# Universal Service

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A96-30381

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** December 2, 1996
- **Citation:** 61 FR 63778

## Text

FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I

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

Universal Service

AGENCY: Federal Communications Commission.

ACTION: Recommended decision.

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

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

[[Page 63780]]

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

[[Page 63781]]

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

[[Page 63782]]

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

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-30381. Public record. Not legal advice.