High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, 68763-68774 [E9-30692]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 74, Number 248 (Tuesday, December 29, 2009)]
[Proposed Rules]
[Pages 68763-68774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30692]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32, 36 and 54

[WC Docket No. 05-337; CC Docket No. 96-45; FCC 09-112]


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

AGENCY: Federal Communications Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: In this document, the Commission responds to the decision of 
the United States Court of Appeals for the Tenth Circuit in Qwest 
Communications International, Inc. v. FCC and seeks comment on certain 
interim changes to address the court's concerns and changes in the 
marketplace.

DATES: Comments are due on or before January 28, 2010 and reply 
comments are due on or before February 12, 2010.

ADDRESSES: You may submit comments, identified by WC Docket No. 05-337; 
CC Docket No. 96-45, by any of the following methods:
    [dec221] Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
    [dec221] Federal Communications Commission's Web Site: https://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting 
comments.
    [dec221] 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: Katie King, Wireline Competition 
Bureau, Telecommunications Access Policy Division, 202-418-7400 or TTY: 
202-418-0484.

[[Page 68764]]


SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket No. 05-337, 
CC Docket No. 96-45, FCC 09-112, adopted December 15, 2009, and 
released December 15, 2009.
    Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415, 1.419, interested parties may file comments on or before 
January 28, 2010 and reply comments on or before February 12, 2010. 
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 (1998).
    [dec221] Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://fjallfoss.fcc.gov/ecfs2/ or the Federal eRulemaking Portal: https://www.regulations.gov.
    [dec221] 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. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.
    [dec221] Effective December 28, 2009, all hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary must 
be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325, 
Washington, DC 20554. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes must be disposed of before 
entering the building. Please Note: Through December 24, 2009, 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. This filing 
location will be permanently closed after December 24, 2009. The filing 
hours at both locations are 8 a.m. to 7 p.m.
    [dec221] 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.
    [dec221] 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).
    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. They may also be purchased from the Commission's duplicating 
contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street, 
SW., Room CY-B402, Washington, DC 20554, telephone: (202) 488-5300, 
fax: (202) 488-5563, or via e-mail https://www.bcpiweb.com.

Initial Paperwork Reduction Act of 1995 Analysis

    The FNPRM discusses potential new or revised information collection 
requirements. The reporting requirements, if any, that might be adopted 
pursuant to this FNPRM are too speculative at this time to request 
comment from the OMB or interested parties under section 3507(d) of the 
Paperwork Reduction Act, 44 U.S.C. 3507(d). Therefore, if the 
Commission determines that reporting is required, it will seek comment 
from the OMB and interested parties prior to any such requirements 
taking effect. Nevertheless, interested parties are encouraged to 
comment on whether any new or revised information collection is 
necessary, and if so, how the Commission might minimize the burden of 
any such collection. In addition, pursuant to the Small Business 
Paperwork Relief Act of 2002, we will seek specific comment on how we 
might ``further reduce the information collection burden for small 
business concerns with fewer than 25 employees.'' Nevertheless, 
interested parties are encouraged to comment on whether any new or 
revised information collection is necessary, and if so, how the 
Commission might minimize the burden of any such collection.

Synopsis of the Further Notice of Proposed Rulemaking

Introduction

    1. In this FNPRM, the Commission responds to the decision of the 
United States Court of Appeals for the Tenth Circuit (Tenth Circuit) in 
Qwest Communications International, Inc. v. FCC, in which the court 
remanded the Commission's rules for providing high-cost universal 
service support to non-rural carriers. As discussed below, while the 
Commission has long recognized the need for comprehensive reform, we 
are also cognizant that, under the American Recovery and Reinvestment 
Act of 2009 (the Recovery Act), the Commission must send a National 
Broadband Plan to Congress by February 17, 2010. We anticipate that 
changes to universal service policies are likely to be recommended as 
part of that plan, and that the Commission will undertake comprehensive 
universal service reform when it implements those recommendations. It 
will not be feasible for the Commission to consider, evaluate, and 
implement these universal service recommendations between February 17, 
2010, and April 16, 2010, the date by which the Commission committed to 
respond to the Tenth Circuit's remand. We tentatively conclude, 
therefore, that the Commission should not attempt wholesale reform of 
the non-rural high-cost mechanism at this time, but we seek comment on 
certain interim changes to address the court's concerns and changes in 
the marketplace.
    2. The interim changes on which we seek comment today are designed 
to respond to the court's concerns, while also taking into account the 
considerable changes in technology, the telecommunications marketplace, 
and consumer buying patterns that have occurred since we last modified 
our non-rural high-cost universal service support rules. We seek 
comment on what changes should be made to the Commission's rules 
regarding the rate comparability review and certification process. 
Specifically, we seek comment on whether the Commission should define 
``reasonably comparable'' rural and urban rates in terms of rates for 
bundled local and long distance services. In addition, we seek comment 
on whether the Commission should require carriers to certify that they 
offer bundled local and long distance services at reasonably comparable 
rural and urban rates.
    3. Finally, we tentatively conclude that while the Commission 
considers comprehensive universal service reform consistent with both 
the Communications Act of 1934, as amended (the Communications Act), 
and the Recovery Act, the current non-rural high-cost mechanism is an 
appropriate interim mechanism for determining high-cost support to non-
rural carriers. We tentatively find that the mechanism as currently 
structured comports with the requirements of section 254 of the 
Communications Act,

[[Page 68765]]

and it is therefore appropriate to maintain this mechanism on an 
interim basis until the Commission enacts comprehensive reform.

Background

    4. A major objective of high-cost universal service support always 
has been to help ensure that consumers have access to 
telecommunications services in areas where the cost of providing such 
services would otherwise be prohibitively high. In section 254 of the 
Communications Act, Congress directed the Commission to preserve and 
advance universal service by ensuring, among other things, that 
consumers in rural, insular, and high-cost areas have access to 
telecommunications services at rates that are ``reasonably comparable 
to rates charged for similar services in urban areas.'' In addition, 
section 254(e) provides that Federal universal service support ``should 
be explicit and sufficient to achieve the purposes of this section.''
    5. Currently, the Commission's rules provide Federal high-cost 
support to non-rural and rural carriers under different support 
mechanisms. While rural carriers receive support based on their 
embedded costs, the current rules calculate support to non-rural 
carriers based on the forward-looking economic cost of constructing and 
operating the network facilities and functions used to provide the 
supported services in the areas served by non-rural carriers, as 
determined by the Commission's cost model. Non-rural carriers receive 
support based on the model's cost estimates only in States where the 
statewide average forward-looking cost per line for non-rural carriers 
exceeds a national cost benchmark, which currently is set at two 
standard deviations above the national average cost per line.
    6. To induce States to achieve the reasonably comparable rates that 
are required by the statute, the Commission requires States to review 
annually their residential local rates in rural areas served by non-
rural carriers and certify that those rural rates are reasonably 
comparable to urban rates nationwide, or explain why they are not. The 
Commission defined the statutory term ``reasonably comparable'' in 
terms of a national rate benchmark, which serves as a ``safe harbor'' 
in the rate review and certification process. States with rural rates 
below the benchmark may presume that their rural rates are reasonably 
comparable to urban rates nationwide without providing additional 
information; if the rural rates are above the benchmark, they can rebut 
the presumption by demonstrating that factors other than basic service 
rates affect the comparability of rates. The national rate benchmark 
currently is set at two standard deviations above the average urban 
rate as reported in the most recent annual rate survey published by the 
Wireline Competition Bureau.
    7. In Qwest II, the court held that the Commission relied on an 
erroneous, or incomplete, construction of section 254 of the 
Communications Act in defining statutory terms and crafting the funding 
mechanism for non-rural high-cost support. 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 
Communications Act and to define ``reasonably comparable'' in a manner 
that comports with the requirement to preserve and advance universal 
service. The court found that, ``[b]y designating a comparability 
benchmark at the national urban average plus two standard deviations, 
the FCC has ensured that significant variance between rural and urban 
rates will continue unabated.'' The court also found that the 
Commission ignored its obligation to ``advance'' universal service, ``a 
concept that certainly could include a narrowing of the existing gap 
between urban and rural rates.'' Because the non-rural high-cost 
support mechanism rested on the application of the definition of 
``reasonably comparable'' rates invalidated by the court, the court 
also deemed the support mechanism invalid. The court further noted that 
the Commission based the two standard deviations cost benchmark on a 
finding that rates were reasonably comparable, without empirically 
demonstrating in the record a relationship between costs and rates.
    8. In December 2005, the Commission issued a notice of proposed 
rulemaking seeking comment on issues raised by section 254 and the 
Tenth Circuit in Qwest II. Since the Commission issued the Remand NPRM, 
it has sought comment on various proposals for comprehensive reform of 
the high-cost support mechanisms for both rural and non-rural carriers. 
In addition, the Commission issued a further notice of proposed 
rulemaking seeking comment on comprehensive universal service and 
intercarrier compensation reform on November 5, 2008.
    9. On January 14, 2009, Qwest Corporation, the Maine Public 
Utilities Commission, the Vermont Public Service Board, and the Wyoming 
Public Service Commission filed a petition for writ of mandamus with 
the Tenth Circuit in the Qwest II proceeding. Shortly after that 
petition was filed, the Commission and the petitioners negotiated an 
agreement under which the Commission would release a notice of inquiry 
no later than April 8, 2009; issue a further notice of proposed 
rulemaking no later than December 15, 2009; and release a final order 
that responds to the court's remand no later than April 16, 2010. On 
April 8, 2009, the Commission issued a notice of inquiry to refresh the 
record regarding the issues raised by the court in this remand 
proceeding. The Commission sought comment on several specific 
proposals, and sought comment generally on how any changes to the 
Commission's non-rural high-cost support mechanism should relate to 
more comprehensive high-cost universal service reform and the 
Commission's initiatives regarding broadband deployment.

Discussion

Relationship to Comprehensive Reform and the National Broadband Plan

    10. The Commission has previously recognized the need for 
comprehensive universal service reform, and has sought comment on 
various proposals for comprehensive reform of the high-cost support 
mechanisms, rural as well as non-rural. Since the Commission originally 
adopted the non-rural high-cost mechanism in 1999, the 
telecommunications marketplace has undergone significant changes. For 
example, while in 1996 the majority of consumers subscribed to separate 
local and long distance providers, today the majority of consumers 
subscribe to local/long distance bundles offered by a single provider. 
In addition, the vast majority of subscribers have wireless phones as 
well as wireline phones, and an increasing percentage of consumers are 
dropping their circuit-switched phones in favor of wireless or 
broadband-based (voice over Internet protocol) phone services. Finally, 
an increasing percentage of carriers are converting their networks from 
circuit-switched to Internet protocol (IP) technology.
    11. In the Remand NOI, the Commission sought comment on the 
relationship between the Commission's resolution of the issues in this 
remand proceeding and more comprehensive reform of the high-cost 
universal service support system and the development of a comprehensive 
National Broadband Plan. Many commenters argued that the Commission 
should use this remand proceeding to begin transitioning high-cost 
funding from support for voice

[[Page 68766]]

services to support for broadband in light of the changes in technology 
and the marketplace.
    12. On the same day that the Commission issued the Remand NOI, it 
began the process of developing a National Broadband Plan that will 
``seek to ensure that all people of the United States have access to 
broadband capability,'' as required by the Recovery Act. Since then, 
the Commission staff has undertaken an intensive and data-driven effort 
to develop a plan to ensure that our country has a broadband 
infrastructure appropriate to the challenges and opportunities of the 
21st century. Work on the National Broadband Plan, which is due to 
Congress by February 17, 2010, is not complete. We anticipate that the 
National Broadband Plan will address the need to reform universal 
service funding to further the deployment and adoption of broadband 
throughout the nation. As a consequence, we tentatively conclude that 
fundamental reform limited to only the non-rural high-cost support 
mechanism should not be proposed at this time. After the National 
Broadband Plan is released in February, we will be in a better position 
to determine the modifications that would be consistent with our 
broadband policies. In response to the mandamus petition in the Tenth 
Circuit, the Commission has committed to issue an order responding to 
the court's remand by April 16, 2010. We believe that we will have 
insufficient time, between release of the National Broadband Plan in 
February and our deadline for responding to the court in April, to 
implement reforms to the high-cost universal service mechanisms 
consistent with the overall recommendations in the National Broadband 
Plan. While we are committed to addressing the remand by April 16, we 
anticipate that our efforts to revise and improve high cost support 
will be advanced further through proceedings that follow from the 
National Broadband Plan. Accordingly, we tentatively conclude that we 
should neither propose fundamental reform of the non-rural high-cost 
support mechanism in advance of the forthcoming National Broadband 
Plan, nor attempt to set the stage for implementation of (as yet 
unknown) plan recommendations in this further notice of proposed 
rulemaking. As discussed below, we also tentatively conclude that no 
fundamental reform is required since the program as currently 
structured is consistent with our statutory obligations under section 
254 of the Communications Act. We seek comment on these tentative 
conclusions.
    13. We also are reluctant at this time to propose adopting any 
changes to the non-rural support mechanism that would increase 
significantly the amount of support non-rural carriers would receive. 
We caution that any rules adopted in this proceeding are likely to be 
interim rules and in effect only until comprehensive universal service 
reform is adopted in the aftermath of the National Broadband Plan. Any 
substantial increases in non-rural high-cost support disbursements, 
moreover, would increase the contribution factor above its current high 
level. ``Because universal service is funded by a general pool 
subsidized by all telecommunications providers--and thus indirectly by 
the customers--excess subsidization in some cases may undermine 
universal service by raising rates unnecessarily, thereby pricing some 
consumers out of the market.'' If carriers were to receive significant 
additional high-cost support on an interim basis as a result of this 
proceeding, it likely would be more difficult to transition that 
support to focus on areas unserved or underserved by broadband, if 
called for in future proceedings. Given these concerns, we tentatively 
conclude that any changes to the non-rural high-cost support mechanism 
adopted at this time should be interim in nature and should not 
increase the overall amount of non-rural high-cost support 
significantly above current levels, provided that goal can be 
accomplished consistent with our mandate under section 254. We seek 
comment on this tentative conclusion and, to the extent commenters 
advocate changes to the existing mechanism, we ask commenters to 
address how any such changes will constrain growth in the amount of 
support.

Rate Comparability Review and Certification Process

    14. We tentatively conclude that we should continue requiring the 
States to review annually their residential local rates in rural areas 
served by non-rural carriers and certify that their rural rates are 
reasonably comparable to urban rates nationwide, or explain why they 
are not. We seek comment on this tentative conclusion.
    15. We also seek comment, however, on whether we should change the 
rates we require the States to compare in light of the considerable 
changes in technology, the telecommunications marketplace, and consumer 
buying patterns that have occurred since we adopted a national average 
urban rate benchmark based on local rates. Specifically, we seek 
comment on whether the Commission should define ``reasonably 
comparable'' rural and urban rates in terms of rates for bundled 
telecommunications services. Given the changes in consumer buying 
patterns, the competitive marketplace, and the variety of pricing plans 
offered by carriers today, stand-alone local telephone rates may no 
longer be the most relevant measure of whether rural and urban 
consumers have access to reasonably comparable telecommunications 
services at reasonably comparable rates.
    16. In particular, when the Commission adopted the non-rural high-
cost support mechanism, none of the Bell Operating Companies, which 
served the majority of non-rural carrier customers, were permitted to 
offer combined local and interstate long distance services to their 
customers. At that time, most customers of non-rural carriers took 
local service from the incumbent local exchange carrier and subscribed 
to a separate interexchange carrier for long distance service. When the 
Commission originally adopted the non-rural high-cost support 
mechanism, it was ``designed to achieve reasonable comparability of 
intrastate rates among States.'' Given the different combinations of 
carriers a customer could choose from, and differing amounts of usage 
based on per-minute charges, it would have been difficult at that time 
to identify a typical package of local and long distance services. In 
the Order on Remand, the Commission explicitly defined ``reasonable 
comparability'' in terms of the national average urban rate for local 
telephone service. The telecommunications marketplace has changed 
considerably since that time, however.
    17. When the Commission issued the Remand NPRM in 2005, it noted 
that most consumers no longer purchase stand-alone local telephone 
service, but instead purchase bundles of telecommunications services 
from one or more providers, and it sought comment on whether the 
Commission should continue defining reasonably comparable rates in 
terms of local rates only. The Commission also sought comment on 
whether defining reasonably comparable rural and urban rates in terms 
of consumers' total telephone bills would be more consistent with its 
obligation to preserve and advance universal service than focusing only 
on local rates. In the Remand NOI, the Commission noted that consumers 
increasingly are purchasing packages of services that include not only 
unlimited nationwide calling, but also broadband Internet

[[Page 68767]]

access and video services, and it sought comment on whether the 
Commission should consider a broader range of rates in determining 
whether rates are affordable and reasonably comparable. We now seek 
additional comment on these issues.
    18. As the Commission previously noted, most rural consumers 
typically have smaller calling areas for local telephone service than 
urban consumers and, therefore, may purchase more long distance 
services than urban consumers. We seek comment on whether a comparison 
of local rates only is appropriate if rural consumers incur substantial 
charges for long distance services and pay more for combined local and 
long distance telephone services than urban consumers. Although only 
local telephone service is supported by the high-cost universal service 
mechanism at this time, section 254(b)(3) of the Act provides that 
consumers in all regions of the nation should have access to 
telecommunications and information services, including advanced 
services and interexchange services, at reasonably comparable rural and 
urban rates. In light of the fact that most consumers subscribe to both 
local and long distance services from the same provider, would it be 
more consistent with the statute, and the Commission's obligation to 
advance universal service, to define reasonably comparable rates for 
purposes of the non-rural mechanism in terms of combined local and long 
distance rates?
    19. If the Commission determines that a more meaningful measure of 
rural and urban rate comparability should include rates for long 
distance services as well as local rates, how should the Commission 
define a typical package of services on which to base the comparison? 
Several commenters point to the widespread availability of national 
calling plans from competing intermodal providers, including wireless, 
cable, and VoIP providers, and argue that rates should be considered 
reasonably comparable in rural areas where such service options are 
available. Currently, the Commission defines reasonably comparable 
rates in terms of incumbent local exchange carrier rates only. Given 
the increasing number of consumers subscribing to voice services from 
alternative providers, should the Commission look at the bundled rates 
of all types of providers? In addition, many providers offer ``all 
distance'' or unlimited nationwide calling plans. In determining 
whether rates and services are reasonably comparable in rural and urban 
areas, should the Commission consider service bundles that include 
unlimited long distance calling? These popular service bundles provide 
predictability and cost savings to high-volume users, but may not 
address the needs of consumers who make few long distance calls. Should 
the Commission also consider service bundles that include per minute 
rates or various ``buckets'' of minutes that may be popular with lower-
volume users? We invite commenters to submit data on the rates and 
availability of bundled service offerings, identify sources of such 
data, and propose methods of analyzing such data.
    20. We also seek comment on whether the Commission should require 
carriers to certify that they offer bundled local and long distance 
services at reasonably comparable rural and urban rates. We note in 
this regard that if we define reasonably comparable rates in terms of 
bundled local and long distance services some (or none) of the 
components of those bundles will be regulated by the States. Would 
requiring carriers to provide such data assist the Commission in 
monitoring these rates over time so that the Commission can adjust its 
definition of reasonably comparable rates as the marketplace changes?

Maintaining the Current Non-Rural Mechanism on an Interim Basis

Cost-Based Support Mechanism

    21. Because we believe that any proposed reforms to the non-rural 
high-cost support mechanism should be interim in nature, pending 
adoption and implementation of the National Broadband Plan, we 
tentatively conclude that the current non-rural funding mechanism 
should remain in place at this time, and seek comment on this tentative 
conclusion. We tentatively conclude that it is appropriate to 
distribute universal service support in high-cost areas based on 
estimated forward-looking economic cost rather than on retail rates, 
primarily because costs necessarily are a major factor affecting retail 
rates.
    22. As the Commission has previously discussed, there are numerous 
reasons to believe that cost represents a reasonable proxy for the 
ability of carriers and State regulators to ensure that rural rates 
remain reasonably comparable. In contrast, it makes little sense to 
base support on current retail rates, which are not independently 
determined but rather are the result of the interplay of underlying 
costs and other factors that are unrelated to whether an area is high-
cost. Retail rates in many States remain regulated, and State 
regulators differ in their treatment of regulated carriers' recovery of 
their intrastate regulated costs. For example, some States still 
require carriers to charge business customers higher rates to create 
implicit subsidies for residential customers, while other regulators 
have eliminated such implicit subsidies in the face of increasing 
competition for business customers. Similarly, State regulators vary in 
the extent to which they have rebalanced rates by reducing intrastate 
access charges and increasing local rates. In addition, some States 
have ceased regulating local retail rates. Moreover, basing support on 
retail rates would create perverse incentives for State commissions and 
carriers to the extent that rate levels dictated the amount of Federal 
universal service support available in a State. State commissions or 
carriers would have an incentive to set local rates well above cost 
simply to increase their States' carriers' Federal universal service 
support. Similarly, where States have deregulated retail rates, 
carriers facing competition may have an incentive to raise certain 
local rates to increase their support rather than to cut rates to meet 
competition. We seek comment on the relative advantages and 
disadvantages of basing support on costs versus retail rates.

Forward-Looking Cost Model

    23. In the Remand NOI, the Commission acknowledged that many of the 
inputs in the forward-looking economic cost model have not been updated 
since they were adopted a decade ago, and sought comment on the extent 
to which the Commission should continue to use its model in determining 
high-cost support without updating, changing, or replacing the model. 
Virtually all commenters that addressed this issue argued that the 
model should be updated. We agree that the model should be updated or 
replaced if a forward-looking cost model continues to be used to 
compute non-rural high-cost support for the long term. Not only are the 
model inputs out-of-date, but also the technology assumed by the model 
no longer reflects ``the least-cost, most-efficient, and reasonable 
technology for providing the supported services that is currently being 
deployed.'' The Commission's cost model essentially estimates the costs 
of a narrowband, circuit-switched network that provides plain old 
telephone service (POTS), whereas today's most efficient providers are 
constructing fixed or mobile networks that are capable of providing 
broadband as well as voice services.

[[Page 68768]]

    24. We acknowledge that much progress has been made in developing 
computer cost models that estimate the cost of constructing a broadband 
network, such as the CostQuest model, and we note that Commission staff 
has been working to develop an economic cost model to estimate the cost 
of providing broadband services for purposes of the National Broadband 
Plan. Nevertheless, we do not believe that we could adequately evaluate 
any existing cost model or develop a new cost model in time to meet our 
commitment to respond to the Tenth Circuit's remand decision by April 
16, 2010. As the Commission noted in the Remand NOI, the Commission's 
current model was developed over a multi-year period involving dozens 
of public workshops, and we expect that it would take a similar period 
to evaluate or develop a new cost model and to establish new input 
values. Moreover, we do not believe that it would be a productive use 
of Commission resources to attempt to update a model that estimates the 
cost of a legacy, circuit-switched, voice-only network, if the 
Commission ultimately decides to use a forward-looking cost model to 
estimate the cost of providing broadband over a modern multiservice 
network. Accordingly, we tentatively conclude that we should continue 
to use the existing model to estimate non-rural support while these 
interim rules remain in place, pending the development of an updated 
and more advanced model or some other means of determining high-cost 
support for the long term. We seek comment on this tentative 
conclusion.
    25. We also tentatively conclude that we should continue to 
determine non-rural support by comparing the statewide average cost of 
non-rural carriers to a nationwide cost benchmark set at two standard 
deviations above the national average cost per line on an interim 
basis. As discussed above, we tentatively conclude that any changes to 
the non-rural high-cost support mechanism should not result in 
substantial additional support. Following from this tentative 
conclusion, we further tentatively conclude that we should not adopt 
the proposal of Vermont and Maine that the Commission use a cost 
benchmark of no more than 125 percent of cost, because this would 
increase significantly the overall amount of high-cost support for non-
rural carriers.
    26. We also tentatively conclude that we should not modify our 
current mechanism to base support on average wire center costs per 
line. First, some of those proposing a shift to wire center costs, such 
as Qwest, would set thresholds in a manner that would result in a 
significant increase in the size of the fund. Second, as previously 
discussed, the Commission's existing model estimates the costs of a 
narrowband, circuit-switched network that essentially provides only 
POTS, rather than the costs of the multi-service networks that 
providers are deploying today. If the Commission were to decide to 
calculate support on the basis of the per-line costs for a narrower 
geographic area (such as wire centers), we tentatively find that the 
Commission should do so based on an updated model, similar to the one 
being developed for purposes of the National Broadband Plan, that 
incorporates the least-cost, most efficient technologies currently 
being deployed.
    27. While we believe that there may be considerable merit in an 
approach that distributes high-cost support on a more disaggregated 
basis rather than on the basis of statewide average costs, we do not 
believe that the current version of the Commission's model is an 
appropriate tool to implement such an approach. Accordingly, we 
tentatively conclude that, until the Commission adopts an updated cost 
model, the non-rural high-cost support should continue to be based on 
statewide average costs. We seek comment on these tentative 
conclusions. Although we tentatively conclude that the proposals to 
change the non-rural mechanism should not be adopted in their entirety 
at this time, we seek comment on whether it might be feasible to adopt 
some elements of these or other proposals. We also seek comment on 
whether there are other interim adjustments that we should make to the 
non-rural mechanism that could be implemented quickly, through an order 
issued no later than April 16, 2010.

Current Non-Rural Mechanism Is Consistent With Section 254 Principles

``Sufficient''

    28. As discussed above, we tentatively conclude that we should 
maintain the existing non-rural high-cost funding mechanism on an 
interim basis given the relationship between universal service support 
and the Commission's mandate under the Recovery Act to develop a plan 
for providing broadband throughout the nation. While the Commission is 
developing that plan and coordinating its requirements under both the 
Recovery and the Communications Act, we tentatively conclude that the 
program as currently constructed is consistent with the requirements in 
section 254 of the Communications Act. We seek comment on this 
tentative conclusion.
    29. Section 254(e) of the Communications Act provides that Federal 
universal service support ``should be explicit and sufficient to 
achieve the purposes of [section 254].'' The Tenth Circuit held that 
the Commission did not adequately demonstrate how its non-rural 
universal service support mechanism was ``sufficient'' within the 
meaning of section 254(e). In the non-rural context, the Commission 
previously had defined ``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.'' In Qwest II, 
the court noted, however, that ``reasonable comparability'' was just 
one of several principles that Congress directed the Commission to 
consider when crafting policies to preserve and advance universal 
service. The court was ``troubled by the Commission's seeming 
suggestion that other principles, including affordability, do not 
underlie Federal non-rural support mechanisms.'' ``On remand,'' the 
court concluded, ``the FCC must articulate a definition of `sufficient' 
that appropriately considers the range of principles identified in the 
text of the statute.''
    30. Section 254(b) sets forth a number of principles upon which the 
Federal-State Joint Board on Universal Service (Joint Board) and the 
Commission should base universal service policies. These include: (1) 
``[Q]uality service should be available at just, reasonable, and 
affordable rates;'' (2) ``access to advanced telecommunications and 
information services should be provided in all regions of the Nation;'' 
(3) ``low-income consumers and those in rural, insular, and high cost 
areas, should have access to telecommunications services 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 * * * in urban areas;'' (4) 
``[a]ll providers of telecommunications services should make an 
equitable and nondiscriminatory contribution to the preservation and 
advancement of universal service;'' (5) ``[t]here should be specific, 
predictable and sufficient Federal and State mechanisms to preserve and 
advance universal service;'' and (6) ``[e]lementary and secondary 
schools and classrooms, health care providers, and libraries should 
have access to advanced telecommunications services.'' In addition, 
section 254(b) permits the

[[Page 68769]]

Joint Board and the Commission to adopt ``[s]uch other principles as 
the Joint Board and the Commission determine are necessary and 
appropriate for the protection of the public interest * * *''
    31. In implementing section 254, the Commission, consistent with 
the recommendations of the Joint Board, created a number of different 
universal service support mechanisms that were targeted to address 
specific principles enumerated in section 254(b). Thus, for example, 
the Commission created a separate E-rate program to provide support to 
schools and libraries, and a rural health care mechanism to provide 
support for health care providers, and it expanded and modified the 
existing Lifeline and Link-up programs to assist low-income consumers. 
The non-rural high-cost support mechanism, thus, is just one relatively 
small segment of the Commission's comprehensive scheme to preserve and 
advance universal service. In implementing section 254, the Commission 
did not attempt to address and advance each and every section 254(b) 
universal service principle in a single support mechanism, nor is there 
any indication that Congress intended the provisions to be implemented 
in this manner. Instead, the Commission crafted a variety of mechanisms 
that--collectively--address the section 254(b) principles. These 
mechanisms, taken together, advance all of the section 254(b) 
principles enumerated by Congress. For example, the Commission 
addressed the section 254(b)(6) principle that schools, libraries, and 
health care providers ``should have access to advanced 
telecommunications services,'' by creating the E-rate program and the 
rural health care support mechanism. The Commission, therefore, did not 
need to address this principle in designing the various high-cost 
support mechanisms. In particular, the non-rural high-cost support 
mechanism was meant to ensure that consumers in rural, insular, and 
high-cost areas have access to telecommunications services at rates 
that are reasonably comparable to rates in urban areas. Thus, the 
Commission believes that a fair assessment of whether the Commission 
has reasonably implemented the section 254 principles, and whether 
support is ``sufficient,'' must encompass the entirety of universal 
service support mechanisms; no single program is intended to accomplish 
the myriad of statutory purposes. Moreover, the competing purposes of 
section 254 impose practical limits on the fund as a whole: If the fund 
grows too large, it will jeopardize other statutory mandates, such as 
ensuring affordable rates in all parts of the country, and requiring 
fair and equitable contributions from carriers. We seek comment on the 
foregoing analysis. We also seek comment on the principles the 
Commission should consider in designing the non-rural high-cost 
mechanism and in determining whether the level of support is 
``sufficient.''
    32. In Qwest II, the Tenth Circuit expressed specific concern that 
the Commission's non-rural mechanism may not be ``sufficient'' to 
advance the principle of affordability. We seek comment on how we 
should assess whether the current non-rural high-cost mechanism 
advances this principle, particularly when considered in conjunction 
with the other universal service mechanisms (e.g., the low-income 
mechanism). We note that the Commission's most recent report on 
telephone subscribership (released in December 2009) found that, as of 
July 2009, the telephone subscribership penetration rate in the United 
States was 95.7 percent--the highest reported penetration rate since 
the Census Bureau began collecting such data in November 1983. Does the 
current high penetration rate demonstrate that our universal service 
programs are sufficient to ensure that rates are affordable? If not, 
what other data might the Commission consider in determining whether 
rates are affordable? Should it consider data on the percentage of 
income that consumers spend on local telephone service or other 
telecommunications services? Should it compare consumer expenditures on 
telephone or telecommunications services with consumer expenditures on 
other services, such as cable television service? Do such data confirm 
that rates are affordable?
    33. As the Tenth Circuit has recognized, the Commission must 
sometimes ``exercise its discretion to balance the principles'' of 
section 254(b) ``against one another when they conflict.'' If the high-
cost fund for non-rural carriers were to increase substantially, there 
emerges a tension between the principles of reasonable comparability 
and affordability. If the Commission dramatically increased the size of 
the non-rural fund to reduce rural rates to make them more comparable 
to the lowest urban rates, carriers serving other areas of the country 
would likely increase their rates to pay for the spike in their non-
rural support contributions, making rates in those service areas less 
affordable. The court recognized the need for the Commission to balance 
the competing principles of comparability and affordability in the non-
rural high-cost context. The court held, however, that ``the FCC has 
failed to demonstrate that its balancing calculus takes into account 
the full range of principles Congress dictated to guide the Commission 
in its actions.'' For the reasons discussed above, we tentatively 
conclude that in designing its non-rural high-cost mechanism the 
Commission should principally balance the statutory principles of 
reasonable comparability and affordability of rates in areas served by 
non-rural carriers on the one hand with affordability of rates in other 
areas where customers are net contributors to universal service funding 
on the other. As the United States Court of Appeals for the District of 
Columbia Circuit (DC Circuit) recently found when it upheld the 
Commission's interim cap on competitive eligible telecommunications 
carriers' support, the concept of ``sufficiency'' can reasonably 
encompass ``not just affordability for those benefited, but fairness 
for those burdened.'' We also tentatively conclude that a proper 
balancing inquiry must take into account our generally applicable 
responsibility to be a prudent guardian of the public's resources. We 
seek comment on these tentative conclusions.
    34. The Tenth Circuit acknowledged that ``excessive subsidization 
arguably may affect the affordability of telecommunications services, 
thus violating the principle in section 254(b)(1).'' The Commission 
made a determination of necessary, but not excessive, support in 
crafting the interim universal service support rules that the Fifth 
Circuit upheld in Alenco Communications, Inc. v. FCC. More recently, in 
upholding an interim cap on certain universal service funding, the DC 
Circuit stated that the Commission, in assessing whether universal 
service subsidies are excessive, ``must consider not only the 
possibility of pricing some customers out of the market altogether, but 
the need to limit the burden on customers who continue to maintain 
telephone service.'' Given the unprecedented level of telephone 
subscribership, we tentatively conclude that current subsidy levels are 
at least sufficient (and may be more than enough) to ensure reasonably 
comparable and affordable rates that permit widespread access to basic 
telephone service. We seek comment on this tentative conclusion.
    35. We further tentatively conclude that the Commission's non-rural 
support mechanism is also consistent with the statutory principle that 
``[t]here should be specific, predictable and sufficient

[[Page 68770]]

Federal and State mechanisms to preserve and advance universal 
service.'' The Commission's cost-based formula provides a specific and 
predictable methodology for determining when non-rural carriers qualify 
for high-cost support. We seek comment on this tentative conclusion.
    36. Finally, we note that the non-rural high-cost mechanism 
currently does not directly address the principle that ``[a]ccess to 
advanced telecommunications and information services should be provided 
in all regions of the Nation.'' The Commission, however, is currently 
considering whether to extend universal service support to broadband 
services. Such an expansion of the universal service program would help 
advance the goal of widespread access to advanced services in 
accordance with section 254(b)(2). We tentatively conclude that it 
would be premature to expand existing universal service programs at 
this time, before the National Broadband Plan has been issued. We seek 
comment on this tentative conclusion.

``Reasonably Comparable''

    37. Section 254(b)(3) provides: ``Consumers in all regions of the 
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.'' In 2003, the Commission determined 
that rural rates were ``reasonably comparable'' if they fell within two 
standard deviations of the national average urban rate contained in the 
Wireline Competition Bureau's annual rate survey. In adopting this 
definition of ``reasonably comparable,'' the Commission presumed that 
Congress believed that rural and urban rates were already ``reasonably 
comparable'' at the time the 1996 Telecommunications Act was passed, 
and that the Commission's task under section 254(b)(3) was to preserve 
existing levels of rate comparability.
    38. In Qwest II, the Tenth Circuit rejected the Commission's 
definition of ``reasonably comparable.'' The court noted that section 
254(b) referred to ``policies for the preservation and advancement of 
universal service.'' In the court's view, the statute's charge to 
``advance'' universal service suggests that the Commission must do more 
than maintain existing rate differences. In particular, in the context 
of rate comparability, the court concluded 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.'' The 
court seemed concerned that, unless the Commission took action to 
reduce the existing variance in rates between rural and urban areas, 
rural rates would be too high to ensure universal access to basic 
service. ``Rates cannot be divorced from a consideration of universal 
service,'' the court said, ``nor can the variance between rates paid in 
rural and urban areas. If rates are too high, the essential 
telecommunications services encompassed by universal service may indeed 
prove unavailable.''
    39. The Tenth Circuit noted that under the Commission's 2002 data, 
``rural rates falling just below the comparability benchmark may exceed 
the lowest urban rates by over 100%.'' We tentatively conclude, 
however, that the statute does not require the Commission to make rural 
rates comparable to the ``lowest urban rate,'' particularly when urban 
rates themselves vary considerably. Indeed, as the Tenth Circuit 
recognized, the Commission set its previous comparability benchmark at 
the national urban average plus two standard deviations because that 
benchmark ``approaches the outer perimeter of the variance in urban 
rates.'' Under the Commission's benchmark approach, rural rates receive 
``closer scrutiny'' as they ``approach the level of the highest urban 
rate.'' The Tenth Circuit acknowledged that ``there is a certain logic 
to this approach''; but it ultimately concluded that ``the benchmark is 
rendered untenable because of the impermissible statutory construction 
on which it rests.''
    40. We seek comment on how we should respond to the Tenth Circuit's 
concerns about reasonable comparability of rates. How should we 
evaluate whether the current non-rural high-cost mechanism is 
``advancing'' universal service in satisfaction of section 254(b)(5)? 
Does the fact that telephone penetration rates have increased since we 
started our universal service programs demonstrate that ``rates are'' 
not ``too high'' under that program, since ``essential 
telecommunications services encompassed by universal service'' have not 
``prove[d] unavailable'' but have in fact become more available? 
Section 254(b)(3) requires that rates in rural, insular, and high cost 
areas be ``reasonably comparable to those . . . in urban areas.'' Given 
the variance in urban rates, does it make sense to interpret this 
statutory principle as requiring that all rural rates be no higher than 
the lowest urban rate? Would such an interpretation effectively result 
in the preemption of State rate-making authority? In addition, would 
such an interpretation of the statute result in a significant increase 
in the size of the fund that would unreasonably burden those 
contributing to the fund? In interpreting this statutory provision, 
should we instead compare the variance in rural rates to the variance 
in urban rates? Are there other ways to assess rate comparability?
    41. The court's criticism of the Commission's statutory 
construction appeared to stem from a concern that the Commission's non-
rural mechanism was not doing enough to satisfy the statutory mandate 
to ``advance'' universal service. Is it reasonable to interpret the 
statute's directive to ``advance universal service'' as satisfied if 
the Commission extends universal service to new services and new 
technologies, such as broadband Internet access service? As discussed 
above, section 6001(k) of the Recovery Act directs the Commission to 
submit to Congress a National Broadband Plan. The Recovery Act further 
requires that the plan ``shall seek to ensure that all people of the 
United States have access to broadband capability,'' and that the plan 
include, inter alia, a ``detailed strategy for achieving affordability 
of such [broadband] service and maximum utilization of broadband 
infrastructure and service by the public.'' Do these provisions of the 
Recovery Act support such an interpretation?

Procedural Matters

    42. 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 and 
reply comments on or before the dates indicated on the first page of 
this document. 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 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://fjallfoss.fcc.gov/ecfs2/ or the Federal eRulemaking Portal: https://www.regulations.gov.

[[Page 68771]]

     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. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission..
     Effective December 28, 2009, all hand-delivered or 
messenger delivered paper filings for the Commission's Secretary must 
be delivered to FCC Headquarters at 445 12th St., SW., Room TW-A325, 
Washington, DC 20554. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes must be disposed of before 
entering the building. Please Note: Through December 24, 2009, 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. This filing 
location will be permanently closed after December 24, 2009. The filing 
hours at both locations are 8 a.m. to 7 p.m.
     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

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

Initial Regulatory Flexibility Analysis

    44. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on a substantial number of small entities from the policies and rules 
proposed in this Further Notice of Proposed Rulemaking (FNPRM). The 
Commission requests written public comment on this IRFA. Comments must 
be identified as responses to the IRFA and must be filed by the 
deadlines for comments on the FNPRM provided on the first page of the 
FNPRM. The Commission will send a copy of the FNPRM, including this 
IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration (SBA). In addition, the FNPRM and IRFA (or summaries 
thereof) will be published in the Federal Register.

Need for, and Objectives of, the Proposed Rules

    45. In section 254 of the Communications Act of 1934, as amended, 
Congress directed the Commission to preserve and advance universal 
service by ensuring, among other things, that consumers in rural, 
insular, and high-cost areas have access to telecommunications services 
at rates that are ``reasonably comparable to rates charged for similar 
services in urban areas.'' In addition, section 254(e) provides that 
Federal universal service support ``should be explicit and sufficient 
to achieve the purposes of this section.''
    46. Currently, the Commission's rules provide Federal high-cost 
universal service support to non-rural and rural carriers under 
different support mechanisms. Non-rural carriers receive support in 
States where the statewide average forward-looking cost per line for 
non-rural carriers exceeds a national cost benchmark. To induce States 
to achieve the reasonably comparable rates that are required by the 
statute, the Commission requires States to review annually their 
residential local rates in rural areas served by non-rural carriers and 
certify that those rural rates are reasonably comparable to urban rates 
nationwide, or explain why they are not. The Commission defined the 
statutory term ``reasonably comparable'' in terms of a national rate 
benchmark, which serves as a ``safe harbor'' in the rate review and 
certification process. The national rate benchmark currently is set at 
two standard deviations above the average urban rate as reported in the 
most recent annual survey of local telephone rates published by the 
Wireline Competition Bureau.
    47. In Qwest II, the court held that the Commission relied on an 
erroneous, or incomplete, construction of section 254 of the 
Communications Act in defining statutory terms and crafting the funding 
mechanism for non-rural high-cost support. 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 
Communications Act and to define ``reasonably comparable'' in a manner 
that comports with the requirement to preserve and advance universal 
service.
    48. In the FNPRM, the Commission seeks comment on revising the non-
rural high-cost universal service rules regarding the rate 
comparability review and certification process. Such action is 
necessary to respond to the decision of the United States Court of 
Appeals for the Tenth Circuit (Tenth Circuit) in Qwest II, in which the 
court remanded the Commission's rules for providing high-cost universal 
service support to non-rural carriers. Specifically, the Commission 
seeks comment on whether it should define ``reasonably comparable'' 
rural and urban rates in terms of rates for bundled local and long 
distance services, rather than in terms of local rates only. In 
addition, the Commission seeks comment on whether it should require 
carriers to certify that they offer bundled local and long distance 
services at reasonably comparable rural and urban rates.

Legal Basis

    49. The legal basis for any action that may be taken pursuant to 
the Notice is contained in sections 1, 2, 4(i), 201-205, 214, 254, and 
403 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 
154(i), 201-205, 214, 254, 403 and section 1.411of the Commission's 
rules, 47 CFR 1.411.

Description and Estimate of the Number of Small Entities To Which Rules 
Will 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

[[Page 68772]]

as the term ``small business concern'' under the Small Business Act. A 
``small business concern'' is one which: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA).

Wired Telecommunications Carriers

    51. 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 
2002, there were 2,432 firms in this category, total, that operated for 
the entire year. Of this total, 2,395 firms had employment of 999 or 
fewer employees, and an additional 37 firms had employment of 1,000 
employees or more. Thus, under this size standard, the majority of 
firms can be considered small.

Local Exchange Carriers (LECs)

    52. Neither the Commission nor the SBA has developed a size 
standard for small businesses specifically applicable to local exchange 
services. 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, 1,311 carriers reported that they were incumbent local 
exchange service providers. Of these 1,311 carriers, an estimated 1,024 
have 1,500 or fewer employees and 287 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of local 
exchange services are small entities that may be affected by our 
action.
    53. We have included small incumbent LECs in this present RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. We have therefore included 
small incumbent LECs in this RFA analysis, although we emphasize that 
this RFA action has no effect on Commission analyses and determinations 
in other, non-RFA contexts.

Competitive Local Exchange Carriers (Competitive LECs), Competitive 
Access Providers (CAPs), Shared-Tenant Service Providers, and Other 
Local Service Providers

    54. Neither the Commission nor the SBA has developed a small 
business size standard specifically for these service providers. The 
appropriate size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,005 carriers reported that they were engaged in the provision 
of either competitive local exchange services or competitive access 
provider services. Of these 1,005 carriers, an estimated 918 have 1,500 
or fewer employees and 87 have more than 1,500 employees. In additi