Universal Service Contribution Methodology; a National Broadband Plan for Our Future

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 06-122; GN Docket No. 09-51; FCC 12-46]

Universal Service Contribution Methodology; a National Broadband Plan for Our Future

AGENCY:

Federal Communications Commission.

ACTION:

Proposed rule.

SUMMARY:

In this document, the Federal Communications Commission (Commission) seeks public comment on approaches to reform and modernize how Universal Service Fund (USF or Fund) contributions are assessed and recovered. The Commission seeks comment on ways to reform the USF contribution system in an effort to promote efficiency, fairness, and sustainability. The Commission seeks comment on proposals in four key areas regarding the contributions system: Who should contribute to the Fund; how contributions should be assessed; how the administration of the contribution system can be improved; and recovery of universal service contributions from consumers.

DATES:

Comments are due on or before July 9, 2012 and reply comments are due on or before August 6, 2012. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, you should advise the contact listed below as soon as possible.

ADDRESSES:

You may submit comments, identified by WC Docket Nos. 06-122; GN Docket No. 09-51, by any of the following methods:

•

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

•

Federal Communications Commission's Web Site: http://fjallfoss.fcc.gov/ecfs2/.

Follow the instructions for submitting comments.

•

People with Disabilities:

Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by email:

FCC504@fcc.gov

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

For detailed instructions for submitting comments and additional information on the rulemaking process, see the

SUPPLEMENTARY INFORMATION

section of this document.

FOR FURTHER INFORMATION CONTACT:

Vickie Robinson, Wireline Competition Bureau, (202) 418-2732 or Ernesto Beckford, Wireline Competition Bureau, (202) 418-1523 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION:

This is a synopsis of the Commission's Further Notice of Proposed Rulemaking (NPRM) in WC Docket No. 06-122, and GN Docket No. 09-51, FCC 12-46, adopted April 27, 2012, and released April 30, 2012. The complete text of this document is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The document may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc. (BCPI), 445 12th Street SW., Room CY-B402, Washington, DC 20554, telephone (800) 378-3160 or (202) 863-2893, facsimile (202) 863-2898, or via the Internet at

http://www.bcpiweb.com.

It is also available on the Commission's Web site at

http://www.fcc.gov.

Pursuant to §§ 1.415 and 1.419 of the Commission's rules, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using: (1) The Commission's Electronic Comment Filing System (ECFS); (2) the Federal Government's eRulemaking Portal; or (3) by filing paper copies.

See

Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998.

•

Electronic Filers:

Comments may be filed electronically using the Internet by accessing the ECFS:

http://www.fcc.gov/cgb/ecfs

or the Federal eRulemaking Portal:

http://www.regulations.gov.

Filers should follow the instructions provided on the Web site for submitting comments.

○ For ECFS filers, if multiple docket or rulemaking numbers appear in the caption of this proceeding, filers must transmit one electronic copy of the comments for each docket or rulemaking number referenced in the caption. In completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet email. To get filing instructions, filers should send an email to

ecfs@fcc.gov,

and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response.

○

Paper Filers:

Parties who choose to file by paper must file an original and four copies of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number.

• Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

○ The Commission's contractor will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue NE., Suite 110, Washington, DC 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.

○ 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.

○ U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th Street SW., Washington, DC 20554.

In addition, one copy of each pleading must be sent to the Commission's duplicating contractor, Best Copy and Printing, Inc, 445 12th Street SW., Room CY-B402, Washington, DC 20554; Web site:

www.bcpiweb.com;

phone: 1-800-378-3160. Furthermore, three copies of each pleading must be sent to Charles Tyler, Telecommunications Access Policy Division, Wireline Competition Bureau, 445 12th Street SW., Room 5-A452, Washington, DC 20554; email:

Charles.Tyler@fcc.gov.

Filings and comments are also available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street SW., Room CY-A257, Washington, DC 20554. Copies may also be purchased from the Commission's duplicating contractor, BCPI, 445 12th Street SW., Room CY-B402, Washington, DC 20554. Customers may contact BCPI through its Web site:

www.bcpiweb.com,

by email at

fcc@bcpiweb.com,

by telephone at (202) 488-5300 or (800) 378-3160 (voice), (202) 488-5562 (tty), or by facsimile at (202) 488-5563.

To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to

fcc504@fcc.gov

or call the Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice) or (202) 418-0432 (TTY). Contact the FCC to request

reasonable accommodations for filing comments (accessible format documents, sign language interpreters, CART, etc.) by email:

FCC504@fcc.gov;

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

For further information regarding this proceeding, contact Vickie Robinson, Deputy Chief, Telecommunications Access Policy Division, Wireline Competition Bureau at (202) 418-2732,

vickie.robinson@fcc.gov

, or Ernesto Beckford, Attorney Advisor, Wireline Competition Bureau at (202) 418-1523,

ernesto.beckford@fcc.gov.

I. Summary

A. Who should contribute to Universal Service

1. Statutory Authority To Require Contributions

1. Under section 254(d) of the Act, the Commission has mandatory authority to require contributions to the Fund, “[E]very telecommunications carrier that provides interstate telecommunications services.” In addition, the Commission has “permissive” authority that extends to “any * * * provider of interstate telecommunications * * * if the public interest so requires.” Over time, the Commission has periodically exercised its permissive authority to extend contribution obligations to particular classes of providers on a service-specific basis. We seek comment on the scope of our permissive authority, including how we should interpret the statutory terms that define that authority.

a. “Provider of Interstate Telecommunications”

2. We seek comment on how we should interpret the terms “providing” and “telecommunications” and whether it is appropriate to revisit any previous Commission interpretations based on the evolution of the industry and significant marketplace changes over the last decade.

3. In exercising our permissive authority, we must determine whether an entity is a “provider” of interstate telecommunications as specified in section 254(d). Although Congress has not defined the terms “provide,” “provider,” or “provision,” the Commission has addressed these terms in several orders. First, the Commission has concluded that “provide” is a different term from “offer.” The Commission has drawn a distinction between what is “offered” from a demand perspective (

i.e.,

what the customer perceives to be the integrated product), and what is “provided” from a supply perspective

i.e.,

what the provider is furnishing or supplying to the end user, including not only the integrated product but also the discrete components of the product). Second, the Commission has previously held that “provide” is broader than “offer.” Under this view, an entity may both “provide” and “offer” telecommunications, but an entity may also provide telecommunications without offering telecommunications. Many participants in today's marketplace do not separately offer telecommunications to end users, but instead offer integrated services that include both telecommunications (

i.e.,

transmission) and non-telecommunications components. For such integrated services, however, the service provider still “provides” telecommunications as part of the “offering.” The D.C. Circuit has upheld the Commission's interpretation. In light of the marketplace changes over the last decade, should the Commission revisit its interpretation of what it means to “provide” or to be a “provider of” telecommunications?

4.

Telecommunications.

The Act defines the term “telecommunications” as “the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.” Here and in Section IV.C below, we seek comment on how we should interpret each component of this definition for purposes of potentially exercising our permissive authority.

b. “If the Public Interest So Requires”

5. We seek comment on what factors we should consider in deciding whether the public interest warrants exercising our permissive authority. We seek comment generally on whether the public interest would be served, and to what extent exercising our permissive authority would achieve any or all of the goals set forth above—efficiency, fairness, and sustainability. For example, is it in the public interest to exercise permissive authority over a provider of telecommunications if the telecommunications is part of a service that competes with or is used by consumers or businesses in lieu of telecommunications services that are subject to assessment? In the past, the Commission has stated that the principle of competitive neutrality dictates that it should assess contributions from entities that are not mandatory contributors, but benefit from access to the PSTN. Is that consideration relevant in today's marketplace? Should we assess providers of services that are capturing a growing portion of overall communications spending as a means of achieving sustainability? Should we consider whether those services are being used in ways that may replace, partially or wholly, services that are subject to mandatory assessment? Does the public interest analysis differ depending on whether we are considering consumer services or business/enterprise services? What other factors should we take into account?

2. Determining Contribution Obligations on a Case-by-Case Basis With Respect to Providers of Specific Services

6. We seek comment on whether and if so, to what extent, the Commission should exercise its permissive authority contained in section 254(d) of the Act to clarify or modify contribution requirements for providers of several specific services, or if we should otherwise modify or clarify the contribution obligations of such services. As discussed above, the Commission has exercised its permissive authority on several occasions to expand or clarify contribution obligations on a service-specific basis. In the

Universal Service First Report and Order,

62 FR 32862, June 17, 1997, it required private line service providers and payphone aggregators to contribute to the Fund, reasoning that the services offered by these entities rely on access to the PSTN and compete with services offered by mandatory contributors to the Fund

(i.e.,

common carriers). In 2006, the Commission assessed interconnected VoIP services without reaching the statutory classification of such services. The Commission concluded that deciding the statutory classification was unnecessary, because even if interconnected VoIP services did not fall under the mandatory contribution provision of section 254(d), it was appropriate to assess such services as an exercise of permissive authority. The Commission determined that an immediate extension of contribution obligations to interconnected VoIP service was warranted due to the growth in demand for the Fund, the decline in the contribution base overall, and the “robust growth in subscribership” to interconnected VoIP services, from 150,000 subscribers in 2003 to 4.2 million subscribers in 2005.

7. We seek comment on continuing this general approach of addressing the contribution obligations of specific services on a service-by-service basis. First, we seek comment on exercising permissive authority with respect to certain services for which contribution

obligations are currently subject to dispute. To the extent commenters believe that any such services should be non-assessable, we also seek comment on alternative approaches to clarifying contributions, including forbearing from any applicable contribution obligations to the extent these services are telecommunications services, and we seek comment on the effect of such approaches on the contribution base and the sustainability of the Fund. Second, we seek comment on exercising permissive authority with respect to other services that are clearly not currently assessable, but which various commenters have proposed should be assessed.

8. In particular, we seek comment on exercising our permissive authority to require contributions from providers of enterprise communications services that include interstate telecommunications; text messaging; one-way VoIP; and broadband Internet access services. Each of these services has found a significant niche in today's communications marketplace. The question of whether certain enterprise communications services are currently assessable as telecommunications services or non-assessable as information services has led to significant disputes, uncertainty, and incentives for providers to attempt to characterize their services in a particular way in order to avoid contribution requirements, resulting in a pending request for guidance from USAC regarding the treatment of certain services. Likewise, the question of whether text messaging is currently assessable has been disputed, and there is a pending request for guidance from USAC regarding text messaging. In contrast, one-way VoIP services and broadband Internet access services are clearly not in the contribution base today, although various parties have argued they should be assessed. We seek comment on these arguments.

9. We seek comment on addressing the contribution obligations of such services, regardless of their statutory classification as information services or telecommunications services, in order to provide clarity for contributors and greater stability for the Fund. We also seek comment on whether exercising our permissive authority would ensure that competitive services are not unfairly disadvantaged by disparate contribution obligations, while further simplifying the requirements imposed on contributors.

10. We seek comment on adopting the following rule, in whole or in part:

Providers of the following are subject to contributions: * * * Enterprise communications services that include a provision of telecommunications; Text messaging service; One-way VoIP service; and Broadband Internet access services.

11.

Enterprise Communications Services Providers.

We seek comment on clarifying the contribution obligations of various enterprise communications services that include the provision of telecommunications, without classifying those services as telecommunication services or information services, to advance our proposed goals for contributions reform, namely, creating greater efficiency, fairness, and sustainability of the Fund.

12. We note that, as stated above, the Act defines telecommunications as “the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.” The Commission has found that transmission is the heart of telecommunications, and has classified data transmission services that have “traditionally” and “typically” been used for basic transmission purposes, such as “stand-alone ATM service, frame relay, gigabit Ethernet service, and other high-capacity special access services,” as telecommunications services.

13. We have not formally addressed enterprise communications services such as Dedicated IP, VPNs, WANs, and other network services that are implemented with various protocols such as Frame Relay/ATM, MPLS and PBB for purposes of determining USF contribution obligations. To the extent that such enterprise communications services would not fall within the definition of telecommunications services, should we exercise our permissive authority with respect to providers of those services? Are such enterprise communications services substitutes for other enterprise communications services that are subject to mandatory contributions, and would such an exercise of permissive authority increase clarity and fairness? If we were to exercise our permissive authority over enterprise communications services that may be information services, should we enumerate the specific services that would be subject to a contribution obligation, or should we attempt to craft a more general definition that would capture future generations of such services that deliver similar functionality, regardless of technology used, in order to promote the sustainability of the Fund? What would be the appropriate transition period for such changes?

14. If we choose to exercise our permissive authority in this fashion, how would that affect the size of the contribution base? To what extent would assessing enterprise communications services bring additional contributors into the system that do not otherwise contribute today directly or indirectly? How would an assessment of additional enterprise communications services affect the distribution of contribution obligations among various industry segments? How would such assessment affect the relative distribution of contribution obligations between services provided to enterprise and residential customers? How would such assessment affect the average contributions of different categories of residential end users, such as low-volume versus high-volume users, or vulnerable populations such as low-income consumers?

15. To the extent we conclude that Dedicated IP, VPNs, WANs, or other communications services for which contribution obligations have been in dispute should not be subject to contribution obligations, should we exercise our forbearance authority under section 10 of the Act to exempt these services from mandatory contribution insofar as they may be viewed as telecommunications services? How would that impact the current contribution base, and the relative distribution of contribution obligations between enterprise and residential consumers? Do these services differ from other explicitly assessed enterprise communications services in a way that makes their exemption from contribution appropriate, and would the section 10 criteria otherwise be met?

16. We note that the Commission has expressly declined to exercise permissive authority over systems integrators for whom telecommunications represents a small fraction (less than five percent) of total revenues derived from systems integration services. To the extent that we explicitly exercise our permissive authority to assess enterprise communications services, should we also eliminate the system integrators exemption, so that systems integrators would contribute even if their telecommunications revenues were under the current threshold? In the alternative, if we determine that we should clarify that certain enterprise communications services are not subject to contributions, should we modify the systems integrators exemption, and if so how? How would our decision to clarify the contribution obligations for any category of these services affect current contributions?

17. We seek comment on the size of the enterprise communications services marketplace, including comment on the Telecommunications Industry Association estimates, and whether this marketplace is likely to grow or shrink in the future. If commenters believe the estimates are too high or too low, they should provide specific data to more accurately size this segment of the communications marketplace. We also seek comment and data submissions on how assessing these services would affect the contribution base under the different methodologies proposed in the Notice. We seek comment and data on the extent to which service providers are currently treating these services as assessable. We seek comment on how revenues from such services should be apportioned into assessable and non-assessable segments if the Commission continues with a revenues-based methodology. We encourage commenters to provide comments and data regarding the structure of typical enterprise communications services contracts. In particular, we seek comment on whether such contracts typically break out costs for different parts of the services provided and, if so, how they generally do so.

18.

Text Messaging Providers.

We seek comment on whether text messaging services should be assessed in light of our proposed goals for contribution reform. To what extent is there a lack of clarity within the industry over whether such services are subject to universal service contributions? Would adopting a clear rule establishing that text messaging is in the contribution base further the Commission's efforts to promote fairness and competitive neutrality? If providers of text messaging services were required to contribute, would that create competitive distortions between text messaging service providers and providers that offer applications that allow users to send messages using a wireless customer's general data plan—applications that consumers may increasingly view as a substitute to text messaging? Given the rapid growth in the text messaging marketplace, a number of stakeholders have suggested in recent years that text messaging revenues should be added to the contribution base to enhance the sustainability of the Fund. To what extent would including these services in the contribution base add to the stability of the Fund? If we modified our rules to explicitly assess text messaging, what would be an appropriate transition period?

19. If we conclude text messaging services should be assessed, should we exercise the Commission's permissive authority under section 254(d) of the Act to assess providers of these services, without determining whether such services are telecommunications services or information services? Alternatively, if we conclude that text messaging services should not be assessed, should the Commission conclude that even if such services are telecommunications services, we should exercise our forbearance authority under section 10 of the Act to exempt text messaging from contribution obligations?

20. We seek comment on the extent to which consumers are substituting text messaging for traditional voice services and other services that are subject to universal service contributions. Are there any reasons to treat short message service (SMS) or multimedia messaging service (MMS) differently for this analysis? Commenters should provide data to support their assertions.

21. We also seek comment on whether wireless providers include revenues generated through the use of common short codes in their text messaging revenues. If common short code revenues are not reported as part of the text messaging revenues, are there any reasons to treat such revenues differently in calculating the universal service contributions?

22. We seek comment on the size of the text messaging marketplace, including the industry revenue figures referenced above, and whether this marketplace is likely to grow or shrink in the future. Commenters who disagree with the estimates above should submit specific revenue data to support their assertions.

23. To the extent commenters advocate a position on whether text messaging providers should be assessed, we view it as highly relevant whether those commenters earn text message revenues themselves and, if so, whether they have reported it as assessable in recent years. We thus ask commenters to include in their comments their estimated recent text messaging revenues, and the extent to which they reported those revenues as assessable. If we explicitly assess text messaging providers, how would that affect the size of the contribution base? How would such assessment affect the distribution of contribution obligations between services for enterprise and residential customers? How would it affect the total average impact of contributions on residential end users? How would it affect the distribution of obligations between low-volume and high-volume users? How would an assessment of text messaging providers affect the distribution of contribution obligations among various industry segments?

24. We also seek comment and data submissions on how assessing these providers of these services would affect the contribution base under the different methodologies proposed in Section V below. We note that to the extent that providers of text messaging also are providers of assessable voice services, explicitly assessing text messaging would not necessarily broaden the base; to the extent we were to adopt a non-revenues-based contribution methodology. We also seek comment and data on the extent to which service providers are currently treating these services as assessable.

25.

One-way VoIP Service Providers.

We seek comment on whether the Commission should exercise its permissive authority under section 254(d) to include in the contribution base providers of “one-way” VoIP with respect to such service offerings, regardless of the statutory classification of such services. Such offerings would include all services that provide users with the capability to originate calls to the PSTN

or

terminate calls from the PSTN, but in all other respects meet the definition of “interconnected VoIP.” We seek comment below on a potential definition of such services for the purpose of USF contributions:

One-way VoIP service. A service that (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user's location; (3) requires Internet protocol-compatible customer premises equipment; and (4) permits users generally to receive calls that originate on the public switched telephone network or terminate calls to the public switched telephone network.

26. To what extent does this rationale apply today to one-way VoIP services? We note that one-way VoIP enables consumers to originate or terminate calls on the PSTN. Would the public interest be served by exercising permissive authority over one-way VoIP to further our proposed goals of efficiency, fairness and sustainability?

27. In particular, we seek comment on whether competitive neutrality concerns now support the inclusion of one-way VoIP services within the contribution base. Some parties argue that the one-way VoIP exemption is “an enormous loophole” that creates competitive disparities. We seek comment on the extent of competition between one-way VoIP and other services that are subject to assessment, and how that should affect our analysis. Commenters are encouraged to provide data to support

their analysis. If one-way VoIP providers are brought into the contribution base, what would be the appropriate transition period?

28. We seek comment on the size of the one-way VoIP marketplace in the United States, and whether this marketplace is likely to grow or shrink in the future. How many providers of one-way VoIP are there, and who are other major providers of such services? What are the overall U.S. revenues for this group of providers, and how many customers do they have? Commenters are encouraged to provide specific data to support their assertions. We also seek comment and data submissions on how assessing these services would affect the contribution base under the different methodologies proposed in section V below.0

29. If we assess one-way VoIP, how would that affect the size of the contribution base? How would such assessment affect the distribution of contribution obligations between services for enterprise and residential customers? How would it affect the total average impact of contributions on residential end users? How would it affect the distribution of obligations between low-volume and high-volume users, and how would it impact low-income consumers? How would an assessment of one-way VoIP affect the distribution of contribution obligations among various industry segments? We seek comment on the relevance of precedent to the question of whether one-way providers should contribute to universal service.

30. Broadband Internet Access Service Providers.

The State Members of the Federal-State Universal Service Joint Board (State Members of the Joint Board) have proposed that the Commission include “broadband and services closely associated with the delivery of broadband” in the base, including Digital Subscriber Line (DSL), cable, and wireless broadband Internet access. Other commenters also support extending assessments to broadband Internet access.

31.

In 2002, the Commission sought comment on whether and how broadband Internet access service providers should contribute to universal service. In the

Wireline Broadband Internet Service Access Order,

70 FR 60222, October 17, 2005, the Commission classified wireline broadband Internet access as an information service. The Commission also recognized, however, that wireline broadband Internet access service includes a provision of telecommunications. In the

Wireline Broadband Internet Access Order,

the Commission stated that it intended to address contribution obligations for providers of broadband Internet access in a comprehensive fashion in the future, either in that docket or in this docket.

32. Some commenters have suggested that the Commission should exercise its permissive authority to assess providers of broadband Internet access services. Several parties, however, have expressed concern that assessing broadband Internet access could discourage broadband adoption. We seek comment on those concerns and invite commenters to submit empirical data into the record of this proceeding regarding the potential impact of assessing broadband Internet access services on consumer adoption or usage of services. Would assessing broadband Internet access service in the near term undermine the goals of universal service? Could the Commission address such concerns by phasing in contributions for mass market broadband Internet access services over time?

33. In the

USF/ICC Transformation Order,

76 FR 76623, December 8, 2011, we adopted new rules to ensure that robust and affordable voice and broadband, both fixed and mobile, are available to Americans throughout the nation. In this proceeding, we are looking to update and modernize the method by which funds are collected to support universal service. Some have expressed concern that assessing broadband Internet access may indirectly raise the price of broadband Internet access for some consumers. To what extent, if any, would assessing broadband services discourage consumers from subscribing? To what extent, if any, would that in turn slow down deployment of broadband infrastructure? We seek comments and economic analyses that address the overall effect on broadband deployment of assessing or not assessing broadband.

34. The State Members of the Joint Board recommend that both telecommunications services and information services (such as broadband Internet access services) should be assessed and suggest that if most of the revenues currently reported on FCC Form 499 Line 418 were assessed, that would reduce the contribution factor to approximately two percent. They also suggest this would simplify billing “since the new federal USF surcharge rate would generally apply to an end user's total bill.” We seek comment on this recommendation of the State Members of the Joint Board. Would such an approach make telecommunications more affordable for consumers with lower overall telecommunications expenditures? What is the relationship between household income and the percentage of a household's telecommunications bill subject to assessment under the current system, and what would it be under the State Members' proposed approach? Would such an approach affect consumer adoption of telecommunications services that are not currently assessed? We ask commenters to provide any analysis and data regarding their estimated reduction in the contribution factor, if we were to require contributions based on the total bill. If we were to assess broadband Internet access, to what extent would that reduce the contribution factor if we maintain a revenue-based methodology?

35. If the Commission does assess broadband Internet access service, now or at some point in the future, should the Commission assess all forms of broadband Internet access, including wired (including over cable, telephone, and power-line networks), satellite, and fixed and mobile wireless? Should it assess mass market broadband Internet access as well as enterprise broadband Internet access? As a practical matter, how would the Commission differentiate between mass market broadband Internet access, and other forms of broadband Internet access, and would such a distinction create any distortions in the marketplace?

36. We note that TIA estimates the wired broadband Internet access marketplace to be $38.3 billion in 2011 and $40.3 billion in 2012, and the marketplace for wireless data services to be $73.6 billion in 2011 and $89.8 billion in 2012. TIA also projects wireless data services to be over $140 billion, or double that for wireless voice, by 2015. It is not clear; however, from how TIA presents the data whether its estimates include both enterprise as well as mass market broadband Internet access. To what extent are any of these revenues in the contribution base today? What proportion of those revenues should be considered mass market broadband Internet access, if we were to retain a revenues-based system but adopt an approach that would exempt mass market broadband Internet access services from contribution obligations? Under such an approach, how should we define “mass market”?

37. We also seek comment on whether exercising our permissive authority with respect to broadband Internet access services would be consistent with the Act and our potential goals for contributions reform, namely, creating greater efficiency, fairness, sustainability, and other goals that

commenters identify. If we assess broadband Internet access services, how would that affect the size of the contribution base? How would such assessment affect the distribution of contribution obligations between enterprise and mass market customers if we assess only enterprise broadband Internet access services, only mass market broadband Internet access services, or all broadband Internet access services? How would these different approaches to assessing broadband Internet access services affect the total average contribution impact for mass market end users? How would they affect the distribution of contribution obligations between services offered to low-volume and high-volume users, or between low-income and higher-income users? How would an assessment of broadband Internet access services affect the distribution of contributions among various industry segments? Would assessing retail broadband Internet access service eliminate the current competitive disparity that exists today between providers that contribute on their broadband transmission (small rate of return companies) and their competitors, who do not?

38.

Listing of Services Subject to Universal Service Contribution Assessment.

Section 54.706 of our rules sets forth a non-exhaustive list of services that are currently included in the contribution base. Should we continue to specify in our codified regulations specific services that are subject to assessment? Should that list be updated to reflect marketplace changes over the last decade? Does it advance our potential goals for reform of providing predictability and simplifying compliance and administration to maintain a non-exhaustive list of services that are subject to contributions, which by definition does not provide clarity as to whether services not on the list are subject to contribution obligations? Could we adopt a simpler approach that is flexible enough to be applied to services that exist today and ones that will emerge in the future, without a need to continually update our codified rules? Should the Commission periodically set forth a list of assessable services, similar to the eligible services list used for the schools and libraries universal service support mechanism?

3. Determining Contribution Obligations Through a Broader Definitional Approach

39. In the previous section, we inquired about using our section 254(d) permissive authority or other tools to modify or clarify the contribution obligations of providers of specific services. In this section, we seek comment on an alternative approach: exercising our permissive authority to craft a general rule that would specify which “providers of interstate telecommunications” must contribute, without enumerating the specific services subject to assessment. Like the approach discussed above, such a rule would not require us to resolve the statutory classification of specific services as information services or telecommunications services in order to conclude that contributions should be assessed. Such a rule could potentially produce a more sustainable contribution system by avoiding the need to continually update a list of specific services subject to assessment. At the same time, such an approach leaves open the possibility of carving out or excluding a specifically defined list of providers or services, if inclusion of those providers or services is not in the public interest.

40.

For example, we seek comment on exercising our permissive authority to adopt a rule such as the following:

Any interstate information service or interstate telecommunications is assessable if the provider also provides the transmission (wired or wireless), directly or indirectly through an affiliate, to end users

.

41. This rule is intended to encompass only entities that provide transmission to their users, whether using their own facilities or by utilizing transmission service purchased from other entities. As discussed above, the provision of “telecommunications” means, in part, the provision of transmission capability. Under the approach historically taken by the Commission, some, but not all, providers of information services “provide” telecommunications. By statutory definition, an information service provider offers the “capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.” In the past, the Commission has found that the telecommunications component may be provided by the information services provider

or

the customer. In other words, some information service providers “provide” the telecommunications required to utilize the information service, but others require their customers to “bring their own telecommunications” (in other words, to “bring their own transmission capability”). The rule set forth above is intended to include entities that provide transmission capability to their users, whether through their own facilities or through incorporation of services purchased from others, but not to include entities that require their users to “bring their own” transmission capability in order to use a service. This is consistent with Commission precedent where the Commission has exercised its permissive authority to extend USF contribution requirements to providers of telecommunications that are competing directly with common carriers. We seek comment on whether the rule would achieve this intended result. To the extent the rule above would not achieve this intended result; we seek comment on how the rule could be altered to achieve this result.

42. We seek comment on whether a rule such as the one above would further our proposed goals of contributions reform by improving efficiency, fairness, and the sustainability of the Fund. Would adopting such a rule provide sufficient guidance to potential contributors regarding their contribution obligation? Would such a rule be simple to administer, monitor, and enforce? Would it create market distortions or impede innovation?

43. The National Broadband Plan recommended that however the Commission chooses to reform contribution methodology, it should take steps to minimize opportunities for arbitrage as new products and services are developed, so that there is no need to continuously update regulations to catch up with changes in the market. Would a rule like the one discussed above achieve these goals, minimizing opportunities for arbitrage and eliminating the need to continuously update regulations? Or, alternatively, would it result in new definitional disputes and potential uncertainty?

44. Could the above rule be read to make content fees assessable when content is provided by the provider of the interstate telecommunications? For example, could an IP-based video-on-demand service be assessable? We note that cable services are regulated under Title VI of the Act, and that video service providers are currently only required to contribute to the extent they provide interstate telecommunications services or other assessable telecommunications. We also note that many video-on-demand services are being provided through Internet web sites, and thus are services that require the viewer to bring their own “telecommunications” (

i.e.,

Internet access). Could the above definition lead to the assessment of any other services that compete largely or primarily against services that remain non-assessable? If

so, would this lead to competitive distortions? How could the definition be altered to avoid this result?

45. As noted above, the Commission has determined that “over-the-top” interconnected VoIP providers provide transmission to or from the PSTN to end users, and has subjected these services to contribution obligations. Even where a user obtains Internet access from an independent third party to use an interconnected VoIP service, an over-the-top interconnected VoIP provider must still supply termination to the PSTN for outgoing calls (which is not covered by the Internet access service), and origination from the PSTN for incoming calls (which again is not covered by the Internet access service). Over-the-top VoIP providers generally purchase this access to the PSTN from a telecommunications carrier who accepts outgoing traffic from and delivers incoming traffic to the interconnected VoIP provider's media gateway. The Commission held that origination or termination of a communication via the PSTN is “telecommunications,” and over-the-top interconnected VoIP providers, like other resellers, are providing telecommunications when they provide their users with the ability to originate or terminate a communication via the PSTN, regardless of whether they do so via their own facilities or obtain transmission from third parties. Are there legal or policy considerations that would warrant revisiting those rationales, if we were to exercise our permissive authority as set forth above? Are there reasons to extend or not extend the rationale above to other services that provide origination or termination of a communication via the PSTN? Would interconnected VoIP providers fall under the definition of an assessable service set forth in this section? If the objective is to include only entities that provide a physical connection (wired or wireless), should we consider entities that provide PSTN origination or termination to be included within that group? If not, should we alter the proposed definition, or should we add some additional provisions specifically including additional services, like interconnected VoIP or other services that are substitutable for assessable services, for assessment?

46. The State Members of the Joint Board have proposed an alternative broad definition, recommending that the Commission exercise its permissive authority to broaden the contributions base to include “all services that touch the public communications network.” The State Members conclude, however, that contributions should not be required for “pure content delivered by non-telecommunications over broadband facilities.” They acknowledge that their proposed rule could result in difficult line drawing problems when the same company sells both broadband services and content. We seek comment on the State Members' proposal.

47.

Potential Exclusions.

If we were to adopt a rule such as the one above, we seek comment on whether we should adopt any additional limitations.

48.

Non-Facilities-Based Providers:

The rule discussed above would assess providers of interstate telecommunications whether or not they own the physical facility, or hold license to the spectrum, that is used to provide interstate telecommunications. In the alternative, should we limit contribution obligations to facilities-based providers, and if so, how should we define “facilities-based”? For example, would a provider be considered “facilities-based” for contributions purposes if it provides service only partially over its own facilities? Should we define “facilities-based” services for contributions purposes as those provided over unbundled network elements, special access lines, and other leased lines and wireless channels that the provider obtains from another communications services provider? For example, EarthLink has suggested that non-facilities-based providers of Internet access service do not provide the “transmission service.” We seek comment on this viewpoint. The Commission's contribution methodology has never exempted non-facilities-based telecommunications providers from their obligation to contribute, and the Act does not itself distinguish between facilities-based and non-facilities-based telecommunications providers for purposes of contribution obligations. We note that the Commission has previously found resellers to be telecommunications carriers supplying telecommunications services to their customers even though they do not own or operate the transmission facilities. Carriers that incorporate transmission obtained from other providers into their own telecommunications services are currently subject to contribution requirements under the mandatory contribution requirement in section 254(d). Likewise, firms contribute today when they resell private line service provided by other carriers. Are there policy or administrative reasons not to exercise permissive authority over entities that incorporate telecommunications purchased from others into their own service offerings?

49.

Broadband Internet Access:

If we were to adopt a rule such as the one above, should we exclude broadband Internet access service? Several parties have expressed concern that assessing broadband Internet access could discourage broadband adoption. As described above, we seek comment on those concerns and invite commenters to submit empirical data into the record of this proceeding regarding the impact of assessing broadband Internet access services on consumer or business adoption or usage of services. To what extent would assessment of universal service contribution obligations potentially deter adoption of such services? Is there less likelihood that assessment of USF contributions would deter adoption of business broadband Internet access services?

50. To the extent commenters believe that assessing mass market broadband Internet access service in particular could discourage broadband adoption or harm other Commission goals, we seek comment on a specific exemption for mass market broadband Internet access services (both fixed and mobile). If we were to take such an approach, how should we define enterprise versus mass market services, and from an administrative standpoint, how would carriers and USAC be able to distinguish between the two? To what extent would such an exemption potentially distort how business and residential broadband Internet access is provided, as carriers may seek to characterize their offerings as “mass market” to avoid contribution obligations?

51.

Free or Advertising-Supported Services:

If we were to adopt a rule such as the one above, should we do so only with respect to providers that offer service for a subscription fee? Given the broad meaning of “fee” in other contexts, how would we frame an exclusion for free or advertising-supported services? Would such an exclusion potentially cause marketplace distortions vis-à-vis firms that have business models that derive revenues from other sources, such as advertising revenues? Would imposing contribution obligations on free or advertising-supported services from contribution obligations discourage innovative offerings? Commenters should provide specific examples and supporting data regarding the business models of relevant services.

52.

Machine-to-Machine Connections:

If we were to adopt a rule such as the one above, should we exclude machine-to-machine services? Machine-to-machine connections have grown

rapidly in recent years. Would it be consistent with our statutory authority to exercise permissive authority over machine-to-machine communications, such as smart meter/smart grids, remote health monitoring, or remote home security systems? Should machine-to-machine connections be treated the same as connections between or among people? As discussed above, the Act defines the term “telecommunications” as “the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.” In the case of machine-to-machine communications, who is the “user” that is specifying where the information should go? Is there any precedent outside the contribution methodology context that should inform our interpretation of the statutory term here? Should we conclude that all machine-to-machine connections that transmit information over the Internet include interstate telecommunications? How would assessing machine-to-machine communications impact marketplace innovation in this arena?

53.

Statutory Interpretation.

Above, we asked whether a general rule like that described in this section would provide sufficient guidance to potential contributors regarding their contribution obligation. The rule described in this section would not require us to resolve the statutory classification of specific services as information services or telecommunications services in order to conclude that contributions should be assessed. The Commission would, however, still be required to determine whether services involved the provision of interstate “telecommunications.” We seek comment on additional issues that may arise in interpreting the definition of “telecommunications” for contributions purposes as the communications marketplace evolves. We also ask how resolution of these questions in the context of USF contributions would impact other regulatory obligations, such as regulatory fees or other assessments that utilize the Telecommunications Reporting Worksheets.

54. First, we seek comment on how to interpret the statutory requirement that a telecommunications transmission must be “between or among points specified by the user.” In particular, we seek comment on whether we should interpret “the user” to be a subscriber to the service in question. For example, suppose that Bookseller A sells an electronic reading device to Ms. Smith. The price of the device includes a 3G wireless connection that allows Ms. Smith to connect to Bookseller A's servers at any time and purchase e-books. Bookseller A, in turn, purchases the wireless bandwidth for the connection from Carrier B. In this instance, should we consider Ms. Smith to be the “user” of the service provided by Bookseller A? Alternatively, is Bookseller A the “user” of the service provided by Carrier B? Under the former view, would Bookseller A be viewed as “providing telecommunications” to Ms. Smith, and therefore a contributor on that service? Or should Carrier B be viewed as the entity that is providing telecommunications to Bookseller A, and therefore the contributor? What would be the potential effects in other regulatory contexts if the Commission were to interpret the term “user” in a new way here?

55. We seek comment on what it means for the user to “specify” the “points” of transmission. Many communications services today allow the user to specify the points of transmission—for example, telephone and text messaging services generally allow a user to reach any other user on the PSTN, and broadband Internet access services generally allow users to access any location on the Internet. Certain services, however, arguably do not allow the “user” to specify the endpoints of the communication. To return to the e-books example above, suppose that the free wireless connectivity on the reading device can

only

be used to communicate between the device and Bookseller A's server, and not to reach any other destination on the PSTN or the Internet. In that case, is Ms. Smith, Bookseller A's customer, “specifying” the “points” of the transmission, or is Bookseller A?

56. We also seek comment on how to interpret the statutory requirement in the definition of “telecommunications” that the information transmitted must also be “of the user's choosing.” How should we interpret this phrase? For example, suppose a doctor provides a remote monitoring device to a patient that can send information back to the doctor's office. The monitoring device is pre-programmed to transmit only certain types of relevant medical data. Assuming that the other statutory components of “telecommunications” are present, is this an instance where the patient should be deemed the “user” that is transmitting information “of his or her choosing,” or would the fact that only information specified by the doctor or manufacturer that provides the device to the patient is transmitted mean that this communication does not meet the statutory definition of “telecommunications”?

57. We also seek comment on whether, under a rule such as the one described in this section, the Commission would have to interpret the statutory requirement that the transmission must be “without change in the form or content of the information as sent and received.” Although information services often include a component that “processes” information in some way, the Commission has in the past recognized that an information service can also include a separate “telecommunications” component. Furthermore, the Commission has previously found that while all information services require the transmission of information between customers and “computers or other processors,” the form or content of the information is not altered during these transmissions, and such transmissions constitute “telecommunications.” Would we be required to revisit any aspect of these interpretations in light of changing technology and marketplace developments?

58.

Impact on the Contribution Base.

We seek comment on the number of additional contributors and impact on the contribution base if we were to adopt the general definitional approach discussed in this section, and whether those figures are likely to grow or shrink in the future. How would the answer to this question differ if we were to assess based on revenues, connections, numbers or some other alternative? For each contribution methodology scenario, what services and providers would contribute under such a rule that do not contribute today? To what extent are they contributing today? What other services, not already discussed above, might be included if we were to adopt the general definitional approach discussed in this section? How would the answer to these questions differ under the definitional approach discussed in this section, as opposed to the service-by-service approach discussed in the preceding section?

59. Finally, to the extent not already covered by the questions above, we request clear and specific comments on the Commission's legal authority and the type and magnitude of likely benefits and costs of each of these variants of the suggested rule, and request that parties claiming significant costs or benefits provide supporting analysis and facts, including an explanation of how they were calculated and an identification of all underlying assumptions.

B. How Contributions Should Be Assessed

60. We seek comment on how to simplify our contributions system, consistent with the Act and our proposed goals for reform. Over the last decade, the Commission has sought comment on a number of proposals for alternative methodologies to the current revenues-based system, including methodologies based on connections, numbers, and various hybrid solutions. The record is mixed on whether we should make modifications to our existing revenues-based system, or move to an alternative system such as connections or numbers. Here, we seek comment on reforming the current revenues-based system as well as ask parties to update the record on these alternative methodologies. We seek comment on how each option would further our proposed goals and ask about potential implementation issues that are associated with specific methodologies. We ask commenters to provide data to quantify how potential rule changes would impact the Fund and reduce compliance costs and burdens.

61. We request specific comments on the type and magnitude of likely benefits and costs of each of the possible rules discussed in this section, and request that parties claiming significant costs or benefits provide supporting analysis and facts, including an explanation of how any data were calculated and an identification of all underlying assumptions.

1. Reforming the Current Revenues-Based System

62. We seek comment on whether we should retain the existing revenues-based system, and if so, how we can reform the current system to provide greater clarity to contributors, thereby promoting efficiency, fairness, and sustainability. Specifically, we seek comment on the pros and cons of retaining a revenues-based system. We ask parties claiming significant costs or benefits of a revenues-based system to provide supporting analysis and facts for such assertions, including an explanation of how they were calculated and all underlying assumptions.

63. What are the benefits or disadvantages of retaining a revenues-based system for a transitional or indefinite period? Are there market distortions caused by the existing revenues-based system? We solicit comment on whether the modifications discussed below would sufficiently address problems with the current revenues system. If we adopt any of the potential reforms discussed in this section to modify the revenues system, would such a system better serve our proposed reform goals than a connections-based, numbers-based, or other alternative contribution system? Would any of the potential reforms suggested in this section also make sense for a connections-based, numbers-based, or other alternative contribution system?

64. To the extent that we retain the current system, we seek comment on rules to simplify how revenues are apportioned for assessment, including the allocation of telecommunications service revenues between the intrastate and interstate jurisdictions, and the reporting of assessable revenues when a customer purchases a bundle of services only some of which are assessable. We also seek comment on how to assess revenues from information services and services that have not been classified as information or telecommunications services. Such adjustments could address some shortcomings in the current system that stakeholders have raised and could reduce administrative burdens on providers and USAC. We also seek comment on alternative approaches to provide greater clarity regarding the respective obligations of wholesalers and their customers, which has been subject to much dispute. We seek comment on adopting a value-added revenues system that would require contributions from each provider in the value chain, or, in the alternative, substantially revising the reseller certification process. Adopting a value-added revenues system or revising the certification process could eliminate the complications and loopholes associated with the current carrier's carrier reporting requirements. In addition, we seek comment on measures to clarify our prepaid calling card reporting requirements to ensure that competitors are contributing in a consistent manner. Finally, we seek comment on eliminating the international-only and the limited international revenues exemptions and on modifying the

de minimis

exemption to reduce compliance burdens.

a. Apportioning Revenues From Bundled Services

65. We seek comment on modifying our bundled offering apportionment rules to adopt more specific standards for determining what apportionment methods are deemed reasonable for allocating revenues from bundled offerings, or to eliminate carrier discretion in determining how to apportion revenues from bundled offerings. We ask whether doing so will further our proposed goals of making the contributions system more efficient and fair, minimizing compliance burdens, and reducing competitive distortions in the marketplace.

66. We are concerned that the lack of bright-line rules may encourage providers to minimize their allocation of revenues in a bundle to assessable services to reduce their contribution obligations in order to gain a competitive edge. A number of commenters have suggested, for instance, that this is a concern in the enterprise market, where there is fierce competition to win contracts from large corporate clients. We seek data from commenters regarding what are common industry practices regarding the allocation of revenues from bundled offerings. To what extent do contributors rely on market studies of stand-alone services offered by other providers? To what extent do contributors allocate revenues based on the allocated cost of the underlying individual services? To what extent do contributors allocate revenues based on revenue reporting requirements imposed by other regulatory jurisdictions, such as cable franchising authorities or state sales tax authorities?

67.

We seek comment on adopting a revised apportionment rule that would codify a modified version of the two safe harbors provided under the

CPE Bundling Order,

66 FR 19398, April 16, 2001, for apportioning revenues from bundled service offerings and eliminate providers' discretion on how to apportion revenues derived from bundled services. Specifically, we seek comment on the following rule for USF contributions purposes:

If an entity bundles non-assessable services or products (such as customer-premises equipment) with one or more assessable services, it must either treat all revenues for that bundled offering as assessable telecommunications revenues or allocate revenues associated with the bundle consistent with the price it charges for stand-alone offerings of equivalent services or products (with any discounts from bundling assumed to be discounts in non-assessable revenues).

68. We seek comment on whether this rule would simplify the process of apportioning bundled revenues in a way that is transparent, enforceable, and easily administrable. How would such a rule be enforceable if the provider does not offer stand-alone equivalent services? Would we need a separate rule to address such circumstances? If so, how should that rule be structured? Would the benefits of limiting the method by which providers determine

assessable revenues for bundled services outweigh any potential benefits of allowing providers to present individualized showing, as permitted under the current rule? We seek comment and examples of instances where some providers of bundled services may be allocating assessable revenues differently than their competitors, creating a competitive disadvantage. Would eliminating the open-ended apportionment option in favor of the rule above minimize competitive disparities? Would the rule change incentives to offer (or not offer) assessable services on an unbundled basis?

69. We seek comment on the technical aspects of such a rule. For example, if we were to adopt such a rule, how much discretion should carriers have in determining what constitutes a “stand-alone offering of equivalent service”? How could we prevent contributors from gaming a stand-alone option to minimize their assessable revenues? Should there be a requirement, for instance, that such a stand-alone offering be generally available and actually subscribed to by a minimum number of end users? If so, how and how many end users? Are there any alternative ways to ensure that contributors are not creating a sham stand-alone offering to minimize contribution obligations?

70. We also seek comment on whether such a rule would create competitive disparities between providers that offer stand-alone offerings of assessable services, and those that only sell bundled services in the marketplace. Should we require carriers that do not offer a stand-alone service themselves to rely on a market analysis of services offered by other carriers in the marketplace or a tariffed rate of another provider? If so, should we require such carriers to submit any such market analyses used for imputation purposes or third party tariffed rate to the Commission and to USAC? Should we require that the stand-alone offering price be objectively verifiable by the Commission or USAC, such as by reference to a public Web site or tariffed offering? What measures would need to be in place for USAC to be able to verify stand-alone pricing for business services, which are often individually negotiated for individual customers? Is there any reason to implement such a rule only for certain types of bundled offerings and not others, or certain classes of customers and not others? What is the least burdensome mechanism to ensure allocations are objectively verifiable?

71. We seek comment on how the rule would impact the overall contributions base, as well as the individual burden on consumers. What would be the impact of the rule on providers serving consumers with lower telecommunications expenditures (such as a voice only subscriber with limited long distance calling) compared to providers serving consumers with higher expenditures (such as a triple-play subscriber)? How would such a rule affect consumers with lower telecommunications expenditures compared to consumers with higher expenditures? What would be the impact of such a rule on mobile providers, who increasingly are deriving revenues from bundled voice-data packages, and their consumers?

72. We also seek comment on alternative rule language as well as alternative means of determining contribution obligations for bundled service offerings. Parties that submit alternative proposals should explain how such proposals further our proposed goals of reform and are consistent with our legal authority. We ask commenters to quantify, where possible, how their proposed rule would impact the contribution base and total assessable revenues.

73. For each of these alternatives, we seek comment on how the approach would impact the overall contribution base, as well as the individual burden on contributors and consumers. We also seek comment on what steps would need to be taken to implement the proposals above or alternative proposals for apportioning revenues from bundled service offerings for USF contribution purposes. How much time would parties need to transition to a new method of apportioning revenues from bundled offerings?

74. As discussed above, the Commission has the authority to assess all providers of interstate telecommunications, if the public interest warrants. Would a contribution methodology that assesses the full retail revenues of bundled services that contain “telecommunications,” as that term is defined in the Act, without safe harbors or the ability to present individualized showings, conform to the statutory requirements? Given the growth in bundled service offerings over the last decade, would adopting such a bright-line rule make the contribution base more stable and thereby serve the public interest? Would it further the principle of “equitable and non-discriminatory” contributions by reducing potential competitive distortions among providers and service offerings that apportion revenues using different methodologies? Would a simplified approach that assesses the total bill for bundled services promote administrative efficiency and reduce compliance and enforcement expenditures? Would it be appropriate to adopt such an approach even if the Commission chose not to make every component of a bundled service individually assessable, or would that create market distortions and discourage bundled offerings?

b. Contributions for Services With an Interstate Telecommunications Component

75. We seek comment on what revenues should be assessed to the extent we choose to exercise our permissive authority over services that provide interstate telecommunications. For example, to the extent enterprise communications services that are implemented with MPLS protocols are information services that provide interstate telecommunications, we seek comment on whether we could and should assess the full retail revenues of such enterprise communications services, or instead should adopt a bright-line that would assess only a fraction or percentage of the retail revenues.

76. Would it be consistent with our statutory authority under section 254(d) to require contributions on the full retail revenues of an information service that provides interstate telecommunications? Is there a potential for competitive disparity, to the extent a non-facilities-based provider of such services is assessed on its retail revenues, and also may bear indirectly the cost of a universal service contribution on underlying transmission that it purchases from a wholesale provider? To what extent should the retail revenues derived from information services have some nexus with the underlying transmission component, in order for the full retail revenues to be assessed? What are the advantages and disadvantages of assessing retail information service revenues, if we were to exercise our permissive authority?

77. Alternatively, should we assess only the telecommunications (

i.e.,

the transmission) component, and if so, how would we determine what portion of the integrated service revenues should be associated with the transmission component? For example, the MPLS Industry Group proposes that revenues associated with the access transmission components of all MPLS-enabled services be imputed on a uniform basis and made subject to USF contributions obligations through Commission-established “MPLS

Assessable Revenue Component” proxies. In other cases, the underlying transmission is separately offered on a Title II basis, which could provide a basis for assessing only the revenues associated with the transmission component. We seek comment on the MPLS Industry Group proposal. Is such a proposal workable for other similar services?

78.

We seek comment on the following rule:

If an entity offers an assessable information service with an interstate telecommunications component, it must treat all revenues for that information service as assessable revenues, unless it offers the transmission underlying the information service separately on a stand-alone basis. If it offers the transmission on a stand-alone basis, it may treat as assessable revenues an amount consistent with the price it charges for stand-alone offerings of equivalent transmission.

79. We seek comment on whether this rule would simplify the process of determining assessable revenues for information services in a way that is transparent, enforceable, and easily administrable. How would such a rule be enforceable if the provider did not offer the underlying transmission on a stand-alone basis? In such circumstances, should we craft a rule that looks at the general retail price of such transmission services when offered on a stand-alone basis by other providers? Would the proposed rule change incentives to offer (or not offer) telecommunications transmission on an unbundled basis? Would such a rule create competitive disparities between providers that choose to offer transmission on a stand-alone basis (such as small rate-of-return carriers that offer broadband Internet access) and providers that do not offer transmission separately (such as cable operators in the same geographic area as those rate-of-return carriers)?

80. In the alternative, should we craft a rule, or a safe harbor, that provides for assessment of a certain percentage of the retail revenues of information services with a telecommunications (transmission) component? Would it be legally permissible for the Commission to assess a set percentage of the retail revenues, even when such percentage might exceed the allocated revenues associated with the underlying transmission in that information service? Would a set percentage be easier to administer, reduce compliance costs, and otherwise be in the public interest? Would it create competitive distortions? Should the percentage vary depending on the type of information service at issue? Is some other formula for determining the assessable percentage of retail revenues of an information service appropriate?

81. For each of these alternatives, we seek comment on how the approach would impact the overall contributions base, as well as the individual burden on contributors and consumers. We also seek comment on what steps would need to be taken to implement the proposals above or alternative proposals for apportioning revenues from information services for USF contribution purposes. How much time would parties need to transition to a new method of apportioning revenues from information services with an interstate telecommunications component?

c. Allocating Revenues Between Inter- and Intrastate Jurisdiction

82. We seek comment on modifying or eliminating the requirement that carriers are assessed based on interstate and international revenues. While that requirement may have made sense when the Commission initially implemented the Act, the marketplace has changed dramatically since 1996 and will evolve with the continued deployment of IP-based networks.

83. As a general matter, we seek comment on whether the Act compels us to only assess a portion of revenues associated with services that operate interstate, intrastate, and internationally. We also seek comment on whether as a policy matter we should require that revenues be allocated based on the jurisdiction that regulates the associated service. Does this construct make sense in an environment where many contributors are not rate regulated, and many of the services they offer are only lightly regulated?

84. One approach would be to adopt a rule that requires all providers that are subject to contributions to report and contribute on all of the revenues derived from assessable services rather than require providers to allocate revenues between the interstate and intrastate jurisdictions. Since many services offered today are not priced and sold separately as intrastate or interstate service, any designated allocation between jurisdictions may be arbitrary to some extent. In the

TOPUC

decision, the court found that the Commission did not have jurisdiction to assess federal universal service contribution on intrastate revenues. Given the changes in the marketplace, would the

TOPUC

decision prohibit assessing a federal universal service fee on the entire service?

85. The State Members of the Joint Board argue that the regulatory jurisdiction over a service should not determine whether that service contributes to universal service. They note that the states may constitutionally impose sales taxes on both interstate and intrastate telecommunications, and they suggest that the U.S. Constitution does not prohibit there being both a federal universal service surcharge and a state universal service surcharge on all services delivered over the public communications network. They acknowledge that the 1999

TOPUC

decision limited the Commission from imposing universal service surcharges on intrastate services, but they contend that

TOPUC

was wrongly decided. We seek comment on the State Members' analysis and ask commenters to address whether it would be consistent with section 254(d) for the Commission to require contributions on all revenues derived from services delivered over a public network.

86. Would a rule that assesses all revenues from services that operate interstate, intrastate, and internationally without allocation for intrastate operations advance our proposed goals for reform? How would such a rule impact the contribution base, today and in the future? We note that the sum of interstate, international, and intrastate revenues for all filers was $210 billion in 2010, while the contribution base (the total of reported assessable revenues) for 2010 was $67 billion. If such a rule had been in place in 2010,

i.e.,

a rule that assesses all interstate, intrastate, and international revenues, the contribution factor would have been roughly four percent, instead of 14 percent on an annualized basis. Would such a system be significantly simpler to administer, reducing the costs of complying with our contribution rules? How would such a system affect states? How would such an approach affect the allocation of the contribution burden, especially between residential consumers and enterprise consumers? For example, would residential consumers end up paying (in USF pass through charges) a substantially higher portion of the USF burden than they do today, compared to enterprise customers? If so, are there ways to offset or limit this effect? Commenters are encouraged to provide additional data and analysis regarding the impact of such a rule change.

87. Another alternative would be to adopt bright-line rules for how companies should allocate revenues between jurisdictions for broad categories of services. If we were to adopt such rules, how narrowly or broadly should we define the relevant

services? As shown in Chart 5 below, the percentage of end user revenues that are reported as interstate/international have remained relatively stable for the major subcategories of revenue that have been reported on FCC Form 499 between 2004 and 2011. Should we adopt a separate allocator for each major category of service presently reported on Form 499 (fixed local services, mobile services, toll services), or should we follow a simpler approach, for instance, with just two allocation rules: one for voice and one for data services? For instance, we could adopt a standard allocator for all voice revenues, regardless of technology (fixed or mobile, traditional telephony or interconnected VoIP). Under such an approach, we could specify that voice revenues should be allocated according to a specified ratio, such as 20 percent interstate and 80 percent intrastate. Should the interstate allocation be higher or lower? Is there any policy justification for setting a different percentage for voice based on the type of carrier or technology used?

88. In other contexts, the Commission has recognized that Internet access services are jurisdictionally interstate because end users access Web sites across state lines. We seek comment whether a similar finding should be made for USF contribution purposes. Specifically, if we use our permissive authority to expand or clarify USF contribution requirements to include enterprise communications services, text messaging services, and broadband Internet access services (both fixed and mobile), should we find that for USF contribution purposes, revenues from such services should be reported as 100 percent interstate? Alternatively, should we use an allocator lower than 100 percent interstate for contribution purposes, to preserve a revenue base that could be assessed for state universal service funds?

89. What data should be considered when developing that fixed percentage of interstate and intrastate revenues for services? Appendix C presents in more detail the percentage of end user revenues that are reported as interstate/international for each individual subcategory of end user revenue reported on FCC Form 499 for the periods of 2004 through 2011. For 2011, filers reported $73.5B in total revenues for fixed local revenues, with 30 percent allocated to the interstate category and 0.6 percent allocated to the international category. For mobile services, filers reported $106.6 billion in total revenues in 2011, with 22.8 percent allocated to the interstate category and 0.4 percent allocated to the international category. For toll services in 2011, filers reported $34.3 billion in total revenues, with 50.3 percent allocated to the interstate category, and 21.4 percent allocated to the international category. We note that there is significant variation in some of the individual subcategories of revenues as currently reported on FCC Form 499. How should our decision be informed by the interstate percentages reported for individual subcategories of service as reported on the current Form 499, such as fixed local exchange (line 404) and mobile services monthly and activation charges (line 409)?

90. To what extent should we take into account ratios reported by wireless carriers and interconnected VoIP providers in their traffic studies? If we were to adopt a ratio applicable to the broad category of “mobile services,” for instance, should we base the percentage for mobile services, on the average (23 percent) or median (19 percent) ratio that carriers have reported in their most recent traffic studies? Commenters that support a different percentage should explain why adoption of that alternative is preferable.

91. If we were to adopt such a rule specifying that a set percentage of revenues should be reported as interstate for a category of service, should carriers still be permitted to make a particularized showing that a higher percentage of their traffic is intrastate? Should the Commission adopt a mechanism to periodically update the percentage and, if so, what would be the basis for updating the fixed percentage factor? How would such a rule impact the contribution base, today and in the future? Commenters are encouraged to provide additional data and analysis regarding the impact of such a rule change.

92. Would adopting a fixed allocation method for categories of services, or an across the board fixed allocation method, further our proposed goals for contribution reform? Using a single allocation factor for contribution purposes could potentially minimize competitive distortions among providers offering similar services. Would a single allocation factor help stabilize the contribution base by eliminating incentives for providers to underreport their interstate telecommunications revenues? Would a single allocation factor lessen providers' compliance burdens by eliminating the need to perform traffic studies or to maintain and update the methodology used to establish their good-faith estimates? Would using a single allocation factor potentially provide greater predictability?

93. We seek comment on whether, if we were to adopt a rule imposing a fixed interstate allocator, we would be legally required to adopt a procedure by which a provider could “opt-out” of using the single allocation factor and instead make an individualized showing. We seek comment on whether allowing any telecommunications provider to opt-out would negate the administrative simplicity of adopting a single allocator for purposes of universal service contributions. To the extent that any commenter believes there should be a mechanism to “opt-out” of the fixed allocation factor, it should explain what showing should be required to opt out, and what steps the Commission should take to minimize competitive distortions that may arise if alternative allocations are used for certain types of providers or for certain types of traffic. For example, should a provider that opts out of the fixed allocation factor be required to allocate revenues on a customer-by-customer basis, given that each customer actually uses the purchased telecommunications differently?

94. We also seek to develop a factual record on the regulatory compliance costs stemming from the current requirement to allocate revenue between the intrastate and interstate jurisdictions. We seek comment and data submissions regarding the costs imposed on companies today to separate their revenues in this fashion, and the costs associated with performing a traffic study on an annual basis. We encourage companies to provide estimates not only of the costs associated with their legal and regulatory personnel, but also to include any other costs that compliance with such requirements may pose on other personnel, including accounting, billing, sales, network, IT, and marketing staff, and any costs associated with hiring outside resources, such as attorneys or consultants, to assist in implementing such requirements or responding to any audits or investigations relating to this aspect of our contribution rules.

95. To the extent commenters have concerns about any of these proposals; they should present alternative methods for simplifying the allocation of revenues between the interstate and intrastate jurisdictions and explain how their proposals would meet the proposed contribution reform goals set forth in this Notice. If we do not adopt a fixed factor or factors to allocate telecommunications revenues, what modifications should we consider making to the current rules?

96. If we continue to allow use of traffic studies to estimate the allocation of interstate revenues, should we codify specific requirements or provide greater detail in the Form 499 instructions for how traffic is categorized in traffic studies to ensure that reporting entities are conducting the studies in a competitively neutral manner? We seek comment on current practices for classifying traffic for traffic studies. We have some concerns that contributors may be using different methodologies in conducting traffic studies, given the broad variation in reported ratios. It is surprising, for instance, that nine wireless providers report no interstate or international revenues at all. Similarly, the fact that 47 VoIP filers report no interstate/international revenues, while some others report ratios relatively close (but slightly under) the current 64.9 percent safe harbor, also suggests that VoIP providers may be classifying their traffic in significantly different ways, and there may be a need to provide more standardized guidance regarding how to perform a traffic study. We seek comment on this analysis.

97. We seek comment on what steps would need to be taken to implement the approaches above or alternative approaches to simplify the allocation of interstate and intrastate revenues for federal USF contribution purposes. We also seek comment on how much time, if any, parties would need to transition to any new allocation method.

d. Contribution Obligations of Wholesalers and Their Customers

98.

Value-Added Approach to Assessing Contributions.

We seek comment on whether we should modify the existing universal service contribution methodology to assess “value-added” revenues rather than “end-user” revenues. Under this value-added approach, each telecommunications provider in a service value chain (including both wholesalers and resellers) would contribute based on the value the provider adds to the service. Thus, in a revenue-based system, a wholesaler would contribute on its wholesale revenues, and a reseller of those services would contribute based on its retail mark-up.

99. Under this value-added revenues approach each provider in a distribution or value chain would contribute based on the provider's total interstate and international revenues, less a credit for any telecommunications services or telecommunications purchased from other contributors in the distribution or value chain. Contributors would not, therefore, need to distinguish between revenues from end users and revenues from other telecommunications providers.

100. We seek comment on the following potential rule change, which could implement a value-added revenues system:

A contributor must contribute based on its projected assessable revenue less a credit for telecommunications services or telecommunications purchased from other contributors. Contributors shall report such revenues on the FCC Form 499-A and 499-Q Telecommunications Reporting Worksheets or such other forms or filings as the Commission may prescribe from time to time. Projected revenue information shall be subject to an annual true up, as prescribed from time to time by the Commission in its Telecommunications Reporting Worksheet instructions.

101. We ask whether the proposed value-added revenues approach would meet the proposed goals of improving administrative efficiency, while ensuring sustainability of the Fund. For example, how would a value-added system further our proposed goals of simplifying administration and oversight of the contribution system? Would a value-added system reduce incentives to structure transactions to avoid contribution obligations? Would adoption of a value-added system have unintended consequences that undermine our proposed goals in reforming the system? What records should contributors be required to retain to demonstrate compliance with a value-added system? For example, if we adopted the rule proposed above, should contributors be required to retain (and/or report) back-up for the “credit for telecommunications services or telecommunications purchased from other contributors”?

102. As an alternative to reporting on the revenues earned minus any amounts paid for telecommunications service inputs, should we implement a value-added methodology in which carriers instead subtract from their final contribution liability any pass-through charges paid to other contributors? If so, should we require or permit telecommunications providers to pass through an explicit universal service line-item charge to customers that are also telecommunications providers? Would a pass-through charge in these limited circumstances enable telecommunications providers and USAC to verify the universal service charges paid by one contributor to another for purposes of calculating the credit the contributor should receive against its own contribution obligation? Would mandated pass-through charges benefit competition by eliminating the ability of wholesale providers to distinguish service offerings based on whether or how they pass through universal service charges to their reseller customers? Would allowing providers to retain discretion over whether to recover their contributions implicitly or via an explicit line-item charge further our proposed goals of ensuring competitive neutrality and simplicity in the USF contribution system? Under a value-added assessment system, how should we treat transactions between wholesale providers and non-carriers (

e.g.,

retailers or distributors of prepaid calling cards), or transactions between wholesale providers and entities that are currently exempt from directly contributing to the Fund (

e.g.,

non-profit schools, non-profit libraries, non-profit colleges, non-profit universities, and non-profit health care providers)?

103. If we adopt a value-added system based on credits for pass through charges paid to other providers, we seek comment on whether we should scale or otherwise limit the credit a telecommunications provider receives to account for the fact that this system may exclude some telecommunications revenues from assessment. We also seek comment on the implementation of a value-added system. What would be an appropriate time frame for implementing such a rule? For example, to what extent would the existence of long-term contracts warrant delaying implementation of a value-added revenues system? If we delay implementation, what would be a reasonable period of time to transition to this system?

104. We request clear and specific comments on the type and magnitude of likely benefits and costs of the suggested rule, and request that parties claiming significant costs or benefits provide supporting analysis and facts, including an explanation of how data were calculated and identification all underlying assumptions.

105.

Value-Added Approach for Alternative Contribution Methodologies.

The value-added revenues system discussed above assumes retaining a revenues-based contribution system. We seek comment below on moving from a revenues-based contribution system to a system based on assessing connections or numbers. Commenters should indicate whether a value-added system could and should be developed for a connections-based or numbers-based contribution system. If value-added is needed or advisable for such other contribution systems, commenters

should explain the basis for such analysis, and should indicate how a value-added system would work in such instances.

106. We note that one of the considerations in crafting the current revenue-based system focused on end users was to avoid “double counting” revenue. We ask commenters whether a connections or numbers-based system may also raise concerns of double counting, and if so, how a value-added proposal could be crafted to address this issue. More generally, we seek comment on whether avoiding double counting remains a significant policy concern, and if it should inform the structure of a contributions methodology system.

107. In particular, we seek comment here on whether a value-added system similar in concept to the value-added revenues proposal set forth above for a revenues-based system may be desirable for connections, and if so, how such a system would operate. If we were to adopt a service-based definition of connections, there could be situations in which a wholesaler sells a “connection” to a reseller who adds value by separately selling more than one service over that connection. For instance, to the extent Carrier A sells a connection to Carrier B, and then Carrier B sells two connections to the retail customer, would it simplify administration of a connections-based system if both Carrier A and B are assessed based on the connections provided to their respective customers, with Carrier B receiving a credit for the number of connections it has purchased from a wholesale provider so that, in this example, Carrier A and B would each be assessed for one connection?

108. We also seek comment on how one might adopt a value-added approach for a numbers-based methodology. Would a value-added approach work in which each provider of interstate telecommunications in a service value chain (including both wholesalers providers and their customers) that provides a number to a customer would contribute on that number, with a credit provided to the extent a carrier obtains lines with numbers from another provider? Alternatively, would it make sense to adopt a system in which a wholesaler could contribute on its wholesale numbers at a lesser adjusted rate, and its customer could contribute based on a higher per-unit rate for numbers associated with services provided to retail customers, with an adjustment made for any pass-through charges paid to the wholesale provider?

109.

Reasonable Expectation Standard.

We seek comment on potential bright line rules that we could adopt that would provide greater clarity to contributors as to what steps they must take to properly report their assessable revenues and lessen the need to engage in such fact-intensive inquiries, if we maintain a revenue-based contribution methodology.

110. We seek comment and data submissions regarding the costs imposed on companies today to separate their wholesale from their retail revenues, and the costs associated with complying with the requirement that they demonstrate a reasonable expectation that their customers are contributing to USF. We encourage companies to provide estimates not only of the costs associated with their legal and regulatory personnel, but also to include any other costs that compliance with such requirements may pose on other personnel, including accounting, billing, sales, IT, and marketing staff, and any costs associated with hiring outside resources, such as attorneys or consultants, to assist in implementing such requirements or responding to any audits or investigations relating to this aspect of our contribution rules.

111. We seek comment on whether we should adopt a rule mandating greater specificity in contributor certifications regarding the services on which the certifying entity is contributing, so that wholesalers are in a better position to determine which of their revenues should be classified as carrier's carrier revenues. Many contributors may obtain such certifications from their customers only on an entity-wide basis, rather than on a service-specific basis, because the model certification language provided in the instructions beginning in 2007 does not specify service-specific certifications.

112. We seek comment on adopting a rule that would establish the following language for customer certifications:

I certify under penalty of perjury that the company is purchasing service which is incorporated into the company's offerings. I also certify under penalty of perjury that either my company contributes directly to the federal universal support mechanisms for those offerings that incorporate this wholesale service, or that each entity to which the company, in turn, sells those offerings has provided the company with a certificate in the form specified by Commission rules.

OR I certify under penalty of perjury that the company is purchasing service for which is incorporated into the company's offerings. I also certify under penalty of perjury that:

(check one)

The company contributes directly to the federal universal service support mechanisms for those service offerings that incorporate the wholesale service, or if the company resells the service to another contributor, that the company has received a certification from each customer in a form specified by Commission rules that the customer will contribute directly based on revenues from each such service.

The company contributes on [number] percent of the revenues for services that incorporate the wholesale service, or has received a certification from its customer stating that the customer will contribute directly based on revenues from the service. On the remaining [number] percent of the revenues of the service that incorporates the wholesale service, the company does not directly contribute, and it does not sell that service to another contributor.

I also certify under penalty of perjury that the company will notify [name of wholesale provider] within [30 or 60 days] if the information provided in this certification changes.

113.

Specificity as to Incorporation of Wholesale Services into a Finished Service.

It appears that under our current requirements, certain revenues may be escaping assessment altogether, in situations where a wholesaler does not contribute on revenues derived from customers that it believes to be contributing when in fact the customer is not contributing on those revenues. We seek comment on the magnitude and prevalence of this problem. In these and other analogous situations, should there be an affirmative obligation on the part of the entity that purchases the wholesale telecommunications to specify in its certification the extent to which the wholesale input is incorporated into assessable services versus non-assessable services? For instance, should we adopt the following rule:

To the extent a company purchases services that are incorporated into its own offerings, with some of the offerings subject to universal service contributions and some of the offerings not subject to universal service contributions, the purchaser has an affirmative obligation to provide information to its wholesale provider sufficient for the wholesaler to allocate the revenues associated with its service as carrier's carrier revenue or end-user revenue.

114. What burdens would such a rule impose on entities that purchase wholesale telecommunications to incorporate into their finished offerings, and what measures could be implemented to minimize such burdens? If we were to adopt such a rule, what metric should the purchasing entity use in developing the relevant allocations? For instance, should it base the percentage on the number of circuits, the revenues associated with individual circuits (to the extent that can be determined), the average usage of a circuit, or something else?

115.

We seek comment on whether to adopt a rule imposing an affirmative obligation on entities purchasing wholesale telecommunications that sign certifications to notify their wholesale carrier within a specified period of time, such as 30 or 60 days, if their contribution status changes over the course of the year. For instance, we seek comment on the following rule:

Providers who provide contributor certifications to their wholesale carriers must notify their wholesale carrier within [30 or 60] days if the contribution status provided in the certifications changes.

116. Today, there may be situations where an entity certifies in good faith at the beginning of the year that it is a contributor with respect to the services provided to its retail customers, but subsequently it ceases to be a contributor. This could occur, for instance, if the entity purchases a special access circuit from a wholesaler, and initially expects to provide special access to a retail customer, but ultimately uses that circuit to provide broadband Internet access service, which is not assessable under our current rules. Or an entity purchasing wholesale telecommunications may expect to contribute, but ultimately it turns out to be a de minimis contributor due to lower than expected revenues. In both situations, the wholesaler would not contribute on the services (because it has a contributor certificate from its customer), but its customer ultimately does not contribute, resulting in revenues not being subject to contributions at any point in the value chain. Commenters should address the time frame in which such notification should occur, and what specific procedures should be followed. To the extent that parties support elimination of certifications in favor of an alternative system or a bright line, we ask them to provide specific details on how any such alternatives would be implemented, administered, and enforced.

117. Another alternative on which we seek comment is whether we should assess wholesalers at their point of sale, but not their customers, so long as the wholesaler certifies that the contribution has been or will be paid. Would such an approach be easier to administer? Are there disadvantages to such an approach? Commenters should indicate, to the extent possible, the reduction to the contribution base if we were to adopt such an approach and how such an approach would impact contribution burdens.

118.

Improved Certification Requirements Compared to Value Added Revenues System.

Commenters are encouraged to compare and comment on both the improved certification system and the value-added system discussed immediately above in this Notice. Is there a particular advantage over one approach over the other? Do aspects of both approaches need to be adopted? If we adopt a value-added revenues system, should we adopt modifications to our contributor certification rules on an interim or transitional basis while we implement the value-added approach?

119.

Improved Certification Requirements for Alternative Contribution Methodologies.

We also seek comment on moving from a revenues-based contribution system to a system based on assessing connections or numbers. Commenters should indicate whether similar contributor certification requirements as discussed above should be developed for a connections-based or numbers-based contribution system. If improved certification requirements are needed or advisable for such other contribution systems, commenters should explain the basis for such analysis, and should indicate how the contributor certifications would work in such instances.

120. We ask commenters whether a connections or numbers-based system may also raise concerns of double counting, and if so, how a contributor certification could be crafted to address this issue. More generally, we seek comment on whether avoiding double counting remains a significant policy concern, and if it should inform the structure of a contributions methodology system.

In particular, we seek comment here on whether improved contributor certifications similar in concept to the proposals discussed above might be desirable for connections, and if so, how such a system would operate. If we were to adopt a service-based definition of connections, there could be situations in which a wholesaler sells a “connection” to a customer who adds value by separately selling more than one service over that connection. We also seek comment on how one might adopt contributor certifications for a numbers-based system.

e. Contribution Obligations of Wholesalers and Their Customers

121.

Reporting Prepaid Calling Card Revenues.

Our rules require prepaid calling card providers to contribute to the Fund based on their end-user revenues. We seek comment on modifying existing rules to provide clarity to the industry in response to requests from USAC and record evidence suggesting different prepaid calling card providers may be interpreting our rules in different ways, which may result in an unlevel playing field for competitors of these services. We seek comment on adopting a rule to require prepaid calling card providers to report and contribute on all end-user revenues, and who should be deemed the end user for purposes of such a rule. We ask whether prepaid calling card providers should only report amounts paid by the entity to which the provider directly sells the prepaid service. Alternatively, we seek comment on adopting a rule to require prepaid calling card providers to contribute based on the amounts paid by end users for prepaid cards, whether the prepaid calling card is purchased by the end user directly from the prepaid calling card provider or from a marketing agent, distributor, or retailer. We also ask about the application of the value-added contribution paradigm, discussed above, to assessment of prepaid calling card service. In addition, we seek comment on measures to standardize how providers report prepaid calling card revenues, eliminating incentives or opportunities for providers to avoid their USF contribution obligations. We also solicit comment on whether adopting these reforms would further our proposed goals for reform and the potential impact on the Fund if we were to adopt the measures described below.

122.

Defined Terms.

We first seek comment on modifying the definition of prepaid calling cards as explained below. The terms “prepaid calling cards,” and “prepaid calling card providers” are defined in § 64.5000 of our rules, as adopted by the Commission in the

Prepaid Calling Card Services Order,

71 FR 43667, August 2, 2006. The definition of a prepaid calling card is fairly expansive, encompassing not just physical cards that require the input of a personal identification number (PIN) but also any “device” that provides end users with the same or similar functionality. Although we propose retaining these definitions, we seek comment on whether we should add the phrase “or service” to the definition to make clear that our prepaid calling card rules will encompass new ways to market prepaid telecommunications services that do not involve using a PIN or a device. Such a modification could read as follows (new language underlined): (a) Prepaid calling card. The term “prepaid calling card” means a card or similar device or service that allows users to pay in advance for a specified amount of

calling, without regard to additional features, functions, or capabilities available in conjunction with the calling service; (b) Prepaid calling card provider. The term “prepaid calling card provider” means any entity that provides telecommunications service to consumers through the use of a prepaid calling card.

123. We also seek comment on whether we should define, for purposes of prepaid calling cards, the term “prepaid calling card distributor” as we use it in the context of reporting prepaid calling card revenues. The use of such term would acknowledge that prepaid calling cards are often sold by means of marketing agents, distributors or retailers. We seek comment on the following proposed definition:

Prepaid calling card distributor. A marketing agent, distributor, retailer, or other third party that sells or resells prepaid calling cards on behalf of a prepaid calling card provider

.

f. Reporting Prepaid Calling Card Revenues

124. We also seek comment on alternative methods prepaid calling card providers should use to report revenues from prepaid calling card services. Today, prepaid calling card providers are required to report and contribute on the end-user revenues from the sale of prepaid calling card services. The current version of the Telecommunications Reporting Worksheet instructions calls for reporting of such revenues by the prepaid calling card provider, whether the end user purchases the card from the prepaid calling card service provider or a marketing agent, distributor, or retailer. Some stakeholders contend that this method, which requires providers to report the “face value” of a card as assessable revenue—not the amount actually paid by the provider's end-user customer—is unrealistic considering that many cards do not have a face value, and contributing providers often do not know and have no control over the ultimate retail price of a calling card.

125. We first seek comment on limiting the contribution and reporting requirements of prepaid calling card providers to report amounts paid only by the person or firm to whom the provider directly sells the prepaid card. Prepaid calling card providers that sell directly to an end-user customer would, as now, easily identify and report the assessable revenue amount. However, in situations where the provider sells the card to an intermediate distributor or retailer, rather than an end-user customer, under this paradigm we would require the provider to report revenue actually received from the intermediate distributor. This concept presumably would make it simpler for prepaid providers to report accurate revenues because they would recognize actual assessable revenue amounts from the sale to the end-user customer or the intermediate distributor and would not be required to estimate the amount paid by an end-user customer with whom the provider has no retail relationship. This approach could benefit providers and the Fund by permitting providers to report the revenue realized in a more timely fashion. We seek comment on this alternative and ask whether including an intermediate distributor or retailer in the definition of an end user for the purpose of reporting prepaid calling card revenue would create any competitive distortions or create disparities among different types of contributors.

126. In the alternative, we seek comment on codifying in greater detail the approach reflected in the existing Form 499 instructions. We first specifically inquire how prepaid calling card providers should report revenues from sales of prepaid calling card services to marketing agents, distributors, or retailers. The Form 499 instructions state that the revenue to be included in a provider's contribution calculation is the amount actually paid by the end-user customer, not the price paid to the prepaid calling card provider by intermediate marketing agents, distributors, or retailers, even when the distributor pays a different amount than the end user.

127. Should there be symmetry in the way that prepaid calling card service transactions and other transactions are treated for USF contribution purposes? For example, the Form 499 instructions also state that payphone providers should not deduct from reported revenues commission payments to owners of premises where payphones are located. Should we also adopt a rule that payphone providers may deduct from reported revenues discounts provided to intermediate distributors? We seek comment on potential bright lines that would simplify administration of contributions reporting for prepaid calling providers.

128.

Adopting a bright-line standard for reporting end-user revenues could reduce or eliminate competitive disparities among providers of similar services. We seek comment generally on adopting a bright-line standard that contributors must use to report prepaid calling card revenues. Would a bright-line standard create an incentive for prepaid calling card providers to establish a process with their marketing agents, distributors, and retailers to specifically identify and report the

actual

prices paid by end users? Should we also consider implementing a safe harbor for providers to estimate end-user revenues when the price paid by the end-user customer cannot readily be determined by the prepaid calling card provider?

129. If we adopt a bright-line standard, we seek comment on what mark-up would be appropriate for prepaid calling card providers to use in determining end-user revenues. Given this wide range of estimated mark-ups, we seek comment on whether a standard mark-up of 50 percent would be a reasonable mid-point between the various estimates that have previously been suggested by commenters. We also seek comment on whether a higher or lower standard mark-up would be more representative of industry practice or would better serve in creating an incentive for providers to work with their marketing agents, distributors and retailers to identify the actual price paid by end-users. Adopting a standard mark-up that falls at the higher end of the scale, for example, may provide a greater incentive for prepaid calling card providers to determine and report the actual prices paid by end users. Parties should provide specific data to support their arguments.

130.

To further ensure that all reporting entities are reporting prepaid calling card revenues in a consistent manner under the current system, we seek comment on requiring prepaid calling card providers to report revenues derived from the sale of prepaid calling cards not later than 60 days after the date the cards are sold by the prepaid calling card provider to a prepaid calling card distributor. Adopting a rule that creates an appropriate time limit for recognizing revenue derived from the sale of prepaid calling cards could serve to further reduce competitive distortions that arise from disparate interpretations and application of our rules. We seek comment on this analysis. We also seek comment on whether it is reasonable to expect that most cards are sold within sixty days of the date the provider bills the prepaid calling card distributor for the cards, taking into account a 30-day billing cycle and an additional 30 days for the end user to purchase the card.

131. We seek comment on whether these alternative ideas further our proposed goal of ensuring that contribution assessments are fair. Would such a rule be simple to administer? Are there policy reasons prepaid calling card providers should be allowed to reduce or adjust reported

revenues based on discounts provided to prepaid calling card distributors?

132. We also ask about the relationship between assessment of prepaid calling card providers and the “value-added” approach to assessing revenues discussed above. Under this approach, each telecommunications provider in a service value chain (including wholesalers, distributors, and reselling retailers) would contribute based on the value the provider adds to the service. As applied to the prepaid calling card marketplace, any firm that derives revenue from the sale of prepaid calling card services would report and contribute based on that revenue and would be permitted to take a credit based on contributions made by other contributors in the chain. We seek comment generally on this approach and inquire about the potential impact on firms that are not already reporting revenue or contributing to the Fund, such as retailers and other non-contributors. Should we consider an exemption from any reporting and contribution obligations for certain categories of retailers or distributors? If so, what would be the basis for such an exemption? What would be the impact on other contributors in the prepaid card chain, such as the service provider? Should we also consider a more limited exemption such that we require these companies only to report revenue derived from the card in order to ensure the Fund is fully compensated? Finally, we seek comment on what steps would need to be taken to implement any of the ideas discussed above or any alternative proposals to modify the contribution reporting requirements for prepaid calling card revenues. We also seek comment on how much time parties would need to transition to any such new rules.

g. International Telecommunications Providers

133. We seek comment on whether we should eliminate the limited exemption for providers whose revenues are exclusively or predominantly international. We seek comment on modifications to our current rules regarding the contribution obligations of international providers.

134.

Eliminating the “International Only” and the “Limited International Revenues” Exemptions.

We seek comment on whether the Commission should eliminate the exemption for international-only providers and Limited International Revenues Exemption (LIRE)-qualifying providers, and our legal authority for doing so. In 1997, the Commission interpreted section 254 of the Act, and specifically our authority to assess all “providers of interstate telecommunications,” as drawing a three-way distinction between intrastate, interstate, and international telecommunications. We seek comment on whether, in light of the changes in the industry and telecommunications marketplace, section 254's reference to interstate telecommunications in the context of universal service contributions is better viewed as drawing a jurisdictional line between the authority of the states (which have authority over providers of intrastate telecommunications under section 254(f)) and the authority of the Commission (which has authority over providers of interstate telecommunications under section 254(d)). Such a reading of section 254 would parallel the Commission's reading of other sections of that Act that divide responsibility between the state and federal jurisdictions and include international services within the Commission's jurisdiction. Alternatively, we seek comment on whether we could rely on section 254(b)(4)'s principle of “equitable and nondiscriminatory contributions” to require international-only and LIRE-qualifying providers to contribute because these providers also benefit from being able to originate or terminate traffic in the United States. We note that the Act distinguishes “foreign communication” from both interstate and intrastate. Does that distinction affect the Commission's authority to treat interstate and foreign telecommunications in the same manner?

135. We also seek comment on whether the

TOPUC

decision limits our ability to re-examine the international-only and LIRE exemptions today. The Fifth Circuit in

TOPUC

held that the Commission's previous rule, which had required providers with limited interstate telecommunications revenues to contribute based on both their interstate and international revenues but exempted providers without interstate telecommunications revenues, was not “equitable and nondiscriminatory.” The court held that the previous rule “damage[d] some international carriers [

i.e.,

limited-interstate-revenue providers] more than it harm[ed] others [

i.e.,

no-interstate-revenue providers].” The court also found the rule inequitable because it required limited-interstate-revenue providers “to incur a loss to participate in interstate service.” The court did not, however, make any findings or opine about the Commission's jurisdiction to assess international revenues. Thus the Commission should have significant discretion to revise its rules regarding contributions on international revenues, consistent with the Fifth Circuit decisions, so long as the new rule is equitable and nondiscriminatory. We seek comment on this analysis and our ability to eliminate the LIRE and to assess one hundred percent of a contributor's interstate and international revenues, without a LIRE exemption.

136. Commenters that oppose the elimination of the “international only” and the “limited international revenues” exemptions should provide specific alternative rules and explain how their proposals will support the proposed goals set forth in this Notice. We ask commenters to provide data to quantify how our proposals or alternatives will impact the Fund and reduce compliance costs and burdens.

137.

Modifying the Limited International Revenues Exemption.

If we were to assess all international telecommunications revenues, as suggested above, should we also eliminate the LIRE? In the alternative, if we maintain an exemption for international-only providers, we seek comment on whether modifying the LIRE and the contribution obligations of LIRE-qualifying contributors may be appropriate.

138. Specifically, if we do not require LIRE-qualifying providers to contribute on

all

of their end-user international telecommunications revenues, we propose to require LIRE-qualifying providers to contribute on at least a portion of those revenues. Moreover, the LIRE-qualifying factor codified in our current rules (12 percent) may no longer provide the “adequate margin of safety” it once did for providers that primarily offer international services, given that the contribution factor has remained above 12 percent over the past two years. We therefore seek comment on ways to modify the LIRE-qualifying factor.

139. If we retain the LIRE, we seek comment on whether we should modify the LIRE as follows: If the ratio of an entity's collected interstate end-user telecommunications revenues to its combined collected interstate and international end-user telecommunications revenues is less than that year's LIRE-qualifying factor, that entity's assessable revenues shall be its collected interstate end-user telecommunications revenues plus an equal amount of its collected international end-user telecommunications revenues, net of contributions. (1) The LIRE-qualifying factor for a given year shall be equal to the highest contribution factor

established for any quarter of the previous year plus three percent. (2) For purposes of this subsection, an “entity” shall refer to the entity that is subject to the universal service reporting requirements and shall include all of that

entity's

affiliated providers of interstate and international telecommunications and telecommunications services.

140. We seek comment and (if appropriate) examples of how the LIRE results in a competitive advantage for some providers. Providers that qualify for the LIRE compete against non-qualifying providers that must include

all

of their international revenues in calculating their contribution base. LIRE-qualifying providers benefit from being able to originate and terminate both interstate and international calls in the United States. Further, we seek comment on whether the proposed modification of the LIRE would advance the goal of fairness by treating competitive providers in a like manner. Would it advance other of our proposed goals for contribution reform, such as ensuring a stable contribution base? Would requiring LIRE-qualifying providers to contribute based on an amount of their international revenues equal to their interstate revenues be a more equitable approach in today's marketplace? Would the modification proposed above reduce the potential regulatory advantage that LIRE-qualifying providers have over their competitors? What impact would such a modification have on the Fund?

141. We also seek comment on whether we should set the LIRE-qualifying factor based upon a formula rather than fixed percentage. A fixed percentage assumes that the Commission can easily forecast changes in the contribution base as well as changes in the demand for universal service support. Neither of these assumptions has been valid in recent years. The Commission has already had to increase the LIRE-qualifying factor once to respond to the rising contribution factor. Using a formula to establish the LIRE-qualifying factor should eliminate the need for us to periodically rewrite our rules. Moreover, a formula tied to the current contribution factor would also respond to changes in the contribution factor. If, for example, future events bring the contribution factor down, the LIRE-qualifying factor would automatically decrease in future years, which should increase the contribution base. Should we set the LIRE-qualifying factor one year at a time to provide regulatory certainty for contributors? A three percent increase tied to the current or anticipated contribution factor is generally in line with previous increases to the LIRE. Would a three percent increase, for example, over the previous year's highest contribution factor, be sufficient to address unexpected events in the future?

142. We seek comment on what steps would need to be taken to implement the potential modifications outlined above or alternative proposals to modify the contribution requirements for international-only and predominantly international providers. We also seek comment on how much time parties would need to transition to any modified or new reporting requirements.

h. Reforming the De Minimis Exemption

143. We seek comment on streamlining the

de minimis

exemption to ease administrative burdens. In particular, we seek comment on whether we should modify the

de minimis

exemption to base the threshold on a provider's assessable revenues rather than on the amount of its contributions. We also seek comment on how we could potentially reform our rules to minimize the filing requirements for companies that may be subject to the exemption.

144. We seek comment on whether we should modify the Commission's

de minimis

rules in an effort to reduce administrative burdens. Specifically, we seek comment on revising the rule as follows to base the

de minimis

threshold on a provider's assessable revenues rather than on the amount of its contributions:

If a potential contributor's annual assessable revenues in any given year is $50,000 or less, that contributor will not be required to submit a contribution or Telecommunications Reporting Worksheet for that year unless it is required to do so by our rules governing TRS, numbering administration, or shared costs of local number portability. * * *A potential contributor may—but need not—file the quarterly Telecommunications Reporting Worksheet for the year after it qualifies as a de minimis telecommunications provider.

145. Such a rule would set the

de minimis

threshold based on a telecommunications provider's assessable revenues rather than what it would have contributed. A potentially qualifying telecommunications provider (and its underlying providers) should know with increased certainty whether it will actually qualify as a

de minimis

telecommunications provider as the exemption will no longer depend on each year's quarterly contribution factors. We seek comment on this analysis.

146. If we adopt this approach, is $50,000 the right cutoff for assessable revenues to qualify for the

de minimis

exemption, or should we adopt some other cutoff? We use $50,000 as a potential cut off because today the

de minimis

exemption applies when the contribution would be less than $10,000. If a contributor (under the existing

de

minimis

rule) has $50,000 in annual assessable revenues, and we assume an average contribution factor for the year of 17 percent, that contributor would qualify for the

de minimis

exception. We believe that adopting a $50,000 revenues threshold would not change the number of contributors that would qualify for the

de minimis

exemption, but would simplify the application of the

de minimis

rule. Modifying the

de minimis

exemption in this manner could be more equitable, could have a smaller marginal impact, and may better align our requirements for reporting and contributing without affecting those whose “telecommunications activities are limited to such an extent that the level of such carrier's contribution to the preservation and advancement of universal service would be

de minimis.”

We seek comment on this analysis.

147. We also seek comment on whether such a rule would also reduce the reporting obligations and regulatory uncertainty for

de minimis

telecommunications providers with growing revenues. If so, we ask commenters to quantify the savings. Should we make it optional for contributors to file quarterly Telecommunications Reporting Worksheets for a year after which a contributor qualified as

de minimis

? We seek comment on whether we should adopt a rule that allows telecommunications providers in that position to avoid filing quarterly Telecommunications Reporting Worksheet in the first year for which they are no longer a

de minimis

filer. Such a rule could strike a reasonable balance between providing certainty to small (and growing) businesses in the telecommunications marketplace and the need for all telecommunications providers with a substantial presence to contribute to universal service in an equitable manner. We note that such a rule would not alter the obligation of telecommunications providers to file the

annual

Telecommunications Reporting Worksheet.

148. We also seek comment on other reforms the Commission could make to all of its

de minimis

rules—in the context of funding universal service,

Telecommunications Relay Services (Interstate TRS), North American Numbering Plan, Local Number Portability, and regulatory fees administration programs—to relieve

de minimis

companies of the burden of filing the annual Telecommunications Reporting Worksheet. We seek comment on whether we should reform our rules for filing the annual Telecommunications Reporting Worksheet and set the

de minimis

threshold based on a metric that does not require completing the entire worksheet. For example, should we establish an abbreviated form for telecommunications providers with less than some cutoff value in gross revenues? What metric should the Commission use for determining

de minimis

status? We ask commenters to discuss whether and how alternative metrics would be consistent with the language of section 254(d). What threshold should the Commission establish to permit filing of the abbreviated form? How could we ensure that any revisions to these

de minimis

rules will not undermine the stability of funding for various federal regulatory programs or allow telecommunications providers to evade contribution obligations? Commenters that oppose such suggested rules should provide specific alternative rules and explain how their proposals will support the goals of universal service. We also seek comment on what changes, if any, may be needed in our

de minimis

rules if we were to assess the international telecommunications revenues of all telecommunications providers.

149. We seek comment on what steps would need to be taken to implement any of the potential modifications detailed above or alternative proposals to improve the contribution reporting requirements for

de minimis

providers. We also seek comment on how much time, if any, parties would need to transition to any new rules.

2. Assessing Contributions Based on Connections

150. We seek comment on moving from a revenues-based contribution assessment system to a system based on connections. Nothing in the Act requires contributions to be based on revenues, and the Commission has explored a connections-based methodology in the past. We ask whether a connections-based approach would better meet our proposed goals of promoting efficiency, fairness, and sustainability in the Fund, as well as other goals identified by commenters.

151. Under a connections-based system, providers would be assessed based on the number of connections to a communications network provided to customers. Providers would contribute a set amount per connection, regardless of the revenues derived from that connection. Under various proposals, there would be one standard monthly assessment for certain kinds of connections, typically provided to individuals, and a higher standard monthly assessment for higher speed or capacity connections, typically provided to enterprise customers. There might be several tiers for assessment based on speed or capacity. The standard assessment and higher assessment levels for higher speed or capacity connections would be calculated by applying a formula based on the USF demand requirement and the number of connections, however that term is defined. This contribution factor would apply equally for all connections that fall into the same category, such that assessments would no longer be based on revenues.

152. In 2001, the Commission first sought comment on replacing the existing revenues-based methodology with one that assesses contributions on the basis of a flat fee “per unit” charge. In early 2002, the Commission proposed an assessment mechanism based on the number or speed of connections a contributor provides to a public network. The Commission subsequently sought comment on various iterations of a connections-based system, including hybrid systems that would include a connections and revenues component.

153. Proponents of connections-based methodologies have argued that a connections-based system may provide a more stable contribution base than a revenue-based system because the number of connections has historically been more stable than end-user interstate telecommunications revenues. In addition, proponents have suggested that connections-based assessments may mitigate the need to differentiate between revenues from interstate and intrastate jurisdictions and from telecommunications and non-telecommunications services. Others have raised concerns that a connections-based system would impose new costs on both industry and USAC in the form of new data collection and reporting requirements, necessitating changes to billing and reporting systems. Some have argued that a connections-based system may be at least as complex to implement and administer as a revenue-based system, with many operational details that would need to be resolved. Despite several rounds of comment, the industry as a whole has not reached consensus about whether connections-based assessments are the best way to reform the contribution system: Some providers have strongly opposed a connections system, others have been agnostic about whether a connections-based system is the optimal reform, and still others who once supported a move to a system that includes a connections-based component appear to be re-evaluating their position on this issue. In light of the varied connections-based proposals, the evolution of the communications ecosystem, and the comments received over the past decade, we now seek to refresh the record on the operation of a connections-based system, as well as the costs and benefits of such a system, as discussed below. We ask parties claiming significant costs or benefits of a connections-based system to provide supporting analysis and facts for such assertions, including an explanation of how data were calculated and all underlying assumptions.

a. Legal Authority

154. Section 254(d) of the Act requires that “[e]very telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service.” It also gives the Commission broad permissive authority to require contributions from a variety of providers. We seek to refresh the record on whether a connections-based assessment would satisfy the requirements of section 254(d). In responding to the specific questions below, we invite commenters to address how a connections-based system should be structured to fulfill the statutory requirement that telecommunications service providers contribute on an equitable and nondiscriminatory basis. If we were to adopt a connections-based contribution methodology, should we also explicitly exercise our permissive authority over specified providers to make clear that connections provided by those providers would be assessed? How would we ensure that all entities that contribute under a connections-based system are providers of interstate telecommunications?

155. In 2002, the Commission proposed a hybrid revenues/connections-based system that would require a mandatory minimum contribution based on interstate telecommunications revenues for all providers of interstate telecommunications. Under this proposal, all non-

de minimis

telecommunications carriers would contribute a mandatory minimum, either based on a percentage of total interstate revenue, or based on increasing percentages of telecommunications revenues or increasing flat-fee amounts tied to their telecommunications revenues. Providers with end-user customers would also be assessed on a flat fee basis for residential, single line business, and mobile connections, and on a tiered basis based on speed or capacity for multi-line businesses. Providers with end-user assessments could offset their connections-based assessment against their minimum contribution. In crafting this proposal, the Commission was specifically addressing concerns that a connections-based proposal would be inconsistent with section 254(d)'s requirement that every provider of interstate telecommunications service contribute. We seek to refresh the record on this proposal and seek comment on whether, in fact, a mandatory contribution from every interstate telecommunications carrier is required to satisfy the requirements of section 254(d) that contributions be equitable and nondiscriminatory.

156. We also seek specific comment on whether a connections-based methodology is consistent with the Fifth Circuit's

TOPUC

decision, which held that section 2(b) of the Act prohibits the Commission from assessing revenues associated with intrastate telecommunications service. The Fifth Circuit also interpreted the Act as limiting the Commission's authority to assess international revenues, finding that the Commission's contribution system may not inequitably and discriminatorily assess providers more in universal service contributions than the provider generates in interstate revenues. We seek comment on the Commission's authority under a connections-based system to assess international connections that either originate or terminate in the United States and whether

TOPUC

would apply under such a system. We also seek comment on whether, if we were to adopt a connections-based system, we should adopt an exemption similar to the LIRE under the current revenues-based system for connections that are primarily international in nature, and if so, how to craft such an exemption.

b. Defining “Connections”

157. We seek comment on the definition of an assessable connection that best meets our proposed goals of promoting efficiency, fairness, and the sustainability of the Fund, as well as other goals identified by commenters. As described below, the question of the appropriate definition of an assessable connection is related to, but may be distinct from, the questions raised in this Notice regarding what providers and services should contribute to universal service.

158.

Facilities-Based Definition.

A facilities-based definition focuses on the physical facility—either wired line or wireless channel—that is provided by the contributor. Under a facilities-based definition, the connection itself, and not the services that are provided over the connection, would be assessed. For example, a physical line to a residential home would be assessed as one “assessable connection” even if it provided multiple assessable services to the customer. A multi-line business connection would likewise be assessed based on speed or capacity of the facility and not the services provided over the facility. A facilities-based approach raises complexities, however, to the extent that the assessment varies based on the speed of the facility, in circumstances where the physical connection provides variable speed on demand.

159. If we were to adopt a facilities-based definition, would it be appropriate to build on the definition that was suggested in late 2002: a facility that provides end users with “access to an interstate public or private network, regardless of whether the connection is circuit-switched, packet-switched, wireline or wireless, or leased line”? For example, we seek comment on the following potential definition of connection:

Connection. A facility that provides end users with access to any assessable service, whether circuit-switched, packet-switched, wireline or wireless, leased line or provisioned wireless channel.

Alternatively, we seek comment on the following potential definition of connection, building on the FCC Form 477:

Connection. A wired line or wireless channel used to provide end users with access to any assessable service.

Are there any significant differences in what would qualify as “connections” under these definitions?

160. We believe either definition could be used with either of the two general approaches to defining assessable services described in Section IV of this Notice. That is, either definition could be used either if, as described in Section IV.B, we were to continue defining assessable services as telecommunications services plus certain enumerated other services, or if, as described in Section IV.C, we were to adopt a more general definition of assessable services. We seek comment on this analysis.

161. We also seek comment on the impact of adopting a facilities-based definition of connection. How would adopting such a definition affect the distribution of contribution obligations among different industry sectors, or the relative contribution burden borne by mass market versus enterprise customers? Would such a definition provide predictability for contributors, while retaining sufficient flexibility to accommodate the evolution of the telecommunications marketplace? Are there variations on the definitions, or alternate definitions, that would better meet our proposed goals for contribution reform?

162. Service-Based Definition.

Under a service-based definition, the definition of the connection “unit” would focus on the service or services that are delivered over the facility. Under such a definition, each interstate telecommunications service using the connection would be assessed as one “unit,” as could any service that had an interstate telecommunications component. For example, in contrast to the facilities-based definition, if a customer purchases two services that we have determined are assessable and that are delivered over the same facility, the provider would be assessed for two connections. Multi-line business services could likewise be assessed based on the services that are provided over the connection. For example, we seek comment on the following potential service-based definition of connection:

Connection. An assessable service provided to an end user.

163. As above, we seek comment on the impact of adopting this definition of connection. How many total connections would there be under this definition, given the different approaches to defining assessable services in this Notice? Would this definition raise questions regarding whether particular offerings were one “service” or multiple bundled services? For example, under such a definition, should a subscriber purchasing both text messaging service and voice service be counted as two connections or one? How would family plans or other multi-user or multi-device scenarios be treated?

164. How would adopting this definition affect the distribution of contribution obligations among different industry sectors, or the relative contribution burden borne by mass market versus enterprise customers? Would this definition provide predictability for contributors, while retaining sufficient flexibility to accommodate the evolution of the telecommunications marketplace? Are

there variations on this definition, or alternate definitions, which would better meet our proposed goals for contribution reform?

165. We also seek comment on alternative service-based definition that would focus on

usage

(

i.e.,

how much throughput actually traverses the connection in a given period).

166.

Defining “End User.”

We also seek comment on whether a definition of connection should be limited to connections provided to “end users.” In prior years, the Commission sought comment on whether to apply the same definition of end user that is used under the current revenue-based system. As discussed above, under the existing system, “end users” include purchasers of retail interstate telecommunications or telecommunications services that do not contribute on their finished offerings. End users do not include entities that purchase wholesale inputs and contribute on the services they provide to other customers. Would including the use of the term “end user” in the definition of a connection perpetuate some of the challenges we see under the current revenue-based system discussed above, such as, for example, the difficulty of determining whether a customer is an end user or reseller of specific services for purposes of USF contribution obligations? How should we define end user if we adopt a connections-based approach? Should we, for instance, define an end user as a residential, business, institutional, or governmental entity who uses the services provided for its own purposes, and does not sell the service to other entities, or incorporate the service into another service sold to other entities?

167. Would a system that requires each provider to “pay its own way”—that is, each provider would contribute based on the connection it provides to another entity—be simpler from a compliance and administrative perspective? In 2002, the Commission sought comment on a proposal that would split connections-based contribution obligations between switched access and interstate transport providers. Under such an approach, a provider of both local and interexchange services to the end user would be assessed two units per connection (one for access and one for transport), while a provider that provided only local service would be assessed one unit and the interexchange carrier would be assessed one unit. We invite comment on whether a more general system of this type that requires each provider of connections to contribute would be simpler from a compliance and administration perspective than a system that requires only the provider with the relationship to the end user customer to contribute. For instance, as discussed above, if we were to adopt a service definition of connection, and Carrier A sells a private line to Carrier B, and Carrier B in turn uses that circuit to provide both an enterprise communications service and VoIP to its retail customer, should Carrier A be assessed one unit for that high-speed line, while Carrier B is assessed one unit for the communications service and a second unit for the VoIP service?

168.

Connections Provided to Lifeline Subscribers.

Today there are approximately 14.8 million Lifeline subscribers. We seek comment on whether the Commission has statutory authority to exclude from assessment connections provided to Lifeline subscribers. Would it be consistent with section 10 to forbear from imposing contribution obligations on such connections? How would the exclusion of such connections impact a connections-based regime? What would be the policy justifications for excluding these connections from contribution obligations? Alternatively, should such connections associated with Lifeline services be assessed at a pro-rated or reduced rate, and if so, what would be an appropriate amount?

c. Trends in Connections

169. We seek comment regarding trends in connections over time. We seek data to project the number of connections that exist today under the facilities-based definitions discussed above. If we were to adopt a service-based definition, the number of connections would largely depend on how narrowly or broadly we were to define the relevant assessable services. We invite commenters to present data and their underlying assumptions regarding the number of connections under the alternative connection definitions discussed above.

170. The FCC Form 477 data collection provides some information that may be useful in projecting the number of connections. As discussed above, FCC Form 477 counts broadband connections separately from connections that are used for local telephone service, which provides some basis for estimating the number of connections if we were to exercise our permissive authority over broadband Internet access services and also adopted a definition of connections that counted broadband separately from voice. Notably, because the form is designed mainly to track residential connections, it does not capture many connections provided to businesses, governmental entities, and other large institutions.

171. There were 616 million connections reported under the FCC Form 477 connection categories in 2010: 117 million local landlines (switched access lines), 32 million interconnected VoIP subscriptions, 285 million mobile telephone subscriptions, and 182 million broadband connections. If one assumes continued growth in mobile subscriptions, interconnected VoIP and broadband connections, the total number of connections could grow to approximately 800 million connections under the FCC Form 477 connection categories by 2015.

172. We seek comment on our analysis of the 477 data and invite commenters to present their own analysis and underlying assumptions. In particular, how many enterprise connections are there under different definitions of connections and of assessable enterprise services? And if we were to adopt a facilities-based definition of connections, rather than the service-based approach used in Form 477, how many connections are there, and what is the likely trend in the number of connections over time? To what extent are the landlines or mobile subscriptions reported in FCC Form 477 also providing broadband?

d. Assessment and Use of Speed or Capacity Tiers

173. Another key question is whether a connections-based assessment should be based on speed or capacity tiers and how to define any such tiers. In the past, the Commission's proposals have assumed a connections-based methodology would classify connections into various tiers, and each connection within a tier would be assessed the same flat fee. We seek comment on how assessment based on speed or capacity tiers would operate under a service or facilities-based definition of “connection,” and whether such an assessment structure would further our proposed reform goals of promoting efficiency, fairness, and sustainability of the Fund.

174.

Determining the Per-Unit Assessment.

In the past, the Commission has sought comment on grouping residential, single-line business, and mobile wireless connections together in a separate category from multi-line business connections, and assessing each based on a flat fee. Under such a system, the initial proposed amount for the residential, single-line business, and mobile wireless connections has been in the range of $1 per month. The residual USF demand would then be met

through assessments on multi-line business connections based on the number and capacity of the connections. We seek comment to refresh the record on such an approach. How would the contribution amount for a typical consumer vary under such an approach compared to the revenues-based approach in place today?

175. If we were to adopt a connections-based approach, should certain providers be eligible for special consideration or exemption? We seek comment on whether a connections-based system that provides special treatment for a myriad of services would meet our proposed goals of ensuring sustainability of the Fund, while simplifying compliance and administration. As noted above, a recent development is the growth in machine-to-machine connections, enabling such innovations as smart meter/smart grids, remote health monitoring, or supply chain tracking. To the extent we were to exercise permissive authority over some or all machine-to-machine connections, should they be assessed at the same level, or flat rate, as other connections? If not, how should they be assessed?

176. Another question that would need to be resolved under a connections-based approach with tiers is whether and how to update the tiers and/or assessment amounts as business and residential users move to higher bandwidth services and new technologies and services develop. In previous Notices, the Commission recognized that, to ensure an appropriate amount of funds for universal service, it would need to revisit and adjust the assessment amount periodically. Recently, the Commission has taken significant strides to minimize future growth of the Fund by adopting a budget in the recent

USF Transformation Order

and a savings target in the

Lifeline and Link-Up Reform and Modernization Order.

These measures to instill fiscal responsibility in these programs are in addition to the caps on other universal service support mechanisms (

i.e.,

the schools and libraries and rural health care mechanisms). We seek comment on how often we should revisit any per-unit amount, if we were to adopt a connections-based proposal, in light of these reforms. Would a semi-annual or annual review be sufficient to meet the needs of the Fund? We also seek comment on whether any re-evaluation of the assessment should happen on a set schedule or an ad hoc basis, either on our own motion or at the request of industry participants or USAC. What factors should we consider in determining whether to adjust the assessment? When periodically readjusting the unit amounts, should we aim to maintain the relative proportion of contribution burdens between residential and business consumers? How could that proportion be accurately determined?

177.

Tiers.

In 2002, the Commission proposed that contributions from providers of multi-line business connections be a residual amount calculated to meet the remaining universal service funding needs not met by contributions for residential, single-line business, and mobile connections. The Commission reasoned that this proposal would make contribution obligations more predictable and understandable for residential, single-line business, and mobile customers, and that multi-line businesses may be better equipped to understand the fluctuations in assessments from quarter to quarter. We seek comment on whether this reasoning remains valid in today's marketplace.

178. In the past, the Commission sought comment on defining a connection as either a residential/single-line business or a multi-line business connection based on whether the residential/single-line business or multi-line business subscriber line charge (SLC) is assigned to the connection. We seek to update the record on whether this delineation is an effective way to identify residential and single-line business connections in today's market, particularly given the growth in wireless and VoIP connections—which typically do not charge SLCs or their equivalent. Not only is such a method for distinguishing residential connect

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