[Federal Register Volume 69, Number 171 (Friday, September 3, 2004)]
[Notices]
[Pages 53917-53923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-20163]
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FEDERAL COMMUNICATIONS COMMISSION
[CC Docket No. 96-45; FCC 04J-2]
Federal-State Joint Board on Universal Service Seeks Comment on
Certain of the Commission's Rules Relating to High-Cost Universal
Service Support
AGENCY: Federal Communications Commission.
ACTION: Notice; solicitation of comments.
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SUMMARY: In this document, the Federal-State Joint Board on Universal
Service seeks comment on issues recently referred to it by the
Commission, relating to the high-cost universal support mechanisms for
rural carriers and the appropriate rural mechanism to succeed the five-
year plan adopted in the Rural Task Force Order. By this document, the
Joint Board initiates its review. The Federal-State Joint Board on
Universal Service invites public comment on whether these rules
continue to fulfill their intended purposes, whether modifications are
warranted, and if so, how the rules should be modified.
DATES: Comments are due on or before October 15, 2004. Reply Comments
are due on or before December 14, 2004.
ADDRESSES: Comments may be filed using the Commission's Electronic
Comment Filing System (ECFS) or by filing paper copies. See Electronic
Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1,
1998. See Supplementary Information for additional filing instructions.
FOR FURTHER INFORMATION CONTACT: Ted Burmeister, Attorney, or Sheryl
Todd, Management Analyst, Wireline Competition Bureau,
Telecommunication Access Policy Division, (202) 418-7400 TTY: (202)
418-0484.
SUPPLEMENTARY INFORMATION: 1. In this Public Notice, we seek comment on
issues recently referred to us by the Commission, relating to the high-
cost universal support mechanisms for rural carriers and the
appropriate rural mechanism to succeed the five-year plan adopted in
the Rural Task Force Order, 66 FR 30080, June 5, 2001. In particular,
the Commission asked the Joint Board to consider whether a universal
service support mechanism for rural carriers based on forward-looking
economic cost estimates or embedded costs would most efficiently and
effectively achieve the goals set forth in the Telecommunications Act
of 1996. The Commission also asked the Joint Board both to revisit the
definition
[[Page 53918]]
of ``rural telephone company'' for high-cost universal service support
purposes and to consider consolidating multiple study areas within a
State. Finally, the Commission requested that the Joint Board consider
whether to retain or modify Sec. 54.305 of the Commission's rules,
which concerns the amount of universal service support for transferred
exchanges. By this Public Notice, the Joint Board initiates its review.
As set forth below, we invite public comment on whether these rules
continue to fulfill their intended purposes, whether modifications are
warranted, and if so, how the rules should be modified.
I. Issues for Comment
2. We seek comment below on the issues referred to us by the
Commission in the Referral Order, 69 FR 48232, August 9, 2004, and seek
further comment on issues from the Joint Board Recommended Decision on
Portability. We first seek comment regarding whether the Commission
should continue to use the statutory definition of ``rural telephone
company'' to determine which carriers are rural carriers for high-cost
universal service support purposes. We then seek comment regarding the
appropriate structure of universal service support mechanisms in areas
served by rural carriers, including the cost basis of support and the
method of calculating support. Finally, we seek comment regarding
whether the Commission should retain, modify, or eliminate Sec. 54.305
of its rules, which governs high-cost universal service support for
transferred exchanges.
A. Definition of ``Rural'' for Universal Service Purposes
3. We seek comment on whether the Commission should continue to use
the statutory definition of ``rural telephone company'' to determine
which carriers are rural carriers for high-cost universal service
purposes. In particular, we seek comment on the extent to which each of
the four subparts of the definition accurately identifies companies
that ``generally serve fewer subscribers, serve more sparsely populated
areas, and generally do not benefit as much from economies of scale and
scope'' as the large non-rural carriers. For example, approximately 40
companies serving study areas with more than 100,000 access lines,
including one company serving over 2 million access lines, self-
certified as rural carriers under subsection 3(37)(D) of the Act. Most
of these companies are owned by holding companies that have operations
in many States. On the other hand, companies that serve only one study
area in one State, but exceed the 100,000 access line threshold in
subsection 3(37)(C), are considered to be non-rural carriers.
4. We seek comment on whether the Commission should continue to use
subsection 3(37)(D) to identify rural carriers for high-cost universal
service purposes despite the anomalies resulting from carriers self-
certifying under this test. There being no statutory requirement that
the Commission uses the Act's definition of rural telephone company for
high-cost universal service purposes, should the Commission simply
eliminate this test? This likely would ensure that no study area
serving more than 100,000 access lines would be considered ``rural.''
Alternatively, would some other method be preferable? Is there some
universal service policy objective that would be served by treating a
carrier with more than 100,000 lines as rural when most of those lines
are in rural areas? How can we ensure that those policy objectives are
met? Should the Commission interpret subsection 3(37)(D) to exclude
carriers that are serving areas that are merely separate, but adjacent,
communities in an urbanized area?
5. Specifically, could the Commission interpret ``communities of
more than 50,000'' in a way that would prevent rural treatment of
urbanized or suburban areas? When the Commission decided to use Census
Bureau statistics for legally incorporated localities, consolidated
cities, and census-designated places to define communities of more than
50,000, there was no information on the record to indicate that this
definition would present any problems in the Commission's determination
of a carrier's status as a rural or non-rural company. The Commission
declined to adopt an approach proposed by GTE that would have
differentiated between lines serving metropolitan statistical areas
(MSAs) and those serving rural areas. We seek comment on whether we
should use different Census Bureau definitions, such as MSA, urbanized
area, or urban cluster, to define ``communities of more than 50,000.''
Would using any of these broader definitions be either under-inclusive
or over-inclusive in identifying companies that should be considered as
rural for high-cost universal service purposes?
6. We also seek comment more generally on the extent to which the
Commission should continue to use the other three parts of the
statutory definition. We seek comment on whether the Commission should
modify its rural/non-rural definitional framework to permit finer
distinctions among carriers of different sizes or characteristics.
Would using finer distinctions among carriers better recognize the
great diversity among rural telephone companies? Would such
distinctions be useful in more effectively targeting universal service
support to rural carriers serving the highest cost areas? For example,
should the Commission have different high-cost universal service
support mechanisms for small, medium, and large size companies? How
should the Commission determine carrier size? What other
characteristics should the Commission consider in distinguishing among
carriers?
7. We seek comment on whether the Commission should continue to
categorize carriers based generally upon study area size. Although a
carrier's study area generally corresponds to the carrier's entire
service territory within a State, for various reasons a carrier may
have more than one study area per state. To what extent does a carrier
operating multiple study areas in a given State achieve some economies
of scale that are not reflected in high-cost support calculations based
on separate study areas? To what extent is the fact that a single
company currently has multiple study areas within a State inconsistent
with the policies underlying the study area freeze? Would considering
all of a company's study areas within a State for universal service
support purposes better reflect the appropriate economies of scale
achieved by the carrier?
8. We seek comment on whether the Commission should consider
holding company size, as well as study area size, when identifying
companies that generally do not benefit as much from economies of scale
and scope as the large non-rural companies. Many rural carriers are the
operating subsidiaries of larger holding companies that may provide
some economies of scale not realized by other non-affiliated rural
carriers. For example, although mid-sized rural telephone holding
companies with operations in many States do not have the same buying
power as the largest non-rural companies, they likely have greater
economies of scale and scope than very small rural companies with only
one study area. Should the Commission consider having categories of
carriers for high-cost universal service purposes that would take into
account all affiliated companies nationwide?
9. If the Commission were to differentiate between small, medium,
and large companies for high-cost universal service purposes, how
should the Commission define those sizes? Should the Commission
consider using
[[Page 53919]]
the size categories in subsections 3(37)(B)-(C) of the Act? For
example, carriers with fewer than 50,000 lines could be considered
small; carriers with more than 50,000 lines, but fewer than 100,000
lines, could be considered medium size; and carriers with more than
100,000 lines could be considered large. To what extent would the size
categories depend on whether the Commission is considering study area,
statewide operations, or nationwide operations in determining company
size? Should size categories include consideration of both study area
size and total company size? We invite commenters to propose
alternative size categories, and number of categories, that would take
into account the significant distinctions and great diversity among
rural telephone companies.
10. We seek comment on what carrier characteristics, in addition to
company size, the Commission should consider for purposes of
determining how high-cost support should be calculated. To what extent
should the Commission try to identify carriers that serve rural areas?
While the test in subsection 3(37)(A) would exclude carriers serving
urbanized areas, the tests in subsections 3(37)(B) and (C) consider
only the number of lines. To what extent do these definitions permit
carriers serving relatively low-cost suburban areas to receive high-
cost support, merely because of their small size? Should a small
carrier in an urbanized area and a small carrier in a sparsely
populated rural area be treated the same for high-cost support
purposes? Should the Commission try to target support more effectively
to the highest cost rural areas by considering whether the area served
is rural, as defined in some fashion? Should the Commission try to
target support to the highest cost rural areas by comparing the costs
among companies or areas and identifying the highest-cost companies or
areas as rural? Should the Commission consider providing different
levels of support depending on the rural nature of the area served? If
commenters believe that the Commission should consider the type of area
served for universal service purposes, we ask them to propose how the
Commission should define ``rural area.''
11. Within the context of the definition of rural carrier, we seek
comment on whether the Commission's universal service rules encourage
carriers to provide quality, affordable services more efficiently. To
what extent do the Commission's rules encourage carriers serving rural
areas to achieve economies of scale and scope that may benefit
consumers? To what extent do the Commission's rules encourage or
discourage consolidation that may provide economies of scale and scope?
To what extent does the existence of separate support mechanisms for
rural and non-rural carriers create incentives or disincentives for
carriers to achieve economies of scale that permit the efficient
provision of quality telecommunications to consumers in rural areas at
rates that are reasonably comparable to those in urban areas?
12. We also seek comment on the impact of changing the definition
of rural carriers. It is possible that if a new definition of ``rural''
is adopted for purposes of determining high-cost support, some
companies that are currently designated as rural will instead be deemed
non-rural. We seek comment on how such companies should be treated. For
example, should these companies receive support under the same system
as applies to existing non-rural companies, or should some other
methodology apply? Should there be a transition period allowing these
companies to adjust to whatever new rules and support levels may apply?
B. Universal Service Support in Areas Served by Rural Carriers
13. In this section, we seek comment on how to determine universal
service support in areas served by rural carriers after the end of the
RTF plan on June 30, 2006. We first seek comment on how the underlying
costs that provide the basis for support should be determined.
Specifically, we seek comment regarding whether forward-looking
economic cost estimates, embedded costs, or some other method of
determining costs should be used for rural carriers, how each potential
method of determining costs should be implemented, and what method of
determining costs should be used for competitive eligible
telecommunications carriers (ETCs). Finally, we seek comment on what
methodology should be used to calculate each rural carrier's support.
14. We ask that commenters, in analyzing these issues, recognize
the distinction between the method of determining the cost basis of
support and the method of calculating support, which together form a
universal service support mechanism. For example, embedded costs have
been linked, in the past, to universal service support calculated on a
study area basis, while forward-looking economic cost estimates have
been linked to support calculated using statewide averages. There is no
requirement, however, limiting us to consideration of only those
combinations. So that we may better understand all of the possible
options, we encourage commenters to analyze the impact of each
particular option in isolation. Of course, commenters should also
identify any benefits or concerns related to particular combinations of
cost bases and support calculations.
1. Cost Basis of Support
a. Forward-Looking Economic Costs Versus Embedded Costs
15. We seek comment on what method should be used to determine the
costs associated with serving a particular area for the purposes of the
rural support mechanism. In the Universal Service First Report and
Order, 62 FR 32862, June 17, 1997, the Commission agreed with the Joint
Board's recommendation that forward-looking economic costs should be
the basis for universal service support because, unlike embedded costs,
they provide appropriate incentives for investment, entry, and
innovation in the marketplace. In the Ninth Report and Order, 64 FR
67416, December 1, 1999, and Tenth Report and Order, 64 FR 67372,
December 1, 1999, the Commission implemented a forward-looking support
mechanism for non-rural carriers. The Commission's methodology, based
on the forward-looking high-cost synthesis model, has been used to
determine support for non-rural carriers since January 2000. However,
in the Rural Task Force Order in 2001, the Commission acknowledged that
it did not, at that time, have sufficient information to develop a
forward-looking model that appropriately could be used to estimate
costs in areas served by rural carriers, and retained a modified
embedded cost mechanism. Is it possible now to design a forward-looking
model that would be appropriate to estimate costs for some or all rural
carriers, or do embedded costs remain a more appropriate basis for
determining the costs for all rural carriers? If embedded costs remain
more appropriate, what future actions or events, if any, are necessary
to make a forward-looking economic cost model viable? Is a forward-
looking economic cost mechanism a viable long-term goal for areas
served by rural carriers? Are there any other methods for determining a
rural carrier's costs, besides a forward-looking economic cost model or
embedded costs, that would be appropriate for universal service
purposes?
16. We seek comment on whether a rural support mechanism that bases
support on forward-looking economic
[[Page 53920]]
cost estimates or on embedded costs more efficiently and effectively
achieves the Act's goals. Does basing support on forward-looking
economic costs or on embedded costs better ensure the availability of
telecommunications services in rural areas that are comparable to those
in urban areas, in terms of both rates and quality? Does basing support
on forward-looking economic costs remain integral to providing
appropriate incentives for investment, innovation, and entry into the
marketplace? Can embedded costs be utilized in a manner that would
provide appropriate incentives? We also ask commenters to address the
competitive and technological neutrality of each method of determining
the cost basis of support.
17. How would shifting to a mechanism based on forward-looking
economic costs affect investment in facilities that are capable of
providing advanced services? In the Rural Task Force Order, the
Commission noted that the public switched telephone network is not a
single-use network. Modern network infrastructure can provide access
not only to voice services, but also to data, graphics, video, and
other services. High-cost loop support is available to rural carriers
``to maintain existing facilities and make prudent facility
upgrades[.]'' To what extent has the use of embedded costs affected the
deployment of infrastructure capable of providing advanced services?
Does the embedded cost mechanism create different incentives to deploy
facilities that are capable of providing advanced services than the
forward-looking synthesis model?
18. While mindful of our caveat that commenters should distinguish
between the method of determining the cost basis of support and the
method of calculating support, we seek comment on the extent to which
the choice of forward-looking economic costs or embedded costs should
be considered in the context of a specific method of calculating
support. For example, is there any reason that forward-looking economic
costs should be utilized only as part of a mechanism that calculates
support based on statewide average costs? Or should embedded costs only
be used to compare study area costs to nationwide average cost
benchmarks? Commenters should explain in detail why certain methods of
determining costs are particularly appropriate or inappropriate for
certain methods of calculating support.
19. We also seek comment on whether both embedded and forward-
looking economic costs can be used when developing support levels. For
example, if support is based on the results of a forward-looking
economic cost model, should a company's support be capped at the level
of support determined under an embedded cost system? Stated another
way, should support be capped at the lesser of embedded or forward-
looking costs? Would such a system provide sufficient support and
create proper incentives for investment and efficiency?
20. We seek comment on whether other factors should be analyzed to
determine when it is appropriate to use a cost model to determine
support for a carrier. In particular, we seek comment on whether the
demographics of the territory served, such as the density of customer
locations, rather than the lineage of the company or the number of
lines served should be used to determine whether support should be paid
under a forward-looking or an embedded cost system. In addition, we
seek comment on whether the relative cost characteristics of the area
served should be considered in determining the cost basis of support.
For example, do embedded costs provide any useful information in
determining whether using a cost model is appropriate? We seek comment
on what other factors, in addition to demographics and costs, should be
considered in making this decision.
21. Finally, we seek comment on the impact of any proposed changes
in the rural support mechanism on existing rules that limit the growth
of support for rural carriers. How would existing capping mechanisms
that apply to rural carrier support be affected by proposed changes in
the basis of support for rural carriers? If particular changes in the
basis of support are adopted, are capping mechanisms still necessary?
If so, are there alternative mechanisms that would limit growth of the
fund to sufficient levels, while still promoting efficiency and
investment?
b. Estimating Forward-Looking Economic Costs
22. If the Commission ultimately concludes that it should base
support for at least some rural carriers on forward-looking economic
costs, we seek comment on how to estimate forward-looking economic
costs in areas served by those rural carriers. If commenters propose to
base support on a forward-looking economic cost model, what factors
should be considered in designing a forward-looking economic cost model
for areas served by rural carriers? To what extent are these factors
different, in type or degree, from the factors relevant to a model for
areas served by non-rural carriers? We ask that commenters address
these issues generally and emphasize that commenters need not rely on
the Commission's synthesis model--which is currently used in the non-
rural high-cost support mechanism--to form the basis of their comments.
We seek comment regarding whether there are other methods of estimating
forward-looking economic costs. If a commenter contends that some other
method of estimating forward-looking economic costs would be
appropriate, it should describe its proposed method in detail.
23. We also seek comment regarding the synthesis model. The Rural
Task Force critiqued the synthesis model and found fault with its
application to rural carriers. What are the major concerns regarding
the synthesis model with respect to its application to rural carriers?
To what extent can those concerns be addressed through the modification
or redesign of the synthesis model? We encourage commenters to discuss
developments and refinements in cost modeling techniques that have
occurred since the Rural Task Force evaluated forward-looking costs
several years ago. Are there forward-looking cost models now available
that may be superior to the synthesis model for estimating rural
carriers' costs? Are geocoded data for rural carriers more readily
available now than in the past?
24. Should a forward-looking economic cost model for rural carriers
use different inputs than those used for non-rural carriers? If so, how
should the inputs differ for rural carriers? Are there additional
inputs that should be considered? We note that in the non-rural
mechanism a nationwide set of inputs is used. To what extent should a
model for smaller carriers use input values that vary by region or
locality? For example, would using inputs that reflected local or
regional physical plant limitations, such as soil or rock conditions or
climate, significantly improve the usefulness of a model for rural
carriers? Are there other local or regional conditions that could be
included in a model for rural carriers?
25. As previously discussed, the Commission has used a forward-
looking cost model as part of the support mechanism for non-rural
carriers since 2000. When making proposals for appropriate changes to
the model for rural carriers, commenters should address whether their
proposals implicate the non-rural model, and if so, how. For example,
if a commenter proposes that the Commission's synthesis model should be
modified before being applied to rural carriers, the commenter should
also explain
[[Page 53921]]
whether such changes are also needed as the model is applied to non-
rural carriers. Is it necessary that the model or model platform that
applies to rural and non-rural carriers be the same? If not, why not?
26. Should a forward-looking economic cost model reflect the
availability of telecommunications provided by ETCs using wireless
technology? Should there be a single model that estimates costs using
the lowest cost technology? Should there be a wireless model, in
addition to a wireline model, that estimates costs only for those ETCs
that use wireless technology?
27. If a forward-looking economic cost model is adopted for some or
all rural telephone companies, how would it be implemented? Would there
be a transition period, or could it be implemented immediately? Or
should there be different implementation periods for differently sized
rural carriers?
c. Measuring Embedded Costs
28. Assuming that the Commission ultimately concludes that rural
carriers should continue to receive support based on embedded costs, we
seek comment on whether changes should be made with respect to how
embedded costs are determined, or if the current rules should be
retained beyond the five years of the RTF plan. Commenters that favor
changes to embedded costs should describe those changes with
specificity and explain how the proposed changes would be consistent
with the Act's goals. In particular, we seek comment regarding changes
that would improve the reliability of the cost data or reduce the
administrative burdens associated with compiling, filing, and
processing cost data. Do the Commission's rules create reliable
accounts of the costs of providing supported services in rural areas?
What modifications, if any, would improve the incentives for rural
carriers to invest in their network facilities efficiently? We also
seek comment on whether there should be any changes to the manner in
which average schedule companies--which do not currently file actual
cost data--receive high-cost support.
29. We also seek comment regarding whether there are any
alternative methods of developing costs for rural carriers without
requiring that rural carriers file actual cost data. For example, could
proxy data like line counts, line density, or other measures be used to
determine the cost of serving high-cost areas served by rural carriers?
d. Basis of Support for Competitive ETCs
30. On November 8, 2002, the Commission asked the Joint Board to
review, among other things, the Commission's rules relating to high-
cost support in study areas in which a competitive ETC is providing
service. In particular, the Commission sought the Joint Board's review
of the methodology for calculating support for ETCs in competitive
areas and asked the Joint Board to address the concerns raised in the
Rural Task Force Order regarding excessive fund growth if incumbent
LECs lose a significant number of lines to competitive ETCs. In our
Recommended Decision in response to the prior referral order, we
indicated that it would be desirable to ``consider possible
modifications to the basis of support for all ETCs during the
`comprehensive review of the high-cost support mechanisms for rural and
non-rural carriers.' '' We explained that our approach to harmonizing
the two mechanisms for rural and non-rural carriers will necessarily
influence our recommendations on the basis of support in competitive
areas.
31. We thus again seek comment on the methodology for calculating
support for ETCs in competitive study areas. Specifically, we seek
comment regarding whether, if multiple carriers are supported, the
competitive ETC should receive support based on its own costs, the
incumbent's costs, the lesser of its own or the incumbent's costs, or
some other estimate of costs. If the cost characteristics of the
incumbent and the competitor are different, what are the consequences?
If support is based on the incumbent's costs and the competitive ETC
has lower costs, does that provide a fair or unfair competitive
advantage to the competitive ETC? Alternatively, would providing higher
per-line support to the incumbent than to the competitive ETC pose a
regulatory barrier to competitive entry in rural areas? If the
competitive ETC's costs are higher than the incumbent's, should the
competitive ETC's support be limited to that provided to the incumbent?
32. If support should be provided to competitive ETCs based on
their own costs, how should those costs be determined? Competitive LECs
are not subject to the Commission's cost allocation rules. Should the
Commission's cost allocation rules be extended to competitive carriers
that seek to receive universal service support? How would cost studies
for wireless carriers be developed? Are there other methods of
calculating support in study areas with more than one ETC? In providing
comment, we ask commenters to address the significant changes in the
marketplace that have occurred over the past several years. We note
that, in considering issues related to support for competitive ETCs, we
may find that it is necessary or appropriate to address these issues
separately from other issues we consider in this proceeding.
2. Calculation of Support
33. We seek comment on whether the Commission should continue to
calculate high-cost support for rural carriers based on individual
carriers' study area average costs. Does the current rural universal
service support mechanism provide appropriate incentives for investment
in network facilities and functions used to provide supported services?
What modifications, if any, would improve the incentives for rural
carriers to invest in their network facilities efficiently? Does the
current mechanism, by basing support on per-line costs, create
inefficiencies by increasing support when rural carriers have declining
line counts?
34. The current universal service support mechanisms for rural
carriers measure investment expenses using the Commission's authorized
rate-of-return on investment. In addition, forward-looking cost models
often apply a rate-of-return to a forward-looking rate base. For
example, the Commission's synthesis model for non-rural carriers uses
the Commission's authorized rate-of-return as an input for the cost of
capital. We seek comment on the rates of return that should be used in
those calculations for rural carriers. Should the Commission use a
rate-of-return other than that currently used for calculating high-cost
support for rural carriers? Should the Commission use a rate-of-return
other than its authorized rate-of-return for the purpose of calculating
universal service support for rural carriers?
35. Assuming that some support will continue to be based on
embedded costs, we also seek comment, for all support mechanisms, on
whether new limitations should be imposed or existing limitations
adjusted on particular categories of investment or expense. For
example, the high-cost loop support mechanism currently limits
corporate operations expense. We seek comment on whether this
particular limit remains appropriate or needs to be adjusted. More
generally, we seek comment on whether federal support programs should
include similar limitations on corporate operations or other categories
of expense.
[[Page 53922]]
36. As demonstrated by the Rural Task Force, the size of the area
over which costs are averaged and the national average cost benchmark
used in the non-rural mechanism have more impact on determining overall
support levels than whether those costs are forward-looking or
embedded. Similarly, the area over which costs are averaged and the
national average cost benchmarks used in the high-cost loop support
mechanism impact overall support levels. Should the Commission consider
averaging costs over larger areas or smaller areas for high-cost loop
support and other programs? For example, should the Commission consider
calculating support based on statewide average costs or wire center
costs, rather than study areas costs?
37. We seek comment on the cost benchmark or benchmarks that would
be appropriate to use in future programs. If the Commission bases
support on statewide costs, what should be the benchmarks? If the
Commission continues to base support on study area costs, what should
be the benchmarks? We also note that the high-cost loop support program
uses different benchmarks based on the carrier's size. We seek comment
on whether that distinction should be maintained, and if so, whether
the differences in treatment of the two groups should remain as large
as at present.
38. In the high-cost loop support program, the national average
unseparated loop cost serves as the basis for comparing costs of
individual study areas. Since 2001, the national average has been
defined as $240 per line per year, adjusted for inflation. We seek
comment on whether this remains an appropriate policy.
39. We seek comment on whether basing support on statewide average
costs, as the Commission does in the non-rural mechanism, is more
consistent with the purposes of universal service support and the
principles set forth in section 254 of the Act. In reaffirming its
decision to use statewide average costs in the non-rural mechanism, the
Commission agreed with the Joint Board that ``the general framework of
the non-rural mechanism, through the use of statewide average costs,
reflects the appropriate division of federal and state responsibility
for determining high-cost support for non-rural carriers.'' The
Commission explained that ``[s]tatewide averaging effectively enables
the state to support its high-cost wire centers with funds from its
low-cost wire centers through implicit support mechanisms, rather than
unnecessarily shifting funds from other states.'' Does providing
support to rural carriers based on study area costs rather than
statewide average costs adequately take into account a state's ability
to address its own universal service needs? Do states that have many
rural carriers receiving federal support place greater burdens on the
federal universal service fund than states that have fewer rural
carriers? On the other hand, are there historical or policy reasons why
the Commission should not base rural carrier support on statewide
average costs? The Joint Board and the Commission have recognized
``that statewide averaging may not be appropriate for the high-cost
mechanism providing support to rural carriers.''
40. We also seek comment on whether basing rural company support on
wire center costs, rather than study area costs, would more effectively
target support to rural carriers serving the highest cost rural areas.
To what extent would basing support on wire center costs require the
use of a cost model? Because embedded costs are submitted at the study
area level, it likely would be administratively burdensome to calculate
embedded costs at the wire center level. Even if the Commission
continues to base rural company support on embedded costs, should it
use a cost model to target support to the highest cost wire centers?
Would targeting support to wire centers be more or less effective than
rural carriers' current disaggregation plans, which permit targeting
support below the wire center level? Given that the overwhelming
majority of rural telephone companies have chosen not to disaggregate,
is further targeting of rural support necessary or desirable? Could the
Commission use a cost model in conjunction with embedded costs in any
other useful manner? For example, could the Commission compare embedded
costs with forward-looking cost estimates to evaluate whether or not
support is effectively targeted to rural telephone companies serving
the highest cost areas?
41. The local switching support mechanism (LSS) provides support to
carriers serving 50,000 or fewer lines, without regard to other cost
characteristics of the carrier. Should the LSS mechanism take switching
costs into account? Is 50,000 lines in service an appropriate benchmark
for eligibility for LSS? Does this condition provide appropriate
incentives for rural carriers to consolidate their operations to a
level where quality telecommunications services could be provided more
efficiently? Is there a continued need to provide support for carriers
with high switching costs, or do other high-cost mechanisms provide
sufficient support for such carriers?
42. We seek comment on whether the high-cost loop support mechanism
should be merged with local switching support. Additionally, we seek
comment regarding whether carriers that experience high transport costs
should receive support. Non-rural carriers receive support for high-
cost loops, switching and transport pursuant to the non-rural high-cost
mechanism. Would there be benefits to moving rural carriers to a single
embedded cost mechanism that includes support for high-cost loops,
switching and transport?
C. Support for Transferred Exchanges
43. Under the Commission's current rules, a carrier that acquires
exchanges from an unaffiliated carrier receives universal service
support for those acquired exchanges at the same per-line support
levels for which the exchanges were eligible prior to the transfer. The
Commission adopted this rule in its Universal Service First Report and
Order in response to its concern that until universal service support
for all carriers is based on a forward-looking economic cost
methodology, potential universal service support payments might unduly
influence a carrier's decision to purchase exchanges from another
carrier. The high-cost support mechanisms that are subject to the
limitations in section 54.305 include rural carrier high-cost loop
support, LSS, non-rural carrier high-cost model support, and interim
hold-harmless support for non-rural carriers. In its Rural Task Force
Order, the Commission modified this rule to permit an acquiring rural
carrier to receive additional support (i.e., ``safety valve'' support)
for substantial investments it made in its acquired exchanges.
Specifically, the safety valve mechanism enables rural carriers
acquiring access lines to receive additional high-cost loop support to
account for post-acquisition investments made to enhance the
infrastructure of and improve the service in the acquired exchanges.
44. If the Commission concludes that it should maintain separate
mechanisms for rural and non-rural carriers, we seek comment on whether
the Commission should retain, repeal, or further modify Sec. 54.305 of
its rules. We ask commenters to discuss the costs and benefits of
retaining this rule in its current form and whether more effective
alternatives exist to ensure that carriers do not purchase exchanges in
order to maximize the amount of universal service support that they
receive while
[[Page 53923]]
not discouraging rural carriers, including those defined as such in
this proceeding, from acquiring high-cost exchanges from carriers with
low average costs. We also request comment on whether the safety valve
mechanism provides sufficient incentives for investment in acquired
exchanges.
II. Request for Comment
45. Pursuant to Sec. Sec. 1.415 and 1.419 of the Commission's
rules, 47 CFR 1.415, 1.419, interested parties may file comments on or
before October 15, 2004, and reply comments on or before December 14,
2004. Comments may be filed using the Commission's Electronic Comment
Filing System (ECFS) or by filing paper copies. See Electronic Filing
of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998.
46. Comments filed through the ECFS can be sent as an electronic
file via the Internet to http://www.fcc.gov/cgb/ecfs/. Generally, only
one copy of an electronic submission must be filed. If multiple docket
or rulemaking numbers appear in the caption of this proceeding,
however, commenters must transmit one electronic copy of the comments
to each docket or rulemaking number referenced in the caption. In
completing the transmittal screen, commenters should include their full
name, U.S. Postal Service mailing address, and the applicable docket or
rulemaking number. Parties may also submit an electronic comment by
Internet e-mail. To get filing instructions for e-mail comments,
commenters should send an e-mail to [email protected], and should include
the following words in the body of the message, ``get form.'' A sample
form and directions will be sent in reply. Parties who choose to file
by paper must file an original and four copies of each filing. If more
than one docket or rulemaking number appears in the caption of this
proceeding, commenters must submit two additional copies for each
additional docket or rulemaking number.
47. Filings can be sent by hand or messenger delivery, by
commercial overnight courier, or by first-class or overnight U.S.
Postal Service mail (although we continue to experience delays in
receiving U.S. Postal Service mail).
48. The Commission's contractor, Natek, Inc., will receive hand-
delivered or messenger-delivered paper filings for the Commission's
Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC
20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand
deliveries must be held together with rubber bands or fasteners. Any
envelopes must be disposed of before entering the building. Commercial
overnight mail (other than U.S. Postal Service Express Mail and
Priority Mail) must be sent to 9300 East Hampton Drive, Capitol
Heights, MD 20743. U.S. Postal Service first-class mail, Express Mail,
and Priority Mail should be addressed to 445 12th Street, SW.,
Washington, DC 20554. All filings must be addressed to the Commission's
Secretary, Office of the Secretary, Federal Communications Commission.
In addition, one copy of each pleading must be sent to each of the
following: The Commission's duplicating contractor, Best Copy and
Printing, Inc, 445 12th Street, SW., Room CY-B402, Washington, DC
20554; Web site: http://www.bcpiweb.com; phone: 1-800-378-3160; Sheryl
Todd, Telecommunications Access Policy Division, Wireline Competition
Bureau, 445 12th Street, SW., Room 5-B540, Washington, DC 20554; e-
mail: [email protected].
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 04-20163 Filed 9-2-04; 8:45 am]
BILLING CODE 6712-01-P