Federal-State Joint Board on Universal Service; High-Cost Universal Service Support, 1721-1730 [06-159]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 71, Number 7 (Wednesday, January 11, 2006)]
[Proposed Rules]
[Pages 1721-1730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-159]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45, WC Docket No. 05-337; FCC 05-205]


Federal-State Joint Board on Universal Service; High-Cost 
Universal Service Support

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Commission seeks comment on issues 
raised by section 254(b) of the Communications Act of 1934, as amended 
(the Act) and the United States Court of Appeals for the Tenth 
Circuit's (Tenth Circuit) decision in Qwest Corp. v. FCC (Qwest II). We 
seek comment on how to reasonably define the statutory terms 
``sufficient'' and ``reasonably comparable'' in light of the court's 
holding in Qwest II. We also seek comment on the support mechanism for 
non-rural carriers, which the Qwest II court invalidated due to the 
Commission's reliance on an inadequate interpretation of statutory 
principles and failure to explain how a cost-based mechanism would 
address problems with rates. We seek comment on a proposal by Puerto 
Rico Telephone Company, Inc. (PRTC) that the Commission adopt a non-
rural insular mechanism.

DATES: Comments are due on or before February 10, 2006. Reply comments 
are due on or before March 13, 2006.

ADDRESSES: You may submit comments, identified by [CC Docket No. 96-
45], by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 1722]]

     Federal Communications Commission's Web Site: https://
www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     Mail: Sheryl Todd, Wireline Competition Bureau, Telecom 
Access Policy Division, 445 12th Street, SW., Washington, DC 20554.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: FCC504@fcc.gov or phone: 202-418-
0530 or TTY: 202-418-0432.

For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Ted Burmeister, Attorney, (202) 418-
7389 or Katie King, Special Counsel, (202) 418-7491, Wireline 
Competition Bureau, Telecommunications Access Policy Division, TTY 
(202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking in CC Docket No. 96-45, WC Docket No. 05-337 
released on December 9, 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 Notice of Proposed Rulemaking, we seek comment on issues 
raised by section 254(b) of the Communications Act of 1934, as amended 
(the Act) and the United States Court of Appeals for the Tenth 
Circuit's (Tenth Circuit) decision in Qwest Corp. v. FCC (Qwest II). 
Specifically, we seek comment on how to reasonably define the statutory 
terms ``sufficient'' and ``reasonably comparable'' in light of the 
court's holding in Qwest II. The court directed the Commission on 
remand to articulate a definition of ``sufficient'' that appropriately 
considers the range of principles in section 254 of the Act and to 
define ``reasonably comparable'' in a manner that comports with its 
duty to preserve and advance universal service. We also seek comment on 
the support mechanism for non-rural carriers, which the Qwest II court 
invalidated due to the Commission's reliance on an inadequate 
interpretation of statutory principles and failure to explain how a 
cost-based mechanism would address problems with rates. Finally, we 
seek comment on a proposal by Puerto Rico Telephone Company, Inc. 
(PRTC) that the Commission adopts a non-rural insular mechanism. PRTC 
sought clarification and/or reconsideration of the Order on Remand, 68 
FR 69622, December 15, 2003, and requests, among other things, that it 
receive support based on its embedded costs. Because granting PRTC's 
request would require amendment of the Commission's rules, we will 
treat PRTC's Petition as a petition for rulemaking.

A. Ninth Report and Order

    2. In the Ninth Report and Order, 64 FR 67416, December 1, 1999, 
the Commission established a federal high-cost universal service 
support mechanism for non-rural carriers based on forward-looking 
economic costs. The non-rural mechanism determines the amount of 
federal high-cost support to be provided to non-rural carriers by 
comparing the statewide average non-rural, forward-looking cost per 
line to a nationwide cost benchmark that was set at 135 percent of the 
national average cost per line. Federal support is provided to non-
rural carriers in states with costs that exceed the benchmark. In the 
companion Tenth Report and Order, 64 FR 67372, December 1, 1999, the 
Commission finalized the computer model platform and adopted model 
inputs used to estimate the forward-looking costs of a non-rural 
carrier's operations, which are then used to determine support under 
the mechanism adopted in the Ninth Report and Order.

B. Qwest I

    3. In Qwest I, the Tenth Circuit remanded the Ninth Report and 
Order to the Commission for further consideration. On remand, the court 
directed the Commission to define more precisely the statutory terms 
``sufficient'' and ``reasonably comparable'' and then to assess whether 
the non-rural mechanism will be sufficient to achieve the statutory 
principle of making rural and urban rates reasonably comparable. In 
addition, the court found that the Commission failed to explain how its 
135 percent nationwide cost benchmark will help achieve the goal of 
reasonable comparability or sufficiency. The court directed the 
Commission on remand ``to develop mechanisms to induce adequate state 
action'' to preserve and advance universal service. Finally, because 
the non-rural mechanism concerns only one piece of universal service 
reform, the court stated that it could not properly assess whether the 
total level of federal support for universal service was sufficient and 
indicated the Commission would have the opportunity on remand to 
explain further its complete plan for supporting universal service.

C. Order on Remand

    4. In response to the court and the recommendations of the Joint 
Board, the Commission modified the high-cost universal service support 
mechanism for non-rural carriers and adopted a rate review and expanded 
certification process to induce states to ensure reasonable 
comparability of rural and urban rates in areas served by non-rural 
carriers. The Order on Remand adopted in large part the Joint Board's 
recommendations, with certain modifications. In particular, the 
Commission defined the statutory terms ``sufficient'' as ``enough 
federal support to enable states to achieve reasonable comparability of 
rural and urban rates in high-cost areas served by non-rural 
carriers,'' and defined ``reasonably comparable'' in terms of a 
national urban residential rate benchmark. The Commission also set a 
national urban rate benchmark at two standard deviations above the 
average urban residential rate in an annual Wireline Competition Bureau 
(Bureau) rate survey, and sought comment on specific issues related to 
the rate review. In addition, the Commission modified the 135 percent 
cost benchmark by adopting a cost benchmark based on two standard 
deviations above the national average cost.

D. Qwest II

    5. On February 23, 2005, the Tenth Circuit remanded the Order on 
Remand to the Commission. The court held that the Commission failed to 
reasonably define the terms ``sufficient'' and ``reasonably 
comparable.'' The court directed the Commission on remand to articulate 
a definition of ``sufficient'' that appropriately considers the range 
of principles in section 254 of the Act and to define ``reasonably 
comparable'' in a manner that comports with its duty to preserve and 
advance universal service. Because the non-rural, high-cost support 
mechanism rests on the application of the definition of ``reasonably 
comparable'' rates that was invalidated by the court, the court also 
deemed the support mechanism invalid. The court also noted that the 
Commission based the two standard deviations cost benchmark on a 
finding that rates were reasonably comparable, without empirically 
demonstrating a relationship between the costs and the rates in the 
record. On remand, the court directed the Commission to ``utilize its 
unique expertise to craft a support mechanism taking into account all 
the factors that Congress identified in

[[Page 1723]]

drafting the Act and its statutory obligation to preserve and advance 
universal service.'' The court upheld the Commission's determination 
that section 254 of the Act does not require the states to replace 
existing implicit subsidies with explicit universal service support 
mechanisms. In addition, the court also affirmed that portion of the 
Order on Remand requiring states to certify annually that rural rates 
within their boundaries are reasonably comparable, or if they are not, 
to present an action plan to the Commission.

II. Issues for Comment

    6. We seek comment on a number of issues that will enable the 
Commission to craft a non-rural high-cost support mechanism consistent 
with the court's decision and the statute. Specifically, we seek 
comment on: (1) How the Commission should define the statutory term 
``sufficient'' to take into account all the principles enumerated in 
section 254(b); (2) how the Commission should define ``reasonably 
comparable'' under section 254(b)(3), consistent with its concurrent 
duties to preserve and advance universal service; (3) how, in light of 
the interpretation of the key statutory terms, the Commission should 
modify the high-cost funding mechanism for non-rural carriers; and (4) 
whether the Commission should adopt a non-rural insular mechanism.

A. Definition of ``Sufficient''

    7. In Qwest II, the court directed the Commission to demonstrate 
that it has appropriately considered all principles in section 254(b) 
of the Act in defining the term ``sufficient.'' In the Order on Remand, 
the Commission defined ``sufficient,'' for purposes of the statutory 
principle in section 254(b)(3) as applied to the non-rural mechanism, 
as enough federal support to enable states to achieve reasonable 
comparability of rural and urban rates in high-cost areas served by 
non-rural carriers. The court found this definition inadequate. We seek 
comment on how the Commission should balance all seven principles in 
section 254(b) of the Act in defining the term ``sufficient'' for 
purposes of the non-rural high-cost support mechanism. While the court 
directed the Commission to consider all the section 254(b) principles 
in addition to reasonable comparability in section 254(b)(3), the court 
recognized that the Commission could give greater weight to one 
principle over another. We seek comment on whether any of the section 
254(b) principles conflict with one another and, if so, how to balance 
the principles to resolve such conflict. Should the Commission give 
greater weight to any particular principle? If so, how would the 
Commission justify such an approach? We seek comment on how the 
Commission should weigh each principle in relationship to the purposes 
of the non-rural high-cost mechanism, and discuss each principle in 
turn below.
    8. Section 254(b)(1) provides that ``[q]uality services should be 
available at just, reasonable, and affordable rates.'' Although the 
Commission did not explicitly discuss how the non-rural mechanism helps 
to keep rates affordable in the Order on Remand, it has explained in 
the past that ``[a] major objective of universal service is to help 
ensure affordable access to telecommunications services to consumers 
living in areas where the cost of providing such services would 
otherwise be prohibitively high.'' We seek comment on whether ensuring 
that rates in rural areas are reasonably comparable to rates in urban 
areas also ensures that those rates are affordable.
    9. We also seek comment on whether we should define the phrase 
``affordable rates.'' In the Order on Remand, the Commission declined 
to adopt an affordability benchmark for local telephone service, 
proposed by SBC, based on the median household income of a particular 
geographic area. Although the court did not address this issue 
specifically, it was ``troubled by the Commission's seeming suggestion 
that other principles, including affordability, do not underlie the 
federal non-rural support mechanisms.'' We seek comment on whether we 
should reconsider SBC's proposal or any other proposals for defining 
affordability in relationship to income. Alternatively, should the 
Commission create eligibility requirements based on household income 
for non-rural high-cost support? In previously rejecting proposals to 
require that states implement such eligibility requirements in 
conjunction with non-rural high-cost support, the Commission found that 
``section 254(b)(3) reflects a legislative judgment that all Americans, 
regardless of income, should have access to the network at reasonably 
comparable rates.'' We seek comment on whether defining affordability 
in terms of individual household income would be consistent with 
section 254(b)(3). We also seek comment from state commissions about 
implementation issues that would arise if the Commission were to adopt 
any of these approaches to determining affordability. The Commission 
previously determined that it was better to address affordability 
issues unique to low-income consumers through the federal low-income 
programs specifically designed for this purpose rather than through the 
high-cost support programs. Is this conclusion still appropriate in 
light of Qwest II?
    10. In addition, we seek comment on whether we should consider the 
burden on universal service contributors when determining whether rates 
are affordable. In the Order on Remand, the Commission found that the 
principle of sufficiency means that non-rural high-cost support should 
be ``only as large as necessary'' to meet the statutory goal. While the 
court was not troubled by this language in the abstract, because 
excessive subsidization arguably may affect the affordability of 
telecommunications services for unsubsidized users, the court found 
that the Commission had failed to take into account the full range of 
principles by defining sufficiency only in terms of reasonable 
comparability. Would it be more appropriate to ground the idea that the 
amount of support should only be as large as necessary in the principle 
of affordability? We also seek comment on whether the Commission should 
define any of the other terms in section 254(b)(1) for purposes of 
determining whether non-rural high-cost support is sufficient. For 
example, the Commission and the Joint Board previously have interpreted 
the term ``quality services'' in this section to mean quality of 
service. We seek comment on both this prior interpretation and whether 
the Commission should consider quality of service in determining 
whether non-rural high-cost support is sufficient.
    11. Section 254(b)(2) provides that ``[a]ccess to advanced 
telecommunications and information services should be provided in all 
regions of the Nation.'' Although advanced telecommunications and 
information services currently are not supported by the non-rural high-
cost mechanism, the public switched telephone network is not a single-
use network, and modern network infrastructure can provide access not 
only to voice services, but also to data, graphics, video, and other 
services. The Commission has found that the use of high-cost support to 
invest in infrastructure capable of providing access to advanced 
services is not inconsistent with the requirement in section 254(e) 
that support be used ``only for the provision, maintenance, and 
upgrading of facilities and services for which the support is 
intended.'' To what extent should the Commission consider whether non-
rural high-cost support is sufficient to enable carriers to upgrade 
networks in their high-cost

[[Page 1724]]

areas so that the networks are capable of providing access to advanced 
services?
    12. Section 254(b)(3) provides that ``[c]onsumers in all regions of 
Nation, including low-income consumers and those in rural, insular, and 
high cost areas, 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 at rates that are reasonably comparable to rates charged for 
similar services in urban areas.'' Although we seek comment below on 
the definition of reasonably comparable rates, we seek comment here on 
whether we should consider other aspects of this principle in 
determining whether non-rural high-cost support is sufficient. For 
example, should the Commission consider whether the telecommunications 
and information services provided in rural areas are reasonably 
comparable to those services provided in urban areas?
    13. Section 254(b)(4) provides that ``[a]ll providers of 
telecommunications services should make an equitable and 
nondiscriminatory contribution to the preservation and advancement of 
universal service.'' We note that the Commission is considering 
modifications to its current universal service contribution 
methodology. A critical component of that inquiry is determining 
whether any proposed change meets section 254(d)'s requirement that 
providers of ``interstate telecommunications services shall contribute, 
on an equitable and nondiscriminatory basis * * *.'' We seek comment on 
the extent to which the Commission should consider whether all 
providers' contributions are ``equitable and nondiscriminatory'' in 
considering whether non-rural high-cost support is sufficient. We seek 
comment on whether and why the Commission should apply a different 
interpretation to the term ``equitable and nondiscriminatory,'' as 
contained in section 254(b)(4), than it applies with respect to that 
term as used in section 254(d). We also note that the statute uses the 
same terms in section 254(f), which concerns the permissive authority 
of states to require telecommunications carriers that provide 
intrastate telecommunications services to contribute, in a manner 
determined by the state, to state universal service mechanisms. In 
Qwest II, the court rejected petitioners' argument that implicit state 
subsidies may force some carriers to bear a disproportionate and 
inequitable share of the burden in supporting their own high-cost 
consumers. Agreeing with the Commission that section 254(f) merely 
imposes an obligation on carriers within a state to contribute if the 
state establishes universal service programs, the court said that ``it 
does not impose a requirement of parity with respect to internal 
functioning and the distribution of funds between and among carriers.'' 
Although the court was interpreting ``equitable and nondiscriminatory'' 
in section 254(f), does the court's statement shed any light on how 
these terms should be interpreted in section 254(b)(4)?
    14. Section 254(b)(5) provides that ``[t]here should be specific, 
predictable, and sufficient Federal and state mechanisms to preserve 
and advance universal service.'' In determining whether non-rural high-
cost support is sufficient, to what extent should the Commission also 
determine whether such support is specific and predictable? How should 
the terms specific and predictable be defined or interpreted? We also 
seek comment on whether the Commission should determine how each 
section 254(b) principle advances universal service in light of the 
court's direction that the Commission define reasonably comparable 
consistent with its duties to preserve and advance universal service.
    15. Section 254(b)(6) provides that ``[e]lementary and secondary 
schools and classrooms, health care providers, and libraries should 
have access to advanced telecommunications services as described in 
subsection (h).'' We note that the Commission has established separate 
programs to meet this goal. To what extent should the Commission 
consider whether non-rural high-cost support helps enable schools, 
libraries, and health care providers to have access to advanced 
telecommunications services?
    16. Section 254(b)(7) provides that the Joint Board and the 
Commission may base their policies on additional principles that ``are 
necessary and appropriate for the protection of the public interest, 
convenience, and necessity and are consistent with [the 1996 Act].'' 
Pursuant to this section and based on the Joint Board's recommendation, 
the Commission established ``competitive neutrality'' as an additional 
principle upon which to base policies for the preservation and 
advancement of universal service. In determining whether non-rural 
high-cost support is sufficient, to what extent should the Commission 
determine that such support is competitively neutral? How does the 
Commission's prior determination that non-rural high-cost support is 
portable affect this analysis?

B. Definition of ``Reasonable Comparability''

    17. In Qwest II, the court directed the Commission to define the 
term ``reasonably comparable'' in a manner that comports with its 
concurrent duties to preserve and advance universal service. In the 
Order on Remand, the Commission concluded that the range of variability 
of urban rates is an appropriate measure of what should be considered 
reasonably comparable rural and urban rates, and defined reasonably 
comparable in terms of a national urban rate benchmark. The court 
rejected this analysis, finding that ``the Commission erred in 
premising its consideration of the term `preserve' on the disparity of 
rates existing in 1996 while ignoring its concurrent obligation to 
advance universal service, a concept that certainly could include a 
narrowing of the existing gap between urban and rural rates.'' We seek 
comment on how the Commission should define reasonably comparable rates 
in order to preserve and advance universal service. In Qwest II, the 
court was concerned that the variance between rural and urban rates was 
significant. Upon what rate data should the Commission rely to assess 
the extent of the existing variance between rural and urban rates? 
Should the Commission gather additional rate data? If so, how and where 
should the Commission obtain such data? We invite commenters, including 
state commissions, to submit rate data, suggest sources of such data, 
and propose methods of collecting and analyzing the data.
    18. We seek comment on whether the Commission should compare rural 
and urban rates within each state instead of, or in addition to, 
comparing rural rates in all states to a national urban rate benchmark. 
Would a state-specific urban rate benchmark provide states more 
flexibility in designing state rates? For example, while some states 
may want to keep local rates in rural areas very low, customers in such 
states may have very small calling areas and, consequently, make more 
toll calls. Other states may want rural customers to have very large 
calling areas so they do not have to make as many intrastate toll 
calls, but that may require higher local rates to offset the revenues 
the carrier would lose from toll calls. If rural rates in the second 
group of states were no higher than urban rates in the state, should 
they be considered to be reasonably comparable even though they may be 
higher than the rural rates in the first group of states? We seek

[[Page 1725]]

comment, including comment form state commissions, on how the 
Commission would determine state-specific rate comparability benchmarks 
and how those benchmarks should relate to any national urban rate 
benchmark.
    19. We seek comment on whether the Commission should continue to 
compare rural rates in all states to a single national urban rate 
benchmark. If so, which urban rates should the Commission use to 
establish the benchmark? How should the Commission interpret the Qwest 
II court's rejection of the Commission's reliance on the range of urban 
rates? Should the Commission seek to narrow the range of urban rates? 
Should the Commission compare rural rates to a national average urban 
rate, rather than some benchmark above the average? If the Commission 
uses a single national urban rate benchmark, should the Commission 
compare rural rates to the lowest urban rate? If the Commission uses 
the lowest urban rate as a benchmark, what would be the range of 
reasonably comparable rates? For example, should the Commission require 
that rural rates in all states be no more than ten percent, or perhaps 
twenty-five percent, above the lowest urban rate in the Bureau's annual 
rate survey ($15.65 in 2002)? We seek comment on how the Commission 
would justify any particular percentage above a benchmark.
    20. We seek comment on whether the Commission should continue 
defining reasonably comparable rates in terms of local rates only. Most 
consumers do not purchase only local service, but purchase bundles of 
telecommunications services from one or more providers. Moreover, it 
may be that most rural consumers, who typically have smaller calling 
areas than urban consumers, purchase more long distance services than 
urban consumers. We seek comment on whether the Commission should 
consider a broader range of rates in determining whether rates are 
reasonably comparable. We also seek comment on whether comparing rates 
for packages of services would simplify the task of establishing a 
comparability benchmark. For example, if we were to compare what 
average consumers pay for a package of services that includes long 
distance services, we may not need to adjust local rates to account for 
differences in calling scopes between rural and urban areas.
    21. We also seek comment on whether defining reasonably comparable 
rural and urban rates in terms of consumers' total telephone bills 
would be more consistent with our obligation to preserve and advance 
universal service than focusing only on local rates. As discussed 
above, the principles in section 254(b) provide that consumers in all 
regions of the nation should have access to telecommunications and 
information services, including advanced services and interexchange 
services. The telecommunications marketplace has changed considerably 
since the Commission adopted the non-rural mechanism in 1999. Consumers 
increasingly are purchasing packages of services that include unlimited 
local, regional toll, and long distance calling. If such packages were 
unavailable to consumers in rural areas, would their rates be 
reasonably comparable if they had very low local rates, but per-minute 
toll and long distance charges that exceeded the price of the flat-rate 
package? How does a consumer's ability to access the Internet via a 
local call or broadband connection affect our analysis? We invite 
commenters recommending that the Commission consider packages of 
services in determining reasonably comparable rates to submit rate 
data, as well as to propose methods of analyzing such data.

C. Funding Mechanisms

    22. In this section we seek comment on the non-rural high-cost 
support mechanism. The Qwest II court found that the current mechanism 
must be invalidated because the mechanism rested on the application of 
a definition of ``reasonably comparable'' rates that the court also 
invalidated. The court remanded this issue, directing the Commission to 
``craft a support mechanism taking into account all the factors that 
Congress identified in drafting the Act and [the Commission's] 
statutory obligation to preserve and advance universal service.'' We 
seek comment regarding how the non-rural support mechanism achieves the 
Act's goals and statutory principles, with specific emphasis on the 
concerns raised by the court in Qwest II. In light of the Qwest II 
court's direction that the Commission provides stronger evidence that 
its universal service support mechanisms achieve the Act's rate-related 
goals, we seek comment regarding a rate-based universal service support 
mechanism. Would a rate-based support mechanism better address the 
statutory principles discussed above? Would it be easier to show an 
empirical relationship between a rate-based support mechanism and 
rates, as the Qwest II court instructs?
    23. Rate-Based Support Mechanism. We seek comment regarding how a 
rate-based support mechanism would be designed. What data would be 
necessary to administer a rate-based mechanism? Should the data be 
collected from the state ratemaking authority or from carriers? Would 
support simply be provided to areas which experience rates in excess of 
a nationwide benchmark? If so, how would the Commission set that 
benchmark? What elements should be included in the rate mechanism? 
Should the mechanism address residential and business rates, or only 
residential rates? Should the mechanism support only the basic rate 
elements, or should it include other mandatory fees and taxes? In areas 
where the basic calling plans rely heavily on message units, how would 
the rate mechanism compare those to the benchmark? As discussed above, 
consumers increasingly purchase their basic local service as part of a 
bundle of services, including long distance. How, if at all, should a 
rate-based mechanism account for bundled services?
    24. We note that there are urban and suburban areas that have rates 
that would likely exceed any rate benchmark that the Commission would 
set. Should the rate mechanism have some means of excluding these 
areas, or should the mechanism fund all areas with high rates, 
including those with low costs for providing service? Conversely, many 
high-cost rural areas currently have lower rates that would likely not 
trigger support under a rate benchmark. Should the rate-based mechanism 
provide support to these areas? To the extent that these areas 
currently have low rates because they receive support under the high-
cost mechanism, should there be a phase-out of high-cost support in 
conjunction with the introduction of a rate-based mechanism?
    25. If the Commission adopted a rate-based support mechanism, is it 
likely that states would change their ratemaking policies? What are the 
likely consequences of a rate-based support mechanism on state 
ratemaking? Would a rate-based support mechanism have the effect of 
promoting rational rate-rebalancing? Would it be necessary for the 
Commission to adopt constraints to ensure that states do not set rates 
with the purpose of maximizing federal universal service support? How 
would the Commission do so, and does it have the authority to do so 
under the Act? Also, would a rate-based support mechanism work if a 
state were to deregulate its retail rates? What effect would a rate-
based support mechanism have on the size of the universal service fund?
    26. Cost-Based Support Mechanism. How does the current mechanism 
address the statutory principles

[[Page 1726]]

discussed above? Can the current cost-based support mechanism be used 
to achieve the Act's rate-related goals? How are costs related to 
rates? Can the current cost-based support be shown empirically to 
reduce rates, as directed by the court in Qwest II? What data would be 
necessary to make such a demonstration and from what sources would such 
data be available? If the current non-rural support mechanism cannot be 
shown, empirically, to reduce rates, can another cost-based mechanism 
be shown to reduce rates? If not, can any cost-based mechanism address 
the concerns expressed by the court in Qwest II? How would a cost-based 
mechanism have to be designed to address the court's concerns? Would a 
support mechanism based on embedded costs, study area or wire center 
average costs, or a different distributive mechanism better achieve the 
Act's goals? We seek comment regarding whether the adoption of 
additional measures that tie cost-based support to rates would better 
enable a cost-based mechanism to address the court's concerns.
    27. Other Support Mechanisms. We seek comment generally regarding 
whether there are any universal service support mechanisms other than 
cost- or rate-based mechanisms (e.g., revenue-based) that would address 
the court's concerns. We ask that commenters describe any proposed plan 
in detail and explain exactly how the proposal would better address the 
Act's goals than other universal service support mechanisms. Commenters 
should place specific emphasis on how any plan could be shown 
empirically to address the Act's rate-related goals.
    28. We specifically ask commenters to address the universal service 
aspects of the comprehensive plan proposed by the National Association 
of Regulatory Utility Commissioners (NARUC) Task Force in the 
Intercarrier Compensation proceeding. In sum, the NARUC Task Force plan 
proposes combining the support contained in all of the federal high-
cost support mechanisms and giving the states discretion, within 
guidelines set by the Commission, to determine how the support should 
be distributed among carriers serving the state.

D. Puerto Rico Telephone Company's Request for an Insular-Specific 
Support Mechanism

    29. In its Petition and in subsequent filings, PRTC requests high-
cost universal service support through a non-rural insular support 
mechanism. Specifically, PRTC requests that, pending the Commission's 
comprehensive review of its high-cost support program, the Commission 
adopt, on an interim basis, a non-rural insular mechanism based on 
embedded costs. PRTC states that this interim mechanism should be 
``patterned after, but distinct from,'' the existing mechanism for 
rural telephone companies. Thus, PRTC proposes that the Commission 
adopt a non-rural insular mechanism based on actual costs, calculated 
using Part 36 of the Commission's rules.
    30. PRTC claims that high-cost support to Puerto Rico is essential 
for maintaining and expanding affordable telephone service in Puerto 
Rico. According to PRTC, the penetration rate in Puerto Rico has 
increased from 25 percent in the 1970s to over 70 percent in 1996. PRTC 
claims, however, that since its high-cost funding began to be reduced 
in 2001 pursuant to Commission action, Puerto Rico's previously growing 
penetration rate has fallen back to below 70 percent. PRTC asserts that 
its low penetration rate is a result of the high cost of providing 
service in Puerto Rico. In its Petition, PRTC explains that the need to 
have equipment and supplies shipped to the island increases 
infrastructure costs and requires that PRTC maintain a larger inventory 
of supplies and repair parts than would normally be necessary. PRTC 
also argues that it has other challenges which further complicate 
operations and increase costs including water-based erosion, 
unpredictable terrain, and operating in the Caribbean, which frequently 
faces hurricanes and tropical storms. PRTC contends that the cost of 
providing service in Puerto Rico is further increased as a result of 
providing service to Puerto Rico's sparsely populated mountainous 
region in its rural interior. For example, PRTC claims that the cost 
per local loop to install wireline service in these areas ranges from 
$5,000 to more than $15,000.
    31. PRTC argues that section 254(b)(3) of the Act requires the 
Commission to address the unique needs of insular areas. Section 
254(b)(3) of the Act directs the Commission and the states to devise 
methods to ensure that ``[c]onsumers in all regions of the Nation, 
including low-income consumers and those in rural, insular, and high 
cost areas * * * have access to telecommunications and information 
services * * * at rates that are reasonably comparable to rates charged 
for similar services in urban areas.'' In its White Paper, PRTC argues 
that the reference to ``insular'' in the statute was specifically added 
to recognize the unique concerns of these areas. In the Unserved Areas 
NPRM, 65 FR 47941, August 4, 2000, which was initiated to examine areas 
with low penetration rates, the Commission tentatively concluded that 
Puerto Rico, American Samoa, the Commonwealth of the Northern Mariana 
Islands (CNMI), Guam, and the U.S. Virgin Islands are properly included 
in the definition of insular areas. To date, the Commission has 
released an order addressing only the tribal lands issues raised in the 
Unserved Areas NPRM. In that order, the Commission stated that it would 
continue to examine and address the causes of low subscribership in 
other areas and among other populations, especially among low-income 
individuals in rural and insular areas. The Commission has yet to 
establish a universal service mechanism for insular areas.
    32. We tentatively conclude that section 254(b) provides the 
Commission with the authority to establish a new interim support 
mechanism for non-rural insular areas based on embedded costs. We seek 
comment on this tentative conclusion. We agree with PRTC that, through 
section 254(b), Congress intended that consumers in insular areas, as 
well as in rural and high-cost areas, have access to affordable 
telecommunications and information services. We believe that the low 
penetration rates in Puerto Rico demonstrate that this goal is not 
being met and that the Commission could be doing more to help the 
residents of Puerto Rico. Because of the unique challenges in providing 
telephone service in Puerto Rico, we believe that a special support 
mechanism, in combination with the Commission's low-income program, 
will help to combat the problem of low subscribership in Puerto Rico. 
The evidence provided by PRTC supports a finding that there appears to 
be a correlation between the recent decline in Puerto Rico's 
subcribership rates and the reduction of Puerto Rico's high-cost 
support. Although we tentatively conclude that an interim insular 
mechanism is the appropriate measure to help reverse this trend, we 
seek comment on this tentative conclusion in particular and on the 
impact of high-cost support on subscribership rates in general. We also 
seek comment on how previous Commission decisions affect our tentative 
conclusion that we should establish a new interim support mechanism for 
non-rural insular areas based on embedded costs.
    33. We believe that our tentative conclusion to adopt a non-rural 
insular mechanism is appropriate because, as PRTC has explained, newly 
available

[[Page 1727]]

universal service funds will enable PRTC to construct new network and 
loop infrastructure to unserved areas, update its existing facilities, 
improve quality of service, maintain affordable rates, and educate and 
solicit potential first-time telephone customers. Moreover, we 
tentatively conclude that adopting a non-rural insular mechanism would 
have a limited impact on the universal service fund because this 
mechanism would only affect carriers operating in the Commonwealth of 
Puerto Rico if we adopt the Commission's proposed definition of 
``insular areas.'' There would be no need for a rural insular mechanism 
because all rural insular carriers already receive rural high cost 
support. PRTC is the only incumbent carrier serving a high-cost insular 
area that is not currently classified as a rural carrier under the 
rural high-cost loop mechanism. Further, while we agree with PRTC that 
the impact would be limited because the total cost of the new mechanism 
would be less than one percent of the total fund, we invite comment on 
the impact the adoption of a non-rural insular mechanism would have on 
the universal service fund.
    34. Appended to its White Paper, PRTC proposes rules establishing 
an insular mechanism based on embedded costs. We seek comment on these 
proposed rules and invite commenters to propose other rules that may be 
necessary to provide for a non-rural mechanism for insular areas. To 
the extent that commenters propose different rules or would propose 
modifications to PRTC's proposed rules, we ask that such commenters 
provide explanations for their proposals. We also invite commenters to 
compare and contrast the proposed insular mechanism with the mechanism 
currently in place for rural carriers.
    35. We seek comment on whether or how the support already received 
by PRTC affects our tentative conclusion to adopt a non-rural insular 
mechanism. We also seek comment on how a non-rural insular mechanism in 
general would work in conjunction with the Commission's existing high-
cost mechanisms. For example, high-cost loop support for rural carriers 
is subject to an indexed cap. Should high-cost loop support provided 
under a non-rural insular mechanism be subject to the same or similar 
cap? If the same cap is used for both mechanisms, should the cap be 
adjusted or should the high-cost loop support fund be rebased to 
account for the additional support provided to PRTC?
    36. We note that under PRTC's proposed rules for the interim 
insular mechanism, federal high-cost funding would be available for 
those non-rural insular study areas in which the average unseparated 
cost per loop exceeds 115 percent of the national average loop cost. 
PRTC proposes that the national average loop cost would be calculated 
pursuant to Sec.  36.622(a) of the Commission's rules. Section 
36.622(a) states that the national average is equal to the sum of the 
loop costs for each study area in the country (as calculated pursuant 
to Sec.  36.621(a) of the Commission's rules) divided by the sum of the 
working loops reported for each study area in the country. For rural 
incumbent LECs, however, Sec.  36.622(a) of the Commission's rules 
provides that the national average unseparated loop cost is frozen at 
$240 per loop. Considering that Sec.  36.622(a) of the Commission's 
rules provides for a separate national average loop cost for rural 
carriers, we seek comment on PRTC's proposal which would calculate the 
national average loop cost pursuant to Sec.  36.622(a) of the 
Commission's rules. If a non-rural insular mechanism is created, would 
there be any reason to use the national average loop cost that is used 
for rural incumbent LECs, which is frozen at $240 per loop? Also, if 
the Commission adopts its tentative conclusion and creates an interim 
non-rural insular mechanism, should it impose any conditions on the 
disbursement of these funds (e.g., require PRTC to submit and implement 
build-out plans to address unserved areas of the island)? In addition, 
to what extent should the Commission consider steps taken by the 
Telecommunications Regulatory Board of Puerto Rico to achieve rate 
comparability as required by the Order on Remand?
    37. Finally, if we adopt the tentative conclusion herein, we will 
need a definition of ``insular areas.'' In the Unserved Areas NPRM, the 
Commission proposed defining ``insular areas'' as ``islands that are 
territories or commonwealths of the United States,'' and sought comment 
on whether the definition of insular areas should exclude sovereign 
nations that are not subject to the laws of the United States. The 
Commission tentatively concluded that Puerto Rico, American Samoa, the 
Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. 
Virgin Islands are properly included in the definition of insular 
areas. We seek to refresh the record initially established in the 
Unserved Areas NPRM, and seek comment on the definition of ``insular 
areas'' proposed in that proceeding.

III. Procedural Matters

A. Initial Regulatory Flexibility Analysis

    38. As required by the Regulatory Flexibility Act of 1980, as 
amended, 5 U.S.C. 603, the Commission has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) for this NPRM, of the possible 
significant economic impact on a substantial number of small entities 
by the policies and rules proposed in this NPRM. The IRFA is in the 
Appendix. Written public comments are requested on this IRFA. Comments 
must be identified as responses to the IRFA and must be filed by the 
deadlines for comments on the NPRM. The Commission will send a copy of 
the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration. In addition, the NPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.

B. Paperwork Reduction Act Analysis

    39. This Notice of Proposed Rulemaking does not contain proposed 
information collections 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 business 
concerns with fewer than 25 employees,'' pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).

C. Ex Parte Presentations

    40. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentations must contain summaries of the substance 
of the presentations and not merely a listing of the subjects 
discussed. More than a one or two sentence description of the views and 
arguments presented is generally required. Other requirements 
pertaining to oral and written presentations are set forth in Sec.  
1.1206(b) of the Commission's rules.

D. Comment Filing Procedures

    41. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415 and, 1.419, interested parties may file comments on 
or before February 10, 2006, and reply comments on or before March 13, 
2006. Comments may be filed using: (1) The Commission's Electronic 
Comment Filing System (ECFS), (2) the Federal Government's eRulemaking 
Portal, or (3) by filing paper copies. See Electronic Filing of 
Documents in

[[Page 1728]]

Rulemaking Proceedings, 63 FR 24121, May 1, 1998. Electronic Filers: 
Comments may be filed electronically using the Internet by accessing 
the ECFS: https://www.fcc.gov/cgb/ecfs/ or the Federal eRulemaking 
Portal: https://www.regulations.gov. Filers should follow the 
instructions provided on the Web site for submitting comments. For ECFS 
filers, if multiple docket or rulemaking numbers appear in the caption 
of this proceeding, filers must transmit one electronic copy of the 
comments for each docket or rulemaking number referenced in the 
caption. In completing the transmittal screen, filers should include 
their full name, U.S. Postal Service mailing address, and the 
applicable docket or rulemaking number. Parties may also submit an 
electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to ecfs@fcc.gov, and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response. Paper Filers: Parties who choose 
to file by paper must file an original and four copies of each filing. 
If more than one docket or rulemaking number appears in the caption of 
this proceeding, filers must submit two additional copies for each 
additional docket or rulemaking number. Filings can be sent by hand or 
messenger delivery, by commercial overnight courier, or by first-class 
or overnight U.S. Postal Service mail (although we continue to 
experience delays in receiving U.S. Postal Service mail). All filings 
must be addressed to the Commission's Secretary, Marlene H. Dortch, 
Office of the Secretary, Federal Communications Commission, 445 12th 
Street, SW., Washington, DC 20554. The Commission's contractor will 
receive hand-delivered or messenger-delivered paper filings for the 
Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, 
Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 
p.m. All hand deliveries must be held together with rubber bands or 
fasteners. Any envelopes must be disposed of before entering the 
building. Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class, 
Express, and Priority mail should be addressed to 445 12th Street, SW., 
Washington, DC 20554. People with Disabilities: To request materials in 
accessible formats for people with disabilities (braille, large print, 
electronic files, audio format), send an e-mail to fcc504@fcc.gov or 
call the Consumer & Governmental Affairs Bureau at 202-418-0530 
(voice), TTY 202-418-0432.
    42. In addition, one copy of each pleading must be sent to each of 
the following: the Commission's duplicating contractor, Best Copy and 
Printing, Inc, 445 12th Street, SW., Room CY-B402, Washington, DC 
20554; Web site: https://www.bcpiweb.com; by telephone at 1-800-378-
3160; Sheryl Todd, Telecommunications Access Policy Division, Wireline 
Competition Bureau, 445 12th Street, SW., Room 5-B540, Washington, DC 
20554; e-mail: sheryl.todd@fcc.gov.
    43. Filings and comments are also available for public inspection 
and copying during regular business hours at the FCC Reference 
Information Center, Portals II, 445 12th Street, SW., Room CY-A257, 
Washington, DC 20554. Copies may also be purchased from the 
Commission's duplicating contractor, BCPI, 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554. Customers may contact BCPI through its 
Web site: https://www.bcpiweb.com, by e-mail at fcc@bcpiweb.com, by 
telephone at (202) 488-5300 or (800) 378-3160, or by facsimile at (202) 
488-5563.
    44. For further information regarding this proceeding, contact Ted 
Burmeister, Attorney Advisor, Telecommunications Access Policy 
Division, Wireline Competition Bureau at (202) 418-7389, or 
theodore.burmeister@fcc.gov, or Katie King, Special Counsel, 
Telecommunications Access Policy Division, Wireline Competition Bureau, 
(202) 418-7491, e-mail: katie.king@fcc.gov.

Initial Regulatory Flexibility Analysis (Notice of Proposed Rulemaking)

    45. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this present Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on a substantial number of small entities by the 
policies and rules proposed in this Notice of Proposed Rulemaking 
(NPRM). Written public comments are requested on this IRFA. Comments 
must be identified as responses to the IRFA and must be filed by the 
deadlines for comments on the NPRM on February 10, 2006. The Commission 
will send a copy of the NPRM, including this IRFA, to the Chief Counsel 
for Advocacy of the Small Business Administration (SBA). In addition, 
the NPRM and IRFA (or summaries thereof) will be published in the 
Federal Register.

1. Need for, and Objectives of, the Proposed Rules

    46. The Telecommunications Act of 1996 requires that the Commission 
establish rules to ``preserve and advance'' universal service. This 
NPRM addresses several issues related to universal service support for 
non-rural carriers. Seeking, and receiving, comment on these issues is 
a necessary step toward the adoption of rules that meet the 1996 Act's 
requirements.
    47. First, we address issues remanded by the United States Court of 
Appeals for the Tenth Circuit for the second time. Specifically, we 
contemplate rules regarding how the Commission should define the 
statutory term ``sufficient'' to take into account all the principles 
enumerated in the statute. Further, we further address how the 
Commission should define ``reasonably comparable'' in the context of 
section 254(e)(3)'s requirement that consumers in all regions of the 
nation should have access to telecommunications and information 
services that are ``reasonably comparable to those provided in urban 
areas and that are available at rates that are reasonably comparable to 
rates charged for similar services in urban areas.'' We also 
contemplate whether, in light of the interpretation of the key 
statutory terms, the Commission should modify the high-cost funding 
mechanism for non-rural carriers by adopting a rate-based support 
mechanism, by adjusting the current cost-based support mechanism, or if 
some other mechanism would better meet the statutory requirements of 
the Act.
    48. Second, we address a proposal by Puerto Rico Telephone Company, 
Inc. (PRTC) that the Commission create a support mechanism for non-
rural carriers serving insular areas. Currently, non-rural carriers 
receive support based on forward-looking economic costs, as estimated 
by the High-Cost Model. PRTC proposes that non-rural carriers serving 
insular areas receive support based on their embedded (i.e., 
historical) costs, as rural carriers do currently.

2. Legal Basis

    49. The legal basis for the NPRM is contained in sections 1, 4, 201 
through 205, 214, 254, 303(r), and 403 of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 154, 201-205, 214, 254, 303(r), and 
403, and Sec.  1.411 of the Commission's rules, 47 CFR 1.411.

[[Page 1729]]

3. Description and Estimate of the Number of Small Entities to Which 
Rules May Apply

    50. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of the number of small entities that may be 
affected by the rules adopted herein. The RFA generally defines the 
term ``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act, unless the Commission has developed one or more definitions that 
are appropriate to its activities. Under the Small Business Act, a 
``small business concern'' is one that: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) meets 
any additional criteria established by the SBA.
    51. The Commission has determined that the group of small entities 
directly affected by the rules adopted in this NPRM are eligible 
telecommunications carriers (ETCs) providing service in areas served by 
non-rural carriers. Within the category of ETCs we find competitive 
local exchange carriers (CLECs), which are all wired telecommunications 
carriers, and wireless carriers. Further descriptions of these entities 
are provided below.
    52. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 1997, there were 2,225 firms in 
this category, total, that operated for the entire year. Of this total, 
2,201 firms had employment of 999 or fewer employees, and an additional 
24 firms had employment of 1,000 or more. Thus, under this size 
standard, the great majority of firms can be considered small.
    53. Competitive Local Exchange Carriers (CLECs), Competitive Access 
Providers (CAPs) and ``Other Local Exchange Carriers.'' Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to providers of competitive exchange 
services or to competitive access providers or to ``Other Local 
Exchange Carriers.'' The closest applicable size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 532 companies reported that they were 
engaged in the provision of either competitive access provider services 
or competitive local exchange carrier services. Of these 532 companies, 
an estimated 411 have 1,500 or fewer employees and 121 have more than 
1,500 employees. In addition, 55 carriers reported that they were 
``Other Local Exchange Carriers.'' Of the 55 ``Other Local Exchange 
Carriers,'' an estimated 53 have 1,500 or fewer employees and two have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of competitive local exchange service, competitive 
access providers, and ``Other Local Exchange Carriers'' are small 
entities that may be affected by the rules and policies adopted herein.
    54. Cellular and Other Wireless Telecommunications Carriers. The 
SBA has developed a small size standard for Cellular and Other Wireless 
Telecommunications Carriers which consists of all such companies having 
1,500 or fewer employees. According to the Commission's most recent 
data, 1,761 companies reported that they were engaged in the provision 
of wireless service. Of these, 1,761 companies, and estimated 1,175 
have 1,500 or fewer employees and 586 have more than 1,500 employees. 
Consequently, the Commission estimates that most wireless service 
providers are small entities that may be affected by the rules and 
policies adopted herein.
    55. Eligible Telecommunications Carriers (ETCs) that Provide 
Service in Areas Serviced by Non-Rural Carriers. Neither the SBA nor 
the Commission has developed a definition of small entities 
specifically applicable to ETCs. ETC designation allows a carrier to 
receive universal service support in accordance with section 254 of the 
Act. An entity is designated as an ETC by a state commission or, if 
there is no state jurisdiction, by the Commission upon meeting the 
requirements of section 214(e) of the Act. Any entity offering services 
supported by Federal universal service mechanisms that uses its own 
facilities or a combination of its own facilities and resale of another 
carrier's services and advertises such charges and rates can seek 
designation as an ETC. ETCs are competitive carriers that are not 
dominant in the field. The group of ETCs providing service in areas 
served by non-rural carriers is composed of mostly CLECs and wireless 
carriers. We have indicated above that, pursuant to SBA standards, ETCs 
are CLECs or wireless carriers. In addition, we note that the only ETCs 
affected by this Order are those that provide service in areas served 
by non-rural carriers. If we had no further information concerning the 
specific ETCs affected by this rulemaking, we would estimate that 
numerous ETCs, which are either CLECs or wireless service providers 
that provide service in areas served by non-rural carriers, are small 
businesses that may be affected by the rules adopted herein.
    56. At this time, however, the Commission is aware of approximately 
30 ETCs providing service in areas served by non-rural carriers. We 
have determined that at least 9 of these ETCs are subsidiaries of 
public companies--not independently owned and operated--and, therefore, 
not small businesses under the Small Business Act. We do not have data 
specifying whether the remaining ETCs, or other ETCs not accounted for, 
are independently owned and operated, and therefore we are unable to 
estimate with greater precision the number of these carriers that would 
qualify as small business concerns under SBA's definition. 
Consequently, we estimate that there are 20 or fewer small entities 
that may be affected directly by the proposed rules herein adopted.

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    57. The NPRM does not propose specific reporting, recordkeeping, or 
other compliance requirements at this time. The NPRM does, however, ask 
whether additional rate data should be collected for the purpose of 
defining the statutory term, ``reasonably comparable.'' The NPRM also 
considers the collection of data to administer a rate-based support 
mechanism, in the event that the Commission adopts one. A universal 
service support mechanism for non-rural insular carriers, if adopted, 
may require reporting, recordkeeping or other compliance requirements.

5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    58. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance and reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design,

[[Page 1730]]

standards; and (4) an exemption from coverage of the rule, or part 
thereof, for small entities.
    59. In this NPRM, we seek comment on issues related to universal 
service support for non-rural carriers. We note that many, if not all, 
non-rural carriers are not small entities. To the extent that there 
may, in fact, exist a non-rural carrier that is a small entity, or any 
rule that may be adopted by the Commission related to these issues 
could affect some other small entity, we have considered and will 
consider alternatives to minimize significant economic impact on small 
entities.
    60. We seek comment regarding several issues related to the high-
cost support mechanism for non-rural carriers that have been remanded 
by the United States Court of Appeals for the Tenth Circuit for the 
second time. We seek comment regarding the meaning of the statutory 
terms ``sufficient'' and ``reasonably comparable.'' Because we 
anticipate that the Commission will define these terms in a manner 
conducive to creating a viable non-rural support mechanism, we conclude 
that defining these statutory terms will not have a significant 
economic impact on small entities. We also seek comment regarding how a 
universal service support mechanism for non-rural carriers should be 
designed, consistent with the statutory terms. We conclude that 
adopting a new high-cost support mechanism for non-rural carriers, 
including particularly a rate-based support mechanism, or retaining a 
modified version of the current mechanism, based on forward-looking 
economic cost estimates, will not create a significant economic impact 
on small entities. In the event, however, that a commenter proposes 
rules that may create a significant economic impact on a small entity, 
we seek comment on steps to be taken or possible alternatives that 
would minimize the economic impact.
    61. We also tentatively conclude that the Commission should adopt 
PRTC's proposed interim support mechanism for non-rural carriers 
serving insular areas. Pursuant to this proposal, non-rural carriers 
serving insular areas would receive universal service support based on 
their embedded costs rather than forward-looking economic cost 
estimates. Currently, PRTC is the only non-rural carrier serving an 
insular area, and it is not a small entity. CETCs (which receive 
support based on the incumbent's level of support) serving in PRTC's 
service territory would receive additional support, but would not have 
any other significant economic impact. Other alternatives to be 
considered include retaining the current rules, under which non-rural 
carriers serving insular areas receive support pursuant to the same 
mechanism as all other non-rural carriers.

6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    None.

IV. Ordering Clauses

    62. Pursuant to the authority contained in sections 1, 4(i), 201-
205, 214, 254, and 403 of the Communications Act of 1934, as amended, 
47 U.S.C. 151, 154(i), 201-205, 214, 254, and 403, this Notice of 
Proposed Rulemaking is adopted.
    63. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Inf