Federal-State Joint Board on Universal Service Access Charge Reform

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket Nos. 96-45 and 96-262; FCC 99-290]

Federal-State Joint Board on Universal Service Access Charge

Reform

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document concerning the Federal-State Joint Board on

Universal Service: Access Charge Reform adopts modifications to the

Commission's rules consistent with the portions of the United States

Court of Appeals for the Fifth Circuit decision concerning the

assessment and recovery of universal service contributions, and the

Lifeline program.

DATES: Effective November 1, 1999.

FOR FURTHER INFORMATION CONTACT: Jack Zinman, Attorney, Common Carrier

Bureau, Accounting Policy Division, (202) 418-7400.

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

Sixteenth Order on Reconsideration in CC Docket No. 96-45, Eighth

Report and Order in CC Docket No. 96-45, and Sixth Report and Order in

CC Docket No. 96-262 released on October 8, 1999. The full text of this

document is available for public inspection during regular business

hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street,

S.W., Washington, D.C., 20554.

I. Introduction

1. On July 30, 1999, a three-judge panel of the United States Court

of Appeals for the Fifth Circuit issued a decision affirming in part,

remanding in part, and reversing in part the Commission's May 8, 1997

Universal Service Order, 62 FR 32862 (June 17, 1997). Several of the

court's rulings in that decision affect the assessment and recovery of

universal service contributions, as well as the Commission's Lifeline

program for low-income consumers. The court's mandate from the decision

is scheduled to take effect on November 1, 1999. Accordingly, in this

Order, we adopt modifications to our rules consistent with those

portions of the court's decision concerning the assessment and recovery

of universal service contributions, and the Lifeline program. These

rule changes shall become effective on November 1, 1999.

2. This Order reflects our effort to respond promptly to the

court's forthcoming mandate. The actions we take are transitional in

view of the limited time and data available to us in implementing the

court's mandate that we change our rules and past practices by a

specific date. In view of these constraints, our actions represent our

best effort to take short-term action, subject to later refinement if

necessary, in order to assure compliance with the court's mandate.

II. Opinion by the Fifth Circuit Court of Appeals

3. Numerous parties filed petitions for review of the Commission's

Universal Service Order. Those petitions were consolidated before the

Fifth Circuit, which issued an opinion on July 30, 1999. In response to

the arguments of Petitioner COMSAT Corporation (COMSAT), the court

reversed and remanded to the Commission for further consideration the

Commission's decision to assess contributions based on contributors'

combined interstate and international revenues. COMSAT did not

challenge the Commission's jurisdiction to include international

revenues in calculating carriers' contributions. COMSAT argued,

however, that including the international revenues of interstate

carriers in the revenue base was unreasonable for carriers such as

COMSAT whose interstate revenues account for a small percentage of

their total annual revenues and whose annual contribution to universal

service would exceed their annual interstate revenues. COMSAT argued,

and the court agreed, that this result is contrary to the statutory

requirement in section 254(d) of the Act, that contributions be made on

an ``equitable and nondiscriminatory basis.'' Specifically, the court

found that the Commission failed to demonstrate how requiring COMSAT to

pay more in universal service contributions than it derives in

interstate revenues satisfies the ``equitable'' language of section

254(d). Additionally, the court criticized the contribution requirement

at issue as ``discriminatory'' under section 254(d), on the basis that

the application of that requirement ``damages some international

carriers like COMSAT more than it harms others.'' Accordingly, the

court reversed and remanded for further consideration the Commission's

decision to assess the international revenues of interstate carriers.

4. With respect to the Commission's methodology for assessing

contributions for the universal service support mechanisms for schools

and libraries, and rural health care providers, the court found that

the Commission had exceeded its jurisdictional authority by assessing

contributions for those programs based, in part, on the intrastate

revenues of universal service contributors. Accordingly, the court

reversed the Commission's decision to include intrastate revenues in

the contribution base for the schools and libraries, and rural health

care support mechanisms.

[[Page 60350]]

5. The court also reversed the Commission's ``decision to require

[incumbent LECs] to recover universal service contributions from their

interstate access charges.'' Finding that the Commission had

``required'' incumbent LECs to recover their contributions from

interstate access charges, the court held that this requirement

maintained an implicit subsidy in violation of section 254(e) of the

Act.

6. Finally, the court reversed the Commission's decision to

prohibit carriers eligible for universal service support from

disconnecting Lifeline service to consumers who fail to pay toll

charges. The court held that the Commission lacked jurisdiction under

the Act to impose this ``no disconnect'' requirement on carriers.

III. Response to the Fifth Circuit's Opinion

A. Procedural Response

7. On September 9, 1999, the Commission filed a motion to stay the

court's mandate, which had been scheduled to take effect on September

20, 1999. On September 13, 1999, the Commission, GTE, and AT&T each

filed petitions for rehearing with the court. On September 28, 1999,

the court denied all of the petitions for rehearing, and granted, in

part, the Commission's motion for stay. In its order granting, in part,

the Commission's motion for stay, the court ordered its July 30, 1999

mandate to issue on November 1, 1999. In light of the court's September

28, 1999 rulings, the rule changes shall become effective on November

1, 1999.

B. Changes to the Commission's Rules

1. Single Contribution Base for Universal Service Support Mechanisms

8. Overview. In light of the court's ruling, we amend Secs. 54.706

and 54.709 of our rules to provide for a single contribution base for

purposes of funding all of the universal service support mechanisms.

Specifically, in response to the court's determination that the

Commission lacks jurisdiction to assess providers' intrastate revenues,

we have eliminated intrastate revenues from the contribution base.

Consistent with the court's ruling, we also reconsider the basis for

assessing the international revenues of interstate providers. No party

has challenged the Commission's decision to include international

revenues generally. The court, however, agreed with COMSAT's argument

that our rules, as applied, are in some instances inequitable and

discriminatory. We modify Secs. 54.706 and 54.709 of our rules to

exclude from the contribution base the international end-user

telecommunications revenues of each interstate telecommunications

provider whose interstate end-user telecommunications revenues

constitute less than 8 percent of its combined interstate and

international end-user telecommunications revenues. Except for revenues

excluded pursuant to revised Sec. 54.706(c), the new contribution base

will consist of interstate providers' interstate and international end-

user telecommunications revenues.

9. Our rules provide that the Commission will determine

contribution factors on a quarterly basis. Because the court's mandate

will issue on November 1, 1999, however, the Commission must establish

contribution factors in the middle of the quarter, to comply with the

court's decision. The Commission's rules permit us, on our own motion,

to waive our rules for good cause shown. Because it is necessary to

issue new contribution factors before the start of the next quarter in

order to comply with the judicial mandate, we find that good cause

exists to waive Sec. 54.709(a) on this occasion to the extent that it

provides that contribution factors will be adopted on a quarterly

basis. In addition, because of the need to revise our rules so that

they will be in compliance with the mandate as of November 1, 1999, we

find good cause to dispense with notice and comment requirements that

might otherwise apply, pursuant to the Administrative Procedure Act,

because those requirements are impracticable and contrary to the public

interest.

10. Revised Fourth Quarter Contribution Factor. On September 10,

1999, the Commission released proposed fourth quarter 1999 contribution

factors, which USAC is using to bill contributors for their October

1999 contributions. Consistent with the Commission's rules in effect on

that date, one of those contribution factors was calculated based on

contributors' intrastate, interstate, and international end-user

telecommunications revenues for the July 1998 through December 1998

period, as reported by contributors on the March 1999 Universal Service

Worksheet (FCC Form 457). In order to comply with the Fifth Circuit's

decision, we must eliminate intrastate revenues from the contribution

base. Eliminating intrastate revenues from the new contribution base

will eliminate the need for two contribution factors. Specifically, our

revised rules provide for a single contribution factor that will be

calculated based on contributors' interstate and international end-user

telecommunications revenues. That factor will be applied to individual

contributors' combined interstate and international end-user

telecommunications revenues to calculate contributions for all of the

universal service support mechanisms. The elimination of intrastate

revenues from the contribution base will reduce the contributions of

incumbent LECs. To the extent an incumbent LEC is recovering its

universal service contributions in interstate access charges, it must

file tariffs reducing its access charges correspondingly.

11. In order to implement this change by November 1, 1999, the

effective date of the court's mandate, the Common Carrier Bureau

(Bureau) is releasing today a revised proposed fourth quarter

contribution factor that will be applicable to carrier contributions

for November and December 1999. We direct USAC to calculate all

contributor bills for November and December 1999 based on this revised

fourth quarter 1999 contribution factor. For the month of October 1999,

USAC shall continue to bill contributors, and contributors shall

continue making contributions to universal service, in accordance with

the Commission's current contribution rules. Providers that fail to

contribute to the universal service support mechanisms in accordance

with the Commission's rules will be subject to enforcement action by

the Commission.

12. Limited International Revenues Exception. Consistent with the

court's ruling, we modify Secs. 54.706 and 54.709 of our rules. A

provider of interstate and international telecommunications shall not

be required to contribute based on its international end-user

telecommunications revenues if its interstate end-user

telecommunications revenues constitute less than 8 percent of its

combined interstate and international end-user telecommunications

revenues. This modification is consistent with the court's ruling

because it will exclude from the contribution base the international

end-user telecommunications revenues of any telecommunications provider

whose annual contribution to the federal universal service support

mechanisms, based on the provider's interstate and international end-

user telecommunications revenues, would exceed the amount of the

provider's interstate end-user telecommunications revenues. We do not

anticipate that the universal service contribution factor will exceed 8

percent in the near future. Thus, this 8 percent rule ensures that a

provider's universal service contribution will not exceed the amount

[[Page 60351]]

of its interstate end-user telecommunications revenues.

13. The operation of this rule is demonstrated in the following

example. Assume a hypothetical provider with $100 of interstate and

international end-user telecommunications revenues, consisting of $5 of

interstate revenues and $95 of international revenues. Also assume a

contribution factor of 0.06, or 6 percent. In the absence of the 8

percent rule, the provider's contribution ($6) would exceed its

interstate revenues ($5)--a result contrary to the court's ruling.

Under our 8 percent rule, however, the provider's interstate revenues

($5) are less than 8 percent of its combined interstate and

international revenues and, therefore, the provider is not required to

contribute on the basis of its international revenues--a result

consistent with the court's ruling. The provider must still contribute,

however, on the basis of its $5 of interstate revenues. This

hypothetical is only for purposes of illustration. Under existing

rules, if such a provider's annual contribution to universal service

would be less than $10,000 in a given year, the provider would not be

required to submit a contribution for that year, see Sec. 54.708.

14. Equitable Requirement of Section 254(d). We believe that the

international revenues exception adopted here is responsive to the

court's concerns regarding the fairness of our assessment methodology

in that it will permit a contributor that derives the substantial

majority of its revenues from the provision of international services

to calculate its contribution to universal service based solely on its

domestic interstate revenues. We conclude that this exception further

addresses the court's concerns by ensuring that a provider is not

assessed a contribution in an amount exceeding that provider's annual

interstate end-user telecommunications revenues. Because providers will

receive a financial benefit, overall, from providing interstate

service, we conclude that our revised rule is equitable.

15. We decline to adopt a more expansive exception than the rule

adopted here or to exclude international revenues from the contribution

requirement altogether in light of section 254(d)'s mandate requiring

all interstate telecommunications providers to contribute without

regard to whether those providers' revenues are interstate or

international. Moreover, nothing in the court's decision suggests that

the Commission's decision to assess international revenues is

inconsistent with the Act, outside of the impact it had on Comsat and

similarly situated carriers. In addition, we conclude that providers

whose interstate revenues account for a greater amount of their

combined interstate and international revenues than the threshold

adopted here clearly receive a direct benefit from universal service

insofar as their domestic interstate business benefits from the

expanded network that is fostered by universal service. For these

providers, their interstate telecommunications services are not merely

ancillary to their provision of international telecommunications

services. Accordingly, as direct beneficiaries of an expanded domestic

network, such carriers reasonably should be required to contribute to

universal service based on their combined interstate and international

revenues.

16. Nondiscriminatory Requirement of Section 254(d). The

international revenues exception that we adopt here also addresses the

court's concerns regarding the potentially discriminatory impact of our

previous assessment methodology. As stated by the court, the FCC's

interpretation is ``discriminatory,'' because the agency concedes that

its rule damages some international carriers like COMSAT more than it

harms others. Any competitive disparity claimed by COMSAT or by

similarly situated carriers should be minimized as a result of the

exception that we adopt today. Specifically, such a provider of

interstate and international telecommunications shall not be required

to contribute based on its international revenues if its interstate

end-user telecommunications revenues constitute less than 8 percent of

its combined interstate and international end-user telecommunications

revenues. Therefore, providers whose interstate telecommunications

services are merely ancillary to their international operations will

not be in a worse position than providers that, by virtue of their

status as exclusively international providers, are not subject to the

universal service contribution requirements.

17. Specific, Predictable, and Sufficient Requirement of Section

254(d). The limited international revenues exception that we adopt

today also meets the requirement in section 254(d) of the Act that

universal service support mechanisms be specific, predictable, and

sufficient. By setting the international exception at the predetermined

level of 8 percent, we establish a bright-line rule for providers. As

soon as providers prepare their worksheets, they will know with

certainty whether their interstate end-user telecommunications revenues

comprise 8 percent or more of their total interstate and international

end-user telecommunications revenues and, thus, whether they must

contribute on the basis of their international end-user

telecommunications revenues during the upcoming quarters in which their

reported revenues will be assessed. In sum, the 8 percent rule allows

the provider to make decisions based on the specific and predictable

operation of the support mechanism.

18. As an alternative, we considered creating an exception based

not on a fixed percentage of a provider's interstate revenues, but

instead on the relationship between a provider's actual contribution

and the amount of its interstate revenues. Under this alternative, a

carrier would not contribute in a given quarter if its contribution for

the quarter exceeded its interstate end-user telecommunications

revenues applicable to that quarter. While this approach would address

the equitable and nondiscriminatory requirements of section 254(d), we

conclude that it does not meet the specific and predictable

requirements as well as the 8 percent rule. If we were to base the

international revenues exception on the amount of a provider's

contribution in relation to its interstate end-user telecommunications

revenues, then the provider's eligibility for the exception would

depend on the level of the quarterly contribution factor, which varies

from quarter to quarter. Providers with a percentage of interstate end-

user telecommunications revenues close to the contribution factor would

not know with certainty whether they qualify for the exception until

the contribution factor is announced shortly before the beginning of

each quarter. Thus, this approach is not as specific and predictable as

the 8 percent rule, and we decline to adopt it.

19. We also conclude that the 8 percent rule meets section 254(d)'s

requirement that universal service support mechanisms be sufficient. In

order to address the court's concerns, any approach that we adopt must

necessarily exclude a certain amount of international revenue from the

contribution base. The 8 percent rule excludes only slightly more

international revenue from the contribution base than would an approach

that is tied directly to the level of the quarterly contribution

factor. Moreover, the relatively small amount of international revenue

excluded from the contribution base by the 8 percent rule should not

dramatically affect the level of the quarterly contribution factor

[[Page 60352]]

or the ability of providers to meet their contribution obligations.

Thus, we conclude that the 8 percent rule will allow us to maintain

universal service support mechanisms that are sufficient.

20. Implementation of Limited International Revenues Exception.

Because providers currently report their interstate and international

end-user telecommunications revenues as a combined amount on the

Telecommunications Reporting Worksheet (FCC Form 499), the Commission

does not have revenue data for contributors that distinguish their

interstate and international revenues. Although the worksheet that

carriers will submit in April 2000 will be revised to provide for

separate reporting of contributors' interstate and international

revenues, two potential implementation problems arise in the interim

with respect to our adoption of the international revenues exception

pending the issuance of a revised Worksheet. First, without revenue

data reflecting the amount of international revenues that will be

excluded from the contribution base pursuant to the international

revenues exception, the Commission cannot accurately calculate the

revised contribution factor for the fourth quarter of 1999. Second,

without revenue data separately identifying each contributor's

interstate and international revenues, USAC cannot determine which

contributors qualify for the international revenues exception and,

therefore, cannot accurately bill individual contributors. To remedy

these problems, this Order: (1) estimates the amount of international

revenues that we anticipate will be excluded from the contribution base

by operation of the international revenues exception described; and (2)

requires each contributor that qualifies for the international revenues

exception adopted in this Order to file an amendment to its March 1999

and September 1999 worksheets within 30 days of the effective date of

this Order, identifying the amount and percentages of the contributor's

interstate and international revenues.

21. The Common Carrier Bureau's Industry Analysis Division has

estimated that, as a result of our adoption of the limited

international revenues exception, approximately $0.617 billion of

international end-user telecommunications revenues will be excluded

from the $38.204 billion of interstate and international end-user

telecommunications revenues previously reported for the second half of

1998. Thus, we direct that the amount of interstate and international

end-user telecommunications revenues reported for July to December 1998

($38.204 billion), as filed with the Commission by USAC, should be

reduced to $37.587 billion when calculating a contribution base using

revenue data from that period. In the event that our estimate of the

amount of international revenues excluded by operation of the limited

international revenues exception proves inaccurate once actual revenue

data become available, we direct USAC to adjust future revenue

estimates and future contributor bills to correct for any inaccuracy in

our estimate.

22. To enable USAC to bill individual carriers, each contributor

that qualifies for the international revenues exception adopted in this

Order must file with USAC an amendment to its March 1999 Form 457 and

September 1999 Form 499-S worksheets within 30 days of the effective

date of this Order, identifying the amount and percentages of the

contributor's interstate and international revenues. Only a contributor

whose interstate end-user telecommunications revenues constituted less

than 8 percent of the contributor's combined interstate and

international end-user telecommunications revenues in 1998 should

submit these forms. Until the Telecommunications Reporting Worksheet

(FCC Form 499-A, FCC Form 499-S) can be revised and approved by the

Office of Management and Budget (OMB), we conclude that the interim

procedure just described will provide a reasonable estimate of the

contribution base and allow individual contributors to obtain the

benefit of the limited international revenues exception with minimal

disruption to USAC's billing, collection, and disbursement operations.

A revised worksheet that separately lists contributors' interstate and

international revenues will be made available in time for filing of the

April 2000 Worksheet (FCC Form 499-A). A contributor that qualifies for

the international revenues exception shall continue making its

contributions to universal service in accordance with the Commission's

current contribution rules regarding the assessment of international

revenues until such time as: (1) the contributor files the Form 457 and

Form 499-S amendments with USAC, and (2) the contributor has received a

bill or reimbursement from USAC in which USAC has adjusted the

contributor's payment obligation, effective November 1, 1999, to take

into account changes resulting from our adoption of the 8 percent rule.

2. Recovery of Universal Service Contributions by Incumbent Local

Exchange Carriers

23. In Texas Office of Public Utility Counsel v. FCC, the court

reversed the Commission's decision that incumbent LECs could only

recover their universal service contributions through access charges,

stating that:

forcing GTE to recover its universal service contributions from its

access charges * * * maintains an implicit subsidy. * * *

[R]equiring carriers to recover their contributions from access

charges on interstate calls shifts the costs of intrastate universal

service to the interstate jurisdiction.

* * * Because the agency continues to require implicit subsidies for

ILECs in violation of a plain, direct statutory command, we reverse

its decision to require ILECs to recover universal service

contributions from their interstate access charges.

24. The U.S. Court of Appeals for the Eighth Circuit held in

Southwestern Bell Telephone Co. v. FCC that section 254(e) does not

preclude the Commission from permitting incumbent LECs to recover

universal service contributions through access charges. That court

noted that contribution costs are ``real costs of doing business'' that

carriers may pass through to customers that use their services. Rather

than requiring explicit universal service support, section 254(e)

states that such support ``should'' be explicit. Moreover, section

254(e) does not address contributions to the universal service fund,

but support flowing from the fund. As the Eighth Circuit observed,

``[t]he flow-through of LEC universal service costs to its IXC

customers is akin to the flow-through of IXC universal service costs to

its long-distance customers--neither can be categorized as an implicit

subsidy in violation of section 254(e).''

25. The Fifth Circuit's analysis of section 254(e) can be

harmonized with the Eighth Circuit's decision in Southwestern Bell. We

believe that the Fifth Circuit intended to hold only that section

254(e) barred the FCC from requiring incumbent LECs to recover

universal service contributions through access charges. The Eighth

Circuit, on the other hand, simply held that section 254(e) does not

preclude the FCC from permitting incumbent LECs to recover universal

service contributions through access charges. Thus, we read the Fifth

Circuit decision, consistent with the Eighth Circuit's decision, as

permitting incumbent LECs to adopt this method of cost recovery.

26. To comply with the Fifth Circuit's order, we will expand

incumbent LECs'

[[Page 60353]]

options for recovering their universal service contributions to include

an end-user charge. Because incumbent LECs are dominant in the

provision of local exchange and exchange access services, we conclude

that some regulation of the way in which these carriers may recover

their universal service contributions from end-users remains necessary.

Competition is not sufficient to constrain their rates and ensure that

they remain just and reasonable. We require any such recovery to be

equitable and nondiscriminatory. Incumbent LECs will thus be able to

recover their contributions through access charges or through end-user

charges. To the extent they choose to implement an interstate end-user

charge, however, incumbent LECs that are currently recovering their

universal service contributions in interstate access charges must make

corresponding reductions in their interstate access charges to avoid

any double recovery.

3. Elimination of the ``No Disconnect'' Rule

27. Section 54.401(b) of the Commission's rules prohibits carriers

eligible for universal service support from disconnecting Lifeline

service to consumers that fail to pay toll charges. In light of the

court's ruling that the Commission does not have jurisdiction under the

Act impose this ``no disconnect'' rule, we amend part 54 of our rules

to eliminate that provision.

C. Authority Delegated to the Bureau

28. Pursuant to Sec. 54.711(c) of the Commission's rules, the

Bureau has authority to waive, reduce, eliminate, or add to the

Commission's universal service reporting requirements. To the extent

that the reporting requirements described in this Order require

subsequent modification, the Bureau has authority to make such

modifications without further Commission action.

IV. Procedural Matters

A. Supplemental Final Regulatory Flexibility Analysis

29. The Regulatory Flexibility Act (RFA) requires that a Regulatory

Flexibility Analysis be prepared for notice-and-comment rulemaking

proceedings, unless the agency certifies that ``the rule will not, if

promulgated, have a significant impact on a substantial number of small

entities.'' The RFA generally defines ``small entity'' as having the

same meaning as the terms ``small business,'' ``small organization,''

and ``small governmental jurisdiction.'' A small organization is

generally ``any not-for-profit enterprise which is independently owned

and operated and is not dominant in its field.'' This Supplemental

Final Regulatory Flexibility Analysis supplements the Final Regulatory

Flexibility Analysis (FRFA) included in the Universal Service Order,

only to the extent that changes to that order adopted here require

changes in the conclusions reached in the FRFA. As required by section

603 of the Regulatory Flexibility Act, the FRFA was preceded by an

Initial Regulatory Flexibility Analysis (IRFA) incorporated in the

Notice of Proposed Rulemaking and Order Establishing the Joint Board

(NPRM), 61 FR 63778 (December 2, 1996), and an IRFA, prepared in

connection with the Recommended Decision, which sought written public

comment on the proposals in the NPRM and the Recommended Decision. The

Commission has prepared this Supplemental Final Regulatory Flexibility

Analysis of the possible significant economic impact this Order might

have on small entities, in conformance with the RFA.

1. Need for and Objectives of Rules

30. The decisions and rules adopted in this Order are designed to

implement as quickly and effectively as possible the court's July 30,

1999 decision. In formulating these rules, we have been mindful of the

impact of our rules on small business entities, particularly regarding

their impact on (1) small international providers whose interstate

operations represent a modest amount of their combined interstate and

international revenues, and (2) small incumbent local exchange carriers

that wish to recover their universal service contributions from their

end-user customers through an explicit interstate end-user charge.

2. Summary of Significant Issues Raised by the Public Comments to the

IRFA

31. The Commission performed an IRFA in connection with both the

NPRM and Recommended Decision in this proceeding, which sought written

public comment on the proposals in the NPRM and Recommended Decision.

In the IRFAs, the Commission sought comment on possible exemptions from

the proposed rules for small telecommunications companies and measures

to avoid significant economic impact on small entities, as defined by

the RFA. No comments in response to the IRFAs, other than those

summarized in the Universal Service Order, were filed. In response to

the FRFA contained in the Universal Service Order, RTC argued that the

Commission did not satisfy the requirements of the RFA by considering

alternatives to the cap on recovery of corporate operations expenses.

Those comments were fully addressed in the Fourth Order on

Reconsideration.

32. No comments or petitions for reconsideration in response to the

IRFAs or FRFA, other than those described, were filed and none of the

comments filed pertain to the issues raised in the present Order. We

have nonetheless addressed small business concerns by giving incumbent

LECs greater flexibility in structuring their recovery of universal

service contributions and by creating an exception from the

contribution requirements for certain providers of international

telecommunications services, as described in ``Steps Taken to Minimize

Significant Economic Impact on Small Entities, and Significant

Alternatives Considered.''

3. Description and Estimate of Number of Small Entities to Which the

Rules May Apply

33. 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 new rules. The RFA generally defines the term ``small

entity'' as having the same meaning as the terms ``small business,''

``small organization,'' and ``small governmental jurisdiction.'' 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 that: (1) is independently owned and operated;

(2) is not dominant in its field of operation; and (3) satisfies any

additional criteria established by the Small Business Administration

(SBA). A small organization is generally ``any not-for-profit

enterprise which is independently owned and operated and is not

dominant in its field.'' Nationwide, as of 1992, there were

approximately 275,801 small organizations. And finally, ``Small

governmental jurisdiction'' generally means ``governments of cities,

counties, towns, townships, villages, school districts, or special

districts, with a population of less than 50,000.'' As of 1992, there

were approximately 85,006 such jurisdictions in the United States. This

number includes 38,978 counties, cities, and towns; of these, 37,566,

or 96 percent, have populations of fewer than 50,000. The Census Bureau

estimates that this ratio is approximately accurate for all

governmental entities. Thus, of the 85,006 governmental entities, we

estimate that 81,600 (91 percent) are small entities. In this Order,

the

[[Page 60354]]

Commission stated that the new rules will affect all providers of

interstate telecommunications and interstate telecommunications

services. We further describe and estimate the number of small business

concerns that may be affected by the rules adopted in this Order.

34. As noted, under the Small Business Act, a ``small business

concern'' is one that: (1) is independently owned and operated; (2) is

not dominant in its field of operation; and (3) meets any additional

criteria established by the Small Business Administration (SBA). The

SBA has defined a small business for Standard Industrial Classification

(SIC) categories 4812 (Radiotelephone Communications) and 4813

(Telephone Communications, Except Radiotelephone) to be small entities

when they have no more than 1,500 employees. We first discuss the

number of small telephone companies falling within these SIC

categories, then attempt to refine further those estimates to

correspond with the categories of telecommunications companies that are

commonly used under our rules.

35. The most reliable source of information regarding the total

numbers of common carrier and related providers nationwide, including

the numbers of commercial wireless entities, appears to be data the

Commission publishes annually in its Carrier Locator report, derived

from filings made in connection with the Telecommunications Relay

Service (TRS). According to data in the most recent report, there are

3,604 interstate carriers. These carriers include, inter alia, local

exchange carriers, wireline carriers and service providers,

interexchange carriers, competitive access providers, operator service

providers, pay telephone operators, providers of telephone toll

service, providers of telephone exchange service, and resellers.

36. We have included small incumbent LECs in this present RFA

analysis. As noted, a ``small business'' under the 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. We have therefore included small incumbent LECs

in this RFA analysis, although we emphasize that this RFA action has no

effect on Commission analyses and determinations in other non-RFA

contexts.

37. Total Number of Telephone Companies Affected. The United States

Bureau of the Census (``the Census Bureau'') reports that, at the end

of 1992, there were 3,497 firms engaged in providing telephone

services, as defined therein, for at least one year. This number

contains a variety of different categories of carriers, including local

exchange carriers, interexchange carriers, competitive access

providers, cellular carriers, mobile service carriers, operator service

providers, pay telephone operators, PCS providers, covered SMR

providers, and resellers. It seems certain that some of those 3,497

telephone service firms may not qualify as small entities or small

incumbent LECs because they are not ``independently owned and

operated.'' For example, a PCS provider that is affiliated with an

interexchange carrier having more than 1,500 employees would not meet

the definition of a small business. It seems reasonable to conclude,

therefore, that fewer than 3,497 telephone service firms are small

entity telephone service firms or small incumbent LECs that may be

affected by the decisions and rules in this Order.

38. Wireline Carriers and Service Providers. SBA has developed a

definition of small entities for telephone communications companies

other than radiotelephone companies. The Census Bureau reports that,

there were 2,321 such telephone companies in operation for at least one

year at the end of 1992. According to SBA's definition, a small

business telephone company other than a radiotelephone company is one

employing no more than 1,500 persons. All but 26 of the 2,321 non-

radiotelephone companies listed by the Census Bureau were reported to

have fewer than 1,000 employees. Thus, even if all 26 of those

companies had more than 1,500 employees, there would still be 2,295

non-radiotelephone companies that might qualify as small entities or

small incumbent LECs. Although it seems certain that some of these

carriers are not independently owned and operated, we are unable at

this time to estimate with greater precision the number of wireline

carriers and service providers that would qualify as small business

concerns under SBA's definition. Consequently, we estimate that there

are fewer than 2,295 small entity telephone communications companies

other than radiotelephone companies that may be affected by the

decisions and rules in this Order.

39. Local Exchange Carriers, Interexchange Carriers, Competitive

Access Providers, Operator Service Providers, and Resellers. Neither

the Commission nor SBA has developed a definition of small local

exchange carriers (LECs), interexchange carriers (IXCs), competitive

access providers (CAPs), operator service providers (OSPs), or

resellers. The closest applicable definition for these carrier-types

under SBA rules is for telephone communications companies other than

radiotelephone (wireless) companies. The most reliable source of

information regarding the number of these carriers nationwide of which

we are aware appears to be the data that we collect annually in

connection with the Telecommunications Relay Service (TRS). According

to our most recent data, there are 1,410 LECs, 151 IXCs, 129 CAPs, 32

OSPs, and 351 resellers. Although it seems certain that some of these

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

1,500 employees, we are unable at this time to estimate with greater

precision the number of these carriers that would qualify as small

business concerns under SBA's definition. Consequently, we estimate

that there are fewer than 1,410 small entity LECs or small incumbent

LECs, 151 IXCs, 129 CAPs, 32 OSPs, and 351 resellers that may be

affected by the decisions and rules in the order and order on

reconsideration.

40. Wireless (Radiotelephone) Carriers. SBA has developed a

definition of small entities for radiotelephone (wireless) companies.

The Census Bureau reports that there were 1,176 such companies in

operation for at least one year at the end of 1992. According to SBA's

definition, a small business radiotelephone company is one employing no

more than 1,500 persons. The Census Bureau also reported that 1,164 of

those radiotelephone companies had fewer than 1,000 employees. Thus,

even if all of the remaining 12 companies had more than 1,500

employees, there would still be 1,164 radiotelephone companies that

might qualify as small entities if they are independently owned and

operated. Although it seems certain that some of these carriers are not

independently owned and operated, we are unable at this time to

estimate with greater precision the number of radiotelephone carriers

and service providers that would qualify as small business concerns

under SBA's definition. Consequently, we estimate that there are fewer

than 1,164 small entity radiotelephone companies that may be affected

by the decisions and rules in this Order.

41. Cellular, PCS, SMR and Other Mobile Service Providers. In an

effort to further refine our calculation of the number of

radiotelephone companies that may be affected by the rules

[[Page 60355]]

adopted herein, we consider the data that we collect annually in

connection with the TRS for the subcategories Wireless Telephony (which

includes Cellular, PCS, and SMR) and Other Mobile Service Providers.

Neither the Commission nor the SBA has developed a definition of small

entities specifically applicable to these broad subcategories, so we

will utilize the closest applicable definition under SBA rules--which,

for both categories, is for telephone companies other than

radiotelephone (wireless) companies. To the extent that the Commission

has adopted definitions for small entities providing PCS and SMR

services. According to our most recent TRS data, 732 companies reported

that they are engaged in the provision of Wireless Telephony services

and 23 companies reported that they are engaged in the provision of

Other Mobile Services. Although it seems certain that some of these

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

1,500 employees, we are unable at this time to estimate with greater

precision the number of Wireless Telephony Providers and Other Mobile

Service Providers, except as described, that would qualify as small

business concerns under SBA's definition. Consequently, we estimate

that there are fewer than 732 small entity Wireless Telephony Providers

and fewer than 23 small entity Other Mobile Service Providers that

might be affected by the decisions and rules in this Order.

42. Broadband PCS Licensees. The broadband PCS spectrum is divided

into six frequency blocks designated A through F, and the Commission

has held auctions for each block. The Commission defined ``small

entity'' for Blocks C and F as an entity that has average gross

revenues of less than $40 million in the three previous calendar years.

For Block F, an additional classification for ``very small business''

was added, and is defined as an entity that, together with its

affiliates, has average gross revenues of not more than $15 million for

the preceding three calendar years. These regulations defining ``small

entity'' in the context of broadband PCS auctions have been approved by

SBA. No small businesses within the SBA-approved definition bid

successfully for licenses in Blocks A and B. There were 90 winning

bidders that qualified as small entities in the Block C auctions. A

total of 93 small and very small business bidders won approximately 40%

of the 1,479 licenses for Blocks D, E, and F. However, licenses for

Blocks C through F have not been awarded fully, therefore there are

few, if any, small businesses currently providing PCS services. Based

on this information, we estimate that the number of small broadband PCS

licenses will include the 90 winning C Block bidders and the 93

qualifying bidders in the D, E, and F blocks, for a total of 183 small

PCS providers as defined by SBA and the Commissioner's auction rules.

43. SMR Licensees. Pursuant to 47 CFR 90.814(b)(1), the Commission

has defined ``small entity'' in auctions for geographic area 800 MHz

and 900 MHz SMR licenses as a firm that had average annual gross

revenues of less than $15 million in the three previous calendar years.

The definition of a ``small entity'' in the context of 800 MHz SMR has

been approved by the SBA, and approval for the 900 MHz SMR definition

has been sought. The rules may apply to SMR providers in the 800 MHz

and 900 MHz bands that either hold geographic area licenses or have

obtained extended implementation authorizations. We do not know how

many firms provide 800 MHz or 900 MHz geographic area SMR service

pursuant to extended implementation authorizations, nor how many of

these providers have annual revenues of less than $15 million.

Consequently, we estimate, for purposes of this IRFA, that all of the

extended implementation authorizations may be held by small entities,

some of which may be affected by the decisions and rules in this Order.

44. The Commission recently held auctions for geographic area

licenses in the 900 MHz SMR band. There were 60 winning bidders who

qualified as small entities in the 900 MHz auction. Based on this

information, we estimate that the number of geographic area SMR

licensees that may be affected by the decisions and rules in the order

and order on reconsideration includes these 60 small entities. No

auctions have been held for 800 MHz geographic area SMR licenses.

Therefore, no small entities currently hold these licenses. A total of

525 licenses will be awarded for the upper 200 channels in the 800 MHz

geographic area SMR auction. The Commission, however, has not yet

determined how many licenses will be awarded for the lower 230 channels

in the 800 MHz geographic area SMR auction. There is no basis,

moreover, on which to estimate how many small entities will win these

licenses. Given that nearly all radiotelephone companies have fewer

than 1,000 employees and that no reliable estimate of the number of

prospective 800 MHz licensees can be made, we estimate, for purposes of

this IRFA, that all of the licenses may be awarded to small entities,

some of which may be affected by the decisions and rules in this Order.

45. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service

has both Phase I and Phase II licenses. There are approximately 1,515

such non-nationwide licensees and four nationwide licensees currently

authorized to operate in the 220 MHz band. The Commission has not

developed a definition of small entities specifically applicable to

such incumbent 220 MHz Phase I licensees. To estimate the number of

such licensees that are small businesses, we apply the definition under

the SBA rules applicable to Radiotelephone Communications companies.

According to the Bureau of the Census, only 12 radiotelephone firms out

of a total of 1,178 such firms which operated during 1992 had 1,000 or

more employees. Therefore, if this general ratio continues to 1999 in

the context of Phase I 220 MHz licensees, we estimate that nearly all

such licensees are small businesses under the SBA's definition.

46. 220 MHz Radio Service--Phase II Licensees. The Phase II 220 MHz

service is a new service, and is subject to spectrum auctions. In the

220 MHz Third Report and Order, 62 FR 16004 (April 3, 1997), we adopted

criteria for defining small businesses and very small businesses for

purposes of determining their eligibility for special provisions such

as bidding credits and installment payments. We have defined a small

business as an entity that, together with its affiliates and

controlling principals, has average gross revenues not exceeding $15

million for the preceding three years. Additionally, a very small

business is defined as an entity that, together with its affiliates and

controlling principals, has average gross revenues that are not more

than $3 million for the preceding three years. An auction of Phase II

licenses commenced on September 15, 1998, and closed on October 22,

1998. 908 licenses were auctioned in 3 different-sized geographic

areas: three nationwide licenses, 30 Regional Economic Area Group

Licenses, and 875 Economic Area (EA) Licenses. Of the 908 licenses

auctioned, 693 were sold. Companies claiming small business status won:

one of the Nationwide licenses, 67% of the Regional licenses, and 54%

of the EA licenses. As of January 22, 1999, the Commission announced

that it was prepared to grant 654 of the Phase II licenses won at

auction. A reauction of the remaining, unsold licenses was completed on

June 30, 1999, with 16 bidders winning 222 of the Phase II licenses. As

a result, we estimate that 16

[[Page 60356]]

or fewer of these final winning bidders are small or very small

businesses.

47. Paging. On June 7, 1999, the Wireless Telecommunications Bureau

announced the first in a series of auctions of paging licenses, the

first to commence on December 7, 1999. The Bureau has proposed that the

first auction be composed of 2,499 licenses. The Commission utilizes a

two-tiered definition of small businesses in the context of auctioning

licenses in the Common Carrier Paging and exclusive Private Carrier

Paging services. A small business is defined as either (1) an entity

that, together with its affiliates and controlling principals, has

average gross revenues for the three preceding years of not more than

$3 million, or (2) an entity that, together with affiliates and

controlling principals, has average gross revenues for the three

preceding calendar years of not more than $15 million. The SBA has

approved this definition. At present, there are approximately 24,000

Private Paging licenses and 74,000 Common Carrier Paging licenses. In

addition, according to the most recent Carrier Locator data, 137

carriers reported that they were engaged in the provision of either

paging or messaging services, which are placed together in the data.

Because the auction has yet to occur, we do not have data specifying

the number of winning bidders that will meet the above small business

definition. Also, we will assume that there currently are 137 or fewer

small business paging carriers.

48. Narrowband PCS. The Commission has auctioned nationwide and

regional licenses for narrowband PCS. There are 11 nationwide and 30

regional licensees for narrowband PCS. The Commission does not have

sufficient information to determine whether any of these licensees are

small businesses within the SBA-approved definition for radiotelephone

companies. At present, there have been no auctions held for the major

trading area (MTA) and basic trading area (BTA) narrowband PCS

licenses. The Commission anticipates a total of 561 MTA licenses and

2,958 BTA licenses will be awarded by auction. Such auctions have not

yet been scheduled, however. Given that nearly all radiotelephone

companies have no more than 1,500 employees and that no reliable

estimate of the number of prospective MTA and BTA narrowband licensees

can be made, we assume, for purposes of this IRFA, that all of the

licenses will be awarded to small entities, as that term is defined by

the SBA.

49. Rural Radiotelephone Service. The Commission has not adopted a

definition of small entity specific to the Rural Radiotelephone

Service. A significant subset of the Rural Radiotelephone Service is

the Basic Exchange Telephone Radio Systems (BETRS). We will use the

SBA's definition applicable to radiotelephone companies, i.e., an

entity employing no more than 1,500 persons. There are approximately

1,000 licensees in the Rural Radiotelephone Service, and we estimate

that almost all of them qualify as small entities under the SBA's

definition.

50. Air-Ground Radiotelephone Service. The Commission has not

adopted a definition of small entity specific to the Air-Ground

Radiotelephone Service. Accordingly, we will use the SBA's definition

applicable to radiotelephone companies, i.e., an entity employing no

more than 1,500 persons. There are approximately 100 licensees in the

Air-Ground Radiotelephone Service, and we estimate that almost all of

them qualify as small entities under the SBA definition.

51. Private Land Mobile Radio (PLMR). PLMR systems, also known as

Private Mobile Radio Service (PMRS) systems, serve an essential role in

a range of industrial, business, land transportation, and public safety

activities. These radios are used by companies of all sizes operating

in all U.S. business categories. The Commission has not developed a

definition of small entity specifically applicable to PLMR licensees

due to the vast array of PLMR users. For the purpose of determining

whether a licensee is a small business as defined by the SBA, each

licensee would need to be evaluated within its own business area. The

Commission is unable at this time to estimate the number of, if any,

small businesses that could be impacted by the new rules. However, the

Commission's 1994 Annual Report on PLMRs indicates that at the end of

fiscal year 1994 there were 1,087,267 licensees operating 12,481,989

transmitters in the PLMR bands below 512 MHz. Because any entity

engaged in a commercial activity is eligible to hold a PLMR license,

the rules in this context could potentially impact any small U.S.

business that chooses to become licensed in this service. On July 21,

1999, the Wireless Telecommunications Bureau requested public comment

on whether the licensing of PMRS frequencies in the 800 MHz band for

commercial SMR use would serve the public interest.

52. Fixed Microwave Services. Microwave services include common

carrier, private-operational fixed, and broadcast auxiliary radio

services. At present, there are approximately 22,015 common carrier

fixed licensees in the microwave services. The Commission has not yet

defined a small business with respect to microwave services. For

purposes of this IRFA, we will utilize the SBA's definition applicable

to radiotelephone companies--i.e., an entity with no more than 1,500

persons. We estimate, for this purpose, that all of the Fixed Microwave

licensees (excluding broadcast auxiliary licensees) would qualify as

small entities under the SBA definition for radiotelephone companies.

53. Offshore Radiotelephone Service. This service operates on

several UHF TV broadcast channels that are not used for TV broadcasting

in the coastal area of the states bordering the Gulf of Mexico. At

present, there are approximately 55 licensees in this service. We are

unable at this time to estimate the number of licensees that would

qualify as small entities under the SBA's definition for radiotelephone

communications.

54. Wireless Communications Services. This service can be used for

fixed, mobile, radio location and digital audio broadcasting satellite

uses. The Commission defined ``small business'' for the wireless

communications services (WCS) auction as an entity with average gross

revenues of $40 million for each of the three preceding years, and a

``very small business'' as an entity with average gross revenues of $15

million for each of the three preceding years. The Commission auctioned

geographic area licenses in the WCS service. In the auction, there were

seven winning bidders that qualified as very small business entities,

and one that qualified as a small business entity. We conclude that the

number of geographic area WCS licensees that may be affected by the

decisions and rules in this Order includes these eight entities.

55. Multipoint Distribution Systems (MDS): The Commission has

defined ``small entity'' for the auction of MDS as an entity that,

together with its affiliates, has average gross annual revenues that

are not more than $40 million for the preceding three calendar years.

This definition of a small entity in the context of MDS auctions has

been approved by the SBA. The Commission completed its MDS auction in

March 1996 for authorizations in 493 basic trading areas (BTAs). Of 67

winning bidders, 61 qualified as small entities.

56. MDS is also heavily encumbered with licensees of stations

authorized prior to the auction. The SBA has developed a definition of

small entities for pay television services, which

[[Page 60357]]

includes all such companies generating $11 million or less in annual

receipts. This definition includes multipoint distribution systems, and

thus applies to MDS licensees and wireless cable operators which did

not participate in the MDS auction. Information available to us

indicates that there are 832 of these licensees and operators that do

not generate revenue in excess of $11 million annually. Therefore, for

purposes of this IRFA, we find there are approximately 892 small MDS

providers as defined by the SBA and the Commission's auction rules,

some which may be affected by the decisions and rules in this Order.

57. International Service Providers. The Commission has not

developed a definition of small entities applicable to licensees in the

international services. Therefore, the applicable definition of small

entity is the definition under the SBA rules applicable to

Communications Services, Not Elsewhere Classified (NEC). This

definition provides that a small entity is expressed as one with $11

million or less in annual receipts. According to the Census Bureau,

there were a total of 848 communications services, NEC in operation in

1992, and a total of 775 had annual receipts of less than $9.999

million. We note that those entities providing only international

service will not be affected by our revised rules. We do not, however,

have sufficient data to estimate with greater detail those providing

both international and interstate services. Consequently, we estimate

that there are fewer than 775 small international service entities

potentially impacted by our rules.

4. Description of Projected Reporting, Recordkeeping, and Other

Compliance Requirements

58. In this Order, we adopt revisions to Part 54 that are

responsive to the court's July 30, 1999 ruling. In response to the

court's concern that our assessment rules were unduly burdensome as

applied to small providers whose interstate operations represent a

modest amount of their combined interstate and international revenues,

we modify our rules to create an exception from the contribution

requirements for certain providers of international telecommunications

services. In doing so, we have asked providers claiming entitlement to

this exception to prepare and submit to USAC two short forms amending

their two most recently filed Worksheets. Those forms ask contributors

claiming entitlement to the exception to separately list their

interstate and international revenues. To the extent that this

reporting obligation is not unduly burdensome and is adopted in order

to establish certain providers' entitlement to an exception from the

contribution requirements, we project that this Order will impose no

significant new reporting requirements on small carriers.

59. In light of the court's determination that the Commission may

not require incumbent LECs to recover the cost of their universal

service contributions through interstate access charges, we give

incumbent LECs flexibility in the manner in which they recover their

universal service contributions. For those that elect to continue

recovering their contributions through interstate access charges, no

additional requirements are imposed by this Order. For those that elect

to recover their contributions through an explicit end-user charge,

this Order requires such carriers to take steps to make corresponding

reductions in their interstate access charges to avoid double recovery.

5. Steps Taken to Minimize Significant Economic Impact on Small

Entities, and Significant Alternatives Considered

60. In this Order, we have taken several steps to minimize the

economic impact of our Part 54 rule changes on all carriers, including

small carriers. For example, in response to the court's concern that

our contribution requirement, as applied to certain small providers,

was unduly burdensome, we have sought to reduce the contribution

obligation of providers, many of which are small entities, whose

interstate operations represent a modest amount of their combined

interstate and international revenues. We take this action in response

to the court's concerns and to help primarily international providers

with a small portion of interstate business to compete on a more equal

footing with international providers that, by virtue of their status as

exclusively international carriers, are not subject to the universal

service contribution requirements.

61. In light of the court's determination that the Commission may

not require incumbent LECs to recover the cost of their universal

service contributions through interstate access charges, we give

incumbent LECs flexibility in the manner in which they recover their

universal service contributions. For those that elect to continue

recovering their contributions through interstate access charges, no

additional requirements are imposed by this Order. For those that elect

to recover their contributions through an explicit end-user charge,

this Order requires such carries to take steps to make corresponding

reductions in their interstate access charges to avoid double recovery.

Given that the compliance obligations associated with transitioning to

an end-user method of recovery for incumbent LECs are in large measure

voluntary, and insofar as carriers, including small carriers, are given

no deadlines for implementing such changes, we conclude the compliance

requirements adopted in this Order will not be unduly burdensome on

small carriers.

6. Report to Congress

62. The Commission will send a copy of this Order, including the

Supplemental Final Regulatory Flexibility Analysis, in a report to be

sent to Congress pursuant to the Small Business Regulatory Enforcement

Fairness Act of 1996. A summary of the rules adopted in this Order and

this Supplemental Final Regulatory Flexibility Analysis will also be

published in the Federal Register, and will be sent to the Chief

Counsel for Advocacy of the Small Business Administration.

B. Effective Date of Final Rules

63. In this Order, the Commission amends its rules to implement the

court's July 30, 1999 mandate with respect to the assessment and

recovery of universal service contributions. Consistent with the

court's September 28, 1999 rulings, we make this Order and the rule

changes adopted herein effective on November 1, 1999. The court's

directive that its July 30, 1999 mandate will issue on November 1, 1999

provides good cause to depart in the manner described from the general

requirement of 5 U.S.C. 553(d) that final rules take effect not less

than thirty (30) days after their publication in the Federal Register.

The information collections contained in this Order was approved by OMB

under control number 3060-0907.

V. Ordering Clauses

64. Accordingly, it is ordered that, pursuant to the authority

contained in sections 1-4, 201, 205, 218-220, 254, 303(r), 403, and 410

of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-

205, 218-220, 254, 303(r), 403, 410, the Sixteenth Order on

Reconsideration in CC Docket No. 96-45 is adopted.

65. The Eighth Report and Order in CC Docket No. 96-45 is adopted.

65. The Sixth Report and Order in CC Docket No. 96-262 is adopted.

67. Parts 54 and 69 of the Commission's Rules, 47 CFR Parts 54

[[Page 60358]]

and 69, are amended, effective November 1, 1999.

68. The authority is delegated to the Chief of the Common Carrier

Bureau pursuant to 47 CFR 0.291 and 54.711(c) to modify, or require the

filing of, any forms that are necessary to implement the decisions and

rules adopted in this Order and that are required to ensure the sound

and efficient functioning of the universal service support mechanisms.

69. The Commission's Office of Public Affairs, Reference Operations

Division, shall send a copy of this Order, including the Supplemental

Final Regulatory Flexibility Analysis, to the Chief Counsel for

Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 54

Universal service.

47 CFR Part 69

Communications common carrier.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Parts 54 and 69 of Title 47 of the Code of Federal Regulations is

amended to read as follows:

PART 54--UNIVERSAL SERVICE

1. The authority citation for part 54 continues to read as follows:

Authority: 47 U.S.C. 1, 4(i), 201, 214, and 254 unless otherwise

noted.

Sec. 54.401 [Amended].

2. In Sec. 54.401, remove and reserve paragraph (b).

3. Amend Sec. 54.706 by revising paragraphs (b) and (c) and adding

paragraph (d) to read as follows:

Sec. 54.706 Contributions.

* * * * *

(b) Except as provided in paragraph (c) of this section, every

telecommunications carrier that provides interstate telecommunications

services, every provider of interstate telecommunications that offers

telecommunications for a fee on a non-common carrier basis, and every

payphone provider that is an aggregator shall contribute to the federal

universal service support mechanisms on the basis of its interstate and

international end-user telecommunications revenues.

(c) Any entity required to contribute to the federal universal

service support mechanisms whose interstate end-user telecommunications

revenues comprise less than 8 percent of its combined interstate and

international end-user telecommunications revenues shall contribute to

the federal universal service support mechanisms for high cost areas,

low-income consumers, schools and libraries, and rural health care

providers based only on such entity's interstate end-user

telecommunications revenues. For purposes of this paragraph, an

``entity'' shall refer to the entity that is subject to the universal

service reporting requirements in 47 CFR 54.711 and shall include all

of that entity's affiliated providers of telecommunications services.

(d) Entities providing open video systems (OVS), cable leased

access, or direct broadcast satellite (DBS) services are not required

to contribute on the basis of revenues derived from those services. The

following entities will not be required to contribute to universal

service: non-profit health care providers; broadcasters; systems

integrators that derive less than five percent of their systems

integration revenues from the resale of telecommunications.

4. Amend Sec. 54.709 by revising paragraph (a) to read as follows:

Sec. 54.709 Computations of required contributions to universal

service support mechanisms.

(a) Contributions to the universal service support mechanisms shall

be based on contributors' end-user telecommunications revenues and a

contribution factor determined quarterly by the Commission.

(1) For funding the federal universal service support mechanisms,

the subject revenues will be contributors' interstate and international

revenues derived from domestic end users for telecommunications or

telecommunications services.

(2) The quarterly universal service contribution factor shall be

determined by the Commission based on the ratio of total projected

quarterly expenses of the universal service support mechanisms to total

end-user interstate and international telecommunications revenues. The

Commission shall approve the Administrator's quarterly projected costs

of the universal service support mechanisms, taking into account demand

for support and administrative expenses. The total subject revenues

shall be compiled by the Administrator based on information contained

in the Telecommunications Reporting Worksheets described in

Sec. 54.711(a).

(3) Total projected expenses for the federal universal service

support mechanisms for each quarter must be approved by the Commission

before they are used to calculate the quarterly contribution factor and

individual contributions. For each quarter, the Administrator must

submit its projections of demand for the federal universal service

support mechanisms for high-cost areas, low-income consumers, schools

and libraries, and rural health care providers, respectively, and the

basis for those projections, to the Commission and the Common Carrier

Bureau at least sixty (60) calendar days prior to the start of that

quarter. For each quarter, the Administrator must submit its

projections of administrative expenses for the high-cost mechanism, the

low-income mechanism, the schools and libraries mechanism and the rural

health care mechanism and the basis for those projections to the

Commission and the Common Carrier Bureau at least sixty (60) calendar

days prior to the start of that quarter. Based on data submitted to the

Administrator on the Telecommunications Reporting Worksheets, the

Administrator must submit the total contribution base to the Common

Carrier Bureau at least sixty (60) days before the start of each

quarter. The projections of demand and administrative expenses and the

contribution factor shall be announced by the Commission in a public

notice and shall be made available on the Commission's website. The

Commission reserves the right to set projections of demand and

administrative expenses at amounts that the Commission determines will

serve the public interest at any time within the fourteen-day period

following release of the Commission's public notice. If the Commission

takes no action within fourteen (14) days of the date of release of the

public notice announcing the projections of demand and administrative

expenses, the projections of demand and administrative expenses, and

the contribution factor shall be deemed approved by the Commission.

Except as provided in Sec. 54.706(c), the Administrator shall apply the

quarterly contribution factor, once approved by the Commission, to

contributors' interstate and international end-user telecommunications

revenues to calculate the amount of individual contributions.

* * * * *

PART 69--ACCESS CHARGES

5. The authority citation for part 69 continues to read as follows:

Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 403

unless otherwise noted.

[[Page 60359]]

6. Amend Sec. 69.4 by adding paragraph (d) to read as follows:

Sec. 69.4 Charges to be filed.

* * * * *

(d) Recovery of Contributions to the Universal Service Support

Mechanisms by Incumbent Local Exchange Carriers.

(1) Incumbent local exchange carriers may recover their

contributions to the universal service support mechanisms through

carriers' carrier charges.

(i) Price cap incumbent local exchange carriers may do so by

exogenously adjusting the price cap indices of each basket on the basis

of relative end-user revenues.

(ii) Non-price cap incumbent local exchange carriers may do so by

applying a factor to their carrier common line charge revenue

requirements.

(2)(i) In lieu of the carriers' carrier charges described in

paragraph (d)(1), incumbent local exchange carriers may recover their

contributions to the universal service support mechanisms through

explicit, interstate, end-user charges that are equitable and

nondiscriminatory.

(ii) To the extent that incumbent local exchange carriers choose to

implement explicit, interstate, end-user charges to recover their

contributions to the universal service support mechanisms, they must

make corresponding reductions in their access charges to avoid any

double recovery.

Sec. 69.5 [Amended]

7. In Sec. 69.5, remove and reserve paragraph (d).

[FR Doc. 99-28964 Filed 11-4-99; 8:45 am]

BILLING CODE 6712-01-U