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FCC Commissioner Statements: Ness | Furchtgott-Roth | Tristani
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Public Notice

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Federal Communications Commission
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 98-41 COMMON CARRIER ACTION November 23, 1998

Provides Guidance on Issues Concerning Support for Non-Rural Carriers That Serve High Cost Areas
(CC Docket No. 96-45)

The Federal-State Joint Board on Universal Service today made recommendations to the FCC on how to ensure that local telephone rates in rural and high cost areas remain affordable and reasonably comparable to rates in urban areas both today and as America's telecommunications marketplace moves from monopoly to competition. Today's recommendation will help inform the FCC's decision next spring related to the amount of universal service support non-rural carriers (in general, large local telephone companies) should receive for serving high cost areas. The Joint Board's Recommended Decision, and the FCC's pending proceeding, are intended to carry out Congress's directive that universal service be preserved and advanced in a manner compatible with competition.

The Joint Board today recommended a federal high cost support mechanism for non-rural carriers that enables rates to remain affordable and reasonably comparable, even as competition develops, but that is no larger than necessary to meet the goals of the Act. Highlights of the Joint Board's Recommended Decision are as follows:

  • The Joint Board recommended that no state should receive less support from the new high cost mechanism for non-rural carriers than it receives from current explicit federal support mechanisms (i.e. the "hold harmless" approach).

  • The Commission should replace the 25/75 jurisdictional division of responsibility for high cost areas with a new methodology. Under the Joint Board's recommended approach, the federal mechanism would provide necessary support as set in accordance with a two-step process. First, the Commission should determine if the cost of serving an area is significantly above a national average. Second, for areas that are more expensive to serve, the Commission should determine whether the state has sufficient resources to provide the support needed. In cases where a state lacks the resources to keep telephone rates reasonably comparable, the federal mechanism would provide the remaining amount of support. Federal support should be provided only to the extent that the state would be unable to support its high cost areas through its own reasonable efforts.

  • In the May 8, 1997, Universal Service Order, the Commission adopted the Joint Board's recommendation that federal universal service support should be based on forward-looking economic costs, as opposed to the incumbent's embedded costs of providing supported services, in order to "send the correct signals for entry, investment, and innovation." Today's recommendation reaffirmed that support should be based on forward-looking costs, as determined by a cost model. The Joint Board noted, however, that the Commission's cost model is still in progress and urged continued close consultation as the model is completed.

  • The Commission should provide guidance to telecommunications carriers regarding the extent to which they recover their universal service contributions from consumers, to prevent carriers from over-recovering their contribution amounts. Specifically, the Commission should consider adopting a rule prohibiting carriers from establishing a line item charge to consumers at a rate greater than the carrier's own universal service assessment rate.

  • The Commission should take decisive action to ensure that consumers are not misled as to the nature of charges on bills associated with recovering universal service contributions. Noting that interstate carriers are required to contribute to universal service but not required to impose such charges on consumer bills, the Joint Board recommended that the Commission consider prohibiting carriers from incorrectly describing such charges as being mandatory or federally-approved. Such misleading descriptions may indicate to consumers that all carriers are imposing the same charges and, therefore, discourage consumers from shopping for lower charges from competing carriers.

  • The Joint Board and the Commission should broadly reexamine the high cost universal service mechanisms as necessary, and in any event no later than three years from July 1, 1999.

  • The Commission, in a separate proceeding, should examine the extent to which some areas are unserved by telecommunications, and it should consider whether and how federal universal service support might remedy the problem.

The issues addressed in today's Recommended Decision were referred to the Joint Board by the Commission. These issues concern only universal service support for non-rural carriers that serve high cost areas. Non-rural carriers are scheduled to receive high cost support from a new federal mechanism beginning on July 1, 1999. The support system for rural carriers, by contrast, will not be altered until January 1, 2001, at the earliest, and not before the Joint Board has completed further deliberations on related issues in light of upcoming recommendations from the Rural Task Force.

Action by the Federal-State Universal Service Joint Board on November 23, 1998, by Second Recommended Decision (FCC 98J-7). Chairman Ness issuing a separate statement; Commissioners Johnson and Baker issuing a joint statement; Ms.Hogerty, Consumer Advocate, issuing a separate statement; Commissioner Wood; Commissioner Tristani dissenting in part and issuing a statement; Commissioner Schoenfelder dissenting and issuing a statement; and Commissioner Furchtgott-Roth dissenting and issuing a separate statement.


News media contact: Rochelle Cohen at (202) 418-0253.
Common Carrier Bureau contact: Chuck Keller at (202) 418-7380.