SUMMARY OF HIGH COST UNIVERSAL SERVICE ORDERS

• This Order adopts the input values to be used in the cost model to determine non-rural carriers' forward-looking costs to provide the supported services. Those costs will then be used to provide high-cost universal service support pursuant to the forward-looking methodology discussed below.
• On October 28, 1998, the FCC completed the first stage of the proceeding to select a forward-looking cost model with the selection of the model platform. The platform encompasses the aspects of the model that are essentially fixed, primarily assumptions about the design of the network and network engineering.
• In this Order, the FCC completes the second stage of this proceeding by adopting the input values for the cost model, such as the cost of cables, switches, and other network components, as well as various capital cost parameters.
• In addition, the FCC adopts a road surrogate algorithm to determine the location of customers and a data set of customer locations.
• The FCC will use these input values in the cost model to estimate the forward-looking cost of providing supported services, which is the basis for determining federal support amounts for non-rural carriers, effective January 1, 2000.
• The FCC made no finding as to whether the federal model would be appropriate for purposes other than determining federal universal service support.
• The FCC also clarifies its interpretation of "rural telephone company," a term used to determine whether a carrier is rural or non-rural for the universal service support mechanism. The Order modifies the filing requirements for rural carriers that certify themselves as rural, eliminating such annual filings in most cases.

New Mechanism for Federal Universal Service High-Cost Support Provided to Non-Rural Carriers (CC Docket No. 96-45)

• Federal and State Roles in Providing Universal Service Support for Intrastate Rates:
• The FCC concluded that the primary role of federal high-cost support is to enable reasonably comparable rates among states, while the primary role of each state is to ensure reasonably comparable rates within its borders.
• Based on these federal and state roles, the FCC adopted a new forward-looking methodology for calculating high-cost support for non-rural carriers.

• Methodology for Calculating Support:
• Beginning on January 1, 2000, the FCC’s universal service cost model will be used to estimate the forward-looking costs incurred by non-rural carriers to provide supported services.
• The statewide average cost per line for all lines served by non-rural carriers in a given state will be compared to a national cost benchmark, set at 135 percent of the national average forward-looking cost per line.
• The new federal high-cost support mechanism will provide support to non-rural carriers in a state where the statewide average cost per line exceeds the national cost benchmark. The federal support mechanism will provide support for all forward-looking intrastate costs per line that exceed the national benchmark. The new federal mechanism takes into account the FCC’s separations rules and the division of cost recovery between the state and federal jurisdictions, and therefore provides 76 percent of the portion of the forward-looking costs of providing the supported services.
• Because statewide averaging of costs better ensures that each state's resources are brought to bear before federal support is provided, the FCC reconsidered and eliminated the state share requirement described in the May 28, 1999 high-cost order. The federal support mechanism will not impute a per-line amount to each state to support its universal service needs internally.

• Interim Hold-Harmless Provision:
• The interim hold-harmless provision ensures that the amount of support provided to a carrier by the forward-looking mechanism will be no less than the amount of support provided to the carrier by the present mechanism.
• The interim hold-harmless approach is designed to prevent potential rate shocks and disruptions in state rate designs when the forward-looking mechanism takes effect.
• Interim hold-harmless support is determined on a per-line basis; if a carrier loses a line, it loses the support for that line. Hold-harmless support is targeted, based on wire center costs, to the highest cost wire centers.

• Portability of Support:
• Federal universal service support will be portable among all eligible telecommunications carriers. When a competitor acquires a subscriber line from an incumbent receiving support, the competitor will receive the incumbent's support.

• Use of Support:
• The total amount of support indicated by the forward-looking mechanism on a statewide basis is targeted so that the amount of support available to a competitor depends on the wire center cost of the line that the competitor wins from the customer.
• As mandated by section 254(e) of the Communications Act, carriers must use universal service support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended.
• States must certify to the Commission that non-rural carriers receiving federal high-cost support will use that support in compliance with section 254(e).
• To the extent that forward-looking support calculations exceed current support levels, no non-rural carrier in a particular state will receive federal support in excess of current support levels until that state files the required certification with the Commission. No non-rural carrier in a particular state will receive any federal support after January 1, 2001 if that particular state has not filed the required certification with the Commission.

• High-Cost Loop Support for Rural Carriers:
• The high-cost support mechanism for rural carriers is not scheduled to be revised until January 1, 2001, at the earliest, and only after the FCC and the Joint Board have completed further deliberations on the matter based on recommendations from the Rural Task Force.
• Consistent with the FCC’s commitment not to consider significant changes in rural carriers’ support until after the Rural Task Force and Joint Board recommendations, we will continue to calculate the loop expense adjustment for the rural carriers based on loop data for both rural and non-rural carriers.

• Lifting the Stay of the Commission’s Section 251 Pricing Rules:
• Effective six months from the date of release of today’s Order, the FCC will lift the stay of its rule requiring each state commission to establish different rates for interconnection and unbundled network elements in at least three defined geographic areas within the state to reflect geographic cost differences.
• The FCC had stayed this rule to allow states to come into compliance following the Supreme Court's affirmation of the FCC’s rule in January 1999.