Universal Service

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-45: FCC 96J-3]

Universal Service

AGENCY: Federal Communications Commission.

ACTION: Recommended decision.

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SUMMARY: On November 7, 1996, the Federal-State Joint Board adopted a

Recommended Decision, as required by section 254 of the

Telecommunications Act of 1996 (``1996 Act''), regarding universal

service. In the decision, the Joint Board made numerous recommendations

on universal service issues including, for example, issues relating to:

universal service principles; services eligible for support; support

mechanisms for rural, insular, and high cost areas; support for low

income consumers; affordability; support for schools, libraries, and

health care providers; administration of support mechanisms; and common

line cost recovery. The Commission seeks comment on the Recommended

Decision.

DATES: Comments should be filed on or before December 16, 1996 and

Reply Comments on or before January 10, 1997.

ADDRESSES: Interested parties must file an original and four copies of

their comments with the Office of the Secretary, Federal Communications

Commission, Room 222, 1919 M Street, N.W., Washington, D.C. 20554.

Comments should reference CC Docket No. 96-45. Parties should send one

copy of their comments to the Commission's copy contractor,

International Transcription Service, Room 140, 2100 M Street, N.W.,

Washington, D.C. 20037. Parties must also serve copies of their

comments on the individuals identified in the attached service list.

After filing, comments will be available for public inspection during

regular business hours in the FCC Reference Center, Room 239, 1919 M

Street, N.W., Washington, D.C. 20554.

Parties are also asked to submit comments on diskette. Diskette

submissions would be in addition to and not a substitute for the formal

filing requirements addressed above. Parties submitting diskettes

should submit them to Sheryl Todd, Common Carrier Bureau, 2100 M

Street, N.W., Room 8611, Washington, D.C. 20554. Such a submission

should be on a 3.5 inch diskette in an IBM compatible format using

WordPerfect 5.1 for Windows software in a ``read only'' mode. The

diskette should be clearly labelled with the party's name, proceeding,

and date

[[Page 63779]]

of submission. The diskette should be accompanied by a cover letter.

FOR FURTHER INFORMATION CONTACT: Sheryl Todd at 202-530-6040.

SUPPLEMENTARY INFORMATION: The Joint Board recommended that the

Commission specifically seek additional information and comment on a

number of topics, including, for example:

Principles. How should the additional principle of competitive

neutrality be defined and applied within the context of universal

service?

Low-Income. What baseline amount of support should be provided to

low-income consumers? Is the $5.25 baseline amount suggested in the

Recommended Decision likely to be adequate? How can the FCC avoid the

unintended consequence that the increased federal support amount has no

direct effect on Lifeline subscribers' rates in many populous states

with Lifeline programs, and instead results only in a larger percentage

of total support being generated from federal sources?

Schools/Libraries. What methods should the Commission use for

identifying high cost areas for purposes of providing a greater

discount to schools and libraries located in high cost areas? What

measures of economic advantage may be readily available to identify

economically disadvantaged non-public schools and economically

disadvantaged libraries or, if none is readily available, what

information could be required that would be minimally burdensome?

Health Care. What is the exact scope of services that should be

included in the list of additional services ``necessary for the

provision of health care'' in a state? In responding, commenters should

address the telecommunications needs of rural health care providers and

the most cost-effective ways to provide these services to rural areas.

What would be the relative costs and benefits of supporting

technologies and services that require bandwidth higher than 1.544

Mbps? How rapidly is local access to Internet Service Providers (ISPs)

expanding in rural areas of the country, and what are the costs likely

to be incurred in providing toll-free access to ISPs for health care

providers in rural areas? What are the probable costs that would be

incurred in eliminating distance-based charges and/or charges on

traffic between Local Access and Transport Areas (LATAs) (interLATA

traffic), where such charges are in excess of those paid by customers

in the nearest urban areas of the state? Do insular areas experience a

disparity in telecommunications rates between urbanized and non-

urbanized areas? Commenters should supply information on the size of

cities and other demographic information pertaining to insular areas

that might be used to establish the urban rate and rural rate in each

of those areas. What costs would be incurred in supporting upgrades to

the public switched network necessary to provide services to rural

health care providers? To what extent, and on what schedule, might

ongoing network modernization, as is currently going forward under

private initiative or according to state-sponsored modernization plans,

make universal service support for such upgrades unnecessary? What are

the probable costs, and the advantages and disadvantages, of supporting

upgrades to public switched or backbone networks where such upgrades

can be shown to be necessary to deliver eligible services to rural

health care providers?

Administration. Should contributions for high cost and low-income

support mechanisms be based on the intrastate and interstate revenues

of carriers that provide interstate telecommunications services, based

on the factors enumerated in the Recommended Decision? Should the

intrastate nature of the services supported by the high cost and low-

income programs have a bearing on the revenue base for assessing funds?

Should contributing carriers' abilities to identify separately

intrastate and interstate revenues in an evolving telecommunications

market and carriers' incentives to shift revenues between jurisdictions

to avoid contributions have a bearing on this question?

We ask parties to address the effects that the Joint Board's

recommendations to the Commission are likely to have on small entities

and what measures the Commission should undertake to avoid significant

economic impact on small business entities as defined by Section 601(3)

of the Regulatory Flexibility Act. These comments must be filed in

accordance with the same filing deadlines as comments on the rest of

the Recommended Decision, but they must have a separate and distinct

heading designating them as responses to the regulatory flexibility

analysis.

The Commission invites interested parties to file comments on the

Joint Board's recommendations and on the Commission's legal authority

to implement such recommendations. Copies of the Recommended Decision

can be obtained from (1) the International Transcription Service (ITS),

Room 140, 2100 M Street, N.W., Washington, D.C. 20037 or (2) the FCC

World Wide Web Home Page: http://www.fcc.gov.

Summary of Recommended Decision

1. Principles. We recommend that policy on universal service should

be a fair and reasonable balance of all of those principles identified

in section 254(b) and the additional principle we identify in this

section. We recognize, however, that our primary responsibility on this

matter is to ensure that consumers throughout the Nation are not harmed

and are benefited under our recommendation. To this end, we recommend

that promotion of any one goal or principle in this proceeding should

be tempered by a commitment to ensure quality services at just,

reasonable, and affordable rates in all areas of the Nation, for those

services that meet the section 254(c)(1) criteria.

2. We recommend that the Commission also establish ``competitive

neutrality'' as an additional principle upon which it shall base

policies for the preservation and advancement of universal service,

pursuant to section 254(b)(7). We ask that the Commission define the

principle in the context of determining universal service support, as:

``COMPETITIVE NEUTRALITY--Universal service support mechanisms and

rules should be applied in a competitively neutral manner.''

3. We believe that the principle of competitive neutrality

encompasses the concept of technological neutrality by allowing the

marketplace to direct the development and growth of technology and

avoiding endorsement of potentially obsolete services. In recognizing

the concept of technological neutrality, we are not guaranteeing the

success of any technology for all purposes supported through universal

service support mechanisms but merely stating that universal service

support should not be biased toward any particular technologies. We

further believe that the principle of competitive neutrality should be

applied to each and every recipient and contributor to the universal

service support mechanisms, regardless of size, status or geographic

location.

4. Given the provisions elsewhere in the law that require access to

telecommunications equipment and services by people with disabilities,

we recommend that the Commission not adopt specific principles related

to telecommunications users with disabilities in this universal service

proceeding. With respect to the requests for additional principles

designed to promote the welfare of other specific groups such as

subscribers in rural areas and customers with low incomes, we do

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not recommend the establishment of any additional principles.

5. Finally, although this Joint Board supports the concept of

administrative simplicity, we do not recommend that the Commission

formally adopt this concept as a principle. Section 254(b)(5) provides

that support mechanisms should be ``[s]pecific and predictable.'' We

find that this principle encompasses administrative simplicity. In

addition, we decline to recommend that access to the particular

services commenters have proposed become guiding principles for the

Commission's universal service policies. Instead, we consider whether

these services, consistent with the principles of the 1996 Act, should

be included in the definition of universal service.

6. Definition of Universal Service: What Services to Support. The

1996 Act defines ``telecommunications services'' as ``the offering of

telecommunications for a fee directly to the public * * * regardless of

the facilities used.'' With the exception of single-party service and

touch-tone dialing, the core services proposed in the Notice of

Proposed Rulemaking and Order Establishing a Joint Board (NPRM)

represent functionalities or applications associated with the provision

of access to the public network, rather than tariffed services. The

Joint Board concludes that defining telecommunications services in a

functional sense, rather than on the basis of tariffed services alone,

is consistent with the intent of section 254(c)(1).

7. Based on the overwhelming support in the record, the Joint Board

recommends that the services proposed in the NPRM should be included in

the general definition of services supported under section 254(c)(1).

We reject the arguments of commenters that a service must meet all of

the statutory criteria of section 254(c)(1)(A)-(D) before it may be

included within the definition of universal service. Instead, we

conclude that while the Joint Board must consider all four criteria

before determining that a service or functionality should be included,

we need not find that a particular service meets each of the four

criteria. Accordingly, we recommend that the services proposed in the

NPRM, namely, single-party service, voice grade access to the public

switched telephone network (PTSN), DTMF or its functional digital

equivalent, access to emergency services and access to operator

services be designated for universal service support pursuant to

section 254(c)(1).

8. The Joint Board recommends that single-party service should

receive universal service support. We further find that single-party

service means that only one customer will be served by each subscriber

loop or access line, although carriers may offer consumers the choice

of multi-party service in addition to single-party service and remain

eligible for universal service support. In addition, to the extent that

wireless providers use spectrum shared among users to provide service,

we find that wireless carriers provide the equivalent of single-party

service since users are given a dedicated channel for each

transmission. (Wireless carriers are not, however, required to provide

a single channel dedicated to a particular user at all times; a

wireless carrier provides the equivalent of single-party service when

it provides a dedicated message path for the length of a user's

particular transmission.) Moreover, we recommend permitting a

transition period for carriers to make upgrades to provide single-party

service, but only to the extent carriers can meet a heavy burden that

such a transition period is necessary and in the public interest. Since

state commissions will be responsible for designating carriers as

eligible for purpose of receiving federal universal service support, we

recommend that states make the determination as to the need for a

transition period for a particular carrier.

9. We find that the record provides ample support for our

conclusion that voice grade access, an essential element to telephone

service, is subscribed to by a substantial majority of residential

customers and is being deployed in public telecommunications networks

by telecommunications carriers. In addition, we find that voice grade

access should occur in the frequency range between approximately 500

Hertz and 4,000 Hertz, for a bandwidth of approximately 3,500 Hertz.

Voice grade access should also include the ability to place calls,

including the ability to signal the network that the caller wishes to

place a call, and the ability to receive calls, including the ability

to signal the called party that there is an incoming call. (We

explicitly do not include call waiting within this definition.)

10. Based on strong support in the record, we also recommend

including a local usage component within the definition of voice grade

access. We conclude that the states are best positioned to determine

the local usage component that represents affordable service within

their jurisdictions. Nonetheless, for purposes of determining the

amount of federal universal service support, we recommend that the

Commission determine a level of local usage.

11. We agree with commenters who argue that ``touch-tone'' is more

appropriately termed DTMF signaling. DTMF facilitates the

transportation of signaling through the network. DTMF also accelerates

call set-up time. As noted in the NPRM, other methods of signaling,

such as digital signaling, can provide network benefits equivalent to

that of DTMF. Therefore, we recommend that DTMF or its functional

digital equivalent (hereinafter referred to as ``DTMF'') be supported

under section 254(c)(1).

12. Like the other core services, access to emergency service is a

functionality that is widely deployed and subscribed to by a majority

of residential subscribers. Further, access to emergency service is

widely recognized as ``essential to * * * public safety.'' In defining

access, the record supports the inclusion of access to 911 (but not for

Public Safety Answering Points, which local public safety officials

provide). Nearly 90 percent of lines today have access to 911

capability. In addition, we recommend access to E911 service, where the

locality has chosen to implement that service, be included in the

definition of universal service. We do not recommend providing

universal service support, however, for E911 service. We recommend not

including E911 service within the definition of services to be

supported at this time, but may recommend its consideration when the

definition is revisited, as anticipated by section 254(c)(2).

13. In supporting access to operator service, we recommend that the

Commission adopt the definition of operator services it implemented for

purposes of section 251(b)(3), namely, ``any automatic or live

assistance to a consumer to arrange for billing or completion, or both,

of a telephone call.''

14. In addition to the services proposed to be included within the

general definition of universal service by the NPRM, the Joint Board

recommends that access to interexchange service be included. The Joint

Board, however, recommends that access to interexchange service should

not be defined, at this time, to include equal access to interexchange

carriers.

15. The Joint Board also recommends including access to directory

assistance, specifically, the ability to place a call to directory

assistance, in the definition of universal service. Like access to

interexchange service, access to directory service is a functionality

of the loop. We recommend that support be provided for access to

directory assistance, not the service itself. Therefore, we will refer

to voice grade

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access to the public switched network, DTMF or touch-tone, single-party

service, access to emergency service, access to operator service,

access to interexchange service, and access to directory assistance as

the ``designated'' or ``core'' services for section 254(c)(1) universal

service purposes .

16. We generally agree with those commenters that argue that

carriers designated as eligible telecommunications service providers

must provide each of the services designated for support subject to

certain exemptions as discussed below. We recommend that

telecommunications carriers that are unable to provide one or more of

these services should not receive universal service support unless

exceptional circumstances exist. We recommend that states have the

discretion to provide for a transition period, for good cause, to allow

carriers to make upgrades to provide single-party service.

17. In addition to our general conclusion that carriers must

provide each of the designated services in order to receive support, we

find that universal service support should be available in limited

instances where a carrier is unable to provide a few specific services.

For example, based on our analysis of E911, discussed above, we

conclude that access to E911 should be among those services supported

by universal service mechanisms because, for example, it is ``essential

to * * * public safety'' consistent with section 254(c)(1)(A). We

realize, however, that not all carriers are currently capable of

providing access to E911 and, in fact, not all communities have the

facilities in place to provide E911 service. Nevertheless, we conclude

that access to E911 should be supported to the extent that carriers are

providing such access. Similarly, as discussed below, we find that toll

blocking or control services should be supported when provided to

qualifying low-income consumers, to the extent that eligible carriers

are technically capable of providing these services. Thus, we recommend

that eligible carriers be required to provide all of those services we

characterize as ``designated'' services, but we also recommend that the

Commission support additional services such as E911 and toll

limitation, to the extent eligible carriers are providing these

important services.

18. Finally, we conclude that waivers should not be generally

available to carriers that do not provide one or more of the designated

services. Nevertheless, the record supports the contention that some

carriers may currently be unable to offer single-party service. Because

section 214(e) requires eligible carriers to ``offer the services that

are supported by Federal universal service support mechanisms under

section 254,'' we are unwilling to recommend that telecommunications

providers be permitted to receive broad waivers from the requirement to

provide the services we recommend designating for universal service

support. As discussed above, however, we recommend that state

commission be permitted to grant a request for a transition to carriers

that cannot currently provide single-party service if the circumstances

warrant such a transition period.

19. We find that support for designated services provided to

residential customers should be limited to those services carried on a

single connection to a subscriber's principal residence. (In light of

our recommended principle of competitive neutrality, we will

hereinafter refer to ``connections'' rather than ``lines.'') We

conclude that support for a single residential connection will permit a

household complete access to telecommunications and information

services. The Joint Board, however, declines at this time to provide

support for other residential connections beyond the primary

residential connection. Support for a second connection is not

necessary for a household to have the required ``access'' to

telecommunications and information services. We are unpersuaded that

universal service support should be extended to second residences in

high cost areas. We conclude that the consumer benefits that result

from support should not be extended to second homes. Such residences

may not be occupied at all times, and their occupants presumably can

afford to pay rates that accurately reflect the cost of service.

20. We find that designated services carried to single-connection

businesses in rural, insular and other high cost areas should be

supported by universal service mechanisms, although we find that a

reduced level of support may be appropriate. We find general

similarities between residential and single-line business customers.

Both single-line business and residential subscribers require access

for health, safety and employment reasons. We recommend making

universal service support available for designated services carried to

single-connection businesses in high cost areas.

21. We conclude, however, that designated services carried to

businesses subscribing to only one connection should not receive the

full amount of support designated for residential connections in high

cost areas. We recommend that, for business connections, a standard

different from that applied to residential connections for determining

support should be established. We recommend initially supporting the

designated services carried on business connections in a high cost area

at a lower level than that provided for residential connections in the

same area. As discussed, below, we recommend that the Commission use a

benchmark based on the revenue generated per line to determine the

amount of support carriers should receive. Under this recommended

approach, eligible carriers would receive less support for serving

single-connection businesses than they would for residential service

because business rates are higher than residential rates. As discussed

in greater detail below, we recommend that the amount of support be

derived from calculating the difference between the cost of providing

service and the benchmark amount.

22. The 1996 Act enunciates the principle that ``quality services''

should be available. We refrain from recommending that the Commission

require that eligible carriers meet specific, Commission-established

technical standards as a condition to receiving universal service

support. We recommend that the Commission, to the extent possible, rely

on existing data to monitor service quality. Because many states

already have adopted service quality requirements, we do not recommend

that the Commission undertake efforts to collect quality of service

data in addition to those already in place with respect to price cap

LECs. In many cases, additional requirements by the Commission would

duplicate the states' efforts. Instead, we recommend that state

commissions submit to the Commission the service quality data provided

to them by carriers. We further recommend that the Commission not

impose data collection requirements on carriers at this time.

Therefore, we conclude that the Commission should rely on service

quality data collected at the state level in making its determination

that ``quality services'' are available, consistent with section

254(b)(1).

23. We recommend that the Commission convene a Joint Board no later

than January 1, 2001, to revisit the definition of universal service.

In addition, the Commission may institute a review at any time upon its

own motion or in response to petitions by interested parties. We note

that, in complying with the statutory mandate of section 706(b) of the

1996 Act, the Commission may take additional steps to determine whether

advanced

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telecommunications capability is being deployed to all Americans.

24. We find the record to be insufficient at this time to support

our recommending that the Commission adopt reporting requirements in

order to collect data that may assist the Commission in reevaluating

the definition of universal service. We recommend that the Commission

base future analyses of the definition of universal service on data

derived from the Commission's existing data collection mechanisms such

as those collected through ARMIS.

25. Affordability. In the 1996 Act, Congress not only reaffirmed

the continued applicability of the principle of ``just and reasonable''

rates, but also introduced the concept of ``affordability.'' Although

we believe an increasingly refined understanding of the term

affordability will evolve over time, we find that the Webster

Dictionary definition is instructive in determining how to interpret

the concept for purposes of crafting universal service policies

consistent with the congressional intent underlying section 254. The

definition of affordable contains both an absolute component (``to have

enough or the means for'') and a relative component (``to bear the cost

of without serious detriment''). Therefore, we conclude that both the

absolute and relative components must be considered in making the

affordability determination required under the statute. We find that an

evaluation that considers price alone does not effectively address

either component of affordability. In general, we find that factors

other than rates, such as local calling area size, income levels, cost

of living, population density, and other socio-economic indicators may

affect affordability. (The specific needs of low-income consumers are

addressed below.)

26. Although subscribership levels can be influenced by many

factors (such as the level of toll charges or service connection

charges), we agree with the many commenters that argue that a general

correlation exists between subscribership level and affordability. We

find monitoring subscribership to be a tool in evaluating the

affordability of rates. It should not, however, be the exclusive tool

in measuring affordability. Subscribership levels do not address the

second component of the definition of affordability, namely, whether

paying the rates charged for services imposes a hardship on those who

subscribe.

27. We also find that the scope of the local calling area directly

and significantly affects affordability. Therefore, the Joint Board

concludes that the scope of the local calling area should be considered

as another factor to be weighed when determining the affordability of

rates. In addition, we find that in considering this last factor,

examining the number of subscribers to which one has access for local

service in a local calling area alone is not sufficient. A

determination should be made that the calling area reflects the

pertinent ``community of interest,'' allowing subscribers to call

hospitals, schools, and other essential services without incurring a

toll charge.

28. Customer income level also is a factor that should be examined

when addressing affordability. While a specific rate may be affordable

to most customers in an affluent area, the same rate may not be

affordable to lower income customers. We agree with the conclusions of

many commenters regarding the nexus between income level and ability to

afford telephone service. We conclude that per capita income of a local

or regional area, and not a national median, should be considered in

determining affordability. In addition to income level, we conclude

that the cost of living in an area may affect the affordability of a

given rate.

29. We also recognize that many variations in a state's rates

reflect ``legitimate local variations in rate design.'' Such variations

include the proportion of fixed costs allocated between local services

and intrastate toll services; proportions of local service revenue

derived from per-minute charges and monthly recurring charges; and the

imposition of mileage charges to recover additional revenues from

customers located a significant distance from the wire center. We find

that these factors too should be considered in making the determination

of affordability of rates.

30. In light of our conclusions regarding the importance of the

particular factors other than rates identified in the preceding

paragraphs, we recommend that the states exercise primary

responsibility, consistent with the standard enumerated above, for

determining the affordability of rates. To the extent that consumers

wish to challenge whether a rate is truly ``affordable,'' we find the

state commissions, in light of their rate-setting roles, are the

appropriate forums for raising such issues. Additionally, we conclude

that the Commission should continue to oversee the development of the

concept of affordability, and may take action to ensure rates are

affordable, where necessary and appropriate.

31. Although we recommend that the states should make the primary

determination of rate affordability, we recognize that Congress,

through the 1996 Act, gave the Commission a role in ensuring universal

service affordability. Subscribership levels, while not dispositive on

the issue of affordability, provide an objective criterion to assess

the overall success of state and federal universal service policies in

maintaining affordable rates. Therefore, we recommend that, to the

extent that subscribership levels fall from the current levels on a

statewide basis, the Commission and affected state should work together

informally to determine the cause of the decrease and the implications

for rate affordability in that state. If necessary and appropriate, the

Commission may open a formal inquiry on such matters and, in concert

with the affected state, take such action as is necessary to fulfill

the requirements of section 254. We find that this proposed dual

approach in which both the states and the Commission play roles in

ensuring affordable rates is consistent with the statutory mandate

embodied in section 254(i).

32. Carriers Eligible for Universal Service Support. We recommend

that the Commission adopt, without further elaboration, the statutory

criteria contained in section 214(e)(1) as the rules for determining

whether a telecommunications carrier is eligible to receive universal

service support. Pursuant to these criteria, a telecommunications

carrier would be eligible to receive universal service support if the

carrier is a common carrier and if, throughout the service area for

which the carrier is designated by the state commission as an eligible

carrier, the carrier: (1) offers all of the services that are supported

by federal universal service support mechanisms under section 254(c)

(we recommend, however, that carriers that lack the technical

capability to offer toll-limitation services to qualifying low-income

consumers not be required to offer such services, as otherwise provided

below); (2) offers such services using its own facilities or a

combination of its own facilities and resale of another carrier's

services, including the services offered by another eligible

telecommunications carrier; and (3) advertises the availability of and

charges for such services using media of general distribution. We agree

with the majority of commenters who argue that any carrier that meets

these criteria is eligible to receive federal universal service

support, regardless of the technology used by that carrier.

[[Page 63783]]

33. In addition, we recommend that companies subject to price cap

regulation be eligible to receive universal service support. We agree

with those commenters that argue that price cap regulation is an

important tool to smooth the transition to competition and that its use

should not foreclose price cap companies from receiving universal

service support. Having recommended against the exclusion of price cap

companies, we conclude that we need not address how to define precisely

which carriers are subject to price cap regulation.

34. Section 214(e)(1) requires that, in order to be eligible for

universal service support, a common carrier must offer universal

service throughout the state-designated service area either using its

own facilities or a combination of its own facilities and the resale of

another carrier's services, including those of another eligible

carrier. We find that the plain meaning of this provision is that a

carrier would be eligible for universal service support if it offers

all of the specified services throughout the service area using its own

facilities or using its own facilities in combination with the resale

of the specified services purchased from another carrier, including the

incumbent LEC or any other carrier. We do not recommend that a carrier

that offers universal service solely through reselling another

carrier's universal service package should be eligible for universal

service support. Similarly, we do not recommend that only those

telecommunications carriers that offer universal service wholly over

their own facilities should be eligible for universal service.

35. The NPRM sought comment on various other issues related to

eligibility. Specifically, it sought comment on whether rules should be

developed to: (1) ensure that universal service support be used as

intended (i.e., for the ``provision, maintenance, and upgrading of

facilities and services for which the support is intended''); (2)

ensure that only eligible carriers receive support; and (3) set

guidelines for advertising. Because relatively few commenters addressed

these issues, there are few detailed proposals in the record on how to

resolve them. For the first of these issues, developing rules to ensure

that universal service support is used as intended, we believe that

concerns about misuse of funds would largely be alleviated once

competition arrives. We find that a competitive market would minimize

the incentives and opportunities to misuse funds. In the absence of

competition, we find that the optimal approach to minimizing misuse of

funds is to adopt a mechanism that will set universal support at levels

that reflect the costs of providing universal service efficiently.

Should additional measures be necessary, we recommend that the

Commission, to the extent that states monitor carriers to ensure the

provision of the supported services, rely on the states' monitoring.

Where necessary (for example, if the state has insufficient resources

to support such monitoring programs) we recommend that the Commission

conduct periodic reviews to ensure that universal service is being

provided. On the question of ensuring that only eligible carriers

receive support, we agree with commenters that additional rules are

unnecessary because only carriers found eligible by the states will

receive funding. We recommend no additional rules at this time.

36. We recommend that the Commission not adopt, at this time, any

national guidelines relating to the requirement that carriers advertise

throughout the service area the availability of and rates for universal

service using media of general distribution. We recommend that states

should, in the first instance, establish guidelines, if needed, to

govern such advertising.

37. We recommend that the Commission retain the current study areas

of rural telephone companies as the service areas for such companies.

Section 214(e)(5) provides that for an area served by a rural telephone

company, the term ``service area'' means such company's study area

``unless or until the Commission and the States, after taking into

account the recommendations of a Federal-State Joint Board instituted

under section 410(c), establish a different definition of service area

for such company.''

38. We find that sections 214(e)(2) and 214(e)(5) grant to the

state commissions the authority and responsibility to designate the

area throughout which a carrier must provide the defined core services

in order to be eligible for universal service support. We further

conclude that, while this authority is explicitly delegated to the

state commissions, states should exercise this authority in a manner

that promotes the pro-competitive goals of the 1996 Act as well as the

universal service principles of section 254. The Joint Board thus

recommends that the Commission urge the states to designate service

areas for non-rural telephone company areas that are of sufficiently

small geographic scope to permit efficient targeting of high cost

support and to facilitate entry by competing carriers. We recommend

that the Commission encourage states, where appropriate to foster

competition, to designate service areas that do not disadvantage new

entrants. Consequently, we recommend that the geographic size of the

state designated service areas should not be unreasonably large.

39. Even if the state commission were to designate a large service

area, however, we believe that it would be consistent with the 1996 Act

to base the actual level of support, if any, that non-rural telephone

company carriers would receive for the service area on the costs to

provide service in sub-units of that area. We recommend that the

Commission, where necessary to permit efficient targeting of universal

support, establish the level of universal service support based on

areas that may be smaller than the service area designated by the

state. The service area designated by the state is the geographic area

used for ``the purpose of determining universal support obligations and

support mechanisms.'' We find that this language refers to the

designation of the area throughout which a carrier is obligated to

offer and advertise universal service. It defines the overall area for

which the carrier will receive support from the ``specific,

predictable, and sufficient mechanism established by the Commission to

preserve and advance universal service.'' We conclude that this

language would not bar the Commission from disaggregating the state-

designated service area into smaller areas in order to: (1) Identify

high cost areas within the service area; and (2) determine the level of

support payments that a carrier would receive for the overall service

area based on the sum of the support levels as determined by the costs

of serving each of the disaggregated areas. Other than the requirements

contained in section 214(e)(3), we recommend that the Commission not

adopt any particular rules to govern how carriers for unserved areas

are designated.

40. High Cost Support. We believe that a properly crafted proxy

model can be used to calculate the forward-looking economic costs for

specific geographic areas, and be used as the cost input in determining

the level of support a carrier may need to serve a high cost area. We

cannot recommend, however, that any of the proxy models submitted in

this proceeding thus far--the BCM, the BCM2, the CPM, and the Hatfield

model--should be used to determine universal service support levels.

While the proxy models continue to evolve and improve, none of those

submitted in this proceeding are sufficiently

[[Page 63784]]

developed to allow us to recommend a specific model at this time. The

Joint Board therefore recommends that the Commission continue to work

with the state commissions to develop an adequate proxy model that can

be used to determine the cost of providing supported services in a

particular geographic area, and in calculating what support, if any, a

carrier should receive for providing services designated for universal

service support. We recommend that a proxy model be developed such that

it can be adopted by the Commission by May 8, 1997, the statutory

deadline for the Commission to implement our recommendations in this

proceeding.

41. We find that forward-looking economic costs should be used to

determine the cost of providing universal service. Those costs best

approximate the costs that would be incurred by an efficient competitor

entering that market. We believe that support should be based on the

cost of an efficient carrier and should not be used to offset the costs

of inefficient provision of service, or costs associated with services

that are not included in our definition of supported services, such as

private lines, interexchange services, and video services. The actual

level of support that a carrier receives from federal universal service

support mechanisms, if any, would be based on the difference between

the cost of service as determined by a proxy model and the benchmark

amount.

42. The Joint Board recommends that the forward-looking economic

cost of providing supported services should include all of the costs of

the telephone network elements that are used to provide supported

services. We acknowledge that the loop is essential for the provision

of all services, not just those supported by the federal universal

service mechanisms. We note, however, that supported services include

not only local service but also access to interexchange service. The

cost of loop can vary depending on the type of services provided. We

recognize that the provision of ISDN and video services could increase

the cost of the loop, but the additional loop costs incurred to provide

these services should be excluded from costs considered here. In the

proxy models, the fiber-copper cross-over point determines the relative

share of fiber in the loop plant. We believe that the reasonable cross-

over point should reflect the least cost provision of the supported

services rather than the provision of video or advanced services.

43. We recommend that the Commission consider the following

criteria in order to evaluate the reasonableness of any proxy model

that it would use to estimate the forward-looking economic cost of

providing the supported services:

(1) Technology assumed in the model should be the least-cost,

most efficient and reasonable technology for providing the supported

services that is currently available for purchase, with the

understanding that the models will use the incumbent LECs' wire

centers as the center of the loop network for the reasonably

foreseeable future.

(2) Any network function or element, such as loop, switching,

transport, or signaling, necessary to produce supported services

must have an associated cost.

(3) Only forward-looking costs should be included. The costs

should not be the embedded cost of the facilities, functions or

elements.

(4) The model should measure the long-run costs of providing

service by including a forward-looking cost of capital and the

recovery of capital through economic depreciation expenses. The long

run period used should be a period long enough that all costs are

treated as variable and avoidable.

(5) The model should estimate the cost of providing service for

all businesses and households within a geographic region. This

includes the provision of multi-line business services. Such

inclusion allows the models to reflect the economies of scale

associated with the provision of these services.

(6) A reasonable allocation of joint and common costs should be

assigned to the cost of supported services. This allocation will

ensure that the forward-looking costs of providing the supported

services do not include an unreasonable share of the joint and

common costs incurred in the provision of both supported and non-

supported services, e.g., multi-line business and toll services.

(7) The model and all underlying data, formulae, computations,

and software associated with the model should be available to all

interested parties for review and comment. All underlying data

should be verifiable, engineering assumptions reasonable, and

outputs plausible.

(8) The model should include the capability to examine and

modify the critical assumptions and engineering principles. These

assumptions and principles include, but are not limited to, the cost

of capital, depreciation rates, fill factors, input costs, overhead

adjustments, retail costs, structure sharing percentages, fiber-

copper cross-over points, and terrain factors. The models should

also allow for different costs of capital, depreciation, and

expenses for different facilities, functions or elements.

44. The parties have brought three models to our attention in this

proceeding. While the models hold much promise, at this time, we cannot

endorse a specific model as the tool the Commission should use for

calculating costs of supported services.

45. We therefore urge the Commission to conduct a series of

workshops at which federal and state staff can work with industry

participants to refine the models so that it could become possible to

select or create a proxy model that could then be used in calculating

universal service support. We recommend that these workshops begin no

later than January 1997.

46. The state members of the Joint Board will submit a report to

the Commission on the use of proxy models and the application of such

models in this proceeding for funding universal service. The report of

the state members will be filed prior to a Commission decision in this

proceeding on proxy models. The Commission and state members should

continue to work cooperatively and remain integrally involved in the

development of an acceptable proxy model.

47. While we recommend using forward-looking economic costs

calculated through the use of a proxy model to determine high cost

support for all carriers, we are concerned that moving small, rural

carriers to a proxy model too quickly may result in large changes in

the support that they receive. Since rural carriers generally serve

fewer subscribers compared to the large incumbent LECs, serve more

sparsely-populated areas, and do not generally benefit from economies

of scale and scope as much as non-rural carriers, they often cannot

respond to changing operating circumstances as quickly as large

carriers. We therefore recommend that those carriers not move

immediately to a proxy model, but transition to a proxy over six years.

For three years, starting on January 1, 1998, high cost assistance, DEM

weighting and LTS benefits for rural carriers will be frozen based on

historical per line amounts. Rural carriers would then transition over

a three year period to a mechanism for calculating support based on a

proxy model. Prior to that transition, however, we recommend that the

Commission, working with the state commissions, review the proxy model

to ensure that it takes into consideration the unique situations of

rural carriers. We emphasize our recommendation that, after the

transition, the calculation of support for rural telephone companies

should be based on a proxy model, although we recognize that

alternative support mechanisms, such as competitive bidding, may also

promote efficient service provision. Further, we recommend that, on

request, any rural carrier should be permitted to elect to use a proxy

model to determine its support level, and that any carriers electing to

use the proxy model not be allowed to use the embedded cost approach

thereafter.

[[Page 63785]]

48. The Joint Board recommends, however, that rural carriers be

able to move to a proxy-based system earlier if they choose to do so.

We recommend that the Commission define ``rural'' as those carriers

that meet the statutory definition of a ``rural telephone company.''

See 47 U.S.C. 153(37). In order for the administrator to know which

carriers are to receive support payments based on the proxy model or

their embedded costs, we recommend that carriers notify the Commission

and the state commissions that for purposes on universal service

support determinations they meet the definition of a ``rural telephone

company.'' Carriers should make such a notification each year prior to

the beginning of the payout period for that year. The carriers may also

use that notification as the means by which to let the Commission, the

state commissions, and the administrator know if they have chosen to

voluntarily move to a proxy model before the end of the transition

period.

49. We also find that LTS payments constitute a universal service

support mechanism. As the Commission noted in the NPRM, LTS payments

serve to equalize LECs' access charges by raising some carriers'

charges and lowering others'. While some commenters have noted the

beneficial purposes currently served by LTS, no commenter argued that

LTS was not a support flow.

50. We therefore recommend that beginning in 1998 and continuing to

the end of the year 2000, support payments for high cost assistance,

DEM weighting and Long Term Support, be frozen for each carrier at the

same amounts paid on a per line basis to qualifying carriers. High cost

support would be based on the assistance received in 1997, and DEM

weighting and LTS benefits received during calendar year 1996.

Beginning in the year 2001, and through the year 2003, we recommend

that support be gradually shifted to a proxy-based methodology. In the

year 2001, support would be based on 75 percent frozen levels and 25

percent proxy; in 2002 support will be based on 50 percent frozen

levels and 50 percent proxy; in 2003 support will be based on 25

percent frozen levels and 75 percent proxy. Beginning in 2004 support

will be 100 percent based on a proxy methodology. The total period for

transition for rural carriers to a proxy based system is six years.

51. Freezing support will encourage rural carriers to operate

efficiently because no additional support will be provided for

increased costs. We recognize that the number of subscribers served by

rural carriers could increase and associated with such increases is an

increase in costs. Therefore, we recommend that support not be frozen

at a total dollar amount, but instead, at a per line amount. Rural

carriers would receive additional support at the same amount per line

as the number of subscribers increase. A frozen level of high cost

support will prepare these LECs for both their move to a proxy model

and the advent of a more competitive marketplace.

52. High cost assistance to carriers with high loop costs that will

be paid during 1997 are based on those carriers' 1995 embedded costs.

Additionally, loop counts to determine the 1995 average costs per loop

for each carrier are based on year-end 1995 loop counts. To determine

the amount of frozen high cost support per line for carriers with high

loop costs, we recommend that the total amount paid to each carrier

during 1997, based on 1995 embedded costs, be divided by the number of

loops served at the end of 1995. The amount of high cost assistance to

be paid in 1998 will then be the same per line amount paid in 1997

multiplied by the year end loop count for 1996. Calculation of payments

would continue in this manner throughout the transition period.

53. Currently, DEM weighting assistance is an implicit support

mechanism that is recovered through the switched access rates charged

to interexchange carriers by those carriers serving less than 50,000

lines. In order to calculate the per-line DEM weighting benefit, we

recommend that the amount of additional revenues collected by each

carrier above what would be collected without DEM weighting, be

calculated for the calendar year 1996. That amount, divided by the

number of loops served at the year-end 1996 would be the basis for the

frozen per line support to be paid beginning in 1998. Until December

31, 1997, DEM weighting benefits would continue under the present

rules. Although we could have recommended the calendar year 1997 as the

basis for determining the frozen per-line amount for DEM weighting

benefits during the transition period, we find that sufficient time

will be needed for the fund administrator to gather the data and

calculate payments before frozen DEM weighting benefits begin in 1998.

We chose to use year-end 1996 loop counts because this calculation

would have already been made for loop high cost assistance purposes.

For 1999, the amount of frozen DEM weighting support would be based on

the frozen per line amount multiplied by the number of lines served for

the year-end 1997. Calculation of payments would continue in this

manner throughout the transition period.

54. LTS payments are currently determined by comparing the amount

pool members will receive in SLCs and CCL charges to the pool's

projected revenues requirement. In order to determine the frozen LTS

payment for the Common Line pool members, we recommend that each member

be allocated a percentage of the total LTS contribution from the non-

pooling LECs. We recommend that the allocation be made on the basis of

each member's common line revenue requirement relative to the total

common line pool revenue requirement. We recommend that the frozen LTS

payments to pool members during the year ending 1996 and the loop

counts at year-end 1996 be used as the historical basis for computing

the frozen per line LTS payment beginning in 1998. For 1999, the amount

of frozen LTS payments would be based on the frozen per line amount

multiplied by the number of lines served for the year-end 1997.

Calculation of payments would continue in this manner throughout the

transition period.

55. We recommend that the Commission make frozen support payments

portable. A CLEC should be allowed to receive support payments to the

extent that it is able to capture subscribers formerly served by

carriers eligible for frozen support payments or to add new customers

in the ILEC's study area. Because we have recommended that frozen

support payments be computed on the basis of working loops, ILECs will,

under our recommendation, automatically lose frozen support payments

for loops serving subscribers lost to a competitor. We find that

competition would best be served if the frozen support payment

attributable to that line were paid instead to the CLEC that won the

subscriber. Likewise, a CLEC should receive support for new customers

that it serves in the ILECs study area. Since rural ILECs have the

option at any time to convert their support basis to a proxy

methodology, we find that a CLEC should also have the opportunity to

choose proxy-based support when it enters a rural ILEC's study area.

56. We propose that rural carriers in Alaska and in insular areas

not be required to shift to a support system in which support levels

are calculated based on a proxy model at this time. While we believe

that proxy models may provide an appropriate determination of costs on

which to base high cost support, we are less certain that they may do

so for rural carriers in Alaska and insular areas. Consequently, we

recommend that rural carriers serving Alaska and insular areas should

[[Page 63786]]

be able to continue to use embedded costs to determine their costs of

offering universal service. We further recommend that this system for

rural carriers in Alaska and insular areas be revisited in the future

to determine whether changes in proxy models allow them to be utilized

effectively in Alaska and insular areas.

57. We recommend that the Commission establish a benchmark to

calculate the support that eligible telecommunications providers will

receive when a proxy model is used to calculate the costs of providing

services designated for support from universal service mechanisms. We

believe it is desirable that the benchmark be based on the amount the

carrier would expect to recover from other services to cover the cost

of providing supported services in rural, insular, and high cost areas,

but final determination of the methodology for selecting the benchmark

must also consider the revenue base for universal service

contributions. Those eligible telecommunications providers for which

the cost of providing supported services exceeds the benchmark would be

permitted to receive universal service support.

58. We believe that it is desirable for the Commission to set a

nationwide benchmark to use in calculating the amount of support

eligible telecommunications providers will receive. Final determination

of this issue, however, must also take into consideration the

contribution base for the federal universal service mechanisms. We

recommend that the benchmark the Commission adopts should be easy to

administer and should be set to minimize the probability that

residential rates would increase while the new support mechanisms are

being implemented. The carrier's draw from the federal universal

service support mechanism for serving a customer would be based on the

difference between the costs of serving a subscriber calculated using a

proxy model and the benchmark. A carrier could draw from the fund for

providing supported services to a subscriber only if the cost of

serving the subscriber, as calculated by a proxy model, exceeds the

benchmark.

59. There are essentially three approaches to setting such a

nationwide benchmark to be used with the proxy model for calculating

support. In setting a benchmark, the Commission could use average

revenues per line, average rates, or relative cost. We recommend that

the Commission adopt a benchmark based on the nationwide average

revenue-per-line. We recommend that the Commission review the benchmark

on a periodic basis, and consider the need to make appropriate

adjustments.

60. We find that it is advisable to construct two benchmarks, one

for residential service and a second for single-line business service,

since we are recommending that primary residential and single business

lines be supported. The residential benchmark, if ultimately adopted by

the Commission, should be set equal to the sum of the revenue generated

by local, discretionary, and access services provided to residential

subscribers divided by the number of residential lines. The single-line

business benchmark should be set equal to the sum of the revenue

generated by local, discretionary, and access services provided to

single- line business subscribers divided by the number of single-line

business lines.

61. Although we recognize that competitive bidding may provide a

market-based method for determining support levels, we recommend that

the Commission not adopt at this time any specific plan for using

competitive bidding to set support levels in rural, insular, and high

cost areas. While the record in this proceeding persuades us that a

properly structured competitive bidding system could have significant

advantages over other mechanisms used to determine the level of

universal service support for high cost areas, we find that the

information contained in the record does not support adoption of any

particular competitive bidding proposal at this time. We recommend that

the Commission, together with the state commissions, continue to

explore the possibility of using competitive bidding for determining

the level of federal universal support.

62. We find that sections 254 and 214(e) and the record developed

in this proceeding provide some guidance about how any potential

competitive bidding should be structured. We recommend that any

competitive bidding system be competitively neutral and not favor

either the incumbent or new entrants. Any carrier that meets the

eligibility criteria for universal service support should be permitted

to participate in the auction. Any competitive bidding proposal must be

consistent with the goals and requirements of the 1996 Act, including

that universal service support be ``specific, predictable and

sufficient.'' Any competitive bidding system adopted should minimize

the ability of bidders to collude. Various commenters, for example,

urge the Commission to establish and enforce stiff penalties against

collusion, while others suggest that the Commission rely on its

experience with spectrum auctions to devise protections against

collusion. We recommend that any final competitive system be designed

to minimize the incentives to collude and that any colluding carrier be

subject to stiff penalties.

63. The Joint Board recommends that the Commission set an effective

date of January 1, 1998, for the new universal service support

mechanism for rural, insular, and high cost areas that we have

recommended in this section of the Recommended Decision take effect

beginning January 1, 1998. The current universal service support

mechanisms operate on a calendar year, and January 1, 1998, will be the

beginning of the first calendar year after the Commission adopts rules

establishing the new support mechanisms. Starting at that date,

carriers other than rural telephone companies would begin to receive

support based upon the proxy model.

64. Support for Low-income Consumers. Congress included section

254(j), which provides that ``[n]othing in [section 254] shall affect

the collection, distribution, or administration of the Lifeline

Assistance Program provided for by the Commission.'' Yet the current

Lifeline program is not competitively neutral, nor is it available in

all regions of the nation. We find that the provisions of section

254(j) can be reconciled with other portions of section of 254

regarding competitive neutrality and support for low-income consumers

in all regions of the nation. As an initial matter, we believe that

Congress did not intend for section 254(j) to codify the existing

Lifeline program. Had Congress intended for section 254(j) to have that

effect, it would have chosen clearer, less equivocal language. Instead,

Congress simply provided that nothing in section 254 should affect the

collection, distribution, or administration of the program. We

therefore conclude that Congress intended, in section 254(j), to give

the Joint Board and the Commission permission to leave the Lifeline

program in place without modification, despite its inconsistencies with

other provisions of section 254 and the 1996 Act generally. We further

conclude that a necessary corollary to this interpretation of section

254(j) is that this Joint Board has the authority to recommend, and the

Commission has the authority to adopt, changes to the Lifeline program

to make it more consistent with Congress's mandates in section 254 if

such changes would serve the public interest.

65. We find no statutory basis to recommend continuing to fund the

federal Lifeline program in a manner

[[Page 63787]]

that places some IXCs at a competitive disadvantage, or that provides

no support for low-income consumers in several portions of the nation.

We conclude that our recommendations would make universal service

support mechanisms for low-income individuals more consistent with

Congress's express goals without fundamentally changing the basic

nature of the existing Lifeline program. Moreover, this approach is

consistent with Congress's expression of approval for the current

Lifeline program in section 254(j).

66. The Joint Board agrees with the vast majority of commenters and

recommends that, through universal service support mechanisms, low-

income consumers should have access to the same services designated for

support for rural, insular, and high cost areas. We further recommend

that the designated services should be made part of the modified

Lifeline Assistance program that we recommend adopting in section.

Thus, low-income consumers eligible for Lifeline Assistance would

receive, at a minimum, the designated services.

67. The Joint Board recommends that the Lifeline Assistance program

for eligible low-income consumers include support for voluntary toll

limitation (by which we mean both toll blocking service and toll

control service), in addition to the services mentioned above. We

recommend, however, that only carriers that currently possess the

capability of providing these services be required to provide them to

Lifeline-eligible consumers and receive universal service support for

such services. Eligible telecommunications carriers that are

technically incapable of providing any toll-limitation services should

not be required to provide either service, and such an incapability

should not affect their designation as eligible telecommunications

carriers. We recommend, however, that eligible telecommunications

carriers not currently capable of providing these services be required

to add the capability to provide at least toll blocking in any switch

upgrades (but we do not recommend that universal service support be

provided for such switch upgrades). We further recommend that carriers

offering voluntary toll-limitation services receive support based on

the incremental cost of providing those services.

68. Further, the Joint Board recommends that the Commission

prohibit carriers receiving universal service support for providing

Lifeline service from disconnecting such service for non-payment of

toll charges. This recommendation should not be construed to affect the

ability of the states to implement a policy prohibiting disconnection

of local service for non-payment of toll charges for non-Lifeline

customers.

69. We further recommend, however, that the Commission provide

state utilities regulators with the authority to grant carriers a

limited waiver of this requirement if the carrier can establish that:

(1) it would incur substantial costs in complying with such a

requirement; (2) it offers toll-limitation services to its Lifeline

subscribers at no charge; and (3) telephone subscribership among low-

income consumers in the carrier's service area is at least as high as

the national subscribership level for low-income consumers. We

recommend that this waiver be extremely limited and that a carrier

should be required to meet a very heavy burden to obtain a waiver.

Furthermore, we recommend that the waiver would terminate after two

years, at which time carriers could reapply for the waiver.

70. The Joint Board recommends modifying the federal Lifeline

program to reach low-income consumers in every state. (Hereinafter,

``states'' will refer to all states, territories, and commonwealths

within the jurisdiction of the United States.) We further recommend

that, in order to be eligible for support from the new national

universal service support mechanism pursuant to section 214(e)(1),

carriers must offer Lifeline assistance to eligible low-income

customers. We are reluctant, however, to recommend mandatory

participation by states or carriers in a program that requires states

to generate support from the intrastate jurisdiction.

71. In order to reconcile our finding that Lifeline support should

be extended to all states with our desire to maximize states'

incentives to generate matching intrastate support for the program, we

recommend that the Commission eliminate the state matching requirement

and provide for a baseline level of federal support that would be

available to low-income consumers in all states. In order to ensure

adequate Lifeline support in states that choose not to generate

intrastate matching funds, we believe this baseline federal support

level should exceed the current $3.50. To maximize matching incentives,

however, we believe the baseline support level should be less than

$7.00. We therefore propose a baseline federal level halfway between

the two figures at $5.25, and recommend that the Commission seek

additional information on this issue before establishing a precise

baseline level. To create further incentives for matching, we recommend

that the Commission provide for additional federal support equal to one

half of any support generated from the intrastate jurisdiction, up to a

maximum of $7.00 in federal support.

72. Although we believe this recommendation will best reconcile our

competing objectives of providing adequate nationwide support and

maximizing state matching incentives, we are concerned that the

implementation of this recommendation could have no direct effect on

Lifeline subscribers' rates in many populous states with existing

Lifeline programs, and could instead result only in a larger percentage

of the total support being generated from federal sources. Therefore we

recommend that the Commission seek additional information on ways to

avoid this unintended consequence before implementing this

recommendation.

73. We also find it essential that the state members of the Joint

Board maintain a continuing role in refining specific aspects of the

Lifeline program. The state members of the Joint Board will submit a

report to the Commission on Lifeline issues. The report of the state

members will be filed prior to the Commission's decision on the

Lifeline program in this proceeding. Thereafter, the Commission and the

state members should continue to work cooperatively and remain

integrally involved in refining the Lifeline program.

74. To make the Commission's Lifeline program competitively

neutral, the Joint Board recommends that support for eligible low-

income consumers no longer be achieved through charges levied on only

IXCs. We recommend that the programs be supported by a fund to which

all telecommunications carriers that provide interstate service

contribute on an equitable and nondiscriminatory basis as a function of

their revenues, consistent with sections 254(d) and (e). Thus, for

example, LECs, wireless carriers, and other interstate

telecommunications service providers would contribute. De-linking

Lifeline from the Commission's Part 69 rules would promote competitive

neutrality by allowing the participation of carriers who do not charge

SLCs, such as CLECs and wireless providers. We conclude that the new

funding mechanism that we recommend will be more competitively neutral

than the current system, which passes the entire federal burden of low-

income support to IXCs, without sacrificing the targeting that has

characterized the current program. We also conclude that low-income

[[Page 63788]]

consumers will continue to benefit directly under our recommendation.

75. In addition to changing the contribution method for the

Lifeline program, we recommend amending the program to enable all

eligible telecommunications carriers, not just LECs, to be eligible to

receive support for serving qualified low-income consumers. Currently,

only ILECs serving eligible low-income consumers can receive support.

We find, however, that eligible telecommunications carriers other than

ILECs should have the ability to compete to serve low-income consumers

and in turn receive Lifeline support in a manner similar to the current

program. We recommend that in order to participate, a carrier must

demonstrate to the public utility commission of the state in which it

operates that it offers a Lifeline rate to qualified individuals. We

recommend that the Lifeline rate be the carrier's lowest comparable

non-Lifeline rate reduced by at least the $5.25 amount of federal

support. We further recommend that support be provided directly to

carriers based on the number of eligible consumers they serve under

administrative procedures determined by the fund administrator.

76. Currently, state agencies or telephone companies administer

customer eligibility determinations pursuant to narrowly-targeted

programs approved by the Commission. We recommend that the Commission

maintain this basic framework for administering Lifeline eligibility in

states that provide matching support for the Lifeline program. We also

recommend that the Commission require states that provide matching

funds to base eligibility criteria solely on income or factors directly

related to income (such as participation in a low-income assistance

program). We further recommend that the Commission adopt specific

means-tested eligibility standards to apply in states that choose not

to provide matching support from the intrastate jurisdiction.

Specifically, we recommend that low-income consumers participating in a

state-administered, low-income welfare program (and who are not

considered dependents for federal income tax purposes, with the

exception of dependents over the age of 60) would be eligible for

Lifeline assistance.

77. The Joint Board recommends that the Commission adopt the

changes to the Link Up program's funding mechanism proposed in the

NPRM. We recommend that the Link Up funding mechanism be removed from

the jurisdictional separations rules, and that the program be funded

through equitable and non-discriminatory contributions from all

interstate telecommunications carriers. Funding the program through

contributions from all interstate carriers will allow for an explicit

and competitively neutral funding mechanism consistent with sections

254 (d) and (e).

78. We recommend that the Commission amend its Link Up rules to

make the present level of Link Up support available to qualifying low-

income consumers requesting service from any telecommunications carrier

providing local exchange service. Support would be available only for

the primary residential connection. As amended, the Link Up rules

should thus provide that any eligible telecommunications carrier may

draw support from the new Link Up funding mechanism described above if

that carrier offers to eligible customers a reduction of its service

connection charges equal to one half of the carrier's customary

connection charge or $30.00, whichever is less. Where the carrier

offers eligible customers a deferred payment plan for connection

charges, we recommend that the Commission provide support to reimburse

carriers for waiving interest on the deferred charges for eligible

subscribers as Link Up currently provides for incumbent LECs' charges.

To ensure that the opportunity for carrier participation is

competitively neutral, we recommend that the Commission's rules be

amended to eliminate the requirement that the commencement-of-service

charges eligible for support be filed in a state tariff. In the absence

of evidence that increasing the level of Link Up support for connecting

each eligible customer would significantly further universal service

goals, however, we recommend that the level of support for Link Up not

be increased.

79. With respect to subscribers' eligibility to participate in the

Link Up program, the Joint Board recommends that the same modifications

be made to the Link Up program that we have recommended for the

Lifeline program. That is, we encourage states to set means-tested

eligibility criteria, and we recommend that a federal eligibility

``floor'' be established that would serve as eligibility criteria in

states that choose not to define means-tested eligibility criteria of

their own. Consistent with some commenters' proposals, we also

recommend that the Commission prohibit states from restricting the

number of service connections per year for which low-income consumers

who relocate can receive Link Up support.

80. We recommend that the Commission implement a national rule

prohibiting telecommunications carriers from requiring Lifeline-

participating subscribers to pay service deposits in order to initiate

service if the subscriber voluntarily elects to receive toll blocking.

81. Issues Unique to Insular Areas. We recognize the special

circumstances faced by carriers and consumers in the insular areas of

the United States, particularly the Pacific Island territories. We note

at the outset that carriers in these areas, like all other carriers,

will be eligible for universal service support if they serve high cost

areas. We recommend that rural carriers serving high cost insular

areas, as well as rural carriers serving high cost areas in Alaska,

should continue to receive universal service support based on their

embedded costs.

82. We recommend that the Commission take no specific action

regarding cost support for toll service to the Northern Mariana Islands

at this time, but revisit this issue at a later date. Guam and the

Northern Mariana Islands will be included in the North American

Numbering Plan by July 1, 1997. To implement section 254(g), the

Commission will require interstate carriers serving the Pacific Island

territories to integrate their rates with the rates for services that

they provide to other states no later than August 1, 1997. (An

interexchange carrier must establish rates for services provided to the

Northern Mariana Islands and Guam consistent with the rate methodology

that it employs for services it provides to other states. Carriers can

choose among several ways to integrate the rates for services to these

islands, including expanding mileage bands, adding mileage bands or

offering postalized rates. A carrier must also offer optional calling

plans, contract tariffs, discounts, promotions, and private line

services using the same rate methodology and structure that it uses in

offering those services to subscribers on the mainland.

83. Once those carriers integrate their rates, the residents of

Guam and the Northern Mariana Islands will be able to make 1+ calls to

the mainland United States at domestic instead of international rates.

Residents of Guam and the Northern Mariana Islands will also have

direct access to toll-free (e.g., 800, 888) services. The decision

whether to provide toll-free services to a specific area, such as the

Pacific Island territories, is a business decision of the carrier's

business customer, weighing the cost of toll charges to the islands

against the economic benefit of

[[Page 63789]]

providing toll free access. Businesses currently make that same

determination in deciding in which areas to provide toll free access

within the fifty states, and, for business reasons, some of them choose

to limit access to certain areas. Similarly, information service

providers make the same type of business decision as to whether to

locate in a certain area or provide toll-free access to an area. Until

the islands join the NANP and are included in carriers' rate averaging,

it is difficult for businesses to make such judgments as to whether,

and how, to serve the islands.

84. We are concerned that residents of Guam and the Northern

Mariana Islands have access to toll free service and information

services. We therefore recommend that the Commission revisit the

question of comparable access and rates for toll-free and information

services at some time after the Pacific Island territories have been

included in the NANP and have integrated rates to determine whether

there is any need to support these services.

85. Support for Schools and Libraries. We recommend that the

Commission adopt a rule that provides schools and libraries with the

maximum flexibility to apply their universal service discount to

whatever package of telecommunications services they believe will meet

their telecommunications service needs most effectively and

efficiently.

86. We recommend that the Commission also provide eligible schools

and libraries with discounts for Internet access pursuant to section

254(h)(2). These discounts would apply to basic conduit, i.e., non-

content, access from the school or library to the backbone Internet

network. This access would include the communications link to the ISP,

whether through dial-up access or via a leased line, and the

subscription fee paid to the ISP, if applicable. The discount would

also apply to electronic mail, but any charges for such services would

not be subject to the discount discussed herein. Schools and libraries

would be permitted to apply the discount to the entire ``basic'' charge

by an ISP that bundled access to some minimal amount of content, but

only under those circumstances in which the ISP basic subscription

charge represented the most cost-effective method for the school or

library to secure non-content conduit access to the Internet.

87. We also do not recommend that a discount mechanism for other

information services be established at this time.

88. We recommend that the Commission expressly acknowledge that

schools and libraries may receive discounts on charges for internal

connections. We find that Congress recognized that such connections are

a critical element for achieving the congressional purpose of section

254(h), and thus contemplated that schools and libraries receive

universal service support for internal connections.

89. Consistent with our recommendation to establish a competitively

neutral program for discounting all telecommunications services and

Internet access under section 254(h)(2)(A), we recommend that internal

connections within schools and libraries, which may include such items

as routers, hubs, network file servers, and wireless LANs, but

specifically excluding personal computers, be included within the

section 254(h) discount program.

90. We recommend that schools and libraries be required to seek

competitive bids for all services eligible for section 254(h)

discounts. We recommend that schools and libraries be required to

submit their requests for services to the fund administrator, who would

post the descriptions of services sought on a web site for potential

providers to see. The posting of a school or library's description of

services would satisfy the competitive bid requirement. We recommend

that the lowest corresponding price, defined as the lowest price

charged to similarly situated non-residential customers for similar

services, constitute the ceiling for the competitively bid pre-discount

price. In areas in which there is no competition, we recommend that the

lowest corresponding price constitute the pre-discount price. In both

cases, the carrier would be required to self-certify that the price

offered to schools and libraries is equal to or lower than the lowest

corresponding price. We further recommend that schools, libraries, and

carriers be permitted to appeal to the Commission, regarding interstate

rates, and to state commissions, regarding intrastate rates, if they

believe that the lowest corresponding price is unfairly high or low.

91. We recommend that the Commission adopt a rule which provides

support to schools and libraries through a percentage discount

mechanism. The mechanism would be adjusted for schools and libraries

that are defined as economically disadvantaged and those schools and

libraries located in high cost areas. In particular, we recommend that

the Commission adopt a matrix that provides discounts from 20 percent

to 90 percent, to apply to all telecommunications services, Internet

access, and internal connections, with the range of discounts

correlated to the indicators of economic disadvantage and high cost for

schools and libraries. We decline, however, to recommend a 100 percent

discount for any category of schools or libraries.

92. We recommend that the following matrix of percentage discounts

be applied in the schools and libraries programs. The matrix represents

an example of an appropriate distribution of schools across the five

discount levels, according to the specified metric for determining the

wealth of a school. If a different metric for determining the wealth of

a school is ultimately chosen for the purposes of this program, we

would expect that a similar distribution of schools across the discount

range would be reflected. The principles in determining the final

matrix should ensure that the greatest discounts go to the most

disadvantaged schools and libraries, while an equitable progression of

discounts should be applied to the other categories, keeping within the

parameters of 20 percent to 90 percent discounts.

----------------------------------------------------------------------------------------------------------------

Cost of service (estimated percent in

category)

Discount matrix -----------------------------------------------

low cost mid-cost highest cost

(67%) (26%) (7%)

----------------------------------------------------------------------------------------------------------------

How disadvantaged? based on percent of < 1 (3%)................ 20 20 25

students in the national school lunch 1-19 (30.7%)............ 40 45 50

program (estimated percent in 20-34 (19%)............. 50 55 60

category). 35-49 (15%)............. 60 65 70

50-74 (16%)............. 80 80 80

75-100 (16.3%).......... 90 90 90

----------------------------------------------------------------------------------------------------------------

[[Page 63790]]

93. In addition, we recommend that the Commission set an annual cap

on spending of $2.25 billion per year. In addition, any funds that are

not disbursed in a given year may be carried forward and may be

disbursed in subsequent years without regard to the cap. We further

recommend that the Commission establish a trigger mechanism, so that if

expenditures in any year reach $2 billion, rules of priority would come

into effect. Under the rules of priority, only those schools and

libraries that are most economically disadvantaged and had not yet

received discounts from the universal service mechanism in the previous

year would be granted guaranteed funds, until the cap was reached.

Other economically disadvantaged schools and libraries would have

second priority for support if additional funds were available at the

end of the year. Finally, all other eligible schools and libraries

would be granted funding contingent on availability after economically

disadvantaged schools and libraries had requested funding. We also

recommend that the Joint Board, as part of its review in the year 2001,

revisit the effectiveness of the schools and libraries program.

94. We recommend that the statutory definition of ``affordable''

must take into account the cost of service in an area. Thus, we

recommend that the Commission take into account the cost of providing

services when setting discounts for schools and libraries. To achieve

this, we recommend that the Commission consider a ``step'' approach

that would calibrate the cost of service in some reasonable, practical,

and minimally burdensome manner. Other methods for determining high

cost may also be appropriate, and we encourage the Commission to seek

additional information and parties' comments on this issue prior to

adopting rules.

95. To minimize any additional recordkeeping or data gathering

obligations, we seek the least burdensome manner to determine the

degree to which a school or library is economically disadvantaged. We

recommend that the Commission seek additional information and parties'

comments on what measures of economic disadvantage may be readily

available for identification of economically disadvantaged non-public

schools or, if not readily available, what information could be

required that would be minimally burdensome.

96. The national school lunch program reflects the level of

economic disadvantage for children enrolled in school. While using a

model that measures the wealth of an entire school district may better

reflect per-pupil expenditures in that district, we conclude that a

model measuring the wealth of students enrolled in school will more

accurately reflect the level of economic disadvantage in all of the

schools and libraries eligible for universal service support under

section 254, including both public and non-public schools. We find,

therefore, that using the national school lunch program to determine

eligibility for a greater discount appears to fulfill more accurately

the statutory requirement to ensure affordable access to and use of

telecommunications and other covered services for schools and

libraries.

97. If it decides to use the national school lunch program as the

model for determining eligibility for a greater discount, we recommend

that the Commission require the entity responsible for ordering

telecommunications services or other covered services for schools to

certify to the administrator and to the service provider the percentage

of its students eligible for the national school lunch program when

ordering telecommunications and other covered services from its service

providers. For schools ordering telecommunications and other covered

services at the individual school level, which should include primarily

non-public schools, the person ordering such services should certify to

the administrator and to the service provider the percentage of

students eligible in that school for the national school lunch program.

Each school's level of discount will then be calculated by the

administrator based on the percentage of students eligible for the

national school lunch program.

98. For schools ordering telecommunications and other covered

services at the school district level, we seek to target the level of

discount based on each school's percentage of students eligible for the

national school lunch program, if the national school lunch program is

selected as the appropriate measure of economic disadvantage. At the

same time, we seek to minimize the administrative burden on school

districts. Therefore, we recommend that the district office certify to

the administrator and to the service provider the number of students in

each of its schools who are eligible for the national school lunch

program. We recommend that the district office may decide to compute

the discounts on an individual school basis or it may decide to compute

an average discount. We further recommend that the school district

assure that each school receive the full benefit of the discount to

which it is entitled.

99. We recommend that schools or districts do not have to

participate in the national school lunch program in order to

demonstrate their level of economic disadvantage. Schools or districts

that do not participate in the national school lunch program need only

certify the percentage of their students who would be eligible for the

program, if the school or district did participate. Since libraries do

not participate in the national school lunch program, we recommend that

they be eligible for greater discounts based on their location in a

school district serving economically disadvantaged students. That is,

the administrator would average the percentage of students eligible for

the national school lunch program in all eligible schools, both public

and non-public, within the school district in which a library was

located. The library would then receive the level of discount

representing the average discount offered to the school district in

which it was located. We find that this is a reasonable method of

calculation because libraries are likely to draw patrons from an entire

school district and this method does not impose an unnecessary

administrative burden on libraries. We recommend that the Commission

seek additional information and parties' comments on what measures of

economic disadvantage may be readily available for identification of

economically disadvantaged libraries or, if not readily available, what

information could be required that would be minimally burdensome.

100. We also recommend that the Commission adopt a step approach

for calculating the level of greater discount available to economically

disadvantaged schools and libraries. A step approach would provide

multiple levels of discount based on the percentage of students

eligible for the national school lunch program.

101. We also recommend that the Commission establish a separate

category for the least economically disadvantaged schools, those with

less than one percent of their students eligible for the national

school lunch program. Those schools should have comparatively

sufficient resources within their existing budgets so that they may

secure affordable access to services at lower discounted rates. In our

effort not to duplicate research already conducted and to tailor

greater discounts based on level of economic disadvantage more

accurately, we recommend using the Department of Education's five-step

breakdown to calculate the greater discounts on telecommunications and

other covered

[[Page 63791]]

services for economically disadvantaged schools.

102. To the extent that a state desires to supplement the discount

financed through the federal universal service fund by permitting its

schools and libraries to apply the discount to the special low rates,

its actions would be consistent with sections 254(h) and 254(f).

Furthermore, we believe that it would also be permissible for states to

choose not to supplement the federal program and thus prohibit its

schools and libraries from purchasing services at special state-

supported rates if they intend to secure federal-supported discounts.

103. We recommend that the Commission not require any schools or

libraries that had secured a low price on service to relinquish that

rate simply to secure a slightly lower price produced by including a

large amount of federal support. No discount would apply, however, to

charges for any usage of telecommunications or information services

prior to the effective date of rules promulgated pursuant to this

proceeding.

104. We recommend that the Commission recognize that it can provide

for federal universal service support to fund intrastate discounts. We

also recommend that the Commission adopt rules that provide federal

funding for discounts for schools and libraries on both interstate and

intrastate services to the levels discussed above, and that

establishment of intrastate discounts at least equal to the discounts

on interstate services be a condition of federal universal service

support for schools and libraries in that state. If a state wishes to

provide an intrastate discount less than the federal discount, then it

may seek a waiver of this requirement.

105. On careful review, we conclude that, despite the difficulties

of allocating costs and preventing abuses, the benefits from permitting

schools and libraries to join in consortia with other customers in

their community outweigh the danger that such aggregations will lead to

significant abuse of the prohibition against resale. We recommend that

state commissions undertake measures to enable consortia of eligible

and ineligible entities to aggregate their purchases of

telecommunications services and other services being supported through

the discount mechanism, in accordance with the requirements set forth

in section 254(h).

106. We recommend that the Commission interpret section 254(h)(3)

to restrict any resale whatsoever of services purchased pursuant to a

section 254 discount.

107. Section 254(h)(3)'s prohibition on resale, however, would not

prohibit either computer lab fees for students or fees for Internet

classes. Because these are not services that schools or libraries

purchased at a discount under the 1996 Act, they are not subject to the

resale ban. Therefore, we recommend that schools and libraries be

expected to comply with three bona fide request requirements.

108. First, we find that it would not be unduly burdensome to

expect schools and libraries to certify that they have ``done their

homework'' in terms of adopting a plan for securing access to all of

the necessary supporting technologies needed to use the services

purchased under section 254(h) effectively.

109. Second, we recommend that schools and libraries be required to

send a description of the services they desire to the fund

administrator or other entity designated by the Commission. They can

use the same description they use to meet the requirement that most

generally face to solicit competitive bids for all major purchases

above some dollar amount. The fund administrator or this other entity

could then post a description of the services sought on a web site for

all potential competing service providers to see and respond to as if

they were requests for proposals.

110. Third, we recommend that, to ensure compliance with section

254, every school or library that requests services eligible for

universal service support be required to submit to the service provider

a written request for services. We recommend that the request should be

signed by the person authorized to order telecommunications and other

covered services for the school or library, certifying the following

under oath: (1) the school or library is an eligible entity under

section 254(h)(4); (2) the services requested will be used solely for

educational purposes; (3) the services will not be sold, resold, or

transferred in consideration for money or any other thing of value; and

(4) if the services are being purchased as part of an aggregated

purchase with other entities, the identities of all co-purchasers and

the portion of the services being purchased by the school or library.

111. We recommend that schools and libraries, as well as carriers,

be required to maintain for their purchases of telecommunications and

other covered services at discounted rates the kinds of procurement

records that they already keep for other purchases. We expect schools

and libraries to be able to produce such records at the request of any

auditor appointed by a state education department, the fund

administrator, or any other state or federal agency with jurisdiction

that might, for example, suspect fraud or other illegal conduct. We

recommend that schools and libraries also be subject to random

compliance audits to evaluate what services they are purchasing and how

such services are being used. Such information would permit the

Commission to determine whether universal service support policies

require adjustment. The fund administrator should also develop

appropriate reporting information for the schools and libraries to

advise on their progress in obtaining access to telecommunications and

other information services.

112. Section 254(h)(1)(B) requires that telecommunications carriers

providing services to schools and libraries shall either apply the

amount of the discount afforded to schools and libraries as an offset

to its universal service contribution obligations or shall be

reimbursed for that amount from universal service support mechanisms.

We conclude that section 254(h)(1)(B) requires that telecommunications

carriers be permitted to choose either reimbursement or offset. Because

non-telecommunications carriers are not obligated to contribute to

universal service support mechanisms, they would not be entitled to an

offset. Non-telecommunications carriers providing eligible services to

schools and libraries, therefore, would be entitled only to

reimbursement from universal service support mechanisms.

113. We recommend that the Commission adopt rules that will permit

schools and libraries to begin using discounted services ordered

pursuant to section 254(h) at the start of the 1997 - 1998 school year.

We anticipate that they may begin complying with the self-certification

requirements as soon as the Commission's rules become effective.

114. Support for Health Care Providers. We find that the record is

insufficient to support a recommendation on the exact scope of

services, in addition to designated services, that should be supported

for rural health care providers. We therefore recommend that the

Commission solicit additional information and expert assessment of the

exact scope of services that should be included in the list of those

additional services ``necessary for the provision of health care in a

state.'' We recommend that the Commission seek information on the

telecommunications needs of rural health care providers and on the most

cost-effective ways to provide these services to rural America.

Finally, we recommend that the Commission take

[[Page 63792]]

this information and these assessments into account in deciding what

services to include as services eligible for universal service support.

115. In reaching its decision on the scope of services to support,

we recommend that the Commission include terminating as well as

originating services for universal service support in cases where the

eligible health care provider would pay for terminating as well as

originating services, such as in the case of cellular air time charges.

116. Further, we recommend that the Commission initially designate

only telecommunications services as eligible for support as expressly

provided under the terms of sections 254(c)(1) and 254(h)(1)(A). We do

not, at this time, recommend that the Commission find that customer

premises equipment should be eligible for support.

117. After the Commission designates those services eligible for

support for rural health care providers, we recommend that the

Commission's list of supported telecommunications services be revisited

in 2001, when the Commission is scheduled to reconvene a Joint Board on

universal service.

118. On the question of determining the urban rate, we recommend

that, for each telecommunications service delivered to a qualified

health care provider as provided in section 254(h)(1)(A), the

Commission should designate as the rate ``reasonably comparable to

rates charged for similar services in urban areas in that state'' (the

``urban rate''), the highest tariffed or publicly available rate

actually being charged to commercial customers within the

jurisdictional boundary of the nearest large city in the state

(measured by airline miles from the health care provider's location to

the closest city boundary point). We do not recommend an exact

definition of the size of population a city must have to qualify as

``large'' for purposes of calculating the urban rate. We leave that

determination to the Commission.

119. Because we are recommending that the highest tariffed or

publicly available urban rate be used to set the urban rate charged to

the health care provider, we think it is important to use for this

purpose an urban boundary smaller than a county boundary so as to

minimize the possibility of inadvertently including distance-based or

lower-density-based surcharges within the comparable urban rate. We

also believe that using larger cities for this purpose will increase

the likelihood that the rates in those cities will reflect to the

greatest extent possible, reductions in rates based on large-volume,

high-density factors that affect telecommunications rates. Because we

see nothing in the 1996 Act or its legislative history that would

prohibit using different definitions of urban for different purposes in

section 254, we recommend using, for purposes of determining the

``urban rate in the closest urban area,'' the jurisdictional boundaries

of larger cities. We further recommend that the Commission designate by

regulation the exact city population size to define the term ``large

city,'' that it finds will best balance the factors described in this

paragraph.

120. We recommend that the Commission seek additional information

on the rate of expansion of local access coverage of ISPs in rural

areas of the country and the costs likely to be incurred in providing

toll-free access to ISPs for health care providers in rural areas. We

also recommend that the Commission take this information into account

in deciding what services to include as services eligible for universal

service support.

121. We encourage the Commission to solicit additional information

on the probable costs that would be incurred in eliminating distance-

based and LATA crossing (InterLATA) charges for rural health care

providers where such charges are in excess of those paid by customers

in the nearest urban areas of the state. We recommend that the

Commission take this information into account in deciding whether to

include these charges in the list of charges eligible for universal

service support.

122. We further recommend that the Commission solicit further

information on these topics and make appropriate provision for

equalizing any disparities between urban and rural telecommunications

rates to health care providers in insular areas.

123. On the question of determining the rural rate, mindful of the

Commission's obligation to craft a mechanism that is ``specific,

predictable and sufficient,'' we recommend that the rural rate be

determined to be the average of the rates actually being charged to

customers, other than eligible health care providers, for identical or

technically similar services provided by the carrier providing the

service, to commercial customers in the rural county in which the

health care provider is located. For all purposes associated with

determining the rural rate, we recommend that the term ``rural county''

be defined as any ``non-metro'' county as defined by the Office of

Management and Budget Metropolitan Statistical Areas (OMB MSA) list,

along with the non-urban areas of those metro counties identified in

the Goldsmith Modification used by the Office of Rural Health Policy of

the Department of Health and Human Services (ORHP/HHS). We also

recommend that the rates averaged to calculate the rural rate not

include any rates reduced by universal service programs and paid by

schools, libraries or rural health care providers.

124. We further recommend that, where the carrier is providing no

identical or technically similar services in that rural county, the

rural rate should be determined by taking the average of the tariffed

and other publicly-available rates charged for the same or similar

services in that rural county by other carriers. If no such services

have been charged or are publicly available, or if the carrier deems

the method described here, as it would be applied to the carrier, to be

unfair for any reason, the carrier should be allowed, in the first

instance, to submit for the state commission's approval a cost-based

rate for the provision of the service in the most economically

efficient, reasonably available manner. Where state commission review

is not available, the carrier should be allowed to submit the proposed

rate to the Commission for its approval. The proposed rate should be

supported, justified, reviewed and approved, in the initial submission

and periodically thereafter, according to procedures and requirements

similar to those used for establishing tariffed rates for

telecommunications services in that state.

125. In cases where there are no similar services being provided in

the rural county, either by the carrier or by others, and thus no

comparable rates to average, or where the carrier concludes that rates

derived from this formula are unfair, we find the availability of a

cost-based rate application procedure becomes an important backstop. We

intend that this procedure will ensure greater fairness to the carrier

and further ensure that the support mechanism is more likely to be

``sufficient'' as required by section 254. We note, however, that the

record is inadequate on this issue and, accordingly, we recommend that

the Commission request additional information prior to adopting final

rules, on the costs that would be incurred in supporting necessary

upgrades to the public switched network. We also recommend that the

Commission seek additional information as to what extent ongoing

network modernization, as is currently going forward under private

initiatives or according to state-sponsored modernization plans, might

make universal service support of this element unnecessary. We further

[[Page 63793]]

recommend that the Commission take this information into account in

deciding whether to include network upgrades in the list of services

eligible for universal service support.

126. We recommend that there be no separate funding mechanism for

eligible health care providers and schools and libraries. We further

recommend that separate accounting and allocation systems be maintained

for the funds collected for the two groups.

127. We recommend that to define ``rural areas'' the Commission use

non-metro counties (or county equivalents), as identified by the OMB

MSA list of metro and non-metro counties, together with rural areas in

metro counties identified in the most currently available ``Goldsmith

Modification'' of the MSA list used by the ORHP/HHS. To the extent that

the Commission can improve upon these definitions prior to its

statutory deadline, by identifying other rural areas in metro counties

not identified in the current version of the Goldsmith Modification, we

encourage the Commission to do so.

128. We conclude that where all rural areas are entitled to a rate

no higher than the highest rate in the closest city, there is no need

to make additional provisions for frontier areas, or areas with extra-

low population density, as some parties suggest.

129. We recommend creating a mechanism that makes eligible the

largest reasonably practicable number of health care providers that

primarily serve rural residents and that, due to their location, are

prevented from obtaining telecommunications services at rates available

to urban customers. We agree, therefore, with the commenters that urge

that eligibility to obtain telecommunications services at rates

reasonably comparable to rates in the state's urban areas be limited to

providers that are physically located in rural areas.

130. We recommend that the Commission attempt no further

clarification of the definition of the term ``health care provider.''

We find that section 254(h)(5)(B) adequately describes those entities

intended by Congress to be eligible for universal service support.

Therefore, we decline to recommend expanding or broadening those

categories.

131. We recommend that the Commission allow telecommunications

carriers providing services to health care providers at reasonably

comparable rates under the provisions of section 254(h)(1)(A), to treat

the amount eligible for support, calculated as recommended herein, as

an offset toward the carrier's universal service support obligation. We

recommend that the Commission disallow the option of direct

reimbursement although we recognize that this alternative is within the

Commission's authority. We also recommend that carriers be allowed to

carry offset balances forward to future years so that the full amounts

eligible to be treated as a credit may be applied to reduce their

universal service obligation.

132. We recommend that every health care provider that makes a

request for universal service support for telecommunications services

be required to submit to the carrier a written request, signed by an

authorized officer of the health care provider, certifying under oath

the following information:

(1) Which definition of health care provider in section

254(h)(5)(B) the requester falls under;

(2) That the requester is physically located in a rural area OMB

defined non-metro county or Goldsmith-define rural section of an OMB

metro county);

(3) That the services requested will be used solely for purposes

reasonably related to the provision of health care services or

instruction that the health care provider is legally authorized to

provide under the law of the state in which they are provided;

(4) That the services will not be sold, resold or transferred in

consideration of money or any other thing of value;

(5) If the services are being purchased as part of an aggregated

purchase with other entities or individuals, the full details of any

such arrangement, including the identities of all co-purchasers and

the portion of the services being purchased by the health care

provider.

The certification should be renewed annually.

133. We recommend that the Commission require the universal service

fund administrator to establish and administer a monitoring and

evaluation program to oversee the use of universal-service-supported

services by health care providers, and the pricing of those services by

carriers.

134. We also recommend that the Commission encourage carriers

across the country to notify eligible health care providers in their

service areas of the availability of lower rates resulting from

universal service support so that the goals of universal service to

rural health care providers will be more rapidly fulfilled.

135. We recommend that health care providers be encouraged to enter

into aggregate purchasing and maintenance agreements for

telecommunications services with other public and private entities and

individuals, provided however, that the entities and individuals not

eligible for universal service support pay full rates for their portion

of the services. In addition, in these arrangements, we recommend that

the Commission's order make clear that the qualified health care

provider can be eligible for reduced rates, and the telecommunications

carrier can be eligible for support, only for that portion of the

services purchased and used by the health care provider.

136. The Commission's adoption of rules providing universal service

support under section 254(h)(1) will significantly increase the

availability and deployment of telecommunications services for rural

health care providers. Furthermore, we conclude that the additional

action the Commission will undertake, as discussed above, will be

sufficient to ensure the enhancement of access to advanced

telecommunications and information services for these and other health

care providers.

137. We propose that the Commission establish rules governing the

implementation of the support mechanisms recommended above. We

anticipate that the fund administrator will begin receiving and

processing telecommunications service requests on or about June 1,

1997. Therefore, we recommend that the Commission advise eligible

health care providers that they may begin submitting requests to

carriers for supported services as soon as practicable after the

Commission adopts final rules.

138. The rules should provide that the telecommunications carrier

may begin to deploy the requested service as soon as practicable after

it has received (1) a written request for an eligible

telecommunications service, (2) a properly completed signed and sworn

certification as provided in paragraph 92 of this section, (3)

approval, if necessary, from the appropriate agency of the rate to be

charged for the requested service, and (4) satisfactory payment or

payment arrangements for the portion of the rate charged that is the

responsibility of the health care provider.

139. Interstate Subscriber Line Charges and Carrier Common Line

Charges. We recommend that the Commission adopt the tentative

conclusion reached in the NPRM that LTS payments constitute a universal

service support mechanism. As the Commission noted in the NPRM, LTS

payments serve to equalize LECs' access charges by raising some

carriers' charges and lowering others.

140. We recommend that the LTS system no longer be supported via

the access charge regime. We recommend that rural LECs continue to

receive payments comparable to LTS from the

[[Page 63794]]

new universal service support mechanism. Such payments would be

computed on a per-line basis for each ILEC currently receiving LTS,

based on the LTS payments that carrier has received over a historical

period prior to the release of this Recommended Decision. In the

interest of competitive neutrality, such payment would also be

portable, on a per-line basis, to competitors that win the ILEC's

subscribers. To this extent, we recommend that the Commission adopt the

position of those commenters favoring the reformation of the LTS

mechanism to make it consistent with the 1996 Act. We make this

recommendation because we find that LTS payments currently serve the

important public interest function of reducing the amount of loop cost

that high cost LECs must seek to recover from IXCs through interstate

access charges, and thereby facilitating interexchange service in high

cost areas.

141. The Joint Board concludes that the current $3.50 SLC cap for

primary residential and single-line business lines should not be

increased. In the event that the Commission implements a rule assessing

carriers' universal service contributions based on all

telecommunications revenues regardless of jurisdictional

classification, we recommend that the benefits from these CCL

reductions be apportioned equally between primary residential and

single-line-business subscribers to local exchange service, on the one

hand, through a reduction in the SLC cap for those lines, and

interstate toll users, on the other hand, through lower CCL charges.

142. Currently, ILECs are required to recover through traffic-

sensitive CCL charges those interstate-allocated loop costs not

recovered through SLCs and LTS payments. In the NPRM, the Commission

referred to the Joint Board questions related to the recovery of these

loop costs, and suggested that the current mechanism may constitute a

universal service support flow. The Joint Board reaches no conclusion

on this question. We believe, however, that it would be desirable for

the Commission in the very near future to consider revising the current

CCL charge structure so that LECs are no longer required to recover the

NTS cost of the loop from IXCs on a traffic-sensitive basis.

143. Administration of Support Mechanisms. We recommend to the

Commission that the statutory requirement that ``all carriers that

provide interstate telecommunications services'' must contribute to

support mechanisms be construed broadly. A broad base of funding will

ensure that competing firms make ``equitable and nondiscriminatory

contributions'' and will reduce the burden on any particular class of

carrier. In order to interpret the term ``telecommunications carrier''

as broadly as possible, we recommend providing a non-exclusive,

illustrative list of ``interstate telecommunications.'' We recommend

requiring any entity that provides any interstate telecommunications

for a fee to the public, or to such classes of eligible users as to be

effectively available to a substantial portion of the public, to

contribute to the fund.

144. Thus, for the purposes of identifying which entities must

contribute to universal service support mechanisms, the Joint Board

recommends that the Commission adopt a definition of ``interstate

telecommunications'' that is similar to the one used for determining

TRS support. We recommend that ``interstate telecommunications''

include, but not be limited to, the interstate portion of the

following:

cellular telephone and paging, mobile radio, operator services,

PCS, access (including SLCs), alternative access and special access,

packet switched, WATS, toll-free, 900, MTS, private line, telex,

telegraph, video, satellite, international/foreign, intraLATA, and

resale services

Generally, telecommunications are ``interstate'' when the communication

or transmission originates in one state, territory, possession or the

District of Columbia and terminates in another state, territory,

possession or the District of Columbia. In addition, under the

Commission's rules, if over ten percent of the traffic over a private

or WATS line is interstate, then the revenues and costs generated by

the entire line are allocated to the interstate jurisdiction.

145. We recommend adoption of the TRS approach, because carriers

and the Commission are already familiar with this approach.

Contributions to the TRS fund are based on gross interstate

telecommunications revenues. We do not recommend that the Commission

base contributions to the support mechanism in this manner. We find no

reason to exempt from contribution CMRS, satellite operators,

resellers, paging companies, utility companies or carriers that serve

rural or high cost areas that provide interstate telecommunications

services, because the 1996 Act requires ``every telecommunications

carrier that provides interstate telecommunications services'' to

contribute to support mechanisms. Thus, to the extent that these

entities are considered ``telecommunications carriers'' providing

``interstate telecommunications services,'' they must contribute to

universal service support mechanisms.

146. We recommend that ``wholesale'' carriers, carriers that

provide services to other carriers, should be required to contribute,

because such carriers' activities are included in the phrase ``to such

classes of eligible users as to be effectively available to a

substantial portion of the public.'' The Commission has interpreted

this phrase to mean ``systems not dedicated exclusively to internal

use,'' or systems that provide service to users other than

significantly restricted classes. We recommend adopting the same

definition for universal service purposes. Thus, for example, to the

extent PMRS MSS providers lease capacity to other carriers, they would

be considered carriers that provide interstate telecommunications

services.

147. We do not find any reason to define ``for a fee'' as ``for

profit'' and recommend that the Commission interpret the phrase ``for a

fee'' as meaning services rendered in exchange for something of value

or a monetary payment. The Joint Board concludes that the requirement

that ``every telecommunications carrier'' contribute towards the

support of universal service, requires all interstate

telecommunications carriers, including wholesalers and non-profit

organizations, to contribute to support mechanisms. Thus, we recommend

that the Commission require any entity that provides any of the listed

interstate telecommunications services on a wholesale, resale or retail

basis to contribute to support mechanisms to the extent that it

provides interstate telecommunications services.

148. We recommend that information service providers and enhanced

service providers not be required to contribute to support mechanisms.

We note, however, that if information or enhanced service providers

provide any of the listed interstate telecommunications to the public

for a fee, they would be required to contribute to support mechanisms

based on the revenues derived from telecommunications services. We also

recommend that the Commission re-evaluate which services qualify as

information services in the near future to take into account changes in

technology and the regulatory environment.

149. With respect to the issue of whether CMRS providers should

contribute to state universal service support mechanisms, we find that

section 332(c)(3) does not preclude

[[Page 63795]]

states from requiring CMRS providers to contribute to state support

mechanisms. In addition, section 254(f) requires that all contributions

to state support mechanisms be equitable and nondiscriminatory.

150. We recommend that the Commission not require ``other providers

of telecommunications'' to contribute to support mechanisms at this

time.

151. The Joint Explanatory Statement states that the de minimis

exemption applies only to those carriers for which the cost of

collection exceeds the amount of contribution. Thus, we recommend that

the Commission interpret the de minimis exemption in this manner. We

find that the legislative history of section 254(d) indicates Congress'

intent that this exemption be narrowly construed.

152. We recommend that, once it determines the administrator's cost

of collection, the Commission exempt carriers for which the

contribution would be less than the cost of collection. We suggest that

such carriers be exempt from contribution and reporting requirements.

We also recommend that the Commission re-evaluate administrative costs

periodically once the contribution mechanisms are implemented. We

reject requiring flat minimum payments for carriers qualifying for the

de minimis exemption, because it would be impractical to require a

payment that would result in a net loss to the support mechanism.

153. We recommend that contributions be based on a carrier's gross

telecommunications revenues net of payments to other carriers.

154. The Joint Board acknowledges that some ILECs may not be free

to adjust rates to account for the amount of their contributions to

universal service support. We therefore recommend clarifying that,

under the Commission's section 251 rules, ILECs are prohibited from

incorporating universal service support into rates for unbundled

network elements. We note, however, that carriers are permitted under

section 254 to pass through to users of unbundled elements an equitable

and nondiscriminatory portion of their universal service obligation.

155. We recommend that the Commission clarify that contributions to

support mechanisms may be made in cash or through the provision of

``in-kind'' services at ``comparable'' or ``discounted'' rates.

156. The Joint Board recommends that universal service support

mechanisms for schools and libraries and rural health care providers be

funded by assessing both the intrastate and interstate revenues of

providers of interstate telecommunications services. The Joint Board

makes no recommendation concerning the appropriate funding base for the

modified high cost and low income assistance programs, but does request

that the Commission seek additional information and parties' comment,

particularly the states, regarding the assessment method for these

programs.

157. The 1996 Act reflects the continued partnership between the

states and the FCC in preserving and advancing universal service.

Together, sections 254(d) and 254(f) contemplate continued

complementary state and federal programs for advancing universal

service. The Joint Board finds that state universal service programs

should continue to play an important role in ensuring universal service

to all consumers.

158. While section 254(d) prescribes that every telecommunications

carrier that provides interstate communications services shall

contribute on an equitable and nondiscriminatory basis to the specific,

predictable and sufficient universal service support mechanisms

established by the Commission, the statute does not expressly identify

the assessment base for the calculation. We recognize that the

universal service mechanism established in this proceeding to address

the needs of rural, insular and high cost areas will be combined with

the existing high cost assistance, DEM weighting, Linkup, Lifeline and

Long Term Support funding mechanisms.

159. The appropriate revenue base for collecting support for the

high cost and low income programs must be considered in tandem with the

distribution of these funds. The current federal high cost and low

income programs are supplemented by existing state programs. As we have

discussed, the development and composition of a universal service

support mechanism based on a proxy model has been deferred for decision

at this time, pending the convening of staff workshop sessions. We have

also deferred decision on the appropriate revenue benchmark to compute

the level of federal universal service support. Similarly, the

modifications to the Lifeline program have been tentatively identified

and set forth in this Recommended Decision for further comment. We find

that it would be premature at this time to conclude how the high cost

assistance fund and low income assistance programs should be funded,

i.e., whether interstate telecommunications carriers' contributions

should be confined to interstate revenues or whether they should

include a combination of interstate and intrastate revenues.

160. The Joint Board recommends that the Commission seek further

information and parties' comments on the issue of whether both

intrastate and interstate revenues of carriers that provide interstate

telecommunications should be assessed to fund the Commission's high

cost and low income support mechanisms. The role of complementary state

and federal universal service mechanisms requires further reflection.

An additional consideration is whether the states have the ability to

assess the interstate revenues of providers of intrastate

telecommunications services to fund state universal service programs

and whether that assessment capability would affect the funding base

for federal universal service programs. In addition, we recommend that

the Commission seek additional information and parties' comment on

whether the intrastate nature of the services supported by the high

cost and low income assistance programs should have a bearing on the

revenue base for assessing funds. We also recommend that commenting

parties address the ability to separately identify intrastate and

interstate revenues in the evolving telecommunications market where

services typically associated with particular jurisdictions are likely

to be packaged together. Finally, we ask that parties comment on

whether carriers will have an incentive to shift revenues between

jurisdictions to avoid universal service contributions.

161. The state members of the Joint Board will include a discussion

of the appropriate funding mechanism for the new high cost fund and low

income programs as part of the report(s) on each of those programs

discussed above. These reports by the state members will be filed prior

to the Commission's decision in this proceeding on the high cost and

low income funds.

162. With respect to administration of the new federal universal

service fund, we recommend, based on the record in this proceeding,

that the Commission appoint a universal service advisory board to

designate a neutral, third-party administrator. Administration by a

central administrator, as opposed to individual state PUCs, would be

more efficient and would ensure uniform decisions and rules.

163. Although we do not recommend direct administration by state

PUCs, we recommend creating a universal service advisory board,

pursuant to the Federal Advisory Committees Act, including

[[Page 63796]]

state and Commission representatives, to select, oversee, and provide

guidance to the chosen administrator. To expedite the formation of the

advisory board and its selection of a permanent administrator, we

encourage the Commission to limit the number of advisory board members

as much as possible. To ensure that administrative costs are kept to a

minimum, we recommend that the universal service advisory board select

an administrator through a competitive bidding process. The chosen

administrator, including its Board of Directors, must: (1) Be neutral

and impartial; (2) not advocate specific positions to the Commission in

non-administration-related proceedings; (3) not be aligned or

associated with any particular industry segment; and (4) not have a

direct financial interest in the support mechanisms established by the

Commission. As several commenters note, any candidate must also have

the ability to process large amounts of data and to bill large numbers

of carriers. We recommend that the advisory board fund the

administrator's costs through the support mechanism.

164. The Joint Board strongly advises the Commission to create a

universal service advisory board as quickly as possible because it will

be responsible for selecting an administrator. The board, in turn,

should quickly select an administrator because implementation of the

new universal service support mechanisms is of utmost importance to the

nation. The Joint Board recommends that the universal service advisory

board appoint a neutral, third-party administrator through competitive

bidding no later than six months after the board is created. We also

recommend that the Commission and the advisory board require the

administrator to implement the new support mechanisms no later than six

months after its appointment.

165. We recommend that NECA be appointed the temporary

administrator of support mechanisms for schools, libraries and health

care providers. Prior to appointment as the temporary administrator, we

recommend, however, that the Commission permit NECA to add significant,

meaningful representation for non-incumbent LEC carrier interests to

the NECA Board of Directors. NECA could begin collecting carrier

contributions and processing requests for services soon after adoption

of the Commission's rules and would continue to do so until the

permanent administrator is ready to begin operations. We recommend

that, in addition to operating the new support mechanisms for schools,

libraries and health care providers, NECA would continue to administer

the existing high cost and low income support mechanisms until the

permanent administrator is prepared to implement the new high cost and

low income support mechanisms.

166. Conclusion. The 1996 Act instructs the Joint Board and the

Commission to adopt a new set of universal service support mechanisms

that are explicit and sufficient to preserve and advance universal

service. We believe that the recommendations, discussed above, will

achieve Congress's goals and will ensure quality telecommunications

services at affordable rates to all consumers, in all regions of the

Nation.

Initial Regulatory Flexibility Analysis

167. As required by section 603 of the Regulatory Flexibility Act

(RFA), the Commission has prepared an Initial Regulatory Flexibility

Analysis (IRFA) that expands on the IRFA prepared for the NPRM of the

expected significant economic impact on small entities by the

recommendations made by the Federal-State Joint Board in the

Recommended Decision (CC Docket No. 96-45). Written public comments are

requested on the IRFA. Comments must be identified as responses to the

IRFA and must be filed by the deadlines for comments that are set forth

above. The Secretary shall send a copy of this Recommended Decision

including the IRFA set out below to the Chief Counsel for Advocacy of

the Small Business Administration in accordance with section 603(a) of

the RFA.

168. Need for and Objectives of the Recommended Decision: The

Telecommunications Act of 1996 (1996 Act) directed the Commission to

initiate a rulemaking to reform our system of universal service so that

universal service is preserved and advanced as markets move toward

competition. Issues related to universal service were referred to a

Federal-State Joint Board for recommended decision, pursuant to section

254 of the Communications Act of 1934, as amended by the 1996 Act. On

November 8, 1996, the Joint Board released the Recommended Decision

that is summarized above and made recommendations on universal service

issues including, for example, universal service principles, services

eligible for support, support mechanisms for rural, insular, and high

cost areas, support for low-income consumers, affordability, support

for schools and libraries, health care providers, administration of

support mechanisms and common line recovery.

169. The Joint Board's recommendations were intended to assist and

counsel the Commission in the creation of an effective universal

service support mechanism that would ensure that the goals of

affordable, quality service and access to advanced services are met by

means that enhance competition. The Joint Board also sought to develop

recommendations that could be interpreted easily and readily applicable

and, whenever, possible, minimize the regulatory burden on affected

parties. The objective of the Public Notice, released by the

Commission's Common Carrier Bureau on November 18, 1996, was to provide

an opportunity for public comment and to provide a record for a

Commission decision on the issues addressed and the recommendations

made by the Joint Board in the Recommended Decision.

170. Legal Basis: The Joint Board, in compliance with section

254(a)(1) and section 410(c) of the Communications Act of 1934, as

amended by the 1996 Act, adopted the Recommended Decision (CC Docket

No. 96-45) to ensure the prompt implementation of section 254, which

contains the universal service provisions.

171. Description and Estimate of the Number of Small Entities

Affected: For the purposes of an IRFA, the RFA defines a ``small

business'' to be the same as a ``small business concern'' under the

Small Business Act, 15 U.S.C. 632, unless the Commission has developed

one or more definitions that are appropriate to its activities. Under

the Small Business Act, a ``small business concern'' is one that: (1)

Is independently owned and operated; (2) is not dominant in its field

of operation; and (3) meets any additional criteria established by the

Small Business Administration (SBA). SBA has defined a small business

for Standard Industrial Classification (SIC) categories 4812

(Radiotelephone Communications) and 4813 (Telephone Communications,

Except Radiotelephone) to be small entities when they have fewer than

1,500 employees. This IRFA first discusses generally the total number

of small telephone companies falling within both of those SIC

categories. Then, it discusses total numbers of other small entities

potentially affected and attempts to refine those estimates.

172. Consistent with the Commission's prior practice, small

incumbent LECs are excluded from the definition of a small entity for

purposes of this IRFA. We note that the Commission has consistently

certified under the RFA that incumbent LECs are not subject to

regulatory flexibility analyses because they are not small businesses.

Incumbent LECs do not

[[Page 63797]]

qualify as small businesses since they are dominant in their field of

operation and hence exempt from treatment as a small business under

prong (2) of the SBA test set out supra. Accordingly, the use of the

terms ``small entities'' and ``small businesses'' does not encompass

``small incumbent LECs.'' We will however, out of an abundance of

caution and prudence, include small incumbent LECs in this IRFA to

eliminate any possible issue of RFA compliance. We use the term ``small

incumbent LECs'' to refer to any incumbent LECs that arguably might be

defined by SBA as ``small business concerns.'' In addition, the

Commission will take appropriate steps to ensure that the special

circumstances of smaller incumbent LECs are carefully considered.

1. Telephone Companies (SIC 4813)

173. Total Number of Telephone Companies Affected. Many of the

recommendations of the Joint Board, if adopted by the Commission, may

have a significant effect on a substantial number of the small

telephone companies identified by SBA. The United States Bureau of the

Census (``the Census Bureau'') reports that, at the end of 1992, there

were 3,497 firms engaged in providing telephone services, as defined

therein, for at least one year. This number contains a variety of

different categories of carriers, including local exchange carriers,

interexchange carriers, competitive access providers, cellular

carriers, mobile service carriers, operator service providers, pay

telephone operators, PCS providers, covered SMR providers, and

resellers. It seems certain that some of those 3,497 telephone service

firms may not qualify as small entities or small incumbent LECs because

they are not ``independently owned and operated.'' For example, a PCS

provider that is affiliated with an interexchange carrier having more

than 1,500 employees would not meet the definition of a small business.

It seems reasonable to conclude, therefore, that fewer than 3,497

telephone service firms would qualify as small entity telephone service

firms or small incumbent LECs, as defined above, that may be affected

by the Recommended Decision.

174. Wireline Carriers and Service Providers. SBA has developed a

definition of small entities for telephone communications companies

other than radiotelephone (wireless) companies. The Census Bureau

reports that there were 2,321 such telephone companies in operation for

at least one year at the end of 1992. According to SBA's definition, a

small business telephone company other than a radiotelephone company is

one employing fewer than 1,500 persons. All but 26 of the 2,321 non-

radiotelephone companies listed by the Census Bureau were reported to

have fewer than 1,000 employees. Thus, even if all 26 of those

companies had more than 1,500 employees, there would still be 2,295

non-radiotelephone companies that might qualify as small entities or

small incumbent LECs. Although it seems certain that some of these

carriers are not independently owned and operated, we are unable at

this time to estimate with greater precision the number of wireline

carriers and service providers that would qualify as small business

concerns under SBA's definition. Consequently, we estimate that there

are fewer than 2,295 small entity telephone communications companies

other than radiotelephone companies that may be affected by the

Recommended Decision.

175. Local Exchange Carriers. Neither the Commission nor SBA has

developed a definition of small providers of local exchange services.

The closest applicable definition under SBA rules is for telephone

communications companies other than radiotelephone (wireless)

companies. The most reliable source of information regarding the number

of LECs nationwide of which we are aware appears to be the data that

the Commission collects annually in connection with the

Telecommunications Relay Service (TRS). According to the most recent

data, 1,347 companies reported that they were engaged in the provision

of local exchange services. Although it seems certain that some of

these carriers are not independently owned and operated, or have more

than 1,500 employees, we are unable at this time to estimate with

greater precision the number of LECs that would qualify as small

business concerns under SBA's definition. Consequently, we estimate

that there are fewer than 1,347 small incumbent LECs that may be

affected by the Recommended Decision.

176. Interexchange Carriers. Neither the Commission nor SBA has

developed a definition of small entities specifically applicable to

providers of interexchange services (IXCs). The closest applicable

definition under SBA rules is for telephone communications companies

other than radiotelephone (wireless) companies. The most reliable

source of information regarding the number of IXCs nationwide of which

we are aware appears to be the data that the Commission collects

annually in connection with TRS. According to the most recent data, 97

companies reported that they were engaged in the provision of

interexchange services. Although it seems certain that some of these

carriers are not independently owned and operated, or have more than

1,500 employees, we are unable at this time to estimate with greater

precision the number of IXCs that would qualify as small business

concerns under SBA's definition. Consequently, we estimate that there

are fewer than 97 small entity IXCs that may be affected by the

Recommended Decision.

177. Competitive Access Providers. Neither the Commission nor SBA

has developed a definition of small entities specifically applicable to

providers of competitive access services (CAPs). The closest applicable

definition under SBA rules is for telephone communications companies

other than radiotelephone (wireless) companies. The most reliable

source of information regarding the number of CAPs nationwide of which

we are aware appears to be the data that the Commission collects

annually in connection with the TRS. According to the most recent data,

30 companies reported that they were engaged in the provision of

competitive access services. Although it seems certain that some of

these carriers are not independently owned and operated, or have more

than 1,500 employees, we are unable at this time to estimate with

greater precision the number of CAPs that would qualify as small

business concerns under SBA's definition. Consequently, we estimate

that there are fewer than 30 small entity CAPs that may be affected by

the Recommended Decision.

178. Operator Service Providers. Neither the Commission nor SBA has

developed a definition of small entities specifically applicable to

providers of operator services. The closest applicable definition under

SBA rules is for telephone communications companies other than

radiotelephone (wireless) companies. The most reliable source of

information regarding the number of operator service providers

nationwide of which we are aware appears to be the data that the

Commission collects annually in connection with the TRS. According to

the most recent data, 29 companies reported that they were engaged in

the provision of operator services. Although it seems certain that some

of these companies are not independently owned and operated, or have

more than 1,500 employees, this IRFA is unable at this time to estimate

with greater precision the number of operator service providers that

would qualify as small business concerns under SBA's definition.

Consequently, we estimate that there are fewer than 29 small entity

operator service providers

[[Page 63798]]

that may be affected by the Recommended Decision.

179. Pay Telephone Operators. Neither the Commission nor SBA has

developed a definition of small entities specifically applicable to pay

telephone operators. The closest applicable definition under SBA rules

is for telephone communications companies other than radiotelephone

(wireless) companies. The most reliable source of information regarding

the number of pay telephone operators nationwide of which we are aware

appears to be the data that the Commission collects annually in

connection with the TRS. According to the most recent data, 197

companies reported that they were engaged in the provision of pay

telephone services. Although it seems certain that some of these

carriers are not independently owned and operated, or have more than

1,500 employees, we are unable at this time to estimate with greater

precision the number of pay telephone operators that would qualify as

small business concerns under SBA's definition. Consequently, we

estimate that there are fewer than 197 small entity pay telephone

operators that may be affected by the Recommended Decision.

180. Wireless (Radiotelephone) Carriers. SBA has developed a

definition of small entities for radiotelephone (wireless) companies.

The Census Bureau reports that there were 1,176 such companies in

operation for at least one year at the end of 1992. According to SBA's

definition, a small business radiotelephone company is one employing

fewer than 1,500 persons. The Census Bureau also reported that 1,164 of

those radiotelephone companies had fewer than 1,000 employees. Thus,

even if all of the remaining 12 companies had more than 1,500

employees, there would still be 1,164 radiotelephone companies that

might qualify as small entities if they are independently owned and

operated. Although it seems certain that some of these carriers are not

independently owned and operated, we are unable at this time to

estimate with greater precision the number of radiotelephone carriers

and service providers that would qualify as small business concerns

under SBA's definition. Consequently, we estimate that there are fewer

than 1,164 small entity radiotelephone companies that may be affected

by the Recommended Decision.

181. Cellular Service Carriers. Neither the Commission nor SBA has

developed a definition of small entities specifically applicable to

providers of cellular services. The closest applicable definition under

SBA rules is for radiotelephone (wireless) companies. The most reliable

source of information regarding the number of cellular service carriers

nationwide of which we are aware appears to be the data that the

Commission collects annually in connection with the TRS. According to

the most recent data, 789 companies reported that they were engaged in

the provision of cellular services. Although it seems certain that some

of these carriers are not independently owned and operated, or have

more than 1,500 employees, we are unable at this time to estimate with

greater precision the number of cellular service carriers that would

qualify as small business concerns under SBA's definition.

Consequently, we estimate that there are fewer than 789 small entity

cellular service carriers that may be affected by the Recommended

Decision.

182. Mobile Service Carriers. Neither the Commission nor SBA has

developed a definition of small entities specifically applicable to

mobile service carriers, such as paging companies. The closest

applicable definition under SBA rules is for radiotelephone (wireless)

companies. The most reliable source of information regarding the number

of mobile service carriers nationwide of which we are aware appears to

be the data that the Commission collects annually in connection with

the TRS. According to the most recent data, 117 companies reported that

they were engaged in the provision of mobile services. Although it

seems certain that some of these carriers are not independently owned

and operated, or have more than 1,500 employees, we are unable at this

time to estimate with greater precision the number of mobile service

carriers that would qualify under SBA's definition. Consequently, we

estimate that there are fewer than 117 small entity mobile service

carriers that may be affected by the Recommended Decision.

183. Broadband PCS Licensees. The broadband PCS spectrum is divided

into six frequency blocks designated A through F. As set forth in 47

CFR 24.720(b), the Commission has defined ``small entity'' in the

auctions for Blocks C and F as a firm that had average gross revenues

of less than $40 million in the three previous calendar years. Our

definition of a ``small entity'' in the context of broadband PCS

auctions has been approved by SBA. The Commission has auctioned

broadband PCS licenses in Blocks A, B, and C. The Commission does not

have sufficient data to determine how many small businesses bid

successfully for licenses in Blocks A and B. There were 90 winning

bidders that qualified as small entities in the Block C auction. Based

on this information, we conclude that the number of broadband PCS

licensees affected by the Recommended Decision includes, at a minimum,

the 90 winning bidders that qualified as small entities in the Block C

broadband PCS auction.

184. At present, licenses are being awarded for Blocks D, E, and F

of broadband PCS spectrum. A total of 1,479 licenses will ultimately be

awarded in the D, E, and F Block broadband PCS auctions, which began on

August 26, 1996. Eligibility for the 493 F Block licenses is limited to

entrepreneurs with average gross revenues of less than $125 million. We

cannot estimate, however, the number of these licenses that will be won

by small entities, nor how many small entities will win D or E Block

licenses. Given that nearly all radiotelephone companies have fewer

than 1,000 employees and that no reliable estimate of the number of

prospective D, E, and F Block licensees can be made, for purposes of

this IRFA, we assume that all of the licenses in the D, E, and F Block

Broadband PCS auctions may be awarded to small entities that may be

affected by the Recommended Decision.

185. SMR Licensees. Pursuant to 47 CFR 90.814(b)(1), the Commission

has defined ``small entity'' in auctions for geographic area 800 MHz

and 900 MHz SMR licenses as a firm that had average annual gross

revenues of less than $15 million in the three previous calendar years.

This definition of a ``small entity'' in the context of 800 MHz and 900

MHz SMR has been approved by the SBA. The Recommended Decision may

apply to SMR providers in the 800 MHz and 900 MHz bands that either

hold geographic area licenses or have obtained extended implementation

authorizations. The Commission does not know how many firms provide 800

MHz or 900 MHz geographic area SMR service pursuant to extended

implementation authorizations, nor how many of these providers have

annual revenues of less than $15 million. For purposes of this IRFA, we

assume that all of the extended implementation authorizations may be

held by small entities that may be affected by the Recommended

Decision.

186. The Commission recently held auctions for geographic area

licenses in the 900 MHz SMR band. There were 60 winning bidders who

qualified as small entities in the 900 MHz auction. Based on this

information, we conclude that the number of geographic area SMR

licensees affected by the Recommended Decision includes these 60 small

entities. No auctions have been held for 800 MHz geographic area SMR

licenses.

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Therefore, no small entities currently hold these licenses. A total of

525 licenses will be awarded for the upper 200 channels in the 800 MHz

geographic area SMR auction. The Commission has not yet determined how

many licenses will be awarded for the lower 230 channels in the 800 MHz

geographic area SMR auction. There is no basis, moreover, on which to

estimate how many small entities will win these licenses. Given that

nearly all radiotelephone companies have fewer than 1,000 employees and

that no reliable estimate of the number of prospective 800 MHz

licensees can be made, for purposes of this IRFA, we assume that all of

the licenses may be awarded to small entities that may be affected by

the Recommended Decision.

187. Resellers. Neither the Commission nor SBA has developed a

definition of small entities specifically applicable to resellers. The

closest applicable definition under SBA rules is for all telephone

communications companies. The most reliable source of information

regarding the number of resellers nationwide of which we are aware

appears to be the data that the Commission collects annually in

connection with the TRS. According to the most recent data, 206

companies reported that they were engaged in the resale of telephone

services. Although it seems certain that some of these carriers are not

independently owned and operated, or have more than 1,500 employees, we

are unable at this time to estimate with greater precision the number

of resellers that would qualify as small business concerns under SBA's

definition. Consequently, we estimate that there are fewer than 206

small entity resellers that may be affected by the Recommended

Decision.

2. Cable System Operators (SIC 4841)

188. SBA has developed a definition of small entities for cable and

other pay television services that includes all such companies

generating less than $11 million in revenue annually. This definition

includes cable systems operators, closed circuit television services,

direct broadcast satellite services, multipoint distribution systems,

satellite master antenna systems and subscription television services.

According to the Census Bureau, there were 1,323 such cable and other

pay television services generating less than $11 million in revenue

that were in operation for at least one year at the end of 1992.

189. The Commission has developed its own definition of a small

cable system operator for the purposes of rate regulation. Under the

Commission's rules, a ``small cable company,'' is one serving fewer

than 400,000 subscribers nationwide. Based on the Commission's most

recent information, we estimate that there were 1,439 cable operators

that qualified as small cable system operators at the end of 1995.

Since then, some of those companies may have grown to serve over

400,000 subscribers, and others may have been involved in transactions

that caused them to be combined with other cable operators.

Consequently, we estimate that there are fewer than 1,468 small entity

cable system operators that may be affected by the Recommended

Decision.

190. The Communications Act defines a small cable system operator,

as ``a cable operator that, directly or through an affiliate, serves in

the aggregate fewer than 1 percent of all subscribers in the United

States and is not affiliated with any entity or entities whose gross

annual revenues in the aggregate exceed $250,000,000.'' There were

63,196,310 basic cable subscribers at the end of 1995, and 1,450 cable

system operators serving fewer than one percent (631,960) of

subscribers. Although it seems certain that some of these cable system

operators are affiliated with entities whose gross annual revenues

exceed $250,000,000, we are unable at this time to estimate with

greater precision the number of cable system operators that would

qualify as small cable operators under the definition in the

Communications Act.

3. Rural Health Care Providers

191. Neither the Commission nor SBA has developed a definition of

small, rural health care providers. According to the SBA's regulations,

hospitals must have annual gross receipts of $5 million or less in

order to qualify as a small business concern. There are approximately

3856 hospital firms in the nation, of which 294 have gross annual

receipts of $5 million or less (SIC 8060).

192. We recognize that the potential class of health care providers

that may be affected by the Recommended Decision is at the same time

broader and more refined than the class of providers identified in

these SBA figures. On the one hand, the potential class of health care

providers that may be affected by the Recommended Decision includes

additional categories of providers other than small hospital firms.

Additional categories of providers not encompassed within the SBA's

figures would include, for example, rural community colleges, medical

schools with rural programs, community health centers or health centers

providing health care to migrants, local health departments or

agencies, community mental health centers, and rural health clinics. On

the other hand, the potential class of health care providers that may

be affected by the Recommended Decision is more refined than the class

of providers identified in the SBA figures to the extent that the

former class is comprised only of rural health care providers. Given

that it is not yet practicable to identify all rural health care

providers that potentially may be impacted by the Recommended Decision,

5 U.S.C. 607, we ask commenters to submit detailed information to

assist the Commission in identifying and estimating the number of small

entities that may be impacted.

4. Schools and Libraries

193. SBA has defined small elementary and secondary schools (SIC

8211) and small libraries (SIC 8231) as those with under $5 mill

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