High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, 11591-11602 [E8-4146]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 73, Number 43 (Tuesday, March 4, 2008)]
[Proposed Rules]
[Pages 11591-11602]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-4146]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 63

[WC Docket No. 05-337; CC Docket No. 96-45; FCC 08-5]


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

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Commission seeks comment on the merits 
of using reverse auctions (a form of competitive bidding) to determine 
the amount of high-cost universal service support provided to eligible 
telecommunications carriers serving rural, insular, and high-cost 
areas.

DATES: Comments are due on or before April 3, 2008 and reply comments 
are due on or before May 5, 2008.

ADDRESSES: You may submit comments, identified by WC Docket No. 05-337 
and CC Docket No. 96-45, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web site: https://
www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     E-mail: 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. Include the docket number in the subject line 
of the message.
     Mail: Secretary, Federal Communications Commission, 445 
12th Street, SW., Washington, DC 20544.
     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.

[[Page 11592]]


FOR FURTHER INFORMATION CONTACT: Katie King, Wireline Competition 
Bureau, Telecommunications Access Policy Division, 202-418-7400 or TTY: 
202-418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Notice of Proposed Rulemaking (NPRM) in WC Docket No. 05-337, CC Docket 
No. 96-45, FCC 08-5, adopted January 9, 2008, and released January 29, 
2008. The complete text of this document is available for inspection 
and copying during normal business hours in the FCC Reference 
Information Center, Portals II, 445 12th Street, SW., Room CY-A257, 
Washington, DC 20554.
    The document may also be purchased from the Commission's 
duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, 
SW., Room CY-B402, Washington, DC 20554, telephone (800) 378-3160 or 
(202) 863-2893, facsimile (202) 863-2898, or via e-mail at https://
www.bcpiweb.com. It is also available on the Commission's Web site at 
https://www.fcc.gov.
    Initial Paperwork Reduction Act of 1995 Analysis:
    This document does not contain proposed information collection(s) 
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).

Synopsis of the Notice of Proposed Rulemaking

Introduction

    1. In this NPRM, we seek comment on the merits of using reverse 
auctions (a form of competitive bidding) to determine the amount of 
high-cost universal service support provided to eligible 
telecommunications carriers (ETCs) serving rural, insular, and high-
cost areas. As discussed below, in a reverse auction, support generally 
would be determined by the lowest bid to serve the auctioned area. We 
tentatively conclude that reverse auctions offer several potential 
advantages over current high-cost support distribution mechanisms, and 
that the Commission should develop an auction mechanism to determine 
high-cost universal service support. We seek comment in this NPRM on a 
number of specific issues regarding auctions and auction design that 
must be resolved in order for the Commission to implement an auction 
mechanism.

Background

    2. In the Telecommunications Act of 1996 (1996 Act), Congress 
sought to preserve and advance universal service while, at the same 
time, opening all telecommunications markets to competition. Public Law 
104-104. Section 254(b) of the Act, which was added by the 1996 Act, 
directs the Federal-State Joint Board on Universal Service (Joint 
Board) and the Commission to base policies for the preservation and 
advancement of universal service on several general principles, plus 
other principles that the Commission may establish. Among other things, 
there should be specific, predictable, and sufficient federal and state 
universal service support mechanisms; quality services should be 
available at just, reasonable, and affordable rates; and consumers in 
all regions of the nation should have access to telecommunications 
services that are reasonably comparable to those services provided in 
urban areas at reasonably comparable rates. 47 U.S.C. 254(b)(1), (3), 
(5). Section 254(e) of the Act provides that only ETCs designated under 
section 214(e) shall be eligible to receive federal universal service 
support, and that any such support should be explicit and sufficient to 
achieve the purposes of that section.
    3. In the Universal Service First Report and Order, the Commission 
recognized certain advantages of using competitive bidding to determine 
high-cost universal service support. 62 FR 32862, June 17, 1997. First, 
``a compelling reason to use competitive bidding is its potential as a 
market-based approach to determining universal service support, if any, 
for any given area.'' Second, ``by encouraging more efficient carriers 
to submit bids reflecting their lower costs, another advantage of a 
properly structured competitive bidding system would be its ability to 
reduce the amount of support needed for universal service.'' The record 
at the time, however, was insufficient to support adoption of a 
competitive bidding mechanism. Moreover, the Commission found it 
unlikely that competitive bidding mechanisms would be useful at that 
time because of the expectation that there would be no competition in a 
significant number of rural, insular, or high-cost areas in the near 
future. Nonetheless, the Commission found that competitive bidding 
warranted further consideration.
    4. More recently, there has been renewed interest in using 
competitive bidding to determine high-cost universal service support. 
The Joint Board currently is reviewing the Commission's rules relating 
to high-cost universal service support in service areas in which 
competitive ETCs receive support and high-cost universal service 
support for rural carriers. Federal-State Joint Board on Universal 
Service, 67 FR 70703, November 26, 2002 (ETC/Portability Referral 
Order); Federal-State Joint Board on Universal Service, 69 FR 48232, 
August 9, 2004 (Rural Referral Order). In August 2006, the Joint Board 
sought comment on the merits of using auctions to determine high-cost 
universal service support. Federal-State Joint Board on Universal 
Service Seeks Comment on the Merits of Using Auctions to Determine 
High-Cost Universal Service Support, 71 FR 50420, August 25, 2006. The 
Joint Board also sought comment on auctions in the ETC/Portability 
proceeding. Federal-State Joint Board on Universal Service Seeks 
Comment on Certain of the Commission's Rules Relating to High-Cost 
Universal Service Support and the ETC Designation Process, 68 FR 10429, 
March 5, 2003. In February 2007, the Joint Board held an en banc 
hearing to discuss high-cost universal service support in rural areas, 
including the use of reverse auctions to determine support. Federal-
State Joint Board on Universal Service to Hold En Banc Hearing on High-
Cost Universal Service Support in Areas Served by Rural Carriers, 22 
FCC Rcd 2545 (2007). In his opening remarks, Chairman Kevin Martin 
explained that ``reverse auctions could provide a technologically and 
competitively neutral means of controlling fund growth and ensuring a 
move to most efficient technology over time.'' In a public notice, 
released May 1, 2007, the Joint Board sought comment on various 
proposals for long term, comprehensive reform of the high-cost 
universal service support mechanisms, including the use of reverse 
auctions. Federal-State Joint Board on Universal Service Seeks Comment 
on Long Term Comprehensive High-Cost Universal Service Reform, 22 FCC 
Rcd 9023 (2007). The Joint Board also recommended that, as an interim 
measure, the Commission adopt a cap on competitive ETC support. 
Recommended Decision, 22 FCC Rcd 8998 (2007). The specific auction 
proposals filed during the course of this proceeding are briefly 
described below.
    5. CTIA Proposal. In response to the 2006 Joint Board Public 
Notice, CTIA--The Wireless Association[supreg] (CTIA) proposed a 
``winner-gets-more'' reverse auction structure in which wireline and 
wireless ETCs would compete in the same auction. Under this proposal, 
the

[[Page 11593]]

winning bidder would receive the level of support it bid, and other 
auction participants would receive some lesser level of support. CTIA 
suggests two possible methods of calculating support for a non-winning 
bidder: (1) A percentage reduction in payment based on the difference 
between its bid and the winning bid; and (2) a percentage reduction in 
payment based on the difference between its bid and the winning bid, 
but also weighted by the share of customers of the winning bidder. CTIA 
supports the use of small areas, such as counties, as the geographic 
areas on which providers would bid.
    6. Verizon Proposal. On February 9, 2007, Verizon proposed 
implementing competitive bidding on a limited basis, with the 
possibility of extending the use of auctions more widely after the 
Commission assesses the results. Under Verizon's proposal, the 
Commission would introduce auctions in areas in which multiple wireless 
competitive ETCs currently receive support to select a single winning 
wireless provider to receive federal high-cost support in that area. 
Once these auctions were completed, a separate set of auctions would be 
held in areas where there is at least one wireline competitive ETC. 
Both the incumbent local exchange carrier (LEC) and any wireline 
competitive ETCs would participate, and the auction would select a 
single wireline provider to receive high-cost support in that area. 
After reviewing its experience with the separate wireless and wireline 
auctions, the Commission could then consider holding a general auction 
in any area where there is a competitive ETC. Both wireline and 
wireless ETCs would participate, and the general auction would select a 
single ETC to receive the support determined by its bid. The Commission 
also could consider using the results of the auctions to adjust support 
of ETCs receiving support not yet determined by an auction.
    7. Verizon also proposes an auction design that uses wire centers, 
at least initially, as the geographic areas for which ``combinatorial'' 
auctions would be held. This type of auction allows bidders flexibility 
to submit bids for individual wire centers, or bids for packages of 
wire centers. Bids would be for a flat amount of subsidy for a given 
area, or package of areas. The reserve amount would be based on current 
high-cost support amounts and would ensure that the support determined 
by the auction is no greater than the amount of support provided prior 
to the auction.
    8. Alltel Proposal. On February 16, 2007, Alltel proposed a reverse 
auction pilot program that would target additional funds to promote 
broadband deployment in unserved or underserved rural areas. In 
unserved or underserved zip code areas, any ETC could submit a bid for 
the minimum amount of universal service per line that it would need to 
make available broadband service, as well as the basic services 
currently supported by the high-cost program, to a minimum percentage 
of households in the zip code area within a specified period of time. 
In areas where an ETC can satisfy this standard without additional 
support beyond that already available under the existing high-cost 
program, Alltel claims that the winning bid might be zero. Each 
participating ETC would receive per-line funding only to the extent it 
provides broadband, as well as currently supported services to a 
customer line. The participant offering the lowest bid would receive 
the full bid amount for each broadband line it provides during the 
duration of the service term (e.g., five years). All other ETCs that 
commit to meeting the same broadband build-out requirements would also 
receive support, but at a slightly lower per-line rate than the winning 
bidder.
    9. Alltel recommends that the bidding process be conducted in a 
manner similar to that used for spectrum auctions: A multiple round, 
combinatorial auction, in which participants can bid for any number of 
zip code areas. The reserve price in each zip code area would be set 
based on the current level of high-cost support disbursed to ETCs in 
the area, increased by a certain percentage for the presumably higher 
cost of broadband deployment. Alltel suggests, for example, 
establishing a maximum bid amount so that the total per-line support 
would not increase by more than 50 percent or 100 percent in any area 
where high-cost funds are already being disbursed to one or more ETCs.

Discussion

    10. We seek comment generally on the advantages of using a reverse 
auction mechanism to determine the amount of high-cost universal 
service support distributed to ETCs. Technology and the marketplace 
have changed considerably since the Commission in 1997 found that 
competitive bidding mechanisms were unlikely to be useful in rural, 
insular, and high-cost areas because of the absence of competition in 
these markets. Since that time, many carriers, particularly wireless 
carriers, have become ETCs and receive support for serving high-cost 
areas. As a result of the policies and framework the Commission adopted 
at that time, the Commission's rules now result in subsidizing multiple 
competitors to serve areas in which costs may be prohibitively 
expensive for even one carrier to serve without a subsidy. The increase 
in the number of ETCs receiving high-cost support over the past several 
years is placing significant and increasing pressure on the stability 
of the universal service fund. Universal Service Contribution 
Methodology, 71 FR 38781, July 10, 2006.
    11. In a reverse auction, support generally would be determined by 
the lowest bid to serve the auctioned area. Auctions have potential 
merit in that they allow direct market signals to be used as a 
supplement to, and possible replacement of, cost estimates made from 
either historical cost accounting data or forward-looking cost models, 
as is done under the current high-cost support programs. In an auction, 
bids would reflect each bidding ETC's cost estimates for serving the 
relevant geographic area. If a sufficient number of bidders compete in 
the auction, the winning bid might be close to the minimum level of 
subsidy required to achieve the desired universal service goals. In 
contrast, a support mechanism based on either a carrier's embedded 
costs or on a forward-looking cost model provides no incentives for 
ETCs to provide supported services at the minimum possible cost. In 
addition, an auction could provide a fair and efficient means of 
eliminating the subsidization of multiple ETCs in a given region. We 
tentatively conclude that reverse auctions offer several potential 
advantages over current high-cost support distribution mechanisms, and 
that the Commission should develop an auction mechanism to determine 
high-cost universal service support. There are a number of detailed 
issues regarding auctions and auction design that must be resolved in 
order for the Commission to implement an auction mechanism, however. We 
seek comment below on these specific issues.

Eligibility Requirements

    12. We seek comment on eligibility requirements for bidders 
participating in reverse auctions. Section 254(e) states, in relevant 
part: ``only an eligible telecommunications carrier designated under 
section 214(e) shall be eligible to receive specific Federal universal 
service support.'' Therefore, we tentatively conclude that a bidder 
must hold an ETC designation covering the relevant geographic area 
prior to participating in an auction to determine high-cost support for 
that geographic area.

[[Page 11594]]

Single Winner Versus Multiple Winners

    13. We seek comment on whether universal service support auctions 
should award high-cost support to a single winner or to multiple 
winners. Should only the carrier submitting the lowest bid be allowed 
to receive the subsidy? Should all ETCs participating in the auction 
receive support, and if so, should it be the same level of support, or 
different amounts of support as suggested in the CTIA and Alltel 
proposals? We ask commenters that favor multiple-winner auctions in 
which different amounts of support go to different bidders to explain 
how the different levels of support would be determined. Alternatively, 
should there be a fixed number of winners greater than one? If there 
are a fixed number of winners receiving support, should the winning 
bidders receive the same amount of support (i.e., the same amount as 
the lowest bidder), or should the lowest bidder receive more?
    14. We seek comment on the advantages and disadvantages of a 
single-winner auction versus a multiple-winner auction format. As 
mentioned above, if only one bidder receives support, an auction could 
provide a fair and efficient means of eliminating the subsidization of 
multiple ETCs in a given region, thereby ceasing the uneconomic 
practice of subsidizing multiple competitors to serve areas in which 
costs are prohibitively expensive for even one carrier. We expect that 
using single-winner auctions would result in less overall support than 
multiple-winner auctions. For example, if support were to be 
distributed as a fixed subsidy per geographic area, then an auction 
with two winners would result in twice the support of a single-winner 
auction. As the number of winners increases, the size of the total 
subsidy would increase proportionately. We tentatively conclude that 
this would violate the universal service principle of sufficiency and 
would be an unacceptable auction format. We therefore tentatively 
conclude that universal service support auctions should award high-cost 
support to a single winner.
    15. If support is determined on the basis of the number of 
subscribers served, we similarly would expect total support under a 
multiple-winner auction to be higher than support under a single-winner 
auction for several reasons. First, many subscribers may choose to 
purchase service from multiple ETCs, with the result that such 
subscribers could indirectly be subsidized multiple times in a 
multiple-winner auction. Second, a multiple-winner auction would also 
increase the expected size of the subsidy under most common auction 
formats. For example, if the size of the subsidy is determined by the 
lowest bid of a non-winning bidder, the per-carrier subsidy would be 
expected to rise as the number of winners increased. Third, when the 
number of winners is large relative to the number of expected bidders, 
tacit collusion may be facilitated, which would result in less 
competitive bidding for the required subsidy. Finally, as the number of 
carriers receiving a subsidy increases, the market share of each 
subsidized carrier would correspondingly decline. Since it is well 
established that costs to individual carriers increase as their 
customer density decreases, we would expect that the underlying costs 
on which carriers base their bids to increase as the number of winning 
bidders increased and the individual bidder's expected number of 
subscribers decreased.
    16. Parties have argued that there are benefits to multiple-winner 
auctions. For example, CTIA argues that single-winner auctions run the 
risk of eliminating the consumer benefits of a competitive market by 
discouraging competitive entry during the period the auction winner has 
the exclusive right to receive support. How would a winner-gets-more 
auction, as proposed by CTIA, affect the overall level of support? How 
would the fact that all bidders receive support in a winner-gets-more 
auction affect the bidder strategies? To what extent should the 
Commission's universal service policies be directed at promoting 
competition in rural, high-cost markets? Does the Act require that 
rural consumers have affordable access to both wireline and wireless 
services? Would a single-winner auction deny rural consumers affordable 
access to both wireline and wireless services?
    17. Some parties have suggested that the Commission consider having 
separate auctions for wireless and wireline ETCs, at least initially. 
For example, Verizon proposes that the Commission initiate the use of 
auctions in areas in which multiple wireless competitive ETCs receive 
support. Once these auctions have been completed, the Commission would 
hold a separate set of auctions in areas where there is an incumbent 
LEC and at least one wireline competitive ETC. We seek comment on 
separate wireless and wireline auctions and any other issues relating 
to single-versus multiple-winner auctions.

Method of Distributing the Subsidy

    18. We seek comment on the manner in which a subsidy should be 
computed and distributed. Specifically, subsidies could potentially be 
offered as a fixed payment for each geographic area, on the basis of 
the number of subscribers or households served, or on some combination 
of these methods. As noted above, a per-area subsidy with multiple 
winners would result in very large subsidies, and we have tentatively 
concluded above that this format would not be acceptable. In the case 
of a single-winner auction, there are advantages to each of the above 
possible distribution methods. A per-subscriber subsidy provides a 
financial incentive to serve new customers who might be otherwise 
unprofitable. A per-area subsidy provides certainty about the total 
subsidy level. This knowledge may be important to a carrier's decision 
about whether to make fixed investment to serve an area, and to 
therefore participate in the auction. The form of the subsidy may also 
affect the allocation of customers among multiple providers in a 
multiple-winner auction. If carriers do not all receive the same per-
line subsidy, then a given customer may not be served by the lowest 
cost provider, but instead by a carrier with a higher subsidy. In 
addressing these issues, commenters should also address the 
relationship of the subsidy distribution methodology to the statute's 
universal service principles, including, in particular, the principles 
that the fund be specific, predictable, and sufficient and that 
consumers in rural, insular, and high-cost areas have access to 
services at rates that are comparable to the rates for comparable 
services in urban areas.

Geographic Areas

    19. We seek comment on the appropriate geographic areas for reverse 
auctions. In most areas of the country, telecommunications services are 
provided by a wireline incumbent LEC and possibly by one or more 
competitive ETCs, most of which are wireless carriers. Basing the 
geographic area on any particular carrier's service area would likely 
give that carrier an advantage in bidding because competing carriers 
are unlikely to have the same service footprint.
    20. Currently, support is generally based on the wireline incumbent 
LEC's study area. We seek comment on whether we should use the wireline 
incumbent LEC's study area as the geographic area on which to base 
reverse auctions. We note that, in some cases, the wireline incumbent 
LEC's study area consists of multiple disjointed geographic areas 
within a state. We seek comment on whether an incumbent LEC's study 
area that

[[Page 11595]]

consists of multiple non-contiguous geographic areas should be broken 
up at least into its contiguous parts for purposes of the auction, or 
be required to be auctioned as a single study area. An alternative to 
the wireline incumbent's study area would be to use the wire centers of 
the wireline incumbent LEC. What are the advantages and disadvantages 
of this approach? A third alternative is to use a geographic area that 
is independent of any carrier's service area, such as zip code, census 
tract, census block group, county, or metropolitan or rural statistical 
area (MSA, RSA). One potential advantage of such an approach is that it 
might better ensure that the auction is competitively and 
technologically neutral. What are the advantages and disadvantages of 
using independent geographic units that do not necessarily correspond 
to any wireline or wireless service area? CTIA contends that larger 
geographic units, such as MSAs/RSAs, would lead to problems of lack of 
coverage for many potential bidders. In addition, under CTIA's 
analysis, geographic areas which correspond to an incumbent LEC's study 
area (or contiguous portions thereof) might discourage participation in 
the auction by competitive carriers. Verizon argues that the areas 
should be small enough to allow the auctions to target support where it 
is most needed, but not so small as to create unnecessary complexity. 
Both CTIA and Verizon support using relatively small geographic areas, 
such as counties or wire centers, respectively. Although defining the 
relevant region as the incumbent LEC's entire study area might make it 
difficult for any individual competitive ETC to bid successfully, would 
the same hold true for incumbent LEC wire centers? Verizon claims that 
incumbent LEC switches generally have been located in population 
clusters, and that competitive ETCs similarly have tended to locate 
their facilities in population clusters even though they may have 
different network topologies than incumbent LECs. If geographic areas 
smaller than an incumbent LEC's entire study area are chosen, should 
the geographic areas nevertheless be defined so that each area is 
contained within the incumbent's study area, and that the total area of 
units up for auction completely covers the incumbent LEC's study area? 
We seek comment on how the size of the geographic area affects the 
ability of small entities to participate in auctions.
    21. The size of the geographic area chosen for auction will also 
have an effect on the amount of high-cost support. Specifically, a 
larger geographic area may include subsets of customers that are 
profitable (either because they live in low-cost areas or because they 
are likely to purchase related but unsubsidized services such as video 
or high speed data service). When these areas are included as part of a 
larger geographic area, the need for an overall subsidy is reduced on a 
per-customer basis. When smaller units are individually auctioned, 
there may be fewer profitable customers to offset losses for higher-
cost customers, so a higher total subsidy may be required. We seek 
comment on the trade-offs that may exist between the advantages of 
small geographic areas in terms of economic efficiency and competitive 
entry and the potential costs in terms of higher support levels. We 
tentatively conclude that the wireline incumbent LEC's study area is 
the appropriate geographic area on which to base reverse auctions, and 
that further disaggregation is appropriate only if the total support is 
not increased for the resulting areas, but is capped at the award 
amount for the original study area. We seek comment on this tentative 
conclusion, as well as on how one might disaggregate a study area yet 
ensure the overall support amount does not increase as a result of such 
disaggregation.
    22. We also seek comment on how we would implement different 
geographic areas for reverse auctions conducted in areas served by 
rural telephone companies. Section 214(e)(5) of the Act states: ``In 
the case of an area served by a rural telephone company, `service area' 
means such company's `study area' unless and until the Commission and 
the States, after taking into account recommendations of a Federal-
State Joint Board instituted under section 410(c), establish a 
different definition of service area for such company.'' If we decide 
to conduct an auction in a geographic area that is different than a 
rural telephone company's study area, does the Act require us to 
coordinate with the relevant state commission prior to conducting the 
auction? If so, we seek comment on issues relating to coordination with 
state commissions concerning the appropriate geographic areas for 
reverse auctions in areas served by rural telephone companies.

Universal Service Obligations

    23. We seek comment on the extent to which we should define the 
universal service obligations of the winners of the auctions. 
Historically, only incumbent LECs received universal service support 
and had the obligation to serve customers subject to rates and terms 
specified by state regulatory authorities: so-called ``carrier of last 
resort'' obligations. Under the framework adopted by Congress in the 
1996 Act, although only ETCs are eligible to receive federal universal 
service support, there may be multiple ETCs in a given area. 47 U.S.C. 
214(e)(2), 254(e). In addition, although competitive ETCs do not 
necessarily have carrier of last resort obligations under state law, 
they are required to provide the supported services throughout the 
service area for which the designation is received and to advertise the 
availability of such services and their rates using media of general 
distribution. 47 U.S.C. 214(e)(1). Moreover, section 214(e)(3) 
explicitly authorizes the states, with respect to intrastate services, 
and the Commission, with respect to interstate services, to order an 
ETC to provide service to an unserved area.
    24. We seek comment on how to ensure the universal availability of 
services under a reverse auction mechanism. Specifically, how should 
the carrier of last resort obligations be defined, and on whom should 
they be imposed? One possibility would be for an incumbent LEC to 
retain both the carrier of last resort obligation and the full right to 
subsidy over its entire study or service area unless lower bids were 
submitted by rival bidders in each of the geographic units up for 
auction within its overall service area. If lower bids were submitted 
by rival bidders in all of the geographic units up for auction, then 
the winning bidder would inherit the carrier of last resort 
obligations. Related to this, the incumbent LEC could be the only 
provider to receive a subsidy if rival bidders do not submit bids below 
the reserve price in each of the geographic units up for auction within 
its overall service area. Alternatively, both the carrier of last 
resort obligation and associated subsides could be awarded to the 
winning bidder in each geographic unit. The definition of the universal 
service obligation may be inextricably linked to the manner in which 
reserve prices for a geographic area are determined and to the specific 
auction format as discussed below. We ask parties to comment 
specifically on the ways in which these issues are related.
    25. We seek comment on several additional issues related to the 
continued availability of supported services. Should the winner of an 
auction be allowed to transfer to another ETC at any time the universal 
service obligations and the related support for any portion of a 
geographic area acquired through an auction? Currently

[[Page 11596]]

the Commission has rules adopted pursuant to section 214 of the Act 
that address transfer of control and discontinuances. 47 U.S.C. 214; 47 
CFR 63.03, 63.04, 63.71. Are these rules adequate or do they need to be 
modified where a carrier has both universal service obligations and 
subsidies? Should an existing incumbent LEC be allowed to unilaterally 
renounce its carrier of last resort obligations by refusing to bid in a 
subsequent auction? Should states or the Commission establish penalties 
to be imposed on an ETC that fails to fulfill its universal service 
obligations in a geographic area that it acquired at auction? If a 
carrier that has won an auction subsequently declares bankruptcy, what 
effect will the declaration of bankruptcy have on its universal service 
obligations and the subsidy that it receives? Do we need to adopt new 
rules to address this issue?
    26. In the ETC Designation Order, the Commission adopted additional 
requirements for ETC designation proceedings in which the Commission 
acts pursuant to section 214(e)(6) of the Act. Federal-State Joint 
Board on Universal Service, 70 FR 29960, May 25, 2005 (ETC Designation 
Order). Section 214(e)(6) of the Act directs the Commission to 
designate carriers when those carriers are not subject to the 
jurisdiction of a state commission. 47 U.S.C. 214(e)(6). Specifically, 
the Commission requires that an ETC applicant demonstrate: (1) A 
commitment and ability to provide services, including providing service 
to all customers within its proposed service area; (2) how it will 
remain functional in emergency situations; (3) that it will satisfy 
consumer protection and service quality standards; (4) that it offers 
local usage comparable to that offered by the incumbent LEC; and (5) an 
understanding that it may be required to provide equal access if all 
other ETCs in the designated service area relinquish their designations 
pursuant to section 214(e)(4) of the Act. We seek comment on whether 
these same requirements and/or any additional requirements should apply 
to all ETCs winning universal service auctions. Should these 
requirements apply only to auction winners, or should some or all of 
the requirements apply to all ETCs participating in universal service 
auctions? As noted, these requirements currently apply to ETCs 
designated by the Commission. Should they apply to state-designated 
ETCs as well?
    27. In the ETC Designation Order, the Commission also encouraged 
states to adopt the Commission's requirements for ETC designation, but 
declined to mandate that state commissions do so. We seek comment on 
the extent to which states have done so. Section 214(e)(2) of the Act 
gives states the primary responsibility to designate ETCs and 
prescribes that all state designation decisions must be consistent with 
the public interest, convenience, and necessity. Because the ETC 
Designation Order guidelines are not binding upon the states, the 
Commission rejected arguments suggesting that such guidelines would 
restrict the lawful rights of states to make ETC designations. The 
Commission also found that federal guidelines are consistent with the 
holding of the United States Court of Appeals for the Fifth Circuit 
that section 214(e) of the Act does not prohibit the states from 
imposing their own eligibility requirements in addition to those 
described in section 214(e)(1). Texas Office of Public Utility Counsel 
v. FCC, 183 F. 3d 393 (5th Cir. 1999). We seek comment on whether the 
Commission should condition an auction winner's receipt of federal 
high-cost support on compliance with additional requirements to ensure 
that the auction winner has obligations analogous to carrier of last 
resort obligations. We discuss the Commission's specific ETC 
requirements and related issues in more detail below.
    28. Commitment and Ability to Provide the Supported Services. The 
Commission requires that ETCs must provide service to all customers who 
make a reasonable request for service. Specifically, when a request 
comes from a potential customer located within the applicant's licensed 
service area but outside its existing network coverage, the ETC 
applicant should provide service within a reasonable period of time if 
service can be provided at reasonable cost by: (1) Modifying or 
replacing the requesting customer's equipment; (2) deploying a roof-
mounted antenna or other equipment; (3) adjusting the nearest cell 
tower; (4) adjusting network or customer facilities; (5) reselling 
services from another carrier's facilities to provide service; or (6) 
employing, leasing, or constructing an additional cell site, cell 
extender, repeater, or other similar equipment. The Commission 
encouraged states to follow the Joint Board's proposal that any build-
out commitments adopted by states be harmonized with any existing 
policies regarding line extensions and carrier of last resort 
obligations. We seek comment on what build-out commitments should apply 
to ETCs participating in and/or winning universal service auctions.
    29. The Commission also requires that a competitive ETC applicant 
submit a five-year plan describing with specificity its proposed 
improvements or upgrades to its network on a wire center-by-wire center 
basis throughout its designated service area. The five-year plan must 
demonstrate in detail how high-cost support will be used for service 
improvements that would not occur absent receipt of such support. This 
showing must include: (1) How signal quality, coverage, or capacity 
will improve due to the receipt of high-cost support throughout the 
area for which the ETC seeks designation; (2) the projected start date 
and completion date for each improvement and the estimated amount of 
investment for each project that is funded by high-cost support; (3) 
the specific geographic areas where the improvements will be made; and 
(4) the estimated population that will be served as a result of the 
improvements. We seek comment on whether we should require all ETCs 
participating in and/or winning universal service auctions to submit 
similarly detailed five-year plans. If the auction winner's obligation 
to serve the area is longer or shorter than five years, we tentatively 
conclude that it would be appropriate to adjust the time period for the 
plan to coincide with the time period of the obligation. If commenters 
believe that the requirement to submit five-year build-out plans, or 
the specific contents of the build-out plans, should be modified, they 
should explain how.
    30. Local Usage. The Commission currently requires an ETC applicant 
to demonstrate that it offers a local usage plan comparable to the one 
offered by the incumbent LEC in the service areas for which the 
applicant seeks designation, but the Commission declined to adopt a 
specific local usage threshold in the ETC Designation Order. Should we 
adopt a specific local usage threshold for winners of auctions? 
Currently, we do not regulate the retail rates of ETCs as a condition 
of their receiving high-cost support. States generally regulate 
wireline residential rates for incumbent LECs, but are precluded from 
regulating wireless rates by section 332(c)(3) of the Act. Wireline 
rates typically are set on a flat rate basis, whereas rates for 
wireless service generally are set on the basis of ``buckets of 
minutes.'' What kind of restrictions on retail pricing, if any, should 
the Commission place on auction participants in order to ensure rough 
comparability of pricing plans? For example, if a carrier whose rates 
are not regulated wins an auction, should it be

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required to freeze its retail rates, or agree to increase them subject 
to a price cap plan already in place within the state? Should the 
Commission establish a maximum rate for the local usage plan offered by 
auction bidders or winners?
    31. Equal Access. Although the Commission does not impose a general 
equal access requirement on ETC applicants, we require ETC applicants 
to acknowledge that we may require them to provide equal access to long 
distance carriers in their designated service area in the event that no 
other ETC is providing equal access within the service area. The 
Commission found that, if such circumstances arise, the Commission 
should consider whether to impose an equal access or similar 
requirement on a case-by-case basis. We seek comment on whether we 
should require all ETCs participating in universal service auctions to 
acknowledge that they may be required to provide equal access in the 
event that they win the auction.
    32. Ability to Remain Functional in Emergency Situations. The 
Commission also requires an ETC applicant to demonstrate its ability to 
remain functional in emergency situations by demonstrating that it has 
a reasonable amount of back-up power to ensure functionality without an 
external power source, is able to re-route traffic around damaged 
facilities, and is capable of managing traffic spikes resulting from 
emergency situations. In addition, ETCs designated by the Commission 
must certify on an annual basis that they are able to function in 
emergency situations. We seek comment on whether we should require all 
ETCs participating in and/or winning universal service auctions to 
demonstrate their ability to remain functional in emergencies.
    33. Consumer Protection. The Commission requires a carrier seeking 
ETC designation to demonstrate its commitment to meeting consumer 
protection and service quality standards in its application to the 
Commission. A commitment to comply with CTIA's Consumer Code for 
Wireless Service currently satisfies this requirement for a wireless 
ETC applicant seeking designation before the Commission. We seek 
comment on whether we should require all wireless ETCs participating in 
and/or winning universal service auctions to comply with CTIA's 
Consumer Code for Wireless Service. Are there other consumer protection 
and service quality standards that should apply to auction participants 
and/or winners? We seek comment on what type of consumer protection and 
service quality standards should apply to wireline auction participants 
and/or winners, including incumbent LECs.
    34. Adequate Financial Resources. In the ETC Designation Order, the 
Commission declined to adopt the Joint Board's recommendation that an 
ETC applicant demonstrate that it has the financial resources and 
ability to provide quality services throughout the designated service 
area. The Commission found that compliance with the requirements 
adopted in that order would require an ETC applicant to show that it 
has significant financial resources. After obtaining a license, whether 
by auction or other means, wireless carriers must further comply with 
the Commission's rules by meeting build-out or substantial service 
requirements for the particular service. We seek comment on whether we 
should adopt additional requirements for ETCs participating in 
universal service auctions to demonstrate that they have the financial 
resources and ability to provide quality services throughout the 
geographic area to be auctioned.
    35. Additional Obligations/Provision of Broadband Internet Access 
Services. In addition to the ETC requirements adopted in the ETC 
Designation Order, we seek comment on whether we should adopt 
additional obligations in the context of reverse auctions. We ask 
parties to comment on the specific additional universal service 
obligations they believe to be appropriate, and how they should be 
defined. We tentatively conclude that the Commission should require an 
auction winner to offer broadband Internet access services with 
information transfer rates greater than or equal to 768 kbps in at 
least one direction throughout the entire geographic area for which it 
wins the auction. In addition, we tentatively conclude that the 
Commission should require an auction winner to offer broadband Internet 
access services with information transfer rates greater than or equal 
to 1.5 mbps in at least one direction throughout the entire geographic 
area halfway through the term of the obligations. We reach these 
tentative conclusions because ``[t]he Commission has consistently 
recognized the critical importance of broadband services to the 
nation's present and future prosperity and is committed to adopting 
policies to promote the development of broadband services, including 
broadband Internet access services.'' Development of Nationwide 
Broadband Data To Evaluate Reasonable And Timely Deployment of Advanced 
Services To All Americans, Improvement of Wireless Broadband 
Subscribership Data, And Development of Data on Interconnected Voice 
Over Internet Protocol Subscribership, 72 FR 27519, May 16, 2007. We 
seek comment on these tentative conclusions. Further, we tentatively 
conclude that an auction winner's broadband Internet access services 
should be offered at a reasonable price. We seek comment on how we 
should ensure that broadband Internet access services are being offered 
at reasonable prices.

Reserve Prices

    36. Because there may be few bidders in certain geographic areas, 
it is important to establish a reserve ``price''--i.e. a maximum 
subsidy level that participants in the auction would be allowed to 
place as a bid. We seek comment on how we should set the reserve prices 
for the areas to be auctioned. We expect that the reserve prices will 
play a critical role in the auctions. A reserve price that is set too 
low is likely to discourage bidders from participating in the auction, 
while one that is set too high raises the possibility that too much 
support will be allocated.
    37. At least initially, reserve prices could be based on the 
current levels of high-cost support. We seek comment on how reserve 
prices based on current support should be determined if the geographic 
area to be auctioned differs from the area for which support is 
currently calculated. For example, if the geographic areas for the 
auctions are wire centers, for non-rural study areas it would be fairly 
straightforward to set wire center reserve prices based on the forward-
looking costs estimated by the Commission's cost model.
    38. Because the non-rural mechanism targets support to wire centers 
based on relative cost, the highest cost wire centers would have the 
highest per-line reserve price. For rural study areas with multiple 
wire centers, however, embedded costs for incumbent LECs are typically 
available only at the study area level. If a reserve price were based 
on the average cost per line in the study area, or if a fixed reserve 
subsidy for a study area were allocated on a per-line basis, the 
reserve price would not accurately reflect the costs of the individual 
wire centers or other geographic units within the study area. As noted 
above, this would discourage participation in the auction by 
competitive ETCs in the higher cost areas. In addition, encouraging 
competitive ETCs to bid for the lower cost areas could potentially 
provide insufficient support for an incumbent LEC with the obligation 
to serve the remaining higher cost areas. One alternative would be to 
determine a reserve price at the wire center level by

[[Page 11598]]

allocating the study area embedded cost on the basis of relative 
forward-looking costs as determined at the wire center level by the 
Commission's cost model. Another alternative would be to set reserve 
prices for rural study areas on the basis of a formula in which either 
forward-looking, model-generated cost or embedded cost data are used to 
estimate costs on the basis of observable factors such as customer 
density. For example, if a forward-looking approach is used to set a 
reserve price for non-rural geographic areas, one could use the data 
generated by the forward-looking cost model to regress model costs by 
wire center on wire center customer density. The result would be a 
simple analytic formula that could be used in place of the model to set 
reserve prices for geographic units in rural study areas. We seek 
comment on these and other alternatives.
    39. We tentatively conclude that, if the reserve price is based on 
the current levels of high-cost support and the area to be auctioned is 
smaller than the incumbent LEC's study area, the reserve price should 
be based on disaggregated support amounts. We also tentatively conclude 
that, if reserve prices are based on disaggregated support amounts, 
reserve prices in the aggregate should be capped at the current study 
area support amount. We seek comment on these tentative conclusions.
    40. After the initial auction, the winning bids in the most recent 
prior auctions could be used to establish a reserve price in the next 
auction. If the geographic areas subject to auction are smaller than an 
incumbent LEC's service area, then the reserve price could be 
determined for each geographic unit for both rural and non-rural study 
areas as described above, but using the previous auction's winning bid 
rather than the incumbent LEC's forward-looking or embedded cost. Use 
of prior auction data would result in reserve prices that are 
responsive to changing technologies, and would lessen the need to rely 
on forward-looking cost models after the initial auction. On the other 
hand, use of prior auction results might introduce new strategic 
considerations into any given auction, since participants would be 
aware that their bid might affect future reserve prices. We seek 
comment on these issues.

Auction Design

    41. The Commission has conducted public auctions for 
electromagnetic spectrum rights since 1994. In a spectrum auction, a 
winning bidder obtains a license to use spectrum in a well defined 
geographic area. The value of winning a particular area, however, can 
be closely related to the value of winning in adjacent areas. 
Individual bidders may have unique business models, so that the value 
of winning a particular area will generally differ among the bidders. 
At the same time, there can be a common value component if competing 
bidders have similar business models, even though each bidder has 
unique information about demands, costs or other relevant aspects of 
the business model. In its spectrum auctions, the Commission has used 
an auction design known as the simultaneous multiple round (SMR) 
auction to address these issues. The SMR auction is a form of ascending 
price auction in which bidders are allowed to place bids for any number 
of single licenses in a series of discrete, successive rounds, with the 
length of each round announced in advance by the Commission. After each 
round closes, round results are processed and made public. At that 
time, bidders learn about the bids placed by other bidders, obtaining 
information about the value of the licenses to all bidders. This 
increases the likelihood that the licenses will be assigned to the 
bidders who value them the most. In an SMR auction, there is no preset 
number of rounds. Bidding continues until a round occurs in which no 
new bids are submitted.
    42. Recently, variations on the SMR design have been proposed in 
which bidders are allowed to bid on packages of licenses. With package 
or ``combinatorial'' bidding, bidders may place bids on groups of 
licenses as well as on individual licenses. This approach allows 
bidders to better express the value of any synergies (benefits from 
combining complementary items) that may exist among licenses and to 
avoid the risk of winning only part of a desired set. Package bidding 
can be important to bidders who anticipate significant economies of 
scale and scope in deploying new infrastructure, or who expect customer 
demand to depend on total network coverage.
    43. The auction design for a reverse auction to determine high-cost 
universal service support should make use of the Commission's 
experience with spectrum auctions as much as possible. As a general 
matter, we invite parties to comment on the similarities and 
differences between auctions for spectrum and reverse auctions for 
subsidies for high-cost support.
    44. Whether or not the SMR design is considered as a basis for a 
reverse auction for high-cost support, there are a number of specific 
issues that must be resolved. To what extent should package bidding be 
allowed? Unrestricted combinatorial bidding would allow bidders to 
place a bid for any package of geographic areas in the auction. If 
small geographic areas are chosen as units for auction, package bidding 
may be essential for bidders to make appropriate bids based on their 
perceived cost and demand complementarities among geographic regions. 
On the other hand, an unrestricted combinatorial bidding procedure with 
a large number of distinct geographic areas could prove to be confusing 
to bidders and potentially computationally intractable. Should 
individual auctions with combinatorial bidding be held at a regional or 
state specific level instead of on a national basis? A broader scope 
for the auction would allow bidders to better capture 
interrelationships between geographic areas. However, a larger scope 
would also significantly increase the complexity of the auction, 
whether or not package bidding is allowed.
    45. If a multiple round auction is considered, another important 
issue is the information that is revealed to bidders between rounds. A 
multiple round auction can lead to efficient outcomes in auctions with 
a common value component, since the highest bid at any round is 
necessarily revealed to all bidders. However, if additional 
information, such as the identity of the current winning bidder for 
each item is also revealed, strategic behavior may be facilitated. We 
seek comment on the potential dangers of anti-competitive strategic 
behavior in an auction for high-cost support, and the potential effects 
on economic efficiency.
    46. If parties do not believe that an SMR auction design should be 
used for high-cost support, they should propose and discuss in detail 
the specific auction design that they believe to be superior. For 
example, would a single round ``sealed bid'' format be acceptable? If 
so, should the winning bidder receive a subsidy based on its own bid 
for the necessary subsidy or on the bid of the next higher bidder? 
Under the latter alternative, known as a ``second price auction,'' it 
is well known that bidders have an incentive to place a bid based on 
the minimum subsidy they would be willing to accept (since the subsidy 
they receive does not depend on their actual bid). How are these 
auction designs affected if the number of bidders is small? Parties are 
also invited to comment on the specific auction designs used in other 
countries in which reverse auctions have been used for universal 
service support.

[[Page 11599]]

Frequency of Auctions

    47. We seek comment on the appropriate length of time between 
auctions. Currently, each applicant seeking ETC designation by the 
Commission must submit a five-year plan describing with specificity its 
proposed improvements or upgrades to its network on a wire center-by-
wire center basis throughout its designated service area. Would five 
years be an appropriate length of time between auctions, or should 
auctions be more or less frequent?
    48. Auctions for universal service support are closely related to 
franchise bidding schemes for natural monopoly, which have been 
extensively studied in economics literature. Bidders in any particular 
auction require some degree of certainty about future revenues, 
including subsidies, in order to make informed investment decisions. 
Williamson discusses some of the less obvious advantages of long-term 
contracting, which, in the reverse auction context, would call for 
relatively infrequent auctions. On the other hand, new technologies may 
periodically evolve that would allow lower cost provision of 
telecommunications services in high-cost areas. In addition, more 
frequent auctions can allow for more informed bidding decisions, since 
each bidder would be more able to predict levels of demand and 
potential competition in the immediate future than in the longer term.
    49. To the extent that support levels provided to a winning bidder 
become an essential source of revenue for the winning bidder, the 
question of asset transfers must be considered in cases in which a new 
winning bidder replaces a previously supported carrier. For example, it 
might be efficient for a cellular carrier that wins an auction to 
acquire towers and fiber links from a previously supported carrier 
serving the same region. If asset transfers are determined only through 
bilateral bargaining between the relevant parties, incumbent LECs might 
have a significant advantage due to their sunk costs. As a result, 
there may be fewer bidders in subsequent auctions than would otherwise 
be desirable. Should there be any oversight or other restrictions on 
the transfer of assets when a new winning bidder replaces the previous 
auction winner? We ask parties to comment on this analysis and its 
importance in assessing the long-term viability of reverse auctions for 
universal service support.

Broadband Reverse Auction Pilot Program

    50. Finally, in light of the complexities in establishing a reverse 
auction, we seek comment on whether we should employ a pilot program to 
test the use of reverse auctions as a method for distributing high-cost 
support. Specifically, we seek comment on whether we should adopt a 
pilot program to replace the current high-cost support received in a 
particular area. We tentatively conclude that, in any pilot program, 
the reserve price should be based on the current level of support in 
the particular area. We also tentatively conclude that the States are 
best situated to implement any pilot program. We seek comment on how 
such a pilot program should be implemented.
    51. We also seek comment on whether a pilot program should be used 
to disburse high-cost support targeted to broadband Internet access 
services. We note that Alltel has filed a broadband auction proposal, 
and we seek comment on that proposal. Similarly, AT&T has proposed its 
own broadband pilot program. We seek comment on AT&T's broadband pilot 
program, and whether it would be possible to use a reverse auction 
approach under that proposal.

Procedural Matters

    52. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments on or 
before April 3, 2008, and reply comments are due on or before May 5, 
2008. 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 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, Office of the Secretary, Federal 
Communications Commission.
     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 must 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), 202-
418-0432 (tty).

Ex Parte Requirements

    53. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. 47 CFR 
1.1200-1.1216. 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. 47 CFR 
1.1206(b)(2). Other requirements pertaining to oral and

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written presentations are set forth in Sec.  1.1206(b) of the 
Commission's rules. 47 CFR 1.1206(b).

Initial Regulatory Flexibility Analysis

    54. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
603, the Commission has prepared this Initial Regulatory Flexibility 
Analysis (IRFA) of the possible significant economic impact on small 
entities by the policies and rules proposed in the NPRM. Written public 
comments are requested on this IRFA, which is set forth below. Comments 
must be identified as responses to the IRFA and must be filed on or 
before April 3, 2008. The Commission will send a copy of the NPRM, 
including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration (SBA). 5 U.S.C. 603(a).

Need for, and Objectives of, the Proposed Rules

    55. In the Telecommunications Act of 1996 (1996 Act), Congress 
sought to preserve and advance universal service while, at the same 
time, opening all telecommunications markets to competition. 
Telecommunications Act of 1996, Public Law 104-104 (1996). Section 
254(b) of the Act directs the Federal-State Joint Board on Universal 
Service (Joint Board) and the Commission to base policies for the 
preservation and advancement of universal service on several general 
principles, plus other principles that the Commission may establish. 
Section 254(e) provides that only eligible telecommunications carriers 
(ETCs) designated under section 214(e) shall be eligible to receive 
federal universal service support, and any such support should be 
explicit and sufficient to achieve the purposes of that section.
    56. In the Universal Service First Report and Order, the Commission 
recognized certain advantages of using competitive bidding to determine 
high-cost universal service support, specifically, ``its potential as a 
market-based approach to determining universal service support, if any, 
for any given area,'' and ``its ability to reduce the amount of support 
needed for universal service.'' 62 FR 32682, June 17, 1997. The record 
at the time, however, was insufficient to support adoption of a 
competitive bidding mechanism. Moreover, the Commission found it 
un