WPCSn 2MBERKZ3|j X-#Xj\  P6G;ynXP#"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN!\{P2gEKX X-#Xj\  P6G;ynXP#"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDdDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddxHxxHvppDXd<"dxtldpxxdy.X80,HX\  P6G;P7jC:,ynXj\  P6G;XP/G_u $4=Mb~ (6Kr08EYkMTS and WATS Market Stru2E ZvH3|j X-#Xj\  P6G;ynXP#HP LaserJet 5Si LPT2 8401_1HPLAS5SI.PRSX\  P6G;\>!\{Pa8DocumentgDocument Style StyleXX` `  ` 2 pk` k 6 a4DocumentgDocument Style Style . a6DocumentgDocument Style Style GX  a5DocumentgDocument Style Style }X(# a2DocumentgDocument Style Style<o   ?  A.  24 v t   a7DocumentgDocument Style StyleyXX` ` (#` BibliogrphyBibliography:X (# a1Right ParRight-Aligned Paragraph Numbers:`S@ I.  X(# a2Right ParRight-Aligned Paragraph Numbers C @` A. ` ` (#` 2- f    na3DocumentgDocument Style Style B b  ?  1.  a3Right ParRight-Aligned Paragraph Numbers L! ` ` @P 1. ` `  (# a4Right ParRight-Aligned Paragraph Numbers Uj` `  @ a. ` (# a5Right ParRight-Aligned Paragraph Numbers _o` `  @h(1)  hh#(#h 2_'a6Right ParRight-Aligned Paragraph Numbersh` `  hh#@$(a) hh#((# a7Right ParRight-Aligned Paragraph NumberspfJ` `  hh#(@*i) (h-(# a8Right ParRight-Aligned Paragraph NumbersyW"3!` `  hh#(-@p/a) -pp2(#p a1DocumentgDocument Style StyleXqq   l ^) I. ׃  2+Doc InitInitialize Document Style  0*0*  I. A. 1. a.(1)(a) i) a) I. 1. A. a.(1)(a) i) a)DocumentgTech InitInitialize Technical Style. k I. A. 1. a.(1)(a) i) a) 1 .1 .1 .1 .1 .1 .1 .1 Technicala5TechnicalTechnical Document Style)WD (1) . a6TechnicalTechnical Document Style)D (a) . 294a2TechnicalTechnical Document Style<6  ?  A.   a3TechnicalTechnical Document Style9Wg  2  1.   a4TechnicalTechnical Document Style8bv{ 2  a.   a1TechnicalTechnical Document StyleF!<  ?  I.   2(4e7a7TechnicalTechnical Document Style(@D i) . a8TechnicalTechnical Document Style(D a) . PleadingHeader for numbered pleading paperP@n   $] X X` hp x (#%'0*,.8135@8:a݅@  I.   X(# 2<(&%'^e&(d&)''SubheadingSubheading&0\ E A.  FOOTNOTEFootnote - Appearance'PHIGHLIGHT 1Italics and Boldldedd(+. DRAFT ONHeader A Text = DRAFT and Date) X =8` (#FDRAFTă r  ` (#=D3 1, 43 12pt (Z)(PC-8))T2Dă  ӟ2+*n(+X),1^)-1*DRAFT OFFTurn Draft Style off*@@    HEADERHeader A - Appearance+LETTER LANDLetter Landscape - 11 x 8.5, 3'3'Standard'3'3StandardLetter Portrait - 8.5 x 11 ;   LEGAL LANDLegal Landscape - 14 x 8.5-f 3'3'Standard'A'AStandardZ K e6VE L"nu;   2/.1+/1#-0nT.1X.LETTER PORTLetter Portrait - 8.5 x 11.L 3'3'Standard3'3'StandardZ K e6VE L"nU9   LEGAL PORTLegal Portrait - 8.5 x 14/ 3'3'StandardA'A'StandardLetter Portrait - 8.5 x 119   TITLETitle of a Document0K\ * ăFOOTERFooter A - Appearanced1212L/3i/4d605j0BLOCK QUOTESmall, single-spaced, indented2N X HEADING 33rd Heading Level3| XHIGHLIGHT 2Large and Bold Large4B*d. HIGHLIGHT 3Large, Italicized and Underscored5 V -q266617EU38-4985LETTERHEADLetterhead - date/margins6u H XX  3'3'LetterheadZ K e VE L"n3'3'LetterheadZ K e VE L"nE9    * 3'3'LetterheadZ K e VE L"n3' II"n"Tv3'StandarddZ K e VE L"nU9 Ѓ   INVOICE FEETFee Amount for Math Invoice7 ,, $0$0  MEMORANDUMMemo Page Format8D.   ! M E M O R A N D U M ă r  y<N dddy   INVOICE EXPSEExpense Subtotals for Math Invoice9:A ,p, $0$002::817;i8<X :=[b:INVOICE TOTTotals Invoice for Math Macro:z 4p, $0$00INVOICE HEADRHeading Portion of Math Invoice;+C`*   4X 99L$0 **(  ӧ XX NORMALReturn to Normal Typestyle<SMALLSmall Typestyle=2[<>[:?[J;@[;A[<FINEFine Typestyle>LARGELarge Typestyle?EXTRA LARGEExtra Large Typestyle@VERY LARGEVery Large TypestyleA2`?B<CX>DXh>E>ENVELOPEStandard Business Envelope with HeaderB+w ,,EnvelopeZ K e VE L"n,,EnvelopeLarge, Italicized and Under;    ,, 88+  `   MACNormalC,.1DdfStyle 14Swiss 8 Pt Without MarginsE$$D Co> PfQ  )a [ PfQO 2GF?G2@HlEI}FStyle 12Dutch Italics 11.5F$$F )^ `> XifQ  )a [ PfQO Style 11Initial Codes for Advanced IIGJ )a [ PfQK  dddn  #  [ X` hp x (#%'b, oT9 ! )^ `> XifQ ` Advanced Legal WordPerfect II Learning Guide   x )^ `> XifQ Advanced Legal WordPerfect II Learning Guide   j-n )^ `> XifQ    Copyright  Portola Systems, Inc. 1987, 1988`6 >Page  jBX )^ `> XifQ    Page ` Copyright  Portola Systems, Inc. 1987, 1988 Style 3oDutch Roman 11.5 with Margins/TabsH )a [ PfQO  ddn  # c0*b, oT9 !Style 4 PSwiss 8 Point with MarginsIDq Co> PfQ  dddd  #  2IJKGK|GLSHMHStyle 1.5Dutch Roman 11.5 FontJ4h )a [ PfQO  dddn Style 2Dutch Italic 11.5K$ )^ `> XifQ Style 5Dutch Bold 18 PointL$RH$L T~> pfQ_  )a [ PfQO Style 7Swiss 11.5M$$V )ao> PfQ ]  )a [ PfQO 2xYNIOeJPlOQsTStyle 6Dutch Roman 14 PointN$$N w [ PfQ   )a [ PfQO Style 10oInitial Codes for AdvancedO U )a [ PfQK  dddn  ##  [[ b, oT9 !b, oT9 !n )^ `> XifQ ` Advanced Legal WordPerfect Learning Guide   f )^ `> XifQ Advanced Legal WordPerfect Learning Guide   Q" )^ `> XifQ    Copyright  Portola Systems, Inc. 1987, 1988`6 >Page  QN~ )^ `> XifQ    Page ` Copyright  Portola Systems, Inc. 1987, 1988 Style 8PfInitial Codes for BeginninggPi )a [ PfQK  dddn  # X` hp x (#%'b, oT9  [ &e )^ `> XifQ ` Beginning Legal WordPerfect Learning Guide   d )^ `> XifQ Beginning Legal WordPerfect Learning Guide   jH )^ `> XifQ    Copyright  Portola Systems, Inc. 1987, 1988`6 >Page  j )^ `> XifQ    Page ` Copyright  Portola Systems, Inc. 1987, 1988 Style 9Initial Codes for IntermediateQ )a [ PfQK  dddn  # X` hp x (#%'b, oT9 Њ [ e )^ `> XifQ ` Intermediate Legal WordPerfect Learning Guide   3 )^ `> XifQ Intermediate Legal WordPerfect Learning Guide   jf )^ `> XifQ    Copyright  Portola Systems, Inc.`+ >Page  jX )^ `> XifQ    Page ` Copyright  Portola Systems, Inc. 1987, 1988 2v`RYS^Tz_U}_UpdateInitial Codes for Update ModuleR )a [ PfQK  dddn  #  [ X` hp x (#%'b, oT9 !n )^ `> XifQ ` Legal WordPerfect 5.0 Update Class Learning Guide   f )^ `> XifQ Legal WordPerfect 5.0 Update Class Learning Guide   Q" )^ `> XifQ    Copyright  Portola Systems, Inc. 1987, 1988`7 CPage  jN~ )^ `> XifQ    Page ` Copyright  Portola Systems, Inc. 1987, 1988 Default Paragraph FoDefault Paragraph FontS11#XXz PQXP##Iz PQP#head1 #T'd#2p}wC@ #a1Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfU$ 2 cV`W0aXaYaba2Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfV/` ` ` a3Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfW:` ` `  a4Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfXE` ` `  a5Paragraph R!1. a. i. (1) (a) (i) 1) a)D )DDDFrfYP  ` ` ` hhh 2eZ   24urrsst2tu}tTechnical[1]C^iTechnical Document StyleCC -2( -Ct )Br4?$@     Technical[7]C^iTechnical Document StyleCC -2( -Ct )Bs&AB  . Technical[8]C^iTechnical Document StyleCC -2( -Ct )Bt&CD  . Paragraph[1]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )Bu$ab 2wvfuwuxvywParagraph[2]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )Bv/cd` ` ` Paragraph[3]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )Bw:ef` ` `  Paragraph[4]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )BxEgh` ` `  Paragraph[5]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )ByPij` ` ` hhh 2U|zw{x|my}7zParagraph[6]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )Bz[kl Paragraph[7]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B{fmn Paragraph[8]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B|qop toc 1toc 1}` hp x (#44` hp x (#2~|~Àtoc 2toc 2~` hp x (#4 4 ` hp x (#toc 3toc 3` hp x (#4 4 ` hp x (#toc 4toc 4` hp x (#4 <4 <` hp x (#toc 5toc 5` hp x (#4<4<` hp x (#21vOŇtoc 6toc 6` hp x (#44` hp x (#toc 7toc 7 toc 8toc 8` hp x (#44` hp x (#toc 9toc 9` hp x (#44` hp x (#2Q3Qoindex 1index 1` hp x (#4 4 ` hp x (#index 2index 2` hp x (#4 4 ` hp x (#toatoa` hp x (#` hp x (#captioncaption;1#XP\  P6QXP##C\  P6QP#2=q_Equation Caption_Equation Caption11#XP\  P6QXP##C\  P6QP#endnote referenceendnote reference44#XP\  P6QXP##C\  P6QP#footnote referencefootnote reference4#XP\  P6QXP#2S&C6C^fDocument StyleNF2CC -2( -Ct )s t . 2e,ep3S&C7C^fDocument StyleNF2CC -2( -Ct ) uv 4S&C8C^fDocument StyleNF2CC! -2( -Ct ) wx 5S&C9C^fDocument StyleNF2CC/ -2( -Ct )*yz   6S&C:C^fDocument StyleNF2CC= -2( -Ct ){|` ` ` 2+X7S&C;C^fRight-Aligned Paragraph NumbersK -2( -Ct )8}~@  8S&C<C^fRight-Aligned Paragraph NumbersY -2( -Ct )A@` ` `  ` ` ` 9S&C=C^fDocument StyleNF2CCg -2( -Ct )0    10S&C>C^fRight-Aligned Paragraph Numbersu -2( -Ct )J` ` ` @  ` ` ` 2Úp&11S&C?C^fRight-Aligned Paragraph Numbers -2( -Ct )S` ` `  @  12S&C@C^fRight-Aligned Paragraph Numbers -2( -Ct )\` ` `  @hhh hhh 13S&CAC^fRight-Aligned Paragraph Numbers -2( -Ct )e` ` `  hhh@ hhh 14S&CBC^fRight-Aligned Paragraph Numbers -2( -Ct )n` ` `  hhh@  2tߝj15S&CCC^fRight-Aligned Paragraph Numbers -2( -Ct )w` ` `  hhh@ppp ppp 16S&CDC^fDocument StyleNF2CC -2( -Ct )F   ׃  17S&CEC^fTechnical Document StyleCC -2( -Ct )&  . 18S&CFC^fTechnical Document StyleCC -2( -Ct )&  . 2Bסk19S&CGC^fTechnical Document StyleCC -2( -Ct )*    20S&CHC^fTechnical Document StyleCC -2( -Ct )'   21S&CIC^fTechnical Document StyleCC -2( -Ct )&   22S&CJC^fTechnical Document StyleCC -2( -Ct )4$     2\Mң}WԤ23S&CKC^fTechnical Document StyleCC+ -2( -Ct )&  . 24S&CLC^fTechnical Document StyleCC9 -2( -Ct )&  . 25S&CMC^f1. a. i. (1) (a) (i) 1) a)CG -2( -Ct )$ 26S&CNC^f1. a. i. (1) (a) (i) 1) a)CU -2( -Ct )/` ` ` 2!h27S&COC^f1. a. i. (1) (a) (i) 1) a)Cc -2( -Ct ):` ` `  28S&CPC^f1. a. i. (1) (a) (i) 1) a)Cq -2( -Ct )E` ` `  29S&CQC^f1. a. i. (1) (a) (i) 1) a)C -2( -Ct )P` ` ` hhh 30S&CRC^f1. a. i. (1) (a) (i) 1) a)C -2( -Ct )[ 2sN ש31S&CSC^f1. a. i. (1) (a) (i) 1) a)C -2( -Ct )f 32S&CTC^f1. a. i. (1) (a) (i) 1) a)C -2( -Ct )q Default ParaC^fDefault Paragraph Font2CC -2( -Ct );;#PP##PP#_Equation CaC^f_Equation CaptionF2CC -2( -Ct );;#PP##PP#2yvvendnote refeC^fendnote referenceF2CC -2( -Ct )>>#PP##PP#footnote refC^ffootnote referenceF2CC -2( -Ct )>#PP#heading 4heading 4 heading 5heading 5 2v-vvvheading 6heading 6 heading 7heading 7 heading 8heading 8 endnote textendnote text 2v7Z˲d%footnote textfootnote text toa headingtoa heading` hp x (#(#(#` hp x (#1, 2, 3,?@65NumbersO@/"=(1*1÷$t ?.E1.A, B,t ?@65Uppercase Letters1 ?*1÷$t ?.E .2pmqݴeNfootnote tex6footnote text̺=(?. 0&ܺ*?.ںd 0E2(33`O5hT(G2PDocument Style&^aO5h.K+&,$@`O5Bȗ+&>` ` ` 34`O5iT(G2PDocument Style&^aO5i.K+&,$@`O5Bȗ+&>  . 35`O5jT(G2PDocument Style&^aO5j.K+&,$@`O5Bȗ+&>  2߷eJpݶM36`O5kT(G2PDocument Style&^aO5k.K+&,$@`O5Bȗ+&>  37`O5lT(G2PDocument Style&^aO5l.K+&,$@`O5Bȗ+&>*   38`O5mT(G2PDocument Style&^aO5m.K+&,$@`O5Bȗ+&>` ` ` 39`O5nT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>8@   2A40`O5oT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>A@` `  ` ` ` 41`O5pT(G2PDocument Style&^aO5p.K+&,$@`O5Bȗ+&>0    42`O5qT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>J` ` @  ` `  43`O5rT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>S` `  @  2ҽĺz944`O5sT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>\` `  @hh# hhh 45`O5tT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>e` `  hh#@( hh# 46`O5uT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>n` `  hh#(@- ( 47`O5vT(G2PRight-Aligned Paragraph NumbersK+&,$@`O5Bȗ+&>w` `  hh#(-@pp2 -ppp 2dCȿ48`O5wT(G2PDocument Style&^aO5w.K+&,$@`O5Bȗ+&>F *  ׃  49`O5xT(G2PTechnical Document Stylex.K+&,$@`O5Bȗ+&>&  . 50`O5yT(G2PTechnical Document Styley.K+&,$@`O5Bȗ+&>&  . 51`O5zT(G2PTechnical Document Stylez.K+&,$@`O5Bȗ+&>*    2+o52`O5{T(G2PTechnical Document Style{.K+&,$@`O5Bȗ+&>'   53`O5|T(G2PTechnical Document Style|.K+&,$@`O5Bȗ+&>&   54`O5}T(G2PTechnical Document Style}.K+&,$@`O5Bȗ+&>4$     55`O5~T(G2PTechnical Document Style~.K+&,$@`O5Bȗ+&>&  . 2C&}(56`O5T(G2PTechnical Document Style.K+&,$@`O5Bȗ+&>&  . 57`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>$ 58`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>/` ` ` 59`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>:` ` `  2/up60`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>E` ` `  61`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>P` ` ` hhh 62`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>[ 63`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>f 2a+!64`O5T(G2P1. a. i. (1) (a) (i) 1) a).K+&,$@`O5Bȗ+&>q 65`O5T(G2PDefault Paragraph Font5.K+&,$@`O5Bȗ+&>OO#P P##P P#66`O5T(G2P_Equation Caption^aO5.K+&,$@`O5Bȗ+&>OO#PP##PP#67`O5T(G2Pendnote reference^aO5.K+&,$@`O5Bȗ+&>RR#PP##PP#2Epqa68`O5T(G2Pfootnote reference^aO5.K+&,$@`O5Bȗ+&>R#PP#69 _5(_>7footnote text _5dK+b70t _5xŗ+tZP70 _5(_>7Document Style _5dK+b70t _5xŗ+t` ` ` 71 _5(_>7Document Style _5dK+b70t _5xŗ+t  . 2eeipa72 _5(_>7Document Style _5dK+b70t _5xŗ+t  73 _5(_>7Document Style _5dK+b70t _5xŗ+t  74 _5(_>7Document Style _5dK+b70t _5xŗ+t*   75 _5(_>7Document Style _5dK+b70t _5xŗ+t` ` ` 2i076 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+t8@   77 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+tA@` `  ` ` ` 78 _5(_>7Document Style _5dK+b70t _5xŗ+t0     79 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+tJ` ` @  ` `  2H80 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+tS` `  @  81 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+t\  ` `  @hh# hhh 82 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+te  ` `  hh#@( hh# 83 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+tn ` `  hh#(@- ( 2LB84 _5(_>7Right-Aligned Paragraph NumbersK+b70t _5xŗ+tw` `  hh#(-@pp2 -ppp 85 _5(_>7Document Style _5dK+b70t _5xŗ+tF *  ׃  86 _5(_>7Technical Document StyledK+b70t _5xŗ+t&  . 87 _5(_>7Technical Document StyledK+b70t _5xŗ+t&  . 2~C88 _5(_>7Technical Document StyledK+b70t _5xŗ+t*    89 _5(_>7Technical Document StyledK+b70t _5xŗ+t'   90 _5(_>7Technical Document StyledK+b70t _5xŗ+t&   91 _5(_>7Technical Document StyledK+b70t _5xŗ+t4$     24%}/92 _5(_>7Technical Document StyledK+b70t _5xŗ+t&   . 93 _5(_>7Technical Document StyledK+b70t _5xŗ+t&!"  . 94 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+t$#$ 95 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+t/%&` ` ` 2f@96 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+t:'(` ` `  97 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+tE)*` ` `  98 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+tP+,` ` ` hhh 99 _5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+t[-. 2&KK0K{100_5(_>71. a. i. (1) (a) (i) 1) a)dK+b70t _5xŗ+tf/0 "i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""I\\>>>\g0>03\\\\\\\\\\33gggQyyrg>Frgygrr>3>T\>Q\Q\Q>\\33\3\\\\>F3\\\\QX%Xc>0cT>>>0>>>>>>\>\3QQQQQwyQrQrQrQrQ>3>3>3>3\\\\\\\\\\Q\Z\\\g\QQQyQyQycyQtrQrQrQrQ\\\c\c\>3>\>>>\gcc\r3rIr>r>r3\l\\\\y>y>y>gFgFgFgcrMr3rT\\\\\\crQrQrQ\r>\gFr>\t0\\=!=WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNBnnBT\>Q\\\\\3;\7;\7>>QQ\??n\\nBnnBmgg>Q\7"yyyy\njc\gnn\"i~'^ %,77\V%%%7>%7777777777>>>0eOIIOD>OO%*ODaOO>OI>DOOgOOD%%37%07070%777V7777%*77O77055;%;3%%%%%%%%%7%7O0O0O0O0O0aHI0D0D0D0D0%%%%O7O7O7O7O7O7O7O7O7O7O0O7O6O7O7O7>7O0O0O0I0I0I;I0OED0D0D0D0O7O7O7O;O7O;O7%%7%%%7M>;;O7DD,D%D%DO7AO7O7O7O7aOI%I%I%>*>*>*>;D.DD3O7O7O7O7O7O7gOO;D0D0D0O7D%O7>*D%O7E77%%WMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(BB(37%07777j7#TT7!#TT7T!%%007n&&Bn77lBTn(nBB(AZZ>>n%07\n!"IIIITTenn7TnB@;7>lBBn72KK    "i~'^:LpddDDDdp4D48ddddddddddDDpppdLd||p|||D8DpdDddXdXDdp88d8pdddLL8pXdXLD,DpD4ppDDD4DDDDDDdDd8dddddXXXXXL8L8L8L8pddddpppp|Xdddd|Xd|ddddXXpXXXXXdddpdppL8LdLDLdpppd|8|h|D|L|8pppddLLLpLpLpLpp|l|8|ppppppp|p|L|L|Ld|DppL|D|d4ddC8CWddddddddddddddddddddddddddddddddddddddddNHxxHddLdddddd4A.SSxSSJJSJS+SSSSS8SSSSSSSSS.xJxJxJxJxJorJiJiJiJiJ8.8.8.8.{SxSxSxSxS{S{S{S{SxSxJ{SxSxSxS{S`SxIxSxIqIqIrSrS{dgIiSiSgIxSxSxSxSxS{S{S8.SSSS8Sz]SSuSg/g,?2?2>,H2H2H2H2H2J2J2!2222!2I822F2>>$?2>>J2:J2J2H2H2YHB$B$C26&6&6&62>$>?2J2J2J2J2J2J2^HH2@,@,@,J2?2J262?2H2<!22!!!WddddddddddddddddddddddddddddddddddddddddddddddddxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHHH222!,))22X222YY2#2222Y#!!442Ydd22<PPCiPPPCPPPPPPPCvCCCCCCCCvvvvvC5PPPCgv5DPO5PPPvvvYCivvvPvPAu4/4WddddddddddddddddddddddddddddddddddddddddNTT~PYVPTO33PPPPTTuu3OuO"uu~uu",tB^ f ^;C]ddCCCdCCCCddddddddddCCY~~vCN~sk~CCCddCYdYdYCdd88d8ddddJN8ddddYYdYd4dddddCddddddddd8YYYYYY~Y~Y~Y~YC8C8C8C8ddddddddddYdddddsdXdXXXddx|X~d~d|XdddddddC8ddddCdoddd|8|H~d|8|8dtddddHHdlLlLlLkd|H|8~ddddddddXXXd~ddkd~ddxCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCYQQddddddFddddFCChhd44ddxxdddvooChdF"dhd9dCCxCddoddCdYds]xUvdYYCCCCx~oxoY~NYdYC8YooYdYxsdxdd~YYxoxxx~CdxYxxxxCCdddddddxCsdYC\   pxtll\tll@\@\`L",tB^ f ^;C]ddCCCdCCCCddddddddddCCdxN`xoCCCddCdoYoYFdo8Co8odooYNCodddYdddd4dddddCddddddddo8dddddYYYYYN8N8N8N8oddddooooddpddddxodddXXddXddXdddddooL8doddNopddo8PdN8ppoddXXdpLoNpLodPDdopoopodXYXodoodddCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCdUUddddddFddddFCCssd44ddxxddd~ooCsdF"dsd9dCCxCddoddCdYds`xUvdddCCCCxoxoYNYYYN8YooYdYxxdxddYYxoxxxNdxYxxxxCCdddddddxCxdYC\   pxtll\tll@\@\`L2LGf c/K:=tB",tB^ f ^;C`ddCCCdCCCCddddddddddCCdxxxsCYoxxdoxxooCCCddCddYdY8dd88Y8ddddLL8dYYYLYdYd4dddddCddddddddd8xdxdxdxdxdYxYxYxYxYC8C8C8C8dddddddddoYxddddoYdxdxdxdxdXXddxxXxdxdxXdddddddD8ddddCdddddp8pHodp8p8dxddddxLxLxddLdLdLddpHp8odddddddodpLpLpLdoddddododxCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCd]]ddddddFddddFCCddd88ddxxdddkddCddF"ddd9dCCxCdxdoddCdYds]xUvdYYCCCCxxxoxoYxLoYdYC8YooYdYxxdxddoYoYxxoxxxxxCdooxYxxxxCCddddxdddoooxCsdYC\   pxtll\tll@\@\`L"i~'^DOpͨAOOYAOAAOO娨AĨۚOAOAOAAA͑YOuYAYOAOOOAOOOOOOOAͨAAAAAAAAAAOOOAAYOpAۨYYYpO۶uuuOODu484WddddddddddddddddddddddddddddddddddddddddNTTOYTăO]OAAuuOO郃錱T錌TAuuO"u錌~u匌u"i~'K2^3::bb!$$:b:::::::::::xbx+b[HY`JG`e(+WHleeGeT:RbWv[WP$:$<3&8C!C!bC@@>.*(@<[<@85<5x::::::::::::<:C![3[3[3[3[3MY3J3J3J3J3(!(!(!(!eCe@e@e@e@b@b@b@b@W@[3`H:eC::R:W@H<<!!!WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNWWW<::+33::o:::bb:(C<<:b(!!33:b!!xx::HH[xQQ]GN N)N0N0N eNTeNeNmNmNe0e0e0]G]G]G]QW5W(W?eNeNeNeNeNeNe]QWGWGWGeNN0eN]GW0]NW'FNWbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbddddddddddddddddddddddddddddddddddddddddN2TT2LN0WNNNNN54vvN02hhNv000N00TNNTj2TT2PooFF0F{0"\\\\jjFjTFLFQTTF"i~'^)0CNN{e'005Q'0''NNNNNNNNNN00QQQWeeee\Wme'NeWvem^me\We\\\W0'0QN'NWNWN0WW''N'{WWWW5N0WNmNNF5'5Q0'QQ000'000000N0W'eNeNeNeNeN{eN\N\N\N\N''''''''eWmWmWmWmWeWeWeWeW\NeNeWmWmW\NeW\WeNeNeNeNeNeQeNee\N\N\N\NmWmWmWmWmWeWeW''0W00'WmNQQeNW'W5W0WCW'eWbeWeWmWmWe5e5e5\N\N\N\QWCW0WQeWeWeWeWeWeWm\QWFWFWFeWW0eW\NW0\Ne)FN"WbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbddddddddddddddddddddddddddddddddddddddddN2TT2NN0WNNNNN52vvN08hhNv0''FFN00TNNTj2TT2PooWW'FF{0"\\\\jjFjTTLFQTTF",tB^ f ^44U``8;;`444```````````44Hx|vCHxv`;`;dd8UkUhU?]o84o8okkhLFCkddk]YdY`4`````4``````d`o8UUUUUU|U|U|U|UC8C8C8C8okkkkkkkkkUdkkkkvkX`XXX``x|X|`|`|Xd````ooC8`o``Cok``o|8|Hx`xCx8ddodkHH`lL`FlL``|H|8`kdkkdkkX]Xhx`o```kx4dd888WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNd``4HUU``````Codd`C88UU`88``xxdddvoo8UdC"d`d9dCCx4d`o`d``Y`s]xUvdYY;;;;xxoxoY|LYdYC8YooYdYxvdxddYYxoxxx|C`xYxxxx44```````x`sdYC\   pxtll\tll@\@\`L2f Xj cQn",tB^ f ^00U``000`000d``````````00FsvdC?vo]x~0d0dd0]`HdH8U`;0d8o]]`N;?hh]YUYdY`4`````0``````d`d;]]]]]~HvHvHvHvHC;C;C;C;o]]]]hhhhY]d]]Y]o]xd`xdXX``xxXv`v`xXd``````D;`d``Cdk``dp8pHv`vCv8ddod`xLxL`dL];dL``pHp8x`hdhhdh`pL~UpLdv`o``x`dx0dd080WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNd``4FQQ```YY`CYdd`C00QQ`;;``xxdddhdk0QdC"dYd9dCCx0d`o`d``Y`s]xUvdYY0000xsoxoYvN~YdYC8YooYdYxodxddxYYxoxxxvC`xYxxxx00```````x`sdYC\   pxtll\tll@\@\`Ly.X80,ɒX\  P6G;P7jC:,ynXj\  P6G;XP7nC:,\4  pG;\5hC:,%rXh*f9 xr G;XX W!@(#,h@\  P6G;hP!H5!,),5\  P6G;,P\"{,W80,%BZW*f9 xr G;X#z-X80,<|X9 xOG;$x/c81,X c PE37P %2a=5,u&a\  P6G;&P &P:% ,J:\  P6G;JP'H<!,X,< PE37,P(z-b81,aub&_ x7X<?xxx,qx6X@`7X@ ?xxx,yΡx6Nhez7XH)#mt,ؐ\  P6G;P*6jC:,<̃Xj9 xOG;X+8wC;,X|Xw PE37XPD7zC;,EXz_ pi7X6uC;,aE;Xu&_ x7XX9NC,Ӽ2PG;P6ND,A2pPG;T9ND,Å2xjAG;Xj"L/(,L2PG;Pk!O/),O2pPG;l;xC4,SXxjp P7XPlT$H(,phHjp P7hP&;sC0,Xs4@ x7XX%k!O/),5O2pPG;?xxx,\x `7X X-  "4% yO-#X\  P6G;ɒP#Federal Communications Commission`F (#'FCC 96J3  yxxdddy "  `(##FCC 96J3 ă  X-v3 #X\  P6G;ɒP#Before the à FEDERAL COMMUNICATIONS COMMISSION  yOaWashington, D.C. 20554 #Xj\  P6G;ynXP#у  X4-In the Matter of hh@) x` `  hh@)  X-FederalState Joint Board onhh@)hppCC Docket No. 9645  X-Universal Service hh@) x` `  hh@)  X - RECOMMENDED DECISION ă Adopted: November 7, 1996`(#Released: November 8, 1996 By the FederalState Joint Board (Chairman Hundt and Commissioners Johnson, Nelson, and Ness, and the Honorable Martha Hogerty issuing separate statements; Commissioners McClure, Schoenfelder, and Chong concurring in part and dissenting in part and issuing separate statements):  X- Table of Contents ă  X- Topic`!(# Paragraph No. ă  Xh-X` hp x (#%'0*,.8135@8:", } {O -ԍ See, e.g., Florida PSC comments at 4; LINCT Coalition comments at 2 (stating "all four goals need not be met"); Oregon PUC comments at 5 (urging the FCC and the Joint Board to interpret the four criteria in a way that does not require that every criterion be met before a service can be included in the definition of universal service); RTC comments at 78. For instance, Florida PSC strongly endorses the FCC's interpretation that the use of the verb "consider" allows selection of services for support that">*&&dd"  X-do not meet all four criteria.D?} yOy-ԍ Florida PSC comments at 4.D In addition, RTC argues that "a service need not satisfy all  X-four criteria" for inclusion in the federal universal service definition.>@X} yO-ԍ RTC comments at 78.> Some parties,  X-however, disagree.A} {Ok-ԍ See Florida Cable comments at 5; Georgia PSC comments at 6; NCTA comments at 4; USTA comments at 5. Georgia PSC argues that all four principles must be met before designating a service for support, and that a failure to do so could be "an abuse of discretion  X-by the Commission, arbitrary and capricious, and a violation of the intent of Congress."DBB} yO -ԍ Georgia PSC comments at 6.D NCTA, USTA and Florida Cable maintain that the use of the conjunction "and," rather than the disjunctive word "or," indicates a service must meet each and all of the statutory criteria  X_-to be included within the definition of universal service.nC_} yO-ԍ Florida Cable comments at 5; NCTA comments at 4; USTA comments at 5.n Florida Cable argues that, at a minimum, all of the criteria must be considered when determining whether access to a service  X1-should be guaranteed.FD1b } yOD-ԍ Florida Cable comments at 5.F  X -x 33.` ` On another matter of statutory interpretation, a few commenters argue that the 1996 Act's statutory language and legislative history indicate that section 254(c)(1) does not permit universal service support for information services, but expressly limits support to  X -telecommunications services.ZE } yOa-ԍ ITA/EMA comments at 510; TCI comments at 56. Z Specifically, these parties construe the 1996 Act's definition of "telecommunications" as excluding those services that "change . . . the form or content of  X-the information as sent and received."F } {O-ԍ ITA/EMA comments at 6 (citing 47 U.S.C.  153(43)). See also TCI comments at 56 (citing 47 U.S.C.  153(43)). Further, these parties cite legislative history to bolster their arguments that universal service support must be limited to telecommunications  Xb-services.Gb} yO -ԍ ITA/EMA comments at 67 (noting that Congress adopted the Senate's definition of "telecommunications" which excludes information services and citing H.R. Conf. Rep. No. 458, 104th Cong., 2d Sess. 116 (1996)); TCI comments at 67 (noting that Congress rejected an earlier version of a Senate bill which included information services within the description of universal service and citing S. 1822, 103d Cong. 2d Sess.  102(a) (1994)).  X4-x!34.` ` Defining Universal Service. Some commenters disagree with the NPRM's"4G*&&dd"  X-approach to defining universal service.H} {Oy-ԍ See, e.g., Georgia PSC comments at 5; Washington UTC comments at 7; Alliance for Public Technology further comments at 4. Washington UTC, for example, argues that listing specific services to support "freeze[s] universal service policy in the technology and services  X-of 1996."GI"} yO-ԍ Washington UTC comments at 7.G Washington UTC proposes instead that a description of functionalities and access,  X-rather than services, be used to define universal service.3J} {O -ԍ Id.3 Alliance for Public Technology  X-also asserts that defining universal service in terms of specific services is unworkable._KD} yO -ԍ Alliance for Public Technology further comments at 4._ Instead, Alliance for Public Technology recommends that carriers choose the amount of  Xv-bandwidth they will offer.3Lv} {O-ԍ Id.3 Carriers would then earn 100 percent of the maximum support  X_-available for maximum bandwidth and lesser percentages for lesser bandwidth offerings.3M_f } {Ov-ԍ Id.3 Other parties argue that access to services, but not any service itself, should be eligible for  X1-support.vN1 } {O-ԍ See, e.g., Georgia PSC comments at 5; CompTel further comments at 89.v  X -x"35.` ` A crosssection of commenters and most of the commenters that addressed this issue including LECs, IXCs, consumer groups and state PUCs, favor designating all  X -five services for federal universal service support for purposes of section 254(c)(1).O" } {O-ԍ See, e.g., 360 comments at 3; Ameritech comments at 6; Florida PSC comments at 6; GTE comments at 2; ITA/EMA comments at 4; Michigan Consumer Federation comments at 20; NCTA comments at 5; PULP comments at 9; SBA comments at 5; SWBT comments at 8; Sprint comments at 6; Time Warner comments at 4; U S West comments at 5; Western comments at 7. Alaska PUC, for example, argues that a substantial majority of customers subscribe to each of these  X -and they are commonly deployed in the public telecommunications network.CP t} yO-ԍ Alaska PUC comments at 2.C Washington UTC, however, advises the Joint Board to allow the market to determine the definition of universal service in order to avoid creating barriers to entry by requiring the provision of  Xb-certain services.GQb} yO$-ԍ Washington UTC comments at 9.G Similarly, Western opposes requiring dialtone, which, it states, effectively"bQ*&&dd"  X-discriminates against wireless carriers.R} yOy-ԍ Western comments at 8 (describing dial tone as "a frequency tone audible to a caller"). In contrast, some commenters submit that each of these services can be offered by cellular providers and, thus, they do not provide a barrier to  X-entry for cellular carriers.SX} {O-ԍ See, e.g., Commnet Cellular reply comments at 8. See also 360 comments at 4.  X-x#36.` ` Voice Grade Access to the Public Switched Network. Parties that address this issue overwhelmingly favor supporting voice grade access to the public switched network with  Xv-the ability to place and receive calls.DTZv} {O -ԍ  See, e.g., Bell South comments at 5; Florida PSC comments at 6; MCI comments at 3; Michigan Consumer Federation comments at 20; North Dakota PSC comments at 1; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 8; AT&T reply comments at 17; NTIA reply comments at 7.D Georgia PSC, however, argues that voice grade access is a group of services rather than one service, and that some of these services will qualify for  XH-support while others will not.UH } yO-ԍ Georgia PSC comments at 7 (arguing that single party wireline service qualifies for universal service support, but the Commission is prohibited from providing universal service support for cellular service).  X -x$37.` ` Several commenters argue that usage of, and not merely access to, the local  X -network should be supported.V  d } yO-ԍ AARP comments at 9; Edgemont comments at 12; Florida PSC comments at 6; LINCT Coalition comments at 34; MCI comments at 3; People For comments at 11; Texas PSC comments at 8; Time Warner comments at 4; CPI reply comments at 5 n.10; NTIA reply comments at 7 n.14; Ohio Consumers' Council reply comments at 1213; Pennsylvania PUC reply comments at 6; Citizens Utilities further comments at 5. For example, Time Warner states that a basic level of local usage should be included within the definition of universal service because, it argues, the  X -ability to place calls is equally, if not more, important than the ability to receive calls.MW L } yO-ԍ Time Warner further comments at 12.M Pennsylvania PUC interprets the "singleparty service" component of the NPRM's proposed  X -core services to include local service usage.QX } yO4-ԍ Pennsylvania PUC reply comments at 34.Q Illinois CC, in contrast, opposes universal  X-service support for local usage.Yl} {O -ԍ Illinois CC comments at 4. See also CSE Foundation reply comments at 4; AirTouch further comments at 5.  Xb-x%38.` ` In addition, Florida PSC proposes supporting flatrate service and unlimited  XK-calling within a subscriber's local calling area.oZK} {O%-ԍ Florida PSC comments at 6. See also Texas OPUC comments at 16.o Some parties note that a large number of"KXZ*&&dd"  X-consumers consistently choose flatrate service over measuredrate service.[} yOy-ԍ AARP comments at 9; Georgia PSC comments at 89; Ohio Consumers' Council comments at 13. California PUC advocates a support mechanism that would allow consumers to choose between flat or  X-measuredrate service.G\X} yO-ԍ California PUC comments at 6.G CSE Foundation, in contrast, states that mandating flatrate service for all subscribers restricts their options, because, it argues, some consumers may desire more  X-limited service at a price lower than that of flatrate service.M]} yO= -ԍ CSE Foundation reply comments at 4.M  Xv-x&39.` ` Some parties favor using universal service funding to ensure that consumers may access their "community of interest" or area in which essential public services are  XH-located, by placing local calls.^ZHx} {Oq-ԍ See, e.g., Colorado PUC comments at 3; Louisiana PSC comments at 3; Michigan Consumer Federation comments at 20; Montana PSC comments at 4; New Jersey Advocate comments at 8; OITAWITA comments at 35. Various commenters note that subscribers in rural areas must often place toll calls in order to access essential services such as schools, health care providers  X -and local government offices._" } {Oe-ԍ See, e.g., AARP comments at 18; Century comments at 46; Keystone comments at 8; Montana PSC comments at 4; Rural Iowa Indep. Tel. Coalition comments at 3; Telec Consulting comments at 5; Minnesota Indep. Coalition reply comments at 34; Alaska Tel. further comments at 5; CFA further comments at 23; Western Alliance further comments at 2.  X -x'40.` ` TouchTone.` } yO!-ԍ Florida PSC suggests the Joint Board refer to this function as "dual tone multifrequency" (DTMF) 116 rather than touchtone. Florida PSC comments at 6. Parties express widespread support for providing universal  X -service support for touch tone service.aZ } {Ob-ԍ  See, e.g., Bell Atlantic comments at 7; Farmers Tel. comments at 2; Michigan Consumer Federation comments at 20; Missouri PSC comments at 4; TCA comments at 5; NENA reply comments at 1; NTIA reply comments at 7. SBA, for example, maintains that touchtone service plays an important role in allowing customers to connect to a variety of voice mail systems,  X -information services, and productordering services.>b } yOV!-ԍ SBA comments at 56.> In addition, Citizens Utilities contends  X-that touchtone service meets the statutory criteria of section 254(c)(1)(B), (C) and (D).zc} {O#-ԍ Citizens Utilities comments at 6 (citing 47 U.S.C.  254(c)(1)(B)(D)).z Bell Atlantic, however, argues that the decision to provide support for touchtone service is a"y c*&&dd"  X-matter that should be left to the states.Fd} yOy-ԍ Bell Atlantic comments at 8.F  X-x(41.` ` SingleParty Service. Many parties support including singleparty service in the  X-definition of universal service.eX} {O-ԍ See, e.g., Bell Atlantic comments at 7; Florida PSC comments at 6; Frontier comments at 2; Georgia PSC comments at 7; NASUCA comments at 1718; CPI reply comments at 6. Bell Atlantic, for example, argues that singleparty service  X-meets all four of the criteria of section 254(c)(1).nf} {O -ԍ Bell Atlantic comments at 7 (citing 47 U.S.C.  254(c)(1)).n Bar of New York argues that singleparty  X-service is essential because it is recognized to be a prerequisite for Internet access.IgD} yO -ԍ Bar of New York comments at 14.I SWBT contends that a transition period is required to permit upgrades that transform multiparty  X_-service to singleparty service.=h_} yO-ԍ SWBT comments at 8.= Washington UTC, however, states that in some cases,  XH-converting to singleparty service might be costprohibitive.GiHd } yO]-ԍ Washington UTC comments at 8.G  X -x)42.` ` Access to Emergency Service. Several commenters favor providing universal service support for access to emergency services, where the actual service, i.e., Public Safety  X -Answering Point (PSAP), is provided by local authorities.~j } yO-ԍ Oregon PUC comments at 5; SWBT comments at 8; Texas Emergency reply comments at 12.~ Wisconsin PSC recommends that the Joint Board and Commission carefully define "access to emergency services" to indicate whether this term means the ability to place calls to these numbers or whether it includes the specialized call routing network that delivers calls to the designated governmentchosen  X-PSAP.Hk } yO-ԍ Wisconsin PSC comments at 8. H Michigan Consumer Federation argues that emergency services, and not merely  Xy-access to emergency services such as 911, should be offered at no cost.Vly} yO>-ԍ Michigan Consumer Federation comments at 20.V Some parties assert that carriers should not receive universal service support for 911 service if existing state  XK-funding mechanisms already provide support.GmK} {O"-ԍ See Ameritech comments at 7 (stating that support should be provided for the transmission facility that connects a subscriber to the location manned by public safety personnel, but not for the equipment used by those personnel or their training, as these costs are generally supported by tax revenues); Missouri PSC comments at 45 (noting that the Commission must distinguish between the cost of the switch necessary for E911 and the cost of the service itself because Missourians already pay taxes to cover the cost of the service).G Texas Emergency suggests that carriers"KVm*&&dd" seeking support should certify that 911 service is being provided by the local government in geographic areas they serve and that network costs are not already being recovered by the  X-rates paid by local government authorities for 911 service.Nn} yOK-ԍ Texas Emergency reply comments at 3.N Georgia PSC believes that  X-access to emergency services should be delegated to the states.FoX} yO-ԍ Georgia PSC comments at 7. F  X-x*43.` ` Some commenters recommend supporting enhanced 911 (E911) service.TpD} yO& -ԍ Michigan Consumer Federation comments at 20; NENA comments at 2. E911 is a system wherein, when a wireline 911 call is placed in a region with E911 capability, the telephone number of the telephone from which the 911 call is made is passed to the LEC central office at which a database, usually maintained by the LEC, is then used to route the call to the most appropriate PSAP. The caller's telephone number and other information are transmitted to the PSAP along with the location of the telephone, as determined from LEC  {O-records. See Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling  {O-Systems, CC Docket No. 94102, Report and Order and Further Notice of Proposed Rulemaking, FCC 96264 (rel. July 26, 1996).T AlabamaMississippi Tel. Ass'n, however, contends that most states have their own separate funding mechanisms for E911 and, therefore, E911 should not be supported by the universal  XH-service fund at this time.WqH } yO-ԍ AlabamaMississippi Tel. Ass'n comments at 3.W Commnet Cellular asserts that consideration of support for E911 should wait until the Commission concludes its existing public safety proceeding to determine  X -whether to impose E911 requirements on wireless carriers.zr } {OO-ԍ Comnet Cellular reply comments at 8 (citing Commission Docket No. 94102).z  X -x+44.` ` Access to Operator Service. Various parties favor supporting access to operator  X -services.s } {O-ԍ See, e.g., AT&T comments at 12; BellSouth comments at 5; Florida PSC comments at 6; Michigan Consumer Federation comments at 20; Cincinnati Bell reply comments at 3; LDDS reply comments at 7. Bell Atlantic, for example, contends that access to operator service meets each of the criteria set forth in section 254(c)(1), and therefore, it argues, should be supported through  X -universal service mechanisms.ut p} {O-ԍ Bell Atlantic comments at 7 (citing 47 U.S.C.  254(c)(1)(A)(D)).u Georgia PSC, in contrast, submits that access to operator  X-services is competitive in Georgia and does not require federal universal service support.Du} yOC"-ԍ Georgia PSC comments at 7.D  Xb-x ` ` 3. Discussion (#  X4-x,45. ` ` As previously mentioned, the 1996 Act defines "telecommunications services""4u*&&dd" as "the offering of telecommunications for a fee directly to the public . . . regardless of the  X-facilities used."Av} yOb-ԍ 47 U.S.C.  153(46).A With the exception of singleparty service and touchtone dialing, the core services proposed in the NPRM represent functionalities or applications associated with the provision of access to the public network, rather than tariffed services. The Joint Board concludes that defining telecommunications services in a functional sense, rather than on the basis of tariffed services alone, is consistent with the intent of section 254(c)(1). First, a functionalities approach to defining universal service will be more flexible than a servicesonly approach, particularly with respect to anticipated technological and marketplace changes and evolutions. Second, a functionalities approach is consistent with the overarching goal of the 1996 Act of encouraging competition, since it is technology neutral. Thus, we recommend that for purposes of defining universal service, "telecommunications services" should not be limited to tariffed services, but instead also should include functionalities and  X -applications associated with the provision of services.w X} yO-ԍ For discussion purposes, we hereafter refer to these functionalities and applications as "services."  X -x-46.` ` Based on the overwhelming support in the record, the Joint Board recommends that the services proposed in the NPRM should be included in the general definition of services supported under section 254(c)(1). We conclude that providing universal service support for each of these services, or access to the services, where applicable, is consistent with the statutory guidelines set forth in the 1996 Act. We reject the arguments of commenters that a service must meet all of the statutory criteria of section 254(c)(1)(A)(D)  X4-before it may be included within the definition of universal service.}x4} {O-ԍ See, e.g., Georgia PSC comments at 6; NCTA comments at 4; USTA comments at 5.} Instead, we conclude that while the Joint Board must consider all four criteria before determining that a service or functionality should be included, we need not find that a particular service meets each of the four criteria. Accordingly, we recommend that singleparty service, voice grade access to the  X-public switched telephone network (PTSN), DTMF or its functional digital equivalent,Cyz} {O-ԍ See infra para. 23.C access to emergency services and access to operator services be designated for universal service support pursuant to section 254(c)(1).  X|-x.47. ` ` We conclude that singleparty service is widely available and subscribed to by a majority of residential customers. In addition, we find that singleparty service is essential to public health and safety in that it, among other things, allows access to emergency services without delay. Furthermore, singleparty service is consistent with the public interest, convenience and necessity. Therefore, the Joint Board recommends that singleparty service should receive universal service support. We further find that singleparty service means that"  y*&&ddy" only one customer will be served by each subscriber loop or access line, although carriers may offer consumers the choice of multiparty service in addition to singleparty service and remain eligible for universal service support. In addition, to the extent that wireless providers use spectrum shared among users to provide service, we find that wireless carriers provide the equivalent of singleparty service since users are given a dedicated channel for each  X-transmission.CzX} yO-ԍ Wireless carriers are not, however, required to provide a single channel dedicated to a particular user at all times; a wireless carrier provides the equivalent of singleparty service when it provides a dedicated message path for the length of a user's particular transmission. C Moreover, we recommend permitting a transition period for carriers to make upgrades to provide singleparty service, but only to the extent carriers can meet a heavy burden that such a transition period is necessary and in the public interest. Since state commissions will be responsible for designating carriers as eligible for purpose of receiving  X1-federal universal service support,{1} {O -ԍ See infra section VI for a discussion of carriers eligible for universal service support. we recommend that states make the determination as to the need for a transition period for a particular carrier.  X -x/48. ` ` We find that the record provides ample support for our conclusion that voice grade access, an essential element to telephone service, is subscribed to by a substantial majority of residential customers and its being deployed in public telecommunications networks by telecommunications carriers. In addition, we find that voice grade access should occur in the frequency range between approximately 500 Hertz and 4,000 Hertz, for a bandwidth of approximately 3,500 Hertz. Because we find that voice grade access should be defined within this range, we decline to adopt the sliding scale approach, which would base an eligible carrier's support amount on the bandwidth offered by the carrier, as advocated by Alliance for Public Technology. Voice grade access should also include the ability to place calls, including the ability to signal the network that the caller wishes to place a call, and the ability to receive calls, including the ability to signal the called party that there is an incoming  X-call.k|z} yO-ԍ We explicitly do not include call waiting within this definition.k  X-x049. ` ` Based on strong support in the record, we also recommend including a local usage component within the definition of voice grade access. The record suggests that local usage is essential to realizing the full benefits of voice grade access. We conclude that the states are best positioned to determine the local usage component that represents affordable  Xe-service within their jurisdictions.f}e } {O #-ԍ See infra section V for a discussion of affordability.f Nonetheless, for purposes of determining the amount of federal universal service support, we recommend that the Commission determine a level of local usage. " }*&&dd"Ԍ X-x150. ` ` We agree with commenters who argue that "touchtone" is more appropriately termed DTMF signaling. DTMF facilitates the transportation of signaling through the network. DTMF also accelerates call setup time. As noted in the NPRM, other methods of signaling, such as digital signaling, can provide network benefits equivalent to that of  X-DTMF.g~} yO-#]\  PCɒP#э NPRM at para. 19 n.53.g Therefore, we recommend that DTMF or its functional digital equivalent (hereinafter referred to as "DTMF") be supported under section 254(c)(1). We find that the network benefits that emanate from DTMF or its equivalent, particularly rapid call setup time, are essential to a modern telecommunications system. In addition, we find that supporting DTMF is competitively neutral, consistent with our recommended principle. We note that various wireless carriers favor inclusion of "touchtone" within the general definition  X -of universal service.; X} {O# -#]\  PCɒP#э See, e.g., PCIA comments at 14 n.38 (stating "PCIA [concurs] with the Commission's assessment that touch tone service is one of the elements that should be supported by the universal service plan. The Commission correctly points out that touch tone is increasingly essential to completing telecommunications transactions. This is certainly true in connection with the delivery of messages to a messaging service subscriber."); 360 comments at 3; Comnet Cellular reply comments at 8.;  X -x251. ` ` Like the other core services, access to emergency service is a functionality that is widely deployed and subscribed to by a majority of residential subscribers. Further, access to emergency service is widely recognized as "essential to . . . public safety." In defining access, the record supports the inclusion of access to 911. Nearly 90 percent of lines today  X-have access to 911 capability. In addition, we recommend access to E911 service, where the locality has chosen to implement that service, be included in the definition of universal service. We do not recommend providing universal service support, however, for E911 service itself. As in the case of regular 911 service, the telecommunications network is only one component of E911 service; local governments provide the PSAP. E911 facilitates the determination of the location of the calling party, but wireless carriers are not currently capable of providing E911 service. The Commission has directed cellular, broadband Personal Communications Service (PCS) and certain Specialized Mobile Radio (SMR) carriers to provide E911 service, but the requirement will not be effective for five years because such a requirement will compel these wireless carriers to make technical upgrades before they will  X-be able to offer E911.B\ } {Og -ԍ See Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling  {O1!-Systems, CC Docket No. 94102, Report and Order and Further Notice of Proposed Rulemaking, FCC 96264  yO!-(rel. July 26, 1996).B Therefore, requiring carriers to provide E911 would presently  X-exclude all wireless carriers from eligibility to be "eligible telecommunications carriers,"e. } {Ot$-ԍ See infra section VI for a discussion of eligibility.e contrary to the principle that universal service be competitively neutral. Accordingly, we"~ *&&dd" recommend not including E911 service within the definition of services to be supported at this time, but may recommend its consideration when the definition is revisited, as anticipated by  X-section 254(c)(2). Nevertheless, we recommend supporting access to E911, in addition to access to 911 and other emergency services, when a local community requests that a carrier  X-provide such access.s} {O-ԍ See discussion of services supported but not mandated, infra.s  Xx-x352. ` ` The record provides support for our conclusion that access to operator service is widely deployed and used by a majority of residential customers. Access to operator service is essential in public health and safety emergencies. In supporting this functionality, we recommend that the Commission adopt the definition of operator services it implemented for purposes of section 251(b)(3), namely, "any automatic or live assistance to a consumer to  X -arrange for billing or completion, or both, of a telephone call."& Z} {O-ԍ Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket  {O-No. 9698, Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket No. 95185, Second Report and Order and Memorandum Opinion and Order, FCC 96333 (rel. Sept.  {Ol-6, 1996) (Local Competition Second Report and Order). We note that the Commission has recently implemented rules to ensure that LECs permit nondiscriminatory  X -access to operator services by competing providers.L H} {O-ԍ Id. at paras. 114137.L  X -x453.` ` There is no evidence in the record to suggest that any one of these services will create a barrier to entry for potential new competing carriers if it is included in the definition of universal service. One of the explicit goals of the 1996 Act is a "procompetitive" national  Xd-telecommunications policy.Md} yO-ԍ Joint Explanatory Statement at 113.M We find that including these services within the definition of universal service will not erect technical barriers that would prevent wireless and other telecommunications carriers from competing. In fact, two wireless providers, Commnet Cellular and 360, assert that each of the services proposed in the NPRM can be provided by wireless carriers. We find Western's argument regarding wireless carriers' inability to provide  X-dialtone to be immaterial because, as discussed infra, we recommend that the definition of voice grade access not require the provision of dialtone. Further, we find no merit in Georgia PUC's assertion that the Commission is prohibited from providing universal service support for cellular service, as this prohibition is neither a provision of the 1996 Act, nor consistent with the 1996 Act's procompetitive principle. Indeed, cellular service falls within the"j *&&dd3"  X-definition of telecommunications services:X} yOy-ԍ 47 U.S.C.  153(46) (stating that "[t]he term 'telecommunications service' means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used").: and section 254(c)(1) specifically requires this  X-Joint Board to recommend telecommunications services for which support will be provided.M} {O-ԍ See 47 U.S.C.  254(c)(1).M  X-x C.` ` Other Services (#`  X-x` ` 1. Background (#  X_-x554.` ` The NPRM asked whether, consistent with the criteria enumerated in section  XH-254(c)(1), support should be available for services besides those proposed in the NPRM.@Hz} yOs-ԍ NPRM at paras. 17, 23.@ Specifically, the NPRM, noting the directive of section 254(b)(3) relating to "access to . . . interexchange services," sought comment on whether access to interexchange service, i.e., the  X -ability to originate and receive toll calls, should be supported.; } yO-ԍ NPRM at para. 23.; The NPRM also requested comment on whether services such as relay services, directory listings, and equal access to interexchange carriers, i.e., the ability to access the long distance carrier to which a customer  X -is presubscribed by dialing a 1+ number, should be supported.3 } {O -ԍ Id.3 In addition, the NPRM requested comment on whether advanced services, for example Internet access, data transmission capability, optional SS7 features or blocking of such features, enhanced services, and broadband services warrant inclusion, now or in the future, in the list of services  Xb-supported by the federal universal service fund.3b, } {O?-ԍ Id.3   X4-x` ` 2. Comments (#  X-x655.` ` Expanding the Definition of Universal Service. Several commenters oppose expanding the definition of services to be supported under section 254(c)(1) beyond those  X-services proposed in the NPRM. } {OG#-ԍ See, e.g., CSE Foundation comments at 6; DCA comments at 22; ITA/EMA comments at 5; MCI comments at 9; Sprint comments at 78; Citizens Utilities further comments at 5. A few parties advocate permitting the selection of services by consumers in the marketplace to dictate whether and when the definition of universal"*&&dd"  X-service evolves to include additional services.~ } yOy-ԍ AARP comments at 11; SWBT comments at 9 (asserting that customer demand, marketplace acceptance and deployment of costs should be considered); U S West comments at 6 (urging that "highmarketpenetration level" and "a net benefit to society from providing the service universally" should determine whether additional service are supported).~ Some parties cite as arguments against expanding supported services beyond the services proposed in the NPRM the goals of limiting  X-the amount of contribution needed to support universal service|} {O3-ԍ See, e.g., Washington UTC comments at 9; CSE Foundation reply comments at 4.| and ensuring the quality and  X-availability of services currently offered.JB} yO -ԍ Nat'l Retail Fed. comments at 2.J Ad Hoc Telecom. Users maintains that advanced services should not be supported because they are neither subscribed to by a majority of  X-subscribers nor necessary for health or safety.N} yO-ԍ Ad Hoc Telecom. Users comments at 4.N MCI asserts that other services should be supported only if, after analyzing the cost of the service and the effect of the support on the demand for the service, the subscribership benefit of the service exceeds the cost of the  XH-reduced subscribership of the subsidizing service.>Hb } yO[-ԍ MCI comments at 89.> NARUC contends that the definition of supported services should evolve over time to meet expanding needs and that states must be able to develop and refine universal service policies to meet the needs of subscribers within  X -their jurisdictions.? } yO-ԍ NARUC comments at 11.?  X -x756.` ` As discussed in the following paragraphs, many parties, however, recommend expanding the definition of services to be supported beyond the services proposed in the  X -NPRM and suggest a wide range of other services. } {O-ԍ See, e.g., AARP comments at 10; Cincinnati Bell comments at 4; Farmers Tel. comments at 23; Michigan Consumer Federation comments at 2021; Minnesota Indep. Coalition comments at 9. According to GVNW, the services  X-proposed in the NPRM will provide nothing more than "plain old telephone service."E} yO-ԍ GVNW reply comments at 78.E In addition, Wyoming PSC asserts that providing universal service support for additional services will enhance the viability of rural states which, it states, have become "increasingly reliant on  XK-the deployment of modern telecommunications technology for economic growth."pKl} {Oh#-ԍ Wyoming PSC comments at 8. See also Alaska PSC comments at 36.p  X-x857.` ` Access to Interexchange Service. Many commenters favor providing support"*&&dd"  X-for access to interexchange service.} {Oy-ԍ See, e.g., Florida PSC comments at 7; New Hope Tel. comments at 23; OITAWITA comments at 35; Fred Williamson comments at 1011. West Virginia Consumer Advocate, for example, argues that consumers who live in rural areas and must place toll calls to obtain essential  X-services especially require access to interexchange service."} yO-ԍ West Virginia Consumer Advocate comments at 7. The arguments of commenters who favor providing  {Om-universal service support for toll usage are discussed infra. AirTouch, however, contends that universal service suppresses interexchange usage because, it argues, long distance rates  X-rise as a result of IXCs' contributions to universal service.E|} yO -ԍ AirTouch comments at 1314.E  Xv-x958.` ` Equal Access to IXCs. Some parties favor supporting equal access to long distance service, i.e., the ability to access the long distance carrier to which a customer is  XH-presubscribed by dialing a 1+ number./ZH } {O-ԍ See, e.g., AT&T comments at 12; Ardmore Tel. comments at 2; Bledsoe Tel. comments at 3; Bloutsville Tel. comments at 2; LDDS comments at 8; Minnesota Indep. Coalition comments at 9; Missouri PSC comments at 6; TCA comments at 5; Wyoming PSC comments at 7./ Ohio Consumers' Council asserts that consumers should have access to all available long distance carriers, but questions whether universal  X -service support is required to provide access.Q . } yO-ԍ Ohio Consumers' Council comments at 13.Q 360 argues that requiring eligible carriers to provide equal access to IXCs would preclude CMRS providers from receiving universal  X -service support and would be contrary to congressional intent."Z } {O[-ԍ 360 reply comments at 2, citing 47 U.S.C.  332(c)(8) ("A person engaged in the provision of commercial mobile services . . . shall not be required to provide equal access to common carriers for the provision of telephone toll services.")."  X -x:59.` ` TRS. Many commenters favor universal service support for TRS, } {OO-ԍ See, e.g., Alaska PUC comments at 6; Michigan Consumer Federation comments at 21; Minnesota Indep. Coalition comments at 9; New York CPB comments at 6; Telec Consulting comments at 4. while  X -others argue that support should be limited to access to TRS. :} {O -ԍ See, e.g., California PUC comments at 6; Cincinnati Bell comments at 4; Louisiana PSC comments at 3; Pennsylvania PUC comments at 6. Some parties recognize that  X-TRS is currently supported through a separate TRS fund.o} {O#-ԍ See, e.g., AT&T comments at 13 n.17; NYNEX comments at 11 n.21.o  Xb-x;60.` ` White Page Directories and Listings. Many commenters favor including a"b &*&&dd"  X-standard white page directory listing and directory assistance among supported services.2Z} {Oy-ԍ See, e.g., AARP comments at 10; Blountsville Tel. comments at 2, Michigan Consumer Federation comments at 21; NTIA reply comments at 7; New York DPS comments at 1213; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 8; Wyoming PSC comments at 7.2 Florida PSC argues, however, that eligible telecommunications carriers should be required to provide their subscribers with white page listings, but should not recover the cost from  X-universal service support mechanisms.F} yOV-ԍ Florida PSC comments at 78.F Instead, Florida PSC suggests that telecommunications providers can sell "designer" white page listings to pay for the cost of  X-producing directories.3z} {O -ԍ Id.3  X_-x<61.` ` Directory Assistance. Some parties recommend that access to directory  XH-assistance be supported.H } {O-ԍ See, e.g., AARP comments at 10; Michigan Consumer Federation comments at 21; NTIA reply comments at 7; New York DPS comments at 1213; SWBT comments at 8. New York CPB, for example, asserts that directory listings and services are widely deployed by telecommunications providers, are used by "virtually all telephone subscribers," are essential for access to the network, and provide public safety and  X -health benefits, especially to users away from home.E f } yO-ԍ New York CPB comments at 6.E  X -x=62.` ` Blocking Services. A few parties propose supporting 900 number blocking  X -through universal service mechanisms. } yOe-ԍ AARP comments at 10; Alaska PUC comments at 6; New York CPB comments at 67; Wyoming PSC comments at 7. Other parties favor providing universal service  X -support for toll blocking or toll controluX N } yO-ԍ With toll blocking, a subscriber voluntarily surrenders his ability to place toll calls over his subscriber loop. With toll control, a subscriber's long distance usage is capped at a certain dollar or minuteofuse amount per month. Both mechanisms are designed to enable subscribers to control their long distance service bills.u services.UZ n} {O-ԍ See, e.g., Alaska PUC comments at 6; Benton comments at 2; GSA comments at 8; Indiana URC comments at 23; LDDS comments at 89; Missouri PSC comments at 6; PULP comments at 1617 (noting that NYNEX currently provides voluntary toll blocking to all residents at no charge); RUS comments at 11.U Missouri PSC argues that toll blocking might increase subscribership levels by permitting those who have been disconnected due to unpaid toll bills to regain basic telephone service that would enable them to make and receive  Xb-local calls and to receive toll calls.Gb} yO%-ԍ Missouri PSC comments at 67.G Missouri PSC cites studies that, it argues, suggest that a"b! *&&dd" large number of individuals currently without phone service were disconnected due to unpaid  X-toll bills.U} {Ob-ԍ Missouri PSC comments at 67 (citing Field Research Corp., Affordability of Telephone Service S7, S19  {O,-to S20 (1993); Milton Mueller and Jorge Reina Schement, Rutgers University Project on Information Policy,  {O-Universal Service from the Bottom Up: A Profile of Telecommunications Access in Camden, New Jersey (1995);  {O-Chesapeake & Potomac Telephone Company, Submission of Telephone Penetration Studies in Formal Case No.  {O-850 (D.C. PSC, Oct. 1, 1993)).U  X-x>63.` ` Access to the Internet. Several parties argue that Internet access should be  X-supported.Z} {O -ԍ See, e.g., American Foundation for the Blind comments at 5; Bar of New York comments at 914; Community Colleges comments at 11; Iowa Utilities Board comments at 2; Michigan Consumer Federation comments at 2021. Other commenters, however, oppose allocating universal service support for  X-Internet access.}} {O-ԍ  See, e.g., MCI comments at 9; NYNEX comments at 12; LDDS reply comments at 9.} Some parties advocate providing universal service support for localdial up access to the Internet, so that consumers in rural areas do not have to pay for a toll call for  X_-access._6 } yOF-ԍ Alaska PSC comments at 5; Iowa Utilities Board comments at 2; Missouri PSC comments at 6. Some parties, however, oppose providing support for services like Internet access, because, they contend, doing so would be contrary to congressional intent that only  X1-"telecommunications services" may be included in the definition of universal service.|1 } {O-ԍ ITA/EMA comments at 3, 510; Information Technology Industry Council comments at 4, 67, citing 47  {Or-U.S.C.  254(c)(1) (universal service is "an evolving level of telecommunications services that the Commission shall establish periodically under this section, taking into account advances in telecommunications and information technologies and services.") (emphasis added). In addition, both ITA/EMA and ITI cite 47 U.S.C. sections 153(48) [sic] and 153(51) [sic] for the definitions of "telecommunications" and "telecommunications services." Because the new provisions were codified, these definitions are now found at 47 U.S.C.  153(43) and 153(46), respectively.   X -x?64.` ` Other services and functionalities. Commenters suggest providing universal service funding for the following services and functionalities: access to basic local directory  X -assistance;Z } {O-ԍ See, e.g., Governor of Guam comments at 910; Information Technology Industry Council comments at 34; Ohio Consumers' Council comments at 1112; SWBT comments at 8; TCA comments at 5; AT&T reply comments at 18. call tracing;h ,} yO"-ԍ AARP comments at 10; Minnesota Indep. Coalition comments at 9.h call waiting;D } yOB$-ԍ Texas OPUC comments at 16.D interoffice digital facilities;> L} yO%-ԍ AARP comments at 10.> equal access to SS7" "*&&dd "  X-functionalities;} yOy-ԍ AARP comments at 10; Blountsville Tel. comments at 3; NorTel reply comments at 2, 56. ISDN services; X} yO -ԍ Alaska Tel. comments at 24 (arguing that supporting a lower level of functionality than ISDN would create a twotiered telecommunications system that would separate those with access to data capabilities from those without such access); Matanuska Tel. Ass'n comments at 2; Southwest Virginia Future comments at 1; Dell Tel. reply comments at 4. interconnection among carriers;>@} yO-ԍ AARP comments at 10.> reasonable toll usage;V} yO -ԍ Michigan Consumer Federation comments at 20.V  X-carrierprovided customer support services;PX` } yO -ԍ Louisiana PSC comments at 3 (supporting access to customer support services, including billing); Michigan Consumer Federation comments at 21 (advocating free calls to a carrier's office for requesting repairs, making billing inquiries and obtaining information about programs such as Lifeline).P adequate line quality for facsimile and data  X-transmission;Z } {O-ԍ See, e.g., Colorado PUC comments at 2; Michigan Library Ass'n comments at 6; RUS comments at 10 (asserting that voice grade service should allow data transmission at 28.8 kbps rates through modems); Wyoming PSC comments at 7. endtoend digital service;D} yO%-ԍ Wyoming PSC comments at 7.D telecommunications services for handicapped and  X-disabled students and employees;<2} yO-ԍ ACE comments at 6.< guaranteed functional performance requirements; X} yO.-ԍ Alaska Health comments at 2 (supporting "voice grade access to dialup lines on the public switched network, with the ability to place and receive calls with a guaranteed functional transmission rate of 14.4 Kbps via modem").   X-guaranteed continued power for telephone service in the event of a power outage;G} yO7-ԍ Colorado PUC comments at 24.G nocost  X-repair of the network on the provider's side of the network demarcation point;Gr} yO-ԍ New Jersey BPU comments at 2.G and number  Xv-portability.Dv} yO) -ԍ AT&T reply comments at 18.D  XH-x` `  3.` Discussion (#  X -x@65.` ` In addition to the services proposed to be included within the general definition of universal service by the NPRM, the Joint Board recommends that access to interexchange service be included. We find that Congress was unequivocal in its intent that the Commission" #*&&dd^ " should include access to interexchange services when it provided "customers in all regions of the nation . . . should have access to telecommunications and information services, including  X-interexchange services."C} yOK-ԍ 47 U.S.C.  254(b)(3).C In addition, we find that the majority of residential subscribers currently have access to interexchange service, consistent with the criterion of section 254(c)(1)(B). Moreover, the record in this proceeding supports our finding that access to  X-interexchange service is essential for education, public health and public safety.PX} {O-ԍ See 47 U.S.C.  254(c)(1)(A).P Customers who live in rural areas, especially, require access to interexchange service to reach medical and emergency services, schools, and local government. Although access may more properly be characterized as a functionality of the loop rather than a service, the record also supports the conclusion that access to interexchange service is demanded by a substantial majority of  X -residential customers and is generally available.T } {O-ԍ See 47 U.S.C.  254(c)(1)(B)(C).T Further, we find that access to  X -interexchange service is consistent with the public interest.{ |} {O0-ԍ See AT&T reply comments at 18. See also 47 U.S.C.  254(c)(1)(D).{ Based on these considerations, and the strong support in the record, we recommend that access to interexchange service meaning the ability of a subscriber to place and receive interexchange calls be included as a  X -supported service.e } yO}-ԍ We do not recommend, however, support for interstate usage.e  X-xA66.` ` The Joint Board, however, recommends that access to interexchange service should not be defined, at this time, to include equal access to interexchange carriers. We acknowledge the importance of equal access to interexchange service in a competitive environment, but we conclude that equal access should not be supported because of the potential costs to wireless carriers involved in upgrading facilities and because wireless  X-carriers are not currently required to provide equal access.} {Ol-ԍ See 47 U.S.C.  332(c)(8) ("a person engaged in the provision of commercial mobile services . . . shall not be required to provide equal access to common carriers for the provision of telephone toll services").  X-xB67. ` ` The Joint Board recommends including access to directory assistance, specifically, the ability to place a call to directory assistance, be included in the definition of universal service. Like access to interexchange service, access to directory service is a  X-functionality of the loop. We are recommending support be provided for access to directory assistance, not the service itself. We agree with the numerous commenters who favor providing universal service support for access to directory assistance because it is a necessity for consumers to access "telecommunications and information services." Directory assistance"g$ *&&dd1" provides consumers access to necessary information, such as government, business, and customer listings. Indeed, we believe that without the ability to access directory assistance, consumers' access to other telecommunications and information services is greatly diminished. In considering the statutory factors contained in section 254(c)(1), we find access to directory  X-assistance is essential for education, public health and safety. Although not a service per se, directory assistance is used by a substantial majority of residential customers, is widely  Xx-available, and is consistent with the public interest, convenience and necessity.x} {O-ԍ 47 U.S.C.  254(c)(1)(A)(D). See also Minnesota Indep. Coalition comments at 5. The Joint Board, therefore, recommends that access to directory assistance be included in the definition of universal service, pursuant to section 254(c)(1). Therefore, we will refer to voice grade access to the public switched network, DTMF or touchtone, singleparty service, access to emergency service, access to operator service, access to interexchange service, and access to directory assistance as the "designated" or "core" services for universal service for purposes of section 254(c)(1). x  X -xC68.` ` Although the provision of "white page listings" received significant record support, we do not recommend that it be included it within the general definition of universal service. While we agree with the commenters that suggest that this is an important service that facilitates access to the telecommunications network, we do not consider white page  Xd-listings to be within the 1996 Act's definition of "telecommunication services."AdZ} yOo-ԍ 47 U.S.C.  153(46).A Therefore, white page listings should not receive universal service support. We agree with the Florida PSC that carriers have at their disposal the means to recover the costs of these services. Although we find that white page listings should not be included in the definition of universal service support, we strongly recommend that the states take the necessary and appropriate steps to ensure the continued availability of this fundamentally important offering.  X-xD69.` ` We recommend that no additional services be included in the general definition  X-of universal service at this time.0Z} yOG-ԍ We do, however, recommend that toll blocking be provided without charge for low income subscribers. For a further discussion of this subject and other recommendations regarding services for low income consumers,  {O-see infra section VIII.0 For example, although we recognize the integral role of TRS in the provision of universal telephone service, we agree with the commenters that state that universal service support is not necessary because the service is already supported through  Xg-a separate fund.Tg } {O$#-ԍ See, e.g., AT&T comments at 13 n.17.T We find that access to the Internet, to the extent that this implies nontoll access, is provided through voicegrade access to the public switched network. The Joint Board rejects the position of some commenters that the actual use of Internet services be supported. We find that the provision of Internet service does not meet the statutory""%*&&dd" definition of a "telecommunications service." In addition, we decline to support toll access to Internet providers. We predict, however, that increasing demand for Internet service will result in broader accessibility of Internet service providers. This should have the effect of reducing or eliminating the need for customers in rural areas to place toll calls to obtain  X-Internet service.} {O-ԍ See 47 U.S.C.  3(46), 254(c)(1). See also SWBT reply comments at 4.  Xv-xE70.` ` We further conclude that no other services proposed by commenters in the record substantially meet the criteria stated in section 254(c)(1). Moreover, we find that an overly broad definition of universal service might have the unintended effect of creating a  X1-barrier to entry for some carriers because, as discussed infra, carriers must provide each of the core services in order to be eligible for universal service support. Because the definition of universal service is evolving, however, we must, as the 1996 Act instructs, consider the  X -definition again in the future.C Z} yO-ԍ 47 U.S.C.  254(c)(1).C  X -x` ` D. Feasibility of Providing Designated Services(#  X-x` `  1.` Background (#  Xd-xF71.` ` Section 214(e)(1)(A) requires eligible carriers to "offer the services that are  XM-supported by Federal universal service support mechanisms".FM} yO-ԍ 47 U.S.C.  214(e)(1)(A).F On July 3, 1996, the Common Carrier Bureau released a Public Notice to supplement the NPRM's requests for  X-comment.z} {OJ-ԍ Public Notice, Common Carrier Bureau Seeks Further Comment on Specific Questions in Universal  {O-Service Notice of Proposed Rulemaking, DA961078 (rel. July 3, 1996) (Public Notice). The Public Notice asked, inter alia, for comment on the effects on competition if a carrier is denied universal service support because it is technically infeasible for that  X-carrier to provide one or more of the designated services.F} yOz-ԍ Public Notice at question 4.F  X-x` `  2.` Comments (#  X-xG72.` ` Carriers' Ability to Provide Designated Services. Several commenters representing various sections of the telecommunications industry maintain that the services proposed in the NPRM are so basic that no telecommunications provider will have difficulty"i&f *&&dd"  X-providing them.} {Oy-ԍ See, e.g., BellSouth further comments at 7; Bell Atlantic further comments at 2; MFS further comments at 12; NCTA further comments at 2; Vanguard further comments at 3. Florida PSC, for example, maintains that requiring carriers to provide the core services, or even additional services, would not be unduly burdensome or adversely  X-affect competition.L"} yO-ԍ Florida PSC further comments at 7.L Some parties assert that because the 1996 Act permits carriers to provide services by resale, carriers are able to provide even those services that their facilities  X-do not support.} yO -ԍ Century further comments at 9; NECA further comments at 4; NYNEX further comments at 5; Puerto  {O -Rico Tel. Co. further comments at 5; TCI further comments at 10; U S West further comments at 45. See also CompTel further comments at 8 (asserting that "the Joint Board should make clear that eligibility may not be denied simply because, for technical and economic reasons, the CLEC purchases ILEC elements necessary to provide core services."). Determining which carriers are eligible for universal service support is discussed  {O -further in section VI, infra.  Xv-xH73.` ` Some parties contend, however, that expanding the list of services might stifle competition if carriers generally are unable to provide services designated for universal  XH-service.H. } {O'-ԍ See, e.g., Ameritech further comments at 10; MCI further comments at 3; Time Warner further comments at 1314. Various parties argue, therefore, that universal service should be defined as  X1-narrowly as possible.1 } {Oj-ԍ See, e.g., GCI further comments at 3; GTE further comments at 10; MCI further comments at 3; Time Warner further comments at 12; Vanguard further comments at 3. Teleport contends that, by limiting the definition of universal service to those services that "have . . . been subscribed to by a substantial majority of residential customers" and "are being deployed in public telecommunications networks by telecommunications carriers," Congress has attempted to ensure that the definition of universal  X -service remains competitively and technologically neutral.z } {Oh-ԍ Teleport further comments at 3 (citing 47 U.S.C.  254(c)(1)(B) (C)).z Vanguard argues that a narrow definition of services will promote competition because support will not be limited to only  X -those carriers that can provide extensive services.I t} yO-ԍ Vanguard further comments at 4.I Vanguard asserts that a narrow definition  X-of universal service will facilitate the addition of other services at a later time.3} {OE"-ԍ Id.3  Xb-xI74.` ` Effect of Interconnection and Unbundled Elements Requirements. Some parties, including AT&T and ALTS, link the ability of competitive carriers to provide core"K'*&&dd"  X-services with the implementation of the 1996 Act's requirements related to interconnection?} yOy-ԍ 47 U.S.C.  251. ?  X-and access to unbundled elements.vX} {O-ԍ Id. See ALTS further comments at 12; AT&T further comments at 5.v Specifically, Citizens Utilities argues that competitive carriers have the right to acquire any or all of the network elements they need, at costbased  X-rates, from the incumbent LEC.} {OV-ԍ Citizens Utilities further comments at 4 (citing 47 U.S.C.  251(c)(3), 252(d)(1)). ALTS contends that, if the cost of access to the databases necessary for the provision of emergency services were set at rates that make it economically infeasible for competitive carriers to use the incumbent LEC's databases, then competitive  Xv-carriers would be unable to provide access to emergency services.Ev|} yO -ԍ ALTS further comments at 2.E Similarly, some parties argue that, if incumbent LECs deny new entrants access to unbundled elements, it may be  XH-technically infeasible for a new entrant to provide one or more of the core services.|H } yO-ԍ AT&T further comments at 5; MCI further comments at 3; MFS further comments at 12.|  X -xJ75.` ` Provision of Core Services and Eligibility. Some commenters argue that carriers that are unable to provide one or more of the core services should be ineligible to  X -receive universal service support." } {O9-ԍ See, e.g., Ameritech further comments at 10; ITC further comments at 3; New York DOE further comments at 5; Puerto Rico Tel. Co. further comments at 5; RUS further comments at 4; SWBT further comments at 3; Sprint further comments at 3; Teleport further comments at 4; Time Warner further comments at 13; Vitelco further comments at 3; Washington UTC further comments at 5. SWBT argues that Congress intended to limit universal service funding to "eligible telecommunications carriers" that are required to "offer the  X -services supported by the Federal universal service support mechanisms. . . ."| } {O-ԍ SWBT further comments at 3 (citing 47 U.S.C.  254(e), 214(e)(1)(A)).| Thus, SWBT contends, providing support for a carrier that does not offer all of the core services would be contrary to the language of the statute which, SWBT argues, clearly expresses the intent of  Xy-Congress.3y} {OB-ԍ Id.3 In addition, Ameritech asserts that competition would be harmed if a carrier that did not provide one or more core service was still eligible for support intended for core services, particularly when that carrier is competing with others that are providing core  X4-services "in accordance with the rules."K4} yO#-ԍ Ameritech further comments at 10.K Similarly, Minnesota Indep. Coalition contends that providing universal service support for a "partial provider" might raise the cost of full service"(:*&&dd"  X-providers by reducing their revenue bases.[} yOy-ԍ Minnesota Indep. Coalition further comments at 7.[ BellSouth argues that "niche" providers might choose not to provide all of the core services in a given area, and that these carriers should  X-not be eligible for support.JX} yO-ԍ BellSouth further comments at 7.J ITC maintains that the impact on consumers who might be denied core services should serve as a reason against providing support for carriers that do not  X-provide all the core services.r} {O= -ԍ ITC further comments at 3. See also Sprint further comments at 3.r  Xv-xK76.` ` Waivers. A few comments favor permitting carriers that are unable to provide one or more of the core services to apply for waivers in order to receive universal service  XH-support.uHz} {Os-ԍ See, e.g., NENA further comments at 3; PacTel further comments at 12.u For example, NENA argues that waivers should be granted so that a carrier's failure to offer a service that would be technically infeasible for that carrier to provide would  X -not make the carrier ineligible for universal service support.E } yO-ԍ NENA further comments at 3.E NENA contends that, in the case of 911, infeasibility of providing access to emergency service could arise from a political  X -determination that an emergency calling system is not needed or wanted in a particular area.3 } {O9-ԍ Id.3  X -In such an area, NENA argues, access to 911 should not be considered a core service.3 . } {O-ԍ Id.3 Similarly, PacTel asserts that carriers should be able to apply for waivers based on specific  X -facts and circumstances that make it unable to provide one or more core service.H } yO-ԍ PacTel further comments at 12.H x  Xy-xL77.` ` PacTel also argues that geographic circumstances might prevent carriers serving  Xb-a particular area from providing a core service.3bP } {Oc-ԍ Id.3 Accordingly, PacTel contends that the Commission could issue different standards relating to the provision of core services for  X4-different geographic areas.34} {O"-ԍ Id.3 PacTel, however, asserts that, to receive support, every company serving a particular geographic area should be required to provide the same core")t*&&dd"  X-services.3} {Oy-ԍ Id.3 Similarly, Maine PSC contends that, because E911 is not available everywhere, its  X-absence should not disqualify carriers serving a particular area from receiving support.JZ} yO-ԍ Maine PSC further comments at 6.J  X-xM78.` ` Transition Period. Some parties favor implementing a transition period to enable carriers to meet the universal service requirements and provide the core services within  X-a reasonable time period.$} {O( -ԍ See, e.g., Century further comments at 910; GTE further comments at 10; SWBT further comments at 4.  {O -See also USTA further comments at 7 (arguing that incumbent carriers should be given additional time to provide core services without losing universal service support, but that competing carriers must provide all core services before they are eligible for support). For example, GTE maintains that a transition period is necessary  Xv-to permit some incumbent LECs to provide singleparty service.iv} {O-ԍ GTE further comments at 10. See also SWBT comments at 8.i Further, RTC argues that the 1996 Act requires the definition of universal service to evolve and, thus, at some time in the future, the definition of core services is likely to extend beyond the services carriers are  X1-capable of providing.G1h } yOJ-ԍ RTC further comments at 910.G RTC recommends that state agencies, in their capacity to determine eligible carriers under section 214(e), should determine whether carriers continue to receive high cost support while they are upgrading their networks in order to provide all universal  X -services in an entire service area.3 } {O-ԍ Id.3  X -x` ` 3. Discussion (#  X-xN79.` ` We generally agree with those commenters that argue that carriers designated as eligible telecommunications service providers must provide each of the services designated for support subject to certain exemptions as discussed below. We recommend that telecommunications carriers that are unable to provide one or more of these services should  X4-not receive universal service support unless exceptional circumstances exist.4 } {Oo -ԍ As stated supra , we recommend that states have the discretion to provide for a transition period, for good cause, to allow carriers to make upgrades to provide singleparty service. We conclude that conditioning a carrier's eligibility for support upon its provision of the core services will  X-not impose an anticompetitive barrier to entry, as discussed supra.J} {O$-ԍ See supra section IV.A.3.J We agree with Teleport that the statutory principles for defining universal service are designed to ensure competitive"*v*&&dd'" and technological neutrality. There is no compelling evidence in the record that demonstrates that requiring eligible carriers to provide these services would unduly burden new competitors or nonwireline carriers. In addition, we agree with commenters observing that the 1996 Act facilitates the provision of services because it permits a telecommunications carrier to provide the supported services by using its own facilities in combination with resale of another  X-carrier's services.F} yO-ԍ 47 U.S.C.  214(e)(1)(A).F  X_-xO80. ` ` A few commenters argue that it may not be feasible for competitive carriers to provide the designated services because incumbent LECs may set exorbitant rates for network elements or deny access to unbundled elements. We believe that these arguments are speculative given that section 252 requires network element charges to be based on cost and  X -to be nondiscriminatoryN X} yO -ԍ 47 U.S.C.  252(d)(1)(A)(i)(ii).N and section 251 requires incumbent LECs to provide requesting carriers "nondiscriminatory access to network elements on an unbundled basis . . . on rates,  X -terms and conditions that are just, reasonable, and nondiscriminatory."C } yOn-ԍ 47 U.S.C.  251(c)(3).C  X -xP81.` ` We recommend that the Commission not implement the general transition proposed by GTE, RTC, and others that would allow carriers to draw support from the universal service fund but provide only some of the services designated for universal service  Xb-support.bx} yO-ԍ We note, however, that there will be a transition period leading up to the time the Commission's  {OS-universal service rules take effect. See infra section VII.E. Such a transition period would appear to be inconsistent with section 254(e) which states that "[a]fter the date on which Commission regulations implementing this section take effect, only an eligible telecommunications carrier . . . shall be eligible to receive" Federal  X-universal service support.@} yO-ԍ 47 U.S.C.  254(e).@ Moreover, we find that requiring some carriers to provide services while not imposing the same requirements on other carriers would be inconsistent with our recommended principle of competitive neutrality. We find little in the record that indicates that telecommunications carriers are generally unable to provide one or more of the recommended core services. A few commenters, however, maintain that some incumbent LECs are currently unable to provide singleparty service. Although we find that singleparty service is essential to modern life and to a modern telecommunications system, we recognize that exceptional circumstances may prevent some carriers from offering singleparty service  Xe-initially. Accordingly, as discussed supra, we recommend that state commissions, in their capacity to designate telecommunications providers that are eligible to receive universal service support, be permitted to grant an eligible carrier's request for a transition period after"9+b *&&dd" which the carrier must offer singleparty service. Such a request will be granted only if the state commission finds exceptional circumstances warrant an exemption from this requirement.  X-xQ82.` ` In addition to our general conclusion that carriers must provide each of the designated services in order to receive support, we find that universal service support should be available in limited instances where a carrier is unable to provide a few specific services.  Xv-For example, based on our analysis of E911, discussed supra, we conclude that access to E911 should be among those services supported by universal service mechanisms because, for example, it is "essential to . . . public safety" consistent with section 254(c)(1)(A). We realize, however, that not all carriers are currently capable of providing access to E911 and, in fact, as noted by NENA, not all communities have the facilities in place to provide E911 service. Nevertheless, we conclude that access to E911 should be supported to the extent that  X -carriers are providing such access. Similarly, as discussed infra, we find that toll blocking or control services should be supported when provided to qualifying lowincome consumers, to the extent that eligible carriers are technically capable of providing these services. Thus, we recommend that eligible carriers be required to provide all of those services we characterize as "designated" services, but we also recommend that the Commission support additional services such as E911 and toll limitation, to the extent eligible carriers are providing these important services.  X8-xR83. ` ` Finally, we conclude that waivers should not generally be available to carriers  X!-that do not provide one or more of the designated services. Nevertheless, as discussed supra, the record supports the contention that some carriers may currently be unable to offer singleparty service. Because section 214(e) requires eligible carriers to "offer the services that are supported by Federal universal service support mechanisms under section 254," we are unwilling to recommend that telecommunications providers be permitted to receive broad waivers from the requirement to provide the services we recommend designating for universal  X-service support. As discussed supra, however, we recommend that state commission be permitted to grant a request for a transition to carriers that cannot currently provide singleparty service if the circumstances warrant such a transition period.  X?-x E.` ` Extent of Universal Service Support (#`  X-x` ` 1. Background (#  X-xS84.` ` The 1996 Act states that "[c]onsumers in. . . high cost areas, should have  X -access to telecommunications and information services. . . ."C } yOE#-ԍ 47 U.S.C.  254(b)(3).C The NPRM asks for comment regarding whether universal service support should be limited to carriers providing designated services to residential users or residential and singleline business users, or whether support"",X*&&dd!"  X-should be provided for designated services provided to all users in high cost areas.=} yOy-ԍ NPRM at para. 24. = x  X-x` ` 2. Comments (#  X-xT85.` ` Support for Single Residential Connections. Those commenters that addressed the issue of the extent of universal service generally favor limiting universal service support to  Xv-designated services carried on the initial line to residences.ivX} {O -ԍ See, e.g., Illinois CC comments at 5; NCTA comments at 6.i Washington UTC, for example,  X_-opposes supporting two or more singleparty lines per residence._} {O -ԍ See, e.g., Washington UTC comments at 10. See also Ameritech comments at 8. NTIA contends that  XH-federal universal service support should be targeted toward singleline residential service.EH|} yOu-ԍ NTIA reply comments at 89.E GTE argues that a definition of "household" must be established if support is limited to primary residential lines so that carriers are not required to determine whether a customer  X -sharing a house or apartment is a separate household.D } yO-ԍ GTE reply comments at 89.D  X -xU86.` ` Support for Services Carried to Additional Residences. GTE opposes any attempt to restrict universal service support to designated services carried on lines to primary  X -residences.B } yO-ԍ GTE reply comments at 8.B According to GTE, it would be impractical to make such a distinction and,  X-further, the record does not support this approach.3, } {Om-ԍ Id.3  Xb-xV87.` ` Support for Designated Services Carried to Businesses. Some commenters  XK-favor extending support to connections to businesses in high cost areas.K } {O-ԍ See, e.g., Cincinnati Bell comments at 5; LDDS comments at 910; Montana Indep. Telecom. comments at 5; SWBT comments at 78; Staurulakis comments at 5; Telec Consulting comments at 4. For example, Nat'l Ass'n of Dev. Orgs. argues that rural economic viability depends upon access to communications services; thus, it argues, support should be extended to multipleconnection  X-businesses.T} yO#-ԍ Nat'l Ass'n of Dev. Orgs. comments at 89.T Citizens Utilities argues that, if a proven need for support exists for business lines, a national affordability standard for businesses should be developed that is different"-*&&ddE"  X-from any affordability standard established for residential service.K} yOy-ԍ Citizens Utilities comments at 7.K  X-xW88.` ` Several parties, in contrast, oppose providing universal service support for  X-designated services carried to businesses.AZX} {O-ԍ See, e.g., AT&T comments at 13; Ameritech comments at 8; LCI comments at 3 (stating that "universal service support has always been limited to baseline, residential services and the 1996 Act provides no indication that Congress intended otherwise."); Western comments at 9.A Florida PSC argues that the goal of promoting universal service relates to maximizing the number of households that have telephone  X-service.Fz} yO -ԍ Florida PSC comments at 7. F NTIA maintains that the costs of telephone services are likely to be a small fraction of total operating costs for most businesses and, thus, affordability of service should  X_-not generally be a problem for business users.C_ } yO-ԍ NTIA reply comments at 9.C Florida PSC and NTIA assert that states  XH-should provide appropriate funding if they determine that businesses need support.^H} yO-ԍ Florida PSC comments at 7; NTIA reply comments at 9.^ West Virginia Consumer Advocate contends support should be limited to designated services provided to residences because, it asserts, even singleline businesses can take tax deductions  X -for telephone services as a cost of doing business.X * } yO-ԍ West Virginia Consumer Advocate comments at 8.X MCI opposes extending universal service support to businesses, because, it argues, supporting business lines would cause the level of  X -support to grow excessively.f } {O@-ԍ MCI comments at 9. See also NTIA reply comments at 9.f  X -  X -x` ` 3. Discussion (#  Xy-xX89.` ` We find that support for designated services provided to residential customers should be limited to those services carried on a single connection to a subscriber's principal  XK-residence.KL } yOH -ԍ In light of our recommended principle of competitive neutrality, we will hereinafter refer to "connections" rather than "lines." We find that supporting one connection per residence is consistent with section 254(b)(3), which states that access to services for low income consumers and those in rural,  X-insular and high cost areas should be reasonably comparable to that available in urban areas.C} yOr$-ԍ 47 U.S.C.  254(b)(3).C We conclude that support for a single residential connection will permit a household complete".4*&&ddd" access to telecommunications and information services. All supported services, including access to emergency services, would be available to a household by providing support for this residential connection. The Joint Board, however, declines at this time to provide support for other residential connections beyond the primary residential connection. Support for a second connection is not necessary for a household to have the required "access" to  X-telecommunications and information services.} {O-ԍ Id. See also 47 U.S.C.  254(b)(2) (promoting "access to advanced services"). Moreover, the statutory language does not provide any guidance for determining what, if any, uses of a second connection are consistent with the goals of universal service. Nor does the record provide sufficient basis for supporting second residential lines. GTE contends that carriers will have difficulty determining whether a second connection to a residence is a household's second connection or whether the residence is shared by two or more households. It would appear, however, that carriers can use subscriber billing information to determine the number of households at a given address. Accordingly, we conclude that eligible carriers should receive support for designated services carried on the initial connection to a customer's primary residence.  X -xY90.` ` We are unpersuaded that universal service support should be extended to second residences in high cost areas. We conclude that the consumer benefits that result from support should not be extended to second homes, which may not be occupied at all times. There is no evidence that the additional cost of supporting second or vacation residences is justified in light of the presumption that owners of these residences can afford to pay rates that accurately reflect the carrier's costs to provide services carried on connections to second residences. x  X-xZ91.` ` We find that designated services carried to singleconnection businesses in rural, insular and other high cost areas should be supported by universal service mechanisms, although we find that a reduced level of support may be appropriate. We find general similarities between residential and singleline business customers. Both singleline business and residential subscribers require access for health, safety and employment reasons. Moreover, like residential subscribers, most singleline businesses have few or no competitive options for local telecommunications service. We disagree with Nat'l Ass'n of Dev. Orgs. that support should be extended to multipleconnection businesses. We note that the Commission has, in the past, elected to treat singleline businesses like residential customers,  X -that is, differently from multipleline businesses.Z Z} {O+!-ԍ See In the Matter of MTS and WATS Market Structure, Memorandum Opinion and Order, 101 FCC 2d 1222 (1985) (determining that all singleline subscribers, whether residential or business, should pay the same SLC). In one instance, the Commission, finding that small businesses lack the ability to use alternatives to the public switched network that are available to large corporations, held that the customer line charges should be the same for"/|*&&dd"  X-singleline business and residential customers.3 } {Oy-ԍ Id.3 We determine that a distinction between singleconnection and multipleconnection business is likewise appropriate for universal service purposes. The cost of service is unlikely to be a factor that would cause a multipleconnection business not to subscribe to telephone service. For small, singleconnection businesses in high cost areas, however, the price of telephone service may be prohibitive without support. Therefore, we recommend making universal service support available for designated services carried to singleconnection businesses in high cost areas.  XH-x[92.` ` We conclude, however, that designated services carried to businesses subscribing to only one connection should not receive the full amount of support designated for residential connections in high cost areas. We agree with Citizens Utilities that, for business connections, a standard different from that applied to residential connections for determining support should be established. We recommend initially supporting the designated services carried on business connections in a high cost area at a lower level than that provided  X -for residential connections in the same area. As discussed, infra, we recommend that the Commission use a benchmark based on the revenue generated per line to determine the  X-amount of support carriers should receive.H Z} {O-ԍ See infra section VII.C.H Under this recommended approach, eligible carriers would receive less support for serving singleconnection businesses than they would  Xd-for residential service because business rates are higher than residential rates. d} {O-ԍ As discussed in greater detail in section VII.C, infra, we recommend that the amount of support be derived from calculating the difference between the cost of providing service and the benchmark amount. Moreover, we find that providing support for designated services carried to singleconnection businesses in high cost areas at a reduced level is not inconsistent with the 1996 Act. We note that, as competition develops, it may be unnecessary to provide even this reduced support for services carried on the initial connection of businesses in high cost areas.  X-x F.` ` Quality of Service (#`  X-x` ` 1. Background (#  X~-x\93.` ` The 1996 Act requires that "quality services should be available at just,  Xg-reasonable and affordable rates."C gF} yO^"-ԍ 47 U.S.C.  254(b)(1).C Accordingly, the NPRM asked for comment on how the  XP-Commission can assess whether quality services are being made available.: P} yO$-ԍ NPRM at para. 4.: In particular, the NPRM sought comment on the utility of performancebased measurements to evaluate"90f *&&dd"  X-whether this congressional objective is being met.3} {Oy-ԍ Id.3 Further, the NPRM stated that the Commission is disinclined to prescribe technical standards for telecommunications carriers or  X-other service providers.;Z} yO-ԍ NPRM at para. 68.; Rather, the NPRM stated that the Commission preferred to let affected entities (such as IXCs, LECs, equipment manufacturers, and customers) develop technical and performance standards without direct intervention from the Commission, unless  X-necessary.3} {O( -ԍ Id.3 The NPRM, expressing the Commission's preference for encouraging existing standardsetting bodies to discuss and establish relevant technical standards, noted that there are currently several industry bodies that address standards for various aspects of  XH-communications networks.H|} {Ou-ԍ Id. (referring to the American National Standards Institute Committee T1, Electronic Industry Association and Telecommunications Industry Association).  X -x]94.` ` The NPRM also sought comment on whether, in implementing the congressional mandate to ensure that "quality services" are available, it would be useful to collect and publish certain basic information regarding technical performance levels of carriers  X -subject to the Commission's rules.; } yO\-ԍ NPRM at para. 69.; The NPRM noted that providing customers with easy access to service quality information could facilitate comparisons between the performance levels of various telecommunications carriers and could potentially create a marketbased  X-incentive for carriers to provide quality services.3f } {O-ԍ Id.3 In addition, noting that competition will probably not develop in a uniform fashion throughout the Nation, the NPRM sought comment on whether it is necessary to obtain data that could be used by the public, regulators, and regulated entities to monitor service quality performance from carriers, particularly those carriers that serve rural areas and are not currently subject to the Commission's existing  X-service quality monitoring program._ } {O-ԍ Id. (citing 47 C.F.R.  43.2122)._ The NPRM also emphasized that the collection and publication of these data should entail the least possible cost to the companies involved and, accordingly, solicited comment on whether industry organizations or state commissions  X-already collect the information that should be contained in these performance reports.2 } {O$-ԍ Id.2 The NPRM also asked whether it would be reasonable to rely upon such existing information"1*&&dd"  X-rather than extending the Commission's reporting requirements to all carriers.3} {Oy-ԍ Id.3 Commenters were also asked to estimate the potential costs associated with these various proposals for collecting performance information, in accordance with the 1996 Act's mandate that support  X-mechanisms should be "specific, predictable and sufficient."\Z} {O-ԍ Id. (citing 47 U.S.C.  254(b)(5)).\ Finally, the NPRM sought comment on whether the Commission should take action at some fixed date to evaluate the  X-need for continuing performance reports.;} yO* -ԍ NPRM at para. 70.; The NPRM requested that the Joint Board address in its recommended decision all of the issues raised in the NPRM with respect to monitoring  X_-of telecommunications services.2_|} {O -ԍ Id.2  X1-x` ` 2. Comments (#  X -x^95.` ` Assessing Existing Service Quality. As a preliminary matter, some parties maintain that high quality services currently exist, largely due to existing universal service  X -support.N } {O-ԍ See, e.g., NECA comments at 3.N A few commenters, however, contend that LECs operating under price cap  X -formulas are motivated to reduce costs to the extent that lower service quality often results. } {O-ԍ See International Communications Ass'n comments at 2; Michigan Consumer Federation comments at 5; NASUCA comments at 8. Harris argues that telephone customer service indicators should continue to be used to assess  X-service quality.  } yO;-ԍ Harris comments at 1718 (noting that current methods of evaluating customer service rely on engineering and customer service objectives such as central office blocking, time to clear outofservice reports, customer service call answer times, operator service call answer times, call completion rates, trouble reports and commission complaints). ACTA maintains that the concept of quality of service must incorporate service provided by one carrier to other carriers, such as underlying service provided by  Xb-carriers to resellers and by access carriers to IXCs.=b} yO -ԍ ACTA comments at 2.=  X4-x_96.` ` Quality of Service Standards. Some parties generally support the imposition of  X-service quality standards on telecommunications providers.r} {O@%-ԍ See, e.g., CWA comments at 6; GCI comments at 7; NTIA reply comments at 7 n.13. GCI, for example, argues that"2*&&dde" the Commission should adopt certain quality standards for core services including an evaluation of valid complaints filed by consumers and customers (such as IXCs) and the  X-amount of time taken to fill customer service orders.<} yOK-ԍ GCI comments at 7.< In addition, International Communications Ass'n recommends that the Commission impose quality of service rules that measure service availability, errors per second, mean time to restore outages, and service  X-disruption.] X} yO-ԍ International Communications Ass'n comments at 34.] Some parties argue that, if competition comes to rural areas, the Commission should institute sufficient safeguards to assure that the quality of service is equivalent to the  X_-standards met by the incumbent provider.d!_} yO -ԍ GVNW comments at 2; Montana Indep. Telecom. comments at 2.d USTA, in contrast, opposes the implementation of quality of service standards, because, it argues, the market will provide the best means to  X1-enforce quality services in competitive areas.>"1x} yOZ-ԍ USTA comments at 14.>  X -x`97.` ` Some commenters provide specific models on which to base quality of service standards. Wyoming PSC recommends that the Commission adopt on a nationwide basis its service quality rules, which are based on the National Regulatory Research Institute service  X -quality framework model.F# } yOw-ԍ Wyoming PSC comments at 23.F Michigan Library Ass'n also recommends the use of the  X -National Regulatory Research Institute model for a service quality framework.O$ } yO-ԍ Michigan Library Ass'n comments at 5.O Texas PUC cites NARUC's Model Telecommunications Service Quality Rules and Telephone Service  Xy-Quality Handbook as models for regulators to use to implement quality of service standards.B%y( } yOR-ԍ Texas PUC comments at 2.B Some parties argue that the Commission should base its service quality standards on existing  XK-standards in the statesZ&K } yO-ԍ NASUCA comments at 9; Virginia CC comments at 1.Z or supplement those state standards.<'KH } yOD -ԍ CWA comments at 9.<  X-xa98.` ` A few parties argue that the receipt of universal service support should be  X-contingent on maintaining certain quality of service levels.`(} {O$-ԍ See, e.g., CWA comments at 6; GCI comments at 7.` For example, CWA argues that any carrier wishing to receive federal universal service support must meet quality standards in"3j(*&&ddE" all four prior calendar quarters in order to receive support, and that a carrier that does not reach this goal should be required to pay a penalty in the form of a contribution to universal  X-service.<)} yOK-ԍ CWA comments at 6.< x  X-xb99.` ` State Roles. Several commenters believe state commissions should enforce  X-quality of service standards.*ZX} {O-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 4; Century comments at 9; GTE comments at 7 n.15; MCI comments at 22; OITAWITA comments at 16; Pennsylvania PUC comments at 8; Fred Williamson comments at 6. A few state public utility commissions argue that the  Xv-Commission should defer to the states to monitor service quality.\+vz} yO -ԍ Idaho PUC comments at 6; Oregon PUC comments at 3.\ Other state commissions  X_-submit that quality standards should be based on existing state standards.`,_ } yO-ԍ New York DPS comments at 3; Wyoming PUC comments at 2.` A few parties maintain that states should monitor the quality of services provided by incumbent LECs until  X1-a competitive market emerges.X-1} yO|-ԍ LDDS comments at 10; Oregon PUC comments at 3.X Taconic Tel. argues that states will have the responsibility to designate which carriers will be eligible to receive support, and, thus, states should have  X -the responsibility to establish and monitor service quality levels.K. * } yO-ԍ Taconic Tel. reply comments at 4.K  X -xc100.` ` Technical Standards. Some parties propose specific technical standards, such as transmission rates. For example, Merit argues that carriers should be required to provide voice grade access to the public switched network capable of supporting highspeed modem  X-access./ } {O-ԍ Merit comments at 2 (proposing an initial definition of "high speed" equal to 28,000 kbps). See also People For comments at 10. Michigan Consumer Federation contends that quality standards tied to performance  Xy-level requirements are preferable to technical specifications that may become obsolete.U0y} yO>-ԍ Michigan Consumer Federation comments at 8.U Michigan Consumer Federation argues that the Commission must ensure that any technical  XK-standard setting bodies to which it defers include public representation.U1K} yO"-ԍ Michigan Consumer Federation comments at 7.U NorTel, in contrast, supports the Commission's tentative conclusion that it is unnecessary for the Commission to"4441*&&dd"  X-prescribe specific technical standards to ensure quality telecommunications services.2} yOy-ԍ NorTel reply comments at 4 (also arguing that the industry should focus on the development of standards specifically adapted to the needs of rural and high costs areas).  X-xd101. ` ` Quality of Service Reporting Requirements. Several commenters contend that  X-imposing reporting requirements would be unduly burdensome to carriers.3 } {O-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 4; Taconic Tel. reply comments at 4. For example, MCI argues that new entrants have no incentive to provide lower quality services, and, thus, although states should monitor quality of service generally, they should not burden new  Xv-entrants with the cost of collecting and filing service quality data.4Xv} yO -ԍ MCI comments at 22 (also arguing that the Commission and Joint Board should create a higher burden for any state that seeks to implement reporting requirements on new entrants that are equivalent to those imposed on incumbents). USTA contends that efforts to increase regulatory requirements are contrary to the 1996 Act's intent to provide for  XH-a procompetitive, deregulatory national policy framework.e5H} {O-ԍ USTA comments at 14. See also ALTS comments at 20. e A few state commissions, however, argue that information that would enable comparisons between the performance  X -levels of various telecommunications carriers must be available to consumers.6 d } yO/-ԍ Florida PSC comments at 1819; NASUCA comments at 10; North Dakota PSC comments at 3; OPCDC comments at 14.  X -xe102.` ` Using PubliclyAvailable Data. A few parties maintain that carriers are already required to file quality of service reports with state agencies to which the Commission could  X -have access if necessary.~7 } yO+-ԍ AlabamaMississippi Tel. Ass'n comments at 4; Pennsylvania PUC reply comments at 17.~ GTE argues that the Commission's ARMIS reporting requirements on certain price cap carriers already provide the Commission with service quality  X-information on mandatory price cap carriers.A8L } yO-ԍ GTE comments at 7 n.15.A North Dakota PSC, in contrast, states that the Commission would have to extend its reporting requirements to obtain quality of service information because many small carriers are currently exempt from its quality of service  XK-oversight and from the Commission's existing reporting requirements.I9K} yO!-ԍ North Dakota PSC comments at 3.I In addition, CWA argues that many states do not have service standards and that some that do have standards do  X-not make quality information available to the public.d:l} yO:%-ԍ CWA comments at 6 (referring to a 1992 NARUC publication).d"5:*&&dde"Ԍ X-ԙxf103.` ` Future Evaluation of Continued Monitoring. North Dakota PSC argues that the Commission should review the need for quality of service reports as local service competition  X-develops.I;} yOK-ԍ North Dakota PSC comments at 4.I  X-x` ` 3. Discussion (#  Xv-xg104. ` ` The 1996 Act enunciates the principle that "quality services" should be  X_-available.M<_X} {Oh -ԍ See 47 U.S.C.  254(b)(1).M We refrain from recommending that the Commission require that eligible carriers meet specific technical standards established by the Commission as a condition to receiving universal service support. We have already recommended the specific definitions of the services a telecommunications carrier must provide before receiving support. While we decline to recommend that the Commission establish federal service quality standards beyond the basic capabilities that carriers receiving universal service support must provide, we recognize that states may adopt and enforce service quality rules, on a competitively neutral basis, consistent with section 253(a), which furthers the congressional intent of ensuring that all Americans have quality services at just, reasonable and affordable rates. x  Xy-xh105. ` ` We recommend that the Commission, to the extent possible, rely on existing data to monitor service quality. Because many states already have adopted service quality  XK-requirements,0=ZK} {O-ԍ See, e.g., National Regulatory Research Institute, Telecommunications Service Quality (March 1996) (indicating that 32 state regulatory commissions and the District of Columbia have instituted quality of service standards since the AT&T divestiture).0 we do not recommend that the Commission undertake efforts to collect quality of service data in addition to those already in place with respect to price cap LECs. In many cases, additional requirements by the Commission would duplicate the states' efforts.  X- Instead, we recommend that state commissions submit to the Commission the service quality data provided to them by carriers. We further recommend that the Commission not impose  X-data collection requirements on carriers at this time.> } yO-ԍ We note that the Commission already imposes quality reporting requirements on some carriers. For example, price cap LECs are required to file service quality reports with the Commission. The ARMIS 4305 and ARMIS 4306 reports provide measures of service quality. Specifically, the ARMIS 4305 report covers service LECs provide to IXCs (Table I), the provision of local service (Table II), blockage on common trunk groups between the LEC wire centers and access tandems (Table III), LEC switch downtime (Table IV), and service quality complaints filed with the Commission and with state commissions (Table V). Table I of the  {OE#-ARMIS 4306 report covers subjective measures of customer satisfaction. See Second Report and Order, 5 FCC  {O$-Rcd 6786 (1990) and Erratum, 5 FCC Rcd 7664 (1990) (LEC Price Cap Order), modified on recon., 6 FCC Rcd  {O$-2637 (1991), further modified on recon. 6 FCC Rcd 4524 (1991) (ONA Part 69 Order), Second Further Recon.  {O%-aff'd 7 FCC Rcd. 5235 (1992), upheld on appeal, National Rural Telecom Association v. FCC, 988 F.2d 174"%=*&&&"  {O-(D.C. Cir. 1993). See also Policy and Rules Concerning Rates for Dominant Carriers, Memorandum Opinion  {OZ-and Order, 6 FCC Rcd 2974, pet. for recon. denied 6 FCC Rcd 7482 (1991). Therefore, we conclude that the"6$>*&&ddr" Commission should rely on service quality data collected at the state level in making its determination that "quality services" are available, consistent with section 254(b)(1).  X-xi106.` ` Further, we agree with NECA that competition should ultimately give carriers the incentive to provide quality services by allowing consumers to choose among various telecommunications providers. We are unpersuaded by the arguments of GVNW and Montana Indep. Telecom., which contend that the Commission should institute specific standards to ensure that competitors provide the same quality service as the incumbent. We believe that most competitors will strive to attain a level of service quality at least equal to the level currently provided by incumbents in order to attract and maintain subscribers. In addition, to the extent quality is readily observable to potential customers, competitive carriers will have an incentive to maintain service quality even in the absence of competition.  X -x G.` ` Revisiting the Definition of Universal Service(#`  X -x` ` 1. Background(#  X-  Xy-xj107.` ` Section 254(c)(2) states that "[t]he Joint Board may, from time to time, recommend to the Commission modifications in the definition of the services that are  XK-supported by Federal universal service support mechanisms."C?K$} yO -ԍ 47 U.S.C.  254(c)(2).C Accordingly, the NPRM provided that the Commission will periodically review, after obtaining Joint Board  X-recommendations, the definition of services supported by universal service mechanisms.:@} yO-ԍ NPRM at para. 2.: The NPRM suggested that the Joint Board and the Commission may wish to revisit the  X-definition of universal service at fixed intervals such as fiveyear periods,A$D} yO-ԍ NPRM at para. 67 (citing Rulemaking on the Commission's Own Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643, R.9501020; and Investigation on the Commission's Own  {Ot-Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643, I.9501020, Interim  {O>-Opinion (Cal. Pub. Utils. Comm'n, filed Jan. 24, 1995)). but stated that, contingent upon the information collected in a Commission proceeding mandated by section  X-706 of the 1996 Act, the topic may be reconsidered even sooner.B0 } yO"-ԍ NPRM at para. 67 n.147 (citing 47 U.S.C.  706(b) which states "[t]he Commission shall, within 30 months after the date of enactment of this Act, and regularly thereafter, initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans. . . . The Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion."). The NPRM stated that, in"7B*&&ddS" order to apply the criteria set forth in section 254(c)(1), additional information specifically, the extent to which particular services "are being deployed in public telecommunications networks" and "have been subscribed to . . . by a substantial majority of residential  X-customers" must be obtained.cC} {O4-ԍ NPRM at para. 67 (citing 47 U.S.C.  254(c)(1)).c The NPRM recognized that, although periodic review could help to ensure that the definition does not remain static, it could also entail the  X-expenditure of resources on unnecessary proceedings.;DZ} yO-ԍ NPRM at para. 67.; Therefore, the NPRM proposed to rely on information sources that already exist and to initiate additional data collection efforts only if existing information is inadequate to assess proposed changes to the definition of universal service and a cost/benefit analysis demonstrates that the burden of collection would  X1-not outweigh the value of the information requested.;E1} yO -ԍ NPRM at para. 67.;  X -x` ` 2. Comments (#  X -xk108.` ` Periodic Reassessment. GTE proposes adopting the California PUC's plan for  X -reviewing the definition of universal service.<F z} yO-ԍ GTE comments at 3.< Under the California PUC plan, a review is  X -made no more frequently than every three years.[G } yOb-ԍ California PUC comments at 17; GTE comments at 3.[ According to GTE, the California plan  X-avoids toofrequent review, which can entail "unnecessary expenditure of resources"VH} yO-ԍ GTE comments at 3 (citing NPRM at para. 67).V and  Xy-allows eligible carriers to plan their network investments efficiently over time.<Iy* } yOT-ԍ GTE comments at 3.< GTE and California PUC propose a system whereby parties wishing to amend the definition can petition  XK-the Commission to add a new element if three years have passed since the last review.[JK } yO-ԍ California PUC comments at 18; GTE comments at 3.[ GTE also recommends that the Commission could set a maximum interval, such as five years,  X-after which it would undertake a review if no petition has been acted upon.<KJ } yO"-ԍ GTE comments at 3.<  0 x  X-xl109.` ` Harris advocates allowing NARUC to decide when to reconsider the definition"8K*&&ddE"  X-of universal service.?L} yOy-ԍ Harris comments at 6.? North Dakota PSC suggests that the list of services supported should be revisited each year for the first five years after implementation, and, thereafter, considered  X-every two years, with a monitoring report filed during the "off" years.IMX} yO-ԍ North Dakota PSC comments at 3.I New York DPS  X-recommends a triennial review.HN} yOT-ԍ New York DPS comments at 16. H Ohio Consumers' Council suggests a review no later than two years after the Commission's rules are issued and no less often than every two years  X-thereafter.QOx} yO -ԍ Ohio Consumers' Council comments at 18.Q USTA recommends implementing a review at least every five years, but not  Xv-more frequently than every three years.>Pv} yO/-ԍ USTA comments at 13.> Telec Consulting recommends a periodic review set  X_-at fixed intervals such as every two or three years.JQ_} yO-ԍ Telec Consulting comments at 15.J Wisconsin PSC advocates a biennial review, but believes that public comment and a Joint Board recommendation on the issue of reporting conditions should not be addressed until after new universal service programs are in  X -place, so that the effectiveness of any new programs can be measured.JR ( } yO-ԍ Wisconsin PSC comments at 1213.J  X -x` ` 3. Discussion (#  X -xm110.` ` We recommend that the Commission convene a Joint Board no later than January 1, 2001, to revisit the definition of universal service. We find that the Joint Board's and Commission's approach to revisiting the definition of universal service must strike a reasonable balance between too frequent reviews, which could result in an unnecessary expenditure of resources, and sporadic evaluation, which may not produce a definition of universal service that is consistent with the principles enumerated in section 254(b) and reflect the definitional criteria of section 254(c). In addition, the Commission may institute a review  X-at any time upon its own motion or in response to petitions by interested parties.CSZ } yO -ԍ We note that, in complying with the statutory mandate of section 706(b) of the 1996 Act, the Commission may take additional steps to determine whether advanced telecommunications capability is being  {O"-deployed to all Americans. See 1996 Act,  706(b). C  X-xn111.` ` We find the record to be insufficient at this time to support our recommending that the Commission adopt reporting requirements in order to collect data that may assist the Commission in reevaluating the definition of universal service. We recognize that, in order to"9S*&&dd" apply the criteria set forth by Congress in section 254(c)(1), the Commission will need information regarding, for example, whether a proposed service has "been subscribed to by a substantial majority of residential customers" and is "being deployed in public telecommunications networks by telecommunications carriers." Nevertheless, we recommend  X-that the Commission base future analyses of the definition of universal service, inter alia, on data derived from the Commission's existing data collection mechanisms such as those collected through ARMIS.  X3- V. x AFFORDABILITY  X -xA.` ` Overview (#`  X -xo112. ` ` The 1996 Act states that "quality services should be available at just,  X -reasonable, and affordable rates."ZT } yO9-ԍ 47 U.S.C.  254(b)(1) (emphasis added).Z This section examines the various ways the term "affordable" may be defined. In addition, it considers what factors should be considered in examining affordability including subscribership levels and other nonrate factors that may influence a consumer's decision to subscribe to local telephone service. Finally, in this section, the Joint Board considers the roles the Commission and state commissions should play in ensuring rates are affordable.  X!-x B.` ` Affordability (#`  X-x` ` 1. Background (#  X-xp113. ` ` Section 254(b)(1) provides that "[q]uality services should be available at just,  X-reasonable and affordable rates."CUX} yO-ԍ 47 U.S.C.  254(b)(1).C In addition, section 254(i) requires that "[t]he Commission and the states should ensure that universal service is available at rates that are just, reasonable  X-and affordable."V} {O-ԍ 47 U.S.C.  254(i). See also S. Rep. No. 230, 104th Cong., 2d Sess. 134 (1996) (Joint Explanatory Statement). The NPRM, noting that the "affordable" criterion has not previously been addressed in the context of universal service, requested comment on how the Joint Board can  XR-assess whether affordable service is being provided to all Americans.@WRB} yOE#-ԍ NPRM at para. 4.@ To facilitate discussion of the concept of affordability, the NPRM cited a dictionary definition of the term";:W*&&dd"  X-"afford."XZ} {Oy-ԍ NPRM at para. 4 (citing Webster's New World Dictionary at 23 (William Collins, Second College ed. 1980) ("afford" is defined as follows: "to have enough or the means for; bear the cost of without serious inconvenience")). The NPRM also sought comment proposing standards for evaluating the  X-affordability of all telecommunications, not merely telephone exchange, services.eY} yO-ԍ NPRM at para. 14 (citing 47 U.S.C.  254(c), (i)).e Specifically, the NPRM asked commenters to identify the criteria or principles that should be used to determine "affordable" rates, and whether there should be procedures to recalibrate these rates to reflect changes in inflation or other factors that may make periodic readjustment  X-necessary.;Zz} yO -ԍ NPRM at para. 25.; x  X_-xq114. ` ` In addition to seeking public comment in the NPRM, on July 3, 1996 the Commission's Common Carrier Bureau released a Public Notice to supplement the NPRM's  X1-requests for comment ("Public Notice").Y[1 } yO-ԍ Public Notice (DA961078) (rel. July 3, 1996).Y The Public Notice asked, inter alia, whether it is appropriate to assume that current rates for services included within the definition of universal  X -service are affordable, despite variations among companies and service areas.k\ } yOP-ԍ Public Notice (DA961078) (released July 3, 1996) at question 1.k In addition, the Public Notice requested comment on the extent to which factors other than rate levels, such as subscribership levels, telephone expenditures as a percentage of income, cost of living, or local calling area size, should be considered in determining the affordability and reasonable  X -comparability of rates.] * } yO-ԍ Public Notice at question 2. The Public Notice also asked for comment on whether a specific national  {OL-benchmark rate for core services should be established. This issue is discussed infra in section IV.  X{-x` ` 2. Comments (#  XM-xr115. ` `  In General. As a preliminary matter, a few parties address how the word "affordable" should be defined. Texas OPUC, for example, maintains that "affordable" is not determined by whether one can pay a certain rate, but whether that price causes a serious  X-detriment, consequence, or inconvenience.D^ } yO="-ԍ Texas OPUC comments at 12.D United Church of Christ opposes defining  X-"affordability" as "acceptable harm."P_} yO$-ԍ United Church of Christ comments at 5.P Michigan Consumer Federation argues that the Webster definition cited in the NPRM is misplaced because, it argues, the concept of";_*&&dd" affordability "clearly means rates that are at or below the true and reasonable cost of  X-providing service."V`} yOb-ԍ Michigan Consumer Federation comments at 18.V AARP asserts that the relative concept of affordability, i.e., "to bear the  X-cost of without serious inconvenience," must be given equal emphasis as the absolute concept,  X-"to have enough or the means for."aX} yO-ԍ AARP comments at 6; CPI reply comments at 8; Ohio Consumer's Council reply comments at 10. Specifically, AARP avers that the concept of affordability should be defined to mean that people are not forced to pay so much for a  X-necessity that it causes serious inconvenience or detriment.Cb} yO* -ԍ AARP comments at 7.C America's Carriers warns against defining "affordability" so that it equates with "free" and creates an entitlement to  Xc-telecommunications services.Kccx} yO -ԍ America's Carriers comments at 3.K  X5-xs116. ` ` Current Rates. Many commenters believe it is appropriate to conclude that  X -current rates are affordable.gd } {O-ԍ See, e.g., AT&T comments at 16; BellSouth comments at 1; MCI comments at 4 n.4; Missouri PSC comments at 4; NCTA comments at 34; Time Warner comments at 6; Sprint comments at 9; West Virginia Consumer Advocate comments at 8; CPI reply comments at 8; AT&T further comments at 3; AirTouch further comments at 2; Ameritech further comments at 4; Bell Atlantic further comments at 1; Century further comments  yO-at 6; NYNEX further comments at 1; PacTel further comments at 57; Time Warner further comments at 2; Vanguard further comments at 23.g Time Warner contends that there is a high rate of acceptance  X -of prevailing prices which indicates that rates are within an affordable range.Le } yO:-ԍ Time Warner further comments at 2.L BellSouth, AirTouch, and TCI argue that rates could be raised without significantly affecting  X -affordability.f } yO-ԍ AirTouch further comments at 23; BellSouth further comments at 12; TCI further comments at 5. Other parties conclude that urban rates may be considered affordable, but that  X -rural rates must be equivalent to urban rates in order to be deemed affordable.eg } yO-ԍ Pennsylvania RDC comments at 2; Sprint comments at 9.e A few parties argue that the Commission cannot make a determination that existing rates are  X-affordable without explicitly defining "affordable."fh2} {Ow!-ԍ See, e.g., Media Access Project further comments at 2.f  Xf-xt117. ` ` Several commenters argue that the Commission may not conclude that current"f<h*&&dd"  X-rates are affordable.i} {Oy-ԍ See, e.g., Alliance for Public Technology further comments at 2 (stating that "a rate is not affordable unless it is the lowest rate that would be possible if the least cost transmission mode were used for that bandwidth"); ITC further comments at 1 (stating that local rates are often "subject to political considerations, the target of contributions, the product of 'value of service' pricing, subject to concurrence in other Exchange Carrier  yO-local tariffs and often [set] absent any knowledge of true costs"); Maine PUC further comments at 13 (arguing that rates set by states are influenced by a variety of factors); Media Access Project further comments at 1 (arguing that current rates are likely to be artificially high as telecommunications providers are operating in a monopoly market); Vitelco further comments at 12 (stating that a company's existing rates must be measured against service areas and subscribers' income levels); Washington UTC further comments at 2 (arguing that affordability of current rates depends on the relationship between a serving company's costs and prices and nonrate factors). For example, Maine PUC cites "formidable measurement problems" that must be overcome before any conclusion regarding the effect of rates on universal service for a particular area can be made, including differences among state policies on which rates  X-are based.Pj* } yO-ԍ Maine PUC further comments at 2.P In addition, ITC contends that rates are "far from being usable as a measure of affordability" because they are often subject to political considerations and other variable  X-factors.Fk } yO-ԍ ITC further comments at 12.F  X_-xu118. ` ` Subscribership Levels and Other NonRate Factors. Some parties oppose considering affordability in terms of factors other than rates, such as subscribership and  X1-household income levels.l1J } yO,-ԍ AT&T further comments at 3; Ameritech further comments at 7; CompTel further comments at 6; GTE further comments at 5. Ameritech argues that any relationship that may exist between  X -nonrate factors and affordability has not been established.m } yOm-ԍ Ameritech further comments at 7 (arguing that the Commission should undertake an empirical study on impediments to subscribership before considering nonrate factors). Similarly, Sprint asserts that  X -rates have little to do with subscribership levels.Gn } yO-ԍ Sprint further comments at 2.G Time Warner maintains that, before mandating that nonrate factors be considered when determining affordability, the Commission should consider whether data reflecting these nonrate factors are readily available, whether it will be difficult to obtain any necessary data, and what costs are associated with gathering and  X -processing the requested data with respect to individual consumers or groups.Lo } yO"-ԍ Time Warner further comments at 6.L United Church of Christ opposes linking affordability to subscribership levels because, it argues, in some markets consumers have no choice but to pay rate increases or do without"y=o*&&dd"  X-telecommunications services.~p} {Oy-ԍ United Church of Christ comments at 6. See also Edgemont reply comments at 3.~ PacTel asserts that affordability is not necessarily correlated with income because, it argues, "affordability is a very personal decision based on many  X-different factors for each individual."BqZ} yO-ԍ PacTel comments at 23. B  X-xv119. ` ` Many parties contend that the present subscribership level indicates that current  X-rates are affordable.$r} yO( -ԍ NTIA reply comments at 12; AT&T further comments at 3; Ameritech further comments at 46; Citizens Utilities further comments at 2; GTE further comments at 5; MCI further comments at 12; MFS further comments at 2; Minnesota Indep. Coalition further comments at 1; NECA further comments at 1; NCTA further comments at 2; NYNEX further comments at 1; SWBT further comments at 2; TCI further comments at 5; Teleport further comments at 12; U S West further comments at 12; Vanguard further comments at 23.$ Vanguard argues that the Commission should take official notice of its own subscribership reports as demonstrating that current rates are sufficiently low to promote  X_-widespread subscribership.OsX_} yO-ԍ Vanguard further comments at 2 (citing "Telephone Subscribership in the United States," Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission (released June 1996) (estimating that 93.8 percent of all households in the United States have telephone service).O Ameritech asserts that, even considering the lowest penetration rate in the various states referring to an 85 percent subscribership rate in New Mexico it is not unreasonable to conclude that telephone services are generally available when at least  X -85 percent of households subscribe to "core" services.Jt } yO-ԍ Ameritech further comments at 4.J  X -xw120.` ` Other commenters argue that current subscribership levels demonstrate that  X -rates are not affordable to all Americans.u J } yO-ԍ Maine PUC comments at 3; Benton further comments at 2; CFA further comments at 1; Puerto Rico Tel. Co. further comments at 12. For example, New Mexico AG contends that the difference in subscribership rates between households with incomes above $50,000.00 and those below that amount indicate that affordable service is not currently available to all  X-Americans.tv} {O-ԍ New Mexico AG comments at 2. See also Benton further comments at 2.t Similarly, Idaho PUC argues that although prices could probably rise without a drastic reduction in subscribership, this does not mean that rates should be allowed to rise, as  Xb-affordability is a question of consumers' priorities, not just service prices.Dwb4} yOG#-ԍ Idaho PUC comments at 89.D  X4-xx121. ` ` Some commenters contend that affordability should be linked to subscriber"4>w*&&dd"  X-incomes.8xZ} yOy-ԍ Ad Hoc Telecom. Users. comments at 20; California Dept. of Consumer Affairs comments at 18; Puerto Rico Tel. Co. comments at 10; SWBT comments at 10; AirTouch further comments at 3; Bell South further  {O -comments at 3. See also GTE comments at 8.8 For example, some parties view the percentage of a subscriber's income that is  X-spent on telecommunications expenditures as an appropriate way to assess affordability.Uy} {O-ԍ See, e.g., CFA further comments at 2.U SWBT and USTA support identifying the "affordable rate" for local service as 1 percent of  X-the statewide and national median household income, respectively.z|} {O -ԍ SWBT comments at 1011; USTA comments at 15 n.21. See also BellSouth further comments at 2. AARP, however, arguing that residential rates would increase because residential customers currently spend less  X-than this amount on basic services on average, opposes these approaches.E{} yOL -ԍ AARP reply comments at 78.E Other parties  Xv-favor measuring affordability by considering consumers' disposable income.a|v} yO-ԍ PULP comments at 7; Puerto Rico Tel. Co. comments at 6.a U S West, for example, supports comparing telephone service expenditures to expenditures for cable television services, entertainment services, other communication services, or other  X1-discretionary household expenditures.I}1. } yO-ԍ U S West further comments at 2.I BellSouth argues that the affordability criteria should be based on what subscribers or households on the margins of the poverty level, specifically  X -at 125 percent of the poverty level, consider to be affordable.F~ } yOr-ԍ BellSouth comments at 3132.F  X -xy122.  Some commenters argue that the concept of affordability must account for a consumer's entire telecommunications expenditure, and not just include the cost of local  X -service.X N } yO-ԍ Century comments at 45; Minnesota Indep. Coalition comments at 79; USTA comments at 1415; Virginia CC reply comments at 2; AirTouch further comments at 3; Minnesota Indep. Coalition further comments at 3. For example, PULP recommends considering the costs to a consumer of connection charges, deposits, advanced payments, late payment charges, and other costs  Xy-needed to obtain or reinstate service.=yn} yO!-ԍ PULP comments at 9.= Similarly, OPCDC argues that affordability might be  Xb-measured by the number of terminations or suspensions for nonpayment.[b} yO$-ԍ PULP comments at 89; OPCDC reply comments at 7.[ In addition, ITC argues that underlying costs such as access charges and wholesale rates for resold services"K?*&&dd"  X-must also be affordable so that carriers can offer affordable services to end users.>} yOy-ԍ ITC comments at 56.> Several parties argue that calling scope must be factored into a determination of affordability, as rural  X-consumers must often place toll calls outside their local calling areas.|"X} {O-ԍ See, e.g., AARP comments at 18; Century comments at 46; Keystone comments at 8; Rural Iowa Indep. Tel. Ass'n comments at 3; Telec Consulting Resources comments at 5; Minnesota Indep. Coalition reply comments at 34; Alaska Tel. further comments at 5; CFA further comments at 23; Western Alliance further comments at 2.| For example, Rural Iowa Indep. Tel. Ass'n asserts that rural subscribers may have to place toll calls to reach  X-schools, health care providers, and other institutions.UB} yO -ԍ Rural Iowa Indep. Tel. Ass'n comments at 3.U NECA contends that calling scope and total amount of bills should be considered, but subscribership levels, consumer income,  Xv-and cost of living should not be presumed to affect affordability.Ev} yO-ԍ NECA further comments at 3.E  XH-xz123. ` ` State and Federal Determination of Affordability. A substantial number of commenters advocate permitting the states to define affordable rates, because of the unique  X -circumstances of consumers in each state.  b } {O--ԍ See, e.g., AARP comments at 18; California Dept. of Consumer Affairs comments at 17; NARUC comments at 5; New York DPS comments at 5; Ohio Consumer's Council comments at 11; PacTel comments at 20; Pennsylvania PUC comments at 9; Texas PUC comments at 5; Washington UTC comments at 7; Fred Williamson comments at 6, 12; CPI reply comments at 89; Virginia CC reply comments at 2; Bell Atlantic further comments at 1; GTE further comments at 8; NYNEX further comments at 2.  PacTel argues that states, in their ratemaking  X -capacities, should determine what is affordable.G } yO-ԍ PacTel further comments at 7.G Other parties favor the establishment of a  X -nationwide affordability rate.-\ } {OA-ԍ See, e.g., AT&T comments at 17; Time Warner comments at 7. The comments of additional parties who  {O -advocate a nationwide affordability benchmark for purposes of establishing high cost support are discussed infra, section VII.C.- Citizens Utilities suggests that a national price affordability standard be created, but that states be permitted to create their own affordability standards and create their own support mechanism to fund the difference between federal support levels and  X -carrier costs that are above the state standard.O } yO "-ԍ Citizens Utilities comments at 1112.O ITC believes that national subscribership  X-goals should be established and affordability should then be determined at the local level.DX} yO$-ԍ ITC further comments at 2.D "y@*&&dd"Ԍ X-ԙx{124. ` ` Readjustment of Affordability. Texas OPUC opposes recalibrating rates to reflect changes in inflation because, it argues, the real cost of providing services is  X-declining.D} yOK-ԍ Texas OPUC comments at 14.D Ohio Consumer's Council argues that any recalibration should be based on the growth or decline in consumers' incomes, but that declining industry costs should also be  X-considered.QX} yO-ԍ Ohio Consumer's Council comments at 11.Q Citizens Utilities argues that periodic adjustments to national price affordability  X-standards are necessary to account for inflation and pricing changes.L} yO& -ԍ Citizens Utilities comments at 11.L Similarly, GTE supports an automatic adjustment for inflation to prevent support from being diluted over time  X_-and to avoid future concerns regarding the growth of funding levels.A_x} yO -ԍ GTE comments at 8 n.16.A   x  X1-x` ` 3. Discussion (#  X -x|125. ` ` In the 1996 Act, Congress not only reaffirmed the continued applicability of the  X -principle of just and reasonable rates, but also introduced the concept of affordability.O } yO-ԍ 47 U.S.C.  254(b)(1), 254(i).O Although we believe an increasingly refined understanding of the term affordability will  X -evolve over time,q } yO-ԍ The principle of just and reasonable has been interpreted in numerous judicial and administrative  {O-proceedings. See, e.g., Bluefield Water Works & Improvement Co. v. Public Serv. Commn of West Virginia, 262  {O-U.S. 679, 693 (1923) (finding just and reasonable rate "depends on circumstances, locality and risk"); Federal  {Oc-Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944) (holding "fixing of 'just and reasonable' rates involves a balancing of the investor and the consumer interests").q we find that the Webster Dictionary definition is instructive in determining how to interpret the concept for purposes of crafting universal service policies consistent with the congressional intent underlying section 254. As AARP and other commenters appropriately note, the definition of affordable contains both an absolute component ("to have enough or the means for") and a relative component ("to bear the cost of without serious detriment"). Therefore, we conclude that both the absolute and relative components must be considered in making the affordability determination required under the statute. We find that an evaluation that considers price alone does not effectively address either component of affordability.  X-x}126. ` ` In general, we find that factors other than rates, such as local calling area size, income levels, cost of living, population density, and other socioeconomic indicators may"AN *&&dd"  X-affect affordability.} {Oy-ԍ We note that the specific needs of low income consumers are addressed in section VIII, infra. Washington UTC and other commenters observe that these other factors may vary by region. We conclude that the concept of affordability should encompass a consideration of factors other than rates.  X-x~127. ` ` Although subscribership levels can be influenced by many factors,Z} yO-ԍ Subscribership levels may also be influenced by such factors as the level of toll charges or service connection charges. we agree with the many commenters finding a general correlation between subscribership level and affordability. We find that a relatively high penetration rate suggests, but does not ensure,  X_-that rate levels are affordable.,G_} {O -ԍ See PULP comments at 6 (arguing that subscription data do not reveal whether a particular service can  X -be afforded without hardship).#XN\  P ynXP# #A\  P ɒP#As a number of commenters noted, because telephone service is considered a  {Ou-modern necessity, some consumers subscribe irrespective of whether the rate causes serious inconvenience. See,  {O?-e.g., CFA further comments, (App. I) at 12., We further conclude, however, that a low or declining penetration rate may be an indicator that rate levels in a jurisdiction are not affordable. In general, we find subscribership levels provide relevant information addressing the basic  X -question of whether consumers have the means to subscribe to telephone service.#XN\  P ynXP# We find monitoring subscribership to be a tool in evaluating the affordability of rates. It should not,  X -however, be the exclusive tool in measuring affordability.V } {O^-ԍ See Alaska Tel. further comments at 4.V Subscribership levels do not address the second component of the definition of affordability, namely, whether paying the rates charged for services imposes a hardship for those who subscribe.  X-x128. ` ` We also find, consistent with the arguments of Montana PSC and other parties, that the scope of the local calling area directly and significantly impacts affordability. The rate design described by Puerto Rico Tel. Co. illustrates the correlation between scope of  XK-calling area and rate.PKS } yOO-ԍ Puerto Rico Tel. Co. comments at 910.P According to Puerto Rico Tel. Co., its rates for unlimited basic residential calling range from $18.80 in the densely populated San Juan area with access to  X-more than 340,000 access lines to $6.45 in an area with access to 200 or fewer access lines." } yO -ԍ Puerto Rico Tel. Co. subscribers with access to between 10,000 and 40,000 callers in their local calling area pay $15.10; with access to 5,001 to 10,000, the rate is $14.00; and with access to 201 to 1,000, the rate is  {OA"-$7.60. Id. See also Alaska Tel. further comments at 5; Minnesota Indep. Coalition further comments at 34; RTC further comments at 7. Implicit in the Puerto Rico Tel. Co. rate design is recognition that, with more limited local calling areas, subscribers may have to incur greater toll charges to reach an equivalent number of lines. If rates charged for local service were the only consideration, the $6.45 rate would"B*&&dd" be considered "more affordable" than the $18.80 rate. Yet consideration of the scope of the calling area suggests that rates disparate on their face may in fact be similarly affordable for a given level of toll charges. Conversely, identical rates may not be equally affordable when the extent of their associated local calling areas differ. Therefore, the Joint Board concludes that the scope of the local calling area should be considered as another factor to be weighed when determining the affordability of rates. In addition, we find that in considering this last factor, examining the number of subscribers to which one has access for local service in a local calling area alone is not sufficient. A determination should be made that the calling area reflects the pertinent community of interest, allowing subscribers to call hospitals, schools, and other essential services without incurring a toll charge.  X -x129. ` ` Customer income level also is a factor that should be examined when addressing affordability. While a specific rate may be affordable to most customers in an affluent area, the same rate may not be affordable to lower income customers. We agree with the conclusions of many commenters regarding the nexus between income level and ability to  X -afford telephone service.W } {O -ԍ See, e.g., Benton reply comments at 10.W We reject, however, SWBT's proposal to define affordability based on a percentage of national median income. Such an approach would be inequitable because of the significant disparity in income levels throughout the country. For example, a rate equal to 1 percent of the national median income level would equal 7 percent of the  XK-average annual income level for a household in Birch Creek, Alaska.xKZ} {OV-ԍ Alaska PUC comments at 34. See also Florida PSC further comments at 3.x Therefore, we conclude that per capita income of a local or regional area, and not a national median, should be considered in determining affordability. In addition to income level, we agree with CNMI and other commenters that conclude that the cost of living in an area may affect the affordability of a given rate.  X-x19. ` ` We also agree with Maine PUC when it recognizes that many variations in a states rates reflect legitimate local variations in rate design. Such variations include the proportion of fixed costs allocated between local services and intrastate toll services; proportions of local service revenue derived from perminute charges and monthly recurring charges; and the imposition of mileage charges to recover additional revenues from customers  XP-located a significant distance from the wire center.MP} yO -ԍ Maine PUC comments at 1112. M We find that these factors too should be considered in making the determination of affordability of rates.  X -x130. ` ` In summary, we find that a determination of affordability must take into" C|*&&dd["  X-consideration both rates and other factors.V} {Oy-ԍ See supra for a list of those factors.V In addition, we agree with commenters that argue that scope of local calling area should be considered in determining whether rates are affordable. We also find that customer income level and cost of living are factors that should be considered on a local rather than nationwide basis in order to accurately capture the effects of local circumstances on affordability. Finally, we conclude that, because a variety of factors contribute to the establishment of local rates, these factors should also be considered when determining whether rates are affordable.  XH-x131. ` ` In light of our conclusions regarding the importance of the particular factors other than rates identified in the preceding paragraphs, we recommend that the states exercise primary responsibility, consistent with the standard enumerated above, for determining the affordability of rates. As many commenters note, the characteristics of each jurisdiction are unique, and the states possess both the knowledge and expertise to understand and evaluate these factors and to determine ultimately how they affect rate affordability. In finding that states should assume the primary responsibility in ensuring affordability, we expressly reject the approach favored by some commenters that the Commission designate a nationwide affordable rate. A nationwide affordable rate would ignore the vast differences within and between regions that can affect what constitutes affordable service. Because, as commenters have noted, various factors contribute to the establishment of rates, we further reject the assertion that an average of current unadjusted rates would accurately reflect an affordable rate. To the extent that consumers wish to challenge whether a rate is truly "affordable," we find the state commissions, in light of their ratesetting roles, are the appropriate forums for raising such issues. Additionally, we conclude that the Commission will continue to oversee the development of the concept of affordability, and may take action to ensure rates are affordable, where necessary and appropriate. x  X-x132. ` ` Although we recommend that the states should make the primary determination of rate affordability, we recognize that Congress, through the 1996 Act, gave the Commission a role in ensuring universal service affordability. Subscribership levels, while not dispositive on the issue of affordability, provide an objective criterion to assess the overall success of state and federal universal service policies in maintaining affordable rates. Therefore, we recommend that, to the extent that subscribership levels fall from the current levels on a statewide basis, the Commission and affected state work together informally to determine the cause of the decrease and the implications for rate affordability in that state. If necessary and appropriate, the Commission may open a formal inquiry on such matters and, in concert with the affected state, take such action as is necessary to fulfill the requirements of section 254. We find that this proposed dual approach in which both the states and the Commission play roles in ensuring affordable rates is consistent with the statutory mandate embodied in section 254(i). "#DZ*&&dde""Ԍ X-x133. ` ` While we view local rates as generally affordable throughout the nation based on subscribership levels, a formal determination that current rates are affordable is unnecessary at this time given the recommended decisions we reach in the paragraph above. Each state will continue to have the primary responsibility for making the finding that rates for local service are affordable based upon its consideration of the rates in question in light of the abovedescribed nonrate factors.  XH- VI.XxCarriers Eligible for Universal Service Support (#  X -x A.` ` Overview (#`  X -x134.` ` In this section of the Recommended Decision, we discuss which telecommunications carriers will be eligible to receive support from the federal universal service support mechanisms. We recommend that the statutory criteria set out in section 214(e) be used to determine which carriers are designated eligible telecommunications carriers. Pursuant to section 214(e), carriers must offer all the services supported by the federal universal service support mechanism throughout their service areas to be eligible for universal service support, except that only carriers with the technical capability to offer toll limitation services should be required to offer such services to qualifying lowincome  X4-consumers, as discussed infra in section VIII. Specifically, section 214(e) requires that, throughout its designated service area, an eligible carrier: (1) offer all of the services that are supported by the federal universal service mechanism; (2) offer such services using its own facilities or a combination of its own facilities and resale of another carrier's services; and (3) advertise the availability and charges for such services. In the case of areas served by rural telephone companies, we recommend that such a company's existing study area be used as the designated service area. With respect to areas served by nonrural carriers, the states have primary responsibility for designating the service area. We recommend, however, that the service areas chosen by the states not be unreasonably large. x  XP-x B.` ` Eligible Telecommunications Carriers (#`  X"-x` ` 1. Background (#  X-x135.` ` Section 254(e) provides that, after the effective date of the Commission's regulations implementing section 254, "only an eligible telecommunications carrier designated  X -under section 214(e) shall be eligible to receive specific Federal universal service support."@ } yO?#-ԍ 47 U.S.C.  254(e).@ Section 254(e) further prescribes that a carrier receiving universal service support "shall use that support only for the provision, maintenance, and upgrading of facilities and services for""EX*&&dd!"  X-which the support is intended."@} yOy-ԍ 47 U.S.C.  254(e).@ Additionally, section 254(k) prohibits a carrier from using  X-noncompetitive services to subsidize services that are subject to competition.@X} yO-ԍ 47 U.S.C.  254(k).@  X-x136.` ` Section 214(e)(1) of the 1996 Act provides that:  X- Xx(# Xx"A common carrier designated as an eligible telecommunications carrier under paragraph [214(e)(2)] or [214(e)(3)] shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received  XxX` ` (A) offer the services that are supported by Federal universal service support mechanisms under section 254(c), either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier); andx` XxX` ` (B) advertise the availability of such services and the charges  X -therefor using media of general distribution."C } yO@-ԍ 47 U.S.C.  214(e)(1).Cx`  Xy-x137.` ` Pursuant to section 214(e)(2), state commissions must, either upon their own motion or upon a carrier's request, designate a common carrier that meets the requirements of section 214(e)(1) "as an eligible telecommunications carrier for a service area designated by  X4-the State commission."C4x} yO]-ԍ 47 U.S.C.  214(e)(2).C Section 214(e)(2) also provides for the designation of more than one carrier as an eligible telecommunications carrier. It states: XxUpon request and consistent with the public interest, convenience, and necessity, the State commission may, in the case of an area served by a rural  X-telephone company,x} yOz-ԍ The term "rural telephone company" is defined at 47 U.S.C.  153(37) as follows: Xx"The term 'rural telephone company' means a local exchange carrier operating entity to the extent that such entity  XxX` ` (A) provides common carrier service to any local exchange carrier study area that does not include eitherx` XxX` ` (i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based on the most recently available population statistics of the Bureau of the Census; orx` XxX` ` (ii) any territory, incorporated or unincorporated, included in a urbanized area,"%*&&&" as defined by the Bureau of the Census as of August 10, 1993;x` XxX` ` (B) provides telephone exchange service, including exchange access, to fewer that 50,000 access lines;x` XxX` ` (C) provides telephone exchange service to any local exchange carrier study area with fewer than 100,000 access lines; or x` XxX` ` (D) has less than 15 percent of its access lines in communities of more than 50,000 on the date of enactment of the Telecommunications Act of 1996."x`  and shall, in the case of all other areas, designate more"F*&&ddq" than one common carrier as an eligible telecommunications carrier for a service area designated by the State commission, so long as each additional requesting carrier meets the requirements of paragraph (1). Before designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the State commission shall find that the designation is in  X-the public interest.@} yOF -ԍ 47 U.S.C.  214(e)(2). Section 214(e) also contains provisions governing a carrier's relinquishment of its eligible carrier designation in areas served by more than one eligible carrier. The statute requires states to permit eligible carriers to relinquish their designation after giving the state notice. The statute requires remaining eligible carriers to serve the relinquishing carrier's customers and requires the state to give remaining carriers time to construct or purchase facilities if necessary. 47 U.S.C.  214(e)(4). The NPRM noted that section 214(e)(4) reserves to the states the consideration of requests from designated eligible carriers to relinquish their designation. The Commission invited commenters to identify any of the Commission's regulations that may be inconsistent with that reservation of authority to the states. NPRM at para. 49.   X_-x138.` ` The NPRM sought comment and the Joint Board's recommendation on various issues raised by the provisions of sections 214(e) and 254(e). It sought comment regarding the need for any measures to ensure that universal service support is used for its intended  X -purpose, as required by section 254(e).; } yO-ԍ NPRM at para. 41.; The Commission also invited commenters to propose means to ensure that all eligible carriers and no ineligible carriers receive the  X -appropriate amount of universal service support.= } yO=-ԍ NPRM at para. 41. = The Commission sought comment on the need to ensure that telecommunications carriers do not use services that are not competitive to  X -subsidize competitive services, which is barred by section 254(k).; 0} yO-ԍ NPRM at para. 41.; The NPRM further sought comment regarding standards for compliance with the requirement in section 214(e)(1) that eligible telecommunications carriers provide universal service using their own facilities or  Xy-a combination of their own facilities and resale.;y} yO#-ԍ NPRM at para. 43.; The Commission also stated its belief that it may be useful to develop guidelines defining the steps that would be sufficient to meet the 1996 Act's requirement that carriers advertise the availability of universal services and the"KGP*&&ddI" rates charged for those services throughout the service area. The NPRM invited parties to  X-suggest guidelines for such advertising.;} yOb-ԍ NPRM at para. 46.;  X-x139.` ` In its Public Notice seeking further comment in this proceeding, the Common Carrier Bureau raised specific questions relating to the provision of high cost support to companies subject to price cap regulation. The Bureau asked whether companies subject to price cap regulation should be eligible for high cost support, and if not, whether the exclusion  X_-of price cap carriers would be consistent with the provisions of section 214(e).=_X} yOh -ԍ Public Notice at 5.= Alternatively, the Bureau asked if high cost support should be structured differently for price cap carriers than for other carriers. The Public Notice also solicited comment on how a price cap company should be defined, assuming that such companies are treated differently. It asked whether a company participating in a state, but not a federal price cap plan, should be  X -deemed a price cap company.= } yO-ԍ Public Notice at 5.= Finally, the Bureau asked if there should be a distinction between carriers operating under price caps and carriers that have agreed, for a specified period of time, to limit increases in some or all rates as part of a "social contract" regulatory  X -approach.= x} yO-ԍ Public Notice at 5.=  Xy-x` ` 2. Comments (#  XK-x140.` ` Eligibility in general. Most commenters argue that any telecommunications carrier that meets the eligibility criteria contained in section 214(e)(1) (e.g., offers and advertises universal services throughout the service area) should be eligible to receive  X-universal service support.} {O-ԍ See, e.g., 360 comments at 4; ALTS comments at 1213; Colorado PUC comments at 67; CompTel comments at 16; LCI comments at 5; LDDS comments at 47; NASUCA comments at 2223; NCTA comments at 12; PacTel comments at 13; Sprint comments at 1516; WinStar comments at 10; MFS reply comments at 6;  {O-Ohio Consumers' Council reply comments at 1718. See also California PUC comments at 10 (arguing that all carriers of last resort, defined as those willing to serve all customers in a census block group either with their own facilities or on a resale basis, should be eligible.) Commenters specifically argue that the definition of eligible carriers must be technologically neutral, so that CMRS providers, for example, can become eligible for universal service support, particularly since such companies must contribute to universal service support mechanisms and can be cost efficient providers of services in rural"H *&&dd"  X-areas.Z} {Oy-ԍ See, e.g., 360 comments at 35; CTIA comments at 34; Vanguard comments at 78; Western comments at 14; AT&T reply comments at 1516; Comnet Cellular reply comments at 6; MCI reply comments at 1516; MFS reply comments at 6.  As discussed in section IV above, some commenters suggest that carriers should be eligible to receive support even if they provide only some of the defined core services, at least  X-during a transition period, but that any such carrier's support would be reduced.} {Om-ԍ New Jersey Advocate comments at 16. See also Missouri PSC comments 78 (proposing a fiveyear transition period during which carriers could offer some, but not all, core services). Bell Atlantic argues that eligibility should be determined by which states are high cost, not which carriers are high cost. Funds would then be distributed by eligible states to eligible carriers  X-that provide universal service over their own loops.GD} yO -ԍ Bell Atlantic comments at 10.G  X_-x141.` ` Some commenters maintain that the Commission should issue guidelines to aid  XH-the states in determining which carriers are eligible.H} {O-ԍ See, e.g., AT&T comments at 21; GTE comments at 6; Pennsylvania PUC comments at 22; CompTel reply comments at 13; LDDS reply comments at 6. Several commenters assert that such guidelines should include requiring carriers to provide the core universal services on a stand X -alone basis." . } yO-ԍ AT&T comments at 21; Lincoln reply comments at 67; Ohio Consumers' Council reply comments at  {O-18. See also NASUCA comments at 2223 (proposing that, to receive funds, carriers must agree to provide basic telephone service on an unbundled basis at prescribed rates); NYNEX reply comments at 2 (arguing that services must be provided as a single package).  NECA argues that the Commission's rules should emphasize that support would be available only to carriers who actually serve the entire service area, not simply  X -portions thereof or selected highvolume customers. } {O-ԍ NECA comments at 8. See also SDITC reply comments at 6 (supporting NECA's comments). Some states, however, contend that the designation of eligible carriers should be left entirely to them, perhaps as an adjunct of their  X -certification process.Z } {O-ԍ See, e.g., Florida PSC comments at 13; Ohio Consumers' Council comments at 6. See also SWBT comments at 18 (contending that statute expressly leaves to states to certify eligible carriers and Commission has no role in this process).  X-x142.` ` Other commenters contend that additional requirements must be imposed on carriers before they may receive universal service support. For example, some commenters argue that, as a condition of eligibility, new entrants must meet the same regulatory"bI*&&dd"  X-obligations as are imposed by the states on the incumbent.} {Oy-ԍ See, e.g., Ameritech comments at 12; BellSouth comments at 14 n.26; GTE comments at 67; USTA comments at 23; Tel. Assoc. of Michigan reply comments at 5. Certain commenters contend  X-that these requirements specifically include carrier of last resort (COLR) obligations.2z"} {O-ԍ  See, e.g., California PUC comments at 13; Telec Consulting comments at 14. See also ICORE comments at 89 (viewing section 214 requirements as establishing carrier of last resort requirement for rural LECs); Ameritech reply comments at 45. GTE defines a COLR as a carrier eligible for universal support that undertakes the obligations established by a state agency, within federal guidelines, as a condition of receipt of federal universal service support. GTE comments at 8 n.19. GTE suggests that such obligations might include a ceiling on the rate the COLR can charge, terms and conditions of service and quality standards, limits on the carrier's ability to exit, and an obligation to serve all customer in the area. GTE further comments at 4648.2 GTE argues that universal service support can be competitively neutral only if all carriers receiving  X-such support are subject to the same obligations.Ud } {O -ԍ See, e.g., GTE reply comments at 45.U GTE contends that, without symmetrical regulation of all carriers receiving universal support, new entrants may offer the core services throughout the service area in theory only, while in fact targeting low cost customers by  Xv-quoting them far better prices than it would charge high cost customers.{v } {O-ԍ GTE comments at 67. See also Tel. Assoc. of Michigan reply comments at 5.{ GTE further maintains that, unless new entrants are subject to the same exit barriers imposed on incumbents, new entrants would race to flee an area, rather than become the sole remaining eligible carrier once any other carrier announced its intention to relinquish its eligibility  X -designation pursuant to section 214(e)(4). } {OS-ԍ Letter from Whitney Hatch, GTE, to Mr. William Caton, FCC, September 18, 1996, at 4 (GTE ex  {M-parte).Ĩ Ameritech expresses concern that new entrants that are not required to meet COLR obligations, which it defines as a requirement to serve all customers in an area and a barrier to exit, could nevertheless receive the same level of  X -universal service support as the incumbent, which is subject to such obligations. } yOh-ԍ Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. Ameritech argues that such a situation would threaten the incumbent COLR because the new entrant would receive the same level of compensation but with lesser obligations and therefore a  X-lower financial burden.r} yO -ԍ Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. Commenters also propose that carriers be required to meet service  Xy-quality standards as a condition of eligibility.y} yO,#-ԍ Alaska PUC comments at 17; CWA comments at 6; GTE comments at 7 n.15; Texas PUC comments at 3. WinStar argues that telecommunications carriers, to be eligible, must meet the minimum broadband capability standards set forth in the"bJZ*&&dd"  X-Rural Electrification Loan Restructuring Act.F} yOy-ԍ WinStar reply comments at 4.F  X-x143.` ` Some commenters would exclude certain classes of carriers from eligibility. Certain rural carriers contend that only statecertified carriers should be eligible for support and that, for the foreseeable future, the incumbent LEC will continue to be the carrier of last  X-resort for rural areas and should be the proper recipient for such support.X} {O-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 6; Farmers Tel. comments at 4; MonCre comments at 4; New Hope Tel. comments at 4. Cincinnati Bell asserts that the new entrants should not be eligible for support because their decisions to enter new markets should be based on market forces, not the availability of subsidies, and because new entrants do not have any of the obligations from past regulatory decisions, such as average pricing, implicit crossproduct subsidies, and depreciation rates that do not reflect a  X -competitive environment.L } yO}-ԍ Cincinnati Bell comments at 1011.L Rural Iowa Indep. Tel. Ass'n argues that only private sector entities should receive universal service support because of Congress's expressed goal of  X -rapidly accelerating private sector deployment of advanced telecommunications.T B} yO-ԍ Rural Iowa Indep.Tel. Ass'n comments at 2.T Frontier argues that only small companies defined as those with less than 50,000 access lines in a  X -state should be eligible for support.  } yOA-ԍ Frontier comments at 6. Frontier achieves this result by proposing that, in determining the service areas that a designated eligible carrier must serve, the states include in that area all of an incumbent LEC's access lines in the state. Any area that is served by an incumbent LEC that serves more than 50,000 access lines would not qualify for high cost support. Frontier comments at 7. Alliance for Public Technology, on the other hand, suggests that small telephone companies should not receive support because they are  X-"uneconomic business enterprises."] } yO-ԍ Alliance for Public Technology comments at 14 n.11.] GVNW responds that excluding small telephone companies from support would discourage the development of advanced telecommunications since small companies provide advanced services to consumers that larger companies  XK-traditionally have not served well.EKJ } yOF -ԍ GVNW reply comments at 34.E x  X-x144.` ` Exclusion of price cap companies. Several commenters argue that carriers  X-subject to price cap regulation should not be eligible for universal service support.} {O$-ԍ See, e.g.,Time Warner comments at 1112; Staurulakis comments at 1112; NCTA further comments at 8; Teleport further comments at 78 . Time"K4*&&dd(" Warner, for example, asserts that carriers subject to incentive regulation, such as price caps, have flexibility and increased earnings opportunities and are expected to accept and anticipate risks from which rateofreturn regulated companies have been insulated. Time Warner argues that price cap regulated companies, having been given the opportunity for increased  X-earnings, should not have increased earnings guaranteed through universal service support.H} yO-ԍ Time Warner comments at 1112.H Teleport maintains that price cap companies should not be eligible because they have agreed that they have full responsibility for their costs. It further contends that permitting universal service subsidies would undermine the incentive of price caps. To retain competitive neutrality, Teleport proposes to exclude any carrier from receiving support in an area where  X1-the incumbent is a price cap carrier and for that reason is excluded from eligibility.K1X} yO: -ԍ Teleport further comments at 78.K  X -x145.` ` Some commenters maintain that, while price cap companies should be eligible for universal service support, such companies should receive different treatment. Some commenters argue price cap companies should not receive high cost support unless they can  X -demonstrate the need for such support on a statewide or companywide basis.x } yOW-ԍ ALTS further comments at 79 (arguing that carriers subject to price cap regulation should not receive universal service support unless and until they can show that without an explicit subsidy the company as a whole will be unable to earn a fair return); AirTouch further comments at 21 (arguing that price cap regulated companies must be required to base claims of high costs on the same level of aggregation as the price cap ceilings, i.e, an RBOC must show high costs on average over its entire multistate service area); SNET further comments at 6 (arguing that "[p]rice cap companies should not be eligible for highcost support unless they meet the highcost support test for their entire service area"). ALTS contends that such different treatment is entirely reasonable given the flexibility that price cap regulation grants these companies and that these companies, by agreeing to price cap regulation, have signalled their ability to manage overall costs and make a reasonable firm Xb-wide profit, even if they operate in some high cost areas.Gb( } yO;-ԍ ALTS further comments at 79.G CFA argues that companies should be eligible for support only if the price cap includes an exogenous factor that would  X4-allow rates to be adjusted up or down if the level of high cost support changes.4 } yO-ԍ CFA further comments at 13. Maine PUC notes that many state price caps expressly provide for rate adjustments following changes in high cost assistance levels. Maine PUC further comments at 17 n.12. CFA further maintains that such an adjustment should not occur if the carrier's loss of revenue is  X-the result of competition rather than a loss or reduction of high cost support.E} yO#-ԍ CFA further comments at 13.E MCI argues that price cap companies should not be treated differently if costs are computed using MCI's proposed methodology but that these companies should not be eligible for high cost support"L*&&dd" that is computed based on the carrier's booked costs as this would dilute the price cap  X-incentives to control costs.!Z} {Ob-ԍ MCI further comments at 1314. See also TCI further comments at 26 (arguing that price cap companies should not be eligible in areas where they face little or no competition and where the universal service subsidy is based on booked costs).! NYNEX, while arguing that price cap companies are eligible to receive support, contends that support should be structured differently for price cap companies. It maintains that the Commission should use a cost proxy model like the Benchmark Cost Model (BCM) to identify areas served by price cap LECs that are likely to have higherthanaverage costs. NYNEX argues that carriers subject to rateofreturn regulation, however, should have universal service support levels based on such company's  X_-"actual" costs determined on a study area basis.S_} yO -ԍ NYNEX further comments at 2021, 2426. S  X1-x146. ` ` Most commenters, however, argue that price cap companies should not be excluded from receiving universal service support or treated differently from other companies  X -receiving such support.F z} {O.-ԍ See, e.g., AT&T further comments at 2627; Ameritech further comments at 2627; BellSouth further comments at 3435; Bell Atlantic further comments at 10; Citizens Utilities further comments at 89; GSA  {O-further comments at 56; GTE further comments at 3133; MFS further comments at 36; Maine PUC further comments at 1618; NECA further comments at 2021; PacTel further comments at 30; Puerto Rico Tel. Co. further comments at 9; RTC further comments at 1819; SWBT further comments at 2425; Sprint further  {O-comments at 89; USTA further comments at 2122; U S West further comments at 15. See also ITC further comments at 1213 (arguing that, while price cap companies should not be excluded, there may be a need for some special cost allocation rules or other minor changes in the way they are treated).  They argue that excluding price cap companies would be contrary to the statute and that the cost characteristics of a particular area and the obligations that the carrier has agreed to undertake, not the carrier's regulatory regime, govern the determination  X -of eligibility. } {O-ԍ See, e.g., BellSouth comments at 3435; Ameritech further comments at 2627; Bell Atlantic further comments at 10; Citizens Utilities further comments at 89; GTE further comments at 3233 (arguing that price cap companies cannot be excluded from eligibility as a matter of law); Maine PUC further comments at 1618; PacTel further comments at 30; SWBT further comments at 2425; Sprint further comments at 89; USTA further comments at 2122. Alliance for Public Technology asserts that price cap regulation is an important tool to promote competition and excluding price cap companies from receiving  X-support would discourage the use of price caps.I:} {O{!-ԍ Alliance for Public Technology further comments at 1012. See also Maine PUC further comments at 17 (excluding price cap companies would have the perverse effect of discouraging the form of regulation the 1996 Act encourages). Alliance for Public Technology also argues that the Commission should utilize the universal service proceeding to address ways to require or ensure that price cap regulation can be used to finance the deployment of advance telecommunications services. Alliance for Public Technology further comments at 1112.I Bell Atlantic contends that excluding price"M*&&dd"  X-cap companies would increase the incentive of such companies to sell high cost exchanges.O} yOy-ԍ Bell Atlantic further comments at 10.O Bell Atlantic also contends that it would be  X-very difficult to define a price cap carrier.X} {O-ԍ Bell Atlantic further comments at 10. See also Citizens Utilities further comments at 9. Citizens Utilities points out that many smaller companies that serve rural, high cost areas are subject to price cap regulation and an exclusion  X-of price cap companies would not just affect the large companies.U} yO? -ԍ Citizens Utilities further comments at 89.U NYNEX contends that,  X-since the Commission has decided in the Local Competition Order to remove most of the access charge revenue stream from the rates for unbundled elements, the price cap LECs will require universal service support to replace the contribution from access charge revenues that  XJ-they have used to support affordable service to high cost areas.GJz} yOu-ԍ NYNEX further comments at 24.G Sprint argues that excluding price cap carriers would result in a policy that is not competitively neutral, since a nonprice cap competitor could receive a subsidy in a high cost area served by the excluded  X -price cap LEC.I } yO-ԍ Sprint further comments at 89.I Sprint also asserts that excluding price cap carriers would violate the statute's directive to make universal service funding explicit because many price cap carriers today maintain internal, implicit subsidies between low cost and high cost areas in their  X -regions.I } yO -ԍ Sprint further comments at 89.I Washington UTC opposes any blanket exclusion of price cap companies and  X -contends that the issue should be decided by state commissions on a casebycase basis.P * } yO-ԍ Washington UTC further comments at 18.P  X{-x147. ` ` Those carriers proposing to exclude or vary the treatment of carriers subject to price cap regulation suggest varying definitions of what would constitute a price cap company for these purposes. Some argue that a price cap company should be defined as a company  X6-subject to price cap regulation at the federal or state level or pursuant to a social contract.]6 } {O-ԍ See, e.g., AirTouch further comments at 22. ] Some commenters also maintain that the definition should include any form of regulation that  X-is, in substance, similar to price cap regulation.L XL } yO#-ԍ ALTS further comments at 9 (companies subject to any plan that gives the carrier sufficient pricing flexibility to warrant different treatment); AirTouch further comments at 22; (any company subject to any plan in which rateofreturn review is suspended); NCTA further comments at 8 (any carrier under a form of regulation, at the federal or state level, that permits it to retain earnings substantially above what it could earn under rateof"]%*&&%"ԫreturn regulation); Teleport further comments at 8 ("If it looks like price caps, then it should be treated like price caps."); Time Warner further comments at 36 (any incentive regulation that offers the incumbent LEC significant regulatory and pricing flexibility and the ability to increase earnings substantially).L ITC contends that only carriers subject to"N*&&ddF"  X-the Commission's price caps should be considered for these purposes.X} yO-ԍ ITC further comments at 1314; SNET further comments at 6 (arguing that, for a federal universal service mechanism, a price cap company should be defined as one under price cap regulation at the federal level). MCI maintains that only companies under the price caps at the federal level should be included if the Commission adopts an interstateonly fund and, if the Commission adopts a unitary fund, then companies  X-under price caps at the state or federal level would be included.H} yOt -ԍ MCI further comments at 1314.H In either case, MCI would include companies under either explicit price caps or a "social contract" to limit price  X-increases.H} yO-ԍ MCI further comments at 1314.H SWBT maintains that a price cap company should be defined, in both the federal and state jurisdictions, as one under price cap regulation with no obligation to share earnings above certain levels with its customers and no price freezes on any of the regulated  XH-services.FH( } yO!-ԍ SWBT further comments at 26.F  X -x148.` ` Ensuring that universal service support is used as intended. In response to the Commission's question concerning how to ensure that carriers use universal service support for its intended purposes, several commenters suggest that carriers certify that the funds  X -received will only be used for their intended purposes,d } yO>-ԍ AT&T comments at 21 n.33; Governor of Guam comments at 12.d or that carriers must follow accounting standards or cost allocation rules required by the 1996 Act and be subject to  X -federal or state audits to ensure that funds are used properly.  H } {O-ԍ See Alaska Tel. reply comments at 3. See also Alaska PUC comments at 17; Pacific Telecom comments at 3 (proposing that recipients of support should demonstrate annually the source and application of the funds).  ALTS contends that the most important thing the Commission can do to ensure that funds are used as intended is to make  Xy-support mechanisms explicit.>y} yO -ԍ ALTS comments at 14.> Moreover, argues ALTS, to the extent that support is set at the "appropriate level," there will be far less ability to use universal service support for  XK-inappropriate purposes.>K2} yO.$-ԍ ALTS comments at 14.> GVNW argues that reimbursing companies on the basis of "actual cost[s]" will ensure that companies have used universal service support for the intended purpose and that it would be extremely difficult to make this determination using a proxy"O*&&dde"  X-model.|} {Oy-ԍ GVNW comments at 1415. See also Montana Indep. Telecom. comments at 1011.| NCTA suggests that using high cost credits or customer vouchers given to the  X-service provider could minimize carrier misuse of funding.>Z} yO-ԍ NCTA comments at 12.> MCI suggests that the Commission require recipients of universal service support to provide specified network features, such as use of digital switches, that will enhance the ability of carriers to provide  X-more advanced and reliable service.@} yO? -ԍ MCI comments at 1617.@ Ohio Consumers' Council argues that the states are best equipped to address whether carriers are misusing funds and no specific, national rules are  Xv-necessary.Rvz} yO -ԍ Ohio Consumers' Council comments at 67.R  XH-x149. ` ` Prohibiting crosssubsidization. Some commenters argue that the prohibition against crosssubsidization contained in section 254(k) can only be enforced if cost data are  X -regularly collected and audited.? } {O-ԍ Michigan Consumer Federation comments at 14; Michigan Library Ass'n comments at 10.  See also NCTA comments at 12 (arguing that stringent reporting rules or cost allocations rules are appropriate); Texas PUC comments at 10 (encouraging further study of incremental costs of telecommunications services and maintaining current monitoring programs such as ARMIS); NorTel reply comments at 6 n.11 (contending that accounting safeguards should be sufficient; separate networks or facilities for universal services are unnecessary).? AirTouch maintains that carefully targeting support to only those groups that need it as opposed to subsidizing local services to everyone will reduce  X -crosssubsidization. } {OY-ԍ AirTouch comments at 7. See also PCIA comments at 14 (suggesting that narrow targeting and limiting of the size of the fund will prevent crosssubsidization). AirTouch further contends that carriers offering noncompetitive services must put in place accounting methods and other nonstructural safeguards to prevent  X -crosssubsidization.J } yO-ԍ AirTouch further comments at 21.J MCI states that competition will ensure that rates are set at the carrier's cost and that the Commission must adopt regulations to ensure that result in noncompetitive  X-markets.=} yO-ԍ MCI comments at 17.= WinStar argues that crosssubsidization can be mitigated by ensuring that universal service support payments not be used to allow less efficient providers to match the  Xb-rates charged by more efficient competitors.Bb6} yOI#-ԍ WinStar comments at 34.B  X4-x150.` ` Ensuring only eligible carriers get support. Few commenters addressed the"4P*&&dd" issue of how the Commission could ensure that only eligible carriers receive universal service support. ALTS argues that the Commission's concerns about ineligible carriers obtaining support are probably unfounded because only carriers found eligible by a state commission  X-would receive support.>} yO4-ԍ ALTS comments at 13.> MCI contends that, as long as carriers must offer services throughout the service area and the area the LEC carrier must serve coincides with the area used to compute support, there should be no problem with ineligible carriers receiving  Xv-support.=vX} yO -ԍ MCI comments at 18.= Ohio Consumers' Council argues that this issue should be left to the states and that the states can provide the Commission with a list of companies they find eligible to  XH-receive support.PH} yO -ԍ Ohio Consumers' Council comments at 6.P  X -x151.` ` Use of a carrier's own facilities. Various commenters address the question of whether the Commission should establish standards concerning compliance with the requirement in section 214(e)(1) that eligible telecommunications carriers provide universal service using their own facilities or a combination of their facilities and resale. Several commenters contend that "facilities" should include any unbundled network elements obtained  X -by the carrier and any network transmission capacity obtained on a leased basis.QZ x} {O-ԍ CompTel comments at 16; Ohio Consumers' Council reply comments at 18. See also LDDS comments at 67 (arguing that the term "facilities" should not only include facilities constructed and deployed by the carrier, but also facilities that are leased from incumbent LECs and other carriers).Q CompTel argues that a carrier is using its own facilities when it purchases unbundled elements at cost  Xy-from the incumbent and creates a local service product using them.Jy} yO-ԍ CompTel reply comments at 1213.J AT&T argues that any carrier using its own facilities, using another carrier's network elements, or using any  XK-combination of such facilities and elements should be eligible.>K* } yO&-ԍ AT&T comments at 21.> Sprint asserts that, while carriers may offer services in part through resold facilities, such carriers must also use some  X-of their own facilities.C } yO -ԍ Sprint comments at 1516.C LDDS contends that a carrier should be eligible as long as at least  X-some portion of its services is not resold service.CJ } yO#-ԍ LDDS reply comments at 4.C  X-x152.` ` TRA argues that carriers that offer service solely through the resale of another carrier's telecommunications services or through the use of unbundled network elements"Q*&&dd"  X-should be eligible to receive universal services support.p} {Oy-ԍ TRA comments at 810. See also CompTel reply comments at 1213.p TRA asserts that resellers should be eligible for universal service support because they have "stepped into the shoes" of the underlying carrier and, by purchasing services or elements, have guaranteed the underlying carrier a return on its investment and thus assumed some of the underlying carrier's risk. It further contends that denying resellers universal service support would provide the underlying  X-carrier with a competitive advantage.ZZ} {O-ԍ TRA comments at 810. But see Colorado Indep.Tel. comments at 5 (maintaining that pure resellers should not be eligible because they have made no investment in the facilities supported by universal service support mechanisms). TRA contends that reading section 214(e) as precluding "pure" resellers would be unduly narrow, but if that reading is valid, the Commission should exercise its forbearance authority to allow universal support to such  XH-carriers.<H|} yOu-ԍ TRA comments at 9.<  X -x153.` ` Other commenters contend that only facilitiesbased carriers should be eligible  X -for support.2 } {O-ԍ See, e.g., Alaska Tel. comments at 3; Minnesota Tel. Ass'n comments at 3; TCA comments at 5; Telec  {O-Consulting comments at 14; United Utilities comments at 1; Siskiyou reply comments at 4. See also Bell Atlantic comments at 10 (proposing that universal service funds should be distributed to eligible LECs that "provide local service using their own loop facilities"); RTC comments at 9 (contending that support "must only go to those carriers that actually own and maintain facilities").2 They argue that, if new entrants are allowed to offer universal service via resale, new entrants could disadvantage incumbents by constructing facilities only for the lowest cost customers in the area and reselling the incumbent's services to serve the high cost  X -customers, creating a potentially confiscatory situation for incumbents.D } yO/-ԍ Alaska Tel. comments at 3.D Still others contend that, while carriers may provide services through a combination of their own facilities and resale, support for the resold services should go to the underlying carrier providing the  Xy-facilities since that carrier bears the cost of building and maintaining those facilities.kZyP } {Oz-ԍ See, e.g., BellSouth comments at 6 n.8; Colorado Indep .Tel. comments at 5; NECA comments at 89; RTC comments at 810; SWBT comments at 2122; NYNEX reply comments at 2 n.6; TCA reply comments at 3 (arguing that eligible carriers should not receive support for the portion of the service provided through resale).k USTA argues that, when eligible carriers resell the incumbent's universal service package, the incumbent should continue to receive the support, but when the eligible carrier purchases unbundled network elements "at the market price" to provide universal service, the new"4Rr*&&ddH"  X-carrier, not the incumbent, should receive the support.} {Oy-ԍ USTA comments at 17 n.24.  See also TCA reply comments at 3 ("If a reseller becomes eligible for funding on a facility that they are leasing from a facilities based carrier, then the rate they pay must be fully costbased"); TCG reply comments at 78 (proposing that universal service support should flow to the reseller when the reseller pays the facilitiesbased carrier the full cost, otherwise the underlying carrier should receive the subsidy). PacTel contends that, if the reseller pays the underlying carrier full deaveraged cost (including some recovery of shared and common costs) and that cost is above the benchmark, the reseller should get the subsidy; if the reseller purchases a line at rates below full deaveraged cost, the underlying facilitiesbased  X-carrier should receive the subsidy.,Zz} {O -ԍ PacTel reply comments at 10.  See also WinStar reply comments at 6 (contending that carriers that purchase unbundled elements at cost should be eligible; pure resellers should be eligible only if they purchase resold service at or above "actual cost")., CompTel maintains that, if the new entrant pays economic costs for the unbundled element, the underlying carrier receives full compensation, and the new entrant, as the retail provider of the services, is entitled to the universal support  X_-payment.G_} yO-ԍ CompTel reply comments at 13.G  X1-x154.` ` Guidelines for advertising. Washington UTC urges the Commission to take an affirmative role and define as narrowly as possible the types and scope of advertising that  X -should be considered as being required by section 214(e)(1).M , } yO-ԍ Washington UTC reply comments at 6.M Washington UTC contends that rateofreturn regulated carriers might seek to justify including in their rates the costs of  X -imageenhancing advertising just because such advertising may mention universal services.O } yOB-ԍ Washington UTC reply comments at 56.O Governor of Guam recommends the development of standards that include a minimum of  X -consumer education through advertising in local media outlets.J L } yO-ԍ Governor of Guam comments at 12.J New Jersey Advocate argues that adequate, understandable information is essential in a competitive market and recommends that the Commission adopt or strengthen standards relating to truthinadvertising; the presentation of clear, written terms of service and rates; and the provision of  XK-bilingual information.MK} yO!-ԍ New Jersey Advocate comments at 13.M Several commenters propose guidelines that require carriers to publicly post information concerning available services and rates at appropriate government agencies and libraries and that ensure that this information is accessible to persons with"Sl*&&ddG"  X-disabilities or language barriers.} yOy-ԍ ACE comments at 7; Catholic Conference comments at 22; Michigan Library Ass'n comments at 1011; Benton reply comments at 16; NAD reply comments at 2122. Florida PSC, on the other hand, suggests leaving to the  X-states the establishment of any guidelines governing advertising.H } yO-ԍ Florida PSC comments at 1314.H MCI argues that no standards are necessary because competition will ensure that LECs make known the services  X-they will offer to their potential customers.=} yO -ԍ MCI comments at 18.=  X-x  X-x` ` 3. Discussion  X_-x155.` ` Determination of eligible carriers. We recommend that the Commission adopt, without further elaboration, the statutory criteria contained in section 214(e)(1) as the rules for determining whether a telecommunications carrier is eligible to receive universal service support. Pursuant to these criteria, a telecommunications carrier would be eligible to receive  X -universal service support if the carrier is a common carrierH @} yO-ԍ The Circuit Court for the District of Columbia defines a common carrier as one that undertakes to carry  {O-for all people indifferently. National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630,  {O-64142 (D.C. Cir. 1976), cert. denied, 425 U.S. 992 (1976) (NARUC I); National Association of Regulatory  {OP-Utility Commissioners v. FCC, 533 F.2d 601, 608 (D.C. Cir. 1976) (NARUC II). The NARUC I Court established a test to determine whether a carrier may be regulated as a common carrier. This test requires a determination of "whether there will be a legal compulsion . . . to serve [the public] indifferently, and, if not, . . . whether there are reasons implicit in the nature of . . . [the] operations to expect an indifferent holding out  {Or-to the eligible user public." NARUC  I, 525 F.2d at 642. and if, throughout the service area for which the carrier is designated by the state commission as an eligible carrier, the carrier: (1) offers all of the services that are supported by federal universal service support  X -mechanisms under section 254(c);%Z P } yO-ԍ We recommend, however, that carriers that lack the technical capability to offer toll limitation services  {O-not be required to offer such services to qualifying lowincome consumers, as otherwise provided infra in section VIII.% (2) offers such services using its own facilities or a combination of its own facilities and resale of another carrier's services, including the services offered by another eligible telecommunications carrier; and (3) advertises the availability of and charges for such services using media of general distribution. We agree with the majority of commenters who argue that any carrier that meets these criteria is eligible to receive  XK-federal universal service support, regardless of the technology used by that carrier."Kr} {On#-ԍ See, e.g., 360 comments at 4; ALTS comments at 1213; Colorado PUC comments at 67; CompTel comments at 16; LCI comments at 5; LDDS comments at 47; NASUCA comments at 2223; NCTA comments at 12; PacTel comments at 13; Sprint comments at 1516; WinStar comments at 10; MFS reply comments at 6; Ohio Consumers' Council reply comments at 1718. We"KT\*&&ddI" conclude that this approach best embodies the procompetitive, deregulatory spirit of the 1996 Act and ensures the preservation and enhancement of universal service.  X-x156.` ` We recommend that the Commission not impose eligibility criteria in addition to those contained in section 214(e)(1). For example, some commenters argue that the Commission should require competing telecommunications carriers to meet all the obligations  Xv-imposed by the state on the incumbent LEC, such as COLR requirements or rate regulation.v} {O-ԍ See, e.g., Ameritech comments at 12; BellSouth comments at 14 n.26; GTE comments at 67; USTA comments at 23; Tel. Ass'n of Michigan reply comments at 5. The proponents of this point of view argue that such symmetrical regulation is necessary to prevent new entrants from selectively targeting only the lowest cost customers in an area, and  X1-to prevent unfair treatment of incumbent LECs.1"} {O -ԍ See, e.g., GTE comments at 67; Tel. Ass'n of Michigan reply comments at 5; GTE further comments at 4748; Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. We conclude that establishing specific federal rules or guidelines that would impose symmetrical regulatory obligations on all carriers receiving universal service support are unnecessary to protect the incumbent and  X -would chill competitive entry into high cost areas.J |} {O-ԍ We note that, in the Local Competition Order, the Commission concluded that states may not unilaterally  {O-impose on nonincumbent LECs the additional obligations imposed on incumbent LECs in section 251(c). Local  {O-Competition Order at para. 124748. The Commission there ruled that it would not anticipate imposing such additional obligations on nonincumbent LECs absent a clear and convincing showing that the LEC occupies a position in the telephone exchange market comparable to the position held by an incumbent LEC, has substantially replaced an incumbent LEC, and that such treatment would serve the public interest, convenience,  {O-and necessity and the purposes of section 251. Local Competition Order at para. 1248.J The statute already conditions eligibility for support on the requirement that telecommunications carriers be common carriers and offer  X -the defined services "throughout the service area."C } yO3-ԍ 47 U.S.C.  214(e)(1).C The plain meaning of these two requirements is that eligible carriers must hold themselves out to provide the specified services to any customer in the service area. We find that GTE's concern that eligible carriers will fulfill this mandate in theory only and attempt to "cherry pick" customers by offering differential rates is misplaced. The 1996 Act requires carriers to advertise their rates for universal service throughout the service area. Any attempt to "cherry pick" or "cream skim" customers through differential charges would thus be readily detected.  X-x157.` ` We also reject arguments that a carrier must be subject to whatever exit barriers are imposed on the incumbent LEC as a condition of eligibility. The 1996 Act limits the ability of an eligible carrier to exit a market in which there is more than one eligible carrier. Section 214(e)(4) requires an eligible carrier to notify the state of that carrier's intent to relinquish its designation as an eligible carrier. Section 214(e)(4) also requires the state"UT *&&ddR" commission, before permitting the carrier to cease providing service, to ensure that the  X-remaining carriers can serve the relinquishing carrier's customers.C} yOb-ԍ 47 U.S.C.  214(e)(4).C The state commission must also ensure sufficient notice to permit the purchase or construction of adequate facilities  X-by any remaining eligible carrier.CX} yO-ԍ 47 U.S.C.  214(e)(4).C This obligation to serve the entire service area upon the cessation of service by another carrier or carriers applies to incumbents and new entrants alike. We find that additional exit restrictions are unnecessary.  X_-x158.` ` We recommend that the Commission reject arguments to disqualify certain classes of carriers from eligibility. Commenters suggest, for example, that only incumbents  X1-should be eligible for universal service support]1} {O -ԍ See, e.g., Cincinnati Bell comments at 1011.] or that price cap companies should be  X -excluded from eligibility.  z} {OE-ԍ See, e.g., Staurulakis comments at 1112; Time Warner comments at 1112; NCTA further comments at 8; Teleport further comments at 78. We believe that any such wholesale exclusion of classes of carriers from eligibility is inconsistent with the plain language of the 1996 Act. Section 214 contemplates that any telecommunications carrier that meets the eligibility criteria of section 214(e)(1) shall be eligible to receive universal service support. The statute directs a state commission "upon its own motion or upon request [to] designate a common carrier that meets the requirements of [section 214(e)(1)] as an eligible telecommunications carrier for a service  X-area designated by the State commission."C } yO-ԍ 47 U.S.C.  214(e)(2).C Moreover, section 214(e)(2) provides that more than one carrier could be eligible for universal service support in an area. It requires the designation of multiple eligible carriers in areas not served by rural telephone companies as  XK-long as such carriers meet the eligibility criteria of section 214(e)(1).C Kd } yO`-ԍ 47 U.S.C.  214(e)(2).C Even for areas served by rural telephone companies, section 214(e)(2) gives state commissions the discretion to designate more than one common carrier as an eligible carrier, as long as such designation is  X-found by the state commission to be in the public interest.C  } yO -ԍ 47 U.S.C.  214(e)(2).C Moreover, we recommend against limiting eligibility for universal service support to incumbents. We conclude that restricting universal service support to incumbent local exchange carriers would not be in accord with section 214(e).  X-x159.` ` In addition, we recommend that companies subject to price cap regulation be"V *&&dd" eligible to receive universal service support. No persuasive rationale has been advanced to explain why the flexibility and the opportunity for increased earnings that companies obtain  X-when they are subject or price caps } {OK-ԍ See e.g., Teleport comments at 78; Time Warner comments at 1112. See also ALTS further comments at 79 (proposing to treat price cap companies differently). should disqualify such companies from receiving universal service support as long as they otherwise meet the statutory criteria for eligibility. Rather, we agree with those commenters that argue that price cap regulation is an important tool to smooth the transition to competition and that its use should not foreclose price cap  Xv-companies from receiving universal service support.v"} {OI -ԍ See e.g., Alliance for Public Technology further comments at 1012; Maine PUC further comments at 17. Having recommended against the exclusion of price cap companies, we conclude that we need not address how to define precisely which carriers are subject to price cap regulation.  X -x160.` ` Section 214(e)(1) requires that, in order to be eligible for universal service support, a common carrier must offer universal service throughout the statedesignated service area either using its own facilities or a combination of its own facilities and the resale of  X -another carrier's services, including those of another eligible carrier.C } yO:-ԍ 47 U.S.C.  214(e)(1).C We find that the plain meaning of this provision is that a carrier would be eligible for universal service support if it offers all of the specified services throughout the service area using its own facilities or using its own facilities in combination with the resale of the specified services purchased from another carrier, including the incumbent LEC or any other carrier.  XK-x161.` ` We recommend that the Commission reject the arguments of TRA and others that a carrier that offers universal service solely through reselling another carrier's universal  X-service package should be eligible for universal support.pD} {O-ԍ TRA comments at 810. See also CompTel reply comments at 1213.p We find that the statute precludes such a result because it plainly states that a carrier shall be eligible for support only if the carrier offers universal service by using its own facilities and reselling another carrier's  X-services.F} yO_-ԍ 47 U.S.C.  214(e)(1)(A).F Similarly, we recommend that the Commission reject arguments that only those telecommunications carriers that offer universal service wholly over their own facilities should  X-be eligible for universal service.@\f } {O"-ԍ See, e.g., Alaska Tel. comments at 3; Minnesota Tel. Ass'n comments at 3; TCA comments at 5; Telec  {O#-Consulting comments at 14; United Utilities comments at 1; Siskiyou reply comments at 4. See also Bell Atlantic comments at 10; RTC comments at 9.@ The statute precludes this result because section 214 permits a carrier to offer universal service through a combination of its own facilities and"W *&&ddo" resale and still be eligible for support.  X-x162.` ` We also recommend that the Commission reject TRA's request that the Commission exercise its forbearance authority to permit "pure" resellers to become eligible for  X-universal service support. } yO-ԍ TRA comments at 9 (citing 47 U.S.C.  160). In this case, TRA asks the Commission to forbear from the requirement that, in order to be eligible for universal services support, a carrier must offer the supported services through its own facilities or its own facilities in combination with resale. TRA requests that the Commission forbear from applying this provision in order to allow pure resellers to be eligible for support. We find that TRA's pleading does not sufficiently address the statutory criteria for forbearance. TRA's sole argument in support of forbearance is that it is necessary "to avoid discriminatory treatment that might either discourage competitive entry by resale carriers . . . or provide incumbent LECs with an unjustified competitive advantage. . .  XH-."=H} yO -ԍ TRA comments at 10.= Yet, in order to exercise its authority under section 160(a) to forbear from applying a provision of the Act, the Commission must determine that three criteria are met. It must determine that: (1) enforcement of the provision "is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;" (2) enforcement of such provision "is not necessary for the protection of consumers;" and (3) "forbearance from applying such provision . . . is consistent  X -with the public interest."X @} yO-ԍ 47 U.S.C.  160(a). Section 160(b) provides that a Commission determination that forbearance will promote competition may be the basis for a finding that forbearance is in the public interest. 47 U.S.C.  160(b). TRA's pleading fails to show that these criteria are met. For example, it fails to address whether enforcement of the facilities requirement in section 214(e) is not necessary for the protection of consumers.  XK-x163.` ` Other issues related to eligibility. The NPRM sought comment on various other issues related to eligibility. Specifically, it sought comment on whether rules should be developed to: (1) ensure that universal service support be used as intended (i.e., for the "provision, maintenance, and upgrading of facilities and services for which the support is  X-intended");@` } yO -ԍ 47 U.S.C.  254(e).@ (2) ensure that only eligible carriers receive support; and (3) set guidelines for advertising. Because relatively few commenters addressed these issues, there are few detailed proposals in the record on how to resolve them. For the first of these issues, developing rules to ensure that universal service support is used as intended, we believe that concerns about misuse of funds would largely be alleviated once competition arrives. We find that a competitive market would minimize the incentives and opportunities to misuse funds. In the absence of competition, we find that the optimal approach to minimizing misuse of funds is to"eX *&&dd" adopt a mechanism that will set universal support at levels that reflect the costs of providing universal service efficiently. Should additional measures be necessary, we recommend that the Commission, to the extent that states monitor carriers to ensure the provision of the  X-supported services, rely on the states' monitoring.} {O4-ԍ See, e.g., Ohio Consumers' Council comments at 67 (arguing that states are best equipped to address whether carriers are misusing funds). Where necessary, for example, if the state has insufficient resources to support such monitoring programs, we recommend that the Commission conduct periodic reviews to ensure that universal service is being provided. On the question of ensuring that only eligible carriers receive support, we agree with commenters that additional rules are unnecessary because only carriers found eligible by the states will  XH-receive funding.oH"} {O -ԍ See ALTS comments at 13; Ohio Consumers' Council comments at 6.o We recommend no additional rules at this time.  X -x164.` ` We recommend that the Commission not adopt, at this time, any national guidelines relating to the requirement that carriers advertise throughout the service area the availability of and rates for universal service using media of general distribution. We agree with the Florida PSC that states should, in the first instance, establish guidelines, if needed, to  X -govern such advertising.H } yO#-ԍ Florida PSC comments at 1314.H Pursuant to the 1996 Act, the states designate eligible carriers, and areawide advertising is an explicit condition of eligibility. The states may be in the better position to monitor the effectiveness of advertising by carriers offering universal service. We also agree with MCI that competition will help ensure that carriers make known the services  Xb-they offer.=bD} yOW-ԍ MCI comments at 18.= x  X4-x C. Definition of Service Areas  X-x` ` 1. Background  X-x165.` ` Section 214(e)(5) defines the term "service area" as "a geographic area established by a State commission for the purpose of determining universal service obligations  X-and support mechanisms."C} yO/!-ԍ 47 U.S.C.  214(e)(5).C For areas served by a rural telephone company,bd } {O"-ԍ The term rural telephone company is defined supra.b section 214(e)(5) provides that the term "service area" means the rural telephone company's study"Y *&&ddQ"  X-area} yOy-ԍ A "study area" is generally an incumbent LEC's preexisting service area in a given state. The study  {OA-area boundaries are fixed as of November 15, 1984. MTS and WATS Market Structure: Amendment of Part 67  {O -of the Commission's Rules and Establishment of a Joint Board, Decision and Order, 50 Fed. Reg. 939 (1985  {O-Lifeline Order) (adopting with minor modifications the Joint Board recommendations issued in MTS and WATS  {O-Market Structure: Amendment of the Commission's Rules and Establishment of a Joint Board, Recommended Decision and Order, 49 Fed. Reg. 48,325 (1984)). "unless and until the Commission and the States, after taking into account the recommendations of a FederalState Joint Board instituted under section 410(c), establish a different definition of service area for such company."  X-x166.` ` The Commission sought comment on issues relating to the definition of the service areas for which carriers would receive designation. The Commission asked parties to comment on the appropriate basis to define the "service area" of a rural telephone company, taking into account the possible effect on competition, and requested comment on whether the  XH-Commission should amend its rules to revise existing study area boundaries.";HH} yOA-ԍ NPRM at para. 45.; In the  X1-context of implementing a "procompetitive, deregulatory national policy framework",M1} yO-ԍ Joint Explanatory Statement at 113.M the Commission asked the Joint Board to prepare recommendations regarding the appropriate  X -"service area" boundaries of areas served by a "rural telephone company.";  h } yO-ԍ NPRM at para. 45.;  X -x` ` 2. Comments  X -x167.` ` Service areas for rural telephone companies. Many commenters support retaining the current study areas for rural telephone companies as the service area for  Xy-universal service support.[!Zy } {O"-ԍ See, e.g., Century comments at 1415; Evans Tel. comments at 14; Pacific Telecom comments at 2; Pennsylvania PUC comments at 20; RTC comments at 10; Rural Iowa Indep. Tel. Ass'n. comments at 4; Sprint comments at 15; USTA comments at 18; Fred Williamson comments at 1213; SDITC reply comments at 6.[ Commenters contend that the intent of the statute in retaining existing study areas is to protect rural companies from the effects of competitors entering a  XK-market and serving only the lowest cost portion of a rural telephone company's territory.p"K} {O!-ԍ See, e.g., Evans Tel. comments at 14; SDITC reply comments at 6.p Century asserts that simply retaining a rural telephone company's study area as its new service area may not be sufficient to protect against this sort of "cream skimming" by new entrants. It proposes that, once a new entrant is allowed to compete in a rural telephone company's area, the rural telephone company should be allowed to redistribute its universal service high cost compensation to any geographically disaggregated area within its study area. At the"Z"*&&dd" same time, Century argues, the new entrant should receive support only for its own  X-demonstrably high cost, facilitiesbased locations.D#} yOb-ԍ Century comments at 1415.D Montana Indep. Telecom. similarly argues that areas smaller than study areas will be needed if a competitor begins serving only a portion of incumbent's study area. It recommends that the service area be based on the area  X-of the incumbent's wire centers or exchanges, at least initially.P$X} yO-ԍ Montana Indep. Telecom. comments at 8.P It further asserts that an area smaller than a wire center should be used as the service area in rural areas only upon a  Xv-finding by the state that using such a smaller area is in the public interest.P%v} yO -ԍ Montana Indep. Telecom. comments at 8.P RTC also argues that, in a competitive environment, incumbents must have the option to disaggregate perunit  XH-costs to areas smaller than the study area in order to address "cream skimming" concerns.@&Hx} yOq-ԍ RTC comments at 1314.@ RTC contends that these smaller areas would be used solely for the purpose of targeting support and would not affect the size of the service area that a competitor must serve in order  X -to receive funding as an eligible carrier.B' } yO-ԍ RTC comments at 14 n.27.B It proposes that the support amounts for these smaller areas would be derived from the known and existing "actual cost levels already  X -established for the larger, total study area."@( } yO-ԍ RTC comments at 1314.@  X -x168.` ` Service areas in general. Most commenters addressing the question regarding the appropriate geographic service area for eligibility did not limit their comments to areas served by rural telephone companies. Instead, they address the question of appropriate service area size for all universal service support purposes. Potential competitors argue that, to ensure that the new universal program is competitively neutral, service areas in which new entrants would be designated to serve should not be based on the existing study areas of the incumbent  X-LECs.)( } {O-ԍ See, e.g., 360 comments at 78; ALTS reply comments at 4; Commnet Cellular reply comments at 7 (arguing that the Commission should design service areas so that it would be technically and economically feasible for CMRS providers to serve the subscribers in that service area); MFS reply comments at 67 (contending that it would be anticompetitive to require new entrant's service areas to mimic an incumbent's study area or certified area).  Beyond this, industry and state commenters differed sharply on the appropriate size of the service area.  X-x169. ` ` Missouri PSC recommends using a LEC's entire service area within a state or"[)*&&dd"  X-local access and transport area (LATA).`* } yOy-ԍ Missouri PSC comments at 8. A LATA generally is defined as a "contiguous geographic area" established by a Bell Operating Company (BOC) before the date of enactment of the 1996 Act or an area established or modified after the date of enactment by a BOC and approved by the Commission. 47 U.S.C.  153(25).` It contends that analysis of costs in such a large area best reflects the overall circumstance of each LEC and will prevent a large LEC from receiving universal service funding related to its high cost areas even though the LEC's  X-overall costs are no higher than average.+} {O -ԍ Missouri PSC comments at 8. See also Dell Tel. reply comments at 34 (suggesting inclusion of all operations within a state in order to remove support for large companies). SWBT, however, argues that continuing to use statewide areas would retain the current implicit subsidy flows between low cost areas and high cost areas served by a LEC within a state and will discourage competitive entry into high  Xv-cost areas while concentrating entry in urban population centers.A,v } yO1-ԍ SWBT comments at 1213.A Others oppose using study  X_-areas because they are too large to accurately distribute high cost support.H-_} yO-ԍ Cincinnati Bell comments at 8.H AirTouch maintains that the use of large areas, such as statewide study areas, to determine eligibility will have the effect of "freezing out" new entrants that initially may need to enter a market in  X -more limited areas.G. * } yO-ԍ AirTouch reply comments at 6.G  X -x170.` ` Most commenters support using areas smaller than existing study areas as the  X -service area. New Jersey BPU, for example suggests using countywide areas.H/ } yO@-ԍ New Jersey BPU comments at 3. H NECA  X -asserts that carriers should have the option to disaggregate costs below the study area level.=0 J } yO-ԍ NECA comments at 9.=  X -Various commenters support using census block groups (CBGs)1  } yO2-ԍ The proponents of the BCM define a census block group as "a geographic unit defined by the Bureau of Census which contains approximately 400 households." MCI, NYNEX, Sprint/United Management Co., and U S West, Benchmark Costing Model: A Joint Submission, Copyright 1995, CC Docket No. 80826, filed December 1, 1995, at I1. The Bureau of the Census defines "census blocks" as "small areas bounded on all sides by visible features such as streets, roads, streams, and railroad tracks, and by invisible boundaries such as city, town, township, and county limits, property lines, and short, imaginary extensions of streets and roads." Bureau of the Census, United States Department of Commerce, 1990 Census of Population and Housing A3 (1992). It further defines a "geographic block group" as "generally contain[ing] between 250 and 550 housing units, with the ideal  {Or$-size being 400 housing units." Id. as the appropriate service" \1*&&dd"  X-area.2} {Oy-ԍ See, e.g., California PUC comments at 910 (noting that it will develop costs on a CBG level for intrastate services); PacTel comments at 18 n.33; Sprint comments at 15; Wyoming PSC comments at 8. Sprint, for example, argues that the use of CBGs will better target high cost areas and will keep service areas in line with  X-how costs are developed through the use of cost proxy models.@3"} yO-ԍ Sprint comments at 15.@ Sprint also contends that using CBGs will eliminate the implicit subsidy that occurs when costs are averaged over wire  X-centers, exchanges or larger areas that contain both high cost and low costs areas.F4} yO -ԍ Sprint reply comments at 13.F Opponents of using CBGs contend that they are inaccurate because they bear no relation to  Xv-the actual telecommunications network and associated costs5vB} {Oi -ԍ See, e.g., GSA comments at 810; GVNW reply comments at 14 (arguing that CBGs are inherently inaccurate and administratively costly to use). and, in very sparsely populated  X_-areas, CBGs may be so large that cost may vary greatly within a CBG.j6_} yO-ԍ Alaska PUC comments at 1314; Citizens Utilities comments at 12.j GVNW argues that  XH-using CBGs will be administratively burdensome.D7H, } yO%-ԍ GVNW reply comments at 14.D  X -x171.` ` Some commenters suggest that the service area be based on LEC wire centers  X -(or areas no smaller than wire centers)8 } yOp-ԍ BellSouth comments at 14 (proposing wire centers or groups of wire centers); GSA comments at 910. or exchanges (or areas no larger than exchanges).9 L } {O-ԍ See, e.g., Citizens Utilities comments at 1213 (suggesting that exchanges or wire centers would be appropriate); Montana Indep. Telecom. comments at 8 (same); GVNW reply comments at 14. USTA recommends using an area no larger than a wire center for nonrural telephone  X -companies to determine costs.>: } yO,-ԍ USTA comments at 18.> Proponents of using wire center areas to determine costs contend that such areas are small enough to represent reasonably homogenous cost characteristics and that LECs can disaggregate their costs to those areas much more readily  X-than they can disaggregate costs to the CBG level.O;6} yOw!-ԍ Citizens Utilities comments at 1213.O They argue that wire center boundaries have evolved to reflect the specific characteristics of the telephone plant required to serve an area and thus are a much more accurate area to determine costs than are CBGs, which bear no  XK-direct relationship with how the telephone plant is designed or installed.Z<K} yO%-ԍ GSA comments at 910; GVNW reply comments at 14.Z Teleport"K]V<*&&dd" recommends using areas no larger than a wire center and no smaller than a CBG to establish costs. It contends that establishing service areas at this level will encourage competition by  X-facilitating entry.E=} yOK-ԍ Teleport comments at 1516.E GVNW proposes that, for nonrural companies, support areas smaller than wire centers should be used only after a showing that competition exists only in a portion of a wire center. For rural companies, the decision to use areas smaller than a wire center  X-should be part of the state's public interest determination.D>X} yO-ԍ GVNW reply comments at 14.D  Xv-x  X_-x` ` 3. Discussion  X1-x172.` ` Service areas for areas served by rural telephone companies. We recommend that the Commission retain the current study areas of rural telephone companies as the service areas for such companies. Section 214(e)(5) provides that for an area served by a rural telephone company, the term "service area" means such company's study area "unless or until the Commission and the States, after taking into account the recommendations of a FederalState Joint Board instituted under section 410(c), establish a different definition of service  X -area for such company."C? } yO@-ԍ 47 U.S.C.  214(e)(5).C We find no persuasive rationale in the record for adopting, at this  X-time, a service area that differs from a rural telephone company's present study area.Y@Zx} {O-ԍ See, e.g., Century comments at 1415; Evans Tel. comments at 14; Pacific Telecom comments at 2; Pennsylvania PUC comments at 20; RTC comments at 10; Rural Iowa Indep.Tel. Ass'n comments at 4; Sprint comments at 15; USTA comments at 18; Fred Williamson comments at 1213; SDITC reply comments at 6.Y We note that some commenters argue that Congress presumptively retained study areas as the service area for rural telephone companies in order to minimize "cream skimming" by  XK-potential competitors.pAK} {O-ԍ See, e.g., Evans Tel. comments at 14; SDITC reply comments at 6.p Potential "cream skimming" is minimized because competitors, as a condition of eligibility, must provide services throughout the rural telephone company's study area. Competitors would thus not be eligible for universal service support if they sought to serve only the lowest cost portions of a rural telephone company's study area.  X-x173.` ` We note that the 1996 Act in many respects places rural telephone companies on a different competitive footing from other local exchange companies. For example, rural telephone companies are initially exempt from the interconnection, unbundling, and resale requirements of 47 U.S.C.  251(c). The 1996 Act continues this exemption until the relevant  X|-state commission finds, inter alia, that a request of a rural telephone company for interconnection, unbundling, or resale would not be unduly economically burdensome, would"g^, A*&&dd"  X-be technically feasible, and would be consistent with section 254.CB} yOy-ԍ 47 U.S.C.  251(f)(1).C Moreover, while a state commission must designate other eligible carriers for nonrural areas, states may designate additional eligible carriers for areas served by a rural telephone company only upon a specific  X-finding that such a designation is in the public interest.CCX} yO-ԍ 47 U.S.C.  214(e)(2).C  X-x174.` ` Another reason to retain existing study areas is that it is consistent with our recommendation that the determination of the costs of providing universal service by a rural telephone company should be based, at least initially, on that company's embedded costs. Rural telephone companies currently determine such costs at the studyarea level. We conclude, therefore, that it is reasonable to adopt the current study areas as the service areas for rural telephone companies rather than impose the administrative burden of requiring rural telephone companies to determine embedded costs on a basis other than study areas.  X -x175.` ` Service areas for areas not served by rural telephone companies. We find that sections 214(e)(2) and 214(e)(5) grant to the state commissions the authority and responsibility to designate the area throughout which a carrier must provide the defined core services in order to be eligible for universal service support. We further conclude that, while this authority is explicitly delegated to the state commissions, states should exercise this authority in a manner that promotes the procompetitive goals of the 1996 Act as well as the universal service principles of section 254. The Joint Board thus recommends that the Commission urge the states to designate service areas for nonrural telephone company areas that are of sufficiently small geographic scope to permit efficient targeting of high cost support and to facilitate entry by competing carriers.  X-x176.` ` We recommend that the Commission encourage states, where appropriate to foster competition, to designate service areas that do not disadvantage new entrants. Consequently, we recommend that the geographic size of the state designated service areas should not be unreasonably large. An unreasonably large area may deter entry because fewer competitors may be able to cover startup costs that increase as the size of the area they must serve increases. This would be especially true if the states adopt as the service area the existing study areas of larger local exchange companies, such as the BOCs, which usually include most of the geographic area of a state, urban as well as rural. Additionally, if states simply structure service areas to fit the contours of an incumbent's facilities, a new entrant, especially a CMRSbased provider, might find it difficult to conform its signal or service area  X-to the precise contours of the incumbent's area.D} {O$-ԍ See, e.g., 360 comments at 78; ALTS reply comments at 4; Commnet Cellular reply comments at 7. "_zD*&&dd"Ԍ X-x177.` ` We note that state adoption of unreasonably large service areas could potentially violate section 254(f), which prohibits states from adopting regulations that are  X-"inconsistent with the Commission's rules to preserve and advance universal service."@E} yOK-ԍ 47 U.S.C.  254(f).@ State designation of an unreasonably large service area could also implicate section 253 if it "prohibit[s] or ha[s] the effect of prohibiting the ability of an entity to provide any interstate  X-or intrastate telecommunications service,"@FX} yO-ԍ 47 U.S.C.  253(a).@ and is not "competitively neutral" and "necessary  Xv-to preserve and advance universal service."@Gv} yO -ԍ 47 U.S.C.  253(b).@ x  XH-x178.` ` Even if the state commission were to designate a large service area, however, we believe that it would be consistent with the 1996 Act to base the actual level of support, if any, that nonrural telephone company carriers would receive for the service area on the costs to provide service in subunits of that area. We recommend that the Commission, where necessary to permit efficient targeting of universal support, establish the level of universal service support based on areas that may be smaller than the service area designated by the state. The service area designated by the state is the geographic area used for "the purpose of  X -determining universal support obligations and support mechanisms."CH x} yO-ԍ 47 U.S.C.  214(e)(5).C We find that this language refers to the designation of the area throughout which a carrier is obligated to offer and advertise universal service. It defines the overall area for which the carrier will receive support from the "specific, predictable, and sufficient mechanism established by the  XK-Commission to preserve and advance universal service."@IK} yO-ԍ 47 U.S.C.  254(d).@ We conclude that this language would not bar the Commission from disaggregating the statedesignated service area into smaller areas in order to: (1) identify high cost areas within the service area; and (2) determine the level of support payments that a carrier would receive for the overall service area based on the sum of the support levels as determined by the costs of serving each of the disaggregated areas. x  X-x D. Unserved Areas  X|-x` ` 1. Background  XN-x179.` ` Section 214(e)(3) provides that, if no common carrier is willing to provide the services supported by universal service support mechanisms to a community or portion of a community that requests such services, "the Commission, with respect to interstate services, or" `I*&&dd" a State, with respect to intrastate services, shall determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such services for that unserved community  X-or portion thereof."CJ} yO4-ԍ 47 U.S.C.  214(e)(3).C Any carrier so ordered shall be designated as the eligible  X-telecommunications carrier for that community or portion of a community.CKX} yO-ԍ 47 U.S.C.  214(e)(3).C The Joint Explanatory Statement states that section 214(e)(3) "makes explicit the implicit authority of the Commission, with respect to interstate services, and a State, with respect to intrastate  X_-services, to order a common carrier to provide [the supported services]."ML_} yO -ԍ Joint Explanatory Statement at 141.M  X1-x180.` ` The NPRM solicited comment on how the Commission should implement its responsibilities under section 214(e)(3) to designate carriers for unserved areas and whether the Commission and the state commissioners should develop a cooperative program to ensure that all areas receive each of the services supported by federal universal support  X -mechanisms.;M x} yO-ԍ NPRM at para. 47.;  X -x` ` 2. Comments  Xy-x181.` ` Few commenters responded to the Commission's request for comments on whether the Commission and the states should develop a cooperative program to ensure service for unserved areas. Some of these commenters support the concept of a cooperative  X4-program between the Commission and the states.N4} yO-ԍ Alaska Library comments at 5; California PUC comments at 1314; Missouri PSC comments at 9. Some commenters recommend using a competitive bidding system to select carriers to provide universal service to customers in areas  X-that no carrier is serving.OB} yOO-ԍ California PUC comments at 1314. Under California's proposal, the carrier with the lowest bid, or subsidy request, would win and become the carrier of last resort for the area. California PUC comments at 13 {O-14. See also MCI comments at 1819 (advocating use of competitive bidding to select carriers in those few areas that no carrier is willing to serve at the established support level); USTA comments at 1920. USTA recommends that the Commission should adopt a voluntary bidding process to identify carriers willing to serve unserved areas at the lowest cost per line. The carrier submitting the lowest bid would be declared the eligible carrier for both interstate and intrastate services and would receive the universal service support targeted to that area from the high cost support mechanism. USTA comments at 1920. USTA argues that unserved areas should be defined as those areas no carrier is willing to serve voluntarily. Such areas, USTA maintains, should be"aO*&&dd"  X-unique and not combined with any established universal service area.AP} yOy-ԍ USTA comments at 1920.A Some cellular carriers argue that wireless technology can play an important role in ensuring that remote areas receive basic telephone service and that they should be given an opportunity to provide such  X-service in these areas.qQX} {O-ԍ See, e.g., Vanguard comments at 78; Western comments at 57, 14.q AMSC urges the Commission to permit LECs to receive universal service support for the costs of using Mobile Satellite Service technology to provide universal service to remote areas, just as the Commission allows LECs that provide basic exchange  Xv-telecommunications radio systems (BETRS) Rv} yO -ԍ BETRS uses radio frequencies to connect subscribers at fixed locations to LEC central offices. AMSC  {O -comments at 6 (citing Basic Exchange Telecommunications Radio Service, 3 FCC Rcd 214 (1988)).  as a substitute for wireline local service in rural  X_-areas to be eligible for high cost assistance.=S_D} yOT-ԍ AMSC comments at 6.= Washington UTC cautions against adopting rules that will require universal support to every community, no matter how expensive  X1-providing that service would be.MT1} yO-ԍ Washington UTC reply comments at 3.M Washington UTC offers an example of a small community of about a dozen families located on the eastern side of the Cascade Mountains that currently is not receiving even basic telephone service because the installation of facilities would cost about $8,000.00 per customer and would cost approximately $260.00 per access line per  X -month after installation.MU d } yO-ԍ Washington UTC reply comments at 3.M  X -x` ` 3. Discussion  Xy-x182.` ` Other than the requirements contained in section 214(e)(3), we recommend that the Commission not adopt any particular rules to govern how carriers for unserved areas are designated. While a few commenters support the concept of a cooperative state and federal  X4-program to select such carriers,zV4 } {O-ԍ See e.g., Alaska Library comments at 5; California PUC comments at 1314.z no specific program was proposed. Similarly, while several commenters support using competitive bidding to select carriers for unserved areas, no detailed proposal was submitted for use of competitive bidding for this limited purpose. x "b V*&&dd"Ԍ X- vVII. RURAL, INSULAR, AND HIGH COST  X-xA. Overview  X-x183.` ` In this section of the Recommended Decision, we discuss the universal service suppovrt mechanisms for rural, insular, and high cost areas. There are three pieces of information required to calculate the amount of support an eligible telecommunications carrier may draw from federal universal service support mechanisms. The first is the number of subscribers that the carrier is serving in the high cost area. The second is the cost of providing the supported services to those subscribers. The third is the amount of that cost that the carrier must recover from sources other than the federal universal support mechanisms. In this section the Joint Board presents its recommendations concerning the process that should be used to determine the level of support to be provided for the supported services and related issues. We also present our recommendations on how the amount the carrier needs to recover from other sources should be set.  X-x184.` ` We first discuss how to determine the cost of providing the supported services to subscribers. We conclude that the proper measure of "cost" for purposes of calculating universal service support is the forwardlooking economic cost of developing and operating the network facility and functions used to provide services supported under section 254(c)(1). The Joint Board recommends that the Commission work with the state commissions to develop a proxy cost model for calculating these forwardlooking economic costs, and what support, if any, that a carrier should receive for serving a particular geographic area. We believe that all of the costs of the network and retail costs that are incurred to provide the supported services should be included in the cost calculation. We recognize, however, that the use of a proxy model could cause some small carriers to receive levels of support different from what they currently receive. In order to allow those carriers a reasonable period to adjust to the use of proxy models, we recommend that "rural telephone companies," as  X|-defined in the Communications Act, as amended,AW|} yO-ԍ 47 U.S.C.  153(37).A be allowed to continue using embedded costs as the basis for calculating their universal service support levels for three years after  XN-nonrural carriers begin to use proxy models.XXNX} yOW-ԍ #X\  P6G;ɒP# Many of the commenters use the term"embedded costs" when referring to a carrier's historic loop or switching costs. For the purpose of our discussion in this proceeding, we will also use the term "embedded  yO -costs," but note that we mean it to be synonymous with the terms "booked costs" and "reported costs." #X\  P6G;ɒP# We recommend that, during that period, high cost assistance, DEM weighting, and LTS benefits for rural carriers be frozen based on historical perline amounts. At the end of that threeyear period, rural companies will transition to a proxy model over three years. Because of the nature of providing service in Alaska and the insular areas, we recommend that rural carriers serving those areas continue to use embedded costs until further review."cxX*&&dd"Ԍ X-ԙx185.` ` We next discuss the benchmark amount or share of carrier proxyderived cost that must be recovered from other sources. We believe it is desirable that the benchmark be based on the amount the carrier would expect to recover from other services to cover the cost of providing supported services, but final determination of the methodology for selecting the benchmark must also consider the revenue base for universal service contributions. The amount of support a carrier would receive would be calculated by subtracting this benchmark amount from the cost of service determined for that carrier.  XH-x186.` ` Finally, we look at an alternative means of establishing support levels. Competitive bidding would allow the marketplace to determine the level of support by having competing carriers bid for the support level they need to serve high cost areas. We recommend that the Commission, together with the state commissions, continue to explore the possibility of using competitive bidding in the future.  X -x B. Calculation of Cost  X-x` ` 1. Background  Xb-x187.` ` The existing universal service support mechanisms. Currently there are three mechanisms designed expressly to provide support for high cost and small telephone  X4-companies: the Universal Service Fund (high cost assistance fundX01Í ÍX0Í Í),Y4 {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.601 et. seq. the DEM weighting  X-program,ZZ yO(-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b). and LTS.[ yO-#X\  P6G;ɒP#э 47 C.F.R.  69.105, 69.502, 69.603(e), 69.612.#Xj\  P6G;ynXP#ѭ  X-x188.` ` The jurisdictional separations rules currently assign 25 percent of each LEC's  X-loop costss\z yO-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Loop cost is the fixed cost of connecting customers to the LEC central office. LECs' local loop costs vary widely due to many factors, including subscriber density, terrain, local exchange size, and labor costs.s to the interstate jurisdiction.] yO[-#X\  P6G;ɒP##X\  P6G;ɒP#э#X\  P6G;ɒP# 47 C.F.R. Part 36.#Xj\  P6G;ynXP# As a result, a portion of each LEC's local loop  X-costs are recovered through rates charged to its customers for interstate services.t^Zb  yO!-#X\  P6G;ɒP#э #X\  P6G;ɒP#Currently, the Commission's access charge rules require that these costs be recovered through subscriber  {O"-line charges and carrier common line charges. The operation of both types of charges is discussed infra in section XII. t For LECs with aboveaverage loop costs, the existing high cost assistance fund shifts a larger percentage of the loop costs to the interstate jurisdiction and permits those LECs to recover this"d ^*&&dd3"  X-incremental allocation from the high cost assistance fund._ yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#The high cost assistance fund is currently administered by NECA. Each LEC's embedded costs determine the support payments the LEC will receive. Currently, a LEC is eligible for support if its embedded loop costs exceed 115 percent of the national average loop cost.  X-LECs with study areas`X yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#A study area is a geographic segment of a carrier's telephone operations within a state. Carriers perform jurisdictional separations at the study area level.  of 200,000 or fewer loops receive a greater percentage of their  X-aboveaverage loop costs than those with study areas with more than 200,000 loops.X0Í ÍX0Í Ía yO -#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.631(c), (d). LECs with study areas of 200,000 or fewer working loops receive an additional interstate allocation of 65 percent of the unseparated cost per loop between 115 percent and 150 percent of the national average cost per loop, multiplied by the number of working loops. This 65 percent additional allocation coupled with the 25 percent allocation for all carriers means that these companies allocate 90 percent of the loop costs between 115 percent and 150 percent of the national average to the interstate jurisdiction. Those carriers receive an additional interstate allocation of 75 percent of the cost per loop that exceeds 150 percent of the national average cost per loop. That additional allocation, coupled with the 25 percent allocation for all carriers, means that carriers with loop costs greater than 150 percent of the national average receive a 100 percent allocation to the interstate jurisdiction for the costs above 150 percent of the national average. In other words, they receive a dollar from the interstate jurisdiction for each dollar of loop costs above 150 percent of the national average loop cost. For LECs with study areas of more than 200,000 working loops, the additional interstate allocation of unseparated loop costs is as follows: 10 percent of such costs between 115 percent and 160 percent of the national average, 30 percent of such costs between 160 percent and 200 percent of the national average, 60 percent of such costs between 200 percent and 250 percent of the national average, and 75 percent of such costs in excess of 250 percent of the national  X-average. This program is funded entirely by IXCs.X0Í ÍX0Í Í&b@ yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Each IXC with at least .05 percent of presubscribed lines nationwide contributes to the fund an amount based on the number of its presubscribed lines. 47 C.F.R.  69.116.&  X-x189.` ` The Commission's jurisdictional separations rules include a second universal  X-service subsidy mechanism known as DEM weighting.c  yO !-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b). Dial equipment minutes, or DEM, are the minutes of holding time of local switching equipment used to originate and terminate a call. The jurisdictional separations rules allocate local switching equipment costs between the interstate and intrastate jurisdictions on the basis of each jurisdiction's relative number of dial equipment minutes of use. At the time the DEM weighting subsidy was created, it was assumed that smaller telephone companies would have higher local switching costs than larger LECs because the smaller companies cannot take advantage"e c*&&ddQ" of certain economies of scale. LECs with fewer than 50,000 access lines are directed to apportion a greater proportion of these local switching costs to the interstate jurisdiction than  X-larger LECs may allocate.d yOK-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b).#Xj\  P6G;ynXP#Ѹ For these small LECs, the actual DEMs are weighted (multiplied by a factor) to shift what would otherwise be intrastate costs to the interstate jurisdiction. DEM weighting applies independent of, and unrelated to, the high cost assistance fund.  Xv-x190. ` ` The LTS program supports carriers with higherthan average subscriber line costs by providing carriers which are members of the NECA pool with enough support to  XH-enable them to charge IXCs only a nationwide average CCL interstate access rate.*eHX yOQ -#X\  P6G;ɒP#э #]\  PCɒP#Prior to 1989 all local exchange carriers were required to participate in a pool of carrier common line costs and revenues. Beginning in April 1989, LECs were permitted to withdraw from the pool, but LECs with below average subscriber line charges that choose to exit the pool are required to contribute enough so that LECs remaining in the pool would be able to charge the same industry average CCL rates they would have charged if  {Oq-the pool were still mandadtory for all LECs. See MTS and WATS Market Structure; Amendment of Part 67 of  {O;-the Commission's Rules and Establishment of a Joint Board, Report and Order, 2 FCC Rcd 2953 (1987).* Under the current LTS support system, NECA annually projects the common line revenue requirement (which includes an 11.25 percent return on investment) for ILECs that participate  X -in the common line pool.fX  yO-#X\  P6G;ɒP#э The actual rate of return that pooling companies earn on a monthly basis is determined by the total rate of return that the pool earns, i.e., the difference between the total costs that the pooling companies submit and the total amount of revenue in the pool, as a percentage of all pooling companies' total common line investment. NECA then computes the total amount of LTS support needed by subtracting the amount pooling carriers will receive in SLCs and CCL charges from the pool's projected revenue requirement (after removing pay telephone costs and revenues). LTS is funded by ILECs that do not participate in the common line pool. Nonpooling ILECs' LTS contributions to the common line pool are set annually based on the total projected amount of LTS, converted to a monthly payment amount. NECA computes the monthly "draws" for the ILEC common line pool members based on the pooling carriers' submissions to NECA of reported cost data (except for average schedule companies, whose monthly payments are based on average schedule data). As a result, each participating pool member receives a draw from the "pooled" common line revenues rather than a "LTS payment."  X-x191.` ` The Commission initiated a rulemaking proceeding in CC Docket No. 80286  X-to modify the current support mechanism for high cost and small telephone companies.g\  {O!-#X\  P6G;ɒP#э #X\  P6G;ɒP#Amendment of Part 36 of the Commission's Rules and Establishment of a Joint Board, Notice of Inquiry, 9 FCC Rcd 7404 (1994); Order, 9 FCC Rcd 7962 (1994) (Data Request); Notice of Proposed Rulemaking and  {O&#-Notice of Inquiry, 10 FCC Rcd 12309 (1995) (80286 NPRM). The primary goals of that proceeding were to eliminate barriers to competitive entry, contain the size of the fund at a reasonable level, and promote efficient investment and operation of local"fg*&&ddq"  X-service networks.h {Oy-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#80286 NPRM at para. 5.  X-x192.` ` In the 80286 NPRM, the Commission sought comment on ways to improve the high cost assistance fund, including: (1) using credits to deliver high cost assistance in a competitively neutral manner; (2) excluding administrative costs from the loop costs that form the basis for high cost assistance; (3) basing assistance on the average number of subscriber lines; (4) increasing the threshold for receiving assistance; (5) reconsidering the distinctions in  Xa-the current rules between large and small study areas; (6) adopting a permanent indexed cap; (7) using high cost credits for large carriers' study areas only; and (8) using proxy factors to  X3-compute high cost assistance.i3Z {O> -#X\  P6G;ɒP#э #X\  P6G;ɒP# Id. at paras. 1775. The Commission also proposed to modify DEM weighting by: (1) establishing a high cost test to qualify for DEM weighting; (2) determining DEM weighting factors on the basis of average local switch size; or (3) determining DEM weighting  X -assistance through the use of a scale sliding on the basis of the number of access lines.j  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id. at paras. 916.  X -x193.` ` NPRM in this Proceeding. In the NPRM, the Commission sought comments to identify methods for determining the level of support required to ensure that carriers are  X-financially able to provide universal service in rural, insular, and high cost areas.k~ yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#NPRM at paras. 2739. The Commission specifically sought comment on whether continuing to use the Commission's jurisdictional separations rules to provide support to LECs with high loop costs, or local switching costs of small LECs, is consistent with Congress's intent "to provide for a procompetitive, deregulatory national policy framework ... opening all telecommunications  X-markets to competition,"l {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 1 (1996). or with its intent relating to the characteristics of universal service  X-support mechanisms to be adopted pursuant to section 254.m XY-#X\  P6G;ɒP#э#X\  P6G;ɒP# NPRM at para. 30#Xj\  P6G;ynXP#. In addition, the Commission sought comment regarding the statutory requirement "that any support mechanisms continued  X-or created under new section 254 should be explicit."nQ  yO!-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 U.S.C.  254(e)#X\  P6G;ɒP#. The Commission sought comment on whether the DEM weighting assistance mechanism should be retained in light of the principles  X-enunciated in the 1996 Act.o  yO>%-#X\  P6G;ɒP#э #X\  P6G;ɒP# NPRM at para. 30. The NPRM also asked commenters to identify the total amount"gq o*&&dd"  X-of support currently required for each proposed core service.p {Oy-#X\  P6G;ɒP#э #]\  PCɒP# Id. at para. 15.  X-x194.` ` The Commission also incorporated into this proceeding by reference the portion of the record from CC Docket No. 80286 that relates to changing the support mechanisms  X-found in Part 36 of its rules.qZ {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id. at para. 39. The Commission noted, however, that the legislative history of the 1996 Act indicates that Congress determined that CC Docket No. 80286 was not an  Xv-appropriate foundation on which to base the section 254 universal service proceeding.rv {O -#X\  P6G;ɒP##X\  P6G;ɒP#э #]\  PCɒP#Id. at para. 39 (citing S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 131 (1996)).  XH-x195.` ` Regarding LTS, the NPRM observed that the CCL charges of ILECs not  X1-participating in the NECA pool recover LECs' LTS obligations.s1~ yO`-#X\  P6G;ɒP#э#X\  P6G;ɒP# NPRM at para. 115.#Xj\  P6G;ynXP#ѱ As noted in the NPRM, LTS payments serve to equalize access charges among LECs by requiring larger LECs that no longer participate in the NECA access charge pool to contribute funds sufficient to reduce  X -pooling companies' access charges to the national average.t  X-#X\  P6G;ɒP#э #X\  P6G;ɒP# Id. at para. 115#Xj\  P6G;ynXP#. The NPRM tentatively concluded that "LTS payments, which directly increase interstate access charges assessed by some LECs so as to reduce charges assessed by other LECs, are an identifiable support flow in the existing interstate access charge system" and "propose[d] to eliminate the recovery of  X-LTS revenues through ILECs' interstate CCL charges."u {O-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id. at para. 115.#Xj\  P6G;ynXP#Ѷ  Xb-x196.` ` In the NPRM, the Commission noted that several telecommunications carriers had jointly filed a proxy model to calculate a "benchmark" cost for providing local  X4-telecommunications access in every CBG in the nation.)v4Q  {O6-#X\  P6G;ɒP#э Id. at para. 31 (citing MCI, NYNEX, Sprint/United Management, and U S West, Benchmark Costing  {O-Model: A Joint Submission, Copyright 1995, CC Docket No. 80286, filed Dec. 1, 1995).) As explained in the NPRM, the purpose of that proxy model the BCM is to identify areas where the cost of service is expected to be high enough to require cost support to preserve and advance universal  X-service.w  yOM#-#X\  P6G;ɒP#э #X\  P6G;ɒP#NPRM at para. 32. The Commission incorporated the BCM into the record of this proceeding, and asked for comment on the merits of using a proxy model to calculate universal service support requirements. The Commission sought comment on, among other things, whether the model"h=w*&&dd" could be made technology neutral, whether a proxy model should use embedded costs or forwardlooking costs, what engineering assumptions should be used in the model, and whether the model's choice of CBGs as the geographic unit for calculating the costs of local telephone service was the best alternative. The NPRM also sought comment on a proxy model that had been developed by PacTel for use in the California state universal service  X-proceeding the Cost Proxy Model (CPM).x {O-#X\  P6G;ɒP#э  Id. at para. 33 n.81.#Xj\  P6G;ynXP#ѓ  X_-x197.` ` Public Notice. The Common Carrier Bureau's July 3 Public Notice sought comments on approximately 50 questions regarding the calculation of the cost of providing universal service. The Public Notice requested comment on whether loop costs accurately represent the actual cost of providing services such as access to directory assistance and emergency assistance, and the advanced services that commenters have proposed for inclusion among those services to be supported. To the extent that loop costs do not fully represent the costs associated with including a service in the definition of universal service, the question  X -also asked parties to identify and quantify other costs that should be considered.y Z yO-#X\  P6G;ɒP#э #]\  PCɒP# Public Notice (DA961078) (rel. July 3, 1996) question 5. Parties were also asked to comment on what modifications to the existing universal service support  X-mechanisms, if any, are required to comply with the 1996 Act.z {O+-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., question 26. The Public Notice also asked for comment on how existing support mechanisms could be better targeted for rural  Xb-areas.{b| {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., question 27.  X4-x198.` ` Twentyeight questions in the Public Notice dealt with proxy models 15  X-asked about proxy models in general,| {O-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id,, questions 3448.#Xj\  P6G;ynXP#Ѻ eight asked about the BCM,} yOn-#X\  P6G;ɒP#э Public Notice, questions 5663.#Xj\  P6G;ynXP#ї and five asked about  X-the CPM.~0  {O-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id., questions 5663.#Xj\  P6G;ynXP#Ѻ Further comment was requested on what, if any, activities were being undertaken to harmonize the proposed proxy models; and, how support should be calculated  X-for insular areas and Alaska, which were not included in the BCM.  {OK#-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., questions 36, 41, 4548. Comment was sought on how the costs calculated by the BCM compare to the book costs of ILECs for the same"iT *&&dd"  X-geographic areas; what the default inputs were for the BCM (e.g., the fill factors); Xy-#X\  P6G;ɒP#э #X\  P6G;ɒP#A fill factor represents the percentage of the loop facility that is currently being used#Xj\  P6G;ynXP#. and, whether it is possible to integrate the grid cell structure used in the CPM into the BCM  X-model.y yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Public Notice, questions 56, 60, 63#X\  P6G;ɒP#. Comment was sought on whether the CPM could be used on a nationwide basis and  X-whether it could be modified to identify terrain and soil type by grid cell.l  {Ou-#X\  P6G;ɒP#э Id., questions 65, 66.l  X-x199.` ` Cost Models Public Notice. On July 10, 1996, the Common Carrier Bureau released another Public Notice (Cost Models Public Notice) on the proxy models that had been filed in this proceeding the BCM, a revised version of the BCM (BCM2), the CPM,  XH-and the Hatfield model7"H yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#The BCM was submitted by MCI, NYNEX, Sprint, and U S West. The BCM2 was submitted by Sprint  yO\-and U S West. The CPM was submitted by PacTel. The Hatfield model was submitted by MCI and AT&T.   {O$-See Public Notice, Common Carrier Bureau Seeks Further Comment on Cost Models in Universal Service Notice of Proposed Rulemaking, CC Docket 9645, DA 961094 (rel. July 10, 1996)("Cost Models Public Notice").7 and gave notice on how interested parties could obtain copies of  X1-the models.1  {Og-#X\  P6G;ɒP#э #X\  P6G;ɒP#See Cost Models Public Notice. That Public Notice also set out procedures for interested parties to file  X -comments on the models.   {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See Id.  X -x200.` ` Data Request. On August 2, 1996, the Common Carrier Bureau sent a letter to each of the proponents of the BCM2, CPM, and Hatfield models requesting additional  X -information about the models.0"  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See Letters from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau to (1) Glenn Brown, Executive DirectorPublic Policy, U S West, Inc., (2) Alan Ciamporcero, Vice PresidentFederal Regulatory Relations, PacTel, (3) Mike Pelcovits, Chief Economist, MCI, and Joel Lubin, Vice  yOr-PresidentLaw and Government Affairs, AT&T (dated Aug. 2, 1996).#X\  P6G;ɒP#0 The letter asked how the costs calculated by the model compare with actual embedded loop costs of incumbent local exchange carriers and asked each proponent to submit the results from its model for three specific study areas. The letter also requested further information needed to answer modelspecific questions, such as how the current versions compared to the previous versions of these models.  X4-x` ` 2. Comments  X-x` `  a. Cost of Providing Universal Services "j*&&dd "Ԍ X-x201.` ` Loop Costs. MCI and NYNEX maintain that loop costs represent the actual  X-costs of providing core services for the purpose of universal service. yOb-#X\  P6G;ɒP#э#]\  PCɒP# MCI further comments at 3 (arguing, however, that some trunking costs may also be involved for providing services such as 911); NYNEX further comments at 5. Bell Atlantic argues that the local loop is the principal component of supported services, and thus, loop costs are a reasonable surrogate for the costs of all supported services in determining relative costs  X-among exchange carriers.  yOu-#X\  P6G;ɒP#э#]\  PCɒP# Bell Atlantic further comments at 2. According to Bell Atlantic, the costs of providing nonloop core services should not affect the state wide average costs enough to change the amount of universal service support flowing to the states, nor should these costs vary significantly among  X_-carriers._ {O -#X\  P6G;ɒP#э #]\  PCɒP# Id. at 2. Similarly, CompTel argues that access to supported services is provided by the loop and that loop costs do not vary according to the services the end user connects through  X1-the use of the loops.1B yO$-#X\  P6G;ɒP#э#]\  PCɒP# CompTel further comments at 9. USTA argues that the local loop cost is the actual cost of providing  X -access to emergency services and directory assistance.  yO-#X\  P6G;ɒP#э #]\  PCɒP# USTA further comments at 8.  X -x202.` ` NCTA and the Washington UTC contend that it is not appropriate to allocate 100 percent of loop costs to universal service because not all of loop costs are attributable to  X -the provision of supported services, but are also used to provide toll and other services.y\ b  {O-#X\  P6G;ɒP#э #]\  PCɒP#NCTA further comments at 3; Washington UTC further comments at 6 (citing Washington Utilities and  {O-Transportation Commission v. U S West Communications, Inc., Docket No. UT950200, Fifteenth Supplemental Order, April 11, 1996).y MFS argues that additional costs should not be included in loop costs for purposes of calculating universal service support unless the costs of providing a particular service vary by  Xy-census block and contribute to making a census block a high cost area.ly  yO-#X\  P6G;ɒP#э MFS further comments at 13.l  XK-x203.` ` Costs in Addition to Loop Costs. Several parties, however, contend that loop  X4-costs do not represent the total cost involved in providing core services.fZ4 {O!-#X\  P6G;ɒP#э See, e.g., Florida PSC further comments at 8; Maine PUC further comments at 5; New York DOE further comments at 5; PacTel further comments at 12; SWBT further comments at 4; Sprint further comments at 3; Time Warner further comments at 15; Vitelco further comments at 4.f Commenters assert"4k8*&&ddf"  X-that other joint, common and residual costs must be included in calculating total costs.r yOy-#X\  P6G;ɒP#э Ameritech further comments at 11.r  X-Commenters contend that switching,1XX yO-#X\  P6G;ɒP#э AT&T further comments at 6; Citizens Utilities further comments at 4; Florida PSC further comments at 8; Maine PUC further comments at 5; RTC further comments at 10; SWBT further comments at 4; Vitelco further comments at 4.1 transportx yO-#X\  P6G;ɒP#э Citizens Utilities further comments at 4; Maine PUC further comments at 6; RTC further comments at 10; Vitelco further comments at 4. or transmission,l yOj -#X\  P6G;ɒP#э AT&T further comments at 6.l signaling,``  {O -#X\  P6G;ɒP#э Id. at 6.` unbundled  X-element costsa  {Ou-#X\  P6G;ɒP#э Id. at 6. a and other coststX  yO-#X\  P6G;ɒP#э Florida PSC further comments at 9 (billing and collections costs); SWBT further comments at 6 (services expenses and support costs); Sprint further comments at 3 (maintenance, depreciation and overhead expenses); Vitelco further comments at 4 (information services costs and billing costs).t are implicated in the provision of a service. For example, Ameritech argues that the cost of singleparty, voice grade service includes not only the cost of the loops, but also a portion of the local switch, as well as maintenance and other joint and  X-common costs and residual costs.r yO-#X\  P6G;ɒP#э Ameritech further comments at 11.r In addition, USTA argues that the provision of voice grade access to the public switched network, touchtone and singleparty service entail  X_-switching and transport costs in addition to loop costs.l_4 yOD-#X\  P6G;ɒP#э USTA further comments at 8.l SWBT asserts that providing operator service requires substantial costs for facilities and the provision of customer  X1-assistance.o1 yO-#X\  P6G;ɒP#э SWBT further comments at 5, 7.o Maine PUC contends that even basic services such as the ability to connect with  X -the interexchange network require switches and trunks at the local wire center.q T yO-#X\  P6G;ɒP#э Maine PUC further comments at 5.q  X -x204.` ` A few parties argue that support for high switching costs associated with low volume switching, which are currently compensated through DEM weighting, should be  X -maintained.UX  yOS$-#X\  P6G;ɒP#э Century further comments at 1011 (arguing that the Joint Board should develop an explicit high cost mechanism to reduce the disparity between traffic sensitive access charges in rural and urban areas); NECA further comments at 5; USTA further comments at 8. U In addition, RTC maintains that the Commission should provide support for" l*&&dd "  X-access charges that cause significant disparities between rural and urban areas. yOy-#X\  P6G;ɒP#э RTC further comments at 10 (arguing that such support would facilitate toll rate averaging required by 47 U.S.C.  254(g) and promote long distance competition). RTC also maintains that support must be available for any network upgrades that rural telephone  X-companies will have to undertake to offer number portability.-X  yO-#X\  P6G;ɒP#э RTC further comments at 11 (arguing that carriers will have to develop and install software and hardware to provide number portability even if they have no customer requesting the service from whom to recover the costs).- NECA argues that the current method for assigning loop costs, wherein loop costs include not only the direct costs of providing physical loop plant facilities but also a portion of other costs such as general and administrative costs, must be maintained as part of any new universal service support  Xv-mechanism.lv@ yOg -#X\  P6G;ɒP#э NECA further comments at 5.l  XH-x205.` ` Costs of Additional Services. Few parties commented on the costs associated with advanced services. SWBT asserts that the provision of ISDN requires special switching  X -equipment and that the cost of that equipment should be supported.l  yO-#X\  P6G;ɒP#э SWBT further comments at 5.l USTA contends that access to some advanced services may require a different form of loop connection, such as fiber optic cable, and, thus, loop cost would not represent the actual cost of providing the  X -service in those instances.l `  yO-#X\  P6G;ɒP#э USTA further comments at 8.l We note that a few parties state or reiterate their belief that support should be limited to core services, with no universal service support going toward  X -advanced services.  yOH-#X\  P6G;ɒP#э Citizens Utilities further comments at 5; GCI further comments at 3.  Xy-x` `  b. Existing Universal Service Support Mechanisms  XK-x` `   i. Retain existing Universal Service mechanisms x  X-x206.` ` In General. Commenters greatly disagree on whether to retain the current universal service support mechanisms. Most small and rural LECs insist that the existing high  X-cost assistance fund should be retained in its current form.?  {O #-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Century comments at 10; MonCre comments at 34; Montana Indep. Telecom. comments at 6; John Staurulakis comments at 7; SDITC reply comments at 3; Vitelco reply comments at 1. ? Many IXCs, large LECs, and others, however, criticize the existing support mechanisms as contrary to the principles and"m*&&dd"  X-goals of the 1996 Act. {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ad Hoc Telecom. Users comments at 12; NARUC comments at 1315; Texas PUC comments at 9; AT&T reply comments at 67.  They contend that the current system encourages inefficiencies and inhibits competition.  X-x207.` ` Continue using embedded costs. Supporters of the current program contend  X-that it has successfully achieved the goals of universal service." {Ow-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Harris comments at 12; Minnesota Indep. Coalition comments at 13; OITAWITA comments at 1112. They argue that the current accounting and jurisdictional separation rules are the most accurate method for computing  Xv-support levels.v| {O -#X\  P6G;ɒP#э #X\  P6G;ɒP# Park Region Tel. comments at 4. See also MonCre comments at 34; New Hope Tel. Coop. comments at 34; Ragland Tel. Co. comments at 34. In addition, Ft. Mojave Telecom. asserts that the current program is  X_-"equitable and nondiscriminatory."_ yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Ft. Mojave Telecom. comments at 4. West Virginia Consumer Advocate insists that the existing universal service fund is an explicit support mechanism as contemplated in section  X1-254(e).1f  yPH-#X\  P6G;ɒP#э#c PE37 P# # X\  P6G;ɒP# West Virginia Consumer Advocate comments at 910. While acknowledging that the current jurisdictional separations rules may not advance the cause of creating a procompetitive, deregulatory policy framework, Montana PSC argues that they do "advance the cause of keeping rural rates and services comparable to urban rates and services, and therefore the Commission should maintain these subsidies during  X -the transition to a competitive market."  yO}-#X\  P6G;ɒP#э #X\  P6G;ɒP#Montana PSC comments at 10. Michigan Library Ass'n offers that inefficiencies  X -can be audited by state and Commission staff.  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Michigan Library Ass'n comments at 10. Meanwhile, SDITC states that it objects to the idea that universal service is a subsidy because it believes it is a "quid pro quo" for artificially capping at 25 percent those common costs which are allocated between interstate and intrastate jurisdictions, implying that the interstate allocation does not sufficiently recover  Xb-its costs.%b {O* -#X\  P6G;ɒP#э #X\  P6G;ɒP#SDITC reply comments at 10 (citing Smith v. Illinois Bell Tele. Co., 282 U.S. 133 (1930) and Decision  {O -and Order, 96 FCC 2d 781, 789 (1984)). % This commenter also argues that the current system should be maintained because  XK-"local competition is unlikely to occur in rural America for some time."Ks yOo#-#X\  P6G;ɒP#э #X\  P6G;ɒP# SDITC reply comments at 4.  X-x208.` ` Furthermore, many commenters maintain that any new universal service support"n*&&dd"  X-mechanisms must continue to be based on embedded costs.L {Oy-#X\  P6G;ɒP#э See, e.g., 360 comments at 78; BellSouth comments at 2; Frederick & Warinner comments at 23; Keystone comments at 7; LDDS comments at 1112; Maine PUC comments at 4; Michigan PSC comments at 2; OITAWITA comments at 1112; Rock Port Tel. comments at 2; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 1314; South Carolina PSC comments at 2; Staurulakis comments at 7; TCA comments at 5; Telec Consulting comments at 4; United Utilities comments at 1; Fred Williamson comments at 1213.L These commenters dispute the  X-reliability of proxy models to set adequate support levels.z {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ameritech comments at 12; NECA comments at 6. NECA argues further that allowing support levels to be set on the basis of competitive bids or proxy models would trigger a "race for the bottom" because competitors would seek to capture funding without  X-maintaining or improving the quality of service or investing in new technology.  {Oa -#X\  P6G;ɒP#э #X\  P6G;ɒP#NECA comments at 6. See also ITC comments at 4; TCA reply comments at 2, 5. Alaska PUC, Vitelco, and Puerto Rico Tel. Co. contend the peculiar topography and extreme weather in their service areas result in high loop costs and argue that any resulting loss of revenues  X_-from the existing fund levels would greatly increase local rates._ yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska PUC comments at 12; Puerto Rico Tel. Co. comments at 89; Vitelco reply comments at 4. In addition, some commenters assert that small rural companies will not be able to compete under a system that  X1-does not use embedded costs.1.  {O-#X\  P6G;ɒP#э See, e.g., Alaska Tel. comments at 4; Harris comments at 11; OITAWITA comments at 1112; SDITC reply comments at 5.  X -x209.` ` Some commenters rely on particular interpretations of the 1996 Act to support their position that universal service mechanisms must be based on an incumbent carrier's embedded costs. Western Alliance asserts that the 1996 Act and the Fifth Amendment of the U.S. Constitution require a system of universal service supports based on embedded costs of  X -service."  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Western Alliance comments at 1 (citing Duquesne Light. Co. v. Barasch, 488 U.S. 299, 307 (1989) to argue that the implementation of any system that results in a sharp reduction of universal service support will effectively confiscate incumbent LECs' investments without just compensation in violation of the 5th Amendment). Alaska claims that nothing in the legislative history of the 1996 Act requires abolition of jurisdictional separationsbased support mechanisms and not all support  Xy-mechanisms are required to be explicit.UXyr yO!-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska comments at 89 (citing  103(d) of the Senate bill, 141 Cong. Rec. S 8570, S 8575 (daily ed. June 16, 1995) and interpreting the prefaced phrase, "To the extent possible, .." of the Joint Explanatory Statement.U Moreover, Alaska Tel. argues that the embedded"yo*&&dd"  X-costs method is necessary to meet the sufficiency requirement of section 254(b)(5). yOy-#X\  P6G;ɒP# Alaska Tel. comments at 4. Section 254(b)(5) of the 1996 Act states that "[T]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service." In addition, Cincinnati Bell contends that the LECs' obligations under the 1996 Act as COLRs  X-for universal service obligations mandate the recovery of their investment in facilities.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell comments at 11. See also Western Alliance comments at 4. Alaska Tel. concludes that the requirement for cost allocation rules and accounting safeguards found in the 1996 Act clearly demonstrates Congress's intent to use historical costs as a basis  X-for determining universal service support. yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska Tel. reply comments at 3.  X_-x210.` ` Many commenters contend that a universal service mechanism based on embedded costs, rather than costs determined using a proxy model, will be the easiest to administer when CLECs want to serve a study area that already receives universal service  X -support. B {O -#X\  P6G;ɒP#э S#X\  P6G;ɒP#ee, e.g., Ardmore Tel. comments at 3; BellSouth comments at 1014; Bledsoe Tel. comments at 3;  {O-Hopper comments at 3; Ragland Tel. Co. comments at 3; Puerto Rico Tel. Co. further comments at 8. But see, USTA further comments at 2021 (arguing that a competitive carrier in a rural area should receive support based on its own costs to discourage cream skimming and a competitive carrier in high cost areas served by nonrural telephone companies should use the incumbent's costs to encourage competition). Pacific Telecom states that basing payments on the embedded costs of ILECs has the advantages of (i) being "specific, predictable and sufficient" for rural needs; (ii) being auditable; (iii) preventing overrecovery and incentives for gaming the system; (iv) being technologically neutral; and (v) serving as the best economic signal for potential competitive  X -entry.  yOe-#X\  P6G;ɒP#э #X\  P6G;ɒP#Pacific Telecom further comments at 89. Washington UTC suggests that this method might encourage the resale of embedded LEC facilities, while allowing competition, because it argues that competitors are more likely  X-to want to use ILEC facilities if they are compensated for doing so.Z  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Washington UTC further comments at 1718. Washington UTC, however, also notes that the disadvantages of using the incumbents embedded costs are that those costs may not reflect newer, less expensive  {OW-technology and would result in over recovery by the competitors. See also AT&T further comments at 2526.  BellSouth further contends that, when CLECs with lower enduser rates receive the same support as the incumbent, they lower the enduser cost. BellSouth explains that the enduser rates would eventually fall due to competition and the support could be adjusted to reflect the lower  X4-rates.4 yO#-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth further comments at 3334. Vitelco advocates that a CLEC that meets all COLR obligations should be entitled to high cost funds based on its own embedded costs, subject to a cap at the embedded costs of"p8*&&ddG"  X-the incumbent. yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP# Vitelco further comments at 7.  X-x211.` ` Discontinue use of embedded costs. Commenters who maintain that LEC embedded costs are not a reasonable basis for determining support express concern that this  X-method does not encourage companies to operate efficiently.QX {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., TRA comments at 11. But see, Western Alliance further comments at 5 (arguing that no commenter has ever demonstrated that the high cost fund has led to abuse or inefficiency by rural carriers).Q MCI contends that the ILECs embedded costs are likely to include many inefficiencies, and thus be higher than necessary.  Xv-This would result in a competitor receiving more support than required.v {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#MCI further comments at 12. See also Citizens Utilities further comments at 8. In addition, AirTouch asserts that the use of embedded costs would create incentives for inefficient bypass of ILEC networks and manipulation and inflation of the costs, as well as an increase in the  X1-burden borne by subscribers.1D yO&-#X\  P6G;ɒP#э #X\  P6G;ɒP#AirTouch further comments at 2021. NARUC contends that an ILECs embedded costs do not reflect the true cost of providing local service. It reports that many states have determined that cost studies produced by LECs overstate the costs significantly by assuming that the cost of a local loop is the real cost of local service, even though the loop cost is a joint cost shared among many services, and by including costs associated with redesign of network for non X -basic services.  yOC-#X\  P6G;ɒP#э #X\  P6G;ɒP#NARUC comments at 1315. Ad Hoc Telecom. Users argues that the LECs have deployed more  X -transmission capacity than required to provide one line per household. d  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Ad Hoc Telecom. Users comments at 12. Moreover, Time Warner contends that the use of embedded costs does nothing to cure what it considers the fundamental problems with using embedded costs as the basis for universal service support. These include verification of embedded costs, obsolete past engineering practices and investment decisions, past investment initiatives that were not undertaken to serve any  X4-legitimate universal service objective, and no incentive to control or reduce expenses.4  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 3233.  X-x212.` ` Moreover, commenters assert that the use of embedded costs does not promote  X-competitive neutrality.  {O$#-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ad Hoc Telecom. Users comments at 6; California PUC reply comments at 5; Time Warner further comments at 31. RUS argues that historical costs as a basis of support is inconsistent with the goals of the 1996 Act because this method would provide no incentive"q*&&dd"  X-for competition. yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#RUS reply comments at 13. AT&T contends that forcing the recovery of embedded costs distorts the competitive market and allows the ILEC to thwart entry by other more efficient  X-competitors.X yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T further comments at 2326. Time Warner asserts that allowing rural companies to retain universal service  X-support based on embedded costs, in combination with the section 251(f) exceptions,M yOT-#X\  P6G;ɒP#э #X\  P6G;ɒP#Section 251(f) of the 1996 Act exempts rural carriers with fewer than 2 percent of nationwide subscriber lines from complying with all of the interconnection requirements of subsections (b) and (c) of section 251.M creates a protected environment that would operate to consumers' longterm detriment by insulating  X-these companies from competitive pressure to lower costsX0Í ÍX01Í Í.@ yO~ -#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 31. In addition, MCI argues that ILECs are not entitled to a guaranteed complete recovery of their past investments, any more  X_-than is any other competitive firm. _ {O-#X\  P6G;ɒP##X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# MCI reply comments at 11. See also ALTS reply comments at 12.  Teleport further contends that prior investment is not an implicit subsidy and an ILECs ability to recover its investment will not be hindered by the  X1-development of competition.1b  yOD-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Teleport reply comments at 56.  X -x213.` ` ITA/EMA argue that the collection of universal service support through interstate access charges would violate the express mandate of the 1996 Act that all universal  X -service supports be made explicit.  yOx-#X\  P6G;ɒP#э #X\  P6G;ɒP#ITA/EMA comments at 11. RUS also contends that the use of embedded costs fails to provide for the future evolution of telecommunications services and fails to ensure  X -affordable service by ignoring probable revenue losses from the appearance of new entrants.  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#RUS reply comments at 13. AT&T also argues that this method would result in state commissions having to undertake  Xy-frequent, unwieldy and expensive inquiries into the value and prudence of claimed costs.y {O<-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T further comments at 2326.  See also TCI further comments at 2526. TCI also argues that targeting the support only to high cost areas under the embedded costs  XK-approach will be difficult because ILECs report costs on a study area basis.K yO"-#X\  P6G;ɒP#э #X\  P6G;ɒP#TCI further comments at 2526.  X-x214.` ` Use of ILEC costs for CLECs. Some ILEC commenters support the use of embedded costs to calculate assistance for ILECs to determine the universal service support"r4*&&dd"  X-they would receive, but oppose their use for calculating such support to CLECs.QZ {Oy-#X\  P6G;ɒP##X\  P6G;ɒP#э See, e.g., Minnesota Indep. Coalition comments at 13; PacTel further comments at 30; RTC further comments at 18 (it is unlawful, uneconomic and unfair to base high cost payments to CLECs on the ILECs costs).Q Alaska Tel. claims that providing payments to a competitor based on the embedded costs of an incumbent is not lawful because it contends that the language of section 254 is explicit in limiting the use of universal service support only for the provision, maintenance, and  X-upgrading of facilities and services for which the support is intended. yO? -#X\  P6G;ɒP##X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska Tel. further comments at 10. Minnesota Indep. Coalition contends that basing the support for CLECs on the incumbents embedded costs may lead to payments to the new competitors that are far in excess of the costs of providing service and that these payments would unreasonably subsidize new competitors and cause  XH-uneconomic investment. "Hz {Os-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Minnesota Indep. Coalition comments at 10. See also NYNEX further comments at 24 (noting that because CLECs tend to concentrate initial entry on areas with loop costs below the statewide average cost, basing the support for a CLEC on the ILECs study area average book cost would give windfall profits to the competitor); PacTel further comments at 30.  SWBT argues that such a system of competition would not reflect the competitors actual costs, would reduce incentives for efficiency, would disadvantage  X -ILECs by requiring cost studies, and would require continued monitoring and regulation. d  yO/-#X\  P6G;ɒP#э #X\  P6G;ɒP# SWBT further comments at 2324. At the same time, SWBT asserts that new entrants should only receive support for an area if an ILEC receives support, but limited to costs associated with its own facilities. Moreover, SWBT states that competitors should have the same reporting requirements as ILECs and be required to justify their own costs. It maintains that the ILECs costs should be the cap on support levels. It notes, however, that allowing a new entrant to use an ILECs costs would be simple to administer, and each carrier would receive the same level of support.  Several other commenters, including IXCs, large LECs, and nonwireline telecommunication companies, also oppose the use of an ILECs embedded costs as a basis for calculating the support to be provided to a CLEC for the same reasons they criticize the use of embedded  X -costs generally.Z  {OK-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., AT&T further comments at 7; AirTouch further comments at 26; Ameritech further comments at 26; Citizens Utilities further comments at 8; MCI further comments at 12; NCTA comments at 3233; Sprint further comments at 7; TCI further comments at 2526; U S West further comments at 13.  Ameritech and NCTA maintain that the incumbents embedded costs bear  X -no relationship to the new entrants costs.  yOV!-#X\  P6G;ɒP#э #X\  P6G;ɒP#NCTA comments at 3233; Ameritech further comments at 26. NYNEX, however, argues that the CLEC should use the ILEC's booked costs only if it offers universal service throughout the ILEC's study  Xy-area.y yO$-#X\  P6G;ɒP#э#X\  P6G;ɒP# NYNEX further comments at 20. Time Warner contends that, if the embedded costs methodology is maintained, CLECs should be allowed to use the ILEC's embedded costs in order for the fund to be"bs*&&dd"  X-competitively neutral. yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 27.  X-x` `  ii. Modify the Existing High Cost Assistance Fund  X-x215.` ` In General. Commenters in both the current proceeding and the CC Docket No. 80826 proceeding have suggested modifications to the current system that would continue to use embedded costs to determine the level of support. The proposed modifications that appear to enjoy more widespread support include: adjusting the existing support formula by increasing the qualifying threshold; reducing the support percentages; eliminating specific ILECs from eligibility; excluding particular categories of administrative and overhead expenses for calculating loops; readjusting study areas; and changing the methodology of counting loops.  X -x216.` ` Increasing the threshold for receiving assistance. NYNEX contends that the current threshold is too low to distinguish a high cost area from an average cost area  X -effectively. X yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# NYNEX further comments at 1820. AT&T, Time Warner, and Citizens Utilities join NYNEX in supporting raising  X-the eligibility threshold from the current 115 percent to 130 percent yO)-#X\  P6G;ɒP#э #X\  P6G;ɒP#This would be the approximate equivalent of one standard deviation above national average loop costs perline. above national average  Xy-loop costs perline to target the support more effectively.\y@ {Oj-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, AT&T further comments at 24, App. A; Citizens Utilities further comments at 67; NYNEX further comments at 1820; Time Warner further comments at 28. These four commenters also continue to oppose the  {O-use of embedded costs in calculating the support levels. See also Bledsoe Tel. 80286 NPRM comments at 5.  In response to the 80-286 NPRM, the Maine PUC and Vermont DPS agreed with this modification because it would more  XM-accurately target funding.^Md  {Ob-#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC 80286 NPRM comments at 3; Vermont DPS 80286 NPRM comments at 22. See also Ad  {O,-Hoc Telecom. Users 80286 NPRM comments at 12; Frontier 80286 NPRM comments at 69; Sprint 80286  {O-NPRM comments at 1014; Teleport 80286 NPRM comments at 1618; Time Warner further comments at 28. In the 80286 proceeding, SWBT, however, opposed increasing the perline threshold because it claimed that this would shift over $200 million to the state  X-jurisdiction and would harm small ILECs.  {OZ!-#X\  P6G;ɒP#э #X\  P6G;ɒP#SWBT 80286 NPRM comments at 4652, Att. 1.  See also Ohio PUC 80286 NPRM comments at 911. Century argued in the 80286 proceeding that increasing the threshold does not better target high cost assistance, but simply reduces the size  X-of the fund. {O$-#X\  P6G;ɒP#э #X\  P6G;ɒP#Century 80286 NPRM comments at 1821 "t*&&dd"Ԍ X-x217.` ` Lower the high cost fund payout percentages. Citizens Utilities proposes that  X-the current payout percentages of up to 75 percent yOb-#X\  P6G;ɒP#э #X\  P6G;ɒP#If a company has 200,000 or fewer lines in its study area, for its loop costs in excess of 150 percent of the national average, an additional 75 percent of the LEC's costs may be recovered from the interstate jurisdiction. As 25 percent of its loop costs are already recoverable under the regular jurisdictional separations rules, the additional 75 percent support from the high cost assistance fund allows that LEC to recover 100 percent of their incremental loop costs in excess of the national average from the interstate jurisdiction. recovery that applies when an ILEC with 200,000 or fewer loops has perloop costs in excess of 150 percent of the national average be  X-reduced in order to encourage efficiencies in operation.#x S -#&a\  P6G; u&P#э # X\  P6G;ɒP#Citizens Utilities further comments at 67. See also Great Plains 80286 NPRM comments at 11112;  {O -MCI 80286 NPRM comments at 1016.# In response to the 80286 NPRM, GVNW argued that reducing the payout percentage to 70 percent will reduce the size of the  X-fund. {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP#GVNW 80286 NPRM comments at 34. Arvig Enterprises in the 80286 proceeding suggested that the current payout percentage be reduced to 65 percent to eliminate the perception that current cost  Xa-methodologies discourage efficient operation.at  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Arvig 80286 NPRM comments at 4. In response to the 80286 NPRM, SWBT, however, contended that reducing the recovery level in this manner violated the Commission's proper targeting principle by reducing support to those companies most in need of  X -assistance.1   {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#SWBT 80286 NPRM comments at 4652, Att. 1. See also GTE 80286 NPRM comments at 4352;  {O-North Carolina UC 80286 NPRM comments at 34.1  X -x218.` ` Eliminate the inclusion of administrative costs. To integrate efficiency incentives, AT&T recommends eliminating the inclusion of administrative costs in the  X -calculations of loop costs receiving high cost support.\ b  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A. See also ACTA 80286 NPRM comments at 9; MFS 80286  {O-NPRM comments at 12; Sprint 80286 NPRM comments at 1014 (arguing that this will help deter "gold plating"); Washington UTC further comments at 17. Ad Hoc Telecom. Users contends that administrative expenses, such as advertising and sales, should be eliminated because they  X-are not necessary for the provision of universal service. {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#Ad Hoc Telecom. Users comments at 12.  See also MCI 80286 NPRM comments at 1016. New York DPS also advocates eliminating the inclusion of any costs not necessarily related to the provision of subscriber  Xf-loops.f {O/$-#X\  P6G;ɒP#э #X\  P6G;ɒP# New York DPS comments at 6. See also NASUCA 80286 NPRM comments at 1112; Nebraska PSC  {O$-80286 NPRM comments at 7. Missouri PSC proposes that, instead of using actual administrative costs, an average administrative cost perline imputed to the carrier should be used to prevent ILECs from"Out*&&dd"  X-obtaining high cost support for excessive administrative costs. {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#Missouri PSC comments at 9. See also Florida PSC 80286 NPRM comments at 910. Meanwhile, SDITC recommends replacing the compensation of administrative expenses with compensation for "telephone plant investment" to encourage development of advanced telecommunications  X-facilities in all areas.Z yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# SDITC reply comments at 3, 7. NECA, however, suggests that, if the Commission is concerned about excessive levels of general and administrative expenses in the high cost assistance fund, the Commission could consider using statistical measures, such as a twostandarddeviation test to  Xv-limit the amount of such expenses.v {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#NECA further comments at 19. See also Pacific Bell 80286 NPRM comments at 6; USTA 80286  {O -NPRM comments at 2425.  XH-x219.` ` Eliminate de minimis loop cost support. AT&T and Time Warner propose that high cost assistance to LECs receiving less than $1.00 in universal service support per loop  X -be eliminated to reduce the size of the fund. F {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A; Time Warner further comments at 28. See also MCI 80286  {O-NPRM comments at 1016. Maine PUC also favors this proposal on the  X -basis that these payments are too low to make much difference to the recipients.U  {OX-#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC comments at 10. See also Alaska PUC 80286 NPRM comments at 1617; Iowa Utilities  {O"-Board 80286 NPRM comments at 25; Nebraska PSC 80286 NPRM comments at 710.U In  X -response to the 80286 NPRM, Cincinnati Bell and SWBT also supported elimination of de  X -minimis assistance since applying this modification to large ILECs will pose the least potential  X -harm to small LECs, while still reducing the size of the high cost support mechanism.  {Os-#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell 80286 NPRM comments at 10; SWBT 80286 NPRM comments at 4652, Att. 1. In  X -their response to the 80286 NPRM, however, GTE, Pacific Bell, and BellSouth opposed  X-eliminating de minimis loop cost support.  {O-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#GTE 80286 NPRM comments at 4352. BellSouth contended that the Commission's proposal to withdraw assistance to ILECs receiving less than $1.00 per month is predicated on the "fiction" that, if the carrier is large, it can internalize the subsidies. BellSouth said this "easy way out" is no longer available and argued that, if the Commission eliminates high cost support below $1.00, the rules should be modified to permit the eliminated amount to be  X'-assessed as an end user surcharge.'" {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth 80286 NPRM comments at 2023.  X-x220.` ` Eliminate or reduce support to large carriers. AT&T, Time Warner, and"v*&&dd'"  X-SDITC promote the proposal of disqualifying Tier 1 LECsk| yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#For tariff review purposes, the term Tier 1 LEC has traditionally referred to a company having annual revenues from regulated operations of $100 million or more. For accounting purposes, the Commission uses the terms Class A and B companies as defined in 47 C.F.R.  32.11(a)(1) and (2) to differentiate large and small carriers. Pursuant to section 402(c), the revenue threshold of Class A LECs has been indexed to inflation using  {O-the Gross Domestic ChainType Price Index (GDPCPI). See, Implementation of the Telecommunications Act of  {Oc-1996, Reform of Filing Requirements and Carrier Classifications, Order and Notice of Proposed Rulemaking, CC Docket 96193, FCC 96370 (Sept. 12, 1996). k from receiving high cost support  X-to target the support more appropriately.(  yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#SDITC reply comments at 8; AT&T further comments at 24, App. A; Time Warner further comments  {On -29. See also NCTA 80286 NPRM comments at 2, 23. ( In response to the 80286 NPRM, ICORE recommends disqualifying Class 1 and Class 2 LECs from eligibility to target funding to  X-smaller ILECs.f  {O -#X\  P6G;ɒP#э #X\  P6G;ɒP# ICORE 80286 NPRM comments at 1617. Alaska PUC supported the adoption of a slidingscale distinction between  X-small and large ILECs to target high cost support better.  {OO-#X\  P6G;ɒP#э #X\  P6G;ɒP# Alaska PUC 80286 NPRM comments at 1718. See also TCA 80286 NPRM comments at 1517. Missouri PSC also supported  X-implementing a sliding scale in the 80286 NPRM proceeding on the basis that it would  Xz-eliminate the need to reconsider the distinction between large and small companies.z  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Missouri PSC 80286 NPRM comments at 1316. In addition, Montana PSC and New York DPS stated that limiting the higher levels of assistance to study areas with 100,000 lines or less might be more consistent with the goal of targeting  X5-assistance to smaller LECs.?5 {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Montana PSC 80286 NPRM comments at 56; New York DPS 80286 NPRM comments at 78. See  {O-also Northeast Florida Tel. Coop. 80286 NPRM comments at para. 42.? Frontier recommended capping the amount of assistance to  X -study areas with 50,000 or less lines. x {OG-#X\  P6G;ɒP#э#X\  P6G;ɒP# Frontier 80286 NPRM comments at 69. Roseville Tel., however, opposed limiting higher levels of assistance to study areas with 100,000 or fewer lines, arguing that to suggest that large companies serving high cost areas do not need high cost support assumes the large company's ability to continue internal subsidies from rates in low cost areas to rates in high cost areas. It stated that it cannot be assumed that this situation will continue in the face of  X -growing competition.  {Of!-#X\  P6G;ɒP#э #X\  P6G;ɒP# Roseville Tel. 80286 NPRM comments at 59. See also Vitelco reply comments at 1011.  X}-x221.` ` Readjust study areas. NYNEX states that some large carriers have been able to qualify for assistance intended for small carriers by maintaining small study areas within a state. Thus, it recommends combining study areas within a state that are owned by the same"Ow*&&dd"  X-ILEC to apply the high cost assistance mechanisms uniformly and consistently.< {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP# NYNEX further comments at 19. See also Bell Atlantic 80286 NPRM comments at 811; MCI 80286  {OC-NPRM comments at 1016; AT&T further comments at 24, App. A. < Missouri PSC also promotes combining such study areas because it contends that the analysis of such broad areas will best reflect the overall circumstances of each ILEC. It explains that currently smaller study areas might permit a large ILEC to receive high cost assistance related to its  X-high cost areas even though the ILEC's overall costs were no higher than average.$ {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#Missouri PSC comments at 8.  See also Iowa Utilities Board 80286 NPRM comments at 25; Nebraska  {OC -PSC 80286 NPRM comments at 7. In  X-response to the 80286 NPRM, GSA, however, opposed this proposal on the basis that it does not address the problem of internal subsidization of supporting high cost areas with revenues  Xa-from low cost areas.a {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#GSA 80286 NPRM comments at 67. New York DPS also opposed combining loop costs for affiliated companies within a state because several small affiliated companies operate in New York and each company operates in a distinct service territory and charges rates unique to that  X -company.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#New York DPS 80286 NPRM comments at 67. Pennsylvania PUC also stated that it was opposed to combining all affiliated study areas in a state because this would immediately disqualify large carriers from high cost  X -assistance even though they have high cost areas within a study area.  {OC-#X\  P6G;ɒP#э #X\  P6G;ɒP#Pennsylvania PUC 80286 NPRM comments at 1114.  X -x222.` ` Citizens Utilities and BellSouth recommend using a smaller geographic area  X -than a study area, such as a wire center,, 6  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#A wire center is the location where the telephone company terminates subscriber outside cable plant (i.e. their local lines) with the necessary testing facilities to maintain them., as the basis for determining eligibility to target the  X-support better and reduce the size of the fund.^  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth further comments at 32; Citizens Utilities further comments at 7. See also Ameritech 80286  {O-NPRM comments at 1314; Cincinnati Bell 80286 NPRM comments at 6; NASUCA 80286 NPRM comments at  {Oe-89, 19; SWBT 80286 NPRM comments at 19, Att. 1. Cincinnati Bell, in response to the 80286  X}-NPRM, stated that wire centers are appropriate because they are a compromise between study  Xh-areas and CBGs.h {O!-#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell 80286 NPRM comments at 6. Also, Ameritech argued that collecting data by wire center may be less  XQ-difficult than collecting data by CBG.QF {OH$-#X\  P6G;ɒP#э #X\  P6G;ɒP# Ameritech 80286 NPRM comments at 1314. BellSouth asserted that the use of a wire center as the geographic basis for determining support would eliminate the need to divide carriers into":x*&&dd"  X-large and small categories. {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP# BellSouth 80286 NPRM comments at 2023.  X-x223.` ` GTE proposes using a unit smaller than a wire center, such as a CBG, because, it states, this will result in better targeted support, minimize the amount of support provided,  X-and send more accurate price signals to new entrants.JZ {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# GTE comments at 10. See also Jones Intercable 80286 NPRM comments at 45; Pennsylvania PUC 80 {Oy-286 NPRM comments at 79, 1415; Sprint 80286 NPRM comments at 1014.J In response to the 80286 NPRM, California PUC also advocating the use of CBGs, stated that the CBG is small enough to make the costs of an area more homogenous while keeping the distribution of the fund  Xa-manageable.a {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#California PUC 80286 NPRM comments at 4. Bell Atlantic, however, opposed the use of CBGs to identify high cost areas. It argued that attempting to administer a national CBGbased high cost support mechanism  X3-would become overly complex and cumbersome.3H {O,-#X\  P6G;ɒP#э #X\  P6G;ɒP#Bell Atlantic 80286 NPRM comments at 811. BellSouth also opposed the use of CBGs. It claimed that CBGs have no relationship to a local service obligation, have nothing to do with local service areas as defined by state commissions, and have no operational significance  X -to ILECs, and that no credible evidence exists that they bear any relationship to costs.  {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth 80286 NPRM comments at 811, 2628. See also Alaska PUC 80286 NPRM comments at 79.  X -x224.` ` Adjust Rate Structure. GTE advocates imposing a rate ceiling to achieve specific level of enduser prices. It proposes that the level of support must initially be based  X-upon a measure of the cost of service with a rate ceiling.X4  yOw-#X\  P6G;ɒP#э #X\  P6G;ɒP#GTE comments at 89. GTE also asserts that the support should fund the difference when the rate ceiling is less than the embedded costs. A competitive bidding process should replace this costbased comparison to determine the support amount once carriers enter the market. In the 80286 NPRM proceeding,  X}-the California PUC stated that it is addressing rate caps in certain areas as well.}T  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#California PUC 80286 NPRM comments at 4. ALLTEL recommended implementing rate rebalancing to reduce the fund size by allowing ILECs with a perline contribution of less than $1.00 to increase their SLCs, especially if the proposal to  X8-eliminate de minimis support is adopted.8 {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP# ALLTEL 80286 NPRM comments at 7.  See also BellSouth 80286 NPRM comments at 2023; Citizens Utilities further comments at 7.  X -x225.` ` Implement additional accounting safeguards. Washington UTC proposes that" y@*&&ddF" the Commission implement additional accounting safeguards to book, track, and report appropriate revenues to explicit accounts to ensure that high cost funds are used for intended  X-purposes. yOK-#X\  P6G;ɒP#э #X\  P6G;ɒP#Washington UTC further comments at 16.` `  X-x226.` ` Make the support portable. BellSouth and AT&T propose making the universal service support fully "portable" so that the support should move with the customer. They state that this will encourage competition and eventually reduce enduser rates for local  X_-service._X {Oh -#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth comments at 1014; AT&T further comments at 20.  See also Sprint 80286 NPRM comments at 1014.  X1-x227.` ` Adopt an indexed cap. AT&T recommends adopting an indexed cap on the growth of the universal service support to reduce the size of the fund and encourage efficient  X -operation.B  {Of-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A. See also Frontier 80286 NPRM comments at 69; MCI 80286  {O0-NPRM comments at 1016; Sprint 80286 NPRM comments at 1014.B In response to the 80286 NPRM, Alaska PUC expressed concern that a  X -permanent cap would reduce support available to needy companies in an arbitrary manner.&  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska PUC 80286 NPRM comments at 1718. See also USTA 80286 NPRM comments at 3132;  {Ow-Vermont DPS 80286 NPRM comments at 2728.&  X -x228.` ` Implement usagesensitive support. ITC and ETEX Tel. Coop. propose implementing a "usagesensitive" universal service mechanism, based on a company's embedded costs, that lowers the high cost assistance funding as the usage perminute for each access line increases. These commenters contend that this methodology will promote toll and resale competition in rural areas while maintaining monopoly efficiencies of lowdensity rural  XM-areas.Mj  yOh-#X\  P6G;ɒP#э #X\  P6G;ɒP#ITC comments at 10; ETEX Tel. Coop. reply comments at 2.  X-x229.` ` Change current assessment structure. Many commenters recommend changing the current assessment structure to promote competitive neutrality to make the contribution  X-mechanism more equitable. For example, ACTA in the 80286 NPRM proceeding argued that preserving high cost assistance should not be the burden of one segment of the  X-telecommunications industry, namely the interexchange segment.  {Op#-#X\  P6G;ɒP#э #X\  P6G;ɒP#ACTA 80286 NPRM comments at 9. AT&T, GTE, NYNEX, and Lincoln propose that high cost support be funded on the basis of a single, uniform surcharge to all enduser telecommunications services. Thus, all telecommunications service"z *&&ddo" providers, including IXCs, ILECs, CLECs, wireless carriers, and resellers, would finance high  X-cost support. yOb-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T comments at 7; GTE comments at 89; Lincoln reply comments at 7; NYNEX further comments at 20. AT&T contends that this surcharge will foster greater efficiency and new  X-entry that will result in lower prices for customers.   yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T comments at 8. Citizens Utilities recommends creating  X-a contribution mechanism that assesses all interstate carriers, instead of just IXCs.  yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#Citizens Utilities further comments at 7. In  X-response to the 80286 NPRM, Nebraska PSC proposed that the current threshold should be eliminated and all telecommunications carriers should contribute to support high cost assistance based on a percentage of gross revenues that would "establish that large carriers  Xa-support the fund but small carriers would also invest in the fund." a@ {OR-#X\  P6G;ɒP#э #X\  P6G;ɒP# Nebraska PSC 80286 NPRM comments at 6.  X3-x230.` ` Redefine current small and large company distinction. In response to the 80 X -286 NPRM, Pennsylvania PUC and BellSouth supported changing the definition of a small  X -study area to be one with 100,000 loops or fewer to target the support better.)   {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# BellSouth 80286 NPRM comments at 2023; Pennsylvania PUC 80286 NPRM comments at 1114. See  {OV-also MCI 80286 NPRM comments at 1016.) In order to achieve the goals of high cost support, however, Maine PUC recommends eliminating the  X -200,000 line distinction between large and small companies in defining the level of support.J  .  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC comments at 9. See also Ohio PUC 80286 NPRM comments at 911; SWBT 80286  {O-NPRM comments at 4652, Att. 1; Vermont DPS 80286 NPRM comments at 2227.J  X -x231.` ` Use of average loop counts. In response to the 80286 NPRM, Florida PSC, Montana PSC, and Nebraska PSC supported the determination of high cost support eligibility based on the average lines per year rather than on a count at the end of the year as a more  Xj-accurate method to calculate loop costs.Pj  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Florida PSC 80286 NPRM comments at 911; Montana PSC 80286 NPRM comments at 5; Nebraska  {Oo-PSC 80286 NPRM comments at 7.  See also ACTA 80286 NPRM comments at 1213.P In that proceeding, USTA contended that using the average number of lines over a year instead of the year end number would impose a substantial administrative burden on small exchange carriers that do not have mechanized line  X%-counts.w% {O#-#X\  P6G;ɒP#э USTA 80286 NPRM comments at 25.w USTA argued that this could also understate loop counts for carriers that are declining in size and overstate loop costs for growing carriers. USTA maintained that a better approach would be to permit exchange carriers involved in mergers and acquisitions to adjust"{x*&&dd'" expense levels for the year in which a transaction occurred to produce a consistent match  X-between expenses and loops investment data. {Ob-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# Id. at 25.  X-x` `   iii. DEM Weighting Program  X-x232.` ` Maintain existing DEM weighting program. Several commenters, including  Xv-many small and rural ILECs, want the existing DEM weighting program to continue.(vZ {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., MonCre comments at 34; New Hope Tel. comments at 34; RTC comments at 15; Telec Consulting comments at 68; West Virginia Consumer Advocate comments at 910.( Siskiyou argues that the DEM weighting program is a valid and appropriately focused program because switching costs are three or more times higher per access line in small rural  X1-exchanges than they are in larger exchanges.1 yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Siskiyou reply comments at 3. OITAWITA explain that switching costs are higher for small ILECs because they are forced to buy components of a switch sized for 10,000 customers, even though they might be serving only 1,000 customers. Moreover, these commenters state that they are disadvantaged because they are too small to implement volume  X -discounts.7 D {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#OITAWITA comments at 710. See also Northeast Florida Tel. Co. 80286 NPRM comments at para.  {O-10; Rural Iowa Indep.Tel. Ass'n 80286 NPRM comments at 1.7 Some commenters argue that eliminating the DEM weighting program or  X -combining it with the Federal universal service support would raise rural rates.   {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Century comments at 12. See also Alaska Tel. comments at 4; ICORE comments at 1012; MidRivers  {O-Tel. Coop. 80286 NPRM comments at 26.  Century also asserts that eliminating or modifying this program would make universal service support methods less specific and violate the 1996 Act "by creating an internal crosssubsidy between distinct service elements that [flies] in the face of the Act's preference for unbundling in a  Xb-competitive environment."b  {O-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# Century comments at 14 (citing 47 U.S.C.  251 (c)(3)). In addition, ICORE contends that the DEM weighting program  XK-is not a subsidy or assistance mechanism.K  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#ICORE comments at 1012.  X-x233.` ` Modify the current DEM weighting rule. Commenters proposed several modifications to the current rule. NYNEX, Maine PUC, Citizens Utilities, BellSouth, and New York DPS recommend combining switching and loop costs in one high cost "fund" to make the support for switching costs explicit by removing the revenue requirements associated"|*&&dd"  X-with it from smaller ILECs' interstate switched access rates. $ yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP# BellSouth comments at 1014; Maine PUC comments at 11; New York DPS comments at 7; Citizens  {OA-Utilities further comments at 67; NYNEX further comments at 22. See also GSA 80286 NPRM comments at  {O -34; Pacific Bell 80286 NPRM comments at 1; Staurulakis comments at 7; Texas PUC 80286 NPRM comments at 34; Lincoln reply comments at 4.  Maine PUC also adds that this will reduce the size of the fund because companies with high loop costs but low switching  X-costs will not receive as much assistance. yO7-#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC comments at 11. In response to the 80286 NPRM, Colorado PUC, however, opposed combining DEM weighting with high cost support. It claimed that this action would merely shift the targeted support among recipients and it would be particularly  X-harmful to small ILECs.D {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#Colorado PUC 80286 NPRM comments at 78. NECA and ICORE also argue that DEM weighting should not be combined with the universal service support mechanisms because they serve different purposes  Xa-and the administration of both programs would be burdensome.a yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#ICORE comments at 1012; NECA further comments at 1819. Instead, they advocate replacing the current stepped formulas to calculate DEM weighting amounts for study areas  X3-between 10,000 and 50,000 access lines using a "slidingscale" approach.c3f  {OJ-#X\  P6G;ɒP#э #X\  P6G;ɒP#ICORE comments at 1012; NECA further comments at 1819. See also Missouri PSC 80286 NPRM  {O-comments at 67; South Dakota PUC 80286 NPRM comments at 1; USTA 80286 NPRM comments at 41.c United Utilities argues that the current program should be changed to more accurately reflect the use of  X -Category 3 switching costs,  {Ox-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Category 3 switching costs are the costs associated with operating local switching equipment. See 47 C.F.R.  36.125. the amount of Category 3 switching costs eligible for universal  X -service support should be determined and the DEM weighting factors should be revised.  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#United Utilities comments at 34.  X -x234.` ` Eliminate the DEM weighting program. New Jersey Advocate, Time Warner, AT&T, and Lincoln contend that the DEM weighting mechanism creates an implicit subsidy because it is embedded in interstate access charges, and is therefore, contrary to the 1996  X{-Act's mandate that all subsidies be explicit.X01Í ÍX0Í ÍX0Í ÍX0Í Í{ yO -#X\  P6G;ɒP#э #X\  P6G;ɒP# New Jersey Advocate comments at 12; Lincoln reply comments at 4; AT&T further comments at 24, App. A; Time Warner further comments at 28. AT&T further argues that the current DEM weighting mechanism has "no economically sound costbased or needbased eligibility  XM-requirement" and recommended eliminating the DEM weighting program altogether.9M {O%-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T further comments at 24, App. A. See also Frontier 80286 NPRM comments at 3; MCI 80286  {O%-NPRM comments at 37.9 Time"M}`*&&dd" Warner also contends that it is unclear that the average cost per access line varies significantly with switch size and that there is no evidence that eliminating the support provided through  X-DEM weighting would make local service less affordable.  yOK-#X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 40. Moreover, New Jersey Advocate argues that subsidizing switching costs may no longer be appropriate because central office switches are now largely special purpose computers that are widely available at very  X-standardized prices.!X yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# New Jersey Advocate comments at 12. Meanwhile, Lincoln questions the need to subsidize any switching costs because it maintains that switching is a service, and asserts that services do not need to  X_-be subsidized. It states that only access to services should receive a subsidy."_ yO -#X\  P6G;ɒP#э #X\  P6G;ɒP# Lincoln reply comments at 4. Thus, these  XH-commenters recommend eliminating the DEM weighting program.#Hx yOq-#X\  P6G;ɒP#э #X\  P6G;ɒP#New Jersey Advocate comments at 12; AT&T further comments at 24, App. A; Time Warner further comments at 28.  X -x235.` ` In response to the 80286 NPRM, Sprint argued that DEM weighting should be eliminated because modern digital switches have almost completely eliminated the switching cost differentials between large and small study areas that originally motivated the adoption of DEM weighting and that this program creates a powerful economic incentive to miscategorize  X -certain equipment costs in order to qualify for additional subsidies.$  {OA-#X\  P6G;ɒP#э #X\  P6G;ɒP# Sprint 80286 NPRM comments at 78. Teleport, Ad Hoc  X -Telecom. Users, and GCI in the 80286 NPRM proceeding recommended a gradual  X-elimination of this program over five years to comply with the principles stated in the 80286   X-NPRM.<%b  {O-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Ad Hoc Telecom. Users 80286 NPRM comments at 1; GCI 80286 NPRM comments at 25; Teleport  {O\-80286 NPRM comments at 45.<  Xj-x` `   iv. Long Term Support  X<-x236.` ` No party appears to have attempted to refute the NPRM's tentative conclusion  X%-that LTS represents an impermissible implicit support mechanism.&%  X -ԍ #]\  PCɒP#See NPRM at para. 115.#o\  PCynXP#є A few commenters assert that the collection of LTS could be restructured to be consistent with the 1996 Act's  X-nondiscrimination requirements.'o  X$-Ѝ#X\  P6G;ɒP# Missouri PSC comments at 21; Pennsylvania PUC comments at 24; Winnebago Tel. comments at 1.#Xj\  P6G;ynXP# Missouri PSC argues that retaining the LTS mechanism"~ '*&&dd "  X-in some form will increase interexchange competition in rural and high cost areas._( Xy-ԍ #X\  P6G;ɒP#See Missouri PSC comments at 2021. Missouri PSC observes that the LTS system has historically  {Ob-served to reduce pressure on IXCs to de-average rates. Id. The 1996 Act requires IXCs to charge geographically averaged rates, however, and the Commission recently adopted rules implementing this provision.  {O-47 U.S.C.  254(g); See also Policy and Rules Concerning the Interstate, Interexchange Marketplace, Report and Order, CC Docket No. 9661, FCC 96331 (rel. August 7, 1996). Missouri PSC argues that, under a mandate to deaverage rates and absent access charges equalized by LTS, IXCs might choose not to serve high cost areas.  yON-Missouri PSC comments at 21.#Xj\  P6G;ynXP#_ Several argue that any elimination of LTS should occur over time or through some other type of  X-transition mechanism.L)- X -ԍ#X\  P6G;ɒP# Citizens Utilities comments at 79;#X\  P6G;ɒP# Florida PSC comments at 22; Montana Indep. Telecom. comments at  yO -7; West Virginia Consumer Advocate comments at 1213.#Xj\  P6G;ynXP#L Finally, a few commenters contend that proposals to change LTS  X-payments are outside the scope of the universal service proceeding.*  X-ԍ #X\  P6G;ɒP#Rural Iowa Indep. Tel. Ass'n comments at 6; Fred Williamson comments at 1718.#Xj\  P6G;ynXP#  X-#X\  P6G;ɒP#X0Í ÍX0Í Í#Xj\  P6G;ynXP#  Xv-x` `  c. Proxy Models  XH-x237.` ` In General. Numerous parties propose to determine the cost of service on  X1-which to base universal service support on a proxy model, rather than embedded costs. +1W " {O9-ԍ See, e.g., Citizens Utilities comments at 1314; Frontier comments at 6; Ad Hoc Telecom. Users reply comments at 6. They argue that the use of forwardlooking costs in a proxy model, rather than historic costs,  X -best represents the costs for providing universal service over an efficient network., " {Oe-ԍ See, e.g., ALTS comments at 11; Ohio PUC comments at 5; AARP reply comments at 19; AirTouch reply comments at 5. NTIA argues that forwardlooking costs should be used since a subsidy based on book costs weakens  X -the carrier's incentive to be efficient in the deployment of its network.- " {O-ԍ NTIA reply comments at 1617. See also TCI comments at 1112; CPI reply comments at 7. Proponents also argue that use of a proxy model is competitively neutral because it does not use the costs of the incumbent carrier to determine support levels, but instead uses the projected costs for an  X-efficient new entrant into that market.." {O!-ԍ See, e.g., Florida PSC comments at 10; NYNEX comments at 10; MFS reply comments at 6. Some parties, however, note that until proxy models incorporate wireless technology cost structures their results may be too high because they are  Xb-not predicated on the use of the most efficient network to deliver services.a/b/" yOB%-ԍ Texas OPUC comments at 14; WinStar reply comments at 2.a Commenters"b/*&&dd" also argue that use of a proxy model is administratively efficient since it would not require incumbent carriers to keep accounting records at levels below the current study area and would not require new entrants, who may not have reporting requirements, to file cost reports  X-with regulators.;0Z" {O4-ԍ See, e.g., Citizens Utilities comments at 13; contra Telec Consulting (FCC will face administrative burdens in handling complaints by those who claim they are aggrieved by proxy cost determination); CPI reply comments at 7; Cathey, Hutton reply comments at 7.;  X-x238.` ` Other parties contend, however, that proxy models do not satisfy the  Xv-requirements of the 1996 Act that support be specific, predictable, and sufficient.R1v" {O -ԍ See 47 U.S.C.  254(b)(5), (d).R They argue that, unless the universal service support covers the embedded cost of the carrier to  XH-provide service in the area, it is not sufficient support under the 1996 Act.2H|" {Ou-ԍ See, e.g., Rural Iowa Indep. Tel. Ass'n comments at 4; Cathey, Hutton reply comments at 67; Century reply comments at 7; Minnesota Indep. Coalition reply comments at 78. Opponents state that, because the models project the costs of facilities needed to connect the serving wire center to customers if the network were to be built now, rather than the recorded costs of  X -facilities that are being used, proxy models are not based on a "real" network._3 " {O-ԍ See BellSouth comments at 2; CBT comments at 9._ They argue that incumbent carriers often cannot realize the efficiencies assumed in a proxy model because  X -they have built their networks over time.u4 h " {O-ԍ See Fred Williamson comments at 1213; Dell Tel. reply comments at 6.u They also argue that the proxy models are not reliable, and point to the divergent costs calculated by the various proxy models for the same service area and the difference between those results and the costs currently embedded by the  X-carriers for determining universal service support today.5 " {O;-ԍ See MonCre comments at 34; Minnesota Indep. Coalition reply comments at 1112. GSA claims that, because of the wide variations in the costs calculated through proxy models and the historic costs of service, some high cost areas that need support would not be served because the proxy indicates no  XK-subsidy is warranted, while other areas would get unneeded support.C6K " yO-ԍ GSA reply comments at 11.C  X-x239.` ` Some commenters also argue that, before a proxy model can be used, it will need to be thoroughly tested and produce results that are consistent with a carrier's embedded  X-costs.7" {O$-ԍ See, e.g., Ardmore Tel. comments at 4; Blountsville Tel. comments at 4; Farmers Tel. comments at 34. Ameritech argues that, before a proxy model is adopted, the Commission should undertake a systematic evaluation of the models and put the results in the public record for"7*&&dd"  X-industrywide review.C8" yOy-ԍ Ameritech comments at 12.C ITC argues that support should be costbased so that carriers are  X-obligated to install plant as a condition precedent to receiving any funding.<9X" yO-ԍ ITC comments at 4.< Some parties also expressed concern that the results of proxy models, unlike embedded costs, are not  X-auditable.r:" {OT-ԍ See Harris comments at 10; Michigan Library Ass'n comments at 10. r Western Alliance is concerned that the use of proxies will discourage investment  X-in high cost areas.n;z" {O -ԍ Western Alliance comments at 5.  See also GVNW comments at 12.n  Xv-x240.` ` Small, rural telephone companies are particularly concerned about the use of a  X_-proxy model to determine universal service support for high cost areas.<_ " {O-ԍ See, e.g., SDITC reply comments at 3,5; Siskiyou reply comments at 34; TCA reply comments at 5; Virginia CC reply comments at 2. In addition to the general concerns set out above, the small companies argue that the proxy models are not  X1-appropriate for them because these were developed for large companies.=1f " {OH- e Ѝ See, e.g., CITA comments at 4; Telec Consulting comments at 8; Century reply comments at 7. According to the small companies, the averages used in a proxy model would adversely affect them since they  X -have a smaller customer base over which to spread costs.w> " {O-ԍ See Montana Tel. Ass'n comments at 56; Park Region Tel. comments at 4.w Consequently, they contend that  X -only large companies should be required to use proxy models.? " {O'-ԍ See, e.g., Evans Tel. comments at 12; Alaska PUC further comments at 34; USTA cost model comments at 5.  X -x241.` ` Some of the LEC proponents of the proxy models agree, and propose that proxy models be used only for large carriers, with small, rural carriers continuing to use their  X-embedded costs to determine universal service support levels.@" {O%-ԍ See, e.g., NYNEX comments at 10 (asserting that BCM should only be used to calculate support amounts for LECs subject to price cap regulation); PacTel further comments at 32 (stating that bifurcation may be most practical way to move to new support mechanism); U S West further comments at 1516 (urging that price cap company support be based on proxy model, while nonprice cap companies receive support based on embedded costs). Winnebago Tel. argues that"@*&&dd"  X-small telephone companies should be allowed, but not required, to use proxy models.AZ" {Oy-ԍ Winnebago Tel. comments at 1. See also Montana Tel. Ass'n comments at 6; Vitelco reply comments at 5; GTE further comments at 3435 (arguing that company should have onetime option to proxy model determination of costs). CPI proposes the use of three groupings for carriers. Large carriers, those with over 2 percent of the nation's access lines, would move to a total service long run incremental cost (TSLRIC) approach immediately. The smallest LECs would continue to use embedded costs for one year, and then be transitioned to TSLRIC over seven years. Mediumsize carriers, those with less than 2 percent of the nation's access lines, would have a fouryear transition to a TSLRIC  X_-approach.SB_" {O -ԍ CPI ex parte at 56 (Oct. 4, 1996).S  X1-x242.` ` Other parties argue that the same methodology should be used to determine universal support for all carriers, although they diverge over which system should be used  X -embedded costs or proxy models.C |" {O0-ԍ See, e.g., BellSouth further comments at 36; Bell Atlantic further comments at 10; NCTA further comments at 8. Ameritech argues that universal service support should  X -be based on the characteristics of the service area, not the size of the carrier.D " {Os-ԍ Ameritech further comments at 28. See also Pacific Telecom comments at 6 (asserting that the Joint Board and Commission should separately undertake to study the proxy models). GCI and MCI raise concerns that a bifurcated system could encourage the sale of exchanges to maximize the  X -subsidy received for those areas.aE 0 " yO-ԍ GCI further comments at 9; MCI further comments at 14. a Some parties argue that small carriers should not be required to use a proxy model initially, either from a concern about potential disruption to the carriers' support or because the proxy models need to be further refined for use for small  Xy-carriers before they move to proxy models.DFy " yO-ԍ OITAWITA comments at 13. D OITAWITA argues that the transition should not occur until the proxy models have been refined to reflect the cost structure of small  XK-companies.GKP " {OL -ԍ See, e.g., Century further comments at 20; Maine PUC further comments at 1819; RTC further comments at 20. Other commenters propose that companies move from embedded costs to a  X4-proxy model when a competitor enters the market or after a set period of time.;HZ4" {O#-ԍ See, e.g., AT&T further comments at 27 (transition when another carrier determined to be eligible for support); CFA further comments at 15 (three year transition); MCI further comments at 15 (three year transition); NCTA further comments at 8 (three year transition).; Most"4H*&&ddf" parties agree that, if a bifurcated system is used, the Commission should apply the 1996 Act's  X-definition of "rural telephone company"GI" yOb-ԍ 47 U.S.C.  153(37).G to determine which telephone companies would  X-continue to draw universal service support based on their book costs.J$X" {O-ԍ See, e.g., Alaska Tel. further comments at 9; Citizens Utilities further comments at 10; NECA further  {O-comments at 22; RTC further comments at 20. But see AT&T further comments at 27 (arguing in favor of the use of the definition in 47 U.S.C.  251(f)(1)); U S West further comments at 16 (arguing that whether company is regulated under price caps should determine whether proxy model defines universal service support).  X-x243.` ` Parties in Alaska and insular areas are particularly concerned that the proxy models are inappropriate for determining the costs of service for those areas. These groups  Xv-note that Alaska and insular areas were not even included in the original BCM.KvD" {Ok -ԍ See, e.g., Alaska Tel. comments at 5; CNMI comments at 17; Matanuska Tel. Ass'n comments at 23. US West notes that BCM2 includes all fifty states, as well as Puerto Rico, the Virgin Islands and  XH-Micronesia.xLH" {O-ԍ U S West further comments at 19. See also Sprint further comments at 12. MCI also submitted estimates for Alaska, Hawaii, Puerto Rico, Guam, and the Mariana Islands using the Hatfield model. MCI notes, however, that the cost per line was approximated by taking the weighted average for the RBOCs in the Hatfield model, and are not specific to those areas. Consequently, according to MCI, the estimates for these areas are only "ballpark estimates." Letter from Kimberly M. Kirby, Senior Manager, FCC Affairs, MCI, to William F. Caton, Acting Secretary, FCC (dated Oct. 25, 1996).x Alaska PUC claims, however, that the conditions in Alaska are so unique  X1-(e.g., permafrost, glaciers, extreme remoteness) that the factors used in the BCM2 cannot  X -adequately capture the costs incurred in serving Alaska.NM P " yO-ԍ Alaska PUC cost model comments at 3.N Likewise, Vitelco argues that insular areas are not adequately represented because none of the models reflects their unique circumstances, such as the added corrosion from sea water or damage from hurricanes and  X -other tropical storms.KN " yOh-ԍ Vitelco further comments at 911.K Because of those unique characteristics, those parties argue that insular areas and Alaska should continue to use embedded costs to calculate universal service  X -support, even if other areas use proxy models.O\ p" {O-ԍ See, e.g., Alaska Tel. further comments at 1112; Alaska PUC further comments at 58; Puerto Rico Tel.  {O -Co. further comments at 1314. See also NYNEX further comments at 33 (to extent insular areas and Alaska are served by small telephone companies, they should continue to have support based on embedded costs).  X{-x244.` ` Some of the states have noted that they are currently reviewing versions of the proxy models proposed in this proceeding in their state proceedings on universal service. The California PUC filed an Administrative Law Judge's (ALJ) proposal that discussed a version"MO*&&dd"  X-of the Hatfield model and the CPM that were filed in the state proceeding.P" yOy-ԍ California PUC cost model comments (attaching Proposed Decision of ALJ Wong, Cal. P.U.C. R.9501020/I.9501021 (Aug. 5, 1996)). The ALJ proposed to use the CPM, with modifications to the model's inputs, as the basis for determining the costs on which to base the California state universal service fund for large  X-carriers in the state.Q " yO-ԍ Small carriers would remain under the current state universal service mechanism, which is based on their embedded costs as reported to the California PUC. (Subsequently, the California PUC adopted an order which uses the CPM to calculate the cost of service in particular geographic areas in California, but makes  X-several modifications to the model as submitted by PacTel in that proceeding.^Rx" yO -ԍ Cal. P.U.C. R.9501020/I.9501021 (Oct. 25, 1996).^) New York and Pennsylvania are also currently reviewing versions of the Hatfield model that have been  X_-submitted in their respective state universal service proceedings.gS_" yO-ԍ New York DPS comments at 78; Pennsylvania PUC comments at 6.g  X1-x245.` ` The Benchmark Costing Model. The BCM was filed in the record of the CC  X -Docket No. 80286 proceeding, and was incorporated into this proceeding.ET " {Oc-ԍ See NPRM at para. 31.E The BCM is an engineering cost model designed to produce "benchmark" costs for the provision of basic telephone service in each CBG within a state. According to its proponents, the model uses current technology and efficient engineering and design criteria to build a stateoftheart loop  X -and switching network to serve consumers from existing incumbent switching locations.U * " {O-ԍ See MCI comments at 1011; NYNEX comments at Exh. A; Sprint comments at 1214; U S West comments at 8.  X -The model is meant to identify CBGs with higher than average costs of providing service.V " {O-ԍ See NYNEX comments at 10; Sprint comments at 1213; U S West reply comments at 89; but cf. MCI comments at 10 (BCM can be used to determine the universal service support level).  Xy-x246.` ` Its proponents explain that the BCM develops investment costs for loop plant and switches, and then adds an annual charge factor. The estimation of the outside plant cost begins with the determination of the distance between the center of the CBG and the nearest wire center. The feeder cable is sized on the basis of the number of loops to be served and an estimate of spare capacity. The fill factor, the number of wire pairs in use as a percent of the total wire pairs placed, determines the spare capacity. The distribution cable is sized based on the assumption that customers are uniformly distributed within the CBG. There is a separate fill factor for the distribution cable. The cost of support structures (conduit and poles) and placement (e.g., digging the trenches) is determined by multiplying the cable"V*&&dd" investment by various factors. These factors are functions of soil conditions, depth of water table, and other geographic conditions. Switching costs are estimated assuming all lines are served by Northern Telecom DMS 100 digital switches. Costs include a fixed cost per  X-switch plus a cost that varies according to the number of lines served. W\" {O4-ԍ See MCI Communications, Inc, NYNEX Corporation, Sprint/United Management Co., and U S West.,  {O-Inc, Benchmark Costing Model: A Joint Submission, Copyright 1995, CC Docket No. 80286, filed Dec. 1, 1995 at section IV.  An annual charge factor for determining expenses and overhead loadings associated with basic telephone service is then applied to determine the cost of service for a CBG. The BCM presents monthly costs results using two alternative annual charge factors. One is based on historical accounting  X_-data, and the other is based on a Hatfield/MCI study.^X_" {O -ԍ See Id. at I2; NYNEX comments at Exh. A, p.1.^   X3-x247.` ` Several parties, including some of the BCM's proponents, suggest modifications to the model. MCI, for instance, notes that the BCM assumes a uniform distribution of households within a CBG. It states that this presumption is probably not true for rural  X -areas.=Y ~" yO-ԍ MCI comments at 11.= NCTA commissioned a study of the BCM by Economics and Technology, Inc. (ETI) that, while commending the proponents, suggests several changes to the BCM to correct what ETI terms key engineering/economic assumptions and input data upon which the BCM is constructed. Among the modifications proposed by ETI are: adjustments to the fill factors on the assumption that residential service does not require the excess capacity needed to offer other services, such as business service, and using a forwardlooking, rather than historic, expense factor. ETI also argued that the BCM does not use an economic least cost method for determining the fibercopper crossover point in deciding how the feeder line would be deployed. ETI also states that the model unrealistically deploys DMS 100 switches in all  X-instances and uses a historical cost per switch.Z" yO-ԍ NCTA comments at 9, Att. A ("The Cost of Universal Service: A Critical Assessment of the Benchmark Cost Model," Susan M. Baldwin, Lee Selwyn (April 1996)).  X-x248.` ` In their reply comments, the proponents, while stating their continued support for the BCM, acknowledge some of these criticisms of the model, and state that many of  X-those concerns will be addressed in a subsequent version of the BCM.l[f " {O!-ԍ See MCI reply comments at 78; U S West reply comments at 5.l They argue that it is inappropriate for parties to criticize the BCM for developing cost numbers that are different  X-from the ILEC's embedded costs.l\ " {O>%-ԍ See MCI reply comments at 47; U S West reply comments at 3.l U S West explains that the model was not meant to" \*&&ddQ"  X-calculate the historic costs of service, but merely to identify high cost areas.G]" yOy-ԍ U S West reply comments at 7.G U S West notes that the BCM does not include many components necessary to provide local service, and  X-that urban distribution costs are underestimated.\^X" {O-ԍ Id. at 89; U S West further comments at 24.\ It also defends the use of CBGs, stating that CBGs should be used rather than wire centers. According to U S West, using wire centers would allow new entrants to receive high cost support without necessarily serving high  X-cost customers, by serving only customers located near the wire center._" {O( -ԍ U S West reply comments at 34; U S West further comments at 2425. See also Sprint further comments at 15.  X_-x249.` ` The Benchmark Costing Model Version 2. On July 3, 1996, Sprint Corporation  XH-and U S West submitted BCM2.`HD" {O=-ԍ See Letter from Jay C. Keithley, Sprint, and Glenn Brown, U S West, to William F. Caton, Acting Secretary, FCC, in regard to CC Docket 9645 (dated July 3, 1996). According to its proponents, BCM2 was developed to respond to the comments on the BCM in this proceeding and a series of workshops held by  X -the proponents, and to address the misuse of the model as a proxy for historic costs.a " yOi-ԍ U S West further comments at 27; Sprint cost model comments at 6; U S West cost model comments at 3. They contend that BCM2 significantly enhances the engineering and costing assumptions in the  X -original version, and allows users to input their own underlying cost factors and user prices.mb " yO-ԍ Sprint cost model comments at 6; U S West cost model comments at 3.m  X -x250.` ` BCM2 follows the same organizational structure as the original model, but makes several changes to the assumptions upon which the model is based. According to the proponents, BCM2, unlike the BCM, includes all cost elements necessary for the provision of basic telephone service. Among the changes made, BCM2 no longer assumes a uniform distribution of households in lowdensity areas. Instead it assumes that all households are located within 500 feet of either side of roadways and adjusts the CBGs to remove areas with little or no households. BCM2 also increases the feeder and distribution fill factors, and uses estimates of total residential lines and business lines rather than equating lines to households. The model now uses five different digital switch sizes, each with unique fixed or start-up costs. Urban cost elements, e.g., conduit, street cutting, boring, are now included. In addition, BCM2 uses four annual expense factors, which are based on 1995 ARMIS data. BCM2 constrains loop costs to be less than $10,000.00; it assumes that wireless technologies  X-would be an economically reasonable substitute for loops of higher costs.{c " {O%-ԍ See Sprint cost model comments at 57; U S West cost model comments at 34.{"c*&&dd"Ԍ X-ԙx251.` ` Most of the commenters agree that the BCM2 is an improvement over the original version. BellSouth and GTE state that the cost numbers generated by BCM2 are  X-close to their embedded costs of providing service.kd\" {OK-ԍ BellSouth cost model comments at 34; GTE cost model comments at 5, 20. See also Maine PUC  {O-further comments at 23; but cf. Alaska PUC cost model comments at 56 (under BCM2, Alaska would receive substantially less universal support than the state receives under the current system).k SWBT notes that the BCM2 shows  X-significantly higher service costs than the original model.Fe" yOX-ԍ SWBT further comments at 32.F NECA filed studies, however, that show that the average loop cost calculated by BCM2 is higher than the average under the existing universal service support mechanism, and on a service area basis the loop costs calculated using BCM2 ranges from 90 percent below the current support levels to 728  X_-percent above.Hf_|" yO -ԍ NECA cost model comments at 5.H  X1-x252.` ` NYNEX finds that, while BCM2 is an improvement, there are still further refinements that could be made to approximate the costs of the local network more closely. For example, NYNEX contends that BCM2 still does not take into account all of the  X -additional costs incurred to install cable in urban areas.Ig " yO-ԍ NYNEX cost model comments at 6.I AT&T states that BCM2 still has many of the problems of the original model, including unrealistic fill and capacity  X -assumptions.Ih " yO -ԍ AT&T cost model comments at 24.I MCI complains that the source of the business line estimate used in BCM2 is  X -not identified.Gi , " yO-ԍ MCI cost model comments at 5.G Maine PUC argues that BCM2 still vastly underestimates the impact on loop  X-length caused by slope.Pj " yO-ԍ Maine PUC cost model comments at 3, 5.P RTC and Maine PUC also question the model's assumption that households are located within 500 feet of a roadway, and that the model adequately identifies  Xb-costs associated with terrain and other factors.XkbL " {O_-ԍ Id. at 8; RTC cost model comments at 14.X The commenters also question the assumption in BCM2 that, if loop costs exceed $10,000.00, wireless technologies would be  X4-used.l4" yO"-ԍ NCTA further comments at 14; Maine PUC cost model comments at 8; NYNEX cost model comments at 6. "6l*&&dd"Ԍ X-x253.` ` In response to the Common Carrier Bureau's information request,m" yOy-ԍ Letter from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, to Glenn Brown, Executive DirectorPublic Policy, U S West (dated Aug. 2, 1996). the proponents, U S West and Sprint, provided additional information about the model and cost  X-runs using BCM2.n " yO-ԍ Letter from Glenn H. Brown, U S West, and Warren D. Hannah, Sprint Corporation, to William F. Caton, Acting Secretary, FCC (dated Aug. 22, 1996). The response includes cost runs showing the difference in cost calculations between BCM2, CPM, and the current universal service cost information provided by NECA. They also provided study area comparisons between the original BCM and BCM2  X-for the three study areas requested by the Bureau.ox" yO -ԍ The Bureau requested that all the proponents of the three different proxy models provide study area  {O~ -results for Pacific Bell, GTE SWArkansas, and Southwestern BellTexas. See Letters from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau to (1) Glenn Brown, Executive DirectorPublic Policy, U S West, Inc., (2) Alan Ciamporcero, Vice PresidentFederal Regulatory Relations, Pacific Telesis, (3) Mike Pelcovits, Chief Economist, MCI Telecommunications, Inc., and Joel Lubin, Vice PresidentLaw and Government Affairs, AT&T Corporation (dated Aug. 2, 1996). The proponents also submitted results for those study areas using the Commission's Part 32 uniform system of accounts. They explained that switching costs were calculated using generic switch investments because it was not possible to use detailed pricing due to the proprietary nature of manufacturers' switch prices. In addition, the proponents provided examples of cable and wire statistics for the original BCM and BCM2. Finally, the proponents stated that the significant enhancements to the original BCM found in BCM2 reflect actual engineering practices followed in the development of a local network and also cause the increase in projected costs over the costs  X -projected by the original version of the model.p " {Ox-ԍ See Letter from Glenn H. Brown, U S West, and Warren D. Hannah, Sprint Corporation, to William F. Caton, Acting Secretary, FCC (dated Aug. 22, 1996).  X -x254.` ` The Cost Proxy Model. The CPM was filed as part of PacTel's comments in this proceeding. In its comments, PacTel notes that the California PUC was currently conducting a proceeding to establish a new state universal service mechanism that would be  Xb-nondiscriminatory and competitively neutral.wqbL " {O_-ԍ PacTel comments at 15 (citing Cal. P.U.C. D.9507050 (July 19, 1995)).w According to PacTel, in its proceeding the California PUC was considering two proxy models, including the CPM, which was jointly  X4-developed by Pacific Bell and INDETEC, International.@r4" yO"-ԍ PacTel comments at 16.@ PacTel suggests that the CPM could be used at the federal level to implement a competitively neutral model for high cost"nr*&&dd)"  X-area funding,:s" {Oy-ԍ Id. at 17.: and submitts a design overview of the model.>tZ" {O -ԍ Id. at App. D.>  X-x255.` ` According to PacTel, the major advantage of the CPM is its flexibility. PacTel states that a variety of inputs can be used with the model, including publicly available  X-information.Cu" yOA -ԍ PacTel comments at 1617.C As described by PacTel, the CPM examines the network components that are combined to form the customer's service, e.g., cost per foot of aerial and buried copper, cost perline terminations, cost per switched minutes of use. Customer information is derived from using approximately fourtenths of a square mile (3,000 ft by 3,000 ft) grids and census data to determine the location of households, and the distance from the households to the carrier's switches. The values of the cost components are adjusted based on the specific characteristics of the grid area, including density, terrain, and soil type. Using that information, the investment cost for the household is determined. Once investment costs are derived, companyspecific estimates of operating costs per line are applied, e.g., average monthly repair costs. Once the costs are derived for the grids, they can be aggregated to correspond to  X -any larger geographic unit, such as CBGs or serving wire centers (SWCs).Hv |" {O-ԍ See Id. at App. D.H  X-x256.` ` Many parties argue that the major advantage of the CPM over other proxy models is its use of grid cells, rather than CBGs, to calculate the cost of providing service. The commenters argue that the use of grid cells allows for more precision in determining where households are, particularly in sparselypopulated areas, and consequently will lead to more accurate distances of the loops between the households and switches the basis upon  X-which the costs in the model are derived.ww" {O-ԍ See BellSouth further comments at 52; Maine PUC further comments at 29.w PacTel notes that use of grid cells along with wire center boundaries minimizes the likelihood of misassigning households to the wrong wire  X-center or to the wrong carrier.Kx" yO@-ԍ PacTel further comments at 5455.K GTE advocates a hybrid approach that uses CBGs for high X-density areas and grids for lowdensity areas.Jy0 " yO!-ԍ GTE cost model comments at 68. J NCTA, however, states that use of grid cells  X-does not improve the accuracy of customer locations of terrain.Iz " yO2$-ԍ NCTA further comments at 2122.I NECA states that, while grids provide more accuracy in identifying population distribution in sparsely populated areas,"P z*&&dd"  X-there still remains mapping problems for some areas served by small carriers.F{" yOy-ԍ NECA further comments at 35.F Sprint notes that talks are ongoing between the proponents of BCM2 and PacTel to integrate the use of  X-grid cells into BCM2.8|ZX" {O-ԍ Sprint further comments at 17. See also NYNEX further comments at 42 (an industry task force is exploring integrating the grid cell structure into BCM2); USTA cost model comments at 4 (incumbent exchange industry is working together to harmonize the two models). 8  X-x257.` ` MCI argues that CPM should not be used because it relies upon proprietary  X-data, and has only been developed for California, not the entire nation.t}z" {O -ԍ MCI cost model comments at 1213. See also CPI reply comments at 7.t NCTA agrees that the CPM is not suitable for use outside of California because it is based on Pacific Bell's  X_-network.I~_ " yO-ԍ NCTA further comments at 2223.I NASUCA states that the BCM is superior to the CPM because, unlike CPM, it relies on public data. NASUCA claims that parties in the California proceeding have not been able to verify how the CPM derived the costs in that proceeding because of its use of  X -proprietary data.C " yOg-ԍ NASUCA comments at 2021.C PacTel replies that the CPM can be used to calculate the costs of service on a national level; all that is needed is to obtain the proper householdlocation data for the  X -nation.H , " yO-ԍ PacTel further comments at 56.H PacTel also argues that, while it used companyspecific data to calculate costs in the California proceeding, the CPM allows for variable inputs through which a user can  X -modify the cost inputs to reflect either a carrier's specific cost structure or average costs.f " yO+-ԍ PacTel reply comments at 56; PacTel further comments at 58.f  X-x258.` ` In reviewing the CPM in response to the Cost Models Public Notice, parties discusses many specific concerns. For instance, AT&T claims that the CPM is inconsistent in  Xb-its use of terrain modifying factors, which artificially inflate loop investment costs.IbL " yO_-ԍ AT&T cost model comments at 30.I AT&T also states that the CPM bases central office switch and feeder costs solely on average population density of the grid, ignoring the number of lines served by the switch, and uses  X-unrealistically short depreciation lives.:" {O#-ԍ  Id. at 31.: BellSouth compared the results of BCM2 and CPM for Georgia and Florida and found that, when the two models are compared on a wire center"n*&&ddd"  X-basis, they arrive at similar results.W" yOy-ԍ BellSouth cost model comments at 45, Att. 1.W GTE raises a concern that switching costs in the CPM do not fully capture the difference in unit costs between large and small switches. GTE also notes that the costs used by PacTel in the CPM are not representative of those experienced by  X-other carriers because they reflect PacTel's negotiated prices.HX" yO-ԍ GTE cost model comments at 18.H  X-x259.` ` In response to the Common Carrier Bureau's information request," yO& -ԍ Letter from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, to Alan Ciamporcero, Vice PresidentFederal Regulatory Relations, Pacific Telesis (dated Aug. 2, 1996). PacTel provides additional information and cost runs on the model. For some of the material it submitted, however, PacTel requested confidential treatment because the information contains  XH-Pacific Bell's cost studies for California.H@" yO9-ԍ Letter from Nancy C. Woolf, Attorney, Pacific Telesis, to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 16, 1996). PacTel provides a comparison between the costs calculated using CPM, and the current universal service costs provided by NECA only for  X -Arkansas, California, and Texas. " yOc-ԍ Letter from Nancy C. Woolf, Attorney, Pacific Telesis, to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 22, 1996). PacTel has subsequently provided the costs calculated by  X -the CPM for all fifty states and the District of Columbia. " yO-ԍ Letter from Alan C. Ciamporcero, Vice President, Pacific Telesis, to William F. Caton, Acting Secretary, FCC (dated Oct. 17, 1996). PacTel also argues that, contrary to the assertions of critics, the CPM is a standalone model, and that for future runs for the  X -whole nation the model will not rely on PacTel proprietary data. H " yO-ԍ Letter from Nancy C. Woolf, Attorney, Pacific Telesis, to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 16, 1996).  X -x260.` ` In California, the California PUC has recently decided to use the CPM to  X-calculate costs for the state universal service program.[" yO-ԍ Cal. PUC R.9501020/I.9501021 (Oct. 25, 1996).[ Comparing the CPM and Hatfield  Xy-models,y0" {OZ"-ԍ The California PUC reviewed a Hatfield Model which is based on the BCM. See Id. at 113. the California PUC found that the CPM is a more appropriate model for estimating the cost of providing basic service in California than the Hatfield model, in part because  XK-CPM's grid cell design is more conducive to an accurate representations of costs.RK" yO%-ԍ Cal. PUC R.9501020/I.9501021 at 124.R The"KR*&&dd"  X-California PUC, however, made a number adjustments to the CPM as submitted by PacTel.C" {Oy-ԍ See id. at 124161.C For example, the California PUC changed the fibercopper break point for feeder from 9,000 feet to 12,000 feet. This change resulted in a $78 million decrease in the annual support  X-requirement as calculated by the CPM.;Z" {O-ԍ Id. at 137.; The California PUC also changed the allocations for shared and common costs that PacTel had proposed in the CPM, with the result of  X-decrease of $400 million in the support requirement.?" {O* -ԍ Id. at 156157.? The result of the adjustments to the CPM mandated by the California PUC was to decrease the amount of support determined by  X_-the model by $1.116 billion. Z_~" {O -ԍ See id. at 124125, App. C. Overall, all the changes required by the California PUC, including raising the benchmark, result in the size of the California state fund being reduced from $1.7 billion, as submitted by PacTel, to $352 million.   X1-x261.` ` The Hatfield Model. The Hatfield model has been developed by Hatfield  X -Associates, Inc under the sponsorship of AT&T and MCI. " {Ok-ԍ There have been several prior versions of the Hatfield model. See AT&T cost model comments at 4 n.5. On June 7, 1996, the proponents submitted the Hatfield 2.2, Release 1 model for the Joint Board's consideration in this  X -proceeding. 2 " yO-ԍ Letter from Leonard S. Ceca, MCI, to William F. Caton, Acting Secretary, FCC (dated June 7, 1996). They have subsequently submitted a later version, Hatfield 2.2, Release 2."Z " yO_-ԍ Letter from Richard N. Clarke, AT&T, to William F. Caton, Acting Secretary, FCC (dated Aug. 27,  {O'-1996). See also letter from Richard N. Clarke, AT&T, to William F. Caton, Acting Secretary, FCC (dated Sept. 10, 1996)."  X -x262.` ` According to AT&T, the Hatfield model is "a flexible, publicly available engineering model that estimates the economic costs of providing basic narrowband telephone  X-services to consumers in any and all geographic areas in the United States."H" yO%-ԍ AT&T cost model comments at 3.H As described by the proponents, the Hatfield model uses seven modules to compute the costs of the network. The Input Data File module contains information on households, businesses, terrain, and the location of central offices. Estimates of the loop costs for each CBG are determined by the Loop Module and the Data Module, which calculate feeder, subfeeder, and distribution cable"4t*&&ddf"  X-lengths.[X" yOy-ԍ The Data and Loop Modules use components of a BCM derivative, "BCM+," developed by MCI. BCM+ has useradjustable inputs, uses 1995 household data, bases zone density categories on the number of lines in a CBG, and modifies BCM's estimate of business lines. AT&T cost model comments at 4 n.4, Appendix A.[ The Wire Center Module computes the costs associated with switching, signaling, and interoffice transport, based on the outputs from the Loop and Input Data modules. The Convergence Module combines the investment computed in the Loop and Wire Center Modules and adds investment in servicing area interfaces, the network interface devices, and the subscriber drops. The Expense Module takes that investment and converts it into monthly  X-costs based on asset lives and capital cost, and adds certain administration costs.7Z" {O& -ԍ See AT&T cost model comments at 414; MCI cost model comments at 24. The changes between Hatfield 2.2.1 and 2.2.2 are outlined in AT&T cost model comments at App. A. The default inputs used in Hatfield 2.2.2 are set forth in AT&T cost model comments at App. B.7 According to the proponents, the use of this modular architecture allows users to modify data inputs as  X_-necessary to reflect new or statespecific data.H_ " yO-ԍ AT&T cost model comments at 5.H  X1-x263.` ` Critics of the Hatfield model make several arguments against using the model for calculating the cost of providing universal service. Initially, many parties complain that it has been difficult to analyze the Hatfield model because it is constantly changing and contains  X -algorithms that have not been disclosed. " {O7-ԍ See, e.g., BellSouth further comments at 44; PacTel cost model comments at 17; U S West cost model comments at 5. Parties also argue that, since Hatfield is based, at  X -least in part, on BCM, it, like BCM, is flawed.{ " {Oz-ԍ See, e.g., BellSouth further comments at 39; RTC cost model comments at 11.{ The proponents, however, claim that the  X -model is publicly available, uses public data, and allows for user specific inputs.h " yO-ԍ AT&T further comments at 36; AT&T cost model comments at 3, 5.h They also note that the model no longer relies on input from BCM, but uses refined inputs, which they  X-call "BCM+."a" {OW-ԍ See AT&T cost model comments at 4, App. A p. 12.a  Xb-x264.` ` GTE argues that the Hatfield model is not really a forwardlooking cost model.  XK-According to GTE, Hatfield's use of historical expense factors makes it backwardlooking.K" yO"-ԍ GTE cost model comments, Att. 1 ("A Critique of the Hatfield Model" by Gregory M. Duncan, NERA) at 8.  X4-PacTel also argues that Hatfield uses embedded cost factors.U4" yO%-ԍ PacTel cost model comments at App. B, p. 3.U"4*&&dd"Ԍ X-ԙx265.` ` LECs also complain that the Hatfield model uses an unrealistic network  X-configuration to calculate costs." {Ob-ԍ See BellSouth cost model comments, Att. 3 (Comments of William E. Taylor and Anirudda Banerjee, NERA) at 78; According to SWBT, these flawed assumptions about ILECs' networks lead to faulty costfactor assumptions and invalid estimates of capital and  X-operating expenses.I"" yO-ԍ SWBT cost model comments at 12.I PacTel argues that Hatfield does not model the way that distribution  X-plant is actually engineered.K" yO -ԍ PacTel cost model comments at 10.K RTC opposes the Hatfield model, in part, because it assumes that all ILECs have fully deployed SS7, when, according to RTC, some small, rural carriers  Xv-have not deployed SS7.HvB" yOi -ԍ RTC cost model comments at 19.H MCI responds that it is irrelevant that the model may not reflect an ILEC's actual network because it is meant to calculate the cost of an efficient network, not  XH-the cost of an existing network.wH" {O-ԍ MCI cost model comments at 4. See also AT&T cost model comments at 20.w AT&T states that the model does not start with a "blank slate," but uses actual minutes of use and access lines embedded by ILECs and models the  X -network from the existing wire centers and STP locations.I d " yO/-ԍ AT&T cost model comments at 15.I  X -x 266.` ` Parties also argue that Hatfield uses improper cost inputs, which leads to unrealistic cost calculations. For example, NYNEX argues that the model uses excessive fill  X -factors. " {Oc-ԍ NYNEX cost model comments at 11, Att. C (Rebuttal Statement of Timothy J. Tardiff) at 61014. See  {O--also SWBT cost model comments at 12; U S West cost model comments at 8. PacTel argues that the Hatfield model understates switch investment and switching  X -prices.K P " yO-ԍ PacTel cost model comments at 10.K They also argue that the depreciation rates used in the model are too low. " yO8-ԍ NYNEX cost model comments at 11; PacTel cost model comments at 11; SWBT cost model comments at 12. MCI states that the model uses depreciation lives and cost of capital that have been approved by  Xy-the Commission and state commissions.Gy8" yOb"-ԍ MCI cost model comments at 4.G AT&T claims that the model reflects all the forwardlooking costs of installing, maintaining, and operating facilities to provide residential  XK-service, including a reasonable share of joint and common costs.IK" yO%-ԍ AT&T cost model comments at 16.I"KX*&&dd"Ԍ X-ԙx 267.` ` In response to the Common Carrier Bureau's information request,0X" yOy-ԍ Letter from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, to Mike Pelcovits, Chief Economist, MCI Telecommunications, Inc., and Joel Lubin, Vice PresidentLaw and Government Affairs, AT&T Corporation (dated Aug. 2, 1996).0 the proponents AT&T and MCI provide additional information and costs runs on Hatfield 2.2.2. The proponents state that from Hatfield 2.2.1 to Hatfield 2.2.2 there have been significant improvements to the modeling logic and descriptive outputs. Among those changes Hatfield 2.2.2 uses an MCIdeveloped derivative of the original BCM called  X-BCM+." yO& -ԍ BCM+ has useradjustable inputs, uses 1995 household data, bases zone density categories on the number  {O -of lines in a CBG, and modifies BCM's estimate of business lines. See Letter from Michael Pelcovits, Chief Economist, MCI Telecommunications Corporation and Joel Lubin, Regulatory Vice President, AT&T Corp., to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 19, 1996). The changes allows Hatfield 2.2.2 to compute investment explicitly for aerial, buried, and underground cable, for both feeder and distribution facilities. The proponents also argue that the improvements embedded in Hatfield 2.2.2 make it superior to BCM2. For example, they contend that Hatfield 2.2.2 has more detailed cost components than BCM2. Hatfield 2.2.2 also includes investment in Serving Area Interfaces that BCM 2 does not. The proponents explain the fill factors used in Hatfield 2.2.2, noting that the effective fill factor is  X -substantially lower than the maximum engineered fill.(X " yON-ԍ Letter from Michael Pelcovits, Chief Economist, MCI Telecommunications Corporation and Joel Lubin, Regulatory Vice President, AT&T Corp., to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 19, 1996).( The proponents also compare the costs calculated by Hatfield 2.2.2 for the BOCs and for SNET. They explain that, because the model uses ARMIS data that are only embedded by Class A LECs, the proponents are  X -currently unable to run the model for nonClass A LECs.(X " yO)-ԍ Letter from Michael Pelcovits, Chief Economist, MCI Telecommunications Corporation and Joel Lubin, Regulatory Vice President, AT&T Corp., to John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau, FCC (dated Aug. 26, 1996).(  X-x` ` 3. Discussion  Xb-x` `  a. Overview  X4-x 268.` ` We cannot recommend that any of the proxy models submitted in this proceeding thus far the BCM, the BCM2, the CPM, and the Hatfield model should be used to determine universal service support levels. While the proxy models continue to evolve and improve, none of those submitted in this proceeding are sufficiently developed to allow us to recommend a specific model at this time. We do believe, however, that a properly crafted proxy model can be used to calculate the forwardlooking economic costs for"*&&ddq" specific geographic areas, and be used as the cost input in determining the level of support a carrier may need to serve a high cost area. The Joint Board therefore recommends that the Commission continue to work with the state commissions to develop an adequate proxy model that can be used to determine the cost of providing supported services in a particular geographic area, and in calculating what support, if any, a carrier should receive for providing services designated for universal service support.  X_-x 269. ` ` We recommend that a proxy model be developed such that it can be adopted by the Commission by May 8, 1997, the statutory deadline for the Commission to implement our recommendations in this proceeding. It is understood that, in the time between this Recommended Decision and the Commission's final order, the Commission "shall afford the  X -State members of the Joint Board an opportunity to participate in its deliberations . . ."? " yO| -ԍ 47 U.S.C. 410(c).? As a practical matter, this means that the federal and state staffs should coordinate and consult to the fullest extent necessary, and that the State members of the Joint Board are free to communicate their views, orally or in writing, together or separately, at any time. In particular, it is expected that the state and federal staffs will work collaboratively to conduct workshops with interested parties on the issues associated with the proxy models. To the extent that there may be independent State views on the proxy models, the state members of the Joint Board shall, at a minimum, submit a report on the outcome of the Joint Board staff efforts with sufficient time for the Commission to review prior to the issuance of an Order implementing this Recommended Decision. Such input would supplement the ongoing cooperative, consensusoriented teamwork of the Joint Board members and staff.  X-x 270.` ` We find that forwardlooking economic costs should be used to determine the cost of providing universal service. Those costs best approximate the costs that would be incurred by an efficient competitor entering that market. We believe that support should be based on the cost of an efficient carrier and should not be used to offset the costs of inefficient provision of service, or costs associated with services that are not included in our definition of supported services, such as private lines, interexchange services, and video services. For purposes of administering a national universal service system, proxy models are the most efficient method for determining forwardlooking costs, and provide other benefits, such as the ability to determine costs at smaller geographic levels than would be practical using the existing cost accounting system. The actual level of support that a carrier receives from federal universal service support mechanisms, if any, would be based on the difference between the cost of service as determined by a proxy model and the benchmark amount, which we discuss in section VII.C.  X!-x271.` ` While we recommend the use of proxy models in general, we recognize that the operations of some carriers could be placed at risk if their support was immediately determined by the use of a proxy model. As suggested by various commenters, the proposed"#X*&&dde"" proxy models' designs do not reflect the special characteristics of these carriers. First, none of the models adequately represents the costs for rural carriers as all the models are currently based on expense data for large LECs, serving predominantly urban areas. Second, small carriers, with their limited revenue streams, will be significantly affected if the model does not accurately reflect their costs. Third, the proxy models should be refined and modified to reflect the special characteristics of rural carriers before requiring those carriers to move to a proxy model for determining universal service support.  XH-x272.` ` We therefore recommend that rural telephone companies, as defined in the  X1-1934 Act, as amended,A1" yO -ԍ 47 U.S.C.  153(37).A be allowed to continue using embedded costs as the basis for calculating universal service support for three years after the nonrural companies begin to use proxy models, which we anticipate would be on January 1, 1998. This would allow time to make any necessary refinements to the proxy model to tailor the model for rural companies. We recommend that the Commission include a review of the proxy model to ensure the appropriateness of the proxy model for rural carriers before requiring them to use a proxy model. In order to minimize any disruption or adverse impact of this change on the rural carriers, we recommend that during this threeyear period rural carriers receive support from the high cost assistance, DEM weighting, and LTS based on historical per line amounts. At the end of the threeyear period, rural companies would begin a transition to the use of a proxy model for determining their costs of providing the supported services. That transition would occur over three years. The unique nature of service in Alaska and the insular areas causes us to recommend that rural companies in those areas should not be shifted to a proxy model at that time, but should continue to receive support based on their embedded costs per line pending further review of their situation. x  X-x` `  b. Which costs to support  X-  X|-x273.` ` We recommend basing the universal service support for the nonrural eligible carriers on the forwardlooking cost of providing the network used to provide the services included in our list of services recommended for universal service support pursuant to section 254(c)(1). The Joint Board recommends that the forwardlooking economic cost of providing supported services should include all of the costs of the telephone network elements that are used to provide supported services. We acknowledge that the loop is essential for the provision of all services, not just those supported by the federal universal service mechanisms. We note, however, that supported services include not only local service but also access to interexchange service. The cost of loop can vary depending on the type of services provided. We recognize that the provision of ISDN and video services could increase the cost of the loop, but the additional loop costs incurred to provide these services should be excluded from""X*&&dd!"  X-costs considered here. " {Oy-ԍ See, e.g., SWBT further comments at 5; USTA further comments at 8. We note that the Commission intends to initiate another proceeding to address the directive in Section 254(k) to "establish any necessary cost allocation rules, accounting safeguards and guidelines to ensure that services included in the definition of universal service bear no more than a reasonable share of the joint and common costs of facilities used to provide those services." 47 U.S.C.  254(k).  In the proxy models, the fibercopper crossover point determines the relative share of fiber in the loop plant. We believe that the reasonable crossover point should reflect the least cost provision of the supported services rather than the provision of video or advanced services.  X-x274.` ` Bell Atlantic and CompTel argue that the cost of providing supported services does not vary with nonloop costs, and thus, these costs do not affect average cost enough to  X_-change the amount of support received by any carrier._z" yO -ԍ Bell Atlantic further comments at 2; CompTel further comments at 9. Nonloop costs include switching, transport, signaling, corporate overheads, and billing and collection and other retail costs. We disagree with their argument. Even if nonloop costs do not vary across density zones, we must still include nonloop costs in the cost estimate in order to estimate the total cost of providing the supported services. We note that, if any parts of the switch can be separately identified as required for only specific advanced services, such as a packet switch auxiliary used to process the ISDN signaling channel, then the costs associated with that part of the switch should not be included as costs of supported services.  X -x` `  c. Use of a proxy model  X-  Xy-x275.` ` In order to ensure that a universal service support mechanism provides the correct signals for entry, investment, and innovation in the longrun, it is vital that the Commission use forwardlooking economic costs as the basis for determining support levels. If support is based on embedded costs for the longrun, then incumbents and new entrants alike will receive incorrect signals about where they should invest. Where embedded costs are above forwardlooking costs, support of embedded costs would direct carriers to make inefficient investments that may not be financially viable when there is competitive entry. Where embedded costs are below forwardlooking costs, support only of embedded costs will drive firms from the market, because the revenue per customer plus the support will be less than the forwardlooking cost of providing the supported services. Therefore, support based on embedded costs could jeopardize the provision of universal service.  Xe-x276.` ` We conclude that setting support at forwardlooking economic cost levels will allow us to construct a universal service support mechanism that will preserve and advance universal service and encourage efficiency. Competitive firms will provide service using an approximately efficient level of resources because, in those instances when revenues are not sufficient, the support mechanism will provide the additional funds required to maintain" *&&dd=" service. In principle, using cost estimates generated by proxy models is a reasonable technique for determining forwardlooking costs. Proxy models, because they are not based on any individual company's costs, provide a competitively neutral estimate of the cost of providing supported services. In addition to estimating the forwardlooking economic cost of deployment and operation of network facilities used to provide services supported under section 254(c), any proxy model adopted by the Commission should also include an estimate of forwardlooking common costs so that universal service support based on such a model will cover a reasonable share of common costs and that together all services allow for recovery of all forwardlooking costs.  X -x277.` ` We recommend that the Commission consider the following criteria in order to evaluate the reasonableness of any proxy model that it would use to estimate the forwardlooking economic cost of providing the supported services:  X -x(1)` ` Technology assumed in the model should be the leastcost, most efficient and reasonable technology for providing the supported services that is currently available for purchase, with the understanding that the models will use the incumbent LECs' wire centers as the center of the loop network for the reasonably foreseeable future.(#`  X4-x(2) ` ` Any network function or element, such as loop, switching, transport, or signaling, necessary to produce supported services must have an associated cost.(#`  X-Xx(3)X` ` Only forwardlooking costs should be included. The costs should not be the embedded cost of the facilities, functions or elements.(#`  X-Xx(4)X` ` The model should measure the longrun costs of providing service by including a forwardlooking cost of capital and the recovery of capital through economic depreciation expenses. The long run period used should be a period long enough that all costs are treated as variable and avoidable.(#`  X7-Xx(5)X` ` The model should estimate the cost of providing service for all businesses and households within a geographic region. This includes the provision of multiline business services. Such inclusion allows the models to reflect the economies of scale associated with the provision of these services.(#`  X -Xx(6)X` ` A reasonable allocation of joint and common costs should be assigned to the cost of supported services. This allocation will ensure that the forwardlooking costs of providing the supported services do not include an unreasonable share of the joint and common costs incurred in the provision of both supported and nonsupported services, e.g., multiline business and toll services.(#` "Q%*&&dd $"Ԍ X-Xx(7)X` ` The model and all underlying data, formulae, computations, and software associated with the model should be available to all interested parties for review and comment. All underlying data should be verifiable, engineering assumptions reasonable, and outputs plausible.(#`  X-x(8)` ` The model should include the capability to examine and modify the critical assumptions and engineering principles. These assumptions and principles include, but are not limited to, the cost of capital, depreciation rates, fill factors, input costs, overhead adjustments, retail costs, structure sharing percentages, fibercopper crossover points, and terrain factors. The models should also allow for different costs of capital, depreciation, and expenses for different facilities, functions or elements. (#`  X -x278.` ` The parties have brought three models to our attention in this proceeding. In general, the models submitted are based on a local exchange telephone network designed to meet the total demand on the network, where demand is measured by the number of lines served and minutes of use. The network consists of outside plant facilities and central office equipment. Investment is expressed as an annual expense by applying annual charge factors to the models' estimates of investment. Joint and common costs and retail costs are added to  XK-the plant related costs to define the total cost of service.XK" yO-ԍ Letter from Glenn Brown, U S West, to William F. Caton, Acting Secretary, FCC (dated Sept. 4, 1996). Letter from Richard N. Clarke, AT&T, to William F. Caton, Acting Secretary, FCC (dated Sept. 10, 1996). PacTel comments at App. D.  X-x279.` ` While the models hold much promise, at this time, we cannot endorse a specific model as the tool the Commission should use for calculating costs of supported services. We conclude that the BCM2 and the Hatfield Model Version 2.2. Release 2 (Hatfield Model) are the best available basis for future development of an acceptable proxy model at this time We cannot evaluate the CPM at this time, because a complete working version of the model, that includes all formulae and data, has only recently been filed in this  X-proceeding."" yO,-ԍ On October 25, 1996, PacTel filed a demonstration CD ROM disk of the national run of the CPM. However, because, according to PacTel, the software contains trade secrets, PacTel filed it with a Request for Confidential Treatment, and included a software license agreement that parties must sign before being able to  {O -obtain a copy of the CD ROM. See Letter from Alan Ciamporcero, Vice President, Pacific Telesis, to William F. Caton, Acting Secretary, FCC (dated Oct. 25, 1996)." The CPM suffers from the flaw that significant amounts of input values and  X|-information are considered proprietary.|" yO#-ԍ Letter from Alan F. Ciamporcero, Pacific Telesis, to William F. Caton, Acting Secretary, FCC (dated Oct. 25, 1996). "e *&&dd"Ԍ X-x280.` ` Appendix F contains a cursory review of the models and highlights some of the differences between BCM2 and the Hatfield model. Among the issues that will need to be addressed before a specific proxy model can be accepted are the different assumptions regarding basic input levels; the relationships between the inputs; why certain functionalities included in one model are not present in the other models; and the unique set of engineering design principles in each model. Until we can establish reasonable values for the assumptions and technical relationships that underlie the models we cannot recommend the adoption of a particular model or combination of the models.  X1-x281.` ` We urge the Commission to conduct a series of workshops at which federal and state staff can work with industry participants to refine the models so that it could become possible to select or create a proxy model that could then be used in calculating universal service support. We recommend that these workshops begin no later than January 1997.  X -x282.` ` The state members of the Joint Board will submit a report to the Commission on the use of proxy models and their application in this proceeding for funding universal service. The report of the state members will be filed prior to a Commission decision in this proceeding on proxy models. The Commission and state members should continue to work cooperatively and remain integrally involved in the development of an acceptable proxy model.  X-x` `  d. Rural Carriers  X-x283.` ` While we recommend using forwardlooking economic costs calculated through the use of a proxy model to determine high cost support for all carriers, we are concerned that moving small, rural carriers to a proxy model too quickly may result in large changes in the support that they receive. Since rural carriers generally serve fewer subscribers relative to the large incumbent LECs, serve more sparsely populated areas, and do not generally benefit from economies of scale and scope as much as nonrural carriers, they often cannot respond to  Xe-changing operating circumstances as quickly as large carriers.e" {O- #X\  P6G;ɒP#э See, e.g., Alaska Tel. comments at 4; Harris comments at 11; OITAWITA comments at 1112; SDITC reply comments at 5. We therefore recommend that those carriers not move immediately to a proxy model, but transition to a proxy over six years. For three years, starting on January 1, 1998, high cost assistance, DEM weighting and LTS benefits for rural carriers will be frozen based on historical per line amounts. Rural carriers would then transition over a three year period to a mechanism for calculating support based on a proxy model. Prior to that transition, however, we recommend that the Commission, working with the state commissions, review the proxy model to ensure that it takes into consideration the unique situations of rural carriers. We emphasize our recommendation that, after the transition, the calculation of support for rural telephone companies should be based on a proxy model, although we recognize that alternative support"""*&&dd!" mechanisms, such as competitive bidding, may also promote efficient service provision. Further, we recommend that, on request, any rural carrier should be permitted to elect to use a proxy model to determine its support level, and that any carriers electing to use the proxy model not be allowed to use the embedded cost approach thereafter.  X-x284.` ` As we stated in discussing the use of a proxy model, we conclude that a properly designed cost proxy model would allow carriers serving high cost areas to charge affordable rates. We thus disagree with those who contend that using embedded costs is the only way to set the level of universal service support needed to accomplish affordable rates because no statutory or economic reason exists for calculating high cost support based on embedded costs. We are also not persuaded that, as Cincinnati Bell asserts, a carrier of last  X -resort must recover its costs through an embedded cost methodology.U " {O| -ԍ See Cincinnati Bell comments at 11. U  X -x285.` ` We find, however, that, because of the difficulty in precisely modelling small, rural carriers' costs, they should continue to draw high cost support calculated based on an embedded cost methodology until we have more experience with the proxy models. We therefore recommend that rural carriers transition to the proxy methodology adopted for calculating high cost support in areas served by nonrural incumbent LECs. The Joint Board recommends that rural carriers should begin shifting to a proxybased system three years after the implementation of a proxybased methodology for nonrural LECs and the Commission, working with the state commissions, has reviewed the appropriateness of using a proxy model for rural carriers. At that time, rural carriers will begin draw an increasing percentage of their high cost support based upon a proxybased system during the subsequent three years. The Joint Board concludes, however, that rural companies operating in Alaska and insular areas should not be required at this time to use a proxy model until further review. Thus, at the end of a sixyear period after proxies are initiated for large LECs, all LECs including rural LECs, but excepting LECs in Alaska and insular areas, will be on a proxybased system.  X|-x286.` ` The Joint Board recommends, however, that rural carriers be able to move to a proxybased system earlier if they choose to do so. We recognize that rural carriers will choose to move earlier only when the proxy cost is greater than the embedded cost. Providing the rural carriers this opportunity is necessary to ensure that rural carriers have an incentive to invest in the facilities required to provide the supported services. The alternative, limiting rural carriers to embedded costs when forwardlooking economic costs are greater than embedded costs, would encourage rural carriers to withdraw service in high cost areas or require rural carriers to incur an economic loss in the provision of the supported services.  X!-x287.` ` We recommend that the Commission define "rural" as those carriers that meet"!Z*&&dd "  X-the statutory definition of a "rural telephone company."h" yOy-#X\  P6G;ɒP#э 47 U.S.C.  153(37).h In order for the administrator to know which carriers are to receive support payments based on the proxy model or their embedded costs, we recommend that carriers notify the Commission and the state commissions that for purposes on universal service support determinations they meet the definition of a "rural telephone company." Carriers should make such a notification each year prior to the beginning of the payout period for that year. The carriers may also use that notification as the means by which to let the Commission, the state commissions, and the administrator know if they have chosen to voluntarily move to a proxy model before the end of the transition period.  X -x288.` ` Although many of the suggestions on how to improve the existing high cost support mechanisms provided by the commenting parties have merit, we do not find it appropriate to radically change the method of calculating such support in light of the short time period that will elapse between now and when rural carriers receive support based on a proxy methodology. We also find that LTS payments constitute a universal service support mechanism. As the Commission noted in the NPRM, LTS payments serve to equalize LECs' access charges by raising some carriers' charges and lowering others'. While some commenters have noted the beneficial purposes currently served by LTS, no commenter argued that LTS was not a support flow.  X4-x 289.` ` We therefore recommend that beginning in 1998 and continuing to the end of the year 2000, support payments for high cost assistance, DEM weighting and Long Term Support, be frozen for each carrier at the same amounts paid on a per line basis to qualifying carriers. High cost support would be based on the assistance received in 1997, and DEM weighting and LTS benefits received during calendar year 1996. Beginning in the year 2001, and through the year 2003, we recommend that support be gradually shifted to a proxybased methodology. In the year 2001, support would be based on 75 percent frozen levels and 25 percent proxy; in 2002 support will be based on 50 percent frozen levels and 50 percent proxy; in 2003 support will be based on 25 percent frozen levels and 75 percent proxy. Beginning in 2004 support will be 100 percent based on a proxy methodology. The total period for transition for rural carriers to a proxy based system is six years.  X -x!290.` ` Freezing support will encourage rural carriers to operate efficiently because no additional support will be provided for increased costs. We recognize that the number of subscribers served by rural carriers could increase and associated with such increases is an increase in costs. Therefore, we recommend that support not be frozen at a total dollar amount, but instead, at a per line amount. Rural carriers would receive additional support at the same amount per line as the number of subscribers increase. A frozen level of high cost support will prepare these LECs for both their move to a proxy model and the advent of a more competitive marketplace."#X*&&dde""Ԍ X-ԙx"291.` ` High cost assistance to carriers with high loop costs that will be paid during 1997 are based on those carriers' 1995 embedded costs. Additionally, loop counts to determine the 1995 average costs per loop for each carrier are based on yearend 1995 loop counts. To determine the amount of frozen high cost support per line for carriers with high loop costs, we recommend that the total amount paid to each carrier during 1997, based on 1995 embedded costs, be divided by the number of loops served at the end of 1995. The amount of high cost assistance to be paid in 1998 will then be the same per line amount paid in 1997 multiplied by the year end loop count for 1996. Calculation of payments would continue in this manner throughout the transition period.  X -x#292.` ` Currently, DEM weighting assistance is an implicit support mechanism that is recovered through the switched access rates charged to interexchange carriers by those carriers serving less than 50,000 lines. In order to calculate the perline DEM weighting benefit, we recommend that the amount of additional revenues collected by each carrier above what would be collected without DEM weighting, be calculated for the calendar year 1996. That amount, divided by the number of loops served at the yearend 1996 would be the basis for the frozen per line support to be paid beginning in 1998. Until December 31, 1997, DEM weighting benefits would continue under the present rules. Although we could have recommended the calendar year 1997 as the basis for determining the frozen perline amount for DEM weighting benefits during the transition period, we find that sufficient time will be needed for the fund administrator to gather the data and calculate payments before frozen DEM weighting benefits begin in 1998. We chose to use yearend 1996 loop counts because this calculation would have already been made for loop high cost assistance purposes. For 1999, the amount of frozen DEM weighting support would be based on the frozen per line amount multiplied by the number of lines served for the yearend 1997. Calculation of payments would continue in this manner throughout the transition period.  X-x$293.` ` LTS payments are currently determined by comparing the amount pool members will receive in SLCs and CCL charges to the pool's projected revenues requirement. In order to determine the frozen LTS payment for the Common Line pool members, we recommend that each member be allocated a percentage of the total LTS contribution from the nonpooling LECs. We recommend that the allocation be made on the basis of each member's common line revenue requirement relative to the total common line pool revenue requirement. We recommend that the frozen LTS payments to pool members during the year ending 1996 and the loop counts at yearend 1996 be used as the historical basis for computing the frozen per line LTS payment beginning in 1998. For 1999, the amount of frozen LTS payments would be based on the frozen per line amount multiplied by the number of lines served for the yearend 1997. Calculation of payments would continue in this manner throughout the transition period.  Xh$-x%294.` ` We recognize that, unlike the current LTS system, the frozen LTS mechanism will not result in CCL charges for ILECs participating in the NECA pool being set equal to"Q%*&&dd $" the national average CCL charge for all ILECs. Currently, LECs that contribute to LTS support recover those funds by increasing their own CCL charges. Under the frozen LTS mechanism, the funds for this support will come instead from all carriers providing interstate telecommunications services based on their revenues.  X-x&295.` ` We also recognize that we have limited participation in the frozen LTS mechanism to rural telephone companies, as defined in the 1996 Act, that currently participate in the NECA pool. We find that this limitation is proper because we have also recommended that ILECs not qualifying as rural telephone companies should receive high cost universal service support based on a proxy model for costs, including loop costs. Because the proxy model includes the total unseparated loop costs, nonrural ILECs would receive double compensation if they also received frozen LTS payments.  X -x'296.` ` Support Levels for Competitive Carriers. We recommend that the Commission make frozen support payments portable. A CLEC should be allowed to receive support payments to the extent that it is able to capture subscribers formerly served by carriers eligible for frozen support payments or to add new customers in the ILEC's study area. Because we have recommended that frozen support payments be computed on the basis of working loops, ILECs will, under our recommendation, automatically lose frozen support payments for loops serving subscribers lost to a competitor. We find that competition would best be served if the frozen support payment attributable to that line were paid instead to the CLEC that won the subscriber. Likewise, a CLEC should receive support for new customers that it serves in the ILECs study area. In order to avoid creating a competitive disadvantage for alternative facilitiesbased LECs, we recommend that frozen support payments shift to the CLEC  X-irrespective of whether the CLEC actually uses the ILEC's loop to serve the subscriber.[" xPQ-#c PE37 P## c PE37 P#Ѝ The CLEC might use the ILEC's loop to serve the customer by obtaining access to that loop through  zP-unbundling or resale. See 47 U.S.C.  251. See also Local Competition Order.[ Since rural ILECs have the option at any time to convert their support basis to a proxy methodology, we find that a CLEC should also have the opportunity to choose proxybased support when it enters a rural ILEC's study area.  Xe-x(297.` ` We conclude that using the rural ILECs' embedded costs to calculate universal service support for all eligible telecommunications carriers serving customers within that rural LEC's study area will be the easiest way to administer the support mechanism. Besides using a proxy or embedded costs system, the alternative for calculating support levels for such CLECs consists of requiring the CLECs to submit cost studies. Compelling a CLEC to use a proxy methodology without requiring the ILEC's support to be calculated in the same manner, however, could place either the ILEC or the CLEC at a competitive disadvantage. Also, requiring CLECs to submit cost studies would be problematic because CLECs are not required to follow Commission accounting and jurisdictional separations rules and thus would be unlikely to produce information by which a meaningful comparison could be made. We thus"""*&&dd!" disagree with Alaska Tel.'s claim that providing support to CLECs based on the incumbents' embedded costs would violate Section 254(e). CLECs, as well as ILECs, will be expected to adhere to Section 254(e) which provides that "[a] carrier that receives such support shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended." We also disagree with the Minnesota Indep. Coalition's claim that basing support to CLECs on the incumbents' embedded costs may compensate the CLEC in excess of its costs. Because CLECs must provide service to and advertise its service throughout the entire study area, consistent with section 254(e), the CLEC cannot "cream skim" or only serve low cost areas. If the CLEC can serve the entire study area at a much lower cost than the incumbent, this may be an indication of a less than efficient operation of the ILEC. Because support would be provided on a per line basis, if a customer chooses to receive service from a CLEC rather than an ILEC, only the CLEC would receive the support.  X -x)298.` ` Alaska and Insular areas. We propose that rural carriers in Alaska and in insular areas not be required to shift to a support system in which support levels are calculated based on a proxy model at this time. Many commenters explain why rural carriers in Alaska and insular areas face circumstances unlike those encountered by other rural carriers  Xy-in the continental United States.)y" {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Alaska PUC cost model comments at 3; Alaska Tel. comments at 5; Matanuska Tel. Ass'n  yO-comments at 23.#Xj\  P6G;ynXP#) For example, the extreme remoteness of many communities in Alaska and the unique climatological problems Alaskan carriers encounter, such as permafrost, limit the period in which carriers can construct and perform maintenance on their facilities, and thus make the cost of providing service in those areas different than in  X-other rural areas."" {O-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# See Alaska PUC, Public Hearing, Aug. 22, 1996.#Xj\  P6G;ynXP# In addition, the proxy models did not originally include Alaska and insular areas, and even now only BCM2 claims to be able to consider the unique cost  X-calculations that rural carriers in Alaska and insular areas face.\B" yOT-ԍ PacTel has provided cost calculations from the CPM model for Alaska, but not for the insular areas other  {O-than Hawaii. See letter from Alan Ciamporcero, Vice President, Pacific Telesis, to William F. Caton, Acting Secretary, FCC (dated Oct. 17, 1996). MCI has provided estimates of the universal service support that would be required for Alaska, Hawaii, Puerto Rico, Guam, and the Mariana Islands. MCI notes, however, that the cost per line was approximated by taking the weighted average for the RBOCs in the Hatfield model, and are not specific to those areas. Consequently, according to MCI, the estimates for these areas are only "ballpark estimates." Letter from Kimberly M. Kirby, Senior Manager, FCC Affairs, MCI, to William F. Caton, Acting Secretary, FCC (dated Oct. 25, 1996).\ Therefore, while we believe that proxy models may provide an appropriate determination of costs on which to base high cost support, we are less certain that they may do so for rural carriers in Alaska and insular areas. Consequently, we recommend that rural carriers serving Alaska and insular areas should be able to continue to use embedded costs to determine their costs of offering universal service. We further recommend that this system for rural carriers in Alaska and"| *&&dd" insular areas be revisited in the future to determine whether changes in proxy models allow them to be utilized effectively in Alaska and insular areas.  X-x C. Determining the Level of Support Using a Benchmark  X-x*299.` ` We recommend that the Commission establish a benchmark to calculate the support that eligible telecommunications providers will receive when a proxy model is used to calculate the costs of providing services designated for support from universal service mechanisms. We believe it is desirable that the benchmark be based on the amount the carrier would expect to recover from other services to cover the cost of providing supported services in rural, insular, and high cost areas, but final determination of the methodology for selecting the benchmark must also consider the revenue base for universal service contributions. Those eligible telecommunications providers for which the cost of providing supported services exceeds the benchmark would be permitted to receive universal service support.  X-x` ` 1. Background  Xb-x+300.` ` Under the Commission's existing high cost support assistance rules,<b" yO-ԍ 47 C.F.R. Part 36.< LECs with unseparated loop costs greater than 115 percent of the nationwide average loop cost may  X4-allocate an additional share of their local loop costs to the interstate jurisdiction.@4X" yO=-ԍ 47 C.F.R.  36.631.@ The threshold amount equal to 115 percent of nationwide average loop costs operates like a benchmark with the main difference being carriers receive support under the current system if their costs exceed the threshold, whereas under a proxy model approach, the level of universal service support is determined by the difference between forwardlooking costs and the benchmark.  X-x,301.` ` The NPRM also requested comment on how to ensure that any new universal service support mechanism is simple to administer, technologyneutral, and designed to identify the minimum subsidy required to achieve the statutory goal of affordable and  XN-reasonably comparable rates throughout the nation.;N" yO -ԍ NPRM at para. 27.; The NPRM also sought comment on the relationship between affordability and the benchmark that would be one component of a proxy model approach to calculating support for eligible telecommunications carriers serving rural, high cost or insular areas. In its Public Notice, the Commission's Common Carrier  X-Bureau asked, inter alia, for comment on the advantages and disadvantages of using a specific national benchmark rate for services designated for support with a proxy model to calculate"x*&&dd" high cost support as the standard for determining whether core service rates meet the  X-"affordability" requirement of section 254(i).E" yOb-ԍ Public Notice, question 3. E  X-x` ` 2. Comments  X-x-302.` ` Nationwide Benchmark Based on Affordability. Several parties advocate the establishment of an "affordability benchmark" that would also be used to calculate high cost  X_-support.m_X" {Oh -ԍ See, e.g., USTA comments at 1416; MCI further comments at 2.m Many of these commenters support the creation of a federal benchmark that would  XH-set the maximum rate an average residential subscriber would pay for local serviceDH" yO -ԍ Time Warner comments at 7.D and the  X1-level above which a carrier can seek universal service support.1z" yO\-ԍ Ameritech comments at 10; PacTel comments at 20; Sprint comments at 9; USTA comments at 1415; U S West comments at 8; NCTA further comments at 2. For example, GTE proposes a plan wherein an initial threshold level that is equal to the maximum desired rate for core  X -services triggers the availability of funding for core services.? " yO-ԍ GTE comments at 78. ? Sprint maintains that such a benchmark would enable the Commission to assure a reasonable rate to consumers regardless  X -of where they live.G b " yO-ԍ Sprint further comments at 2.G AT&T argues that a national benchmark will prevent states from attempting to obtain additional federal support by setting their own benchmarks at unduly low  X -levels.z " {OJ-ԍ AT&T further comments at 4. See also Florida PSC further comments at 56.z Some parties believe a national affordability benchmark would be easy to  X-administer. " {O-ԍ See, e.g., CompTel further comments at 67; GCI further comments at 2; MCI further comments at 2; TCI further comments at 8. BellSouth also favors the administrative simplicity of a national benchmark, but  Xy-contends that the federal benchmark should reflect average state incomes.Jy" yO -ԍ BellSouth further comments at 3.J TCI contends that business planning for carriers will become simpler and less expensive under a national  XK-benchmark than it would be under a more complex, localized system.DKn" yOj#-ԍ TCI further comments at 9.D In addition, Florida PSC maintains that because all the information necessary to derive a national affordability"4*&&dd"  X-benchmark is in the public domain, such information would be easy to obtain and use.L" yOy-ԍ Florida PSC further comments at 6.L  X-x.303.` ` Some commenters oppose basing a national benchmark on affordability because, they argue, such a benchmark would not account for local circumstances that affect  X-affordability.;ZX" {O-ԍ See, e.g., Citizens Utilities further comments at 3; ITC further comments at 2; MFS further comments at 11; NECA further comments at 3; NYNEX further comments at 12; RTC further comments at 8; Time Warner further comments at 10; Washington UTC further comments at 5.; For example, the Alaska Tel. argues that a national benchmark based on  X-affordability cannot be reflective of small companies and circumstances found in rural areas.Lz" yO -ԍ Alaska Tel. further comments at 6.L In addition, the Media Access Project contends that a single national affordability benchmark would leave services unaffordable for many lowincome customers while providing an  XH-unnecessary subsidy for wealthier consumers.FH " yO-ԍ MAP further comments at 23.F Teleport suggests that, instead of establishing a nationwide affordability benchmark, the Commission should establish guidelines for the  X -states to follow in prescribing rates within their jurisdictions.I " yOe-ԍ Teleport further comments at 3.I  X -x/304.` ` Other opponents of a national affordability benchmark include PacTel, which argues that the plain language of the statute calls into question any effort to establish a  X -national affordability standard.G * " yO-ԍ PacTel further comments at 8.G Further, PacTel contends that states might raise their local  X -rates to the national benchmark in order to qualify for federal universal service support.: " {O-ԍ Id. at 11.: PacTel maintains that, if a national affordability benchmark were to be compared to the results of a proxy model for purposes of determining how much interstate support a carrier should receive, as it believes the third question of the Public Notice implies, jurisdictional  XK-separations problems could result.~ KL " yOH -ԍ PacTel further comments at 89 (arguing that changes in jurisdictional separations, a trueup of other interstate prices, or restricting a company's high cost federal funding to current levels of federal CCL and universal service funding would be required if support was determined by comparing a national benchmark rate with proxy costs). ~ NECA contends that the establishment of a nationwide affordability benchmark might be viewed as a significant expansion of federal regulation into  X-an area traditionally regulated by state commissions.E4" yO&-ԍ NECA further comments at 4.E In addition, MFS argues that the Joint"*&&dde" Board should not attempt to incorporate an affordability benchmark into a proxy model, but,  X-instead, should base support amounts on the costs generated by the models.F" yOb-ԍ MFS further comments at 67.F Washington UTC argues that a nationwide benchmark rate might be higher than those rates produced in a  X-competitive market.OX" yO-ԍ Washington UTC further comments at 4.O  X-x0305.` ` Methodologies. Commenters propose various methods for setting an affordability benchmark, linked either to loop costs, telephone rates, or consumer income. For example, USTA advocates an interstate affordability benchmark that is equal to the  XH-nationwide average loop cost.>H" yO -ԍ USTA comments at 15.> Ameritech argues in favor of basing an affordability benchmark on statewide average rates or costs for "core" services, or a specified percentage of  X -statewide median income.C x" yOC-ԍ Ameritech comments at 10.C Citizens Utilities advocates the establishment of a national price  X -affordability standard for each universal service "basket" of similar services.L " yO-ԍ Citizens Utilities comments at 10.L Under Citizens Utilities' plan, a national price affordability standard would be based on the total unseparated cost to end users for the service, and would be set at one standard deviation above the national average for the services within a given "basket" plus the federal subscriber line  X -charge.< " {O-ԍ Id. at 1011.<  Xy-x1306.` ` Some commenters advocate basing an "affordability benchmark" on existing rates. For example, Florida PSC asserts that an initial affordability benchmark should be the nationwide average rate for residential service, which, it states, equals approximately  X4-$20.00.4* " {O-ԍ Florida PSC further comments at 4 (citing FCC publication entitled Reference Book: Rates, Price  {O-Indexes and Household Expenditures for Telephone Service). West Virginia Consumer Advocate concludes that either existing rates or an amount equal to 115 percent of the national average rates should be designated as the  X-affordability benchmark.X " yO="-ԍ West Virginia Consumer Advocate comments at 9.X OITAWITA suggests that a benchmark be developed from  X-existing rates on a nationwide or statewide basis.F" yO$-ԍ OITAWITA comments at 1516.F Similarly, Time Warner proposes establishing an affordability benchmark at the highest rate currently being charged by the"*&&dd&"  X-ILEC, on a local basis." {Oy-ԍ Time Warner comments at 7. See also, Time Warner further comments at 10 (opposing the establishment of a nationwide affordability benchmark). Under Time Warner's plan, service would be deemed affordable if the price is set at or below the highest rate level applicable for any exchange within a given jurisdiction for which residential penetration is within five percentage points of the  X-jurisdictionwide average.D"" yO-ԍ Time Warner comments at 7.D Sprint supports creating a benchmark based on the national  X-average for basic residential telecommunications service in urban areas.f\" yO -ԍ Sprint comments at 4, 9 (arguing that the urban rate may be determined by considering the  {O -Commission's residential service prices in Trends in Telephone Service or the service prices collected by Balker  {O -and published by NARUC in Exchange Service Telephone Rates). f Siskiyou argues  X-that any affordability benchmark for rural areas should be based on urban rates.G" yO-ԍ Siskiyou reply comments at 2.G AT&T favors a nationwide affordability benchmark based on the weighted average of current local  X_-rates for Tier 1 territories, plus the SLC.o_f " yOv-ԍ AT&T comments at 1617 (also arguing in favor of increasing the SLC).o  X1-x2307. ` ` RevenueBased Benchmark. Some parties suggest that the benchmark be based on the revenuesperline earned by the carrier. AARP argues that all sources of revenue should be considered in determining how to establish the amount a carrier may receive from  X -the universal service support fund.> " yO-ԍ AARP comments at 19.> AARP states that carriers generate revenues from a variety of services, such as CLASS services, and that, since those services use the loop, they should help cover its costs. Therefore, AARP asserts that the revenues from all services that use the loop should be included when determining whether carriers in high cost areas need  X-support to maintain the loop.= " {O-ԍ Id. at 1920.= Ad Hoc Telecom Users also contends that total revenues  Xy-must be considered in determining the amount of support a carrier should receive.Oy" yOB-ԍ Ad Hoc Telecom. Users comments at 13.O Ad Hoc Telecom Users suggests that the Commission look at yellow pages revenues, as well as the revenues from the entire package of service purchased by residential customers in connection  X4-with the purchase of the dialtone line.:4" {O#-ԍ Id. at 17.:  X-x3308.` ` Other. Maine PUC maintains that proxy models are engineering models that":*&&ddd"  X-estimate costs, but do not use rates as an input nor predict rates as an output.J" yOy-ԍ Maine PUC further comments at 4.J Maine PUC recommends that the Commission base universal service support on the costs of providing  X-universal service support, not upon rates.9X" {O-ԍ  Id. at 4.9 NYNEX states that high cost support should be provided through the use of a benchmark level. It states that the Commission could decide, for instance, to use a number of levels of support based on the cost of providing service in a CBG. For example, carriers could be given $10.00 per month in support for CBGs that have total monthly cost of $60.00 to $70.00, $15.00 per month for CBGs that have costs of $70.00  X_-to $80.00, and so on.?_" yO -ԍ NYNEX comments at 14.? U S West suggests the establishment of a Federal Funding Benchmark (FFB), and recommends that FFB be set at $30.00 per month since that would result in a fund of approximately $5 billion according to the original BCM with the ARMIS  X -expense factor.B z" yOE-ԍ U S West comments at 12.B In addition, several parties argue that, regardless of whether an affordability benchmark is established, current amounts of high cost support must be retained to ensure  X -affordable rates in rural areas. " {O-ԍ See, e.g., NECA comments at 1112; New Hope Tel. comments at 1; Ragland Tel. Co. comments at 1; SDITC reply comments at 45; Minnesota Indep. Coalition further comments at 67.  X -x` ` 3. Discussion  X-x4309.` ` We believe that it is desirable for the Commission to set a nationwide benchmark to use in calculating the amount of support eligible telecommunications providers will receive. This is consistent with comments filed by several parties. Final determination of this issue, however, must also take into consideration the contribution base for the federal universal service mechanisms. We recommend that the benchmark the Commission adopts should be easy to administer and should be set to minimize the probability that residential rates would increase while the new support mechanisms are being implemented. The carrier's draw from the federal universal service support mechanism for serving a customer would be based on the difference between the costs of serving a subscriber calculated using a proxy model and the benchmark. A carrier could draw from the fund for providing supported services to a subscriber only if the cost of serving the subscriber, as calculated by a proxy model, exceeds the benchmark.  Xe-x5310.` ` There are essentially three approaches to setting such a nationwide benchmark to be used with the proxy model for calculating support. In setting a benchmark, the Commission could use average revenues per line, average rates, or relative cost. We"7d *&&dd" recommend that the Commission adopt a benchmark based on the nationwide average revenueperline. We agree with those commenters who argue that revenues from local exchange and access services should be considered in determining support payments. They argue effectively that revenues from discretionary services are tied to the purchase of  X-supported services." {O-ԍ AARP comments at 1920; Ad Hoc Telecom. Users comments at 17; CPI ex parte at 6 (dated Oct. 4, 1996) Revenuesperline are the sum of the revenue generated by local,  X-discretionary,"" yO` -ԍ Discretionary services include services that are added on to basic local service, e.g., call waiting, call forwarding or caller ID. access services and others as found appropriate divided by the number of loops served. In determining the level of the benchmark, we must be cognizant of the potential effect from competition on these anticipated revenues. In particular, competition could drive the rates for local, discretionary and exchange access services towards incremental cost, thereby reducing the revenues per line; alternatively, it could spur carriers to offer new services that could increase their revenues. We therefore also recommend that the Commission review the benchmark on a periodic basis, and consider the need to make appropriate adjustments.  X -x6311.` ` We believe that setting the benchmark at the nationwide average revenueperline is desirable because that average reflects a reasonable expectation of the revenues that a telecommunications carrier would be reasonably expected to offset its cost, as estimated in the proxy model. A revenue benchmark should be based on local, access, and other telecommunications revenues. The cost estimated by the proxy models includes the cost of  XK-the facilities used to provide those services.Kz" yOv-ԍ Letter from Glenn Brown, U S West, to William F. Caton, Acting Secretary, FCC (dated Sept. 4, 1996). Letter from Richard N. Clarke, AT&T, to William F. Caton, Acting Secretary, FCC (dated Sept. 10, 1996). For example, the total forwardlooking cost of the loop is included in the costs estimated by the proxy models rather than assigned to the various services that use the loop. The proposed proxy models' switch costs include the cost of the software that allows the switch not only to process a local call but also to provide the entire array of discretionary services. But other costs are not included in the proposed proxy models, such as the cost of tandem switches used to provide interexchange toll service or other costs of a toll network, and thus revenue from toll services should not be included in the benchmark. A revenueperline benchmark, therefore, would be consistent with the cost estimation process used to determine the cost of service in high cost support areas.  Xe-x7312.` ` We find that it is advisable to construct two benchmarks, one for residential service and a second for single line business service, since we are recommending that primary residential and single business lines be supported. The residential benchmark, if ultimately adopted by the Commission, should be set equal to the sum of the revenue generated by local, discretionary, and access services provided to residential subscribers divided by the" *&&dd[" number of residential lines. The single line business benchmark should be set equal to the sum of the revenue generated by local, discretionary, and access services provided to single line business subscribers divided by the number of single line business lines.  X-x8313.` ` Once the form of revenue benchmark is selected, a decision must be made as to whether the benchmark is set at the nationwide average or by some other method. Using the nationwide average revenue would encourage carriers to market and introduce new services in high cost areas. Carriers that successfully introduce and market new services will benefit from doing so, and those carriers that fail to introduce new services or who lose customers to their competitors will not receive universal service support funds to replace the foregone revenue. This decision will provide carriers the incentive to upgrade their service offerings in high cost areas, and therefore, maintain high quality service in rural areas that is comparable to the service offered in urban areas.  X -x9314.` ` We are unpersuaded by the argument of some commenters that the benchmark  X -should vary in accordance with the average household income in each state.a " yO -ԍ SWBT comments at 912; BellSouth further comments at 3.a We note that the telephone penetration rate is relatively constant across large ranges of income, except that  Xy-telephone penetration decreases significantly for lowincome households.yX" yO-ԍ Monitoring Report, CC Docket No. 87339, May 1996, Prepared by Federal and State Staff for the FederalState Joint Board in CC Docket No. 80286, Table 1.4. Therefore, we conclude that the impact of household income should be addressed through programs directed at helping lowincome households obtain and retain telephone service, rather than as part of  X4-our high cost mechanism.G4" {O-ԍ See infra section VIII.G We agree with commenters' arguments that a national benchmark would enable the Commission to assure a reasonable support level to all carriers,  X-and would be easier to administer than state or local benchmarks.B" {O-ԍ See, e.g., CompTel further comments at 67; GCI further comments at 2; MCI further comments at 2; Sprint further comments at 2; TCI further comments at 8. Final determination of this issue, however, must also take into consideration the revenue base for universal service contributions.  X-x:315.` ` We also do not support tying the benchmark to average rates for residential and single line business service because residential and single business service are only two of the services provided over the facilities for which costs are included in the proxy model cost"|*&&dd"  X-estimates." yOy-ԍ The average residential flat service rate including the SLC and excluding taxes, 911, and other surcharges is currently approximately $17.20, while the average lowest generally available rate is $10.14. Monitoring Report, CC Docket No. 87339, May 1996, Prepared by Federal and State Staff for the FederalState Joint Board in CC Docket No. 80286, Table 5.7. (The table shows average rates, including SLC and taxes and other surcharges, for 95 urban areas across the nation.) Therefore, a rate benchmark would be inconsistent with the method we are recommending for determining the cost of providing the network used to provide the supported services. The average rate benchmark ignores the revenue generated from the customer that contributes to the joint and common costs of providing both that service and those services designated for support. Setting the benchmark equal to average residential and single line business rates would allow carriers to recover revenue for some discretionary services twice, once from the customer and once from the universal service fund. We are also concerned with proposals that tie the benchmark to rates because some proposals are tied to the highest available residential rate and others are tied to the weighted average of all  X1-residential rates.1x" {OZ-ԍ See, e.g., OITAWITA comments at 1516; Time Warner comments at 7; West Virginia Consumer Advocate comments at 9; Florida PSC further comments at 4.  X -x;316. ` ` Using a national benchmark set at the average local rate will also result in a outcome that is inappropriate in conjunction with a proxy cost model. Use of such an amount will tend to produce a universal service fund that will over compensate the provider of service. Such an amount could create a large universal service fund that ultimately will be recovered from customers through higher rates, and may result in some customers having to drop off the network.  Xb-x<317.` ` We do not believe that a benchmark that is tied to average cost calculated by  XK-the proxy models should be relied on at this time.XK" yO-ԍ Ameritech comments at 10; USTA comments at 15.X In order to establish the need for support it is best to compare revenue to cost rather than to examine only the cost side of the equation. Other service revenue can offset the high cost so that residential and single business  X-rates remain affordable even in above average cost areas.b " yO-ԍ For example, rural telephone companies often have low local exchange rates, but high access revenues. We recognize, however, that in the future the use of nationwide average revenues may no longer be appropriate because of the changing nature of the telecommunications marketplace. Some carriers may package local and long distance services as part of their array of service offerings to the public in order to distinguish themselves from other providers of telecommunications services. At such time it might be necessary to reevaluate the use of a benchmark based on average nationwide revenues per line for local, discretionary, and access services. We note that the California PUC recently decided to use such a cost benchmark to determine support levels for the"e *&&dd"  X-California state universal service fund.h" {Oy-ԍ See Cal. P.U.C. R.9501020/I.9501021 (Oct. 25, 1996).h x  X-#X\  P6G;ɒP#X0Í ÍX0Í Í#Xj\  P6G;ynXP# xD. Competitive Bidding  X-x` ` 1. Background  Xv-x=318.` ` The NPRM sought comment on whether competitive bidding could be used to  X_-set the level of universal service support in rural, insular, and high cost areas.;_Z" yOj -ԍ NPRM at para. 35.; Specifically, the Commission asked whether relying on competitive bidding would be consistent with section 214(e), the provision that specifies the circumstances under which telecommunications  X -carriers are eligible to receive universal service support.3 " {O-ԍ Id.3 The NPRM sought comment on a competitive bidding system in which carriers offering all of the services supported by universal service mechanisms would bid on the level of assistance per line that they would need to provide such services. The NPRM explained that such an approach would attempt to harness competitive forces to minimize the cost of universal service. The NPRM suggested that the level of support that any eligible carrier could receive would be set by the lowest bid. To induce competitors to underbid one another, rather than merely accepting the established level of assistance, the NPRM suggested that the low bidder might receive an "incentive  Xb-bonus."@b|" {O-ԍ Id. at para. 36.@ Finally, the Commission acknowledged that the level of competition in high cost  XK-areas may not warrant using competitive bidding yet.@K" {O -ԍ Id. at para. 37.@  X-x>319.` ` In its Public Notice, the Common Carrier Bureau sought further comment about implementing a competitive bidding system. The Bureau sought comment on whether a competitive bidding plan should be altered when applied to areas in which there is little competition; what safeguards, if any, should be adopted to prevent collusion or the use of competitive bidding by large carriers to drive out small incumbents; what safeguards, if any, are needed to ensure quality of service; how to provide incentives to ensure aggressive bidding; and how to determine the appropriate geographic area for which eligible carriers bid  X|-for universal service support.=|" yO#-ԍ Public Notice at 7.= "e0 *&&dd1"Ԍ X-x` ` 2. Comments  X-x?320.` ` General comments. The commenters are divided in their views on whether to adopt a competitive bidding system. A few LECs and some industries that would potentially compete with ILECs to provide local service, such as wireless and cable companies, support  X-the use of competitive bidding." {O-ԍ See, e.g., ALTS comments at 12; AirTouch comments at 1213; Frontier comments at 9; GTE comments at 11; NCTA comments at 11; PCIA comments at 1516; Time Warner comments at 1011; Western comments  {O-at 1213; Comnet Cellular reply comments at 6. See also CSE Foundation comments at 1112; LDDS comments at 1213 (arguing that bidding cannot take place until competitors enter the market until then, the Commission should continue to rely on the ILEC's underlying costs of service); Alliance of Public Technology further comments at 12 (contending that competitive bidding can speed the development of advanced networks). Opponents of using a competitive bidding system include  Xv-most LECs and some IXCs, such as AT&T and MCI.BvD" {Ok -ԍ See, e.g., ACTA comments at 7; AlabamaMississippi Tel. Ass'n comments at 6; Alaska Tel. comments at 8; BellSouth comments, Att. 1 at 3535; GVNW comments at 13; NYNEX comments at 10 n.15; OITAWITA comments at 1415; RTC comments at 17; SWBT comments at 1617; Telec Consulting at 1112; Teleport comments at 910; United Utilities comments at 2; Fred Williamson comments at 14; NECA reply comments at 13; AT&T further comments at 36; Ameritech further comments at 37; MCI further comments at 24; MFS further comments at 44; Minnesota Indep. Coalition further comments at 1516; TCI further comments at 3132; USTA further comments at 2930; U S West further comments at 23; Western Alliance further comments at 13.  PacTel argues that competitive bidding could be used to adjust the level of universal support to any given area once the  XH-initial support level has been set using the CPM.HHN " yOG-ԍ PacTel further comments at 44.H PacTel recommends that the Commission open a further proceeding to address questions on how competitive bidding could be  X -structured fairly and appropriately.: " {O-ԍ  Id. at 44.: GSA believes that the Commission should approve the concept of competitive bidding and should leave its implementation to the individual state  X -commissions.C p" yO -ԍ GSA reply comments at 13.C The few state agencies that commented on this issue also have divergent  X -views. " {O-ԍ Compare New York CPB comments at 11 (arguing that the Commission should consider a bidding process in areas where more than one provider is willing to offer core services); Wisconsin PSC comments at 10 (contending that bidding should be considered where competition is evolving between legitimate, established and  {O!-comparable providers), with CNMI comments at 18 (maintaining that markets most in need of support are unlikely to see competition and bidding would be of no utility in uncompetitive markets); New Jersey Advocate comments at 13 (suggesting that bidding may not focus on problems requiring support).  California PUC, for example, agrees with the Commission's statement in the NPRM that market conditions may not warrant the introduction of a competitive bidding plan" |*&&dd "  X-at present.H" yOy-ԍ California PUC comments at 12.H Florida PSC, although finding merit in competitive bidding after entry has occurred, expresses concern that any bidding plan that explicitly or implicitly results in exclusion of carriers may be inconsistent with section 214(e). Florida PSC concludes that this  X-question need not be resolved now.HX" yO-ԍ Florida PSC comments at 1112.H  X-x@321.` ` Several commenters recommend that a competitive bidding system be used only for the more limited purpose of selecting carriers to serve areas that no carrier is serving or for areas that no carrier is willing to serve at the subsidy level established through another  XH-mechanism.H" {O -ԍ See, e.g., California PUC comments at 1314; USTA comments at 20; AT&T further comments at 37; MCI further comments at 2122. California PUC contends that such a limited use of competitive bidding is  X1-appropriate and administratively feasible.H1B" yO$-ԍ California PUC comments at 14.H AT&T contends that unserved areas are likely to have few customers, making it economical for service to be offered by only one carrier that  X -can be selected through a bidding process.F " yO-ԍ AT&T further comments at 37.F MCI suggests that bidding be used only in "those few areas" where a carrier becomes unwilling or unable to offer service at the price  X -and universal service support level determined by the proxy model.E b " yO-ԍ MCI further comments at 21.E  X -xA322.` ` Supporters of adopting a competitive bidding system argue that it best comports  X-with the procompetitive principles of the 1996 Act because it is a marketbased approach. " {O3-ԍ See, e.g., Frontier comments at 9; GTE comments at 11 (arguing that bidding is consistent with intent of  {O-the 1996 Act to maximize reliance on market forces and minimize regulation); Western comments at 1213. See  {O-also NCTA comments at 11 (arguing that competitive bidding would give new entrants a reasonable opportunity to receive funds); CSE Foundation reply comments at 6 (maintaining that bidding would encourage competition); Comnet Cellular reply comments at 6 (contending that competitive bidding would put all prospective eligible carriers on an equal footing). Many commenters that support a competitive bidding system contend that it would reduce the  Xb-costs of universal services support.Zbp" {O"-ԍ See, e.g., ALTS comments at 12; AirTouch comments at 1213; Frontier comments at 9; GTE comments at 11; NCTA comments at 11; PCIA comments at 15; Western comments at 1213; Comnet Cellular reply comments at 6. CSE Foundation argues that, because of the importance of understanding the true costs of providing service, the appropriate level of support for high cost areas should be determined whenever possible through a process of competitive bidding"4*&&dd"  X-for a specific geographical area, possibly CBGs.K" yOy-ԍ CSE Foundation comments at 1112.K Time Warner asserts that, with an appropriately structured incentive, competitive bidding can best assure that areas are served by  X-telecommunications carriers in the most economically efficient manner possible.H X" yO-ԍ Time Warner comments at 1011.H GTE contends that competitive bidding has advantages over the use of proxy cost models. These advantages include the elimination of the need to modify cost models over time and the incorporation of nonprice considerations, such as regulatory burdens, that are not captured by  Xv-the models.= v" yO -ԍ GTE comments at 11.=  XH-xB323.` ` Some commenters supporting a competitive bidding proposal argue that only  X1-carriers willing to accept COLR obligations. 1x" yOZ-ԍ GTE defines a COLR as a carrier eligible for universal support that undertakes the obligations established by a state agency, within federal guidelines, as a condition of receipt of federal universal service support. GTE comments at 8 n.19. GTE suggests that such obligations might include a ceiling on the rate the COLR can charge, terms and conditions of service and quality standards, limits on the carrier's ability to exit, and an obligation to serve all customers in the area. GTE further comments at 4648.. should be allowed to bid to serve an area. 1( " {O -ԍ See, e.g., CSE Foundation comments at 12; GTE comments at 89; GTE further comments at 4647.  {O-See also Ameritech Ex Parte Materials Regarding Competitive Bidding Processes, July 31, 1996 at 6 (arguing that universal support must be portable only to other COLRs); GSA further comments at 1112; SWBT further comments (erratum) at ii (stating that, although it opposes use of competitive bidding system, if one is adopted, all winning bidders must be willing to be bound by all of the carrier of last resort and other obligations imposed on the incumbent LEC). GTE argues that a COLR requirement is essential to establishing a competitive bidding plan that would be consistent with the 1996 Act. It contends that a bidding plan would not be competitively neutral if one carrier, most likely the incumbent, were required to meet COLR obligations, while a new entrant would receive the same level of universal service support  X -without those same obligations.E  " yO-ԍ GTE further comments at 46.E Moreover, GTE asserts, a competitive bidding plan that does not have a COLR requirement would never be "sufficient" to preserve universal service as required by the 1996 Act. It maintains that the incumbent, subject to COLR requirements, would never be able to sustain its obligation to serve all customers in the service area in the face of entry by other carriers that could selectively serve only the customers they wished, yet  XK-receive the same level of funding.=K4" {O0$-ԍ Id. at 4647.= Finally, GTE contends that, although section 214 requires as a condition for receiving universal service support that a carrier agree to provide"4*&&ddH"  X-the core universal services to all customers in the service area,R" {Oy-ԍ See 47 U.S.C  214(e)(1) & (2).R the Commission and the states must specify the terms and conditions of that obligation. GTE maintains that the most important of these conditions is that all carriers receiving support be required to meet the  X-same obligations.IZ" yO-ԍ GTE further comments at 4748. I GSA argues that a competitive bidding system is beneficial only if it supports universal service, minimizes the level of support payments and maintains competitive neutrality which can be accomplished only if universal service support is restricted to  Xv-carriers agreeing to be COLRs.Hv" yO -ԍ GSA further comments at 1112.H  XH-xC324.` ` The commenters opposing adoption of a competitive bidding system raise various arguments. Some commenters argue that competitive bidding would degrade service  X -quality because carriers would achieve low bids by reducing quality. z" {OE-ԍ See, e.g., Ardmore Tel. comments at 45; MonCre comments at 34; NECA comments at 11; RTC comments at 17; Western Alliance comments at 67; NECA further comments at 29. Other commenters contend that a competitive bidding system would be costly, difficult to administer, and not  X -likely to be an improvement over other methods of establishing costs." " {Oq-ԍ See, e.g., BellSouth comments, Att. 1 at 3536; NYNEX comments at 10 n.15 (contending that bidding would be costly and not necessarily better than proxy system); SWBT comments at 1617 (maintaining that the costs of properly structuring a bidding process, even if could be done, could best be spent elsewhere); Teleport comments at 910 (arguing that auctions are inferior to using cost proxy models to set support levels).  Several commenters  X -contend that a competitive bidding system would be susceptible to "gaming,"T " {OD-ԍ See, e.g., SWBT comments at 17 n.29.T either by the  X -ILEC who might set artificially low bids to keep competitors out,o P " {O-ԍ See, e.g., Merit comments at 3; United Utilities comments at 2.o or by large carriers with  X -ample resources that might underbid smaller incumbents in order to drive them out. " {O:-ԍ See, e.g., OITAWITA comments at 1415; RUS comments at 5; United Utilities comments at 23. BellSouth argues that a new entrant, a major IXC for example, that would provide service primarily through resale, could enter a very low bid in order to effectively eliminate support  Xb-to the underlying facilitiesbased competitor.Nbt" yO"-ԍ BellSouth further comments at 4546.N SWBT contends that a new entrant might construct facilities only to serve the lowest cost customers and serve the remainder by resale  X4-of the ILEC's services or by use of the ILEC's network elements.F4" yO%-ԍ SWBT further comments at 36.F It argues that the new"4*&&dd" entrant would have an unfair advantage in the bidding process because, as a result of its lower facilities costs to serve a select few customers, it can underbid the ILEC that must provide  X-facilities for all remaining higher cost customers.3" {OK-ԍ Id.3  X-xD325.` ` Many rural and smaller LECs assert that setting support levels through competitive bidding would be disastrous for ILECs that have deployed significant infrastructure to serve high cost areas and that rely on the current level of support for  X_-financial viability.=Z_Z" {Oj -ԍ See, e.g., GVNW comments at 13 (arguing that bidding process might result in "death spiral" for incumbent LECs that have deployed significant infrastructure and rely on current level of support for financial viability); Montana Indep. Telecom. comments at 910 (same). = Fred Williamson argues that bidding could be unfair to ILECs that have been required by regulatory authorities to build facilities for future use and might not be able  X1-to obtain funds for those facilities if a competitive bidding system were used.O1|" yO^-ԍ Fred Williamson comments at 1314. O NECA contends that issues of confiscation could arise if ILECs are required to provide facilities or services at noncompensatory rates established by unrealistic bids submitted by new  X -entrants.I " yO-ԍ NECA further comments at 2930.I NECA also argues that competitive bidding would require "unprecedented  X -Commission involvement in intrastate issues such as local service quality and monitoring.: " {O"-ԍ Id. at 29.:  X -xE326.` ` Opponents of competitive bidding also argue that it is inconsistent with the  X-1996 Act.. " {Oo-ԍ See AlabamaMississippi Tel. Ass'n comments at 6 (arguing that bidding is of "doubtful legality"). RTC, for example, contends that, because the 1996 Act grants to the states the authority to designate carriers eligible for universal service support, the Commission does not  Xb-have the authority to compel states to use a competitive bidding process.QZb " {O-ԍ RTC comments at 17. See also United Utilities comments at 2 (supporting a federal competitive bidding scheme that has the Commission designating carriers eligible for support by awarding highcost assistance to the successful bidder usurps the role assigned to the states in section 214).Q Century contends that the Commission does not have authority to establish the size of a service area for competitive bidding purposes that would differ from the size of the service area established by  X-the state pursuant to section 214(e)(5).I " yO#-ԍ Century further comments at 28.I GVNW argues that a bidding process will likely not meet the 1996 Act's mandate for the establishment of specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service as required by"r *&&dd'"  X-sections 254(b) and 254(d).!"" {Oy-ԍ GVNW comments at 1314. See also ITC further comments at 21 (arguing that the result of any auction will not fulfill the requirement of "predictable" support); NECA further comments at 29 (contending that the levels set by bidding would likely result in insufficient support payments, in violation of section 254); RTC further comments at 26 (maintaining that bidding would not be a predictable mechanism). AT&T contends that competitive bidding is fundamentally at odds with the 1996 Act's procompetitive goals if its result is the award of exclusive rights to  X-one carrier, thus denying consumers the choice of service providers.I"" yO5-ԍ AT&T further comments at 3637.I  X-xF327.` ` Competitive bidding proposals. Among commenters offering competitive bidding proposals, GTE submitted the most comprehensive, detailed competitive bidding plan. Under GTE's proposal, the initial level of support for the incumbent would be based on the difference between the rates the incumbent COLR is allowed to charge and the "estimate of  XH-the market rate derived from a proxy cost model."E#HB" yO;-ԍ GTE further comments at 44.E Under this plan, once other carriers want to enter a given market and are willing to accept all the COLR obligations imposed on the incumbent LEC, a competitive bidding process would replace the proxybased system used to establish universal service support levels in that market. Competitors that wish to become  X -COLRs in a given area would submit a notice of intent to bid to the state commission.:$ " {Oo-ԍ  Id. at 44.: The notice would trigger for that area an auction process that GTE proposes be held at regular  X -intervals, perhaps twice a year.:% d " {O-ԍ  Id. at 44.: The form of the auction would be a sealed bid, single X -round auction.%&Z " {ON-ԍ Id. at 45. Under this form of auction, each bidder tenders a single sealed bid. Bidders would not know what others are bidding and the bidders would have only one opportunity to submit a bid for an area. GTE further comments, Att. 1 at 2122.% The auction process would be administered by the states subject to Federal  X-guidelines.C'" yOY-ԍ GTE reply comments at 19.C GTE proposes that an entrant could nominate a set of CBGs as the area it  Xy-wishes to serve.H(y" yO -ԍ GTE further comments at 5455.H Those companies making nominations would be required to establish their  Xb-qualifications to satisfy the COLR requirement.M)b8" yOK#-ԍ GTE further comments, Att. 1 at 18.M Subject to penalties, bidders would be  XK-permitted to withdraw winning bids.M*K" yO%-ԍ GTE further comments, Att. 1 at 19.M"KX**&&dd"Ԍ X-ԙxG328.` ` GTE proposes that, initially, the Commission or the states would establish a maximum support rate for the area to be auctioned based on a multiple of the predicted cost  X-under an adopted proxy cost model.M+" yOK-ԍ GTE further comments, Att. 1 at 17.M In order to induce aggressive and low bidding, only those carriers that bid within a specified range of the lowest bidder would be eligible to  X-receive support.@,X" yO-ԍ GTE comments at 1112.@ The support levels would be the same for each of the carriers in this  X-range and would be set equal to the highest accepted bid in that range.M-" yO& -ԍ GTE further comments, Att. 1 at 4. M If the auction results in a new COLR for the area, either in addition to the incumbent or in place of the incumbent, the support levels and obligations for that area would be frozen for three years. No new entrants could receive universal support during this time, although they could enter and provide service without such support. After the threeyear period, the area could be bid  X -upon again.M. x" yOC-ԍ GTE further comments, Att. 1 at 18.M  X -xH329.` ` MCI contends that GTE's proposal will reduce both actual and potential competition because subsidies would not be available to carriers that lose the auction or do  X -not bid./ " yOw-ԍ Letter from Kimberly M. Kirby, Senior Manager of FCC Affairs for MCI, to William F. Caton, Secretary, FCC, October 25, 1996. It also argues that the proposal hampers the ability of carriers to enter multiple markets and thus recognize potential cost synergies and interferes with their ability to implement their entry strategies. This could occur, states MCI, if a bidder is among the winners for some areas, but not in others, that the carrier deems important to its entry strategy. MCI contends that GTE's solution to this problem allowing bidders to withdraw bids if the failure to win in one or more areas interferes with the entrant's global entry strategy would not be effective. MCI also argues that, by forcing new entrants to participate in an auction for each market it wants to enter, GTE's proposal would raise new entrants' costs and thus would create a barrier to entry. MCI also raises questions about how GTE's auction proposal would affect the rates charged for unbundled network elements. Finally, MCI asserts that, as "in any regulatory regime that prohibits entry," regulators would have to monitor carriers to ensure a specified level of performance. MCI asks what remedies regulators would have if the carrier fails to adequately perform if other carriers do not have access to universal service support for that market. MCI concludes that, if all firms have  X|-access to such support, the need to monitor performance would be substantially reduced.0|` " yO$-ԍ Letter from Kimberly M. Kirby, Senior Manager of FCC Affairs for MCI, to William F. Caton, Secretary, FCC, October 25, 1996."| 0*&&dd2"Ԍx  X-xI330.` ` A few other commenters offered general proposals or suggestions on how to structure a competitive bidding process. CSE Foundation, while generally supportive of the  X-competitive system initially outlined in GTE's comments,1" yO4-ԍ GTE's proposal underwent modifications after filing the initial comments upon which CSE Foundation's analysis is based. identified certain potential problems with GTE's proposal and suggested possible solutions. It argues that basing bids on small areas like CBGs, as GTE proposes, might prevent carriers from enjoying the economies of scale or scope that could be obtained from bidding on larger areas. To assist carriers in bidding for larger areas, CSE Foundation suggests an open, multipleround auction that would allow bidders to gain information about the costs of providing services to different areas as  X1-the carrier learns what other carriers have bid on those areas.O21 " yO -ԍ CSE Foundation reply comments at 89.O It also recognizes that incentives must be developed to encourage low cost providers to bid aggressively. CSE Foundation asserts that GTE's proposal to provide universal support payments only to bidders within a specified range of the low bid could provide such an incentive, but may be  X -problematic if it restricts entry.:3 " {O6-ԍ  Id. at 11.: Alternatively, CSE Foundation suggests that higher bidders  X -obtain reduced universal service support.4  B" yO-ԍ CSE Foundation suggests reducing the subsidy for higher bidders by an amount equal to the difference between their submission and the lowest bid. Thus, if the lowest bid is for $30.00 in support, then eligible providers bidding $40.00 would receive $10.00 less than the winner's amount of support, for total persubscriber support of $20.00 ($30.00 minus $10.00). CSE Foundation reply comments at 11.  Finally, because the need to finance an investment over many years is particularly important when largescale, capitalintensive projects are involved, CSE Foundation argues that it is important that the universal service support be guaranteed over some period of time, perhaps five years. It expresses concern, however, over GTE's proposal to exclude from support any new provider during the period of time the support level is guaranteed. As a solution, CSE Foundation tentatively suggests that  X4-the right to receive support for a particular market be made transferable.5 4* " yO-ԍ CSE Foundation reply comments at 1214. Under its proposal, a recipient (or multiple recipients) would still receive a set subsidy for each subscriber it serves. If an alternative carrier without such a subsidy discovers a lowercost means to provide the same service, the alternative carrier could buy the subsidy rights from any currently eligible provider. CSE Foundation reply comments at 1314.  X-xJ331.` ` Time Warner proposes that the ILEC or any other certificated LEC could  X-submit bids on areas identified by a proxy cost model as high cost areas.H6" yO$-ԍ Time Warner comments at 911. H Time Warner notes that the 1996 Act appears to preclude using an auction to award exclusive rights to"6*&&dd" receive universal support for serving a high cost area. Therefore, an incentive to encourage low bids other than exclusive rights must be designed. Time Warner proposes an incentive bonus structure in which the winning (lowest) bidder would receive 100 percent high cost  X-support while all other bidders would receive a smaller percentage.*7" {O4-ԍ Id. at 11. See also TCE further comments at 3 (stating that an incentive payment to the lowest bidder could be considered but would add cost and complexity to the bidding scheme). Time Warner argues that its bonus approach could be enhanced by combining a percentagebased penalty for LECs with nonwinning bids with a variable penalty, based on the difference between the low bid and the other LEC's high bid. Time Warner offers this example: Assume a contest in which the low bid, by Carrier A, is $10.00, and the two other participants, Carriers B and C, bid $12.00 and $15.00, respectively. As a starting point, Carriers B and C should receive no more than 80 percent of the winning (low) support amount. Then, in addition, there should be an incremental discount to that support, based on how much the bids by Carriers B and C exceeded the low bid (i.e., some portion of the $3.00 and $5.00 dollar differential between their bids and Carrier A's $10.00 bid). Time Warner further comments at 42.* Time Warner also contends that a competitive system cannot work unless all participants have equal access to relevant information. Time Warner thus proposes to require ILECs to disclose fully  Xv-information about the market, including costs and revenues.M8vb " yO-ԍ Time Warner further comments at 42.M Finally, Time Warner recommends periodic rebidding of areas to ensure support levels reflect current costs and  XH-competitive conditions.=9H " {O-ԍ Id. at 4243.= x  X -xK332.` ` Century opposes a bonus incentive plan. It argues that a winner's premium to induce low bidding would conflict with the 1996 Act's requirements for high cost compensation that is sufficient and that does not allocate an excessive share of costs to  X -universal service.r: " {O -ԍ Century further comments at 26 (citing 47 U.S.C.  254(e), (k).r Century also contends that a winner's premium would be shifted to ratepayers, would give the winning bidder an unwarranted competitive advantage, and would ensure that losing bidders would not recover the amount they had bid as necessary and  X-sufficient to provide universal service.I;" yOW-ԍ Century further comments at 26.I  Xb-xL333.` ` MCI proposes a bidding system only for those few areas that are not served or  XK-areas where a carrier becomes unwilling to serve at the established universal support level.Y<K" yO"-ԍ MCI comments at 1819; MCI reply comments at 2.Y MCI suggests that the Commission and the state should together hold the auction that will"46<*&&ddH"  X-determine the level of support available in the area.@=" yOy-ԍ MCI comments at 1819.@ The state would certify the carriers eligible to participate in the auction, and the eligible carriers would bid the amount of support  X-they require to serve the area.:>X" {O-ԍ Id. at 19.: Any carrier willing to provide service in that area would then be eligible to receive support at the level submitted by the lowest bidder. If the incumbent was not the winning (low) bidder, it would have to make its network available for  X-resale at net book value to the winning bidder.H?" yO( -ԍ MCI further comments at 2122.H  X_-xM334.` ` Other commenters addressed, in general, the question of how to provide incentives for carriers to submit low bids. CFA proposes that the lowest bidder should be the  X1-only carrier permitted to obtain universal support in the area.E@1z" yO\-ԍ CFA further comments at 21.E MCI, on the other hand, notes that a competitive bidding system is effective in a winnertakeall situation but may be less effective in this situation because, under section 214(e), all eligible carriers would be  X -entitled to receive universal support at the level determined by the lowest bid.EA " yO-ԍ MCI further comments at 24.E NCTA contends that carriers would have sufficient incentives to offer lower bids because the total  X -level of funding will be reduced for all parties, not just the low bidder.FB " yO -ԍ NCTA further comments at 16.F NCTA also argues that the bidding system should be structured so that the total funding level would not increase  X-over that of today.:C* " {Ok-ԍ Id. at 16.:  Xb-xN335.` ` Areas without competition. Some commenters argue that competitive bidding  XK-should not be allowed, or would not be feasible, in areas with no competition.DZK " {O-ԍ See, e.g., Century further comments at 2526; GSA further comments at 11; MCI further comments at 2324; NCTA further comments at 16; RTC further comments at 26 (arguing that bidding in a noncompetitive area violates the 1996 Act). Others propose alternative ways to set the level of support in these circumstances: use the level set  X-by the adopted proxy model;E" {O#-ԍ  See, e.g., CFA further comments at 21; GTE further comments at 45; Time Warner further comments at 41. use the level set by competitive bidding in comparable"8E*&&dde"  X-areas;`F" {Oy-ԍ See, e.g., Bell Atlantic further comments at 14.` use some combination of these;[GZ" {O -ԍ See, e.g., AirTouch further comments at 24.[ or use the level bid by the  X-sole bidder.;HZ" {O-ԍ See, e.g., Ameritech further comments at 3738. Ameritech further argues that if only one company bids, it should be the sole recipient of universal support if it is the only carrier taking on carrier of last resort obligations. Ameritech further comments at 3738.;  X-xO336.` ` Safeguards. The Public Notice asked what safeguards, if any, should be adopted to ensure that large carriers do not submit excessively low bids as a way to drive out  X-competition.=I" yOL -ԍ Public Notice at 7.= Most commenters responding to this question argue that specific safeguards  Xv-are unnecessary.Jzv" {O-ԍ See, e.g., AirTouch further comments at 25; Alliance for Public Technology further comments at 13 (contending that existing antitrust laws are sufficient); Ameritech further comments at 38; Bell Atlantic further comments at 14 (arguing that there is no reason to believe large companies would bid so low as to lose money and, if they submit compensatory bids, smaller companies, which may have lower costs, should be able to compete); MCI further comments at 2425; NCTA further comments at 16 (suggesting that, if there is a concern about predatory pricing in a particular case, the courts and regulatory agencies should be available to address such concerns); Time Warner further comments at 44. Some commenters argue that there would be no incentive for large  X_-companies to submit excessively low bids.K_" {O-ԍ See, e.g., Ameritech further comments at 3839; Time Warner further comments at 44. AirTouch asserts that predation would be  XH-unlikely,MLHr" yOk-ԍ AirTouch further comments at 2526.M and it argues that any form of a price floor on bidding would undermine the central goal of a bidding process to reduce support levels by encouraging companies to bid  X -down to the underlying service costs and to engage in innovation.:M " {O-ԍ Id. at 25.: Time Warner agrees, arguing that, if a company is willing to serve an area with little or no support, support levels should not be increased for the purpose of attracting other providers who are not willing to  X -provide service without higher subsidies.MN " yO!-ԍ Time Warner further comments at 44.M AirTouch and others contend that one potential problem might involve winning bidders that underbid and then try to renegotiate their support levels upward after the auction closes. To address this problem, they propose precluding  X-winning bidders from renegotiating their bids.iO$" yOe%-ԍ AirTouch further comments at 2526; CFA further comments at 21.i ITC recommends comparing bid costs with"O*&&dd" either actual costs or a proxy and investigating significant deviations as a way to expose  X-predatory conduct.EP" yOb-ԍ ITC further comments at 22.E Finally, Century asserts that this question exposes a problem with competitive bidding not limited to circumstances of predation, namely that high cost compensation based on the winning (low) bidder's cost is likely to eliminate the ability of the losing companies to provide universal service and to leave their actuallyincurred costs  X-uncompensated.LQX" yO-ԍ Century further comments at 2627.L The result, argues Century, would be to reduce competition and defeat the 1996 Act's intent to make universal service support available to multiple carriers in large and  X_-urban LEC service areas.:R_" {O -ԍ Id. at 27.:  X1-xP337.` ` The Bureau asked what safeguards should be adopted to ensure service quality  X -under a competitive bidding system.=S z" yOE-ԍ Public Notice at 7.= Many commenters addressing this question suggest that quality standards should be part of the bidding process so that bidders would know in  X -advance what level of quality was required and then bid accordingly.T " {O-ԍ See, e.g., AirTouch further comments at 26; Ameritech further comments at 39; CFA further comments at 22; MCI further comments at 25. Additionally, some commenters suggest that carriers be penalized, perhaps by a reduction in support, for failure  X -to meet quality standards.U d " {O-ԍ See, e.g., Bell Atlantic further comments at 14; CFA further comments at 22; ITC further comments at 22; MCI further comments at 25; Time Warner further comments at 45. AT&T contends that, in those limited circumstances in which it would support competitive bidding, state commissions should verify the credentials and  X-capabilities of bidding carriers.FV " yO-ԍ AT&T further comments at 39.F GTE asserts that the requirement in its bidding proposal that carriers comply with state imposed COLR obligations as a condition of obtaining support  Xb-obviates the need for additional measures.HWbN " yOa-ԍ GTE further comments at 5354.H GTE further argues that quality of service concerns attributable to insufficient support levels are more likely to arise because of errors in cost models than when the support level is set by the carriers themselves through the bidding  X-process.:X" {O#-ԍ Id. at 54.: ITC maintains that standards, which must be applied to all carriers, should cover installation speed, repair response, transmission quality, dialtone availability, emergency"pX*&&ddd"  X-response, billing quality, and call completions (in areas where concentrators are used).EY" yOy-ԍ ITC further comments at 22.E Time Warner proposes that, as a condition of being certified as a winning bidder, the carrier  X-must agree to meet the prevailing state quality of service standards.ZX" {O-ԍ Time Warner further comments at 45.  See also NCTA further comments at 16 (arguing that state quality of service standards should be applied to a system of competitive bidding). TCI argues that competition should reduce incentives to lower quality, but any lingering concerns can be  X-diminished by relying on the states to establish safeguards.H[" yO -ԍ TCI further comments at 3334.H Finally, some commenters reiterate their concern that a competitive bidding system would invariably result in quality  Xv-degradation.\vB" {Oi -ԍ See, e.g., RTC further comments at 2829; RUS further comments at 52.  See also Western Alliance further comments at 14.  XH-xQ338.` ` Potential collusion. The Bureau also asked how collusion could be avoided in  X1-a competitive bidding system.=]1" yO~-ԍ Public Notice at 7.= Some commenters suggest that the Commission rely on its experience in operating the spectrum auctions to devise similar protections against collusion  X -for universal service support auctions.^$ , " {O-ԍ See, e.g., Bell Atlantic further comments at 14; NCTA further comments at 16; TCI further comments at  {O-34; Western Alliance further comments at 14. See also MCI further comments at 25 (proposing that, as with PCS auctions, Commission must adopt rules against collusion and advise all bidders that the Commission and the Department of Justice will enforce those rules). Time Warner agrees that the Commission must impose stringent penalties for collusion and that the Commission should rely on its experience  X -with other auctions to formulate fair and efficient bidding rules.M_ " yO-ԍ Time Warner further comments at 46.M Consumer Federation of America argues that collusion would violate criminal statutes and should be fully  X -prosecuted.F` " yO-ԍ CFA further comments at 22. F GTE asserts that its proposed sealedbid, singleround auction would minimize collusion because, under such a system, there would be powerful incentives for carriers to  Xy-defect from any prebid collusive agreement.Say8" yOb"-ԍ GTE further comments at 54, Att. 1 at 22.S TCI contends that the Commission set the  Xb-bonus for the winning (low) bidder at a level sufficient for parties to forgo collusion.Ebb" yO$-ԍ TCI further comments at 34.E Ameritech contends that there is little incentive to collude. It asserts that companies would"KXb*&&dd" not submit predatorily low bids because, if successful, the carrier would have to provide service below cost, a difficult tactic to sustain, even if the company could engage in crosssubsidization. Ameritech further argues that companies have no incentive to collude to increase support levels because all companies must contribute to universal service support  X-mechanisms and would seek to keep the overall contribution low.Kc" yO-ԍ Ameritech further comments at 39.K  Xv-xR339.` ` Auction structure. The Public Notice sought comment on whether the structure  X_-of the auction should differ if there are fewer bidders and, if so, how.=d_X" yOh -ԍ Public Notice at 7.= Most commenters that address this specific point argue that there is no reason to change the structure of the  X1-auction if there are only a few bidders.%eZ1" {O -ԍ See, e.g., Ameritech further comments at 54; Bell Atlantic further comments at 14; ITC further comments at 23; NCTA further comments at 17; Time Warner further comments at 47. Time Warner assumes that the normal case will involve few bidders. % GTE contends that its auction proposal will work even if there are only two qualified bidders and, if only one qualified bid is received, the  X -auction would be cancelled.If " yO-ԍ GTE further comments at 45, 54.I Several commenters, however, do recommend changing the structure of the auction and offer some general suggestions. MCI asserts that the structure of the auction should be geared to the anticipated number of bidders, as is the case in the PCS auctions. Thus, for example, the greater the number of bidders, the fewer rounds there should  X -be in a day, as bidders need more time to assess the information in the bids.Eg " yO-ԍ MCI further comments at 25.E TCI argues that the risk of collusion increases as the number of bidders decreases and, to mitigate this risk, the Commission may need to increase the bonus payment to the winning bidder if there  Xb-are only a few bidders.Ehb* " yO=-ԍ TCI further comments at 34.E Western Alliance asserts that auctions should not be held unless  XK-there is large of pool of bidders, perhaps 20, with at least five bidding in each round.RiK " yO-ԍ Western Alliance further comments at 14.R Finally, AT&T contends that the fact that there might be few bidders or only one bidder in a  X-serving area is further indication that a bidding system is inefficient.FjJ " yO"-ԍ AT&T further comments at 39.F  X-xS340.` ` Service area. The Bureau also sought comment on how it should determine the size of the areas for which eligible carriers bid for universal service support and what would be the optimal basis for determining the size of those areas, in order to avoid giving an unfair"j*&&dd"  X-advantage to either the incumbent LEC or competitive carriers.=k" yOy-ԍ Public Notice at 7.= Commenters support using geographic areas of different size for bidding purposes. Some argue that the optimal area on  X-which to bid should be the wire center,l"X" {O-ԍ See, e.g., Ameritech further comments at 40; NCTA further comments at 17 (proposing that, although competitive bidding should take place at the wire center level, no carrier should be required to serve an entire wire center nor would any geographic restrictions on service boundaries be appropriate); Time Warner further comments at 4849. and some suggest exchange areas,kmB" yO -ԍ Bell Atlantic further comments at 14; CFA further comments at 23.k while others  X-propose using CBGsEn" yO> -ԍ GTE further comments at 54.E or some combination.ob " yO -ԍ ITC further comments at 23. ITC proposes that a combination of a wire center and a community of interest within which the population shares common economic, social and political structures should be used as a starting point. If greater granularity is needed, ITC proposes using portions of an exchange or perhaps using a grid as proposed by PacTel, but notes that the smaller the area, the greater the administrative burdens. ITC further comments at 2324. Ameritech argues that the size of the area should be competitively neutral and bear a reasonable relationship to the way  X-telecommunications services are technically provided.Kp" yOP-ԍ Ameritech further comments at 40.K Ameritech contends that a wire center is the optimal serving area because it is the basis on which the network is engineered  X_-and costs incurred.3q_" {O-ԍ  Id.3 GTE argues that entrants should be able to nominate a set of CBGs as  XH-the area they wish to serve.HrH4" yO--ԍ GTE further comments at 5455.H It contends that the use of CBGs allows bidding to establish separate support levels that would capture differences in costs among areas. It also contends that bidding on a CBG basis will facilitate entry because the requirement to serve a small area  X -will not create an unreasonable barrier for prospective carriers of last resort.=s " {Ox-ԍ Id. at 54. = Time Warner, on the other hand, contends that only incumbents can efficiently serve areas as small as CBGs, giving incumbents an unfair advantage if that were the size of the area used for  X -bidding.Pt V" yO"-ԍ Time Warner further comments at 4849.P CFA contends that using smaller areas, such as CBGs, creates unrealistic market definitions and additional complexity because all network functionalities needed to provide telecommunications services for a CBG, transport and switching for example, should be"t*&&dd"  X-included in the bid.Eu" yOy-ԍ CFA further comments at 23.E Finally, several commenters contend that the Commission has no authority to designate service areas for competitive bidding because the 1996 Act grants that  X-authority to the states, at least for areas not served by a rural telephone company.vX" {O-ԍ See, e.g., Century further comments at 28; NECA further comments at 31; RTC further comments at 29. Some commenters reiterate their position that competitive bidding should be used only for unserved  X-areas and that the states should identify such areas.3wZ" {O? -ԍ See, e.g., AT&T further comments at 3940; MCI further comments at 2526 (proposing that bidding should be used only for areas that no carrier will serve at the level of support established through a proxy model; auction areas should be no smaller than CBGs).3  Xv-x` ` 3. Discussion  XH-xT341.` ` We recommend that the Commission not adopt any specific competitive bidding plan at this time. While the record in this proceeding persuades us that a properly structured competitive bidding system could have significant advantages over other mechanisms used to determine the level of universal service support for high cost areas, we find that the information contained in the record does not support adoption of any particular competitive bidding proposal at this time. We recommend that the Commission, together with the state commissions, continue to explore the possibility of using competitive bidding for determining the level of federal universal support.  Xy-xU342.` ` Perhaps the greatest advantage of competitive bidding is that it holds the promise of using a marketbased approach to establishing the level of universal service support for any given area. A properly designed competitive bidding system would reduce the role of regulators in determining the costs of providing universal service once an area becomes subject to bidding. The support level would reflect the bidding carriers' assessment of the costs of serving the market as well as their assessment of revenues, including current and future followon net revenues, which may well be harder for regulators to assess than costs. Such assessments would be wellsuited to capture the effect of new technologies on service costs. In addition, these assessments could reflect many more factors, such as regulatory burdens or market opportunities, than can be incorporated into a cost model. We thus concur with those commenters that argue that competitive bidding comports with the  X|-intent of the 1996 Act to rely on market forces and to minimize regulation.rx| " {O9"-ԍ See, e.g., GTE comments at 11; CSE Foundation reply comments at 6.r Moreover, as stated by one of the commenters, competitive bidding would put all prospective eligible  XN-carriers on an equal footing.NyN" yO%-ԍ Comnet Cellular reply comments at 6.N "N. y*&&dd"Ԍ X-ԙxV343.` ` Another potential advantage of a properly structured competitive bidding system is that it could reduce the amount of overall support needed for universal service. Competitive bidding should encourage more efficient carriers to submit bids that reflect their lower costs. The bids reflecting the lower costs of the more efficient carriers would be used to set the level of universal service support for the entire service area. Additionally, competitive bidding would convert the efficiency gains from new technologies or improved productivity into cost savings for universal service.  XH-xW344.` ` Whether these and other potential advantages of competitive bidding can be realized will depend, of course, on the structure of the competitive bidding process. Commenters proposed both a broad use of competitive bidding to set support levels for areas  X -subject to competitionmz " {O| -ԍ See, e.g., GTE comments at 1011; Time Warner comments at 10.m and a more limited use of competitive bidding to select carriers for areas that are currently unserved or in which no carrier, not even the incumbent, would serve  X -at the established support levels.{ Z" {O-ԍ See, e.g., California PUC comments at 1314; USTA comments at 20; AT&T further comments at 37; MCI further comments at 2122. With regard to the latter proposal, competitive bidding could be viewed as a marketbased mechanism to correct for potential errors arising from reliance on a proxy cost model to set support levels. We do not agree, however, that a carrier should be automatically allowed to withdraw service solely on the basis of how the support level is established.  XK-xX345.` ` We find that sections 254 and 214(e) and the record developed in this proceeding provide some guidance about how competitive bidding should be structured. We recommend that any competitive bidding system be competitively neutral and not favor either the incumbent or new entrants. Any carrier that meets the eligibility criteria for universal service support should be permitted to participate in the auction. Any competitive bidding proposal must be consistent with the goals and requirements of the 1996 Act, including that  X-universal service support be "specific, predictable and sufficient."J|" {O&-ԍ See 47 U.S.C.  254(d).J Any competitive bidding system adopted should minimize the ability of bidders to collude. Various commenters, for  X-example, urge the Commission to establish and enforce stiff penalties against collusion,z}F" {O -ԍ See, e.g., CFA further comments at 22; Time Warner further comments at 46.z while others suggest that the Commission rely on its experience with spectrum auctions to  Xe-devise protections against collusion.}~e" {O#-ԍ See, e.g., Bell Atlantic further comments at 14; NCTA further comments at 16.} We recommend that any final competitive system be designed to minimize the incentives to collude and that any colluding carrier be subject to stiff penalties. "7j ~*&&dd"Ԍ X-ԙxY346.` ` Various commenters contend that service quality standards should be built into  X-the competitive bidding process." {Ob-ԍ See, e.g., AirTouch further comments at 26; Ameritech further comments at 39; CFA further comments at 22; MCI further comments at 25. We conclude that the question of quality standards is not unique to competitive bidding. We have stated above that competition will give carriers the incentive to provide quality service. Moreover, we have recommended that the Commission  X-monitor service quality by relying upon service quality data collected at the state level.E"" {Ow-ԍ See supra Section IV.E To the extent that the definition of core services incorporates any standards for the provision of such services, carriers must comply with such standards in order be eligible for universal service support and to participate in any auction process.  X1-xZ347.` ` There is little support in the record for changing the structure of the bidding process in the event that there are few bidders. A few commenters, however, raise the issue  X -of how many bidders would be required to have an effective auction. " {Oh-#X\  P6G;ɒP#э See e.g., Western Alliance further comments at 14 (arguing that auctions should not be held unless there are large number of bidders). GTE contends that  X -its bidding system would be effective even with only two bidders.I " yO-ԍ GTE further comments at 45, 54.I We recommend that any final competitive bidding proposal should either specify the minimum number of bidders required for the auction to be effective, or be designed to be effective for any number of bidders. Finally, we recommend that, in determining the geographic area on which carriers would be bidding, any final proposed bidding plan use areas sized to promote competition and target universal service support efficiently.  XK-x[348.` ` We find that GTE's proposal poses serious questions that warrant further inquiry. These questions would be applicable to any proposed competitive bidding plan. For example, should only those carriers willing to accept carrier of last resort obligations in addition to those obligations contained in section 214(e) be permitted to bid, as proposed by GTE? Should all bidding carriers be eligible for universal service support? Some commenters argue that any bidding plan that excludes carriers may be inconsistent with  X-section 214(e)." {O!-ԍ See, e.g., Florida PSC comments at 1112. Florida PSC also concludes that this issue need not be resolved at this time. Finally, GTE's proposal assumes that carriers may designate the geographic areas, based on aggregating CBGs, that they wish to serve. This aspect of GTE's proposal raises the issue of whether bidders may designate areas for auction that differ from" *&&ddQ"  X-the service areas designated by the states pursuant to section 214(e)(5).Z" {Oy-ԍ See, e.g., Century further comments at 28.Z We emphasize that we have reached no conclusions and make no recommendations concerning these issues but  X-cite them because they highlight the need for further inquiry and investigation. 0 (#(#X  X-x\349.` ` We recommend that the Commission continue to investigate how to structure a  X-fair and effective competitive bidding system.Z" {O-ԍ See, e.g., PacTel further comments at 44. See also California PUC comments at 12; Florida PSC comments at 1112; GSA reply comments at 13. GTE is the only commenter to propose a detailed competitive bidding plan in this proceeding, and it amended its proposal during the course of this proceeding. Its most recent proposal was submitted as part of its response to the further questions posed by the Common Carrier Bureau's Public Notice and has not been subject to further public comment. Even this proposal was characterized by GTE as an  X -outline rather than a final, fixed proposal.L " yO-ԍ GTE further comments, Att. 1 at 1.L  X -x E. High Cost Transition  X -x` ` 1. Background  X-x]350.` ` Section 254(b) requires the Joint Board to recommend a specific timetable for  Xy-the completion of its recommended decision.CyD" yOn-ԍ 47 U.S.C.  254(a)(1).C In the NPRM, the Commission requested comment on whether there should be a transition period from the existing universal service fund to the new mechanism established in this proceeding. A transition would allow carriers that are receiving funding through the existing mechanisms an opportunity to adjust to the  X-requirements of the 1996 Act and rules adopted in this proceeding.;" yO-ԍ NPRM at para. 40.;  X-x^351.` ` The NPRM also sought comment on whether the interim cap on the growth of the existing universal service fund should be extended until the completion of this  X-proceeding.3d " {O!-ԍ Id.3 The cap was due to expire on July 1, 1996. This Joint Board issued a Recommended Decision on June 19, 1996, recommending that the cap be extended until the  X-new universal service rules adopted in this proceeding become effective. " {O:%-ԍ FederalState Joint Board on Universal Service, Recommended Decision, FCC 96J1 (rel. June 19, 1996). The Commission" *&&ddo" agreed with our recommendation, and on June 26, 1996, amended its rules to extend the cap  X-until the rules adopted in this proceeding become effective." {Ob-ԍ FederalState Board on Universal Service, Report and Order, FCC 96281 (rel. June 26, 1996).  X-x` ` 2. Comments  X-x_352.` ` Many commenters argue that there needs to be some transition period before the new universal service support mechanism takes full effect. Some commenters argue that if carriers currently receiving subsidies lose that support abruptly, then rate shock will  XH-result.HZ" {OS -ԍ See, e.g., Montana PSC comments at 3; Telec Consulting comments at 13; Washington UTC comments at 12; Wisconsin PSC reply comments at 7. Small and rural carriers are especially worried about the potential impact of any  X1-changes to the support mechanisms on their local service rates.1" {O-ԍ See OITAWITA comments at 14; Dell Tel. reply comments at 67. See also Colorado PUC comments at 8. Alaska PUC argues that any changes should be implemented for large carriers before they are applied to small  X -carriers.G " yO-ԍ Alaska PUC comments at 1617.G NARUC notes that there have been several NARUC resolutions that expressly  X -contemplate a transition period to any new universal service support mechanisms.? " yO;-ԍ NARUC comments at 11.?  X -x`353.` ` The parties have different views on how long any transition should last. The  X -Idaho PSC argues that a short transition is appropriate.C . " yO-ԍ Idaho PSC comments at 10.C GVNW, Oregon PUC, and Iowa  X-Tel. Ass'n state that a transition period should last several years.z " yO-ԍ GNVW comments at 14; Iowa Tel. Ass'n. comments at 3; Oregon PUC comments at 67.z USTA proposes that its  Xy-plan be phased in over four years.>yN " yOx-ԍ USTA comments at 18.> Montana Tel. Ass'n states that the transition period  Xb-should be at least five years.Kb" yO -ԍ Montana Tel. Ass'n comments at 8.K United Utilities suggests a ten year transition.Pbn" yO"-ԍ United Utilities reply comments at 10.P Alaska Tel. and Western Alliance argue that a transition should be long enough to allow carriers to fully  X4-recover the embedded costs of their existing facilities.k4" yO%-ԍ Western Alliance comments at 10; Alaska Tel. reply comments at 6.k CPI proposes the use of three"4*&&dd" groupings of carriers for any transition process. Large carriers, those with over 2 percent of the nation's access lines, would move to a TSLRIC approach immediately. The smallest LECs would continue to use embedded costs for one year, and then be transitioned to TSLRIC over seven years. Mediumsize carriers, those with less than 2 percent of the nations  X-access lines, would have a four year transition to a TSLRIC approach.S" {O-ԍ CPI ex parte at 56 (Oct. 4, 1996).S  Xv-xa354.` ` Several commenters disagree, however, and assert that no transition period is  X_-needed._Z" {Oj -ԍ  See, e.g., Cincinnati Bell comments at 10; CompTel reply comments at 14; WinStar reply comments at 5. MCI argues that the new support mechanisms should be instituted without delay. It claims that the reduction in subsidy burden will lead to an immediate reduction in rates to  X1-consumers.=1" yO-ԍ MCI comments at 13.= AT&T contends that there will be no significant rate shock since existing local service rates in most areas are already compensatory. In addition, AT&T argues that a long transition period, such as the four years proposed by USTA, would be inconsistent with the  X -1996 Act since it would maintain implicit subsidies of the current support mechanisms.D D" yO-ԍ AT&T reply comments at 11.D Some argue that some of the changes, but not necessarily all, should be done immediately. For example, Ameritech argues that DEM weighting should be eliminated immediately, but  X -that a transition period may be necessary for other changes.F " yO,-ԍ Ameritech comments at 1213.F  Xy-x` ` 3. Discussion  XK-xb355.` ` The Joint Board recommends that the new universal service support mechanism for rural, insular, and high cost areas that we have set out in this section of the Recommended Decision take effect beginning January 1, 1998. The current universal service support mechanisms operate on a calendar year, and January 1, 1998 will be the beginning of the first  X-calendar year after the Commission adopts rules establishing the new support mechanisms.d " yO -ԍ Under section 254(a)(2), the Commission has fifteen months from the date of enactment (on or before May 8, 1997) to implement the recommendations of this Joint Board. 47 U.S.C.  254(a)(2). Starting at that date, carriers other than rural telephone companies would begin to receive support based upon the proxy model. Rural telephone companies would not immediately use a proxy model to determine their costs, but would have their support based on the per line support those carriers received from the high cost assistance, DEM weighting, and LTS mechanisms for a twelve month period prior to 1998."| *&&ddP"Ԍ X-ԙxc356.` ` The changes that we recommend to the universal service support mechanisms may lead to changes in the support levels currently received by some carriers. We find that a short transition period will expedite achieving the requirements of the 1996 Act, with minimal adverse impact on carriers. The recommended changes to the system will likely not have an adverse impact on the nonrural carriers or require any rate restructuring because nonrural carriers generally do not receive a significant portion of their revenues from the universal service support mechanisms. Consequently, we believe it is appropriate to move nonrural carriers to a proxy model first. We agree with the commenters that argue that there should be  XH-a transition for small, rural carriers.H" {O -  Ѝ See, e.g., Alaska PUC comments at 1617; Colorado PUC comments at 8; Dell Tel. reply comments at 67. Therefore we have recommended that rural carriers continue to use embedded costs for three years after the nonrural companies begin to use proxy models. During that period, carriers would receive a payment based on the support they received from the high cost assistance, DEM weighting, and LTS mechanisms for a twelvemonth period prior to 1998. The payments to the rural carriers may vary if the numbers of lines they serve change, but the payment level per line would remain constant. At the end of that period, rural carriers will then shift to proxy models for calculating their draw from universal service funds for providing designated services to customers in rural, insular,  X-and high cost areas over three additional years."" yOc-ԍ The rural companies will have the option to voluntarily change to the proxy model system before the end of the fiveyear period. This will allow rural carriers time to adjust to the new system and to minimize any possible rate shock to their customers. In addition, due to the unusual nature of providing service in Alaska and the insular areas, we are not requiring rural companies serving those areas to transition to a proxy model, subject to later review.  X- VIII. SUPPORT FOR LOWINCOME CONSUMERS x  X-x A. Overview  X-xd357.` ` The 1996 Act states that lowincome consumers should have access to telecommunications services at rates that are just, reasonable, and affordable, and comparable  Xe-to rates charged in urban areas.Cez" yO!-ԍ 47 U.S.C.  254(b)(3).C Section 254(i) requires that rates for universal service be "just, reasonable, and affordable." Since 1985, the Commission has, pursuant to its general authority under Titles I and II of the 1934 Act, and in cooperation with state regulators and local telephone companies, administered two programs designed to increase subscribership by assisting lowincome consumers. The Commission's Lifeline Assistance program ("Lifeline")"  *&&dd[" reduces qualifying consumers' monthly charges by waiving all or part of the federal SLC and requires a matching reduction in state rates. The Lifeline Connection Assistance program ("Link Up") provides federal support to reduce qualifying consumers' initial connection charges by up to one half. Currently, the cost of both programs is recovered from IXCs with at least .05 percent of presubscribed lines. Section 254(j) provides that "[n]othing in [section 254] shall affect the collection, distribution, or administration of the Lifeline Assistance  Xv-Program provided for by the Commission."@v" yO-ԍ 47 U.S.C.  254(j).@  XH-xe358. ` ` In this section, we consider lowincome universal service support in light of the 1996 Act. Pursuant to sections 254(a), (b)(1) and (b)(3), we first discuss what telecommunications services and rules should be supported for lowincome consumers. Next, we consider the extent to which the Joint Board should recommend that the Commission modify its current programs to comply more fully with Congress's mandate to provide lowincome universal service support "in all regions of the Nation" and through explicit, competitivelyneutral support mechanisms. We therefore recommend that the Lifeline and Link Up programs be modified to make them competitively neutral and to ensure their availability to lowincome consumers in all regions of the nation.  Xb- xB. Services to be Supported for LowIncome Consumers  X4-x ` ` 1. Background  X-xf359.` ` In the NPRM, the Commission sought comment on what services should be supported for lowincome consumers, and referred these issues to the Joint Board. The Commission proposed a number of services to receive federal universal support in rural,  X-insular, and high cost areas.;X" yO-ԍ NPRM at para. 15.; The Commission also proposed that these same services be  X-supported with respect to lowincome consumers.;" yOC-ԍ NPRM at para. 50.; The services identified in the NPRM were: (1) voicegrade access to the public switched network, with the ability to place and receive calls; (2) touchtone; (3) singleparty service; (4) access to emergency services; and (5) access to operator services. The Commission also sought comment on whether additional services such as access to interexchange services and directory assistance should receive  X7-universal service support,;7x" yO`#-ԍ NPRM at para. 23.; and whether these services should be available to and supported  X -for lowincome consumers.; " yO%-ԍ NPRM at para. 50.; The Commission also sought comment on what additional" *&&dd" services, if any, meeting one or more of the criteria enumerated in section 254(c)(1), would  X-be particularly appropriate for lowincome consumers.;" yOb-ԍ NPRM at para. 50.; x  X-xg360. ` ` In the NPRM, the Commission also sought comment on whether tolllimitation  X-services and reduced service deposits should be supported for lowincome consumers.?X" yO-ԍ NPRM at para. 54, 56.? As the Commission noted in the NPRM, tolllimitation services include both toll blocking, which prevents the placement of long distance calls for which the subscribers would be charged, and tollcontrol services, which limit the toll charges subscribers can incur during a billing  XH-period.;H" yO -ԍ NPRM at para. 54.; Based on studies indicating that disconnection for nonpayment of toll charges is a significant barrier to universal service, the Commission observed that toll blocking and toll  X -limitation might significantly affect subscribership.; x" yOC-ԍ NPRM at para. 56.; The Commission also recognized the potential tension between providing consumers with the ability to receive tolllimitation services and the principle set forth in the 1996 Act that consumers should possess access to  X -"telecommunications and information services, including interexchange services."i " {O-ԍ NPRM at para. 54 n.120 (citing 47 U.S.C.  254(b)(3)).i As the  X -Commission observed in the NPRM, recent studies indicate that, i n addition to disconnection for nonpayment of toll charges, the high deposits carriers charge as a condition for reestablishing service may be more significant barriers to universal service than the cost of local  Xy-service itself.ry" {O-ԍ NPRM at para. 56 (citing Subscribership Notice at 1300306).r The NPRM noted that the Commission's Subscribership Notice suggested that LECs generally require deposits before connecting or reconnecting subscribers, which  XK-presents a formidable obstacle to initiating service for lowincome individuals.lK, " {O(-ԍ NPRM at para. 56 (citing Subscribership Notice at 1300305).l In the NPRM, the Commission sought comment on whether tolllimitation services and reduced  X-service deposits meet the criteria enumerated in section 254(c)(1).h " {O -ԍ NPRM at paras. 54, 56 (citing 47 U.S.C.  254(c)(1)).h  X-xh361.` ` In addition, the Commission noted in the NPRM that there may be several ways to advance the statutory principle set forth in section 254(b)(3) to ensure that "low X-income consumers . . . have access to . . . interexchange services."cP " {O%-ԍ NPRM at para. 55 (citing 47 U.S.C.  254(b)(3)).c In particular, the"*&&dd" Commission solicited comment on whether and how it should encourage domestic IXCs to provide optional calling plans for lowincome consumers to promote the statutory principles enumerated in section 254(b)(3). Additionally, the Commission sought comment on the  X-potential impact of such plans on subscribership to telecommunications services.:" yO4-ԍ NPRM at para 55.: x  X-xi362.` ` The Commission asked whether free access to information about telephone service for lowincome consumers should be included in the group of services receiving  X_-universal service support.`_X" {Oh -ԍ NPRM at para. 52 (citing 47 U.S.C.  254(i)).` Such free telephone access primarily would benefit measuredrate subscribers who are charged for each local call on either a perminute or percall basis. Additionally, the Commission suggested that Lifeline and Link Up customers could benefit  X -significantly from free access to information regarding those programs.; " yO-ԍ NPRM at para. 52.; x  X -xj363.` ` Because consumers' access to certain basic information regarding their telephone service may be a prerequisite to maintaining service, the NPRM also sought comment on whether, like access to the loop itself, access to telephone service information is essential to public health and safety and is otherwise consistent with the public interest,  X-convenience, and necessity.jz" {O-ԍ NPRM at para. 53 (citing 47 U.S.C.  254(c)(1)(A),(D)).j The types of information that the Commission suggested might fall into this category include information regarding service activation and termination,  Xb-repairs, and lowincome support programs.;b " yO-ԍ NPRM at para. 53.;  XK- x  X4-xk364.` ` In the past, the Commission's universal service policies have focused on the rates charged for traditional residential service. Nevertheless, the Commission recognized in the NPRM that people who move frequently or have no residence, such as seasonal workers and homeless individuals, do not have ready access to residential service. Therefore, the Commission sought comment on specific services that would enable such lowincome  X-individuals to gain access to the telecommunications network.;" yO!-ԍ NPRM at para. 57.; The NPRM offered several examples of such services, including community phone banks, community access centers, special discounted service plans for shortterm subscribers, and support for voice mail  X|-services.H|, " {OY%-ԍ NPRM at para. 57 n. 128.H The Commission asked parties to address the potential for wireless carriers to"| *&&ddP"  X-provide services to highly mobile groups.;" yOy-ԍ NPRM at para. 57.; Finally, the Commission sought comment on whether the suggested services meet the criteria set forth in section 254(c)(1)(A)(D), so as to  X-be eligible for inclusion in the list of supported services.;X" yO-ԍ NPRM at para. 57.;  X-x ` ` 2. Comments  Xv-xl365.` ` Designated Services. Nearly every commenter agrees that lowincome consumers should receive, at a minimum, the same services designated for universal service  XH-support for other subscribers.H" {O -ԍ See, e.g., CNMI comments at 1920; Florida PSC comments at 1415; Georgia PSC comments at 811; ITA/EMA comments at ii, 4; Michigan Consumer Federation comments at 20. Georgia PSC, for example, recommends limiting supported  X1-services for lowincome consumers to those supported in rural and high cost areas.D1B" yO$-ԍ Georgia PSC comments at 8.D Nat'l Black Caucus, which stated that it was pleased that the NPRM recognized that the services supported for rural, insular, and high cost areas should also be supported for lowincome consumers, notes that these groups are not mutually exclusive, because certain urban areas are  X -also high cost areas.M " yOX-ԍ Nat'l Black Caucus comments at 79.M Similarly, Edgemont maintains that underserved inner city neighborhoods must receive access and affordable rates @VIII-@in a manner comparable to the receipt  X -of such access and rates in rural and insular areas.H b " yO-ԍ Edgemont reply comments at 6. H  Xy-xm366.` ` Less Than Designated Services. Other commenters suggest supporting fewer services for lowincome consumers than are designated for other subscribers. Georgia PSC opposes providing universal service support for access to operator services for lowincome  X4-people.F4 " yO-ԍ Georgia PSC comments at 78.F Michigan PSC suggests a special lowincome local service package with low prices and very limited features, including toll restriction and limited local calling plus free  X-calls to schools and medical and emergency services.E " yO9"-ԍ Michigan PSC comments at 2.E  X-xn367.` ` StateDetermined Services. Some commenters recommend against providing federal universal service support for any new services, including the designated services,"*&&dd"  X-targeted to lowincome consumers.|$" {Oy-ԍ  See, e.g., Cincinnati Bell comments at 7; NARUC comments at 7; PacTel comments at 23; TCI  {OC-comments at 1718; Washington UTC comments at 13. See also Texas OPUC comments at 1213 (stating that the proposals in the NPRM will increase rates, resulting in the need for additional lowincome support programs).| Cincinnati Bell claims that state commissions and local authorities should fund services for lowincome consumers because they are best suited to  X-develop responses to specific populations.H" yO7-ԍ Cincinnati Bell comments at 7.H Additionally, NARUC, TCI, and PacTel argue that states must be permitted to continue developing and redefining the universal service policies that best meet the needs of subscribers in their jurisdictions, as long as they do not  X-conflict with federal statutory mandates.lD" yO -ԍ NARUC comments at 7; PacTel comments at 23; TCI comments at 1718.l Washington UTC contends that a special definition of universal service for lowincome consumers that identifies individual services will confine universal service policy to today's technology and services and claims that such a  XH-definition is @VIII-@inconsistent with competitive neutrality.KH" yO-ԍ Washington UTC comments at 7, 13.K  X -xo368.` ` TollLimitation Services. Some parties argue that toll limitation  d " yO/-ԍ As the Commission noted in the NPRM, tolllimitation services include both tollblocking services, which prevent toll calls billed to the subscriber's telephone number, and tollcontrol services, which allow subscribers to preset toll spending limits during a given billing period. NPRM at para. 54. We observe that toll blocking is a form of toll limitation. We will refer to both services generically as "toll limitation," or to each respective service by name, as relevant.  helps subscribers maintain access to telecommunications services by helping them control their  X -expenditures.:Z " {O-ԍ See, e.g., Bell Atlantic comments at 15 (suggesting making toll limitation available to all consumers, and subsidizing it for lowincome consumers); California PUC comments at 15; Florida PSC comments at 1516; Illinois CC comments at 5; Indiana URC comments at 34.: These commenters point to studies showing that the main reason subscribers  X -lose their telephone service is excessive toll bills. Z 6" {O-ԍ See, e.g., Benton comments at 2; California PUC comments at 15; Illinois CC comments at 5; Indiana URC comments at 34; Missouri PSC comments at 13; OPCDC comments at 1213; Rural Iowa Indep. Tel. Ass'n comments at 5.  A large majority of commenters addressing the issue of toll limitation or toll blocking agree that support should be provided for these services in some form, with commenters fairly evenly divided between those  X-advocating it as a service that should be available to all consumers,X" {O$-ԍ See, e.g., Alaska PUC comments at 2, 6; Benton comments at 23; Georgia PSC comments at 8 (supporting toll blocking/limitation as designated service, but not mandatory); Indiana URC comments at 24. and those advocating it"*&&dd"  X-as a service to be supported for lowincome users only. Z" {Oy-ԍ See, e.g., CNMI comments at 1920; California Dept. of Consumer Affairs comments at 23; California PUC comments at 15; New Jersey BPU comments at 2; Oregon PUC comments at 5; Rural Iowa Indep. Tel. Ass'n comments at 5.  Edgemont asserts that tolllimitation services should be offered to lowincome subscribers without charge and on a voluntary basis, so as not to frustrate the purpose of the 1996 Act by cutting off access to  X-interexchange services.B" yOV-ԍ Edgemont comments at 17.B Iowa Utilities Board, noting that toll blocking often restricts access to operator assistance, states that the Commission should draft rules so that, if access to operator services is made a designated service, it does not preclude lowincome customers  Xv-from choosing tollblocking services.Mvz" yO -ԍ Iowa Utilities Board comments at 5.M Benton proposes a service program with three options under which customers are guaranteed incoming calls and access to emergency  XH-numbers even when there has been failure to pay tolls.IH " yO-ԍ Benton reply comments at 1214.I With respect to involuntary toll limitation, NARUC maintains that if involuntary toll blocking is instituted for nonpayment, it  X -should be limited to the unpaid service or unpaid provider, if possible.> " yOe-ԍ NARUC comments at 8.>  X -xp369.` ` CompTel argues that offering toll limitation to lowincome consumers could  X -result in increased universal service costs.D * " yO-ԍ CompTel comments at 1718.D BellSouth maintains that such services fall short of the compelling public interest test that would justify their inclusion in universal service, and are not widely subscribed to by residential customers nor essential to education, public  X-health or safety.I " yO-ԍ BellSouth comments at 12 n. 22.I GTE says toll limitation should not be a mandatory component of service  Xy-for lowincome customers because not all such customers want or need toll limitation.@yJ " yOt-ԍ GTE comments at 2223.@ Time Warner supports universal service support for voluntary toll blocking but not toll limitation. Time Warner argues that toll limitation is more expensive to provide, more difficult to administer, and the ability to offer such services may vary according to switching  X-technology and billing systems.E" yO#-ԍ Time Warner comments at 13.E Georgia PSC favors toll blocking or limitation, but believes that these services should not be services designated for universal service support"j*&&ddd"  X-because competitive forces will assure their availability.m" {Oy-ԍ Georgia PSC comments at 89. See also Sprint comments at 21.m Pennsylvania PUC, New York DPS, and NARUC maintain that state public utility commissions should decide whether to  X-offer such services.Z" yO-ԍ NARUC comments at 8; New York DPS comments at 1314; Pennsylvania PUC comments at 22.  X-xq370.` ` Reduced Service Deposits. Commenters assert that service deposits constitute a barrier to service for lowincome consumers because many lowincome consumers cannot afford to pay the service deposits charged by carriers to initiate service, particularly to  X_-reinstate service disconnected for nonpayment._" {O -ԍ See, e.g., Edgemont comments at 17; OPCDC comments at 1213; Virginia CC comments at 4. Thus, some commenters suggest providing  XH-universal service support to reduce or eliminate service deposits.H|" {Ou-ԍ See, e.g., AT&T comments at 13 n.16; California Dept. of Consumer Affairs comments at 2021; Michigan Consumer Federation comments at 2022; Virginia CC comments at 4. Florida PSC suggests letting consumers preset their spending limit for toll usage in exchange for a reduced or eliminated deposit, and argues that this would provide an incentive for service providers to  X -make toll limitation available.H " yO-ԍ Florida PSC comments at 1516.H Other commenters also recommend linking reduced service deposits to voluntary toll limitation and blocking, with companies providing reduced service  X -deposits to those customers who accept toll limitation.m f " {O-ԍ See, e.g., CNMI comments at 1920; Georgia PSC comments at 8.m CompTel opposes any reduced service deposits, suggesting that they "would add unknown costs to universal service with  X -unproven results," work against the public interest, and cause higher overall rates.D " yOP-ԍ CompTel comments at 1719.D GTE argues that if service deposits are reduced or eliminated, LECs should be reimbursed for such reduction because universal service support should be explicit, as required by section  Xb-254(e).=b " yO-ԍ GTE comments at 23.= Noting that many states already offer such plans, Pennsylvania PUC, NARUC, and  XK-New York DPS also oppose the Commission's mandating reduced service deposits.K" yO!-ԍ NARUC comments at 58; New York DPS comments at 1314; Pennsylvania PUC comments at 22.(#(#X  X-xr371.` ` Access to Telephone Service Information at No Charge. Offering lowincome consumers free access to information about telephone service (such as service activation and termination and lowincome support programs) is favored by many commenters as a service"*&&ddE"  X-deserving universal service support." {Oy-ԍ See, e.g., CNMI comments at 1920; Edgemont comments at 1112; Florida PSC comments at 1415; Indiana URC comments at 34; Michigan Consumer Federation comments at 2021; Missouri PSC comments at 1213; NARUC comments at 8; NCTA comments at 13; New Jersey Advocate comments at 18; New Mexico AG comments at 4; North Dakota PSC comments at 2; OPCDC comments at 9; Ohio Consumers' Council comments at 1617; PacTel comments at 22. These commenters appear to be concerned that lowincome consumers will be unable to place calls to gain telephone service information if the calls would otherwise be an inregion toll call, or, more commonly, if the state's Lifeline program allows only a limited number of free calls. Commenters maintain that access to the LEC's (both ILECs and CLECs) customer service center is important to the public health and  X-safety and is in the public interest.Wz" {O -ԍ  See, e.g., Louisiana PSC comments at 3.W NCTA recommends providing free access to  Xv-information for certified lowincome consumers only.Av " yO3-ԍ NCTA comments at 1314.A No state directly opposes free access to information, but Georgia PSC and Washington UTC assert that no new programs are  XH-needed.fH" yO-ԍ Georgia PSC comments at 45; Washington UTC comments at 45.f NAD advocates that, because many information numbers are not accessible directly to TTYs (a typewriterstyle device for communicating alphanumeric information over telecommunications networks), TTY users must use relay services for access to such numbers; therefore, relay users should not be charged for relay calls to numbers providing LEC service  X -information.F , " yO-ԍ NAD reply comments at 2223.F NYNEX, Frontier, and GTE, however, do not favor universal service support for service calls. These carriers assert that support for this service is unnecessary and contrary to Congress's deregulatory intent, and the decision to make such support available is better  X -left to states' discretion.p " yO-ԍ Frontier comments at 56; GTE comments at 2224; NYNEX comments at 17.p  Xy-xs372.` ` No Disconnection for Nonpayment of Toll. Several commenters advocate  Xb-prohibiting disconnection of local service for nonpayment of toll charges.bL " {O_-ԍ  See, e.g., AARP comments at 2223; NASUCA comments at 6; NTIA reply comments at 1017. Based on analysis of Census Bureau data from 1994, NTIA concludes that telephone subscribership appears to be consistently higher in states with a policy of no disconnection for nonpayment  X-of toll charges.H" yO#-ԍ NTIA reply comments at 1017. H NTIA further maintains that lowincome consumers benefit the most from"n*&&ddG"  X-a policy of no disconnection for nonpayment of toll charges. OPCDCA" yOy-ԍ OPCDC comments at 26.A maintains that disconnection of local service for nonpayment of toll charges runs afoul of the four criteria in  X-section 254(c)(1). X" yO-ԍ Those criteria are "the extent to which such telecommunications are essential to education, public health or public safety; have, through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers; are being deployed in public telecommunications networks by telecommunications carriers; and are consistent with the public interest, convenience, and necessity." It asserts that households with young children, elderly residents, and  X-handicapped individuals are in need of access to basic telephone service.?@" yO -ԍ OPCDC comments at 4.? Therefore, it  X-favors a policy prohibiting disconnection for nonpayment of toll.?" yO% -ԍ OPCDC comments at 6.? Sprint, PacTel, and  X-CompTel, however, oppose no disconnection for nonpayment of toll.r` " yO-ԍ CompTel comments at 18; PacTel comments at 22; Sprint comments at 2122.r Sprint contends that competitors will strive to meet the needs of the marketplace and will respond by developing  X_-programs to encourage customers to use their services.C_ " yO-ԍ Sprint comments at 2122.C Sprint argues that telecommunications service providers have an inherent incentive to keep customers on the network, and that this incentive will increase as competition develops in the local exchange  X -marketplace.C " yOK-ԍ Sprint comments at 2122.C x  X -xt373.` ` Other Services. The Governor of Guam and New Mexico AG, among others,  X -advocate supporting interexchange and advanced services for lowincome subscribers.f " {O-ԍ Governor of Guam comments at 1213; New Mexico AG comments at 4. See also Alaska comments at 56 (noting that because of difficult topographic and climatologic conditions, a sparse population, and low incomes, penetration would be extremely low if not for programs promoting universal service); CNMI comments at 911 (noting that the mixed domestic/international treatment afforded CNMI ratepayers results in very high telecommunications rates being imposed on subscribers whose income levels rank among the lowest in the nation); Guam Tel. Authority comments at 7.f The Governor of Guam notes that while lowincome consumers in Guam may receive access to interexchange services that are reasonably comparable to services provided elsewhere, they may not be affordable; thus, universal service support should be provided for affordable  Xy-interexchange and advanced services for lowincome individuals.y" yP$-ԍ#c PE37 P# Governor of Guam comments at 13.# c PE37 P#ј "b*&&dd"Ԍ X-xu374.` ` Several commenters support subsidizing specialneeds equipment for lowincome people with disabilities (such as speech, hearing, mobility, and cognitive  X-disabilities).Z" {OK-ԍ  See, e.g., Michigan PSC comments at 2; New York DPS comments at 15; Council of Organizational Representatives reply comments at 3; NAD reply comments at 8; United Cerebral Palsy Ass'n reply comments at 2. New York DPS submits that disabled people are often poor, and while they  X-may qualify for Lifeline service," {OV-ԍ For a description of the federal Lifeline program, see section VIII. C., infra. they may be unable to purchase the equipment to access  X-the network.F|" yO -ԍ New York DPS comments at 15.F NENA maintains that 911, E911, and DTMF should receive universal service support in areas where state and local authorities have previously approved the emergency  Xv-service system.v " yO3-ԍ NENA reply comments at 1 (arguing that any costs incurred by carriers in providing E911 access should be eligible for support unless it would result in double recovery). National Telecommuting Institute proposes that employers that hire lowincome, homebound individuals with disabilities should receive a waiver for all voice and data line charges incurred between the employee and the company, with the service provider  X1-receiving support from universal service support mechanisms.21d " yOF-ԍ Letter from M.J. Willard, Ed.D., Executive Director, National Telecommuting Institute, Inc., and the President's Committee on Employment of People with Disabilities, to William F. Caton, Acting Secretary, FCC  {O-(National Telecommuting Institute, Inc. Ex Parte) (also recommending that if training is necessary to prepare a homebound individual for a telecommuting position, the cost of connecting the trainee to the trainer via telephone lines be covered by universal service support mechanisms).2  X -xv375.` ` NTIA advocates universal service support to enable lowincome individuals to  X -receive caller ID at a reduced rate in addition to the designated services.C " yO-ԍ NTIA reply comments at 7.C At least one commenter, Benton, maintains that the procompetitive spirit of the 1996 Act, which will result in multiple services and facilities offered to consumers, requires that lowincome consumers be allowed to choose which services meet their needs and are entitled to  X-support.?" yO-ԍ Benton comments at 3.? For example, Benton notes that voice telephony is useless to deaf consumers.E6" yOw!-ԍ Benton comments at 3.E Consistent with the 1996 Act's requirement that funding mechanisms be predictable, Benton suggests that the Commission set an allowance or some other mechanism under which a user  XK-could choose from an array of services.EK" yO%-ԍ Benton comments at 3.E"KV*&&dd"Ԍ X-ԙxw376.` ` Edgemont, PacTel, Ohio Consumers' Council, and Montana Indep. Telecom. recommend a "soft dial tone" or "warm line," which enables an otherwise disconnected phone line to be used to contact emergency services (911), as well as the provider's central business  X-office." {O4-ԍ  See, e.g., Edgemont comments at 16; Ohio Consumers' Council comments at 1617; PacTel comments at 22. Access to emergency services, commenters assert, is essential to public health and  X-safety.R"" {Ow-ԍ See, e.g, Edgemont comments at 17.R  Xv-xx377.` ` Texas OPUC advocates providing support for lowincome consumers' buying  X_-optional services at regular rates.D_" yO -ԍ Texas OPUC comments at 17.D Some commenters suggest providing universal service  XH-support for Internet access for lowincome consumers.HD" {O=-ԍ  See, e.g., Bar of New York comments at 914; Edgemont comments at 1315; Kinko's comments at 510. Brite advocates universal service support for information services (news via satellite to community distribution sites and to individual consumers via mobile phones), speech activation (voice recognizing services to  X -complement DTMF services), and twoway paging and shorttext messaging.@ " yOR-ԍ Brite comments at 12.@ In addition, some commenters address which services should be supported for lowincome individuals in  X -their general discussion of what services should receive universal service support. . " {O-ԍ See, e.g., Matanuska Tel. Ass'n comments at 2; PULP comments at 1117; West Virginia Consumer Advocate comments at 6. Such comments are addressed in Part IV of the Recommended Decision.  X-xy378.` ` Commenters assert that all consumers should receive adequate information  Xy-about lowincome assistance programs.y " {O-ԍ  See, e.g., La Raza comments at 67; Virginia CC comments at 4; Ohio Consumers' Council reply comments at 16. Many suggest requiring carriers to provide  Xb-consumer awareness information describing the programs that are implemented.b" {O -ԍ See, e.g., Catholic Conference comments at 22; NASUCA comments at 6; Ohio Consumers' Council reply comments at 16. La Raza states that the Commission should require carriers to develop marketing plans directed at lowincome and multilingual communities and to provide multilingual information regarding"4<*&&dd"  X-billing and the availability and rates of services.x" {Oy-ԍ La Raza reply comments at 45. See also Public Advocates comments at 6.x  X- x` ` 3. Discussion x  X-xz379.` ` As we have observed, Congress in section 254(b) instructs the Joint Board and the Commission to base policies for the preservation and advancement of universal service on the principle that universal service should be available for lowincome individuals in all  X_-regions of the nation._Z" yOj -ԍ 47 U.S.C.  254(b)(3). We also find that the principle of affordable rates in section 254(b)(1) is relevant to our policies with respect to lowincome consumers. At the same time, however, Congress included section 254(j), which provides that "[n]othing in [section 254] shall affect the collection, distribution, or  X1-administration of the Lifeline Assistance Program provided for by the Commission."@1" yO-ԍ 47 U.S.C.  254(j).@  X -x{380.` ` We find that the provisions of section 254(j) can be reconciled with other sections of 254 regarding competitive neutrality and support for lowincome consumers in all regions of the nation. As an initial matter, we believe that Congress did not intend for section 254(j) to codify the existing Lifeline program. Had Congress intended for section 254(j) to have that effect, it would have chosen clearer, less equivocal language. Instead, Congress  X-simply provided that nothing in section 254 should affect the collection, distribution, or  X{-administration of the program.{B" yOn-ԍ The Commission established the Lifeline program in 1985 pursuant to its authority under Titles I and II  {O6-of the 1934 Act, as amended. See MTS and WATS Market Structure; Amendment of Part 67 of the  {O-Commission's Rules and Establishment of a Joint Board, Decision and Order, 50 Fed. Reg. 939 (1985). See also MTS and WATS Market Structure; Amendment of Part 67 of the Commission's Rules and Establishment of a  {O-Joint Board, 51 Fed. Reg. 1371 (1986). Congress did not restrict the Commission's authority in this area in the 1996 Act. We therefore conclude that the Commission possesses the authority, separate from section 254, to  {O$-modify the Lifeline program. See Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S. Ct. 1023, 1030 (1994), citing  {O-Lorillard v. Pons, 434 U.S. 575, 580 (1978) (Congress is presumed to be aware of an administrative or judicial  {O-interpretation of a statute). See also Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 184 (1988) (Congress is presumed to know the existing law pertinent to the legislation it enacts). This also bolsters our conclusion that  yOJ-Congress would have chosen stronger language in section 254(j) had it intended to codify the Lifeline program. ą We therefore conclude that Congress intended, in section  Xd-254(j), to give the Joint Board and the Commission permission to leave the Lifeline program in place without modification, despite its inconsistencies with other provisions of section 254 and the 1996 Act generally.  X -x|381.` ` We further conclude that a necessary corollary to this interpretation of section 254(j) is that this Joint Board has the authority to recommend, and the Commission has the authority to adopt, changes to the Lifeline program to make it more consistent with"*&&dd" Congress's mandates in section 254 if such changes would serve the public interest. We arrive at this conclusion in part because the existing Lifeline program is supported solely by IXCs and is unavailable to lowincome consumers in areas where the incumbent LEC or the  X-state regulatory authorities have chosen not to participate." yO4-ԍ The states without Lifeline programs are: Delaware; Indiana; Iowa; Kansas; Kentucky; Louisiana; Nebraska; New Hampshire; New Jersey; and Puerto Rico. Given these circumstances, we find that the current Lifeline program is inconsistent with sections 254(b)(3) and (4).  Xv-x}382.` ` We find no statutory basis to recommend continuing to fund the federal Lifeline program in a manner that places some IXCs at a competitive disadvantage, or that provides no support for lowincome consumers in several portions of the nation. We conclude that our recommendations would make universal service support mechanisms for lowincome individuals more consistent with Congress's express goals without fundamentally changing the basic nature of the existing Lifeline program. Moreover, this approach is consistent with Congress's expression of approval for the current Lifeline program in section 254(j).  X -x~383.` ` The Joint Board agrees with the vast majority of commenters and recommends that, through universal service support mechanisms, lowincome consumers should have access  Xy-to the same services designated for support for rural, insular, and high cost areas.y " {OJ-#A\  PɒP#э For a discussion of the services designated for support, see supra section IV. Our recommendation is based, in part, on the statutory principle that access to services should be  XK-available to [c]onsumers in all regions of the Nation, including lowincome consumers.lK" yO-#A\  PɒP#э 47 U.S.C.  254(b)(3). l We find that the overarching universal service goals may not be accomplished if lowincome universal service support is provided for services inferior to those supported for other subscribers. We further recommend that the services listed above should be made part of the  X-modified Lifeline Assistance program that we recommend adopting in section VIII. C., infra. Thus, lowincome consumers eligible for Lifeline Assistance would receive, at a minimum, the designated services.  X-x384.` ` In the NPRM, the Commission also sought comment on providing universal service support for tolllimitation services in light of studies demonstrating that a primary reason subscribers lose access to telecommunications services is failure to pay long distance  XP-bills.lPB" {OC#-ԍ NPRM at para. 54 (citing Subscribership Notice at 1300506).l Many commenters support tolllimitation services for lowincome individuals.P" {O$-ԍ See, e.g., Florida PSC comments at 1516; California PUC comments at 15; Indiana URC comments at 34; Illinois CC comments at 5; Bell Atlantic comments at 15. In"P. *&&dd" a number of jurisdictions, however, it appears that voluntary tolllimitation services may not be affordable for lowincome consumers. The Joint Board recommends that the Lifeline Assistance program for eligible lowincome consumers include voluntary toll limitation, in addition to the services mentioned above. Because voluntary toll blocking allows customers to block toll calls, and toll control allows customers to specify in advance a certain amount of toll usage per month or billing cycle, these services assist customers in avoiding involuntary termination of their access to telecommunications services. Therefore, we find that providing voluntary toll limitation free of charge to lowincome consumers should help increase subscribership among lowincome consumers. Furthermore, we find that tolllimitation  X1-services are "essential to education, public health or public safety"F1" yO -ԍ 47 U.S.C.  254(c)(1)(A).F and "consistent with the  X -public interest, convenience, and necessity"F X" yO# -ԍ 47 U.S.C.  254(c)(1)(D).F in that they maximize the opportunity of customers to remain on the telecommunications network. x  X -x385. ` ` We recommend, however, that only carriers that currently possess the capability of providing these services be required to provide them to Lifelineeligible consumers and receive universal service support for such services. We understand that most carriers are  X-currently capable of providing tollblocking service," yO)-ԍ Some of the carriers offering toll blocking include: Ameritech, Bell Atlantic, BellSouth, GTE, NYNEX, Pacific Telesis Group, and Southwestern Bell Telephone Company. and that some carriers are capable of  Xy-providing toll control.y@" yOj-ԍ The following are some of the carriers offering toll control: Bell Atlantic Pennsylvania; Denver and Ephrata Telephone and Telegraph Company; Southwestern Bell Telephone Company; and Pacific Telesis Group. Eligible telecommunications carriers that are technically incapable of providing any tolllimitation services should not be required to provide either service, and such an incapability should not affect their designation as eligible telecommunications carriers. We recommend, however, that eligible telecommunications carriers not currently capable of providing these services be required to add the capability to provide at least toll blocking in any switch upgrades (but we do not recommend that universal service support be provided for such switch upgrades). We further recommend that carriers offering voluntary tolllimitation services receive support based on the incremental cost of providing those services.  X-x386.` ` We do not recommend, as some commenters suggest," {O!-ԍ  See, e.g., Alaska PUC comments at 2, 6; Benton comments at 23; Indiana URC comments at 24. providing support for tolllimitation services for consumers other than lowincome consumers. We find that subscribership levels among lowincome consumers are well below the national average and that a principal reason for service termination is the failure to pay toll charges. Therefore, we conclude that tolllimitation services should be supported only for lowincome consumers at"N* *&&dd" this time.  X-x387. ` ` Further, the Joint Board recommends that the Commission prohibit carriers receiving universal service support for providing Lifeline service from disconnecting such  X-service for nonpayment of toll charges." yO-ԍ This recommendation should not be construed to affect the ability of the states to implement a policy prohibiting disconnection of local service for nonpayment of toll charges for nonLifeline customers. As the NPRM noted, recent studies suggest that  X-disconnection for nonpayment of toll charges is a significant barrier to universal service.l " {O^ -ԍ NPRM at para. 56 (citing Subscribership Notice at 1300506).l We find that lowincome consumers should not be prevented from making local telephone calls because they did not pay long distance charges, because such local calls could be emergency telephone calls or calls to schools, government offices, or health care providers. We conclude that this requirement is consistent with section 254(c) because access to calls is "essential to education, public health, or public safety" and "consistent with the public interest,  X -convenience, and necessity."K " yOf-ԍ 47 U.S.C.  254(c)(1)(A), (D).K We also find that a rule prohibiting carriers from disconnecting Lifeline subscribers' local service for nonpayment of toll charges will create an incentive for carriers to offer lowincome consumers tolllimitation services to manage their toll expenditures.  X-x388. ` ` We further recommend, however, that the Commission provide state utilities regulators with the authority to grant carriers a limited waiver of this requirement if the carrier can establish that: (1) it would incur substantial costs in complying with such a requirement; (2) it offers tolllimitation services to its Lifeline subscribers at no charge; and (3) telephone subscribership among lowincome consumers in the carrier's service area is at least as high as the national subscribership level for lowincome consumers. We recommend that this waiver be extremely limited and that a carrier should be required to meet a very heavy burden to obtain a waiver. Furthermore, we recommend that the waiver would terminate after two years, at which time carriers could reapply for the waiver.  X-x389.` ` The Joint Board also recommends, in its discussion of Link Up in section VIII.  X-C., infra, that the Commission implement a national policy prohibiting telecommunications carriers from requiring Lifelineparticipating subscribers to pay service deposits in order to  Xg-initiate service if the subscriber voluntarily elects to receive toll blocking. gB" yOZ"-ԍ Our recommendation does not address the issue of whether states may allow a LEC to request a service deposit from a customer with an outstanding balance owed to another LEC.  X9-x390.` ` Some commenters suggest that free access to information about telephone"9 *&&dd"  X-service for lowincome consumers should receive universal service support. " {Oy-ԍ See, e.g., CNMI comments at 1920; Edgemont comments at 12; Michigan Consumer Federation comments at 20. These commenters appear to be concerned that lowincome consumers will be unable to place calls to gain telephone service information if the calls would otherwise be an inregion toll call, or if the state's Lifeline program allows only a limited number of free calls. Similarly, NAD suggests that universal service support mechanisms should provide support so that TTY users  X-can make free relay calls to numbers providing LEC service information.C "" yO` -ԍ NAD reply comments at 22.C We conclude that the states are best suited to determine, pursuant to section 254(f), whether to require carriers to provide free access to information about telephone service for lowincome consumers, because they are most familiar with the number of consumers in their state affected by charges for these calls and may do so pursuant to 254(f) through their own universal service support mechanism. We also find that the record in this proceeding is inadequate to permit a recommendation on this subject that would comport with competitive neutrality by assuring consumers' access to such information for all service providers. We find that the same concerns militate against providing support for lowincome consumers with disabilities making relay calls to gain access to LEC service information.  X-x391.` ` Some commenters favor universal service support for usage of interexchange  Xy-and advanced services for lowincome consumers. y" {O-ԍ See, e.g., Brite comments at 12; Governor of Guam comments at 1214; New Mexico AG comments at 4. We find, however, that it is unclear whether providing support for such services is necessary at this time. We believe the steps we suggest today for ensuring universal service for lowincome consumers are likely to increase their access to interexchange and advanced services. In the event that lowincome consumers lack access to such services in the future, impeding the achievement of universal service goals, we recommend that the Commission revisit this issue.  X-x392.` ` Other commenters propose support for specialneeds equipment for lowincome  X-subscribers with disabilities.  " {O~-ԍ See, e.g., Council of Organizational Representatives reply comments at 3; Michigan PSC comments at 2; NAD reply comments at 8; New York DPS comments at 15; United Cerebral Palsy Ass'n reply comments at 2. We note, however, that the 1996 Act specifically addresses access to telecommunications services and equipment by individuals with disabilities outside  X-the context of section 254.Gf " {O#-ԍ See 47 U.S.C.  255.G We therefore conclude that these matters need not be addressed by this Joint Board because they will be addressed in a separate proceeding to implement section 255."e *&&dd"Ԍ X-ԙx393.` ` Commenters propose other services and functionalities for lowincome consumers that they assert should be supported through universal service support mechanisms,  X-such as caller ID at a reduced rate,C" yOK-ԍ NTIA reply comments at 7.C "soft dial tone" or "warm line,"jX" {O-ԍ  See, e.g., Edgemont comments at 16; PacTel comments at 22.j support for optional  X-services at regular rates,D" yOV-ԍ Texas OPUC comments at 17.D and multilingual information regarding billing and rates.z" {O -ԍ See, e.g, La Raza comments at 67; Virginia CC comments at 4; Ohio Consumers' Council reply comments at 16; . Although these proposed services may benefit lowincome customers, we find that the states are best positioned to ascertain, pursuant to section 254(f), whether these types of proposed support should be provided to lowincome customers, due to the states' greater familiarity with regional and local demographic, socioeconomic, and ratemaking factors and may do so pursuant to 254(f) through their own universal service support mechanism.  X -x394.` ` Moreover, the inclusion of additional services and functionalities beyond those necessary to effectuate a comprehensive federal universal service policy would be inappropriate and may have the effect of unreasonably and unnecessarily expanding all  X -carriers' universal service obligations, with inevitable effects on rates.% " yOZ-#A\  PɒP#э Increases in the size of the fund, regardless of the magnitude, will in most cases be reflected through increased rates. This result, of course, negatively affects the overall affordability of rates. % Therefore, we limit  X -our recommendation to the services and rules described supra and the modifications to  X -Lifeline and Link Up described infra. @  X}-xC. Reevaluation of Existing LowIncome Support Programs  Xf-  XO-x` ` 1. Background  X!-x395.` ` Section 254(b)(3) states that consumers in all regions of the Nation, including lowincome consumers, "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  X-at rates that are reasonably comparable to rates charged for similar services in urban areas."C, " yO"-ԍ 47 U.S.C.  254(b)(3).C Section 254(b)(1) provides that telecommunications services should be "affordable," and section 254(d) requires all providers of interstate telecommunications service to contribute to universal service support on an equitable and nondiscriminatory basis. Section 254(j)," *&&dd" however, provides that "[n]othing in [section 254] shall affect the collection, distribution, or administration of the Lifeline Assistance Program provided for by the Commission under regulations set forth in section 69.117 of title 47, CFR, and other related sections of such  X-title."" yO4-ԍ 47 U.S.C.  254(j). Section 69.117 of the Commission's rules addresses the conditions and mechanisms for waiver of the subscriber line charge for Lifeline participants. 47 C.F.R.  69.117.  X-x396.` ` As noted in the NPRM, the Commission's Lifeline program currently provides support that reduces the charges lowincome consumers in participating jurisdictions incur for some statespecified level of local service that includes access to the public switched  XH-telephone network (PSTN) and some local calling.H " yO -ԍ 47 C.F.R.  69.104(j)(l). Currently, 41 states plus the U.S. Virgin Islands and the District of Columbia participate. States may choose to participate in either of two Lifeline Assistance plans. Under Plan 1, an eligible subscriber's monthly telephone bill is reduced by an amount equal to the $3.50 federal subscriber line charge  X -imposed on such subscribers.C x" yO,-ԍ 47 C.F.R.  69.104(j).C Half of the reduction comes from a 50 percent waiver of the charge; the other half comes from the participating state, which matches the federal contribution by an equal reduction in the local rate. Under this plan, subscribers who satisfy a statedetermined means test may receive assistance for a single telephone line in their principal residence. Under Plan 2, which expands Plan 1 to provide for waiver of the entire residential SLC (up to the amount matched by the state), a subscriber's bill may be reduced  Xy-by twice the SLC (or more, if the state more than matches the value of the federal waiver).Cy" yO2-ԍ 47 C.F.R.  69.104(k).C The state contribution may come from any intrastate source, including state assistance for basic local telephone service, connection charges, customer deposit requirements, or state  X4-taxes. Under both plans, the interstate portion of Lifeline is billed to IXCs by NECA.@4" yO}-ԍ 47 C.F.R.  69.117.@ While Plan 2 requires the verification of participating subscribers' eligibility, Plan 1 requires  X-only that subscribers' eligibility be "subject to verification."C( " yO-ԍ 47 C.F.R.  69.104(j).C Of the 43 states or other jurisdictions participating in Lifeline, only California offers a Lifeline program under Plan  X-1.&\ " {OA#-ԍ Indus. Analysis Div., FCC, Monitoring Report May 1995 CC Docket No. 87339, at tbl. 2.1 (1995)  {O $-(Monitoring Report). California allows subscribers to selfcertify their eligibility to participate in the Lifeline program.& "*&&dd"Ԍ X-x397.` ` Link Up helps lowincome subscribers initiate telephone service by paying half  X-of the first $60.00 of installation charges.@" yOb-ԍ 47 C.F.R.  36.711.@ Where a LEC has a deferred payment plan, Link  X-Up will also pay the interest on any balance up to $200.00, for up to one year.FX" yO-ԍ 47 C.F.R.  36.711(a)(2).F To be eligible for this program, subscribers must meet a stateestablished means test, and may not,  X-unless over 60 years old, be another's dependent for federal income tax purposes.C" yO= -ԍ 47 C.F.R.  36.711(b).C  Xv-x398.` ` The NPRM sought comment generally on whether "changes to our Lifeline and Link Up programs should be made as part of an overall mechanism to ensure that quality  XH-services are available at just, reasonable, and affordable rates for lowincome subscribers.";Hx" yOq-ԍ NPRM at para. 65.; The NPRM proposed to amend the Link Up program by removing it from the jurisdictional separations rules through which it is now funded for lowincome subscribers of incumbent LECs and funding the program through a new universal service mechanism consistent with sections 254(d) and (e). In the NPRM, the Commission also sought "comment and a Joint  X -Board recommendation on how to define eligible lowincome customers.";  " yO-ԍ NPRM at para. 59.; The NPRM observed that the states currently determine Lifeline eligibility based on meanstested criteria  X -they select.;! " yO-ԍ NPRM at para. 61.;  Xy-x399.` ` In its Public Notice, the Commission's Common Carrier Bureau asked: (1) whether the new universal service fund should provide support for Lifeline and Link Up in order to make the subsidies technologically and competitively neutral, and (2) if so, whether  X4-the amount of the Lifeline subsidy still should be tied to the amount of the SLC.G"4( " yO -ԍ Public Notice at Question 71.G  X- x` ` 2. Comments  X-x400.` ` Retain Lifeline and Link Up in their Current Form. A majority of commenters support the Lifeline and Link Up programs, with most asking only that support for these" "*&&dd"  X-programs be maintained or increased.#" {Oy-ԍ See, e.g., Farmers Tel. comments at 45; Michigan PSC comments at 2; MonCre comments at 5; Ohio PUC comments at 7 (advocating expanding Lifeline to waive the entire subscriber line charge); South Dakota comments at 17; Sprint comments at 21 (suggesting that more effort be made to educate lowincome consumers about the existence of Lifeline and Link Up); TCA comments at 5; Telec Consulting comments at 15; Winnebago Tel. comments at 1; U S West further comments at 31 (supporting the programs but believing the Commission should reexamine the caps placed on these programs as rates are rebalanced).  Missouri PSC, Washington UTC, and Ohio PUC  X-support Lifeline and Link Up in their current form.}$B" yO-ԍ Missouri PSC comments at 12; Ohio PUC comments at 7; Washington UTC comments at 12.}  X-x401.` ` Effect of Section 254(j). A few commenters appear to read section 254(j) as  X-precluding the Commission from making any changes to the Lifeline program.%" {O' -ԍ See, e.g., Ad Hoc Telecom. Users comments at 2 n.1; Associated Communications comments at 3; PacTel comments at 22; Washington UTC comments at 14; Puerto Rico Tel. Co. further comments at 22. Bell Atlantic, however, interprets section 254(j) to permit the Commission to leave the Lifeline program in place if it wishes to do so, even though the program may currently conflict with  X_-other goals in the statute._&_, " {O<-ԍ See, e.g, Bell Atlantic further comments at 15._  X1-x402.` ` Change Lifeline and Link Up. NTIA and Citizens Utilities propose changes to the Lifeline program. Some commenters suggest mandating that all states participate in the  X -Lifeline program.j' " yOr-ԍ Citizens Utilities comments at 17; NTIA reply comments at 1415.j NTIA, for example, maintains that the 1996 Act appears to require federal support for lowincome consumers regardless of whether the state in which they live  X -matches federal lowincome support.G( N " yO-ԍ NTIA reply comments at 1415.G NTIA observes, however, that removing the matching requirement might reduce the incentive for currentlyparticipating states to continue providing support, and therefore advocates reducing the matching requirement to 25 percent of  X-the federal support level.G)" yO-ԍ NTIA reply comments at 1415.G North Dakota PSC would make participation in Lifeline and  Xy-Link Up a condition for carriers to receive any type of universal service support.K*yn" yO!-ԍ North Dakota PSC comments at 23.K Michigan PSC proposes that the Commission modify the programs so that federal and the state funds would each contribute 50 percent of customers' costs associated with Link Up, Lifeline, and special needs equipment; federal support mechanisms and the provider would each contribute 50 percent of customers' costs associated with a special lowincome local service package"**&&dde"  X-including, among other options, toll restriction.E+" yOy-ԍ Michigan PSC comments at 2.E Western Alliance notes that while rural subscribers may pay only $10.00 per month for local, flatrate calling, they may pay at least twice that much for shorthaul toll calls to the nearest schools, hospitals, local government  X-offices, and other destinations.R,X" yO-ԍ Western Alliance further comments at 16.R Western Alliance therefore suggests that Lifeline support  X-be provided for such toll calls.R-" yO= -ԍ Western Alliance further comments at 16.R  Xv-x403.` ` Change Lifeline and Link Up to Support Competitive Neutrality. A large number of commenters argue for changing the way Lifeline and Link Up are funded in order  XH-to achieve competitive neutrality..Hx" {Oq-ԍ  See, e.g., CompTel comments at 1920; GTE comments at 22; MCI comments at 56; RTC further comments at 3435; USTA further comments at 3132; Vitelco further comments at 15. Specifically, many commenters contend that the new  X1- universal service support mechanism should provide support for Lifeline and Link Up because having all telecommunications providers not just IXCs contribute will make the subsidies  X -competitively neutral./ " {O-ԍ See, e.g., AT&T reply comments at 21 (adding that states can establish separate statespecific funds if they deem it necessary); Ameritech further comments at 47; BellSouth further comments at 56; CompTel further comments at 14; CFA further comments at 27; GSA further comments at 16; GTE further comments at 60; MCI further comments at 3233; MFS further comments at 53; NYNEX further comments at 48; Sprint further  yO-comments at 19.` `  Additionally, several commenters suggest basing contributions on a contributor's revenue rather than on the carrier's number of presubscribed lines, as the current Lifeline and Link Up programs do. They assert that this change would make the assessment  X -more competitively neutral.0 " yO-ԍ CompTel comments at 1920; NECA further comments at 39; USTA further comments at 3132; Vitelco further comments at 15. But other parties, such as NCTA, PacTel, and SNET, propose that Lifeline and Link Up should not receive support through universal service support  X-mechanisms.1" {O-ԍ See, e.g., NCTA further comments at 25; PacTel further comments at 59; SNET further comments at 7; SWBT further comments at 46. PacTel and SNET oppose changing the current contribution mechanism because the current programs are explicit support mechanisms specifically targeted to  Xb-individual subscribers.2b6" yOI#-ԍ PacTel further comments at 59 (also stating that all Lifeline and Link Up providers should be potential recipients of funds); SNET further comments at 7.  X4-x404.` ` Commenters suggest that in addition to changing the way in which Lifeline and"42*&&dd" Link Up funds are collected, the Commission should alter the basis on which Lifeline benefits  X-are determined for lowincome consumers in order to further competitive neutrality.3Z" {Ob-ԍ See, e.g., Ameritech further comments at 47; CompTel further comments at 14; MCI further comments at 32; Time Warner further comments at 56; U S West further comments at 31; Professor Patricia Worthy further comments 811.  X-Specifically, some commenters suggest not basing the amount of support on the SLC.4" {Om-ԍ  See, e.g., Ameritech further comments at 47; CompTel further comments at 14; MCI further comments at 32. These commenters propose several alternatives for determining support for lowincome individuals. For example, some commenters suggest that Lifeline support should be based on  X-a rate determined to be affordable by lowincome consumers.5D" {O -ԍ See, e.g., Puerto Rico Tel. Co. reply comments at 711; Professor Patricia Worthy further comments at 811. Professor Patricia Worthy proposes a federal lowincome rate set at one percent of the federal minimum wage, based on research showing that lowincome consumers spend approximately one percent of their  XH-incomes on telephone service.6H" {O-ԍ Professor Patricia Worthy further comments at 811. See also USTA comments at 16 n.21 (concluding that Americans spend an average of one percent of their income on universal services). Universal service support mechanisms would provide support for the difference between one percent of the minimum wage and a lowincome  X -subscriber's monthly bill.7 " yO-ԍ Professor Patricia Worthy further comments at 811. Alternatively, Professor Worthy would set the federal lowincome rate at the average of current state Lifeline rates. This would mean lowincome consumers should pay a maximum rate of $8.93 per month for telephone service (which would include a flat rate with a 120free call allowance, DTMF, access to emergency services, access to operator services and 12 free calls per month, access to long distance carriers, a white pages listing, free toll  X -blocking, and blocking for 900, 976, and 976like services).[8 P " yO-ԍ Professor Patricia Worthy further comments at 10.[  X-x405.` ` Puerto Rico Tel. Co. recommends giving a LEC an $8.00 per month universal  Xy-service support payment for each customer living below the poverty line.V9y" yO -ԍ Puerto Rico Tel. Co. reply comments at 710.V The LEC would credit the customer's account $6.00 per month and keep $2.00 to cover costs. Based on the average residential service rate of $15.00 per month (excluding the SLC, taxes, and DTMF  X4-service), lowincome consumers' monthly rates would be approximately $9.00.:4p" {OU$-ԍ Id. (also suggests stimulating network expansion of services to lowincome people by providing incentive payments to eligible carriers that extend service to previously unserved residential subscribers). "4:*&&ddf"Ԍ X-ԙx406.` ` LCI recommends providing lowincome consumers a subsidy that is the difference between prevailing rates for the package of designated services and the rate level at  X-which these services become affordable.<;" yOK-ԍ LCI comments at 7.< It states that under the 1996 Act, explicit and predictable support mechanisms must be developed to ensure that lowincome individuals can  X-afford the designated services.<<X" yO-ԍ LCI comments at 7.< It argues that the best way to determine who is eligible for  X-lowincome support is through the existing Lifeline and Link Up programs.==" yO& -ԍ LCI comments at 7. =  X_-x407.` ` MCI maintains that Lifeline and Link Up should be tied to the total costs of the  XH-loop, rather than the SLC.H>Hx" yOq-ԍ MCI further comments at 3233.H Under MCI's proposal, support would be determined by the  X1-difference between the nationwide average local rate and the economic cost of the service.?1" {O-ԍ MCI further comments at 3233. See also Sprint further comments at 19 (advocating delinking the amount of support from the SLC and tying it to a specified percentage of local rates). Citizens suggests expanding support beyond the SLC to cover an eligible consumer's total  X -monthly cost of universal service.L@ b " yO-ԍ Citizens Utilities comments at 17.L MFS proposes that Lifeline support be fixed at current levels and adjusted as the Commission believes necessary to address the needs of lowincome  X -individuals.EA " yOx-ԍ MFS further comments at 53.E  X -x408.` ` Some commenters advocate keeping the amount of support for lowincome  X-consumers tied to the SLC.BZ " {O-ԍ See, e.g., Bell South further comments at 56; Florida PSC further comments at 17 (at least at the outset tied to the subscriber line charge); NCTA further comments at 25; SWBT further comments at 46; TCI further comments at 40. GSA takes this position because the SLC is the portion of the  Xy-subscriber's local service bill that is subject to federal regulation.ECy" yO -ԍ GSA further comments at 16.E BellSouth and TCI argue that keeping support linked to the SLC will prevent increases to lowincome consumers' bills  XK-if the SLC is otherwise increased.gDK4" yO0$-ԍ BellSouth further comments at 56; TCI further comments at 40.g If the SLC increases, BellSouth, Ohio Consumers' Counsel, Wisconsin PSC, Maine PUC and USTA maintain that Lifeline support should"4D*&&dd"  X-increase accordingly.E" yOy-ԍ BellSouth comments at 13; Maine PUC comments at 21; Wisconsin PSC comments at 1112; Ohio Consumers' Council reply comments at 16; USTA reply comments at 9.  X-x409.` ` Some commenters advocate making Lifeline benefits "portable," i.e., assignable  X-to the provider of the subscriber's choice.F" " {O-ԍ  See, e.g., California PUC comments at 1617; CompTel comments at 1920; MCI comments at 19 (allowing consumers to select the services they want); New Jersey BPU comments at 5; PCIA comments at 15; PacTel further comments at 60 (suggesting that a flexible credit applicable to a call control/spending feature may be of more value to consumers); Time Warner further comments at 56. Because the federal component of Lifeline currently is a waiver of the SLC, Lifeline benefits cannot be applied to services without a SLC (such as wireless services or voice mail). GTE suggests that Lifeline customers receive a credit that can be applied to any telecommunications service they select, whether wireline or  X_-wireless.EG_ " yO-ԍ GTE further comments at 22.E GTE further contends that the amount of the credit should equal at least the subscriber line charge and be linked to an inflation index so that the passage of time does not  X1-dilute the effectiveness of the program.HZ1" {O|-ԍ GTE further comments at 22 n.47. See also Time Warner further comments at 56 (supporting "portable" subsidies expressed as specific dollar amounts, rather than as percentage "discounts" off the regular price of the service).  360 recommends giving the subsidy directly to consumers through vouchers consumers could use with the telecommunications provider of  X -their choice.<I " yOp-ԍ 360 comments at 8.< TIA and Michigan Consumer Federation also suggest vouchers, with the  X -latter emphasizing that vouchers should be convenient and nonstigmatizing.mJ L " yO-ԍ Michigan Consumer Federation comments at 23; TIA comments at 2 n.2.m AT&T maintains that small, rural carriers should be exempted from a portability requirement because  X -the administrative costs of portability could outweigh the benefits.KX " yOK-ԍ AT&T comments at 9 n.12 (once a state commission determines that it is in the public interest for a rural carrier to interconnect with new entrants in their territory pursuant to  251(f)(1)(B), however, the subsidy should become portable).  X-x410.` ` Modify Link Up. Some commenters also propose modifications to the Link Up program. MCI, NCTA, and LDDS, for example, suggest modifying the Link Up program so that it is no longer based on jurisdictional separations rules, and therefore all  XK-telecommunications carriers can be required to participate.hLK" yO$-ԍ LDDS comments at 19; MCI comments at 56; NCTA comments at 15.h PULP argues that support should be increased so that qualifying customers pay no more than $10.00 in installation"4L*&&dd"  X-charges.>M" yOy-ԍ PULP comments at 20.> Texas OPUC suggests that the Link Up program be supported by new universal  X-service support mechanisms, rather than by IXCs.DNX" yO-ԍ Texas OPUC comments at 17.D Catholic Conference would amend Link  X-Up to provide assistance for more than one initiation of service per year.O" {Ok-ԍ Catholic Conference comments at 22. See also NTIA reply comments at 1819 (suggesting allowing subscribers to receive more frequent assistance with installation charges if they accept toll blocking).  X-x411.` ` Who Should Determine Eligibility. Most states and state public utility commissions argue that the states should determine eligibility criteria for universal service  Xv-lowincome support.PvB" {Oi -ԍ  See, e.g., Alaska comments at 14; Ohio PUC comments at 11 (but recommending that no household earning more than 150 percent of the poverty level be eligible for support); Virginia CC comments at 4. Michigan Consumer Federation argues that states should possess wide  X_-latitude to tailor eligibility criteria to reflect local needs and circumstances.VQ_" yO-ԍ Michigan Consumer Federation comments at 19.V It maintains that use of national standards could result in support that is too generous for some states and  X1-insufficient for others.\R1, " yO-ԍ Michigan Consumer Federation comments at 19.\ Other commenters note that the states should base eligibility on  X -enrollment in a federal program.S " {O-ԍ See, e.g., AT&T comments 1718 n.22; Virginia CC comments at 4 (advocating reliance on existing identifiers, e.g., Medicaid and Food Stamps, rather than inventing new definitions). AT&T maintains that states initially should set the maximum income threshold to establish eligibility and then identify one or more assistance  X -programs in which a consumer must participate in order to qualify.FT " yO-ԍ AT&T comments at 1718 n.22.F NCTA, however, maintains that lowincome customers eligible for support should be defined consistently across  X -the country, rather than on a statebystate basis.>U " yO-ԍ NCTA comments at 14.>  X-x412.` ` Bases on Which to Determine Eligibility. Commenters suggest a variety of methods to determine eligibility for support. Florida PSC recommends providing support to  Xb-individuals who receive state assistance.EVb6" yOI#-ԍ Florida PSC comments at 17.E NCTAAWb" yO$-ԍ NCTA comments at 1416.A suggests basing eligibility on whether the consumer receives federal assistance from one of the four major assistance programs: Aid"KVW*&&dd"  X-to Families with Dependent Children (AFDC);FXX" yOy-ԍ AFDC provides transitional financial assistance to needy families. Federal and state governments share the cost. The federal government provides broad guidelines and program requirements, and states are responsible for program formulation, benefit determinations, and administration.F Supplemental Security Income (SSI);Y" yO-ԍ SSI provides financial assistance to people who are 65 or older, blind, or have a disability and who meet certain income guidelines.  X-Food Stamps;=ZX@" yO-ԍ The Food Stamp Program is designed to increase the food purchasing power of eligible lowincome households. Benefits are available to nearly all households that meet federal eligibility tests. Recipients of AFDC and SSI generally are automatically eligible for food stamps.= and Medicaid.[X` " yO -ԍ States are required to provide Medicaid coverage for most individuals who receive federally assisted income maintenance payments, such as AFDC and SSI. In addition, states have the option of providing Medicaid coverage to other groups. PULP proposes to include customers receiving either federal or statefunded assistance, while providing the states with the ability to include consumers who have incomes slightly above the levels required to receive federal government  X-assistance.>\ " yO-ԍ PULP comments at 19.> MPSC, among others, emphasizes that enrollment should be automatic, so that  X-recipients of AFDC, for example, are automatically enrolled in Lifeline.D]" yON-ԍ Montana PSC comments at 5.D New York DPS supports automatic enrollment and reevaluating eligibility using merged telephone company  X_-and social service agency databases.F^_" yO-ԍ New York DPS comments at 14.F New York DPS claims that the merged databases reduce costs by terminating support to ineligible households, while also increasing  X1-subscribership among qualifying households.L_10" {O-ԍ New York DPS comments at 14.L Other commenters suggest providing support  X -to people who receive an Earned Income Credit on their tax returns.E` " yO-ԍ Florida PSC comments at 17.E Community Colleges  X -maintains that community colleges should be considered lowincome consumers.Ka R" yO -ԍ Community Colleges comments at 5.K Catholic  X -Conference recommends extending subsidies to schools and shelters that supply telephone service free of charge to the indigent, homeless, migrant workers, and victims of domestic  X -violence.Pb " yOQ$-ԍ Catholic Conference comments at 2122.P La Raza advocates providing support to nonprofit charitable organizations that" rb*&&dd> "  X-offer advanced telecommunications services to lowincome consumers.Dc" yOy-ԍ La Raza comments at 1718.D  X-x413.` ` Several commenters suggest that households living below a certain percentage  X-of the poverty line should be eligible for support.=d\X" {O-ԍ  See, e.g., AARP comments at 2021 (advocating selfcertification, with verification, for qualifying  {O-households); Puerto Rico Tel. Co. comments at 10; Edgemont reply comments at 4. See also NASUCA comments at 7 (advocating selfcertification). = Puerto Rico Tel. Co. uses the poverty  X-line as the demarcation of eligibility for support.Ne|" yO -ԍ Puerto Rico Tel. Co. comments at 10.N AARP, for example, suggests that households with income below 125 percent of the poverty line are eligible for support, while  Xv-Edgemont advocates a 150 percent demarcation level._fv " yO3-ԍ AARP comments at 2021; Edgemont reply comments at 4._ Several parties explicitly oppose  X_-using poverty levels as the determining factor.sg_" {O-ԍ See, e.g., Virginia CC comments at 34; NCTA reply comments at 17. s NCTA believes that poverty levels do not  XH-define with sufficient certainty who is covered and, ultimately, the size of the subsidy.>hH. " yO'-ԍ NCTA comments at 17.>  X -x414.` ` Ameritech, NYNEX, MFS, and NCTA emphasize that universal service support should be specifically targeted to only those customers who in fact need assistance to obtain  X -the designated services.i " yO[-ԍ NCTA comments at 17; NYNEX comments at 13; Ameritech reply comments at 17; MFS reply comments at 3. In this way, Ameritech contends, assistance for lowincome  X -consumers can work in tandem with the affordability benchmark rate for high cost areas.Ij " yO-ԍ Ameritech reply comments at 17.I  X -x415.` ` La Raza recommends that the Commission set a universal service goal with  X-regard to lowincome consumers to give effect to section 254(b).Fk" yO-ԍ La Raza reply comments at 4.F The goal La Raza  Xy-advocates would be that carriers in each state should work to achieve the statewide average rate of subscribership among lowincome, minority, and limitedEnglishspeaking communities  XK-in that state.LlK6" yO2$-ԍ La Raza reply comments at 4.L Similarly, NTIA recommends that the Commission adopt a "National Subscribership Goal" to ensure that the number of households with telephones among low"4l*&&dd"ԫ X-income households is at least equal to the national average.Dm" yOy-ԍ NTIA reply comments at 12.D  X-x ` ` 3. Discussion  X-x` `  a. Lifeline  Xv-x416.` ` We continue to be concerned about the low subscribership levels among lowincome consumers. Current penetration rates are only 87.1 percent among households with annual incomes less than $10,000.00 and 75 percent among households with annual incomes  X1-less than $5,000.00.n1X" {O: -ԍ Indus. Analysis Div., FCC, Monitoring Report May 1995 CC Docket No. 87339 (1996) (Monitoring  {O -Report). Affordable access is also an issue in insular jurisdictions, where the cost of providing service is high and incomes are often low. In Puerto Rico, which has a higher than average percentage of lowincome consumers, telephone subscribership is 72  X -percent, compared to almost 94 percent in the rest of the United States.Mo " yOQ-ԍ Puerto Rico Tel. Co. comments at 8.M Additionally, the Governor of Guam maintains that lowincome consumers in Guam may not have access to  X -interexchange and advanced services at affordable rates.Mp D" yO-ԍ Governor of Guam comments at 1213.M Subscribership levels among lowincome consumers indicate that changes in the current Lifeline program are warranted.  Xy-x417.` ` Currently, only 41 states, the District of Columbia and the U.S. Virgin Islands  Xb-participate in Lifeline.Uq\b" {O-ԍ Indus. Analysis Div., FCC, Monitoring Report May 1995 CC Docket No. 87339, at tbl. 2.1 (1996)  {O-(Monitoring Report). The states without Lifeline programs are: Delaware; Indiana; Iowa; Kansas; Kentucky; Louisiana; Nebraska; New Hampshire; New Jersey; and Puerto Rico. U Therefore, the Joint Board recommends modifying the federal  XK-Lifeline program to reach lowincome consumers in every state.rK " yO-ԍ Hereinafter, "states" will refer to all states, territories, and commonwealths within the jurisdiction of the United States. We further recommend that, in order to be eligible for support from the new national universal service support mechanism pursuant to section 214(e)(1), carriers must offer Lifeline assistance to eligible lowincome customers. We find that these modifications will serve as a means of fulfilling the statutory principle that telecommunications services should be available to lowincome  X-consumers "in all regions of the Nation."CsP " yO$-ԍ 47 U.S.C.  254(b)(3).C Moreover, we conclude that these proposed changes are consistent with section 254 and the procompetitive goals of the 1996 Act. The"s*&&dd" Commission's current Lifeline program requires states to provide support from intrastate sources to reduce Lifeline subscribers' bills by an amount at least equal to the amount of federal support. As a result, lowincome consumers in states choosing not to provide such matching support lack the opportunity to benefit from the Lifeline program. We recommend that the Commission modify the Lifeline program to ensure that lowincome consumers may  X-receive Lifeline support without regard to the state in which they reside.t" {O-ԍ See 47 U.S.C.  254(c)(3) (establishing a policy of universal service support for "[c]onsumers in all regions of the Nation, including lowincome consumers"). We are reluctant, however, to recommend mandatory participation by states or carriers in a program that requires states to generate support from the intrastate jurisdiction.  X1-x418. ` ` One possible solution to this problem would be to eliminate the requirement of intrastate matching support as a condition of receiving federal support for Lifeline. We are concerned, however, that eliminating the matching requirement might reduce a state's incentive to provide intrastate support to reduce Lifeline rates further. Although the current Lifeline program, which provides for total reductions of at least $7.00 in Lifeline subscribers'  X -bills (including state matching support)Du "" yO-ԍ All states that currently participate in Lifeline participate in Plan 2, which provides for a full waiver of the $3.50 SLC and requires state matching (for a total of $7.00 in support), with the exception of California.  {O!-See FCC Monitoring Report, CC Docket No. 80286, Table 2.1 (rel. May 1996). Although California participates in Plan 1, and therefore receives only $1.75 in federal support per subscriber, California generates intrastate support to allow Lifeline rate reductions of at least $7.00 in total.D has been successful,v " yOC-ԍ Its success is demonstrated by commenters' widespread support of the program, as well as Congress's endorsement of it in section 254(j). we are uncertain whether $3.50 in federal support, absent state matching, would reduce lowincome consumers' monthly bills sufficiently to achieve our goals here. Moreover, we find that it would be desirable to maintain a state role in the Lifeline program, to the extent possible, because of the states' greater familiarity with income levels, demographic patterns, and other factors affecting lowincome subscribership.  X-x419. ` ` In order to reconcile our finding that Lifeline support should be extended to all states with our desire to maximize states' incentives to generate matching intrastate support for the program, we recommend that the Commission eliminate the state matching requirement and provide for a baseline level of federal support that would be available to lowincome consumers in all states. In order to ensure adequate Lifeline support in states that choose not to generate intrastate matching funds, we believe this baseline federal support level should exceed the current $3.50. To maximize matching incentives, however, we believe the baseline support level should be less than $7.00. We therefore propose a baseline federal level halfway between the two figures at $5.25, and recommend that the Commission seek additional information on this issue before establishing a precise baseline level. To create"N, v*&&dd" further incentives for matching, we recommend that the Commission provide for additional federal support equal to one half of any support generated from the intrastate jurisdiction, up to a maximum of $7.00 in federal support.  X-x420. ` ` Although we believe this recommendation will best reconcile our competing objectives of providing adequate nationwide support and maximizing state matching incentives, we are concerned that the implementation of this recommendation could have no direct effect on Lifeline subscribers' rates in many populous states with existing Lifeline programs, and could instead result only in a larger percentage of the total support being generated from federal sources. Therefore we recommend that the Commission seek additional information on ways to avoid this unintended consequence before implementing this recommendation.  X -x421. ` ` We also find it essential that the state members of the Joint Board maintain a continuing role in refining specific aspects of the Lifeline program. The state members of the Joint Board will submit a report to the Commission on Lifeline issues. The report of the state members will be filed prior to the Commission's decision on the Lifeline program in this proceeding. Thereafter, the Commission and the state members should continue to work cooperatively and remain integrally involved in refining the Lifeline program.  X4-x422.` ` We observe that many states currently generate their matching funds through the rateregulation process. These states allow incumbent LECs to recover the revenue the carrier loses from charging Lifeline customers less by charging other subscribers more. This creates two potential problems. First, this mechanism represents an implicit subsidy, with nonLifeline subscribers paying more to support Lifeline subscribers. Second, it raises the question of how states would meet their matching requirement for carriers whose rates they do not regulate. Thus, we recommend that matching funds from the intrastate jurisdiction must be generated in a manner that is not inconsistent with the Commission's rules to preserve and  X|-advance universal service.Jw|" {O-ԍ See 47 U.S.C.  254(f).J  XN-x423.` ` To make the Commission's Lifeline program competitively neutral, the Joint Board recommends that support for eligible lowincome consumers no longer be achieved through charges levied on only IXCs. We recommend that the programs be supported by a fund to which all telecommunications carriers that provide interstate service contribute on an equitable and nondiscriminatory basis as a function of their revenues, consistent with sections 254(d) and (e). Thus, for example, LECs, wireless carriers, and other interstate telecommunications service providers would contribute. Delinking Lifeline from the Commission's Part 69 rules would promote competitive neutrality by allowing the participation of carriers who do not charge SLCs, such as CLECs and wireless providers. Some commenters oppose changing the current contribution mechanism because the current"#Zw*&&dde""  X-programs are specifically targeted to individual subscribers.dx" yOy-ԍ PacTel further comments at 59; SNET further comments at 7.d Nevertheless, we conclude, as  X-do many commenters,y"X" {O-ԍ See, e.g., AT&T reply comments at 21; Ameritech further comments at 47; BellSouth further comments at 56; CFA further comments at 27; CompTel further comments at 14; GSA further comments at 16; GTE further comments at 60; MCI further comments at 3233; MFS further comments at 53; NYNEX further  yOL-comments at 48; Sprint further comments at 19.@ that the new funding mechanism we recommend will be more competitively neutral than the current system, which passes the entire federal burden of lowincome support to IXCs, without sacrificing the targeting that has characterized the current program. We also conclude that lowincome consumers will continue to benefit directly under our recommendation.  X_-x424.` ` In addition to changing the contribution method for the Lifeline program, we recommend amending the program to enable all eligible telecommunications carriers, not just LECs, to be eligible to receive support for serving qualified lowincome consumers. Currently, only ILECs serving eligible lowincome consumers can receive support. With the approval of state utility commissions, ILECs offer eligible lowincome individuals reduced local rates, with reductions equal to at least the full amount of the SLC ($3.50), or more,  X -depending on the level of state support.:z B" {O-ԍ See supra.: The Commission currently certifies state programs based on a demonstration that they offer eligible subscribers a Lifeline rate that is discounted  X -by at least twice the level of SLC waiver that is requested (to account for state matching).M{ " {O,-ԍ See 47 C.F.R.  69.203(g).M Currently, NECA bills IXCs and disburses funds to the ILECs to compensate them for SLCs  Xy-not recovered from end users.@|yf " yO-ԍ 69 C.F.R.  69.117.@ We find, however, that eligible telecommunications carriers other than ILECs should have the ability to compete to serve lowincome consumers and in turn receive Lifeline support in a manner similar to the current program. We recommend that in order to participate, a carrier must demonstrate to the public utility commission of the state in which it operates that it offers a Lifeline rate to qualified individuals. We recommend that the Lifeline rate be the carrier's lowest comparable nonLifeline rate reduced by at least the $5.25 amount of federal support. We further recommend that support be provided directly to carriers based on the number of eligible consumers they serve under administrative procedures  X-determined by the fund administrator.X} " {Oh#-ԍ See infra section XIII (Administration).X In the interest of administrative ease, we  X-recommend against the use of vouchers, as proposed by some commenters.~ " {O%-ԍ See, e.g., 360 comments at 8; Michigan Consumer Federation comments at 23; TIA comments at 2 n.2."~*&&dd"Ԍ X-ԙx425.` ` Currently, state agencies or telephone companies administer customer eligibility  X-determinations pursuant to narrowlytargeted programs approved by the Commission.Q" {Ob-ԍ  See 47 C.F.R.  69.104(j)(k).Q We recommend that the Commission maintain this basic framework for administering Lifeline eligibility in states that provide matching support for the Lifeline program. We believe such criteria provide states with sufficient flexibility to target support based on each state's particular needs and circumstances. We also recommend that the Commission require states that provide matching funds to base eligibility criteria solely on income or factors directly related to income (such as participation in a lowincome assistance program). Currently, some states only make Lifeline assistance available to lowincome individuals who, for example, are elderly or have disabilities. We find that Congress's intent would best be served if all low X -income consumers had access to Lifeline assistance. We further recommend that the Commission adopt specific meanstested eligibility standards to apply in states that choose not to provide matching support from the intrastate jurisdiction. Specifically, we recommend that lowincome consumers participating in a stateadministered, lowincome welfare program (and who are not considered dependents for federal income tax purposes, with the exception of dependents over the age of 60) would be eligible for Lifeline assistance.  X-  Xy-x ` `  b. Link Up  XK-x426.` ` The Joint Board recommends that the Commission adopt the changes to the  X4-Link Up program's funding mechanism proposed in the NPRM.;4Z" yO?-ԍ NPRM at para. 64.; We recommend that the Link Up funding mechanism be removed from the jurisdictional separations rules, and that the program be funded through equitable and nondiscriminatory contributions from all interstate telecommunications carriers. Funding the program through contributions from all interstate carriers will allow for an explicit and competitively neutral funding mechanism consistent with sections 254(d) and (e).  X-x427.` ` We recommend that the Commission amend its Link Up rules to make the present level of Link Up support available to qualifying lowincome consumers requesting service from any telecommunications carrier providing local exchange service. Support would be available only for the primary residential connection. As amended, the Link Up rules should thus provide that any eligible telecommunications carrier may draw support from the new Link Up funding mechanism described above if that carrier offers to eligible customers a reduction of its service connection charges equal to one half of the carrier's customary connection charge or $30.00, whichever is less. Where the carrier offers eligible customers a deferred payment plan for connection charges, we recommend that the Commission provide support to reimburse carriers for waiving interest on the deferred charges for eligible subscribers as Link Up currently provides for incumbent LECs' charges. To ensure that the"!*&&dd " opportunity for carrier participation is competitively neutral, we recommend that the Commission's rules be amended to eliminate the requirement that the commencementof X-service charges eligible for support be filed in a state tariff.M" {OK-ԍ See 47 C.F.R.  36.711(d).M In the absence of evidence that increasing the level of Link Up support for connecting each eligible customer would significantly further universal service goals, however, we recommend that the level of support  X-for Link Up not be increased.OZ" {O-ԍ See, e.g., PULP comments at 20.O  X_-x428.` ` With respect to subscribers' eligibility to participate in the Link Up program, the Joint Board recommends that the same modifications be made to the Link Up program that we have recommended for the Lifeline program. That is, we encourage states to set meanstested eligibility criteria, and we recommend that a federal eligibility "floor" be established that would serve as eligibility criteria in states that choose not to define means X -tested eligibility criteria of their own. Consistent with some commenters' proposals,^ " {O-ԍ See, e.g., Catholic Conference comments at 22.^ we also recommend that the Commission prohibit states from restricting the number of service connections per year for which lowincome consumers who relocate can receive Link Up support.  Xy-x429.` ` We find that carriers' high service deposits deter subscribership among low Xb-income consumers.;b~" yO-ԍ NPRM at para. 56.; Research suggests that carriers often require customers to pay high service deposits in order to initiate service, particularly when customers have had their service  X4-disconnected previously.l4" {O-ԍ NPRM at para. 56 (citing Subscribership Notice at 1300506).l We recommend that the Commission address this barrier to lowincome consumers' gaining or regaining access to the network for primary residential channels. We recommend that the Commission implement a national rule prohibiting telecommunications carriers from requiring Lifelineparticipating subscribers to pay service deposits in order to initiate service if the subscriber voluntarily elects to receive toll blocking.  X-We recommend in section VIII. B., supra, that universal service support be provided so that toll blocking is made available to all Lifeline participants at no additional charge. Although this rule regarding service deposits would not be a part of the Link Up program itself, it would serve the goal of assisting lowincome consumers to gain access to the network. GTE maintains that if service deposits are reduced or eliminated, LECs should be reimbursed for  XP-such reduction because universal service support should be explicit.=P" yO%-ԍ GTE comments at 23.= We find, however,"P0 *&&dd" that our recommendation will not place an undue burden on carriers because service deposits currently serve primarily to guard against the risk of nonpayment of toll charges, which many ILECs bill to customers on behalf of IXCs. This same protection will be created by the customer's election to receive toll blocking, a precondition to the restriction against requiring  X-service deposits.  X_- IX.xISSUES UNIQUE TO INSULAR AREAS  X1-x A. Background  X -x430. ` ` The 1996 Act states that consumers in insular areas should have access to telecommunications and information services, including interexchange services, advanced telecommunications services, and information services, (1) that are reasonably comparable to those services provided in urban areas and (2) that are available at rates that are reasonably  X -comparable to rates charges for similar services in urban areas.q " yO -ԍ#X\  P6G;ɒP#x47 U.S.C.  254(b)(3).q Congress stated that the Joint Board and the Commission were to consider consumers of insular areas, such as the Pacific Island territories, when developing support mechanisms for consumer access to  Xb-telecommunications and information services.{bX" yOk-ԍ#X\  P6G;ɒP#xJoint Explanatory Statement at 131.{ In the NPRM, the Commission requested  XK-comment on all issues affecting rural, insular and high cost areas.K" {O-ԍ#X\  P6G;ɒP#xSee, e.g., NPRM at paras. 1517, 2327. The Common Carrier Bureau's Public Notice asked three questions concerning consumers in insular areas: what, if any, programs (in addition to those aimed at high cost areas) are needed to ensure that insular areas have affordable telecommunications service; if a proxy model is used to determine the amount of universal service support, what, if any, measures are necessary to ensure that urban rates and rates in rural, insular, and high cost areas are reasonably comparable, as required in section 254(b)(3); and how should support be calculated for those areas (e.g., insular areas  X-and Alaska) that are not included under the proxy models.tz" yO-ԍ#X\  P6G;ɒP#xPublic Notice at question 6.t  X-  X|-xB. Comments  XN-x431. ` ` In General. Several commenters present special circumstances or issues pertaining to insular areas. Guam Tel. Authority states that insular areas are particularly affected by distancesensitive costs and suggests that the Joint Board and Commission create support for services that are most likely to be affected by distance. For example, it suggests"  *&&ddy" including Guam in flat, nondistancesensitive calling plans, and supporting services that may be prohibitively expensive due to distance, such as tollfree calling, calling card, directory  X-assistance, credit card verification, and number portability." {OK-ԍ#X\  P6G;ɒP#xGuam Tel. Authority comments at 67. See also Governor of Guam comments at 67; Vitelco reply comments at 67. The Governor of Guam notes that distancesensitive rates are high in Guam, because it is over 6,000 miles from San Francisco and 3,700 miles from Honolulu. The Governor of Guam advocates that differences in the cost of providing service due to remoteness or distance be offset by universal service  Xv-support mechanisms.v"" yOI -ԍ#C\  P6QɒP#xGovernor of Guam comments at 4, 67, 18. The Governor supports total and seamless rate and service integration, domestic rate averaging and universal support between Guam, other insular areas,  XH-and all U.S. locations.wH" yO -ԍ#C\  P6QɒP#xGovernor of Guam comments at 2.w Since Guam does not contain any urban areas, the Governor suggests that rates within Guam be compared to rates in urban areas located on the U.S. west  X -coast.} B" yO -ԍ#X\  P6G;ɒP#xGovernor of Guam reply comments at 5.}  X -x432. ` ` TollFree Access. CNMI suggests universal service support should be provided for access to tollfree services in insular areas. Currently, the Pacific Island territories are not part of the North American Numbering Plan (NANP). Consequently, in order for residents of the Northern Mariana Islands to place tollfree calls to the U.S., they must pay 99 cents per minute to the Micronesia Telephone Company, which places international (011+1880) calls to Hawaii, where the link to the U.S. domestic 800 network occurs. Thus, tollfree calls in the  Xb-islands are not currently tollfree.:b" yO-ԍ#X\  P6G;ɒP#xLetter from Thomas K. Crowe, Counsel for the Commonwealth of the Northern Mariana Islands, to  {O-William F. Caton, Secretary, FCC, September 24, 1996 (Commonwealth of Northern Mariana Islands Ex Parte). : CNMI expresses concern that once the Northern Mariana Islands are part of the NANP, businesses that use tollfree numbers (800, 888) will not want to incur the expense of serving the islands. CNMI suggests, that if that happens, its residents will be cutoff from tollfree services because, under the Commission's paypercall rules Micronesia Telephone Company will not be able to charge for transporting a call to Hawaii where the call could be linked to the business's tollfree number, as currently occurs. CNMI asserts that Section 254(b)(3), which mandates that all consumers should have access to interexchange services, authorizes the Joint Board and the Commission to ensure that genuine tollfree service without paid access charges is available in insular areas, like  X-CNMI.t, " {Op$-ԍ#X\  P6G;ɒP#xCNMI ex Parte at 2, 5.t "| *&&ddP"Ԍ X-x433. ` ` Similarly, CNMI notes that calls to information service providers located in the U.S. are subject to the same charges as "tollfree calls" and therefore are considerably more  X-expensive than rates for information services in the continental U.S.l" yOK-ԍ#X\  P6G;ɒP#xCNMI comments at 14.l CNMI asserts that Section 254(b)(3), which requires that all consumers have access to information services at comparable rates, also authorizes the Joint Board and Commission to support access to  X-information services in the Northern Mariana Islands.qX" {O-ԍ#X\  P6G;ɒP#xCNMI Ex Parte at 5.q Furthermore, CNMI states that telecommunications service costs are extraordinarily high in the Northern Mariana Islands because international ratemaking practices apply to long distance calls between the Northern Mariana Islands and offisland points, including the U.S.; IXCs are subject to high carrier  X1-access charges,1" yO -ԍ#X\  P6G;ɒP# xGTE's terminating premium carrier common line charge in CNMI is $0.0835754 per minute. This rate  {O-is 7.66 times higher than GTE's rate in Alaska. See CNMI comments at 10. and, although consumers must place international calls to reach the U.S.,  X -Northern Mariana Islands' consumers are assessed domestic subscriber line charges.n D" yO-ԍ#X\  P6G;ɒP#xCNMI comments at 910.n  X -  X -x C.` ` Discussion  X -x434. ` ` We recognize the special circumstances faced by carriers and consumers in the insular areas of the United States, particularly the Pacific Island territories. We note at the outset that carriers in these areas, like all other carriers, will be eligible for universal service support if they serve high cost areas. In their comments, Vitelco and Puerto Rico Tel. Co. set out some of the problems that carriers in insular areas face in providing telephone service, such as increased costs of shipping equipment and damage caused by hurricanes and tropical  X4-storms.4" {O-ԍxSee Puerto Rico Tel. Co. reply comments at 12; Vitelco further comments at 911. The Hawaii Division of Consumer Advocacy also notes because of Hawaii's remoteness from the mainland carriers faces high costs and technical obstacles in providing  X-service.f " {O-ԍxState of Hawaii Division of Consumer Advocacy, ex parte (dated Oct. 9, 1996). For those reasons, we recommend that rural carriers serving high cost insular  X-areas, as well as rural carriers serving high cost areas in Alaska,8Z " yO!-ԍ Carriers in Alaska also confront unique circumstances in providing service, such as limited construction  {O`"-periods and the extreme remoteness of the many rural communities. See Alaska Public Utilities Commission, Public Hearing, August 22, 1996.8 should continue to receive universal service support based on their embedded costs. We also note that lowincome residents living in these areas would benefit from the modifications that we have recommended to the Lifeline and Linkup programs. Likewise, schools, libraries, and rural"*&&dd" health care providers in insular areas will benefit from the programs we recommend for providing telecommunications services to those institutions.  X-x435. ` ` We recommend that the Commission take no specific action regarding cost support for toll service to the Northern Mariana Islands at this time, but revisit this issue at a later date. Guam and the Northern Mariana Islands will be included in the North American  Xv-Numbering Plan by July 1, 1997. To implement section 254(g),Gv" yO-ԍx47 U.S.C.  254(g).G the Commission will require interstate carriers serving the Pacific Island territories to integrate their rates with the  XH-rates for services that they provide to other states no later than August 1, 1997.DHX" yOQ -ԍxAn interexchange carrier must establish rates for services provided to the Northern Mariana Islands and Guam consistent with the rate methodology that it employs for services it provides to other states. Carriers can choose among several ways to integrate the rates for services to these islands, including expanding mileage bands, adding mileage bands or offering postalized rates. A carrier must also offer optional calling plans, contract tariffs, discounts, promotions, and private line services using the same rate methodology and structure  {O9-that it uses in offering those services to subscribers on the mainland. Policy and Rules Concerning the Interstate,  {O-Interexchange Marketplace, Implementation of Section 254(g) of the Communications Act of 1934, as amended, Report and Order, 11 FCC Rcd 9564, 959697 (1996). x  X -x436. ` ` Once those carriers integrate their rates, the residents of Guam and the Northern Mariana Islands will be able to make 1+ calls to the mainland United States at domestic instead of international rates. Residents of Guam and the Northern Mariana Islands will also have direct access to tollfree (e.g., 800, 888) services. The decision whether to provide tollfree services to a specific area, such as the Pacific Island territories, is a business decision of the carrier's business customer, weighing the cost of toll charges to the islands against the economic benefit of providing toll free access. Businesses currently make that same determination in deciding in which areas to provide toll free access within the fifty  Xb-states, and, for business reasons, some of them choose to limit access to certain areas.axbd " yOw-ԍ AT&T sells printed yellow page directories of 800 numbers. For each 800 number, the directory indicates whether the number is accessible from the entire U.S. or from only selected geographic areas. Where the number is accessible only from certain states, the relevant states are listed. Geographic restrictions are more common for firms tending to serve specific geographic areas (for example, home improvement contractors) than for firms serving more widely distributed customers (for example, hotels). See AT&T Toll-Free 800 Directory: 1993 Business Edition. a Similarly, information service providers make the same type of business decision as to whether to locate in a certain area or provide tollfree access to an area. Until the islands join the NANP and are included in carriers' rate averaging, it is difficult for businesses to make such judgments as to whether, and how, to serve the islands.  X-x437. ` ` We are concerned that residents of Guam and the Northern Mariana Islands"*&&ddr" have access to toll free service and information services. We therefore recommend that the Commission revisit the question of comparable access and rates for tollfree and information services at some time after the Pacific Island territories have been included in the NANP and have integrated rates to determine whether there is any need to support these services. We also note that there will periodic review of the definition of universal service and that any change in that definition may justify providing support for these services.  XH- X. SCHOOLS AND LIBRARIES  X -x A. Overview  X -  X -x438.` ` The 1996 Act explicitly designates elementary and secondary schools and  X -libraries among the entities eligible to receive the benefits of universal service support.x " {ON-#X\  P6G;ɒP#э See generally 47 U.S.C.  254.x Specifically, section 254(c)(3) defines universal service for schools and libraries as  X -telecommunications services and any "additional services" designated by the Commission,C Z" yO-ԍ 47 U.S.C.  254(c)(3).C and section 254(h)(2) defines universal service in terms of access to "advanced  Xy-telecommunications and information services."Fy" yO-ԍ 47 U.S.C.  254(h)(2)(A).F Section 254(h)(2) requires the Commission to establish competitively neutral rules designed to enhance access, "to the extent technically feasible and economically reasonable," to advanced telecommunications and information  X4-services for elementary and secondary school classrooms and libraries.m4z" yO_-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(2)(A).m The joint conferees stated that they expected the Joint Board to consider the specific needs of schools and libraries  X-in defining the services eligible for universal service support.M " yO-ԍ Joint Explanatory Statement at 133.M  X-x439.` ` Section 254(h)(1)(B) provides that services within the definition of universal service shall be provided to schools and libraries at a discount. The discount shall result in  X-"rates less than the amounts charged for similar services to other parties,"m" yO!-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B).m and be sufficient  X-to ensure affordable access to and use of such services.m* " yOn$-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B).m Section 254 also places several restrictions on schools and libraries receiving services funded by universal service support"| *&&ddn" mechanisms. Schools and libraries must meet statutory eligibility criteria, may not resell any services provided under section 254, must make a bona fide request for the services, and must  X-use the services for educational purposes.m" yOK-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B).m Carriers providing services to eligible schools and libraries shall be compensated for any discount they are required to grant through either an offset to their universal service obligations or reimbursement from universal service  X-support mechanisms.mX" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B).m  X_-x440.` ` In this section, we recommend that, consistent with section 254(h), all eligible schools and libraries may receive discounts of between 20 and 90 percent on all telecommunications services, Internet access, and internal connections, subject to a $2.25 billion annual cap. In addition, any funds that are not disbursed in a given year may be carried forward, and may be disbursed in subsequent years without regard to the cap. We find that this recommendation provides schools and libraries with the maximum flexibility to purchase the package of services they believe will be most effective to meet their respective communications needs. We also conclude that economically disadvantaged schools and libraries, as well as schools and libraries located in high cost areas, should receive greater discounts to ensure that they have affordable access to telecommunications and information services. Further, we recommend that schools and libraries be required to comply with several selfcertification requirements, designed to ensure that only eligible entities receive universal support and that they have adopted plans for securing costeffective access to and use of all of the services purchased under section 254(h).  X-x B. Functionalities/Services Eligible for Support x` ` 1. Background  X-  X-x441.` ` Section 254 defines the services that are to be supported for schools and  X-libraries in terms of "telecommunications services,"j" yO,-#X\  P6G;ɒP#э 47 U.S.C.  254(c)(1).j "special" or "additional" services,Cx" yO-ԍ 47 U.S.C.  254(c)(3).C  X|-and access to "advanced telecommunications and information services."F|" yO5"-ԍ 47 U.S.C.  254(h)(2)(A).F Specifically, section 254(c)(3) states that "in addition to the services included in the definition of universal service under paragraph [c] (1), the Commission may designate additional services for such"*&&dd" support mechanisms for schools, [and] libraries . . . for the purposes of subsection [254]  X-(h)."w" {Oy-#X\  P6G;ɒP#э 47 U.S.C.  254(c)(3). w Section 254(h)(2) states that "[t]he Commission shall establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit  X-elementary and secondary school classrooms . . . and libraries."mq" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(2)(A).m  Xv-x442.` ` Congress recognized the importance of telecommunications and related services to schools and libraries when it enacted the 1996 Act: x` ` The provisions of subsection [254] (h) will help open new worlds of x` ` knowledge, learning and education to all Americans x` ` rich and poor, rural and urban. They are intended, for example, x` ` to provide the ability to browse library collections, review the x` ` collections of museums, or find new information on the x` ` treatment of illness, to Americans everywhere via schools and x` ` libraries. This universal access will assure that no one is barred  X-x` ` from benefiting from the power of the Information Age.w" yOB-#X\  P6G;ɒP#э Joint Explanatory Statement at 13233.w  Xb-x443.` ` In terms of specific services that Congress anticipated would be included in the definition of section 254(h)(2) "advanced telecommunications and information services," Congress enumerated the following possibilities: XxX` ` For example, the Commission could determine that telecommunications(#` XxX` ` and information services that constitute universal service for classrooms(#` XxX` ` and libraries shall include dedicated data links and the ability to obtain(#` XxX` ` access to educational materials, research information, statistics, information(#` XxX` ` on Government services, reports developed by Federal, State, and local(#`  X-XxX` ` governments, and information services which can be carried over the(#`  X~-XxX` ` Internet.s~" {O-#X\  P6G;ɒP#э Id. at 133 (emphasis added).s(#`  XR-x444. Congress also provided in section 254(c)(2) that "[t]he Joint Board may, from time to time, recommend to the Commission modifications in the definition of the";#*&&dd"  X-services that are supported by Federal universal service support mechanisms."[Z" {Oy-#X\  P6G;ɒP#э 47 U.S.C.  254(c)(2). See also 47 U.S.C.  254(a)(2) (providing that "the Commission shall complete any proceeding to implement subsequent recommendations from any Joint Board on universal service within one year after receiving such recommendations").[ Congress anticipated that the definition of universal service would develop over time when it described  X-universal service as an "evolving" concept.j" yOm-#X\  P6G;ɒP#э 47 U.S.C.  254(c)(1).j Congress specifically gave the Commission the authority to "alter the definition from time to time, and to provide a different definition  X-for schools, [and] libraries."tz" yO -#X\  P6G;ɒP#э Joint Explanatory Statement at 131.t Moreover, in its consideration of "additional" services under section 254(c)(3), Congress authorized the Commission to specify a distinct definition of  Xv-universal service that would apply only to public institutional telecommunications users.bv " {O1-#X\  P6G;ɒP#э Id. at 133.b The conferees stated that they expected "the Commission and the Joint Board to take into  XH-account the particular needs of . . . K12 schools and libraries."ZH" {O-#X\  P6G;ɒP#э Id.Z  X -x445.` ` In the NPRM, the Commission sought comment on services to be included  X -within the section 254(c)(1) definition of "core" telecommunications services. . " {O-#X\  P6G;ɒP#э NPRM at para. 77. See supra section IV for a discussion of core services. The NPRM proposed incorporating the "core" services included in the general definition of universal service under section 254(c)(1), as well as "any other services designated for support pursuant to section 254(c)(3)," in the category of services eligible for a discount for schools and  X -libraries.n " yO-#X\  P6G;ɒP#э NPRM at para. 77.n Further, the NPRM sought comment and Joint Board recommendation on how the definition of universal service for schools and libraries should reflect the section 254(c)(1) mandate to consider future "advances in telecommunications and information technologies and  Xb-services."hbP " {Oc-#X\  P6G;ɒP#э NPRM at para. 81.h In the Public Notice, the Common Carrier Bureau sought further comment on whether the services and functionalities eligible for discount should be specifically limited or  X4-identified, or whether the discount should apply to all available services.k4" yO"-#X\  P6G;ɒP#э Public Notice.k  X-x446.` ` The Commission asked commenters to identify what "additional" services carriers must make available to schools and libraries pursuant to section 254(c)(3) and what"r*&&ddE"  X-services must be provided at a discount pursuant to section 254(h)(1)(B).p" {Oy-#X\  P6G;ɒP#э  NPRM at paras. 78 and 80.p The NPRM also sought comment on what functionalities should be supported through universal service mechanisms for schools and libraries, as well as what facilities are required to provide those  X-functionalities.bZ" yO-#X\  P6G;ɒP#э NPRM at para. 80.b The NPRM noted that different kinds of services may require different capacity and different speed links. For example, schools and libraries requiring video links to  X-permit teleconferencing may require T1 links," yO( -#X\  P6G;ɒP#э A T1 line is equivalent to 24 voice channels, or 1.544 Mbps. while schools and libraries wishing to  Xv-provide high quality, fullmotion video may require a DS3 link.vz" yO -#X\  P6G;ɒP#э NPRM at para. 80 n.174. A DS3 link, also known as a T3 line, is equivalent to 672 voice channels, or 44.736 Mbps. The NPRM also sought comment on whether wireless technologies could provide a more efficient way of delivering  XH-any of the services designated for universal service support.nH" yO-#X\  P6G;ɒP#э NPRM at para. 81.n  X -x447.` ` In the NPRM, the Commission asked commenters to identify which services would qualify as "advanced telecommunications and information services" pursuant to section  X -254(h)(2).c b " yO-#X\  P6G;ɒP#э NPRM at para. 109.c The NPRM also sought comment on the features and functionalities necessary  X -to give classrooms, libraries, and health care providers access to those services.< " yOx-ԍ NPRM at para. 109.< The NPRM asked whether the "advanced telecommunications and information "services identified pursuant to section 254(h)(2) should be broader, narrower, or identical to the services  X-supported under sections 254(c)(3) and (h)(1).< " yO-ԍ NPRM at para. 109.< In addition, the NPRM asked how the Commission should assess whether specific services providing access to advanced telecommunications and information services are "technically feasible and economically  XK-reasonable."<K" yO!-ԍ NPRM at para. 110.<  X-x` ` 2. Comments  X-x448.` ` In General. Some commenters assert that universal service support should be provided only for the "core" telecommunications services provided under section 254(c)(1)"*&&dd&"  X-and that were proposed for rural, insular, and high cost areas." {Oy-#X\  P6G;ɒP#э See, e.g., Cincinnati Bell comments at 14; TCI comments at 1823; Ameritech reply comments at 18. TCI, for example, contends that requiring carriers to provide services beyond the "core" services would impose costs on the carriers, thereby limiting and delaying the ability of new entrants to enter the local  X-telephone market.gZ" yO-#X\  P6G;ɒP#э TCI comments at 1920.g Ameritech adds that additional federal mandates regarding which specific services and technologies should be deployed for schools and libraries would be inadvisable in light of the "bold initiatives [that] are already underway in various states to  Xv-bring telecommunications services and technology into various states."_Zv" yO -#X\  P6G;ɒP#э Ameritech reply comments at 19. Ameritech outlines the investments it has made in educational  {O -infrastructure and classroom solutions, as well as recent pilot projects and programs, in its fivestate area. See Ameritech reply comments, Att. A._  XH-x449.` ` Other commenters contend that universal service support should be provided for  X1-"core" services plus some complement of supplementary services.1 " yO-#X\  P6G;ɒP#э Florida Cable comments at 13; NCTA comments at 17; West Virginia Consumer Advocate comments at 1011. Some commenters, for example, identify specific sets of functionalities that they would like to see funded as either "additional" or "advanced" services. NSBA I, which filed comments in conjunction with 23 other schools and libraries groups, asserts that internal connections should be included in the  X -definition of services eligible for universal service support. d " {O-#X\  P6G;ɒP#э NSBA I comments at 7, 14. See infra section X.C. for a discussion of internal connections. West Virginia Consumer Advocate "recommends that carriers be required to provide at least one 56 kbps dedicated line  X -to each school in their geographic service territory at a discount." " yON-#X\  P6G;ɒP#э West Virginia Consumer Advocate comments at 1011. Florida PSC recommends that the Commission initially establish a dollar limit on expenditures that reflects the connection charge of a 56 kilobits per second (kbps) digital service and the monthly  Xb-service charge of ISDNBRI.&b " yO-#X\  P6G;ɒP#э Florida PSC reply comments at 23, 67. ISDN (basic rate), or ISDNBRI, is equivalent to two 64 kbps voice channels plus one 16 kbps signaling channel, or 144 kbps. ISDN (primary rate) is equivalent to 1.5 mbps.& Louisiana PSC advocates support for ISDN and T1  XK-service,pK" yO!-#X\  P6G;ɒP#э Louisiana PSC comments at 56. p Missouri PSC supports inclusion of interactive video,mKn" yOj#-#X\  P6G;ɒP#э Missouri PSC comments at 14.m and North of Boston  X4-Library Exchange suggests that T3 lines should be funded.4" yO%-#X\  P6G;ɒP#э North of Boston Library Exchange comments at 1. U S West states that"4*&&dd" additional services for schools and libraries should consist of a 56/64 kbps access line, and favors limiting services in order to minimize the size of the universal service fund and to  X-maximize the available discount for schools and libraries.$" {OK-#X\  P6G;ɒP#э U S West comments at 2022. See also Lincoln reply comments at 7 (stating that "only access to services, except for core universal services, should be subsidized for [schools and libraries]").$ Mass Library asserts that discounts should be applied to maintenance of lines providing telecommunications services to  X-schools and libraries.t"" yOw-#X\  P6G;ɒP#э Mass Library comments at 3. t  Xv-x450.` ` Numerous commenters assert that any telecommunications service available in the marketplace should be funded for schools and libraries through universal service support  XH-mechanisms.H" {O -#X\  P6G;ɒP#э See, e.g., ALA comments at 1; Alaska Library comments at 6; Ameritech comments at 15; Guam  yOu-comments at 14; NSBA I comments at 1317; NYNEX comments at 1821; Pennsylvania Library Ass'n reply comments at 6; Union City Board of Education reply comments at 6; Colorado Library further comments at 6; EDLINC further comments at 810. Under Bell Atlantic's revised universal service proposal, schools and libraries would have the right to use universal service funds for any available telecommunications service  {O-obtained from any carrier. See Bell Atlantic further comments at 3 and Att. B. NTIA's proposal, which incorporates a more narrowly defined package of free services, would permit schools and libraries to apply the value of that package to any  X -other telecommunications services.HX . " yO-ԍ Letter from Richard W. Riley, Secretary of Education, Daniel R. Glickman, Secretary of Agriculture, and Michael Kantor, Secretary of Commerce to Reed E. Hundt, Chairman, Federal Communications Commission, transmitting NTIA further comments at 9, 1315 (Oct. 10, 1996) (NTIA submission).H NTIA asserts that "[a]ll schools and libraries must have  X -flexibility in procuring needed telecommunications and information services."F N " yO-ԍ NTIA submission at 7, 1415.F These commenters argue that schools and libraries should be encouraged to purchase the services that best match their needs, and that limiting the services available for discounts would place artificial constraints on their choices. This limitation may lead to less useful purchases. Many commenters contend that the Commission should not specify services that must be  X-made available and funded through universal service support mechanisms." {O-#X\  P6G;ɒP#э See, e.g., Ameritech comments at 15; Citizens Utilities comments at 20; Idaho PUC comments at 10;  {O-Sprint comments at 23; Union City Board of Education reply comments at 6. Washington Library contends that to "describe either `core' or `advanced' services in terms of a service or  Xb-technology would be difficult at least, and quickly obsolete at best."b:" yOM#-#X\  P6G;ɒP#э Washington Library comments at 9 (suggesting that the best way to determine what services to support is to articulate desired results and aggregate an overall inventory of technologies needed). Alliance for Public Technology maintains that "no one technology or type of electronic service can address"K*&&dd"  X-adequately the complex and emerging needs of schools and libraries."" yOy-#X\  P6G;ɒP#э Alliance for Public Technology comments at 16. Union City Board of Education emphasizes that the services available at a discount to schools and libraries should "evolve over time, so that they keep pace with the developments in communications  X-and information technology."X" yO-#X\  P6G;ɒP#э Union City Board of Education reply comments at 6.  X-x451.` ` Several commenters argue that the Commission should not be involved with defining services eligible for support for schools and libraries. For example, PacTel supports deferring to the states to determine what services their schools and libraries need, provided  XH-certain guidelines are met.fH" yO -#X\  P6G;ɒP#э PacTel comments at 4.f PacTel notes that "the needs of educational institutions may vary from state to state and a definition of what advanced service is needed for education in  X -one state may not be appropriate in another."\ x" {OC-#X\  P6G;ɒP#э PacTel comments at 4. See also Promoting Educational Infrastructure and the Role of the Florida  {O -Public Service Commission at 3334 (May 1996) (including a study of 17 states indicating those states have employed approximately a dozen different plans to discount telecommunications services for schools). Benton supports allowing educational  X -professionals, rather than regulators, to determine the services and functionalities they need.xZ " {OP-#X\  P6G;ɒP#э Benton further comments at 3. See also West Virginia Consumer Advocate reply comments at 5 (stating that "schools and libraries themselves should decide which services they need most"); CFA further comments at 1 (stating that institutional users should determine what services they need).x  X -x452.` ` Several commenters note that wireless services, if they are available for schools  X -and libraries, should be eligible for federal universal service support. " {O-#X\  P6G;ɒP#э See, e.g., ALA comments at 12; Apple comments at 3; Merit comments at 2; Missouri Library comments at 3. New York Regents contends that "[i]t may not be as important to consider whether wireless technologies are more or less efficient for the delivery of service as it is to consider how these technologies will  Xb-complement the others currently in use."pb" yO+ -#X\  P6G;ɒP#э New York Regents comments at 8.p Apple recommends that a mix of wireless and  XK-wireline options be provided to maximize efficiency and minimize costs.eK" yO"-#X\  P6G;ɒP#э Apple comments at 3.e Metricom states that wireless, unlicensed, and other services providing alternatives to traditional wireline services, should be eligible for universal service support because "[a]ny subsidy program must present to these users a range of choices and incentives that replicates those in the competitive"8*&&ddF"  X-marketplace."ZZ" {Oy-#X\  P6G;ɒP#э Metricom comments at 68. See also ACE comments at 14 (stating that, in the interest of competition, "it is not appropriate for the Commission to make any special provision or discount to either encourage or discourage development of wireless technologies").Z Michigan Library Ass'n asserts that since wireless technologies, personal communications service, and satellite technology may provide services more efficiently, those  X-technologies should be eligible for universal service support.9Z" {Om-#X\  P6G;ɒP#э Michigan Library comments at 12. See also Washington Library comments at 12 (citing the state of Alaska as a wireless success story and the Fort Vancouver Regional Library in Washington State as a lessthansuccessful story).9 ALA notes that wireless technologies may be particularly useful in older schools and libraries where asbestos removal  X-may make the cost of inside wiring prohibitive.6Z " {Oa -#X\  P6G;ɒP#э ALA comments at 13. See also Missouri Library comments at 3 (noting that in addition to solving problems related to inside wiring, wireless connections may be an economical alternative for schools with multiple buildings).6 Iowa Communications Network, on the other hand, recommends that the Commission adopt rules that discourage the use of wireless technologies as a delivery platform because "wireless technology offers difficulties in both the ability to equip advanced services with multiple channels, and also, in the ability to acquire  XH-frequency licensing in some areas."H. " S'-#&a\  P6G; u&P#э # X\  P6G;ɒP#Iowa Communications Network comments at 2.  X -x453.` ` Numerous commenters address the question of what services and functionalities  X -should be included under the category of "advanced" services. " {O-ԍ See, e.g., MCI comments at 2223; Michigan Library Ass'n comments at 12; Missouri PSC comments at 14; Oakland School District comments at 78; Libraries for the Future reply comments at 13. Some commenters advocate  X -the inclusion of specific services or functionalities, including broadband services, (" {O-ԍ See, e.g., Ohio Consumers' Council comments at 15; Libraries for the Future reply comments at 3.  X -interactive services, " {O@-ԍ See, e.g., CWA comments at 1213; Iowa Communications Network comments at 2; Michigan Library Ass'n comments at 12; Missouri PSC comments at 14. voice messaging,S " {O-ԍ See New York Regents comments at 8.S video conferencing and teleconferencing  X -capabilities,T " {O"-ԍ See New York Regents comments at 10.T and highspeed data transmission. 8" {O#-ԍ See, e.g., CWA comments at 1213; Iowa Communications Network comments at 2; Ohio Consumers' Council comments at 15. United States Secretary of Education Richard Riley states that the Commission should adopt a broad definition of services that" *&&dd"  X-would include advanced services.eZ" {Oy-ԍ Richard Riley, Secretary of Education comments at 5. See also Libraries for the Future reply comments at 1 (stating that "[r]ather than begin with a limited definition of Universal Service, the FCC should begin with the broadest definition possible and restrict it only in cases where absolutely necessary").e Some parties contend that specific services should not be mandated if the market is adequately providing advanced services or until a needs  X-assessment is conducted." {Om-ԍ See, e.g., CCV comments at 5; Florida Cable comments at 13, 1617; NCTA comments at 23. Missouri PSC asserts that states should be able to include  X-additional services, as well as additional subsidies, if they believe that is necessary.I|" yO -ԍ Missouri PSC comments at 1415.I Information Renaissance, Georgia Tech Research Institute, and Morris Brown Research  X-Institute ask that funding also be provided for telecommunications consulting services. " {OJ -ԍ See Information Renaissance supplemental further comments at 3 (Oct. 17, 1996); ex parte presentation by Jeffrey Evans, Georgia Tech Research Institute, Roosevelt Thomas, Jr., Morris Brown Research Institute, and Christopher Evans, OutSource Integration, Inc., to Mark Nadel, Federal Communications Commission (Sept. 6,  yO-1996);  Letter from Timothy F. Coen, King and Spalding, to Georgia Tech Research Institute, Morris Brown  {Ol-Research Institute, and Christopher Evans (Sept. 17, 1996). For a further discussion of the parties' proposals, see  {O6-infra section X.E.  X_-x454.` ` Internet Access. Numerous commenters maintain that Internet access is a  XH-service that should be eligible for universal service support for schools and libraries."H " {O-#X\  P6G;ɒP#э See, e.g., ALA comments at 9; Lincoln Trail Libraries comments at 12; Merit comments at 2; Michigan Library comments at 12; Missouri PSC comments at 14; New Jersey Advocate comments at 21; New York DOE comments at 8; Oakland School District comments at 7; Oklahoma Libraries comments at 12; Pennsylvania  yO-Library Ass'n reply comments at 6. Oklahoma Libraries, for example, states that "the Internet is the emerging network of the future," and maintains that rural libraries would particularly benefit from flatrate pricing for  X -connection to an Internet provider.t t" yO(-#X\  P6G;ɒP#э Oklahoma Libraries comments at 12.t NTIA states that "a recent survey of educators regarding the scope of universal service found that respondents overwhelmingly view connectivity (98 percent) and Internet data services (94 percent) as their most important  X -service and educational need, respectively."@ " yOs -ԍ NTIA submission at 10.@ Florida PSC believes that the Commission should establish a nationwide minimum standard for "special" services that consists of Internet  X-access by means of a computer lab." yO#-#X\  P6G;ɒP#э Florida PSC reply comments at 23, 67.  New York DOE supports Internet access via local loop interconnection to an Internet service provider, so that schools and libraries would not"y$*&&dd"  X-have to incur long distance charges for gaining access.Z" {Oy-#X\  P6G;ɒP#э New York DOE comments at 8. See also Oakland School District comments at 7 (supporting dialup service); Syracuse University comments at 9 (supporting dialup Internet access points within the local area); U S West comments at 2022 (supporting toll free dialup access to an Internet Service Provider). Michigan Library Ass'n states that  X-"direct Internet access" should be eligible for universal service support." {O-#X\  P6G;ɒP#э Michigan Library comments at 12. See also Lincoln Trail Libraries comments at 1 (stating that "each library needs a direct connection to an Internet provider"). MCI supports  X-providing Internet access at or below cost to schools and libraries,D" {O -#X\  P6G;ɒP#э Connecting Schools and Libraries to the Internet: An MCI Proposal (June 27, 1996). and NTIA proposes  X-providing schools and libraries with free Internet service.B" yOB -ԍ NTIA submission at 910.B  X-x455.` ` Several commenters assert that Internet access should be included within the  Xv-category of "advanced" services.KZvf " {O-#X\  P6G;ɒP#э See, e.g., Michigan Library Ass'n comments at 12; Missouri PSC comments at 14; New York Regents comments at 8; Oakland School District comments at 78; Syracuse University comments at 910; U S West comments at 22; Washington SPI comments at 2.K Netscape argues that since "the 1996 Act does not repeal, and in fact codifies the Commission's longstanding Computer II distinction between basic telecommunications and `enhanced' information services, . . . Internet access is assuredly an  X1-`information' service, not a `telecommunications' service."s1 " {Oj-ԍ Netscape further comments at 3 (citing Netscape comments at 1417).s As such, Netscape contends, Internet access may be encouraged through the rules adopted pursuant to section 254(h)(2),  X -but not supported under section 254(h)(1).I " yO-ԍ Netscape further comments at 3.I PacTel subscribes to a similar interpretation.K " yO^-ԍ PacTel further comments at 1415.K  X -  X -x456.` ` Other commenters oppose the inclusion of Internet access among the services  X -eligible for universal service support. :" {O-#X\  P6G;ɒP#э See, e.g., CompuServe comments at 911; Interactive Service Ass'n comments at 6, 813; ITA/EMA reply comments at 511. ITA/EMA, for example, maintains that Internet access is an unregulated information service and is thus not eligible for universal service  X-support.p" yO#-#X\  P6G;ɒP#э ITA/EMA reply comments at 511.p They further contend that Internet access includes protocol conversion and information storage, both of which are unregulated enhanced services. In addition, ITA/EMA asserts that providing universal service support to Internet access would run counter to the"b$*&&dd" intent of the 1996 Act, and that the 1996 Act "does not authorize the Commission to define  X-universal service so as to include information services."p" yOb-#X\  P6G;ɒP#э ITA/EMA reply comments at 511.p Interactive Services Ass'n adds that "a decision by the FCC that . . . Internet access services are subject to the new universal service surcharge on the theory that they are telecommunications services would undermine the longstanding regulatory distinction made by the Commission between `basic service' and  X-`enhanced service.'"zX" yO-#X\  P6G;ɒP#э Interactive Service Ass'n comments at 12.z  X_-x457.` ` Netscape describes the Internet as an unregulated, nongovernmental and self XH-administered network for global information exchange.lH" yO -#X\  P6G;ɒP#э Netscape comments at 2, 11.l More specifically, Netscape characterizes the Internet as a complex global network consisting of thousands of independent computer networks run by private businesses, government agencies, and educational and research institutions. Netscape states that the Internet is a set of standards or protocols that enable various types of networks to communicate. The protocol, Transmission Control Protocol/Internet Protocol (TCP/IP) enables communications between private and public  X -networks running over any medium and over any kind of computer.l x" yO-#X\  P6G;ɒP#э Netscape comments at 2, 11.l  X-x` ` 3. Discussion  Xy-x   Xb-x458.` ` Telecommunications Services. We recommend that the Commission adopt a rule that provides schools and libraries with the maximum flexibility to purchase whatever package of telecommunications services they believe will meet their telecommunications service needs most effectively and efficiently. We conclude that maximum flexibility will satisfy the goals of section 254, given the varying needs and preferences of different schools and libraries. We also find that allowing schools and libraries to choose appropriate services will maximize the value generated by universal service support and minimize inefficient uses of services. Empowering schools and libraries to choose the services best suited for their needs is critical to achievement of the important universal services goal of pervasive technology deployment and use in all schools and libraries, regardless of wealth and location.  Xe-x459. ` ` Some commenters ask the Commission to limit discounts to only the "core"  XN-telecommunications services identified pursuant to section 254(c)(1).N" {O$-ԍ See, e.g., Cincinnati Bell comments at 14; TCI comments at 1823; Ameritech reply comments at 18. We reject that position based on a careful reading of the statute and its legislative history. We find that Congress clearly desired to permit schools and libraries to have access to and use of services" *&&dd" beyond those designated for support under section 254(c)(1). Section 254(c)(3) states that "in addition to the services included in the definition of universal service under paragraph [c] (1), the Commission may designate additional services for such support mechanisms for  X-schools, [and] libraries . . . for the purposes of subsection [254] (h)."w" {O4-#X\  P6G;ɒP#э 47 U.S.C.  254(c)(3). w Congress explained this sentence in stating that it expected the Commission and Joint Board to take into account  X-the particular needs of K12 schools and libraries.Z" yO-#X\  P6G;ɒP#э Joint Explanatory Statement, S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 13233 (1996). Thus, the Commission should not limit schools and libraries to services to be supported by the universal service mechanism under section 254(c)(1), i.e., to basic voice grade lines, when higher speed capabilities may be a more effective and efficient means of implementing telecommunications technology and applications within their respective activities.  X -x460. ` ` A number of commenters recommend that we select a specific limited package  X -of services that would be available at a discount. " {O-ԍ See, e.g., Missouri PSC comments at 14; NSBA I comments at 7, 14; U S West comments at 2022; West Virginia Consumer Advocate comments at 1011. Other commenters suggest different sets of services. For example, 17 states that were surveyed by the Florida PSC on this issue  X -selected more than a dozen different sets of services for discounts. D" {O-ԍ Florida PSC, Promoting Educational Infrastructure and the Role of the Florida Public Service  {O}-Commission at 3334 (1996). We recommend that the Commission permit different schools and libraries the flexibility to address their needs in the best way they see fit. We further recommend that the Commission adopt a rule that makes available discounts on all telecommunications services pursuant to sections 254(h)(1)(B) and 254(h)(2)(A). Section 254(h)(2)(A) provides a broader framework for facilitating deployment of services to schools and libraries because the competitively neutral  X4-rules contemplated under that section are applicable to all service providers.w4" {O-#X\  P6G;ɒP#э See 47 U.S.C.  254(h)(2)(A).w The discounts mandated under section 254(h)(1)(B), in contrast, are limited to the provision of services by  X-telecommunications carriers.w2 " {O-#X\  P6G;ɒP#э See 47 U.S.C.  254(h)(1)(B).w The discounting of telecommunications services under section 254(h)(2)(A) will enable schools and libraries to have access to the broadest array of services possible. This approach is also most consistent with the evolving competitive telecommunications market. x  X-x461. ` ` Permitting schools and libraries full flexibility among telecommunications services also eliminates the potential impediment that new technologies will not be available"| *&&ddP" to schools and libraries until the Commission has had the opportunity to conduct a proceeding to review evolving technological needs. Thus, schools and libraries will be able to use and teach students to use state of the art telecommunications technologies as they arrive on the commercial market. This flexibility should encourage schools and libraries to use both the most efficient services and the most efficient technologies, including wireless and other emerging new media. We decline to recommend the suggestion of the Iowa Communications Network that the Commission discourage the use of wireless because of any disadvantages  X_-that may be inherent in the current version of that technology.{_" yO-ԍ #X\  P6G;ɒP#Iowa Communications Network comments at 2.{ We recognize that all technologies have their advantages and disadvantages and conclude that it would be best to permit individual schools and libraries to evaluate those relative costs and benefits with respect to their individual needs and circumstances.  X -x462.` ` Internet Access. We recommend that the Commission adopt a rule providing that discounts for Internet access, as defined below, shall be available to schools and libraries pursuant to section 254(h)(2)(A). As explained by Netscape, Internet Service Providers (ISPs) and online service providers that also offer Internet access "rely to a large degree on existing telecommunications carriers for the underlying transport facilities that constitute the Internet's  Xy-backbone, as well as for local loop connections to individual Internet servers and users."hyX" yO-#X\  P6G;ɒP#э Netscape comments at 8.h Any attempt to disaggregate the network transmission component of Internet access from the information service component could serve to undermine the competitive forces that currently characterize the Internet access market at this time. By adopting a rule that allows Internet access costs to be eligible for discounts under section 254(h)(2)(A), we find that schools and libraries will be afforded the flexibility they may need to procure whatever Internet access arrangements they determine to be costeffective.  X-x463.` ` As stated above, we recommend that the Commission provide discounts for Internet access pursuant to section 254(h)(2). This discount would apply to basic conduit, i.e., noncontent, access from the school or library to the backbone Internet network. This access would include the communications link to the ISP, whether through dialup access or via a leased line, and the subscription fee paid to the ISP, if applicable. The discount would also apply to electronic mail. We find that such access would enable schools and libraries to retrieve all free information available on world wide web sites. Schools and libraries that choose to pay subscription or other fees to receive additional information services could access such information via this connection, but any charges for such content services would not be subject to the discount discussed herein. Schools and libraries, however, would be permitted to apply the discount to the entire "basic" charge by an ISP that bundled access to some minimal amount of content, but only under those circumstances in which the ISP basic subscription charge represented the most costeffective method for the school or library to"!*&&dd " secure noncontent conduit access to the Internet.  X-x464. ` ` Parties raise one other Internet access issue concerning the pricing of access to an ISP. In areas where local dialup access to the Internet is not available, carriers would likely offer customers either a private line, foreign exchange (FX) line, or possibly even flatrate tollfree service. Comments of the potential users reflect their desire that these or related  Xv-services be available at ordinary local calling rates.v" {O-#X\  P6G;ɒP#э See, e.g., New York DOE comments at 8; Oakland School District comments at 7; Syracuse University comments at 9. This suggestion would require universal service support mechanisms to fund 100 percent of the difference between the prediscount price for the appropriate service and the cost of an ordinary local calling link. As we explained above, we are not inclined to recommend, at this time, that the Commission single out the transmission component of Internet access from the information service component. We find that it is neither necessary nor appropriate to make findings regarding the regulatory treatment or classification of Internet access within this proceeding.  X -x465.` ` We also do not recommend that a discount mechanism for other information services be established at this time. By establishing a discount mechanism for telecommunications services and Internet access, we conclude that the intent of Congress will be met, and it is not necessary to support the full panoply of information services at this time. The Joint Statement of Managers stated that: x` ` For example, the Commission could determine that x` ` telecommunications and information services that constitute  X- x` ` universal service for classrooms and libraries shall include x` ` dedicated data links and the ability to obtain access to x` ` educational materials, research information, statistics,  X- x` ` information on government services, reports developed by x` ` Federal, State and local governments, and information services  X-x` ` which can be carried over the Internet.M"" yOf-ԍ Joint Explanatory Statement at 133.M The legislative history articulates the congressional intent to enable schools and libraries to: Xx` ` browse library collections, review the collections of museums, or find ` ` new information on the treatment of illness, to Americans everywhere ` ` via schools and libraries. This universal access will assure that no one  X-` ` is barred from benefiting from the power of the Information Age.m" {OU%- #X\  P6G;ɒP#Í Id. at 13233.m "D*&&dd"ԌBy providing for discounts on all telecommunications services, as well as discounted Internet access, we find that schools and libraries will have access to the wealth of information available on the Internet, and, therefore, will have access to advanced telecommunications and information services, in compliance with section 254(h)(2)(A). x  X-x C. IntraSchool and IntraLibrary Connections  X_-x` ` 1. Background  X1-x466.` ` Sections 254(b)(6) and 254(h)(2)(A) specifically refer to the provision of telecommunications and other services directly to classrooms. Section 254(b)(6) states that  X -"elementary and secondary school classrooms should have access to advanced  X -telecommunications services.") " Xg -#X\  P6G;ɒP# #c P7 P#Í# Xj\  PG;ynXP# #X\  P6G;ɒP#47 U.S.C.  254(b)(6) (emphasis added).#Xj\  P6G;ynXP#) Further, section 254(h)(2) provides that "[t]he Commission shall establish competitively neutral rules . . . to enhance, to the extent technically feasible  X -and economically reasonable, access to advanced telecommunications and information services  X -for all public and nonprofit elementary and secondary school classrooms. . . and libraries.") y" X-#X\  P6G;ɒP# #c P7 P#Í# Xj\  PG;ynXP# #X\  P6G;ɒP#47 U.S.C.  254(h)(2) (emphasis added).#Xj\  P6G;ynXP#) Congress explained that "[n]ew subsection (h) of Section 254 is intended to ensure that . . .  X-elementary and secondary school classrooms and libraries have affordable access to modern  Xj-telecommunications services."j*" yOE-#X\  P6G;ɒP#э Joint Explanatory Statement at 132 (emphasis added). Congress further stated that "[t]he ability of K12  XS-[kindergarten to 12th grade] classrooms, [and] libraries . . . to obtain access to advanced telecommunications services is critical to ensuring that these services are available on a  X'-universal basis."v'" {O-#X\  P6G;ɒP#э Id. at 13233 (emphasis added).v In the floor debate, Senators Snowe and Rockefeller noted that, while thirtyfive percent of schools have access to the Internet, only three percent of classrooms are  X-connected to the Internet.L" yO-#X\  P6G;ɒP#э 141 Cong. Rec. S7978, S7981 (daily ed. June 8, 1995). Senator Rockefeller noted that cost was a significant factor  X-when he stated that internal connections are an expensive facet of Internet access," yOo -#X\  P6G;ɒP#э 141 Cong. Rec. S7978, S7981 (daily ed. June 8, 1995). and he  X-specifically referred to getting schools "wired up."l " yO"-#X\  P6G;ɒP#э 141 Cong. Rec. S7978 (daily ed. June 8, 1995). #Xj\  P6G;ynXP#  X-x467.` ` The NPRM noted that only nine percent of all instructional rooms, including classrooms, labs, and library media centers, are currently connected to the Internet, and that" *&&ddn" "[s]chools with large proportions of students from poor families are half as likely to provide  X-Internet access as schools with small proportions of such students."F " {Ob-#X\  P6G;ɒP##X\  P6G;ɒP#э NPRM at para. 79 (citing National Ctr. for Educ. Statistics, U.S. Dep't of Ed., Advanced  {O,-Telecommunications in U.S. Public Elementary and Secondary Schools 1995 (Feb. 1996)).F The NPRM also stated that the most frequently cited barriers to the provision of such services are "funding and  X-inadequate telecommunications links." $" {O-#X\  P6G;ɒP#э NPRM at para. 79 (citing National Ctr. for Educ. Statistics, U.S. Dep't of Ed., Advanced  {OZ-Telecommunications in U.S. Public Elementary and Secondary Schools 1995 (Feb. 1996)). The NPRM sought comment on what functionalities and services providing access to advanced telecommunications services for elementary and secondary schools and classrooms and libraries should be supported through universal service  Xv-mechanisms.h v" yO -#X\  P6G;ɒP#э NPRM at para. 80.h The NPRM also asked what facilities would be required to support those  X_-functionalities.h _" yO -#X\  P6G;ɒP#э NPRM at para. 80.h The Public Notice asked the explicit question of whether section 254(h) contemplates that "inside wiring or other internal connections to classrooms may be eligible for universal service support of telecommunications services provided to schools and  X -libraries."m  " yOk-#X\  P6G;ɒP#э Public Notice at question 7.m In addition, the Public Notice sought comment on the estimated cost of inside  X -wiring and other internal connections.m 0 " yO-#X\  P6G;ɒP#э Public Notice at question 7.m  X -x` ` 2. Comments  X -  X -x468.` ` Numerous commenters assert that intraschool and intralibrary connections  X-should be eligible for federal universal service support. " {O-#X\  P6G;ɒP#э See, e.g., Mass Library comments at 23; NSBA I comments at 7; West Virginia Consumer Advocate reply comments at 57; ALA further comments at 34; Apple further comments at 23; Benton further comments  yO-at 34; EDLINC further comments at 1113; Great City Schools further comments at 3; Maine PUC further  yO[-comments at 35; NCLIS further comments at 3; NYNEX further comments at 67; Union City further comments at 2; U.S. Distance Learning Ass'n further comments at 4; Vanguard further comments at 56; NTIA submission at 10. Some parties find support for funding internal connections in both the 1996 Act and the legislative history. EDLINC, for example, asserts that support can be found in both section 254(c)(3) and section 254(h), contending that "the Commission has broad authority to determine what services constitute `special services' under [s]ection 254(c), and in defining those services, the Commission is to"4:*&&ddf"  X-consider the purposes of [s]ection 254(h)."o" yOy-#X\  P6G;ɒP#э EDLINC further comments at 10.o EDLINC further states that both the statutory and congressional references to "classrooms" support the legislative intent to include internal  X-connections within the definition of "special services" under section 254(c)(3).DX" {O-#X\  P6G;ɒP#э EDLINC further comments at 1011. See also NYNEX further comments at 67 (citing section 254(c)(3) and section 254(h)(2), NYNEX states that "the Commission should define universal service to include the inside wiring and other internal connections needed to ensure that telecommunications and information  yO7-services are delivered to the classroom"); Union City Board of Education further comments at 2 (stating that  {O-"[s]ection 254 specifically states that not just schools but classrooms should have access to advanced telecommunications services, and therefore inside wiring and internal networks should be considered as eligible for universal service support, because they are necessary if advanced services are to be accessible to individual school classrooms"). Benton contends that, considering the explicit mention of "classrooms" found in both the statutory language and the legislative history, "it is the plain intent of Congress to connect classrooms,  X-not just to reach the school house door."pd " yO-#X\  P6G;ɒP#э Benton further comments at 34.p Benton also asserts that if inside wiring or internal connections are not contemplated by section 254(h), that provision "will be little more  Xa-than an empty promise to the nation's public institutions."va " yO-#X\  P6G;ɒP#э Benton further comments at 3. v Great City Schools asserts that  XJ-"[u]niversal service and access are not realities if they stop at the street."J " yO-#X\  P6G;ɒP##X\  P6G;ɒP#э Great City Schools further comments at 3. In a letter to the Joint Board, a group of 26 Senators that includes the coauthors of section 254(h), states that "we believe that connecting the classrooms is necessary to truly enhance education so  X -connectivity should be defined to include internal connections, in ways that are technology  X -neutral." " yO-#X\  P6G;ɒP#э Letter from 26 Senators to Members of the Joint Board (Sept. 26, 1996) (emphasis added).  NTIA also supports discounts for internal connections.g " yOE-#X\  P6G;ɒP#э NTIA submission at 10.g  X -x469.` ` Some commenters address the cost of intraschool and intralibrary  X -connections." 4" {O -#X\  P6G;ɒP#э See, e.g., Ameritech further comments at attachments A through C (schools); Bell Atlantic further comments at 3 (schools); EDLINC further comments at 13 (schools); Great City Schools further comments at 3 (schools); NYNEX further comments at 7 (schools); U.S. Libraries further comments at 3 (libraries); Washington UTC further comments at 8 (schools). NYNEX, for example, relies on estimates provided by McKinsey and Company when it states undiscounted figures of $5.025 billion in initial costs for schools, and $410 million per year for ongoing costs, based on deployment of the "partial classroom""}*&&dd"  X-model over five years.\" yOy-#X\  P6G;ɒP#э NYNEX further comments at 7. The McKinsey "partial classroom" model assumes one computer for  {OA-every five students in half of the classrooms and a T1 connection. See McKinsey and Company, Connecting K {O -12 Schools to the Information Superhighway at 21 (1995). NYNEX notes that those figures would have to be adjusted to  X-include private schools.LZ" yO-#X\  P6G;ɒP#э NYNEX further comments at 7. NYNEX Education Plan assumes a fiveyear deployment with a 75  {ON-percent discount for initial costs and a 50 percent discount for ongoing costs. See Ameritech further comments at Att. A through C.L EDLINC relies on the KickStart Report when it cites initial undiscounted costs for schools of up to $6.11 billion, and undiscounted annual operation and maintenance costs of $560 million, based on deployment of the McKinsey "full classroom"  X-model over ten years.&" {Oc -#X\  P6G;ɒP#э EDLINC further comments at 13. See also Great City Schools further comments at 3 (citing an "overall cost" for internal connections within schools of approximately $6 billion). The McKinsey "full classroom"  {O -model assumes one computer for every five students in all classrooms, with a T1 connection. See McKinsey  {O-and Company, Connecting K12 Schools to the Information Superhighway at 21 (1995). NCLIS, the only party to address the cost of internal connections for libraries, estimates that each public library spends between $12,625.00 and $168,220.00 on annual ongoing costs to provide public terminals for accessing advanced telecommunications and information services. NCLIS further estimates that the cost of inside wiring and other internal connections would amount to between 20 percent and 35 percent of those libraries'  X1-initial costs.m1 " yO-#X\  P6G;ɒP#э NCLIS further comments at 3.m  X -x470.` ` Numerous other commenters maintain that intraschool and intralibrary  X -connections should not be eligible for universal service support. " {O)-#X\  P6G;ɒP#э See, e.g., AT&T comments at 1920; AT&T reply comments at 2122; ALTS further comments at 5; AirTouch further comments at 911; Alaska Tel. further comments at 7; Ameritech further comments at 13,14; BellSouth further comments at 1115; Bell Atlantic further comments at 3; CFA further comments at 56; Century further comments at 11; Citizens Utilities further comments at 6; GCI further comments at 4; GTE further comments at 1113; Information Renaissance further comments at 5; MCI further comments at 45; NCTA further comments at 3; NECA further comments at 7; Netscape further comments at 47; New York DOE further comments at 6; Oakland School District further comments at 3; PacTel further comments at 15; RTC further comments at 11; SWBT further comments at 9; Sprint further comments at 4; TCI further comments at 1213; USTA further comments at 910; U S West further comments at 67; Vitelco further comments at 5; Washington UTC further comments at 89; Letter from United States Representative Jack Fields to Sharon Nelson, Chairperson, Washington Utilities and Transportation Commission (Oct. 17, 1996).  First, several commenters contend that inside wiring is not a telecommunications service as defined in the 1996 Act, and  X -therefore, cannot be eligible for universal service support.Z " {O]$-#X\  P6G;ɒP#э See, e.g., AT&T reply comments at 2122; Ameritech further comments at 1314; BellSouth further comments at 1115; GTE further comments at 1315; MCI further comments at 45; Sprint further comments at 4; USTA further comments at 910; U S West further comments at 67. The definition of "telecommunications"%*&&&" service" can be found at 47 U.S.C. 153(46). BellSouth, for example, asserts" X*&&dd " that since section 254(h) is entitled "Telecommunications Services for Certain Providers," the  X-only services covered by the subsection are telecommunications services.rX" yO-#X\  P6G;ɒP#э BellSouth further comments at 11.r Sprint maintains that even qualifying simply as a "service" under section 254(h)(1)(B) would not be sufficient to make inside wiring eligible for universal service support, since section 254(c)(3) defines  X-"universal service" as "an evolving level of telecommunications service."n" yO= -#X\  P6G;ɒP#э Sprint further comments at 4.n MCI points out  X-that internal connections refer to facilities and do not fit into a service classification.m x" yO -#X\  P6G;ɒP#э MCI further comments at 45.m United States Representative Jack Fields objects to providing universal service support for internal connections when he states: x` ` Another example of wellintentioned suggestions is that federal x` ` universal service must be used to wire the interiors of schools, x` ` hospitals, and libraries. The letter of the law is clear that the x` ` federal universal service fund can only support subsidies for  X -x` ` services, not plant and equipment.!X " yO-ԍ Letter from United States Representative Jack Fields to Sharon Nelson, Chairperson, Washington Utilities and Transportation Commission and all members of the FederalState Joint Board on Universal Service (Oct. 17, 1996).  X -x471.` ` Second, a number of parties assert that, because inside wiring is not a regulated  X-service, it is not eligible for universal service support."( " {Ok-#X\  P6G;ɒP#э See, e.g., Bell Atlantic further comments at 3; Century further comments at 11; PacTel further comments at 15; RTC further comments at 11; USTA further comments at 910. For example, PacTel states that including inside wiring in the definition of universal service would require all inside wire  Xd-vendors to be subject to universal service obligations,o#d " yO-#X\  P6G;ɒP#э PacTel further comments at 16.o while Bell Atlantic contends that noncarrier providers of inside wire would be ineligible to participate since only carriers are  X6-entitled to receive universal service funds under the 1996 Act.|$6" {O!-#X\  P6G;ɒP#э Bell Atlantic further comments at 3. See also SWBT further comments at 910 (asserting that "[s]ince the Act is clear that only telecommunications providers are eligible to receive universal service funding, the  {O#-multitude of providers who specialize in inside wiring and internal connections (e.g., electricians, LAN providers) would be at a competitive disadvantage because they would be ineligible to participate in a universal service fund under Section 254"); TCI further comments at 13 (stating that "given the Commission's longstanding policy of deregulated insidewiring, this market is comprised of literally thousands of small companies"%#*&&"&" whose business could be dramatically affected by the adoption of a subsidy program").| SWBT maintains that it"6X$*&&ddH" would not be practical, given regulatory, legal, and collections issues, to include inside wire  X-vendors as participants in the process.o%X" yO-#X\  P6G;ɒP#э SWBT further comments at 910.o CFA notes that including internal connections within the definition of universal service would be in direct conflict with the Commission position that wire inside the home or premises is "the property and responsibility of the  X-property owner."m&" yO= -#X\  P6G;ɒP#э CFA further comments at 56.m USTA states that the provision of internal connections is highly  X-competitive and nonregulated.o'x" yO -#X\  P6G;ɒP#э USTA further comments at 910.o Bell Atlantic asserts that, since state regulation of inside wiring has not been preempted, states should be free to decide whether to support inside  X_-wiring for schools and libraries as part of their universal service support mechanisms.u(_" yO-#X\  P6G;ɒP#э Bell Atlantic further comments at 3.u  X1-x472.` ` Third, some parties contend that if it had intended that inside wiring be included in the definition of universal service, Congress would have explicitly expressed that  X -intent.) " {OL-#X\  P6G;ɒP#э See, e.g., Citizens Utilities further comments at 6; Washington UTC further comments at 8. AirTouch asserts that, while the legislative history contains a "laundry list" of possible elements to be included in universal service, that list does not contain internal  X -connections.q* * " yO-#X\  P6G;ɒP#э AirTouch further comments at 10.q Ameritech notes that sections 706 and 708 are the only statutory provisions  X -in the 1996 Act that specifically address the issue of inside wiring.u+ " yO)-#X\  P6G;ɒP#э Ameritech further comments at 13,14.u Moreover, AirTouch asserts that the costs of inside wiring are incremental costs and, because its provision is open to competition, it may already be sold at close to incremental cost. AirTouch maintains, therefore, that providing discounts for the provision of inside wiring may place a heavy  Xb-financial burden on telecommunications users.t,bJ " yO]-#X\  P6G;ɒP#э AirTouch further comments at 1011.t  X4-x` ` 3. Discussion  X-  X-x473.` ` In General. We recommend that the Commission expressly acknowledge that schools and libraries may receive discounts on charges for internal connections, as well as for all commercially available telecommunications services and Internet access and other information services, as discussed above. We find that the applicable statutory provisions and",*&&dd" the legislative history evidence that Congress gave the Commission the discretion to provide support to allow schools and libraries to obtain these internal connections at a discount. We also find that Congress recognized that such connections are a critical element for achieving the congressional purpose of section 254(h), and thus contemplated that schools and libraries receive universal service support for internal connections.  Xv-x474.` ` Installation and Maintenance of Internal Connections is a Service. Some parties argue that the physical facilities that provide intraschool and intralibrary connections are "goods" or "facilities" rather than (c)(3) "services" and thus that they are not eligible for universal service support under section 254(h)(1)(B), which only provides support for  X -services.T-Z " {O -#X\  P6G;ɒP#э See, e.g., AT&T reply comments at 2122; GTE further comments at 1315; Sprint further comments at 4; USTA further comments at 910; U S West further comments at 67. The definition of "telecommunications service" can be found at 47 U.S.C. 153(46).T We find, however, that the installation and maintenance of such facilities are services. In fact, the cost of the actual facilities may be relatively small compared to the cost  X -of labor involved in providing internal connections.. " yO-#X\  P6G;ɒP#э Union City Board of Education further comments at 6 n.3. On the other hand, the cost of routers, hubs, and network file servers may be significant. The D.C. Circuit agrees, as it repeatedly refers to the installation and maintenance of inside wiring as services in its review  X -of the Commission's inside wiring detariffing decision./: B" {O-#X\  P6G;ɒP#э NARUC v. FCC, 880 F.2d 422, 430 (D.C. Cir. 1989) (stating that "charges for inside wiring services are  {O}-separated from charges for basic transmission service") (emphasis added); id. (stating that "the Commission may properly proscribe state tariffs that would result in the subsidization of the installation and maintenance of inside wiring by the general ratepayers because it would allow telephone companies to undercut alternative providers of  {O-inside wiring services.") (emphasis added); id. at 43031 (asserting that states maintain "that they should be able  {O-to require local telephone companies to serve as providers of last resort of installation and maintenance  {Ok-services.") (emphasis added). In contrast, the court refers to CPE as "equipment." Id. at 431. Similarly, the  {O5-Commission has repeatedly characterized the installation and maintenance of inside wiring as services. See, e.g.,  {O-Revision of Filing Requirements, Notice of Proposed Rulemaking, CC Docket No. 9623, FCC 9664, 1996 WL 80021, 1314, (released Feb. 27, 1996) (regarding LEC reports on "inside wiring services");  {O-Telecommunications Services Inside Wiring, Notice of Proposed Rulemaking, 11 FCC Rcd 2747, 2760 (1996)  {O[-(stating that "[t]his standardization ... promotes competition for inside wiring services and telephone customer premises equipment.") (emphasis added). x  X-x475.` ` Moreover, the attempted distinction between facility and service in describing the fundamental nature of internal connections is not practical. CFA contends that the wire inside the home or premises is "the property and responsibility of the property owner," and  XM-thus different from outside wiring.m0MD" yOB$-#X\  P6G;ɒP#э CFA further comments at 56.m It concludes that universal service funding cannot be"M0*&&dd "  X-used to aid customers seeking to purchase and install the inside wiring.m1" yOy-#X\  P6G;ɒP#э CFA further comments at 56.m This rationale, however, implies that when a carrier owns a facility, and sells others the opportunity to use it, then those who use the facility are purchasing a service, but when a school buys a facility directly, its use of the facility is not a service. While this reasoning is logical, it is somewhat strained. Under this rationale, the use of inside wiring would be a service if a school did not own the facilities itself, but rather sold the facilities to a nonschool party and then leased them back.  XH-x476.` ` Internal Connections Enhance Access to Advanced Telecommunications and  X1-Information Services. We recommend that the Commission adopt rules providing discounts for internal connections under the authority of section 254(h)(2)(A), which states that "[t]he  X -Commission shall establish competitively neutral rules . . . to enhance . . . access to advanced telecommunications and information services for all public and nonprofit elementary and  X -secondary school classrooms . . . and libraries."m2 X" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(2)(A).m The provision of services by computer over the Internet appears to fall squarely within the phrase "advanced telecommunications and  X -information services." A primary way for "classrooms" to have access to such services is for computers in each classroom to be connected to a telecommunications network.  Xh-x477.` ` Furthermore, given that many schools have already secured internal connections, we conclude that the provision of such connections is both technically feasible and economically reasonable. Consistent with our recommendation to establish a competitively neutral program for discounting all telecommunications services and Internet access under section 254(h)(2)(A), we recommend that internal connections, which may include such items as routers, hubs, network file servers, and wireless LANs, but specifically excluding personal computers, be included within the section 254(h) discount program. x  X-x478. ` ` In addition to the statutory support discussed above, the legislative history also supports finding internal connections eligible for support. We note that, in its Joint  X-Explanatory Statement, Congress makes three explicit references to "classrooms."3" {O-#X\  P6G;ɒP#э See Joint Explanatory Statement, S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 13233 (1996). We conclude that these references to providing access to "classrooms" rather than simply schools indicate congressional intent to assure that classrooms and libraries will benefit from the availability of discounted services.  X-x479.` ` In addition, while some commenters contend that if Congress had intended to"z3*&&dd[" include inside wiring in the definition of universal service, it would have stated so  X-explicitly,4" yOy-#X\  P6G;ɒP#э Citizens Utilities further comments at 6; Washington UTC further comments at 8. we note that Congress did not identify in section 254 any specific services or functionalities that should be supported. Thus, while the legislation does not specifically identify internal connections as eligible for universal service support, neither does it explicitly cover 56 kbps service, T1 service, wireless service, coaxial cable service, or any other comparable service. AirTouch argues that the legislative history includes a list of possible  Xv-elements to be included in universal service,u5vo" yO-#X\  P6G;ɒP#э AirTouch further comments at 911. u but that the list does not include internal connections. The excerpt from the legislative history to which AirTouch refers states:  X1-Xx` ` For example, the Commission could determine that telecommunications ` ` and information services that constitute universal service for schools  x` ` and libraries shall include dedicated data links and the ability to gain x` ` access to educational materials, research information, statistics, x` ` information on Government services, reports developed by Federal, x` ` State, and local governments, and information services which can be  X -x` ` carried over the Internet.6 " yOY-#X\  P6G;ɒP#э AirTouch further comments at 911 (emphasis added). We note that the list is not exhaustive because it is preceded by the phrase "for example." We further note that internal connections to the classroom facilitate access to the reference materials. Discounting of internal connections will facilitate schools' and libraries' ability to connect to these services.  X-x480.` ` As further evidence that Congress intended that internal connections may be eligible for universal service support, we note that during Senate consideration of this provision, Senators Snowe and Rockefeller emphasized the fact that thirtyfive percent of public schools have access to the Internet, but only three percent of classrooms are connected  X-to the Internet.7" yO-#X\  P6G;ɒP#э 141 Cong. Rec. S7978, S7981 (daily ed. June 8, 1995). Senator Rockefeller cited the lack of funds to buy computer equipment as one reason, and stated: XxX` ` But another reason, which becomes more serious as schools do scrape together the money for the onetime expense of buying equipment, is their inability to pay excessive rates to hook into those services. It is one thing to have the computer on the table  X -or the desk. It is another to have that hooked up to the wall and" 7*&&ddy"  X-then through that wall to the other wall.  That is expensive.8" yOy-#X\  P6G;ɒP#э 141 Cong. Rec. at S7981 (daily ed. June 8, 1995) (emphasis added). x`  X-  X-x481.` ` In addition, in the September 26, 1996 letter from 26 Senators, including the four sponsors of the SnoweRockefellerExonKerrey amendment, the Senators state their intent clearly and directly:  Xx-Xx` ` For schools, we believe that connecting the classrooms is necessary to  0 Xc-` ` truly enhance education so connectivity should be defined to include  0 XL-` ` internal connections in ways that are technology neutral.9LX" yOU -#X\  P6G;ɒP#э Letter from 26 Senators to Members of the Joint Board at 1 (Sept. 26, 1996) (emphasis added).  On the other hand, we note the sentiments of United States House of Representatives Telecommunications and Finance Subcommittee Chairman Jack Fields, who objects to the provision of universal service support for internal connections because he believes that "[t]he letter of the law is clear that the federal universal service fund can only support subsidies for  X -services, not plant and equipment.":X " yO]-ԍ Letter from United States Representative Jack Fields to Sharon Nelson, Chairperson, Washington Utilities and Transportation Commission and all members of the FederalState Joint Board on Universal Service (Oct. 17, 1996).  X-x482.` ` Finding internal connections ineligible for support would create an anomaly. Congress clearly intended to encourage competition among technologies, including competition between wireline and wireless technologies. Moreover, the McKinsey Report found that wireless connections would be the more efficient alternative for connecting schools  X<-to telephone carrier offices for more than 25 percent of public schools.;<" {O-#X\  P6G;ɒP#э McKinsey and Company, Connecting K12 Schools to the Information Superhighway at 58 (1995). No parties dispute that the wireless services that such schools purchase are services eligible for support. It would seem to follow that those wireless services would still represent services if school personnel also used them for communications between classrooms within a school rather than between schools and outside parties. There is nothing on the record or in the statute that would suggest any reason that such services are not eligible for universal service support. Yet if wireless intraschool connections are services eligible for a discount and Congress sought to ensure technological neutrality rather than favoring wireless services, it follows that schools purchasing wireline intraschool connections should also be permitted to apply discounts to those services.  X?-x483.` ` We note that AirTouch makes a policy argument opposing the provision of universal service support for internal connections. AirTouch asserts that, because internal"(;*&&dd" connections are likely available at incremental cost today, due to competitive forces, it would be impossible to provide significant discounts to schools and libraries without permitting them to pay less than the long run incremental cost of the service. AirTouch contends that permitting services to be available at such low rates would heavily burden providers of  X-support and distort other telecommunications markets.t<" yO-#X\  P6G;ɒP#э AirTouch further comments at 1011.t We find, however, that section 254 directs the Commission to employ such support mechanisms to achieve the important social benefits designated by Congress. Moreover, we would expect that the support mechanism adopted by the Commission will permit many disadvantaged schools and libraries to pay belowcost rates for telecommunications services.  X -x484.` ` Finally, we recommend that, just as with other eligible services, the Commission permit schools and libraries to secure internal connections under the discount structure discussed further below. To the extent that the Commission exercises authority under section 254(h)(2), we recommend, as we did with respect to Internet Service Providers, that the Commission establish "competitively neutral rules" which provide support to any provider of internal connections that the school or library selects. As we explained above, we  X-conclude that section 254(h)(2) requires competitively neutral rules,j=X" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(2).j rather than limits on  Xy-support to providers that meet the statutory definition of "telecommunications carrier."E>y" {O-#XN\  PynXP# I. 1. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#A\  PɒP#э See 47 U.S.C.  153(44).E  XK-x D. Discount Methodology  X-x` ` 1. Background  X-x485. ` ` Section 254(b)(5) establishes the principle that "there should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal  X-service."C?z" yO-ԍ 47 U.S.C.  254(b)(5).C Section 254(b)(1) states that "[q]uality services should be available at just,  X-reasonable, and affordable rates."j@ " yOe -#C\  P6QɒP#э 47 U.S.C.  254(b)(1).j Furthermore, section 254(e) directs that any universal  X-service support "should be explicit and sufficient to achieve the purposes of" section 254.@A" yO"-ԍ 47 U.S.C.  254(e).@ These obligations extend to the mechanism to support discounts on eligible services for schools and libraries. Moreover, section 254(h)(1)(B) states: "N* A*&&dd"ԌXxX` ` All telecommunications carriers serving a geographic area shall,(#`  X-x` ` upon a bona fide request for any of its services that are within the  0   X-XxX` ` definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools and  X-libraries for educational purposes at rates less than the amounts(#`  X-XxX` ` charged for similar services to other parties. The discount shall be (#` XxX` ` an amount that the Commission, with respect to interstate services,(#` XxX` ` and the States, with respect to intrastate services, determine is(#`  VL-XxX` ` appropriate and necessary to ensure affordable access to and use(#`  X5-XxX` ` of such services by such entities.B5" yO -#X\  P6G;ɒP##X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B) (emphasis added).(#`  X -x486.` ` Section 254(d) provides that "[e]very telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to  X -preserve and advance universal service."gC X" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(d).g Section 254(h)(1)(B) requires "telecommunications carriers serving a geographic area" to provide services included within the definition of universal service to schools and libraries "at rates less than the amounts  X-charged for similar services to other parties."mD" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h)(1)(B).m  XQ-x487.` ` Congress emphasized affordability in the Joint Explanatory Statement when it stated that "[n]ew subsection (h) of section 254 is intended to ensure that . . . elementary and secondary schools classrooms, and libraries have affordable access to modern telecommunications services that will enable them to provide . . . educational services to all  X-parts of the Nation."Ex" yO-#X\  P6G;ɒP#э Joint Explanatory Statement, S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 132 (1996). In addition, in the floor debates on the SnoweRockefellerExonKerrey amendment, Senator Snowe stated that, under section 254(h)(1)(B), "[b]y changing the basis for the discount from incremental cost to an amount necessary to ensure an affordable rate, the FederalState joint board in conjunction with the FCC and the States have some  X-flexibility to target discounts based on a community's ability to pay."F" yOR!-#X\  P6G;ɒP#э 141 Cong. Rec. S7984 (June 8, 1995) (emphasis added).  Xm-x488.` ` In the NPRM, the Commission proposed to interpret section 254(h)(1)(B) to entitle schools and libraries to receive discounts on all services falling either within the list of subsection (c)(1) "core" telecommunications services or the list of subsection (c)(3)"?F*&&dd"  X-"additional" or "special" services for schools and libraries.nG" yOy-#X\  P6G;ɒP#э NPRM at para. 82.n The NPRM also noted that the 1996 Act gives the Commission the authority to establish discounts on interstate services,  X-while the states are authorized to establish discounts on intrastate universal services.hHX" {O-#X\  P6G;ɒP#э  NPRM at para. 82.h  X-x489.` ` The NPRM sought comment on how to formulate discount methodologies that would ensure that each discount is "an amount that . . . is appropriate and necessary to ensure  Xv-affordable access to and use of" services deemed eligible for universal service support.Iv" {O -#X\  P6G;ɒP#э NPRM at para. 74 (quoting 47 U.S.C.  254(h)(1)(B)). Specifically, the NPRM sought comment and Joint Board recommendation on the factors to be used in formulating a discount methodology for universal service support for schools and libraries. The NPRM noted that "[t]he methodology could reflect whether the services used  X -are tariffed or whether the charges are for capital investments or recurring expenses."J |" yOG-#X\  P6G;ɒP#э NPRM at para. 83.#X\  P6G;ɒP#ѕ The NPRM also stated that "[t]he methodology could also be based on the incremental costs of  X -providing services rather than retail prices."nK " yO-#X\  P6G;ɒP#э NPRM at para. 83.n Moreover, the NPRM noted that "[s]ection 254(h)(1)(B) specifies that all discounts shall apply to `the amounts charged for similar  X -services to other parties.'"bL " yO -#X\  P6G;ɒP#э NPRM at para. 88.b The NPRM sought comment and Joint Board recommendation  X -on how those amounts might be determined.bM , " yO-#X\  P6G;ɒP#э NPRM at para. 88.b The Public Notice sought further comment on the discount methodology and asked whether the base service prices to which discounts would be applied should be: "(a) total service longrun incremental cost; (b) shortrun incremental costs; (c) best commerciallyavailable rate; (d) tariffed rate; (e) rate established through a competitivelybid contract in which schools and libraries participate; (f) lowest of  X4-some group of the above; or (g) some other benchmark."tN4 " yO-#C\  P6QɒP#э Public Notice at question 16.t In addition, the Public Notice sought comment on how the commerciallyavailable rate could best be ascertained, "in light of  X-the fact that such rates may be established pursuant to confidential contract arrangements."tOL " {O#-#C\  P6QɒP#э Public Notice at question 16.t  X-x490.` ` Further, the NPRM sought comment on how each discount methodology would conform with the mandate of section 254(b) to provide "specific, predictable and sufficient"O*&&dd"  X-Federal and State mechanisms to preserve and advance universal service."P" {Oy-#X\  P6G;ɒP#э NPRM at para. 83 (quoting 47 U.S.C.  254(b)(5)). The NPRM also sought comment and a Joint Board recommendation on how to harmonize state and federal discount methodologies to ensure that Congress's goal to provide access to advanced telecommunications services for elementary and secondary schools, classrooms, and libraries  X-throughout the Nation is realized.hQZ" yO-#X\  P6G;ɒP#э  NPRM at para. 83.h  Xv-x491.` ` The NPRM sought comment on additional issues related to the discount methodology. First, the NPRM asked how to define "geographic area" for purposes of section  XH-254(h)(1)(B).hRH" yO -#X\  P6G;ɒP#э NPRM at para. 80.h Second, the NPRM noted that "[u]nlike all other universal service support, which is to be restricted to `eligible telecommunications carriers" under the terms of section 214(e) of the Act . . . the offset or reimbursement provided under section 254(h)(1)(B), pertaining to schools and libraries, must be given to `all telecommunications carriers serving a  X -geographic area.'"cS z" yO-#X\  P6G;ɒP#э NPRM at para. 88. c The NPRM sought comment and Joint Board recommendation on how  X -to implement these provisions.bT " yO-#X\  P6G;ɒP#э NPRM at para. 88.b The NPRM also sought comment on the estimated costs  X -associated with each proposed discount methodology.hU " yO -#X\  P6G;ɒP#э NPRM at para. 83.h  X-x492.` ` The Public Notice sought further comment on several discounting issues, including whether discounts should be directed to the states in the form of block grants or direct billing credits, and if so, what, if any, measures should be implemented to ensure that  XK-the funds are used for their intended purposes.VK* " yO&-#C\  P6QɒP#э Public Notice at questions 12, 13, and 14. The Public Notice also sought comment on whether the cost estimates contained in the McKinsey Report and the KickStart Initiative provide an accurate funding estimate for schools and libraries, assuming that tariffed rates are  X-used as the basis.nW " yOq!-#X\  P6G;ɒP#э Public Notice at question 23.n Moreover, the Public Notice sought comment on whether other such  X-cost estimates are available,nXJ " yO#-#X\  P6G;ɒP#э Public Notice at question 24.n and on whether there are cost estimates that specifically"X*&&dd'"  X-address the funding estimates for private schools.tY" yOy-#X\  P6G;ɒP#э Public Notice at question 25.t  X-x493.` ` The Public Notice sought further comment on several specific issues regarding the discount methodology. The Public Notice sought comment, first, on what discount should  X-be applied, if any, for schools and libraries that are already receiving special rates,nZX" yO-#C\  P6QɒP#э Public Notice at question 17.n and, second, on whether schools and libraries located in rural, insular, high cost and economically  Xv-disadvantaged areas should receive an additional discount.n[v" yO -#C\  P6QɒP#э Public Notice at question 19.n Third, the Public Notice asked whether the Commission should use a slidingscale approach or a step approach to allocate  XH-any such additional discount.n\Hx" yOq-#X\  P6G;ɒP#э Public Notice at question 21.n Finally, the Public Notice asked whether the Commission should use an existing model to determine the degree to which a school is disadvantaged, such as Title I or the national school lunch program, and whether the Commission should make  X -modifications to any such existing model.t] " yO-#C\  P6QɒP#э Public Notice at question 20.t  X -x` ` 2. Comments  X -x494.` ` Setting a PreDiscount Price. Numerous commenters suggest methods for determining a prediscount price, which would serve as the base price to which a discount would be applied for schools and libraries. Ameritech advocates use of the rate charged to  Xb-other subscribers,j^b" yO-#X\  P6G;ɒP#э Ameritech comments at 17.j while BellSouth advocates a discount off the tariffed rate of a service.m_b( " yO;-#X\  P6G;ɒP#э BellSouth comments at 1920.m NSBA I proposes "a method that is based on the competitive market price or a surrogate for  X4-the competitive market price for each service (if no such price is readily ascertainable)."k`4 " yO-#X\  P6G;ɒP#э NSBA I comments at 1921. k U.S. Distance Learning Ass'n advocates "calculating a discount from the lowest, competitive rate secured by the beneficiary institutions, presumably at a statewide or even regional  X-level."aZH " {O#-#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 1415. But see EDLINC further comments at 28 (opposing a discount based on tariffed rates because it is likely "there will be no tariffs on which to base the discount" and because "the Commission does not conduct a quantitative analysis of tariffed rates"). U.S. Distance Learning Ass'n supports using the lowest competitive interstate and"ja*&&dd "  X-intrastate telephone rates as a baseline.b" yOy-#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 1415.  X-x495.` ` To ensure that schools and libraries pay for the network elements they use, MCI contends that "the price of service for schools and libraries must reflect at least the  X-capital costs of the plant used to provide the service."cZX" {O-#X\  P6G;ɒP#э MCI comments at 20. See also Syracuse University comments at 910 (asserting that "the Commission should adjust tariffs of qualified public institutions for all telecommunications services (whether intrastate or interstate) to reflect only the actual costs of providing service including a fair return on capital investments"). MCI contends that "the FCC should require that the actual economic cost of telecommunications services be the maximum rate charged by a telecommunications provider to any school or library before any discount is  X_-applied."d_z" {O -#X\  P6G;ɒP#э Connecting Students and Teachers to the Internet: An MCI Proposal (June 27, 1996). MCI further maintains that the "actual economic cost" should be based on  XH-TSLRIC.eH " {O-#X\  P6G;ɒP#э Connecting Students and Teachers to the Internet: An MCI Proposal (June 27, 1996). EDLINC asserts that a national benchmark should be established, which "should be calculated based on the least of three possible rates: the price paid by schools and libraries in areas in which there is competition; the lowest commerciallyavailable rate; and the  X -TSLRIC."fZ " {OR-#X\  P6G;ɒP#э EDLINC further comments at 27. See also Union City Board of Education reply comments at 12 (recommending that the price paid by schools and libraries should be the lower of "1. [t]he carrier's current rate or bid; 2. [t]he lowest price offered for such service to any other customer; or 3. [t]he TSLRIC").  X -x496.` ` Some commenters support basing the price of service for schools and libraries  X -on competitive bids for serving aggregated sets of schools and libraries.g " yO/-#X\  P6G;ɒP#э Florida Cable comments at 14, 17; NCTA comments at 18; NSBA I comments at 22. NCTA, for example, believes that a competitive bid process in which the low bid represents a discount from prevailing market rates and in which the lowest bidder would become the provider of services with no entitlement to a subsidy "has major benefits in ease and economy of administration, and is procompetitive, ensuring that the benefiting institutions have maximum  XK-choice."ehKP " yOL -#X\  P6G;ɒP#э NCTA comments at 18.e NCTA also proposes "use of a competitive bid process to ensure the lowest possible rate for schools and libraries in lieu of the suggested discount methodology,"  X-suggesting that no funded discount is necessary.ei" yO#-#X\  P6G;ɒP#э NCTA comments at 18.e NTIA also proposes using competitive bidding and a competitive rate when it is available. When competition does not exist, NTIA supports using the lowest commercial rate for similarly situated customers or, if that is not"pi*&&dd'"  X-available, a costplus price.jj" yOy-#X\  P6G;ɒP#э NTIA submission at 1213.j ACE, however, maintains that the 1996 Act does not permit the Commission to require that schools and libraries participate in a competitive bidding process, and that such a requirement "would constitute an unnecessary unfunded mandate with administrative costs to some schools and libraries being more than the anticipated annual cost  X-of the requested telecommunications services."ikX" yO-#X\  P6G;ɒP#э ACE reply comments at 6.i  Xv-x497.` ` Definition of "Geographic Area." Several commenters address the way in which "geographic area" should be defined for purposes of section 254(h)(1)(B). Washington Library, for example, suggests that, since the service areas of schools and libraries tend to overlap, "the summary of their areas might form the nucleus for determining the geographic  X -area for receiving universal service support."tl " yO-#X\  P6G;ɒP#э Washington Library comments at 67.t Alaska Library maintains that "geographic  X -area" should be defined as an entire state,7mZ x" {O,-#X\  P6G;ɒP#э Alaska Library comments at 6. See also ACE comments at 13 (asserting that "[i]n order to facilitate universal service fund administration . . . the applicable `geographic area' should be each State or combination thereof").7 while USTA asserts that "it should be interpreted  X -to mean the service area in which the qualified educational institution or library is located." n " {O7-#X\  P6G;ɒP#э USTA comments at 8 n.13. See also NCTA comments at 18 (asserting that "[t]he geographic area served by a particular company should be each company's selfdefined service area").   X -Oakland School District contends that "geographic area" should be defined as the LATA.xo " yOz-#X\  P6G;ɒP#э Oakland School District comments at 10.x NSBA I states that the Commission should not create geographic service areas in which  X -schools and libraries will be required to obtain service from a particular carrier.mp " yO-#X\  P6G;ɒP#э NSBA I reply comments at 16.m  Xy-x498.` ` Definition of "Telecommunications Carriers Serving a Geographic Area." Other commenters address the entities that should be included within the definition of "telecommunications carriers serving a geographic area." Continental Cablevision, for example, asserts that any carrier, including those that do not provide "core" telecommunications services, should be considered a telecommunications carrier for purposes  X-of providing advanced services to schools and libraries at a discount.q" {O#-#X\  P6G;ɒP#э CCV comments at 1314. See also Citizens Utilities comments at 20. Such a result will"q*&&dd("  X-enhance competition in the provision of services to schools and libraries.{rZ" {Oy-#X\  P6G;ɒP#э CCV comments at 1314. See also Citizens Utilities comments at 20 (stating that "[s]ection 254(h)(1)(B)'s extension of universal service offsetting credits or reimbursement to all telecommunications carriers, not just Section 214(e) eligibles, should spur competition to provide service"). { Iowa Tel. Ass'n maintains that "private network providers (such as electric company networks or corporate networks) and state sponsored private networks (such as Iowa Communications Network) that do not provide services directly to the public should not be eligible for these support  X-funds."os" yO? -#X\  P6G;ɒP#э Iowa Tel. Ass'n comments at 4.o U.S. Distance Learning Ass'n, on the other hand, states that the Iowa Communications Network and other specialized private or public carriers dedicated to providing telecommunications services to schools and libraries should be considered  X_-telecommunications carriers for the purposes of section 254(h)(1)(B).t_z" yO -#X\  P6G;ɒP#э U.S. Distance Learning Ass'n reply comments at 78.  XH-  X1-x499.` ` Discounted Rate. In general, commenters suggest several different methods for determining what the "discount" should be for schools and libraries. ALA, for example, recommends that the discount rate for schools and libraries should be the "lower of the  X -TSLRIC for the service or the lowest price offered commercially."u " {O-#X\  P6G;ɒP#э ALA reply comments at 39. See also Colorado Library reply comments at 3. Ĩ ALA supports a discount price based on TSLRIC because that method "would ensure that the provider  X -recovers its full cost, including the cost of capital."v " yO - #X\  P6G;ɒP# č ALA reply comments at 39 (asserting that "[t]he true economic costs of supply for any market sector  {O-have been found to be the provider's TSLRIC"). See also AFT comments at 4 (asserting that "[u]sing a method for determining rates based on the Total Service Long Run Incremental Cost can substantially increase the cost savings to carriers and the larger schools they serve" because in urban areas with dense populations, "[t]elecommunications hookups to a single school will serve larger numbers of students and classrooms than in smaller schools"). USTA, however, asserts that the use of TSLRIC should be rejected because "TSLRIC is not appropriate for pricing and is irrelevant  X-to determine universal service support amounts."dw" yOW-#X\  P6G;ɒP#э USTA comments at 7.d ACE maintains that the use of incremental cost in any form was considered and rejected by Congress when it substituted  Xb-"rates less than" and "discount" language in section 254(h)(1)(B).ixb" yO!-#X\  P6G;ɒP#э ACE reply comments at 5.i  X4-x500.` ` Other commenters suggest different methods for determining the discounted rate. For example, some schools and libraries groups, citing the need for predictability in the"6x*&&ddG"  X-budgeting process, support a flat rate that is neither distance nor timesensitive.y" {Oy-#X\  P6G;ɒP#э See, e.g., Mendocino School District comments at 4; Michigan Library Ass'n comments at 12 (stating that "[s]elected discount methodologies should be distance insensitive"); Oakland School District comments at 11 (asserting that "[s]chools should have flatrate access to the network at the same cost as residential customers").  {O-See also PacTel comments at 56 (stating that "[p]rices which vary by amount of usage and from monthtomonth introduce an element of unpredictability that schools told us they could not tolerate"). U.S. Distance Learning Ass'n suggests using the following discount rates as target: 45 percent discount on the lowest competitive interstate and intrastate telephone rates; 50 percent discount on installation of hardware necessary to access telecommunications services; and 50  X-percent discount for ongoing maintenance.z|" yO -#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 1415. NSBA I supports basing the discount price on the "95 percent affordability price point" (i.e., a price low enough to allow 95 percent of  Xv-schools to afford the rate) or, in the alternative, on TSLRIC.p{v " yO3-#X\  P6G;ɒP#э NSBA I reply comments at 2122.p Great City Schools supports  X_-a declining rate based on the school's or library's ability to pay,r|_" yO-#X\  P6G;ɒP#э Great City Schools comments at 2.r while NECA proposes using mechanisms similar to those used for the Lifeline Assistance program to support  X1-discounted services for schools and libraries.}1, " {O-#X\  P6G;ɒP#э NECA comments at 1517. See also Alliance for Distance Education comments at 1 (supporting equating each classroom and library to a lowincome consumer unit, thereby entitling it to "an amount equal to rate 10 percent below the lowest rates offered by a telecommunications service provider to its lifeline customers or 20 percent below the lowest contract rates offered to corporations or institutions for a particular service, whichever rate is lower"). Pennsylvania Library asserts that the  X -discounted rate for schools and libraries should represent the wholesale price of the service.~ " yO-#X\  P6G;ɒP#э Pennsylvania Library Ass'n reply comments at 6. Sailor recommends that pre1996 Act rates should be compared with post1996 Act rates, so  X -that it can be determined whether a genuine discount exists.j n" yO -#X\  P6G;ɒP#э Sailor comments at 1519.j Sprint, on the other hand, asserts that "at least in the schools and library context, it is premature to prescribe a discount methodology until the specified services, and most importantly the cost of implementing and  X -provisioning such services, are determined."g " yOV!-#X\  P6G;ɒP#э Sprint comments at 23.g  Xy-x501.` ` EDLINC proposes basing the size of the discount on "two factors that  Xb-determine affordability: the price of the service, and ability to pay."ob" yO%-#X\  P6G;ɒP#э EDLINC further comments at 29.o EDLINC maintains"b*&&dd" that the ability to pay is particularly important in lowincome and rural areas, and proposes ranking school districts based on a combination of the lower of the median value of owner X-occupied housing or median household income, plus population density.o" yOK-#X\  P6G;ɒP#э EDLINC further comments at 30.o Based on its ranking, each school district would receive a minimum discount of 30 percent, and a maximum discount of 70 percent. EDLINC chooses median value of owneroccupied housing  X-as the "best indicator of district wealth in noninner city areas,"pX" yO-#X\  P6G;ɒP#э EDLINC further comments at 30. p and median household  Xv-income as "a better indicator of the relative ability to pay of an inner city area."ov" yO -#X\  P6G;ɒP#э EDLINC further comments at 31.o EDLINC selects population density as a factor to apply to all districts "because of the lower potential sparsely populated areas have for recovering costs by spreading them out over the population as a whole," but acknowledges that the current density factor may have to be adjusted to accommodate extremely dense urban areas that may have substantial lowincome  X -populations.o x" yO,-#X\  P6G;ɒP#э EDLINC further comments at 31.o In terms of applying the discount percentage, EDLINC proposes having service providers submit competitive bids to schools and libraries. If the lowest bid is above the national benchmark proposed by EDLINC, or if there is only one bid, the discount will be calculated by applying the discount percentage to the national benchmark price. In the event of no bidders, the school or library can request service from the carrier of last resort, and the discount will also be calculated by applying the discount percentage to the national benchmark price. If the lowest competitive bid is below the national benchmark price, the discount will  Xb-be calculated by applying the discount to the bid price.rb" yO-#X\  P6G;ɒP#э EDLINC further comments at 3132.r  X4-x502.` ` Some commenters recommend providing selected telecommunications services at no cost to schools and libraries (i.e., give them a 100 percent discount). United States Secretary of Education Richard Riley, Vice President Al Gore, and United States Representative Edward Markey have proposed free "basic" service rates and highly discounted  X-rates for advanced services, which they refer to as "Erates."" {O! -#X\  P6G;ɒP#э See Letter from Vice President Al Gore to Secretary Richard Riley (June 26, 1996); Statement of Richard W. Riley, U.S. Secretary of Education, Press Conference on Free Access to the Internet (June 27, 1996);  {O!-Statement of United States Representative Edward J. Markey, Schools Need Free "ERate" to Educate for 21st  {O}"-Century (June 27, 1996). See also U.S. Distance Learning Ass'n comments at 1314 (stating that "the Commission should require telecommunications service providers to both install and deliver free of charge at least one voicegrade, curricularpurpose line to each such eligible institution").  Benton asserts that, to ensure affordable telecommunications services for schools and libraries, it may be necessary to"*&&dd"  X-provide free services.n" yOy-#X\  P6G;ɒP#э Benton reply comments at 9. n NYNEX, however, contends that the 1996 Act contemplates discounted, rather than free services, and that providing such free services may encourage  X-wasteful purchases.lX" yO-#X\  P6G;ɒP#э NYNEX reply comments at 17.l  X-x503.` ` NTIA proposes that services be split into two categories, with the discount for a specific service determined by the category into which the service falls. In the first category of services, NTIA recommends providing a basic package of services, which would include basic connectivity and Internet access at a maximum bandwidth of 1.5 Mbps, at the  XH-"Erate" (i.e., free to eligible schools and libraries)."H" yO -#X\  P6G;ɒP#э NTIA submission at 9. Basic connectivity would include "both installation and monthly rates for external access, and the inside connections and `networking' required to ensure that at least one personal computer (located in an area accessible to students) is online," and Internet access would include Email and the  {O9-resources of the World Wide Web. Id. at 10. The price for this basic package would be established through several possible means, which are intended to obtain a competitive price. The package could, for example, be competitively bid. If, on the other hand, there are no bidders because there are no competitors to the ILEC, a bid ceiling value could be established based on competitive prices in other locations, or could be based on economic  X -costs, including a reasonable profit margin, to simulate a competitive result.g " yOX-#X\  P6G;ɒP#э NTIA submission at 12.g NTIA expects that schools and libraries will include the nontelecommunications components of a technology plan, such as competing architectures or technologies, in their competitive bids, which will enable technological innovations to drive down the cost of the basic service  Xy-package.aZyb " {O-#X\  P6G;ɒP#э NTIA submission at 12. See also Teleport ex parte filing (Sept. 26, 1996) (proposing that telecommunications services that are included within a basic package would be competitively bid, and other components of the technology configuration could be included).a NTIA proposes that carriers would be reimbursed for the basic package from  Xb-universal service support mechanisms.jb " yO-#X\  P6G;ɒP#э NTIA submission at 1213.j  X4-x504.` ` In the second category of services, NTIA proposes that all other telecommunications services would be provided to eligible schools and libraries at rates no  X-greater than the best available commercial rate.j" yO#-#X\  P6G;ɒP#э NTIA submission at 1314.j Schools and libraries that chose not to subscribe to the basic package of services could apply the cost of the basic package to their total purchase of special or advanced services, and that amount would be recovered by its"*&&dd"  X-chosen carrier from universal service support mechanisms.g" yOy-#X\  P6G;ɒP#э NTIA submission at 14.g Low income and high cost schools and libraries would be eligible for a deeper discount, based on an "affordability  X-index."jX" yO-#X\  P6G;ɒP#э NTIA submission at 1314.j For these other telecommunications services, carriers would only be reimbursed  X-from universal service support mechanisms for the cost of the deeper discount.g" yOT-#X\  P6G;ɒP#э NTIA submission at 15.g  X-x505.` ` Cost Estimates. To establish what level of support is appropriate and necessary, the Commission must estimate a baseline cost for what schools and libraries are likely to spend as they secure access to the Internet, engage in distance learning applications, use video conferencing, and purchase whatever other telecommunications and information services they find useful for achieving their educational purposes. The most comprehensive estimate, on the record, of the costs of providing schools with the services proposed by  X -Congress in section 254(h) is provided by K12 Schools to the Information Superhighway,  ("McKinsey Report") prepared by McKinsey & Company, a management consulting firm, for  X -the National Information Infrastructure Advisory Council (NIIAC)." x" yO-#X\  P6G;ɒP#э The National Information Infrastructure Advisory Council (NIIAC) was created by executive order at the end of 1993 and formally established and appointed in early 1994. The 37 member advisory panel represents many of the key constituencies with a stake in the NII, including private industry, state and local governments, community, public interest, education, and labor groups, creators and distributors of content, privacy and security advocates, and leading experts in NIIrelated fields. The NIIAC is responsible for advising the Secretary of Commerce and the Administration on a national strategy for promoting the development of the NII and the  {O-Global Information Infrastructure (GII). See Russell Rothstein, Networking K12 Schools: Architecture Models  {Oz-and Evaluation of Costs and Benefits 25 n.9 (1996) (unpublished masters thesis, Massachusetts Institute of Technology). McKinsey cost information was also integrated into a report published by the U.S. Advisory  {O -Council on the National Information Infrastructure. See KickStart Initiative: Connecting Americas Communities  {O-to the Information Superhighway (1996)."  X -x506.` ` The McKinsey Report estimates the costs for four models of computerbased infrastructures: basic lab; lab plus; partial classroom; and full classroom. The basic lab model assumes that every school will install connections for 25 computers in a single room served by an Ethernet LAN in the lab and ten telephone lines to the public network. The lab plus model would include all components of the lab model plus one computer and modem per teacher. The partial classroom model would include one computer per every five students for half of the classrooms in each school, served by an Ethernet LAN across and within all  X-classrooms and a T1 connection to the public network." {O$-#X\  P6G;ɒP#э McKinsey and Company, Connecting K12 Schools to the Information Superhighway at 2025 (1995). The full classroom model would include all of the components of the partial classroom model for every classroom."r*&&dd"Ԍ X-ԙx507.` ` The McKinsey Report estimates both initial and ongoing costs for six categories of costs: connection to the school, connection within the school, hardware, content,  X-professional development, and systems operation," {OK-#X\  P6G;ɒP#э McKinsey and Company, Connecting K12 Schools to the Information Superhighway at 57 (1995). but only the first two categories are costs of providing noncontent conduits for transmitting data, and have been identified by parties as relevant to the establishment of universal service mechanism and competitively neutral rules  X-under section 254(h) of the 1996 Act.gZ" yO-#X\  P6G;ɒP#э 47 U.S.C.  254(h).g The estimated (initial/ongoing) costs for connections to the schools according to each of the four models are: lab ($815/$580 million), lab plus ($1,345/$595 million), partial classroom ($1,715/$1,030 million), and full classroom ($1,645/$920 million). The estimated costs for internal connections are: lab ($1,325/$200 million), lab plus ($1,325/$200 million), partial classroom ($5,025/$410 million), and full classroom ($6,285/$570 million). The estimated total costs for these models are: lab ($10.6/$3.9 billion), lab plus ($21.8/$7.4 billion), partial classroom ($28.9/$7.5 billion), and full classroom ($46.8/$13.9 billion). These figures assume a five year deployment period for the first three models and a ten year deployment for the full classroom model. As these data indicate, the combined total of the categories of the internal and external connections represents about 18 percent of the total initial costs of the models and 15 percent of the  X-ongoing costs." {O+-#X\  P6G;ɒP#э McKinsey and Company, Connecting K12 Schools to the Information Superhighway at 28 (1995). Those costs are the identified base which we will consider in implementing section 254(h). Therefore, schools will have to depend on other sources to provide the additional 80plus percent of funding.  X4-x508.` ` The McKinsey Report makes a number of assumptions to reach its estimates. It assumes, for example, that 27 percent of connections to the school and 50 percent of internal connections would be provided via wireless radio, as the most costeffective technology. It also assumes that sevenpercent of schools already have internal connections in place. The services are priced at tariffed rates, although McKinsey assumes that the price of  X-many elements will decline over time.|" {O-#X\  P6G;ɒP#э McKinsey and Company, Connecting K12 Schools to the Information Superhighway at 5459 (1995).  X-x509. ` ` The record also includes Russell Rothstein's May 1996 master's thesis entitled,  X|-Networking K12 Schools: Architecture Models and Evaluation of Costs and Benefits.|" yO;"-#X\  P6G;ɒP#э Russell Rothstein, Networking K12 Schools: Architecture Models and Evaluation of Costs and Benefits (1996) (unpublished masters thesis, Massachusetts Institute of Technology). In his thesis, Rothstein estimates a range of costs for five different models of school access: single PC dialup; local area network (LAN) with shared modem; LAN with router; LAN with local server and dedicated line; and ubiquitous LAN with highspeed connection. He"9f *&&dd" states that his results are consistent with the McKinsey models. Furthermore, Rothstein disaggregates the cost of access to the Internet and estimates that cost at between $150 and  X-$630 million per year." yOK-ԍ Russell Rothstein, Networking K12 Schools: Architecture Models and Evaluation of Costs and Benefits, at 50 (1996) (unpublished masters thesis, Massachusetts Institute of Technology).  X-x510.` ` The KickStart Initiative: Connecting America's Communities to the Information  X-Superhighway ("KickStart Initiative"),X " yO` -#X\  P6G;ɒP#э The United States Advisory Council on the National Information Infrastructure was created by executive order at the end of 1993 by President Clinton. The 36member advisory panel was formally established and appointed by the Secretary of Commerce in early 1994. This report was published in January 1996. produced by the United States Advisory Council on the National Information Infrastructure, incorporates data from the McKinsey Report on  Xc-schools, estimates the cost of providing service to the libraries in the nation.oc@" yOT-#X\  P6G;ɒP#э KickStart Initiative at 9498.o It estimates the cost of providing T1 connections to libraries serving populations of more than 25,000, while 60 percent of libraries serving populations of less than 25,000 would have access to ISDN lines (56 to 128 kbps service) and 40 percent would have access to ordinary voice  X -lines.l " yO-#X\  P6G;ɒP#э KickStart Initiative at 97.l It estimates the total initial cost to libraries at $1.6 billion and $1.3 in ongoing costs. It also estimates that the costs of connections to the library would represent 4 percent of the total initial and 9 percent of total ongoing costs and that internal connections would represent  X -17 percent of initial costs and 3 percent of ongoing costs.l ` " yO-#X\  P6G;ɒP#э KickStart Initiative at 96.l  X-x511. ` ` NCLIS submitted its June 1995 report entitled Internet Costs and Cost Models  X-for Public Libraries. " {O -ԍ NCLIS, Internet Costs and Cost Models for Public Libraries, Final Report (June 1995). The report describes five Internet connectivity models: (1) single workstation, textbased; (2) single workstation, multimedia; (3) multiple terminals, textbased; (4) multiple workstations, multimedia, with existing LAN and OPACs; and (5) multiple  X<-libraries, multiple workstations, multimedia.< " {Oo -ԍ NCLIS, Internet Costs and Cost Models for Public Libraries, Final Report 1522 (June 1995). NCLIS estimates the cost of model 4, which would include providing T1 connections and Internet access with an existing LAN and online public access catalog system, at $7,475 in initial costs and $27,220 in ongoing annual costs  X-(i.e., primarily Internet access) per library." {O$-ԍ NCLIS, Internet Costs and Cost Models for Public Libraries, Final Report 2627 (June 1995). "*&&dd"Ԍ X-x512.` ` Several commenters maintain that it is important to establish the size of the  X-universal service fund." {Ob-#X\  P6G;ɒP#э See, e.g., BellSouth further comments at 31; SWBT further comments at 18; USTA further comments at 18. In the same way that schools and libraries require predictability in  X-the budgeting process,"" {O-#X\  P6G;ɒP#э See PacTel comments at 56 (asserting that "[p]rices which vary by amount of usage and from monthtomonth introduce an element of unpredictability that schools told us they could not tolerate").  service providers must have a sense of what they need to contribute towards universal service support. It may be necessary, according to several commenters, to  X-make adjustments to the fund, consistent with the 1996 Act.|" {O -#X\  P6G;ɒP#э See, e.g., BellSouth further comments at 31; USTA further comments at 18.  Xv-x513.` ` Some commenters assert that the cost estimates provided in the McKinsey Report and the KickStart Initiative provide reasonable bases to estimate funding for schools  XH-and libraries.H" {O-#X\  P6G;ɒP#э See, e.g., BellSouth further comments at 3031; GTE further comments at 26; SWBT further comments at 18; USTA further comments at 1718. USTA, for example, states that the McKinsey Report and the KickStart Initiative represent the best available estimates of the funding necessary for schools and  X -libraries."p h " yO3-#X\  P6G;ɒP#э USTA further comments at 1718.p In terms of private schools, several commenters assert that McKinsey's per  X -school estimates can be extrapolated to include private schools.{Z " {O-#X\  P6G;ɒP#э See, e.g., BellSouth further comments at 31; MCI further comments at 11. See also TCI further comments at 2021 (stating that the McKinsey estimates are accurate, but recommending that "those estimates be altered for the use of TSLRIC costs determined by an appropriate proxy model").{ Other commenters  X -maintain that there are flaws in the McKinsey Report and the KickStart Initiative. " {O-#X\  P6G;ɒP#э See, e.g., ALA further comments at 1819; Information Renaissance further comments at 10; Oakland School District further comments at 10. Oakland School District asserts that the estimated costs and prices are likely to change once  X -competition takes hold. t" yO-#X\  P6G;ɒP#э Oakland School District further comments at 10. ALA contends that, while the KickStart Initiative may provide some useful guidance for funding, the cost estimates are based on misleading assumptions of  X-what small and rural libraries need, as well as the services those libraries need to provide.o" yOE"-#X\  P6G;ɒP#э ALA further comments at 1819.o ALA suggests, alternatively, the use of its simplified cost model which estimates "ongoing  Xb-connectivity costs only" (i.e., data connections for Internettype service only).ob" yO%-#X\  P6G;ɒP#э ALA further comments at 1922.o"b$*&&dd"Ԍ X-ԙx514.` ` Limitation on Funds. Some commenters support a limit on the amount of money available to schools and libraries under section 254. TCI, for example, recommends that the Commission limit the amount of the discount required for schools and libraries so that  X-the discount does not go beyond the requirements of the 1996 Act.o" yO4-#X\  P6G;ɒP#э TCI comments at 2021. o Florida PSC supports a  X-maximum dollar limit on expenditures for schools and libraries.vX" yO-#X\  P6G;ɒP#э Florida PSC reply comments at 67. v Teleport asserts that there should be an initial limit on funds for the first year and a cap on funds in the third year,  Xv-pending further review of the discount program.v" {O -#X\  P6G;ɒP#э Teleport ex parte filing (Sept. 26, 1996).  XH-x515.` ` Block Grant Approach. The block grant approach would provide a specified quantity of money to states, to be disbursed among the various schools and libraries for their purchases of telecommunications services. Ameritech, for example, asserts that the use of blockgrants could be a "reasonable approach" to fulfilling the statutory requirements  X -applicable to schools and libraries.r z" yO-#X\  P6G;ɒP#э Ameritech further comments at 17.r GTE states that the use of block grants "could satisfy the requirements of the 1996 Act, be administratively feasible, and enable the entire process to  X -be managed in an efficient and consistent manner."l " yOy-#X\  P6G;ɒP#э GTE further comments at 18.l Most commenters, however, oppose the block grant approach and state that the 1996 Act contemplates discounted rates for schools  X-and libraries.\" {O-#X\  P6G;ɒP#э See, e.g., ALA further comments at 12; EDLINC further comments at 2021; Illinois State Library further comments at 3; NECA further comments at 9; Senate Working Group further comments at 2; Time  {Om-Warner further comments at 23; Union City Board of Education further comments at 2, 9. Parties opposing the block grant approach state that such an approach would  Xy-create bureaucratic problems,y " {O-#X\  P6G;ɒP#э See, e.g., ALA further comments at 12; New York DOE further comments at 7; Puerto Rico Tel. Co. further comments at 67. would make it impossible to determine affordability,y" yOB-#X\  P6G;ɒP#э Senate Working Group further comments at 2. and  Xb-would distort the competitive services market.mb" yO!-#X\  P6G;ɒP#э AT&T further comments at 14.m The Senate Working Group, a bipartisan group of 16 Senators that includes the coauthors of section 254(h), states: XxX` ` We are seriously concerned about the issue of block grants. (#` x` ` Such grants would be incompatible with the statute's architecture"8*&&ddF"Ԍ X-XxX` ` of discounts based on affordability on flexible bona fide requests(#` XxX` ` submitted by schools and libraries. Block grants are not based on(#` XxX` ` individual needs and priorities of schools and libraries for education(#` XxX` ` technology. Affordability cannot be determined under a block grant(#` x` ` approach. It is imperative that the Commission and the Joint Board XxX` ` structure discounted rates for schools and libraries in such a way(#` XxX` ` that all schools and libraries will have access to telecommunications(#` XxX` ` services. We believe that a block grant approach cannot satisfy the(#`  XJ-XxX` ` objectives of [s]ection 254(h).|J" yO -#X\  P6G;ɒP#э Senate Working Group further comments at 2.|(#`  X -x516.` ` Funds to Schools Approach. Whereas the block grant proposals would allocate a set amount of money to be disbursed among various schools and libraries, NYNEX proposes a formula for computing the amount of money available for each school and library to be used as discounts toward the purchase of telecommunications services. NYNEX's Education Plan would compute funding based on a determination of the nationwide average cost of providing information technology access on a per student basis. This calculation would be established as a benchmark price that would be used as the basis for establishing a benchmark discount. Each school and library would develop a proposal for telecommunications services procurement that would be reviewed and/or approved by a state administrator for compliance  XM-with an advisory council's guidelines.MX" {OV-#X\  P6G;ɒP#э See infra section X.E. for discussion of an Education Council. Telecommunications service providers would obtain the funding associated with the discounts from universal service support mechanisms, with the  X-balance billed to the school or library." yO-#X\  P6G;ɒP#э NYNEX comments at 2123 and reply comments at 1418.  X-x517.` ` NYNEX clarifies that data should be disaggregated between urban and rural areas for both the benchmark prices and discounts, to account for the differences in costs between urban and rural areas in acquiring similar telecommunications capabilities. By varying the discounts between urban and rural areas, schools and libraries located in rural and urban areas could be assured of obtaining services at the same price. Under this proposal, schools and libraries would not be in competition with one another for the funds representing  Xg-the discounts.lgz" yO!-#X\  P6G;ɒP#э NYNEX reply comments at 16.l  X9-x518.` ` Direct Billing Credits Approach. Some commenters assert that providing direct billing credits from service providers to schools and libraries would be a simple and direct""  *&&dd"  X-method of providing support to schools and libraries.Z" {Oy-#X\  P6G;ɒP##X\  P6G;ɒP#э#X\  P6G;ɒP# See, e.g., Ameritech further comments at 18; Bell Atlantic further comments at 4; Information Renaissance further comments at 8; NCTA further comments at 5; NYNEX further comments at 1011; Netscape further comments at 14; New York DOE further comments at 8; PacTel further comments at 20. Most commenters supporting this  X-approach anticipate that direct billing credits will be used in conjunction with discounts." {O-#X\  P6G;ɒP#э#X\  P6G;ɒP# See, e.g., NCTA further comments at 5; NYNEX further comments at 1011. Other commenters assert that the 1996 Act specifies discounts as the appropriate mechanism for providing support to schools and libraries, and that discounts and credits are not one and  X-the same. |" {O -#X\  P6G;ɒP#э#X\  P6G;ɒP# See, e.g., ALA further comments at 12; Colorado State Library further comments at 9; EDLINC further comments at 2223; Great City Schools further comments at 34.   Xv-x519.` ` Schools and Libraries Located in High Cost Areas. Numerous commenters  X_-advocate providing additional support to schools and libraries located in high cost areas. _" X-#X\  P6G;ɒP##Xj\  P6G;ynXP#э#X\  P6G;ɒP# See, e.g., Union City Board of Education reply comments at 12; ALA further comments at 1617; AirTouch further comments at 1819; California Library Ass'n further comments at 5; Colorado State Library further comments at 10; Illinois State Library further comments at 45; Maryland DOE further comments at 1011; NECA further comments at 12; National Coalition for the Homeless further comments at 89; PacTel further  yO'-comments at 2526; U S West further comments at 11; NTIA submission at 1416.#Xj\  P6G;ynXP# Senate Working Group asserts that, in determining the level of federal universal support for schools and libraries, the Commission must consider what schools and libraries in high cost  X -areas can reasonably afford.~ " yOr-#X\  P6G;ɒP#э Senate Working Group further comments at 23.~ In a letter to the Joint Board, a group of 26 Senators stated that "discounts must . . . consider if the school or library is in a rural or high cost area and  X -ensure affordable access for all eligible schools and libraries." 7" yO-#X\  P6G;ɒP#э Letter from 26 Senators to Members of the Joint Board (Sept. 26, 1996).  X -x520.` ` In suggesting that schools and libraries in high cost areas ought to receive a greater discount, several parties focus on the additional toll costs that rural schools and  X-libraries may incur relative to urban schools and libraries.;Z" {O -#X\  P6G;ɒP#э See, e.g., BellSouth further comments at 28; Bell Atlantic further comments at 6; Illinois State Library further comments at 45; NECA further comments at 12; PacTel further comments at 26; Washington SPI further comments at 2.; California Library Ass'n asserts that, in some rural areas, libraries may provide the sole public access point to electronic"y *&&dd"  X-information resources,Z" {Oy-#X\  P6G;ɒP#э California Library Ass'n further comments at 5. See also ALA further comments at 1617 (stating that "ALA urges strongly that deep discounts be provided for such areas, where often, libraries and schools are the key, perhaps even the only public access points to electronic information resources"). and that access to advanced telecommunications services in remote  X-areas is both expensive and difficult to obtain."" {O-#X\  P6G;ɒP#э California Library Ass'n further comments at 5. See also NECA further comments at 12 (explaining that additional discounts may be necessary for schools and libraries in rural, insular, and high cost areas because of long transport mileage and/or toll charges, as well as the difficulties in providing advanced services to such areas).  NCLIS notes that significant disparities exist in the types of service available to libraries based on the size of the population and the region in which libraries are located. For example, NCLIS research indicates that while approximately half of the libraries serving populations of 500,000 or more have T-1 connectivity to the Internet, very few libraries serving populations of less than 50,000 have  Xv-T-1 connectivity.mv" yO-#X\  P6G;ɒP#э NCLIS further comments at 6.m NCLIS advocates providing additional support to schools and libraries in  X_-high cost areas to correct such disparities.;Z_d " {Ot-#X\  P6G;ɒP#э NCLIS further comments at 6. See also Pennsylvania Library Ass'n reply comments at 6 (advocating additional support for schools and libraries in high cost areas to overcome obstacles such as distance and poor infrastructure). ;  X1-x521.` ` ALA advocates providing additional support for schools and libraries in high cost areas because "[p]roviding incentives for these institutions to get online and for the carriers to provide service will promote broad public access (the ultimate goal of all universal  X -service), as well as hasten the widespread deployment of highend services."o " yO#-#X\  P6G;ɒP#э ALA further comments at 1617.o ALA also notes that telecommunications costs for libraries in high cost areas represent a much higher  X -percentage of overall library budgets than for libraries in lower cost areas.d " yO-#X\  P6G;ɒP#э ALA comments at ii.d Great City Schools asserts that whether additional discounts are provided to schools and libraries in high cost areas should be a federal determination, rather than a decision left to state public utility  Xy-commissions.zy" yO -#X\  P6G;ɒP#э Great City Schools further comments at 4.z Century and TDS Telecom contend that discounts to schools located in high cost areas "must be `sufficient' to place them in a position to obtain services and access (e.g., Internet) reasonably comparable to what their urban counterparts are able to obtain and at"K 6*&&dd"  X-reasonably comparable rates."Z" {Oy-#X\  P6G;ɒP#э Century further comments at 14. See also MAP comments at 7 n.1 (in discussion of support for schools and libraries located in high cost areas, noting that "[s]ection 254(b)(3) requires that rates in rural, insular, and high cost areas be reasonably comparable to rates charged for similar services in urban areas").  MAP supports basing rates for schools and libraries on the ability to pay by first applying a sliding scale concept of affordability, based on income levels in a particular area. Discounts would then be applied on top of the slidingscale  X-rates.q" yOV-#X\  P6G;ɒP#э MAP further comments at 7.q ALA and the Illinois State Library assert that schools and libraries located in areas that are both high cost and economically disadvantaged should benefit from two sets of  X-additional discounts.z" yO -#X\  P6G;ɒP#э ALA further comments at 16 (stating that "[i]n the case in which a region is both highcost and lowincome, these additional discounts should be combined"); Illinois State Library further comments at 4 (asserting that "additional discounts should be given to both rural and economically disadvantaged areas with an additional discount provided to schools and libraries that are located in areas that are both rural and economically disadvantaged").  X_-x 522.` ` EDLINC acknowledges that the discount formula it proposes may not be sufficient for certain high cost school districts, so it proposes "that each state PUC have the authority to order lower discounts if a district is able to demonstrate that the standard discount  X -. . . does not yield an affordable price."o * " yO-#X\  P6G;ɒP#э EDLINC further comments at 38.o If a school's telecommunications expenditures exceed one percent of its total expenditures, EDLINC asserts that the school should be eligible for an additional discount, in an amount to be determined by the state PUC. Federal universal service mechanisms would fund twothirds of the additional discount, and state universal  X -service mechanisms would fund the remaining onethird.r " yO)-#X\  P6G;ɒP#э EDLINC further comments at 3839.r  X-x 523.` ` Several commenters oppose providing additional support to schools and  Xy-libraries located in high cost areas.PZyJ " {Ot-#X\  P6G;ɒP#э See, e.g., AT&T further comments at 16; Ameritech further comments at 21; Information Renaissance further comments at 910; MFS further comments at 3132; NCTA further comments at 6; TCI further comments at 18; Time Warner further comments at 2426.P Ameritech, for example, contends that the 1996 Act  Xb-does not provide for such an additional level of discount.rbl" yO"-#X\  P6G;ɒP#э Ameritech further comments at 21.r Information Renaissance sees no  XK-need for an additional discount.K" yO$-#X\  P6G;ɒP#э Information Renaissance further comments at 910. AT&T maintains that no additional discount should be provided, and states that if the best commercial rate in a rural area is considered excessive,"4 *&&dd" the affected schools and libraries could request the best commercial rate in an urban area  X-within the state.m" yOb-#X\  P6G;ɒP#э AT&T further comments at 16.m MFS believes that "generic highcost support" is sufficient for schools  X-and libraries located in high cost areas, and that an additional discount is not appropriate.oX" yO-#X\  P6G;ɒP#э MFS further comments at 3132.o Time Warner asserts that an additional discount is not necessary because schools and libraries in high cost areas will be eligible for general high cost universal support as well as the  X-discount that will be available to schools and libraries regardless of location.w" yO& -#X\  P6G;ɒP#э Time Warner further comments at 2425.w Washington UTC maintains that the 1996 Act does not mandate additional discounts for schools and libraries in high cost areas, and that "expansion of universal service funding on this basis is not consistent with the goal of limited, targeted support, or of allowing competition to  X1-work."w1x" yOZ-#X\  P6G;ɒP#э Washington UTC further comments at 13.w  X -x 524.` ` Time Warner asserts that an additional discount is not necessary because schools and libraries in high cost areas will receive the benefit of general high cost universal service support for these areas, as well as the discount that will be available to schools and  X -libraries regardless of location.w " yOw-#X\  P6G;ɒP#э Time Warner further comments at 2425.w Time Warner further observes that many states have begun regulatory initiatives that benefit schools and libraries, and suggests that the federal universal service support mechanism should complement, rather than duplicate, such state efforts and  Xy-should be structured in a competitively neutral manner.wy" yO-#X\  P6G;ɒP#э Time Warner further comments at 2425.w  XK-x 525.` ` Economically Disadvantaged Schools and Libraries. Numerous commenters  X4-support providing additional assistance to disadvantaged schools and libraries.84( " {O -#X\  P6G;ɒP#э See, e.g., AFT comments at 34; New Jersey Advocate comments at 22; U.S. Distance Learning Ass'n comments at 1516; ALA further comments at 1617; AirTouch further comments at 1819; CFA further comments at 1011; California Library Ass'n further comments at 5; Illinois State Library further comments at 45; National Coalition for the Homeless further comments at 811; U S West further comments at 11; Urban Libraries Council further comments at 712; NTIA submission at 1416.8 National Coalition for the Homeless states that recent statistics indicate that the gap between access to" *&&ddG"  X-telecommunications services afforded to rich and poor students continues to widen.uZ" yOy-#X\  P6G;ɒP#э National Coalition for the Homeless further comments at 8. National Coalition for the Homeless states, for example, that "[o]nly 31 percent of all schools with poor children have access to the Internet compared to 62  {O -percent of schools with affluent students." Id.u Public Advocates notes that NetDay `96, a California program aimed at wiring the state's 13,000  X-schools for access to the Internet, failed to reach poor schools in Los Angeles.Zz" yOm-#X\  P6G;ɒP#э Public Advocates comments at 1819 and Exhibit 5 (asserting that "[p]erhaps the most critical issue here is designing policies that ensure that schools, [and] libraries . . . in poor communities achieve levels of access equal to those in wealthy communities. Policies that perpetuate the status quo will merely deepen the disparities  {O -that are presently occurring"). See also Black Community Crusade for Children reply comments at 12 (stating that "[s]tudents who are poor clearly have less access than their betteroff peers to these increasingly fundamental tools, and when poor students do have access, it is more often for routine drill and practice than for the kind of advancedlevel programming offered to students in more affluent schools").Z AFT states that the infrastructure problems are greater in urban schools, and asserts that to deny access to urban students in resourcepoor schools "will negatively affect their educational opportunities, their employment prospects, and help reproduce economic disparities between those who have  Xv-technological proficiencies and those who do not."ev, " yOS-#X\  P6G;ɒP#э AFT comments at 34.e New Jersey Advocate maintains that schools and libraries in economically disadvantaged areas are likely to be most in need of  XH-access to the Internet and the information superhighway,tH " yO-#X\  P6G;ɒP#э New Jersey Advocate comments at 22.t and, therefore, most likely to need additional assistance. At a recent FederalState Joint Board meeting, United States Representative Major Owens emphasized the need to provide greater discounts to  X -economically disadvantaged schools and libraries. L " yO-#X\  P6G;ɒP#э Testimony of United States Representative Major Owens before the FederalState Joint Board on Universal Service (Oct. 17, 1996).  X -x 526.` ` The Senate Working Group, referring to both the principles of section 254(b) and the provisions of section 254(h)(1)(B), states that the Commission and the Joint Board must formulate a "discount mechanism" that takes into consideration what economically  X-disadvantaged schools and libraries can "reasonably afford."~" yO-#X\  P6G;ɒP#э Senate Working Group further comments at 23.~ The Senate Working Group urges that the discounts should be implemented in a manner that ensure all schools and  Xb-libraries have access to telecommunications and information services.|b4" yOG#-#X\  P6G;ɒP#э Senate Working Group further comments at 2.| Moreover, in a letter to the Joint Board, a group of 26 Senators asserts that "[a]ffordability must be defined so that the discounted rates are related to a school's or library's ability to pay," and discounts must"4*&&ddf"  X-be "real, significant and meaningful."" yOy-#X\  P6G;ɒP#э Letter from 26 Senators to Members of the Joint Board (Sept. 26, 1996). The Senators also contend that we should "not create a division of `haves' and `have nots' in the Information Age when it comes to the  X-educational uses of schools and libraries."X" yO-#X\  P6G;ɒP#э Letter from 26 Senators to Members of the Joint Board (Sept. 26, 1996).  X-x527.` ` U.S. Distance Learning Ass'n states that justification for providing additional assistance to disadvantaged schools and libraries can be found in the principles of section 254 of the 1996 Act, which state that any discount methodology established by the Commission  X_-must be specific, predictable, and sufficient,_" {O -#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 1516 (citing 47 U.S.C.  254(b)(5)). and that rates should be affordable._z" {O -#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 16 (citing 47 U.S.C.  254(b)(1)). New Jersey Advocate similarly focuses on the concept of affordability when it asserts that "there is an obvious correlation between the income of residents of an area, their ability to afford basic, as well as advanced, services that are included in the definition of universal service, and the  X -ability of schools and libraries serving these areas to afford those services."t " yO-#X\  P6G;ɒP#э New Jersey Advocate comments at 22.t AFT contends that, in order to provide equal access to telecommunications services at just, reasonable, and affordable rates, schools serving large populations of poor students will require discount rates  X -greater than other schools.c " yO -#X\  P6G;ɒP#э AFT comments at 3.c  X-x528.` ` Commenters suggest various ways that additional assistance could be administered for disadvantaged schools and libraries. Some commenters, for example,  Xb-contend that a slidingscale approach would be the most equitable way to proceed.$b, " {O?-#X\  P6G;ɒP#э See, e.g., CFA further comments at 11; EDLINC further comments at 4041; MAP further comments at 78; MCI further comments at 9; NECA further comments at 1415; Western Alliance further comments at 4;.  {O-See also U.S. Distance Learning Ass'n comments at 1317 (supporting either a sliding scale approach or a Lifelinetype program). NSBA I supports a system under which "[t]he amount of the subsidy would be proportional to the amount by which the average income in the district falls below the national average, so that an area with only 25 percent of the national average income would pay only 25 percent of the  X-discounted price."Z" {O#-#X\  P6G;ɒP#э NSBA I comments at 24. See also Great City Schools comments at 2 (stating that, "[i]n recognition of the direct relationship between the ability to pay even a discounted rate and the overriding principle of access, the Commission should consider establishing discount rates in declining amounts for schools in direct proportion"a%*&&%" to their ability to pay such rates"). Great City Schools also supports providing discounts in direct"X*&&dd "  X-proportion to the ability to pay.X" yO -#X\  P6G;ɒP#э Great City Schools comments at 2. Great City Schools supports basing any model on data provided by  {O-the Department of Education. Id. Other commenters support using a step approach to allocate an additional discount to disadvantaged schools and libraries, under which the discount would not need to be adjusted for every change in the percentage of children from  X-economically disadvantaged families." {O -#X\  P6G;ɒP#э See, e.g., NECA comments at 1516; U.S. Distance Learning Ass'n comments at 1317; TCI further comments at 19. Commenters suggest basing a stepapproach model  X-on either the threestep national school lunch programe " yOa -#X\  P6G;ɒP#э 42 U.S.C.  1758.e or the twostep Lifeline and Link X-Up programs currently available to needy residential customers.\" yO-#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 17. Several other commenters support a Lifeline approach.  {O-See, e.g., NSBA I comments at 2324; AFT comments at 6; U.S. Distance Learning Ass'n comments at 17. The  {Ol-Lifeline Assistance Plan and the LinkUp American Program are discussed in detail at section VIII supra.ļ PacTel, for example,  Xv-asserts that a step approach is easier to apply and administer than a sliding scale.rv " yO-#X\  P6G;ɒP#э PacTel further comments at 2627.r  XH-x529.` ` Consistent with its approach to providing a supplemental discount to high cost schools and libraries, EDLINC acknowledges that the discount formula it proposes may not be sufficient for certain economically disadvantaged school districts, so it proposes "that each state PUC have the authority to order lower discounts if a district is able to demonstrate that  X -the standard discount . . . does not yield an affordable price."o P " yO-#X\  P6G;ɒP#э EDLINC further comments at 38.o If a school's telecommunications expenditures exceed one percent of its total expenditures, EDLINC asserts that the school should be eligible for an additional discount, in an amount to be determined by the state PUC. Federal universal service mechanisms would fund twothirds of the additional  X-discount, and state universal service mechanisms would fund the remaining onethird.r" yO!-#X\  P6G;ɒP#э EDLINC further comments at 3839.r  Xb-x530.` ` Several commenters suggest ways to define disadvantaged schools and libraries. U.S. Distance Learning Ass'n defines disadvantaged schools and libraries as "those which are situated in communities which, according to U.S. census income data, are in the lowest 20  X-percentile in terms of income."}p" yO>%-#X\  P6G;ɒP#э U.S. Distance Learning Ass'n comments at 16.} New Jersey Advocate also supports consideration of"*&&ddG" income and the ability of the underlying populations to pay for advanced services in  X-determining whether a school is disadvantaged.t" yOb-#X\  P6G;ɒP#э New Jersey Advocate comments at 22.t Great City Schools advocates considering a  X-school's ability to pay, or in the alternative, the rate of poverty in the school district.tX" yO-#X\  P6G;ɒP#э Great City Schools comments at 12.t Some commenters support using eligibility requirements from the national school lunch program as a model for providing an additional universal service discount to disadvantaged  X-schools and libraries." {O& -#X\  P6G;ɒP#э See, e.g., MCI further comments at 10; New York DOE further comments at 10; NYNEX further comments at 16. Under the national school lunch program, a child is either eligible  Xv-for no assistance, a reduced price lunch, or a free lunch.AvB" yOi -ԍ 42 U.S.C.  1758(b).A A child whose family income is between 130 percent and 185 percent of applicable family size income levels contained in the nonfarm poverty guidelines prescribed by the Office of Management and Budget is eligible for a reduced price lunch. A child whose family income is 130 percent or less of applicable family size income levels contained in the nonfarm income poverty guidelines prescribed by  X -the Office of Management and Budget is eligible for a free lunch.A " yO-ԍ 42 U.S.C.  1758(b).A  X -x531.` ` AFT supports determining eligibility on a formula such as the one used to distribute federal educational funding under Title I of the Elementary and Secondary  X -Education Act of 1965 (Title I),$ b " yO-#X\  P6G;ɒP#э 20 U.S.C.  6301. The Improving America's Schools Act of 1994 (P.L. 103382) reauthorized the  {O-Elementary and Secondary Education Act of 1965. See United States Department of Education,  Policy  {OL-Guidelines for Title I, Part A Improving Basic Programs Operated by Local Educational Agencies at i (April 1996). which relies on Census Department poverty data, eligibility for AFDC, or participation in the national school lunch program, to determine  Xy-whether a school is disadvantaged.yyN " {Ox-#X\  P6G;ɒP#э AFT comments at 4. See also NSBA I comments at 23 (supporting use of Census Bureau data or some other appropriate state or federal formula). Title I is a federal program that provides financial assistance aimed  {O -at helping disadvantaged students meet academic content and student performance standards. See United States  {O -Department of Education, Policy Guidelines for Title I, Part A Improving Basic Programs Operated by Local  {O!-Educational Agencies at i (April 1996). y AFT argues that basing eligibility on such existing programs would not be administratively burdensome because school officials have used such  XK-poverty data for decades.K" {O%-#X\  P6G;ɒP#э AFT comments at 6. See also ALA further comments at 1718; USTA further comments at 16; U S West further comments at 11. PacTel supports basing eligibility requirements on poverty data"K`*&&dd"  X-provided by the Department of Education.o" yOy-#X\  P6G;ɒP#э PacTel further comments at 26.o TCI and the Urban Libraries Council assert that any model used should be based on the wealth of all inhabitants in a school district or within a library's service area, rather than based just on the wealth of the students enrolled in a  X-school district.X" yO-#X\  P6G;ɒP#э TCI further comments at 19; Urban Libraries Council further comments at 1214.  X-x532.` ` Some commenters oppose providing additional support to economically  Xv-disadvantaged schools and libraries.v" {O -#X\  P6G;ɒP#э See, e.g., AT&T further comments at 16; Ameritech further comments at 21; Information Renaissance further comments at 910; MFS further comments at 3132; Time Warner further comments at 2425. Ameritech, for example, asserts that the 1996 Act  X_-does not contemplate any such additional discount.-Z_B" {OR-#X\  P6G;ɒP#э Ameritech further comments at 21. See also Washington UTC further comments at 13 (asserting that "[t]he discount mechanism is limited to the circumstances set out in Section 254(h)(1) and should not be expanded").- MFS contends that "[i]t is inappropriate and beyond the scope of the Telecommunications Act to require telecommunications companies and telecommunications customers to bear the burden of  X -financing economically disadvantaged schools."o d " yO/-#X\  P6G;ɒP#э MFS further comments at 3132.o  X -x533.` ` Existing Special Rates. Some commenters support requiring the carriers to offer to schools and libraries already receiving special rates the lower of that special rate or  X -the discounted rate offered pursuant to section 254. " {Oc-#X\  P6G;ɒP#э See, e.g., GCI further comments at 7; NCTA further comments at 56; Oakland School District further comments at 17; TCI further comments at 18. Florida PSC, for example, asserts that the federal discount should be applied to the rate that would be charged in the absence of any  X-special rate, and the state should be free to further discount that rate.tN " yO-#X\  P6G;ɒP#э Florida PSC further comments at 13.t CFA maintains that carriers should not be able to collect universal service support for any services currently being  Xb-offered at a special rate.nb" yO -#X\  P6G;ɒP#э CFA further comments at 910.n Some commenters caution that schools and libraries should be precluded from receiving double support, once through existing special rates and again  X4-through any new discount programs.4n" yOS$-#X\  P6G;ɒP#э#X\  P6G;ɒP# AirTouch further comments at 18; ITC further comments at 8. RUS, on the other hand, asserts that discounts offered pursuant to section 254 should be applied on top of any low rates that schools and"*&&dd" libraries were previously able to secure. RUS adds that the goal should be to encourage service providers to offer services to schools and libraries, and service providers already offering special rates to schools and libraries should not be placed at a competitive  X-disadvantage.hZ" {O4-#X\  P6G;ɒP#э#X\  P6G;ɒP# See, e.g., Information Renaissance further comments at 9; NCTA further comments at 56; New York  yO-DOE further comments at 9; TCI further comments at 18; Union City Board of Education further comments at 4, 13.h  X-x534.` ` Interstate and Intrastate Discount Harmonization. A few commenters address  Xv-interstate and intrastate harmonization of discount mechanisms.v" {O -#X\  P6G;ɒP#э See, e.g., Apple comments at 6; Florida PSC comments at 23, 45, 8; Netscape comments at 21; . Netscape, for example, maintains that "the Commission should declare in this proceeding that all Internet communications and Internet access services are jurisdictionally interstate, and preempt state  X1-public service commission regulation of the Internet."i1|" yO^-#X\  P6G;ɒP#э Netscape comments at 21.i Netscape bases this argument on its interpretation that, under the jurisdictional classification rule for mixeduse local exchange carrier special access services, Internet access services are interstate, "even though the user's  X -`link' to the network is physically intrastate."mZ " {O-#X\  P6G;ɒP#э Netscape comments at 21 (citing 47 C.F.R.  36.154(a) and MTS and WATS Market Structure, 4 FCC Rcd. 5660 (1989) for the premise that "a facility with at least ten percent interstate usage is classified as interstate for separations, regulation and tariffing purposes").m BellSouth suggests that "the public interest would best be served if the federal universal service support mechanisms [were] also [ ] sufficient to cover statedesignated discounts for intrastate services where the state has not adopted `additional definitions and standards' within the meaning of [s]ection 254(f) or  X-appropriate funding mechanisms."j. " yOo-#X\  P6G;ɒP#э BellSouth comments at 22.j Some commenters assert that states should be able to  Xy-further discount any federally discounted services.y " {O-#X\  P6G;ɒP#э See, e.g., Florida PSC reply comments at 23, 45, 8; West Virginia Consumer Advocate reply comments at 57. New York DPS, on the other hand, asserts that state and federal discount methodologies need not be harmonized because the majority of services will likely be intrastate in nature and recovery of revenues will fall  X4-primarily to the states.l4" yO!-#X\  P6G;ɒP#э New York DPS comments at 8.l In addition, New York DPS maintains that the 1996 Act does not  X-require that state and federal discount methodologies be harmonized.l" yOv$-#X\  P6G;ɒP#э New York DPS comments at 8.l "8*&&ddF"Ԍ X-x` ` 3. Discussion  X-x` `  a. Prediscount Price  X-  X-x535.` ` As a preliminary matter, we note that the prediscount price is significant for two reasons. First, it is the total price that carriers would receive for the services they sell to schools and libraries. While schools and libraries would only pay the carrier a discounted rate, the carrier would receive the amount of the discount from universal service support mechanisms. Therefore, the prediscount price is the price of most significance to providers of services to schools and libraries. The prediscount price is also highly significant to schools and libraries because they must pay the undiscounted portion of the price. This gives schools and libraries a strong incentive to secure the lowest prediscount price, while service providers desire the highest possible prediscount price.  X -x536.` ` Competitive Environment. We expect that, in a competitive marketplace, schools and libraries would have both the opportunity and the incentive to secure the lowest price charged to similarly situated nonresidential customers for similar services. In a competitive marketplace, we also expect that carriers would face competitive pressures to provide such a price to schools and libraries. Thus we note that, while some carriers support  XK-use of the tariffed rate as the prediscount baseline,mK" yO-#X\  P6G;ɒP#э BellSouth comments at 1920.m we see no reason to deny schools and libraries the benefits of competitive pressures that might lead carriers to cut their prices. In fact, Congress sought to create an environment that stimulated competition to enable all customers to benefit from the lower costs and lower prices produced by the competitive pressures of the marketplace. Additionally, we would not want to deprive schools and libraries of access to contracts negotiated by state governments for all state institutions, nor would we want to deny schools access to rates under the federal FTS 2000 contract, if those rates were to become available to them. In addition, carriers that do not file tariffs do not have tariffed rates.  Xe-x537.` ` We conclude that it would be beneficial to encourage schools and libraries to aggregate their demand with others to create a consortium with sufficient demand to attract a competitor into the market which could influence the existing carrier to cut its prices. We also recognize the benefits