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FCC-08-4A1.Pdf Federal Communications Commission FCC 08-4 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) High-Cost Universal Service Support ) WC Docket No. 05-337 ) Federal-State Joint Board on Universal Service ) CC Docket No. 96-45 NOTICE OF PROPOSED RULEMAKING Adopted: January 9, 2008 Released: January 29, 2008 Comment Date: (30 days after date of publication in the Federal Register) Reply Comment Date: (60 days after date of publication in the Federal Register) By the Commission: Chairman Martin and Commissioners Copps, Adelstein, Tate and McDowell issuing separate statements. TABLE OF CONTENTS Paragraph # I. INTRODUCTION.................................................................................................................................. 1 II. BACKGROUND.................................................................................................................................... 2 III. DISCUSSION......................................................................................................................................... 5 A. Basis of Support for Competitive ETCs........................................................................................... 5 B. Determination of Costs for Competitive ETCs.............................................................................. 13 1. Methods for Examining Competitive ETC Costs.................................................................... 14 2. Cost Reporting Requirements.................................................................................................. 18 C. Calculation of Support ................................................................................................................... 20 D. Ceiling on Competitive ETC Per-Line Support............................................................................. 25 E. Other Issues.................................................................................................................................... 26 IV. PROCEDURAL MATTERS................................................................................................................ 27 A. Initial Regulatory Flexibility Analysis........................................................................................... 27 B. Paperwork Reduction Act Analysis ............................................................................................... 28 C. Ex Parte Presentations ................................................................................................................... 29 D. Comment Filing Procedures........................................................................................................... 30 V. ORDERING CLAUSES....................................................................................................................... 33 APPENDIX: Initial Regulatory Flexibility Analysis Federal Communications Commission FCC 08-4 I. INTRODUCTION 1. In this Notice of Proposed Rulemaking, we seek comment on the Commission’s rules governing the amount of high-cost universal service support provided to competitive eligible telecommunications carriers (ETCs). As discussed below, we tentatively conclude that we should eliminate the Commission’s current “identical support” rule – also known as the “equal support rule” – which provides competitive ETCs with the same per-line high-cost universal service support amounts that incumbent local exchange carriers (LECs) receive. We seek comment on this tentative conclusion. We also seek comment on our tentative conclusion to provide support to a competitive ETC based on its own costs of providing the supported services. We then seek comment on methodologies for determining a competitive ETC’s relevant costs for universal service support purposes, and other matters related to how the support should be calculated, including the appropriate reporting obligations, and whether we should cap such support at the level of the incumbent LECs. II. BACKGROUND 2. Section 254(b) of the Communications Act of 1934, as amended, (the Act) directs the Federal-State Joint Board on Universal Service (Joint Board) and the Commission to base policies for the preservation and advancement of universal service on several general principles, including the principle that there should be specific, predictable, and sufficient federal and state universal service support mechanisms.1 The Commission adopted the additional principle2 that federal support mechanisms should be competitively neutral.3 Consistent with this principle and with the Joint Board’s recommendation, the Commission determined in 1997 that federal universal service support should be made available, or “portable,” to all ETCs that provide supported services, regardless of the technology used.4 Section 254(e) of the Act requires that a carrier that receives support “shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended.”5 Furthermore, pursuant to section 214(e) of the Act, an ETC must provide service and advertise its service throughout the entire service area.6 In order to receive universal service support, competitors must obtain ETC status from the relevant state commission, or the Commission in cases where the state commission lacks jurisdiction.7 1 See 47 U.S.C. § 254(b). These principles also include, among other things, that: (1) quality services should be available at just, reasonable, and affordable rates; and (2) consumers in all regions of the nation should have access to telecommunications and information services that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas. Id. 2 See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 8801, paras. 46-48 (1997) (First Report and Order) (subsequent history omitted). Section 254(b)(7) of the Act allows the Commission to add to the list of universal service principles “[s]uch other principles as the Joint Board and the Commission determine are necessary and appropriate for the protection of the public interest, convenience, and necessity and are consistent with this Act.” See 47 U.S.C. § 254(b)(7). 3 First Report and Order, 12 FCC Rcd at 8801-02, paras. 46-48. 4 Id. at 8932-8934 paras. 286-290, 8944-8945 paras. 311-13; see also Alenco Communications, Inc. v. Federal Communications Commission, 201 F.3d 608, 621-622 (5th Cir. 2000) (“ . portability is not only consistent with predictability, but also is dictated by the 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.’”). 5 47 U.S.C. § 254(e). 6 47 U.S.C. § 214(e). 7 See 47 U.S.C. § 254(e)(1), (e)(6). 2 Federal Communications Commission FCC 08-4 3. Under the Commission’s existing rules, a competitive ETC that serves a customer in an incumbent LEC’s service area receives the same per-line amount of high-cost universal service support that the incumbent LEC would receive for serving that same customer.8 The Commission’s universal service rules do not distinguish between primary and secondary lines; therefore, multiple connections to a single end-user in high-cost areas may receive universal service support for each connection.9 4. High-cost support for competitive ETCs has grown rapidly over the last several years, placing extraordinary pressure on the federal universal service fund.10 In 2006, the universal service fund provided approximately $4.1 billion per year in high-cost support.11 In contrast, in 2001, high-cost universal service support totaled approximately $2.6 billion.12 In recent years, this growth has been due to increased support provided to competitive ETCs, which receive high-cost support based on the per-line support that the incumbent LECs receive, rather than on the competitive ETCs’ own costs. While support to incumbent LECs has been flat, or has even declined since 2003,13 competitive ETC support, in the six years from 2001 through 2006, has grown from under $17 million to $980 million – an annual growth rate of over 100 percent.14 Competitive ETCs received $557 million in high-cost support in the first six 8 47 C.F.R. § 54.307(a). 9 See First Report and Order, 12 FCC Rcd at 8828-8830, paras. 94-96. In addition, a competitive ETC that provides supported services utilizing unbundled network elements (UNEs) receives the lesser of the UNE price or the per-line support amount available to the incumbent LEC. 47 C.F.R. § 54.307(a)(2). 10 Support for the fund derives from assessments paid by providers of interstate telecommunications services and certain other providers of interstate telecommunications. See 47 C.F.R. § 54.706. Fund contributors are permitted to, and almost always do, pass those contribution assessments though to their end-user customers. See 47 C.F.R. § 54.712. Fund assessments paid by contributors are determined by applying the quarterly contribution factor to the contributors’ contribution base revenues. In the second quarter of 2007, the contribution factor reached 11.7 percent, which is the highest level since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC Docket No. 96-45, Public Notice, 22 FCC Rcd 5074 (Off. of Man. Dir. 2007). The contribution
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