200404063rd Joint Motion for Official Notice.pdf

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Morgan W. Richards, ISB No. 1913
MOFFATT, THOMAS, BARRETT, ROCK &
FIELDS, CHARTERED
101 S. Capitol Boulevard, 10th Floor
Post Office Box 829
Boise, Idaho 83701
Telephone: [phone]
Facsimile: [phone]
mwr(fYmo ffatt com
Attorneys for Citizens Telecommunications
Company of Idaho
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Conley E. Ward, ISB No. 1683
GIVENS PURSLEY LLP
601 W. Bannock Street
O. Box 2720
Boise, Idaho 83701-2720
Telephone: [phone]
Facsimile: [phone]
Attorneys for Idaho Telephone Association
15-881.19
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IAT COMMUNICATIONS, INe., d.
NTCH-IDAHO, INe. OR CLEAR TALK
FOR DESIGNATION AS AN ELIGIBLE
TELECOMMUNICATIONS CARRIER
Case No. GNR-03-
IN THE MATTER OF THE APPLICATION
OF NPCR, INe. d.a. NEXTEL PARTNERS
SEEKING DESIGNATION AS AN
ELIGIBLE TELECOMMUNICATIONS
CARRIER
Case No. GNR-03-
THIRD JOINT MOTION TO TAKE
OFFICIAL NOTICE
The Idaho Telephone Association ("ITA") and Citizens Telecommunications
Company of Idaho ("Citizens ) request that the Commission take official notice of the attached
Recommended Decision issued by the Federal-State Joint Board on Universal Service
THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE - 1 BOI MT2:542916,
FSJBUS") in Case No. 96-
, "
In the Matter of Federal-State Joint Board on Universal
Service . In support of this Motion, Petitioners state as follows:
Rule 263.01(a)(2) of the Commission s Rules of Procedure provides that
the Commission may take official notice of the orders of "any other
regulatory agency, state or federal."
Evidentiary hearings in this matter concluded on December 11 , 2003 , and
the parties' Briefs were submitted on January 23 2004. The Joint Board
did not release its recommendations until February 27 2004, too late to be
included in the parties ' Briefs.
The Joint Board Recommendation is very relevant to the Commission
deliberations because it addresses issues relating to the applications by
Nextel Partners and Clear Talk for ETC status.
No party will be prejudiced by the granting of this Motion.
WHEREFORE, ITA and Citizens respectfully request that the Commission enter
its order:
Taking official notice of the FSJBUS Recommended Decision; and
Directing that the FSJBUS Recommended Decision be marked as an
exhibit and included in the record as a late-file exhibit.
Oral argument is not requested on this Motion.
THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE - 2 BOI MT2:542916,
Respectfully submitted this 6th day of April, 2004.
Md'
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rgan . Richards
MOFFATT, THOMAS, BARRETT, ROCK & FIELDS
CHID.
Attorneys for Citizens
Telecommunications Company of Idaho
\.D ~Q Q MWI R-
Conley E.
GIVENS PURSLEY LLP
Attorneys for Idaho Telephone Company
THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE - 3 BOI MT2:542916.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 6th day of April, 2004, I caused a true and
correct copy of the foregoing THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE to
be served by the method indicated below, and addressed to the following:
John Hammond, Deputy AG ( 4Mail, Postage Prepaid
IDAHO PUBLIC UTILITIES COMMISSION (0'Hand Delivered472 West Washington Street
( )
Overnight MailPost Office Box 83720 ( ) Facsimile
Boise, Idaho 83720-0074 ( ) Electronic Mail
Lance A. Tade, Manager
State Government Affairs
CITIZENS TELECOMMUNICATIONS
COMPANY OF IDAHO
4 Triad Center, Suite 200
Salt Lake City, UT 84180
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Hand Delivered
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Molly O'Leary
RICHARDSON & O'LEARY, P.L.L.C.
99 East State Street, Suite 200
Eagle, Idaho 83616
Dean J. Miller
420 West Bannock
Post Office Box 2564-83701
Boise, Idaho 83702
Philip R. Schenkenberg
BRIGGS AND MORGAN, P.
2200 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
Conley Ward
GIVENS PURSLEY, LLP
277 North 6th Street, Suite 200
Post Office Box 2720
Boise, Idaho 83701
THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE - 4 BOI MT2:542916.
Robert M. Nielsen
548 E Street
Post Office Box 706
Rupert, Idaho 83350
Charles H. Creason, Jr.
President and General Manager
PROJECT MUTUAL TELEPHONE COOPERATIVE
ASSOCIATION, INc.
507 G Street
Post Office Box 366
Rupert, Idaho 83350
Mary S. Hobson
STOEL RIVES, LLP.
101 South Capitol Boulevard, Suite 1900
Boise, Idaho 83702
Eric Steinmann
Corporate Counsel
CLEAR TALK
Post Office Box 1976
Wrightwood, California 92397
Clay Sturgis
Senior Manager
Moss ADAMS, LLP.
601 Riverside, Suite 1800
Spokane, Washington 99201-0063
~. Mail, Postage Prepaid
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Hand Delivered
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Morgan WI Richards
THIRD JOINT MOTION TO TAKE OFFICIAL NOTICE - 5 BOI MT2:542916.
Federal Communications Commission FCC 04J-
Before the
Federal Communications Commission
Washington, D.c. 20554
In the Matter of
CC Docket No. 96-Federal-State Joint Board on
Universal Service
RECOMMENDED DECISION
Adopted: February 27, 2004 Released: February 27, 2004
By the Federal-State Joint Board on Universal Service: Commissioners Abernathy, Jaber, and Dunleavy,
and Consumer Advocate Gregg, issuing separate statements; Commissioner Martin dissenting in part
concurring in part, and issuing a separate statement; Commissioners Adelstein, Thompson, and Rowe
approving in part, dissenting in part, and issuing a joint separate statement.
TABLE OF CONTENTS
Heading Para.
II.
INTRODUCTION..........................................."""""""""""""""""""""""""""...........................
ETC DESIGNATION PROCESS ....................................................................................................
Background .........................................................................................................................
III.
B. Discussion ...........................................................................................................................
SCOPE OF SUPPORT ...................................................................................................................
Background ......................................................"""""""""""""""""""""""""""...........
IV.
B. Discussion .........................................................................................................................
BASIS OF SUPPORT ....................................................................................................................
Background .......................................................................................................................
B. Discussion .........................................................................................................................
OTHER ISSUES ............................................................................................................................
Identification of Wireless Customer Location ..................................................................42
VI.
B. Accurate, Legible, and Consistent Maps...........................................................................44
RECOMMENDING CLAUSE ......................................................................................................
Basis of Support
.............................................................................................................................
Federal Communications Commission FCC 04J-
Before the
Federal Communications Commission
Washington, D.c. 20554
In the Matter of
CC Docket No. 96-Federal-State Joint Board on
Universal Service
RECOMMENDED DECISION
Adopted: February 27,2004 Released: February 27, 2004
By the Federal-State Joint Board on Universal Service: Commissioners Abernathy, Jaber, and Dunleavy,
and Consumer Advocate Gregg, issuing separate statements; Commissioner Martin dissenting in part
concurring in part, and issuing a separate statement; Commissioners Adelstein, Thompson, and Rowe
approving in part, dissenting in part, and issuing a joint separate statement.
TABLE OF CONTENTS
Heading Para.
II.
INTRODUCTION ......................................................"""""""""""""""""""""""""""................
ETC DESIGNATION PROCESS ....................................................................................................
Background .........................................................................................................................
III.
B. Discussion ...........................................................................................................................
SCOPE OF SUPPORT ...................................................................................................................
Background .......................................................................................................................
IV.
B. Discussion .........................................................................................................................
BASIS OF SUPPORT ....................................................................................................................
Background .......................................................................................................................
B. Discussion .........................................................................................................................
OTHER ISSUES ............................................................................................................................
Identification of Wireless Customer Location ..................................................................
VI.
B. Accurate, Legible, and Consistent Maps...........................................................................44
RECOMMENDING CLAUSE ......................................................................................................
Basis of Support
.............................................................................................................................
Federal Communications Commission FCC 04J-
Appendix A - Parties Filing Comments and Reply Comments
INTRODUCTION
1. In this Recommended Decision, the Federal-State Joint Board on Universal Service ("Joint
Board") provides its recommendations concerning the process for designation of eligible
telecommunications carriers (ETCs) and the Commission s rules regarding high-cost universal service
support. Citing changes in the marketplace since the Commission s rules were first adopted in 1997, the
Commission requested that the Joint Board "review certain of the Commission s rules relating to the
high-cost universal service support mechanisms to ensure that the dual goals of preserving universal
service and fostering competition continue to be fulfilled."! Consistent with the Commission s directive
in the Referral Order we sought comment and held a public forum to address concerns regarding the
designation and funding of ETCs in high-cost areas. 2 We provide our recommendations based on our
review and consideration of the record developed in this proceeding. Overall, we believe that our
recommendations will preserve and advance universal service, maintain competitive neutrality, and
ensure long-term sustainability of the universal service fund.
2. Specifically, we recommend that the Commission adopt permissive federal guidelines for
states to consider in proceedings to designate ETCs under section 214 of the Communications Act of
1934, as amended ("Act"3 We believe that permissive federal guidelines for minimum ETC
qualifications would allow for a more predictable application process among states. We also believe that
our recommended guidelines would assist states in determining whether or not the public interest would
be served by a carrier s designation as an ETC. In so doing, we believe that guidelines should improve
the long-term sustainability of the universal service fund, as only fully qualified carriers that are capable
, and committed to, providing universal service would be able to receive support. We recognize that
there are instances where carriers are not subject to the jurisdiction of a state commission and that the
Commission has explicit authority to designate carriers in these circumstances. Specifically, while
section 2l4( e )(2) of the Act gives state commissions the primary responsibility for designating ETCs
section 2l4(e)(6) directs the Commission to designate the carriers when those carriers are not subject to
the jurisdiction of the state commission. In these cases, we believe that the Commission should apply the
proposed guidelines.
3. We also recommend that the Commission limit the scope of high-cost support to a single
connection that provides access to the public telephone network. We believe that supporting a single
connection is more consistent with the goals of section 254 of the Act than the present system, and is
Federal-State Joint Board on Universal Service Order, CC Docket No. 96-, 17 FCC Rcd 22642, para. 1 (2002)
(Referral Order).
2 On February 7 2003, the Joint Board issued a Public Notice inviting public comment on whether the
Commission s rules concerning high-cost support and the ETC designation process continue to fulfill their intended
purposes. See Federal-State Joint Board on Universal Service Seeks Comment on Certain of the Commission
Rules Relating to High-Cost Universal Service Support and the ETC Designation Process Public Notice, CC
Docket No. 96-, 18 FCC Rcd 1941 (Jt. Bd. 2003) (Joint Board Portability-ETC Public Notice). On July 31 2003
the Joint Board held an en banc hearing on the Commission s rules on designation and funding ofETCs in high-cost
areas. See http://www.fcc.gov/wcb/universal service/documents/030731.pdf.See also Federal-State Joint Board
on Universal Service to Hold En Banc Hearing on the Portability of High-Cost Universal Service Support and the
ETC Designation Process Public Notice, CC Docket No. 96-, 18 FCC Rcd 14486 (Wir. Compo Bur. 2003)
(providing notice of Joint Board en banc hearing).
See 47 US.c. ~ 214. The Communications Act of 1934 was amended by the Telecommunications Act of 1996.
Pub. L. No. 104-104, 110 Stat. 56 (1996) (1996 Act).
Federal Communications Commission FCC 04J-
necessary to preserve the sustainability of the universal service fund. We also believe that it would send
more appropriate entry signals in rural and high-cost areas, and would be competitively neutral. To
minimize the potential impact of restricting the scope of support in areas served by rural carriers, we
recommend that the Commission seek comment on restating the total high-cost support flowing to a rural
carrier in terms of first connections, and on other possible measures.4 As discussed below, we also
recommend that the Commission seek comment on whether to restate support for non-rural carriers.s In
conjunction with these measures, we also recommend that high-cost support in areas served by rural
carriers be capped on a per-line basis where a competitive carrier is designated as an ETC, and adjusted
annually by an index factor.
4. At this time, we decline to recommend that the Commission modify the basis of support (i.
the methodology used to calculate support) in study areas with multiple ETCs. Instead, we recommend
that the Joint Board and Commission consider possible modifications to the basis of support as part of an
overall review of the high-cost support mechanisms for rural and non-rural carriers.7 We believe that
examining the basis of support for all ETCs under the rural and non-rural federal support mechanisms
simultaneously would allow the Joint Board and the Commission to craft a more comprehensive approach
and avoid the perils of piecemeal decision-making. If the Commission adopts our recommendations to
limit the scope of support and to ensure that ETC designations are appropriately rigorous, such steps
should slow fund growth due to competitive entry in the meantime.
II.ETC DESIGNATION PROCESS
5. We recommend a variety of measures below that relate to state proceedings involving
designation of ETCs. To increase the opportunities for state commissions to conduct rigorous
proceedings, we recommend that the Commission adopt permissive guidelines for minimum ETC
qualifications. We also offer some guidance for state commissions in interpreting the public interest test
found in section 2l4(e). In addition, we address the annual certification requirements under section
254( e) and recommend that the Commission encourage states to use that process to ensure that all ETCs
use federal universal service support to provide the supported services and for associated inftastructure
costs. Finally, we offer some observations regarding the service area redefinition process and
disaggregation of support by rural carriers. We note here that in instances where carriers are not subject
to the jurisdiction of a state commission, we urge the Commission to apply these same measures.
4 The term "rural carriers" refers to incumbent local exchange carriers (LECs) that meet the statutory definition of
rural telephone company in section 153(37) of the Act. See 47 u.S.c. ~ 153(37). Under this defInition, rural
telephone companies are incumbent LECs that either serve study areas with fewer than 100 000 access lines or meet
one of three alternative criteria. Id. The term "non-rural carriers" refers to incumbent LECs that do not meet the
statutory definition of a rural telephone company.
See supra para. 76.
6 We note that, if the Commission were to adopt the "hold harmless" approach discussed below, per-line support
would not be capped for incumbent carriers. See infra at para. 75. For purposes of this Recommended Decision
references to "line" or "per-line" are generally synonymous with "connection" or "per-connection." The use of the
term "line" is intended to relate to services provisioned over either wireline or wireless technology.
See Federal-State Joint Board on Universal Service, Multi-Association Group (MAG) Plan for Regulation
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange Carriers Fourteenth
Report and Order, Twenty-Second Order on Reconsideration, and Further Notice of Proposed Rulemaking in CC
Docket No. 96-, Report and Order in CC Docket No. 00-256, 16 FCC Rcd 11244, 11310, para. 169 (2001) (Rural
Task Force Order); see also Federal-State Joint Board on Universal Service Order on Remand, Further Notice of
Proposed Rulemaking, and Memorandum Opinion and Order, CC Docket No. 96-, FCC 03-249 (reI. Oct. 27
2003) at para. 25 (Tenth Circuit Remand Order).
Federal Communications Commission FCC 04J-
Background
6. Section 254(e) of the Act provides that "only an eligible telecommunications carrier
designated under section 2l4(e) shall be eligible to receive specific Federal universal service support.
Pursuant to section 2l4( e)(1), a common carrier designated as an ETC must offer and advertise the
services supported by the federal universal service mechanisms throughout the designated service area
either using its own facilities or a combination of its own facilities and resale of another carrier s services
(including the services offered by another ETC).
7. Section 2l4(e)(2) of the Act gives state commissions the primary responsibility for
performing ETC designations.lO Under section 2l4(e)(2), "(u)pon request and consistent with the public
interest, convenience, and necessity, the State commission may, in the case of an area served by a rural
telephone company, and shall, in the case of all other areas, designate more than one common carrier as
an eligible telecommunications carrier" for a designated service area, so long as the requesting carrier
meets the requirements of section 2l4(e)(1). Section 2l4(e)(2) further states: "(b)efore designating an
additional eligible telecommunications carrier for an area served by a rural telephone company, the State
commission shall find that the designation is in the public interest."ll
8. A state commission must allow an ETC to relinquish its designation in any area served by
more than one ETC pursuant to section 2l4( e)( 4) of the Act. 12 The relinquishing ETC must provide
advance notice of such relinquishment to the state commission.13 Prior to allowing the relinquishing
carrier to cease providing universal service, the state commission must require the remaining ETC or
ETCs to ensure that all customers served by the relinquishing carrier will continue to be served. The state
commission also must require sufficient notice to the remaining ETC or ETCs to permit the purchase or
construction of adequate facilities.14 The state commission must establish a time, not to exceed one year
after the state commission approves the relinquishment, within which such purchase or construction by
the remaining ETC or ETCs must be completed.ls The same ETC relinquishment procedure is also
required of the Commission in instances where a carrier is not subject to the jurisdiction of a state
commISSIOn.
g 47 V.C. ~ 254(e).
47 US.C. ~ 214(e)(1). The "service area" is the geographic area established by the state commission for the
purposes of determining universal service support obligations and support mechanisms. 47 U.C ~ 214(e)(5). In
the case of an area served by a rural carrier
, "
service area" means such company s "study area" unless and until the
Commission and the States, after taking into account the recommendations of a Federal-State Joint Board instituted
under section 410(c), establish a different definition of service area for such company. Id.; see infra paras. 49-53.
47 US.C. ~ 214(e)(2). We note that the Commission has authority for performing ETC designations for carriers
that are not "subject to the jurisdiction of a State commission" pursuant to 214(e)(6). 47 US.c. ~ 214(e)(6). The
Commission s requirements for ETC designations in section 214(e)(6) parallel the states' requirements for ETC
designations in section 214(e)(2). !d.
47 U.C. ~ 214(e)(2).
12
See 47 US.C. ~ 214(e)(4).
13 !d.
14 Id.
IS Id.
Federal Communications Commission FCC 04J-
Discussion
Federal Guidelines for ETC Designations
9. We recommend that the Commission adopt permissive federal guidelines for states to use
when determining whether applicants are qualified to be designated as ETCs under section 214. We
believe that guidelines are appropriate because the ETC application and designation process should be
one that is rigorous. A rigorous ETC designation process should ensure that only fully qualified
applicants receive designation as ETCs and that ETC designees are prepared to serve all customers within
the designated service area. Additionally, a core set of minimum qualifications would allow for a more
predictable application process among the states. We believe that our recommended guidelines would
assist states in determining whether or not the public interest would be served by a carrier s designation as
an ETC. We also believe that guidelines should improve the long-term sustainability ofthe fund, as only
fully qualified carriers that are capable of, and committed to, providing universal service would be able to
receive support.
10. We believe that federal guidelines concerning ETC qualifications should be flexible and non-
binding on the states. Under our recommendation, state commissions would retain their rights to
determine eligibility requirements for designating ETCs. Each state commission will be uniquely
qualified to determine its own ETC eligibility requirements as the entity most familiar with the service
area for which ETC designation is sought. Because these guidelines would be permissive, we reject the
parties ' arguments suggesting that such guidelines would restrict the lawful rights of states to make ETC
designations.16 We also believe that federal guidelines are consistent with the United States Court of
Appeals for the Fifth Circuit holding that nothing in section 2l4( e) of the Act prohibits the states from
imposing their own eligibility requirements beyond the statutory requirements described in section
2l4(e)(1).17 Even with the advent of permissive federal guidelines for ETC designations, states will
continue to have the flexibility to impose additional eligibility requirements.
11. Federal guidelines concerning minimum qualifications should encourage state commissions
to conduct rigorous reviews of ETC applications, including fact-intensive analyses. Because an ETC
must be prepared to serve all customers within a designated service area, and must be willing to be the
sole ETC should other ETCs withdraw from the market, states may appropriately establish minimum
qualifications focused on the carrier s ability to provide the supported services to all consumers in the
designated area upon reasonable request. I 8 Guidelines encouraging a rigorous application process are
appropriate because section 2l4( e )(2) requires that designation of an additional ETC serve the public
interest. Consistent with Section 254(b )(3) of the Act, we believe that a rigorous application process
ensures that consumers in all regions of the nation, including rural and low-income consumers, have
access to telecommunications services that are reasonably comparable to services provided in urban
areas.
16 See, e.CTIA Comments at 10; Idaho Tel. Ass n Comments at 12; Montana Telecomms. Ass n Comments at
10; Nebraska Rural Indep. Coso Comments at 27.
17 See Texas Office o/Public Utility Counselv. FCC 183 F.3d393, 418 (5thCir. 1999) (TOPUCv. FCC). The Fifth
Circuit addressed the question of whether states may subject carriers designated as ETCs to eligibility requirements
above and beyond the eligibility requirements of section 214(e)(I) of the Act. ld. See also Washington Indep. Tel.
Ass n Comments at 17.
18 See 47 US.C. ~ 214(e)(4).
47 US.c. ~ 254(b)(3).
Federal Communications Commission FCC 04J-
12. In recommending federal guidelines, we reject the arguments of some commenters that the
current ETC criteria should not be expanded?O Instead, we believe that a specific, fact-intensive inquiry
is the appropriate way to analyze the public interest when evaluating an ETC application for a rural area.
For example, some commissions have cited generalized benefits of competition when evaluating ETC
applications. While this may be appropriate, we do not believe that such an analysis is sufficient by itself.
Section 2l4(e)(2) requires states to undertake a fact-intensive analysis to ensure that the designation of
any additional ETCs will promote the goals set forth in section 254 of the Act in the affected area. We
discuss below some of the factors states may choose to consider in conducting this fact-intensive inquiry.
13. We believe that adopting a core set of minimum qualifications will promote a predictable
application process across states and provide certainty for states in terms of what guidelines may be
appropriate to consider in the public interest analysis. Many commenters, including incumbent LECs and
their competitors, support this goal and achieving this goal should benefit incumbent LECs and
competitors alike?1 Permissive guidelines will enable state commissions, when evaluating ETC
designation requests, to evaluate section 2l4( e )(2) petitions in light of at least a minimum set of criteria.
We agree with the commenters that permissive guidelines could improve consistency in the treatment of
requests for ETC status?2 However, the goal of predictability will be promoted if states and the
Commission both apply similar guidelines. Thus, we strongly encourage the adoption of the proposed
guidelines. Guidelines should also help address arguments about what is appropriate for states to
consider as part of the public interest analysis.
Applicability of Guidelines
14. We recommend that state commissions apply these permissive federal guidelines in all ETC
proceedings. An ETC petition presented to a state commission can affect an area served by a non-rural
carrier/3 an area served by one or more rural carriers/4 or both?5 A single set of guidelines will
encourage states to develop a single, consistent body of eligibility standards to be applied in all cases
regardless of the characteristics of the wireline incumbent carrier.
15. Permissive federal guidelines for all ETC cases would be consistent with section 2l4(e)(2).
That section prescribes that all state certification decisions must be consistent with the public interest
20 See, e.g., GCI Reply Comments at 27-28; Western Wireless Reply Comments at 42; Rural Cellular Ass n/Alliance
of Rural CMRS Carriers Reply Comments at 16-17.
21 See, e.g., Alaska Tel. Ass n Comments at 3-5; BellSouth Reply Comments at 2-4; Dobson Comments at 15; MCI
Comments at 7. See also NASUCA Comments at 9.
22 See, e., Dobson Comments at 15 (stating that uniform applications and procedures for analyzing the statutory
ETC designation criteria might make the ETC designation process easier and more predictable for states and
carriers).
23 See, e.
g.,
Designation of Eligible Telecommunications Carriers Under the Telecommunications Act of 1996, RCC
Atlantic, Inc. d/b/a Unicel Docket No. 5918 (Vt. Pub. Servo Bd. June , 2003) (Vermont Unicel ETC Order).
24 See, e.Request by Alaska Digitel, LLCfor Designation as Carrier Eligible to Receive Federal Universal
Service Support Under the Telecommunications Act of 1996, U-02-, Order No. 10, Order Granting Eligible
Telecommunications Carrier Status and Requiring Filings (Reg. Comm n of Ala. Aug. 28, 2003) (Alaska Digitel
ETC Order).
25 See
, e.Wisconsin u.S. Cellular ETC Order.
26 Although we intend the guidelines to apply in areas served by both rural carriers and non-rural carriers, we believe
that states and the Commission should apply a higher level of scrutiny when evaluating ETC applications for
designations in areas served by rural carriers. See infra paras. 17-18.
Federal Communications Commission FCC 04J-
convenience, and necessity. We believe this statutory requirement demonstrates Congress s intention that
state commissions evaluate local factual situations in ETC cases and exercise broad discretion in reaching
their ultimate conclusion regarding the public interest, convenience and necessity. This view is also
consistent with the ruling of the Fifth Circuit in TOPUC v. FCC which held that states may impose their
own eligibility requirements beyond those listed in section 254(b)( 1).
16. We also believe that applying the permissive federal guidelines to all state ETC proceedings
will best promote federal universal service goals found in section 254(b). While Congress delegated to
individual states the right to make ETC decisions, collectively these decisions have national implications.
They affect not only the dynamics of competition in the areas subject to the proceedings, but also the
national strategies of new entrants. They also affect the overall size of the federal fund. We anticipate
that the adoption of recommended federal guidelines would facilitate results that are fully consistent with
the goals of section 254. In addition, broadly applied recommended federal guidelines would be most
likely to ensure designation of carriers that are: financially viable, likely to remain in the market, willing
and able to provide the supported services throughout the designated service area, able to be the sole ETC
in a service area if all other ETCs relinquish their designations, and able to provide consumers an
evolving level of universal service.
17. Rigorous review of ETC applications assumes added importance in areas served by rural
carriers. The Act contains added requirements in these cases. Although Congress provided that states
shall designate more than one ETC in areas served by non-rural carriers (provided such designation is
consistent with the public interest, convenience, and necessity), the Act provides that states may designate
multiple ETCs in areas served by rural carriers thereby suggesting that states have greater discretion
when evaluating applications for designation in rural carrier service areas. 28 In addition, before a state
may designate an additional ETC in an area served by a rural carrier, the state must affIrmatively find the
designation to be in the public interest.29 In establishing these additional statutory protections, we believe
that Congress intended state commissions to exercise a higher level of scrutiny when evaluating ETC
applications for designations in rural carrier service areas. 3D Permissive federal guidelines for minimum
eligibility should assist states in effectuating that higher level of scrutiny in areas served by rural carriers.
18. The characteristics of many rural carrier service areas also support a more rigorous standard
of eligibility. Rural carrier service areas often have low customer densities and high per-customer costs.
Subsidies flowing from federal and state universal service funds are often substantial. The Rural Task
Force in White Paper #2 documented these effects and explained that rural carriers serve areas with lower
population and line density and serve a smaller proportion of business customers?1 These circumstances
support our belief that state commissions should apply a particularly rigorous standard to the minimum
27 See TOPUCv. FCC 183 F.3dat418.
47 US.C. ~ 214(e)(2). See also TOPUCv. FCC 183 F.3d at 418. We note that the Arkansas
Telecommunications Regulatory Reform Act of 1997 states that for purposes of the Arkansas state universal service
fund and the federal universal service fund, there "shall be only one. . . (ETe) which shall be the incumbent (LEe)
that is a rural telephone company. . .See Act 77 of 1997, Senate Bill 54, 81 st General Assembly, Regular Session
codified at Ark. Code. Ann. ~ 23-17-405(d)(1).
47 US.c. ~ 214(e)(2).
30 In its comments, OPASTCO argues that Congress recognized in section 214(e)(2) of the Act that supporting
competition would not always serve the public interest in areas served by rural telephone companies. See
OP ASTCO Comments at 40-41.
31 The Rural Difference, Rural Task Force, White Paper 2, January 2000, at 9-11 (RTF White Paper).
Federal Communications Commission FCC 04J-
qualifications of applicants seeking ETC designation in rural carrier service areas.
Existing Minimum Eligibility Requirements
19. Before suggesting new minimum eligibility requirements, we begin with a review of the
requirements for designation ofETCs as specified by section 2l4(e)(1) of the Act. First, a common
carrier designated as an ETC must offer the services supported by the federal universal service
mechanisms throughout the designated service area.33 The ETC must offer such services either using its
own facilities or a combination of its own facilities and resale of another carrier s services.34 The services
that are supported by the federal universal service support mechanisms are defined as: (1) voice grade
access to the public switched network;35 (2) local usage;36 (3) Dual Tone Multifrequency (DTMF)
signaling or its functional equivalent;37 (4) single-party service or its functional equivalent;38 (5) access
emergency services, including 911 and enhanced 911; 39(6) access to operator services;4O (7) access to
interexchange services; 41(8) access to directory assistance;42 and (9) toll limitation for qualifying low-
32 We also recognize that there are rural communities that are served by non-rural carriers. See RTF White Paper
8 (stating that both rural and non-rural carriers service rural communities).
47 US.C. 9214(e)(I)(A).
34
Id. An entity that offers the supported services exclusively through resale shall not be designated as an ETC. See
47 c.P.R. 954.201(i).
35 "Voice grade access" is defined as a "functionality that enables a user of telecommunications services to transmit
voice communications, including signaling the network that the caller wishes to place a call, and to receive voice
communications, including receiving a signal indicating there is an incoming cal1." For the purposes of Part 54
bandwidth for voice grade access should be, at a minimum, 300 to 3 000 Hertz. 47 c.P.R. 9 54.101(a)(1).
36 "Local usage" means an "amount of minutes of use of exchange service, prescribed by the Commission, provided
free of charge to end users." 47 c.P.R. 9 54.l01(a)(2).
37 "Dual tone multi-frequency'" (DTMP) is a derIDed as a "method of signaling that facilitates the transportation of
signaling through the network, shortening call set-up time." 47 c.P.R. 954.l01(a)(3).
38 "Single-party service" is defined as "telecommunications service that permits users to have exclusive use of a
wireline subscriber loop or access line for each call placed, or, in the case of wireless telecommunications carriers
which use spectrum shared among users to provide service, a dedicated message path for the length of a user
particular transmission." 47 C.R. 954.1O1(a)(4).
39 "Access to emergency services" includes access to services, such as 911 and enhanced 911 , provided by local
governments or other public safety organizations. "911" is derIDed as a "service that permits a telecommunications
user, by dialing the three-digit code "911 " to call emergency services through a Public Service Access Point (PSAP)
operated by the local government." "Enhanced 911" is derIDed as "911 service that includes the ability to provide
automatic numbering information (ANI), which enables the PSAP to call back if the call is disconnected, and
automatic location information (ALl), which permits emergency service providers to identify the geographic
location of the calling party.
" "
Access to emergency services" includes access to 911 and enhanced 911 services to
the extent the local government in an eligible carrier s service area has implemented 911 or enhanced 911 systems.
47 c.P.R. 954.1O1(a)(5).
40 "Access to operator services" is derIDed as "access to any automatic or live assistance to a consumer to arrange for
billing or completion, or both, ofa telephone call." 47 C.R. 9 54.1O1(a)(6).
41 "Access to interexchange service" is derIDed as the "use of the loop, as well as that portion of the switch that is
paid for by the end user, or the functional equivalent of these network elements in the case of a wireless carrier
necessary to access an interexchange carrier s network" 47 c.P.R. 9 54.101(a)(7).
42 "Access to directory assistance" is derIDed as "access to a service that includes, but is not limited to, making
available to customers, upon request, information contained in directory listings." 47 c.P.R. 9 54.1O1(a)(8).
Federal Communications Commission FCC 04J-
income customers.43 Second, throughout the service area for which designation is received, the ETC must
advertise the supported services and the charges therefore using media of general distribution.44 Pursuant
to section 2l4(e)(1)(B), an ETC is required to advertise the availability and prices charged for the services
that are supported by federal universal service support.45 An ETC must also advertise the availability of
Lifeline and Link Up services in a manner reasonably designed to reach those likely to qualify for those
services.
20. While section 2l4(e)(1) requires an ETC to "offer" the services supported by the federal
universal service support mechanisms, the Commission has determined that this does not require a
competitive carrier to actually provide the supported services throughout the designated service area
before designation as an ETC.47 In the
Section 214(e) Declaratory Ruling, the Commission concluded
that interpreting section 2l4( e) (1 ) (A) to require the provision of service throughout a service area before
ETC designation prohibits, or has the effect of prohibiting, the ability of competitive carriers to provide
telecommunications service, in violation of section 253(a).48 The Commission found that such an
interpretation of section 2l4( e)(1) is not competitively neutral, consistent with section 254, or necessary
to preserve and advance universal service. In addition, the Commission concluded that such a
requirement conflicts with section 2l4(e) and stands as an obstacle to the accomplishment and execution
of the full purpose and objectives of Congress as set forth in section 254.49 Consequently, the
Commission concluded that requiring the provision of service throughout the service area before
designation would effectively preclude designation of new entrants as ETCs in violation of the intent of
Congress.
Additional Minimum Eligibility Requirements
21. For the reasons stated above, we recommend that state commissions consider the additional
minimum qualifications listed below when evaluating ETC designation requests.
43 "Toll limitation" means either toll blocking or toll control for ETCs that are incapable of providing both services.
For ETCs that are capable of providing both services
, "
toll limitation" means both toll blocking and toll control. 47
c.F.R. 99 54.101(a)(9) and 54.400(d). "Toll blocking" is a service provided by carriers that allows consumers to
elect not to allow the completion of outgoing toll calls from their telecommunications channel. 47 C.F .R. 9
54.400(b). "Toll control" is a service provided by carriers that allows consumers to specify a certain amount of toll
usage that may be incurred on their telecommunications channel per month or per billing cycle. 47 C.F .R. 9
54.400(c).
47 US.C. 92l4(e)(1)(B).
4S Id.
47 C.R. 99 54.405(b) and 54.4ll(d). Lifeline is a program that provides discounts to consumers on their
monthly telephone bills. See 47 C.R. 99 54.401-54.409. Link Up helps consumers with telephone installation
costs. See 47 C.R. 99 54.411-54.415. In its Twelfth Report and Order the Commission created a fourth tier
($25.00 per month) offederal Lifeline support and established additional Link-Up support ($70.00 per consumer)
which is available to ETCs serving qualifying low-income individuals living on tribal lands. See Federal-State Joint
Board on Universal Service; Promoting Deployment and Subscribership in Unserved and Underserved Areas
Including Tribal and Insular Areas Twelfth Report and Order, Memorandum Opinion and Order, and Further
Notice of Proposed Rulemaking, CC Docket No. 96-, 15 FCC Rcd 12208 (2000) (Twelfth Report and Order).
47 Federal-State Joint Board on Universal Service; Western Wireless Corporation Petition for Preemption of an
Order of the South Dakota Public Utilities Commission Declaratory Ruling, CC Docket No. 96-, 15 FCC Rcd
15168, 15172-73 (2000), recon. pending (Section 214(e) Declaratory Ruling).
48 Id.
49 Section 214(e) Declaratory Ruling, 15 FCC Rcd at 15179-81.
Federal Communications Commission FCC 04J-
(i)Adequate Financial Resources
22. We recommend that the Commission adopt guidelines encouraging states to evaluate whether
ETC applicants have the financial resources and ability to provide quality services throughout the
designated service area. We believe that it would neither be prudent nor serve the public interest if a
financially unsound carrier is designated as an ETC, receives universal service support and yet is still
unable to achieve long-term viability that is sufficient to sustain its operations. In order to provide
guidance in this area, we recommend that the Commission seek to further develop the record on the ways
in which state commissions may determine whether an ETC applicant has adequate financial resources.
Long-term viability can be based, for example, on plans that tie investment to customer growth and
demands. In this regard, we note that the Commission has held that a new entrant "cannot reasonably be
expected to be able to make the substantial financial investment required to provide the supported
services in high-cost areas without some assurance that it will be eligible for federal universal service
support" and "(i)n fact, the carrier may be unable to secure financing or finalize business plans due to
uncertainty surrounding its designation as an ETC.,,5O
(ll)Commitment and Ability to Provide the Supported
Services
23. We recommend that the Commission adopt a guideline encouraging state commissions to
require ETC applicants to demonstrate their capability and commitment to provide service throughout the
designated service area to all customers who make a reasonable request for service. States should require
a demonstration of capability and commitment because this will help them ensure that an ETC applicant
is willing and able to provide the supported services throughout the designated service area and to be the
sole ETC in a service area if the incumbent LEC relinquishes its designation. States should have
flexibility in implementing this guideline.
24. State commissions may choose to implement this requirement, for example, by requiring a
formal build-out plan for areas where facilities are not yet built out at the time the ETC application is
considered. State commissions have examined ETC applicants' plans to serve new customers and build
out their networks in a variety of ways. For example, the Arizona Corporation Commission (Arizona
Commission) has evaluated an ETC's plans to assist potential customers to receive service by employing
various technical means.51 The Arizona Commission noted that the ETC had been operating for nearly
ten years and had worked with five Native American tribes to secure adequate cell sites on Native
American lands.52 In another case, a Minnesota Administrative Law Judge (Minnesota ALl) examined an
ETC's plans to provide universal service to customers using .6-watt handheld phones or a 3-watt
telephone and noted the applicant's commitment to building 15 specific cell sites in high-cost areas that it
would not otherwise include in its network expansion plans because of cost issues.53 In its fmal order, the
Minnesota Public Utilities Commission (Minnesota Commission) found it adequate that the company was
able to offer its services through approximately 200 cell sites in and around the state; pledged to build an
additional 15 cell sites upon designation as an ETC; pledged to meet customer orders for new service
50
ld. at 15173, para. 13.
51 See Arizona Smith Bagley ETC Order at 6.
52 Id.
53 See Petition of Midwest Wireless Communications, 1.1. for Designation as an Eligible Telecommunications
Carrier (ETC) Under 47 US.214(e)(2), OAH Docket No. 3-2500-14980-, PUC Docket No. PT-6153/AM-02-
686, Findings of Fact, Conclusions of Law, and Recommendation at 6 11 (Minn. Office of Admin. Hearings Dec.
2002) (Minnesota ALJ ETC Recommendation).
Federal Communications Commission FCC 04J-
through a variety of measures including additional cell sites, cell extenders, rooftop antennae, high-
powered phones, and the resale of existing service; and was willing to address a customer s request for
service by developing a schedule for extending service.54 The Regulatory Commission of Alaska (Alaska
Commission) recently granted ETC status to a commercial mobile radio services (CMRS) provider and
stated that the provider need not prove its ability to build facilities throughout every portion of the
incumbent LEC's service area but must demonstrate that its methods of providing service throughout the
incumbent LEC's service area are reasonable. 55 The Alaska Commission found reasonable a seven-step
plan that Alaska Digitel proposed for serving customers.
25. In the Minnesota proceeding discussed above, the Minnesota ALJ examined the cost of
equipment as another way to determine whether the carrier was willing and able to compete for local
exchange service as an ETC.57 Specifically, the ALJ determined that the cost of installation and customer
premises equipment necessary to provide the ETC applicant's basic universal service package should be
considered as part of this analysis. The ALJ found that the cost of this equipment to the consumer is
relevant in determining whether a carrier has a bona fide intent to compete for local exchange service.
Further, the ALJ determined that the ETC applicant's commitment to provide the necessary equipment at
little or no cost was driven by a desire to compete for local service.
26. State commissions may also choose to require competitive ETCs to explore the possibility of
serving customers through the resale of another carrier s service. If an ETC receives a reasonable request
for service and yet is unable to extend its network to meet the request, it still has the option of serving that
customer through resale. States have discretion to require ETC applicants to incorporate resale in their
plans to serve all customers upon reasonable request as a condition of ETC designation. The commitment
to incorporate resale into such plans may demonstrate an applicant's capability and commitment to
providing service. We note that, while section 2l4(e)(l) permits an ETC to offer the services supported
by universal service using its own facilities, or a combination of its own facilities and resale, ETCs may
54 See Minnesota Midwest Wireless ETC Order at 6.
55
See Alaska Digitel ETC Order at 8-9. A "commercial mobile service" is derIDed as any mobile service that is
provided for profit and makes interconnected service available to the public or to such classes of eligible users as to
be effectively available to a substantial portion of the public, as specified by regulation by the Commission. 47
C. 9332(d)(1). A "mobile service" is derIDed as a radio communication service carried on between mobile
stations or receivers and land stations, and by mobile stations communicating among themselves, and includes: (1)
both one-way and two-way radio communication services; (2) a mobile service which provides a regularly
interacting group of base, mobile, portable, and associated control and relay stations (whether licensed as an
individual, cooperative, or multiple basis) for private one-way or two-way land mobile radio communications by
eligible users over designated areas of operation; and (3) any service for which a license is required in a personal
communications service established pursuant to the proceeding entitled "Amendment to the Commission s Rules to
Establish New Personal Communications Services" or any successor proceeding. 47 U.c. 9 153(27).
56
See Alaska Digitel ETC Order at 8-9. The plan states that if a customer is not in an area where the CMRS
provider, Alaska Digitel, currently provides service, Alaska Digitel will: (1) Determine whether the customer
equipment can be modified or replaced to provide acceptable service; (2) Determine whether a roof-mounted
antenna or other network equipment can be deployed at the premises to provide service; (3) Determine whether
adjustments at the nearest cell site can be made to provide service; (4) Determine whether a cell extender or repeater
can be employed to provide service; (5) Determine whether there are any other adjustments to network or customer
facilities that can be made to provide service; (6) Explore the possibility of resale; and (7) Determine whether an
additional cell site can be constructed to provide services, and evaluate the costs and benefits of using high cost
support to serve the number of customers.
57
See Minnesota ALl ETC Recommendation at 14-15.
Federal Communications Commission FCC 04J-
not provide such services solely through resale.58 A state commission is not authorized to designate as an
ETC a carrier that offers the supported services solely through the resale of another carrier s services. 59
27. States should determine, pursuant to state law, what constitutes a "reasonable request" for
service. Once designated as an ETC, a new entrant is required, as the incumbent LEC is required, to
serve new customers upon reasonable request.6o For example
, as part of the seven-step plan in the Alaska
Digitel Erc Order if the ETC finds that it is unable to provide service to a customer short of constructing
a new cell site, the ETC will report that to the Alaska Commission, providing the cost of construction, its
position on whether the request for service is reasonable and whether high-cost funds should be expended
on the request.61 The Alaska Commission found that the ETC applicant's plan was a reasonable means
for the carrier to provide service throughout the service area upon reasonable customer request and
determined that it would address any requests by the ETC to deny service on a case-by-case basis.62 We
recognize that states have different requirements regarding line extensions and policies regarding carrier-
of-last resort obligations. We recommend that build-out requirements be harmonized with any existing
policies regarding line extensions and carrier-of-last resort obligations.
28. We also recommend that the Commission adopt guidelines encouraging states, as a condition
of ETC designation, to require competitive ETCs to be prepared to provide equal access if all other ETCs
in that service area exercise their rights to relinquish their designations pursuant to section 2l4(e)(4).
Under section 2l4(e)(4), when an ETC seeks to relinquish its ETC designation, the state commission will
require the remaining ETC or ETCs to serve the customers that had been served by the relinquishing
carrier.63 Incumbent LECs are required to provide equal access.64 Thus, this recommended guideline will
protect consumers in the event of relinquishment by ensuring that consumers will continue to have equal
access to long distance providers, without imposing any unnecessary administrative burdens on the
remaining ETC or ETCs.65 We recognize that the Commission did not resolve the issue of whether to
include equal access in the definition of universal service.66 In the Definitions Order the Commission
47 US.c. 9214(e)(1).
47 C.R. 9 54.201(i).
60 See Section 214(e) Declaratory Ruling, 15 FCC Rcd at 15175, para. 17 (stating that once designated as an ETC, a
new entrant is required, as the incumbent is required
, "
to extend its network to serve new customers upon reasonable
request
61
Alaska Digitel ETC Order at 9.
62 fd.
63 47 US.C. 9214(e)(4). The statutory provision states that "(a) State commission. . . shall pennit an eligible
telecommunications carrier to relinquish its designation as such a carrier in any area served by more than one
eligible telecommunications carrier./d. The carrier seeking to relinquish its designation must give advance notice
to the state commission. Prior to allowing the carrier to cease providing universal service in the area, the remaining
ETC or ETC will be required to ensure that all customers served by the relinquishing carrier will continue to be
served. The remaining ETC or ETCs will be pennitted up to one year from the approval of the request to relinquish
ETC status to purchase facilities or equipment and complete construction to be able to serve the relinquishing
carrier s customers. fd.
64
See 47 US.C. 9251(g).
65 We note that as stated above, the remaining ETC or ETCs will have one year from the date of a state
commission s approval of relinquishment to purchase equipment and/or construct facilities in order to serve the
relinquishing carrier s customers. See 47 US.c. 9214(e)(4).
66 See Federal-State Joint Board on Universal Service Order and Order on Reconsideration, CC Docket No. 96-
18 FCC Rcd 15090, 15104, para. 33 (2003) (Definitions Order).
Federal Communications Commission FCC 04J-
stated that it believed that any determination regarding equal access would be premature because of the
scope of the instant proceeding.67 It deferred consideration of the equal access issue pending resolution of
this proceeding.68 As discussed below, we decline to recommend that the Commission modify the basis
of support in areas served by multiple ETCs at this time, but recommend that the Joint Board and the
Commission continue to consider possible modifications to the basis of support in a broader context.
We make no recommendation as to whether to include equal access in the definition of universal service
at this time.
29. We recommend that the Commission clarify its decision in the Western Wireless Kansas
CMRS Order.7O In that order, the Commission determined that Western Wireless' Basic Universal
Service (BUS) offering in Kansas was a CMRS service and therefore, the Kansas Corporation
Commission was preempted from regulating BUS entry or rates and from requiring equal access for
telephone toll services.71 We believe that this case could be interpreted as precluding states from
imposing equal access requirements on CMRS carriers under any conditions. We believe, however, that
section 332(c)(8) may be interpreted differently, and we recommend that the Commission clarify what it
intended. For example, in a separate proceeding some parties argued that section 332(c)(8) of the Act
does not prevent the Commission from requiring CMRS providers to provide equal access in order to
receive universal service funds.72 They argued that section 332(c)(8) only prevents the Commission from
requiring CMRS carriers to provide equal access as a general condition of mobile service.
(iii)Ability to Remain Functional in Emergencies
30. We recommend that the Commission adopt a guideline encouraging states to require ETC
applicants to demonstrate the ability to remain functional in emergency situations. We believe this to be
an important guideline because as noted by at least one commenter, the "security of a carrier s network
and the ability to protect critical telecommunications infrastructure should be a major consideration in
evaluating the public interest.,,74 We recommend that the Commission further develop the record on
specific requirements state commissions may choose to consider in evaluating an ETC applicant's ability
to remain functional in emergencies. For example, the State of Vermont Public Service Board (Vermont
Commission), in analyzing the public interest in an ETC proceeding, recently examined an ETC
applicant's ability to remain functional in emergencies.75 The Vermont Commission made a detailed
factual finding about the applicant's technical capabilities to remain functional in emergencies , as well as
67 !d.
68 !d.
69
See infra discussion at Part IV.
70 Petition of the State Independent Alliance and the Independent Telecommunications Group for a Declaratory
Ruling that the Basic Universal Service Offering Provided by Western Wireless in Kansas Is Subject to Regulation
as Local Exchange Service Memorandum Opinion and Order, WT-Docket No. 00-239, 17 FCC Rcd 14802 (2002)
(Western Wireless Kansas CMRS Order).
71 Id. at 14820, para. 34.
72 Definitions Order 18 FCC Rcd at 15103, para. 31.
73 !d.
74 OPASTCO Comments, Attachment at 35.
75
See Vermont Unicel ETC Order at 12-13.
Federal Communications Commission FCC 04J-
the applicant's track record for maintaining its network in a power outage.76 Additionally, the Public
Utility Commission of Texas (Texas Commission), as a condition of receiving universal service support
required an ETC to provide a minimum of four hours of battery reserve without voltage falling below the
level required for proper operation of all equipment.
(iv)Consumer Protection
31. We recommend that the Commission adopt a guideline indicating that state commissions may
properly impose consumer protection requirements as part of the ETC designation process. We believe
that imposing consumer protection requirements as part of the ETC designation process may be consistent
with "the public interest, convenience and necessity" to ensure that consumers are able to receive an
evolving level of universal service.78 Any consumer protection requirements imposed on ETCs should
further the universal service goals contemplated in section 254(b) of the Act, and should not be imposed
merely for the sake of regulatory parity.
32. State commissions have imposed various consumer protection requirements as a condition of
granting a request for ETC designation. The Vermont Commission, for example, has subjected ETCs to
its rules regarding disconnections and treatment of customer deposits as a condition ofETC designation.
Similarly, as a condition of receiving ETC designation, the Arizona Commission required a wireless
carrier to submit consumer complaints "arising from its offering as an ETC.,,81 In extending consumer
protection requirements to competitive ETCs as a condition of granting ETC designations, state
commissions have noted that states are free to impose their own eligibility requirements in making ETC
determinations, consistent with the Fifth Circuit's interpretation of the Act.
33. We reject arguments that subjecting competitive ETCs, particularly wireless competitive
76 Id. RCC provides most cell sites with backup power to maintain the continuity of its service in the event its main
power supply goes down. RCC uses batteries that provide between two to three hours of power backup. RCC also
equips hub cell cites. . . or remote cell cites with additional power backup from a propane or diesel generator, which
extends the power backup to at least 12 hours. RCC maintains a large diesel generator at its switch location in
Colchester, Vennont, that will provide up to two days of extended power backup before requiring refueling. The
power backup facilities enable RCC to maintain its wireless network, including its 911 service, even in the event of
a sustained power outage. RCC demonstrated its ability to maintain its network during the 1998 ice storm, with its
resultant extended power and landline-telephone-service outages, when RCC kept a majority of its cell sites and
switch operational, served as the primary line of communications for public-safety personnel, and donated numerous
cell phones to the National Guard, Red Cross and the State Police to ensure those organizations maintained critical
lines of communications. "
77 See Application of WWC Texas RSA Limited Partnership for Designation as an Eligible Telecommunications
Carrier Pursuant to 47 USe. 2l4(e) and PUC Subst. R. 26.418, PUC Docket No. 22289, SOAR Docket No. 473-
00-1167, Order at 25 (Tex. Pub. Util. Comm n Oct. 30, 2000) (Texas WWC ETC Order).
78 See 47 US.C. ~ 254(c).
47 US.C. ~ 254(b).
80 Vermont Unicel ETC Order at 74.
81
Arizona Smith Bagley ETC Order at 14 (fmding that Smith Bagley s ETC designation application should be
granted subject to the condition that the carrier submit consumer complaints arising from its offering as an ETC to
the Arizona Commission s Consumer Service Division and provide a regulatory contact).
82 Vermont Unicel ETC Order at 23-34; Arizona Smith Bagley ETC Order at 12-14.
Federal Communications Commission FCC 04J-
ETCs, to consumer protection requirements is inconsistent with section 332 ofthe Act.83 While section
332( c )(3) of the Act generally preempts states from regulating the rates and entry of CMRS providers, it
specifically allows states to regulate the other terms and conditions of commercial mobile services.
Accordingly, while wireless competitive ETCs, for example, otherwise may not be subject to state
consumer protection requirements, we believe that states may extend generally applicable requirements to
all ETCs in order to preserve and advance universal service, consistent with sections 214 and 254 of the
Act. 85 In addition, seeking ETC designation is a choice. We therefore agree with commenters that
preemption from state regulation afforded under section 332 ofthe Act should not be equated with
conditions that apply only to carriers that choose to seek ETC designation and universal service support.
34. Even if some ETCs, including CMRS carriers, otherwise would not be subject to state
consumer protection requirements, states may extend generally applicable requirements to all ETCs to
ensure that universal service goals are met. Our recommendation here, however, is not that competitive
ETCs should be required to comply with all of the standards imposed on wireline incumbent LECs as
some commenters have proposed.87 States should not require regulatory parity for parity's sake. Rather
requirements should be imposed on ETCs only to the extent necessary to further universal service goals
including the provision of high-quality service throughout the designated service area.
(v)Local Usage
35. Consistent with the requirement that ETCs offer local usage, states may consider how much
local usage ETCs should offer as a condition of federal universal service support. In the First Universal
Service Report and Order the Commission determined that ETCs should provide some minimum amount
of local usage as part of their "basic service" package of supported services.88 Thus, local usage is one of
the supported services that ETCs are required to provide in order to receive federal universal service
support. Although the Commission has not set a minimum local usage requirement, there is nothing in
the Act, Commission s rules, or orders that would limit state commissions from prescribing some amount
oflocal usage as a condition ofETC status. As determined by the Fifth Circuit in TOPUC v. FCC states
may establish their own eligibility requirements for ETC applicants.89 In fact, in recently deciding that
83 Western Wireless Reply Comments at 45-47; Rural Cellular Ass n/Alliance of Rural CMRS Carriers Comments
at 18.
84 See 47 u.S.c. ~ 332(c)(3). Additionally, section 332(c)(3) of the Act also states that "(n)othing in this
subparagraph shall exempt providers of commercial mobile services (where such services are a substitute for land
line telephone exchange service for a substantial portion of the communications within such State) from
requirements imposed by a State commission on all providers of telecommunications services necessary to ensure
the universal availability of telecommunications services at affordable rates." We note, however, that at this time
although they may reach this level in the future, commercial mobile services are not yet known to be a substitute for
a substantial portion of communications in any state.
47 u.S.c. ~~ 214, 254.
86 See, e.
g.,
CenturyTel Reply Comments at 7-9; Nebraska Rural Indep. Coso Comments at 30; OPASTCO Reply
Comments at 27-28.
87 See, e.CenturyTel Reply Comments at 6-8; OPASTCO Reply Comments at 25-28; USTA Comments at 14.
88 See Federal-State Joint Board on Universal Service Report and Order, CC Docket No. 96-, 12 FCC Rcd 8776
8812-14 (1997) (First Universal Service Report and Order) (subsequent history omitted). Although the
Commission s rules define "local usage" as "an amount of minutes of use of exchange service, prescribed by the
Commission, provided free of charge to end users " the Commission has not specified a number of minutes of use.
See 47 c.F.R. ~ 54.101(a)(2).
89 See TOPUC v. FCC 183 F.3d at 418.
Federal Communications Commission FCC 04J-
unlimited local usage should not be added to the list of services supported by federal universal service, the
Commission found that the states are in a better position to determine whether unlimited local usage
offerings are beneficial in particular circumstances.
36. In considering local usage, states may choose to compare an incumbent LEe's offering of a
local calling plan to the local calling plan proposed by the ETC applicant. For example, the Arizona
Commission noted an ETC applicant's plan to propose 30 free minutes per month throughout its network
which was a much larger area than the local exchange area provided by the LECs in the same region.
The Arizona Commission compared the ETC applicant's calling plan with that of the landline service
offerings and determined that based on the size of the calling area, toll calling on the ETC applicant's
network would cost the same, or less, as it would on the incumbent LEe's network.92 It also considered
the applicant's plan to provide unlimited free calls to a long list of government , social service, health
facilities, educational institutions, and emergency numbers.
Public Interest Determinations
37. The minimum eligibility requirements recommended above will assist states in ensuring that
additional ETCs are able and willing to serve all customers in the designated service area upon reasonable
request. Before an additional ETC can be designated, however, the state commission must also determine
that the designation is consistent with the public interest, convenience and necessity. Additionally, for
areas served by rural carriers, the Act requires a separate finding that designation of an additional ETC is
in the public interest. While Congress did not specifically prescribe how these public interest tests would
be applied, state commissions and the Commission have developed analyses that address various factors
affecting the public interest. These include, but are not limited to, benefits of increased competition and
choice and potential harm to consumers. Below, we discuss the statutory public interest requirement, how
different states have applied it, and additional factors states may consider in making public interest
determinations. Before reaching those factors, however, we make some observations concerning the
statutory provisions that apply when an ETC application covers an area served by a rural carrier.
Additional ETCs in Areas Served by Rural Carriers
38. The Joint Board interprets section 2l4(e)(2) as contemplating use of a higher level of scrutiny
for ETC applicants seeking designation in areas served by rural carriers.94 In these areas, the public
interest determination for an additional ETC is subject to two special statutory rules. First, section
2l4(e)(2) requires states to designate more than one ETC in areas served by non-rural carriers (so long as
doing so is "consistent with the public interest, convenience, and necessity"); but it confers discretion on
the states to designate more than one ETC in areas served by rural carriers. In these areas, the Act
provides that a state commission "may" grant the designation.95 Also, as noted above, the last sentence of
90 See Definitions Order 18 FCC Rcd at 15096, para. 14.
91 Arizona Smith Bagley ETC Order at 6.
92 Id. at 7 (noting that a local incumbent LEC charged $15.90 for a single residential access line but that this access
provides a local calling area which is a small fraction of that being provided by Smith Bagley (SBI), and with most
calls being toll, 30 minutes of toll calling will result in an approximate total charge of $25.40 for the wireline
package as opposed to $24.99 for the equivalent SBI offering).
93 !d.
47 u.S.c. 9214(e)(2).
95 Id. See also TOPUC v. FCC 183 F.3d at 418.
Federal Communications Commission FCC 04J-
section 2l4(e)(2) requires that before a state designates an additional ETC in an area served by a rural
carrier, the state must find the designation to be in the public interest.96 These two additional
requirements demonstrate Congress s recognition that supporting competition might not always serve the
public interest in areas served by rural carriers, and Congress ' intent that state commissions exercise
discretion in deciding whether the designation of an additional ETC serves the public interest. As
discussed above, the low customer densities and high per-customer cost characteristics of many rural
carrier study areas also support a more rigorous standard of eligibility.97 Thus, we agree with commenters
that section 2l4(e)(2) provides the state commissions with the obligation and statutory duty to perform an
in-depth public interest analysis concerning ETC applications in rural carrier study areas.
Public Interest Considerations
39. While Congress did not establish specific criteria to be applied under the public interest tests
in section 2l4(e)(2) of the Act, it is clear that the public interest must be analyzed in a manner that is
consistent with the purposes and goals of the Act itself.99 Certain state commissions have already based
their public interest findings on relevant universal service principles. For example, the public interest test
performed by the Texas Commission is guided by the fundamental goals of preserving and advancing
universal service, and the component goals of ensuring the availability of quality telecommunications
services at just, reasonable and affordable rates, and promoting the deployment of advanced
telecommunications and information services to all regions of the Nation, including rural and high-cost
areas. 100
40. Several state commissions have considered various additional factors in analyzing the public
interest, such as the potential benefits consumers could receive from designation of an additional ETC in
a particular area.1O1 The elements that the Alaska Commission has considered in determining the public
interest include: new choices for customers; affordability; quality of service; service to unserved
customers; comparison of benefits to public cost; and considerations of material harm.1O2 Similarly, the
Commission has considered whether consumers were likely to benefit from increased competition;
whether the additional designation will provide benefits not available from incumbent carriers; whether
consumers may be harmed should the incumbent withdraw from the service area; and whether there
would be harm to a rural incumbent LEC.1O3
41. These commissions have also applied the public interest factors to the particular facts before
them in an ETC proceeding. In evaluating service to unserved customers, the Alaska Commission took
47 US.C. ~ 214(e)(2).
97
See supra para. 18.
98 See, e.
g.,
Fred Williamson and Assocs. Comments at 19; OPASTCO Comments at 40-41.
99 Western Wireless Comments, Attachment Eat 7.
100 See generally Texas WWC ETC Order. See also 47 US.c. ~ 254.
101
See Alaska Digitel ETC Order at 12.
102 Id. at 12-16.
103 See, e.g, Federal-State Joint Board on Universal Service; Western Wireless Corporation Petition for Designation
as an Eligible Telecommunications Carrier for the Pine Ridge Reservation in South Dakota Memorandum Opinion
and Order, CC Docket No. 96-16 FCC Rcd 18133 (2001) (Western Wireless Pine Ridge Order); see also
Federal State Joint Board on Universal Service; RCC Holdings, Inc. Petition for Designation as an Eligible
Telecommunications Carrier Throughout its Licensed Service Area In the State of Alabama Memorandum Opinion
and Order, CC Docket No. 96-, 17 FCC Rcd 23532 (Wir. Compo Bur. 2002) (RCC Holdings Order).
Federal Communications Commission FCC 04J-
note of an ETC's plan to build out six additional cell sites and ability to reach unserved customers in three
specific communities if it received ETC designation.1O4 The Commission, in evaluating whether an
additional designation would provide benefits not available from incumbent carriers, noted that the ETC
applicant could offer a wider local calling area than that provided by the rural incumbent LEC and could
provide a variety of calling plans to consumers.IOS The Commission determined that such options may
make intrastate toll calls more affordable to those consumers.1O6 The Commission also evaluated
whether there would be harm to the rural incumbent LEC and affected rural consumers by undertaking an
extensive cream skimming analysis.1O7 Based on the analysis, the Commission determined that the ETC
applicant would not be serving only low-cost areas at the exclusion of any high-cost areas.1O8
42. We disagree with commenters who contend that we should encourage states to adopt a
specific cost-benefit test for the purpose of making public interest determinations.lo9 Several commenters
propose that state commissions should more explicitly balance the benefits of granting an ETC
application (e., enhancement of competition, extension of service to previously unserved areas, or
introduction of mobile services) against the costs (e., impact of supporting multiple ETCs on fund
growth).llo While we agree that a consideration of both benefits and costs is inherent in conducting a
public interest analysis, we decline to provide any more specific guidance on how this balancing should
be performed. We believe that the difficulty of quantifying and weighing the various factors that may
relevant to determining the public interest militate against attempting to create a rigid formula for
balancing costs and benefits.
43. We believe, however, that states making public interest determinations may properly consider
the level of federal high-cost per-line support to be received by ETCs.111 High-cost support is an explicit
subsidy that flows to areas with demonstrated levels of costs above various national averages. Thus, one
relevant factor in considering whether or not it is in the public interest to have additional ETCs designated
in any area may be the level of per-line support provided to the area. If the per-line support level is high
enough, the state may be justified in limiting the number ofETCs in that study area, because funding
multiple ETCs in such areas could impose strains on the universal service fund. Moreover, if the
Commission were to cap per-line support upon entry of a competitive ETC and impose a primary-
connection restriction, as discussed below, designating an excessive number ofETCs could dilute the
amount of support available to each ETC to the point that each carrier s ability to provide universal
service might be jeopardized. State commission consideration of high-cost support on a dollar per line
basis would allow equivalent comparison of support among study areas. Per-line support is a single
marker" that encompasses various underlying factors that may impact the determination of whether it is
in the public interest to have an additional subsidized carrier entering a carrier s study area. Many factors
mentioned by commenters as relevant to the public interest determination - such as topography,
population density, line density, distance between wire centers, loop lengths and levels of investment-
104 See Alaska Digitel ETC Order at 14.
105 RCC Holdings Order 17 FCC Rcd at 23541 , para. 24.
106 Id.
107 Id. at 23542-, paras. 27-31.
1O8
/d. at 23543-, para. 30.
109 See, e.OPASTCO Comments at 41-42; USTA Comments at 11-14; Western Alliance Comments at 11-14.
110 See, e.OP ASTCO Comments, Attachment A at 27-30.
III As used here
, "
high-cost support" means high-cost model support, high-cost loop support, safety net additive
support, local switching support, long-term support, interstate access support, and interstate common line support.
Federal Communications Commission FCC 04J-
may all affect the level of high-cost support received in an individual study area. High-cost support is
also a concrete, objective, transparent, and readily obtainable factor that may help state commissions
avoid generalized or abstract arguments about the harms or benefits of additional ETCs.ll2
44. Although we believe that state commissions may consider the amount of per-line support as
part of the public interest analysis, we decline to adopt specific benchmarks based on per-line support to
guide the states' public interest determinations. Weare concerned that any benchmark we recommend
would be arbitrary. We do, however, recommend that the Commission solicit comment on whether such
national benchmarks merit additional consideration. We recommend that the Commission solicit
comment on the basis, calculation, practical impact, and examples of any proposed benchmarks based on
per-line support.
45. We also recommend that the Commission seek comment on the applicability of the proposed
designation guidelines to ETCs that have already been designated. We believe states (and the
Commission) already possess the authority to rescind ETC determinations for failure to comply with the
requirements of Section 2l4( e) of the Act and any other conditions imposed by the state.l13 The
Commission should provide guidance on whether states choosing to apply the new federal guidelines to
currently designated competitive ETCs should also rescind the designation of a previously designated
competitive ETC if the state finds that the competitive ETCs designation no longer serves the public
interest. We believe the Commission should also consider if it would be beneficial to issue guidance on
whether states should allow ETCs some reasonable transition period to bring their operations into
compliance with any new state ETC requirements. Alternatively, the Commission may wish to consider
whether ETC designation for competitive carriers could be grandfathered for some period of time to avoid
significant market disruptions.
Annual Certification Requirement
46. We recommend that the Commission encourage states to use the annual certification process
for all ETCs to ensure that federal universal service support is used to provide the supported services and
for associated infrastructure costs. We make this recommendation in order to ensure the accountability of
all ETCs for proper use of funds. Annual review provides states the opportunity for periodic review of
ETC fund use.114 Additionally, we continue to believe that the state certification process provides the
most reliable means of determining whether carriers are using support in a manner consistent with section
254.115
47. States should use the annual certification process to ensure that federal universal service
112 Line counts and support amounts for each study area served by rural carriers are published quarterly by the
Universal Service Administrative Company (USAC).
113 See Section 214(e) Declaratory Ruling, 15 FCC Rcd at 15174, para. 15. By this Recommended Decision, it is
not the intent of the Joint Board to limit the discretion possessed by states and the Commission to review and rescind
previous ETC detenninations.
114 See Federal-State Joint Board on Universal Service Ninth Report and Order and Eighteenth Order on
Reconsideration, CC Docket No. 96-, 14 FCC Rcd 20432, 20482-, para. 95 (1999) (Ninth Report and Order)
(stating that accountability for the use of federal funds in the state ratemaking process is an appropriate mechanism
to ensure that non-rural carriers use high-cost support for the provision, maintenance and upgrading of facilities and
services for which the support is intended); see also Rural Task Force Order 16 FCC Rcd at 11317-, para. 187
(anticipating that states would take the appropriate steps to account for the receipt of high-cost support and ensure
that federal support is being applied in a manner consistent with section 254).
115 Rural TaskForce Order 16FCC Rcd at 11317-, para. 187.
Federal Communications Commission FCC 04J-
support is used to provide the supported services and for associated infrastructure costs. States should
examine compliance with build-out plans. Some commenters also suggest that states should consider
instituting reporting requirements and conducting audits on all ETCs.116 States could implement
regulatory provisions similar to those in Alaska where the competitive ETC is required to make the same
filing that the rural carriers makes through the Alaska Commission s annual use-of-funds certification
process.ll7 As a condition ofETC status, the Public Service Commission of West Virginia required a
competitive carrier to file annual certifications including the amount of support it received in the year and
a statement of how such funds were spent or invested. I 18 The Minnesota Commission requires ETCs to
file affidavits, additional documentation pertaining to the amount of federal high-cost support received for
the prior year, and the ETC's operational and capital expenditures.ll9 These are merely examples of what
a state commission s annual certification requirement may entail. State commissions will, of course, have
the flexibility to adopt certification requirements that are appropriate for their state and the particular
service area in which an ETC is designated.12O
48. Where an ETC fails to comply with requirements in section 2l4(e) and any additional
requirements proposed by the state commission, the state commission may decline to grant an annual
certification or may rescind a certification granted previously.121 Several states have already adopted such
requirements in their ETC designation processes. The Alaska Commission required a competitive ETC to
file an annual certification in order to monitor the continued appropriate use of funds. 122
Service Area Redefinition ProcesslRural Carrier Disaggregation of Support
49. In this subsection, we review the service area redefinition process for areas served by rural
carriers and assess the impact that disaggregation and targeting of support has on that process. We begin
by reviewing service area redefinition procedures. Section 2l4(e)(5) of the Act provides that states may
establish geographic service areas within which ETCs are required to comply with universal service
obligations and are eligible to receive universal service support.123 However, the Act states that for an
area served by a rural carrier, a company s service area for the purposes ofETC designation will be the
rural carrier s study area "unless and until the Commission and the States, after taking into account the
recommendations of a Federal-State Joint Board instituted under section 41 O( c), establish a different
definition of service area for such company."124 Thus, the Act established different procedures and
116 See Letter from David L. Sieradzki, Counsel for Western Wireless, to Marlene Dortch, FCC, dated Sept. 8, 2003
(Westem Wireless Sept. 8 ex parte).
117 See Alaska Digitel ETC Order at 18-19.
118 See Petition for Consent and Approval for Highland Cellular to be Designated as an Eligible
Telecommunications Carrier, in Areas Served by Citizens Telecommunications Company of West Virginia Case No.
02-1453-, Recommended Decision at Conclusions of Law para. 30 (Pub. Servo Comm n of W.Va. Sept. 15
2003).
119
See Minnesota Midwest Wireless ETC Order at 9.
120 We note that states are currently subject to annual certification requirements in order for ETCs operating within
their jurisdictions to receive federal universal service support. See 47 C.R. ~~ 54.313 , 54.314, 54.316.
12\ See Section 214(e) Declaratory Ruling, 15 FCC Rcd at 15174, para. 15.
122
See Alaska Digitel ETC Order at 18-19.
\23 See 47 u.S.c. ~ 214(e)(5). "The term 'service area' means a geographic area established by a State commission
(or the Commission under paragraph (6)) for the purpose of determining universal service obligations and support
mechanisms.
124 Id.
Federal Communications Commission FCC 04J-
standards for determining ETC service areas depending on whether a rural or non-rural carrier s study
area is involved.
50. In the First Recommended Decision the Joint Board generally recommended that the
Commission retain the study areas of rural telephone companies as the service areas for ETCs. The Joint
Board provided three reasons for its recommendation: (1) the potential for "cream skimming" is
minimized by retaining study areas because competitors, as a condition of eligibility, must provide
services throughout the rural carrier s study area; (2) the 1996 Act, in many respects, places rural carriers
on a different competitive footing from other local exchange companies; and (3) there would be an
administrative burden imposed on rural carriers by requiring them to calculate costs at something other
than the study area leve1.125
51. In response to the Joint Board's recommendations, the Commission agreed that, at that time
the study areas of rural telephone companies should be retained as the rural carrier service areas.126
However, the Commission also discussed the state commissions' authority to redefine the service area
served by a rural carrier and adopted rules providing the process for service area redefinition.127 Section
54.207(c) ofthe Commission s rules provides the mechanism by which a state commission may propose
to redefine a rural carrier s service area for purposes of determining universal service obligations and
support mechanisms. 128 Section 54.207( c )(3) provides that the Commission may initiate a proceeding to
consider a state commission s proposal to redefine the area served by a rural carrier within ninety days of
the release date of a public notice.129 If the Commission initiates a proceeding to consider the petition, the
proposed definition will not take effect until both the state commission and the Commission agree upon
the definition of a rural carrier service area, in accordance with section 2l4( e)( 5) of the ACt.130 If the
Commission does not act on a petition to redefine a service area within 90 days of the release ofthe
public notice, the definition proposed is deemed approved by the Commission and takes effect in
accordance with state procedures.l3l The Commission s intent in adopting these procedures was, in part
to minimize administrative delay.132
125 See Federal-State Joint Board on Universal Service Recommended Decision, CC Docket No. 96-, 12 FCC
Rcd 87, 179-, paras. 172-74 (Jt. Bd. 1996) (First Recommended Decision).
126 First Universal Service Report and Order 12 FCC Rcd at 8881-, para. 189.
127 /d. at 8880-, para. 186-88. As required by Section 214(e)(5) of the Act, the rural service area redefInition rules
require the state commission to take into account the Joint Board's recommendations cited above, and provide for
approval of the service area redefInition by both the state and the Commission. See 47 C.R. ~ 54.207.
128
See 47 c.F.R. ~~ 54.207(a), (c). The Commission has authority to propose a service area redefInition on its own
motion under section 54.207(d) of the Commission s rules but such redefInition would not go into effect without the
agreement of the relevant state commission. See 47 C.R. ~ 54.207(d).
129 47 C.R. ~ 54.207(c)(3). Under section 54.207(c)(1), a state may petition the Commission for a redefInition or
a party may petition the Commission with the state s proposal to redefme. The petition must contain: (i) the
defInition proposed by the state commission; and (ii) the state commission s ruling or other official statement
presenting the state commission s reason for adopting its proposed defInition, including an analysis that takes into
account the recommendations of any Federal-State Joint Board convened to provide recommendations with respect
to the definition of a service area served by a rural carrier. See 47 C.R. ~ 54.207(c)(1).
130 See 47 C.R. ~ 54.207(c)(3)(i); 47 u.S.c. ~ 214(e)(5). Under section 54.207(e) of the Commission s rules, the
Commission delegates its authority under section 54.207( c) to the Chief of the Wireline Competition Bureau. 47
c.F.R. ~ 54.207(e).
131 47 c.F.R. ~ 54.207(c)(3)(ii).
132 First Universal Service Report and Order 12 FCC Rcd at 8881 , para. 188.
Federal Communications Commission FCC 04J-
52. In the First Universal Service Report and Order the Commission also interpreted the
language in Section 2l4( e)( 5) of the Act requiring state commissions and the Commission to take into
account the recommendations of the Joint Board.133 The Commission concluded that this language
indicates that the states and the Commission must give full consideration to the Joint Board'
recommendations on service area redefinition and must explain why they are not adopting the
recommendations of the Joint Board.134 When proposing to redefine service areas, state commissions and
the Commission have considered the Joint Board's recommendations in the First Recommended Decision
and evaluated the Joint Board's reasons for recommending that the Commission retain the study area of a
rural carrier as the service area.135 Therefore, when proposing to redefine rural carrier service areas, state
commissions and the Commission have analyzed the potential for cream skimming as a result of the
proposed redefinition. 136
53. In evaluating whether a service area redefinition will provide opportunities for cream
skimming, some state commissions and the Commission have considered, among other things, whether
universal service support in the affected rural service area has been disaggregated.137 In the Rural Task
Force Order the Commission determined that support should be disaggregated and targeted below the
study area level to eliminate uneconomic incentives for competitive entry caused by the averaging of
support across all lines served by a carrier within its study area.138 Under disaggregation and targeting,
per-line support is more closely associated with the cost of providing service.139 In the Rural Task Force
Order the Commission also concluded that one of the factors the state commissions should consider in
determining whether to certify new ETCs for a service area other than the entire study area of a rural
carrier is the level of disaggregation.14o
54. The provisions contained in the Rural Task Force Order for disaggregation and targeting of
universal service support may help alleviate some concerns regarding cream skimming. Permitting rural
carriers to disaggregate and target universal service support allows them to direct universal service
support to those zones within the study area where support is most needed. Targeting support in this
manner also promotes a better matching of per-line support to the rural carriers' costs of providing
133 By its rules the Commission has concluded that the Joint Board referred to in Section 214(e)(5) of the Act is the
Federal-State Joint Board on Universal Service. We endorse this interpretation. We do not believe that the Act
requires a special Joint Board to be convened every time there is a request for rural service area redefInition. Such
an interpretation would obviously be administratively unworkable.
134 First Universal Service Report and Order 12 FCC Rcd at 8880-, para. 187.
135 See, e.g., Petition of the Minnesota Public Utilities Commission for Agreement to Redefine the Service Areas
Twelve Minnesota Rural Telephone Companies CC Docket No. 96-, filed on August 7 2003 (Minnesota
Redefinition Petition); Petition by the Colorado Public Utilities Commission, Pursuant to 47 c.P.R. 954.207(c),for
Commission Agreement in Redefining the Service Area of Wiggins Telephone Association, A Rural Telephone
Company, CC Docket No. 96-, filed on May 30 2003; RCC Holdings Order 17 FCC Rcd at 23547-, paras. 38-
41.
136 !d. See also Federal-State Joint Board on Universal Service, Virginia Cellular, LLC Petition for Designation as
an Eligible Telecommunications Carrier in the Commonwealth of Virginia Memorandum Opinion and Order, CC
Docket No. 96-, FCC 03-338 (reI. Jan. 22, 2004), at paras. 41-42 (Virginia Cellular ETC Order).
137 See, e., RCC Holdings Order 17 FCC Rcd at 23544, para. 31; Minnesota Redefinition Petition at 11-12.
138 See Rural Task Force Order 16 FCC Rcd at 11302, para. 145.
139 !d.
140 !d. at 11308-, para. 164. The Commission stated that it believed that the level of disaggregation should be
considered to ensure that competitive neutrality is maintained between incumbents and competitive ETCs. Id.
Federal Communications Commission FCC 04J-
service, and helps reduce the economic distortions that could lead to cream skimming. In a study area
with disaggregated support, a competitive ETC designated for a service area smaller than the study area
will be limited to receiving only the per-line support established for that area. In many cases, the levels of
disaggregated support have been established by the rural carrier itself under "Path 3" disaggregation.141
Although disaggregation may alleviate some concerns regarding cream-skimming by competitive ETCs
we hesitate to say that it necessarily addresses all concerns. For instance, the Commission has recognized
that cream skimming may still be a concern where a competitor proposes to serve only the low-cost areas
of a rural carrier s study area to the exclusion of high-cost areas.142
55. We continue to endorse the procedures established by the Commission in 1997 for
redefinition of rural service areas. These procedures establish a presumption that a rural carrier s study
area should be the service area for a new ETC, unless and until the state and the Commission working in
concert decide that a different service area definition would better serve the public interest.143 In making
this determination, the states and the Commission place the burden of proof upon the ETC applicant. If a
service area redefinition is proposed, the existing rules also require the states and the Commission to
analyze the Joint Board's previously expressed concerns about cream skimming in the particular area
covered by the ETC application.144 Public comment is invited during every step in this process. Because
we believe these rules are working to thoroughly examine public interest concerns inherent in service area
redefinition, we do not believe any change is needed in these rules at this time. As with other aspects of
the ETC designation process discussed above, we encourage the states and the Commission to conduct a
rigorous and fact-intensive analysis of requests for service area redefinition.
III.SCOPE OF SUPPORT
56. We recommend that the Commission limit the scope of high-cost support to a single
connection that provides access to the public telephone network. As discussed below, we believe that
supporting a single connection is more consistent with the goals of section 254 than the present system
and is necessary to preserve the sustainability of the universal service fund. We also believe that it would
send more appropriate entry signals in rural and high-cost areas, and would be competitively neutral. To
minimize the potential impact of restricting the scope of support in areas served by rural carriers, we
recommend that the Commission seek comment on restating, or "rebasing," the total high-cost support
141 47 C.R. ~ 54.315(d). The rules establishing procedures for disaggregation and targeting of support provided
rural carriers three choices or "paths." Under Path 1 a carrier could choose not to disaggregate support. Under Path
2 a carrier could seek to disaggregate subject to state commission approval. Under Path 3 a carrier could file a self-
certified disaggregation plan with the state commission. Such self-certified plans were effective upon filing. See
R. ~ 54.315. We are aware that most rural carriers voluntarily chose Path 1 and did not disaggregate support.
See USAC Universal Service Projections for the 4th Quarter 2002 (Aug. 2, 2002), Appendix HC19. Some
commenters have argued that rural carriers should be allowed another round of self-certified disaggregation if there
is a change in the basis of high-cost support. See, e.OP ASTCO Comments at 48-51. We do not believe another
round of self-certification is necessary since the Commission s rules already allow rural carriers, state commissions
or other interested parties to seek subsequent modifications of disaggregation plans. See 47 C.R. ~~ 54.315(b)(4),
54.3l5(c)(5) and 54.315(d)(5).
142 See, e., RCC Holdings Order 17 FCC Rcd at 23546, para. 35; Virginia Cellular ETC Order FCC 03-338 at
paras. 32-33.
143 See generally Virginia Cellular ETC Order FCC 03-338 at para. 41( outlining procedures for redefInition of rural
service areas).
144 As discussed in Section V.B. below, we recommend that USAC be delegated authority to develop uniform
standards for support disaggregation maps in electronic format. The ready availability of such support
disaggregation maps should assist in the analysis of the potential for cream skimming in any particular area.
Federal Communications Commission FCC 04J-
flowing to a rural carrier s study area on "primary" or single connections, and on other possible measures.
Restating support would avoid any immediate effect on the total amount of high-cost support that a rural
carrier receives: its support would be reduced in the future only to the extent that a competitive ETC
captures primary connections. In conjunction with these measures, we also recommend that high-cost
support in areas served by rural carriers be capped on a per-line basis when a competitive carrier is
designated as an ETC and be adjusted annually by an index factor.145
57. We recognize that implementing support for a single connection may present significant
administrative challenges. As discussed below, the record contains proposals under which consumers
with more than one line would designate a primary connection, and carriers would be free to compete for
the "primary" designation. These proposals hold the promise of allowing consumers, the intended
beneficiaries of universal service 146 to make their own universal service choices. Questions remain about
the administrative feasibility of such proposals, however. We recommend that the Commission further
develop the record on these and other proposals for limiting the scope of high-cost support. Our
recommendations to limit the scope of support, as described herein, are conditioned on the Commission
ability to develop competitively neutral rules and procedures that do not create undue administrative
burdens.147
Background
58. Under the Commission s current rules, all residential and business connections provided by
ETCs are eligible for high-cost support.148 In its 1996 recommendations to the Commission regarding
universal service, the Joint Board recommended that support for designated services be limited to those
services carried on a single connection to a subscriber s primary residence and to businesses with only a
single connection.149 The Joint Board concluded that support for a single connection providing the
supported services would allow the "access" to telecommunications and information services
contemplated in section 254(b)(3) of the ACt.150
59. In the First Universal Service Report and Order the Commission declined to adopt the Joint
Board's recommendation regarding the scope of support for designated services.151 While the
Commission stated that it shared the Joint Board's concern that supporting multiple connections for
residences and businesses in high-cost areas may be inconsistent with the goals of universal service, the
Commission concluded at that time that limiting the scope of support prior to the introduction of a
145 As discussed below, if the Commission were to adopt the "hold harmless" approach to avoid reductions in the
amount of high-cost support flowing to rural areas, the per-line support would not be capped for incumbent carriers.
See infra para. 75. We also recommend that the Commission seek comment on whether to restate support for non-
rural carriers, and on whether transitional measures should be adopted for support received by competitive ETCs
operating as of the release date of this Recommended Decision. See infra paras. 76, 87.
146 Alenco Communications, Inc. v. FCC 201 F.3d 601 621 (5th Cir. 2001) (Alenco v. FCC) The purpose of
universal service is to benefit the customer, not the carrier.
147
See infra paras. 81-83.
148 First Universal Service Report and Order 12 FCC Rcd at 8829-, paras. 95-96.
149 See First Recommended Decision 12 FCC Rcd at 132-, para. 89.
150 /d.
151 First Universal Service Report and Order 12 FCC Rcd at 8829-, paras. 95-96.
Federal Communications Commission FCC 04J-
forward-looking cost methodology was unnecessary.152 At the request of the Joint Board and rural
carriers, the Commission concluded that it would establish a forward-looking mechanism for non-rural
carriers prior to reforming the high-cost support mechanism for rural carriers.153
60. Consistent with the blueprint for universal service reform established in the First Universal
Service Report and Order the Commission took action to establish a forward-looking cost mechanism for
non-rural carriers in 1999.154 In May 2001 , the Commission adopted a modified embedded cost
mechanism for rural carriers for a five-year period.155 The Commission found that continuing to base
high-cost support for rural carriers on embedded costs for five years, rather than attempting to modify the
forward-looking high-cost support mechanism for non-rural carriers so that it could be applied to rural
carriers, was a reasonable approach to take in light of the record in the proceeding.156 In so doing, the
Commission and the Joint Board recognized that the plan adopted in the Rural Task Force Order was an
interim plan.15?
61. The Commission did not adopt the Rural Task Force s specific proposal to freeze per-line
high-cost loop support upon competitive entry into a rural carrier study area, concluding that adoption of
the proposal was not warranted at that time.158 The stated purpose of this proposal was to prevent
excessive growth in the universal service fund as a result of an incumbent carrier s loss of lines to a
152 Id. In the First Universal Service Report and Order the Commission concluded that, ultimately, universal
service support should be based on the forward-looking economic costs of constructing and operating the network
used to provide the supported services, rather than embedded costs. The Commission indicated that, as it developed
a forward-looking methodology, it would evaluate whether it was appropriate to continue supporting multiple
connections for residences and businesses. Id. at 8829-, 8927, 8937, paras. 95-274 296.
153 Id. at 8934-, paras. 291-95. The Commission established time frames for transitioning carriers to a forward-
looking cost methodology. Recognizing that, compared to non-rural LECs, rural LECs generally serve fewer
subscribers, serve more sparsely populated areas, and generally do not benefit as much from economies of scale and
scope, the Commission established a more gradual transition period for rural LECs. Id. at 8936, para. 294.
154 See Ninth Report and Order 14 FCC Rcd at 20439; Federal-State Joint Board on Universal Service, Forward-
Looking Mechanism for High-Cost Support for Non-Rural LECs Tenth Report and Order, CC Docket Nos. 96-
97-160, 14 FCC Rcd 20156 (1999) (Tenth Report and Order), affirmed, Qwest Corp. v. FCC 258 F.3d 1191 (10th
Cir.2001). The forward-looking mechanism for non-rural carriers became effective on January 1 2000. See Ninth
Report and Order 14 FCC Rcd at 20439, para. 11. The Commission recently modified the non-rural high-cost
support mechanism and adopted measures to induce states to ensure reasonably comparable rural and urban rates in
areas served by non-rural carriers. See Tenth Circuit Remand Order FCC 03-249.
155 See Rural Task Force Order 16 FCC Rcd at 11246, para. 1. In the First Universal Service Report and Order
the Commission determined that federal high-cost support should be based on forward-looking economic costs, but
that non-rural carriers would transition to forward-looking mechanisms fIrst. First Universal Service Report and
Order 12 FCC Rcd at 8899, 8935-, paras. 224, 293-94. Subsequently, the Joint Board established the Rural Task
Force to assist in developing a forward-looking mechanism appropriate for rural carriers. The Rural Task Force
recommended modifying the existing high-cost loop support mechanism for a five-year period, rather than
attempting to modify the non-rural mechanism so that it could be applied to rural carriers. The Joint Board
recommended that the Commission use the Rural Task Force recommendation as a foundation for implementing a
universal service plan for rural carriers for five years, and undertake a comprehensive review of the high-cost
support mechanisms for rural and non-rural carriers to ensure that both mechanisms function efficiently and in a
coordinated action. See Federal-State Joint Board on Universal Service Recommended Decision, CC Docket No.
96-, 16 FCC Rcd 6153 6159 6162-, paras. 13 21 (Jt. Bd. 2000).
156 See Rural Task Force Order 16 FCC Rcd at 11248-, paras. 8-10.
157 !d. at 11248, para. 8.
158 Id. at 11294, para. 123. The proposed per-line cap would have applied to high-cost loop support. !d.
Federal Communications Commission FCC 04J-
competitive ETC.159 While the Commission recognized that excessive growth in the fund might be
possible during the life of the five-year plan under certain circumstances, it concluded that the likelihood
of excessive fund growth due to an incumbent carrier s loss of lines to a competitive ETC in the
immediate future was speculative.16O The Commission, however, indicated its intent to closely monitor
these matters, consistent with its obligation under section 254 to maintain a specific, predictable, and
sufficient universal service fund.161
Discussion
Supporting a Single Connection Is Consistent With the 1996 Act
62. We believe that limiting the scope of high-cost support to a single connection to the public
telephone network would be more consistent with the goals of section 254 than the present system.
Supporting a single connection to the public telephone network fulfills the goal of "reasonably
comparable" access in all regions of the Nation.162 Section 254(b)(3)'s objective is that consumers in
rural areas have access to rates and services, including advanced services, that are reasonably comparable
to those available in urban areas.163 Supporting a single connection provides access to all of the services
included in the definition of universal service under section 254(c), because each ETC is required to
provide all of the supported services.164 Supporting a single connection also provides access to all of the
additional telecommunications and information services, including advanced services, available to
consumers through the public telephone networkl65 Thus, supporting multiple connections is not
necessary to achieve reasonably comparable access in rural areas. Supporting a single connection
faithfully accomplishes this objective.166
63. We disagree with commenters who argue that supporting a single point of access is
159 J, . at 11294, para. 125.
160/d. at 11294, 11325-, paras. 123-207 ("(A)s an incumbent "loses" lines to a competitive eligible
telecommunications carrier, the incumbent must recover its fixed costs from fewer lines, thus increasing its per-line
costs. With higher per-line costs, the incumbent would receive greater per-line support, which would also be
available to the competitive eligible telecommunications carrier for each of the lines that it serves. Thus, a
substantial loss of an incumbent's lines to a competitive eligible telecommunications carrier could result in
excessive fund growth.
161 /d. at 11297-, para. 131.
162 47 US.c. ~ 254(b)(3).
163
Id.; see also id. at ~ 254(b)(2) ("Access to advanced telecommunications and information services should be
provided in all regions of the Nation.
164 Id. at ~ 254(c); see id. at ~ 2l4(e)(1)(A).
165 See Rural Task Force Order 16 FCC Rcd at 11322, para. 200 ("The public switched telephone network is not a
single-use network. Modem network infrastructure can provide access not only to voice services, but also to data
graphics, video, and other services.
);
see also Appropriate Frameworkfor Broadband Access to the Internet over
Wireline Facilities, Universal Service Obligations of Broadband Providers, Computer III Further Remand
Proceedings: Bell Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review Review
of Computer III and ONA Safeguards and Requirements Notice of Proposed Rulemaking, CC Docket Nos. 02-
95-98-, 17 FCC Rcd 3019 3025-, para. 11 n.19 (2002) ("With the addition of certain electronics to the
telephone line, carriers can transform the copper loop that already provides voice service into a conduit for high-
speed traffic.
166 See First Recommended Decision 12 FCC Rcd at 132-, para. 89 ("We conclude that support for a single
residential connection will pennit a household complete access to telecommunications and information services.
Federal Communications Commission FCC 04J-
inconsistent with section 254(b)(3) because rates might rise for second lines, which are often used for
access to information services such as dial-up Internet access or fax services.167 We recognize, of course
that supporting multiple connections is advantageous to consumers in high-cost areas. Section 254(b)(3)
encourages access to connectivity, however, not unlimited connections at supported rates. Advanced
services increasingly are being provided along with voice services over a single connection.168 Nothing in
the Act supports the argument that multiple connections should be supported for access to dial-up Internet
access or fax services, neither of which is a supported service. For similar reasons, we disagree with
commenters who argue that supporting multiple connections is necessary to ensure reasonably
comparable access to wireless service in rural areas.169 Mobility is not a supported service.l7O
Deployment of rural wireless infrastructure is an important policy goal 171 but the reasonable
comparability principle does not justify supporting multiple connections to achieve it. We emphasize
that, under our recommended approach, support would be available for wireless connections to the extent
that customers choose to obtain connectivity through primary connections provided by wireless ETCs.
64. We also believe that supporting a single connection would fulfill the statutory principles of
sufficiency and predictability. 172 The Joint Board and the Commission have defined sufficiency as
enough support to achieve relevant universal service goals without unnecessarily burdening all consumers
for the benefit of support beneficiaries.173 The Fifth Circuit similarly noted that excessive funding may
167 See, e.Idaho Tel. Ass n Comments at 9; OPASTCO Reply Comments at 21; Texas Statewide Tel. Coop.
Comments at 11. Some commenters challenge the assumption that rates for second lines will rise if support is
limited to single connections. See, e.AT&T Comments at 16 ("The costs of digging the trench or erecting the
poles must be incurred fully in order to provide rust-line service. There are few incremental costs to providing
additional connections.); NASUCA Reply Comments at 14-15 ("Given the architecture of both wireline and
wireless facilities, it is very likely that the cost of subsequent connections by either type of provider is much lower
than the initial connection. Second lines provided by a single fmn to a single household or business tend to be more
profitable than the initial line. . .. Therefore, second lines may be provided at an affordable price in rural areas even
without support, obviating concerns about increases to the price of second lines.
);
see also GCI Comments at 68-
The vast majority of multiple connections provided today - the overwhelming bulk of the 148 million CMRS
handsets - are not subsidized. . .. Moreover, studies have shown little if any difference in pricing between rural and
urban markets.
168 See OP ASTCO Comments at 6 ("many rural (incumbent) LECs provide DSL services, which provide a substitute
for the second line a customer may have purchased to use for dial-up Internet access.
).
Commission data indicate
that most asymmetric DSL connections are provided by LECs, which generally provision the service over the same
line as their voice service. See Industry Analysis and Technology Division, Wireline Competition Bureau High-
Speed Services for Internet Access: Status as of December 2002 at 101. 5 (reI. June 10, 2003), available at
www.fcc.gov/wcb/stats (high-speed asymmetric DSL technologies in service increased by 27% during the second
half of 2002, from 5.1 million to 6.5 million lines).
169 See, e.Western Wireless Comments at 10-, Attachment B at 3-
170 See AT&T Comments at 10-11 ("if wireless functionality were added to the characteristics of a supported service
in Section 54.101(a), non-wireless carriers (including (incumbent) LECs' wireline operations) could no longer be
ETCs because they would not be able to provide a component of the supported services.
171 See generally Facilitating the Provision of Spectrum-Based Services to Rural Areas and Promoting
Opportunities for Rural Telephone Companies to Provide Spectrum-Based Services Notice ofInquiry, WT Docket
No. 02-381 , 17 FCC Rcd 25554 (2003).
172 See 47 u.S.c. ~~ 254(b)(5), 254(e).
173Tenth Circuit Remand Order FCC 03-239 at paras. 36-37 ("We also agree with the Joint Board that the principle
of sufficiency encompasses the idea that the amount of support should be only as large as necessary to achieve the
relevant statutory goal. Because support is ultimately recovered from customers, collecting more support than is
necessary to benefit certain customers would needlessly burden all customers.
);
see also Federal-State Joint Board
( continued....
Federal Communications Commission FCC 04J-
violate the sufficiency requirements of the Act, because excess support may detract from universal service
by causing unnecessary increases in rates, thereby pricing some consumers out of the market.174
Supporting multiple connections for multiple networks is not necessary to achieve reasonably comparable
access in rural areas, and creates a potential for fund growth that threatens the sustainability of the
universal service fund.175 Accordingly, supporting primary connections better fulfills the sufficiency
requirements of the Act.
65. Furthermore, contrary to the arguments of some commenters, the sufficiency and
predictability principles do not provide that cost recovery should be guaranteed for particular carriers.
OP ASTCO, for example, argues that "(i)f rural ILECs are uncertain that they will be able to recover their
network costs due to a primary connection support restriction, the incentive to continue investing in
infrastructure will be inhibited. As a result, rural consumers' access to high-quality services that are
reasonably comparable to those offered in urban areas will be jeopardized."176 Notably, no rural carrier
would lose any high-cost support under our recommended approach unless a competitive ETC captures
primary connections from the rural carrier following competitive ETC entry.177 But even if a rural carrier
were to lose support in the future, that would not be inconsistent with sufficiency or predictability. The
Fifth Circuit explained that "(t)he Act does not guarantee all local telephone service providers a sufficient
return on investment; quite to the contrary, it is intended to introduce competition into the market. . . .
The Act only promises universal service, and that is a goal that requires sufficient funding of customers
not providers.178 Congress clearly envisioned the presence of competitive ETCs in some areas served by
rural carriers, provided a state makes the threshold determination that designating a competitive ETC is in
the public interestl79 The Act does not require or encourage supporting multiple connections for multiple
networks, however. Supporting a single connection may not ensure sufficient funding of every ETC, but
it would provide sufficient support for universal service.18O
(...
continued from previous page)
on Universal Service, Second Recommended Decision, CC Docket No. 96-, 13 FCC Rcd 24744, 24746, para. 3
(It. Bd. 1998) (Second Recommended Decision).
174 Alenco v. FCC 201 F.3d at 620.
175
See infra paras. 67-68.
176 OPASTCO Reply Comments at 20.
177 See infra paras. 72-76. We note, however, that one proposal discussed below would "hold-harmless" incumbent
carriers from any loss of universal service support. See infra para. 75.
178 Alenco v. FCC 201 F.3d at 620; see also id. at 623 ("the Commission reasonably construed the predictability
principle to require only predictable rules that govem distribution of the subsidies, and not to require predictable
funding amounts. Indeed, to construe the predictability principle to require the latter would amount to protection
from competition and thereby would run contrary to one of the primary purposes of the Act. "
179 See 47 US.C. 99 214(e)(1), (2). As discussed in Section II above, we recommend establishing rigorous and fact-
intensive guidelines for public interest determinations required in ETC applications.
180 See Alenco v. FCC 201 F.3d at 620 ("So long as there is sufficient and competitively-neutral funding to enable
all customers to receive basic telecommunications services, the FCC has satisfied the Act and is not further required
to ensure sufficient funding of every local telephone provider as well.). Congress thought that competition and new
technologies would reduce, not increase, the overall need for universal service support by lowering costs. See
Rep. No. 23 , 1O4th Cong., 1st Sess. 26 ("The Committee expects that competition and new technologies will greatly
reduce the actual cost of providing universal service over time, thus reducing or eliminating the need for universal
service support mechanisms as actual costs drop to a level that is at or below the affordable rate for such service in
an area. . .) (cited in Tenth Circuit Remand Order FCC 03-249 at para. 77 n.296).
Federal Communications Commission FCC 04J-
66. Although we do not believe that the federal support mechanism should continue to support
multiple connections, we believe that states have the flexibility to establish their own support mechanisms
for multiple connections, mobility, or other functionalities not supported at the federal level. Section
254(f) makes clear that states "may adopt regulations not inconsistent with the Commission s rules to
preserve and advance universal service" and that a state may "provide for additional definitions and
standards" so long as those supplements do not rely on or burden the federal support mechanisms.181
Although such state support would go beyond the scope of federal high-cost support, we do not believe
that such supplementary state funding would "rely on or burden Federal universal service support
mechanisms" in contravention of section 254(f) of the Act.
Supporting a Single Connection Is Necessary to Protect Fund Sustainability
67. Continued support of multiple connections for multiple networks in rural and high-cost areas
threatens fund sustainability. Currently, the support flowing to a high-cost area increases automatically
when a competitive ETC is designated, according to the number of connections it serves.182 Competitive
ETCs now receive a small fraction of total high-cost support, but their support has increased dramatically
over the past few years.183 Much of this growth represents supported wireless connections that
supplement, rather than replace, wireline service.184 Our examination of the record reveals a potential for
uncontrolled growth as more and more competitive ETCs are designated in rural and high-cost areas.185
This potential is compounded by the calculation of support under the current rules.186 The Commission
declined to adopt the Joint Board's recommendation to limit support to single connections in 1997, based
largely on its expectation that a forward-looking support methodology could be implemented for all
181 47 U.C. ~ 254(f).
182 See NASUCA Comments at 5 (current rules "allow each new competitive entrant to impose incremental costs on
all existing telecommunications customers
183 Based on USAC data, 2 competitive ETCs received just over $500 000 in high-cost support in 1999
competitive ETCs received $1.5 million in 2000, 25 competitive ETCs received $17 million in 2001 , and 64
competitive ETCs received $47 million in 2002. In 2003 , 109 competitive ETCs received approximately $131.
million in high-cost support. Based on USAC quarterly projections, support for competitive ETCs will increase
from $62.9 million in the fourth quarter of 2003, to $111.5 million in the second quarter of 2004, an increase of
77%. See Federal Universal Service Support Mechanisms Fund Size Projections and Contribution Base for the
Second Quarter 2004, Appendix HC 18-21 (Universal Service Administrative Company, Jan. 31, 2004). We note
that USAC quarterly projections include ETC applicants that have filed line count data with USAC, but are not yet
designated as ETCs.
184 One study estimates that 3 to 5 percent of wireless customers use their wireless phones as their only phone. See
Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis
of Competitive Market Conditions With Respect to Commercial Radio Services Seventh Report, 17 FCC Rcd 12985
12989-, para. 33 (Seventh Annual CMRS Report). See also AT&T Comments at 6-7; Sprint Comments at 7-
There also is evidence in the record reflecting that some customers are replacing wireline phone usage with wireless
service, and relying on wireless as their "primary" service. See OP ASTCO Comments at 5; Smith Bagley
Comments at 7; Texas Statewide Tel. Comments at 3; Westem Wireless Comments, Attachment Bat 5-
Attachment C at 1-
185 See, e.
g.,
Independent Tel. & Telecomms. Alliance Reply Comments at 2-3; NASUCA Comments at 1-3; NTCA
Comments at 10; OPASTCO Comments at 9-11. See supra note 183.
186 See, e.
g.,
AT&T Comments at 20-21 ("as a (competitive) ETC enters and takes lines from an (incumbent) LEC
total High Cost support to the study area increases because the (incumbent) LEC's support does not fall to offset the
(competitive) ETC's support. . .. The amount of support increases to even higher levels because there is a
subsequent up-tick in (competitive) ETC support based on the (incumbent) LEe's now-increased effective per-line
support.
);
see also Rural Task Force Order 16 FCC Rcd at 11294-, para. 125.
Federal Communications Commission FCC 04J-
incumbent LECs as early as January 2001.187 Support for rural carriers likely will continue to be based
on embedded costs at least until mid-2006, however.188 We believe that the Commission should no
longer defer limiting the scope of high-cost support. By limiting fund growth due to competitive ETC
entry in rural and high-cost areas, our recommended approach would protect fund sustainability. High-
cost support would increase with primary connection growth, rather than with growth in the total number
of connections provided by both incumbent and competitive ETCs.
68. We reject arguments that supporting a single connection is not an effective means to slow
fund growth because competitive ETCs receive a small percentage of total high-cost support and most
fund growth over the past few years is attributable to support increases received by incumbent LECs.189
The total amount of support received by competitive ETCs, for what appear to be supplemental
connections for many subscribers, has increased substantially over the past few years. We believe that
further growth due to supporting multiple connections presents a significant threat to fund sustainability.
Our recommended approach addresses this concern directly in a manner that is consistent with statutory
goals. To the extent that increases in high-cost funding for incumbent LECs present additional fund
sustainability concerns, we expect to address those concerns in conjunction with our reexamination of the
basis of support for all ETCs.19O
Supporting a Single Connection Would Send More Appropriate Entry
Signals and Would Be Competitively Neutral
69. Supporting a single point of access would send more appropriate entry signals in rural and
high-cost areas. Some commenters argue that carriers increasingly are seeking ETC designation based on
perverse incentives created by the current rules.191 Our recommended approach would not artificially
encourage entry by competitive ETCs in areas where a rational business case cannot be made absent
assumptions of support for all connections. Competitive ETCs instead would have incentives to enter
rural and high-cost areas only where doing so makes rational business sense under a model assuming
incremental support only for subscribers captured ITom, or unserved by, the incumbent LEe.
Furthermore, by preventing automatic support of multiple connections, supporting a single point of access
would address alleged incentives under the current rules for states to designate additional ETCs to attract
more universal service funding.192
70. Supporting a single connection also would be competitively neutra1.193 Support would
187 First Universal Service Report and Order 12 FCC Rcd at 8829-, paras. 95-96. See also supra paras. 59-60.
188 See Rural Task Force Order 16 FCC Rcd at 11246, 11248-, paras. 11.
189 See, e.
g.,
Centennial Reply Comments at 2-3; CTIA Reply Comments at 2-4; Nextel Comments at 2
190 See infra paras. 94-97.
191 See, e.
g.,
ACS-F Comments at 7, 12-13; AT&T Comments at 22; GCI Comments at 41-43; OPASTCO
Comments at 9-11.
192 See, e.NASUCA Comments at 8-9 ("Under current rules, states have something of a conflict of interest. That
, here may be a bias toward granting ofETC status because, when new ETCs are created, more federal dollars flow
into the state. Conversely, there is a disincentive for states to ensure that the public interest is fulfilled on a national
basis because the benefit of additional federal funds may outweigh state regulators' concerns about the sustainability
of the federal program.
193 See First Universal Service Report and Order 12 FCC Rcd at 8801-, paras. 46-48 (pursuant to section
254(b )(7), adopting the principle that federal support mechanisms should be competitively neutral, neither unfairly
advantaging nor disadvantaging particular service providers or technologies).
Federal Communications Commission FCC 04J-
available to all ETCs for providing primary connections. To the extent that a competitive ETC replaced
an incumbent ETC as the primary connection provider, the competitive ETC would receive support for
providing the connection.194 In addition, rural carriers would no longer be insulated from the effects of
universal service competition, because they would lose per-line support to the extent that they lose
primary connections.195 Our recommended approach also would prevent upward spirals in per-line
support amounts as a result of loss of lines by incumbent carriers, an unfortunate effect of the current
rules that commenters argue creates potential windfalls for competitive ETCs.196
71. We disagree with commenters who argue that limiting support to a single connection would
unfairly advantage imcumbent LECs because they preceded competitive ETCs in rural and high-cost
areas.197 Under our recommended approach, consumers would be free to designate any ETC as "primary
based on the service attributes that it offers.198 We also reject an alternative proposal from Western
Wireless to cap total high-cost support in an area upon competitive ETC entry and allocate the support
among ETCs based on market share, in lieu of limiting support to a single connection.199 Western
Wireless contends that its alternative proposal would contain fund growth due to competitive ETC entry,
but would be more competitively neutral and less administratively burdensome than a primary-connection
limitation?OO In our view, however, this measure would continue support of multiple connections for
multiple networks, contrary to the provisions of the Act discussed above. It also could lead to sudden
major shifts in support in areas where a new competitive ETC already serves a significant number of
connections.
Maintaining Sufficient Support for Rural Areas
72. We recommend that the Commission take steps to avoid or mitigate reductions in the amount
of high-cost support flowing to rural areas as a result of implementing a primary-line restriction.
194
See AT&T Comments at 15-16; NASUCA Comments at 6.
195 See GCI Comments at 38 ("In an unsubsidized market, an (incumbent) LEC loses all of the revenue associated
with service to a customer when it loses that customer to a competitor. By contrast, in an area receiving high cost
support, although the (incumbent) LEC loses the end user revenue associated with that customer, it retains the high
cost support associated with the facilities that were fonnerly used to serve that customer, because its high cost
support does not decline when it loses the line.
);
see also AT&T Comments at 15-16. We note, however, that if the
Commission adopts the "hold-harmless" approach discussed below, incumbent carriers would not lose high-cost
support upon capture of primary lines by a competitive ETC. See infra para. 75.
196 See Rural Task Force Order 16 FCC Rcd at 11294-, para. 125; AT&T Comments at 22 ("Over the long tenn,
these revenue guarantees give (competitive) ETCs a windfall by increasing the amount of (competitive) ETC
support per line as ILEC per-line support increases. This allows (competitive) ETCs to enjoy increased revenue per
connection, without any work or ingenuity on their part.
);
see also OPASTCO Comments at 13-14 (arguing that
competitive ETCs receive a windfall under the current rules).
197
See generally Western Wireless Reply Comments, Attachment B (arguing that any distinction based on which
connection is the "fITst line" would operate to benefit incumbent LECs and would not be competitively neutral
because being "fITSt" should not provide a carrier with "regulatorily conferred advantages.
198 In this regard, we note that Western Wireless cites studies indicating that "more and more consumers view their
wireless phones as their 'primary' voice services " because of the service attributes offered by wireless carriers.
Western Wireless Comments, Attachment J at 4; see id. at Attachment Bat 4-6 (providing data to support contention
that subscribers are "substituting wireless for traditional wireline service
199 See Western Wireless Comments at 18.
200 See Western Wireless Comments, Attachment J at 7-
Federal Communications Commission FCC 04J-
Restatement Proposal
73. One way the Commission might accomplish this end would be to restate total current support
paid to a rural carrier in terms of first lines. Rural carriers are eligible for high-cost support based on total
embedded costs averaged on a study-area leve1.2O1 The total amount of high-cost support flowing to an
area served by a rural carrier could be restated in terms of support per first line rather than support per
line without any effect on the amount of support received by the rural carrier at the time support is
restated?O2 Restating support is a method oflimiting the scope of support in areas served by rural carriers
without modifying the basis of support (that is, the methodology used to calculate support)?O3
Lump Sum Payment Proposal
74. Alternatively, rather than increase the amount of per-line support available in areas served by
rural carriers by restating support in terms of first lines, the Commission could provide supplemental
lump sum payments to avoid any immediate effects on rural carriers as a result of limiting the scope of
support. Under this approach, a rural carrier would receive the same amount of high-cost support on a
per-line basis as it did previously, but would receive such support only for primary lines. The rural carrier
also would receive a lump sum payment to compensate for the loss of support associated with existing
second lines. Thus, this interim lump sum proposal, like the restatement proposal described in the
previous paragraph, would prevent support reductions in rural areas based on the termination of support
for second lines; high-cost support would be reduced only with the future loss of primary lines
competitors. But unlike the restatement proposal, the lump sum payment alternative would not increase
the amount of per-line support for incumbent carriers, and thus would not encourage competitive carriers
to seek ETC status merely for arbitrage purposes?O4 On the other hand, we recognize that making lump-
sum payments available to incumbents, but not to competitive ETCs, could be inconsistent with the
principle of competitive neutrality.2O5
201
See 47 c.F.R ~~ 36.601 et seq. (high-cost loop support), 54.301 (local switching support), 54.303 (long term
support), 54.901 et seq. (interstate common line support). Interstate access support also is available to rural carriers
subject to price cap regulation of their interstate access rates. See 47 C.R. ~ 54.801 et seq. The Joint Board does
not recommend limiting the scope of interstate access support at this time, because the interstate access support
methodology prevents support increases due to competitive ETC entry. See AT&T Comments at 13 ("Because
(interstate access support) is subject to a hard cap, it cannot be the source of uncontrolled High Cost Support
growth.
202 See AT&T Comments at 13.
203 As discussed below, we recommend that the Joint Board and the Commission consider possible modifications to
the basis of support for all ETCs when they undertake the "comprehensive review of the high cost support
mechanisms for rural and non-rural carriers as a whole to ensure that both mechanisms function efficiently and in a
coordinated fashion" in the Rural/Non-Rural Review proceeding. Our recommendations do not impact or prejudge
anything that the Joint Board and Commission may do in the future in examining the basis of support for all ETCs in
all areas.
204 Several commenters argue that providing support to competitive carriers based on the incumbent LEC's costs
creates arbitrage opportunities, because competitive carriers generally have lower costs. See e.Alaska Tel. Ass
Reply Comments at 18-19; CenturyTel Comments at 32-39; South Dakota Telecomms. Ass n Reply Comments 4-
To the extent this problem exists in some areas, increasing the amount of per-line support available to competitive
carriers would exacerbate it.
205 We recommend that the Commission seek comment on whether to phase out the lump sum available to
incumbent carriers, and, if so, over what time period.
Federal Communications Commission FCC 04J-
Hold Harmless" Proposal
75. We also seek comment on a different alternative designed to maintain support for rural areas
that does not encourage competitive carriers to seek ETC status merely for arbitrage purposes. Under this
proposal, per line support available to competitive ETCs would freeze upon competitive entry.
Competitive ETCs would only be able to obtain USF support for customers who designated their service
as the primary line. We recognize that many parties contend that a per-line approach would jeopardize the
sufficiency of support distributed to incumbent carriers. Such parties note that incumbent LECs have
made substantial investments in infrastructure in reliance on such support. This proposal would not cap
per-line support for incumbent carriers and would thus "hold harmless" incumbent carriers from the loss
of universal service support.
76. We recommend that the Commission seek comment on the relative pros and cons of the
restatement, the lump sum and hold harmless proposals. Leaving aside the question of which ofthese
approaches has the most merit, we believe that if the Commission implements a primary-line restriction, it
must adopt some means of preventing or mitigating reductions in the support available to rural carriers.
The Joint Board and the Commission consistently have recognized the importance of a cautious approach
to universal service reform in areas served by rural carriers, in light of their size, diversity, and regulatory
history.2o6 Restating support or implementing the lump sum or hold harmless proposal would avoid any
immediate effects on rural carriers as a result of limiting the scope of support, by placing them in the
same total support position as they were in beforehand?O7 In other words, a rural carrier would not be
required to forego any ofthe support that it received before implementation of the primary-line
restriction. Its support would be reduced in the future only to the extent that a competitive ETC captures
primary lines from the rural carrier (except under the hold harmless proposal). Rural carriers also would
forego future support increases associated with new, non-primary lines?O8 Restating support, providing a
lump sum payment, or adopting a hold-harmless proposal will ensure that the transition to supporting
basic access is not unduly disruptive in areas served by rural carriers?O9 We also recommend that the
Commission seek comment on whether to restate support, provide lump sum payments or hold-harmless
206 See, e.g., Multi-Association Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap
Incumbent Local Exchange Carriers and Interexchange Carriers, Federal-State Joint Board on Universal Service
Access Charge Reform for Incumbent Local Exchange Carriers Subject to Rate-of-Return Regulation, Prescribing
the Authorized Rate of Return From Interstate Services of Local Exchange Carriers Second Report and Order and
Further Notice of Proposed Rulemaking in CC Docket No. 00-256, Fifteenth Report and Order in CC Docket No.
96-, Report and Order in CC Docket No. 98-, Report and Order in CC Docket 98-166, 16 FCC Rcd 19613
19620, 19668-, paras. 12, 130-31 (2001) (MAG Order), recons. pending; Rural Task Force Order 16 FCC Rcd at
11247, paras. 4-
207 For example, if an incumbent rural ETC receives $10 000 in high-cost support based on its embedded costs for
that study area, and provides supported services to 9 000 fITSt lines and 1 000 additional lines, it receives high-cost
support that equates to $1.00 per line under the current rules. Under our recommended approach, that incumbent
rural ETC would continue to receive a total of $10 000 in high-cost support based on its embedded costs, but
restating its support in tenns of fITSt lines would translate into $1.11 effective per - fITSt line support.
208 We believe that such increases likely would be minimal due to trends such as the provision of voice and data
services over a single digital subscriber line. See OP ASTCO Comments at 6-7. Both rural carriers and competitive
ETCs would be eligible for additional support for primary service to new customers previously unserved by any
ETc. See NASUCA Comments at 6.
209 See e.NASUCA Reply Comments at 25-26 (asserting that rebasing "will reduce the impact on the smaller
rural incumbent LECs" of a single-line limitation).
Federal Communications Commission FCC 04J-
support in areas served by non-rural carriers?IO
Cap on Per-Line Support Upon Competitive Entry
77. In conjunction with the measures discussed above, we recommend that high-cost support in
areas served by rural carriers be capped on a per-primary line basis when a competitive ETC is present or
when a competitive ETC enters the market and be adjusted annually by an index factor. This
recommendation is a modified version of a Rural Task Force proposa1.211 Under our recommended
approach, the total support flowing to a rural carrier (including high-cost loop support, local switching
support, long term support, and interstate common line supporfl2) would be capped on a per-primary line
basis upon competitive entry. Thereafter, per-primary line support would be adjusted annually based on
an index factor, rather than changes in the rural carrier s embedded costs. We also recommend that the
Commission seek comment on the alternative approach of capping per-primary line support available to
competitive ETCs upon competitive entry, consistent with the "hold-harmless" proposal discussed
above.213
78. Capping per-primary line support in areas served by rural carriers is necessary to implement a
primary-line limitation and to prevent an upward spiral in support due to capture of primary connections
by competitive ETCs. As we have stated, the high-cost universal service mechanisms calculate support
for rural carriers based on total embedded costs averaged on a study-area basis. Under these mechanisms
a rural carrier s per-primary line support automatically increases as its total embedded costs are spread
over fewer lines?14 This has several implications for purposes of a primary-connection limitation. First
absent a per-primary line cap, a rural carrier would continue to receive support for new lines served-
regardless of whether such lines provide primary connectivity-because any costs associated with the
new connections would increase the rural carrier s total embedded costs and, therefore, the per-line
support associated with the primary lines it serves. Likewise, a rural carrier would not lose support if it
loses primary connections to a competitive ETC. Thus, the absence of a per-line cap would obviate the
effect of a single-connection limitation. Moreover, fund size could grow significantly if rural carriers lose
primary connections to competitive ETCs, because rural carriers would continue to receive the same total
support, but the per-line support amounts available to both the incumbent LEC and competitive ETCs
would increase as rural carriers' per-line costs were spread over fewer primary lines.215
79. We recognize that the Commission declined to cap per-line support in the Rural Task Force
Order?16 Nevertheless, we believe that the Commission should adopt a modified version of the Rural
210 We also recommend that the Commission seek comment on whether transitional measures should be adopted for
support paid to competitive ETCs operating as of the release date of this Recommended Decision. See infra para.
87.
See Rural Task Force Order 16 FCC Rcd at 11293, para. 120; see also supra para. 61.
212Seesupra para. 61 , n.158. We, however, recommend a broader cap on per-line support. See AT&T Comments
at 23 (advocating a cap on high-cost loop support (HCLS), local switching support (LSS), long-term support (LTS),
and interstate common line support (ICLS)).
213
See supra para. 75.
214 See Rural Task Force Order 16 FCC Rcd at 11294-, para. 125; see also AT&T Comments at 17-18 ("an
(incumbent) LEC will only lose support under HCLS, LSS and ICLS to the extent that its study areas costs decline
irrespective of the number oflines served.
215 See Rural Task Force Order 16 FCC Rcd at 11294-, para. 125; AT&T Reply Comments at 17-18; GCI
Comments at 36-38.
216 See Rural Task Force Order 16 FCC Rcd at 11294-, paras. 123-130; see also supra para. 61.
Federal Communications Commission FCC 04J-
Task Force s proposal at this time. As discussed above, support for competitive ETCs has increased
dramatically since 2001 , and the danger of excessive fund growth that the Commission recognized at the
time of the Rural Task Force Order is now clear and present.217 In addition, the Commission viewed the
Rural Task Force proposal as having a relatively narrow purpose-to limit fund growth due to capture of
connections by competitive ETCs218-whereas our recommendations have the broad purpose of limiting
the scope of high-cost support to primary connections. Furthermore, the danger of an upward spiral in
support would be exacerbated because, to the extent that a competitive ETC captures primary
connections, there would be fewer supported lines over which to spread a rural carriers' increased per-line
costs.
80. We recommend that the Commission further develop the record on what index factor should
be used to adjust capped per-line support each year. The Rural Task Force originally recommended the
rural growth factor, which is equal to the sum of annual changes in the total number of lines served by
rural carriers and the Gross Domestic Product-Chained Price Index (GDP-CPI), an inflation measure.219
Alternatively, a modified rural growth factor that reflects annual changes in the total number of primary
lines served by rural carriers might be appropriate. The Commission also should consider using the GDP-
CPI alone. In this regard, the Commission noted in the Rural Task Force Order that because the rural
growth factor includes annual rural line growth
, "
its application to individual lines receiving frozen
support would result in double counting of line growth.'.22O Some commenters express similar
concerns?21
Administrative Issues
81. We recommend that the Commission seek comment on how best to implement our
recommended approach for supporting primary connections. Opponents raise various administrative
concerns regarding a primary-connection limitation.222 On the other hand, proponents argue that limiting
the scope of high-cost support is administratively feasible, and that the burdens would be small compared
to the potential benefits.223 We reject arguments that a primary-connection limitation is inherently
unworkable. As NASUCA points out, rules distinguishing between primary and other connections are
not unprecedented, and the Commission has successfully implemented regulatory initiatives involving
217
See supra para. 67; Rural Task Force Order 16 FCC Rcd at 11326, para. 209.
218 See Rural Task Force Order 16 FCC Rcd at 11294, para. 123 ("the purpose of this proposal is to prevent
excessive fund growth in the universal service fund as a result of an incumbent carrier s loss oflines to a
competitive (ETe).). The Commission concluded that the likelihood of such growth occurring in the near future
was speculative because, among other things, it would occur "only if a competitive (ETe) captures subscriber lines
from an incumbent, not if it adds new lines.Id. at 11295-, para. 126.
219 See Rural Task Force Order 16 FCC Rcd at 11266, para. 48.
220 !d. at 11295, para. 126.
221 See AT&T Comments at 23 n.57.
222 Opponents argue, among other things, that limiting the scope of high-cost support would require complex new
rules to define "primary" lines, require costly tracking of primary lines, give rise to consumer gaming and a new
type of carrier "slamming," and intrude on consumer privacy. See, e.
g.,
Alabama Rural LECs Reply Comments at
9; Centennial Reply Comments at 12; Fred Williamson and Assocs. Comments at 26-27.
223 See, e.AT&T Reply Comments at 12-13; GCI Comments at 69; NASUCA Comments at 6-7; see also
NASUCA Reply Comments at 13 ("None of the commenters' concerns appear to be without a readily available
remedy.
Federal Communications Commission FCC 04J-
consumer choice.224 Nevertheless, we recognize that limiting the scope of high-cost support presents
administrative challenges. The present record does not allow us to resolve these issues. We recommend
therefore, that the Commission further develop the record on how to implement support for primary
connections. Our recommendations are conditioned on the Commission s ability to develop
competitively neutral rules and procedures that do not create undue administrative burdens.
82. In particular, we recommend that the Commission further develop the record on proposals to
allow consumers with more than one connection to designate an ETC's service as "primary.,0225 We
believe that this is a promising approach because it would allow consumers-the intended beneficiaries of
universal service226 to decide whether an ETC's service is "truly a substitute for basic universal
service.,,227 Such proposals also have the merit of competitive neutrality, as consumers would be free to
designate a primary ETC based on the service attributes that the ETC offers. In addition, they may avoid
the need for complex and possibly artificial distinctions between primary and other connections by
placing choice in the hands of consumers. We are not persuaded by arguments that competition for
primary designations would disserve the public interest by diverting ETCs ' resources from infrastructure
investment to marketing and promotion.228 Where a state makes the threshold determination under the
Act that universal service competition in a rural area would serve the public interest 229 we expect that
increased competition and choice will encourage investment and benefit consumers.
83. We also recommend that the Commission further develop the record on rate issues associated
with supporting primary connections. Some commenters argue that limiting the scope of high-cost
support would require local rate increases or pricing flexibility for second connections, and create
ratemaking complexities for states.230 Others argue that supporting a single point of access need not
224 NASUCA Comments at 7 (asserting that LECs are currently required to distinguish between primary and other
lines for assessing subscriber line charges (SLCs) and allowing Lifeline support, and noting that "(w)hen equal
access and intraLA T A pre subscription began, every customer had to make new choices that were more complicated
than a selection of what fmn provides the primary line.). Opponents argue that difficulties in administering a
primary/non-primary line distinction for price cap carriers' SLC rates would be exacerbated for small rural carriers
in a multi-carrier environment. See e.OPASTCO Comments at 35-37.
225
See NASUCA Comments at 6 ("The primary line should be designated by each customer with more than one
line, and carriers should be free to compete for the designation as 'primary.' The Commission should allow a
reasonable transition period within which consumers could exercise their choice if they have more than one line or if
they are served by more than one ETc. However, the Commission will have to devise a system to deal with
customers who fail to indicate a choice by the end of the transition period. One way to determine the primary line
would be to designate the initial (incumbent) LEC line as the default primary connection. Another alternative is to
require a ballot to be submitted by every customer with multiple connections, which entails more administrative
burden. While the default assumption would be that a single address represents a single household, there should be
flexibility to allow a customer to rebut that presumption by submitting contrary infonnation to the carrier.
);
see
also Western Wireless Comments, Attachment J at 6-7 (advocating use of vouchers or "phone stamps" as a means of
implementing a primary connection restriction with consumer choice)..
226 Alenco v. FCC 201 F.3d at 621 ("The purpose of universal service is to benefit the customer, not the carrier.
227 NASUCA Comments at 6.
228 See, e.Rural Cellular Ass nJ Alliance of Rural CMRS Carriers Comments, Exhibit 1 at 20; Letter from Karen
Brinkman, Counsel for CenturyTel Inc., to Marlene Dortch, FCC, dated Dec. 18 2003 (CenturyTel Dec. 18
parte)
229
See 47 US.C. ~ 214(e)(2).
230 See, e.OPASTCO Comments at 38-39; MUST Comments at 36; Townes et al. Comments at 8-9; see also
AT&T Comments at 24-27; SBC Comments at 16-17.
Federal Communications Commission FCC 04J-
mean different end-user rates for primary and other connections.231 AT&T argues that rate-of-return
carriers should be permitted to increase federal subscriber line charges on non-supported lines to recover
any lost interstate common line revenues, although it maintains that such increases are unlikely.232 States
will determine local rate issues in the intrastate ratemaking process, but further development of the record
may assist states in addressing these issues.
Other Issues
84. We also recommend that the Commission further develop the record on the appropriate
treatment of businesses with multiple connections, particularly small businesses, under our recommended
approach.233 Historically, the Joint Board and Commission have concluded that universal service
concerns are not as great for multi-line business customers.234 Some commenters, however, have raised
concerns that limiting support to a single point of access provided for residential and business customers
may discourage operation of businesses, particularly small businesses, in rural areas.235 Commenters
have noted that rural economies are highly dependent on the presence of businesses to provide jobs and
services.236 Restating support should address these concerns to a large extent by avoiding upward
pressure on rates for all customers in rural areas.237 Nevertheless, we believe that these concerns warrant
careful consideration. One possible means to address such concerns with regard to small businesses is
allow high-cost support for some designated number of multiple connections for businesses, rather than
restricting support to a single business connection.238
85. As the Commission develops the record in this proceeding, it also should consider the
treatment of lines provided by unbundled network element (UNE)-based competitive ETCs under our
recommended approach. Unlike loss of a customer to a facilities-based carrier, loss of a customer to a
UNE-based provider does not eliminate the need to continue operating the incumbent's network for the
benefit of that customer.239 UNE rates compensate incumbent LECs for the forward-looking economic
231
See NASUCA Reply Comments at 10-11. NASUCA argues that carriers can charge averaged rates, and that
states can provide support for secondary connections if they so choose. See id. at 13-, 22-23.
232
See AT&T Comments at 24-27.
233 Under the Regulatory Flexibility Act, the term "small business" has the same meaning as the term "small
business concern" under the Small Business Act. See 5 US.c. 9 601(3) (incorporating by reference the defInition of
small business concem" in the Small Business Act, 15 US.c. 9 632). A "small business concern" is one which: (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. 15 US.C. 9 632.
234 See, e.g., Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, Transport Rate
Structure and Pricing, End User Common Line Charges First Report and Order, CC Docket Nos. 96-262 91-213
95-12 FCC Rcd 15982, 16005, paras. 58-60 (1997) (Access Charge Reform Order) (subsequent history omitted)
(concluding that higher SLC caps were warranted for such users).
235 See e.Idaho Tel. Ass n Comments at 9; OPASTCO Comments at 37-38; USTA Comments at 6; Washington
Commission Comments at 15.
236 Washington Commission Comments at 15-16. See also OPASTCO Comments at 37.
237
See supra para. 76. See also AT&T Comments at 12-16.
238 In Texas, for example, lines eligible for intrastate support are currently limited to all flat rate residential lines and
the first five flat rate single-line business lines at the business customer s location within the state of Texas. See
Texas Commission Comments at 10.
239 See e.ACS-F Reply Comments 9-12.
Federal Communications Commission FCC 04J-
costs of providing UNEs under the current rules?4O Some commenters, however, argue that UNE rates do
not compensate incumbents for their embedded costs of providing UNEs and that this disparity creates
arbitrage opportunities.241 Under the current universal service rules, incumbent LECs do not normally
receive high-cost support when they lose lines to UNE-based competitive ETCs unless the support
exceeds the UNE price.242 We believe that these matters warrant consideration by the Commission.
86. More generally, we encourage the Commission to seek comment on the impact of our
primary connection proposal on investment in rural areas. Opponents of this proposal contend that it
would undermine investment by incumbent LECs and competitors.243 We do not expect such an outcome
but we urge the Commission to give this issue careful consideration.
87. Finally, we encourage the Commission to consider whether it should adopt transitional
measures for support in areas where competitive ETCs are operating as of the release date of this
Recommended Decision. We recognize that business plans may be contingent on support received under
the current rules. Like restating per-line support for rural carriers, transitional measures for support
received by competitive ETCs may be appropriate. Transitional measures also may be appropriate to
avoid rapid shifts in support and provide all ETCs with time needed to adjust their business plans. One
possible approach would be to establish a transitional period during which support for non-primary
connections is phased down annually?44 In addition, any shifts in support due to customer choice of a
primary connection provider could be limited to a given percentage for all ETCs during the transition
period?45
IV.BASIS OF SUPPORT
88. We decline to recommend that the Commission modify the basis of support in areas with
multiple ETCs at this time, but we will continue to consider possible modifications to the basis of support
in this proceeding. We recommend that the Joint Board and the Commission continue to consider
possible modifications to the basis of support in a broader context. Specifically, we recommend that the
Joint Board and the Commission consider possible modifications to the basis of support for all ETCs
when they undertake the "comprehensive review of the high-cost support mechanisms for rural and non-
rural carriers as a whole to ensure that both mechanisms function efficiently and in a coordinated fashion
in the Rural/Non-Rural Review proceeding?46 Examining the basis of support in areas with multiple
ETCs in conjunction with review of the rural and non-rural mechanisms would allow the Joint Board and
the Commission to craft a more comprehensive approach and avoid the perils of piecemeal decision-
240 47 C.R. ~ 54.307(a)(2). See also GCI Comments at 58-61 (noting that "the Commission rejected embedded
costs as a measure of the (incumbent) LEC's true economic costs for the purposes of setting UNE prices based on
costs
241 See ACS-F Comments at 13-17; NTCA Comments at 13; OPASTCO Comments at 18-22.
242
See 47 C.R. ~ 54.307(a)(2).
243 See, e.
g.,
Idaho Tel. Ass n Comments at 9; OPASTCO Comments at 31-33; Texas Statewide Tel. Coop.
Comments at 11.
244 See e., Federal-State Joint Board on Universal Service Thirteenth Report and Order and Further Notice of
Proposed Ru1emaking, CC Docket No. 96-, 15 FCC Rcd 24422 (2000) (Thirteenth Report and Order) (phasing
down interim hold-harmless support for non-rural carriers).
245
See NASUCA Reply Comments at 21-33; SBC Comments at 14-16.
246 Rural Task Force Order 16 FCC Rcd at 11310, para. 169; see also Tenth Circuit Remand Order FCC 03-249 at
para. 25.
Federal Communications Commission FCC 04J-
making. For the present, the Joint Board will continue its review of the methodology for calculating
support for ETCs in areas with multiple ETCs.
Background
89. In the First Universal Service Report and Order the Commission determined that federal
high-cost support for all eligible carriers eventually should be based on the forward-looking economic
cost of constructing and operating the network facilities and functions used to provide the supported
services.247 The Commission agreed with the Joint Board that
, "
in the long run, forward-looking
economic cost best approximates the costs that would be incurred by an efficient carrier in the market "248
and, therefore, the use of forward-looking economic cost as the basis for determining support will send
the correct signals for entry, investment, and innovation.249 The Commission concluded that "the 1996
Act's mandate to foster competition in the provision of telecommunications services in all areas of the
country and the principle of competitive neutrality compel (the Commission) to implement support
mechanisms that will send accurate market signals to competitors."25o
90. Although the Commission generally concluded that federal high-cost support should be based
on forward-looking economic costs rather than embedded costs, it agreed with the Joint Board that rural
carriers should transition to support based on forward-looking costs at a later date than non-rural
carriers.251 The Commission wanted to allow ample time for rural carries to adjust to any changes in
support calculations. In the meantime, rural carriers would receive support based on the existing
embedded cost mechanisms, as modified in the First Universal Service Report and Order.252
91. In order not to discourage competition in high-cost areas, the Commission determined that an
incumbent's high-cost support should be portable to other eligible carriers prior to the transition to
forward-looking economic cost mechanisms.253 The Commission found that the least burdensome way to
administer the support mechanisms would be to calculate an incumbent LEC's per-line support amount
based on its embedded costs and provide this per-line amount to all ETCs serving customers within the
service territory.254 The Commission recognized that a competitive ETC may have different costs than
the incumbent LEC, but explained that competitive ETCs must comply with section 254( e) of the Act
and that section 2l4(e) requirements would prevent competitive ETCs from profiting by limiting service
to low cost areas.255 In addition, the Commission determined that the alternative, requiring competitive
ETCs to submit forward-looking cost studies without requiring the incumbent LEe's support to be
calculated in the same manner, could place either the incumbent LEC or the competitive ETC at a
247 See First Universal Service Report and Order 12 FCC Rcd at 8899, para. 224; see also First Recommended
Decision 12 FCC Rcd at 230-32.
248 First Universal Service Report and Order 12 FCC Rcd at 8899, para. 224; see also First Recommended
Decision 12 FCC Rcd at 230, para. 270.
249 See First Universal Service Report and Order 12 FCC Rcd at 8899, para. 224
250 First Universal Service Report and Order 12 FCC Rcd at 8935, para. 292.
251
!d. at 8934-, paras. 291-95.
252 !d. at 8937-, paras. 297-313.
253 !d. at 8934, 8944, paras. 291, 311.
254
!d. at 8933, 8945, paras. 288, 313.
255 Id. at 8933, para. 289.
Federal Communications Commission FCC 04J-
competitive disadvantage?56
92. In the Rural Task Force Order the Commission further modified the embedded cost support
mechanisms for rural carriers for a five-year period based on the recommendations of the Rural Task
Force. The Commission stated its intention to refer to the Joint Board the issue of the appropriate rural
mechanism to succeed the Rural Task Force plan.2S7 In the context of the Joint Board's consideration of
an appropriate rural mechanism, the Commission stated that it anticipated "conducting a comprehensive
review of high-cost support mechanisms for rural and non-rural carriers as a whole to ensure that both
mechanisms function efficiently and in a coordinated fashion. ,,258 The Commission said that it would
use the transitional period during which a modified embedded cost mechanism is in place to develop a
long-term universal service plan that better targets support to rural telephone companies serving the
highest cost areas and recognizing the significant distinctions among rural carriers and between rural and
non-rural carriers."2S9 The Commission also said that it would include consideration of general issues
related to excessive fund growth and competitive neutrality in that comprehensive review?6O
93. In the Referral Order the Commission asked the Joint Board to review the methodology for
calculating support for ETCs in competitive study areas?61 The Commission noted that some groups
have argued that basing a competitive ETC's support on the incumbent LEC's embedded costs provides a
windfall and creates an unfair advantage for competitive ETCs with lower costs, whereas others have
argued that the current rules are necessary for competitive neutrality and are the least administratively
burdensome way to administer support.262 The Joint Board sought comment regarding the methodology
for calculating support for ETCs in areas served by multiple ETCs?63 Among other things, the Joint
Board sought comment on: whether the current rules promote efficient competition in high-cost areas and
operate in a competitively neutral manner; whether the Commission should calculate support for a
competitive ETC based on it own costs; whether the methodology used to calculate competitive ETC
support should be the same as the methodology used to calculate support for the incumbent; and whether
support in competitive areas should be based on the lowest-cost provider s costs, in order to promote
efficiency.264
Discussion
94. We recommend that the Commission ask the Joint Board to continue to consider possible
modifications to the basis for determining support for competitive ETCs in conjunction with review of the
appropriate high-cost mechanism for rural carriers to succeed the five-year plan adopted in the Rural Task
Force Order. The Commission recently reiterated its intention to ask the Joint Board "to conduct a
256 !d. at 8945, para. 313. It does not appear that the Commission considered the alternative of requiring competitive
ETCs to submit embedded cost studies. This is not surprising given the emphasis in the First Universal Service
Report and Order on eventually basing support for all carriers on forward-looking economic cost.
257 Rural Task Force Order 16 FCC Rcd at 11310, para. 168.
258 Id. at 11310, para. 169.
259 !d.
260 Id.
261 Referral Order 17 FCC Rcd at 22645-, para. 7.
262 !d.
263 Joint Board Portability-ETC Public Notice 18 FCC Rcd at 1948-, paras. 15-23.
264 !d. at 1948-, paras. 16, 18-19.
Federal Communications Commission FCC 04J-
comprehensive review of the high-cost support mechanism for rural and non-rural carriers as a whole to
ensure that both mechanisms function efficiently in a coordinated fashion.,,265 Because the Commission
anticipates that the Joint Board will conduct a comprehensive review of both rural and non-rural
mechanisms in the context of our consideration of an appropriate rural mechanism, we recommend that
the Joint Board be asked to consider the basis of support for all ETCs in all areas in the Rural/Non-Rural
Review proceeding. For the present, the Joint Board will continue its review of the methodology for
calculating support for ETCs in areas with multiple ETCs?66
95. Considering the basis of support under the rural and non-rural mechanisms simultaneously
would allow the Joint Board to craft a more comprehensive approach and avoid the perils of piecemeal
decision-making. We anticipate that the Commission in the Rural/Non-Rural Review proceeding will ask
us to simultaneously consider both the rural and non-rural support mechanisms and to develop
recommendations regarding the possible harmonization of the divergent approaches (embedded costs vs.
forward-looking costS)?67 We believe that it would be appropriate to consider the basis of support in
competitive areas in this broader context. Our approach to harmonizing the two mechanisms will
necessarily influence our recommendations on the basis of support in competitive areas?68
96. For areas served by rural carriers, we are concerned that funding a competitive ETC based on
the incumbent LEC's embedded costs may not be the most economically rational method for calculating
support. However, we do not yet have an adequate record to analyze and understand the consequences of
recommending a change in the basis of support for areas served by rural carriers that face competition.
We agree that universal service payments should not distort the development of nascent competitive
markets. Universal service support should neither incent nor discourage competitive entry. We also
believe that further work may be needed to decide if and how support should be adjusted to reflect
differences in service obligations, service quality and functionality. While we do not have an adequate
record at this time to determine how, and if, the current basis of support should be modified to achieve
these goals, we are concerned about any potential negative consequences for rural markets. Therefore, we
believe that further analysis should be conducted before potential changes are made. Rural carriers were
put on notice that the Joint Board and Commission would begin reviewing the current mechanism that
provides support to rural carriers based on their embedded costs before 2006. In the Rural/Non-Rural
Review proceeding, we plan to consider methods for determining support to high cost areas. These
methods should be competitively neutral, administratively simple and consistent with the Commission
goal of ensuring that the high-cost mechanisms function efficiently. We encourage all carriers that may
265 Tenth Circuit Remand Order FCC 03-249 at para. 25.
266 Referral Order 17 FCC Rcd at 22645, para. 7 (asking Joint Board "to review the methodology for calculating
support for ETCs in competitive study areas.
267 In developing a long-tenn universal service plan, the Commission said that it intends "to consider all options
including the use of forward-looking costs, to detennine appropriate support levels for both rural and non-rural
carriers.Rural Task Force Order 16 FCC Rcd at 11310, para. 170. The Commission also emphasized that the Act
does not require separate rural and non-rural support mechanisms. /d. at 11310, para. 171 n.402. Although the
Commission found that a distinct rural mechanism, based on embedded cost, was appropriate for the five-year
period, it expressed its belief "that there may be significant problems inherent in indefinitely maintaining separate
mechanisms based on different economic principles./d. at 11311, para. 173.
268 Many commenters agree that the basis of support for competitive ETCs is "inextricably linked" with broader
issues in the Rural/Non-Rural Review proceeding. See, e.Westem Wireless Comments at 4 ("the issues raised to
date in this proceeding are inextricably linked with the broader issues involved with the forthcoming
comprehensive review of the high-cost support mechanisms for rural and non-rural carriers as a whole to ensure
that both mechanisms function efficiently and in a coordinated fashion ' a process that the Commission has stated it
intends to complete by 2006.
Federal Communications Commission FCC 04J-
be affected by this potential change to actively participate in the development of the record. We also
emphasize that we have not yet determined whether it is appropriate to continue to maintain separate
support mechanisms for rural and non-rural carriers.
97. We do not believe that delaying our consideration of the basis of support will undermine the
sustainability of the universal service fund. Because the Commission determined that the Rural Task
Force plan should remain in place until 2006, the Joint Board and the Commission have adequate time to
conduct a comprehensive proceeding on the basis of support?69 Moreover, if the Commission adopts the
Joint Board's recommendations, discussed above, to adopt a primary-connection restriction and measures
to ensure that ETC designations are appropriately rigorous, such steps should slow fund growth due to
competitive ETC entry in the meantime. Accordingly, we recommend that the Commission refer to the
Joint Board early this year the Rural/Non-Rural Review proceeding, including the consideration of the
basis of support for all ETCs.
OTHER ISSUES
Identification of Wireless Customer Location
Background
98. Currently, competitive ETCs that provide mobile wireless service are required to use the
customer s billing address to identify the location of a mobile wireless customer within a disaggregation
zone.270 In the Rural Task Force Order the Commission concluded that this approach was reasonable
and the most administratively simple solution to the problem of determining the location of a wireless
customer for universal service purposes.271 The Commission recognized, however, that the use of a
customer s address could allow arbitrage, such as "identifying a customer in a high-cost zone when
service is primarily taken in a low-cost zone for the purpose of receiving a higher level of per-line
support."272 The Commission stated that it would take appropriate enforcement action if an ETC were to
engage in such arbitrage, and that it might revisit the use of a customer s billing address as more mobile
wireless carriers are designated as eligible to receive support.273
99. The Commission declined to use the Mobile Telecommunications Sourcing Act (MTSA)
definition of "place of primary use" to determine a mobile wireless customer s location.274 The MTSA
which was intended to address the difficulty in identifying the sites of a mobile telephone call for
transactional tax purposes, sources all wireless calls and mobile telecommunications services to the "place
269 In the Rural Task Force Order the Commission determined that the modified embedded cost mechanisms should
remain in place to "provide certainty and stability for rural carriers for the next five years.Rural Task Force
Order 16 FCC Rcd at 11249, para. 11. See also Western Wireless Comments at 4 ("the industry remains in year
two of a five-year plan for supporting universal service in rural (incumbent) LEC areas. The Commission found that
the five-year duration of Rural Task Force ('RTF') plan, in which full portability of all explicit funding plays a
critical role, was important to establish a stable and predictable environment for rural service providers.
270 Rural Task Force Order 16 FCC Rcd at 11314, para. 180.
271 Id. at 11314-, paras. 180-181.
272 Id. at 11315-, para. 183.
273 !d.
274
Id. at 11315, para. 182.
Federal Communications Commission FCC 04J-
of primary use."m The place of primary use is defined as "the street address representative of where the
customer s use of the mobile telecommunications service primarily occurs, which must be--(A) the
residential street address or the primary business street address of the customer; and (B) within the
licensed service area of the (customer s mobile telecommunications service providerJ."276 In declining to
adopt the MTSA definition to determine wireless customer location for universal service purposes, the
Commission expressed concern that states might not have established databases pursuant to the Act, and
that use of the MTSA definition might impose undue administrative burdens on mobile wireless ETCs.277
100. Commenters allege that some ETCs may be engaged in the type of arbitrage that the
Commission identified in the Rural Task Force Order and state that the Commission should direct the
Universal Service Administrative Company (USAC) to take measures to prevent abuse regarding the
location of the connections of the wireless provider s customers278 A number of commenters also express
a general concern that the billing address for a mobile wireless phone number has no relationship to
where the customer actually uses the phone.279 Other commenters advocate defining mobile wireless
customer location in terms of the place of primary use, and offer different proposals for defining this
concept, including the MTSA definition?8O The Texas Commission requires wireless ETCs to provide a
wireless access unit (W AU) to determine the actual location of a connection for universal service
281purposes.
101. Other commenters advocate the continued use of billing addresses to determine mobile
wireless customer location?82 One commenter asserts that billing address is an accurate means to
determine the location for high-cost support purposes 283 and others point out that line counts are publicly
available and can be audited by USAC. BellSouth suggests that wireless ETCs be required to
275 The MTSA gives states the option of providing mobile providers with a statewide database that designates the
appropriate taxing jurisdiction for each street address in the state, including, to the extent practicable, multiple postal
addresses applicable to one street location. If the state fails to provide such a database, the mobile provider may use
an enhanced zip code system to assign each street address to a specific taxing jurisdiction. Under the MTSA, a
mobile provider that uses a state-assigned database or an enhanced zip code system to assign addresses will be held
harmless for any taxes that might otherwise be due as a result of erroneous assignment. Mobile
Telecommunications Sourcing Act, 4 US.c. ~~ 116-126.
276 Id.
277 Rural Task Force Order 16 FCC Rcd 11315 , para. 182.
278
See OPASTCO Comments at 24-, Reply Comments at 15-16. OPASTCO cites comments filed by the
Washington Indep. Tel. Ass , USTA, and SBC to support the contention that the record documents the potential
abuse of the rules that use a customer s billing address to identify the service location of a mobile wireless
customer s service area.
279 See, e.
g.,
CenturyTel Comments at 35-36; Rural Indep. Competitive Alliance Comments at 19, 21.
280 See, e.
g.,
Montana Telecomms. Ass n Comments at 11-12; Washington Indep. Tel. Ass n Comments at 14;
Western Wireless Sept. 8 ex parte. Montana Telecomms. Ass n and Western Wireless support use of the MTSA
defInition of place of primary use. Washington Indep. Tel. Ass n recommends requiring a wireless carrier to certify
that at least 50% of the originating calls on a wireless service originate in a cell cite within the exchange for which
the lie is designated to receive USF support.
281 Texas Commission Comments at 12. Wireless carriers report access lines in accordance with the actual location
of the W AU that is utilized to provide the service.
282 Rural Cellular Ass nJAlliance of Rural CMRS Carriers Comments at 26; Smith Bagley Comments at 13; Western
Wireless Comments at 49-50.
283 Rural Cellular Ass nJAlliance of Rural CMRS Carriers Comments at 26.
Federal Communications Commission FCC 04J-
demonstrate that they provide a signal to a customer s billing address. BellSouth states that this
demonstration could take the form of a customer certification that service at the billing address is
available, working, and adequate?84
Discussion
102. The Joint Board recommends that the Commission further develop the record on defining
mobile wireless customer location in terms of place of primary use for universal service purposes. The
Joint Board believes that the place of primary use represents the preferred definition of wireless customer
location for universal service purposes because it reflects whether a customer actually uses mobile
wireless phone service as a primary connection in a high-cost area. Based on our examination of the
present record, however, we cannot determine whether any ofthe definitions proposed by commenters
including the MTSA definition, are capable of being implemented in a competitively neutral manner that
would not impose undue administrative burdens. Accordingly, the Joint Board recommends that the
Commission further develop the record on this matter.
103. In particular, the Joint Board recommends that the Commission develop the record on the
following issues: First, is the MTSA's place of primary use approach an efficient method to redefine the
location of mobile service lines? This may in part depend on the extent to which post office boxes are
used to misrepresent customer locations. Second, should the use of a place of primary use-based
defmition be optional or mandatory? Third, what amount of fraudulent use of billing addresses is
occurring today that use of a definition based on place of primary use would address? If place of primary
use is adopted how should it work in conjunction with virtual NXX?
Accurate, Legible, and Consistent Maps
Background
104. Under the Commission s rules, a rural carrier electing to disaggregate and target high-
cost support must submit to USAC "maps which precisely identify the boundaries of the designated
disaggregation zones of support within the carrier s studyarea."285 In the Rural Task Force Order the
Commission explained that "the integrity and flow of information to competitors is central to ensuring
that support is distributed in a competitively neutral manner." 286 The Commission went on to state that
in order to ensure portability and predictability in the delivery of support " it would require rural carriers
to "submit to USAC maps in which the boundaries of the designated disaggregation zones of support are
clearly specified. ,,287 USAC was directed to make those maps available for public inspection by
competitors and other interested parties?88 Some commenters indicate that the maps filed by rural
carriers pursuant to section 54.3l5(f)(1) and the information available through USAC are of varying
quality and utility.289 Others suggest that improved quality and reliability of maps submitted by
284
See BellSouth Comments at 2, Reply Comments at 5; see also GVNW Comments at 11, Reply Comments at 8-
285 47 c.F.R. ~ 54.315(f)(4).
286 Rural Task Force Order 16 FCC Rcd at 11307-, para. 161
287 ld.
288 !d.
289 See, e.
g.,
USCC Comments at 17-18; Rural Indep. Competitive Alliance Comments at 27.
Federal Communications Commission FCC 04J-
incumbents would allow for better targeting of support.290
Discussion
105. We recommend that the Commission delegate authority to USAC to develop standards
for the submission of any maps that ETCs are required to submit to USAC under the Commission s rules
in a uniform, electronic format. We believe that the development of such standards would promote the
integrity and flow of information to competitive ETCs by increasing the accuracy, consistency, and
usefulness of maps submitted to USAC, and that as the universal service administrator DSAC is the
appropriate entity to develop such standards.
VI.RECOMMENDING CLAUSE
106. For the reasons discussed herein, the Federal-State Joint Board on Universal Service
pursuant to sections 254(a)(l) and 4l0(c) ofthe Communications Act of 1934, as amended, 47 D.e. gg
254(a)(l), 41O(c), recommends that the Commission adopt recommendations set forth herein concerning
the process for designation of eligible telecommunications carriers and the Commission s rules regarding
high-cost universal service support.
FEDERAL COMMUNICA nONS COMMISSION
Marlene H. Dortch
Secretary
290 Rural Cellular Ass n! Alliance of Rural CMRS Carriers Comments at 26 ("What will improve the ability to target
subscribers is an FCC requirement that ILECs who disaggregate support submit accurate and legible cost zone maps
in a consistent electronic format so that competitive ETCs are able to easily determine the appropriate cost zones for
customers.
Federal Communications Commission FCC 04J-
APPENDIX A
PARTIES FILING COMMENTS AND REPLY COMMENTS
ACS of Fairbanks, Inc.
Alaska Telephone Association
AT&T Corp.
Beacon Telecommunications Advisors, LLC
BellSouth Corporation
Cellular Telecommunications & Internet Association
CenturyTel, Inc.
Dobson Communications Corporation
Fred Williamson and Associates, Inc.
Chouteau Telephone Company (Oklahoma)
H&B Telephone Communications, Inc. (Kansas)
Moundridge Telephone Company, Inc. (Kansas)
Pine Telephone Company, Inc. (Oklahoma)
Pioneer Telephone Association, Inc. (Kansas)
Totah Telephone Company, Inc. (Kansas & Oklahoma)
Twin Valley Telephone, Inc. (Kansas) Fred Williamson & Assocs.
General Communication, Inc. GCIGVNW Consulting, Inc. GVNW
ICORE, Inc. ICORE
Idaho Telephone Association Idaho Tel. Ass
Interstate Telcom Consulting, Inc. ITCI
Montana Telecommunications Association Montana Telecomms. Ass
Montana Universal Service Task Force MUST
Moultrie Independent Telephone Company Moultrie Indep. Tel. Co.
National Association of State Utility Consumer
Advocates
National Telecommunications Cooperative Association
Nebraska Rural Independent Companies
Nextel Communications, Inc. and Nextel Partners, Inc.
Organization for the Promotion and Advancement
of Small Telecommunications Companies
Rural Cellular Association and Alliance of Rural
CMRS Carriers
Commenter
Rural Independent Competitive Alliance
Rural Telephone Finance Cooperative
SBC Communications Inc.
Several Rural Telephone Companies
Accipiter Communications, Inc. (Arizona)
Abbreviation
ACS-
Alaska Tel. Ass
AT&T
Beacon
BellSouth
CTIA
CenturyTel
Dobson
NASUCA
NTCA
Nebraska Rural Indep. Coso
Nextel
OPASTCO
Rural Cellular Ass n/Alliance of
Rural CMRS Carriers
Rural Indep. Competitive Alliance
Rural Tel. Finance Coop.
SBC
Federal Communications Commission FCC 04J-
Alenco Communications, Inc. d/b/a ACI (Texas)
Arkansas Telephone Company, Inc. (Arkansas)
Beehive Telephone Company, Inc. Nevada (Nevada)
Beehive Telephone Company, Inc. (Utah)
Blossom Telephone Company, Inc. (Texas)
Central Arkansas Telephone Cooperative, Inc. (Arkansas)
Chickasaw Telephone Company (Oklahoma)
Goodman Telephone Company, Inc. (Missouri)
North Central Telephone Cooperative, Inc. (Tennessee)
Ozark Telephone Company (Missouri)
Pioneer Telephone Cooperative, Inc. (Oklahoma)
San Carlos Apache Telecommunications Utility, Inc. (Arizona)
Santa Rosa Telephone Cooperative, Inc. (Oklahoma)
Scott Country Telephone Company, Inc. (Arkansas)
Seneca Telephone Company (Missouri)
South Arkansas Telephone Company, Inc. (Arkansas)
Star Telephone Company, Inc. (Louisiana
Valliant Telephone Company (Oklahoma)
Smith Bagley, Inc.
Sprint Corporation
TCA, Inc. - Telcom Consulting Associations
Texas Public Utility Commission
Texas Statewide Telephone Cooperative, Inc.
Townes Telecommunications, Inc.
United States Cellular Corporation
United States Telecom Association
United Utilities, Inc.
Verizon Telephone Companies
Washington Independent Telephone Association
Washington Utilities and Transportation Commission
Western Alliance
Western Wireless Corporation
WorldCom, Inc., D/B/A MCI
Reply Commenter
AT&T Corp.
ACS of Fairbanks, Inc.
Alabama Rural Local Exchange Carriers
Ardmore Telephone Company
Blountsville Telephone Company
Brindlee Mountain Telephone Company, Inc.
Butler Telephone Company, Inc.
Farmers Telephone Cooperative, Inc.
Frontier Communications of Alabama, Inc.
Assorted Rural Tel. Coso
Smith Bagley
Sprint
TCA
Texas Commission
Texas Statewide Tel. Coop.
Townes et al.
USCC
USTA
United Utilities
Verizon
Washington Indep. Tel. Ass
Washington Commission
Western Alliance
Western Wireless
MCI
Abbreviation
AT&T
ACS-
Federal Communications Commission FCC 04J-
Frontier Communications of Lamar County, Inc.
Frontier Communications of the South, Inc.
Graceba Total Communications, Inc.
GTC, Inc.
Gulf Telephone Company
Hayneville Telephone Company, Inc.
Hopper Telecommunications Company, Inc.
Interstate Telephone Company
Millry Telephone Company, Inc.
Mon-Cre Telephone Cooperative, Inc.
Moundville Telephone Company, Inc.
National Telephone Company of Alabama, Inc.
New Hope Telephone Cooperative, Inc.
Oakman Telephone Company
OTELCO Telephone LLC
Peoples Telephone Company
Pine Belt Telephone Company, Inc.
Ragland Telephone Company
Roanoke Telephone Company, Inc.
Union Springs Telephone Company, Inc.
Valley Telephone Company
Alaska Telephone Association
Beacon Telecommunications Advisors, LLC
BellSouth Corporation
Cellular Telecommunications & Internet Association
Centennial Communications Corp.
CenturyTel, Inc.
Dobson Communications Corporation
General Communication, Inc.
GVNW Consulting, Inc.
Independent Telephone & Telecommunications Alliance
Montana Universal Service Taskforce
National Association of State Utility Consumer Advocates
National Telecommunications Cooperative Association
Nebraska Rural Independent Companies
Organization for the Promotion and Advancement
of Small Telecommunications Companies
Rural Cellular Association-The Alliance of Rural
CMRS Carriers
Rural Independent Competitive Alliance
South Dakota Telecommunications Association
Sprint Corporation
United States Cellular Corporation
United States Telecom Association
Verizon
Alabama Rural LECs
Alaska Tel. Ass
Beacon
BellSouth
CTIA
Centennial
CenturyTel
Dobson
GCI
GVNW
Indep. Tel. & Telecomms. Alliance
MUST
NASUCA
NTCA
Nebraska Rural Indep. Coso
OP ASTCO
Rural Cellular Ass n/Alliance of
Rural CMRS Carriers
Rural Indep. Competitive Alliance
South Dakota Telecomms. Ass
Sprint
USCC
USTA
Verizon
Federal Communications Commission FCC 04J-
Washington Independent Telephone Association
Western Wireless Corporation
WorldCom, Inc. D/B/A MCI
Washington Indep. Tel. Ass
Western Wireless
MCI
Federal Communications Commission FCC 04J-
SEPARATE STATEMENT OF
COMMISSIONER KATHLEEN Q. ABERNATHY
Re: Federal-State Joint Board on Universal Service, Recommended Decision
This Recommended Decision addresses several critical issues regarding the distribution
of universal service support to carriers serving rural areas. These issues concern the designation
and funding of eligible telecommunications carriers (ETCs) in rural areas facing competition
and they go to the heart of the Commission s administration of the federal high-cost support
mechanisms. As Chair of the Joint Board, I have made this undertaking our highest priority, and
I am grateful that my colleagues have responded with extremely thoughtful recommendations.
While our work continues in some important respects, I am proud of the progress we have made
and I commend my colleagues and the outstanding staff for their diligent and insightful
participation in this proceeding. We were able to reach consensus on several critical issues and
we narrowed our differences on others. Where we have been forced to disagree, our divergences
have been principled and respectful. It has been a privilege for me to serve with such a
committed group of public servants.
A major impetus for initiating this proceeding was widespread uncertainty regarding the
appropriate standards for determining whether the designation of a competitive ETC serves the
public interest. We have responded to requests for guidance from state commissions and carriers
by setting forth a comprehensive set of recommended minimum standards for the designation of
ETCs. As I explained in a recent FCC designation decision, I believe that an ETC must be
prepared to serve all customers upon reasonable request, and it must offer high-quality services
at affordable rates throughout the designated service area.291 State commissions, acting under
section 214(e)(2), and the FCC, acting under section 214(e)(6), plainly should be able to impose
conditions designed to ensure that all ETCs are appropriately qualified. Perhaps most
importantly, the certifying authority should make sure that a prospective ETC has the ability and
commitment to build out facilities as necessary to serve the entire designated area. I am pleased
that my federal and state colleagues have unanimously agreed on this principle as well as other
core standards that should make the designation process more rigorous, and also more uniform
and predictable. I hope that state commissions and the FCC heed this guidance in upcoming
designation proceedings.
The Commission s other principal charge to the Joint Board was to consider a variety of
means to ensure the sustainability of high-cost funding in rural areas as competition grows. A
majority of the Joint Board believe that the most promising proposals call for some kind of
modification to the current system that funds all connections from all carriers (although, as
discussed below, I believe that we must also continue to explore possible changes to the basis for
calculating support). I do not know at this stage whether I will ultimately vote to adopt a
primary-line restriction of the sort discussed in this Recommended Decision, but it seems clear
that the universal service fund can no longer subsidize an unlimited number of connections
291 Separate
Statement of Commissioner Kathleen Q. Abemathy, Federal-State Joint Board on Universal Service
Virginia Cellular, LLC Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth
of Virginia Memorandum Opinion and Order, CC Docket No. 96-, FCC 03-338 (reI. Jan. 22 2004).
Federal Communications Commission FCC 04J-
provided by an unlimited number of carriers. Nor do I believe that the Communications Act
contemplates such a result. Section 254 at bottom requires a "lifeline" connection to the PSTN
in other words, reasonably priced access to the network that provides the core "supported
services" that make up universal service.292 That goal will be fulfilled as long as the
Commission continues to support a primary connection for every consumer living in high-cost
rural areas.
Critics of primary-line proposals have raised legitimate concerns about administrability
and the impact on investment in rural communities. In response, the Joint Board'
recommendation is contingent on the Commission s ability to develop a workable primary-line
rule. Moreover, my colleagues and I have worked hard to develop a variety of proposals that
should mitigate the impact of any support restriction on rural consumers and carriers, and we
have expressly recommended seeking further comment on this issue. Contrary to what some
parties may have assumed, the Joint Board has never contemplated a sudden withdrawal of
support for existing second lines. Rather, we have suggested further consideration of two
straightforward propositions. First, a competitive carrier should receive support only to the
extent that it "wins" the customer. And second, an incumbent ETC might risk losing the support
associated with a customer when it no longer serves that customer. In rural areas that lack
multiple ETCs - which is the vast majority of them the primary-line proposals outlined in
this Recommended Decision would bring about no change in the flow of high-cost funding. And
even where competition has eroded rural carriers' customer base to some extent, the Joint Board
has recognized the need to proceed cautiously before imposing any restrictions on the amount of
available support. Given these efforts to protect consumers in rural areas, I believe it would be
short-sighted to terminate our consideration of these proposals at this early stage.
Finally, I am pleased that we will continue to examine proposals to modify the basis of
support for ETCs. Notably, every member of the Joint Board has recognized that "funding a
competitive ETC based on the incumbent LEC's embedded costs may not be the most
economically rational method for calculating support.293 While we agree on the problem, the
solution has been elusive. If the Commission wanted to fund competitors based on their own
embedded costs, the record does not tell us how to calculate such costs, given that competitive
carriers are not subject to a regulatory accounting regime. More troublingly, several parties have
suggested that wireless carriers' per-line support would be higher than incumbents ' if calculated
based on their own network costs, given the new entrants ' lower penetration rates - and
obviously that would frustrate our goal of restraining growth in high-cost funding.
Alternatively, if we were to pursue a forward-looking cost methodology, similar questions
remain about how to implement such an approach at this time. And several parties have argued
convincingly that, instead of focusing narrowly on the basis of support for competitive carriers
the Joint Board should comprehensively review the basis of support for all ETCs as the
Commission pledged in its Rural Task Force Order to do by 2006. The Joint Board has
292 Support for the networks that provide the core services also enables consumers in rural areas to receive all of the
other services including advanced services available over those networks.
293 Recommended Decision, para. 96.
Federal Communications Commission FCC 04J-
accordingly recommended that the Commission refer this broader issue for its consideration, and
I hope that the FCC takes that step in the very near future.
Federal Communications Commission FCC 04J-
SEPARATE STATEMENT OF COMMISSIONER LILA A. JABER
FLORIDA PUBLIC SERVICE COMMISSION
Re: Federal-State Joint Board on Universal Service, Recommended Decision
The FCC has asked the Joint Board to review the FCC's current rules relating to high-
cost universal service support mechanisms to ensure that the dual goals of preserving universal
service and promoting competition continue to be fulfilled. By no means is this an easy task.
the other hand, this review is overdue in light of an evolving telecommunications market and the
ongoing responsibility to maintain accessible, affordable telephone service for every American
while addressing the unintended consequence of a rapidly growing federal universal service
fund. In meeting these obligations, I am optimistic that the recommended decision, if adopted by
the FCC, has the potential of advancing the goal of universal service, ensuring long-term
sustainability of the fund, and maintaining competitive neutrality. With that said, I recognize
that there may be administrative difficulties that will have to be overcome should the FCC
choose to go forward with our recommendations. I do believe that these difficulties, or
opportunities " can be addressed. This recommended decision at the very least will generate
additional comments and constructive implementation suggestions to the FCC from various
stakeholders.
I recognize the hard work of the universal service joint board staff and offer my sincere
thanks. Their dedication and expertise in putting this complex matter into a simple form is
evident in the work product. This document is yet another example of federal-state cooperation.
In that same spirit, I applaud the tireless efforts of my joint board colleagues. This was an
extremely difficult decision with good, plausible arguments on each side of every issue. At the
end of the proverbial day, I remain hopeful that the ongoing dialogue from this point forward
will result in optimal solutions to these matters.
ETC Designation Process
In the recommended decision, we propose that the FCC adopt permissive, minimum
guidelines that state commissions and the FCC may use for all ETC designation proceedings.
Use of these permissive guidelines should provide a more consistent application process among
states. More importantly, these guidelines should further assist state regulators in determining if
the public interest would be served by designating additional carriers as ETCs, thereby
qualifying additional carriers for federal universal service support. I agree with the commenters
who suggested that encouraging a more rigorous fact-finding ETC designation process for all
carriers, in both rural and nonrural areas, should ensure that only carriers fully committed to
meeting universal service obligations have access to the already-growing federal universal
service fund.294 Examples of the guidelines we propose be considered in the review process
include suggesting that a carrier demonstrate its overall financial viability as well as its technical
ability to provide quality services throughout its entire designated area. I find these permissive
294 See, e.
g.,
BellSouth Comments at 2 ("Strengthening the eligibility requirements for obtaining ETC status is a
critical step in ensuring that the universal service fund remains 'specific, predictable and sufficient ' as required by
Section 254.
);
see also NASUCA Comments at 8-
Federal Communications Commission FCC 04J-
guidelines eminently reasonable. In fact, it should be clear that a state may impose additional
requirements for ETC certification if the state so chooses. By this recommended decision, we
clearly intend to maintain state flexibility in the ETC designation process authority some state
commissions can clearly find in Section 214(e)(2). For other states, where certain carriers are
not subject to the jurisdiction of a state commission, this recommended decision clarifies that the
FCC, in implementing Section 214(e)(6), should apply these same guidelines.
Scope of Support
At the center of this recommended decision is a proposal to limit high-cost support to a
primary connection for residential and business customers. This is a departure from the current
structure that allows all ETCs to receive federal universal service support for all lines. This
structure has created a situation where multiple ETCs in high-cost rural areas automatically
receive support even if a carrier does not have an economically rational business case to support
such entry. We should not support the current framework that allows subsidies to flow to
multiple competitors where it is already cost prohibitive for a single provider. Some commenters
believe that states have used multiple carrier ETC designation as a means to attract more
universal service funds into the state.295 While I do not know if this has happened, I do believe
that the universal service fund should not be used to artificially induce competitive entry that
would not have otherwise occurred. Instead, universal service funds should be used for the
purpose intended --- to provide universal access to a customer by providing the appropriate
funding for a single connection. This is the goal of universal service, as recognized as early as
1996 by the Joint Board. Implementation of the primary-connection proposal may well be
essential in order to preserve the long-term sustainability of the federal universal service fund.
Otherwise, excess support and resulting increases in USF assessment fees which flow through to
consumers, thereby directly impacting their bills, can detract from the goal of universal access
and affordability. Moreover, if this proposal is administratively feasible and can be implemented
reasonably, the potential exists to provide the appropriate entry signals in rural and high cost
areas. Carriers can and should compete for the primary connection since that is the trigger for
receiving support from the fund under this proposal.
I also recognize that it is absolutely necessary to mitigate any potentially adverse impact
of a primary line restriction on the rural carriers. Therefore, I support the proposal to seek
further comment on "rebasing" the high-cost support that carriers currently receive. In areas
where only one ETC is present, carriers should receive no less support than they receive now.
areas served by more than one ETC, we envision that customers would select their primary
carner.
Notably, a rural carrier would lose support under this primary-connection proposal only
it loses the customer to another ETC, whether it be a wireline or wireless competitor. I believe
this answers, at least in part, the concern raised by some commenters that primary line
restrictions will limit the availability of wireless service in rural areas, which could negatively
impact the area s economic development. Under this recommended decision, wireless carriers
295 See, e.
g.
NASUCA Comments at 8-
Federal Communications Commission FCC 04J-
can be selected by customers as the primary carrier, thus enabling wireless carriers to receive
support from the fund in rural and other areas. Recently in addressing Virginia Cellular
application for ETC designation, FCC Chairman Powell stated that
, "
( dJespite the importance of
making rural, facilities-based competition a reality, we must ensure that increasing demands on
the fund should not be allowed to threaten its viability.296 I wholeheartedly agree. Consistent
with Chairman Powell's statement, our recommended decision on this issue is an example of
balancing legitimate concerns of our rural citizens with the goal of ensuring the long-term
sustainability to the fund.
296 See Separate Statement of Chairman Michael K. Powell in Federal-State Joint Board on Universal Service
Virginia Cellular, LLC Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of
Virginia, Memorandum Opinion and Order, CC Docket No. 96-, FCC 03-338 (reI. January 22, 2004).
Federal Communications Commission FCC 04J-
SEPARATE STATEMENT OF CO MMISSI 0 NER THOMAS J. DUNLEAVY,
NEW YORK STATE PUBLIC SERVICE COMMISSION
Re: Federal-State Joint Board on Universal Service, Recommended Decision
The issues referred to us in this phase of this proceeding are among the most complex and
contentious we have been asked to address. They go to the heart of what we expect a universal
service program to achieve and how we expect it to interact with the forces of a competitive
market. Although this Recommended Decision does not resolve all the issues before us, I
believe the recommendations we make here today will help sustain the federal universal service
program, enabling it to more effectively achieve our dual goals of fostering competition while
preserving universal service. I support this Recommended Decision as a reasonable step in the
right direction.
Perhaps the most significant recommendation we make here today is to provide federal
high cost support only for a subscriber s or household's primary connection to the telephone
network. I believe this recommendation is entirely consistent with the fundamental purpose of
the federal universal service program - ensuring that all homes and businesses can affordably
connect to the rest of the world. When the Telecommunications Act of 1996 was being crafted, I
doubt many people anticipated that in less than a decade most households would have both a
wire line and a wireless phone and that many would have multiple wireless phones. I am
convinced that, however much we might like to, we simply cannot sustain a universal service
program that provides support to two, three, four or more phones in most households. At the
same time, rules that would effectively preclude support to wireless services would not be
competitively or technologically neutral and might artificially slow the deployment of desirable
and potentially less costly services to high cost areas. While implementation of our
recommendation to support only primary lines will no doubt involve some administrative
complexities, I am confident that reasonable solutions will be found through further development
of the record, as we here recommend. I also am confident that resolution of those challenges will
place far fewer demands on the high cost support mechanism than will continuing to support
multiple lines per household.
That said, I am keenly aware that our primary line proposal could significantly affect the
support currently provided to existing eligible telecommunications carriers. No rule should be
thought to be permanent, yet when changes are made reasonable efforts should be made on a
transitional basis to mitigate sudden and severe negative consequences. I am pleased that our
Recommended Decision recognizes this by offering several alternative proposals for further
comment. Without expressing a preference for any of the alternatives, I would emphasize that
no mitigation effort can be expected to live on in perpetuity, nor should one be used as a means
to forestall competition in any area. Congress was quite clear; it intended to open all
telecommunications markets to competition, not just markets in low cost or urban areas.
It is a testament to the dedication and professionalism of my Joint Board colleagues that
we are able to suggest some significant changes to improve the federal universal service
program, even as we continue to seek a fuller record on several issues. The state and federal
staffs supporting this Joint Board once again have done an exemplary job helping us to
Federal Communications Commission FCC 04J-
understand the issues and our options and reducing our thoughts to writing. I offer them all my
sincere appreciation.
Federal Communications Commission FCC 04J-
SEPARATE STATEMENT OF BILLY JACK GREGG,
DIRECTOR OF THE CONSUMER ADVOCATE DIVISION,
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
Re: Federal-State Joint Board on Universal Service, Recommended Decision
The most important aspect of our recommendation today is the decision to limit support
to primary lines. Not only will this action slow the growth of the high cost fund stemming from
support of multiple lines of multiple networks within the same area, but it will also
fundamentally change the calculus for designating additional eligible telecommunications
carriers (ETC's) in areas served by rural carriers. Since current Commission rules provide
support to all lines of all ETC', states have been faced with the perverse incentive of gaining
more federal universal service support the more ETC's they approve.297 By limiting support to
primary lines, we eliminate this incentive and return to the original concept of universal service
in a competitive environment: namely, that carriers will compete for the universal service
subsidy,298 and that competition will eventually drive down the overall cost of subsidizing
service in high-cost areas.299
Several of my colleagues on the Joint Board have expressed concern over the fate of
small, rural incumbent carriers if support is limited to primary lines. I share these concerns.
However, under the Act, the proper place for these concerns is at the point when the decision is
made whether to designate an additional ETC in an area served by a rural carrier. 300 If a state or
the Commission believes that a particular rural area or a particular rural carrier cannot stand the
297 This perverse incentive is especially strong in areas served by rural carriers since these areas generally receive
higher levels of federal support.
298 See Federal-State Joint Board on Universal Service Report and Order, CC Docket No. 96-, 12 FCC Rcd 8776
(May 8, 1997) (First Report and Order) at ~~19; 287-289; 311-312; "The (FCC's universal service) order provides
that the universal service subsidy be portable so that it moves with the customer, rather than stay with the incumbent
LEC, whenever the customer makes the decision to switch local service providers... .Alenco Communications.
Inc. v. FCC, 201 F.3d 608 621 (5th Cir. 2000) (Alenco).
299 See House Report No. 104-204 (1)(1995), Arnold & Porter Legislative History P.L. 104-104 (A&P) at 60: "
...
the current system of internal and external subsidies is replaced by a system consisting primarily of external
subsidies, the total amount of subsidies collected from low-cost customers and passed on to high-cost customers
would not change significantly. Over time, CBO expects that the operating costs of telephone companies would
tend to fall as a result of competitive pressures and the total amount of subsidies necessary would decline." This
view was also expressed by Senator Stevens during debate on the Act: "(The Act) opens up the local market to
competition while still preserving the concept of universal service. It does so by taking advantage of new
technologies which are intended to reduce the cost of all services, including universal service. In fact, I find it
interesting that the Congressional Budget Office has said that this bill will reduce the cost of universal service from
the existing system by at least $3 billion over the next five years." 141 Congressional Record S7881 (1995), A&P
210. See also Senate Report No. 104-A&P at 254 (1995): "
.. .
competition and new technologies will greatly
reduce the actual cost of providing universal service over time, thus reducing or eliminating the need for universal
service support mechanisms as actual costs drop to a level that is at or below the affordable rate for such service in
an area... .
300 It should be pointed out that under the integrated approach to primary line support outlined in the Recommended
Decision, there would be no change in current support for a rural carrier unless and until an additional ETC is
designated within the rural carrier s study area by the state or Commission.
Federal Communications Commission FCC 04J-
loss or dilution of current levels of support, then under Section 214( e )(2) of the Act, it should
find that additional ETC's are not "in the public interest." 301 If, on the other hand, states or the
Commission find that multiple ETC's are appropriate in a particular area , then the portability
rules should apply equally to all ETC', regardless of the technology used, and regardless of
whether the ETC is an incumbent or a new-comer. Proposals to reserve some support as the
exclusive province of incumbent ETC's - regardless of previous public interest decisions under
Section 214(e)(2) -violate, in my judgment, the principle of competitive neutrality.302
I believe that there are certain areas of this country where it is so expensive to provide
service that it makes no sense to have more than one carrier subsidized by the federal universal
service fund.3o3 Moreover, I believe that it is relatively easy to determine where these areas are.
The universal service fund provides various levels of support to over 1400 incumbent study areas
in this country. At root, these support levels are based on the cost to provide service to the
number of customers within each area. By comparing the average levels of per line support
provided to each study area, the Commission should be able to determine per line support
benchmarks that divide study areas where multiple ETC's are presumably in the public interest
and those areas where they are not.
Adoption of such benchmarks will provide guidance to competitors and incumbents, will
introduce a degree of certainty into the telecommunications marketplace, and will greatly
simplify ETC decisions for state commissions. After further development in proceedings before
the Commission, I hope that this benchmarking concept is adopted to guide public interest
determinations under Section 214(e)(2) of the Act.
30lSee Alenco at 621-622: "To the extent petitioners argue Congress recognized the precarious competitive positions
of rural LEe's , their concerns are addressed by 47 u.S.c. ~214(e), which empowers state commissions to regulate
entry into rural markets.
302 The Commission has deemed "competitive neutrality" as "... universal service support mechanisms and rules
(that) neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor
one technology over another.First Report and Order ~4 7. In Alenco the 5th Circuit found competitive neutrality
to be an integral component of portability: "
.. .
portability is not only consistent with predictability, but also is
dictated by principles of competitive neutrality and the statutory command that universal service support be spent
only for the provision, maintenance, and upgrading of facilities and services for which the (universal service)
support is intended.
' "
Alenco at 622. The Commission has also previously addressed the inappropriateness of
support programs available only to incumbents: "We have previously held, in interpreting section 254 of the
Communications Act, that 'competitive neutrality in the collection and distribution of funds and determination of
eligibility in universal service support mechanisms is consistent with congressional intent and necessary to promote
a procompetitive, de-regulatory national policy framework.' As discussed above , it is doubtful that a universal
service funding program that restricts eligibility to ILECs could be considered competitively neutral. Thus, a
program of this nature may well be found to be inconsistent with and to impede the achievement of important
Congressional and Commission goals.In the Matter of Western Wireless Corp. Petition for Preemption
Memorandum Opinion and Order, File No. CWD 98-, 15 FCC Rcd 16227 (Aug. 28, 2000) at ~ll.
303 Indeed, but for explicit subsidies from the universal service fund and other federal programs, there would be no
telephone service in large areas of this country.
Federal Communications Commission FCC 04J-
SEPARATE STATEMENT OF
COMMISSIONER KEVIN J. MARTIN
DISSENTING IN PART, CONCURRING IN PART
Re: Federal-State Joint Board on Universal Service, Recommended Decision
I am troubled by today s Recommended Decision because it fails to provide sufficient
guidance or a meaningful public interest test on the process for designating and funding eligible
telecommunications carriers ("ETCs ) that enter the market in high cost areas to serve rural
consumers.
As I have stated in the past, I have concerns with policies that use universal service
support as a means of creating "competition" in high cost areas.304 In my view, the main goals
ofthe universal service program are to ensure that all consumers--including those in high cost
areas--have access at affordable rates. I remain hesitant to subsidize multiple competitors to
serve areas in which costs are prohibitively expensive for even one carrier. The Joint Board'
recommendations may continue to make it difficult for anyone carrier to achieve the economies
of scale necessary to serve all of the customers in rural areas.
I believe the Joint Board should have recommended more immediate steps that the
Commission should take to reform the ETC designation process. For example, I would have
preferred that the Joint Board recommend that the Commission require ETCs to provide the same
type and quality of services throughout the same geographic service area as a condition of
receiving universal service support. In my view, competitive ETCs seeking universal service
support should have the same "carrier of last resort" obligations as incumbent service providers
in order to receive universal service support. Adopting the same "carrier of last resort"
obligation for all ETCs is fully consistent with the Commission s existing policy of competitive
and technological neutrality amongst service providers.
As I have supported in the past, I would have recommended that the Commission require
ETCs to provide equal access. Equal access provides a direct, tangible consumer benefit that
allows individuals to decide which long distance plan, if any, is most appropriate for their needs.
As I have stated previously, I believe an equal access requirement would allow ETCs to continue
to offer bundled local and long distance service packages, while also empowering consumers
with the ability to choose the best calling plan for their needs.3o5 An equal access obligation is
also fully consistent with the Commission s existing policy of competitive neutrality amongst
304 Separate Statement of Commissioner Kevin J. Martin Multi-Association Group (MA G) Plan for Regulation of
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange Carriers, Second
Report and Order and Further Notice of Proposed Rulemaking, CC Docket (No. 00-256)(rei. October, 11 2002):
Separate Statement of Commissioner Kevin 1. Martin Federal-State Joint Board on Universal Service, Virginia
Cellular, LLC Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of
Virginia Memorandum Opinion and Order, CC Docket No. 96-, FCC 03-338 (Jan. 22, 2004).
305 Separate Statement of Commissioner Kevin J. Martin Federal-State Joint Board on Universal Service
Docket No.96-, (reI. July 10, 2002); Separate Statement of Commissioner Kevin J. Martin Federal-State Joint
Board on Universal Service, FCC 03-170 CC Docket No. 96-, (reI. July 14, 2003).
Federal Communications Commission FCC 04J-
service providers, facilitating competition on the basis of price and service quality for
comparable service offerings.
I would have also preferred that the Joint Board recommend that the Commission require
ETCs to provide service throughout the same geographic service area in order to receive
universal service support. This obligation would help guard against the potential for
cream skimming. I would have supported a recommendation to deny future requests to redefine
the service areas of incumbent rural telephone companies--and to deny ETC designations in
instances where an ETC's proposed service area does not cover the entire service area of the
incumbent service provider.
Given that a majority of my colleagues were unwilling to recommend that the
Commission adopt these same competitively neutral obligations for all ETCs, I concur in the
Joint Board's recommendation to seek alternative means oflimiting fund growth. To help slow
the growth of the universal service fund, I specifically support one particular alternative of the
primary line proposal. My support for the primary line proposals is limited to that "hold
harmless" proposal.
Under the "hold harmless" alternative, per line support available to competitive ETCs
would freeze upon competitive entry. Competitive ETCs would only be eligible for universal
service support for customers who designated their service as the primary line. Unlike the other
primary line proposals, however, this alternative would not cap per-line support for incumbent
carriers and would thus "hold harmless" incumbent carriers from the loss of universal service
support. As my colleague Commissioner Rowe has observed, this proposal would work to
address the incumbents overall network costs that are incurred.
I look forward to working with my colleagues on the Commission as we address these
critical issues regarding the distribution of universal service support to ETCs in high cost areas
while ensuring that we maintain and preserve universal service in rural America.
Federal Communications Commission FCC 04J-
JOINT SEPARATE STATEMENT OF
COMMISSIONERS JONATHAN S. ADELSTEIN,
G. NANETTE THOMPSON, REGULATORY COMMISSISSION OF ALASKA,
AND BOB ROWE, MONTANA PUBLIC SERVICE COMMISSION
APPROVING IN PART, DISSENTING IN PART
Re: Federal-State Joint Board on Universal Service, Recommended Decision
Weare pleased that this Joint Board has determined that it is useful to employ guidelines
to ascertain whether it is appropriate to designate multiple eligible telecommunications carriers
in particular areas. We are pleased that this Joint Board recognizes, as Congress did in 1996
that when designating an ETC in an area served by a rural telephone company we must take
greater care in examining the public interest to determine the wisdom of multiple ETCs in rural
high cost areas. Establishing a meaningful public interest test306 and providing meaningful
guidance on ETC designations will help to limit federal universal service funding to those
providers who are committed to serve rural communities. 307
We disagree, however, with the majority s recommendation to limit funding to primary
lines. We believe it is inconsistent with Congress' intent when codifying the Universal Service
provisions in the 1996 Act. It is also inconsistent with the December 18, 2003 letter from
Senators Dorgan, Burns, Snowe, Johnson, Baucus, Lincoln and Daschle, stating that a primary
line restriction would be "a major step backward that would thwart the essential purpose of
universal service." A primary line restriction would reduce incentives for deployment of both
wireless and wireline networks. We are also disappointed that the Joint Board cannot yet make
progress on how to determine the basis of support, which was a core element of this "portability
referral.
The majority s recommendation to restrict funding to primary lines is a well-intentioned
effort that will have a deleterious effect on the provision of universal service. Restricting
funding to primary lines is not necessary to control fund growth. There are other better means to
control fund growth that do not have the same draconian consequences for rural consumers and
that would better advance the long term goal of an equitable support system that affords all
Americans reasonable access to telecommunications services.
In this referral, the Joint Board faces the question of how the Act's goals of competition
and universal service are to be reconciled and balanced in rural areas. The majority
recommendation would discourage network investment in rural areas. It also would distort rural
306 A meaningful public interest test will allow commissions to withhold granting ETC status to additional carriers if
they believe that the dilution of support caused by the designation will undennine the ability of all carriers to offer
comparable service at comparable rates as is required by Section 254(b)(3) of the Act.
307 After further development of the record, it may be possible for the FCC to adopt more specific standards for
consideration and adoption by the Commission or the states. For example, we note the specific recommendations
offered by the Montana Independent Telecommunications Systems in an ex parte filed January 5 2004. The ex
parte suggested inter alia very specific provisions concerning coverage, network congestion, cost reporting based
on existing NECA forms, and a method for achieving service quality standard comparability.
Federal Communications Commission FCC 04J-
markets in a way that would ultimately undermine the goal of universal service. Such a result is
anathema to the purpose of universal service funding and the intent of Congress.
We believe that a better policy would be to put in place a more stringent public interest
test, as we recommend today, and to move away from the identical support rule by basing each
ETC's support on its own costs. This would limit fund growth, comply with Section 254( e) and
encourage continued investment in rural markets. It also would limit funding only to those
providers, whether incumbents or new entrants, who are committed to serve rural communities.
Designating Primary Lines
The majority recommends that support be distributed based on a carrier s number of
primary lines and that support, under one option, be "rebased" to ensure that the amount does not
change initially. If the number of primary lines were to increase in the future, however, support
would increase. Likewise, if the number of primary lines were to decrease, support would
decrease in proportion. Future support therefore depends upon an ETC's ability to get customers
who will designate their line as primary. We foresee a number of harmful effects from such a
system.
The primary line recommendation would be harmful to consumers. Section 254(b)(3) of
the statute directs us to make reasonably comparable services available to consumers nationwide
at reasonably comparable rates:
Consumers in all regions of the Nation, including low-income consumers and those in
rural, insular and high cost areas, should have access to telecommunications and
information services including interexchange services and advanced telecommunications
and information services that are reasonably comparable to those services provided in
urban areas and are available at rates that are reasonably comparable to rates charged for
similar services in urban areas.
This section provides not only that the rates for services should be reasonably
comparable, but also that access should be reasonably comparable. Moreover, the statute covers
not just basic service, but also advanced telecommunications services and information
services.308 Limiting support to primary lines would deny rural consumers comparable access to
a variety of telecommunications services: voice, data, fixed, and mobile.
308 If this provision applied only to "access " then the statute would use the singular "" to describe what must be
reasonably comparable. We therefore conclude that the "reasonably comparable" language in Section 254(b)(3)
focuses both on telecommunications and information services.
Federal Communications Commission FCC 04J-
The majority s recommendation would deny support for all second lines, including those
used as second voice lines and data lines.309 The economic development effects in rural areas
could be quite harmful. Rates could become unaffordable for second lines in high cost areas
because all consumers will be asked to pay the cost of a second line without any offsetting
support. While the majority has offered options (e., rebasing, hold harmless provisions) to
attempt to ameliorate the harmful affects of the lost support, we believe these options are likely
to be anti-competitive, or will prove ineffective and impractical.
Rural business customers would be particularly disadvantaged because they frequently
have more than one line. Net costs for telephone service would increase significantly for many
of these rural business customers.310 Consumers would also face higher costs for "data lines" or
fax lines. Given the distance limitations inherent in DSL services, these fax and data lines are
essential to the economic life of rural communities. Just as one example, it will be very difficult
to attract telecommuters to an area that not only has no DSL but that has high rates for fax and
data lines. These higher costs could severely affect small business investment in rural areas and
would be very likely to restrict rural economic development. The rural areas most in need of
economic development will be left further behind. Ifwe don t care for these communities as
Congress intended, photographs may well be all that is left as rural areas dwindle when faced
with additional economic hardships.
309 In some cases, the consumer may be able to receive wireline and wireless service under the majority
recommendation, but only one of these services will be the primary "line" that is funded. And in some cases, the
consumer may be able to receive more than one type of service over a single wireline connection. For example
some consumers can receive voice and data over a DSL connection. However, the decision to restrict funding to
one line is not technology-neutral because it favors carriers who can provide multiple services over one connection.
We acknowledge that providing an economic incentive for technological efficiency is a good result, but we are more
concerned that where dual technologies are not available, a consumer will be limited to one means of
communication.
310 The following chart illustrates the problem for rural businesses.
Current Fundin Line Fundin
Change
in Per
Customer Total Primary Per Line Line
Type Lines Lines Fundin Funding
Centrex 250 $10.500 $15.$305 $1.($8.78)
Residential 000 500 $10.$100 000 $15.27 $114 557 $11.46 $1.46
Business 000 500 $10.$20 000 $15.637 $3.
Total 250 020 $122 500 $122 500
Average $10.$15.
Federal Communications Commission FCC 04J-
The primary line recommendation will also be harmful to existing ETCs, especially rural
carriers. The majority says that its proposal would protect rural providers. In reality, the
proposal offers only a limited and temporary protection. It presumes not only that services and
rates are now comparable between rural and urban areas, but also that the level of service will
remain adequate in perpetuity. Markets are not static, and as time progresses, existing ETCs in
many areas will lose primary line "market share." If the competitor is a wireless ETC, the loss
in primary line market share may occur though the incumbent continues to serve their existing
wireline customer base. Under the primary line proposal, even with the initial rebasing option
ETCs that lose primary line market share will lose support. Over time, this will jeopardize the
ability of carriers to provide rural consumers with access to comparable services at comparable
rates.
For at least seventy years, and both before and after 1996 when universal service
principles were codified, universal service policies have supported the cost of networks in high
cost areas. Customers are not served by individual lines, but by networks.311 While "basic
access" has been the touchstone of the Lifeline program, the rural high cost program has
traditionally recognized the importance of network support and cost recovery of network
investment to keep rates and services comparable. Adopting a primary line approach would
reverse this historical policy and fundamentally redefine universal service for rural communities.
The primary lines approach is contrary to the Act because, as its authors understood
communications work through networks, not individual connections.312
Support limited to primary lines would not be sufficient in rural areas. Congress stated in
Section 254(b)(5) that support must be "specific, predictable and sufficient." Rural carriers have
higher operating costs and equipment costs because they have lower subscriber density and lack
economies of scale. Losing support for "all lines" would potentially undermine the ability of
these carriers to recoup their network costs without raising rates for rural consumers. Rebasing
and similar hold harmless and lump sum payments would at best only temporarily address this
problem. We should not be applying more temporary solutions to remedy the universal service
programs. It is time to fix them with an eye towards the long term sustainability of the programs.
Telecommunications technology is advancing rapidly. If, as the Act provides, rural
services are to be comparable to urban services, rural carriers must continue to invest in state-of-
the-art equipment. But under the majority s primary line method, future revenues become much
more uncertain. Any primary line market share loss to a competitor not only reduces the
incumbent's customer revenue , but it also reduces universal service revenue. This magnification
of investor risk is likely to discourage prudent carriers from installing costly new technology.
311 Technology has not yet obviated the need for physical networks. Even the most exciting new technologies are
deployed either in or over networks. Networks are efficient in themselves, and they create opportunities for
innovation by network users of all kinds. That's what customers need and expect.
312 The economics of providing telephone service results in substantial fixed costs for the network capable of
providing any service throughout the service area. Those costs do not vary significantly if the lines per customer
location change. Therefore, reducing support to a carner if its primary lines decrease almost guarantees insufficient
support in the future for that carner.
Federal Communications Commission FCC 04J-
The Joint Board majority has cited with approval several recommendations in the 2000
report of the Rural Task Force.313 An important concept in the Rural Task Force report was that
there should be "no barriers" to deployment of advanced facilities.314 While the Commission
has never endorsed that concept fully, it has agreed that universal service policies should not
inadvertently create barriers to the provision of access to advanced services. It also has stated a
belief that the current universal service system does not create such barriers.315 The majority
here moves away from effectuating a "no barriers" approach. By basing support on primary
lines, the majority would substantially reduce the incentive for continued rural investment in any
facilities by creating uncertainty of sufficient universal service funding. This is indeed a
substantial barrier and one that is contrary to the spirit of the Rural Task Force Report.
The Act also anticipates that universal service will support an evolving level of
services.316 We cannot simultaneously put future investment at risk and increase the level of
service. More Americans than ever have access to the Internet and mobile communications.31?
Unless providers can invest in their rural networks, they cannot provide that "evolving" level of
service. Limiting support to primary lines may not only chill investment generally, but also may
jeopardize funding for advanced services and cause networks to lag technologically for want of
adequate investment.
The majority s recommendation also would jeopardize the continued availability of
carriers of last resort. We cannot reasonably expect carriers to maintain responsibility as carrier
of last resort if we deny them the funding necessary to build and maintain the network we
313 E.: Recommendation, para. 18 (costs of rural carriers); paras. 53-54 (disaggregation); paras. 76-78 (cap on per-
line support on competitive entry); para. 91 (adoption of embedded cost basis for support).
314 The Rural Task Force recommended that the "no barriers" policy incorporate the following general principles:
(1) support should be provided for plant "that can, either as built or with the addition of plant elements, when
available, provide access to advanced services(;)" (2) "carriers should be encouraged by regulatory measures to
remove infrastructure barriers relating to access to advanced services(;)" and (3) "(t)he federal universal service
support fund should be sized so that it presents no barriers to investment in plant needed to provide access to
advanced services.Rural Task Force Order FCC 01-157 (released May 23 2001), para. 197, citing Rural Task
Force Recommendation at 22-23.
315 Rural Task Force Order FCC 01-157 (released May 23 2001), para. 199.
316 In Section 254(c)(1) Congress states that: "Universal service is an evolving level of telecommunications services
that the Commission shall establish periodically under this section, taking into account advances in
telecommunications and information technologies and services.
317 According to the CTIA Semi-Annual Wireless Survey, published June 2003, the number of wireless subscribers
has increased from 10% from 2002 to 2003. As of the report, there were 148 065 824 wireless subscribers. From
2002-2003 , the number of cell sites increased 12% to 147, 719. According to the FCC Industry Analysis and
Technology Division High-Speed Services for Internet Access Report, from Dec. 2002-June 2003 , subscribership to
high speed services increased by 18% during the fIrst half of 2003 to a total of 23.5 million lines. High speed ADSL
lines in service increased by 19% during the fIrst half of 2003 and high speed connections over coaxial cable
systems increased by 20%. High speed connections to end users by means of satellite or fixed wireless technologies
increased by 12% during the fIrst half of2003.
Federal Communications Commission FCC 04J-
demand.318 The principle of a carrier oflast resort is essential to universal service. However, by
limiting funding to primary lines, we may inadvertently destroy the incentive to accept this
responsibility.319
The majority s recommendation would effectively establish a virtual voucher system.
Congress squarely addressed this issue in 1995, and dispatched it. During the debates about high
cost funding, an amendment was offered that would have replaced the high cost funding
mechanism with a voucher mechanism under which low income individuals would receive a
voucher and then determine which carrier would get that funding. Essentially, the individual
customer would have been given the opportunity choose his or her primary carrier. This
amendment would have conflated the high-cost and low-income programs. It was soundly
defeated. Congress clearly rejected efforts to merge the high-cost and low-income funds and to
establish a voucher system. The majority s primary line recommendation violates Congressional
intent in both ways.
Basing support on primary lines would raise serious administrative issues and would
create opportunities for gaming that will disadvantage and confuse consumers. Defining primary
lines is problematic in a multitude of housing and living situations. We cannot expect providers
to investigate and police the panoply of American housing and living arrangements. Who is to
decide which line is primary? Ifwe shift the focus away from funding the network and give each
individual or household a choice of primary line, we will have to define "household" and
individual." The telecommunications industry and its regulators are not well equipped to
resolve these questions.
A primary line restriction is also unauditable. A consumer could easily have his wireline
bill sent to a residence, and a wireless bill sent to a post office box. The inability to verify that
the funds are being used appropriately compromises both the fund's integrity and the FCC's
ability to ensure that the funds are being properly expended. Weare concerned that any potential
gains from restricting funding to primary lines will be outweighed by the administrative costs of
administering funding only to primary lines and the risks that necessarily follow an unauditable
restriction.
The FCC has moved away from its primary/non-primary residential line distinction in the
interstate ratemaking process. For price-cap carrier, the FCC found that different Subscriber
Line Charges (SLCs) created consumer confusion and unnecessary costs that were ultimately
borne by consumers. Later, the FCC abandoned the distinction entirely in the Multi Association
Group (MAG) proceeding and cited the Federal Regulatory Flexibility Act, which requires the
Commission to take into account the potential impact of its rules on small, local telephone
compames.
318 States assign the COLR obligation differently, but it has consistently been an important policy tool to insure that
all potential customers in high cost and hard to serve areas receive service.
319 If the cost of acting as COLR is defmable, the FCC should consider it as part of a funding system that bases
support on provider costs.
Federal Communications Commission FCC 04J-
Carriers and customers would have a real opportunity for gaming with the primary line
designation. The problem here is greater than with residential SLCs because there is potentially
more money at stake. Carriers would have incentives to "slam" customers, and consumers
would have incentives to game the system in order to maximize their household's funding. Past
problems with slamming in long distance competition will pale in comparison to those that could
arise when carriers can collect funding for winning primary line designations. Rather than
competing to best serve customers, providers will compete for new ways to win designation as
the primary carrier.
Basis of Support
We are disappointed that the Joint Board did not make greater progress on the issue of the
basis of support. We believe that we have a sufficient record to recommend a policy goal that
the amount of universal service support paid to competitive providers should not be based on the
incumbent's costS.320 We understand that our record does not support a final decision on how we
would fairly administer support based on the competitors' costs.321 We are pleased that our Joint
Board colleagues recognize the need to consider modifying the basis of support.322 However, we
believe that a clear policy statement here would better guide the development of the record and
better enable the FCC to resolve sooner this complex issue.
Equal Access
Commissioner Adelstein deferred his vote on the inclusion of equal access in the list of
supported services to this proceeding because he believed that there was intent to address and
resolve the basis of support question. We should at least have addressed the issue of the funding
impact of equal access.323
Under the MAG plan, the Commission reduced access charges, and to make the universal
service mechanism more explicit, moved that amount into the universal service fund. This was
responsive to the need to make explicit, as far as possible, those federal universal service
subsidies that were implicit, as intended by Congress. The resulting program, Interstate
Common Line Support (ICLS) includes the cost of providing equal access. At the very least, this
320 Commissioners Adelstein and Rowe recommend that carriers receive support based on their own costs.
Commissioner Thompson would not yet rule out the options that in high cost competitive markets support be based
on a forward looking methodology or a bidding process.
321 For example, we need to understand how support will be calculated when providers use different technologies to
serve customers, have different accounting systems and varying levels of service. We would consider specific
interim measures to address immediate concerns, like a rigorous, interactive workshop to develop an appropriate
costing regime. We suggest that the FCC ask for comments on whether reopening the "Path 3" window for self-
certification of disaggregation would address cream-skimming concerns until a new basis of support is implemented.
322 The deadline for review of the use of embedded costs to determine rural carrier support looms, and providers in
those markets are better served by as much advance notice of possible changes as we can provide so that they can
make reasonable planning decisions.
323 Commissioner Thompson opposed including equal access in the list of supported services. Commissioner Rowe
supported its inclusion.
Federal Communications Commission FCC 04J-
Joint Board should recommend to the Commission that, pending determination of the appropriate
basis of support, competitors that do not provide equal access should not receive at least that
portion of ICLS that is based upon equal access costs.
For these reasons, we approve in part and dissent in part. We concur in the portion of the
recommended decision relating to certification of eligible telecommunications carriers, but
dissent from the portion relating to designation of primary lines.