[Federal Register Volume 74, Number 248 (Tuesday, December 29, 2009)]
[Proposed Rules]
[Pages 68763-68774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-30692]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 32, 36 and 54
[WC Docket No. 05-337; CC Docket No. 96-45; FCC 09-112]
High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service
AGENCY: Federal Communications Commission.
ACTION: Further notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: In this document, the Commission responds to the decision of
the United States Court of Appeals for the Tenth Circuit in Qwest
Communications International, Inc. v. FCC and seeks comment on certain
interim changes to address the court's concerns and changes in the
marketplace.
DATES: Comments are due on or before January 28, 2010 and reply
comments are due on or before February 12, 2010.
ADDRESSES: You may submit comments, identified by WC Docket No. 05-337;
CC Docket No. 96-45, by any of the following methods:
[dec221] Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
[dec221] Federal Communications Commission's Web Site: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting
comments.
[dec221] People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format documents, sign language
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Katie King, Wireline Competition
Bureau, Telecommunications Access Policy Division, 202-418-7400 or TTY:
202-418-0484.
[[Page 68764]]
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket No. 05-337,
CC Docket No. 96-45, FCC 09-112, adopted December 15, 2009, and
released December 15, 2009.
Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47
CFR 1.415, 1.419, interested parties may file comments on or before
January 28, 2010 and reply comments on or before February 12, 2010.
Comments may be filed using: (1) The Commission's Electronic Comment
Filing System (ECFS), (2) the Federal Government's eRulemaking Portal,
or (3) by filing paper copies. See Electronic Filing of Documents in
Rulemaking Proceedings, 63 FR 24121 (1998).
[dec221] Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/ or the Federal eRulemaking Portal: http://www.regulations.gov.
[dec221] Paper Filers: 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,
filers must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.
[dec221] Effective December 28, 2009, all hand-delivered or
messenger-delivered paper filings for the Commission's Secretary must
be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325,
Washington, DC 20554. All hand deliveries must be held together with
rubber bands or fasteners. Any envelopes must be disposed of before
entering the building. Please Note: Through December 24, 2009, the
Commission's contractor will receive hand-delivered or messenger-
delivered paper filings for the Commission's Secretary at 236
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. This filing
location will be permanently closed after December 24, 2009. The filing
hours at both locations are 8 a.m. to 7 p.m.
[dec221] 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.
[dec221] U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street, SW., Washington DC 20554.
People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an e-mail to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
Filings and comments are also available for public inspection and
copying during regular business hours at the FCC Reference Information
Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC
20554. They may also be purchased from the Commission's duplicating
contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street,
SW., Room CY-B402, Washington, DC 20554, telephone: (202) 488-5300,
fax: (202) 488-5563, or via e-mail http://www.bcpiweb.com.
Initial Paperwork Reduction Act of 1995 Analysis
The FNPRM discusses potential new or revised information collection
requirements. The reporting requirements, if any, that might be adopted
pursuant to this FNPRM are too speculative at this time to request
comment from the OMB or interested parties under section 3507(d) of the
Paperwork Reduction Act, 44 U.S.C. 3507(d). Therefore, if the
Commission determines that reporting is required, it will seek comment
from the OMB and interested parties prior to any such requirements
taking effect. Nevertheless, interested parties are encouraged to
comment on whether any new or revised information collection is
necessary, and if so, how the Commission might minimize the burden of
any such collection. In addition, pursuant to the Small Business
Paperwork Relief Act of 2002, we will seek specific comment on how we
might ``further reduce the information collection burden for small
business concerns with fewer than 25 employees.'' Nevertheless,
interested parties are encouraged to comment on whether any new or
revised information collection is necessary, and if so, how the
Commission might minimize the burden of any such collection.
Synopsis of the Further Notice of Proposed Rulemaking
Introduction
1. In this FNPRM, the Commission responds to the decision of the
United States Court of Appeals for the Tenth Circuit (Tenth Circuit) in
Qwest Communications International, Inc. v. FCC, in which the court
remanded the Commission's rules for providing high-cost universal
service support to non-rural carriers. As discussed below, while the
Commission has long recognized the need for comprehensive reform, we
are also cognizant that, under the American Recovery and Reinvestment
Act of 2009 (the Recovery Act), the Commission must send a National
Broadband Plan to Congress by February 17, 2010. We anticipate that
changes to universal service policies are likely to be recommended as
part of that plan, and that the Commission will undertake comprehensive
universal service reform when it implements those recommendations. It
will not be feasible for the Commission to consider, evaluate, and
implement these universal service recommendations between February 17,
2010, and April 16, 2010, the date by which the Commission committed to
respond to the Tenth Circuit's remand. We tentatively conclude,
therefore, that the Commission should not attempt wholesale reform of
the non-rural high-cost mechanism at this time, but we seek comment on
certain interim changes to address the court's concerns and changes in
the marketplace.
2. The interim changes on which we seek comment today are designed
to respond to the court's concerns, while also taking into account the
considerable changes in technology, the telecommunications marketplace,
and consumer buying patterns that have occurred since we last modified
our non-rural high-cost universal service support rules. We seek
comment on what changes should be made to the Commission's rules
regarding the rate comparability review and certification process.
Specifically, we seek comment on whether the Commission should define
``reasonably comparable'' rural and urban rates in terms of rates for
bundled local and long distance services. In addition, we seek comment
on whether the Commission should require carriers to certify that they
offer bundled local and long distance services at reasonably comparable
rural and urban rates.
3. Finally, we tentatively conclude that while the Commission
considers comprehensive universal service reform consistent with both
the Communications Act of 1934, as amended (the Communications Act),
and the Recovery Act, the current non-rural high-cost mechanism is an
appropriate interim mechanism for determining high-cost support to non-
rural carriers. We tentatively find that the mechanism as currently
structured comports with the requirements of section 254 of the
Communications Act,
[[Page 68765]]
and it is therefore appropriate to maintain this mechanism on an
interim basis until the Commission enacts comprehensive reform.
Background
4. A major objective of high-cost universal service support always
has been to help ensure that consumers have access to
telecommunications services in areas where the cost of providing such
services would otherwise be prohibitively high. In section 254 of the
Communications Act, Congress directed the Commission to preserve and
advance universal service by ensuring, among other things, that
consumers in rural, insular, and high-cost areas have access to
telecommunications services at rates that are ``reasonably comparable
to rates charged for similar services in urban areas.'' In addition,
section 254(e) provides that Federal universal service support ``should
be explicit and sufficient to achieve the purposes of this section.''
5. Currently, the Commission's rules provide Federal high-cost
support to non-rural and rural carriers under different support
mechanisms. While rural carriers receive support based on their
embedded costs, the current rules calculate support to non-rural
carriers based on the forward-looking economic cost of constructing and
operating the network facilities and functions used to provide the
supported services in the areas served by non-rural carriers, as
determined by the Commission's cost model. Non-rural carriers receive
support based on the model's cost estimates only in States where the
statewide average forward-looking cost per line for non-rural carriers
exceeds a national cost benchmark, which currently is set at two
standard deviations above the national average cost per line.
6. To induce States to achieve the reasonably comparable rates that
are required by the statute, the Commission requires States to review
annually their residential local rates in rural areas served by non-
rural carriers and certify that those rural rates are reasonably
comparable to urban rates nationwide, or explain why they are not. The
Commission defined the statutory term ``reasonably comparable'' in
terms of a national rate benchmark, which serves as a ``safe harbor''
in the rate review and certification process. States with rural rates
below the benchmark may presume that their rural rates are reasonably
comparable to urban rates nationwide without providing additional
information; if the rural rates are above the benchmark, they can rebut
the presumption by demonstrating that factors other than basic service
rates affect the comparability of rates. The national rate benchmark
currently is set at two standard deviations above the average urban
rate as reported in the most recent annual rate survey published by the
Wireline Competition Bureau.
7. In Qwest II, the court held that the Commission relied on an
erroneous, or incomplete, construction of section 254 of the
Communications Act in defining statutory terms and crafting the funding
mechanism for non-rural high-cost support. The court directed the
Commission on remand to articulate a definition of ``sufficient'' that
appropriately considers the range of principles in section 254 of the
Communications Act and to define ``reasonably comparable'' in a manner
that comports with the requirement to preserve and advance universal
service. The court found that, ``[b]y designating a comparability
benchmark at the national urban average plus two standard deviations,
the FCC has ensured that significant variance between rural and urban
rates will continue unabated.'' The court also found that the
Commission ignored its obligation to ``advance'' universal service, ``a
concept that certainly could include a narrowing of the existing gap
between urban and rural rates.'' Because the non-rural high-cost
support mechanism rested on the application of the definition of
``reasonably comparable'' rates invalidated by the court, the court
also deemed the support mechanism invalid. The court further noted that
the Commission based the two standard deviations cost benchmark on a
finding that rates were reasonably comparable, without empirically
demonstrating in the record a relationship between costs and rates.
8. In December 2005, the Commission issued a notice of proposed
rulemaking seeking comment on issues raised by section 254 and the
Tenth Circuit in Qwest II. Since the Commission issued the Remand NPRM,
it has sought comment on various proposals for comprehensive reform of
the high-cost support mechanisms for both rural and non-rural carriers.
In addition, the Commission issued a further notice of proposed
rulemaking seeking comment on comprehensive universal service and
intercarrier compensation reform on November 5, 2008.
9. On January 14, 2009, Qwest Corporation, the Maine Public
Utilities Commission, the Vermont Public Service Board, and the Wyoming
Public Service Commission filed a petition for writ of mandamus with
the Tenth Circuit in the Qwest II proceeding. Shortly after that
petition was filed, the Commission and the petitioners negotiated an
agreement under which the Commission would release a notice of inquiry
no later than April 8, 2009; issue a further notice of proposed
rulemaking no later than December 15, 2009; and release a final order
that responds to the court's remand no later than April 16, 2010. On
April 8, 2009, the Commission issued a notice of inquiry to refresh the
record regarding the issues raised by the court in this remand
proceeding. The Commission sought comment on several specific
proposals, and sought comment generally on how any changes to the
Commission's non-rural high-cost support mechanism should relate to
more comprehensive high-cost universal service reform and the
Commission's initiatives regarding broadband deployment.
Discussion
Relationship to Comprehensive Reform and the National Broadband Plan
10. The Commission has previously recognized the need for
comprehensive universal service reform, and has sought comment on
various proposals for comprehensive reform of the high-cost support
mechanisms, rural as well as non-rural. Since the Commission originally
adopted the non-rural high-cost mechanism in 1999, the
telecommunications marketplace has undergone significant changes. For
example, while in 1996 the majority of consumers subscribed to separate
local and long distance providers, today the majority of consumers
subscribe to local/long distance bundles offered by a single provider.
In addition, the vast majority of subscribers have wireless phones as
well as wireline phones, and an increasing percentage of consumers are
dropping their circuit-switched phones in favor of wireless or
broadband-based (voice over Internet protocol) phone services. Finally,
an increasing percentage of carriers are converting their networks from
circuit-switched to Internet protocol (IP) technology.
11. In the Remand NOI, the Commission sought comment on the
relationship between the Commission's resolution of the issues in this
remand proceeding and more comprehensive reform of the high-cost
universal service support system and the development of a comprehensive
National Broadband Plan. Many commenters argued that the Commission
should use this remand proceeding to begin transitioning high-cost
funding from support for voice
[[Page 68766]]
services to support for broadband in light of the changes in technology
and the marketplace.
12. On the same day that the Commission issued the Remand NOI, it
began the process of developing a National Broadband Plan that will
``seek to ensure that all people of the United States have access to
broadband capability,'' as required by the Recovery Act. Since then,
the Commission staff has undertaken an intensive and data-driven effort
to develop a plan to ensure that our country has a broadband
infrastructure appropriate to the challenges and opportunities of the
21st century. Work on the National Broadband Plan, which is due to
Congress by February 17, 2010, is not complete. We anticipate that the
National Broadband Plan will address the need to reform universal
service funding to further the deployment and adoption of broadband
throughout the nation. As a consequence, we tentatively conclude that
fundamental reform limited to only the non-rural high-cost support
mechanism should not be proposed at this time. After the National
Broadband Plan is released in February, we will be in a better position
to determine the modifications that would be consistent with our
broadband policies. In response to the mandamus petition in the Tenth
Circuit, the Commission has committed to issue an order responding to
the court's remand by April 16, 2010. We believe that we will have
insufficient time, between release of the National Broadband Plan in
February and our deadline for responding to the court in April, to
implement reforms to the high-cost universal service mechanisms
consistent with the overall recommendations in the National Broadband
Plan. While we are committed to addressing the remand by April 16, we
anticipate that our efforts to revise and improve high cost support
will be advanced further through proceedings that follow from the
National Broadband Plan. Accordingly, we tentatively conclude that we
should neither propose fundamental reform of the non-rural high-cost
support mechanism in advance of the forthcoming National Broadband
Plan, nor attempt to set the stage for implementation of (as yet
unknown) plan recommendations in this further notice of proposed
rulemaking. As discussed below, we also tentatively conclude that no
fundamental reform is required since the program as currently
structured is consistent with our statutory obligations under section
254 of the Communications Act. We seek comment on these tentative
conclusions.
13. We also are reluctant at this time to propose adopting any
changes to the non-rural support mechanism that would increase
significantly the amount of support non-rural carriers would receive.
We caution that any rules adopted in this proceeding are likely to be
interim rules and in effect only until comprehensive universal service
reform is adopted in the aftermath of the National Broadband Plan. Any
substantial increases in non-rural high-cost support disbursements,
moreover, would increase the contribution factor above its current high
level. ``Because universal service is funded by a general pool
subsidized by all telecommunications providers--and thus indirectly by
the customers--excess subsidization in some cases may undermine
universal service by raising rates unnecessarily, thereby pricing some
consumers out of the market.'' If carriers were to receive significant
additional high-cost support on an interim basis as a result of this
proceeding, it likely would be more difficult to transition that
support to focus on areas unserved or underserved by broadband, if
called for in future proceedings. Given these concerns, we tentatively
conclude that any changes to the non-rural high-cost support mechanism
adopted at this time should be interim in nature and should not
increase the overall amount of non-rural high-cost support
significantly above current levels, provided that goal can be
accomplished consistent with our mandate under section 254. We seek
comment on this tentative conclusion and, to the extent commenters
advocate changes to the existing mechanism, we ask commenters to
address how any such changes will constrain growth in the amount of
support.
Rate Comparability Review and Certification Process
14. We tentatively conclude that we should continue requiring the
States to review annually their residential local rates in rural areas
served by non-rural carriers and certify that their rural rates are
reasonably comparable to urban rates nationwide, or explain why they
are not. We seek comment on this tentative conclusion.
15. We also seek comment, however, on whether we should change the
rates we require the States to compare in light of the considerable
changes in technology, the telecommunications marketplace, and consumer
buying patterns that have occurred since we adopted a national average
urban rate benchmark based on local rates. Specifically, we seek
comment on whether the Commission should define ``reasonably
comparable'' rural and urban rates in terms of rates for bundled
telecommunications services. Given the changes in consumer buying
patterns, the competitive marketplace, and the variety of pricing plans
offered by carriers today, stand-alone local telephone rates may no
longer be the most relevant measure of whether rural and urban
consumers have access to reasonably comparable telecommunications
services at reasonably comparable rates.
16. In particular, when the Commission adopted the non-rural high-
cost support mechanism, none of the Bell Operating Companies, which
served the majority of non-rural carrier customers, were permitted to
offer combined local and interstate long distance services to their
customers. At that time, most customers of non-rural carriers took
local service from the incumbent local exchange carrier and subscribed
to a separate interexchange carrier for long distance service. When the
Commission originally adopted the non-rural high-cost support
mechanism, it was ``designed to achieve reasonable comparability of
intrastate rates among States.'' Given the different combinations of
carriers a customer could choose from, and differing amounts of usage
based on per-minute charges, it would have been difficult at that time
to identify a typical package of local and long distance services. In
the Order on Remand, the Commission explicitly defined ``reasonable
comparability'' in terms of the national average urban rate for local
telephone service. The telecommunications marketplace has changed
considerably since that time, however.
17. When the Commission issued the Remand NPRM in 2005, it noted
that most consumers no longer purchase stand-alone local telephone
service, but instead purchase bundles of telecommunications services
from one or more providers, and it sought comment on whether the
Commission should continue defining reasonably comparable rates in
terms of local rates only. The Commission also sought comment on
whether defining reasonably comparable rural and urban rates in terms
of consumers' total telephone bills would be more consistent with its
obligation to preserve and advance universal service than focusing only
on local rates. In the Remand NOI, the Commission noted that consumers
increasingly are purchasing packages of services that include not only
unlimited nationwide calling, but also broadband Internet
[[Page 68767]]
access and video services, and it sought comment on whether the
Commission should consider a broader range of rates in determining
whether rates are affordable and reasonably comparable. We now seek
additional comment on these issues.
18. As the Commission previously noted, most rural consumers
typically have smaller calling areas for local telephone service than
urban consumers and, therefore, may purchase more long distance
services than urban consumers. We seek comment on whether a comparison
of local rates only is appropriate if rural consumers incur substantial
charges for long distance services and pay more for combined local and
long distance telephone services than urban consumers. Although only
local telephone service is supported by the high-cost universal service
mechanism at this time, section 254(b)(3) of the Act provides that
consumers in all regions of the nation should have access to
telecommunications and information services, including advanced
services and interexchange services, at reasonably comparable rural and
urban rates. In light of the fact that most consumers subscribe to both
local and long distance services from the same provider, would it be
more consistent with the statute, and the Commission's obligation to
advance universal service, to define reasonably comparable rates for
purposes of the non-rural mechanism in terms of combined local and long
distance rates?
19. If the Commission determines that a more meaningful measure of
rural and urban rate comparability should include rates for long
distance services as well as local rates, how should the Commission
define a typical package of services on which to base the comparison?
Several commenters point to the widespread availability of national
calling plans from competing intermodal providers, including wireless,
cable, and VoIP providers, and argue that rates should be considered
reasonably comparable in rural areas where such service options are
available. Currently, the Commission defines reasonably comparable
rates in terms of incumbent local exchange carrier rates only. Given
the increasing number of consumers subscribing to voice services from
alternative providers, should the Commission look at the bundled rates
of all types of providers? In addition, many providers offer ``all
distance'' or unlimited nationwide calling plans. In determining
whether rates and services are reasonably comparable in rural and urban
areas, should the Commission consider service bundles that include
unlimited long distance calling? These popular service bundles provide
predictability and cost savings to high-volume users, but may not
address the needs of consumers who make few long distance calls. Should
the Commission also consider service bundles that include per minute
rates or various ``buckets'' of minutes that may be popular with lower-
volume users? We invite commenters to submit data on the rates and
availability of bundled service offerings, identify sources of such
data, and propose methods of analyzing such data.
20. We also seek comment on whether the Commission should require
carriers to certify that they offer bundled local and long distance
services at reasonably comparable rural and urban rates. We note in
this regard that if we define reasonably comparable rates in terms of
bundled local and long distance services some (or none) of the
components of those bundles will be regulated by the States. Would
requiring carriers to provide such data assist the Commission in
monitoring these rates over time so that the Commission can adjust its
definition of reasonably comparable rates as the marketplace changes?
Maintaining the Current Non-Rural Mechanism on an Interim Basis
Cost-Based Support Mechanism
21. Because we believe that any proposed reforms to the non-rural
high-cost support mechanism should be interim in nature, pending
adoption and implementation of the National Broadband Plan, we
tentatively conclude that the current non-rural funding mechanism
should remain in place at this time, and seek comment on this tentative
conclusion. We tentatively conclude that it is appropriate to
distribute universal service support in high-cost areas based on
estimated forward-looking economic cost rather than on retail rates,
primarily because costs necessarily are a major factor affecting retail
rates.
22. As the Commission has previously discussed, there are numerous
reasons to believe that cost represents a reasonable proxy for the
ability of carriers and State regulators to ensure that rural rates
remain reasonably comparable. In contrast, it makes little sense to
base support on current retail rates, which are not independently
determined but rather are the result of the interplay of underlying
costs and other factors that are unrelated to whether an area is high-
cost. Retail rates in many States remain regulated, and State
regulators differ in their treatment of regulated carriers' recovery of
their intrastate regulated costs. For example, some States still
require carriers to charge business customers higher rates to create
implicit subsidies for residential customers, while other regulators
have eliminated such implicit subsidies in the face of increasing
competition for business customers. Similarly, State regulators vary in
the extent to which they have rebalanced rates by reducing intrastate
access charges and increasing local rates. In addition, some States
have ceased regulating local retail rates. Moreover, basing support on
retail rates would create perverse incentives for State commissions and
carriers to the extent that rate levels dictated the amount of Federal
universal service support available in a State. State commissions or
carriers would have an incentive to set local rates well above cost
simply to increase their States' carriers' Federal universal service
support. Similarly, where States have deregulated retail rates,
carriers facing competition may have an incentive to raise certain
local rates to increase their support rather than to cut rates to meet
competition. We seek comment on the relative advantages and
disadvantages of basing support on costs versus retail rates.
Forward-Looking Cost Model
23. In the Remand NOI, the Commission acknowledged that many of the
inputs in the forward-looking economic cost model have not been updated
since they were adopted a decade ago, and sought comment on the extent
to which the Commission should continue to use its model in determining
high-cost support without updating, changing, or replacing the model.
Virtually all commenters that addressed this issue argued that the
model should be updated. We agree that the model should be updated or
replaced if a forward-looking cost model continues to be used to
compute non-rural high-cost support for the long term. Not only are the
model inputs out-of-date, but also the technology assumed by the model
no longer reflects ``the least-cost, most-efficient, and reasonable
technology for providing the supported services that is currently being
deployed.'' The Commission's cost model essentially estimates the costs
of a narrowband, circuit-switched network that provides plain old
telephone service (POTS), whereas today's most efficient providers are
constructing fixed or mobile networks that are capable of providing
broadband as well as voice services.
[[Page 68768]]
24. We acknowledge that much progress has been made in developing
computer cost models that estimate the cost of constructing a broadband
network, such as the CostQuest model, and we note that Commission staff
has been working to develop an economic cost model to estimate the cost
of providing broadband services for purposes of the National Broadband
Plan. Nevertheless, we do not believe that we could adequately evaluate
any existing cost model or develop a new cost model in time to meet our
commitment to respond to the Tenth Circuit's remand decision by April
16, 2010. As the Commission noted in the Remand NOI, the Commission's
current model was developed over a multi-year period involving dozens
of public workshops, and we expect that it would take a similar period
to evaluate or develop a new cost model and to establish new input
values. Moreover, we do not believe that it would be a productive use
of Commission resources to attempt to update a model that estimates the
cost of a legacy, circuit-switched, voice-only network, if the
Commission ultimately decides to use a forward-looking cost model to
estimate the cost of providing broadband over a modern multiservice
network. Accordingly, we tentatively conclude that we should continue
to use the existing model to estimate non-rural support while these
interim rules remain in place, pending the development of an updated
and more advanced model or some other means of determining high-cost
support for the long term. We seek comment on this tentative
conclusion.
25. We also tentatively conclude that we should continue to
determine non-rural support by comparing the statewide average cost of
non-rural carriers to a nationwide cost benchmark set at two standard
deviations above the national average cost per line on an interim
basis. As discussed above, we tentatively conclude that any changes to
the non-rural high-cost support mechanism should not result in
substantial additional support. Following from this tentative
conclusion, we further tentatively conclude that we should not adopt
the proposal of Vermont and Maine that the Commission use a cost
benchmark of no more than 125 percent of cost, because this would
increase significantly the overall amount of high-cost support for non-
rural carriers.
26. We also tentatively conclude that we should not modify our
current mechanism to base support on average wire center costs per
line. First, some of those proposing a shift to wire center costs, such
as Qwest, would set thresholds in a manner that would result in a
significant increase in the size of the fund. Second, as previously
discussed, the Commission's existing model estimates the costs of a
narrowband, circuit-switched network that essentially provides only
POTS, rather than the costs of the multi-service networks that
providers are deploying today. If the Commission were to decide to
calculate support on the basis of the per-line costs for a narrower
geographic area (such as wire centers), we tentatively find that the
Commission should do so based on an updated model, similar to the one
being developed for purposes of the National Broadband Plan, that
incorporates the least-cost, most efficient technologies currently
being deployed.
27. While we believe that there may be considerable merit in an
approach that distributes high-cost support on a more disaggregated
basis rather than on the basis of statewide average costs, we do not
believe that the current version of the Commission's model is an
appropriate tool to implement such an approach. Accordingly, we
tentatively conclude that, until the Commission adopts an updated cost
model, the non-rural high-cost support should continue to be based on
statewide average costs. We seek comment on these tentative
conclusions. Although we tentatively conclude that the proposals to
change the non-rural mechanism should not be adopted in their entirety
at this time, we seek comment on whether it might be feasible to adopt
some elements of these or other proposals. We also seek comment on
whether there are other interim adjustments that we should make to the
non-rural mechanism that could be implemented quickly, through an order
issued no later than April 16, 2010.
Current Non-Rural Mechanism Is Consistent With Section 254 Principles
``Sufficient''
28. As discussed above, we tentatively conclude that we should
maintain the existing non-rural high-cost funding mechanism on an
interim basis given the relationship between universal service support
and the Commission's mandate under the Recovery Act to develop a plan
for providing broadband throughout the nation. While the Commission is
developing that plan and coordinating its requirements under both the
Recovery and the Communications Act, we tentatively conclude that the
program as currently constructed is consistent with the requirements in
section 254 of the Communications Act. We seek comment on this
tentative conclusion.
29. Section 254(e) of the Communications Act provides that Federal
universal service support ``should be explicit and sufficient to
achieve the purposes of [section 254].'' The Tenth Circuit held that
the Commission did not adequately demonstrate how its non-rural
universal service support mechanism was ``sufficient'' within the
meaning of section 254(e). In the non-rural context, the Commission
previously had defined ``sufficient'' as ``enough Federal support to
enable States to achieve reasonable comparability of rural and urban
rates in high-cost areas served by non-rural carriers.'' In Qwest II,
the court noted, however, that ``reasonable comparability'' was just
one of several principles that Congress directed the Commission to
consider when crafting policies to preserve and advance universal
service. The court was ``troubled by the Commission's seeming
suggestion that other principles, including affordability, do not
underlie Federal non-rural support mechanisms.'' ``On remand,'' the
court concluded, ``the FCC must articulate a definition of `sufficient'
that appropriately considers the range of principles identified in the
text of the statute.''
30. Section 254(b) sets forth a number of principles upon which the
Federal-State Joint Board on Universal Service (Joint Board) and the
Commission should base universal service policies. These include: (1)
``[Q]uality service should be available at just, reasonable, and
affordable rates;'' (2) ``access to advanced telecommunications and
information services should be provided in all regions of the Nation;''
(3) ``low-income consumers and those in rural, insular, and high cost
areas, should have access to telecommunications services 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 * * * in urban areas;'' (4)
``[a]ll providers of telecommunications services should make an
equitable and nondiscriminatory contribution to the preservation and
advancement of universal service;'' (5) ``[t]here should be specific,
predictable and sufficient Federal and State mechanisms to preserve and
advance universal service;'' and (6) ``[e]lementary and secondary
schools and classrooms, health care providers, and libraries should
have access to advanced telecommunications services.'' In addition,
section 254(b) permits the
[[Page 68769]]
Joint Board and the Commission to adopt ``[s]uch other principles as
the Joint Board and the Commission determine are necessary and
appropriate for the protection of the public interest * * *''
31. In implementing section 254, the Commission, consistent with
the recommendations of the Joint Board, created a number of different
universal service support mechanisms that were targeted to address
specific principles enumerated in section 254(b). Thus, for example,
the Commission created a separate E-rate program to provide support to
schools and libraries, and a rural health care mechanism to provide
support for health care providers, and it expanded and modified the
existing Lifeline and Link-up programs to assist low-income consumers.
The non-rural high-cost support mechanism, thus, is just one relatively
small segment of the Commission's comprehensive scheme to preserve and
advance universal service. In implementing section 254, the Commission
did not attempt to address and advance each and every section 254(b)
universal service principle in a single support mechanism, nor is there
any indication that Congress intended the provisions to be implemented
in this manner. Instead, the Commission crafted a variety of mechanisms
that--collectively--address the section 254(b) principles. These
mechanisms, taken together, advance all of the section 254(b)
principles enumerated by Congress. For example, the Commission
addressed the section 254(b)(6) principle that schools, libraries, and
health care providers ``should have access to advanced
telecommunications services,'' by creating the E-rate program and the
rural health care support mechanism. The Commission, therefore, did not
need to address this principle in designing the various high-cost
support mechanisms. In particular, the non-rural high-cost support
mechanism was meant to ensure that consumers in rural, insular, and
high-cost areas have access to telecommunications services at rates
that are reasonably comparable to rates in urban areas. Thus, the
Commission believes that a fair assessment of whether the Commission
has reasonably implemented the section 254 principles, and whether
support is ``sufficient,'' must encompass the entirety of universal
service support mechanisms; no single program is intended to accomplish
the myriad of statutory purposes. Moreover, the competing purposes of
section 254 impose practical limits on the fund as a whole: If the fund
grows too large, it will jeopardize other statutory mandates, such as
ensuring affordable rates in all parts of the country, and requiring
fair and equitable contributions from carriers. We seek comment on the
foregoing analysis. We also seek comment on the principles the
Commission should consider in designing the non-rural high-cost
mechanism and in determining whether the level of support is
``sufficient.''
32. In Qwest II, the Tenth Circuit expressed specific concern that
the Commission's non-rural mechanism may not be ``sufficient'' to
advance the principle of affordability. We seek comment on how we
should assess whether the current non-rural high-cost mechanism
advances this principle, particularly when considered in conjunction
with the other universal service mechanisms (e.g., the low-income
mechanism). We note that the Commission's most recent report on
telephone subscribership (released in December 2009) found that, as of
July 2009, the telephone subscribership penetration rate in the United
States was 95.7 percent--the highest reported penetration rate since
the Census Bureau began collecting such data in November 1983. Does the
current high penetration rate demonstrate that our universal service
programs are sufficient to ensure that rates are affordable? If not,
what other data might the Commission consider in determining whether
rates are affordable? Should it consider data on the percentage of
income that consumers spend on local telephone service or other
telecommunications services? Should it compare consumer expenditures on
telephone or telecommunications services with consumer expenditures on
other services, such as cable television service? Do such data confirm
that rates are affordable?
33. As the Tenth Circuit has recognized, the Commission must
sometimes ``exercise its discretion to balance the principles'' of
section 254(b) ``against one another when they conflict.'' If the high-
cost fund for non-rural carriers were to increase substantially, there
emerges a tension between the principles of reasonable comparability
and affordability. If the Commission dramatically increased the size of
the non-rural fund to reduce rural rates to make them more comparable
to the lowest urban rates, carriers serving other areas of the country
would likely increase their rates to pay for the spike in their non-
rural support contributions, making rates in those service areas less
affordable. The court recognized the need for the Commission to balance
the competing principles of comparability and affordability in the non-
rural high-cost context. The court held, however, that ``the FCC has
failed to demonstrate that its balancing calculus takes into account
the full range of principles Congress dictated to guide the Commission
in its actions.'' For the reasons discussed above, we tentatively
conclude that in designing its non-rural high-cost mechanism the
Commission should principally balance the statutory principles of
reasonable comparability and affordability of rates in areas served by
non-rural carriers on the one hand with affordability of rates in other
areas where customers are net contributors to universal service funding
on the other. As the United States Court of Appeals for the District of
Columbia Circuit (DC Circuit) recently found when it upheld the
Commission's interim cap on competitive eligible telecommunications
carriers' support, the concept of ``sufficiency'' can reasonably
encompass ``not just affordability for those benefited, but fairness
for those burdened.'' We also tentatively conclude that a proper
balancing inquiry must take into account our generally applicable
responsibility to be a prudent guardian of the public's resources. We
seek comment on these tentative conclusions.
34. The Tenth Circuit acknowledged that ``excessive subsidization
arguably may affect the affordability of telecommunications services,
thus violating the principle in section 254(b)(1).'' The Commission
made a determination of necessary, but not excessive, support in
crafting the interim universal service support rules that the Fifth
Circuit upheld in Alenco Communications, Inc. v. FCC. More recently, in
upholding an interim cap on certain universal service funding, the DC
Circuit stated that the Commission, in assessing whether universal
service subsidies are excessive, ``must consider not only the
possibility of pricing some customers out of the market altogether, but
the need to limit the burden on customers who continue to maintain
telephone service.'' Given the unprecedented level of telephone
subscribership, we tentatively conclude that current subsidy levels are
at least sufficient (and may be more than enough) to ensure reasonably
comparable and affordable rates that permit widespread access to basic
telephone service. We seek comment on this tentative conclusion.
35. We further tentatively conclude that the Commission's non-rural
support mechanism is also consistent with the statutory principle that
``[t]here should be specific, predictable and sufficient
[[Page 68770]]
Federal and State mechanisms to preserve and advance universal
service.'' The Commission's cost-based formula provides a specific and
predictable methodology for determining when non-rural carriers qualify
for high-cost support. We seek comment on this tentative conclusion.
36. Finally, we note that the non-rural high-cost mechanism
currently does not directly address the principle that ``[a]ccess to
advanced telecommunications and information services should be provided
in all regions of the Nation.'' The Commission, however, is currently
considering whether to extend universal service support to broadband
services. Such an expansion of the universal service program would help
advance the goal of widespread access to advanced services in
accordance with section 254(b)(2). We tentatively conclude that it
would be premature to expand existing universal service programs at
this time, before the National Broadband Plan has been issued. We seek
comment on this tentative conclusion.
``Reasonably Comparable''
37. Section 254(b)(3) provides: ``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 that are
available at rates that are reasonably comparable to rates charged for
similar services in urban areas.'' In 2003, the Commission determined
that rural rates were ``reasonably comparable'' if they fell within two
standard deviations of the national average urban rate contained in the
Wireline Competition Bureau's annual rate survey. In adopting this
definition of ``reasonably comparable,'' the Commission presumed that
Congress believed that rural and urban rates were already ``reasonably
comparable'' at the time the 1996 Telecommunications Act was passed,
and that the Commission's task under section 254(b)(3) was to preserve
existing levels of rate comparability.
38. In Qwest II, the Tenth Circuit rejected the Commission's
definition of ``reasonably comparable.'' The court noted that section
254(b) referred to ``policies for the preservation and advancement of
universal service.'' In the court's view, the statute's charge to
``advance'' universal service suggests that the Commission must do more
than maintain existing rate differences. In particular, in the context
of rate comparability, the court concluded that ``the Commission erred
in premising its consideration of the term `preserve' on the disparity
of rates existing in 1996 while ignoring its concurrent obligation to
advance universal service, a concept that certainly could include a
narrowing of the existing gap between urban and rural rates.'' The
court seemed concerned that, unless the Commission took action to
reduce the existing variance in rates between rural and urban areas,
rural rates would be too high to ensure universal access to basic
service. ``Rates cannot be divorced from a consideration of universal
service,'' the court said, ``nor can the variance between rates paid in
rural and urban areas. If rates are too high, the essential
telecommunications services encompassed by universal service may indeed
prove unavailable.''
39. The Tenth Circuit noted that under the Commission's 2002 data,
``rural rates falling just below the comparability benchmark may exceed
the lowest urban rates by over 100%.'' We tentatively conclude,
however, that the statute does not require the Commission to make rural
rates comparable to the ``lowest urban rate,'' particularly when urban
rates themselves vary considerably. Indeed, as the Tenth Circuit
recognized, the Commission set its previous comparability benchmark at
the national urban average plus two standard deviations because that
benchmark ``approaches the outer perimeter of the variance in urban
rates.'' Under the Commission's benchmark approach, rural rates receive
``closer scrutiny'' as they ``approach the level of the highest urban
rate.'' The Tenth Circuit acknowledged that ``there is a certain logic
to this approach''; but it ultimately concluded that ``the benchmark is
rendered untenable because of the impermissible statutory construction
on which it rests.''
40. We seek comment on how we should respond to the Tenth Circuit's
concerns about reasonable comparability of rates. How should we
evaluate whether the current non-rural high-cost mechanism is
``advancing'' universal service in satisfaction of section 254(b)(5)?
Does the fact that telephone penetration rates have increased since we
started our universal service programs demonstrate that ``rates are''
not ``too high'' under that program, since ``essential
telecommunications services encompassed by universal service'' have not
``prove[d] unavailable'' but have in fact become more available?
Section 254(b)(3) requires that rates in rural, insular, and high cost
areas be ``reasonably comparable to those . . . in urban areas.'' Given
the variance in urban rates, does it make sense to interpret this
statutory principle as requiring that all rural rates be no higher than
the lowest urban rate? Would such an interpretation effectively result
in the preemption of State rate-making authority? In addition, would
such an interpretation of the statute result in a significant increase
in the size of the fund that would unreasonably burden those
contributing to the fund? In interpreting this statutory provision,
should we instead compare the variance in rural rates to the variance
in urban rates? Are there other ways to assess rate comparability?
41. The court's criticism of the Commission's statutory
construction appeared to stem from a concern that the Commission's non-
rural mechanism was not doing enough to satisfy the statutory mandate
to ``advance'' universal service. Is it reasonable to interpret the
statute's directive to ``advance universal service'' as satisfied if
the Commission extends universal service to new services and new
technologies, such as broadband Internet access service? As discussed
above, section 6001(k) of the Recovery Act directs the Commission to
submit to Congress a National Broadband Plan. The Recovery Act further
requires that the plan ``shall seek to ensure that all people of the
United States have access to broadband capability,'' and that the plan
include, inter alia, a ``detailed strategy for achieving affordability
of such [broadband] service and maximum utilization of broadband
infrastructure and service by the public.'' Do these provisions of the
Recovery Act support such an interpretation?
Procedural Matters
42. 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 and
reply comments on or before the dates indicated on the first page of
this document. Comments may be filed using: (1) The Commission's
Electronic Comment Filing System (ECFS), (2) the Federal Government's
eRulemaking Portal, or (3) by filing paper copies. See Electronic
Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/ or the Federal eRulemaking Portal: http://www.regulations.gov.
[[Page 68771]]
Paper Filers: 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,
filers must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission..
Effective December 28, 2009, all hand-delivered or
messenger delivered paper filings for the Commission's Secretary must
be delivered to FCC Headquarters at 445 12th St., SW., Room TW-A325,
Washington, DC 20554. All hand deliveries must be held together with
rubber bands or fasteners. Any envelopes must be disposed of before
entering the building. Please Note: Through December 24, 2009, the
Commission's contractor will receive hand-delivered or messenger-
delivered paper filings for the Commission's Secretary at 236
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. This filing
location will be permanently closed after December 24, 2009. The filing
hours at both locations are 8 a.m. to 7 p.m.
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, Express, and Priority
mail must be addressed to 445 12th Street, SW., Washington DC 20554.
People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an e-mail to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
Ex Parte Requirements
43. These matters shall be treated as a ``permit-but-disclose''
proceeding in accordance with the Commission's ex parte rules. 47 CFR
1.1200-1.1216. Persons making oral ex parte presentations are reminded
that memoranda summarizing the presentations must contain summaries of
the substance of the presentations and not merely a listing of the
subjects discussed. More than a one or two sentence description of the
views and arguments presented is generally required. 47 CFR
1.1206(b)(2). Other requirements pertaining to oral and written
presentations are set forth in Sec. 1.1206(b) of the Commission's
rules. 47 CFR 1.1206(b).
Initial Regulatory Flexibility Analysis
44. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Initial Regulatory
Flexibility Analysis (IRFA) of the possible significant economic impact
on a substantial number of small entities from the policies and rules
proposed in this Further Notice of Proposed Rulemaking (FNPRM). The
Commission requests written public comment on this IRFA. Comments must
be identified as responses to the IRFA and must be filed by the
deadlines for comments on the FNPRM provided on the first page of the
FNPRM. The Commission will send a copy of the FNPRM, including this
IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (SBA). In addition, the FNPRM and IRFA (or summaries
thereof) will be published in the Federal Register.
Need for, and Objectives of, the Proposed Rules
45. In section 254 of the Communications Act of 1934, as amended,
Congress directed the Commission to preserve and advance universal
service by ensuring, among other things, that consumers in rural,
insular, and high-cost areas have access to telecommunications services
at rates that are ``reasonably comparable to rates charged for similar
services in urban areas.'' In addition, section 254(e) provides that
Federal universal service support ``should be explicit and sufficient
to achieve the purposes of this section.''
46. Currently, the Commission's rules provide Federal high-cost
universal service support to non-rural and rural carriers under
different support mechanisms. Non-rural carriers receive support in
States where the statewide average forward-looking cost per line for
non-rural carriers exceeds a national cost benchmark. To induce States
to achieve the reasonably comparable rates that are required by the
statute, the Commission requires States to review annually their
residential local rates in rural areas served by non-rural carriers and
certify that those rural rates are reasonably comparable to urban rates
nationwide, or explain why they are not. The Commission defined the
statutory term ``reasonably comparable'' in terms of a national rate
benchmark, which serves as a ``safe harbor'' in the rate review and
certification process. The national rate benchmark currently is set at
two standard deviations above the average urban rate as reported in the
most recent annual survey of local telephone rates published by the
Wireline Competition Bureau.
47. In Qwest II, the court held that the Commission relied on an
erroneous, or incomplete, construction of section 254 of the
Communications Act in defining statutory terms and crafting the funding
mechanism for non-rural high-cost support. The court directed the
Commission on remand to articulate a definition of ``sufficient'' that
appropriately considers the range of principles in section 254 of the
Communications Act and to define ``reasonably comparable'' in a manner
that comports with the requirement to preserve and advance universal
service.
48. In the FNPRM, the Commission seeks comment on revising the non-
rural high-cost universal service rules regarding the rate
comparability review and certification process. Such action is
necessary to respond to the decision of the United States Court of
Appeals for the Tenth Circuit (Tenth Circuit) in Qwest II, in which the
court remanded the Commission's rules for providing high-cost universal
service support to non-rural carriers. Specifically, the Commission
seeks comment on whether it should define ``reasonably comparable''
rural and urban rates in terms of rates for bundled local and long
distance services, rather than in terms of local rates only. In
addition, the Commission seeks comment on whether it should require
carriers to certify that they offer bundled local and long distance
services at reasonably comparable rural and urban rates.
Legal Basis
49. The legal basis for any action that may be taken pursuant to
the Notice is contained in sections 1, 2, 4(i), 201-205, 214, 254, and
403 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152,
154(i), 201-205, 214, 254, 403 and section 1.411of the Commission's
rules, 47 CFR 1.411.
Description and Estimate of the Number of Small Entities To Which Rules
Will Apply
50. The RFA directs agencies to provide a description of, and,
where feasible, an estimate of, the number of small entities that may
be affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning
[[Page 68772]]
as the term ``small business concern'' under the Small Business Act. A
``small business concern'' is one which: (1) Is independently owned and
operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA).
Wired Telecommunications Carriers
51. The SBA has developed a small business size standard for Wired
Telecommunications Carriers, which consists of all such companies
having 1,500 or fewer employees. According to Census Bureau data for
2002, there were 2,432 firms in this category, total, that operated for
the entire year. Of this total, 2,395 firms had employment of 999 or
fewer employees, and an additional 37 firms had employment of 1,000
employees or more. Thus, under this size standard, the majority of
firms can be considered small.
Local Exchange Carriers (LECs)
52. Neither the Commission nor the SBA has developed a size
standard for small businesses specifically applicable to local exchange
services. The closest applicable size standard under SBA rules is for
Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees. According to
Commission data, 1,311 carriers reported that they were incumbent local
exchange service providers. Of these 1,311 carriers, an estimated 1,024
have 1,500 or fewer employees and 287 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of local
exchange services are small entities that may be affected by our
action.
53. We have included small incumbent LECs in this present RFA
analysis. As noted above, a ``small business'' under the RFA is one
that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer
employees), and ``is not dominant in its field of operation.'' The
SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. We have therefore included
small incumbent LECs in this RFA analysis, although we emphasize that
this RFA action has no effect on Commission analyses and determinations
in other, non-RFA contexts.
Competitive Local Exchange Carriers (Competitive LECs), Competitive
Access Providers (CAPs), Shared-Tenant Service Providers, and Other
Local Service Providers
54. Neither the Commission nor the SBA has developed a small
business size standard specifically for these service providers. The
appropriate size standard under SBA rules is for the category Wired
Telecommunications Carriers. Under that size standard, such a business
is small if it has 1,500 or fewer employees. According to Commission
data, 1,005 carriers reported that they were engaged in the provision
of either competitive local exchange services or competitive access
provider services. Of these 1,005 carriers, an estimated 918 have 1,500
or fewer employees and 87 have more than 1,500 employees. In addition,
16 carriers have reported that they are Shared-Tenant Service
Providers, and all 16 are estimated to have 1,500 or fewer employees.
In addition, 89 carriers have reported that they are Other Local
Service Providers. Of the 89, all 89 have 1,500 or fewer employees and
none has more than 1,500 employees. Consequently, the Commission
estimates that most providers of competitive local exchange service,
competitive access providers, Shared-Tenant Service Providers, and
Other Local Service Providers are small entities that may be affected
by our action.
Wireless Telecommunications Carriers (Except Satellite)
55. Since 2007, the SBA has recognized wireless firms within this
new, broad, economic census category. Prior to that time, the SBA had
developed a small business size standard for wireless firms within the
now-superseded census categories of Paging and Cellular and Other
Wireless Telecommunications. Under the present and prior categories,
the SBA has deemed a wireless business to be small if it has 1,500 or
fewer employees. Because Census Bureau data are not yet available for
the new category, we will estimate small business prevalence using the
prior categories and associated data. For the first category of Paging,
data for 2002 show that there were 807 firms that operated for the
entire year. Of this total, 804 firms had employment of 999 or fewer
employees, and three firms had employment of 1,000 employees or more.
For the second category of Cellular and Other Wireless
Telecommunications, data for 2002 show that there were 1,397 firms that
operated for the entire year. Of this total, 1,378 firms had employment
of 999 or fewer employees, and 19 firms had employment of 1,000
employees or more. Thus, using the prior categories and the available
data, we estimate that the majority of wireless firms can be considered
small. Also, according to Commission data, 434 carriers reported that
they were engaged in the provision of cellular service, Personal
Communications Service (PCS), or Specialized Mobile Radio (SMR)
Telephony services, which are placed together in the data. We have
estimated that 222 of these are small, under the SBA small business
size standard. Thus, under this category and size standard,
approximately half of firms can be considered small.
Broadband Personal Communications Service
56. The broadband personal communications service (PCS) spectrum is
divided into six frequency blocks designated A through F, and the
Commission has held auctions for each block. The Commission defined
``small entity'' for Blocks C and F as an entity that has average gross
revenues of $40 million or less in the three previous calendar years.
For Block F, an additional classification for ``very small business''
was added and is defined as an entity that, together with its
affiliates, has average gross revenues of not more than $15 million for
the preceding three calendar years. These standards defining ``small
entity'' in the context of broadband PCS auctions have been approved by
the SBA. No small businesses, within the SBA-approved small business
size standards bid successfully for licenses in Blocks A and B. There
were 90 winning bidders that qualified as small entities in the Block C
auctions. A total of 93 small and very small business bidders won
approximately 40 percent of the 1,479 licenses for Blocks D, E, and F.
On March 23, 1999, the Commission re-auctioned 347 C, D, E, and F Block
licenses. There were 48 small business winning bidders. On January 26,
2001, the Commission completed the auction of 422 C and F Broadband PCS
licenses in Auction No. 35. Of the 35 winning bidders in that auction,
29 qualified as ``small'' or ``very small'' businesses. Subsequent
events, concerning Auction 35, including judicial and agency
determinations, resulted in a total of 163 C and F Block licenses being
available for grant.
Narrowband Personal Communications Services
57. To date, two auctions of narrowband PCS licenses have been
[[Page 68773]]
conducted. For purposes of the two auctions that have been held,
``small businesses'' were entities with average gross revenues for the
prior three calendar years of $40 million or less. Through these
auctions, the Commission has awarded a total of 41 licenses, out of
which 11 were obtained by small businesses. To ensure meaningful
participation of small business entities in future auctions, the
Commission has adopted a two-tiered small business size standard in the
Narrowband PCS Second Report and Order. A ``small business'' is an
entity that, together with affiliates and controlling interests, has
average gross revenues for the three preceding years of not more than
$40 million. A ``very small business'' is an entity that, together with
affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $15 million. The SBA has
approved these small business size standards. In the future, the
Commission will auction 459 licenses to serve Metropolitan Trading
Areas (MTAs) and 408 response channel licenses. There is also one
megahertz of narrowband PCS spectrum that has been held in reserve and
that the Commission has not yet decided to release for licensing. The
Commission cannot predict accurately the number of licenses that will
be awarded to small entities in future actions. However, four of the 16
winning bidders in the two previous narrowband PCS auctions were small
businesses, as that term was defined under the Commission's rules. The
Commission assumes, for purposes of this analysis, that a large portion
of the remaining narrowband PCS licenses will be awarded to small
entities. The Commission also assumes that at least some small
businesses will acquire narrowband PCS licenses by means of the
Commission's partitioning and disaggregation rules.
Wireless Telephony
58. Wireless telephony includes cellular, PCS, and specialized
mobile radio (SMR) telephony carriers. As noted earlier, the SBA has
developed a small business size standard for wireless services. Under
that SBA small business size standard, a business is small if it has
1,500 or fewer employees. According to Commission data, 434 carriers
reported that they were engaged in the provision of wireless telephony.
We have estimated that 222 of these are small under the SBA small
business size standard.
800 MHz and 900 MHz Specialized Mobile Radio Licenses
59. The Commission awards ``small entity'' and ``very small
entity'' bidding credits in auctions for Specialized Mobile Radio (SMR)
geographic area licenses in the 800 MHz and 900 MHz bands to firms that
had revenues of no more than $15 million in each of the three previous
calendar years, or that had revenues of no more than $3 million in each
of the previous calendar years, respectively. These bidding credits
apply to SMR providers in the 800 MHz and 900 MHz bands that either
hold geographic area licenses or have obtained extended implementation
authorizations. The Commission does not know how many firms provide 800
MHz or 900 MHz geographic area SMR service pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of no more than $15 million. One firm has over $15
million in revenues. The Commission assumes, for purposes here, that
all of the remaining existing extended implementation authorizations
are held by small entities, as that term is defined by the SBA. The
Commission has held auctions for geographic area licenses in the 800
MHz and 900 MHz SMR bands. There were 60 winning bidders that qualified
as small or very small entities in the 900 MHz SMR auctions. Of the
1,020 licenses won in the 900 MHz auction, bidders qualifying as small
or very small entities won 263 licenses. In the 800 MHz auction, 38 of
the 524 licenses won were won by small and very small entities.
Rural Radiotelephone Service
60. The Commission has not adopted a size standard for small
businesses specific to the Rural Radiotelephone Service. A significant
subset of the Rural Radiotelephone Service is the Basic Exchange
Telephone Radio System (BETRS). As noted, the SBA has determined a
small business size standard applicable to wireless entities, i.e., an
entity employing no more than 1,500 persons. There are approximately
1,000 licensees in the Rural Radiotelephone Service, and the Commission
estimates that there are 1,000 or fewer small entity licensees in the
Rural Radiotelephone Service that may be affected by the rules and
policies adopted herein.
Description of Projected Reporting, Recordkeeping, and Other Compliance
Requirements
61. As discussed above, the FNPRM seeks comment on whether it
should define ``reasonably comparable'' rural and urban rates in terms
of rates for bundled local and long distance services, and on whether
the Commission should require carriers to certify that they offer
bundled local and long distance services at reasonably comparable rural
and urban rates. Under the Commission's current rules, States are
required to review annually their residential local rates in rural
areas served by non-rural carriers and certify that those rural rates
are reasonably comparable to urban rates nationwide, or explain why
they are not. If the Commission were to define reasonably comparable
rates in terms of bundled local and long distance services, the States
would not have jurisdiction over some (or all) of the components of
those bundles. Accordingly, the FNPRM seeks comment on whether the
Commission's rate review and certification rules also should apply to
non-rural carriers, and whether such data would assist the Commission
in monitoring these rates over time so that the Commission can adjust
its definition of reasonably comparable rates over time. We do not have
an estimate of potential compliance burdens, but anticipate that
commenters will provide the Commission with reliable information on any
costs and burdens on small entities.
Steps Taken To Minimize Significant Economic Impact on Small Entities,
and Significant Alternatives Considered
62. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include the following four alternatives (among others): (1)
The establishment of differing compliance and reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or part thereof, for small
entities.
63. As discussed above, the FNPRM seeks comment on whether the
Commission should amend its rate review and certification rules to
require non-rural carriers to certify that they offer bundled local and
long distance services at reasonably comparable rural and urban rates,
which, if adopted, may impose a reporting, record keeping, or other
compliance burden on some small entities. We anticipate that the record
will reflect whether the overall benefits of such a requirement would
outweigh
[[Page 68774]]
the burdens on small entities, and if so, suggest alternative ways in
which the Commission could lessen the overall burdens on small
entities. We encourage small entity comment.
Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules
64. None.
Ordering Clauses
65. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1, 2, 4(i), 201-205, 214, 254, and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
201-205, 214, 254, and 403, and section 1.411 of the Commission's
rules, 47 CFR 1.411, this further notice of proposed rulemaking is
adopted.
66. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Further Notice of Proposed Rulemaking, including the
Initial Regulatory Flexibility Analysis, to the Chief Counsel for
Advocacy of the Small Business Administration.
Marlene H. Dortch,
Secretary,
Federal Communications Commission.
[FR Doc. E9-30692 Filed 12-28-09; 8:45 am]
BILLING CODE 6712-01-P