Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, Low-Volume Long Distance Users, and Federal-State Joint Board on Universal Service

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54, 61, and 69

[CC Docket Nos. 96-262; 94-1; 99-249; 96-45; FCC 99-235]

Access Charge Reform, Price Cap Performance Review for Local

Exchange Carriers, Low-Volume Long Distance Users, and Federal-State

Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document seeks comment on whether the Commission should

adopt, in its entirety, a proposal submitted by the Coalition for

Affordable Local and Long Distance Services (CALLS), as requested by

the CALLS members. The CALLS proposal is an integrated interstate

universal service and interstate access reform plan covering price cap

incumbent local exchange carriers. The document also solicits comment

on whether there are any aspects of the proposal that the Commission

should incorporate into any of the Commission's concurrent proceedings,

in the event we do not adopt the CALLS proposal in its entirety. In

addition, the document invites commenting parties to propose

alternative plans to that submitted by CALLS.

DATES: Comments are due on or before October 29, 1999. Reply comments

are due on or before November 19, 1999.

ADDRESSES: Federal Communications Commission, Secretary, Room TW-A325,

445 12th Street SW, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Richard Lerner, Deputy Division Chief,

Common Carrier Bureau, Competitive Pricing Division, (202) 418-1520.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's NPRM

adopted September 14, 1999, and released September 15, 1999. The plan

as submitted by CALLS is attached as Appendix A. The full text of this

NPRM, as well as the complete files for the relevant dockets, is

available for inspection and copying during the weekday hours of 9:00

a.m. to 4:30 p.m. in the Commission's Reference Center, Room CY-A257,

445 12th St., SW, Washington, DC, (202) 418-0270, or copies may be

purchased from the Commission's duplicating contractor, ITS, Inc., 1231

20th St., NW, Washington, DC 20036, (202) 857-3800. The complete text

of the NPRM also may be obtained through the Internet, at http://

www.fcc.gov/Bureaus/Common__Carrier/Notices/1999/fcc99235.doc.

Synopsis of Notice of Proposed Rulemaking

1. This NPRM seeks comment on an integrated proposal submitted by

CALLS. The CALLS proposal is an interstate universal service and

interstate access reform plan covering incumbent price cap local

exchange carriers (LECs). The proposal was developed through

negotiations among those local exchange carriers and interexchange

carriers who are coalition members. It is designed to be implemented

over a five-year period beginning in January of 2000 and would apply to

those carriers who voluntarily elect to participate. CALLS requests

that the Commission adopt the plan without modification as an

integrated package. CALLS believes this plan will promote comparable

and affordable universal service, reduce long distance bills, and

promote competition in rural and residential markets.

2. The NPRM seeks comment on the CALLS proposal to revise the

current system of common line charges by combining existing carrier and

subscriber line charges into one flat-rated subscriber line charge, and

permitting deaveraging of those charges subject to specific conditions.

In addition, the NPRM invites parties to comment on the proposal by the

CALLS members to establish a portable universal service fund that

provides explicit support to replace support currently implicit in

interstate access charges. The NPRM solicits further comment on the

CALLS proposal to establish a ``social contract'' under which traffic-

sensitive switched access rates are reduced annually until they reach

an agreed level; once that level is reached, rates for all access

elements are frozen until July 1, 2004. Finally, as part of the

Commission's continuing efforts to reform regulation of universal

service and interstate access charges to accelerate the development of

competition in all telecommunications markets, commenting parties are

invited to submit alternative plans to that proposed by CALLS.

3. Because some of the issues addressed by the CALLS Proposal

involve matters that are already the subject of pending Commission and

court proceedings (62 FR 31868, June 11, 1997), the Commission

initiates this rulemaking to determine whether it should adopt the

CALLS proposal in its entirety, as requested by the CALLS members, or

whether certain elements of the proposal should be incorporated into

any of the Commission's concurrent efforts to reform interstate access

charges and universal service.

A. Ex Parte Presentations

4. This NPRM is a permit-but-disclose proceeding and is subject to

the permit-but-disclose requirements under 47 CFR 1206(b), as revised.

Persons making oral ex parte presentations are reminded that memoranda

summarizing the presentation must contain a summary of the substance of

the presentation and not merely a listing of the subjects discussed.

More than a one or two sentence description of the views and arguments

presented is generally required. Other rules pertaining to oral and

written presentations are set forth in section 1.1206(b), as well.

B. Initial Regulatory Flexibility Act Analysis

5. As required by the Regulatory Flexibility Act (RFA), the

Commission has prepared this Initial Regulatory Flexibility Analysis

(IFRA) of the possible significant economic impact on small entities by

the proposals in this NPRM. See 5 U.S.C. 603. The RFA, see 5 U.S.C. 601

et seq., has been amended by the Contract with America Advancement Act

of 1996, Public Law No. 104-121, 110 Stat. 847 (1996) (CWAA). Title II

of the CWAA is the Small Business Regulatory Enforcement Fairness Act

of 1996 (SBREFA). Written public comments are requested on the IFRA.

Comments must be identified as responses to the IFRA and must be filed

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

this NPRM. Parties should address the extent to which the CALLS

proposal would affect large and small price cap incumbent local

exchange carriers differently, and how small business entities,

including small price cap incumbent local exchange carriers, would be

affected. The Office of Public Affairs, Reference Operations Division,

will send a copy of the NPRM, including this IFRA, to the Chief Counsel

for Advocacy of the Small Business Administration. See 5 U.S.C. 603(a).

In addition, the NPRM and IFRA (or summaries thereof) will be published

in the Federal Register.

[[Page 53649]]

6. Need for, and Objectives of, the Proposed Rules. The CALLS

members offer the proposal as a comprehensive solution to the members'

access charge, universal service, and price cap concerns. The CALLS

plan would revise the current system of common line charges by

combining existing carrier and subscriber charges into one flat-rated

subscriber line charge (SLC), and would provide for limited deaveraging

of those charges under specific conditions. The CALLS plan also would

establish a portable universal service fund that provides explicit

support to replace support currently implicit in interstate access

charges. In addition, the CALLS plan would establish a ``social

compact'' under which traffic-sensitive switches access rates are

reduced annually until they reach an agreed level. CALLS believes this

plan will promote comparable and affordable universal service, reduce

long distance bills, and promote competition in rural and residential

telecommunications markets.

7. Legal Basis. This rulemaking action is supported by 47 U.S.C.

154(i), 154(j), 201-205, 254, and 403.

8. Description and Estimate of the Number of Small Entities to

Which the NPRM Will Apply. The RFA directs agencies to provide a

description of and, where feasible, an estimate of the number of small

entities that may be affected by the proposed rules, if adopted. The

RFA generally defines the term ``small entity'' as having the same

meaning as the term ``small business''. See 5 U.S.C. 601(3)

(incorporating by reference the definition of ``small business

concern'' in 15 U.S.C. 632). In addition, the term ``small business''

has the same meaning as the term ``small business concern'' under the

Small Business Act. A small business concern is one which: (1) Is

independently owned and operated; (2) is not dominant in its field of

operation; and (3) meets any additional criteria established by the

Small Business Administration. The Small Business Administration has

defined a small business for Standard Industrial Classification (SIC)

category 4813 (Telephone Communications, Except Radiotelephone) to be a

small entity that has no more than 1,500 employees. See 13 CFR 121.201.

9. Total Number of Telephone Companies Affected. The Commission has

included small incumbent LECs in this present RFA analysis. As noted

above, a ``small business'' under RFA is one that, inter alia, meets

the pertinent small business size standard (e.g., a telephone

communications business having 1,500 or fewer employees), and ``is not

dominant in its field of operation.'' The SBA's Office of Advocacy

contends that, for RFA purposes, small incumbent LECs are not dominant

in their field of operation because any such dominance is not

``national'' in scope. The Commission has therefore included small

incumbent LECs in this RFA analysis, although it emphasizes that this

RFA action has no effect on FCC analyses and determinations in other,

non-RFA contexts.

10. Price Cap Local Exchange Carriers. This rulemaking applies only

to price cap LECs. The Commission does not have data specifying the

number of these carriers that are either dominant in their field of

operations, are not independently owned and operated, or have more than

1,500 employees, and thus is unable at this time to estimate with

greater precision the number of price cap LECs that would qualify as

small business concerns under the SBA's definition. However, there are

only 13 price cap LECs, and we know that these are mostly non-small

entities. Consequently, we estimate that significantly fewer than 13

providers of local exchange service are small entities or small price

cap LECs that may be affected by these proposals.

11. Description of Projected Reporting, Recordkeeping, and Other

Compliance Requirements. It is not clear whether, on balance, the

proposals made by CALLS would increase or decrease price cap incumbent

local exchange carriers' administrative burdens. Some of the rate

structure reforms proposed by CALLS may require additional filings, and

some of the CALLS proposals may reduce some administrative burdens. For

example, if the CALLS proposal to eliminate the presubscribed

interexchange carrier charge is adopted, the Commission expects that

this would decrease some administrative burdens for price cap incumbent

local exchange carriers. Some of the rate structure reforms proposed by

CALLS may have a neutral affect in terms of administrative burdens. For

example, CALLS proposes that implicit subsidies now collected by price

cap incumbent local exchange carriers from interexchange carriers

through access charges would be collected as explicit subsidies from

the Universal Service Fund Administrator. If this proposal is adopted,

the administrative burden for the price cap incumbent local exchange

carrier is expected to remain the same.

12. Steps Taken To Minimize Significant Economic Impact on Small

Entities, and Significant Alternatives Considered. The proposals made

by CALLS could have varying positive or negative impacts on price cap

incumbent local exchange carriers, including any such small carriers.

The alternative to consideration of adopting the CALLS proposal at this

time would be to continue in effect the existing access charge and

universal service fund rules. We seek comment on the economic impact on

small entities of the CALLS proposal and urge that the parties support

their comments with specific evidence and analysis.

13. Federal Rules That May Duplicate, Overlap, or Conflict With the

Proposed Rules. None.

C. Deadlines and Instructions for Filing Comments

14. Pursuant to 47 CFR 1.415 and 1.419, interested parties may file

comments on or before October 29, 1999 and reply comments on or before

November 19, 1999. Comments may be filed using the Commission's

Electronic Comment Filing System (ECFS) or by filing paper copies. See

Electronic Filing Documents in Rulemaking Proceedings, 63 FR 24,121

(1998).

15. Comments filed through the ECFS can be sent as an electronic

file via the Internet to http://www.fcc.gov.e-file/ecfs.html>.

Generally, only one copy of an electronic submission must be filed.

Because four docket or rulemaking numbers appear in the caption of this

proceeding, however, commenters must transmit one electronic copy of

the comments to each of the four docket or rulemaking numbers

referenced in the caption. In completing the transmittal screen,

commenters should include their full name, Postal Service mailing

address, and the applicable docket or rulemaking number. Parties may

also submit an electronic comment by Internet e-mail. To get filing

instructions for e-mail comments, commenters should send an e-mail to

[email protected], and should include the following words in the body of the

message, ``get form StudyArea =

PriceCapCMTRevenue FilingEntity x

(BFPStudyArea BFPFilingEntity)

LinesStudyArea

Nothing in this definition precludes a price cap LEC from

continuing to average rates across filing entities containing

multiple study areas, where permitted under existing rules.

2.1.1.3. Zone Average Revenue Per Line. Zone Average CMT Revenue

Per Line is the Price Cap CMT Revenue Per Line calculated for a

particular state-defined zone used for deaveraging of UNE loop

prices. The Zone Average Revenue Per Line is computed according to

the following formula:

ZoneAverageRevenuePerLine = 25%

(LoopZonePrice + PortPrice) + U

Where:

U (Uniform Revenue Per Line Adjustment) =

((PriceCapCMTRevenuePerLineStudyArea(s) x Base Period

LinesStudyArea(s) - (25% Sum of (LinesUNEZone

x Loop&Port PriceUNEZone x 12) for each zone)))

Base Period LinesStudy Area(s) 12

Loop&Port PriceUNE Zone = the UNE rates for unbundled

loop and switch ports in that UNE zone.(As stated in paragraph 5,

nothing in this proposal supercedes, prejudices or otherwise implies

a result of the UNE Remand proceeding.)

2.1.2. Primary Residential and Single Line Business Charges.

2.1.2.1. Presubscribed Interexchange Carrier Charge. Beginning

on January 1, 2000, eliminate the primary residential line and

single line business Presubscribed Interexchange Carrier Charge.

2.1.2.2. Subscriber Line Charge.

2.1.2.2.1. Averaged Subscriber Line Charge. Beginning on January

1, 2000, the maximum averaged Subscriber Line Charge for primary

residential and single line business lines in a given entity will be

Average Price Cap CMT Revenue per Line up to a nominal cap of $5.50.

($5.50 is equivalent to the current primary residential SLC, PICC-

related account fees charged to the vast majority of presubscribed

residential long distance subscribers, and the 50 cent increase in

the PICC cap for primary residential and single line business

subscribers scheduled to go into effect on July 1, 2000.) Beginning

on January 1, 2001, in lieu of what would have been scheduled annual

increases in the cap on the primary residential line and single line

business Presubscribed Interexchange Carrier Charge of $0.50, plus

inflation, increase the nominal cap on primary residential and

single line business Subscriber Line Charges according to the

following schedule:

On January 1, 2001, to $6.25;

On July 1, 2002, to $6.75;

On July 1, 2003, to $7.00 per line.

2.1.2.2.2. Zone Deaveraged Subscriber Line Charge.

2.1.2.2.2.1. Maximum Charge. The maximum zone deaveraged SLC

that may be charged in any zone is the lesser of the highest Zone

Average Revenue Per Line within the study area, or a nominal cap,

which as of January 1, 2000 is $5.50 per line per month. Beginning

on January 1, 2001, increase the nominal cap on primary residential

and single line business Subscriber Line Charges according to the

following schedule:

On January 1, 2001, to $6.25;

On July 1, 2002, to $6.75;

On July 1, 2003, to $7.00 per line.

2.1.2.2.2.2. Minimum Charge. See paragraph 2.1.5.6.2.

2.1.2.3. Lifeline. Increase minimum federal Lifeline support

effective January 1, 2000, and coincident with changes in nominal

SLC caps thereafter, so that all of the Subscriber Line Charge

continues to be waived for Lifeline customers, with carriers

reimbursed from the Universal Service Fund. In subsequent years,

increase minimum federal Lifeline support in the same amount as

increases in the primary residential Subscriber Line Charge.

2.1.3. Non-Primary Residential Lines.

2.1.3.1. Presubscribed Interexchange Carrier Charges. Beginning

on January 1, 2000, eliminate the PICC for Non-Primary Residential

lines.

2.1.3.2. Subscriber Line Charges.

2.1.3.2.1. Averaged Subscriber Line Charges. Beginning on

January 1, 2000, the maximum averaged Subscriber Line Charge for

non-primary residential lines in a given entity will be the lesser

of:

(a) $7.00 or

(b) The greater of:

(1) The rate as of December 31, 1999 less amounts of SLC

reduction pursuant to paragraph 2.1.6, or

(2) Average Price Cap CMT Revenue Per Line.

2.1.3.2.2. Zone Deaveraged Subscriber Line Charge.

2.1.3.2.2.1. Maximum Charge. The maximum Zone Deaveraged Non-

Primary Residential Subscriber Line Charge will be the lesser of

$7.00 per line per month or the highest Zone Average Revenue Per

Line for any zone in the study area.

2.1.3.2.2.2. Minimum Charge. See paragraph 2.1.5.6.2.

2.1.3.2.3. Elimination of Distinction between Primary and Non-

Primary Residential Lines. Once the charges for primary and non-

primary residential lines are equal within a zone or study area, the

ILEC may eliminate the distinction between primary and non-primary

lines within that zone or study area.

2.1.4. Multiline Business Lines.

2.1.4.1. Presubscribed Interexchange Carrier Charges.

Beginning on January 1, 2000, the cap on the Multiline Business

PICC is reduced to $4.00 per line. Multiline Business PICCs remain

assessed to the interexchange carrier. This charge will be

eliminated over time in most areas pursuant to paragraph 2.1.6.

2.1.4.2. Subscriber Line Charges.

2.1.4.2.1. Averaged Subscriber Line Charges. Beginning on

January 1, 2000, and in the absence of voluntary reductions, the

averaged Subscriber Line Charge for multiline business lines in a

given entity that has not deaveraged SLCs will be the lesser of:

(a) $9.20 or

(b) The greater of:

(1) The rate as of December 31, 1999, less amounts of SLC

reductions pursuant to paragraph 2.1.6 or

(2) Average Price Cap CMT Per Line.

Except when the incumbent LEC reduces the rate through voluntary

reductions, the averaged multiline business SLC initially will be

frozen until the entity's multiline business PICC and CCL are

eliminated.

2.1.4.2.2. Zone Deaveraged Subscriber Line Charge.

2.1.4.2.2.1. Maximum Charge. The maximum Zone Deaveraged

Multiline Business Subscriber Line Charge will be the lesser of

$9.20 per line per month or the highest Zone Average Revenue Per

Line for any zone in the study area.

2.1.4.2.2.2. Minimum Charge. See paragraph 2.1.5.6.2.

2.1.5. Limitations on Deaveraging of Subscriber Line Charges.

Except as otherwise noted, these limitations apply both to

deaveraging pursuant to 2.1.6(4) and to deaveraging through

voluntary reductions.

2.1.5.1. All Geographic Deaveraging According to UNE zones. All

geographic deaveraging of SLCs by customer class must be done

according to UNE zones. If a state has not created geographically

deaveraged UNE rates for loops, the incumbent LEC may not deaverage

its SLCs in that state. (As stated in paragraph 5, nothing in this

proposal supercedes, prejudices or otherwise implies a result of the

UNE Remand proceeding.) (footnote omitted.)

2.1.5.2. No More Than 4 Zones for Interstate Pricing and

Interstate Universal

[[Page 53652]]

Service Purposes Without FCC Approval. Solely for the purposes of

determining interstate subscriber line charges and the interstate

universal service funding described in Section 2.2, an ILEC may not

have more than four geographic SLC/USF zones absent a review by the

FCC. Where an ILEC has more than four state-created UNE zones and

the FCC has not approved use of additional zones, the ILEC will

determine, at its discretion, which state-created UNE zones to

consolidate so that it has no more than four zones for the purpose

of determining interstate subscriber line charges and interstate

universal service funding.

2.1.5.3. Relationship Between Multiline Business, Non-Primary

Residential And Primary Residential And Single Line Business SLCs

Within A UNE Zone. Within a given UNE zone, the multiline business

SLC may not be lower than the SLC for non-primary residential lines,

and the non-primary residential line SLC may not be lower than the

primary residential and single line business SLC.

2.1.5.4. Relationship Between SLCs for the Same Customer Class

in Different UNE Zones in a Study Area. For any given customer class

(i.e. Primary Residential and Single Line Business, Non-Primary

Residential, or Multiline Business) and any given zone, the Zone

Deaveraged SLC in that zone must be greater than or equal to the

Zone Deaveraged SLC in the zone with the next lower Zone Average

Revenue Per Line. (That is, Zone 4 SLCs must be greater than or

equal to Zone 3 SLCs, which must be greater than or equal to Zone 2

SLCs, which must be greater than or equal to Zone 1 SLCs, where Zone

1 is the zone with the lowest Zone Average Revenue Per Line, and

Zone 4 (if there is one) is the zone with the highest Zone Average

Revenue Per Line).

2.1.5.5. Revenues From all Zones Cannot Exceed Revenues from

Averaged SLCs.

The parties have discussed two alternate ways of implementing a

restriction that precludes incumbent LEC from increasing permitted

Price Cap CMT revenues through deaveraging. The parties will present

their respective views to the FCC as to the appropriateness of each

alternative.

Alternative 1--Filing Entity

The sum of revenues per month that would be generated from all

deaveraged SLCs in all SLC deaveraging zones within a filing entity

plus revenues per month from all SLC, multiline business PICC and

CCL charges from study areas within that filing entity that have not

geographically deaveraged SLCs plus the sum of all Study Area Access

Universal Service Support in all study areas within the filing

entity, divided by the number of lines cannot exceed Average Price

Cap CMT Revenue Per Line for the filing entity.

Alternative 2--Study Area and Filing Entity

The sum of all revenues per month that would be generated from

all deaveraged SLCs in all zones within a study area plus Study Area

Access Universal Service Support for that study area divided by the

number of lines in that study area cannot exceed Average Price Cap

CMT Revenue Per Line for that study area. In addition, the sum of

revenues per month that would be generated from all deaveraged SLCs

in all SLC deaveraging zones within a filing entity plus revenues

per month from all SLC, multiline business PICC and CCL charges from

study areas within that filing entity that have not geographically

deaveraged SLCs plus the sum of all Study Area Access Universal

Service Support in all study areas within the filing entity, divided

by the number of lines cannot exceed Average Price Cap CMT Revenue

Per Line for the filing entity.

2.1.5.6. Limitations Applicable Only To Zone SLC Deaveraging

Pursuant To Paragraph 2.1.6, or Through Increases in Other Zone

Deaveraged SLCs.

2.1.5.6.1. Elimination of PICC and CCL Prior to SLC Deaveraging.

Except where an incumbent LEC deaverages through voluntary

reductions, before an incumbent LEC may begin geographically

deaveraging its SLC rates, its Originating and Terminating CCL and

Multiline Business PICC rates must equal $0.00. Deaveraging through

voluntary reductions may be undertaken without regard to the levels

of the CCL or Multiline Business PICCs.

2.1.5.6.2. Minimum Charge. Except where the incumbent LEC

chooses to lower the deaveraged SLC through voluntary reductions,

the minimum Zone Deaveraged Subscriber Line Charge in any zone in a

study area is at least the lowest Zone Average Revenue Per Line for

any zone in that study area. The parties do not agree as to whether

the Minimum Charge should also be adjusted to reflect a portion of

those Study Area Above Cap Revenues not offset by Study Area

Universal Service Support, and the parties will advocate their

respective positions to the Commission. The parties do not agree as

to whether limits on deaveraging through voluntary reductions are

necessary, and will advocate their respective positions to the

Commission.

2.1.5.6.3. Voluntary Reduction. A ``Voluntary Reduction'' is one

in which the incumbent LEC reduces prices other than through offset

of net increase in subscriber line charge revenues or universal

service revenues pursuant to paragraph 2.1.6, or through increases

in other zone deaveraged Subscriber Line Charges.

2.1.6. Phased Elimination of Carrier Common Line and Multiline

Business Presubscribed Interexchange Carrier Charges, and SLC

Deaveraging. Each year, the net increase in maximum permitted

Subscriber Line Charge revenues (calculated by summing across all

line classes in a study area the products of the maximum permitted

Averaged Subscriber Line Charge for each class times the number of

lines in each class times 12, and subtracting the sum across all

line classes in a study area the products of the maximum permitted

Averaged Subscriber Line Charge during the base period for each

class times the number of lines in each class times 12) from changes

specified in paragraph 2, and any universal service revenues

received pursuant to paragraph 2.2, will be offset by reducing

charges as follows, in order of priority:

(1) Terminating CCL Charges until the Terminating CCL rate is

$0.00; then

(2) Originating CCL Charges until the Originating CCL rate is

$0.00; then

(3) Multiline Business PICC until the Multiline Business PICC

rate is $0.00; then

(4) Subscriber Line Charges, which may be deaveraged pursuant to

paragraph 2.1.5, above.

(Note: This is the existing order of offsets, once the residential

(primary and non-primary) and single line business PICCs are

stricken.)

2.2. New Universal Service for Areas Served by Price Cap

Incumbent LECs.

2.2.1 Implicit Support in Interstate Access Charges by Price Cap

LECs. The total amount of universal service funding that is targeted

to offset implicit support in interstate access charge rates

(``Access USF'') for areas served by price cap incumbent LECs is

$650 million per year. (New federal universal service support to

replace implicit support in interstate access charges by price cap

LECs does not include support calculated under FCC Rules 54.301 (DEM

Weighting), 54.303 (Long Term Support), or 36.601 et seq. (Part 36

Universal Service Fund), or support expressly designated by the FCC

to offset costs allocated to the intrastate jurisdiction.) This size

for Access USF assumes a final nominal residential and single line

business SLC cap of $7.00, and a final nominal multiline business

SLC cap of $9.20 for multiline businesses. Changes in the level of

these caps would change the appropriate level of universal service

funding. It also assumes that all price cap LECs are included. It

also assumes that the new program will cover the areas currently

served by all price cap LECs, except those offered for sale before

January 1, 2000, and sold to a non-price cap company. If any such

area does not participate in the program, either because the price

cap LEC does not participate, or because the area is offered for

sale after January 1, 2000, and sold to a non-price cap company,

then the funding estimated for that area pursuant to paragraph

2.2.3.1.1 will not be collected or distributed as part of this plan

for price cap LECs.

2.2.2. Minimum Access USF StudyArea. For each study area, the

minimum amount of Access USF support that study area would receive

is calculated as follows:

MinimumAccessUSFStudyArea =

PriceCapCMTRevenuesStudyArea - (($7.00 x Residential &

SingleLineBusinessLinesStudyArea x 12) + ($9.20 x

MultilineBusinessLinesStudyArea x 12), )

Where:

PriceCapCMTRevenueStudyArea=

PriceCapCMTRevenueFilingEntity x

(BFPStudyArea BFPFilingEntity)

2.2.3. Calculation of Access USF Per Line.

2.2.3.1. Terms.

2.2.3.1.1. Zone Above SLC Cap Revenues. For each zone, the above

cap revenues for that zone are calculated according to the following

formula:

[[Page 53653]]

ZoneAboveSLCCapRevenues =

((ZoneAverageRevenuePerLine- $7.00) x Residential&

SingleLineBusinessLinesStudyArea x 12) +

((ZoneAverageRevenuePerLine - $9.20) x

MultilineBusinessLinesStudyArea x 12)

The zones used for determining universal service will be the same

zones that would be used for any SLC deaveraging, as described in

paragraph 2.1.5.2. Where an ILEC has consolidated zones pursuant to

paragraph 2.1.5.2, the consolidated zone is used for determining

universal service.

(a) For the purposes of distributing Access USF, Zone Average

Revenue Per Line should be calculated pursuant to paragraph 2.1.1.3,

except that Loop&Port PriceUNE Zone could either be (1)

the cost projected by an FCC-approved cost model, or (2) the rates

for unbundled UNE loops and switch ports in that UNE zone. Parties

differ as to the relative merits of using proxy cost model outputs

or state-established UNE rates for this calculation, and will

present their respective views.

(b) In states that have not established UNE zones, support will

be determined on a study area basis, as described in paragraph

2.2.3.3. For purposes of calculating Access USF support for study

areas in states that have not established UNE zones, an interim

estimate of Zone Above SLC Cap Revenues will be calculated by using

the FCC Proxy Cost Model or other substitute method if no model is

available. In order to develop this estimate, zones will be

established by assigning the lowest cost one third of lines to Zone

1, the highest cost one third of lines to Zone 3 and the remaining

lines to Zone 2.

2.2.3.1.2. Study Area Above Cap Revenues. For each study area,

Study Area Above Cap Revenues is calculated by summing the Zone

Above SLC Cap Revenues for all zones in the study area.

2.2.3.1.3. Nationwide Total Above Cap Revenues. Nationwide Total

Above Cap Revenues is the sum of all Study Area Above Cap Revenues

nationwide for all price cap incumbent LEC study areas.

2.2.3.2. Study Area Access USF Support. Each study area's Access

USF support is calculated according to the following steps:

Step 1: Calculate Preliminary Access USF Support

Preliminary Access USF Support is calculated according to the

following formula:

UniversalServiceSupport = Sum of Above Cap Revenues x ($650

million Total Nationwide Above Cap Revenues)

Step 2: Calculate the Minimum Support Requirement

If the Minimum Access USFStudy Area (See paragraph

2.2.2.) exceeds the Preliminary Study Area Universal Service Support

(``PSAUSS'') then the Minimum Support Requirement for that study

area is calculated using the following process:

A. For each study area, calculate the Study Area Minimum Delta.

Study Area Minimum Delta = Minimum Access USFStudy Area--

Preliminary Study Area Universal Service Support.

B. Nationwide, calculate the Total National Minimum Delta, which

equals the sum of all Study Area Minimum Deltas.

C. (1) If the Total National Minimum Delta is less than or equal

to $75 million then the Minimum Adjustment Amount is:

Minimum Adjustment Amount = Phase In Percentage x Minimum Delta.

(2) If the Total National Minimum Delta is greater than $75

million, then the Minimum Adjustment Amount is:

Minimum Adjustment Amount = (Phase In Percentage) x (Minimum

Delta) x ($75 million Total National Minimum Delta)

The Phase In Percentage is:

50% on January 1, 2000

5% on January 1, 2001

100% on July 1, 2002

For those study areas with a Minimum Adjustment Amount, the

Minimum Support Requirement is:

Minimum Support Requirement = Preliminary Study Area Universal

Service Support + Minimum Adjustment Amount.

Step 3: Determine the Study Area Universal Service Support

For study areas with a Minimum Support Requirement, Study Area

Universal Service Support equals Minimum Support Requirement.

For study areas with no Minimum Support Requirements:

(1) Determine the Total National Minimum Support Requirement

(TNMSR), which equals the sum of all Minimum Support Requirements.

(2) Study Area Universal Service Support is determined as

follows:

Study Area Universal Service Support = PSAUSS x ($650

million-TNMSR

Nationwide Sum of PSAUSS for Study Areas where MSR is $0)

The above calculations ensure that the Total Interstate Implicit

Support Fund does not exceed $650 million while the Study Area

Minimum Support Requirements are phased in as the Primary

Residential and Single Line Business Subscriber Line Charge

increases to $7.00.

2.2.3.3. No Access USF Above The Minimum Support Requirement For

A Study Area That Has No Zone Deaveraged Prices For UNE Loops.

Notwithstanding the calculations in paragraph 2.2.3.2, in any study

area for which the incumbent LEC has not established zone deaveraged

UNE loop prices approved by the state, the incumbent LEC will

receive no Access USF Support unless the study area has a Minimum

Support Requirement, in which case the Study Area Universal Service

Support shall equal the Minimum Support Requirement. If an incumbent

LEC establishes deaveraged UNE loop prices after January 1, 2000,

then beginning with the subsequent quarter after it implements

deaveraged UNE loop rates, that entity will receive the amount of

Access USF support previously calculated pursuant to paragraph

2.2.3.2 using the methodology described in paragraph 2.2.3.1.1(b).

When Access USF support is subsequently recalculated to redistribute

Access USF among Price Cap ILEC service territories, support for

that entity will be calculated pursuant to paragraph 2.2.3.1.1.(a).

(As stated in paragraph 5, nothing in this proposal supercedes,

prejudices or otherwise implies a result of the UNE Remand

proceeding.)

2.2.4. Determination of Portable Access USF Support Per Line.

Portable Access USF Support Per Line is the amount of new interstate

universal service funding to replace implicit support in interstate

access that an eligible telecommunications carrier receives for

serving a customer. This support is portable between eligible

telecommunications carriers as customers change service providers.

2.2.4.1. Portable Access USF Support Per Line When Deaveraged

UNE Loop Rates Have Not Been Established. When Deaveraged UNE Loop

Rates have not been established in a study area, the Portable Access

USF Support Per Line for that study area is Study Area Universal

Service Support divided by total lines in the study area.

2.2.4.2. Portable Access USF Support Per Line When Deaveraged

UNE Loop Rates Have Been Established.

The parties have discussed two alternate ways to allocate

universal service support to zones and line-types within those

zones. The parties will present their respective views to the FCC as

to the appropriateness of each alternative means of allocating

universal service support to lines within a study area.

Alternative 1

Proportionate Allocation. Within each study area, determine the

percentage proportion of Study Area Universal Service Support to

Study Area Above Cap Revenues. Within each zone and customer class

(i.e. residential/single line business and multiline business for

each zone), total universal service support for that zone and

customer class is that same proportion of the Above Cap Revenues for

that zone and customer class. That is:

Universal ServiceCustomerClassByZone =

AboveCapRevenuesCustomerClassbyZone x

(StudyAreaUniversalServiceSupport

StudyAreaAboveCapRevenues)

Portable Universal Service Support Per Line in any given zone

and customer class is Universal Service

CustomerClassByZone divided by the total number of lines

of the customer class within that zone.

Alternative 2

Highest Cost Zone First. The funding in each study area will be

made portable for lines in the highest cost zone first, and will

``cascade'' to lines in lower cost zones to the extent that

sufficient funding is available. Beginning with the zone with the

highest Zone Average Revenue Per Line, funding will be applied in

the following order of priority:

(1) To all lines in the highest zone, to eliminate the amount

per line by which Zone Average Revenue Per Line exceeds the higher

of $9.20 or the Average Revenue Per Line in the next highest zone;

(2) If the Zone Average Revenue Per Line in the next highest

zone is greater than $9.20, then to all lines in both zones to

eliminate the amount per line by which Zone Average Revenue per Line

exceeds $9.20;

[[Page 53654]]

(3) To all residential and single line business lines in the

highest zone, to eliminate the amount per line that Zone Average

Revenue Per Line for these lines exceeds the higher of $7.00 or

Average Revenue Per Line in the next highest zone;

(4) If the Zone Average Revenue per Line in the next highest

zone is greater than $7.00, then to all residential and single line

business lines in both zones to eliminate the amount per line by

which Zone Average Revenue Per Line exceeds $7.00.

This ``cascade'' process will continue until all of the

available funding has been assigned to lines by zone and by customer

class; it may extend in similar fashion to additional zones, to the

extent that their Zone Average Revenue per Line exceeds the $9.20

and $7.00 caps, and available funding permits. The per-line amount

assigned to each multiline business line in a given zone would then

be portable among eligible telecommunications carriers, as would the

per-line amount assigned to each residence line and each single line

business line in that zone.

2.2.5. Commencement of New Access USF Support. Universal service

distributed pursuant to this section will begin once administrative

mechanisms have been established to transfer support among eligible

telecommunications carriers in the shortest interval possible given

reasonable operational considerations. The parties agree that a

three-month lag may be reasonable, provided that an ILEC's

entitlement to receive Access USF for service to that customer stops

when service stops, and that there are true-ups.

2.2.6. Recalculation of Access USF Amounts. Access USF support

for each ILEC service territory will be recalculated on July 1,

2000, and January 1, 2001, and thereafter as determined by the USF

Administrator.

3. Reducing Traffic Sensitive Interstate Access Rates.

3.1. Target Traffic Sensitive Interstate Access Charge Rate.

3.1.1. Bell Companies and GTE. For Bell Companies and GTE, the

Target Rate for traffic sensitive interstate access charges (defined

as the average revenue per switched access minute for the sum of

Local Switching (less amounts transferred to CMT), Local Switching

Trunk Ports, Signaling Transfer Point Port Termination, switched

Direct Trunk Transport, signaling for switched Direct Trunk

Transport, entrance facilities for switched access traffic, Tandem

Switched Transport, the residual and service-related Transport

Interconnection Charges, Information Surcharge, and Signaling for

Tandem Switching) is calculated by tariff filing entity and is

$0.0055 per minute for each tariff filing entity. For Bell Atlantic,

the former NYNEX telephone companies may be treated as a separate

tariff filing entity.

3.1.2. All Other Price Cap ILECs. For all other price cap ILECs,

the Target Rate for traffic sensitive interstate access charges

(defined as the average revenue per switched access minute for the

sum of Local Switching, Local Switching Trunk Ports, Signaling

Transfer Point Port Termination, switched Direct Trunk Transport,

signaling for switched Direct Trunk Transport, entrance facilities

for switched access traffic, Tandem Switched Transport, the residual

and service-related Transport Interconnection Charges, Information

Surcharge, and Signaling for Tandem Switching) is calculated by

tariff filing entity and is $0.0065 per minute.

3.2. Local Switching Restructuring. In any study area in which,

on December 31, 1999, the average traffic sensitive access charge is

greater than the Target Rate, 25% of Local Switching revenues

(calculated using base period demand) will be moved to the CMT

Basket, except that less than 25% of Local Switching revenues will

be moved to the CMT Basket if moving 25% would reduce the average

traffic sensitive access charge below the Target Rate. If moving 25%

of Local Switching would reduce average traffic sensitive access

charges below the Target rate, then the amount of Local Switching

moved to the CMT Basket is the amount necessary to reach the Target

Rate.

3.3. Interstate X-Factor Levels and Targeting of X-Factor

Reductions Effective January 1, 2000. The basic regime set up under

this section is that all the price cap reductions flowing from an X-

factor of 6.5% are initially targeted to reduce traffic sensitive

charges until those charges reach the Target Rate ($0.0055 per

minute by tariff filing entity for Bell Companies and GTE, and

$0.0065 per minute by tariff filing entity for other price cap

ILECs). When the filing entity's average traffic sensitive switched

interstate access charge reaches the Target Rate, then the X-factor

becomes equal to GDP-PI. All X-factor targeting is done at the

tariff filing entity level, not at a holding company level.

Beginning July 1, 2001 (i.e. after one full year's X-factor

reduction), an ILEC may choose not to target X-factor reductions

from special access to reduce switched access rates.

3.3.1 The interstate X-factor will be 6.5% until a Tariff

Entity's average traffic sensitive access charge equals the Tariff

Entity's Target Rate. The average traffic sensitive charge will be

calculated by taking the sum of revenues for Local Switching, Local

Switching Trunk Ports, Signaling Transfer Point Port Termination,

switched Direct Trunk Transport, signaling for switched Direct Trunk

Transport, entrance facilities for switched access traffic, Tandem

Switched Transport, the residual and service-related Transport

Interconnection Charges, Information Surcharge, and Signaling for

Tandem Switching, and dividing that sum of revenues by total

switched access minutes of use. If a new element is created from an

existing switched access rate element (such as creating a call set-

up charge out of the existing local switching rate) the revenues

anticipated from that element will be included in the calculation of

the average traffic sensitive access charge. The X-factor of 6.5%

will be applied only to the extent necessary to reduce the Tariff

Entity's average traffic sensitive access charges to the Target

Rate. Once the Tariff Entity's average traffic sensitive access

charges reach the Target Rate, the X-factor will be GDP-PI.

3.3.2 Until a Tariff Entity's average traffic sensitive

interstate access charge equals the Target Rate, the aggregate

reductions within a given tariff filing entity from application of

the X-factor adjustment in the price cap formula across all of that

entity's interstate price cap baskets (less special access

reductions, if any, the ILEC chooses to apply beginning July 1, 2001

to reduce special access rates, up to the amount of reductions

special access would get through an untargeted application of the X-

factor adjustment) will be targeted to reduce the following rates

for that tariff filing entity, in order of priority:

(1) To the residual per minute Transport Interconnection Charge,

until that rate is $0.00; then

(2) To the Information Surcharge, until that rate is $0.00; then

(3) To the Local Switching charge and Switched Transport charges

until the Tariff Entity's average traffic sensitive interstate

access charge equals the Target Rate. In making these reductions to

Local Switching rates, the percentage of total X-factor reductions

directed to Local Switching rates must be greater than or equal to

the percentage that local switching revenues represent of the sum of

revenues for Local Switching, Local Switching Trunk Ports, Signaling

Transfer Point Port Termination, switched Direct Trunk Transport,

signaling for switched Direct Trunk Transport, entrance facilities

for switched access traffic, Tandem Switched Transport, and

Signaling for Tandem Switching (i.e., Local Switching gets at least

its proportionate share of reductions).

Once the Tariff Entity's average traffic sensitive interstate

access charge equals the Target Rate, no further reductions will be

mandated (i.e. if applying the full X-factor reduction for a given

year would reduce average traffic sensitive interstate access

charges below the Target Rate, the amount of X-factor reduction

applied that year will be the amount necessary to reach the Target

Rate).

In calculating aggregate X-factor reductions, the Price Cap

formula should be applied against the entire common line basket,

without removing amounts received through the new interstate

universal service support pursuant to paragraph 2.2.

3.3.3. CMT Adjustments After Reaching Target Rate. Once the CCL

and PICC are eliminated and the primary residential and single line

business SLC reaches the Average Price Cap CMT Revenues Per Line,

the X-factor for the CMT Basket will equal GDP-PI as long as GDP-PI

is less than or equal to 6.5 percent and greater than 0 percent. If

GDP-PI is greater than 6.5% and an entity has eliminated its CCL and

multiline business PICC charges, the X-factor for common line will

equal 6.5%, and all SLC rates and nominal caps on SLC rates will be

increased by the difference between GDP-PI and the X-factor. If GDP-

PI is less than 0, the X-factor for common line will be 0.

3.3.4. Exogenous Adjustments. After January 1, 2000, exogenous

adjustments will be applied only to services other than those

constituting traffic sensitive interstate access charges.

3.3.5. Annual Filings After Reaching Target Rate. With each

annual filing, the Average Traffic Sensitive Rate will be

recalculated

[[Page 53655]]

and set at the new base period level. Due to changes in base period

demand and inclusion of new services for that Annual Tariff filing,

the absolute level of a Tariff Entity's Average Traffic Sensitive

Charge may change. The resulting new Average Traffic Sensitive

Charge level will be what that Tariff Entity will measured against

during that base period.

4. Other Changes to Interstate Access Charge Rate Levels.

4.1. Changes to the Interstate X-factor. No company will

advocate changes to the interstate X-factor other than as outlined

in paragraph 3.

4.2. Prospective Interstate Adjustments. The companies agree

that Paragraphs 2-3 are a just, reasonable and fair means of moving

usage sensitive interstate access rates to a point achieved by the

above mechanisms. Therefore, other adjustments, such as changes in

the interstate X-factor, changes in interstate access rates for

price cap ILECs based on results of present or future Continuing

Property Records audits, changes in interstate access rates for

price cap ILECs based on changes in the Prescribed Rate of Return,

and changes in the rate structure for Common Line, Traffic Sensitive

(Local Switching, Local Switching Trunk Ports, Signaling Transfer

Point Port Termination, switched Direct Trunk Transport, signaling

for switched Direct Trunk Transport, entrance facilities for

switched access traffic, Tandem Switched Transport, the residual and

service-related Transport Interconnection Charges, Information

Surcharge, and Signaling for Tandem Switching) and Other (all other

interstate access charges not included in Common Line or Traffic

Sensitive, as defined here) charges by price cap ILECs, are

unnecessary.

4.3. Retrospective Interstate Adjustments. The companies also

agree not to initiate legal or regulatory action to adjust price cap

determined rates for interstate access charges billed for access

minutes prior to January 1, 2000, although a payee would not be

precluded from accepting any refund the FCC ordered to be made and a

payor will not object to or resist such a refund on the basis of

this paragraph.

4.4. Lower Formula Adjustments. The Lower Formula Adjustment to

interstate access rates is eliminated until January 1, 2005.

4.5. Term of Agreements. These agreements in paragraph 4 will

run until January 1, 2005.

5. Pricing Flexibility/Non-Dominant Classification/Price Cap

Forbearance With Respect To Specific Services/UNE Remand. Except as

specifically addressed, the companies are not agreeing as to current

or future proposals for pricing flexibility, non-dominant

classification of specific services, or price cap forbearance with

respect to specific services. The companies agree that the

Commission should establish guidelines no later than October 1,

1999, for granting appropriate incumbent LEC pricing flexibility for

interstate access services. Nothing in this proposal supercedes,

prejudices or otherwise implies a result of the UNE Remand

proceeding. Parties will continue to argue for their respective

positions in these other proceedings.

6. Long Distance Rates and SLC Changes. This interstate access

and universal service plan is in the public interest because the

interstate access reductions the plan produces will result in lower

long distance bills while the SLC and universal service revenues the

plan produces will help to protect and enhance universal service and

the local exchange infrastructure. The IXC signatories commit to

meet with the FCC to review the effects of the interstate access

reductions under the plan on long distance customers, and the

incumbent LEC signatories commit to meet with the FCC to review

effects of the SLC increases and SLC deaveraging under the plan on

local customers.

7. Non-Signatory Price Cap LECs. The signatories agree that this

proposal, without modification, is a fair and reasonable compromise

plan to resolve issues relating to access and universal service for

price cap LECs. Accordingly, signatories agree on behalf of

themselves and their current affiliates as of August 1, 1999 to

participate in the proposal if it is approved by the FCC.

The signatories agree that non-signatory price cap LECs are not

bound by the terms of this plan and that the access rules that will

apply solely to non-signatory price cap LECs will be determined by

the FCC. All companies, whether signatories or not, would remain

free to advocate for whatever changes, if any, are appropriate to

the current price cap rules that would apply only to non-signatory

price cap LECs.

At their option, price cap LECs that are non-signatories to the

proposal at the time of its submission may chose to become

signatories to the proposal prior to its implementation following an

FCC Order. Additionally, if a non-signatory price cap LEC

experiences a change of control during the first six months of the

year 2000, that LEC may become a signatory to the proposal before

the July 1, 2000 annual filing becomes effective, provided that such

a LEC incorporates all provisions of the proposal scheduled to be

implemented during the first six months of 2000 no later than the

July 1, 2000 annual filing effective date.

[FR Doc. 99-25703 Filed 10-1-99; 8:45 am]

BILLING CODE 6712-01-P