[Federal Register Volume 75, Number 88 (Friday, May 7, 2010)]
[Rules and Regulations]
[Pages 25113-25119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10852]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket No. 05-337, CC Docket No. 96-45; FCC 10-57]
High-Cost Universal Service Support, Federal-State Joint Board on
Universal Service, Lifeline and Link-Up
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) concludes that dramatic increases in telephone
subscribership in Puerto Rico over the last several years make it
unnecessary to adopt a new high-cost support mechanism for non-rural
insular carriers as proposed by Puerto Rico Telephone Company. The
Commission finds that the existing non-rural high-cost support
mechanism, operating in conjunction with the Commission's other
universal service programs, is successfully increasing telephone
subscribership in Puerto Rico and satisfies the requirements of the
Communications Act of 1934, as amended, with respect to Puerto Rico.
The Commission believes that the public would be best served by our
focusing on comprehensive universal service reform, rather than
developing a new non-rural insular high-cost support mechanism within
the existing legacy universal service system.
DATES: Effective June 7, 2010.
FOR FURTHER INFORMATION CONTACT: Ted Burmeister, Wireline Competition
Bureau, Telecommunications Access Policy Division, (202) 418-7389 or
TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Order
in WC Docket No. 05-337, CC Docket No. 96-45, WC Docket No. 03-109, FCC
10-57, adopted April 16, 2010, and released April 16, 2010. This Order
was also released with a companion Proposed Rule document that is
published elsewhere in this Federal Register issue. The complete text
of this document is available for inspection and copying during normal
business hours in the FCC Reference Information Center, Portals II, 445
12th Street, SW., Room CY-A257, Washington, DC 20554. The document may
also be purchased from the Commission's duplicating contractor, Best
Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402,
Washington, DC 20554, telephone (800) 378-3160 or (202) 863- 2893,
facsimile (202) 863-2898, or via the Internet at
[[Page 25114]]
http://www.bcpiweb.com. It is also available on the Commission's Web
site at http://www.fcc.gov.
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).
Synopsis of the Order
I. Introduction
1. In this Order, we conclude that dramatic increases in telephone
subscribership in Puerto Rico over the last several years make it
unnecessary to adopt a new high-cost support mechanism for non-rural
insular carriers as proposed by Puerto Rico Telephone Company (PRTC).
In 2005, the Commission considered creating a separate high-cost
universal service support mechanism for non-rural insular areas. At
that time, telephone subscribership in Puerto Rico (a non-rural insular
area) was 73.8 percent, far below the national average of 94.8 percent.
By 2008--the most recent year for which data are available--
subscribership in Puerto Rico had jumped to 91.9 percent. During the
same period, Puerto Rico has experienced significant growth in
disbursements from federal universal service support programs due in
large part to changes the Commission made to its rules. Total high-cost
support for Puerto Rico has risen from less than $140 million in 1998
to more than $215 million in 2008, an increase of nearly 54 percent,
and low-income support has jumped from $1.16 million in 2001 to $23.4
million in 2008. Although subscription rates in Puerto Rico are still
lower than the national average (98.2 percent in 2008), the substantial
growth in universal service support and the commensurate increase in
telephone subscribership represent significant changed circumstances
since we issued the NPRM, 71 FR 1721, January 11, 2006, in 2005.
2. In light of these positive developments, we find that the
existing non-rural high-cost support mechanism, operating in
conjunction with the Commission's other universal service programs, is
successfully increasing telephone subscribership in Puerto Rico and
satisfies the requirements of section 254 of the Communications Act of
1934, as amended (the Act), with respect to Puerto Rico. Telephone
subscribership in Puerto Rico is not yet at the same level as in the
mainland United States, but the data before us indicate that the gap is
closing rapidly and may well be eliminated entirely in the near future.
The Commission, moreover, recently adopted a Joint Statement on
Broadband that recommends comprehensive reform of universal service,
and delivered to Congress a National Broadband Plan that recommends,
among other things, transitioning legacy high-cost universal service
support to a new high-cost program that would support broadband as well
as voice services. We believe that the public would be best served by
our focusing on comprehensive universal service reform, rather than
developing a new non-rural insular high-cost support mechanism within
the existing legacy universal service system. As we comprehensively
reform universal service and implement the National Broadband Plan
recommendations, we will strive to further increase telephone
subscribership rates in Puerto Rico and to ensure that high-quality
voice and broadband services are available in insular areas.
II. Order
3. In response to a proposal PRTC had submitted, the Commission's
2005 NPRM sought comment on the adoption of a stand alone universal
service support mechanism for non-rural insular carriers. PRTC argues
that the Commission must adopt its proposed embedded cost-based
mechanism because: (1) Section 254(b)(3) compels the agency to address
the unique characteristics of non-rural insular carriers with regime
that is distinct from the existing generally applicable non-rural high-
cost support mechanism; (2) the existing mechanism does not provide
support that is sufficient to ensure reasonably comparable service and
affordable rates in Puerto Rico; and (3) the forward-looking economic
cost model that currently is used to determine PRTC's eligibility for
high-cost model support does not accurately measure its costs. As
discussed below, we conclude that the statute does not require us to
adopt a separate insular support mechanism as proposed by PRTC.
1. Section 254 of the Act Does Not Require the Commission To Establish
an Insular High-Cost Support Mechanism
4. PRTC asserts that section 254(b)(3) of the Act imposes upon the
Commission a clear, non-discretionary duty to adopt a separate
universal service mechanism for insular areas. We disagree. Section
254(b)(3) provides that ``[c]onsumers in all regions of the Nation * *
* should have access to telecommunications and information services
that are ``reasonably comparable'' in terms of price and quality to
``those services provided in urban areas.'' That provision also gives
examples of the ``consumers in all regions of the Nation'' that must
have such reasonably comparable service; they ``include[e] low-income
consumers and those in rural, insular and high cost areas.'' Nothing in
the text or structure of the statute, however, requires the Commission
to adopt a stand alone mechanism addressed to each of the enumerated
examples of non-urban ``consumers in all regions of the Nation.''
Congress in section 254 sought to achieve a result--reasonably
comparable rates and services--but did not mandate that the Commission
employ specific mechanisms to achieve that result. Rather, the statute
leaves to the Commission's discretion the task of developing one or
more mechanisms successfully to implement the broad ``reasonable
comparability'' goal of section 254(b)(3).
5. The Commission has taken multiple actions to implement section
254(b)(3)--both by expanding low-income (Lifeline and Link-Up) programs
and by designing high-cost support mechanisms. Carriers in insular
areas, just like carriers in non-insular areas, are eligible for
support under the existing, generally applicable rural and non-rural
high-cost support mechanisms. Indeed, carriers in Puerto Rico received
$215.6 million in Interstate Common Line Support (a form of high-cost
support) during 2008, and rural carriers in insular areas received
$42.1 million in high-cost support. Likewise, Puerto Rico receives a
substantial amount of low-income support--$23.4 million in 2008. As a
result, Puerto Rico currently is the fourth largest recipient of
federal high-cost support, the seventh largest recipient of federal
low-income support, and the third largest net recipient of universal
service dollars among the U.S. states and territories. Instead of
creating a specifically tailored program for insular areas, we have
chosen to date to comply with the principle in section 254(b)(3) by
ensuring that carriers in insular areas are eligible for generally
applicable support mechanisms.
6. We must additionally disagree with PRTC's reading of the 2005
NPRM. PRTC suggests that the language in the 2005 NPRM acknowledges, as
a practical matter, the existence of a duty to address insular support
separately from a single high-cost mechanism. The NPRM merely confirms,
however, that in the Commission's view, section 254(b)(3) may authorize
the adoption of a separate insular mechanism, but does
[[Page 25115]]
not mandate one. In particular, the Commission posited that ``[t]here
would be no need for a rural insular mechanism because all rural
insular carriers already receive rural high-cost support.'' And the
Commission sought comment not on whether section 254(b) requires a
separate mechanism for non-rural insular carriers, but whether that
statute even ``provides the Commission with authority'' to adopt one.
7. Although PRTC argues that we have failed to establish mechanisms
to provide universal service support to non-rural insular areas, it
appears that PRTC's primary objection is that it does not receive high-
cost model support under the non-rural mechanism. On three prior
occasions, we have declined to adopt PRTC's view that the non-rural
high-cost support mechanism fails adequately to take into account cost
characteristics and other conditions in Puerto Rico. Consistent with
those prior decisions, we conclude that we have met our obligation
under section 254(b)(3) by ensuring that carriers in insular areas are
eligible for generally applicable support mechanisms, and we address
PRTC's other objection further below.
2. The Commission's Universal Service Programs Provide Support That Is
Sufficient To Ensure Reasonably Comparable Service and Affordable Rates
in Puerto Rico
8. The Commission has long measured the success of its universal
service policies on the basis of telephone penetration rates. In
tentatively concluding that a non-rural insular mechanism should be
adopted, the Commission in the NPRM relied heavily on an apparent
decline in overall telephone subscribership in Puerto Rico during the
period PRTC transitioned to the non-rural high-cost support mechanism.
That assumption by the Commission may have been made on the basis of
incomplete information at the time we issued the NPRM. In any event, it
has been rebutted by marketplace developments over the four-plus years
since we adopted the NPRM. During that period, Puerto Rico's telephone
subscribership penetration rate has risen from approximately 73.8
percent in 2005 to 91.9 percent in 2008. And over that same four-year
period, the gap in telephone penetration between Puerto Rico and the
nation as a whole has been dramatically narrowed--from a deficit of 21
percentage points to one of just over six percentage points. Given this
substantial change in circumstances since we issued the NPRM, we find
that the non-rural high-cost support mechanism, acting in conjunction
with our other universal service programs, produces sufficient support
to achieve reasonably comparable service in Puerto Rico and non-insular
areas consistent with section 254.
9. PRTC argues that a decrease in wireline telephone subscribership
in Puerto Rico demonstrates that the non-rural high-cost support
mechanism provides insufficient support. We disagree. The Commission
measures telephone subscribership based on access to telecommunications
service, regardless of whether such access is provided by traditional
wireline service or by newer technologies, including wireless. This
approach is consistent with our current universal service policies,
which make high-cost support ``portable'' to any carrier that serves a
particular customer, regardless of the technology used. Thus, on this
record, a decline in wireline subscribership (as measured solely by
PRTC's loss of switched access lines) is not determinative given the
overall increase in telephone subscribership in Puerto Rico. Commission
data show that competitive local exchange carriers served approximately
19 percent of all switched access lines in Puerto Rico as of June 2008,
and the number of wireless subscribers in the Commonwealth more than
doubled from approximately 1.1 million in 2001 to more than 2.4 million
in 2007. Indeed, PRTC's own 2005 study concluded that ``universal
service is a virtual reality,'' because 92.8 percent of households
surveyed in Puerto Rico had wireline or wireless service, and 44
percent of households had both. Accordingly, we believe it more likely
that PRTC's line losses have resulted from customer migration to new
service providers, not from the decisions of customers to terminate
service entirely because high-cost support levels have rendered local
service rates unaffordable. This decision to ``cut the cord'' reflects
a trend occurring throughout the country.
10. PRTC further asserts that several communities and many
customers in Puerto Rico have no access to telecommunications
infrastructure (and, thus, no service) because PRTC has found it too
costly to deploy facilities without federal high-cost loop support. We
find that this claim does not justify the creation of PRTC's preferred
non-rural insular support mechanism, within the current high-cost
support framework, for several reasons. First, it is not clear in the
record before us how many households on Puerto Rico lack access to
wireline infrastructure that delivers basic voice service. To the
extent that PRTC believes unique circumstances in Puerto Rico warrant
additional high-cost support in order to extend broadband
infrastructure, those arguments are more appropriately raised in the
context of upcoming proceedings to consider the recommendations of the
National Broadband Plan to reform the legacy high-cost support
mechanisms to support broadband. Second, establishing a non-rural
insular mechanism would not guarantee that PRTC would deploy
infrastructure to expand service. Third, we are not persuaded that
areas unserved by PRTC are without access to basic local telephone
service from any provider today. Data from American Roamer show that
mobile wireless coverage in Puerto Rico is nearly ubiquitous, and that
wireless subscribership has more than doubled since 2001.
11. PRTC also claims that ``[a]bsent sufficient federal support,
carriers are forced to choose between fully investing in network
development and expansion and raising rates to levels that could
further diminish subscribership levels.'' There are no data in the
record supporting this position, however. As we found in 2003, PRTC
offered no evidence that the elimination of its high-cost loop support
caused rate shock or rate comparability problems. While PRTC asserts
that any increase in rates would negatively affect telephone
subscribership in Puerto Rico, PRTC has placed no rate data in the
record. Moreover, recent rate data submitted by Verizon show that
PRTC's local service rates fall well below the national average urban
rate, demonstrating that these rates are reasonably comparable to the
rates paid by consumers in non-insular areas. We further note that PRTC
submitted a study of telephone subscribership, which it claims is
``useful in demonstrating that increases in residential wireline
rates'' in Puerto Rico ``would not be inconsistent with public policy.
Moreover, the relevance of PRTC's earlier (2004-2006) claim that it
cannot invest in its network without additional high-cost support is
substantially diminished, if not extinguished, by its later (2007)
commitment--unqualified with respect to universal service support--to
the Commission that it would invest more than $1 billion over five
years to improve communications and information services in Puerto
Rico.
12. In short, PRTC has not shown that the subscribership levels in
Puerto Rico are related to excessively high local rates or that
providing additional high-cost support would have any direct impact on
facilities deployment or subscribership levels.
[[Page 25116]]
13. Although most of the increase in high-cost support
disbursements to Puerto Rico is attributable to support received by
other providers, notably PRTC's wireless affiliate and other mobile
wireless service providers, those carriers (as much as PRTC) promote
the universal service goals of the 1996 Act. The current universal
service program does not embody a preference for service by any one
carrier, or any one technology. Thus, the dramatic increase in high-
cost support for wireless competitive ETCs in Puerto Rico relative to
PRTC, the only wireline ETC, is entirely consistent with the high-cost
program, as it is currently designed. As the Fifth Circuit explained,
``the purpose of universal service is to benefit the customer, not the
carrier,'' so `` `[s]ufficient' funding of the customer's right to
adequate telephone service can be achieved regardless of which carrier
ultimately receives the subsidy.''
14. A similar lack of evidence caused the Fifth Circuit Court of
Appeals to reject a challenge to a cap the Commission had imposed on
certain ILEC high-cost support mechanisms. The court in that case held
that a single provider's reduced rate of return ``does not establish
that the cap [on certain ILEC high-cost support mechanisms] fails to
provide sufficient service'' to customers. ``[T]he Act only promises
universal service, and that is a goal that requires sufficient funding
of customers, not providers.'' So long as the mechanism in place
enables ``customer[s] to receive basic telecommunications services, the
FCC * * * is not further required to ensure sufficient funding of every
local provider as well.'' Faced with record evidence showing that
universal service for customers has dramatically improved since we
adopted the NPRM in 2005, we reject PRTC's argument that the non-rural
mechanism provides insufficient support to maintain affordable rates
and reasonably comparable service in Puerto Rico.
15. Comments challenging the sufficiency of universal service
support in Puerto Rico also fail to give weight to efforts by the FCC,
the Puerto Rico Telecommunications Regulatory Board (TRB), PRTC, and
competitive ETCs that have significantly increased the number of
recipients of federal low-income support in Puerto Rico since 2003 and,
commensurately, increased telephone subscribership. The Commission has
taken steps to improve the effectiveness of the low-income support
mechanism by expanding the federal default eligibility criteria for
Lifeline/Link-Up to include an income-based criterion and additional
means-tested programs. And to target low-income consumers more
effectively, the Commission adopted outreach guidelines for Lifeline/
Link-Up and issued a voluntary survey to gather data and information
from states regarding the administration of the programs. Further, low-
income consumers in Puerto Rico receive the maximum amount of Lifeline
assistance available ($13.50 per month) due to the substantial
contribution ($3.50 per month) provided by the Commonwealth.
Importantly, the Commission has found a positive correlation between
the amount of state Lifeline support and telephone subscribership
penetration rates. We also found that the transfer of PRTC to
Am[eacute]rica M[oacute]vil in 2007 was in the public interest based,
in part, on Am[eacute]rica M[oacute]vil's extensive experience in
designing products specifically for rural and low-income populations.
Finally, we note again that through the operation of market forces, the
wireless subscription rate in Puerto Rico has grown substantially, with
low-income customers subscribing to wireless service in ever-increasing
numbers, so that the customers of wireless competitive ETCs received
more than one-third of total low-income support in 2008.
16. These combined public and private efforts have contributed to
the dramatic growth in low-income support provided to the Commonwealth.
Combined annual Lifeline and Link-Up support in Puerto Rico has grown
from just over $1.16 million in 2001 to more than $23.4 million in
2008, ranking Puerto Rico as the seventh largest recipient of low-
income support among the states and territories. This increase was
driven by a dramatic expansion in the number of low-income support
recipients, which grew from zero in 1997 to 188,000 in 2008. The
Commission has previously attributed Puerto Rico's historically lagging
telephone subscribership penetration rate to low per-capita income, not
a high cost of service. PRTC acknowledges this fact. We therefore find
the expansion of subsidies associated with the low-income support
program significant given our prior finding that low-income support--
not high-cost support--is the federal program best suited to address
issues of affordability and subscribership in Puerto Rico. On the basis
of the record before us, we are unpersuaded that providing additional
high-cost support through a non-rural insular mechanism is needed to
address the underlying concern that PRTC identifies regarding low
telephone subscribership in Puerto Rico. While we emphasize that there
is still work to be done, this dramatic narrowing of the gap in
telephone subscribership between Puerto Rico and non-insular areas
reinforces our long-held view that low-income support, in combination
with our other universal service programs, is an effective means to
address affordability and subscribership in Puerto Rico. As indicated
in the companion NPRM, we seek comment on whether, due to the
extraordinarily low income levels in Puerto Rico, it is appropriate to
amend our rules to allow eligible low-income consumers in Puerto Rico
additional support through the Link Up Program to offset special
construction charges incurred if additional facilities are required to
provide them with access to voice telephone service.
17. In summary, we agree with PRTC that ``the Commission has
created a set of complementary universal service programs that work in
conjunction to ensure that all consumers have access to affordable and
reasonably comparable telecommunications services.'' Indeed, in
responding to the Tenth Circuit's Qwest II decision, we concluded
generally that the non-rural high-cost support mechanism, acting in
combination with the Commission's other universal service programs,
provides sufficient support to achieve the universal service objectives
set forth in section 254 of the Act. These programs have produced
almost ubiquitous access to telecommunications services and very high
telephone subscribership rates throughout the United States, including
Puerto Rico. We therefore do not agree with PRTC that its loss of high-
cost loop support from the legacy program that preceded the creation of
the non-rural support mechanism rendered universal service support to
Puerto Rico insufficient. As we recently explained, the Commission
cannot reasonably evaluate the non-rural high-cost support mechanism in
isolation. Sufficient support that satisfies the universal service
objectives of Act--including reasonable comparability and
affordability--can only be achieved through the totality of the
Commission's universal service programs. Moreover, we reject PRTC's
contention that the Commission views high-cost support and low-income
support to be ``mutually exclusive.'' To the contrary, we simply find
that PRTC is not entitled to federal high-cost model support under the
non-rural mechanism because its costs do not meet the eligibility
threshold and, on the basis of this record, that total support provided
to Puerto Rico through
[[Page 25117]]
the various universal service programs is sufficient to satisfy the
objectives in section 254 of the Act.
18. We acknowledge that in the 2005 NPRM, the Commission
tentatively concluded that ``adopting a non-rural mechanism would have
a limited impact on the universal service fund.'' PRTC estimates that a
non-rural insular mechanism would provide PRTC with approximately $33
million in additional annual support based on 2004 data, which amounts
to less than one percent of the total high-cost program. We are not
persuaded, however, that the relatively limited financial impact of
PRTC's proposal compels us to adopt it. Because universal service is
funded by contributions from telecommunications carriers, which
typically pass their contributions on to consumers, we must take care
to avoid ``excess subsidization of the universal service fund,'' which
may actually ``detract from universal service by causing rates to
unnecessarily rise, thereby pricing some consumers out of the market.''
Moreover, as the D.C. Circuit recently held, we ``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.'' In administering the universal service
program, we take seriously our obligation to ``strike an appropriate
balance between the interests of widely dispersed customers with small
stakes and a concentrated interest group seeking to increase its
already large stake.'' Given our conclusion on this record that
universal service support for Puerto Rico is sufficient under the
Commission's existing universal service programs, we find that any
additional high-cost support provided to PRTC cannot be justified under
those existing programs.
3. The Application of the Commission's Forward-Looking Cost-Based Model
for Determining Non-Rural High-Cost Support Adequately Addresses PRTC's
Circumstances
19. The Commission determined in the Universal Service First Report
and Order, 62 FR 32862, June 17, 1997, that non-rural carriers would
receive support based on forward-looking economic costs (i.e., costs
estimated by the Commission's cost model), that the definition of rural
carriers would exclude carriers of PRTC's size, and that a separate
support mechanism for carriers serving insular areas was not warranted.
As a result, although PRTC receives significant levels of Interstate
Common Line Support, it does not receive high-cost model support or any
specially targeted insular support today. In the NPRM, the Commission
sought comment on a PRTC proposal that the Commission adopt a non-rural
insular high-cost support mechanism based on the existing rural high-
cost loop support mechanism, but with a cost threshold far below that
currently used for rural telephone companies.
20. PRTC's proposal is predicated, in part, on its long-standing
contention that the extreme weather and terrain conditions and high
shipping costs in insular areas make the cost characteristics of even
large insular carriers more like those of rural carriers. In the
Universal Service First Report and Order, the Commission rejected this
argument as grounds for providing PRTC high-cost support on the basis
of embedded costs, finding that, ``as a large telephone compan[y],''
PRTC ``should possess the economies of scale and scope to deal
efficiently with the cost of providing service in their areas.'' We
believe this reasoning still applies to PRTC. In approving license
transfers associated with Am[eacute]rica M[oacute]vil's 2007
acquisition of PRTC, for example, we found that Am[eacute]rica
M[oacute]vil ``brings significant advantages of scale and scope to
bear'' in providing telecommunications services to consumers.
21. Even more significantly, record evidence in this proceeding
reinforces our earlier decision. While PRTC claims that its costs are
similar to those of rural carriers, PRTC's embedded costs are actually
too low to make it eligible for support under the high-cost support
mechanism that currently funds much smaller, rural telephone companies
that do not enjoy the same economies of scale and scope. Only by
lowering the rural mechanism's cost threshold significantly--from
slightly more than $400 per loop to about $240 per loop (as proposed by
PRTC)--would PRTC become eligible for the significant increase in high-
cost loop support (about $33 million annually) that it has requested.
Thus, based on PRTC's own embedded cost data in the record before us,
we find that PRTC has not justified a departure from our prior
determinations that, for purposes of high-cost support, PRTC should be
treated as a non-rural carrier due to its size and resulting economies
of scale and scope.
22. We also reject PRTC's claim that the non-rural forward-looking
cost model fails accurately to represent insular costs. In particular,
we do not find persuasive PRTC's arguments that it should receive high-
cost support based on its embedded costs because the forward-looking
economic costs produced by the high-cost model are less than PRTC's
actual costs. First, PRTC's arguments do not address the central
purpose of using forward-looking economic costs in the non-rural
support model, which is to estimate the costs that would be incurred by
an efficient provider of service. The Commission previously found that
``variability in historic costs among companies is due to a variety of
factors and does not simply reflect how efficient or inefficient a firm
is in providing the supported services.'' Indeed, in this proceeding,
PRTC has merely asserted that its costs are higher because it serves an
insular area and has not addressed whether inefficiencies may have
contributed to the difference. Second, PRTC argues that the national
average costs used in the model are inappropriate for estimating the
costs of serving insular areas and states that ``it remains unclear the
extent to which [PRTC's] costs were included in those national
averages.'' In the Tenth Report and Order, 64 FR 67372, December 1,
1999, the Commission considered the use of a variety of data sources to
determine input values in the high-cost model, including surveys of
non-rural carriers. To the extent that PRTC declined to respond to a
voluntary survey seeking cost data from carriers, the Commission could
not include PRTC's cost data. Finally, PRTC's argument relies on
inaccurate premises. For example, PRTC argues that the model's use of
customer addresses from Puerto Rico results in erroneous customer
locations that generate inaccurate results. In fact, the road surrogate
method used by the model assumes an even distribution of customers
along roads and does not attempt to precisely assign customer location
based on addresses. PRTC also complains that ``[a] comparison of the
actual operating costs of other non-rural jurisdictions further calls
attention to the disparate treatment of Puerto Rico.'' But it does not
follow that the forward-looking cost model produces inaccurate results
simply because Puerto Rico receives less high-cost model support than
other jurisdictions. In any event, we find PRTC's ``analysis''
unpersuasive due to the manner in which it mixes statewide average
embedded costs with support amounts from two different support
mechanisms (i.e., the rural and non-rural support mechanisms) that are
based on two different methodologies (i.e., embedded versus forward-
looking costs).
23. PRTC's attacks on the accuracy of the forward-looking cost
model are similar to arguments that the Commission rejected when it
adopted
[[Page 25118]]
that model in the Tenth Report and Order. For example, in
``explain[ing] why the model estimates higher costs in some states
relative to others in a distribution that differs from carriers' book
costs and from some observers' expectations,'' the Commission found
that ``[i]n general, * * * the states where the model estimated the
highest costs were those states in which the territory served by the
non-rural carriers, which are typically larger carriers, included more
rural areas than in other states.'' This analysis is entirely
consistent with the data in the record, which show that PRTC's embedded
costs fall below the threshold for support under the rural high-cost
support mechanism. Simply stated, PRTC has not persuaded us that the
model fails to accurately measure its costs because PRTC has not
demonstrated that its actual costs share the cost characteristics of
rural carriers, as opposed to non-rural carriers. We further note that
the Tenth Circuit in Qwest I upheld that Order (and our use of the cost
model) against a similar challenge from Qwest, explaining that ``while
Qwest notes analytic problems with * * * the model it has not presented
any evidence that the model overall produces such inaccurate results
that it cannot form the basis of rational decision-making.'' Indeed, as
the Tenth Circuit explained, ``[t]he model is meant to estimate the
costs of providing service,'' so ``[i]t need not reflect physical
reality in all aspects if it produces `reasonably accurate estimates,'
as the FCC has found it does.'' PRTC has provided no new evidence on
this record that compels reconsideration of our previous conclusion
that the cost model provides a reasonable means of determining
appropriate levels of high-cost support. To the contrary, as noted, the
record demonstrates a significant increase in telephone subscribership
in Puerto Rico in the years since the NPRM was issued.
24. Nor do we believe that it would be in the public interest to
transition PRTC from the non-rural mechanism to an entirely new high-
cost support mechanism based on embedded costs, even on an interim
basis. As a general matter, we have determined that the appropriate
basis for high-cost support is forward-looking economic cost and have
moved away from the use of embedded costs for determining universal
service support wherever possible. We intend to continue that process,
and agree with GCI that adoption of PRTC's proposal would be a step in
the wrong direction.
4. Comprehensive Reform and the National Broadband Plan
25. The Commission has long recognized the need for comprehensive
review and possible reform of 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. 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
wireline 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.
26. On March 16, 2010, the Commission adopted a Joint Statement on
Broadband, which sets forth the overarching vision and goals for U.S.
broadband policy and recommends comprehensive reform of universal
service. The Commission also delivered to Congress the National
Broadband Plan, which contains specific recommendations for reform. The
National Broadband Plan recommends that all Americans should have
access to affordable broadband service and proposes a comprehensive
reform program to shift the high-cost universal service program from
primarily supporting voice communications to supporting broadband
platforms that enable many applications, including voice. As set forth
in the National Broadband plan, a new Connect America Fund would
provide universal service support in areas where there is no private
sector business case to offer broadband platforms that are capable of
delivering high-quality voice services because providers cannot earn
enough revenue to cover the costs of deploying and operating broadband
infrastructure and services.
27. The recommendations to transition the existing high-cost
universal service mechanisms to a new broadband program further cause
us to conclude that PRTC's requested reform, limited only to non-rural
insular areas, should not be undertaken at this time. While we believe
that we have fully addressed the insular support questions raised in
the NPRM, we anticipate that our efforts to reform universal service
support will be advanced further through future proceedings that follow
from the National Broadband Plan. The Commission will release a notice
of proposed rulemaking later this year that will address the high-cost
universal service recommendations of the National Broadband Plan. We
encourage parties with information about any unique cost
characteristics of providing broadband service in insular areas, such
as Puerto Rico, to participate in these forthcoming proceedings and
submit any relevant data. Doing so will ensure that the Commission has
the information necessary to determine the cost of deploying and
operating a broadband infrastructure in insular areas.
28. In the interim, we find that it will further the public
interest if PRTC remains subject to the non-rural support mechanism
until comprehensive universal service reform is adopted, consistent
with the recommendations contained in the National Broadband Plan. If
PRTC were to receive additional support for voice service pursuant to
its proposed non-rural insular mechanism, it likely would be more
difficult to transition that support to focus on areas unserved or
underserved by broadband.
III. Procedural Matters
A. Procedural Matters Related to the Order
1. Paperwork Reduction Analysis
29. This order does not contain new, modified, or proposed
information collections subject to the Paperwork Reduction Act of 1995,
Public Law 104-13. In addition, therefore, it does not contain any new,
modified, or proposed ``information collection burden for small
business concerns with fewer than 25 employees,'' pursuant to the Small
Business Paperwork Relief Act of 2002, Public law 107-198, see 44
U.S.C. 3506(c)(4).
2. Final Regulatory Flexibility Act Certification
30. As we are adopting no rules in this order, no regulatory
flexibility analysis is required.
3. Congressional Review Act
31. The Commission will not send a copy of this order in a report
to Congress and the Government Accountability Office pursuant to the
Congressional Review Act because no rules are being adopted at this
time.
[[Page 25119]]
B. Ex Parte Presentations
32. This proceeding shall be treated as a ``permit-but-disclose''
proceeding in accordance with the Commission's ex parte rules. 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. Other requirements
pertaining to oral and written presentations are set forth in Sec.
1.1206(b) of the Commission's rules.
List of Subjects in 47 CFR Part 54
Communications common carriers, High-Cost universal support,
Reporting and recordkeeping requirements, Schools, Telecommunications,
Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2010-10852 Filed 5-6-10; 8:45 am]
BILLING CODE 6712-01-P