Wireline Competition Bureau Seeks Comment on Model Design and Data Inputs for Phase II of the Connect America Fund, 38804-38816 [2012-15991]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 77, Number 126 (Friday, June 29, 2012)]
[Notices]
[Pages 38804-38816]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15991]


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FEDERAL COMMUNICATIONS COMMISSION

[WC Docket Nos. 10-90 and 05-337; DA 12-911]


Wireline Competition Bureau Seeks Comment on Model Design and 
Data Inputs for Phase II of the Connect America Fund

AGENCY: Federal Communications Commission.

ACTION: Notice; solicitation of comments.

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SUMMARY: In this document, the Wireline Competition Bureau (the Bureau) 
seeks comment on a number of threshold decisions regarding the design 
of and data inputs to the forward looking cost model, and on other 
assumptions in the cost models currently in the record.

DATES: Comments are due on or before July 9, 2012 and reply comments 
are due on or before July 23, 2012.

ADDRESSES: Interested parties may file comments on or before July 9, 
2012 and reply comments on or before July 23, 2012. All pleadings are 
to reference WC Docket Nos. 10-90 and 05-337. Comments may be filed 
using the Commission's Electronic Comment Filing System (ECFS) or by 
filing paper copies, by any of the following methods:
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://fjallfoss.fcc.gov/ecfs2/.
     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.
     People with Disabilities: To request materials in 
accessible formats for people with disabilities (Braille, large print, 
electronic files, audio format), send an email to fcc504@fcc.gov or 
call the Consumer & Governmental Affairs Bureau at (202) 418-0530 
(voice), (202) 418-0432 (tty).

FOR FURTHER INFORMATION CONTACT: Ted Burmeister, Wireline Competition 
Bureau at (202) 418-7389 or TTY (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Public Notice in WC Docket Nos. 10-90, 05-337; DA 12-911, released June 
8, 2012. 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 the 
Internet at https://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=https://www.bcpiweb.comhttps://www.bcpiweb.com.

I. Introduction

    1. In the Public Notice (Notice), the Wireline Competition Bureau 
(Bureau) identifies several significant threshold model design 
decisions and seeks comment on specific proposals for the design of the 
model and data inputs to be used. This is not an exhaustive list of 
such issues, but represents the next step in the open, deliberative 
process to determine the design of the model the Bureau will ultimately 
adopt. The Bureau also seeks comment on commenters' identification of 
additional issues that need to be developed in the record of this 
proceeding.
    2. The Notice first seeks comment on what wireline network 
technology and design the model should use to calculate costs. This 
question includes the important threshold matters of whether the model 
should presume green-field or brown-field deployment and whether the 
model should estimate the costs of Fiber-to-the-Premises (FTTP) or 
Digital Subscriber Line (DSL) (including Fiber-to-the-Node (FTTN)) 
technology. Closely related is the question of what terminal value to 
assign to the modeled network--book

[[Page 38805]]

value, economic value, or zero value. The Notice then seeks comment on 
whether the model should estimate the total costs of serving the entire 
service area so that shared costs may be distributed between areas that 
are eligible and ineligible for support or estimate only the standalone 
costs of areas eligible for support. Next, the Notice seeks comment on 
how shared network costs should be distributed to the census-block (or 
smaller) area. The Notice also asks whether the model should calculate 
support for areas to which broadband has already been deployed or only 
for unserved areas. Finally, this Notice seeks comment on what 
benchmarks should be used to identify areas with costs that are too 
low, or too high (and therefore subject to support under the Remote 
Areas Fund), to receive support pursuant to CAF Phase II.
    3. In addition, to expedite the model development process, the 
Bureau also initiates comment on data inputs--specifically, on data 
sources relating to geography and carrier plant. The geographic 
information systems (GIS) inputs on which this Notice seeks comment 
include the definitions of existing wire center boundaries and 
broadband footprints, and the locations of business and residential 
customers. Plant-related data questions raised in this Notice relate to 
plant mix (i.e., mix of aerial, underground, and buried plant), the 
location and age of existing plant, the gauge of existing twisted-pair 
copper wires, and validating other cost inputs to the model.
    4. Finally, the Bureau seeks comment on the models submitted by the 
ABC Coalition and ACS. Specifically, the Bureau asks that commenters 
identify model design decisions, inputs, or other assumptions included 
in those models that require further analysis and record development.
    5. The Bureau presents and seeks comment on several approaches for 
addressing each of the model design issues summarized above. The Bureau 
encourages commenters to address in depth how to address the potential 
limitations of some approaches or to propose additional alternatives, 
including hybrid approaches that bring the benefits of multiple 
methodologies. Similarly, although the Bureau references the models 
filed by the ABC Coalition and ACS, and encourages commenters to 
address those models specifically, commenters should not be constrained 
by the assumptions contained in those models.
    6. Commenters should explain in detail why the positions they argue 
for are preferable to others, supporting their positions with arguments 
grounded in economic principles, data and analysis. Commenters are 
encouraged to take a position on each of the issues addressed herein, 
and explain how those positions, in combination, establish a reasonable 
approach to modeling and are consistent with the requirements set forth 
in the USF/ICC Transformation Order, 76 FR 73830, November 29, 2011. 
The Bureau is particularly interested in understanding how specific 
choices impact the model with respect to (1) precision (i.e., the 
granularity of the model at a geographic or other level); (2) accuracy 
(aligning modeled costs with the forward-looking costs of an efficient 
provider); (3) simplicity (reducing the computational complexity); (4) 
accessibility (ease with which the public can evaluate and comment on 
the model); (5) administrative feasibility (the burden on carriers, the 
Commission, or other interested parties and the time necessary to 
implement), and (6) the cost of implementation. Commenters are invited 
to suggest additional criteria that the Bureau should use to evaluate 
different model choices.

II. Discussion

A. Model Design

1. What wireline network technology and design should the model use to 
calculate costs, and how should the model calculate the terminal value 
of the network?
    7. The choices of network technology (e.g., FTTP or DSL) and design 
(green-field or brown-field deployment)--along with terminal value of 
the network (book value, economic value, or zero value) are likely to 
be major drivers of cost. Insofar as both issues relate to the 
timeframe over which network costs are evaluated, there may be a 
logical interrelationship among these choices.
    8. The Bureau emphasizes that model design choices will not 
obligate providers to deploy the modeled technology--providers can 
deploy any technology that meets the obligations laid out in the USF/
ICC Transformation Order. The requirements laid out in the USF/ICC 
Transformation Order focus on the services delivered, not the 
technology used.
    9. Consistent with the USF/ICC Transformation Order, the model must 
incorporate the most appropriate approach to determining an efficient 
provider's forward-looking costs. Accordingly, the Bureau is focusing 
on technologies and designs that, together, would align the modeled 
costs as closely as possible with the forward-looking costs of the 
wireline providers who have a statewide option to accept or decline 
support.
    10. Several interdependent issues need to be resolved regarding 
network technology, design, and valuation: (1) How much of the network 
the model assumes to pre-exist, (2) whether the model assumes the 
connection to the customer location is wholly fiber or some mixture of 
fiber and copper wire, and (3) how the model should calculate the value 
of the network at the end of the modeling period.
(i) Network Design: Green-field vs. Brown-field
    11. The first issue is the amount of the modeled network that the 
model assumes will be newly built. Because the two approaches to 
resolving this embedded issue are aligned with either the green-field 
or brown-field approach, this Notice discusses the issues together.
    12. One approach (``green-field'') is to model costs assuming that 
the entire network, from the local central office to each end-user 
location, is newly built. The network is assumed to be built in its 
entirety, typically along roads or other rights of way. A green-field 
model may retain central offices in their existing locations and hold 
wire center boundaries constant (scorched node). This is the approach 
taken in the ABC Coalition model.
    13. Another approach (brown-field) is to assume that only a part of 
the network will be built, and to therefore model only the costs 
associated with those network upgrades. This approach relies on 
existing assets as part of the modeled network. Some parts of the 
network are upgraded as necessary to achieve the necessary levels of 
connectivity. Other existing network assets, typically twisted-pair 
copper, are retained because, with the other upgrades, they provide 
sufficient connectivity.
(ii) Network Design: FTTP vs. DSL or FTTN
    14. The second issue is whether the Bureau should model the costs 
associated with fiber-to-the-premises (FTTP) technology, or with 
technology that relies in part on twisted-pair copper like digital 
subscriber line (DSL) or fiber to the node (FTTN). The choice of what 
technology to model does not obligate providers to deploy that 
technology. The requirements laid out in the USF/ICC Transformation 
Order focus on the services delivered, not the technology used.
    15. As the name suggests, in an FTTP network, fiber optic cables 
are run from the central office to each end-user location. This example 
assumes the use

[[Page 38806]]

of a Passive Optical Network (PON) for modeling purposes, placing 
passive splitters throughout the network. There are other approaches to 
FTTP, including architectures where each end-user location has a 
dedicated fiber connected back to the central office, or where there 
are active electronics in the field. Given that companies deploying 
FTTP today typically rely on PON architectures, however, the Bureau 
believes it is appropriate to limit the model's approach to PON. 
Commenters who believe other architectures are appropriate, or who wish 
to advocate for a particular PON architecture are encouraged to explain 
the specific basis for their position.
    16. A DSL network that relies on the twisted-pair infrastructure 
includes both fiber-optic and twisted-pair copper connections. DSL 
Access Multiplexers (DSLAMs) are placed so that the longest copper loop 
between the DSLAM and end-user location is shorter than some maximum 
length like 5,000 or 12,000 feet, as necessary to achieve the modeled 
level of connectivity. These DSLAMs are presumed to be connected to the 
central office by fiber optic cable. The ABC Coalition model estimates 
the cost of a DSL network.
(iii) Terminal Value: Book value vs. Economic Value vs. Zero Value
    17. The third issue is how the model should calculate the terminal 
value of the network at the end of the modeling period.
    18. Some network assets are particularly long-lived, with 
accounting lifetimes of 20 or more years, and economic lifetimes that 
are even longer (i.e., these assets can continue to operate and provide 
value even after they are fully depreciated, and their book value is 
zero). Depending on the type of network, these long-lived assets may 
represent a significant fraction of the total cost of deployment.
    19. The USF/ICC Transformation Order provides that price cap 
carriers accepting a state-level commitment will receive funding for 
five years. At the end of the five-year term, the USF/ICC 
Transformation Order contemplates a market-based mechanism will be used 
to set support going forward. Thus, recipients of model-based support 
over the next five years may continue to receive support, or a 
competitor may receive support instead. On the other hand, if a market-
based mechanism is not implemented by the end of the five-year period, 
ETCs accepting the state-level commitment ``will be required to 
continue providing broadband * * * in exchange for ongoing CAF Phase II 
[model-determined] support.''
    20. The extent to which the model includes costs that reflect the 
value of longer-lived assets is likely to be a large driver of support 
amounts. A green-field FTTP deployment would likely have significant 
commercial value after five years, even in high-cost areas, given that 
it scales more readily to higher-speed services than DSL and would have 
many years of depreciable life (and possibly even more actual) 
remaining. The commercial value and remaining life of a brown-field DSL 
deployment is less clear.
    21. Book value. The model would determine the residual value of the 
network by the book value of the assets at end of the modeling period. 
This is a regulatory accounting calculation that the Bureau expects 
would be relatively simple to implement. Book value may overstate the 
terminal value, however, if there is a lack of a business case for 
continuing to provide service without ongoing support. The ABC 
Coalition model adopts the approach of using book value as the residual 
network value.
    22. Commercial (or economic) value. The model would determine the 
residual value of the network by the value the business can generate 
(profitability) at end of the modeling period. This approach best 
reflects the ability of the network to generate profit from end-user 
revenue against ongoing costs at the end of the five-year period. It 
may be difficult, however, to forecast revenue and profit, especially 
if it is unknown whether the carrier will continue to receive support 
after five years. If, for example, a competitor won support for that 
area under a subsequent market-based mechanism, the model-support 
recipient's market share and revenue could fall.
    23. Zero value. Under this approach, the model would assume zero 
value of assets at the end of the modeling period, either through an 
assumption that the assets have zero revenue-producing ability or an 
assumption of accelerated five-year depreciable life for all assets. 
This would provide certainty for the carriers that they would not be 
left with unrecovered investment when CAF Phase II ends. However, the 
approach may create a significant excess support for carriers if they 
are able to generate revenue on assets at the end of the modeling 
period or if modeled support continues beyond the expected five-year 
period.
    24. The decisions regarding network technology, design, and 
terminal value together define a possible model approach. As discussed 
below, the Bureau proposes two approaches: green-field FTTP paired with 
book value; or brown-field DSL paired with zero value. The Bureau also 
seeks comment on the ABC Coalition's proposal to use a green-field DSL 
model. The Bureau seeks public input on its analysis as set forth 
below.
    25. To the extent that parties support alternative model designs 
not discussed here, including other variants of networks that use both 
fiber- and copper-based connections, such as hybrid-fiber coax (HFC) 
networks, the Bureau asks that the parties use their comments to 
justify those alternatives. The parties should address how their 
favored alternatives meet the criteria set forth above--precision, 
accuracy, simplicity, accessibility, administrative feasibility, and 
the cost of implementation--as well as any other criteria the parties 
believe relevant to the choice of model designs.
    26. Green-field FTTP paired with Book Value. Under this proposal, 
the Bureau would model the costs of a wholly new FTTP network, with 
fiber connectivity to the end user. The primary advantage of a green-
field FTTP model is that it would calculate the forward-looking, total 
long-run incremental cost of an efficient provider. This would be 
consistent with prior modeling efforts and the USF/ICC Transformation 
Order and FNPRM, 76 FR 73830, November 29, 2011/76 FR 78384, December 
16, 2011. The operating costs of a green-field FTTP network are likely 
lower than for networks with active electronics in the outside plant, 
such as DSL networks.
    27. However, a green-field FTTP model would also make annual cost 
and support levels highly dependent on the terminal value, because the 
explicit modeling period is much shorter than the lifetime of many of 
the assets in the model. Given the degree of uncertainty associated 
with estimating commercial value, it may be inappropriate to use 
commercial value to determine the terminal value. However, because the 
commercial value is likely to be significant, using zero terminal value 
with the green-field FTTP approach would likely provide an excessive 
benefit. The Bureau therefore proposes to use book value as the 
terminal value, if a green-field FTTP approach is adopted.
    28. A green-field FTTP approach may have drawbacks as well. 
Relative to a brown-field model, a green-field model using any 
technology is likely to calculate higher costs and require higher 
support levels per location (i.e., fewer locations covered for a fixed 
sum of funding). A green-field FTTP model in particular is not likely 
to represent providers' actual expenditures to

[[Page 38807]]

provide broadband over the five-year modeling period. Specifically, it 
would provide support for construction of parts of the existing network 
that are unlikely to be replaced during the modeling period. In 
addition, the green-field FTTP approach ignores the cost savings that 
some providers may achieve by shortening loops only as customer demand 
requires, or the additional revenues that some providers may achieve by 
deploying a wireless network from which they can derive both fixed and 
mobile revenue. The Bureau seeks comment on this analysis.
    29. Brown-field DSL paired with Zero Value. The second proposal is 
to model the cost of a network upgrade, shortening loops to a maximum 
of, for example, 12,000 or 5,000 feet, relying on the existing copper 
plant for the last several thousand feet of connectivity. The choice of 
maximum loop length is a major driver of cost and connectivity because 
shorter loops will provide higher speeds at greater costs. A brown-
field DSL model is most likely consistent with providers' actual costs 
(at least for those providers who deploy DSL) and aligns modeled costs 
with demand (i.e., loops can be shortened, and costs incurred, only as 
demand warrants).
    30. There are likely to be disadvantages associated with a brown-
field DSL approach, however. The ability of a given loop length to 
deliver desired speed depends on age and quality of existing plant, and 
on the gauge of the copper wires. It is unclear if the necessary data 
for existing copper deployments are available. As a result, the brown-
field approach may require modeling existing networks and assets or 
making sweeping generalizations about average conditions. In addition, 
increasing offered broadband speed (e.g., if the Commission increases 
the minimum requirement) in the future will require additional 
investment, and presumably additional support. In addition, the brown-
field approach ignores sunk costs associated with the existing plant 
(part of total cost of building, operating and maintaining in a given 
area), and so arguably will not provide sufficient funds to meet 
universal service goals over the long run. Finally, a DSL approach is 
likely to have higher operating cost than FTTP (though these higher 
costs may be small relative to excluded sunk costs).
    31. The Bureau also notes that the use of a brown-field model makes 
the availability of some data sets more important (e.g., age and gauge 
of copper plant, location of existing fiber) because the cost of a 
brown-field deployment cannot be reasonably estimated without them. A 
lack of reliable data sets to address these needs would undermine the 
development of a brown-field model.
    32. The brown-field DSL model also would need to capture costs 
associated with exhaust of capacity in existing aggregation facilities 
that is driven by the addition of new served locations. Although the 
brown-field DSL approach likely results in lower costs and support per 
location, this is dependent on terminal value calculation. Under the 
brown-field DSL approach, the Bureau proposes that the model would 
assume that, at the end of the modeling period, assets would have zero 
value. A DSL network with only limited upgrades could have small 
commercial value, especially if another service provider receives 
support under a program subsequent to CAF Phase II, but estimating 
actual commercial value is difficult and uncertain. For that reason, 
using a terminal value of zero could reasonably approximate the value 
of the network without the added complexity of estimating commercial 
value. This approach would ensure that calculated costs reflect the 
entire cost of network upgrades, including possible impairment of value 
in an unfavorable commercial environment. The Bureau seeks comment on 
this analysis.
    33. Green-field DSL. Under this approach, the Bureau would model 
the cost of a wholly new network where the last several thousand feet 
of the connection is provided by newly installed twisted-pair copper. 
The green-field DSL approach calculates the total long-run incremental 
cost, in most locations, of the current telephone and broadband 
network. This is the approach initially proposed by the ABC Coalition.
    34. There appear to be significant disadvantages of a green-field 
DSL approach. First, it is only forward looking from the perspective of 
decisions made a decade or more in the past (i.e., DSL does not 
currently represent the most efficient, forward-looking choice of 
technology). Second, relative to a green-field FTTP approach, a green-
field DSL approach is less efficient because it has higher expected 
operating expenses and is more likely to require significant additional 
investment to make faster broadband offerings available. It also may 
not be representative of providers' actual investment to provide 
broadband over the five-year modeling period (in other words, it would 
likely provide support for construction of parts of existing network 
that are unlikely to be replaced during the modeling period). As a 
result, this approach may not represent either forward-looking costs 
nor the costs providers are likely to actually incur. In addition, 
given these concerns, a green-field DSL approach may have an especially 
high error rate with respect to identifying the highest cost areas for 
the purpose of the Remote Areas Fund.
2. Should the model estimate the total costs of serving the entire 
service area (and allocate shared costs to supported areas) or only the 
standalone costs of areas eligible for support?
    35. The Commission concluded in the USF/ICC Transformation Order 
that it would use a forward-looking model capable of determining ``on a 
census block or smaller basis, areas that will be eligible for CAF 
Phase II support.'' Specifically, the Commission ``will use the model 
to identify those census blocks where the cost of service is likely to 
be higher than can be supported through reasonable end-user rates 
alone'' and ``identify, from among these, a small number of extremely 
high-cost census blocks that should receive funding specifically set 
aside for remote and extremely high-cost areas'' (i.e., the Remote 
Areas Fund). The Commission also concluded that ``it would be 
appropriate to exclude any area serviced by an unsubsidized competitor 
that meets our initial performance requirements.''
    36. Most costs in a network are shared costs. For example, feeder 
cabling is shared among all end-users served by that feeder; even 
cabling in the distribution plant is often shared among multiple end 
user locations. The method used to attribute the costs of shared plant 
to individual end users or to census block or smaller areas will affect 
the relative cost of serving different areas.
    37. The Bureau thus must determine how to estimate network costs 
consistent with the requirement in the USF/ICC Transformation Order 
that support will only be provided in areas outside the footprint of an 
unsubsidized competitor. As proposed in the ABC Coalition model, the 
Bureau proposes to use a method in which the model would calculate the 
costs of a network that serves the entire service territory area and 
then allocate the shared costs between eligible and ineligible areas.
    38. A simplified example of this issue: In a given area served by a 
single central office, most of the homes served are clustered together 
in a small area. These homes are served by an unsubsidized cable 
company and are in a census block (or smaller area) that is ineligible 
for CAF support. Three remaining homes are in a different census block 
outside the footprint of the

[[Page 38808]]

unsubsidized competitor. Only these three homes are in an area that is 
eligible for support.
    39. Model Entire Network. One approach to modeling the cost of the 
area eligible for support (the three homes) is to calculate the cost of 
the entire network, including those areas in the footprint of the 
subsidized competitor, and then determine the share of costs for the 
eligible and ineligible areas in a later step. In this approach, parts 
of the network serve both the eligible and ineligible areas and the 
associated costs will be shared in some way between the homes that are 
ineligible for support and the three homes, which are in an area 
eligible for support. The costs associated with network infrastructure 
serving only ineligible areas are excluded entirely from the analysis, 
and the costs associated with network plant serving only eligible areas 
are included entirely. This approach assumes that any service provided 
by carriers in areas ineligible for support will continue. The specific 
method for determining the share of costs for network facilities that 
serve both eligible and ineligible areas is essential to this approach, 
and is discussed immediately below.
    40. Standalone Cost of Serving Eligible Areas. An alternative 
approach would be to model only the network needed to connect the 
locations in eligible areas (in the previous example, only the three 
homes). In the example above, this approach means modeling only the 
parts of the network that serve supported areas, whether they would 
otherwise be shared with unsupported areas or not, which has the effect 
of attributing a greater amount of costs to the eligible areas.
    41. Modeling the costs associated with a complete network (i.e., 
including both eligible and ineligible areas) and then assigning shared 
costs between the eligible and ineligible areas appears to have 
significant benefits. First, it more accurately depicts an economically 
efficient network and provider. In an economically efficient network, 
buildout would cover all or most locations in a given area, rather than 
only serving a small subset of locations that lack broadband. This is 
particularly true in areas where building out the network to the 
unserved could enable very low cost service to homes served by a 
competitive provider, as in the example above. An economically 
efficient provider would not generally cede a large fraction of 
customers to competition.
    42. Second, in the USF/ICC Transformation Order, the Commission 
``weigh[ed] the fact that incumbent LECs generally continue to have 
carrier of last resort obligations for voice services.'' Modeling the 
entire network would be consistent with these obligations and the 
treatment of incumbent price cap carriers. In addition, this approach 
will generally lead to lower per-location costs and therefore lower 
per-location support levels in areas that receive support, which, 
depending on how the low- and high-end cost thresholds are set for CAF 
Phase II, may maximize the number of locations that would be supported 
pursuant to CAF Phase II. In contrast, the primary advantage of 
modeling the standalone cost of serving eligible areas is that the cost 
of serving eligible areas is not dependent on maintaining service to 
locations in ineligible areas.
    43. For these reasons, the Bureau proposes to model the entire 
network and assign shared costs between eligible and ineligible areas 
to determine support amounts. The Bureau seeks comment on this proposal 
and on its analysis of the relative attributes of each alternative.
3. What specific methodology should be used to assign shared costs?
    44. A related question is how to allocate costs consistent with the 
requirement in the USF/ICC Transformation Order that the model be 
capable of determining ``on a census block or smaller basis, areas that 
will be eligible for CAF Phase II support.''
    45. Subtractive method. Under the first approach, the model would 
estimate only those costs needed to serve supported areas that are over 
and above the costs that would be required to serve unsupported areas 
(i.e., the marginal or incremental costs of the supported areas). The 
Bureau would calculate these costs by comparing the cost of networks 
modeled with and without those areas. Specifically, the model would 
estimate the cost of a network serving both supported and unsupported 
areas and then subtract the cost of a network serving only the 
unsuppored areas to determine the costs associated with the supported 
areas.
    46. An example of how this calculation would be performed: Assume a 
service area that includes two areas, X and Y. Area X represents an 
area (i.e. a census block) that is commercially viable for the carrier 
and for which the carrier will not receive support. Area Y is a high-
cost area (i.e. a different census block) for which costs must be 
estimated. By calculating the cost of a network serving the entire area 
(cost (X + Y)) and then subtracting the cost of serving area X (cost 
(X)), the model would estimate costs associated solely with serving 
area Y, i.e., the incremental cost of serving area Y. The cost of 
serving area Y may include the incremental cost associated with 
upgrading to larger-capacity feeder links within area X; but would not 
include any costs incurred in area X necessary to serve customers in 
area X if area Y is not served.
    47. Two related issues complicate this scenario. The Bureau needs 
to (1) determine how to maximize the number of locations served with 
the $1.8 billion budget, and (2) determine the threshold for which 
locations will be served by the Remote Areas Fund designed to ensure 
service to the most costly locations. As a result, the model needs to 
determine not just the cost of a single incremental addition to the 
network, but the cost of building out many areas--when the cost of each 
area can affect the cost of the others.
    48. A slightly more complicated example highlights the challenges 
associated with such a calculation. In addition to the commercially 
viable Area X, there are three areas that are eligible for support: A, 
B and C. In this simplified example, those three areas hold individual 
homes, but they could also be groups of homes.
    49. The cost of serving each of these areas depends in part on 
whether the other areas are served. For example, if a provider builds 
network to area A, then the cost for building to areas B and C could be 
lower; similarly if network is built to area B, the cost to serve area 
C could be lower. Determining the cost of building each area then 
depends on what other areas eventually get service. Therefore a model 
would need to calculate cost (X), cost (X + A), cost (X + B), cost (X + 
C), cost (X + A + B), cost (X + A + C), cost (X + B + C) and cost (X + 
A + B + C). After the Bureau determines which areas are to be included 
(i.e., which areas are eligible for support instead of being moved into 
the Remote Area Fund), then calculating the incremental costs of those 
areas would be straightforward. Note that this method effectively 
averages the costs of areas are included: In the above example, 
determining the cost (A + B) by calculating the cost (X + A + B) and 
subtracting cost (X) averages the cost of areas A and B together.
    50. The subtraction methodology may be a computationally difficult 
method of allocating costs. There are hundreds of thousands of unserved 
census blocks in the country, meaning a multiple of that many 
permutations; this, in turn, will require many more model runs than an 
allocation approach. In addition, the approach presumes the Bureau has 
determined which areas are sufficiently

[[Page 38809]]

low cost so as not to qualify for support (area X in the example 
above). It also may be difficult to determine the subsidy required to 
maintain services in areas that require support (i.e., areas that would 
be unserved but for existing high-cost support). It will also be 
necessary to determine which areas are extremely high-cost for Remote 
Areas Fund purposes using only this methodology (i.e., there may need 
to be a way to determine which areas to exclude before calculating 
costs).
    51. Pro Rata or Formula method. Costs could be allocated to various 
areas within a service area on a pro rata basis or using some other 
formula. For example, one could allocate costs based on the number of 
end-user locations, the amount of bandwidth throughput (typically in 
Mbps) each user is assumed to buy, or the amount of bandwidth each user 
is assumed to consume (typically in GB per month). This method is 
consistent with the current FCC High-Cost Proxy Model, the model 
submitted by the ABC Coalition and the National Broadband Plan 
modeling.
    52. The Bureau proposes to use a subtractive approach, provided 
that a computationally tractable method can be found, because the 
subtractive approach ensures that only the costs that would not 
otherwise be incurred are attributed to each area, which the Bureau 
believes provides the best estimate of the economic costs of serving an 
area. The Bureau seeks comment on this proposal.
    53. The main advantage of the pro-rata or other formula approach is 
that it involves straightforward calculations without the computational 
complexity of the subtraction approach. However, a pro-rata or other 
formula-based approach may not estimate the economic costs of serving 
any area with a high degree of accuracy. Moreover, it may not capture 
that an area is commercially viable without a subsidy (e.g., where 
there is a large institutional customer for whom fiber would be run 
into a neighborhood in any circumstance).
    54. The Bureau seeks comment on its proposal and analysis of 
alternatives. With respect to the pro rata or formula approach, the 
Bureau seeks comment on which formula or method of allocating costs 
could or should be used and the advantages or disadvantages of each.
4. Should the model calculate support levels for locations already 
served?
    55. High-cost areas are likely to include a mix of both served and 
unserved locations. Some locations in areas with high long-run 
incremental costs may already have broadband because they had 
previously been subject to other forms of regulation (such as rate-of-
return regulation) that compensated carriers' costs on a different 
basis, because they had received legacy high-cost support, or because 
the existence of commercially viable service areas nearby reduced the 
incremental cost of providing broadband such that there was a business 
case to invest. Should the model include and calculate support for 
high-cost areas that are already served?
    56. Include existing areas. Under this approach, areas that meet a 
certain cost threshold would receive support regardless of existing 
broadband deployment. Otherwise, some carriers might be worse off for 
having aggressively deployed broadband service, perhaps using legacy 
high-cost support, prior to the implementation of CAF Phase II. 
Including areas already served with broadband is consistent with the 
green-field modeling approach because the green-field approach models 
an efficient deployment without presuming the existence of any 
facilities, meaning that it would be logically inconsistent to assume 
that some areas already have service. It may be more difficult under a 
brown-field model to implement an approach that supports areas with 
existing broadband deployment. Ongoing support may be required to 
ensure continued service--the areas may have been previously supported 
by legacy high-cost support mechanisms or deployment may have occurred 
despite high costs--but the incremental cost to deploy broadband to 
areas that already have service will likely be too small to generate 
support under the model.
    57. Exclude existing areas. Under this approach, costs would be 
included and support provided only to areas that do not already have 
broadband that meets the broadband public interest obligations. This 
would allow targeting of support to completely unserved areas and would 
not support providers that may have deployed to certain high-cost areas 
for which unsubsidized business cases may exist. It would also exclude, 
however, areas to which broadband deployment was made possible only by 
legacy high-cost support. This approach may be more consistent with a 
brown-field modeling approach because of its focus on the additional 
costs associated with network upgrades. It is not completely 
inconsistent with a green-field approach but, as noted, presumably 
would not ensure sufficient ongoing support for service whose costs 
exceed end-user revenues.
    58. The Bureau proposes to include areas that already are served by 
broadband in cost and support calculations. The Bureau seeks comment on 
its analysis on this issue.
5. What benchmarks should be used to identify areas with costs too low 
or high to receive support pursuant to CAF Phase II?
    59. In the USF/ICC Transformation Order, the Commission established 
that the model would be used to determine what areas would be eligible 
to receive support based on the costs of serving them. Specifically, 
the Commission adopted a methodology ``that will target support to 
areas that exceed a specified cost benchmark, but not provide support 
for areas that exceed an 'extremely high cost' threshold.'' Support for 
each census block will be the amount the modeled cost exceeds the cost 
benchmark, provided that the census block's cost does not exceed the 
``extremely high cost'' threshold. The Bureau seeks comment on how to 
establish both the cost benchmark above which a high-cost area will be 
eligible for support and the extremely high-cost threshold, above which 
an area will be ineligible for support through CAF Phase II and will 
instead be eligible for support through the Remote Areas Fund (RAF). 
Given the fixed $1.8 billion ceiling for CAF Phase II, it is necessary 
that these benchmarks be established at levels coordinated to provide 
no more than the available amount of support.
    60. With regard to the cost benchmark, the Commission stated that 
it would use the model ``to identify those census blocks where the cost 
of service is likely to be higher than can be supported through 
reasonable end-user rates alone.'' The ABC plan proponents proposed a 
benchmark of $80 per loop per month.
    61. With regard to the RAF threshold, the Commission also concluded 
that ``a small number of extremely high-cost census blocks that should 
receive funding specifically set aside for remote and extremely high-
cost areas * * * rather than receiving CAF Phase II support.'' The 
Commission found that excluding these extremely high-cost areas was 
consistent with its ``recognition that the very small percentage of 
households that are most expensive to serve via terrestrial technology 
represent a disproportionate share of the cost of serving currently 
unserved areas.'' The Commission exempted those areas from the 
broadband service requirements associated with the CAF and set aside at 
least $100 million to serve those areas through alternative 
technologies subject

[[Page 38810]]

to modestly relaxed broadband requirements. The Commission delegated to 
the Bureau ``the responsibility for setting the extremely high-cost 
threshold in conjunction with the adoption of the final cost model.
    62. The Bureau seeks comment on how best to determine the low-end 
threshold for determining which census blocks should receive support 
and the extremely high cost threshold to identify the areas eligible 
for the Remote Area Fund.
    63. In setting these thresholds, the Bureau is mindful of certain 
principles established by the Commission in the USF/ICC Transformation 
Order. First, the Commission directed that ``[t]he threshold should be 
set to maintain total support in price cap areas within our up to $1.8 
billion annual budget.'' Second, as noted above, the Commission set 
aside at least $100 million to serve the highest cost areas through the 
RAF. Third, the Commission ``anticipated that less--and possibly much 
less--than one percent of all U.S. residences are likely to fall above 
the 'extremely high-cost'' threshold in the final cost model.''
    64. Given these principles, the Bureau could first establish the 
extremely high-cost threshold by taking into consideration the 
Commission's anticipation that fewer than one percent of American homes 
would be above the threshold and the size of the RAF. The Bureau could 
then calculate how far below the extremely high-cost benchmark the $1.8 
billion CAF Phase II budget could extend, the result being the cost 
benchmark. Alternatively, the Bureau could first determine the cost 
benchmark using the principle that it should identify places where the 
cost of service exceed reasonable end user rates alone, and then 
calculate the extremely high-cost benchmark based on the $1.8 billion 
CAF Phase II budget. Under this alternative the Bureau would need to 
ensure that the resulting extremely high-cost benchmark did not cause 
more than one percent of American households to be covered by the RAF 
or unduly increase the size of the RAF.
    65. As suggested by the State Members of the Joint Board, another 
possibility is to establish the extremely high-cost threshold at a 
level approximately the same as the price of satellite broadband 
service. Also, the ABC plan proposed to limit support to no more than 
$176 per line per month which, given the $80 cost benchmark it 
proposed, would effectively set the threshold for extremely high-cost 
areas at $256 per line per month.
    66. The Bureau seeks comment on these alternative methods of 
calculating the CAF Phase II cost benchmark and the extremely high-cost 
threshold.

B. Data Inputs

    67. In this section, the Bureau seeks comment on seven data source 
issues. Four relate to geographic information systems (GIS) data: wire 
center boundaries, boundaries of existing broadband footprints, 
business locations, and consumer locations. The other three issues 
relate to carrier plant: the outside plant mix for individual carriers, 
the age of the carriers' plant, and the gauge of the carriers' copper 
wire plant. The Bureau also seeks comment regarding methods of 
validating data inputs generally.
    68. Wire center boundaries. Wire center boundaries represent the 
edges of the service territories served by each wire center. Typically, 
locations will be connected to the wire center in whose boundary they 
fall, even if, absent existing infrastructure, it might be more 
efficient to connect to a different wire center. In this section, the 
Bureau seeks comment on three sources of wire center boundary data.
    69. Use a commercial data set, such as TeleAtlas. The TeleAtlas 
wirecenter boundary database is a readily available data set already in 
use by the Commission and in the National Broadband Plan modeling. The 
accuracy of the data has been questioned in other circumstances, 
however. For example, all areas of the country are assigned to a wire 
center, even if they lack roads, population, or buildings, which can 
lead to an overestimate of wire center area. Additionally, given 
commercial licensing agreements, the Commission is unlikely to have 
rights to freely distribute commercial data, meaning that commenters 
may have to rely on aggregated data that can be released consistent 
with license agreements, or purchase the data set themselves. There 
also may be areas for which commercial data are unavailable, and the 
Bureau would need to take one of the approaches described below for 
those areas.
    70. Develop a new data source. The Bureau recently sought comment 
on a new data collection to obtain certain boundary data from all local 
exchange carriers, including the wire center boundaries of price cap 
carriers. However, the data collection may not be finalized, approved 
by the Office of Management and Budget (OMB), and implemented in the 
timeframe that would enable those boundaries to be used in the CAF 
Phase II model development process. Once the Bureau develops a new 
source of data, however, the Commission would own the data without 
being subject to license agreements or other commercial limitations, 
and could presumably tailor the data to make it more accurate for the 
intended modeling purposes.
    71. Use efficient routing regardless of wire center boundaries. 
Allowing the model to disregard existing wire center boundaries would 
be consistent with the forward-looking costs of an efficient provider 
and would allow the same approach and data set in all areas, even those 
without available commercial data. In addition, the data would not be 
subject to propriety claims, which would allow free use by the 
Commission and all interested parties.
    72. The commercial data approach should be more accurate than 
efficient routing. Efficient routing would underestimate costs in some 
areas because it would model network deployments that are significantly 
different from what providers would actually implement given the 
constraints of existing wire centers. Efficient routing would also be 
inconsistent with both a scorched node approach to a green-field model 
and a brown-field model.
    73. Although commercial data may not achieve as high a degree of 
accuracy as a newly developed data set, developing a data source will 
likely require a significant amount of time. Also, the Bureau notes 
that the footprints of providers eligible for CAF Phase II support are 
quite large, so any small error is likely to average out. Moreover, any 
overstatement of footprint by including uninhabited areas will not 
affect costs for a model that relies on demographic information.
    74. A hybrid approach involving a commercial data source 
supplemented by data collected from service providers or efficient 
routing may also make sense or prove necessary in some areas that are 
not covered by those sources.
    75. The Bureau proposes to use wire center boundaries obtained 
through a new data collection as described above, or in the 
alternative, commercial datasets, such as TeleAtlas, if the data 
collection can not be completed in time for the model development 
process. The Bureau seeks comment on the relative merits of each 
alternative.
    76. Existing broadband footprints. The footprints of unsubsidized 
competitors are ineligible for support, so a data source for their 
footprints is essential. In addition, a data source for the footprints 
of support recipients would be important if the model excludes areas 
they currently serve. The Bureau seeks comment regarding two possible 
sources of data regarding existing broadband footprints.

[[Page 38811]]

    77. Use State Broadband Initiative (SBI) data collected for the 
National Broadband Map. The SBI represents a single, public data source 
of where broadband is available at the census block (or smaller) level, 
as a function of upload and download speeds. However, the National 
Broadband Map does not differentiate among providers who serve 
residential and business customers, and therefore may count census 
blocks as served when only a business-focused service provider is 
present. As discussed elsewhere, there are other limits to the data 
set.
    78. Augment SBI data with additional data source(s). Augmenting the 
SBI data with other data sources that would improve its reliability by 
correcting the most significant errors in the SBI data. This is the 
approach taken by the ABC Coalition. It may require the use of 
commercial data sources, however, with all of the attendant licensing 
obligations and limitations, including the time required to acquire the 
necessary licenses. Moreover, it does not address other concerns about 
the SBI data, including specifically the problem of business-only 
service providers.
    79. The Bureau does not propose a particular data source for 
existing broadband footprints at this time but seeks comment on each 
alternative and the Bureau's analysis of the relative attributes of 
each.
    80. Business locations (including community anchor institutions) 
The model will need to include information about the location of 
business customers and community anchor institutions, both to ensure 
that it captures the appropriate number of end-user locations, and to 
ensure that the cost of shared resources are shared among all users 
appropriately. The Bureau seeks comment on two possible sources of 
business location data.
    81. Use government data. Government data, such as the economic 
census, are publicly available and could be used in the model. This is 
the approach taken by the ABC Coalition. However, the data are 
available only at a larger geography, so the model would need to make 
assumptions about the specific location (distribution) of businesses 
and community anchor institutions. It also may be inconsistent with the 
approach taken for consumer locations, discussed below. This approach 
should provide a reasonable level of accuracy.
    82. Use a commercial data set. Several vendors have business-
location-count data sets available that could be used in the model. 
This is the approach taken by the National Broadband Plan. While each 
of these data sets has its limitations, each is regarded as an industry 
standard. Commercial data are, or can be, highly precise, providing 
actual customer locations at the address level. Some commercial data 
sources may even estimate the broadband demand at a given location, 
allowing for the appropriate scaling of any network infrastructure. 
Restrictions on the license rights may limit the ability to distribute 
data at the census block level, however, and the time required to 
acquire the necessary licenses may delay implementation.
    83. The Bureau proposes to use government data for business 
locations and seeks comment on its analysis of the alternatives.
    84. Consumer locations. The model will need information about the 
location of consumers, which make up the bulk of locations in most 
areas. The Bureau seeks comment on three sources of consumer location 
data.
    85. Use a commercial data set. Commercial consumer location data 
are updated annually (or even more frequently) so that location counts 
are more likely to reflect growth since the last decennial census. 
Using such commercial data is consistent with the approaches taken in 
the National Broadband Plan modeling and by the ABC Coalition. However, 
using such commercial data would entail all of the difficulties of 
acquiring and using commercial data, including limited ability to 
distribute data at the census block level and the possible delay 
associated with acquiring the necessary licenses. In addition, because 
such commercial data are available at the census block level, the model 
would need to make assumptions to locate the consumers' specific 
locations within the census block.
    86. Use 2010 census data. Official government census data is easily 
procured and the data could be used without restrictions. The 
disadvantage is that data are from 2010, and will not be updated until 
2020. In addition, data are at the census block level and so the model 
will need to make assumptions in order to locate individual residences 
within the census block. Also, 2010 data are not yet available for all 
U.S. territories.
    87. Collect actual customer location data from providers. 
Collecting actual customer location from carriers would eliminate the 
need to use assumptions to distribute locations within a geography and 
the data could be obtained without procurement. The data collection 
would, however, be subject to approval by OMB and could entail 
significant administrative burdens for carriers, especially because 
some carriers may not have geocoded data for all customers. In 
addition, it would be difficult for the Commission to verify the 
accuracy of provider-submitted data. For those reasons, it may be 
difficult for the Bureau to develop, obtain approval for, and implement 
the data collection in the timeframe anticipated by the Commission.
    88. The Bureau proposes to use a commercial data set for customer 
locations and seeks comment on its analysis of the relative merits of 
each alternative.
    89. Plant mix (aerial, underground, and buried). A network's 
outside plant may be hung from utility poles (aerial plant), housed in 
underground utility conduits (e.g., areas with utility access via 
manholes), or buried. The cost differences for these different 
approaches are likely very large. Therefore, the model will be more 
accurate if it has better information about what areas have what type 
of outside plant. The Bureau seeks comment on two sources of outside 
plant mix data.
    90. Use provider-submitted data. The model could rely on carrier-
provided data. Using carrier-provided data would permit the model to 
account for unique or uncommon circumstances in a carrier's outside 
plant. It would, however, be difficult for the Commission to verify the 
data submitted by the carriers. In addition, this approach may create 
administrative burdens on both the carriers and Commission, and would 
be subject to approval by OMB. This is the approach taken in the ABC 
Coalition's model.
    91. Use the approach from prior Commission modeling. The high-cost 
proxy model estimates the mix of aerial, underground and buried plant 
for areas of different density. Using the high-cost proxy model's 
approach would be administratively feasible because the data are 
publicly available, and a limited number of inputs are required to 
estimate the mix. It is unclear, however, the extent to which 
nationwide average plant mixes reflect actual plant mixes in any given 
area. The variance from the average plant mix would have potentially 
significant impact on the support levels for smaller price cap carriers 
or for states that have large variances from the average. The National 
Broadband Plan modeling used this approach.
    92. The Bureau proposes to use provider-submitted data for plant-
mix data and seeks comment on its analysis. In particular, the Bureau 
seeks comment on how best to validate provider-submitted data.
    93. Existing plant. If the Bureau adopts the brown-field approach 
to

[[Page 38812]]

modeling, the age of the existing plant could be an important driver of 
cost. Those areas where the outside plant, in particular the cabling of 
the feeder and distribution lines, are likely to reach the end of their 
useful lives before the end of the modeling period will require 
investments more like a green-field build. In addition, the location of 
fiber in the feeder and distribution plant is likely to be a major 
driver of costs since costs will depend, in part, on connecting fiber 
facilities to existing copper. Understanding where such areas are will 
be important to calculating geographic-specific costs. The Bureau seeks 
comment regarding two methods identifying the age of existing plant.
    94. Collect data from providers about location of fiber facilities 
and age of plant. Collecting data directly from carriers would allow 
the model to account for the actual facts associated with a carrier's 
existing plant and unique circumstances. It would, however, be 
difficult for the Commission to verify the data submitted by the 
carriers. In addition, this approach may create administrative burdens 
on both the carriers and Commission, and the data collection would 
require OMB approval. Moreover, it is not clear whether providers have 
geocoded information on fiber facilities and age of plant.
    95. Infer location of fiber based on existing broadband footprint, 
and ignore any geographic variation in plant age. The model could 
assume that fiber is used to provide broadband wherever it is offered 
currently (assuming efficient routing) and calculate costs so that, on 
average, the cost is representative of areas with a typical 
distribution of the outside plant age. This is a simple approach that 
would not require significant data collection. It would provide only 
carrier- or state-average assumptions, however, which may make it more 
difficult to justify particular inputs. This is the approach taken in 
the modeling for the National Broadband Plan.
    96. The Bureau seeks comment on these alternatives and its analysis 
of the relative attributes of each.
    97. Gauge of existing twisted-pair copper plant. If the Bureau 
selects the brown-field approach to modeling, areas with smaller 
diameter twisted-pair copper wires (higher gauge number) will need 
shorter loops to achieve the same speed as areas with larger diameter 
wires. Understanding where such areas are will be important to 
calculating geographic-specific costs. The Bureau seeks comment 
regarding two methods of determining the gauge of existing twisted-pair 
copper plant.
    98. Collect data from providers. The model could use the carriers' 
actual gauge of copper wire, as provided by the carrier. This would 
permit the model to address the unique circumstances of each carrier's 
existing copper wire deployment. It would, however, be difficult for 
the Commission to verify the data submitted by the carriers. In 
addition, this approach may create administrative burdens on both the 
carriers and Commission, and the data collection would be subject to 
OMB approval. Moreover, it is not clear whether providers have geocoded 
information on the gauge of their copper plant.
    99. Use average cost. The model could ignore any geographic 
variation in the gauge of copper plant and instead calculate costs so 
that, on average, the cost is representative of areas with all sizes of 
copper gauge. This is a simple approach that would not require 
significant data collection. It would provide only carrier- or state-
average assumptions, however, which may make it more difficult to 
justify particular inputs. This is the approach taken in the modeling 
for the National Broadband Plan.
    100. The Bureau seeks comment on these alternatives and its 
analysis of the relative attributes of each.
    101. Validation of Cost Inputs. In order for the model to estimate 
the cost of providing service, it must include reliable inputs related 
to cost of the equipment and labor used to provide the service. The 
Bureau seeks comment on sources for such data and how the data should 
be validated. For example, the Bureau notes that the ABC Plan includes 
cost inputs, but that some parties have raised questions about how the 
inputs were developed. In addition, it is difficult to compare the ABC 
Plan's cost inputs to ones actually experienced by the carriers since 
the model will calculate the forward-looking costs of an efficient 
provider. Furthermore, even unit costs (i.e., the cost per unit for 
equipment and supplies) can be hard to compare or even make public 
given restrictions in purchasing contracts. In light of this example, 
how should cost inputs be selected? Alternatively, what steps can the 
Commission take to validate input submitted by providers?
    102. Additional Comments Regarding Submitted Models. In the USF/ICC 
Transformation Order, the Commission declined to immediately adopt the 
ABC Coalition's CQBAT model as presented because there had been 
insufficient opportunity to review and modify the model. Specifically, 
the Commission cited the established transparency standard that 
``before any cost model may be `used to calculate the forward-looking 
economic costs of providing universal service in rural, insular, and 
high cost areas,' the `model and all underlying data, formulae, 
computations, and software associated with the model must be available 
to all interested parties for review and comment.'' In addition, the 
Commission reiterated that ``[a]ll underlying data should be 
verifiable, engineering assumptions reasonable, and outputs plausible.' 
''
    103. In addition to the comment sought above on particular design 
decisions and data sources used in the models in the record, the Bureau 
also seeks comment on the ABC Plan's CQBAT model and the ACS model in 
light of the established transparency standard. Specifically, the 
Bureau asks parties to identify any issues of availability that the 
Bureau should address. The Bureau notes that at least 15 parties have 
gained access to the models in the record through the protective order 
process. The Bureau asks parties to identify outstanding questions 
relating to the verifiability of the underlying data, the 
reasonableness of engineering or economic assumptions, the 
reasonableness of model design decisions and choices of data sources 
additional to those identified here, and the plausibility of outputs on 
which the Bureau should seek further information for the record, either 
from the parties that submitted the models or from other interested 
parties through additional comment, workshops, or other record 
development processes.

III. Procedural Matters

A. Paperwork Reduction Act

    104. This document contains proposed new information collection 
requirements. The Bureau, as part of its continuing effort to reduce 
paperwork burdens, invites the general public and the Office of 
Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), the Bureau seeks specific comment on how it might 
further reduce the information collection burden for small business 
concerns with fewer than 25 employees.

[[Page 38813]]

B. Initial Regulatory Flexibility Act Analysis

    105. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Bureau has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on a substantial number of small entities by the policies and rules 
proposed in this Notice. Written comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the Notice. 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.
a. Need for, and Objectives of, the Proposed Rules
    106. The Notice seeks comment on a variety of issues relating to 
the design of a model to estimate the forward-looking economic costs of 
providing broadband to high-cost areas. The model will be to calculate 
support levels to be provided to price cap carriers and their 
affiliates that accept their right of first refusal and deploy services 
consistent with the obligations set forth in the USF/ICC Transformation 
Order. The model will also be used to determine which areas are above 
the ``extremely high cost'' threshold and are therefore subject to the 
Remote Areas Fund.
b. Legal Basis
    107. The legal basis for any action that may be taken pursuant to 
the Notice is contained in sections 1, 2, 4(i), 214, 254, 303(r), 403, 
and 706 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
152, 154(i), 214, 254, 303(r), 403, and 706, and Sec. Sec.  1.1 and 
1.1421 of the Commission's rules, 47 CFR 1.1, 1.421.
c. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    108. 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 proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small-business concern'' under the Small Business 
Act. 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 SBA.
    109. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    110. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    111. Local Exchange Carriers (LECs). 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, 1,307 carriers reported 
that they were incumbent local exchange service providers. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of local exchange service are small 
entities that may be affected by the rules and policies proposed in the 
FNPRM.
    112. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent 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, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of incumbent 
local exchange service are small businesses that may be affected by 
rules adopted pursuant to the FNPRM.
    113. 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.
    114. Competitive Local Exchange Carriers (competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. 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, 1,442 carriers reported that they were 
engaged in the provision of either competitive local exchange services 
or competitive access provider services. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. In addition, 17 carriers have reported that they are 
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
or fewer employees. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, seventy have 1,500 or 
fewer employees and two have more than 1,500 employees. Consequently, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities that 
may be affected by rules adopted pursuant to the FNPRM.
    115. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees

[[Page 38814]]

and 15 had employment of 1000 employees or more. Similarly, according 
to Commission data, 413 carriers reported that they were engaged in the 
provision of wireless telephony, including cellular service, Personal 
Communications Service (PCS), and Specialized Mobile Radio (SMR) 
Telephony services. Of these, an estimated 261 have 1,500 or fewer 
employees and 152 have more than 1,500 employees. Consequently, the 
Commission estimates that approximately half or more of these firms can 
be considered small. Thus, using available data, we estimate that the 
majority of wireless firms can be considered small.
    116. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (LMDS) is a fixed broadband point-to-multipoint 
microwave service that provides for two-way video telecommunications. 
The auction of the 986 LMDS licenses began and closed in 1998. The 
Commission established a small business size standard for LMDS licenses 
as an entity that has average gross revenues of less than $40 million 
in the three previous calendar years. An additional small business size 
standard for ``very small business'' was added as an entity that, 
together with its affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards in the context of LMDS 
auctions. There were 93 winning bidders that qualified as small 
entities in the LMDS auctions. A total of 93 small and very small 
business bidders won approximately 277 A Block licenses and 387 B Block 
licenses. In 1999, the Commission re-auctioned 161 licenses; there were 
32 small and very small businesses winning that won 119 licenses.
    117. Satellite Telecommunications. Since 2007, the SBA has 
recognized satellite firms within this revised category, with a small 
business size standard of $15 million. The most current Census Bureau 
data are from the economic census of 2007, and we will use those 
figures to gauge the prevalence of small businesses in this category. 
Those size standards are for the two census categories of ``Satellite 
Telecommunications'' and ``Other Telecommunications.'' Under the 
``Satellite Telecommunications'' category, a business is considered 
small if it had $15 million or less in average annual receipts. Under 
the ``Other Telecommunications'' category, a business is considered 
small if it had $25 million or less in average annual receipts.
    118. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite telecommunications.'' For this category, Census 
Bureau data for 2007 show that there were a total of 512 firms that 
operated for the entire year. Of this total, 464 firms had annual 
receipts of under $10 million, and 18 firms had receipts of $10 million 
to $24,999,999. Consequently, we estimate that the majority of 
Satellite Telecommunications firms are small entities that might be 
affected by rules adopted pursuant to the FNPRM.
    119. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, we 
estimate that the majority of Other Telecommunications firms are small 
entities that might be affected by our action.
    120. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1,000 employees or more. 
Thus, under this size standard, the majority of firms can be considered 
small and may be affected by rules adopted pursuant to the FNPRM.
    121. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected by rules 
adopted pursuant to the FNPRM.
    122. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate fewer than 1 
percent of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Industry data indicate that, of 1,076 cable operators 
nationwide, all but ten are small under this size standard. We note 
that the Commission neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore we are unable to 
estimate more accurately the number of cable system operators that 
would qualify as small under this size standard.
    123. Open Video Services. The open video system (OVS) framework was 
established in 1996, and is one of four statutorily recognized options 
for the provision of video programming services by local exchange 
carriers. The OVS framework provides opportunities for the distribution 
of video

[[Page 38815]]

programming other than through cable systems. Because OVS operators 
provide subscription services, OVS falls within the SBA small business 
size standard covering cable services, which is ``Wired 
Telecommunications Carriers.'' The SBA has developed a small business 
size standard for this category, which is: All such firms having 1,500 
or fewer employees. According to Census Bureau data for 2007, there 
were a total of 955 firms in this previous category that operated for 
the entire year. Of this total, 939 firms had employment of 999 or 
fewer employees, and 16 firms had employment of 1,000 employees or 
more. Thus, under this second size standard, most cable systems are 
small and may be affected by rules adopted pursuant to the Notice. In 
addition, we note that the Commission has certified some OVS operators, 
with some now providing service. Broadband service providers (BSPs) are 
currently the only significant holders of OVS certifications or local 
OVS franchises. The Commission does not have financial or employment 
information regarding the entities authorized to provide OVS, some of 
which may not yet be operational. Thus, again, at least some of the OVS 
operators may qualify as small entities.
    124. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were 3,188 
firms in this category, total, that operated for the entire year. Of 
this total, 3,144 firms had employment of 999 or fewer employees, and 
44 firms had employment of 1,000 employees or more. Thus, under this 
size standard, the majority of firms can be considered small. In 
addition, according to Census Bureau data for 2007, there were a total 
of 396 firms in the category Internet Service Providers (broadband) 
that operated for the entire year. Of this total, 394 firms had 
employment of 999 or fewer employees, and two firms had employment of 
1,000 employees or more. Consequently, we estimate that the majority of 
these firms are small entities that may be affected by rules adopted 
pursuant to the FNPRM.
d. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    125. In this Notice, the Commission seeks public comment on model 
design and input issues associated with a forward-looking economic cost 
model to be used to determine support for price cap carriers and their 
affiliates pursuant to Phase II of the Connect America Fund. The Notice 
seeks comment on possible data inputs that would require reporting by 
small entities. Specifically, the Notice seeks comment on the use of 
wire center boundaries based on data collected from local exchange 
carriers, the use of residential location data collected from service 
providers, and the use of data from local exchange carriers regarding 
their mix of aerial, underground and buried plant, the age of existing 
plant, and the gauge of existing twisted-pair copper plant.
e. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    126. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rules for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    127. The Notice seeks comment on a number of model design and 
inputs questions. The model design issues are not anticipated to have a 
significant economic impact on small entities insofar as the results 
produce high-cost support amounts for price cap carriers and their 
affiliates that accept the right of first refusal pursuant to CAF Phase 
II. This is primarily because most (and perhaps all) of the affected 
carriers are not small entities. Moreover, the choice of alternatives 
discussed is not anticipated to systematically increase or decrease 
support for any particular group of entities and therefore any 
significant economic impact cannot necessarily be minimized through 
alternatives.
    128. In one respect, the model design may have a significant 
economic impact on small entities. The Notice seeks comment on using 
the model to set the ``extremely high-cost'' threshold, which would 
identify ``remote areas.'' Such areas will be included in the Remote 
Areas Fund if they are in a price cap service territory, and would thus 
be subject an alternative support mechanism that could include small 
entities. The definition of such areas could also affect the service 
obligations of rate-of-return carriers, many of which are small 
entities. The Bureau does not propose a specific methodology for 
establishing the extremely high-cost threshold, but seeks broad comment 
on how to do so. The Bureau anticipates that it will consider 
alternatives, including those that would minimize the significant 
economic impact on small entities.
f. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    129. None.

A. Filing Requirements

    130. Filing Requirements. 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 the 
Commission's Electronic Comment Filing System (ECFS). See Electronic 
Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 
1998.
    [ssquf] Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://fjallfoss.fcc.gov/ecfs2/.
    [ssquf] Paper Filers: Parties who choose to file by paper must file 
an original and one copy 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.
    [ssquf] 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,

[[Page 38816]]

Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All 
hand deliveries must be held together with rubber bands or fasteners. 
Any envelopes and boxes must be disposed of before entering the 
building.
    [ssquf] 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.
    [ssquf] U.S. Postal Service first-class, Express, and Priority mail 
must be addressed to 445 12th Street SW., Washington, DC 20554.
    131. People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to fcc504@fcc.gov or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
    132. The proceeding this Notice initiates shall be treated as a 
``permit-but-disclose'' proceeding in accordance with the Commission's 
ex parte rules. Persons making ex parte presentations must file a copy 
of any written presentation or a memorandum summarizing any oral 
presentation within two business days after the presentation (unless a 
different deadline applicable to the Sunshine period applies). Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentation must (1) list all persons attending or 
otherwise participating in the meeting at which the ex parte 
presentation was made, and (2) summarize all data presented and 
arguments made during the presentation. If the presentation consisted 
in whole or in part of the presentation of data or arguments already 
reflected in the presenter's written comments, memoranda or other 
filings in the proceeding, the presenter may provide citations to such 
data or arguments in his or her prior comments, memoranda, or other 
filings (specifying the relevant page and/or paragraph numbers where 
such data or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with rule Sec.  1.1206(b) of the Commission's 
rules. In proceedings governed by Commission rule Sec.  1.49(f) or for 
which the Commission has made available a method of electronic filing, 
written ex parte presentations and memoranda summarizing oral ex parte 
presentations, and all attachments thereto, must be filed through the 
electronic comment filing system available for that proceeding, and 
must be filed in their native format (e.g., .doc, .xml, .ppt, 
searchable .pdf). Participants in this proceeding should familiarize 
themselves with the Commission's ex parte rules.

Federal Communications Commission.
Trent B. Harkrader,
Division Chief, Telecommunications Access Policy Division, Wireline 
Competition Bureau.
[FR Doc. 2012-15991 Filed 6-28-12; 8:45 am]
BILLING CODE 6712-01-P