******************************* ***************** ******** NOTICE ********************************** ********************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ********************************** ******************************* PUBLIC NOTICE Federal Communications Commission 1919 M St., N.W. Washington, D.C. 20554 DA 98-715 Released April 15, 1998 COMMON CARRIER BUREAU SEEKS COMMENT ON PROPOSALS TO REVISE THE METHODOLOGY FOR DETERMINING UNIVERSAL SERVICE SUPPORT CC Docket Nos. 96-45 and 97-160 Comment Date for filing additional proposals: April 27, 1998 Comment Date: May 15, 1998 Reply Comment Date: May 29, 1998 In the Universal Service Order, the Commission adopted a four-step methodology for determining the appropriate level of federal universal service support that non-rural carriers will receive beginning January 1, 1999. As part of that methodology, the Commission determined that the federal fund will provide at least 25 percent of the total support necessary for non-rural carriers (25/75 decision). The Commission also concluded that rural carriers will receive support based on forward-looking costs no sooner than January 1, 2001. Several parties have set forth proposals to modify the Commission's approach to determining support for non-rural and rural carriers. Some of these proposals were presented in the Commission's proceeding to prepare a Report to Congress on Universal Service, required by statute, and, in particular, in the en banc hearing on universal service issues held on March 6, 1998. In this Public Notice, we seek to augment the record by encouraging interested parties to submit additional proposals for modifying the Commission's methodology, or updates to those on the record, by April 27, 1998. Comments from interested parties on these proposals are due on May 15, 1998, and reply comments are due on May 29, 1998. In the Report to Congress, the Commission states that, prior to implementing the Commission's methodology for determining high cost support for non-rural carriers, the Commission will complete a reconsideration of its 25/75 decision and of the method of distributing high cost support. The Commission also states that it will continue to work closely on these issues with the state members of the Federal-State Joint Board on Universal Service (Joint Board), including holding an en banc hearing with participation by the Joint Board Commissioners. Background In the Universal Service Order and the accompanying Access Charge Reform Order, the Commission set in place rules that will identify and convert existing mechanisms for providing federal universal service support to explicit, competitively-neutral federal universal service support mechanisms. The Commission determined that non-rural carriers serving rural, insular, and high cost areas (collectively referred to as "high cost areas") would begin to receive support based on forward-looking economic cost beginning January 1, 1999, while rural carriers serving high cost areas would move to a forward-looking methodology no sooner than January 1, 2001. The Commission also determined that it would assess and permit recovery of contributions to high cost support mechanisms based only on interstate revenues because such an approach would continue the historical method for recovering universal service support contributions and promote comity between the federal and state governments. Thus, the Commission concluded that carriers may recover their contributions through interstate access and interexchange revenues. Finally, the Commission directed that incumbent LECs use high cost support to reduce or satisfy the interstate revenue requirement otherwise collected through interstate access charges. That decision was based on the decision in the Universal Service Order to fund only the federal share, or 25 percent, of high cost support from the federal mechanism, discussed below. In the first step of the Commission's four-step methodology for determining support for non-rural carriers, a forward-looking economic cost mechanism selected by the Commission, in consultation with the Joint Board, will be used to calculate the forward- looking economic cost to non-rural carriers for providing the supported services in high cost areas. Second, the Commission will establish nationwide revenue benchmarks calculated on the basis of average revenue per line. Without adopting a precise method for calculating the benchmarks, the Commission stated in the Universal Service Order that it appears that the benchmarks should be approximately $31 for residential services and approximately $51 for single-line businesses. The Commission intends to make a formal determination on the appropriate revenue benchmark before it implements a high cost support mechanism based on forward-looking costs. Third, the difference between the forward-looking economic cost and the benchmark will be calculated. Fourth, federal support will be 25 percent of that difference, corresponding to the percentage of loop costs allocated to the interstate jurisdiction. In the Universal Service Order, the Commission stated that, once states have taken steps to identify the subsidies implicit in intrastate rates, the Commission may reassess the amount of federal support that is necessary to ensure affordable rates. A number of parties have sought reconsideration of the Commission's decision to initially fund only 25 percent of total high cost support. Since the period for filing comments on those reconsideration petitions closed, several parties have proposed specific alternatives to the Commission's 25/75 funding decision. Proposals to Modify the Commission's Methodology Upon recommendation by the Joint Board, the Commission adopted a nationwide revenue benchmark based on average revenues per line. Subsequent to the Joint Board's recommendation, a majority of state members of that Joint Board endorsed a nationwide benchmark based on the nationwide average cost of service, as determined by a forward- looking cost model. In light of the recommendation of the Joint Board's majority state members and the proposals described in this Public Notice, we seek additional comment regarding the use of a cost-based benchmark. U S WEST proposes to modify the second step of the Commission's forward-looking methodology for non-rural carriers by creating a second revenue benchmark (Interstate High Cost Affordability Plan or IHCAP). Under the IHCAP, the federal mechanism would provide support for 25 percent of the costs between a "Primary Benchmark" and a "Super Benchmark," and 100 percent of the costs above the Super Benchmark. For demonstration purposes, the IHCAP assumes a Primary Benchmark of $30 and a Super Benchmark of $50. An Ad Hoc Working Group convened through the National Association of Regulatory Utility Commissioners proposes an alternative approach for determining and distributing high cost support for both rural and non-rural carriers (Ad Hoc Proposal). In lieu of the forward- looking cost methodology established by the Commission, a draft of the Ad Hoc Proposal filed with the Commission on April 10, 1998 calculates federal support for each state in five steps. First, the Ad Hoc Proposal uses a forward-looking economic cost model selected by the Commission to calculate the average forward-looking cost per line for each state, as well as the average forward-looking cost per line for the nation. The difference between these amounts is calculated for each state and multiplied by a composite state separations factor which the proposal assumes to be 75 percent. Second, the above process is repeated using embedded cost. Specifically, the difference between each state's average embedded cost and 105 percent of the national average embedded cost is calculated for each state and multiplied by a composite state separations factor. Third, the lesser amount resulting from the first two steps is determined. Fourth, a "hold-harmless" level is calculated for each state equal to federal support received by carriers in that state under existing mechanisms. For those states with above-average embedded costs that also currently make a net contribution to federal support mechanisms, the hold-harmless level is increased to ensure that a state's net contribution does not increase. Finally, the federal support for each state is set at either the hold-harmless amount or the amount determined in step 3, whichever is greater. Federal support below the hold-harmless level is distributed by state commissions to carriers that receive support under the current system. Federal support above the hold-harmless level is distributed to other eligible telecommunications carriers (ETCs) according to a state distribution plan reviewed by the Commission. The Ad Hoc Working Group and the Telecommunications Industry Analysis Project (TIAP) also examine possible modifications to the Ad Hoc Proposal. TIAP proposes four alternatives to the federal forward-looking methodology. One proposal increases federal support to 40 percent of the difference between forward-looking cost and the revenue benchmark (40/60 Proposal). In another proposal, the federal fund supports 100 percent of the difference between the forward-looking economic cost and the benchmark only in one or two of the lowest density zones served by non-rural carriers (Density Zone Proposal). A third proposal applies one nationwide surcharge to each telephone number per month (Telephone Number Proposal). Based on the assumption that the federal fund will provide 100 percent of the necessary support, the surcharge is calculated by dividing the fund by the number of phone numbers in service, and by twelve months. A fourth proposal applies one nationwide surcharge to each customer's bill based on a percentage of the total (interstate and intrastate) revenues on the bill (Percentage of Retail Revenues Proposal). Based on the assumption that the federal fund will provide 100 percent of the necessary support, the surcharge is calculated by dividing the fund by total annual retail revenues. We seek comment on the use of a cost-based benchmark and the proposals of U S WEST, the Ad Hoc Working Group, and TIAP. In addition, we seek comment on how to modify our rules in the event such a proposal were adopted. We also seek comment on the appropriate method and revenues to recover contributions for high cost support. Implementation of High Cost Support Methodology In the Universal Service Order, the Commission established a forward-looking economic cost methodology for non-rural carriers that will calculate support based on forward-looking cost beginning January 1, 1999. AT&T seeks to delay implementation of the high cost support mechanism for "the Major ILECs . . . at the very least until these companies have opened their markets to robust and widespread local competition." In contrast, proponents of the Ad Hoc Proposal support the implementation of their proposal for both rural and non-rural carriers on January 1, 1999. U S WEST recommends that non-rural carriers begin receiving support based on the IHCAP on January 1, 1999, and that a forward- looking methodology that will best meet the needs of rural carriers should be determined after several years of experience of calculating support based on IHCAP for the non-rural carriers. We seek comment on these implementation proposals. With regard to AT&T's petition, we seek comment on the specific criteria that should trigger implementation of the forward- looking methodology for non-rural carriers. Finally, in its Report to Congress, the Commission commits to completing a reconsideration of the issues raised in this Public Notice prior to implementing the new high cost mechanism for non-rural carriers. The Commission specifies that, in the course of reconsidering these issues, it will work closely with the state members of the Joint Board. The Commission attests that, in the past two years in particular, the ideas generated by the formal and informal dialogue among state members of the Joint Board and the FCC Commissioners have facilitated the shared objectives of preserving and advancing universal service as competition develops in local markets. Final Regulatory Flexibility Analysis In the Universal Service Order we conducted a Final Regulatory Flexibility Analysis (FRFA), as required by the Regulatory Flexibility Act (RFA). We received no petitions for reconsideration of that FRFA. In this present Public Notice, the Commission promulgates no additional final rules, and our action does not affect the previous analysis. If commenters believe that the proposals discussed in this Public Notice require additional RFA analysis, they should include a discussion of these issues in their comments. Deadlines and Instructions for Filing Proposals and Comments Interested parties may file additional proposals regarding the Commission's methodology for determining universal service support for rural and non-rural carriers on or before April 27, 1998. Interested parties may file comments in support of or opposition to the proposals on or before May 15, 1998. Reply comments are due on or before May 29, 1998. All filings should refer to CC Docket Nos. 96-45 and 97-160, and DA 98-715. One original and five copies of all filings must be sent to Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554. Parties must also send copies to the individuals listed on the attached Service List (Appendix) and to the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C. 20554. For further information, please contact Chuck Keller at (202) 418-7380 or via electronic mail at . Action by the Chief, Common Carrier Bureau. - FCC - APPENDIX Service List The Honorable Susan Ness, Chair, Commissioner Federal Communications Commission 1919 M Street, N.W., Room 832 Washington, DC 20554 The Honorable Harold Furchtgott-Roth, Commissioner Federal Communications Commission 1919 M Street, N.W., Room 802 Washington, DC 20554 The Honorable Gloria Tristani, Commissioner Federal Communications Commission 1919 M Street, N.W., Room 826 Washington, DC 20554 The Honorable Julia Johnson, State Chair, Chairman Florida Public Service Commission 2540 Shumard Oak Blvd. Gerald Gunter Building Tallahassee, FL 32399-0850 The Honorable David Baker, Commissioner Georgia Public Service Commission 244 Washington Street, S.W. Atlanta, GA 30334-5701 The Honorable Laska Schoenfelder, Commissioner South Dakota Public Utilities Commission State Capitol, 500 East Capitol Street Pierre, SD 57501-5070 The Honorable Patrick H. Wood, III, Chairman Texas Public Utility Commission 1701 North Congress Ave. Austin, TX 78701 Martha S. Hogerty Missouri Office of Public Council 301 West High Street, Suite 250 Truman Building Jefferson City, MO 65102 Charles Bolle South Dakota Public Utilities Commission State Capitol, 500 East Capitol Street Pierre, SD 57501-5070 Deonne Bruning Nebraska Public Service Commission 300 The Atrium, 1200 N Street, P.O. Box 94927 Lincoln, NE 68509-4927 James Casserly Federal Communications Commission Commissioner Ness's Office 1919 M Street, N.W., Room 832 Washington, DC 20554 Rowland Curry Texas Public Utility Commission 1701 North Congress Avenue P.O. Box 13326 Austin, TX 78701 Ann Dean Maryland Public Service Commission 16th Floor, 6 Saint Paul Street Baltimore, MD 21202-6806 Bridget Duff, State Staff Chair Florida Public Service Commission 2540 Shumard Oak Blvd. Tallahassee, FL 32399-0866 Irene Flannery, Federal Staff Chair Federal Communications Commission Accounting and Audits Division Universal Service Branch 2100 M Street, N.W., Room 8922 Washington, DC 20554 Paul Gallant Federal Communications Commission Commissioner Tristani's Office 1919 M Street, N.W., Room 826 Washington, DC 20554 Lori Kenyon Alaska Public Utilities Commission 1016 West Sixth Avenue, Suite 400 Anchorage, AK 99501 Mark Long Florida Public Service Commission 2540 Shumard Oak Blvd. Tallahasse, FL 32399-0866 Sandra Makeeff Iowa Utilities Board Lucas State Office Building Des Moines, IA 50319 Kevin Martin Federal Communications Commission Commissioner Furchtgott-Roth's Office 1919 M Street, N.W., Room 802 Washington, DC 20554 Philip F. McClelland Pennsylvania Office of Consumer Advocate 1425 Strawberry Square Harrisburg, PA 17120 Barry Payne Indiana Office of the Consumer Counsel 100 North Senate Avenue, Room N501 Indianapolis, IN 46204-2208 James Bradford Ramsey National Association of Regulatory Utility Commissioners 1100 Pennsylvania Ave., N.W. P.O. Box 684 Washington, DC 20044-0684 Brian Roberts California Public Utilities Commission 505 Van Ness Avenue San Francisco, CA 94102 Tiane Sommer Georgia Public Service Commission 244 Washington Street, S.W. Atlanta, GA 30334-5701 Sheryl Todd (plus 8 copies) Federal Communications Commission Accounting and Audits Division Universal Service Branch 2100 M Street, N.W., Room 8611 Washington, DC 20554