Federal-State Joint Board on Universal Service, National Telephone Cooperative Association, 10057-10061 [05-4018]
Download as PDF
Federal Register / Vol. 70, No. 40 / Wednesday, March 2, 2005 / Rules and Regulations
BILLING CODE 6560–50–P
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 54
[CC Docket No. 96–45; FCC 05–1]
Federal-State Joint Board on Universal
Service, National Telephone
Cooperative Association
Federal Communications
Commission.
ACTION: Final rule; petition for
reconsideration.
AGENCY:
SUMMARY: In this document, the
Commission amends its rules so that
certain sections do not apply to transfers
of telephone exchanges between nonrural carriers following the phase-down
of interim hold-harmless support, and
the Commission addresses the request to
reconsider portions of the Commission’s
order modifying the Commission’s rules
VerDate jul<14>2003
14:59 Mar 01, 2005
Jkt 205001
for providing high-cost universal service
support based on the proposals made by
the Rural Task Force by amending its
rules to provide that rural carriers may
receive ‘‘safety valve’’ support for
investment made in the first year of
operating acquired exchanges.
DATES: Effective April 1, 2005.
FOR FURTHER INFORMATION CONTACT:
Katie King, Special Counsel, Wireline
Competition Bureau,
Telecommunications Access Policy
Division, (202) 418–7400, TTY (202)
418–0484.
SUPPLEMENTARY INFORMATION: This is a
summary of the Commission’s Order
and Order on Reconsideration, in CC
Docket No. 96–45, FCC 05–1, released
January 10, 2005. The full text of this
document is available for public
inspection during regular business
hours in the FCC Reference Center,
Room CY–A257, 445 12th Street, SW.,
Washington, DC 20554.
I. Introduction
1. In this Order and Order on
Reconsideration, we amend § 54.305 of
PO 00000
Frm 00037
Fmt 4700
Sfmt 4700
the Commission’s rules so that it does
not apply to transfers of exchanges
between non-rural carriers after the
phase-down of interim hold-harmless
support, as proposed in the Further
Notice of Proposed Rulemaking, 65 FR
79047, December 18, 2000. In addition,
we address the request by the National
Telephone Cooperative Association
(NTCA) to reconsider portions of the
Commission’s rules adopted in the
Rural Task Force Order, 66 FR 30080,
June 5, 2001. Specifically, we amend
our rules to provide that rural carriers
may receive ‘‘safety valve’’ support for
investment made in the first year of
operating acquired exchanges. Based on
the record before us, these actions better
satisfy our policy goals of ensuring that
acquiring carriers receive sufficient
high-cost support and preserving the
purpose of section 54.305 of
discouraging carriers from transferring
exchanges merely to increase their share
of high-cost universal service support.
E:\FR\FM\02MRR1.SGM
02MRR1
ER02MR05.035
[FR Doc. 05–4002 Filed 3–1–05; 8:45 am]
10057
10058
Federal Register / Vol. 70, No. 40 / Wednesday, March 2, 2005 / Rules and Regulations
II. Discussion
2. We amend § 54.305 of the
Commission’s rules so that it does not
apply to transfers of exchanges between
non-rural carriers after the phase-down
of interim hold-harmless support. The
Commission adopted § 54.305 ‘‘as a
stopgap measure to prevent carriers
receiving support based on the size of
their study areas and embedded costs
from ‘placing unreasonable reliance
upon potential universal service support
in deciding whether to purchase
exchanges[.]’ ’’ The Commission
anticipated that the rule would no
longer be necessary once all carriers
receive support based on forwardlooking economic costs. When all nonrural carriers receive support based on
forward-looking economic costs once
the phase-down of interim holdharmless support is complete, we find
that the need for § 54.305 will no longer
exist with regard to transfers between
non-rural carriers. Accordingly, after the
complete phase-down of interim holdharmless support, § 54.305 will not be
applicable to the sale or transfer of
exchanges between non-rural carriers.
3. We agree with NTCA that we
should amend § 54.305 of our rules to
provide that rural carriers that acquire
high-cost exchanges may receive safety
valve support for the investment made
in the first year of operating the
acquired exchanges. We conclude that
this modification to the existing safety
valve mechanism is necessary to
provide appropriate incentives for rural
carriers operating recently acquired
exchanges to invest in rural
infrastructure. Accordingly, we amend
§ 54.305 to provide that the index year
expense adjustment for purposes of
determining safety valve support for the
first year of operation shall be defined
as the seller’s expense adjustment for
the twelve-month period prior to the
transfer of the exchanges.
4. While we continue to believe that
§ 54.305 serves the important purpose of
discouraging carriers from transferring
exchanges merely to increase their share
of high-cost support, we are persuaded
that the current safety valve rules may
have the unintended effect of
discouraging investment in newly
acquired exchanges during the first year
of operation. The current rules not only
prevent carriers from receiving safety
valve support for any investments made
in their first year of operation, but also
may encourage carriers to keep first year
investment as low as possible in order
to maximize safety valve support in
subsequent years. Because safety valve
support is calculated by taking fifty
percent of the difference between the
VerDate jul<14>2003
14:59 Mar 01, 2005
Jkt 205001
expense adjustment in the index year
and the expense adjustment in
subsequent years, a lower index year
expense adjustment would result in
more safety valve support than a higher
index year expense adjustment.
5. We are persuaded that the current
safety valve formula may prevent rural
carriers that make substantial
investment in acquired exchanges from
receiving the full benefits intended
under the safety valve mechanism. One
commenter notes that state commissions
may require companies to make needed
investments and upgrade facilities as a
condition of approval of the transfer. If
a state commission requires investment
in the first year, the acquiring carrier
may make substantial investments to
enhance the network infrastructure, but
would be unable to receive any
additional support for that first-year
investment.
6. We conclude that making safety
valve support available for investment
made in the first year of operation is
more consistent with the purpose of the
safety valve mechanism to provide
additional support to rural carriers that
acquire high-cost exchanges and make
post-transaction investments to enhance
network infrastructure than the current
rule. Providing safety valve support for
first year investment will provide the
proper incentives, and carriers will not
delay investment solely because our
rules would provide more safety valve
support in subsequent years. Carriers
that make investments in the first year
of operation will receive safety valve
support for the investments they make
in the acquired exchanges.
7. We find that NTCA’s proposal to
use the selling carrier’s expense
adjustment for the index year expense
adjustment is a reasonable way to
calculate safety valve support for the
first year. Although the Commission
previously said that it would be
inappropriate to rely on the cost data of
selling carriers in establishing the index
year expense adjustment, upon
reconsideration, we find that the
benefits of providing safety valve
support for first year investment
outweigh any risks of using the seller’s
expense adjustment in this limited
manner. We agree with NTCA that
concerns regarding reliance on the
seller’s cost data are mitigated because
the selling carrier’s expense adjustment
would be used only for the first year.
We also note that the Commission based
its concerns on the fact that ‘‘rural
carriers most often acquire high-cost
exchanges from non-rural carriers
operating in large study areas with
lower average costs.’’ Because non-rural
support is targeted to high-cost wire
PO 00000
Frm 00038
Fmt 4700
Sfmt 4700
centers, however, the selling carrier’s
expense adjustment for transferred highcost exchanges will be higher than the
average support per line in the non-rural
study area.
8. We disagree with commenters that
claim that this limited use of the seller’s
expense adjustment to provide safety
valve support for investment in the first
year of operating an acquired exchange
would create a ‘‘substantial risk that the
acquiring carrier would receive more
support than necessary,’’ and would
‘‘drive up the price of the exchange.’’
Section 54.305 will continue to limit the
acquiring carrier’s support to the per
line amount the selling carrier received
and the additional safety valve support
for post-acquisition investment, which
is limited to fifty percent of the
difference between the index year and
subsequent year expense adjustments.
Such limitation effectively prevents the
acquiring carrier from receiving more
support than necessary. Moreover, the
total amount of safety valve support
available to all eligible study areas is
limited to no more than five percent of
rural incumbent local exchange carrier
support available from the annual highcost loop fund. We do not believe that
the additional safety valve support
provided in the first year will encourage
carriers to transfer exchanges merely to
increase their share of high-cost
support.
9. Moreover, we find that NTCA’s
proposal to use the selling carrier’s
expense adjustment for the index year
expense adjustment is an
administratively efficient way to
calculate safety valve support for the
first year and preferable to other
proposed alternatives. Using the selling
carrier’s expense adjustment prior to the
sale will not impose any additional
filing requirements on carriers and
should be readily available from the
Universal Service Administrative
Company (USAC).
10. In response to AT&T’s argument
that it is not appropriate to use the
seller’s expense data because non-rural
carriers report their expenses at the
study area level, NTCA proposed an
alternative method of calculating safety
valve support. Specifically, NTCA
suggests that the methodologies used to
adjust the rate bases of regulated rate of
return companies after a sale could be
used to determine the rate base of the
plant sold, and this amount could be
used to determine safety valve support.
We find that this alternative would
impose considerable administrative
burdens on the Commission. Rural
carriers most often acquire high-cost
exchanges from price-cap regulated nonrural carriers that are not likely to be
E:\FR\FM\02MRR1.SGM
02MRR1
Federal Register / Vol. 70, No. 40 / Wednesday, March 2, 2005 / Rules and Regulations
regulated as rate-of-return carriers by
the state commission. Many states do
not regulate the rates of small rural
carriers. If the Commission had to
determine the rate base of the sold
exchanges, it would have to engage in
a lengthy process of verifying the
reasonableness of the companies’ cost
allocations, unless it simply accepted
the data the companies provided at face
value. It also is not clear that using the
seller’s embedded costs to estimate the
index year expense adjustment would
be preferable to using the seller’s actual
expense adjustment, even if the
information were readily available and
verifiable. The expense adjustment for
most non-rural carriers is based on
forward-looking economic cost as
estimated by the Commission’s
universal service model. Although some
non-rural carriers received holdharmless support based on embedded
costs, the support was targeted to highcost wire centers based on the model’s
cost estimates. Safety valve support is
designed to provide support in addition
to that ‘‘transferred’’ from the seller
pursuant to § 54.305; it is more
appropriate to use the seller’s actual
expense adjustment to determine safety
valve support for the first year than to
use an estimate of the what the seller’s
embedded cost support may have been
under rules that are no longer applicable
to non-rural carriers.
11. Our action does not modify the
existing safety valve mechanism as set
forth in the Rural Task Force Order, 66
FR 30080, June 5, 2001, for support
beginning in an acquiring carrier’s
second year of operation. For the second
year of operation, the acquiring carrier
will use its first-year costs to determine
a new index year expense adjustment,
and from its second year onwards will
receive 50 percent of the differential
between its new index year expense
adjustment and subsequent year
expense adjustments, as per the current
safety valve mechanism. In addition, the
total amount of safety valve support
available to all eligible study areas will
continue be limited to no more than five
percent of rural incumbent local
exchange carrier support available from
the annual high-cost loop fund. To the
extent that rural carriers receive less
than the indexed cap on the high-cost
loop fund, the five percent cap on the
safety valve mechanism shall continue
to be based on the lesser amount. In
effect, we conclude that the existing
safety valve mechanism for acquiring
carriers should be preserved and shall
function as before, with the sole
modification being that rural acquiring
carriers can receive safety valve support
VerDate jul<14>2003
14:59 Mar 01, 2005
Jkt 205001
in their first year of operation, as set
forth in this order.
III. Procedural Matters
A. Paperwork Reduction Act
12. This Order does not contain new
or modified information collection
requirements subject to the Paperwork
Reduction Act of 1995 (PRA), Public
Law 104–13. In addition, therefore, it
does not contain any new or modified
‘‘information collection burden for
small businesses with fewer than 25
employees,’’ pursuant to the Small
Business Paperwork Relief Act of 2002,
Pub. L. 107–198, see 44 U.S.C.
3506(c)(4).
B. Supplemental Final Regulatory
Flexibility Analysis
13. In compliance with the Regulatory
Flexibility Act (RFA), this Supplemental
Final Regulatory Flexibility Analysis
(Supplemental FRFA) supplements the
Final Regulatory Flexibility Analysis
(FRFA) included in the Rural Task
Force Order, to the extent that changes
to that Order adopted here on
reconsideration require changes in the
conclusions reached in the FRFA. As
required by the RFA, that previous
FRFA was preceded by an Initial
Regulatory Flexibility Analysis (IRFA)
incorporated in the Further Notice of
Proposed Rulemaking, which sought
public comment on the proposals in the
Further Notice.
1. Need for, and Objective of, the Order
14. Section 254 of the
Communications Act of 1934, as
amended by the 1996 Act, requires the
Commission to promulgate rules to
preserve and advance universal service
support. In the Rural Task Force Order,
the Commission modified § 54.305 of
the Commission’s rules to provide safety
valve support to rural carriers that make
substantial investment after acquiring
exchanges. For purposes of determining
a rural carrier’s safety valve support, the
index year expense adjustment was
defined as the high-cost loop support
expense adjustment for the acquired
exchanges calculated at the end of the
company’s first year of operating the
exchanges. In this Order, we amend
§ 54.305 of the Commission’s rules to
provide that rural carriers may receive
safety valve support for investment
made in the first year of operating
acquired exchanges.
2. Summary of Significant Issues Raised
by the Public
15. No petition for reconsideration
was submitted directly in response to
the previous FRFA. On reconsideration,
however, NTCA argued that
PO 00000
Frm 00039
Fmt 4700
Sfmt 4700
10059
reconsideration of § 54.305 of the
Commission’s rules was needed to
create the proper incentive for rural
carriers to invest in acquired exchanges
in the first year after acquisition. NTCA
proposed that the selling carrier’s
expense adjustment at the time of the
sale be used as the index year expense
adjustment to determine safety valve
support for the first year of operation of
the acquired exchanges.
3. Description and Estimate of the
Number of Small Entities to Which This
Order Will Apply
16. The RFA requires an agency to
describe any significant alternatives that
it has considered in developing its
approach, which may include the
following four alternatives (among
others): ‘‘(1) The establishment of
differing compliance or reporting
requirements or timetables that take into
account the resources available to small
entities; (2) the clarification,
consolidation, or simplification of
compliance and reporting requirements
under the rule for such small entities;
(3) the use of performance rather than
design standards; and (4) an exemption
from coverage of the rule, or any part
thereof, for such small entities.’’
17. In the FRFA at paragraphs 218–
229 of the Rural Task Force Order, we
described and estimated the number of
small entities that would be affected by
the new universal service rules for rural
carriers. These entities consisted of local
exchange carriers, competitive access
providers, cellular licensees, broadband
personal communications service (PCS),
rural radiotelephone service specialized
mobile radio (SMR), fixed microwave
services, and 39 GHz licensees. The rule
amendment adopted herein may apply
to the same entities affected by the rules
adopted in that order. We therefore
incorporate by reference paragraphs
218–229 of the Rural Task Force Order.
4. Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements
18. The rule amendment adopted in
this Order contains no new reporting,
recordkeeping, or other compliance
requirements.
5. Steps Taken To Minimize the
Significant Economic Impact on Small
Entities, and Significant Alternatives
Considered
19. In the Rural Task Force Order, we
described the steps taken to minimize
the significant economic impact on
small entities consistent with the stated
objectives associated with the adopted
plan for providing high-cost support to
rural carriers. Because many of the same
E:\FR\FM\02MRR1.SGM
02MRR1
10060
Federal Register / Vol. 70, No. 40 / Wednesday, March 2, 2005 / Rules and Regulations
issues are presented in this Order, we
incorporate by reference paragraphs
233–235 of the Rural Task Force Order.
In this Order, we amend § 54.305 of our
rules consistent with the intent of the
Commission in adopting the safety valve
mechanism to provide additional
support to rural carriers that make
substantial investment after acquiring
exchanges. The adopted rule, however,
may have prevented rural carriers that
make substantial investment in acquired
exchanges from receiving the full
benefits intended under the safety valve
mechanism. As discussed above, the
alternative option of denying the request
for reconsideration on this issue was
considered and deemed to be
inconsistent with Commission’s intent
in adopting the safety valve mechanism.
6. Report to Congress
20. The Commission will send a copy
of this Order, including this
Supplemental FRFA, in a report to be
sent to Congress pursuant to the
Congressional Review Act, see 5 U.S.C.
801(a)(1)(A). In addition, the
Commission will send a copy of this
Order, including the Supplemental
FRFA, to the Chief Counsel for
Advocacy of the Small Business
Administration. A copy of the Order
and Supplemental FRFA (or summaries
thereof) will also be published in the
Federal Register. See 5 U.S.C. 604(b).
IV. Ordering Clauses
21. Pursuant to the authority
contained in sections 1, 4(i), 4(j), 214,
and 254 of the Communications Act of
1934, as amended, 47 U.S.C 151, 154(i),
154(j), 214, and 254, and 1.425 of the
Commission’s rules, 47 CFR 1.425, this
Order and Order on Reconsideration is
adopted.
22. Pursuant to the authority
contained in sections 1, 4(i), 4(j), 214,
218–220, 254, and 405 of the
Communications Act of 1934, as
amended, 47 U.S.C. 151, 154(i), 154(j),
214, 218–220, 254, and 405, and 1.429
of the Commission’s rules, 47 CFR
1.429, the petition for reconsideration
filed by National Telephone Cooperative
Association on July 5, 2001 is granted in
part, to the extent discussed herein.
23. Part 54 of the Commission’s rules,
47 CFR 54.305, is amended, as set forth
effective April 1, 2005.
24. The Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, shall send a copy of
this Order and Order on
Reconsideration, including the Final
Supplemental Regulatory Flexibility
Analysis, to the Chief Counsel for
Advocacy of the Small Business
Administration.
VerDate jul<14>2003
14:59 Mar 01, 2005
Jkt 205001
List of Subjects in 47 CFR part 54
Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
Part 54 of Title 47 of the Code of
Federal Regulations is amended as
follows:
I
PART 54—UNIVERSAL SERVICE
1. The authority citation for part 54
continues to read as follows:
I
Authority: 47 U.S.C. 1, 4(i), 201, 205, 214
and 254 unless otherwise noted.
2. Section 54.305 is revised to read as
follows:
I
§ 54.305
Sale or transfer of exchanges.
(a) The provisions of this section are
not applicable to the sale or transfer of
exchanges between non-rural carriers
after the complete phase-down of
interim hold-harmless support,
pursuant to § 54.311, for the non-rural
carriers subject to the transaction.
(b) Except as provided in paragraph
(c) of this section, a carrier that acquires
telephone exchanges from an
unaffiliated carrier shall receive
universal service support for the
acquired exchanges at the same per-line
support levels for which those
exchanges were eligible prior to the
transfer of the exchanges. If the acquired
exchanges are incorporated into an
existing rural incumbent local exchange
carrier study area, the rural incumbent
local exchange carrier shall maintain the
costs associated with the acquired
exchanges separate from the costs
associated with its pre-acquisition study
area. The transferred exchanges may be
eligible for safety valve support for loop
related costs pursuant to paragraph (d)
of this section.
(c) A carrier that has entered into a
binding agreement to buy or acquire
exchanges from an unaffiliated carrier
prior to May 7, 1997 will receive
universal service support for the newly
acquired lines based upon the average
cost of all of its lines, both those newly
acquired and those it had prior to
execution of the sales agreement.
(d) Transferred exchanges in study
areas operated by rural telephone
companies that are subject to the
limitations on loop-related universal
service support in paragraph (b) of this
section may be eligible for a safety valve
loop cost expense adjustment based on
the difference between the rural
incumbent local exchange carrier’s
index year expense adjustment and
PO 00000
Frm 00040
Fmt 4700
Sfmt 4700
subsequent year loop cost expense
adjustments for the acquired exchanges.
Safety valve loop cost expense
adjustments shall only be available to
rural incumbent local exchange carriers
that, in the absence of restrictions on
high-cost loop support in § 54.305(b),
would qualify for high-cost loop support
for the acquired exchanges under
§ 36.631 of this chapter.
(1) For carriers that buy or acquire
telephone exchanges on or after January
10, 2005 from an unaffiliated carrier, the
index year expense adjustment for the
acquiring carrier’s first year of operation
shall equal the selling carrier’s looprelated expense adjustment for the
transferred exchanges for the 12-month
period prior to the transfer of the
exchanges. At the acquiring carrier’s
option, the first year of operation for the
transferred exchanges, for purposes of
calculating safety valve support, shall
commence at the beginning of either the
first calendar year or the next calendar
quarter following the transfer of
exchanges. For the first year of
operation, a loop cost expense
adjustment, using the costs of the
acquired exchanges submitted in
accordance with §§ 36.611 and 36.612 of
this chapter, shall be calculated
pursuant to § 36.631 of this chapter and
then compared to the index year
expense adjustment. Safety valve
support for the first period of operation
will then be calculated pursuant to
paragraph (d)(3) of this section. The
index year expense adjustment for years
after the first year of operation shall be
determined using cost data for the first
year of operation of the transferred
exchanges. Such cost data for the first
year of operation shall be calculated in
accordance with §§ 36.611, 36.612 and
36.631 of this chapter. For each year,
ending on the same calendar quarter as
the first year of operation, a loop cost
expense adjustment, using the loop
costs of the acquired exchanges, shall be
submitted and calculated pursuant to
§§ 36.611, 36.612, and 36.631 of this
chapter and will be compared to the
index year expense adjustment. Safety
valve support for the second year of
operation and thereafter will then be
calculated pursuant to paragraph (d)(3)
of this section.
(2) For carriers that bought or
acquired exchanges from an unaffiliated
carrier before January 10, 2005, and are
not subject to the exception in
paragraph (c) of this section, the index
year expense adjustment for acquired
exchange(s) shall be equal to the rural
incumbent local exchange carrier’s highcost loop expense adjustment for the
acquired exchanges calculated for the
carrier’s first year of operation of the
E:\FR\FM\02MRR1.SGM
02MRR1
Federal Register / Vol. 70, No. 40 / Wednesday, March 2, 2005 / Rules and Regulations
acquired exchange(s). At the carrier’s
option, the first year of operation of the
transferred exchanges shall commence
at the beginning of either the first
calendar year or the next calendar
quarter following the transfer of
exchanges. The index year expense
adjustment shall be determined using
cost data for the acquired exchange(s)
submitted in accordance with §§ 36.611
and 36.612 of this chapter and shall be
calculated in accordance with § 36.631
of this chapter. The index year expense
adjustment for rural telephone
companies that have operated
exchanges subject to this section for
more than a full year on the effective
date of this paragraph shall be based on
loop cost data submitted in accordance
with § 36.612 of this chapter for the year
ending on the nearest calendar quarter
following the effective date of this
paragraph. For each subsequent year,
ending on the same calendar quarter as
the index year, a loop cost expense
adjustment, using the costs of the
acquired exchanges, will be calculated
pursuant to § 36.631 of this chapter and
will be compared to the index year
expense adjustment. Safety valve
support is calculated pursuant to
paragraph (d)(3) of this section.
(3) Up to fifty (50) percent of any
positive difference between the
VerDate jul<14>2003
14:59 Mar 01, 2005
Jkt 205001
transferred exchanges loop cost expense
adjustment and the index year expense
adjustment will be designated as the
transferred exchange’s safety valve loop
cost expense adjustment and will be
available in addition to the per-line
loop-related support transferred from
the selling carrier to the acquiring
carrier pursuant to § 54.305(b). In no
event shall a study area’s safety valve
loop cost expense adjustment exceed
the difference between the carrier’s
study area loop cost expense adjustment
calculated pursuant to § 36.631 of this
chapter and transferred support
amounts available to the acquired
exchange(s) under paragraph (b) of this
section. Safety valve support shall not
transfer with acquired exchanges.
(e) The sum of the safety valve loop
cost expense adjustment for all eligible
study areas operated by rural telephone
companies shall not exceed five (5)
percent of the total rural incumbent
local exchange carrier portion of the
annual nationwide loop cost expense
adjustment calculated pursuant to
§ 36.603 of this chapter. The five (5)
percent cap on the safety valve
mechanism shall be based on the lesser
of the rural incumbent local exchange
carrier portion of the annual nationwide
loop cost expense adjustment calculated
pursuant to § 36.603 of this chapter or
PO 00000
Frm 00041
Fmt 4700
Sfmt 4700
10061
the sum of rural incumbent local
exchange carrier expense adjustments
calculated pursuant to § 36.631 of this
chapter. The percentage multiplier used
to derive study area safety valve loop
cost expense adjustments for rural
telephone companies shall be the lesser
of fifty (50) percent or a percentage
calculated to produce the maximum
total safety valve loop cost expense
adjustment for all eligible study areas
pursuant to this paragraph. The safety
valve loop cost expense adjustment of
an individual rural incumbent local
exchange carrier also may be further
reduced as described in paragraph (d)(3)
of this section.
(f) Once an acquisition is complete,
the acquiring rural incumbent local
exchange carrier shall provide written
notice to the Administrator that it has
acquired access lines that may be
eligible for safety valve support. Rural
telephone companies also shall provide
written notice to the Administrator
defining their index year for those years
after the first year of operation for
purposes of calculating the safety valve
loop cost expense adjustment.
[FR Doc. 05–4018 Filed 3–1–05; 8:45 am]
BILLING CODE 6712–01–P
E:\FR\FM\02MRR1.SGM
02MRR1
Agencies
[Federal Register Volume 70, Number 40 (Wednesday, March 2, 2005)]
[Rules and Regulations]
[Pages 10057-10061]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-4018]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[CC Docket No. 96-45; FCC 05-1]
Federal-State Joint Board on Universal Service, National
Telephone Cooperative Association
AGENCY: Federal Communications Commission.
ACTION: Final rule; petition for reconsideration.
-----------------------------------------------------------------------
SUMMARY: In this document, the Commission amends its rules so that
certain sections do not apply to transfers of telephone exchanges
between non-rural carriers following the phase-down of interim hold-
harmless support, and the Commission addresses the request to
reconsider portions of the Commission's order modifying the
Commission's rules for providing high-cost universal service support
based on the proposals made by the Rural Task Force by amending its
rules to provide that rural carriers may receive ``safety valve''
support for investment made in the first year of operating acquired
exchanges.
DATES: Effective April 1, 2005.
FOR FURTHER INFORMATION CONTACT: Katie King, Special Counsel, Wireline
Competition Bureau, Telecommunications Access Policy Division, (202)
418-7400, TTY (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order
and Order on Reconsideration, in CC Docket No. 96-45, FCC 05-1,
released January 10, 2005. The full text of this document is available
for public inspection during regular business hours in the FCC
Reference Center, Room CY-A257, 445 12th Street, SW., Washington, DC
20554.
I. Introduction
1. In this Order and Order on Reconsideration, we amend Sec.
54.305 of the Commission's rules so that it does not apply to transfers
of exchanges between non-rural carriers after the phase-down of interim
hold-harmless support, as proposed in the Further Notice of Proposed
Rulemaking, 65 FR 79047, December 18, 2000. In addition, we address the
request by the National Telephone Cooperative Association (NTCA) to
reconsider portions of the Commission's rules adopted in the Rural Task
Force Order, 66 FR 30080, June 5, 2001. Specifically, we amend our
rules to provide that rural carriers may receive ``safety valve''
support for investment made in the first year of operating acquired
exchanges. Based on the record before us, these actions better satisfy
our policy goals of ensuring that acquiring carriers receive sufficient
high-cost support and preserving the purpose of section 54.305 of
discouraging carriers from transferring exchanges merely to increase
their share of high-cost universal service support.
[[Page 10058]]
II. Discussion
2. We amend Sec. 54.305 of the Commission's rules so that it does
not apply to transfers of exchanges between non-rural carriers after
the phase-down of interim hold-harmless support. The Commission adopted
Sec. 54.305 ``as a stopgap measure to prevent carriers receiving
support based on the size of their study areas and embedded costs from
`placing unreasonable reliance upon potential universal service support
in deciding whether to purchase exchanges[.]' '' The Commission
anticipated that the rule would no longer be necessary once all
carriers receive support based on forward-looking economic costs. When
all non-rural carriers receive support based on forward-looking
economic costs once the phase-down of interim hold-harmless support is
complete, we find that the need for Sec. 54.305 will no longer exist
with regard to transfers between non-rural carriers. Accordingly, after
the complete phase-down of interim hold-harmless support, Sec. 54.305
will not be applicable to the sale or transfer of exchanges between
non-rural carriers.
3. We agree with NTCA that we should amend Sec. 54.305 of our
rules to provide that rural carriers that acquire high-cost exchanges
may receive safety valve support for the investment made in the first
year of operating the acquired exchanges. We conclude that this
modification to the existing safety valve mechanism is necessary to
provide appropriate incentives for rural carriers operating recently
acquired exchanges to invest in rural infrastructure. Accordingly, we
amend Sec. 54.305 to provide that the index year expense adjustment
for purposes of determining safety valve support for the first year of
operation shall be defined as the seller's expense adjustment for the
twelve-month period prior to the transfer of the exchanges.
4. While we continue to believe that Sec. 54.305 serves the
important purpose of discouraging carriers from transferring exchanges
merely to increase their share of high-cost support, we are persuaded
that the current safety valve rules may have the unintended effect of
discouraging investment in newly acquired exchanges during the first
year of operation. The current rules not only prevent carriers from
receiving safety valve support for any investments made in their first
year of operation, but also may encourage carriers to keep first year
investment as low as possible in order to maximize safety valve support
in subsequent years. Because safety valve support is calculated by
taking fifty percent of the difference between the expense adjustment
in the index year and the expense adjustment in subsequent years, a
lower index year expense adjustment would result in more safety valve
support than a higher index year expense adjustment.
5. We are persuaded that the current safety valve formula may
prevent rural carriers that make substantial investment in acquired
exchanges from receiving the full benefits intended under the safety
valve mechanism. One commenter notes that state commissions may require
companies to make needed investments and upgrade facilities as a
condition of approval of the transfer. If a state commission requires
investment in the first year, the acquiring carrier may make
substantial investments to enhance the network infrastructure, but
would be unable to receive any additional support for that first-year
investment.
6. We conclude that making safety valve support available for
investment made in the first year of operation is more consistent with
the purpose of the safety valve mechanism to provide additional support
to rural carriers that acquire high-cost exchanges and make post-
transaction investments to enhance network infrastructure than the
current rule. Providing safety valve support for first year investment
will provide the proper incentives, and carriers will not delay
investment solely because our rules would provide more safety valve
support in subsequent years. Carriers that make investments in the
first year of operation will receive safety valve support for the
investments they make in the acquired exchanges.
7. We find that NTCA's proposal to use the selling carrier's
expense adjustment for the index year expense adjustment is a
reasonable way to calculate safety valve support for the first year.
Although the Commission previously said that it would be inappropriate
to rely on the cost data of selling carriers in establishing the index
year expense adjustment, upon reconsideration, we find that the
benefits of providing safety valve support for first year investment
outweigh any risks of using the seller's expense adjustment in this
limited manner. We agree with NTCA that concerns regarding reliance on
the seller's cost data are mitigated because the selling carrier's
expense adjustment would be used only for the first year. We also note
that the Commission based its concerns on the fact that ``rural
carriers most often acquire high-cost exchanges from non-rural carriers
operating in large study areas with lower average costs.'' Because non-
rural support is targeted to high-cost wire centers, however, the
selling carrier's expense adjustment for transferred high-cost
exchanges will be higher than the average support per line in the non-
rural study area.
8. We disagree with commenters that claim that this limited use of
the seller's expense adjustment to provide safety valve support for
investment in the first year of operating an acquired exchange would
create a ``substantial risk that the acquiring carrier would receive
more support than necessary,'' and would ``drive up the price of the
exchange.'' Section 54.305 will continue to limit the acquiring
carrier's support to the per line amount the selling carrier received
and the additional safety valve support for post-acquisition
investment, which is limited to fifty percent of the difference between
the index year and subsequent year expense adjustments. Such limitation
effectively prevents the acquiring carrier from receiving more support
than necessary. Moreover, the total amount of safety valve support
available to all eligible study areas is limited to no more than five
percent of rural incumbent local exchange carrier support available
from the annual high-cost loop fund. We do not believe that the
additional safety valve support provided in the first year will
encourage carriers to transfer exchanges merely to increase their share
of high-cost support.
9. Moreover, we find that NTCA's proposal to use the selling
carrier's expense adjustment for the index year expense adjustment is
an administratively efficient way to calculate safety valve support for
the first year and preferable to other proposed alternatives. Using the
selling carrier's expense adjustment prior to the sale will not impose
any additional filing requirements on carriers and should be readily
available from the Universal Service Administrative Company (USAC).
10. In response to AT&T's argument that it is not appropriate to
use the seller's expense data because non-rural carriers report their
expenses at the study area level, NTCA proposed an alternative method
of calculating safety valve support. Specifically, NTCA suggests that
the methodologies used to adjust the rate bases of regulated rate of
return companies after a sale could be used to determine the rate base
of the plant sold, and this amount could be used to determine safety
valve support. We find that this alternative would impose considerable
administrative burdens on the Commission. Rural carriers most often
acquire high-cost exchanges from price-cap regulated non-rural carriers
that are not likely to be
[[Page 10059]]
regulated as rate-of-return carriers by the state commission. Many
states do not regulate the rates of small rural carriers. If the
Commission had to determine the rate base of the sold exchanges, it
would have to engage in a lengthy process of verifying the
reasonableness of the companies' cost allocations, unless it simply
accepted the data the companies provided at face value. It also is not
clear that using the seller's embedded costs to estimate the index year
expense adjustment would be preferable to using the seller's actual
expense adjustment, even if the information were readily available and
verifiable. The expense adjustment for most non-rural carriers is based
on forward-looking economic cost as estimated by the Commission's
universal service model. Although some non-rural carriers received
hold-harmless support based on embedded costs, the support was targeted
to high-cost wire centers based on the model's cost estimates. Safety
valve support is designed to provide support in addition to that
``transferred'' from the seller pursuant to Sec. 54.305; it is more
appropriate to use the seller's actual expense adjustment to determine
safety valve support for the first year than to use an estimate of the
what the seller's embedded cost support may have been under rules that
are no longer applicable to non-rural carriers.
11. Our action does not modify the existing safety valve mechanism
as set forth in the Rural Task Force Order, 66 FR 30080, June 5, 2001,
for support beginning in an acquiring carrier's second year of
operation. For the second year of operation, the acquiring carrier will
use its first-year costs to determine a new index year expense
adjustment, and from its second year onwards will receive 50 percent of
the differential between its new index year expense adjustment and
subsequent year expense adjustments, as per the current safety valve
mechanism. In addition, the total amount of safety valve support
available to all eligible study areas will continue be limited to no
more than five percent of rural incumbent local exchange carrier
support available from the annual high-cost loop fund. To the extent
that rural carriers receive less than the indexed cap on the high-cost
loop fund, the five percent cap on the safety valve mechanism shall
continue to be based on the lesser amount. In effect, we conclude that
the existing safety valve mechanism for acquiring carriers should be
preserved and shall function as before, with the sole modification
being that rural acquiring carriers can receive safety valve support in
their first year of operation, as set forth in this order.
III. Procedural Matters
A. Paperwork Reduction Act
12. This Order does not contain new or modified information
collection requirements subject to the Paperwork Reduction Act of 1995
(PRA), Public Law 104-13. In addition, therefore, it does not contain
any new or modified ``information collection burden for small
businesses with fewer than 25 employees,'' pursuant to the Small
Business Paperwork Relief Act of 2002, Pub. L. 107-198, see 44 U.S.C.
3506(c)(4).
B. Supplemental Final Regulatory Flexibility Analysis
13. In compliance with the Regulatory Flexibility Act (RFA), this
Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA)
supplements the Final Regulatory Flexibility Analysis (FRFA) included
in the Rural Task Force Order, to the extent that changes to that Order
adopted here on reconsideration require changes in the conclusions
reached in the FRFA. As required by the RFA, that previous FRFA was
preceded by an Initial Regulatory Flexibility Analysis (IRFA)
incorporated in the Further Notice of Proposed Rulemaking, which sought
public comment on the proposals in the Further Notice.
1. Need for, and Objective of, the Order
14. Section 254 of the Communications Act of 1934, as amended by
the 1996 Act, requires the Commission to promulgate rules to preserve
and advance universal service support. In the Rural Task Force Order,
the Commission modified Sec. 54.305 of the Commission's rules to
provide safety valve support to rural carriers that make substantial
investment after acquiring exchanges. For purposes of determining a
rural carrier's safety valve support, the index year expense adjustment
was defined as the high-cost loop support expense adjustment for the
acquired exchanges calculated at the end of the company's first year of
operating the exchanges. In this Order, we amend Sec. 54.305 of the
Commission's rules to provide that rural carriers may receive safety
valve support for investment made in the first year of operating
acquired exchanges.
2. Summary of Significant Issues Raised by the Public
15. No petition for reconsideration was submitted directly in
response to the previous FRFA. On reconsideration, however, NTCA argued
that reconsideration of Sec. 54.305 of the Commission's rules was
needed to create the proper incentive for rural carriers to invest in
acquired exchanges in the first year after acquisition. NTCA proposed
that the selling carrier's expense adjustment at the time of the sale
be used as the index year expense adjustment to determine safety valve
support for the first year of operation of the acquired exchanges.
3. Description and Estimate of the Number of Small Entities to Which
This Order Will Apply
16. The RFA requires an agency to describe any significant
alternatives that it has considered in developing its approach, which
may include the following four alternatives (among others): ``(1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance and reporting requirements under the rule for such small
entities; (3) the use of performance rather than design standards; and
(4) an exemption from coverage of the rule, or any part thereof, for
such small entities.''
17. In the FRFA at paragraphs 218-229 of the Rural Task Force
Order, we described and estimated the number of small entities that
would be affected by the new universal service rules for rural
carriers. These entities consisted of local exchange carriers,
competitive access providers, cellular licensees, broadband personal
communications service (PCS), rural radiotelephone service specialized
mobile radio (SMR), fixed microwave services, and 39 GHz licensees. The
rule amendment adopted herein may apply to the same entities affected
by the rules adopted in that order. We therefore incorporate by
reference paragraphs 218-229 of the Rural Task Force Order.
4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
18. The rule amendment adopted in this Order contains no new
reporting, recordkeeping, or other compliance requirements.
5. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
19. In the Rural Task Force Order, we described the steps taken to
minimize the significant economic impact on small entities consistent
with the stated objectives associated with the adopted plan for
providing high-cost support to rural carriers. Because many of the same
[[Page 10060]]
issues are presented in this Order, we incorporate by reference
paragraphs 233-235 of the Rural Task Force Order. In this Order, we
amend Sec. 54.305 of our rules consistent with the intent of the
Commission in adopting the safety valve mechanism to provide additional
support to rural carriers that make substantial investment after
acquiring exchanges. The adopted rule, however, may have prevented
rural carriers that make substantial investment in acquired exchanges
from receiving the full benefits intended under the safety valve
mechanism. As discussed above, the alternative option of denying the
request for reconsideration on this issue was considered and deemed to
be inconsistent with Commission's intent in adopting the safety valve
mechanism.
6. Report to Congress
20. The Commission will send a copy of this Order, including this
Supplemental FRFA, in a report to be sent to Congress pursuant to the
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). In addition, the
Commission will send a copy of this Order, including the Supplemental
FRFA, to the Chief Counsel for Advocacy of the Small Business
Administration. A copy of the Order and Supplemental FRFA (or summaries
thereof) will also be published in the Federal Register. See 5 U.S.C.
604(b).
IV. Ordering Clauses
21. Pursuant to the authority contained in sections 1, 4(i), 4(j),
214, and 254 of the Communications Act of 1934, as amended, 47 U.S.C
151, 154(i), 154(j), 214, and 254, and 1.425 of the Commission's rules,
47 CFR 1.425, this Order and Order on Reconsideration is adopted.
22. Pursuant to the authority contained in sections 1, 4(i), 4(j),
214, 218-220, 254, and 405 of the Communications Act of 1934, as
amended, 47 U.S.C. 151, 154(i), 154(j), 214, 218-220, 254, and 405, and
1.429 of the Commission's rules, 47 CFR 1.429, the petition for
reconsideration filed by National Telephone Cooperative Association on
July 5, 2001 is granted in part, to the extent discussed herein.
23. Part 54 of the Commission's rules, 47 CFR 54.305, is amended,
as set forth effective April 1, 2005.
24. The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, shall send a copy of this Order and Order
on Reconsideration, including the Final Supplemental Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR part 54
Reporting and recordkeeping requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
0
Part 54 of Title 47 of the Code of Federal Regulations is amended as
follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 1, 4(i), 201, 205, 214 and 254 unless
otherwise noted.
0
2. Section 54.305 is revised to read as follows:
Sec. 54.305 Sale or transfer of exchanges.
(a) The provisions of this section are not applicable to the sale
or transfer of exchanges between non-rural carriers after the complete
phase-down of interim hold-harmless support, pursuant to Sec. 54.311,
for the non-rural carriers subject to the transaction.
(b) Except as provided in paragraph (c) of this section, a carrier
that acquires telephone exchanges from an unaffiliated carrier shall
receive universal service support for the acquired exchanges at the
same per-line support levels for which those exchanges were eligible
prior to the transfer of the exchanges. If the acquired exchanges are
incorporated into an existing rural incumbent local exchange carrier
study area, the rural incumbent local exchange carrier shall maintain
the costs associated with the acquired exchanges separate from the
costs associated with its pre-acquisition study area. The transferred
exchanges may be eligible for safety valve support for loop related
costs pursuant to paragraph (d) of this section.
(c) A carrier that has entered into a binding agreement to buy or
acquire exchanges from an unaffiliated carrier prior to May 7, 1997
will receive universal service support for the newly acquired lines
based upon the average cost of all of its lines, both those newly
acquired and those it had prior to execution of the sales agreement.
(d) Transferred exchanges in study areas operated by rural
telephone companies that are subject to the limitations on loop-related
universal service support in paragraph (b) of this section may be
eligible for a safety valve loop cost expense adjustment based on the
difference between the rural incumbent local exchange carrier's index
year expense adjustment and subsequent year loop cost expense
adjustments for the acquired exchanges. Safety valve loop cost expense
adjustments shall only be available to rural incumbent local exchange
carriers that, in the absence of restrictions on high-cost loop support
in Sec. 54.305(b), would qualify for high-cost loop support for the
acquired exchanges under Sec. 36.631 of this chapter.
(1) For carriers that buy or acquire telephone exchanges on or
after January 10, 2005 from an unaffiliated carrier, the index year
expense adjustment for the acquiring carrier's first year of operation
shall equal the selling carrier's loop-related expense adjustment for
the transferred exchanges for the 12-month period prior to the transfer
of the exchanges. At the acquiring carrier's option, the first year of
operation for the transferred exchanges, for purposes of calculating
safety valve support, shall commence at the beginning of either the
first calendar year or the next calendar quarter following the transfer
of exchanges. For the first year of operation, a loop cost expense
adjustment, using the costs of the acquired exchanges submitted in
accordance with Sec. Sec. 36.611 and 36.612 of this chapter, shall be
calculated pursuant to Sec. 36.631 of this chapter and then compared
to the index year expense adjustment. Safety valve support for the
first period of operation will then be calculated pursuant to paragraph
(d)(3) of this section. The index year expense adjustment for years
after the first year of operation shall be determined using cost data
for the first year of operation of the transferred exchanges. Such cost
data for the first year of operation shall be calculated in accordance
with Sec. Sec. 36.611, 36.612 and 36.631 of this chapter. For each
year, ending on the same calendar quarter as the first year of
operation, a loop cost expense adjustment, using the loop costs of the
acquired exchanges, shall be submitted and calculated pursuant to
Sec. Sec. 36.611, 36.612, and 36.631 of this chapter and will be
compared to the index year expense adjustment. Safety valve support for
the second year of operation and thereafter will then be calculated
pursuant to paragraph (d)(3) of this section.
(2) For carriers that bought or acquired exchanges from an
unaffiliated carrier before January 10, 2005, and are not subject to
the exception in paragraph (c) of this section, the index year expense
adjustment for acquired exchange(s) shall be equal to the rural
incumbent local exchange carrier's high-cost loop expense adjustment
for the acquired exchanges calculated for the carrier's first year of
operation of the
[[Page 10061]]
acquired exchange(s). At the carrier's option, the first year of
operation of the transferred exchanges shall commence at the beginning
of either the first calendar year or the next calendar quarter
following the transfer of exchanges. The index year expense adjustment
shall be determined using cost data for the acquired exchange(s)
submitted in accordance with Sec. Sec. 36.611 and 36.612 of this
chapter and shall be calculated in accordance with Sec. 36.631 of this
chapter. The index year expense adjustment for rural telephone
companies that have operated exchanges subject to this section for more
than a full year on the effective date of this paragraph shall be based
on loop cost data submitted in accordance with Sec. 36.612 of this
chapter for the year ending on the nearest calendar quarter following
the effective date of this paragraph. For each subsequent year, ending
on the same calendar quarter as the index year, a loop cost expense
adjustment, using the costs of the acquired exchanges, will be
calculated pursuant to Sec. 36.631 of this chapter and will be
compared to the index year expense adjustment. Safety valve support is
calculated pursuant to paragraph (d)(3) of this section.
(3) Up to fifty (50) percent of any positive difference between the
transferred exchanges loop cost expense adjustment and the index year
expense adjustment will be designated as the transferred exchange's
safety valve loop cost expense adjustment and will be available in
addition to the per-line loop-related support transferred from the
selling carrier to the acquiring carrier pursuant to Sec. 54.305(b).
In no event shall a study area's safety valve loop cost expense
adjustment exceed the difference between the carrier's study area loop
cost expense adjustment calculated pursuant to Sec. 36.631 of this
chapter and transferred support amounts available to the acquired
exchange(s) under paragraph (b) of this section. Safety valve support
shall not transfer with acquired exchanges.
(e) The sum of the safety valve loop cost expense adjustment for
all eligible study areas operated by rural telephone companies shall
not exceed five (5) percent of the total rural incumbent local exchange
carrier portion of the annual nationwide loop cost expense adjustment
calculated pursuant to Sec. 36.603 of this chapter. The five (5)
percent cap on the safety valve mechanism shall be based on the lesser
of the rural incumbent local exchange carrier portion of the annual
nationwide loop cost expense adjustment calculated pursuant to Sec.
36.603 of this chapter or the sum of rural incumbent local exchange
carrier expense adjustments calculated pursuant to Sec. 36.631 of this
chapter. The percentage multiplier used to derive study area safety
valve loop cost expense adjustments for rural telephone companies shall
be the lesser of fifty (50) percent or a percentage calculated to
produce the maximum total safety valve loop cost expense adjustment for
all eligible study areas pursuant to this paragraph. The safety valve
loop cost expense adjustment of an individual rural incumbent local
exchange carrier also may be further reduced as described in paragraph
(d)(3) of this section.
(f) Once an acquisition is complete, the acquiring rural incumbent
local exchange carrier shall provide written notice to the
Administrator that it has acquired access lines that may be eligible
for safety valve support. Rural telephone companies also shall provide
written notice to the Administrator defining their index year for those
years after the first year of operation for purposes of calculating the
safety valve loop cost expense adjustment.
[FR Doc. 05-4018 Filed 3-1-05; 8:45 am]
BILLING CODE 6712-01-P