[Federal Register Volume 75, Number 90 (Tuesday, May 11, 2010)]
[Rules and Regulations]
[Pages 26137-26147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11153]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket No. 05-337, CC Docket No. 96-45; FCC 10-56]
High-Cost Universal Service Support, Federal-State Joint Board on
Universal Service
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) defines ``sufficient'' under section 254(e) of the
Communications Act as an affordable and sustainable amount of support
that is adequate, but no greater than necessary, to achieve the goals
of the universal service program. The Commission finds that rural rates
are ``reasonably comparable'' to urban rates if they fall within a
reasonable range of the national average urban rate. The Commission
concludes, on the basis of undisputed empirical evidence in the record,
that the current non-rural high-cost support mechanism comports with
the requirements of section 254. The Commission also grants, with
modifications, the joint petition filed by the Wyoming Public Service
Commission and the Wyoming Office of Consumer Advocate for supplemental
high-cost universal service support for rural residential customers of
Qwest, Wyoming's non-rural incumbent local exchange carrier.
DATES: Effective June 10, 2010.
FOR FURTHER INFORMATION CONTACT: Katie King, Wireline Competition
Bureau, Telecommunications Access Policy Division, (202) 418-7491 or
TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Order
on Remand and Memorandum Opinion and Order (Order) in WC Docket No. 05-
337, CC Docket No. 96-45, FCC 10-56, adopted April 16, 2010, and
released April 16, 2010. 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 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).
I. Order on Remand
A. The Current Non-Rural Mechanism Comports With Section 254
1. On remand, the Tenth Circuit directed the Commission to address
three issues. First, the court held that the Commission ``must
articulate a definition of `sufficient' that appropriately considers
the range of principles in the text of the statute.'' Second, the
Commission ``must define the term `reasonably comparable' in a manner
that comports with its concurrent duties to preserve and advance
universal service.'' And finally, the court directed the Commission
``to utilize its unique expertise to craft a support mechanism taking
into account all of the factors that Congress identified in drafting
the Act and its statutory obligation to preserve and advance universal
service.'' With respect to this last mandate, the court stated that
``the FCC must fully support its final decision on the basis of the
record before it.'' We address each of these issues in turn. After
careful analysis and review of the record, we conclude that the non-
rural support mechanism, as currently structured, comports with the
requirements of section 254 of the Act.
1. ``Sufficient''
a. An Assessment of Whether Support Is ``Sufficient'' Must Take Into
Account the Entire Universal Service Fund
2. Section 254(e) of the Act provides that Federal universal
service support ``should be explicit and sufficient to achieve the
purposes of [section 254].'' In the context of determining high-cost
support for non-rural carriers, the Commission previously 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 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). The court noted 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.''
3. Congress, in section 254(b) of the Act, set forth a number of
principles for the Commission to consider when implementing the
universal service policy. These principles 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
[[Page 26138]]
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 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, convenience, and necessity and are consistent with
this Act.''
4. The Commission developed four universal service support programs
to implement all of the statutory requirements set forth in section 254
of the Act. While the principles in section 254(b), collectively
informed and guided the Commission's decisions, each support program
necessarily addresses some of the principles more directly than others.
For example, the Commission implemented an E-rate program and a rural
health care mechanism to provide support for schools, libraries, and
rural health care providers, as set forth in section 254(b)(6). The
Commission expanded the Lifeline and Link-up programs to assist low-
income consumers and help ensure affordable rates, as set forth in
section 254(b)(3). While the Commission kept the larger statutory goals
in mind as it developed the four support programs, it did not attempt
to fully address each universal service principle in section 254(b)
through each support mechanism. Nor is there any indication that
Congress intended each principle to be fully addressed by each separate
support mechanism. The Commission believes that any determination about
whether the Commission has adequately implemented section 254 must look
at the cumulative effect of the four support programs, acting together.
5. The non-rural high-cost support mechanism thus is just one
segment of the Commission's comprehensive scheme to preserve and
advance universal service. The ``sufficiency'' of the non-rural high-
cost mechanism to achieve its purpose cannot fairly be judged in
isolation. The four universal service programs work in tandem to
accomplish the principles set forth in section 254(b). For instance,
while the basic purpose of high-cost support is to ensure that
telephone service is not prohibitively expensive for consumers in
rural, insular, and high-cost areas, some consumers in those areas will
still need additional assistance due to their low household income.
Low-income support, provided through the Lifeline and Link-up programs,
supplements high-cost support in those circumstances to remove the
additional affordability barriers faced by economically disadvantaged
individuals living in rural and other high-cost areas. A fair
assessment of whether the Commission has reasonably implemented the
section 254 principles, and whether support is ``sufficient'' for
purposes of section 254(e), must therefore encompass the entirety of
universal service support programs. This approach to assessing
``sufficiency'' is consistent with the Tenth Circuit's analysis in
Qwest I. The court there recognized that it could not satisfactorily
perform the ``task of reviewing the sufficiency of the FCC's actions''
without knowing ``the full extent of Federal support for universal
service.''
6. Moreover, whether the Commission has satisfied the goal of
``sufficiency,'' as required by section 254(e), must be evaluated in
the larger context of section 254. The various objectives of section
254 impose practical limits on the fund as a whole. If the universal
service fund grows too large, it will jeopardize other statutory
mandates, such as ensuring affordable rates in all parts of the
country, and ensuring that contributions from carriers are fair and
equitable. This issue is not theoretical. With the contribution factor
above 15 percent, the Commission has to balance the principles of
section 254(b) to ensure that support is sufficient but does not impose
an excessive burden on all ratepayers. For the reasons discussed
herein, we conclude that in designing its non-rural high-cost
mechanism, the Commission must balance the statutory principles of
reasonable comparability and affordability, taking into account both
affordability of rates in high-cost areas served by non-rural carriers
and affordability of rates in other areas where customers are net
contributors to universal service funding.
7. Several courts, including the Tenth Circuit, have recognized
that over-subsidizing universal service programs can actually undermine
the statutory principles set forth in section 254(b). 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 United States Court of Appeals
for the District of Columbia Circuit (DC Circuit) recently found, when
it upheld the Commission's interim cap on high-cost support
disbursements to competitive ETCs' support, that the concept of
``sufficiency'' can reasonably encompass ``not just affordability for
those benefited, but fairness for those burdened.'' The DC Circuit
explained that, in assessing whether universal service subsidies are
excessive, the Commission ``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.'' Further, in Alenco Communications, Inc. v. FCC , the Fifth
Circuit found that ``[t]he agency's broad discretion to provide
sufficient universal service funding includes the decision to impose
cost controls to avoid excessive expenditures that will detract from
universal service.'' We thus conclude that a proper balancing inquiry
must take into account our generally applicable responsibility to be a
prudent guardian of the public's resources.
8. In light of all these considerations, we respond to the Tenth
Circuit's remand by defining ``sufficient'' as an affordable and
sustainable amount of support that is adequate, but no greater than
necessary, to achieve the goals of the universal service program.
Unlike the Commission's prior definition, which the court stated
``ignore[d] all but one principle in [section] 254(b),'' this
definition is ``tied explicitly to all the principles underlying the
universal service program.'' It also ``expressly incorporates the
principle of `affordability' by ensuring that universal service
[support] levels are `sufficient' without growing so large as to be
unsustainable and without rendering the rates for supported services
`unaffordable.' '' Having considered the principles set forth in
section 254(b) and the Commission's interpretation and application of
those principles, we now turn to applying those principles to the non-
rural high-cost support mechanism.
b. The Commission's Universal Service Programs Provide ``Sufficient''
Support
9. We find that the non-rural high-cost support mechanism, acting
in conjunction with the Commission's other universal service programs,
provides sufficient support to achieve the universal service principles
set forth in section 254(b) of the Act. These programs have produced
almost ubiquitous access to telecommunications services and very high
telephone subscribership rates. The Commission's most recent report on
telephone subscribership, released in February 2010, found that, as of
November 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
[[Page 26139]]
such data in November 1983. The fact that subscribership has increased
indicates that the Commission is preserving and advancing universal
service.
10. In particular, the current telephone subscribership penetration
rate is strong evidence that our universal service programs provide
support that is sufficient to ensure that rates are affordable, as
required by section 254(b)(1). This finding is buttressed by data
showing that average consumer expenditures on telephone service as a
percentage of household expenditures have been relatively stable over
time--approximately 2 percent--even while the amount of telephone
service consumers are purchasing has increased. Moreover, rural
consumers and urban consumers spent a comparable percentage of their
household expenditures on telephone service. We agree with Qwest that
``the current level of telephone subscribership suggests that universal
service subsidies as a whole are enabling affordable rates * * * .'' We
disagree, however, that the Commission is required to ``present[] data
* * * to demonstrate that non-rural high-cost support'' by itself ``is
actually contributing to affordable rates'' in order to satisfy the
court. As we explained above, the Commission cannot--and is not
required to--evaluate the non-rural high-cost fund in isolation.
Sufficient support that satisfies the universal service principles of
section 254(b)--including affordable rates--can only reasonably be
achieved through the totality of the Commission's universal service
programs, not by the non-rural high-cost mechanism standing alone.
Indeed, we believe that the public interest would not be well-served if
we attempted to determine sufficiency by considering a single support
mechanism in a vacuum, while ignoring the support provided by the other
support mechanisms.
11. Significantly, the court in Qwest II did not find that non-
rural high-cost support was insufficient to achieve the statutory
principles in section 254(b). Rather, it held that the Commission
failed to consider all of those principles in its analysis of whether
support is, in fact, sufficient. We have now considered those
principles and adopted a definition of ``sufficient'' that is tied
explicitly to all of those principles. We further find, based on record
evidence, that the Commission's universal service programs, including
the non-rural high-cost support mechanism, provide ``sufficient''
support. Given the unprecedented level of telephone subscribership, the
increased utilization of service, and the steady share of consumer
expenditures, we conclude that current subsidy levels are at least
sufficient to ensure reasonably comparable and affordable rates that
have resulted in widespread access to telephone service. Contrary to
the assertion of some parties, we did not ``start[] with a premise that
in fixing the non-rural high-cost support fund [the Commission] must
not increase the size of the [universal service fund].'' Instead, after
reviewing the data, we have concluded that it is not necessary to
expand funding for the non-rural mechanism to ensure that support is
``sufficient.''
12. While some commenters assert that the non-rural high-cost
support mechanism, as currently structured, provides insufficient
support, none has made any effort to demonstrate that its current
support is actually insufficient. In particular, we are not persuaded
that incumbent LEC line losses due to competitive entry in urban areas
have resulted in diminished service for consumers in rural areas. No
commenter has presented evidence that customers will be left without
service absent an increase in Federal high-cost support for non-rural
carriers. A similar lack of evidence caused the D.C. Circuit to reject
a challenge to the interim cap the Commission imposed on high-cost
support disbursements to competitive ETCs. The court in that case found
that petitioners produced ``no cost data showing they would, in fact,
have to leave customers without service as a result of the cap'' and
therefore gave the court ``no valid reason to believe the principle of
`sufficiency' '' would be ``violated by the cap.'' Likewise, in Alenco,
the Fifth Circuit held that a single provider's reduced rate of return
``does not establish that the cap [on certain incumbent LEC high-cost
support mechanisms] fails to provide sufficient service'' to customers.
We therefore reject the argument that competition has rendered non-
rural high-cost support insufficient.
13. Qwest and AT&T complain that they receive less high-cost
support than other providers, including rural incumbent LECs. But it
does not follow that Qwest and AT&T receive insufficient support simply
because they receive less support than other providers. Compared to
non-rural carriers, rural carriers generally serve fewer subscribers,
serve more sparsely populated areas, and generally do not benefit from
economies of scale and scope to the same extent as non-rural carriers.
14. Commenters alleging that non-rural high-cost support is
insufficient also ignore the millions of dollars of growth in
disbursements under this mechanism. For example, when the Tenth Circuit
issued Qwest II in 2005, carriers received $292 million annually in
Federal universal service support from the non-rural mechanism. In
2009, carriers received $331 million in Federal universal service
support from the non-rural mechanism. While most of that increase is
attributable to support paid to non-incumbent LECs, the majority of
which are wireless competitive ETCs, those carriers also provide
supported services within each State's boundaries and therefore advance
the principles set forth in section 254(b) of the Act. As the Fifth
Circuit recognized, ``[t]he 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.''
Accordingly, we disagree with the Rural States' argument that the non-
rural mechanism provides insufficient support in the face of record
evidence showing increases in both total non-rural high-cost support
and overall telephone subscribership since the Commission adopted the
Remand Order in 2003.
15. The Maine, Vermont, and Montana State commissions have also
made allegations about problems related to service quality and service
availability. At the outset, we note that States (not the Commission)
are primarily responsible for ensuring service quality and service
availability through their regulation of intrastate services and
administration of carrier-of-last-resort obligations. In any event, we
find these claims unpersuasive. First, the State commissions have not
provided substantial empirical evidence that service quality is worse
in areas where non-rural LECs receive high-cost support, relative to
either areas where rural LECs receive support, or areas that do not
receive any high-cost support. Second, with regard to service
availability, they have failed to ``systematically analyze[] the effect
of '' non-rural support on the availability of services, including
broadband, and instead ``provide[d] only anecdotal evidence of the
possible effect of'' non-rural high-cost support ``on particular
deployments.'' Third, the State commissions have not demonstrated that
more support would in fact improve service quality or service
availability, nor have they quantified, in a verifiable manner, what
level of support would ensure adequate service
[[Page 26140]]
quality and service availability. Without such evidence, the Commission
would be subject to the same criticisms raised in Qwest II if it were
to modify the non-rural support mechanism in response to the State
commission proposals.
16. The DC Circuit held, and we agree, that the Commission has an
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'' in the
fund. Several parties have proposed reforms to the non-rural high cost
support mechanism. Our analysis of these proposals finds that each
would significantly increase the size of the fund, the quarterly
universal service contribution factor, and the amount that end users
ultimately pay. Moreover, advocates of these proposals have failed to
demonstrate how consumers living in rural areas would be harmed absent
the proposed increase in funding. Qwest projects that its proposal, if
adopted, would increase the size of the non-rural high-cost mechanism
from $322 million to approximately $1.2 billion, a four-fold increase
that would cause the contribution factor to surge to 17.1 percent.
Although the Rural States assert, without support, that ``[n]o option
currently under consideration in this proceeding seems likely to
produce a significant increase in the contribution rate,'' we estimate
that the Rural States' proposal would increase the universal service
fund by $2.725 billion (or more than nine times the total current
amount of non-rural high-cost support). If enacted today, this proposal
would cause the contribution factor to leap from 15.3 percent to 21.0
percent--hardly a modest increase from a consumer's perspective. If
adopted, consumers throughout the nation would be asked to fund this
massive expansion of the non-rural high-cost mechanism through an even
larger universal service surcharge on their monthly telephone bill,
making telecommunications services less affordable. Given our finding
that the non-rural high-cost mechanism already provides sufficient
support, and in the absence of any contrary empirical evidence that we
need to augment that support to ensure sufficient funding, we decline
to add to the already heavy universal service contribution burden
placed on consumers.
17. We recognize that some commenters requesting an increase in
non-rural high-cost support seek to mitigate the impact of their
proposals on consumers by asking the Commission to reduce universal
service funding elsewhere. Most of these recommendations involve
eliminating high-cost support for certain providers or adopting other
regulatory reforms that are unrelated to the non-rural high-cost
mechanism. At the outset, we reiterate that the non-rural mechanism, as
currently structured, provides sufficient support, so we are not
obligated to undertake any of the reforms proposed by commenters--all
of which would expand the size of the universal service fund. But even
if that were not the case, we note that all of the proposed methods to
offset the resulting increase fall outside the narrow scope of this
proceeding, which is limited to responding to the issues raised by the
Tenth Circuit in Qwest II. Moreover, no party has demonstrated how
reducing funding for other programs or providers would advance, and not
frustrate, the universal service objectives set forth in section 254 of
the Act. If anything, the parties' attempt to lessen the significant
financial impact of their alternative proposals highlights the inherent
tension between the principles of sufficiency and affordability. It
also underscores the reasonableness of the Commission's view that the
non-rural high-cost support mechanism can only be evaluated properly in
the context of all the universal service programs.
18. We further conclude that the Commission's non-rural high-cost
support mechanism is consistent with the statutory principle that
``[t]here should be specific, predictable and sufficient Federal and
State mechanisms to preserve and advance universal service.'' We
continue to believe that the Commission's cost-based formula provides a
specific and predictable methodology for determining when non-rural
carriers qualify for high-cost support.
2. ``Reasonably Comparable''
a. Urban and Rural Rates Are Reasonably Comparable
19. Section 254(b)(3) provides that: ``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. The record in this
proceeding contains evidence that our current non-rural high-cost
mechanism, which incorporates this definition of ``reasonably
comparable,'' has in fact produced rural rates that are reasonably
comparable to urban rates.
20. Contrary to the assertion of some commenters, the Tenth Circuit
did not find that the non-rural high-cost support mechanism failed to
produce reasonably comparable rates. Rather, the court's fundamental
criticism in Qwest II was that the Commission failed to provide
empirical evidence that its non-rural high-cost support mechanism has
produced reasonably comparable rates. The court indicated that it
``would be inclined to affirm'' the existing non-rural high-cost
support mechanism if the Commission could present ``empirical
findings'' demonstrating that the mechanism ``indeed resulted in
reasonably comparable rates.'' We can now make that showing on the
basis of unrefuted empirical evidence in the record.
21. The only comprehensive rate data in the record support the
Commission's conclusion that rates for traditional wireline telephone
service are reasonably comparable across rural and urban areas. The
data show that average rates are similar in urban and rural areas, and
that the standard deviation of the rates is similar between rural and
urban areas. Specifically, the data show that urban and rural rates
often are the same. To the extent there are differences, however, the
data show that urban rates within most States tend to be higher. In
addition, because the range of rates and standard deviation of the
rates are similar in rural and urban areas, the difference among urban
rates is similar to the difference between urban and rural rates.
22. Data filed by NASUCA in response to the 2005 Remand NPRM, 71 FR
1721, January 11, 2006, demonstrate that rural and urban rates are
reasonably comparable. NASUCA submitted data on rates (as of February
2006) in 11,252 wire centers nationwide that are served by non-rural
carriers, ranging from zero percent urban to 100 percent urban. The
average price of flat-rate residential service (plus the subscriber
line charge and Federal universal service charge) does not vary greatly
as a function of the degree of urbanization. In fact, NASUCA found that
there is no statistically significant difference in average price as a
function of the percent of the population living in urban areas. In
addition, the range of prices is similar between rural and urban areas.
[[Page 26141]]
Moreover, the standard deviation of the prices is similar between rural
and urban areas.
23. Our own State-by-State review of NASUCA's data revealed that
rural wire centers generally had lower rates than urban wire centers,
holding the State constant. In 42 of the 50 States, the average rate in
rural wire centers was less than or equal to the average rate in urban
wire centers.
24. Data filed by Verizon in response to the 2009 Remand NOI
confirms NASUCA's findings and our conclusion that rural and urban
rates are reasonably comparable. Verizon submitted a declaration by
Alan Buzacott, which contains a survey and analysis of tariffed rural
and urban rates (in effect as of May 2009) charged by non-rural
carriers in all 50 States, plus the District of Columbia and Puerto
Rico. The Buzacott declaration finds that in 18 States and the District
of Columbia, the largest non-rural carrier offers basic residential
local exchange service at the same rate in all exchanges throughout the
State. In States where a non-rural carrier does charge different basic
residential local exchange rates within the State, the Buzacott
declaration finds that rates in urban areas tend to be higher than
rates in rural areas.
25. In Qwest II, the Tenth Circuit focused on the disparity between
rural rates and the lowest urban rate, and noted that a rural rate
could be 100 percent more than the lowest urban rate. Such an anomaly
can be explained by the variability of rate policies among the States
and does not undermine our conclusion that rural and urban rates are
reasonable comparable. Because States exercise considerable discretion
in setting rural and urban rates, there is considerable variation among
States. A comparison of rural rates to the lowest urban rate would be
heavily influenced by a particular State's rate policies. For this
reason, the general consensus in the record--even among those parties
that ask the Commission to adjust the rate benchmark--is that the
average urban rate--and not the lowest urban rate--is the appropriate
point of comparison for purposes of determining ``reasonable
comparability.''
b. Where a State Demonstrates That Rates Are Not Reasonably Comparable
and That Further Federal Action Is Required, We Will Provide
Appropriate Relief
26. Only one State--Wyoming--has demonstrated that its rural rates
are not reasonably comparable to nationwide urban rates and requested
relief based on that demonstration. In light of Wyoming's unique
circumstances, in section III, below, we grant, with modifications, the
joint petition filed by the Wyoming Public Service Commission and the
Wyoming Office of Consumer Advocate for supplemental high-cost
universal service support for rural residential customers of Qwest,
Wyoming's non-rural incumbent LEC.
27. We see no reason to revise our non-rural high-cost support
mechanism just to address Wyoming's unique needs. Rather, we believe
that unique situations like Wyoming's can best be addressed on an
individualized, case-by-case basis. In the future, if any other State
presents us with documentation that unique circumstances prevent the
achievement of reasonably comparable rates in that State, we can
provide appropriate relief, just as we have done in the case of
Wyoming.
c. Because Rural Rates Are Reasonably Comparable to Urban Rates, They
Have Advanced Universal Service, Evidenced by An Overall Increase in
Telephone Subscribership
28. When the Tenth Circuit remanded the Commission's definition of
``reasonably comparable'' in Qwest II, the court expressed concern that
the definition did not take into account the Commission's statutory
duty to advance universal service. The court noted that section 254(b)
referred to ``policies for the preservation and advancement of
universal service.'' The court reasoned that the Commission, by
adopting a definition of ``reasonably comparable'' that preserved
existing rate disparities, was ``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 directed the Commission on remand to ``define the term
`reasonably comparable' in a manner that comports with its concurrent
duties to preserve and advance universal service.''
29. On remand, we adopt a new definition of ``reasonably
comparable.'' We find that rural rates are ``reasonably comparable'' to
urban rates under section 254(b)(3) if they fall within a reasonable
range of the national average urban rate. In our judgment, our existing
rate benchmark ensures that rural rates will fall within a reasonable
range (i.e., two standard deviations) of the national average urban
rate. The record in this proceeding demonstrates that rates within this
range have generally resulted in an increase in overall telephone
subscribership, thereby ``advancing'' the most fundamental goal of
universal service. We further conclude that the non-rural support
mechanism, as currently configured, produces rates that meet the
requirements of section 254(b)(3). This conclusion is supported by our
demonstration above that the rural and urban rates are, in fact,
reasonably comparable and by evidence of an increase in telephone
subscribership penetration rates nationwide.
30. In Qwest II, the Tenth Circuit 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.'' The fact that
telephone subscribership penetration rates have increased since
Congress enacted section 254 demonstrates that rates are not too high
under the Commission's universal service program; indeed, the essential
telecommunications services encompassed by universal service have
become more available than ever before, with telephone subscribership
rates recently reaching an all-time high. The overall increase in the
telephone subscribership penetration rates since the enactment of our
universal service policies in 1996 demonstrates that the Commission has
satisfied its duty to advance universal service.
31. We further find that the development of new telecommunications
technologies has furthered the universal service principles in the Act,
particularly reasonable comparability. New services are increasingly
replacing traditional wireline telephone service, and universal service
funding, primarily high-cost support, has helped subsidize their
deployment. Consumers now enjoy a variety of competitive options for
all-distance voice services--including services provided by mobile
wireless service providers, large cable operators, and over-the-top
VoIP providers. The rates for these nationwide ``all distance''
services do not typically vary between urban and rural areas. This
provides the Commission even greater assurance that telecommunications
services will be available in rural areas at rates that are reasonably
comparable to rates in urban areas, even as customers migrate from
traditional wireline voice service.
32. The Tenth Circuit directed the Commission on remand to define
``reasonably comparable'' in a manner that both preserves and advances
universal service. Since the Remand
[[Page 26142]]
Order, telephone subscribership penetration rates have increased,
consumer expenditures on telephone service have remained stable, and,
as a result of increased broadband and wireless deployment, consumers
can now choose among multiple universal service providers, not just
traditional wireline telephone companies. We conclude that these
marketplace developments demonstrate that the non-rural mechanism
results in reasonably comparable rates that have advanced universal
service.
33. We disagree with the Rural States' argument that our current
mechanism does not do enough to ensure the availability of reasonably
comparable ``non-dial-tone'' or ``advanced'' services in rural areas.
As an initial matter, neither the Rural States nor any other commenter
has systematically analyzed the effect of the current non-rural
mechanism on the deployment of such services, so we have no data upon
which to assess their claims. Moreover, to date, the Commission has
designated only basic local telephone service as eligible for universal
service support. Our analysis of whether the current non-rural high-
cost support mechanism achieves the principle of reasonable
comparability must therefore focus on the service that the mechanism
was designed to fund, i.e., basic local telephone service. The record
in this proceeding shows that basic telephone service of reasonably
comparable quality is available in rural and urban areas at reasonably
comparable rates.
3. The Non-Rural High-Cost Support Mechanism
34. In Qwest II, the court deemed the non-rural high-cost support
mechanism invalid because it rested on the application of the
definition of ``reasonably comparable'' rates invalidated by the court.
While the court acknowledged that it ``would be inclined to affirm the
FCC's cost-based funding mechanism if it indeed resulted in reasonably
comparable rates,'' it found that the Commission had failed to provide
``empirical findings supporting this conclusion.'' 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. ``On remand,'' the court directed the Commission to
``utilize its unique expertise to craft a support mechanism taking into
account all the factors that Congress identified in drafting the Act
and its statutory obligation to preserve and advance universal
service.'' Below we explain and support the decision to utilize
variations in cost to determine the level of high-cost support for non-
rural carriers.
35. We agree with Verizon that ``the Tenth Circuit did not have a
problem with use of the [non-rural mechanism]--it merely wanted
evidence of results.'' The court in Qwest II emphasized that regardless
of what the Commission ultimately decided about its non-rural high-cost
support mechanism on remand, ``the FCC must fully support its final
decision on the basis of the record before it.'' The record in this
proceeding contains precisely the sort of evidence that the court
previously found lacking. Unrefuted empirical evidence in the record
shows that wireline telephone rates are reasonably comparable in urban
and rural areas, and where there is a discrepancy, rural rates tend to
be lower. Rates are also affordable, as demonstrated by the fact that
telephone subscribership penetration rates have increased while average
consumer expenditures on telephone service have remained stable. This
same evidence confirms that the non-rural high-cost support mechanism,
working in conjunction with the Commission's other universal service
programs, provides sufficient support. The record also shows that the
non-rural mechanism has both preserved and advanced the universal
service objectives in section 254(b) of the Act, as demonstrated by
increasing subscription rates and increasing access to different types
of services.
36. Consequently, we conclude that no further action is required of
the Commission to comply with the Tenth Circuit's Qwest II decision,
and we decline to adopt the handful of proposals to ``reform'' the non-
rural mechanism. The Commission previously rejected several of these
proposals in the Remand Order, and we do so again here.
a. Cost-Based Support Mechanism
37. We find 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, because costs are a major factor
affecting retail rates. There is overwhelming support in the record for
the continued use of a non-rural support mechanism based on costs, even
though there is disagreement over the design of the cost-based
mechanism. None of the commenters seriously suggested that the
Commission adopt a ``rate-based'' approach.
38. There are numerous factors demonstrating that basing a support
mechanism on costs represents a reasonable proxy to ensure that rural
rates remain reasonably comparable. Economists have long recognized the
close relationship between costs and rates. Basic principles of
economics demonstrate that, in perfectly competitive markets,
competition will drive prices to long-run average total cost.
Similarly, in the case of regulated monopolies, regulators have
traditionally set prices such that revenues will cover total regulated
costs, including a normal return. Given this close relationship between
costs and prices, it follows that, if costs rise, so should prices. In
addition, because the States retain jurisdiction over intrastate rates,
the Joint Board and the Commission always have looked at cost
differences, not rate differences, in determining high-cost support. We
believe that costs are a necessary component in setting the level of
regulated rates because the underlying purpose of rates is to recover,
at a minimum, the cost of providing services. States with high costs
would have higher rates in the aggregate than other States would, were
it not for Federal support.
39. In contrast, it makes little sense to base support on current
retail rates, which 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 dictate 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. A rate-based approach could thus undermine our ability to
comply with the court's prior mandate that we develop mechanisms to
induce the States ``to assist in implementing the goals of universal
service.'' Similarly,
[[Page 26143]]
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.
40. Finally, we note that the Tenth Circuit did not reject the
concept of non-rural support based on costs, rather than rates, so long
as the non-rural mechanism produced the desired results. Since we have
unrefuted empirical evidence demonstrating that rates are reasonably
comparable, we find that Qwest II presents no obstacle to the use of a
cost-based approach.
b. Forward-Looking Cost Model
(i) Cost Model Inputs
41. 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 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.
42. 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 staff has developed an economic model
to estimate the financial implications (costs and revenues) associated
with providing broadband to areas presently unserved by adequate
broadband speed and capacity for purposes of the National Broadband
Plan. Nevertheless, we are unable to evaluate adequately any
alternative cost model or to develop a new cost model in time to meet
our commitment to respond to the Tenth Circuit's Qwest II remand. 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 it would take a similar period to evaluate or develop a
new cost model and to establish new input values. Rather than attempt
to update a model that estimates the cost of a legacy, circuit-
switched, voice-only network, we intend to focus our efforts going
forward on developing a forward-looking cost model to estimate the cost
of providing broadband over a modern multi-service network, consistent
with the recommendations in the National Broadband Plan. Accordingly,
we conclude that we should continue to use the existing model to
estimate non-rural high-cost support on an interim basis, pending the
development of an updated and more advanced model that will determine
high-cost support for broadband. We expect to initiate a proceeding to
seek comment on such a model in the second quarter of 2010.
(ii) Cost Benchmark
43. We also conclude that we should continue to determine non-rural
high-cost 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. As discussed above, we have
found that the non-rural high-cost support mechanism comports with the
principles of section 254(b). Thus, we conclude that we are not
obligated to modify our current mechanism to base support on average
wire center costs per line. 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. We find
that it would not be in the public interest to impose such a heavy
financial burden on consumers nationwide when no party has documented
any need for such a dramatic expansion of universal service funding.
Record evidence shows that the current non-rural mechanism has produced
affordable and reasonably comparable rural rates, and no party has
provided any substantial evidence to the contrary. In addition, 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 find that the Commission should do so based on an
updated model that incorporates the least-cost, most efficient
technologies currently being deployed. Finally, we note that the Tenth
Circuit rejected the notion ``that the use of statewide and national
averages is necessarily inconsistent with [section] 254.'' While we
believe that there may be merit to an approach that distributes high-
cost support on a more disaggregated basis rather than on statewide
average costs, we do not believe that it would be prudent to change
this aspect of the mechanism without addressing other aspects. Nor do
we believe that we are required to adopt this approach to satisfy the
Qwest II remand, or that it would serve the public interest to do so at
this time. Accordingly, we conclude that, until the Commission adopts
an updated cost model, non-rural high-cost support should continue to
be based on statewide average costs.
44. We also reject proposals to compare statewide average cost to
an urban average cost (instead of the national average cost) to
determine non-rural high-cost support. The Commission previously found
that comparing statewide average cost to a national average cost
``reflects the appropriate division of Federal and State responsibility
for determining high-cost support for non rural carriers.'' We maintain
that view. Using urban average cost instead of national average cost,
while maintaining the two standard deviation benchmark, would increase
Federal support substantially. As noted, this increase would burden all
ratepayers, without evidence that such an increase is necessary to
fulfill our statutory obligations. Qwest II did not condemn statewide
and national averaging, and we find that our continued use of national
average cost produces results that comport with section 254.
45. We further decline to adopt a lower cost benchmark. As set
forth above, the only comprehensive rate data in the record shows that
there is little difference between urban and rural rates. No party has
demonstrated how a different cost benchmark would affect the variance
between urban and rural rates, much less produce rates that are
reasonably comparable. The Rural States argue that the Commission must
lower the cost benchmark from two standard deviations to 125 percent of
average urban cost to satisfy the Tenth Circuit. This benchmark suffers
from the same defect the court identified in Qwest II: there is no
empirical evidence in the record that a 125 percent cost benchmark
would produce more comparable rates. While the Commission could provide
more universal service funding to non-rural carriers by arbitrarily
lowering the cost
[[Page 26144]]
benchmark to 125 percent, no party that supports such a change has
analyzed the extent to which the resulting increase in high-cost
support would actually reduce the alleged gap between rural and urban
rates. Instead, the Rural States' proposal would increase the size of
the universal service fund without the benefit of empirical evidence
that the non-rural high-cost support mechanism would produce reasonably
comparable rates. In fact, there is a risk that the Rural States'
proposal would reduce both urban and rural rates in a recipient State,
not the variance between the two, which could needlessly increase the
financial burden imposed on consumers that live in States that are net
contributors to the universal service fund. The bottom line is that the
Commission has no assurance that increased non-rural high-cost support
would produce lower rural rates, rather than be used for other
purposes, because the use of that support will depend on 50 different
State policies, none of which have been described in the record. We
therefore decline to adjust the cost benchmark because we lack the
empirical data to justify such an adjustment, and because the record
shows that the existing cost benchmark already provides support that
yields reasonably comparable and affordable rates.
(iii) Rate Benchmark
46. Finally, we conclude that we should retain a comparability
standard based on a national rate benchmark set at two standard
deviations above the average urban rate. In Qwest II, the Tenth Circuit
focused on the disparity between rural rates and the lowest urban rate.
There is strong support in the record, however, for the continued use
of an average urban rate. Even those parties that ask the Commission to
adjust the rate benchmark support the use of an average urban rate--and
not the lowest urban rate--as the point of comparison. The general
consensus on this issue reflects the common sense conclusion that the
average urban rate offers the most reasonable baseline for comparison.
Because urban rates themselves vary greatly, a rate benchmark that
measures divergence from the lowest urban rate could be too heavily
influenced by a particular State's rate policies. By contrast,
measuring divergence from the national average urban rate more
accurately captures the variability of rate policies among the States.
47. We decline to adopt a new, lower rate benchmark in order to
``narrow'' the unsubstantiated ``gap'' between rural and urban rates.
Proposals to adjust the rate benchmark presuppose the existence of a
rate gap without offering any empirical evidence to demonstrate that
such a rate gap exists. Qwest, for example, merely describes an
increase in the disparity between rural rates and the lowest urban
rate. As discussed above, this comparison is misleading because the
average urban rate is the appropriate point of comparison for purposes
of determining ``reasonable comparability.'' The Rural States note that
the difference between rural rates and the average urban rate has
fluctuated from 34 percent to 43 percent. However, urban rates also
vary compared to the average urban rate. And most of that fluctuation
is explained by the fact that the range of urban rates widened because
the highest urban rate increased; rural rates, by contrast, have
remained stable over the last few years. In any event, even under the
arbitrary rate benchmark proposed by the Rural States (i.e., 125
percent of the average urban rate), rural rates would still be 25
percent greater than the average urban rate, a difference that is not
dramatically dissimilar to the 34-43 percent difference that results
under the Commission's current mechanism. In the end, we see no reason
to modify the current rate benchmark because rate data in the record
establishes that rural and urban rates today are reasonably comparable,
either when compared nationally or within a State.
48. Moreover, as with their proposal to lower the cost benchmark,
the Rural States' proposal to lower the rate benchmark would not answer
the questions posed by the Tenth Circuit on remand; it would simply
increase non-rural high-cost support without guaranteeing any change in
the rates paid by consumers in rural areas. We note that the court
already rejected this approach, holding that section 254(b) ``calls for
reasonable comparability between rural and urban rates,'' which cannot
be satisfied ``simply [by] substitut[ing] different standards.'' Given
the inherent imprecision of the statutory phrase ``reasonably
comparable,'' the task of defining ``reasonably comparable'' rates is a
line-drawing exercise that falls within the unique expertise of the
Commission. The line the Commission drew in this case, i.e., two
standard deviations above the average urban rate, is entitled to
deference because it falls within a reasonable range, as confirmed by
the high telephone subscribership rates and the overall advancement of
universal service goals while the non-rural high-cost mechanism has
been in effect. No commenter proposing a different rate benchmark has
made a comparable evidentiary showing.
c. Rate Comparability Review and Certification Process
49. We 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.
Commenters support the continued use of our rate certification process.
50. Currently, the Commission defines reasonably comparable rates
in terms of incumbent LEC rates only. In the Remand NPRM, we sought
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, we asked whether stand-alone local telephone
rates were the most accurate measure of whether rural and urban
consumers have access to reasonably comparable telecommunications
services at reasonably comparable rates. We invited 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.
51. While there was support for this approach in the abstract, no
party submitted data upon which the Commission could make such a
comparison. Given the scant evidentiary record on this issue, we
decline at this time to define ``reasonably comparable'' rural and
urban rates in terms of the rates for bundled services.
B. Comprehensive Reform and the National Broadband Plan
52. The Commission has previously recognized the need for review
and possible comprehensive reform of its universal service program, 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 support mechanism
in 1999, the telecommunications marketplace has undergone significant
changes. As discussed above, 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
[[Page 26145]]
well as wireline phones, and an increasing percentage of consumers are
dropping their wireline phones in favor of wireless or broadband-based
VoIP phone services. Finally, an increasing percentage of carriers are
converting their networks from circuit-switched to Internet protocol
(IP) technology.
53. Against this backdrop, the Commission in the Remand NOI sought
comment on the relationship between the Commission's resolution of the
narrow issues raised in this remand proceeding; comprehensive reform of
the high-cost universal service support system; and our independent
obligation under the Recovery Act to develop 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 services to support for broadband in light of the
changes in technology and the marketplace.
54. On the same day that the Commission issued the Remand NOI, it
began the process of developing a National Broadband Plan that seeks
``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. The Commission conducted 36 workshops and released 31
public notices to obtain public input on the various facets of the
Recovery Act as they relate to the National Broadband Plan. Several of
the public notices sought comments on different aspects of the
universal service programs, and one specifically invited comment on
transitioning the current universal service high-cost support mechanism
to support advanced broadband deployment.
55. 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 delivered to Congress the National Broadband
Plan, which contains specific recommendations for universal service
reform. According to the National Broadband Plan, filling the gaps in
the nation's broadband network will require financial support from
Federal, State, and local governments. The National Broadband Plan
identifies the Federal universal service fund--and the high-cost
universal service program in particular--as a key source of Federal
support. The National Broadband Plan acknowledges, however, that the
existing high-cost universal service program is not designed to fund
broadband services. Therefore, the National Broadband Plan recommends 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.
56. In light of these recommendations, we conclude that fundamental
reform limited to only the non-rural high-cost support mechanism should
not be undertaken at this time. Now that the Commission has released
the National Broadband Plan, we are in a better position to determine
how to reform the high-cost support mechanism consistent with our
broadband policies. In response to the mandamus petition in the Tenth
Circuit, the Commission committed to issue an order responding to the
court's remand by April 16, 2010. We have had insufficient time,
between release of the National Broadband Plan in March and our
deadline for responding to the court, to implement reforms to the high-
cost universal service mechanisms consistent with the overall
recommendations in the National Broadband Plan. While we believe we
have fully addressed the remand, as discussed above, 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. The Commission will soon release a notice of proposed rulemaking
that sets the stage for comprehensive reform of the high-cost universal
service mechanism as recommended in the Joint Statement on Broadband
and the National Broadband Plan.
57. We also decline to adopt proposed interim changes to the non-
rural high-cost support mechanism that would increase significantly the
amount of support non-rural carriers would receive. Instead, we will
maintain the current non-rural high-cost support mechanism on a
transitional basis until comprehensive universal service reform is
adopted. As set forth above, the Commission has a substantial interest
in limiting the size of the universal service fund to preserve the
affordability of telecommunications services for consumers. Any
substantial increases in non-rural high-cost support disbursements
would increase the contribution factor above its current level of 15.3
percent of interstate revenues, thereby increasing the size of
universal service contribution assessments, which are ultimately paid
by consumers. The Commission's authority to take measures to limit the
size of the universal service fund is well established. Indeed, the
Commission has long used cost controls--including caps--as a means of
limiting the growth of its universal service program. We find that
maintaining non-rural high-cost support at existing levels pending
comprehensive universal service reform quite reasonably follows this
long-standing agency practice.
58. Moreover, 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. The Commission may ``act[] to maintain the status quo so
that the objectives of a pending rulemaking proceeding will not be
frustrated.'' In fact, on several occasions, the Commission has
exercised that authority to maintain existing rules on a transitional
basis to ensure the sustainability of the universal service program
pending comprehensive reform of a larger regulatory framework. We
conclude that it would not be prudent to increase the overall amount of
non-rural high-cost support significantly above current levels at this
time.
59. We wish to emphasize, however, that even if the Commission had
no plans to reform existing high-cost universal service support
programs in an effort to achieve the objectives set forth in the
National Broadband Plan, we would still make no changes in the non-
rural high-cost mechanism. As we explained above, record evidence
demonstrates that funding under the current mechanism is sufficient to
achieve reasonably comparable rates and to advance the universal
service principles set forth in section 254(b), including the
principles of reasonable comparability and affordability. It also has
both preserved and advanced universal service. Therefore, we see no
need to alter the non-rural high-cost support mechanism at this time.
The Commission's decision to pursue fundamental universal service
reform to promote greater broadband deployment, as required by the
Recovery Act, provides a separate and independent ground for keeping
the existing non-rural high-cost support mechanism in place. Under the
circumstances, we believe that it is entirely reasonable to maintain
the status quo on a transitional basis until the Commission is ready to
implement its new universal service support program for the deployment
of networks capable of providing voice and broadband service.
[[Page 26146]]
II. Memorandum Opinion and Order: Wyoming Petition for Supplemental
High-Cost Universal Service Support
A. Discussion
60. We find that the Wyoming Petitioners have demonstrated that
supplemental universal service high-cost support is warranted at this
time in Wyoming's rural areas served by Qwest, the non-rural incumbent
LEC. The Wyoming Petitioners have met the requirements in section
54.316 of the Commission's rules by demonstrating that such rural
residential rates are not comparable to the nationwide urban rate
benchmark. Specifically, the Wyoming Commission reviewed and compared
the residential rates in rural areas served by Qwest to the nationwide
urban rate benchmark, certified to the Commission and to USAC that such
rates are not reasonably comparable because they are 124 percent of the
nationwide urban rate benchmark, explained why such rates are not
comparable, and stated that it intended to request further Federal
action to achieve rate comparability as set forth in the Order on
Remand. We also find that the Wyoming Petitioners' request for
supplemental high-cost universal service support is consistent with the
requirements in the Order on Remand for requests for further Federal
action to achieve rate comparability. The Wyoming Petitioners
demonstrated that Wyoming's rural rates are not reasonably comparable
to urban rates nationwide and that Wyoming has taken all reasonably
possible steps to achieve reasonable comparability through State action
and existing Federal support. As we acknowledged in the Order on
Remand, ``Wyoming has rebalanced its residential and business rates,
while other States have not rebalanced rates.'' Wyoming requires cost-
based pricing for all retail telecommunications services in Wyoming and
prohibits cross subsidies and implicit subsidies. Moreover, Qwest has
de-averaged cost-based residential rates. Finally, Wyoming has
implemented an explicit subsidy support program--the Wyoming Universal
Service Fund.
61. Based on the record, however, we modify the Wyoming
Petitioners' proposed calculation of supplemental high-cost support.
Specifically, we agree with NASUCA's recommendation that any
supplemental universal service high-cost support should cover 76
percent of the difference between the rural local rates and the
comparability benchmark, and not 100 percent of the difference. We find
that funding 76 percent of the difference between Qwest's rural
customers' rates (including mandatory surcharges) and the nationwide
urban rate benchmark is reasonable because it is consistent with the
percentage of support provided using the Commission's forward-looking
cost model for non-rural incumbent LECs. Funding 76 percent of the
difference strikes a reasonable balance between Federal and State
responsibilities of facilitating affordable local rates. Further, we
are concerned that funding 100 percent of the difference could provide
inappropriate incentives to increase rates or surcharges in order to
shift such costs to the Federal universal service fund. Although we
acknowledge that Qwest's Wyoming subscribers may continue to pay high
local service rates, we must balance the need for additional support in
Wyoming against the already heavy universal service contribution burden
placed on consumers nationwide. We disagree, however, with NASUCA's
recommendation that the Wyoming general sales tax should not be
included in the rate comparability calculation. We find that the
Wyoming sales tax should be included in the calculation because the
nationwide urban rate benchmark, resulting from a rate survey of 95
sample cites, instructed survey respondents to include such sales
taxes.
62. Accordingly, we authorize and direct USAC to provide $2,370,629
in additional annualized universal service high-cost support to Qwest
in Wyoming beginning in the third quarter of 2010. One-twelfth of this
amount shall be paid each month through December 2010.
63. To remain eligible for supplemental high-cost support going
forward, beginning with the Wyoming Commission's next rate
comparability certification due October 1, 2010, and each October 1
thereafter, the Wyoming Commission shall provide the Commission and
USAC with updated line counts and other rate data consistent with and
in the same format as the Wyoming 2010 Update. Such data shall be used
by the Commission and USAC to verify the additional high-cost support,
if any, that is necessary to maintain rural rates in Qwest's service
territory at reasonably comparable levels with the nationwide urban
benchmark. USAC is required to notify the Wireline Competition Bureau
by letter of any concerns regarding future submissions from the Wyoming
Commission. Each year after the receipt of the Wyoming Commission's
rate comparability certification, any revised supplemental support
shall take effect the following January.
B. Procedures for State Requests for Further Federal Action
64. In the Order on Remand, the Commission sought comment on how to
treat State requests for further Federal action to achieve reasonable
comparability of basic service rates, including: (1) The timing of
State requests for further Federal action; (2) the showing that a State
should be required to make in order to demonstrate a need for further
Federal action; and (3) the types of further Federal action that may be
provided to requesting States if the Commission determines that further
Federal action is necessary in a particular instance, including
possible methods of calculating any additional targeted Federal
support. We decline to adopt such procedures at this time. Unique
situations like Wyoming's can best be addressed on an individualized,
case-by-case basis. Moreover, we expect to undertake comprehensive
reform of the universal service high-cost mechanisms in proceedings
that follow from the Joint Statement on Broadband and the National
Broadband Plan. In the meantime, if any other State demonstrates,
consistent with section 54.316 of our rules and the Order on Remand,
that unique circumstances prevent the achievement of reasonably
comparable rates in that State, we are prepared to provide appropriate
relief, as we have done in the case of Wyoming.
III. Procedural Matters
A. Paperwork Reduction Analysis
65. This Order on Remand and Memorandum Opinion and 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).
B. Final Regulatory Flexibility Act Certification
66. As we are adopting no rules in this Order on Remand and
Memorandum Opinion and Order, no regulatory flexibility analysis is
required.
C. Congressional Review Act
67. The Commission will not send a copy of this Order on Remand and
Memorandum Opinion and Order in a
[[Page 26147]]
report to Congress and the Government Accountability Office pursuant to
the Congressional Review Act because no rules are being adopted.
IV. Ordering Clauses
68. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1, 2, 4(i), 4(j), 201-205, 214, 220, and 254 of
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
154(j), 201-205, 214, 220, and 254, this Order on Remand and Memorandum
Opinion and Order is adopted.
69. It is further ordered that, pursuant to the authority contained
in sections 1, 2, 4(i), 4(j), 201-205, 214, 220, and 254 of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
154(j), 201-205, 214, 220, and 254, the Joint Petition of the Wyoming
Public Service Commission and the Wyoming Office of Consumer Advocate
for Supplemental Federal Universal Service Funds for Customers of
Wyoming's Non-rural Incumbent Local Exchange Carrier, filed December
21, 2004, IS granted to the extent described herein.
70. It is further ordered that this Order on Remand and Memorandum
Opinion and Order shall be effective 30 days after publication in the
Federal Register, pursuant to 5 U.S.C. 553(d)(3) and section 1.427(b)
of the Commission's rules, 47 CFR 1.427(b).
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2010-11153 Filed 5-10-10; 8:45 am]
BILLING CODE 6712-01-P