this document, as

required by the Paperwork Reduction Act of 1995, Public

Law 104-18. In addition, pursuant to the Small Business

Paperwork Relief Act of 2002, Public Law 107-198,'" we

seek specific comment on how we might “further reduce

the information collection burden for small business con-

cerns with fewer than 25 employees.”

E. Accessible Formats

53. ‘l’o request materials in accessible formats for

people with disabilities (Braille, large print, electronic

files, audio format), send an e-mail to fec504@f{cec.gov or

call the Consumer & Governmental Affairs Bureau at

202-418-0530 (voice) or 202-418-0482 (TTY). Contact the

FCC to request reasonable accommodations for filing

comments (accessible format documents, sign language

interpreters, CART, etc.) by e-mail: I'CC504@fcc.pov;

phone: 202-418-0530 or TTY: 202-418-0432.

KF. Congressional Review Act

54. ‘The Commission will include a copy of this

ORDER ON REMAND AND REPORT AND ORDER

AND FURTHER NOTICE OF PROPOSED RULE-

MAKING in a report to be sent to Congress and the

Government Accountability Office pursuant to the Con-

gressional Review Act. See 5 U.S.C. § 801(a)(1)(A).

V. ORDERING CLAUSES

99. Accordingly, IT IS ORDERED that, pursuant to

sections 1-4, 201-209, 214, 218-220), 224, 251, 252, 254,

303(r), 332, 408, 502, and 508 of the Communications Act

of 1934, as amended, and Scctions 601 and 706 of the

Telecommunications Act of 1996, 47 U.S.C. §§ 151-154,

157 nt, 201-209, 214, 218-220, 224, 251, 252, 254, 303(r),

See 44 U.S.C. § 3506(c)(4).

58a

332, 403, 502, 503, and sections 1.1, 1.411-1.429, and

1.1200-1.1216 of the Commission’s rules, 47 C.F-.R.

§$ 1.1, 1.411-1.429, 1.1200-1.1216, the ORDER ON

t{HMAND AND REPORT AND ORDER AND FUR

THER NOTICE OF PROPOSED RULEMAKING

ARE ADOPTED.

56. IT IS FURTHER ORDERED, in light of the

opinion of the United States Court of Appeals for the

District of Columbia Circuit in WorldCom wv. FCC, 288

Ke8d 429 (D.C. Cir. 2002), we consider our obligations

met from the writ of mandamus issued in /n re Core

Communications, Inc. on Petition for Writ of Manda

mus to the Federal Communications Commission, DA

Cir. No. 07-1446 (decided July 8, 2008)

57. IT IS FURTHER ORDEREICD that this FUR

THER NOTICE OF PROPOSED RULEMAKING

SHALL BECOME EFFECTIVE on the date of publica

tion of the text of a summary thereof in the Federal

Repister, pursuant to 47 C.F. R. §§ 1.4, 1.18.

58. IT IS FURTHER ORDERED that this ORDER

ON REMAND AND REPORT AND ORDER SHALL

BE EFFECTIVE upon release,

59. IT IS FURTHER ORDERED that the Commi

sion’s Consumer & Governmental Affairs Bureau, Ref

erence Information Center, SHALL SEND a copy of this

ORDER ON REMAND AND REPORT AND ORDER

AND FURTHER NOTICE OF PROPOSED RULE

MAKING, including the Initial Regulatory [I lexibility

Analysis, to the Chief Counsel for Advocacy of the Small

Jusiness Administration.

MORLRAL COMMUNICATIONS COMMIT 1()!

i (¢ ()> 7

APPENDIX A

HAIRVMAN’'S DRAFT PROore

bla

IP-E-NABLED SERVICES

WC DOCKET No. 04-36

NUMBERING RESOURCE OPTIMIZATION

CC DOCKET NO. 99-200

ORDER ON REMAND AND REPORT

AND ORDER AND FURTHER NOTICE OF PRO-

POSED RULEMAKING

Adopted: “Insert Adopted Date”

Released: “Insert Release Date”

Comment Date: |XX days after publi-

cation in the Federal

Reply Comment Date: [XX days after publi-

cation in the Federal

Heading

I. INTRODUCTION

62a

TABLE OF CONTENTS

Paragraph #

Il. REFORM OF HIGH-COST UNIVER-

SAL SERVICE SUPPORT

Background

Discussion

Controlling the Growth of the

OREN © WN serene ccseaieenntceoccmssin

Conditioning Support on Offering

Broadband Internet. Aecess Ser-

a. Definition of Broadband In-

ternet Access ServiCe...........c...c..cces.s

b. Broadband Internet Access

Service Obligations .................:cccecee

Incumbent LECs’ Commitment

ed CF r Fev oon cciceccccoscccseccaccsesscctcces

Reverse Auctions tor Study Are-

as Unserved by Broadband....................

Sa, 5 ee on Orne

1h BRN FU oc ccs cack cacisencosamsernecenrancss

e. Auctioned Support ..................ccceeee

d. Selecting a Winning Bid....................

e. Bidder Qualifications 0... eee

Competitive Eligible Telecom-

FUNTVICMEIOTAS COGTTICTS. occesicccasacveiavescsscccesess

FN raisons ese rricsrerertscces

b. Certification by Existing

CONMPOTIIIVG BE TB oacissvciccincscsessecdscess

‘

ec. Calculation of Support............eeeeeee

COOTER RRO OOH EH ETHER TEETH HEE HEHE

eee eee ee eee eee ee eee eee ee)

POR UPR P REE COC OSOS CES U PEC UE SSE ee ee eee ee eee eee

POOR OEE EERE EEO EEE EEE EEE HEHEEEEOEEHEEEESD

aces 24

acon 28

See oo

eer 5]

erin

baiees 53

632

6. Build-Out Milestones and Moni-

toring, Compliance, and Iinforce-

FROIN «0 s.00s0eccendenesneeeeseasbsevecaunegemiininennintiannnnEE o7

Il. BROADBAND FOR’ LIFELINE

LINK UP CUSTOMERS :......:.c.5eeeeeee 64

A. BCR QT OUI onvccecccsccucscevassserepesstnaciatn 65

TS. LISCUBSION .xcascevessenceeiaerenenvessnavunvonssseenanieaann 71

Ll. Available FUNGI co.ccicsscscccecstpustaeeeneeee 77

2. Eligible Services and Equipment ............0..... SO

3. Selection Criteria. .....<<o..007pe eee 85

4. Implementation and Reporting

REQUIFCINGMES. « .0escesecsressssarveaneeeseebenneeeeneenaa SS

5. Program Oversignt «.i.::.<nsenseee 91

IV. REFORM OF UNIVERSAL SER-

VICE CONTRIBUTIONS vucuccuuscs eee Q?

A. BACK @YOWIG wisisccccccecssosssinessvenyeteeeese eee 93

5. DISCUSBION ...ccdicconsessncien gene 97

L. Legal Authority «..c:ss0scscsecenenpssenue sean eee YS

2. The New Numbers-Based Assess-

ment Methodology for Residential

BOT VICES «..0s1<cnsncovucyvensneessecenens aledeeiaaean anne 105

a. Benefits of a Numbers-Based

Contribution Methodology................0008. 106

b. Assessable Number Sicciecccccincnmonuens 115

3. Contribution Assessment Method-

ology for Business Servite ........ccccccecesscsees 130

4. Wireless Prepaid Pigns occ: 135

5. Exeeptions to Contribution Obli-

SUE ROTID xevincanesccdsncurseseuntare jstcpenteeale 140

6. Reporting Requirements and

RECOPGKCO DERG eesssecéssvasnrnaeicpaeeueseneeeeee 147

Transition to New Methodology ................ 154

~~]

64a

V. REFORM OF INTERCARRIER

I SDRC OLE BASES onsesiiesencceoseensssunnounekentsceseoediannante 157

A. A Brief History of Intercarrier Com

aes ae ds asisakaehexawahebns dime eeniesien aa 159

1. Interearrier Compensation Regu-

lation Before the Teleeommuni

ene We WE 160

2. Interearrier Compensation Regu

BTID PeITICS ENC TOG DCE cicciccesccccscovecesstecscees 169

3. Problems Associated With the lex

isting Interearricr Compensation

MINNIS is csasisaicsenensebennannancreebdasuermndsnanene ana 178

es A/OMMPTONENSIVE TETOLIN......ccsccsscosssessssoeseoseressseses 186

ee MIRO UNOITY 5 sesninvessseuccatbvasvecatestissnoreareanen 186

2. A New Approach to Interearrier

Compensation ................ desieiaiavene see 188

NT PRUE TIOUTEY bscciscsccsssasnsseseunsonsdeuns saaveavatadien 207

a. Legal Authority for Compre-

hensive Reform—lInterpreta

tion of Sections 251(b)(5) and

BR ..ssacastunccienaded gee 207

b. Legal Authority for the Tran

MPG ssinsissscacoesysnnsvaniniabsdeineccorsoseussn tee 230

4. Additional Costs Standard................cesseereee 236

im ROPING «i evesecinscsssczesvcmsierasaueee 237

b. The Importance of Incremen-

tal Cost in Regulated Pricing ................. 240

e. The Ineremental Cost of Call

Termination on Modern Net

NTIS 1s asccisedisudiecumtonireni ae 253

d. Reeonsideration of Additional

SE Pe CRONOIG dina scoivessscrccstsioommeee 262

Se NMINCMILSICAOTD «5.i:sss200su00 p0aseeveevecvssennsestsooresenineral 269

semertion to the States... ....cccccssscsssestens 270

65a

a. Setting Final Reciprocal

Compensation Rates Based

ON Incremental COSE ....cicccccsesvesscerseessssnens 271

Ds SMS EG assccecctnensasseccsnvansisavioccsccenmiinvecsans 276

e. Modifications and Suspen-

sions under Section 251(f)(2) «0... esses 282

d. Existing AGTCCMCMNEGS..........csccccesscsoereeesoees 291

2. Revenue-Recovery Opportunities................294

gh. Eth Ut CIR sosisvisicctstessessscrsizereceens 296

b. Universal Service Support....... eee 311

LD. Measures to Ensure Proper Billing................... 9260

|: FEO ssisisrteaticeicescousterarseecueeeiens 326

SRI oie siicccccinccerce een RA |

S, TRRBCRGIOG si secctcticinccoeiraneeanniannane 329

a. Signaling Information.....................ssssees 330

b. Financial Responsibilities ....... eee 336

VI. FURTHER NOTICE OF PRO-

POURED BU is ML aS nteeinicicciemunnnnen 343

A. Universal Service Contributions ..........ceeeeeeeees 343

B. Interearrier Compensation Further

PUI ics. tisccas nies nearest ane 345

VIT. PROCEDURAL, MAE FBG cinisicsssticeccenessausee 350

A. Hx PAPC PRODOTIVATIOUD civics dscssntsreservsssernusenvens 350

B. Comment Filing Procedures, ....cc:.cccsescosssesssessssse 351

C. Initial Regulatory Flexibility Analysis.............. 362

D. Final Regulatory Flexibility Analysis ............... 363

BE. Pamer wort ROGUCUOR Fie sccsccssncissescsicrcsessscesessens 364

Y, ACOCCSSIIIG FUME cdiccicciuiicnnsansiannes 365

G. Congressional Review Act ...........:ccccccsssssesssessees 366

VITI.. CRDERING CL AUBir ceisicrsiaciranenn 367

66a

I. INTRODUCTION

1. In enacting the Telecommunieations Act of 1996

(1996 Act),' Congress sought to introduce competition

into loeal telephone service, which traditionally was pro-

vided through regulated monopolies. Recognizing that in

introducing such competition, it was threatening the im-

plicit subsidy system that had traditionally supported

universal service, it directed the Commission to reform

its universal service program to make support explicit

and sustainable in the face of developing competition.

2. For the most part, Congress’s vision has been real-

ized. Competition in local telephone markets has thrived.

At the same time, the communications landscape has un-

dergone many fundamental changes that were scarcely

anticipated when the 1996 Act was adopted. The Inter-

net was only briefly mentioned in the 1996 Act,” but now

has come into widespread use, with broadband Internet

access service increasingly viewed as a necessity. Con-

sistent with this trend, carriers are converting from cir-

cuit-switched networks to Internet Protocol (IP)-based

networks. These changes have benefited consumers and

should be encouraged. Competition has resulted in dra-

matically lower prices for telephone service, and the in-

troduction of innovative broadband products and services

has fundamentally changed the way we communicate,

work, and obtain our education, news, and entertainment.

At the same time, however, these developments have

challenged the outdated regulatory assumptions underly-

ing our universal service and interearrier compensation

regimes, forcing us to reassess our existing approaches.

' Teleeommunications Act. of 1996, Pub. L. No. 104-104, 110 Stat. 56

(1996) (1996 Act).

“ See 47 U.S.C. § 230; 47 U.S.C. § 157 nt.

67a

We have seen unprecedented growth in the universal

service fund, driven in significant part by increased sup-

port for competitive eligible telecommunications carriers

(ETCs). The growth of competition also has eroded the

universal service contribution base as the prices for in-

terstate and international services have dropped. F'i-

nally, we have seen numerous competitors exploit arbi-

trage opportunities created by a patchwork of above-cost

interearrier compensation rates. Although the Commis

sion has attempted to address many of these issues on a

case-by-case basis, it has become increasingly clear that

piecemeal efforts to respond to these developments are

inadequate—only comprehensive reform can address the

fundamental challenges that they present.’

3. Today we adopt a comprehensive approach to ad-

dressing these difficult, but critical issues. First, we spur

widespread deployment of broadband by ensuring that

carriers receiving universal serviee high-cost support of-

* We thus conclude that there is a compelling need to proceed with

comprehensive reform at this time, as we describe below. See, e.g.,

vufra Parts ILA, TILA, 1V.A, and V.B. Given that we have notice

and an extensive record, going back in some cases seven years, we

are unpersuadec by commenters proposing that we delay reform to

seek further comment, or that we issue a Further Notice of Pro-

posed Rulemaking on questions beyond those raised in Part VI. See

e.g., Letter from Ray Baum, Chairman, NARUC Communications

Committee, to Chairman Kevin J. Martin, et al., FCC, CC Docket

Nos. 01-92, 80-286, WC Docket Nos. 08-152, 04-32, 06-122, WT

Docket No. 05-194 at 2 (filed Oct. 21, 2008) (NARUC Oct. 21, 2008 E'x

Parte Letter); Letter from Jeffery S. Lanning, Embarq, to Chair-

man Kevin J. Martin, et al., FCC, CC Docket Nos. 01-92, 99-68, WC

Docket No. 04-36 at 2 (filed Oct. 28, 2008) (Embarg Oct. 28, 2008 Ex

Parte Letter); Letter from Erie N. Einhorn, Windstream, to

Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45,

99-68, WC Docket Nos. 06-122, 07-135, US-152 at 1 (filed October 27,

2008) (Windstream Oct. 27, 2008 Ea Parte Letter).

68a

fer broadband throughout their service areas. Second,

we help Lifeline/Link Up customers participate in this

new broadband world by creating a pilot program to pro

vide discounted access to broadband services. Third, we

broaden and stabilize our universal service contribution

base through equitable and non-discriminatory contribu-

tions. Fourth, having placed our universal service fund

on solid footing, we now take the long-overdue step of

moving toward uniform intercarrier compensation rates

that provide efficient incentives for the investment in and

use of broadband networks. Finally, our approach mini-

mizes disruptions to carriers and safeguards universal

service for consumers by adopting sensible transition

plans and ensuring that universal service is used to sup-

port service in high-cost areas, not carriers’ dividends.

Il. REFORM OF HIGH-COST UNIVERSAL SER-

VICE SUPPORT

4. Today we take a monumental step toward our goal

of ensuring that broadband is available to all Americans.

We do this by requiring that all recipients of high-cost

support offer broadband Internet access service to all

customers within their supported areas as a condition of

receiving future support. Taking this action will promote

the deployment of broadband Internet access service to

all areas of the nation, including high-cost, rural, and in-

sular areas where customers may not currently have ac-

cess to such services. In particular, as a condition of re-

ceiving continued high-cost support, we will require all

incumbent local exchange carriers (LECs) to commit to

offer broadband Internet access service within five years

to all customers in study areas where the incumbent

LECs receive high-cost support. Competitive eligible

telecommunications carriers (ETCs) likewise will be re-

quired to commit to offer broadband Internet access ser-

69a

vices to all customers in their service areas within five

years to continue to receive high-cost support, which will

be distributed based on the competitive ETCs’ own costs.

Competitive ETCs that do not make this commitment

will not be eligible to receive high-cost support; incum-

bent LECs that do not make this commitment will gradu-

ally lose their high-cost support, as this support will be

awarded via reverse auction to an ETC who will meet

carrier of last resort obligations and will commit to offer-

ing broadband Internet access to all customers in the en-

tire study area within ten years. With these reforms, we

take great strides toward ensuring that all Americans,

regardless of where they live, will have broadband Inter-

net access service available to them, without increasing

the size of the high-cost fund.

A. Background

5. The 1996 Act amended the Communications Act of

1934 (the Act) with respect to the provision of universal

service.” Congress sought to preserve and advance uni-

versal service, while at the same time opening all tele-

communications markets to competition.” Section 254(b)

of the Act directs the Federal-State Joint Board on Uni-

versal Service (Joint Board) and the Commission to base

policies for the preservation and advancement of univer-

sal service on several general principles, plus other prin-

ciples that the Commission may establish.” Among other

things, section 254(b) directs that there should be spe

cific, predictable, and sufficient federal and state univer-

sal service support mechanisms; quality services should

be available at just, reasonable, and affordable rates; and

' 47 U.S.C. § 254 (added by the 1996 Act).

' 47 U.S.C. § 254.

’ See 47 oo e GH § 254(b).

70a

access to advanced telecommunications and information

services should be provided in all regions of the nation.’

6. The Commission implemented the universal ser-

vice provisions of the 1996 Act in the 1997 Universal Ser-

vice First Report and Order.” In considering methods to

determine universal service support in rural, insular, and

high-cost areas, the Commission examined the use of

competitive bidding, and identified several advantages of

competitive bidding as a method for allocating high-cost

universal service support.’ First, the Commission found

that “a compelling reason to use competitive bidding is its

potential as a market-based approach to determining

universal service support, if any, for any given area.””

Second, “by encouraging more efficient carriers to sub-

mit bids reflecting their lower costs, another advantage

of a properly structured competitive bidding system

would be its ability to reduce the amount of support

needed for universal service.”" Despite these advan-

tages, the Commission determined that the record at the

" 47 U.S.C. § 254(b)(1), (2), (5).

® See Federal-State Joint Board on Universal Service, CC Docket

No. 96-45, Report and Order, 12 FCC Red 8776, 8780-88, paras. 1-20

(1997) (Universal Service First Report and Order) (subsequent his-

tory omitted).

* Universal Service First Report and Order, 12 FCC Red at 8948,

para. 320.

" Universal Service First Report and Order, 12 FCC Red at 8948,

para. 320 (agreeing with the Joint Board). The Commission also

agreed with the Joint Board that “competitive bidding is consistent

with section 254, and comports with the intent of the 1996 Act to rely

on market forces and to minimize regulation.” Jd. at 8951, para. 325

' Universal Service First Report and Order, 12 FCC Red at 8948,

para. 320 (“In that regard, the bidding process should also capture

the efficiency gains from new technologies or improved productivity,

converting them into cost savings for universal service.”).

lla

time was insufficient to support adoption of a competitive

bidding mechanism.” Moreover, the Commission found it

unlikely that competitive bidding mechanisms would be

useful at that time because there likely would be no com

petition in a significant number of rural, insular, or high-

cost areas in the near future.” ‘lhe Commission, there

fore, declined to adopt a competitive bidding mechanism

at that time, but found that competitive bidding war

ranted further consideration as a potential mechanism

for determining levels of high-cost support in the future."

7. Pursuant to section 254(e) of the Act, an entity

must be designated as an eligible telecommunications

carrier (IcTC) to receive high-cost universal service sup

port.” ETCs may be incumbent LECs, or non-incumbent

LIcCs, which are referred to as “competitive IX TCs,””"

Under the existing high-cost support distribution mecha

nism, incumbent LEC ETCs receive high-cost support

See Universal Service First Report and Order, 12 FCC Red at

8949-50, paras. 622 28. Only GT had proposed a detailed competi

tive bidding plan, which it characterized as an outline rather than a

final proposal. See GTE’s Comments in Response to Questions, CC

Docket No. 96-45, Attach. 1 (filed Auy. 2, 1996).

See Universal Service First Re port and Order, 12 FCC Red at

8950, pura. 324,

" See Universal Service First Report and Order, 12 FCC Red at

894%, para. $20)

" 47 U.S.C. § 264(e). The statutory requirements for ETC designa

tion are set out in section 214(e) of the Communications Act of 1934,

as amended (Communications Act or Act). 47 U.S.C. § 214(e).

" See 47 C.F.R, § 54.5 (“A ‘competitive eligible telecommunications

carrier’ is a carrier that meets the definition of ‘eligible telecommu

nications carrier’ below and does not meet the definition of an ‘in

curmbent local exchange carrier’ in § 51.5 of this chapter.”),

lor their intrastate services bused on their cost (‘om

petitive l’TCs, on the other hand, receive upport for

each of their lines based on the per-line support the in

cumbent LSC receive in the ervice area Thi Ippor't

to competitive Ie TCs is known as “identical support

The Commission’s universal service high-cost) support

rules do not distinguish between primary and secondar

lines; therefore, high-cost support may go to a single end

user for multiple connections.” Further, the Comm)

ions rules may result in multiple competitors in the

ame high cost area receiving identical per-line upport

High COST Upport lor compcutive KTCs ha rrov

rapidly over the last several years, which has placed e»

traordinary pressure on the federal universal servic

fund.” In 2001, high-cost universal service support t

Non-rural incumbent LEC ETCs receiv ipport for their ints

talk upported ervices based on the forward looking econom!

of providing the service 7 CLR 4.509. Rural incumbent Let

TOs receive support based on their loop cost is Compared to

national averaye 17 C.F RR. Part 36, bpt 7 C.F LR 4 wl

Incumbent LEC ETCs that serve tudy ureas with bO.O00 or fewe!

mes receive upport ba ed on theiu local Vitchniny cost a €3. i

4.301 Additionally, incumbent LIC Iu'l that are ect

price cap or rate-ol-return reyulation rece e interstate acces

port based on their revenue requiremer 17 C.F .R. Part 54

(le lJ naversal Ner j ; / at

(25-30, paras. 44-4

Support for the fund derives from usse ments paid by provide

of interstate telecommunicatiot rvice ind certain other pre

ers of interstate telecommunicatior See 47 CFR 4.706. eur

contributors are permitted to, and almost always do, p: those a

essments thirjough to their end-user customer See 47 CFI

54.712. Fund assessment paid by contributors are deter

upplying the quarterly contmbution factor to the contributors’ ce

{

rmbutlion pase re enue Try the ray qd quarts rot Zuod. the ntrit

9 To address the growth in competitive TC sup

port, the Joint Board recommended an interim cap on the

amount of high-cost support available to compctitive

leTCs, pending comprehensive high-cost universal ser

vice reform, The Commission adopted this recommen

dation in 2008."

10. For the past several years, the Joint Board and

the Commission have been exploring: ways lo reform the

Commission’s high-cost program. In the most recent

high-cost’ support comprehensive reform efforts, the

Joint Board issued a recommended decision on Novem

her 26, 2007.” The Joint Board recommended that the

Commission address reforms to the high-cost program

and make “fundamental revisions in the structure of ex

isting, Universal Service mechanisms.” Specifically, the

code Sh1167), and 22 compeliuive TCs in the study area of mneurn

bent LEC Lowa Telecom Systems (study area code S51 170))

High-Cost Universal Service Support; bederal State Jomt Koard

on Universal Service, WO Docket No. 05-347, CO Docket No. 96-45,

tecommended Decision, 22 FOC Red 8998, S099 GO0L, paras. 4-7 O01

2007) Untertm Cap Recomrniended Decision), High Cost Unioersal

Serve Support, Federal State Jowmt Board on Universal Service,

WC) Docket No. 05.337, CO Docket No 96-45, Order, 24 FCC Red

KH4 (2008) (Unterim Cap Order), As recommended by the Jom

Board, the Commission eapped competitive ETC support for each

State. /nterom Cap Recommended Decision, 22 FOC Ked at 9002,

para. 9: Interim Cap Order, 24 FOC Red at 8846, paras 26-25) The

Commission set the cap at the devel of support competitive bl

were clyible to reecive during, Mareh 2008, Tnteron Cap Order, 2%

POC Red at S850, paar. 4

64 High (‘ost T/niversal Service Support, hederal State Jowt Board

on Universal Seroee, WC Docket No, 05 437, CO Doeket No. 06 45,

Kecommended Decision, 22 FCC Red 20477 GI 2007) (Compre

hensioe Reform Recommended Decision)

Comprehensive Reform Recommended Decision, 22 VOC. Ked at

204A7%, para. |

75a

Joint Board recommended that the Commission should:

(1) deliver high-cost support through a provider of last

resort fund, a mobility fund, and a broadband fund;* (2)

cap the high-cost fund at $4.5 billion, the approximate

level of 2007 high-cost support;~ (8) reduce the existing

funding mechanisms during a transition period;” (4) add

broadband and mobility to the list of services eligible for

support under section 254 of the Act;" (5) eliminate the

identical support rule;* and (6) “explore the most appro-

priate auction mechanisms to determine high-cost uni

versal service support.”

11. On January 29, 2008, the Commission released

three notices of proposed rulemaking addressing propos-

als for comprehensive reform of high-cost universal ser-

vice support.” In the /dentical Support NPRM, the

™ Comprehensive Reform Recommended Decision, 22 FCC Red at

20480-81, para. 11.

“ Comprehensive Reform Recommended Decision, 22 FCC Red at

20484, para. 26.

ns Comprehensive Reform Re commended De Cision, a FCC Red al

20484, para. 27.

31 y . y J as o« VN >

Comprehensive Reform Recommended Decision, 22 FCC Red at

20481-82, paras. 12-18.

- Comprehensive Reform Recommended Decision, 22 FCC Red at

20486, para. 35.

33 Y ° as ’ : ‘pe Vite. »

Comprehensive Reform Recommended Decision, 22 FCC Red at

20478, paras. 1-6.

34 ° Y y ° Y ’ + a] Y ° ) ?

High-Cost Universal Service Support; Federal-State Joint Board

on Universal Service, WC Docket No. 05-337, CC Docket No. 96-45,

Notice of Proposed Rulemaking, 23 'CC Red 1467 (2008) (/dentical

Support NPRM); High-Cost Universal Service Support; Federal-

State Joint Board on Universal Service, WC Docket No. 05-337, CC

Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC Red 1495

(2008) (Reverse Auctions NPRM); High-Cost Universal Service

Support; Federal-State Joint Board on Universal Service, WC

Docket No. 05-337, CC Docket No. 96-45, Notice of Proposed Rule-

7ba

Commission sought comment on the Commission’s rules

governing the amount of high-cost universal service sup-

port provided to competitive ETCs.* It tentatively con-

eluded that the Commission should eliminate the identi-

eal support rule.“ The Commission also tentatively con-

cluded that support to a competitive ETC should be

based on the competitive ETC’s own costs of providing

the supported services, and it sought comment on how

the support should be calculated, the reporting obliga-

tions to be applied, and whether the Commission should

cap such support at the level of the incumbent LEC’s

support.’ In the Reverse Auctions NPRM, the Commis-

sion tentatively concluded that reverse auctions offer

several potential advantages over current high-cost

mechanisms and sought comment on whether they

should be used as the disbursement mechanism to deter-

mine the amount of high-cost universal service support

for ETCs serving rural, insular, and high-cost areas, and

it sought comment on how to implement reverse auctions

for this purpose.“ The Commission also sought comment

on a number of specific issues regarding auctions and

auction design.” The Commission also released the Joint

Board Comprehensive Reform NPRM, seeking comment

on the Joint Board’s Comprehensive Reform Recorm-

mended Decision and incorporating by reference the

Identical Support NPRM and the Reverse Auctions

making, 23 FCC Red 1531 (2008) (Joint Board Comprehensive Re-

form NPRM) (collectively the High-Cost Reform NPRMs).

* Identical Support NPRM, 23 FCC Red at 1468, para. 1.

" Tdentical Support NPRM, 23 FCC Red at 1473-78, paras. 12-25.

* Reverse Auctions NPRM, 23 FCC Red at 1495, para. 1.

T7va

NPRM. The discussion that follows represents our re

sponse to the Joint Board’s Comprehensive Reform Rec-

ommended Decision, pursuant to section 254(a)(2)."

B. Discussion

12. Today we comprehensively reform the high-cost

universal service support mechanism, and take steps to

ensure that broadband Internet access service is de-

ployed quickly to all areas of the country, including rural

and insular areas. The steps we take today will provide

certainty to providers as to the levels of support available

to them in providing supported services and broadband

Internet access service to all customers within the sup-

ported areas. This will assist providers in creating busi-

ness plans to deploy services in currently unserved areas

and will ensure efficiency in the deployment. of services to

these areas. Specifically, we are defining the level of

high-cost support available to providers that commit to

offer broadband to all customers within a service area.

Support in incumbent LEC service areas will be set at

the total amount of high-cost support disbursed to the

incumbent LEC E'lC in December 2008 on an annualized

basis. Ineumbent LEC ETCs will continue to receive

this level of support if they commit to offer broadband

Internet access services to all customers within the ser

vice area within five years. If an incumbent IL.EC does

not make this broadband commitment for a particular

service area, the support will be transitioned to the win-

* Joint Board Comprehensive Reform NPRM, 23 FCC Red at 1531,

para. 1.

“ 47 U.S.C. § 254(a)(2). Pursuant to that section, the Commission

shall complete any proceeding to implement a Joint Board recom.

mendation within one year after receiving it. The Commission has

acted on the Comprehensive Reform Recommended Decision prior

to the November 20, 2008 one-year statutory deadline.

78a

ning bidder of a reverse auction that will commit to de-

ploy broadband throughout the service area within ten

years, and to take on carrier of last resort obligations.

Competitive ETCs will receive high-cost support, based

on their own costs as compared to the relevant high-cost

support thresholds, so long as they, too, commit to offer

broadband Internet access service to all customers in

their service areas within five years. While ensuring that

broadband Internet access service is made available to

customers in rural and high-cost areas, we also cap the

overall size of the high-cost mechanism to protect. cus-

tomers in all areas of the nation from increasing univer-

sal service contribution assessments.

13. The requirements that we adopt. for disbursement

of high-cost universal service support. do not. apply to

providers operating in Alaska, Hawaii, or any U.S. Terri-

tories and possessions.” We find that these areas have

very different attributes and related cost issues than do

the continental states.“ For this reason, we are exempt

* Providers operating in U.S. Territories and possessions, such as

Puerto Rico and Guam, are not. subject to the high-cost support re-

quirements adopted in this order. See Letter from Earl Comstock,

Comstock Consulting LLC, to Marlene Dortch, Secretary, FCC, CC

Docket No. 96-45, WC Docket. No. 05-377 at 1 (dated Oct. 15, 2008)

(asking the Commission to recognize the higher costs and lower in

come levels in Puerto Rico in any reform efforts it may take); Letter

from Eric N. Votaw, Vice President-—Marketing & Regulatory, GTA

Telecom, Ine., to Marlene H. Dortch, Secretary, FCC, CC Docket

Nos. 99-68, 96-45, WC Docket No. 05-337 at 1-2 (filed Oct. 24, 2008)

(asking the Commission to recognize that Guam’s costs are higher

than the continental United States and that Guam should be treated

separately, along with Alaska and Hawaii, for reform purposes).

8 E.g., Verizon Comme'ns, Inc., Transferor, and América Movil,

S.A. de C.V., Transferee, WT Docket No. 06-113, Memorandum

Opinion and Order and Declaratory Ruling, 22 FCC Red 6195, 6211,

para. 36 (2007) (Verizon/Ameérica Movil Transfer Order) (describing

79a

ing providers in Alaska, Hawaii and U.S. Territories or

possessions from the high-cost support requirements and

rules adopted herein, and we will address them in a sub

sequent proceeding.”

1. Controlling the Growth of the High-Cost

Fund

14. Consistent with the recommendation of the Joint

Board, we cap the total amount of high-cost universal

service support.” As the Joint Board recognized, high-

cost support currently accounts for more than half of to

“difficult to serve terrain and dramatic urban/rural differences” in

Puerto Rico); Jntegration of Rates and Services for Provision of

Communications by Authorized Common Carriers between the Con-

tiquous States and Alaska, Hawaii, Puerto Rico and the Virgin Is-

lands, CC Docket No. 83-1376, Supplemental Order Inviting Com-

ments, 4 FCC Red 396, 396, paras. 7-8 (1989) (Rates and Services

Integration Order) (describing the unique market conditions and

structure in Alaska); Letter from Brita D. Strandberg, Counsel for

General Communication, Inc., to Marlene H. Dortch, Secretary,

FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 05-337 at 2

(Oct. 3, 2008) (discussing Alaska’s particular service needs and net-

work architecture).

“Cf The Establishment of Policies and Service Rules for the

Broadcasting-Satellite Service at the 17.38-17.7 GHz Frequency Band

and at the 17.7-17.8 GHz Frequency Band Internationally, and at

the 24.75-25.25 GHz Frequency Band for Fixed Satellite Services

Providing Feeder Links to the Broadcasting-Satellite Service and

for the Satellite Services Operating Bi-directionally tn the 17.3-17.8

GHz Frequency Band, 1B Docket No. 06 123, Report and Order and

Further Notice of Proposed Rulemaking, 22 FCC Red 8842, 8860,

para. 47 (2007) (Poltcies and Service Rules for the Broadcasting-

Satellite Service Order) (“The Commission is committed to establish-

ing policies and rules that will promote service to all regions in the

United States, particularly to traditionally underserved areas, such

as Alaska and Hawaii, and other remote areas.”).

a5 + ° . oa rm rar

Comprehensive Reform Recommended Decision, 22 FCC Red at

20478, 20481, 20484, paras. 2, 11, 26.

SOa

tal federal universal service support.” Since 1997, when

the Commission implemented the universal service re-

quirements of section 254 of the Act, high-cost support

has inereased by 240 percent.“ Although, earlier this

year, we took an initial step to address high-cost fund

growth by capping support to competitive ETCs, that cap

was an interim, emergency measure, pending a closer ex-

amination of the steps necessary to achieve comprehen-

sive reform.“ Many commenters have urged the Com-

mission to cap the overall amount. of high-cost support,

rather than limiting the cap only te competitive ETCs.*

* Comprehensive Reform Recommended Decision, 22 FCC Red at

20484, para. 26. In 2007, total federal universal service disburse-

ments amounted to approximately $6.95 billion. Of that amount, ap-

proximately $4.29 billion, 62%, was disbursed as high-cost support.

USAC 2007 ANNUAL REPORT? at 51.

7 See 2007 UNIVERSAL SERVICE MONITORING REPORT at 3-14, tbl.

3.1 (high-cost support in 1997 was approximately $1.26 billion, com-

pared with approximately $4.29 billion in 2007). Even taking into

account the fact that additional interstate support mechanisms, In

terstate Access Support (IAS) and Interstate Common Line Support

(ICLS), were created in 2000 and 2001, respectively, high-cost sup-

port has still increased by more than 45%, from approximately $2.94

billion in 2002 to its current level of approximately $4.29 billion. Jd.

* See Interim Cap Order, 23 FCC Red at 8834, para. 1.

* See CenturyTel High-Cost Reform NPRMs Comments at 18 (ex-

isting high-cost support mechanisms should be frozen at the study

area level or on a statewide basis to provide funding certainty and

encourage investment); Chinook High-Cost Reform NPRMs Com-

ments, Attach. at 5-6 (any cap on universal service support should

apply to all ETCs, including incumbent LECs); Connecticut Dep’t of

Pub. Util. Control High-Cost Reform NPRMs Comments at 5 (sup-

porting a cap on high-cost support set at the 2007 level); Florida PSC

High-Cost Reform NPRMs Comments at 2 (supporting the recom-

mendation to cap the overall size of the high-cost fund); Information

‘Technology Industry Council (ITI) High-Cost Reform NPRMs Com-

ments at 7 (an overall cap should be applied to control the size of the

high-cost mechanism); NCTA High-Cost Reform NPRMs Com-

Sla

Although other commenters oppose the adoption of a eap

on the total amount of high-cost support or on the

amount of support available to incumbent LEC ETCs,”

we find that, to manage the high-cost support mechanism

effectively, we must control its growth, and that capping

support in the manner discussed below will provide spe-

cific, predictable, and sufficient support to preserve and

advance universal service.”

ments at 19 (the Joint Board’s proposal to cap the overall size of the

high-cost mechanism is “a welcome dose of fiscal responsibility”);

National Consumer Law Center Joint Board Comprehensive Re-

form NPRM Comments at 2-8 (supporting the Joint Board’s pro-

posal to cap the overall high-cost fund); Verizon/Verizon Wireless

High-Cost Reform NPRMs Comments at 2-3, 6-9 (Commission

should cap the overall high-cost fund).

” See Frontier High-Cost Reform NPRMs Comments at 6-7; JSI

High-Cost Reform NPRMs Comments at 6; Montana Telecom-

munications Ass’n High-Cost Reform NPRMs Comments at 21-22;

NECA High-Cost Reform NPRMs Comments at 17-20; TCA High-

Cost Reform NPRMs Comments at 10-11; TDS High-Cost Reform

NPRMs Comments at 8-9; Missouri Small Telephone Company

Group (MSTC) High-Cust Reform NPRMs Reply at 5-7; Utah Rural

Telecom Ass'n High-Cost Reform NPRMs Reply at 5.

"" 47 U.S.C. § 254(b)(5); see CenturyTel High-Cost Reform NPRMs

Comments at 18; Comeast High-Cost Reform NPRMs Comments at

3, 11; Florida PSC High-Cost Reform NPRMs Comments at 8-9;

National Consumer Law Center Joint Board Comprehensive Re-

form NPRM Comments at 2; NCTA High-Cost Reform NPRMs

Comments at 4-6; New Jersey Division of Rate Counsel High-Cost

Reform NPRMs Comments at 52-54; Oregon PUC High-Cost Re

form NPRMs Comments at 2-3; Sprint Nextel High-Cost Reform

NPRMs Comments at 3; USTelecom High-Cost Reform NPRMs

Comments at 2; Verizon/Verizon Wireless High-Cost Reform

NPRMs Comments at 7; New Jersey Division of Rate Counsel High

Cost Reform NPRMs Reply at 64-65; Sprint Nextel High-Cost Re-

form NPRMs Reply at 8-9; State Commissioners //igh-Cost Reform

NPRMs Reply at 2; Texas Office of Public Utility Counsel Joint

Board Comprehensive Reform NPRM Reply at 2; Virgin Mobile

2 «

Ona

15. We find it necessary to cap the high-cost mecha-

nism as a first step toward fulfilling our statutory obliga-

tion to create specific, predictable and sufficient universal

service support mechanisms.” As the United States

Court of Appeals for the Fifth Cireuit held in Alenco:

“[t]he agency’s broad discretion to provide sufficient uni-

versal service funding includes the decision to impose

cost controls to avoid excessive expenditures that will de-

tract from universal service.” The Alenco court also

found that “excessive funding may itself violate the suffi-

ciency requirements,”™ and the United States Court of

Appeals for the Tenth Circuit has stated that “excessive

subsidization arguably may affect the affordability of

telecommunications services, thus violating the principle

in [section] 254(b)(1).”” Given the excessive growth in

high-cost sunport, we find it necessary to cap this

mechanism te ensure that unsubsidized users who contri-

bute to the fund are not harmed by excessive subsid-

ization.

High-Cost Reform NPRMs Reply at 3-4. The Commission has al

ready implemented caps on the schools and libraries and rural health

care universal service mechanisms. Universal Service First Report

and Order, 12 FCC Red at 9054, 9140, paras. 529, 704 (establishing a

$2.25 billion annual cap for the schools and libraries mechanism and

a $400 million annual cap for the rural health care mechanism); see

also 47 C.F.R. §§ 54.507(a), 54.623(a).

*“ 47 U.S.C, § 254(b)(5); see also Universal Service First Report. and

Order, 12 FCC Red at 9054, 9140, paras. 529, 704.

™ Alenco Comme’ns, Inc. v. FCC, 201 F.3d 608, 620-21 (Sth Cir.

2000) (Alenco).

™ Alenco, 201 F.3d at 620.

~ Qwest Comme’ns Int'l Inc. v. FCC, 398 F.3d 1222, 1234 (10th Cir.

2005).

S3a

16. Therefore, we take several steps to limit the

growth of high-cost support. First, we cap the overall

high-cost fund at the total amount of high-cost support

disbursed by the Universal Service Administrative Com-

pany (USAC) for December 2008 on an annualized basis,

net of any prior or past period adjustments. Although we

agree with the Joint Board’s recommendation to cap the

high-cost mechanism, rather than set such a cap at the

2007 level of high-cost support as the Joint Board rec-

ommended, we find it is more appropriate to set the cap

at the level of support disbursed by USAC in December

2008 on an annualized basis. Furthermore, we freeze

each incumbent LEC ETC’s individual, annual high-cost

support at the amount of support, on a lump sum basis,

that the ETC received in December 2008 annualized, net

of any prior or past period adjustments, on a study area

or service area basis.”

17. As discussed below, we also eliminate the identi-

cal support rule for competitive ETCs. Competitive

ETCs’ support levels will be based on their costs as com

pared to the relevant high-cost support mechanism

benchmarks, and frozen at the amount of support, on a

” Pursuant Lo section 214(e)(5) of the Act, the term “service area” is

used to refer to the geographic area established by a state commis-

sion or this Commission for the purpose of determining universal

service obligations and pport mechanisms. 47 U.S.C. § 214(e)(5).

For a rural telephone company, section 214(e)(5) states that “service

area” shall mean the rural company’s “study area” unless and until

the Commission and the states establish a different definition of ser

vice area for such company. /d. In this order, we use the terms “ser-

vice arca” and “study area” interchangeably. Nothing in this order

is meant to change any redefinitions of service area previously est

ablished by the Commission and/or the state commissions.

84a

lump sum basis, that the competitive ETC received in

2008 on a study area basis.”

18. Consistent with section 254(b)(5) of the Act, we

find that capping high-cost support in this manner will

enable ETCs to predict the specific level of support that

they will receive should they choose to participate in the

program.” To the extent that an incumbent LEC ETC

determines that it cannot offer broadband Internet ac-

cess service throughout its service area at the specified

level of support, as discussed below, that particular study

area will be deemed an “Unserved Study Area,” and we

will conduct a reverse auction to determine the entity ca-

pable of meeting our service requirements and the

amount of support to provide for that area. In fact,

through the reverse auction process, it will be the bid-

ders, not the Commission, that determine how much sup-

port they would need to offer service. Finally, as dis-

cussed below, if the reverse auction process does not

yield a winning bidder, the Commission will reexamine

whether it needs to take further action with regard to

this situation, should it arise.

2. Conditioning Support on Offering Broad-

band Internet Access Service

19. The broadband era is here. Those of us who have

broadband Internet access service use it to communicate,

to work, to get vital information, to be educated, and to

be entertained. Broadband Internet access service—a

novelty at the time of the passage of the 1996 Act—is

now mainstream. Yet some Americans still lack access to

this vital service, and as Commissioner Copps has said,

“does America at the beginning of the 21st century be-

” See infra paras. 53-56.

* 47 U.S.C. § 254(b)(5).

85a

come technologically stagnant or the leader of the Digital

Age’ For me, the answer to that question depends in

some significant measure upon whether we succeed in

bringing high-speed, high-value broadband and an open

Internet to all Americans ... rural as wel! as urban folks

9959

20. Today, we modify our high-cost support system

fundamentally to spur deployment and ensure that all

Americans have access to broadband. Specifically, we

make offering broadband Internet access service a condi

tion of being eligible to receive high-cost support. As we

explain below, we will require all incumbent L.ECs to cer

tify whether or not they will commit to offering broad

band Internet access throughout their supported study

areas in five years.” Those who make that commitment

” Remarks of Commissioner Michael J. Copps, Pike & Fischer's

Broadband Policy Summit IV, Washington, DC GJune 12, 2008),

available at http://hraunfoss.fec.gov/edoes_public/attachmatch/DOC

-282890A1.pdf.

” See supra note 56 (explaining use of the terms “study area” and

“service area” in this order). We understand the concern of com

menters who point out the need for more granular information on

broadband availability. See Comprehensive Reform Recommended

Decision, 22 CC Red at 20481, para. 13; see also Comeast High

Cost Reform NPRMs Comments at 13-16; GCI High-Cost Reform

NPRMs Comments at 34-36; NCTA High-Cost Reform NPRMs

Comments at 20; New Jersey Rate Counsel High-Cost Reform

NPRMs Comments at 21-22; New York State PSC Joint Board

Comprehensive Reform NPRM Comments at 1, 5-6; TCA //igh-Cost

Reform NPRMs Comments at 11-12; USTelecom //igh-Cost Reform

NPRMs Comments at 36; Embarq //igh-Cost Reform NPRMs Re

ply at 8-10. The Commission has recently undertaken a major effort

to gather more specific and granular data about broadband sub

seribership and availability, See Development of Natrionuide Broad

band Data to Evaluate Reasonable and Timely Deployment of Ad

vanced Services to All Americans, lmprovement of Wireless Broad-

band Subscribership Data, and Development of Duta on Intercon

86a

will continue to receive their current levels of support.

xisting competitive ETCs likewise will have the oppor

tunity to commit to offering broadband Internet access

service throughout their supported service areas, and will

be eligible to receive high-cost support based on their ae

tual costs. Auction winners, as well, must commit to of-

fering broadband Internet access service throughout

their supported areas as a condition of receiving even ini-

tial support. In other words, all E'TCs are subject to the

same basic obligation—to offer broadband Internet. ac-

cess throughout their supported service areas. We also

explain the obligations related to this condition, including

carrier-of-last-resort-type obligations.

21. We believe that imposing this condition on the re-

ceipt of high-cost support is fully consistent with and in

deed promotes Conyress’s overall objectives as stated in

section 254 of the Communications Act and section 706 of

the 1996 Act.” Seetion 254(b)(2) of the Act instructs the

nected Voice over Internet Protocol (VoIP) Subscribership, WC

Docket No, 07.38, Report and Order and Further Notice of Proposed

Rulemaking, 28 FCC Red 9691, 9708-09, paras. 34-35 (2008) (Broad

band Data Gathering Order) (seeking comment on, among other

things, adopting a national broadband mapping program). We be

lieve our refined broadband data gathering program will help all of

us better assess where our broadband availability needs are great

est. lor purposes of implementing the broadband deployment pro-

gram of this order, we ask incumbent LECs to identify where they

will and will not commit to broadband availability, thus identifying

where we need to proceed to a reverse auction.

" 47 U.S.C. §§ 157 nt, 254. Some commenters suggest that adding

broadband Internet access service to the list of “supported services”

would be inconsistent with section 254(¢)(1) of the Act because

broadband Internet access service is an information service, not a

telecommunications service. See SouthernLINC High-Cost Reform

NPRMs Comments at 30-31; Verizon/Verizon Wireless High-Cost

Reform NPRMs Comments at 31-32; SouthernLINC J/ligh-Cost Re

esi

Act as just deseribed and also advances Conpress's ob

jective stated in section 706 of the 1996 Act to “encourage

the deployment on a reasonable and timely basis of ad

vanced telecommunications capability to all Americans

We also see no reason why conditioning the receipt of

high-cost support on offering: broadband Internet acce:

service is not permissible under the Commission's au

thority to promulgate peneral rules related to universal

service,”

22. Broadband Internel Access As a Cond. oan to

Recevwing High-Cost Support. Consistent with the objec

tives of sections 254 and 706 as just deseribed, all PC:

must offer broadband Internet access serviee to all cu

tomers in their supported serviee areas as a condition of

receiving, universal service high-cost support. Since the

Commission adopted universal service rules in response

to the 1996 Act, broadband Internet access service ha

evolved into a eritical service for American consumer:

The importance of this evolution is reflected inp Con

press’s recent finding that “{t}he deployment and adop

tion Of broadband technology has resulted inp enhanced

economic development and public safety for communitie:

across the Nation, improved heath care and cducation

opportunities, and a better quality of life for all Ameri

cans, fand| [clontinued progress in the deployment and

AV U.S.C. 44 157 nt, 2A

“ ‘The Commission has previously Considered imposing, conditions on

the receipt of high-cost support. See Universal Serowee Firat Report

and Order, 12 VOC ed at Bash, para. 8. And of course, today

recjapents of high cost support must comply with many oblpation

that are not explicitly spelled outon the statute. bor example, to be

desiynated as an ETC, an applieant must demonstrate that wt ba

back-up power See Federal State Joint Board on Universal Ses

vice, OC Docket No. 9645, Report and Order, 20 FOC Red 6971

O382, para, 29 (2005) (AVC Designation Order)

SYa

adoption of broadband technology is vital to ensuring

that our Nation remains competitive and continues to

ereate business and job growth.””’ The majority of con-

sumers who use broadband Internet access service today

rely on it for telework, access to banking services, inter-

action with government, entertainment, shopping, access

to news and other information, and so many other uses.”

Broadband Internet access plays a special role in rural

areas, reducing the burdens of distance.” For example,

high-speed connections to the Internet allow children in

rural areas to have access to the same information as

school children in urban areas. Telemedicine networks

sroadband Data Improvement Act, Pub. L. No. 100-385, 122 Stat.

4096, § 102(1)-(2) (2008),

" A recent survey finds that, compared to Internet users with dial-

up service at home, those with broadband service at home are far

more likely to engage in 14 different types of Internet-related activi

ties on a typical day. These activities include using an online search

engine, checking for weather reports, getting news, visiting a state

or local government Web site, obtaining job information, watching a

video, and downloading a podeast. The daily use of a search engine,

for example, is reported by 57% of the broadband users as compared

to only 26% of the dial-up users. See JOHN B. HORRIGAN, PEW

INTERNET & AMERICAN LIFE PROJECT, HOME BROADBAND ADOP-

TION 2008 at 19 (2008) (2008 PEW BROADBAND ADOPTION STUDY),

avadable at http://www.pewinternet.org/pdfs/PIP Broadband 2008.

pdf.

For example, the California Broadband Task Force Report finds

broadband service critical to expanding job opportunities for rural

residents. It observes, for example, that broadband has facilitated

the use of “homeshoring,” or the use of home-based workers for pro

viding customer service, instead of requiring employees to adhere to

a strict work schedule at a centralized location. This report also

finds that broadband offers farmers better access to market. infor-

mation and allows them to expand their potential customer base. Sec

l’INAL REPORT OF THE CALIFORNIA BROADBAND TASK FORCE at 13

(Jan. 2008) (CALIFORNIA 2008 BROADBAND REPORT), available ul

http://www.calink.ca.gov/taskforcereport/.

90a

made possible by broadband Internet access service also

save lives and improve the standard of healthcare in

sparsely populated, rural areas that may lack access to

the breadth of medical expertise and advanced medica!

technologies available in other areas.” Broadband ser-

vice also enables the sharing of critical, time-sensitive in-

formation with first responders, government officials,

and health care providers, thereby improving the gov-

ernment’s ability to provide a comprehensive and cohe-

sive response to a public health crisis in coordination.”

23. Despite the advances in broadband technology

and the deployment of infrastructure to accommodate

higher bandwidth speeds, ubiquitous broadband availab-

ility does not exist throughout the nation—especially for

those consumers in rural areas.” In March 2008, the

® See Rural Health Care Support Mechanism, WC Docket No. 02

60, Order, 21 FCC Red 11111, 11112, para. 5 (2006); see also

SUSANNAH FOX, PEW INTERNET & AMERICAN LIFE PROJECT, THE

ENGAGED E-PATIENT POPULATION at 1 (2008) (finding that home

broadband users are twice as likely as home dial-up users to do

health research on a typical day), avazlable at http:/Mwww.pewinter

net.org/pdfs/PIP_Health Aug08.pdf.

"A recent report to Congress concludes that “[mJodern broadband

communications networks and applications present an enormous

opportunity to radically improve the manner in which emergency

information is shared by health officials. Broadband services enable

bandwidth intensive information such as video, pictures, and graph-

ics to be transmitted faster and in a more reliable and secure man-

ner.” JOINT ADVISORY COMMITTEE ON COMMUNICATIONS CAPA.

BILITIES OF EMERGENCY MEDICAL AND PUBLIC HEALTH CARE FA

CILITIES, REPORT TO CONGRESS 2 (Feb. 4, 2008), available at

http://energyeommeree.house.gov/Press_ 110/JAC.Report. FINAL%

20Jan.3.2008. pdf.

™ See, e.g., Cellular South High-Cost Reform NPRMs Comments at

10; see also generally 2008 PEW BROADBAND ADOPTION STUDY at L1-

ie.

Jla

Commission’s most recent data revealed that more than

half of the households in the United States now subscribe

to a high-speed service provider and at least one high-

speed service provider is providing service in excess of

200 kbps in at least one direction in 99.9 percent of zip

codes in the country.” The broadband subscription rate

is much lower in rural areas, however. A 2008 survey

finds that the percentage of rural households subscribing

to broadband service is only 38 percent—well below the

57 percent and 60 percent subscription rates found in ur

ban and suburban areas, respectively.” This survey con-

cludes that the lack of broadband availability very likely

accounts for some of this disparity.” Moreover, this con-

clusion is consistent with the results of residential sur

veys in several states." We find that making the offering

* See FCC, HIGH-SPEED SERVICES FOR INTERNET ACCESS: STA

rUS AS OF DECEMBER 31, 2006, tbl 15 (2007), availahle at http:/

hraunfoss.fee.gov/edoes public/2ittachmatch/DOC-280906AL pdf.

See 2008 PEW BROADBAND ADOPTION STUDY at 3-4. The survey

was conducted by phone from April 8, 2008 to May 11, 2008 among

2,251 American adults, 1,153 of whom were broadband users. /d.

” Pew acknowledges that the participants in its 2008 survey may

report incorrectly as to whether broadband service is available

where they live. 2008 Pew BROADBAND ADOPTION STUDY at 11.

Pew nonetheless concludes that “the fact that rural residents are

more likely to report that broadband isn’t available where they live

indicates that infrastructure availability comes into play in broad

band adoption. Some 28% of rural adult Americans without home

high-speed say broadband isn't available where they live, in contrast

lo 22% of non-rural Americans without broadband who say this.

Moreover, 24% of dial-up users in rural areas say having the service

available where they live would prompt a switeh to broadband; this

compares to the 14% figure for all respondents.” 7d. at 11-12.

In Ohio, a March 2008 survey of 1,200 residents found broadband

service available in 96% of urban homes but in only 79% of rural

homes. See CONNECT OHIO TECHNOLOGY ASSESSMENT: EXECUTIVE

SUMMARY at 2 (June 27, 2008), available at http://connectoh.org

92a

of broadband Internet aecess service a condition of re-

eelving universal service high-cost support ean bring this

critical service to the remainder of Americans who await

its deployment.” In addition, doing so will further the

objective of section 254(b)(3) that consumers in rural, in-

sular, and high-cost areas have access to advanced tele-

communications and information services that are rea

sonably comparable to those services provided in urban

_documents/Res OHExecutiveSummary06252008 FINAL.pdf. — In

California, a state-commissioned task foree recently found that ap-

proximately 500,000 California households, or almost 1.4 million Cali

fornia residents, are unable to subscribe to broadband service with a

speed of at least 500 kbps. The task force identified 1,975 communi

ties without broadband service and concluded that. many California

communities do not have access to the higher broadband speeds. See

CALIFORNIA 2008 BROADBAND REPORT at 33. In Tennessee, a July

2007 survey of 1,787 residents having dial-up service at home found

that 36% of them did not subscribe to broadband service because it

was unavailable to their homes. See CONNECTED TENNESSEE, TEN-

NESSFEF RESIDENTIAL CONSUMERS at 22 (2007), available at http://

www.connectedtn.org/ documents/CT ResidentialSurvey 100107. FIN

AL. pdf.

We disagree with commenters who suggest that it is premature or

ill-advised to require all E'TCs to offer broadband because, as dis-

cussed below, we do so in a manner that does not increase the size of

the high-cost fund. See, e.g, SouthernLINC High-Cost Reform

NPRMs Comments at 30; Sprint Nextel High-Cost Reform NPRMs

Comments at 16-17; USTeleecom High-Cost Reform NPRMs Com-

ments at. 33-34; Western Telecomms. Alliance (WTA) High-Cost Re

form NPRMs Comments at 73; SouthernLINC High-Cost Reform

NPRMs Reply at 41. Similarly, we disagree with commenters who

argue that. government action at the current time would be wasteful

as the market is already taking steps to reach currently underserved

areas. See, e.g., NCTA High-Cost Reform NPRMs Comments at. 19-

20; SouthernLINC High-Cost Reform NPRMs Comments at 30;

SouthernLINC High-Cost Reform NPRMs Reply at 42. We cannot

wait indefinitely for the benefits of broadband to reach all Ameri

cans.

934

areas and that are available at rates charged for similar

services in urban areas. ~

a. Definition of Broadband Internet Access

Service

24. For purposes of satisfying the condition to receive

high-cost support, we adopt a definition of broadband

Internet access service that focuses er the end user’s ex-

perience, without regard to the types of facilities, proto-

cols, or other technologies used to deliver that experic-

nee. Broadband Internet access service is therefore de-

fined as an “always on” service that combines computer

processing, information provision, and computer interac-

tivity with data transport, enabling end users to access

the Internet and use a variety of applications, at speeds

discussed elsewhere in this order.” We refer specifically

to broadband Internet access service—an information

service—and not to broadband transmission alone be-

cause our goal is to ensure that all Americans have aecess

to the Internet.”

b. Broadband Internet Access Service Obli-

gations

25. Section 254(b)(1) instructs the Commission to

base policies for the advancement of universal service on

the principle that quality services should be offered at

* See 47 U.S.C. § 254(b)(8).

' See infra paras. 28, 45, 52; see also Appropriate Framework for

Broadband Access to the Internet over Wireline Facilities, CC

Docket No. 02-33, Report and Order and Notice of Proposed Rule

making, 20 FCC Red 14853, 14860-61, para. 9 (2005) (Wireline

Broadband Internet Access Order), affd sub nom. Time Warner

Telecom, Ine. v. FCC, 507 F.3d 205 (3d Cir. 2007).

hh) , . , P ‘

As explained below, nothing in this order changes the choice that

providers have today to offer broadband transmission on a common

carrier basis. See vifra para 26,

94a

just, reasonable, and affordable rates." Below we pro-

vide requirements for offering broadband Internet access

service as a condition of receiving universal service high-

eost support. In sum, all ETCs must. offer broadband

Internet access service, along with all supported services,

to all customers throughout their service areas by the

end of a five- or ten-year build-out period consistent with

the requirements of this order.

26. Except as described just below, an ETC may of-

fer broadband Internet. access service using any technol-

ogy, or combination of technologies, that meets the re-

quirements for speed set forth in this order. An ETC

may also combine services provided over its own facilities

with those provided over another provider’s facilities

pursuant to agreement. Indeed, there may be service

areas where it is more economic to offer broadband

Internet access service via one technology than another

and we explicitly provide for even a single provider to

take advantage of the inherent benefits of different tech-

nologies for different areas.~ Furthermore, an ETC ean

combine a common carrier offering of broadband trans-

mission® with the information processing capabilities de

scribed above,™ so long as what the end user reccives is in

fact broadband Internet access service.

27. An ETC cannot use satellite broadband tech-

nology to meet its obligations under this order, however,

$1 se aS hw ave

“47 U.S.C. § 254(b)(1).

~ Thus, we are not favoring wireline technology over another. But

see Virgin Mobile High-Cost Reform NPRMs Reply at 5-6.

9 co ' 8 . 7 ee

See Wireline Broadband Internet Access Order, 20 FCC Red at

14900-01, paras. 89-90 (giving providers of wireline broadband Inter-

net access the choice to offer broadband transmission on a common

carrier basis or a non-common carrier basis).

{ Y

See supra para. 24.

95a

absent a waiver from the Commission. We are coneerned

that broadband Internet access service provided via sat-

ellite differs from broadband Internet aecess provided

over other technologies in two important ways. First,

satellite-provided broadband Internet access service is

subject to latency due to the amount of time it takes a

signal to travel between the satellite and the user.” La-

tency ranges from a quarter of a second to almost a sec-

ond, making the use of applications that require a very

fast response difficult or impossible, and substantially

degrading the quality of other applications like voice over

Internet protocol.” Second, satellite-provided broadband

Internet access service is subject to degradation due to

weather events (“rain fade”) to a greater degree than

” See, e.g., COMPUTER SCIENCE AND TELECOMMUNICATIONS

BOARD, NATIONAL RESEARCH COUNCIL, BROADBAND: BRINGING

HOME THE BITS 145 (2002) (BRINGING HOME THE BITS); Broadband-

Info.com, Inside the World of Satellite Broadband, Broadband-

Info.com, http:/Avww.broadhandinfo.com/satellite/intro-to-satellite.html]

(last visited Nov. 3, 2008) (stating that because the satellites provid-

ing broadband signals orbit the earth approximately 22,300 miles

above the surface, there is a lag time between the sending and re-

ceiving of the satellite broadband signal).

“ See BRINGING HOME 'THE BIts 145 (explaining that for Internet

telephony, the delay can cause a real degradation in usability); Jon

Norwood, Overview of Satellite Internet—Comparing the Main Iea-

tures of Broadband Satellite (Oct. 17, 2006), available at http:

/Iwww.velocityzuide.con/Ssatellite/satellite-internet-comparison.htm]

(last visited Oct. 24, 2008) (stating that signal delay to a satellite

ranges from around 500 to 900 milliseconds, and that this latency can

render any software that requires real-time user input problematic

at best); BroadbandInfo.com, Inside the World of Satellite Broad-

band, available at http://www.broadbandinfo.com/satellite/intro-to-

satellite.html (last visited Oct. 24, 2008) (stating that for certain

broadband Internet real-time applications, such as e-gaming, the

latency is enough to cause severe interference with the application).

96a

other wireless technologies.” For these reasons, we find

that satellite-provided broadband Internet access service

cannot be the primary means by which we serve rural

America. We recognize, however, that for certain cus-

tomers, satellite-provided broadband may be the only

economic means of reaching them. Therefore, ETCs may

apply to the Commission for a waiver to be able to meet.

their commitments under this order by offering broad-

band Internet access service via satellite to certain cus-

tomers, based on a specific, detailed showing that there is

no other economic option for serving those customers.”

If the Commission grants such a waiver with regard to

particular customers, that waiver may be transferred if a

different ETC becomes subject to the obligation to offer

broadband to those customers.

si See, e.g., Inquiry Concerning the Deployment of Advanced Tele-

communications Capabuity to All Americans in a Reasonable and

Timely Fashion, and Possible Steps To Accelerate Such Deployment

Pursuant to Section 706 of the Telecommunications Act of 1996, CC

Docket No. 98-146, Second Report, 15 FCC Red 20913, 20988, para.

59 (2000) (explaining that areas subject to extreme rain or snow may

have difficulty receiving satellite signals in those conditions, and de-

scribing it as a limitation to satellite Internct last-mile facilities); sce

also Howstuffworks.com, How Does Satellite Internet Operate’,

http://computer.howstuffworks.com/question606.html (last visited Oct.

24, 2008) (explaining that, as for satellite TV, heavy rains can affect

reception of Internet signals); Skycasters, Broadband Satellite

Internet: 99.44% System Reliability, http://www.skycasters.com

/satellite-internet-service-specs/system-reliability.htm] (last visited

Oct. 31, 2008) (explaining that rain fade is a short duration period

during which the loss of satellite service occurs when intense storm.

cells are located directly between the satellite and the satellite dish).

* If the Commission grants a waiver allowing the use of satellite

service, the ETC may not charge a higher price to customers served

by satellite than it charges to customers served by another broad-

band technology.

Yla

3. Incumbent LECs’ Commitment to Offer

Broadband

28. As discussed above, as a condition of receiving

federal high-cost. universal service support, all ETCs

must offer broadband Internet access service.” There-

fore, incumbent LItCs receiving high-cost support must

certify to the Commission, for each study area” for which

they receive high-cost support, whether or not they will

offer broadband Internet access service to all customers

within that study area, consistent with the requirements

of this order, within five years of the due date of their

commitment.” This certification must include a commit

ment to offer broadband Internet access service with

download speeds equal to or greater than 768 kbps and

upload speeds greater than 200 kbps.”

29. Ineumbent LECs that file a certification for a

particular study area indicating that they will offer

broadband Internet access service under the terms speci

fied in this order will continue to receive their current

levels of high-cost support for that study area, which will

be deemed a “Committed Study Area.” We specify the

precise benchmarks that the incumbent LEC must meet

see supra paras. 19-27

) . or ° . p e9

See supra note 195 (explaining the use of the term: Ludy area

and “service area” in this order).

loom ° ° ‘ cus ) .

[The Wircline Competition Bureau (Bureau) will release a public

notice at a future date specifying the manner and due date of the

certification. Other reporting, monitoring, and milestone require

ments are set forth below. See infra paras. 57-63.

Gg? “— , > . , . ‘ ; ‘m '

This tier of broadband is similar to the tier described as “Basie

Broadband Tier 1” in our Broadband Data Gathering Order. See

Broadband Data Gathering Order, 23 FCC Red at 9700-01, para. 20

over the five-year build-out period, and the consequences

for failure to do so, below.”

30. As discussed above, we freeze each incumbent

LEC ETC’s individual high-cost support at the amount of

support, on a lump sum basis, the ETC received in Dec-

ember 2008 annualized, net of any prior or past period

adjustments, on a study area or service area basis.” In-

cumbent LEC ETCs committing to offer broadband

Internet access service within a study area consistent

with the requirements of this order will continue to re-

ceive the frozen high-cost support amount for that study

area.

“ See infra paras. 57-63.

“ See supra para. 16

”” Some incumbent LECs assert that they will not. he able to comm

to provide broadband Internet access service to all customers with

their study areas at the frozen level of support. See, e.g., Letter fror

Eric N. Einhorn, V.P. Federal Government Affairs, Windstream, to

Marlene H. Dortch, Secretary, FCC, CC Ducket Nos. 01-92, 96-45,

99-68, WC Docket Nos. 05-337, 06-122, 08-152, U7-135, at 3 (filed Oct.

27, 2008); Letter from Gregory J. Vogt, Counsel for CenturyTe],

Inc., to Marlene H. Dortch, Se

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