Connect America Fund, ETC Annual Reports and Certifications, Petition of USTelecom for Forbearance From Obsolete ILEC Regulatory Obligations That Inhibit Deployment of Next-Generation Networks, 4445-4480 [2015-00939]
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Vol. 80
Tuesday,
No. 17
January 27, 2015
Part III
Federal Communications Commission
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47 CFR Part 54
Connect America Fund, ETC Annual Reports and Certifications, Petition of
USTelecom for Forbearance From Obsolete ILEC Regulatory Obligations
That Inhibit Deployment of Next-Generation Networks; Final Rule
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Federal Register / Vol. 80, No. 17 / Tuesday, January 27, 2015 / Rules and Regulations
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 54
[WC Docket Nos. 10–90, 14–58, 14–192; FCC
14–190]
Connect America Fund, ETC Annual
Reports and Certifications, Petition of
USTelecom for Forbearance From
Obsolete ILEC Regulatory Obligations
That Inhibit Deployment of NextGeneration Networks
Federal Communications
Commission.
ACTION: Final rule.
AGENCY:
In this document, the Federal
Communications Commission
(Commission) takes momentous strides
towards fully implementing a
modernized universal service regime
capable of meeting consumer demands
for 21st century networks. The
Commission also finalizes decisions
necessary to proceed with the offer of
support to price cap carriers in early
2015.
SUMMARY:
Effective February 26, 2015,
except for §§ 54.313(a)(e) and 54.320
which contain new or modified
information collection requirements that
will not be effective until approved by
the Office of Management and Budget.
The Federal Communications
Commission will publish a document in
the Federal Register announcing the
effective date for those sections.
FOR FURTHER INFORMATION CONTACT:
Alexander Minard, Wireline
Competition Bureau, (202) 418–0428 or
TTY: (202) 418–0484.
SUPPLEMENTARY INFORMATION: This is a
summary of the Commission’s Report
and Order, WC Docket Nos. 10–90, 14–
58, 14–192; FCC 14–190, adopted on
December 11, 2014 and released on
December 18, 2014. The full text of this
document is available for public
inspection during regular business
hours in the FCC Reference Center,
Room CY–A257, 445 12th Street SW.,
Washington, DC 20554. Or at the
following Internet address: https://
apps.fcc.gov/edocs_public/attachmatch/
FCC-14-190A1.pdf.
DATES:
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I. Introduction
1. With this Report and Order (Order),
the Commission takes another
momentous stride towards fully
implementing a modernized universal
service regime capable of meeting
consumer demands for 21st century
networks. The Commission finalizes the
decisions necessary to proceed with the
offer of support to price cap carriers in
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early 2015, thereby paving the way for
the deployment of new broadband
infrastructure to millions of unserved
Americans. In the coming months, the
Commission will turn our attention to
finalizing the rules for the Phase II
competitive bidding process that will
occur in those states where the price cap
carrier declines the offer of model-based
support.
2. Throughout the universal service
reform process, the Commission has
sought to ensure that all consumers
‘‘have access to . . . advanced
telecommunications and information
services’’ and benefit from the historic
technology transitions that are
transforming our nation’s
communications services. This Report
and Order continues down that path.
The Commission adopts several
revisions to Connect America Phase II to
account for changes in the marketplace
since the USF/ICC Transformation
Order, 76 FR 73830, November 29, 2011,
was adopted. In particular, the
Commission revises the minimum speed
requirement that recipients of high-cost
universal service must offer. The
Commission finds that it is in the public
interest to require recipients of high-cost
support subject to broadband
performance obligations to serve fixed
locations to provide at least a minimum
broadband speed of 10 Mbps
downstream.
3. The Commission adopts targeted
changes to the framework established
for the offer of model-based support to
price cap carriers. Specifically, the
Commission makes an adjustment to the
term of support, adopts more evenly
spaced interim deployment milestones,
and concludes that adjustments of up to
five percent in the number of locations
that must be served with corresponding
support reductions are appropriate to
ensure that deployment obligations
recognize conditions in the real world.
The Commission also forbears from the
federal high-cost universal service
obligation of price cap carriers to offer
voice service in low-cost areas where
they do not receive high-cost support, in
areas served by an unsubsidized
competitor, and in areas where the price
cap carrier is replaced by another
eligible telecommunications carrier
(ETC).
4. In addition, the Commission
addresses where Phase II support will
be available, both for the offer of modelbased support to price cap carriers and
the subsequent Phase II competitive
bidding process. First, the Commission
will exclude from the offer of Phase II
model-based support any census block
served by a subsidized facilities-based
terrestrial competitor that offers fixed
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residential voice and broadband
services meeting or exceeding 4 Mbps
downstream and 1 Mbps upstream (4/1
Mbps), using 3 Mbps downstream/768
kbps upstream (3 Mbps/768 kbps) as a
proxy for this standard, as determined
by the Wireline Competition Bureau
(Bureau) upon completion of the Phase
II challenge process. The Commission
also reaffirms its decision to exclude
from the offer of model-based support
any census block served by an
unsubsidized competitor that meets or
exceeds the 3 Mbps/768 kbps
performance metrics. Second, the
Commission concludes that those highcost blocks served by a subsidized
carrier that are excluded from the offer
of model-based support—including
blocks with service meeting or
exceeding the new 10 Mbps
downstream/1 Mbps upstream (10/1
Mbps) speed requirement—will be
eligible for support in the Phase II
competitive bidding process. Third, the
Commission concludes that any area
served by an unsubsidized facilitiesbased terrestrial competitor that offers
10/1 Mbps will be ineligible for support
in the Phase II competitive bidding
process.
5. In the April 2014 Connect America
Fund FNPRM, 79 FR 39196, July 9,
2014, the Commission sought comment
on a number of near-term and longerterm reforms for rate-of-return carriers,
including developing and implementing
a ‘‘Connect America Fund’’ for rate-ofreturn carriers. Although a number of
parties have submitted proposals that
may have promise, the Commission
finds that further analysis and
development of these proposals is
necessary. The Commission will
continue to explore the possibility of a
voluntary path to model-based support
for those rate-of-return carriers that
choose to pursue it. The Commission
also expects to continue to develop the
record and act in the coming year on
alternatives for those who do not elect
to receive model-based support.
6. In this Order, the Commission
focuses on near-term reforms for rate-ofreturn carriers. Specifically, the
Commission adopts a revised
methodology for applying the cap on
high-cost loop support to distribute that
support on a more equitable basis. The
Commission also addresses the
proposals from the April 2014 Connect
America FNPRM regarding the 100
percent overlap rule.
7. In the USF/ICC Transformation
Order, the Commission established a
‘‘uniform national framework for
accountability’’ that replaced the
various data and certification filing
deadlines that carriers previously were
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required to meet. In this Order, the
Commission takes several steps to
strengthen that framework, including
codifying the reasonable comparability
pricing requirement for broadband
services, adjusting the reductions in
support for late-filed annual ETC reports
and certifications, and providing greater
specificity regarding how the
Commission will address noncompliance with the Commission’s
service obligations for voice and
broadband.
8. The actions the Commission takes
in this Order, combined with the
implementation of the rural broadband
experiments and the reforms the
Commission implemented earlier in the
year, will allow the Commission to
continue to advance further down the
path outlined in the USF/ICC
Transformation Order. The Commission
expects the Bureau to complete the
Connect America Phase II challenge
process and then make a final
determination as to which census blocks
will be eligible for the offer of modelbased Phase II support by early 2015.
That final determination will allow the
Commission to extend the offers of
Phase II model-based support to price
cap carriers to fund the deployment of
voice and broadband-capable
infrastructure in their territories. The
carriers will then have 120 days to
consider the offer, and in those states
where the price cap carrier declines the
offer of support, the Commission will
move forward with the Phase II
competitive bidding process to
determine support recipients.
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II. Public Interest Obligations
A. Evolving Speed Obligations
9. Discussion. In this section, the
Commission adopts a new minimum
speed standard of 10 Mbps downstream
and 1 Mbps upstream (10/1 Mbps) to
further the statutory goal in section 254
of ensuring that consumers in rural and
high-cost areas of the country have
access to advanced telecommunications
and information services that are
reasonably comparable to those services
in urban areas, at reasonably
comparable rates. The marketplace for
broadband has continued to evolve
since the Commission established its
initial minimum speed benchmark of
4/1 Mbps in 2011, and will continue to
do so, given consumer demand for an
ever growing range of services and
applications. Our task is to implement
policies with our available funds that
will extend broadband to high-cost and
rural areas where the marketplace alone
does not currently provide a minimum
level of broadband connectivity.
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10. The most recent State Broadband
Initiative (SBI) data for December 2013
show that 99 percent of Americans
living in urban areas have access to
fixed broadband with speeds of at least
10 Mbps downstream/768 kbps
upstream (10 Mbps/768 kbps), and a
majority of Americans have already
chosen to adopt such service. Moreover,
fixed broadband services with even
higher speeds, such as 25 Mbps
downstream/3 Mbps upstream (25/3
Mbps) or higher, are available to the vast
majority of urban households. In
contrast, the SBI data indicate that 31
percent of the population residing in
rural census blocks lack access to fixed
broadband providing at least 10 Mbps/
768 kbps speeds.
11. Our objective with high-cost
support is to extend broadband-capable
infrastructure to as many high-cost
locations as efficiently as possible, and
at the same time ensure that the
Commission is best utilizing the funds
that consumers and businesses pay into
the universal service system. The
Commission finds that raising the
minimum downstream speed
requirement to 10 Mbps is an
appropriate way at the present time to
implement the statutory language in
section 254 regarding reasonable
comparability. As noted above, where
available, a majority of households
adopt fixed broadband with speeds of at
least 10 Mbps/768 kbps. This is not
surprising, as fixed broadband with
speeds of at least 10 Mbps downstream
offers more functionality to consumers
than 4 Mbps downstream, particularly
when multiple users are relying upon
the broadband connection. For users
browsing the Web, the total time needed
to load a page decreases with higher
speeds up to about 10 Mbps. High
definition video requires 5 Mbps
downstream. Although VoIP services are
adequately supported by lower speeds,
VoIP quality may suffer when
household bandwidth is shared by other
services. When rural households have
access to speeds of 10 Mbps or more,
they are just as likely to adopt a 10
Mbps service as households in urban
areas.
12. The Commission is setting a
standard that is achievable in the near
term with support from the Connect
America Fund, while mindful of the
need to balance the interests of both
recipients and contributors to the Fund.
The Commission encourages recipients
of funding to deploy to the extent
possible future proof infrastructure that
will be capable of meeting evolving
broadband performance obligations over
the longer term. That will ensure that
our policies will continue to support an
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evolving level of universal service in the
future.
13. Based on the record before us, the
Commission finds ample basis for
revising the current broadband
performance obligations to require
minimum speeds of 10 Mbps
downstream. In contrast, while a few
commenters supported raising the
upstream speed, there is little analysis
in this docket regarding the potential
advantages and disadvantages
associated with raising the minimum
upstream speed above 1 Mbps for
purposes of high-cost funding. The
Commission therefore does not adjust
the minimum upstream speed required
for high-cost support recipients at this
time, but expect to consider the matter
again when the Commission revisits our
broadband performance obligations for
recipients of high-cost support in the
future. Accordingly, pursuant to section
254, the Commission adopts a minimum
speed standard of 10/1 Mbps to ensure
that Connect America funding is used
efficiently, to deploy broadband-capable
networks to meet ever evolving
consumer demand.
14. As the Commission explained in
the April 2014 Connect America
FNPRM, by increasing the current
broadband downstream speed
benchmark, the Commission is
primarily focusing on the minimum
standard for new deployments of
broadband-capable infrastructure.
Consistent with the approach the
Commission adopted for the previous
speed benchmark, high-cost support
recipients will be expected to achieve
the new standard over a period of years,
as they utilize that support to extend
and upgrade networks in high-cost areas
that are otherwise uneconomic to serve.
Price cap carriers accepting a state-level
commitment will be required to offer at
least 10/1 Mbps broadband service to
the requisite number of high-cost
locations in a given state by the end of
the support term. Rate-of-return carriers
will be required to offer at least 10/1
Mbps broadband service upon
reasonable request, consistent with past
guidance regarding our expectations
regarding the reasonable request
standard. If a request for 10/1 Mbps is
not reasonable in a given circumstance,
but offering 4/1 Mbps is reasonable, the
Commission would expect a rate-ofreturn carrier to offer 4/1 Mbps.
15. The Commission is not persuaded
by arguments that increasing the
downstream speed benchmark to 10
Mbps requires fundamental changes in
the terms of the offer to price cap
carriers that accept a state-level
commitment. Although price cap
carriers generally support a 10 Mbps
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speed benchmark, they contend
concurrent changes should be made to
other terms of the state-level offer. The
Commission does not agree that by
increasing the required broadband
speed the Commission is upending the
‘‘delicate balance’’ adopted by the
Commission in the USF/ICC
Transformation Order. The Commission
made clear in 2011 that it expected
broadband performance obligations to
evolve, committed to initiating a
proceeding in three years to re-examine
the standard, and noted that carriers
were expected to build ‘‘robust, scalable
networks.’’ Moreover, at that time, the
Commission delegated authority to the
Bureau to require price cap carriers
accepting model-based support to
deploy service delivering at least 6/1.5
Mbps to a number of supported
locations. Thus, the framework adopted
by the Commission in 2011 expressly
anticipated that a higher minimum
speed standard would be necessary in
the future to provide an evolving level
of universal service.
16. Although the Commission
recognizes that carriers upgrading their
networks may incur additional capital
investment costs to offer 10/1 Mbps as
opposed to 4/1 Mbps, how much more
costly this is in the real world depends
on circumstances that vary by carrier,
such as the location of existing facilities
and distances to unserved locations.
The fact that achieving this revised
standard may require additional
network investment than would be the
case if the speed standard remained 4/1
Mbps is not a justification, however, for
not adjusting the standard at all. Rather
as discussed more fully below, the
Commission makes other modest
adjustments to the Phase II framework
to ensure that the support provided is
sufficient to meet the obligations that
are accepted through the state-level
commitment. To the extent a carrier
believes the support offered is
insufficient to meet the obligations, it
may turn down the offer of Phase II
model-based support.
17. The Commission expects carriers
planning upgrades to their networks
today would take into account near term
and future consumer demand. As noted
above, current data show that a majority
of broadband subscribers today
purchase at least 10/1 Mbps. A
comparison of adoption rates from 2011
to 2013 show a steady increase in
adoption for this level of service. The
Commission therefore finds that it is
reasonable to assume that many carriers
upgrading their networks with Phase II
support would aim to provide the
capability to provide at least 10/1 Mbps,
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with higher speeds available to a subset
of locations.
18. Rate-of-return carriers are
expected to take into account the
revised 10/1 Mbps speed standard when
considering whether and where to
upgrade existing plant in the ordinary
course of business and will be required
to report on progress toward this goal in
annual updates to their five-year service
quality plans. As the Commission
emphasized in proposing the revised
speed standard, however, a rate-ofreturn carrier will only be required to
meet the higher speed standard if the
request for service is reasonable. Rateof-return carriers will be able to comply
with the revised speed standard because
the Commission already has adopted a
more flexible approach to determining
compliance with our broadband
performance obligations for this
segment of the industry. The
Commission previously have stated that
a ‘‘reasonable request is one where the
carrier could cost-effectively extend a
voice and broadband-capable network to
that location. In determining whether a
particular upgrade is cost effective, the
carrier should not consider only its
anticipated end-user revenues, for the
services to be offered over that network,
both voice and broadband internet
access, but also other sources of
support, such as federal and, where
available, state universal service
funding.’’ Among other things, the
Commission has explained that a
request would not be reasonable if the
incremental cost of undertaking the
necessary upgrades to a particular
location exceed the revenues that could
be expected from that upgraded line.
The Commission has determined that
carriers may take into account backhaul
costs or other unique circumstance that
make it cost-prohibitive to extend
service to particular customers.
Moreover, rate-of-return carriers have no
obligation to extend broadband-capable
infrastructure in any census block that
is served by a competitor that meets the
Commission’s revised performance
standards.
19. Nor is the Commission persuaded
that increasing the broadband speed
requirement requires enlarging the
budget for rate-of-return carriers. As
discussed above, carriers evaluating
whether or not a request for service is
reasonable may consider the cost of
upgrading the network and the support
available. If, for instance, the cost of
extending fiber sufficiently close to a
requesting customer to be able to offer
10/1 Mbps service is more than a rateof-return carrier could cover with
existing universal service support and
anticipated end-user revenues, but it
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would be able to cover the cost of
extending fiber to provide 4/1 Mbps
service, the Commission would expect
the carrier to extend 4/1 Mbps service.
20. The Commission is confident that
these carriers will deploy broadbandcapable infrastructure meeting these
new requirements to the extent
economically feasible in their
communities and will continue to work
on creative ways to partner with each
other and other entities to provide
service meeting these requirements. The
Commission notes that rate-of-return
carriers have continued to deploy
broadband-capable infrastructure since
the Commission adopted the landmark
reforms in the USF/ICC Transformation
Order, and the Commission expects they
will continue to do so in the future. As
discussed below, the Commission
adopts modifications to the current
high-cost loop support mechanism to
provide a more equitable method of
distributing funding among carriers
serving high-cost areas, ensuring that
some carriers in high-cost areas do not
precipitously lose support. In the April
2014 Connect America FNPRM, the
Commission proposes longer-term
reforms for rate-of-return carriers,
including a voluntary path to modelbased support. The Commission
remains interested in finding a way to
distribute support on an equitable basis
that will provide support for investment
in infrastructure capable of delivering
10/1 Mbps where reasonable in areas
served by rate-of-return carriers.
21. The Commission also rejects
arguments that the Commission should
increase the high-cost universal service
budget, as a means of advancing
broadband deployment in rural areas to
an even greater degree than the
Commission already does in this Order.
‘‘[T]he Commission has to balance the
principles of section 254(b) to ensure
that support is sufficient but does not
impose an excessive burden on all
ratepayers.’’ The Commission
previously conducted just such a
balancing in adopting the budget at
issue here, and the Commission is not
persuaded to depart from it at this time.
In particular, ‘‘any determination about
whether the Commission has adequately
implemented section 254 must look at
the cumulative effect of the four support
programs, acting together.’’ The
Commission has been undertaking
comprehensive reforms of its universal
service programs to facilitate broadband
deployment, and the Commission
continues to advance that objective
through the reforms adopted in this
Order. Although the Commission
recognizes that there are possible
broadband goals the Commission could
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advance even more broadly here, the
ratepayer impact that already will occur
as a result of its universal service
programs collectively, coupled with the
particular circumstances here, persuade
the Commission to proceed cautiously
when weighing any benefits from
increased support against the burden on
ratepayers.
22. In that regard, the record here
does not persuade the Commission that
an increased high-cost budget is
warranted. When comprehensively
reforming the high-cost support
mechanism to better advance broadband
deployment, the Commission began
implementing certain reforms
immediately, while setting out a plan to
advance broadband even more widely
over time through additional initiatives.
For example, noting that some areas
may be too costly to serve with
traditional wireline or terrestrial
wireless broadband technologies, the
Commission established the Remote
Areas Fund to provide support for such
‘‘extremely high-cost’’ areas and set a
budget of ‘‘at least’’ $100 million. In
April 2014, the Commission concluded
that extremely high-cost areas would be
eligible for the Phase II competitive
bidding process. In the coming year, the
Commission expects to develop the
rules for the Phase II auction and how
to address the areas that remain
unserved after that competitive bidding
process. The Commission also is
considering, among other things, long
term high-cost universal service reforms
for rate-of-return study areas. Against
the backdrop of these and other existing
and planned efforts, some commenters
nonetheless advocate making increased
high-cost support available here, but fail
to meaningfully quantify or
demonstrate—even in an aggregate
way—the incremental cost (and
associated burden on ratepayers)
required to achieve an incremental
advancement of broadband deployment
beyond what the Commission already is
achieving through the reforms adopted
here and through our universal service
programs more broadly. The
Commission thus is not persuaded to
increase high-cost universal service
support further. Instead, the
Commission advances our broadband
universal service goals through the highcost fund to the extent the Commission
is able within the existing budget. The
Commission also notes that the states
have an important role to play in
advancing universal service goals. The
Commission welcomes and encourages
states to supplement our federal
funding, whether through state
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universal service funds or other
mechanisms.
23. Finally, the Commission
concludes that recipients of support
through the Phase II competitive
bidding process will be required to meet
an evolving broadband speed standard
over the ten-year term. Given the
historical and anticipated trajectory of
broadband speeds, the Commission
anticipates that consumers will
increasingly demand greater upstream
speeds as well as downstream speeds.
The Commission would expect to
initiate a proceeding to review the
performance standards for the Connect
America Fund no later than 2018. While
the Commission will establish the
specific performance obligations and
auction design in an upcoming order
regarding the Phase II competitive
bidding process, the Commission
decides now that 10/1 Mbps should not
be our end goal for recipients of support
over a ten-year term. The Commission
recognizes that competitive bidding is
likely to be more efficient if potential
bidders can predict what their
performance obligations will be for the
length of the term. The Commission
therefore now adopts a methodology for
determining the minimum speeds that
will be required by the end of the tenyear term for entities receiving support
through the Phase II competitive
bidding process. The Commission
concludes that the minimum speed
shall be based on the highest speed
adopted by a majority of households, as
reported in the most recent Form 477
data available at the time the
Commission next revisits the specific
performance obligations for the Connect
America Fund. The Commission
encourages parties receiving ten years of
support through the Phase II
competitive bidding process to deploy
future-proof networks that are capable
of meeting future demand.
B. Term of Support for Price Cap
Carriers Accepting Phase II ModelBased Support
24. The Commission makes a modest
adjustment to the framework the
Commission adopted in 2011 for the
Connect America Fund and adopts a
six-year term of support, which will
begin in 2015 and extend through 2020,
with an option for a seventh year in
certain circumstances. The Commission
recognizes that upgrading existing
networks to provide 10/1 Mbps requires
deploying fiber further into the
distribution network. The Commission
is not persuaded, however, that the tenyear term advocated by some is
warranted. When the Commission
adopted the five-year term it
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emphasized ‘‘the limited scope and
duration of the state-level commitment
procedure’’ and expected that ‘‘support
after such five-year period will be
awarded through a competitive bidding
process in which all eligible providers
will be given an equal opportunity to
compete.’’ The Commission continues
to believe that it should move to
competitive bidding processes in a
timely manner in those areas where
support initially is awarded through the
acceptance of state-level commitments.
In particular, the Commission expects to
conduct a competitive bidding process
no later than the end of 2019 to ensure
there is continuity and a transition path
to Connect America Phase III.
25. To the extent a price cap carrier
that accepts the offer of Phase II modelbased support in a particular state is a
winning bidder in the Phase III auction,
it will commence receiving that support
in 2021. In the event that carrier either
does not win in the Phase III auction, or
chooses not to bid on such support, its
term of Phase II support will be
completed at the end of 2020. The
Commission will provide such carriers
the option to elect one additional year
of support, however, with Phase II
support continuing in calendar year
2021 as a gradual transition to the
elimination of support. This is
consistent with the principle
established in the USF/ICC
Transformation Order of ‘‘no flash
cuts,’’ while also recognizing that
additional funding may be appropriate
in particular circumstances in those
states where six years of support is
insufficient to cover the capital
investment necessary to meet the
revised 10 Mbps downstream standard.
The Commission also notes that even if
a new entrant is authorized to begin
receiving Phase III support in 2020,
there will be a certain amount of time
before that new provider will be able to
deploy its network and begin offering
service. Providing another year of Phase
II support to the incumbent provider
through the end of 2021 will ensure that
there is an appropriate transition from
the incumbent to new ETCs.
C. Flexibility in Meeting Deployment
Obligations
26. In the April 2014 Connect
America FNPRM, the Commission
sought comment on a number of
measures that would provide recipients
of Phase II support greater flexibility in
meeting their deployment obligations.
In response, price cap carriers argue that
if the Commission requires 10 Mbps, it
should increase the build-out period of
the state-level commitment to eight or
ten years. They claim that building
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networks capable of providing 10/1
Mbps will take more time and more
funding than networks meeting the
current 4/1 Mbps speed requirement,
because it will require extending fiber
further into the network and deploying
additional remote terminals. In addition
to taking more time for planning
network upgrades and obtaining
necessary permits, they also argue that
the broadband construction industry as
a whole may not be capable of meeting
the demand in a shorter timeframe.
27. Here, the Commission addresses
flexibility for price cap carriers
accepting Phase II model-based support.
The Commission expects to provide
similar flexibility to recipients of
support awarded through the Phase II
competitive bidding process, which will
be addressed in a future order adopting
the rules for the competitive bidding
process.
support until mid-year in 2015 and once
authorized to receive support, will then
be developing detailed network
construction plans.
1. Interim Deployment Obligations
28. The Commission modifies the
build-out requirements established for
price cap carriers accepting modelbased support to create straight line
interim milestones over the revised sixyear term, rather than front-loading the
deployment obligations in the first three
years of the term. When the Commission
adopted the interim deployment
milestone of deploying to 85 percent of
locations by the end of the third year,
it noted that ‘‘there were few concrete
suggestions in the record on what those
interim milestones should be.’’ The
Commission recognizes that the first
task for any major network upgrade is to
complete an overall plan and then
undertake detailed engineering analyses
in the field to plan the construction of
particular routes. Recipients of
support—whether price cap carriers or
bidders in a competitive auction—will
likely then proceed incrementally, route
by route, working to complete
construction evenly over the course of
the term required for deployment. For
that reason, rather than requiring price
cap carriers accepting a state-level
commitment to offer broadband service
meeting the minimum requirements to
at least 85 percent of their high-cost
locations by the end of the third year,
the Commission instead adopts evenly
spaced annual interim milestones for
price cap carriers to offer at least 10/1
Mbps to an additional 20 percent of the
requisite number of high-cost locations
each year, as shown in Table 1 below.
Completing construction to 40 percent
of the requisite number of locations in
a state by the end of calendar year 2017,
instead of 85 percent by mid-2018 year,
is a more realistic expectation, given
that carriers will not accept the offer of
29. The Commission recognizes that
price cap carriers may choose to
prioritize construction in certain states
in any given year and therefore do not
expect them to be deploying new
facilities in every state in every year of
the Phase II term. However, the
Commission does require that carriers
annually deploy new infrastructure to
some locations that previously lacked
4/1 Mbps in the earlier years of the
Phase II term so that consumers benefit
from the availability of new broadband
services as early as possible. By the end
of calendar year 2017, the Commission
requires that, at the holding company
level, at least five percent of the
nationwide total of funded locations
that have been reported as newly served
in the annual reports must be locations
that previously lacked 4/1 Mbps.
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TABLE 1—DEPLOYMENT MILESTONES
FOR PRICE CAP CARRIERS ACCEPTING PHASE II MODEL-BASED SUPPORT
Revised
interim
milestones
Current
requirement
Year 1 ..
Year 2 ..
Year 3 ..
............................
............................
85% of locations
Year 4 ..
............................
Year 5 ..
100% of locations
Year 6 ..
............................
**%.
**%.
40%.
End of
60%.
End of
80%.
End of
100%
End of
2017.
2018.
2019.
2020.
2. Number of Locations
30. In addition, the Commission
recognizes that the ‘‘facts on the
ground’’ when price cap carriers are
deploying facilities may necessitate
some additional flexibility regarding the
scope of the deployment obligations. At
the outset, the Commission notes that
there may be some variance between the
number of funded locations as specified
by the forward-looking cost model
adopted by the Bureau and the actual
number of locations in a given area. For
instance, the price cap carrier model
utilizes GeoResults study area
boundaries, which in some instances
may be inaccurate, which in turn may
result in the inaccurate assignment of
certain locations to a particular price
cap territory. The model also utilizes
GeoResults business location data,
which in some instances may be
inaccurate in terms of either business
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counts or actual physical locations; this
in turn may result in too many or too
few locations in a given census block.
While these minor inaccuracies should
cancel one another out in most
instances across multiple census blocks,
the Commission recognizes that in
particular areas that may not be the
case, and the total number of locations
assigned to a particular price cap carrier
in a given state according to the model
simply does not necessarily reflect the
actual number of locations. The
Commission also recognizes that there
may be a variety of unforeseen factors,
after the initial planning stage, that can
cause significant changes as a network
is actually being deployed in the field,
and a variety of factors that can affect
the time needed to deploy a planned
route. Finally, the Commission notes
that the customer location data utilized
in the model reflect location data at a
particular point in time. The precise
number of locations in some funded
census blocks is likely to change over
time for a variety of reasons, which may
impact the orderly progress of the
planned construction cycle.
31. Given all of these factors, rather
than requiring deployment to 100
percent of funded locations as identified
by the model in a given state, the
Commission will permit a modest
adjustment to the number of modeldetermined funded locations in a given
state with a corresponding reduction in
support in certain instances. Price cap
carriers taking advantage of this
flexibility will be required to refund
support based on the number of
required locations without access to
broadband. The Commission balances
this flexibility with our goal of
advancing the availability of broadband
to these high-cost locations. Therefore,
the Commission will require
deployment to at least 95 percent of the
funded locations, but in order for a price
cap carrier to take advantage of this
flexibility, the Commission requires
them to identify by December 31, 2015,
any specific census blocks where they
do not intend to meet their deployment
commitments, with those blocks
covering at least two percent of their
total eligible locations in a state. The
Commission recognizes there may be
discrete census blocks identified during
the early planning stages that will be
challenging to serve. By requiring the
price cap carriers to identify up front
those particular census blocks that they
know they will not deploy to during
Phase II, the Commission can make
those census blocks eligible for support
in the Phase II competitive bidding
process. For those carriers that elect to
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take advantage of this flexibility, the
Commission then allows them to
identify an additional number of the
eligible locations left unserved at of the
end of the term, up to three percent.
32. The Commission finds that
requiring deployment to at least 95
percent of the number of funded
locations will provide some flexibility
to price cap carriers in meeting their
deployment obligations. The
Commission is not persuaded by
commenters who argue that the
Commission should provide much more
flexibility. For example, price cap
carriers argue that those accepting a
state-level commitment should be
permitted to deploy to as few as 90
percent of their funded locations.
Although they propose to forego
funding on a pro rata basis for the
remaining locations, the Commission is
concerned that providing that degree of
flexibility across the board is
inconsistent with the Commission’s
rationale for providing these carriers the
offer of model-based support in the first
instance: to ensure ubiquitous coverage.
Rather, the Commission may address
unique situations through the waiver
process where specific circumstances
justify additional flexibility.
33. Nor is the Commission persuaded
by commenters who argue that requiring
anything less than 100 percent would
allow recipients to ‘‘cherry pick’’ and
opt out of serving the highest-cost
locations. As discussed above, there are
a number of legitimate reasons why it
may not be possible for a provider—
whether a price cap carrier or a
competitive provider awarded support
in a competitive bidding process—to
deploy to 100 percent of the funded
locations in Phase II areas by the end of
the deployment term. The Commission
concludes that the benefits of providing
some flexibility to a price cap carrier to
address any variance between the cost
model and real world circumstances
outweigh the theoretical risk that the
carrier could systematically identify and
exclude the five percent of locations
that are highest-cost and are likely
sprinkled throughout its funded
territory.
34. The Commission will require
price cap Phase II recipients that have
deployed to at least 95 percent, but less
than 100 percent, of the number of
funded locations to refund support
based on the number of funded
locations left unserved in the state at the
end of their support term. The
Commission recognizes that many
factors determine a carrier’s deployment
decisions, and affect costs even after
those decisions are made, so the
Commission doubts that a carrier would
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or could systematically exclude the
highest cost locations. At the same time,
it is reasonable to assume that many of
the locations left unserved would have
higher than the average costs calculated
by the model. A higher amount per
location than the average therefore is
appropriate. Moreover, the Commission
wants to provide more incentive to
carriers to build out to 100 percent of
the required number of locations. On a
nationwide basis, the average support
for the top five percent of the highestcost funded locations is 3.77 times the
average support for all funded locations.
The Commission recognizes that costs
will vary by state and carrier, but find
that the administrative simplicity of
using one-half of the nationwide
aggregate factor outweighs the benefits
of false precision. Accordingly, the
Commission will require a price cap
carrier at the end of its support term to
refund an amount based on the number
of locations left unserved and the
average Phase II support the carrier
receives in a state multiplied by 1.89.
35. The Commission concludes that
the administrative simplicity of this
method outweighs the potential benefit
of reducing support based on a more
complicated determination based on the
relative costs of particular locations as
determined by the forward-looking cost
model. As discussed below, the
Commission will require price cap
carriers to include in the final annual
progress report that they submit with
their section 54.313 reports the total
number and geocodes of all funded
locations to which they have deployed
facilities capable of delivering
broadband meeting the requisite
requirements, which will provide an
objective, easily verifiable basis for
USAC to determine the amount of
support to recover in the event there is
less than 100 percent compliance with
the deployment obligation.
36. Finally, for those carriers
accepting Phase II model-based support,
the Commission declines to adopt the
proposal to substitute unserved
locations within partially served census
blocks for locations within funded
census blocks. While the Commission
will continue to explore this issue,
questions remain in the record how best
to determine whether or not a particular
location in a partially served block is
served or unserved without placing
significant burdens on interested parties
and Bureau staff. The Commission notes
that all parties potentially interested in
Connect America support—both
incumbents and new entrants alike—
have an interest in building
economically efficient networks, and
those networks do not neatly align with
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census boundaries. Therefore, the
Commission encourages all stakeholders
interested in the Phase II competitive
bidding process to work together to
propose for future Commission
consideration an administratively
feasible method for ensuring that
unserved consumers in partially served
census blocks are not left behind.
D. Obligations of Carriers Serving NonContiguous Areas That Elect Phase II
Frozen Support
37. Discussion. Based on the record
before the Commission, it concludes
that the best approach is to adopt
tailored service obligations for each of
the non-contiguous carriers that elect to
continue to receive frozen support
amounts for Phase II in lieu of the offer
of model-based support. The
Commission recognizes that noncontiguous carriers face unique
circumstances in the areas they serve
and experience different challenges in
deploying broadband service in those
areas. Consequently, a ‘‘one-size-fits-all’’
approach would leave some of these
carriers potentially unable to fulfill their
service obligations. The Commission
believes that tailoring specific service
obligations to the individual
circumstances of each non-contiguous
carrier that elects to continue receiving
frozen support for Phase II will best
ensure that Connect America funding is
put to the best possible use.
38. Because the amount of frozen
support may in some cases be greater
than the amount of model-based
support, the Commission must reserve
sufficient funds for frozen support
before generally making the offer of
support to price cap carriers in order to
ensure that the Commission does not
exceed the overall budget for the offer
of model-based support. The
Commission requires each noncontiguous carrier to notify the Bureau
no later than 15 days after the release of
this Order whether it is interested in
Phase II frozen support in lieu of modelbased support. The Bureau then will be
able to determine the appropriate
maximum amount of money that should
be reserved out of the $1.8 billion
budget for those carriers. The
Commission concludes that waiting to
extend the offer of model-based support
until it adopts tailored service
obligations for each non-contiguous
carrier would unnecessarily delay the
offer of model-based support to all other
price cap carriers.
39. As the Commission stated in the
April 2014 Connect America FNPRM,
the Commission expects that any
tailored service obligations would be
consistent with the Commission’s goal
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of ensuring universal availability of
modern networks capable of providing
voice and broadband service to homes,
businesses, and community anchor
institutions. The Commission
anticipates being able to adopt these
tailored service obligations no later than
the time the Commission adopts the
rules for the Phase II competitive
bidding process. The non-contiguous
carriers then will have 60 days to
determine whether to accept or decline
the Phase II frozen support. If any noncontiguous carrier declines Phase II
frozen support with tailored service
obligations, those areas may be eligible
in the Phase II competitive bidding
process.
40. Though the Commission does not
determine at this time specific service
obligations for non-contiguous carriers
receiving Phase II frozen support, the
Commission concludes that carriers
serving non-contiguous areas will not be
permitted to use Phase II frozen support
in any areas where there is a terrestrial
provider of fixed residential voice and
broadband service that meets Phase II
requirements, as modified in this Order.
Therefore, the Commission prohibits
non-contiguous carriers receiving frozen
support from using that support in any
census block where there is a
competitor providing service of 10/1
Mbps or greater. If a carrier is unable to
meet this requirement in certain areas,
the Commission requires it to relinquish
the relevant Phase II frozen support for
those areas.
E. ETC Obligations as Funding
Transitions to New Mechanisms
41. Discussion. Based on the
Commission’s consideration of the
relevant statutory framework and the
record before it, the Commission now
concludes that it is in the public interest
to forbear, pursuant to section 10 of the
Communications Act of 1934, as
amended (the Act) from enforcing a
federal high-cost requirement that price
cap carriers offer voice telephony
service throughout their service areas
pursuant to section 214(e)(1)(A) in three
types of geographic areas: (1) Census
blocks that are determined to be lowcost, (2) all census blocks served by an
unsubsidized competitor, as defined in
our rules, offering voice and broadband
at speeds of 10/1 Mbps to all eligible
locations, and (3) census blocks where
a subsidized competitor—i.e., another
ETC—is receiving federal high-cost
support to deploy modern networks
capable of providing voice and
broadband to fixed locations. They will
remain obligated, however, to maintain
existing voice service unless and until
they receive authority under section
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214(a) to discontinue that service. They
also will remain subject to the
obligation to offer Lifeline service to
qualifying low-income households
throughout their service territory.
42. Effectively, as a result of this
limited forbearance, price cap carriers
that accept the state-level commitment
for Phase II support will continue to
have a federal high-cost universal
service obligation to offer voice
telephony services in those census
blocks that are deemed to be extremely
high-cost, unless and until they are
replaced by another ETC in those areas.
The Commission does not address at
this time and in particular do not
forbear from enforcing the section 214(e)
obligation of a price cap carrier to offer
voice telephony services in extremely
high-cost areas where it is not receiving
support, except for the two
circumstances expressly described
herein: Those extremely high-cost
census blocks served by an
unsubsidized competitor or where the
price cap carrier is replaced by another
ETC selected through a competitive
bidding process that is required to offer
voice and broadband services to fixed
locations that meet the Commission’s
public service obligations. Price cap
carriers that decline the state-level
commitment will have the federal highcost universal service obligation to offer
voice telephony services in those census
blocks that are determined to be highcost or extremely high-cost, and
unserved by an unsubsidized
competitor, until they are replaced by
another ETC that is required to offer
voice and broadband service to fixed
locations that meet the Commission’s
public service obligations.
43. As the Commission explained in
the USF/ICC Transformation FNPRM,
76 FR 78384, December 16, 2011, states
have primary authority for designating
ETCs and defining their service areas
except in cases where they lack
jurisdiction over the entity seeking
designation. In such situations, the Act
gives the Commission responsibility for
designating the entity as an ETC. Once
an entity is designated as an ETC it must
‘‘throughout the service area for which
the designation is received . . . offer the
services that are supported by Federal
universal service support mechanisms
under section 254(c).’’ The Commission
defined the service supported by
universal service support mechanisms
under section 254(c)(1) to be ‘‘voice
telephony’’ in the USF/ICC
Transformation Order. An ETC’s
‘‘service area’’ is defined to be the
geographic area as established by the
relevant state commission within which
an ETC has universal service obligations
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and may receive universal service
support.
44. The Commission previously
interpreted section 214(e) of the Act to
require that an ETC offer voice
telephony service throughout its
designated service area. But with the
Bureau’s adoption of the CAM, the
Commission is now able to determine
on a more granular level which areas are
low-cost and therefore do not need a
subsidy because price cap carriers can
recoup their costs through reasonable
end-user rates. The Commission notes
that these low-cost census blocks
already have voice telephony service
with rates well below the reasonable
comparability benchmark for voice
service. And in the other census blocks
where the Commission now grants
limited forbearance, an unsubsidized
competitor exists that is offering voice
telephony service at reasonably
comparable rates, or there is another
ETC with an obligation to offer
reasonably comparable voice telephony
service. Thus, the Commission no
longer finds that it is necessary as a
matter of federal universal service
policy to require price cap carriers to
offer voice telephony service in these
areas to achieve the section 254(b)(3)
principle of ensuring that ‘‘[c]onsumers
in all regions of the Nation . . . should
have access to telecommunications . . .
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.’’
45. Accordingly, as discussed below,
the Commission concludes that
forbearance from the federal high-cost
requirement that price cap carriers offer
voice telephony services throughout
their service area is warranted in these
limited circumstances. The Act requires
the Commission to forbear from
applying any requirement of the Act or
our regulations to a telecommunications
carrier if the Commission determines
that: (1) Enforcement of the requirement
is not necessary to ensure that the
charges, practices, classifications, or
regulations by, for, or in connection
with that telecommunications carrier or
telecommunications service are just and
reasonable and are not unjustly or
unreasonably discriminatory; (2)
enforcement of that requirement is not
necessary for the protection of
consumers; and (3) forbearance from
applying that requirement is consistent
with the public interest. The
Commission concludes each of these
statutory criteria is met for the specific
types of areas described above.
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46. Just and Reasonable. The
Commission concludes that
enforcement of the section 214(e)(1)(A)
federal requirement that price cap
carriers offer voice telephony
throughout their service areas is not
necessary to ensure that the charges,
practices, or classifications of price cap
carriers are just and reasonable and not
unjustly or unreasonably discriminatory
in specific geographic areas. The areas
where the Commission forbears from
enforcing the federal requirement that
price cap carriers offer voice telephony
services are census blocks (1) that have
been deemed low-cost, (2) where there
is an unsubsidized competitor meeting
the Commission’s standards, or (3)
where there is another ETC required to
offer voice and broadband services to
fixed locations that meet the
Commission’s public service
obligations.
47. ETCs receiving Connect America
support will be required to offer
reasonably comparable voice and
broadband services in their funded
high-cost census blocks at rates that are
reasonably comparable to urban areas.
Therefore, there is no need to require a
price cap carrier that declines the offer
of model-based support to offer voice
telephony in those census blocks where
another ETC is subject to that reasonable
comparability requirement.
48. Moreover, in all the census blocks
where the Commission grants
forbearance, the price cap carrier will
remain subject to other Title II
requirements that ensure that voice
telephony rates remain just and
reasonable and not unjustly or
unreasonably discriminatory. Price cap
carriers will continue to be subject to
sections 201 and 202 of the Act, which
place nondiscrimination obligations on
common carriers. Additionally, the
Commission defers to the states’
judgment in assuring that the local rates
that price cap carriers offer in the areas
from which the Commission forbears
remain just and reasonable. It also is
reasonable to expect that the rates that
price cap carriers charge in these areas
for voice telephony will constrain the
rates of other providers. And finally, in
the event that the price cap carrier seeks
to cease offering voice telephony in
these areas, it will be subject to the
section 214(a) discontinuance process
that the Commission addresses more
fully below, during which any concerns
that may be raised by the price cap
carrier’s decision to cease offering voice
service can be addressed if necessary.
The Commission concludes that these
circumstances ensure just, reasonable,
and nondiscriminatory offerings in the
areas where the Commission grants
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forbearance. For these reasons, the
Commission finds that the first prong of
section 10(a) is met.
49. Protection of Consumers. The
Commission finds that, in the three
types of census blocks subject to this
forbearance determination, other
mechanisms will be sufficient to protect
consumers, and therefore it is
unnecessary to enforce the obligation of
price cap carriers to offer voice
telephony services to ensure that
consumers are protected.
50. First, there are several safeguards
that will prevent the consumers living
in these areas from losing access to
voice telephony services. Not enforcing
the high-cost ETC obligation of price
cap carriers to offer voice telephony
services in these areas does not mean
that price cap carriers can immediately
cease providing voice telephony service.
Pursuant to section 214(a) of the Act
and section 63.71 of the Commission’s
rules, all carriers must provide notice to
their customers and the relevant states
in writing that they plan to discontinue
service and then file an application with
the Commission before discontinuing
voice telephony service in an area.
Outside parties have the opportunity to
provide comment on the application,
and the Commission may then decide
that the application should not be
automatically granted. The
discontinuance rules are designed to
ensure that customers are fully informed
of any proposed change that will reduce
or end service, ensure appropriate
oversight by the Commission of such
changes, and provide an orderly
transition of service, as appropriate.
This process allows the Commission to
minimize harm to customers and to
satisfy its obligation under the Act to
protect the public interest.
51. The Commission has discretion to
grant a discontinuance request in whole
or in part, and may attach conditions as
necessary to protect consumers and the
public interest. Given the fact-intensive
nature of this inquiry for each affected
market, the Commission is not
persuaded by suggestions in the record
that it should grant blanket
discontinuance to price cap carriers in
the areas where it grants forbearance.
Where there is a question as to
appropriate alternatives available to
consumers or whether the present or
future public convenience and necessity
will be adversely affected, the
Commission will scrutinize the
discontinuance application, consistent
with its statutory obligations. In
evaluating a section 214 discontinuance
application, the Commission generally
considers a number of factors, including
the existence, availability, and adequacy
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4453
of alternatives. Through consideration
of these factors, the Commission ensures
that the removal of a choice from the
marketplace occurs in a manner that
respects consumer expectations and
needs. The Commission will not
authorize a proposed discontinuance of
service if customers or other end users
would be unable to receive service or a
reasonable alternative, or the public
convenience and necessity would be
otherwise adversely affected. In such
circumstances, the Commission will
require price cap carriers to continue
offering voice telephony services in
those areas in those instances where
there is no reasonable alternative.
Moreover, if an area is unserved and no
common carrier will serve that area, the
relevant state commission (or the
Commission if applicable) is directed by
the Act to designate an ETC to serve the
area with voice telephony service.
52. Second, it is reasonable to expect
that price cap carriers will continue to
offer voice service in these areas even
after they have been relieved of the
federal ETC requirement to do so. They
already have existing networks and
customers in these areas. They have an
economic incentive to continue to serve
these customers and to offer them
innovative new services.
53. Third, even if price cap carriers
were to exit these areas, in areas where
there is an unsubsidized competitor or
another ETC receiving federal high-cost
support to deploy modern networks
capable of providing voice and
broadband to fixed locations, there will
be at least one provider in that area
offering a voice telephony service that is
reasonably comparable to service
available in urban areas. Because
consumers in these areas will have at
least one other option for fixed voice
telephony service at reasonable rates,
there is no need to require price cap
carriers to continue to offer such
services as a federal ETC obligation.
And as explained above, whether
appropriate substitutes exist in all of the
geographic areas in which the
Commission grants limited forbearance
will be addressed through the section
214(a) discontinuance process; thus, the
Commission is comfortable that there is
no need to continue to apply ETC
obligations in these areas.
54. The Commission disagrees with
the claim that the Commission should
not forbear from section 214(e) because
the Commission should ensure that
there is at least one carrier that has a
federal obligation to provide voice
telephony service to all consumers in a
particular area. As explained above,
there are existing regulatory protections
that provide reasonable assurance that
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consumers in the areas where the
Commission forbears from the federal
high-cost ETC obligation to provide
voice telephony service will continue to
have access to voice telephony service.
And as the Commission explains below,
our decision to grant forbearance in
these limited circumstances does not
disturb existing state carrier of last
resort obligations and does not preclude
states that do not have carrier of last
resort obligations from imposing such
obligations. In sum, the Commission
finds that consumers will be protected,
and the second prong of section 10(a) is
satisfied.
55. Public Interest. The Commission
concludes that it is in the public interest
to forbear from the federal high-cost
obligation to offer voice service
throughout the service territory because
enforcement of that obligation is
unnecessary to preserve voice service.
As noted above, the section 214
discontinuance process will ensure that
consumers will continue to have access
to voice service. Price cap carriers that
are granted the ability to discontinue
their voice telephony service as a matter
of federal law because there are
alternatives available will no longer be
required to spend their resources on
maintaining existing voice telephony
services or deploying new infrastructure
to offer voice telephony service in
newly constructed homes where there
are already reasonable substitutes.
Instead, price cap carriers can reallocate
their resources towards making
upgrades to their networks to meet the
broadband needs of their existing or
new customers.
56. The Commission also finds that
limited forbearance from section
214(e)(1)(A) will promote competitive
market conditions by giving price cap
carriers the flexibility to compete on a
more equal regulatory footing in the
voice telephony market with
competitors that already have the
opportunity to make business decisions
about how best to offer voice telephony
service. Accordingly, the Commission’s
decision is consistent with the principle
that universal service policies be
equitable and nondiscriminatory and
the principle of competitive neutrality.
57. The Commission does not take the
further steps suggested by some
commenters of reinterpreting section
214(e)(1) to sunset all existing ETC
designations and require states to redesignate ETCs so that their service
areas include only high-cost funded
areas, imposing rules on state ETC
designations, adopting a federal process
to redefine service areas, or preempting
states. State commenters argue that
these approaches would give
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insufficient consideration to the
important role that Congress has given
the states in defining service areas and
designating ETCs. The Commission’s
decision to grant limited forbearance
does not redefine price cap carriers’
service areas or revoke price cap
carriers’ ETC designations in these
areas, and the Commission emphasizes
that it does not preempt price cap
carriers’ obligation to continue to
comply with any state requirements,
including carrier of last resort
obligations to the extent applicable. The
Commission also notes that it does not
relieve ETCs of their other ‘‘incumbentspecific obligations’’ like
interconnection and negotiating
unbundled network elements pursuant
to sections 251 and 252 of the Act. The
continued existence of these obligations
supports the Commission’s finding that
the forbearance it grants in this Order is
consistent with the public interest.
58. The Commission’s public-interest
finding is also supported by the fact that
any incumbent price cap carrier must
still comply with the requirements of
section 214(e)(4) of the Act regarding
relinquishment of ETC designation. The
Commission is not persuaded that its
decision to not preempt state obligations
constitutes a taking. The Commission
notes that no party has articulated
which specific state obligations
constitute a taking, submitted specific
evidence to show how those state
obligations are burdensome, or provided
detailed analysis as to how the
preemption standard has been met for
these obligations.
59. Timing. Because many ETCs will
no longer receive support for discrete
census blocks upon full implementation
of Phase II in price cap territories, the
Commission believes that it is
appropriate to clarify its expectations
regarding the specific timing of this
forbearance. The Commission finds that
in the first month that support is
disbursed to another ETC that is
required to serve particular census
blocks with voice and broadband
service to fixed locations, incumbent
price cap carriers not receiving such
support will be immediately relieved of
their federal high-cost ETC obligation to
offer voice telephony in those specific
census blocks. Also, incumbent price
cap carrier ETCs will be relieved of the
federal high-cost ETC obligation to offer
voice telephony service in the low-cost
census blocks where Phase II support is
not available and also in census blocks
where the average cost is above the
funding benchmark where an
unsubsidized provider is already
providing service. Incumbent price cap
carriers shall be relieved of their
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existing federal high-cost universal
service obligations to offer voice
telephony service in low-cost census
blocks beginning on the date on which
they accept or decline to make a statelevel commitment. Incumbent price cap
carriers shall be relieved of their
existing federal high-cost universal
service obligations to offer voice
telephony service in census blocks
served by unsubsidized competitors on
the date that there is a determination
that there is an unsubsidized competitor
offering 10/1 Mbps in those census
blocks.
60. Price cap carriers subject to this
limited forbearance in these three
specific types of census blocks must
continue to satisfy all Lifeline ETC
obligations. Therefore, they will
effectively become Lifeline-only ETCs in
the specific census blocks that are the
subject of this forbearance. As such,
they must continue to offer voice
telephony service to qualifying lowincome households in those areas
unless or until they relinquish their ETC
designations in those areas pursuant to
section 214(e)(4), and, in any event,
must continue to offer voice more
generally until they receive
discontinuance authority under section
214.
III. Eligibilty of Areas for Phase II
Support
A. Areas Served by Competitors
61. Discussion. Upon consideration of
the record, the Commission now adopts
these proposals with certain
modifications. First, to ensure support is
targeted to areas lacking 4/1 Mbps, the
Commission will exclude from the offer
of Phase II model-based support to price
cap carriers any census block served by
a subsidized facilities-based terrestrial
competitor that offers fixed residential
voice and broadband services meeting
or exceeding 3 Mbps/768 kbps speed
requirement, as determined by the
Bureau. Second, the Commission
concludes that any such high-cost
blocks served by a subsidized carrier
that are excluded from the offer of
model-based support—including blocks
with service meeting or exceeding the
new 10/1 Mbps speed requirement—
will instead be eligible for support in
the Phase II competitive bidding
process. Third, the Commission
concludes that any area served by an
unsubsidized facilities-based terrestrial
competitor that offers 10/1 Mbps will be
ineligible for support in the Phase II
competitive bidding process.
62. The Commission excludes areas
served by subsidized competitors
providing 3 Mbps/768 kbps or greater
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service from the offer of model-based
support because the Commission is
persuaded that whether another
provider receives high-cost universal
service support should not be the
determining factor in excluding a highcost census block from the offer of
model-based support. In the USF/ICC
Transformation Order, the Commission
eliminated the identical support rule
and established Phase II of the Mobility
Fund as the mechanism to provide
ongoing support for mobile services.
Competitive ETCs offering broadband
services that meet the performance
standards, however, only have the
opportunity to compete for ongoing
support if price cap companies decline
the state-level commitment. Upon
further consideration, the Commission
now concludes that areas served by a
subsidized facilities-based terrestrial
competitor offering fixed residential
voice and broadband services meeting
or exceeding 3 Mbps/768 kbps should
not be part of the price cap carrier statelevel commitment.
63. By excluding these areas from the
offer of Phase II model-based support
and instead including them in the Phase
II competitive bidding process, the
Commission gives competitive ETCs
serving these areas the opportunity to
compete for ongoing support in their
high-cost areas, regardless of whether a
price cap incumbent accepts or declines
the state-level commitment. This
modification recognizes that these areas
are high-cost and, absent such ongoing
support, it may not be economically
feasible for providers in these areas to
continue providing service. Removing
these census blocks from the offer of
model-based support and instead
immediately opening these areas to
competitive bidding allows competition
to drive support to efficient levels, to be
awarded to the provider that will most
effectively use funds.
64. Changing the minimum speed
threshold for network deployment to
10/1 Mbps does not mean, however, that
the Commission should use the 10/1
Mbps coverage map in determining
what areas are served by either
unsubsidized or subsidized competitors
for purposes of the offer of Phase II
model-based support. The version of the
CAM adopted by the Bureau for
purposes of identifying the initial list of
eligible census blocks provides support
for census blocks with an average cost
per location per month of between
$52.50 and $207.81 and that are
unserved by an unsubsidized
competitor offering 3 Mbps/768 kbps
broadband service. While adjusting the
CAM to provide support for census
blocks not served with 10/1 Mbps
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service would increase the number of
locations eligible for the offer of modelbased support, this increase would be
predominately the result of the
extremely high-cost threshold shifting
downwards. The end result would be
that locations in those blocks that are
more expensive to serve, relatively
speaking, that currently do not receive
even 3 Mbps/768 kbps service would no
longer be eligible for the offer of modelbased support. In contrast, using the
same 3 Mbps/768 kbps coverage map to
target the offer of Phase II model-based
support to locations in these higher cost
census blocks will result in Connect
America model-based funding being
targeted to the very same areas that the
Commission intended to be subject to
the offer of model-based support when
it adopted the USF/ICC Transformation
Order in 2011—those lacking the most
basic Internet access.
65. The Commission is not persuaded
by the suggestion that it would be more
efficient to use the 10/1 Mbps coverage
map because that will result in more
locations being served. The fact that
areas that currently have 3 Mbps/768
kbps service but not 10/1 Mbps are
excluded from the offer of model-based
support does not mean there is no
mechanism to ensure that consumers in
those areas have access to service
meeting the newly established standard.
Instead, the Commission concludes that
any area lacking service from a
facilities-based terrestrial competitor
that meets our new 10/1 Mbps standard
and existing latency/usage/pricing
requirements will be eligible for support
in the Phase II competitive bidding
process. The Commission concludes it
is preferable to address these areas in
the competitive bidding process, as
competitive forces will drive support to
efficient levels in those geographic areas
that now lack broadband by virtue of
our adjustment of the minimum speed
threshold.
66. The Commission also is not
persuaded by arguments that using the
10/1 Mbps coverage map to determine
eligibility for the offer of model-based
support is necessary to enable price cap
carriers to build more efficient
networks. The Commission notes that
price cap carriers—like all other
providers—will be able to bid on these
census blocks in the Phase II
competitive bidding process, providing
them with an opportunity to gain
additional territory for network
efficiency.
67. Utilizing the 3 Mbps/768 kbps
coverage map to exclude areas eligible
for model-based support also is
administratively efficient. Excluding
areas served by qualifying competitors
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providing at least 10/1 Mbps service
would require the Bureau to conduct a
new challenge process to determine
which areas that have 3 Mbps/768 kbps
lack 10/1 Mbps service. The Phase II
challenge process has been underway
since June 2014, and with the record
now closed, the Bureau is poised to
complete these adjudications. The
Commission believes that undertaking
such an effort to conduct a
supplemental challenge process would
unnecessarily delay the offer of modelbased support that otherwise would
occur in early 2015. The Commission
therefore directs the Bureau to complete
the challenge process for the offer of
model-based support and to remove
from eligibility any blocks it determines
are served by a qualifying competitor
providing service of at least 3 Mbps/768
kbps.
68. Finally, the Commission
concludes that any area served by an
unsubsidized facilities-based terrestrial
competitor that offers 10/1 Mbps will be
ineligible for support in the Phase II
competitive bidding process. Because
these areas already have service that
meets or exceeds the new speed
requirement without receiving high-cost
funding, the Commission does not have
the same concern as it does for areas
served by subsidized competitors—that
it may not be economically feasible for
providers in these areas to continue
providing service absent support. The
Commission believes that it would be an
inefficient use of Connect America
support to provide funding in these
areas. The Commission expects to
update the list of census blocks that will
be excluded from eligibility from the
Phase II competitive bidding process
based on the most current data available
at the time shortly before that auction to
take into account any new deployment
that is completed in the coming year.
69. The Commission also notes that
any areas left unserved after the Phase
II competitive bidding process will be
addressed through the Remote Areas
Fund. The Commission does not
establish a separate Remote Areas Fund
at this time, as the Commission has
concluded that parties should be free in
the Phase II competitive bidding process
to submit bids to bring service to the
highest cost, most remote areas of the
nation. Once that Phase II competitive
bidding process occurs, and the
Commission has determined which
winning bidders are authorized to
receive support, the Commission will be
in a much better position to determine
what areas, if any, remain unserved and
can be addressed through a separate
Remote Areas Fund.
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B. Rural Broadband Experiments
70. Discussion. The Commission now
establishes a process to enable the
selection of next-in-line bidders for
rural broadband experiments support, in
the event any of the provisionally
selected bidders defaults by failing to
meet our technical and financial
requirements before the time the Bureau
finalizes the list of census blocks that
will be offered to the price cap carriers.
All bidders in the rural broadband
experiments that wished to remain in
consideration for rural broadband
experiment support should have filed
their financial and technical
information no later than 7 p.m. EST on
Tuesday, January 6, 2015, in WC Docket
No. 14–259. In particular, they must file
the most recent three consecutive years
of audited financial statements,
including balance sheets, net income,
and cash flow, in order to enable a
thorough financial review. They also
must submit a description of the
technology and system design that
would be used to deliver voice and
broadband service meeting the requisite
speeds to all locations in the funded
census blocks, including a network
diagram, which must be certified by a
professional engineer. This will enable
Bureau staff quickly to identify
additional provisionally selected
bidders in the event that any of the
initially selected bidders default before
the Bureau finalizes the list of eligible
census blocks for the offer of modelbased support, which the Commission
expects may occur in early 2015. All
bidders that wish to remain under
consideration must seek confidential
treatment of their filing in order to
protect the integrity of the competitive
bidding process.
71. The Commission concludes that
excluding from the offer of model-based
support any census block included in a
non-winning rural broadband
experiment application submitted in
funding category one will ensure the
more efficient use of Connect America
support. The Commission will only
exclude those census blocks where a
losing bidder has indicated that it
wishes to remain in consideration for
rural broadband experiment support as
described above. The Commission will
not exclude from the offer of modelbased support any area where the rural
broadband experiment applicant is
seeking a waiver of one or more
requirements established for rural
broadband experiments, including the
submission of the requisite financial
and technical information. The
Commission concludes that the time
necessary to resolve such waiver
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requests to determine which blocks to
remove from the offer of model-based
support would unnecessarily delay the
implementation of Phase II. The
Commission emphasizes that it has no
intention of delaying the offer of modelbased support to the price cap carriers,
and expect to proceed with that offer in
early 2015.
72. The Commission determines that
rural broadband experiment proposals
submitted in funding category one that
facially meet the requirements for
submission of financial and technical
information could help us achieve our
universal service goals in a costeffective manner. Though all rural
broadband experiment proposals seek
an amount of support at or below
model-calculated levels, proposals in
funding category one are required to
commit to constructing networks that
are capable of providing 100/25 Mbps.
The Commission is not convinced that
providing model-based support to a
price cap carrier in an area where
another entity has demonstrated an
interest to provide service that so
significantly exceeds the Commission’s
new speed requirements, for an amount
at or below the model-determined
support, would be an efficient use of
funding. Further, because the proposals
the Commission received in funding
category one requested support below
the level of support that the model
would otherwise provide, excluding
these areas from the offer of modelbased support and instead making them
available in the Phase II competitive
bidding process should enable us to
stretch our finite Connect America
budget even further.
73. The Commission is not persuaded
by concerns that this approach could
result in an opportunity for gaming by
allowing a party to submit a rural
broadband experiments application that
the party never intended to honor
simply to reserve its opportunity to
participate in the Phase II competitive
bidding process. The Commission
believes that the parameters it
establishes above—that only rural
broadband experiment proposals in
category one for which the applicant
submits the required technical and
financial information will be excluded
from the offer of model-based support—
alleviate any concerns that the
Commission’s decision would enable
applicants to game the system. The
submission of a network engineering
diagram certified by a professional
engineer and audited financial
statements as described above provides
some assurance that these are serious
bidders prepared to participate in the
Phase II competitive bidding process.
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Through such action, these parties will
demonstrate a baseline understanding of
Commission regulations and
procedures. Moreover, entities with
three years of audited financial
statements by definition are ongoing
businesses.
74. This decision also reflects our
balancing of section 254(b) principles
under the circumstances here. In the
USF/ICC Transformation Order, the
Commission concluded—and it now
reaffirms—that the CAF ‘‘should
ultimately rely on market-based
mechanisms, such as competitive
bidding, to ensure the most efficient and
effective use of public resources.’’ The
Commission adopted a mechanism to
offer incumbent price cap carriers a
right of first refusal to provide service in
exchange for model-based support due
to its recognition that the continued
existence of legacy obligations could
complicate the transition to competitive
bidding and might cause consumer
disruption. The Commission also
reasoned that the offer would generally
include only areas where the incumbent
price cap carrier would likely have the
only wireline facilities, and that other
bidders may have the ability to deliver
scalable broadband meeting the
Commission’s requirements over time. It
was also ‘‘our predictive judgment that
the incumbent LEC is likely to have at
most the same, and sometimes lower,
costs compared to a new entrant in
many of these areas.’’ Under the
analysis in the USF/ICC Transformation
Order, these considerations weighed
against strict application of the
competitive neutrality principle and
other factors that might, on their own,
otherwise have led us to move more
quickly to competitive bidding.
75. The Commission is persuaded to
revisit that balancing in certain targeted
ways here. Today, the rural broadband
experiments give the Commission more
of an ability to identify areas that are
likely to be candidates to transition
more quickly to competitive bidding,
and it is the Commission’s predictive
judgment that those areas will be better
served, and the Connect America budget
better used, by excluding those areas
from price cap carrier’s right of first
refusal, enabling both incumbents and
competitors to seek support through a
competitive process. In light of these
new circumstances, and against the
backdrop of other changes adopted in
this Order, the Commission finds that
moving more quickly to competitive
bidding in certain respects as a result of
the changes adopted here is warranted
under the Commission’s reevaluation of
the balancing of the competitive
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neutrality principle against other
universal service goals.
76. The Commission does recognize
the possibility that if it removes these
areas from the offer of model-based
support, both the price cap carrier and
the rural broadband experiment
applicant ultimately may opt not to bid
on such areas in the Phase II
competitive bidding process. That risk
exists as well for areas where the price
cap carrier declines the offer of modelbased support. On balance, however, the
Commission concludes that this risk is
outweighed by the public policy
benefits potentially, and the
Commission believes likely, to be
gained of having consumers in these
areas receive higher-quality service from
a competitor at or below the amount of
model-based support and being able to
ensure that additional consumers are
served with that unused funding. The
Commission also notes that any areas
left unserved after the Phase II
competitive bidding process will be
addressed through the Remote Areas
Fund.
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IV. Phase II Transitions
77. In this section, the Commission
addresses several issues relating to the
implementation of Phase II in areas
currently served by price cap carriers.
First, the Commission adopts our
proposal to align the funding years for
price cap carriers accepting modelbased Phase II support with the calendar
year, but clarify that the deployment
obligation will commence on the date of
public notice of authorization for Phase
II funding. Second, the Commission
eliminates the transition year formerly
adopted by the Commission in the USF/
ICC Transformation Order. Third, the
Commission clarifies that Phase I
incremental support should not be
included in the calculations of
transitional support for those price cap
carriers that choose to accept modelbased support that is less than frozen
support in a given state.
A. Aligning Connect America Phase II
Funding and Calendar Years
78. Discussion. The Commission
adopts its proposal to align the funding
years for the offer of model-based
support with the calendar year. Thus,
the Commission adopts its proposal to
disburse a lump sum amount to those
carriers for whom model-based support
in a given state will be greater than
Connect America Phase I support. This
lump sum will represent the additional
amount of model-based support (above
the frozen support that price cap
carriers already receive) that would
accrue for the beginning months of the
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year while price cap carriers are
considering the offer of model-based
support. Thus, as discussed above,
carriers accepting model-based support
will receive such support in calendar
years 2015 through 2020.
79. The Commission anticipates
extending the offer of model-based
support in early 2015, with carriers
responding 120 days later. Then, the
Bureau will issue a Public Notice
authorizing USAC to disburse the new
funding amounts for those providers
electing model-based support. The
Commission directs USAC to disburse
the lump sum payment in the month
after the issuance of this Public Notice,
drawing the funds from the broadband
reserve account. The Commission will,
however, provide an option for a carrier
to elect to defer this lump sum payment
until calendar year 2016, in recognition
that may be the first year in which
significant capital investments are made
to meet the deployment obligations
established for Phase II.
80. The Commission clarifies that
while carriers will receive a full year of
Phase II support in calendar year 2015,
the deployment obligation commences
on the date of the Public Notice
authorizing Phase II-model based
support. The Commission acknowledges
recipients that accept model-based
support thus will be subject to different
obligations for the time periods before
and after they are authorized to receive
Phase II support in calendar year 2015,
and direct USAC to take that into
account when conducting beneficiary
compliance reviews of price cap carrier
ETCs for calendar year 2015.
B. Transition Where Model-Based
Support is Greater Than Connect
America Phase I Support
81. Discussion. The Commission
adopts its proposal to eliminate the
transition period for price cap carriers
that elect to receive model-based
support in states where such support is
greater than the frozen support they
receive under Phase I. Because the
affected price cap carriers will be
receiving more support in these states
than they did in Phase I, the
Commission finds that it is unnecessary
to provide a transition year for these
carriers to adjust to receiving Phase II
support. Instead, it is in the public
interest and will further our Connect
America goals immediately to provide
these price cap carriers with their full
Phase II support, recognizing that
significant capital investments will be
required to deploy voice and broadband
capable networks to unserved areas. The
Commission also concludes that it will
lessen administrative costs for USAC:
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once the Bureau issues the Public
Notice authorizing model-based support
for those entities electing to make a
state-level commitment, that monthly
support amount will remain unchanged
for the duration of the term of support,
rather than making adjustments to
account for a transition year.
C. Base Support Amount for Transition
To Connect America Phase II
82. Discussion. The Commission
adopts its proposal to clarify that for
purposes of transitioning from Connect
America Phase I to Phase II, the
Commission will only provide a
percentage of Connect America Phase I
frozen support; Phase I incremental
support will not be included in this
transition. Because Phase I incremental
support was intended to be a one-time
‘‘immediate boost to broadband
deployment’’ while the Commission
worked on implementing Phase II, the
Commission concludes that there is no
need for price cap carriers to continue
to receive a percentage of that support
as ongoing support as they transition to
Phase II.
V. Reforms in Rate-of-Return Study
Areas
83. In the April 2014 Connect
America FNPRM, the Commission
sought comment on several proposals
for near-term reform of high-cost
universal service support for rate-ofreturn carriers. The Commission
addresses these here. First, the
Commission adopts a revised
methodology for applying the cap on
HCLS so that support is distributed
more equitably among all high-cost
carriers, and so that carriers with the
highest loop costs have better incentives
to curb waste in the operation of their
study areas. Second, the Commission
adopts its proposals regarding the 100
percent overlap rule, concluding that
the Bureau should determine whether
there is a 100 percent overlap every
other year, and the prior year’s support
should be used as the basis for the
phase-down in support for any study
area with a 100 percent overlap. The
Commission concludes that the Bureau
should not determine 100 percent
overlap based on the existence of a
subsidized provider.
84. The Commission does not, at this
time, take action with regard to any of
the proposals for long term reform for
rate-of-return carriers. Although a
number of parties have submitted
proposals that may have promise, the
Commission find that further analysis
and development of these proposals is
necessary. The Commission expects to
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continue to develop the record and act
on long-term reform in the coming year.
A. HCLS Reimbursement Rates Under
the Cap
85. In the April 2014 Connect
America FNPRM, the Commission noted
that it ‘‘continues to have significant
concerns regarding the structure and
incentives created under the existing
high-cost mechanisms for rate-of-return
carriers, such as the ‘race to the top’
incentives that exist under HCLS and
the ‘cliff effect’ of the annual adjustment
of the HCLS cap.’’ The Commission
addresses this concern for the near-term
by modifying the methodology for
reimbursements under HCLS.
86. The indexed cap on HCLS has
seen steady reductions in recent years as
a result of decreasing numbers of
working loops and low inflation rates.
As a result, carriers with costs close to
the ever rising NACPL risk losing all
HCLS for prior investments, while
carriers with a higher cost per loop are
sheltered from the impact of the HCLS
cap. The carriers with the highest loop
costs relative to the national average
have minimal incentive to reduce their
expenses and eliminate waste: between
HCLS and interstate common line
support, it is possible for 100 percent of
their incremental loop costs to be
recovered through universal service.
The Commission observes that these
carriers with the highest HCLS
reimbursement rates have steadily
increased their reported loop costs (by
36 percent since 2004), while carriers
with lower reimbursement rates have
had stable or reduced loop costs. In
combination, the decreasing HCLS cap
and the increasing demand from the
carriers reporting the highest cost per
loop create yearly increases in the
NACPL used to calculate HCLS,
precluding many carriers from receiving
any HCLS and significantly reducing
support for others with costs per loop
close to the NACPL. A comparison of
the 646 study areas that submitted cost
studies for each year from 2004 to 2013
shows what has occurred over the last
decade: in 2006, 579 of the 646 study
areas were receiving HCLS support, but
by 2015, only 461 of them are projected
to receive support, meaning that 118 or
20 percent of these study areas fell ‘‘off
the cliff’’ over this ten-year period.
These features of the HCLS rule were
not altered in the USF/ICC
Transformation Order.
87. In the April 2014 Connect
America FNPRM, the Commission
proposed to mitigate these deficiencies
by reducing support proportionally
among all HCLS recipients through
decreased reimbursement percentages
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for all carriers instead of adjusting the
NACPL. Specifically, the Commission
proposed to freeze the NACPL that is
used to determine support and instead
to decrease HCLS proportionately
among all HCLS recipients. As specified
in the proposed rule, the reduction
would be achieved by multiplying each
carrier’s calculated HCLS by the ratio of
the indexed HCLS cap to the aggregate
amount of HCLS initially calculated for
all carriers using the frozen NACPL.
This effectively would freeze the
NACPL at the capped amount as a date
certain, such as December 31, 2014.
88. This proposal initially received
widespread support from commenters
responding to the FNPRM. Subsequent
to the closing of the comment cycle,
however, the Rural Associations argued
the Commission’s proposed
methodology should be modified to
lessen the impact on the companies
with the highest reported cost per loop
by continuing to raise the NACPL as is
done under the current methodology. In
particular, the Rural Associations
propose that if HCLS as initially
calculated based on the frozen NACPL
exceeds the indexed cap, then the
NACPL would be adjusted so the HCLS
amounts equal the indexed cap plus half
of the difference between the initially
calculated amount and the indexed cap.
The HCLS amounts calculated using
this adjusted NACPL would then be
reduced proportionally so that total
HCLS matched the indexed cap. The
Rural Associations argue that their
proposal would mitigate what they
consider disproportionate effects on the
carriers with the highest cost per loop.
89. Discussion. After full
consideration of the record, the
Commission now adopts their proposal,
as described in the April 2014 Connect
America Order and FNPRM, 79 FR
39164, July 9, 2014 and 79 FR 39196,
July 9, 2014. The Commission finds that
this targeted rule change will be
effective in addressing the lack of
incentives to curb waste that results
from the race to the top and providing
a more equitable distribution of support
to all high-cost rate-of-return carriers,
including those currently facing a loss
of support due to the cliff effect.
90. The Commission declines to adopt
the Rural Associations’ proposed
modification. Under their proposal
current recipients of HCLS would
continue to lose HCLS as the HCLS cap
is lowered, albeit not to the same extent
as occurs today. Yet addressing the cliff
effect was one of the core objectives of
the Commission’s proposal. Although
the Rural Associations’ proposal may, to
some degree, mitigate both the cliff
effect and the race to the top as
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compared to our current methodology,
based on the record before the
Commission, it finds it would be less
effective at addressing both objectives
than the Commission’s proposal. In a set
of examples provided by the Rural
Associations, the two lowest cost
companies in the set each would receive
approximately 40 percent less in the
first year after implementation of the
proposed rule than they would under
the Commission’s proposals and would
have their HCLS entirely eliminated by
the fifth year of operation. Indeed,
under NTCA’s proposal, the cliff effect
would immediately eliminate support
from 11 study areas that would continue
to receive support under the
Commission’s proposal. In other words,
the cliff effect would remain significant
if the Rural Associations’ proposal were
implemented. Similarly, the Rural
Associations’ proposal significantly
preserves the advantages under HCLS of
being a company reporting a relatively
higher cost per loop, even if it does
eliminate the possibility that a carrier
could recover 100 percent of any
marginal loops costs it incurs.
91. Although the Rural Associations
express concern that the Commission’s
proposal may have a disproportionate
effect on the carriers with the highest
cost per loop, in their own examples,
the Commission does not believe that
this will result in insufficient support
for any carrier. Using NTCA’s analysis,
the highest cost carrier would lose only
seven percent of HCLS as compared to
the current rules (and receives only
three percent less than it would receive
under the Commission’s proposal).
Because that carrier would likely also be
receiving a significant amount of ICLS,
the reduction as a fraction of total
support would be even less than seven
percent. Moreover, the fact that reported
costs have increased for some high-cost
recipients at rates substantially above
that for other high-cost recipients
suggests that the current construct of the
rule does not create structural
incentives for these carriers to take
measures to reduce their expenses to the
extent possible. There are several
potential reasons why reported costs per
loop for certain carriers are increasing at
rates in excess of that for other high-cost
recipients: They are investing more,
they are subject to greater competition
and therefore experiencing line loss, or
they are spending imprudently. One of
the Commission’s goals as it considers
proposals for longer-term reform is to
provide a more equitable opportunity
for all carriers in high-cost areas to
invest in broadband-capable
infrastructure. In the meanwhile, the
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rule change the Commission is adopting
in this Order will strengthen the
incentive for the carriers with the
highest reported costs per loop to
manage their expenditures in light of
the existence of the cap on HCLS.
92. The Commission also is not
persuaded by commenters arguing that
these changes are unnecessary. TCA
argues that the $250 per-line per month
cap effectively addresses the race to the
top. In fact, the $250 per-line cap affects
only a small number of the very highest
cost carriers and, for the reasons
explained above, does not, it concludes,
comprehensively address the race to the
top or the cliff effect. Those higher cost
carriers not subject to the $250 per-line
cap still have limited incentive to curb
waste, and numerous others are hurt by
the cliff effect.
93. The Commission does not agree
with the Concerned Rural ILECs that the
race to the top is a budgetary problem
and could be solved by increasing the
size of the HCLS budget. Although
significantly increasing the HCLS
budget might address the cliff effect, it
would, if anything, exacerbate the race
to the top by eliminating the limited
constraints the HCLS mechanism
currently has on carrier spending and
undermining the carriers’ incentives to
curb wasteful expenses related to
common line costs.
94. The Commission disagrees with
TCA’s contention that it should not
adopt its proposal due to retroactivity.
As a matter of law, the proposed rule is
not impermissibly retroactive. The
Commission notes that the Tenth Circuit
recently rejected arguments that the
changes the Commission made to the
HCLS and Safety Net Additive (SNA)
rules in the USF/ICC Transformation
Order violated the presumption against
retroactivity. The court there found that
‘‘the Order . . ., which makes only
prospective changes to the
reimbursement framework, including
the elimination of SNA, is not
retroactive.’’ A rule does not operate
retroactively merely because it is
‘‘applied in a case arising from conduct
antedating [its] enactment’’ or ‘‘upsets
expectations based on prior law.’’
Rather, a rule operates retroactively if it
‘‘takes away or impairs vested rights
acquired under existing law, or creates
a new obligation, imposes a new duty,
or attaches a new disability in respect to
transactions or considerations already
past.’’ The application of the rules
adopted here will not take away or
impair a vested right, create a new
obligation, impose a new duty, or attach
a new disability in respect to the
carriers’ previous expenditures. There is
no statutory provision or Commission
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rule that provides companies with a
vested right to continue to receive
support at particular levels or through
the use of a specific methodology.
Although application of these rules may
affect the amount of support a carrier
receives for expenditures made in 2013,
it does not change the legal landscape
in which those expenditures were made.
Rather, as the Commission observed in
the USF/ICC Transformation Order,
‘‘section 254 directs the Commission to
provide support that is sufficient to
achieve universal service goals, [but]
that obligation does not create any
entitlement or expectation that ETCs
will receive any particular level of
support or even any support at all.’’
95. Moreover, as a matter of policy,
the Commission is not persuaded that
even the highest cost rate-of-return
carriers will be unduly harmed by this
rule. As noted above, in the Rural
Associations’ examples, the highest cost
company sees a reduction of only six
percent of its HCLS (and a smaller
fraction of its total high-cost support) as
a result of this rule. TCA nonetheless
argues that this rule change ‘‘unfairly
penalizes’’ rate-of-return carriers ‘‘that
have made investments to bring
broadband to their customers in
accordance with the FCC’s goals.’’ TCA
provides no basis, however, for
distinguishing between carriers that
have, in fact, prudently invested in
broadband facilities and those that have
failed to curb wasteful expenses. The
Commission notes that if any rate-ofreturn carrier suffers significant harm as
a result of this rule change and the
carrier’s earlier prudent investment, it
may seek waiver of our rules.
96. The Commission declines to adopt
the Eastern Rural Telecom Association’s
(ERTA) proposal that the frozen NACPL
be indexed to inflation or some other
low-growth factor as a method of
removing the cliff effect. The
Commission finds that the other steps
taken here will effectively address this
issue. Moreover, because the
Commission anticipates that it will
adopt more comprehensive reforms for
rate-of-return carriers in the coming
year, indexing the NACPL is unlikely to
have a material effect.
97. The Commission recognizes that
NTCA’s analysis is sensitive to a
number of forecasting assumptions,
including line growth or loss and
changes in cost per loop. For that
reason, the Commission will closely
monitor the effects of this rule change
on rate-of-return carriers and will revisit
this issue in the event that it has
unanticipated results. In sum, however,
the Commission is not convinced based
on the record before us that the Rural
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Associations’ proposal is superior to
what the Commission proposed in the
April 2014 Connect America NPRM.
B. 100 Percent Overlap Rule
98. Discussion. The Commission
previously directed the Bureau ‘‘to
publish a finalized methodology for
determining areas of overlap and a list
of companies for which there is a 100
percent overlap.’’ The Commission
expects the Bureau will, in 2015, review
study area boundary data in conjunction
with other data collected via FCC Form
477 or the State Broadband Initiative to
determine whether and where 100
percent overlaps exist. The Bureau will
publish its preliminary determination of
those areas subject to 100 percent
overlap and then provide an
opportunity for comment on these
preliminary determinations, building on
experience gained in conducting the
Phase II challenge process in price cap
areas. Once the comment period is
complete, the Bureau then will finalize
its determination of where there is a 100
percent overlap. The Commission
directs the Bureau to repeat this process
every other year to determine whether
additional study areas have become
subject to the 100 percent overlap rule.
Finally, the Commission adopts its
proposal to base support reduction
phase down on the amount of support
awarded in the year prior to the
determination, rather than 2010.
Because implementation of the 100
percent overlap determinations for rateof-return carriers has taken longer than
initially anticipated, the Commission
believes that basing reductions on
current support will lead to a smoother
transition.
99. The Commission declines to
modify the 100 percent overlap rule to
eliminate support in any study area
with a qualifying competitor, as
opposed to an unsubsidized competitor.
As explained above, the reason the
Commission is removing high-cost
census blocks with a qualifying
competitor from eligibility for Connect
America Phase II model support is to
provide an opportunity for all parties to
compete for support for those areas
through a competitive bidding process.
There is no comparable process in place
in rate-of-return study areas for several
subsidized competitors to compete with
each other for support to serve the study
area. In the case of rate-of-return
carriers, removing study areas from
eligibility where there are qualifying
competitors would mean that there is no
mechanism to provide support for highcost areas that presumably need support
in order for consumers to have access to
voice and broadband services, once the
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VI. Accountability and Oversight
100. In this section, the Commission
takes several steps to strengthen the
uniform national framework for
accountability that the Commission
adopted in the USF/ICC Transformation
Order. First, the Commission codifies a
broadband reasonable comparability
rates certification requirement for all
recipients of high-cost support that are
subject to obligations to deploy
broadband to fixed locations. Second,
the Commission requires price cap
carriers that accept model-based support
to submit specific location information
with their service quality improvement
plans and progress reports to enhance
the Commission’s ability to monitor
their use of Connect America support.
Third, the Commission adjusts the
framework for reduction in support for
late-filed section 54.313 and 54.314
reports and certifications. Fourth, the
Commission adopts measures to be used
in the event specific ETCs do not meet
certain terms and conditions of highcost support.
A. Reasonably Comparable Rates
Certification for Broadband
101. Discussion. The Commission
amends section 54.313(a) to include a
new subsection 12 that requires
recipients of high-cost and/or Connect
America Fund support that are subject
to broadband performance obligations to
submit a broadband reasonable
comparability rate certification with
their annual section 54.313 report (FCC
Form 481). In that certification, support
recipients must certify that the pricing
of the broadband offering they are
relying upon to meet their broadband
performance obligation is no more than
the applicable benchmark as specified
in a public notice annually issued by
the Bureau, or is no more than the nonpromotional prices charged for a
comparable fixed wireline service in
urban areas in the state or U.S. Territory
where that high-cost support recipient
receives support. Recognizing that highcost support recipients are permitted to
offer a variety of broadband service
offerings as long as they offer at least
one standalone voice service plan and
one service plan that provides
broadband that meets our requirements,
the Commission only requires that they
make the above certification for one of
their broadband service offerings that
satisfies all of the Commission’s
requirements, including that the service
be offered throughout the high-cost
support recipient’s supported area in
the relevant state or U.S. Territory, or
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for rate-of-return carriers, be made
available upon reasonable request. The
Commission concludes that requiring
high-cost support recipients to make
this certification will ensure that the
Commission can monitor their
compliance with conditions that fulfill
the section 254(b) principle that
‘‘[c]onsumers in all regions of the
Nation . . . should have access to
telecommunications and information
services . . . that are available at rates
that are reasonably comparable to rates
charged for similar services in urban
areas.’’
102. The Commission requires highcost support recipients that elect to
certify that their pricing of services in
rural areas is no greater than their
pricing in urban areas to rely upon the
non-promotional prices charged for
comparable fixed wireline services. The
Commission declines to permit highcost support recipients to certify that the
pricing they offer for their broadband
services is no more than the nonpromotional prices charged for
comparable ‘‘broadband’’ services. The
Commission notes that the applicable
benchmark adopted by the Bureau is
two standard deviations above the
average urban rates for a specific set of
service characteristics, consistent with
the Commission’s precedent for the
voice reasonable comparability
benchmark. The Commission also
already provides a presumption for
high-cost support recipients that offer
rates that exceed the applicable
benchmark that those rates are
reasonably comparable if they are the
same as rates being offered in urban
areas for a comparable fixed wireline
service. Fixed wireless services tend to
be more expensive than fixed wireline
services even when data usage
allowances and the speeds offered are
taken into account. Moreover,
consumers living in urban areas
typically have the choice of obtaining
broadband service from at least one
fixed wireline provider. The
Commission therefore concludes it is
appropriate to use fixed wireline
services in urban areas as the reference
point for reasonably comparable rates,
recognizing that rates in rural areas may
be higher than urban areas.
103. This certification will be
included in the FCC Form 481 to be
filed in 2016, addressing performance
during 2015, after the requirement has
received Paperwork Reduction Act
(PRA) approval from the Office of
Management and Budget. All parties
subject to a broadband public interest
requirement to serve fixed locations that
file this report in 2016 will be required
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to make the certification, and annually
thereafter.
104. Recipients of funding through
the Phase II competitive bidding process
must submit their first certification with
the first section 54.313 annual report
they are required to submit after support
is authorized, and each year thereafter
with their annual report.
B. Monitoring Progress in Meeting
Deployment Obligations
105. Discussion. Here, the
Commission takes action to enhance our
ability to monitor the use of Connect
America support and ensure that price
cap carriers that accept model-based
support use that support for its intended
purpose. Specifically, as proposed by
USTelecom, the Commission requires
all price cap carriers accepting modelbased support to include in the annual
progress report that they submit each
year with their section 54.313 annual
reports a list of the geocoded locations
to which they have newly deployed
facilities capable of delivering
broadband meeting the requisite
requirements with Connect America
support in the prior year. The list must
identify which locations are located in
a Phase II-funded block and which
locations are located in extremely highcost census blocks. The first list must be
submitted with their July 2016 annual
report, reflecting deployment status
through the end of 2015. This first list
should also include the geocoded
locations that a price cap carrier had
already built out to with service meeting
the Commission’s requirements before
receiving Phase II support. In
subsequent years, the list should
provide the relevant information for
newly built locations in the prior
calendar year. The last list that price cap
carriers submit with their July 2021
annual reports must include the total
number and geocodes of all supported
locations to which they have deployed
facilities capable of delivering
broadband meeting the requisite
requirements.
106. The Commission concludes that
it is in the public interest to require
price cap carriers accepting modelbased support to provide this data on an
annual basis. The Commission and
USAC will analyze the data to
determine how Connect America
support is being used to ‘‘improve
broadband availability, service quality,
and capacity,’’ consistent with a recent
recommendation of the Government
Accountability Office. The Commission
also intends to make such data available
to the public on its Web site in a userfriendly manner so that the public will
be able to see at a granular level how
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high-cost funds are being used to invest
in new broadband infrastructure to
bring new services to the area. The
Commission finds that the benefits in
collecting this data outweigh any
potential burdens on the price cap
carriers in reporting this data annually,
given that the Commission expects that
price cap carriers will already be
collecting such data for their own
business purposes and to be prepared to
respond to the compliance reviews that
the Commission directs USAC to
undertake.
107. The Commission will also collect
from price cap carriers in their annual
section 54.313 reports the total amount
of Connect America Phase II support, if
any, they used for capital expenditures
in the previous calendar year. The
Commission concludes that the benefit
to the Commission of being able to
determine how price cap carriers are
using Phase II funding outweighs any
potential burden on price cap carriers in
submitting this information given that it
expects that price cap carriers will track
their capital expenditures for Phase II in
the regular course of business.
108. The Commission directs USAC to
review Phase II recipients’ compliance
with deployment obligations and the
Commission’s public interest
obligations at the state level—that is,
whether the carrier is meeting interim
and final deployment obligations for the
total number of locations required for
the state. As discussed above, the
Commission concludes that conducting
compliance reviews at the state level
would be less administratively
burdensome for the Commission, USAC,
and the recipients of Phase II support
than at the census block level. The
Commission expects USAC to review
compliance with the deployment
obligations for all price cap recipients
over the course of the Phase II support
term. This will ensure the Commission
is able to fulfill our responsibility to
monitor each Phase II recipient’s use of
high-cost support in areas subject to the
state-level commitment.
C. Reduction in Support for Late Filing
109. Discussion. The Commission
adopts a rule to reduce on a pro-rata
daily basis the support for ETCs that
miss certification and data submission
deadlines. Based on the Commission’s
experience to date with the current
support reduction scheme, it has
determined that reducing support for
late filers on a quarterly basis is unduly
harsh given that most late filings are
inadvertent, particularly for those
recipients that file closer to the
beginning of the quarter than the end of
the quarter. The Commission concludes
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that readjusting the support reductions
to more closely calibrate the reduction
of support with the period of noncompliance is a more reasonable
approach for handling the recurring
problem of an occasional failure to file.
110. The Commission will impose a
minimum reduction of support of seven
days given the importance of ETCs
meeting filing deadlines. After the
initial seven days, support will be
reduced further on a day-by-day basis
until the high-cost recipient files the
required report or certification, plus the
minimum seven-day reduction.
Reducing support on a day-by-day basis
plus an additional seven-day reduction
is an appropriate measure to create
incentives for high-cost recipients to
make their filings as soon as they have
determined that they have missed the
applicable deadlines.
111. The Commission recognizes that
despite its best efforts, an ETC may miss
a deadline due to an administrative
oversight but still file within a few days
of the deadline. For a late filer, the
Commission finds that it is appropriate
to provide a one-time grace period of
three days so that an ETC that quickly
rectifies its error within three days of
the deadline will not be subject to the
seven-day minimum loss of support.
The Commission directs USAC to send
a letter to such an ETC notifying the
ETC that its filing was late but cured
within the grace period. If the ETC again
files any high-cost filing late, the grace
period will not be available. Repeated
mistakes, even inadvertent, are
indicative of a lack of adequate policies
and procedures to ensure timely filing.
If an ETC misses a filing deadline more
than once due to its inadvertence, the
Commission finds that the support
reductions that it adopts should provide
an incentive to ETCs to revise their
procedures to ensure that such
inadvertence does not become a pattern.
112. The Commission disagrees with
arguments that it should lengthen the
one-time grace period because new
ETCs receiving support may be
unfamiliar with high-cost filing
requirements or that ETCs may
inadvertently forget to file. The
Commission imposes support
reductions on late filers to impress upon
high-cost recipients the importance of
understanding obligations that come
with high-cost funding and the need for
the Commission and USAC to receive
the data in a timely manner so that it
can properly administer the Universal
Service Fund. A one-time grace period
of three days achieves an appropriate
balance between requiring strict
compliance with our rules and
providing an opportunity for ETCs that
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may be first time filers or that make an
uncharacteristic mistake to rectify
quickly an error.
113. Although ETCs are required to
submit separate filings for each
operating company, the Commission
notes that many holding companies
administer the filings for all of their
operating companies that may hold an
ETC designation. The Commission
expects that holding companies will
take measures to ensure that all of their
operating companies meet the required
deadlines. Thus, the Commission will
apply the grace period at the holding
company level. If an ETC misses the
deadline and exercises the grace period
in a prior year, that grace period will not
be available for all subsequent years to
another one of the holding company’s
operating companies that holds an ETC
designation to serve a different study
area.
114. The Commission is not
persuaded by the Rural Associations’
argument, relying on precedent related
to the Eighth Amendment to the
Constitution ‘‘Excessive Fines’’ clause,
that the support reductions are
‘‘unreasonable’’ and ‘‘excessive
penalties.’’ Because ETCs have no
property interest in or right to continued
universal service support, nor any right
to support other than as provided for by
the Commission’s rules, the reduction of
an ETC’s universal support payment
does not constitute a payment by the
ETC to the government that is subject to
the Excessive Fines clause of the Eighth
Amendment.
115. In any case, even if that
framework were viewed as applicable,
given the important role these data and
certifications play in the administration
of the Universal Service Fund, the
Commission finds that the support
reductions that it adopts are sufficiently
proportional to the harm caused by late
filings. The reductions increase as the
length in delay of the filings increase,
and thus are proportional to the amount
of harm that is caused when the
Commission, state commissions, and
USAC are delayed in being able to
monitor the use of universal service
funds. Moreover, by basing the support
reductions on each ETC’s daily support
amount, the Commission has calibrated
the amount of support that a late filer
will have reduced with the benefit they
receive from the Universal Service
Fund. Contrary to the arguments of
some commenters, the Commission
finds that the benefits for consumers
nationwide of an effective oversight
scheme outweigh the potential impact
of support reductions on the customers
of late filing ETCs. Congress gave the
Commission broad discretion under
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section 254 to determine support levels
and adjust them as needed, and hence
any reductions in support provided for
under the Commission’s rules are well
within our legislative mandate.
116. The Commission is not
persuaded by suggestions that the
Commission should refrain from
imposing support reductions for
untimely filings and instead rely on
Commission enforcement authority in
the event of non-compliance. If the
Commission were to conduct an
enforcement proceeding every time an
ETC misses a deadline, that would
divert Commission resources from other
Commission priorities. Instead, by
adopting a clear and predictable support
reduction scheme, the Commission,
USAC, and ETCs will know exactly
what consequences will result under the
rules if filings are missed, rather than
having to handle each issue on a caseby-case basis. Similarly, the
Commission is not persuaded that
support reductions are unnecessary
because ETCs are already motivated to
file on time to avoid a delay in receiving
their support. Support reductions
provide more of an incentive to file on
time because ETCs actually lose support
under the mechanism established in our
rules rather than simply have it delayed
if they do not meet a deadline.
117. Given the Commission’s decision
to modify the support reductions for late
filings, the Commission adopts its
proposal to require strict adherence to
filing deadlines. The Commission will
cease the practice of finding there is
good cause for a waiver of high-cost
filing deadlines in circumstances where
an ETC has missed the deadline due to
an administrative or clerical oversight
and where that ETC has promised to
revise its procedures to ensure future
compliance, as proposed in the April
2014 Connect America FNPRM. The
Commission expects all ETCs, even
those new to the Commission’s
processes or with small staffs, to
implement appropriate procedures to
ensure compliance with the
Commission’s filing deadlines and other
regulatory requirements.
D. Measures To Address NonCompliance
118. Discussion. In this Order the
Commission adopts specific measures
that the Bureau will take in the event
that certain ETCs do not meet their
high-cost support deployment
obligations for fixed services or do not
offer rates for fixed services that are
reasonably comparable to rates offered
in urban areas.
119. In addition, the Commission
reminds all ETCs that they may also be
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subject to other sanctions for noncompliance with the terms and
conditions of high-cost funding,
including, but not limited to, potential
revocation of ETC designation and
suspension or debarment. The
Commission emphasizes that it will
enforce the terms and conditions of
high-cost support vigorously. The
Enforcement Bureau may initiate an
enforcement proceeding in situations
where waiver is not appropriate. In
proposing any forfeiture, consistent
with the Commission’s rules, the
Enforcement Bureau shall take into
account the nature, circumstances,
extent, and gravity of the violations.
1. Non-Compliance With Deployment
Obligations
120. For ETCs that must meet specific
build-out milestones, the Commission
adopts a framework for support
reductions that are calibrated to the
extent of an ETC’s non-compliance with
these deployment milestones. The
Commission concludes that adopting
support reductions that scale with the
extent of an ETC’s non-compliance will
create incentives for ETCs to come into
compliance as soon as possible, and that
a support reduction scheme that is tied
to specific milestones is a clear,
straightforward approach.
121. The Commission has given rateof-return carriers greater flexibility to
build out their networks by requiring
that they deploy service meeting the
Commission’s requirements upon
reasonable request. Because rate-ofreturn carriers are not at this time
required to build out to a certain
number of locations, the Commission
concludes it is appropriate to handle
matters regarding their potential noncompliance on a case-by-case basis.
122. Trigger for Default. A default will
occur if an ETC is receiving support and
then fails to meet its high-cost support
deployment obligations. For example, a
default will occur if a recipient of Phase
II funding fails to meet a build-out
milestone. The Commission directs
USAC to confirm that Phase II ETCs are
in fact meeting the terms and conditions
of that support by verifying the buildout certifications that recipients of
Phase II support are required to provide
to ensure that Connect America funds
are being used to deploy infrastructure
to eligible locations.
123. To the extent that an ETC
determines that it will not meet a buildout milestone, that ETC must notify the
Commission, USAC, and the relevant
state or U.S. Territory, and Tribal
government as appropriate, no later than
ten business days after the relevant
deadline, rather than waiting until the
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filing of the next annual report. The
Commission also expects that the states,
U.S. Territories, and Tribal governments
will continue to aid us in our joint
oversight role and notify the
Commission when an ETC is not
meeting its obligations.
124. Support Reductions for ETCs
with Defined Build-Out Milestones. If an
ETC begins receiving support and the
Bureau subsequently determines that
the ETC has defaulted, the Bureau will
issue a letter documenting the default,
and USAC will take the steps outlined
below in the following month. The
measures that will be taken will be
dependent on the extent of an ETC’s
non-compliance.
125. Specifically, for interim
milestones that occur during the
support term:
• Tier 1: If an ETC has a compliance
gap of at least five percent but less than
15 percent of the number of locations
that the ETC is required to have built
out to by the interim milestone, the
Bureau will issue a letter to that effect.
The ETC will then be required to file
quarterly reports identifying the
geocoded locations to which the ETC
has newly deployed facilities capable of
delivering broadband meeting the
requisite requirements with Connect
America support in the previous
quarter. The ETC must continue to file
these quarterly reports until the ETC
reports that it has reduced the
compliance gap to less than five percent
of the required number of locations for
that interim milestone and the Bureau
issues a letter to that effect.
• Tier 2: If an ETC has a compliance
gap of at least 15 percent but less than
25 percent of the number of locations
that the ETC is required to have built
out to by the interim milestone, USAC
will withhold 15 percent of the ETC’s
monthly support for the state and the
ETC will be required to file quarterly
reports. Once the ETC has reported that
it has reduced the compliance gap to
less than 15 percent of the required
number of locations for that interim
milestone for that state, the Bureau will
issue a letter to that effect, USAC will
stop withholding support, and the ETC
will receive all of the support that had
been withheld. The ETC will then move
to Tier 1 status.
• Tier 3: If an ETC has a compliance
gap of at least 25 percent but less than
50 percent of the number of locations
that the ETC is required to have built
out to by the interim milestone, USAC
will withhold 25 percent of the ETC’s
monthly support for the state and the
ETC will be required to file quarterly
reports. Once the ETC has reported that
it has reduced the compliance gap to
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less than 25 percent of the required
number of locations for that interim
milestone, the Bureau will issue a letter
to that effect, the ETC will move to Tier
2 status, and USAC will withhold 15
percent of its monthly support for that
state until the ETC reports that it is
eligible to move to Tier 1 status. Once
the ETC has reported that it qualifies for
Tier 1 status, and the Bureau issues a
letter to that effect, it will be eligible to
have all of its support restored, the ETC
will receive all of the support that had
been withheld, and it will move to Tier
1.
• Tier 4: If an ETC has a compliance
gap of 50 percent or more of the number
of locations that the ETC is required to
have built out to by the interim
milestone, USAC will withhold 50
percent of the ETC’s monthly support
for the state, and the ETC will be
required to file quarterly reports. As
with the other tiers, as the ETC reports
that it has lessened the extent of its noncompliance, and the Bureau issues a
letter to that effect, it will move down
the tiers until it reaches Tier 1 (or no
longer is out of compliance with the
relevant interim milestone). At that
point, the ETC will be eligible to have
all of its support restored, the ETC will
receive all of the support that had been
withheld, and, if it now is meeting the
interim milestone, it will no longer be
required to file quarterly reports.
On the other hand, if after having 50
percent of its support withheld for six
months the ETC has not reported that it
is eligible for Tier 3 status (or one of the
other lower tiers), USAC will withhold
100 percent of the ETC’s support for that
state and will commence recovery
action for a percentage of support that
is equal to the ETC’s compliance gap
plus ten percent of the ETC’s support
that has been paid to that point. For
example, if an ETC has not built out to
75 percent of the required number of
locations in a state, USAC would
recover 85 percent of the ETC’s support
that had been paid to that point. The
Commission concludes that recovering
the additional ten percent of the ETC’s
support that has been disbursed up to
that point will deter ETCs from deciding
that they would rather return the
support than meet their commitments
for the supported area. Because these
are high-cost areas that lack
unsubsidized providers at the outset of
the support term, an ETC’s refusal to
serve these locations could potentially
leave the locations with no options for
reasonably comparable service.
• If at any point during the support
term the ETC reports that it is eligible
for Tier 1 status, it will have its support
fully restored including any support
that had been withheld, USAC will
repay any funds that were recovered,
and the ETC will move to Tier 1 status.
126. As noted above, the Commission
requires ETCs to report to the
Commission, USAC, and the relevant
state or U.S. Territory, and Tribal
government as appropriate, within ten
business days of the final build-out
milestone if they have missed this
milestone. If an ETC misses the final
build-out milestone, it must identify by
what percentage it has missed the final
build-out milestone. Absent an
extension of time for circumstances
beyond the ETC’s control, the ETC will
then have twelve months from the date
of the final build-out milestone deadline
to come into full compliance with this
milestone. If an ETC does not report that
it has come into full compliance within
twelve months, the Bureau will issue a
letter to this effect. USAC will then
4463
recover an amount of support that is
equal to 1.89 times the average amount
of support per location received in the
state over the six-year term for the
relevant number of locations that the
ETC has failed to deploy to, plus ten
percent of the ETC’s total Phase II
support received in the state over the
six-year term. As explained above, the
Commission concludes that recovering
an additional ten percent of the ETC’s
total Phase II support will deter ETCs
from deciding to return their support
rather than build out to more than a de
minimis number of locations.
127. If after the ETC’s support term
has ended, USAC determines in the
course of a compliance review that the
ETC has not retained sufficient evidence
to demonstrate that it has built out to all
of the locations required by the final
build-out milestone, USAC must recover
support from that ETC. Specifically, if
the ETC does not have sufficient
evidence to demonstrate that it has built
out to the total number of required
locations, USAC will recover an amount
of support that is equal to 1.89 times the
average amount of support per location
received in the state over the six-year
term for the relevant number of
locations for which the ETC has failed
to retain sufficient evidence, plus ten
percent of the ETC’s total support
received in that state over the six-year
term. The Commission expects that
ETCs will have strong incentives to
adopt policies and procedures to retain
sufficient evidence to aid the
Commission and USAC in our oversight
responsibility.
128. Table 2 below summarizes the
regime the Commission adopts in this
Order.
TABLE 2—NON-COMPLIANCE MEASURES
Tier
1
2
3
4
Compliance gap
..............................
..............................
..............................
..............................
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Recovery after Last
Milestone.
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Non-compliance measure
5% to less than 15% ..............................................................
15% to less than 25% ............................................................
25% to less than 50% ............................................................
50% or more ..........................................................................
Quarterly reporting.
Quarterly reporting + withhold 15% of monthly support.
Quarterly reporting + withhold 25% of monthly support.
Quarterly reporting + withhold 50% of monthly support for
six months; after six months withhold 100% of monthly
support and recover percentage of support equal to compliance gap plus 10% of support disbursed to date.
Twelve months to come into full compliance; after twelve
months recover support equal to 1.89 times the average
amount of support per location received in the state over
the six-year term for the relevant locations, plus 10% of
total Phase II support.
If carrier elects the flexibility option: its compliance gap will
be determined by the percentage of total locations it does
not build to after subtracting the percentage of locations it
has identified it will not serve (e.g., if a carrier is offered
100 total locations, and it elects not to serve 4 locations
but by the end of the term it has not served 20 locations,
its compliance gap is 16% (20% minus 4% = 16%)). If
carrier does not elect flexibility option: anything less than
100% compliance.
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129. The Commission provides the
following example in Table 3 of how
these compliance measures will be
implemented for a price cap carrier that
accepts the state-level commitment. For
simplicity, the Commission assumes the
price cap carrier must serve 100 total
locations and does not elect the
flexibility option.
TABLE 3—NON-COMPLIANCE MEASURES EXAMPLE
Milestone
Tier
Compliance gap
1
2
3
4
...............................
...............................
...............................
...............................
Serves
Serves
Serves
Serves
35
31
21
20
to 38 locations.
to 34 locations.
to 30 locations.
locations or fewer.
December 31, 2018—60% of total locations (60 locations) ...........................................
1
2
3
4
...............................
...............................
...............................
...............................
Serves
Serves
Serves
Serves
52
46
31
30
to 57 locations.
to 51 locations.
to 45 locations.
locations or fewer.
December 31, 2019—80% of total locations (80 locations) ...........................................
1
2
3
4
...............................
...............................
...............................
...............................
Serves
Serves
Serves
Serves
69
61
41
40
to 76 locations.
to 68 locations.
to 60 locations.
locations or fewer.
December 31, 2020—100% of total locations (100 locations) .......................................
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December 31, 2017—40% of total locations (40 locations) ...........................................
Recovery ..................
130. The Commission concludes that
the approach it adopts in the Order is
preferable to the other alternative the
Commission sought comment on—
permitting ETCs to submit a plan to
USAC for coming into compliance
before support reductions would begin.
Such an approach would likely to be
resource-intensive for Commission staff
and USAC because each default would
need to be handled on a case-by-case
basis. When there are clear milestones
that must be met, such an approach is
unnecessary. Moreover, it likely would
take a significant amount of time for an
ETC to develop a compliance plan and
for the plan to be approved, and then it
will take even more time for the ETC to
come into full compliance. During this
extended period consumers will be
without service meeting the
Commission’s requirements. The
Commission finds that the more
automatic support reduction scheme it
adopts above will more quickly
motivate ETCs to come into compliance
and is a clearer, less resource-intensive
process for the Commission, USAC, and
ETCs.
131. Non-Compliance Measures for
Rate-of-Return Carriers. The
Commission will determine on a caseby-case basis whether rate-of-return
carriers are fulfilling their obligation to
provide voice and broadband services
meeting the Commission’s requirements
upon reasonable request. The
Commission clarifies that rate-of-return
carriers should report any requests that
are deemed unreasonable as unfulfilled
requests in their section 54.313 annual
reports. The Commission expects that
USAC will verify that rate-of-return
carriers have sufficient evidence to
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19:04 Jan 26, 2015
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demonstrate that any unfulfilled
requests were in fact unreasonable.
Rate-of-return carriers should consult
the Declaratory Ruling contained in the
April 2014 Connect America Order, 79
FR 39164, July 9, 2014, for guidance on
what constitutes an unreasonable
request to determine the types of
evidence they should retain to
demonstrate that unfilled requests were
unreasonable. The Commission declines
at this time to specify a schedule of
support reductions for rate-of-return
carriers because they are not subject to
defined build-out milestones. To the
extent USAC determines in the course
of an audit that a carrier has insufficient
evidence to support a decision to deny
a request for service, such findings shall
be reported as ‘‘other matters.’’ Because
rate-of-return carriers are not required to
serve a set number of locations, and the
Commission only recently issued
guidance on the reasonable request
standard, the Commission does not have
sufficient experience to create specific
milestones that would require support
reductions. However, the Commission
reserves the right to adopt a more
automatic support reduction framework
for rate-of-return carriers at a future
date.
132. Adjustment of Deployment
Obligations. In the event an ETC is
unable to meet the required deployment
obligations due to circumstances
beyond its control (e.g., a severe weather
event, an inability to secure a right of
way, or an unforeseen obstacle that
prevents building to a location), that
ETC may petition for an extension of
time or waiver of the relevant build-out
milestone pursuant to section 1.3 of the
Commission’s rules. The Commission
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Serves 99 locations or fewer.
notes that to the extent the ETC is
seeking an extension or waiver of a
specific build-out milestone, the
Commission expects that the ETC would
file its petition seeking that relief no
later than 30 days prior to the build-out
milestone. The Commission encourages
ETCs that submit such petitions to
continue to work diligently towards
meeting the terms and conditions of
their support while their petitions are
pending. If the petitioning ETC is
unable to meet the terms and conditions
by the time the build-out milestone
occurs, then the Bureau will issue a
letter finding default, and if applicable,
reporting obligations and support
reductions will begin as described
above. If an extension of time or waiver
subsequently is granted, the petitioning
ETC will have all of the funds that have
been withheld or recovered restored and
will be entitled to receive its subsequent
disbursements.
2. Non-Compliance With Reasonably
Comparable Pricing Obligations
133. The Commission concludes that
this issue is best dealt with on a caseby-case basis for the time being for all
ETCs that must certify that the rates
they offer are reasonably comparable.
The Commission finds that it would not
be appropriate to apply a uniform
support reduction to all ETCs that fail
to offer reasonably comparable prices. It
would be inequitable to reduce support
by the same percentage amount
regardless of whether the ETC was
charging prices a few dollars above what
is considered to be reasonably
comparable or charging much higher
prices. Similarly, because the pricing
benchmarks for voice and broadband are
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presumptions, not mandates, the
Commission must provide an
opportunity for affected ETCs to present
information to rebut the presumption.
Because there may be a variety of factors
that go into determining whether prices
are reasonably comparable (e.g., speeds
and data usage limits being offered), the
Commission is not prepared at this time
to establish a method for scaling the
support reductions based on a level of
non-compliance. The Commission finds
that it would be beneficial to consider
each potential instance of noncompliance separately and gather more
information to inform future judgments
as to what is a reasonable approach.
134. The Commission directs USAC to
gather additional information when
ETCs fail to make the reasonably
comparable certification about their
voice or broadband rates in their section
54.313 annual report and transmit that
information to the Commission. The
ETC may present factual evidence
explaining the unique circumstances
that preclude it from offering service at
a rate meeting the requisite benchmark.
Based on this information, the
Commission will be in a better position
at a future date to determine the
appropriate steps to take when there is
non-compliance with this requirement.
VII. Procedural Matters
A. Paperwork Reduction Act Analysis
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135. This document contains new
information collection requirements
subject to the PRA. It will be submitted
to the Office of Management and Budget
(OMB) for review under section 3507(d)
of the PRA. OMB, the general public,
and other Federal agencies are invited to
comment on the new information
collection requirements contained in
this proceeding. In addition, the
Commission notes that pursuant to the
Small Business Paperwork Relief Act of
2002, the Commission previously
sought specific comment on how the
Commission might further reduce the
information collection burden for small
business concerns with fewer than 25
employees. The Commission describes
impacts that might affect small
businesses, which includes most
businesses with fewer than 25
employees, in the Final Regulatory
Flexibility Analysis (FRFA).
B. Final Regulatory Flexibility Analysis
136. As required by the Regulatory
Flexibility Act of 1980 (RFA), as
amended, an Initial Regulatory
Flexibility Analyses (IRFA) was
incorporated in the April 2014 Connect
America FNPRM. The Commission
sought written public comment on the
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19:04 Jan 26, 2015
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proposals in the April 2014 Connect
America FNPRM, including comment
on the IRFA. The Commission did not
receive any relevant comments on the
April 2014 Connect America FNPRM
IRFA. This Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the
Report and Order
137. With this Order, the Commission
takes another momentous stride towards
fully implementing a modernized
universal service regime capable of
meeting consumer demands for 21st
century networks. The Commission
finalizes the decisions necessary to
proceed with the offer of support to
price cap carriers in early 2015, thereby
paving the way for the deployment of
new broadband infrastructure to
millions of unserved Americans. In the
coming months, the Commission will
turn its attention to finalizing the rules
for the Phase II competitive bidding
process that will occur in those states
where the price cap carrier declines the
offer of model-based support.
138. Throughout the universal service
reform process, the Commission has
sought to ensure that all consumers
‘‘have access to . . . advanced
telecommunications and information
services’’ and benefit from the historic
technology transitions that are
transforming our nation’s
communications services. The Order
continues down that path. The
Commission adopts several revisions to
Connect America Phase II to account for
changes in the marketplace since the
USF/ICC Transformation Order was
adopted. In particular, the Commission
revises the minimum speed requirement
that recipients of high-cost universal
service must offer. The Commission
finds that it is in the public interest to
require recipients of high-cost support
subject to broadband performance
obligations to serve fixed locations to
provide at least a minimum broadband
speed of 10 Mbps downstream.
139. The Commission adopts targeted
changes to the framework established
for the offer of model-based support to
price cap carriers. Specifically, the
Commission makes an adjustment to the
term of support, adopts more evenly
spaced interim deployment milestones,
and concludes that adjustments of up to
five percent in the number of locations
that must be served with corresponding
support reductions are appropriate to
ensure that deployment obligations
recognize conditions in the real world.
The Commission also forbears from the
federal high-cost universal service
obligation of price cap carriers to offer
voice service in low-cost areas where
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4465
they do not receive high-cost support, in
areas served by an unsubsidized
competitor, and in areas where the price
cap carrier is replaced by another ETC.
140. In addition, the Commission
addresses where Phase II support will
be available, both for the offer of modelbased support to price cap carriers and
the subsequent Phase II competitive
bidding process. First, the Commission
will exclude from the offer of Phase II
model-based support any census block
served by a subsidized facilities-based
terrestrial competitor that offers fixed
residential voice and broadband
services meeting or exceeding the 3
Mbps downstream/768 kbps upstream
(3 Mbps/768 kbps) performance metrics,
as determined by the Bureau upon
completion of the Phase II challenge
process. The Commission also reaffirms
its decision to exclude from the offer of
model-based support any census block
served by an unsubsidized competitor
that meets or exceeds the 3 Mbps/768
kbps performance metrics. Second, the
Commission concludes that those highcost blocks served by a subsidized
carrier that are excluded from the offer
of model-based support—including
blocks with service meeting or
exceeding the new 10 Mbps
downstream/1 Mbps upstream (10/1
Mbps) speed requirement—will be
eligible for support in the Phase II
competitive bidding process. Third, the
Commission concludes that any area
served by an unsubsidized facilitiesbased terrestrial competitor that offers
10/1 Mbps will be ineligible for support
in the Phase II competitive bidding
process. Fourth, the Commission
excludes from the offer of model-based
support those areas that are the subject
of category one bids that were not
selected for the rural broadband
experiments and where a losing bidder
has filed specific information indicating
that it wishes to remain in consideration
for rural broadband experiment support.
141. In the Connect America Fund
FNPRM, the Commission sought
comment on a number of near-term and
longer-term reforms for rate-of-return
carriers, including developing and
implementing a ‘‘Connect America
Fund’’ for rate-of-return carriers.
Although a number of parties have
submitted proposals that may have
promise, the Commission finds that
further analysis and development of
these proposals is necessary. The
Commission will continue to explore
the possibility of a voluntary path to
model-based support for those rate-ofreturn carriers that choose to pursue it.
The Commission also expects to
continue to develop the record and act
in the coming year on alternatives for
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those who do not elect to receive modelbased support.
142. In this Order, the Commission
focuses on near-term reforms for rate-ofreturn carriers. Specifically, the
Commission adopts a revised
methodology for applying the cap on
high-cost loop support to distribute that
support on a more equitable basis. The
Commission also addresses the
proposals from the April 2014 Connect
America FNPRM regarding the 100
percent overlap rule.
143. In the USF/ICC Transformation
Order, the Commission established a
‘‘uniform national framework for
accountability’’ that replaced the
various data and certification filing
deadlines that carriers previously were
required to meet. In the Order, the
Commission takes several steps to
strengthen that framework, including
codifying the reasonable comparability
pricing requirement for broadband
services, adjusting the reductions in
support for late-filed annual ETC reports
and certifications, and providing greater
specificity regarding how the
Commission will address noncompliance with the Commission’s
service obligations for voice and
broadband.
144. The actions the Commission
takes in this Order, combined with the
implementation of the rural broadband
experiments and the reforms the
Commission implemented earlier in the
year, will allow the Commission to
continue to advance further down the
path outlined in the USF/ICC
Transformation Order. The Commission
expects the Bureau to complete the
Connect America Phase II challenge
process and then make a final
determination as to which census blocks
will be eligible for the offer of modelbased Phase II support by early 2015.
That final determination will allow the
Commission to extend the offers of
Phase II model-based support to price
cap carriers to fund the deployment of
voice and broadband-capable
infrastructure in their territories. The
carriers will then have 120 days to
consider the offer, and in those states
where the price cap carrier declines the
offer of support, the Commission will
move forward with the Phase II
competitive bidding process to
determine support recipients.
2. Summary of Significant Issues Raised
by Public Comments in Response to the
IRFA
145. There were no relevant
comments filed that specifically
addressed the rules and policies
proposed in the April 2014 Connect
America FNPRM IRFA. Nonetheless, the
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19:04 Jan 26, 2015
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agency considered the potential impact
of the rules proposed in the IRFA on
small entities and reduced the
compliance burden for all small entities
in order to reduce the economic impact
of the rules enacted herein on such
entities.
3. Description and Estimate of the
Number of Small Entities to Which the
Proposed Rules Will Apply
146. The RFA directs agencies to
provide a description of, and where
feasible, an estimate of the number of
small entities that may be affected by
the rules adopted herein. The RFA
generally defines the term ‘‘small
entity’’ as having the same meaning as
the terms ‘‘small business,’’ ‘‘small
organization,’’ and ‘‘small governmental
jurisdiction.’’ In addition, the term
‘‘small business’’ has the same meaning
as the term ‘‘small-business concern’’
under the Small Business Act. A ‘‘smallbusiness 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.
147. Small Businesses. Nationwide,
there are a total of approximately 28.2
million small businesses, according to
the SBA.
148. 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.
149. 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 Order.
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150. 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 Order
151. The Commission has 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. The
Commission has therefore included
small incumbent LECs in this RFA
analysis, although it emphasizes that
this RFA action has no effect on
Commission analyses and
determinations in other, non-RFA
contexts.
152. 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
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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 Order.
153. Interexchange Carriers (IXCs).
Neither the Commission nor the SBA
has developed a size standard for small
businesses specifically applicable to
interexchange 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, 359 companies
reported that their primary
telecommunications service activity was
the provision of interexchange services.
Of these 359 companies, an estimated
317 have 1,500 or fewer employees and
42 have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of
interexchange service providers are
small entities that may be affected by
rules adopted pursuant to the Order.
154. Prepaid Calling Card Providers.
Neither the Commission nor the SBA
has developed a small business size
standard specifically for prepaid calling
card providers. The appropriate size
standard under SBA rules is for the
category Telecommunications Resellers.
Under that size standard, such a
business is small if it has 1,500 or fewer
employees. According to Commission
data, 193 carriers have reported that
they are engaged in the provision of
prepaid calling cards. Of these, an
estimated all 193 have 1,500 or fewer
employees and none have more than
1,500 employees. Consequently, the
Commission estimates that the majority
of prepaid calling card providers are
small entities that may be affected by
rules adopted pursuant to the Order.
155. Local Resellers. The SBA has
developed a small business size
standard for the category of
Telecommunications Resellers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 213
carriers have reported that they are
engaged in the provision of local resale
services. Of these, an estimated 211
have 1,500 or fewer employees and two
have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of local
resellers are small entities that may be
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affected by rules adopted pursuant to
the Order.
156. Toll Resellers. The SBA has
developed a small business size
standard for the category of
Telecommunications Resellers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 881
carriers have reported that they are
engaged in the provision of toll resale
services. Of these, an estimated 857
have 1,500 or fewer employees and 24
have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of toll
resellers are small entities that may be
affected by rules adopted pursuant to
the Order.
157. Other Toll Carriers. Neither the
Commission nor the SBA has developed
a size standard for small businesses
specifically applicable to Other Toll
Carriers. This category includes toll
carriers that do not fall within the
categories of interexchange carriers,
operator service providers, prepaid
calling card providers, satellite service
carriers, or toll resellers. 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, 284 companies
reported that their primary
telecommunications service activity was
the provision of other toll carriage. Of
these, an estimated 279 have 1,500 or
fewer employees and five have more
than 1,500 employees. Consequently,
the Commission estimates that most
Other Toll Carriers are small entities
that may be affected by the rules and
policies adopted pursuant to the Order.
158. 800 and 800-Like Service
Subscribers. Neither the Commission
nor the SBA has developed a small
business size standard specifically for
800 and 800-like service (toll free)
subscribers. The appropriate size
standard under SBA rules is for the
category Telecommunications Resellers.
Under that size standard, such a
business is small if it has 1,500 or fewer
employees. The most reliable source of
information regarding the number of
these service subscribers appears to be
data the Commission collects on the
800, 888, 877, and 866 numbers in use.
According to our data, as of September
2009, the number of 800 numbers
assigned was 7,860,000; the number of
888 numbers assigned was 5,588,687;
the number of 877 numbers assigned
was 4,721,866; and the number of 866
numbers assigned was 7,867,736. The
Commission does not have data
specifying the number of these
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subscribers that are not independently
owned and operated or have more than
1,500 employees, and thus are unable at
this time to estimate with greater
precision the number of toll free
subscribers that would qualify as small
businesses under the SBA size standard.
Consequently, the Commission
estimates that there are 7,860,000 or
fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888
subscribers; 4,721,866 or fewer small
entity 877 subscribers; and 7,867,736 or
fewer small entity 866 subscribers.
159. 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
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, the Commission
estimates that the majority of wireless
firms can be considered small.
160. Broadband Personal
Communications Service. The
broadband personal communications
service (PCS) spectrum is divided into
six frequency blocks designated A
through F, and the Commission has held
auctions for each block. The
Commission defined ‘‘small entity’’ for
Blocks C and F as an entity that has
average gross revenues of $40 million or
less in the three previous calendar
years. For Block F, an additional
classification for ‘‘very small business’’
was added and is defined as an entity
that, together with its affiliates, has
average gross revenues of not more than
$15 million for the preceding three
calendar years. These standards
defining ‘‘small entity’’ in the context of
broadband PCS auctions have been
approved by the SBA. No small
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businesses, within the SBA-approved
small business size standards bid
successfully for licenses in Blocks A
and B. There were 90 winning bidders
that qualified as small entities in the
Block C auctions. A total of 93 small
and very small business bidders won
approximately 40 percent of the 1,479
licenses for Blocks D, E, and F. In 1999,
the Commission re-auctioned 347 C, E,
and F Block licenses. There were 48
small business winning bidders. In
2001, the Commission completed the
auction of 422 C and F Broadband PCS
licenses in Auction 35. Of the 35
winning bidders in this auction, 29
qualified as ‘‘small’’ or ‘‘very small’’
businesses. Subsequent events,
concerning Auction 35, including
judicial and agency determinations,
resulted in a total of 163 C and F Block
licenses being available for grant. In
2005, the Commission completed an
auction of 188 C block licenses and 21
F block licenses in Auction 58. There
were 24 winning bidders for 217
licenses. Of the 24 winning bidders, 16
claimed small business status and won
156 licenses. In 2007, the Commission
completed an auction of 33 licenses in
the A, C, and F Blocks in Auction 71.
Of the 14 winning bidders, six were
designated entities. In 2008, the
Commission completed an auction of 20
Broadband PCS licenses in the C, D, E
and F block licenses in Auction 78.
161. Advanced Wireless Services. In
2008, the Commission conducted the
auction of Advanced Wireless Services
(‘‘AWS’’) licenses. This auction, which
as designated as Auction 78, offered 35
licenses in the AWS 1710–1755 MHz
and 2110–2155 MHz bands (AWS–1).
The AWS–1 licenses were licenses for
which there were no winning bids in
Auction 66. That same year, the
Commission completed Auction 78. A
bidder with attributed average annual
gross revenues that exceeded $15
million and did not exceed $40 million
for the preceding three years (‘‘small
business’’) received a 15 percent
discount on its winning bid. A bidder
with attributed average annual gross
revenues that did not exceed $15
million for the preceding three years
(‘‘very small business’’) received a 25
percent discount on its winning bid. A
bidder that had combined total assets of
less than $500 million and combined
gross revenues of less than $125 million
in each of the last two years qualified
for entrepreneur status. Four winning
bidders that identified themselves as
very small businesses won 17 licenses.
Three of the winning bidders that
identified themselves as a small
business won five licenses.
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Additionally, one other winning bidder
that qualified for entrepreneur status
won 2 licenses.
162. Narrowband Personal
Communications Services. In 1994, the
Commission conducted an auction for
Narrowband PCS licenses. A second
auction was also conducted later in
1994. For purposes of the first two
Narrowband PCS auctions, ‘‘small
businesses’’ were entities with average
gross revenues for the prior three
calendar years of $40 million or less.
Through these auctions, the
Commission awarded a total of 41
licenses, 11 of which were obtained by
four small businesses. To ensure
meaningful participation by small
business entities in future auctions, the
Commission adopted a two-tiered small
business size standard in the
Narrowband PCS Second Report and
Order, 65 FR 35843, June 6, 2000. A
‘‘small business’’ is an entity that,
together with affiliates and controlling
interests, has average gross revenues for
the three preceding years of not more
than $40 million. A ‘‘very small
business’’ is an entity that, together with
affiliates and controlling interests, has
average gross revenues for the three
preceding years of not more than $15
million. The SBA has approved these
small business size standards. A third
auction was conducted in 2001. Here,
five bidders won 317 (Metropolitan
Trading Areas and nationwide) licenses.
Three of these claimed status as a small
or very small entity and won 311
licenses.
163. Paging (Private and Common
Carrier). In the Paging Third Report and
Order, 64 FR 33762, June 24, 1999, the
Commission developed a small business
size standard for ‘‘small businesses’’ and
‘‘very small businesses’’ for purposes of
determining their eligibility for special
provisions such as bidding credits and
installment payments. A ‘‘small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues not
exceeding $15 million for the preceding
three years. Additionally, a ‘‘very small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $3 million for the preceding
three years. The SBA has approved
these small business size standards.
According to Commission data, 291
carriers have reported that they are
engaged in Paging or Messaging Service.
Of these, an estimated 289 have 1,500 or
fewer employees, and two have more
than 1,500 employees. Consequently,
the Commission estimates that the
majority of paging providers are small
entities that may be affected by our
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action. An auction of Metropolitan
Economic Area licenses commenced on
February 24, 2000, and closed on March
2, 2000. Of the 2,499 licenses auctioned,
985 were sold. Fifty-seven companies
claiming small business status won 440
licenses. A subsequent auction of MEA
and Economic Area (‘‘EA’’) licenses was
held in the year 2001. Of the 15,514
licenses auctioned, 5,323 were sold.
One hundred thirty-two companies
claiming small business status
purchased 3,724 licenses. A third
auction, consisting of 8,874 licenses in
each of 175 EAs and 1,328 licenses in
all but three of the 51 MEAs, was held
in 2003. Seventy-seven bidders claiming
small or very small business status won
2,093 licenses. A fourth auction,
consisting of 9,603 lower and upper
paging band licenses was held in the
year 2010. Twenty-nine bidders
claiming small or very small business
status won 3,016 licenses.
164. 220 MHz Radio Service—Phase I
Licensees. The 220 MHz service has
both Phase I and Phase II licenses. Phase
I licensing was conducted by lotteries in
1992 and 1993. There are approximately
1,515 such non-nationwide licensees
and four nationwide licensees currently
authorized to operate in the 220 MHz
band. The Commission has not
developed a small business size
standard for small entities specifically
applicable to such incumbent 220 MHz
Phase I licensees. To estimate the
number of such licensees that are small
businesses, the Commission applies the
small business size standard under the
SBA rules applicable to Wireless
Telecommunications Carriers (except
Satellite). Under this category, the SBA
deems a wireless business to be small if
it has 1,500 or fewer employees. The
Commission estimates that nearly all
such licensees are small businesses
under the SBA’s small business size
standard that may be affected by rules
adopted pursuant to the Order.
165. 220 MHz Radio Service—Phase II
Licensees. The 220 MHz service has
both Phase I and Phase II licenses. The
Phase II 220 MHz service is subject to
spectrum auctions. In the 220 MHz
Third Report and Order, 62 FR 15978,
April 3, 1997, the Commission adopted
a small business size standard for
‘‘small’’ and ‘‘very small’’ businesses for
purposes of determining their eligibility
for special provisions such as bidding
credits and installment payments. This
small business size standard indicates
that a ‘‘small business’’ is an entity that,
together with its affiliates and
controlling principals, has average gross
revenues not exceeding $15 million for
the preceding three years. A ‘‘very small
business’’ is an entity that, together with
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its affiliates and controlling principals,
has average gross revenues that do not
exceed $3 million for the preceding
three years. The SBA has approved
these small business size standards.
Auctions of Phase II licenses
commenced on September 15, 1998, and
closed on October 22, 1998. In the first
auction, 908 licenses were auctioned in
three different-sized geographic areas:
three nationwide licenses, 30 Regional
Economic Area Group (EAG) Licenses,
and 875 Economic Area (EA) Licenses.
Of the 908 licenses auctioned, 693 were
sold. Thirty-nine small businesses won
licenses in the first 220 MHz auction.
The second auction included 225
licenses: 216 EA licenses and 9 EAG
licenses. Fourteen companies claiming
small business status won 158 licenses.
166. Specialized Mobile Radio. The
Commission awards small business
bidding credits in auctions for
Specialized Mobile Radio (‘‘SMR’’)
geographic area licenses in the 800 MHz
and 900 MHz bands to entities that had
revenues of no more than $15 million in
each of the three previous calendar
years. The Commission awards very
small business bidding credits to
entities that had revenues of no more
than $3 million in each of the three
previous calendar years. The SBA has
approved these small business size
standards for the 800 MHz and 900 MHz
SMR Services. The Commission has
held auctions for geographic area
licenses in the 800 MHz and 900 MHz
bands. The 900 MHz SMR auction was
completed in 1996. Sixty bidders
claiming that they qualified as small
businesses under the $15 million size
standard won 263 geographic area
licenses in the 900 MHz SMR band. The
800 MHz SMR auction for the upper 200
channels was conducted in 1997. Ten
bidders claiming that they qualified as
small businesses under the $15 million
size standard won 38 geographic area
licenses for the upper 200 channels in
the 800 MHz SMR band. A second
auction for the 800 MHz band was
conducted in 2002 and included 23 BEA
licenses. One bidder claiming small
business status won five licenses.
167. The auction of the 1,053 800
MHz SMR geographic area licenses for
the General Category channels was
conducted in 2000. Eleven bidders won
108 geographic area licenses for the
General Category channels in the 800
MHz SMR band qualified as small
businesses under the $15 million size
standard. In an auction completed in
2000, a total of 2,800 Economic Area
licenses in the lower 80 channels of the
800 MHz SMR service were awarded. Of
the 22 winning bidders, 19 claimed
small business status and won 129
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licenses. Thus, combining all three
auctions, 40 winning bidders for
geographic licenses in the 800 MHz
SMR band claimed status as small
business.
168. In addition, there are numerous
incumbent site-by-site SMR licensees
and licensees with extended
implementation authorizations in the
800 and 900 MHz bands. The
Commission does not know how many
firms provide 800 MHz or 900 MHz
geographic area SMR pursuant to
extended implementation
authorizations, nor how many of these
providers have annual revenues of no
more than $15 million. One firm has
over $15 million in revenues. In
addition, the Commission does not
know how many of these firms have
1,500 or fewer employees. The
Commission assumes, for purposes of
this analysis, that all of the remaining
existing extended implementation
authorizations are held by small
entities, as that small business size
standard is approved by the SBA.
169. Broadband Radio Service and
Educational Broadband Service.
Broadband Radio Service systems,
previously referred to as Multipoint
Distribution Service (‘‘MDS’’) and
Multichannel Multipoint Distribution
Service (‘‘MMDS’’) systems, and
‘‘wireless cable,’’ transmit video
programming to subscribers and provide
two-way high speed data operations
using the microwave frequencies of the
Broadband Radio Service (‘‘BRS’’) and
Educational Broadband Service (‘‘EBS’’)
(previously referred to as the
Instructional Television Fixed Service
(‘‘ITFS’’)). In connection with the 1996
BRS auction, the Commission
established a small business size
standard as an entity that had annual
average gross revenues of no more than
$40 million in the previous three
calendar years. The BRS auctions
resulted in 67 successful bidders
obtaining licensing opportunities for
493 Basic Trading Areas (‘‘BTAs’’). Of
the 67 auction winners, 61 met the
definition of a small business. BRS also
includes licensees of stations authorized
prior to the auction. At this time, the
Commission estimates that of the 61
small business BRS auction winners, 48
remain small business licensees. In
addition to the 48 small businesses that
hold BTA authorizations, there are
approximately 392 incumbent BRS
licensees that are considered small
entities. After adding the number of
small business auction licensees to the
number of incumbent licensees not
already counted, the Commission finds
that there are currently approximately
440 BRS licensees that are defined as
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small businesses under either the SBA
or the Commission’s rules. The
Commission has adopted three levels of
bidding credits for BRS: (i) A bidder
with attributed average annual gross
revenues that exceed $15 million and do
not exceed $40 million for the preceding
three years (small business) is eligible to
receive a 15 percent discount on its
winning bid; (ii) a bidder with
attributed average annual gross revenues
that exceed $3 million and do not
exceed $15 million for the preceding
three years (very small business) is
eligible to receive a 25 percent discount
on its winning bid; and (iii) a bidder
with attributed average annual gross
revenues that do not exceed $3 million
for the preceding three years
(entrepreneur) is eligible to receive a 35
percent discount on its winning bid. In
2009, the Commission conducted
Auction 86, which offered 78 BRS
licenses. Auction 86 concluded with ten
bidders winning 61 licenses. Of the ten,
two bidders claimed small business
status and won 4 licenses; one bidder
claimed very small business status and
won three licenses; and two bidders
claimed entrepreneur status and won
six licenses.
170. In addition, the SBA’s Cable
Television Distribution Services small
business size standard is applicable to
EBS. There are presently 2,032 EBS
licensees. All but 100 of these licenses
are held by educational institutions.
Educational institutions are included in
this analysis as small entities. Thus, the
Commission estimates that at least 1,932
licensees are small businesses. Since
2007, Cable Television Distribution
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 defines a small
business size standard for this category
as any such firms having 1,500 or fewer
employees. 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
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employees, and 16 firms had
employment of 1000 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 Order.
171. Lower 700 MHz Band Licenses.
The Commission previously adopted
criteria for defining three groups of
small businesses for purposes of
determining their eligibility for special
provisions such as bidding credits. The
Commission defined a ‘‘small business’’
as an entity that, together with its
affiliates and controlling principals, has
average gross revenues not exceeding
$40 million for the preceding three
years. A ‘‘very small business’’ is
defined as an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $15 million for the preceding
three years. Additionally, the Lower 700
MHz Band had a third category of small
business status for Metropolitan/Rural
Service Area (‘‘MSA/RSA’’) licenses,
identified as ‘‘entrepreneur’’ and
defined as an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $3 million for the preceding
three years. The SBA approved these
small size standards. The Commission
conducted an auction in 2002 of 740
Lower 700 MHz Band licenses (one
license in each of the 734 MSAs/RSAs
and one license in each of the six
Economic Area Groupings (EAGs)). Of
the 740 licenses available for auction,
484 licenses were sold to 102 winning
bidders. Seventy-two of the winning
bidders claimed small business, very
small business or entrepreneur status
and won a total of 329 licenses. The
Commission conducted a second Lower
700 MHz Band auction in 2003 that
included 256 licenses: 5 EAG licenses
and 476 Cellular Market Area licenses.
Seventeen winning bidders claimed
small or very small business status and
won 60 licenses, and nine winning
bidders claimed entrepreneur status and
won 154 licenses. In 2005, the
Commission completed an auction of 5
licenses in the Lower 700 MHz Band,
designated Auction 60. There were three
winning bidders for five licenses. All
three winning bidders claimed small
business status.
172. In 2007, the Commission
reexamined its rules governing the 700
MHz band in the 700 MHz Second
Report and Order, 72 FR 48814, August
24, 2007. The 700 MHz Second Report
and Order revised the band plan for the
commercial (including Guard Band) and
public safety spectrum, adopted services
rules, including stringent build-out
requirements, an open platform
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requirement on the C Block, and a
requirement on the D Block licensee to
construct and operate a nationwide,
interoperable wireless broadband
network for public safety users. An
auction of A, B and E block licenses in
the Lower 700 MHz band was held in
2008. Twenty winning bidders claimed
small business status (those with
attributable average annual gross
revenues that exceed $15 million and do
not exceed $40 million for the preceding
three years). Thirty three winning
bidders claimed very small business
status (those with attributable average
annual gross revenues that do not
exceed $15 million for the preceding
three years). In 2011, the Commission
conducted Auction 92, which offered 16
Lower 700 MHz band licenses that had
been made available in Auction 73 but
either remained unsold or were licenses
on which a winning bidder defaulted.
Two of the seven winning bidders in
Auction 92 claimed very small business
status, winning a total of four licenses.
173. Upper 700 MHz Band Licenses.
In the 700 MHz Second Report and
Order, the Commission revised its rules
regarding Upper 700 MHz band
licenses. In 2008, the Commission
conducted Auction 73 in which C and
D block licenses in the Upper 700 MHz
band were available. Three winning
bidders claimed very small business
status (those with attributable average
annual gross revenues that do not
exceed $15 million for the preceding
three years).
174. 700 MHz Guard Band Licensees.
In the 700 MHz Guard Band Order, 65
FR 17594, April 4, 2000, the
Commission adopted a small business
size standard for ‘‘small businesses’’ and
‘‘very small businesses’’ for purposes of
determining their eligibility for special
provisions such as bidding credits and
installment payments. A ‘‘small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues not
exceeding $40 million for the preceding
three years. Additionally, a ‘‘very small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $15 million for the preceding
three years. An auction of 52 Major
Economic Area (MEA) licenses
commenced on September 6, 2000, and
closed on September 21, 2000. Of the
104 licenses auctioned, 96 licenses were
sold to nine bidders. Five of these
bidders were small businesses that won
a total of 26 licenses. A second auction
of 700 MHz Guard Band licenses
commenced on February 13, 2001 and
closed on February 21, 2001. All eight
of the licenses auctioned were sold to
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three bidders. One of these bidders was
a small business that won a total of two
licenses.
175. Cellular Radiotelephone Service.
Auction 77 was held to resolve one
group of mutually exclusive
applications for Cellular Radiotelephone
Service licenses for unserved areas in
New Mexico. Bidding credits for
designated entities were not available in
Auction 77. In 2008, the Commission
completed the closed auction of one
unserved service area in the Cellular
Radiotelephone Service, designated as
Auction 77. Auction 77 concluded with
one provisionally winning bid for the
unserved area totaling $25,002.
176. Private Land Mobile Radio
(‘‘PLMR’’). PLMR systems serve an
essential role in a range of industrial,
business, land transportation, and
public safety activities. These radios are
used by companies of all sizes operating
in all U.S. business categories, and are
often used in support of the licensee’s
primary (non-telecommunications)
business operations. For the purpose of
determining whether a licensee of a
PLMR system is a small business as
defined by the SBA, the Commission
uses the broad census category, Wireless
Telecommunications Carriers (except
Satellite). This definition provides that
a small entity is any such entity
employing no more than 1,500 persons.
The Commission does not require PLMR
licensees to disclose information about
number of employees, so the
Commission does not have information
that could be used to determine how
many PLMR licensees constitute small
entities under this definition. The
Commission notes that PLMR licensees
generally use the licensed facilities in
support of other business activities, and
therefore, it would also be helpful to
assess PLMR licensees under the
standards applied to the particular
industry subsector to which the licensee
belongs.
177. As of March 2010, there were
424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands
below 512 MHz. The Commission notes
that any entity engaged in a commercial
activity is eligible to hold a PLMR
license, and that any revised rules in
this context could therefore potentially
impact small entities covering a great
variety of industries.
178. Rural Radiotelephone Service.
The Commission has not adopted a size
standard for small businesses specific to
the Rural Radiotelephone Service. A
significant subset of the Rural
Radiotelephone Service is the Basic
Exchange Telephone Radio System
(BETRS). In the present context, the
Commission will use the SBA’s small
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business size standard applicable to
Wireless Telecommunications Carriers
(except Satellite), i.e., an entity
employing no more than 1,500 persons.
There are approximately 1,000 licensees
in the Rural Radiotelephone Service,
and the Commission estimates that there
are 1,000 or fewer small entity licensees
in the Rural Radiotelephone Service that
may be affected by the rules and
policies proposed herein.
179. Air-Ground Radiotelephone
Service. The Commission has not
adopted a small business size standard
specific to the Air-Ground
Radiotelephone Service. The
Commission will use SBA’s small
business size standard applicable to
Wireless Telecommunications Carriers
(except Satellite), i.e., an entity
employing no more than 1,500 persons.
There are approximately 100 licensees
in the Air-Ground Radiotelephone
Service, and the Commission estimates
that almost all of them qualify as small
under the SBA small business size
standard and may be affected by rules
adopted pursuant to the Order.
180. Aviation and Marine Radio
Services. Small businesses in the
aviation and marine radio services use
a very high frequency (VHF) marine or
aircraft radio and, as appropriate, an
emergency position-indicating radio
beacon (and/or radar) or an emergency
locator transmitter. The Commission has
not developed a small business size
standard specifically applicable to these
small businesses. For purposes of this
analysis, the Commission uses the SBA
small business size standard for the
category Wireless Telecommunications
Carriers (except Satellite), which is
1,500 or fewer employees. Census data
for 2007, which supersede data
contained in the 2002 Census, show that
there were 1,383 firms that operated that
year. Of those 1,383, 1,368 had fewer
than 100 employees, and 15 firms had
more than 100 employees. Most
applicants for recreational licenses are
individuals. Approximately 581,000
ship station licensees and 131,000
aircraft station licensees operate
domestically and are not subject to the
radio carriage requirements of any
statute or treaty. For purposes of the
Commission’s evaluations in this
analysis, it estimates that there are up to
approximately 712,000 licensees that
are small businesses (or individuals)
under the SBA standard. In addition,
between December 3, 1998 and
December 14, 1998, the Commission
held an auction of 42 VHF Public Coast
licenses in the 157.1875–157.4500 MHz
(ship transmit) and 161.775–162.0125
MHz (coast transmit) bands. For
purposes of the auction, the
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Commission defined a ‘‘small’’ business
as an entity that, together with
controlling interests and affiliates, has
average gross revenues for the preceding
three years not to exceed $15 million
dollars. In addition, a ‘‘very small’’
business is one that, together with
controlling interests and affiliates, has
average gross revenues for the preceding
three years not to exceed $3 million
dollars. There are approximately 10,672
licensees in the Marine Coast Service,
and the Commission estimates that
almost all of them qualify as ‘‘small’’
businesses under the above special
small business size standards and may
be affected by rules adopted pursuant to
the Order.
181. Fixed Microwave Services. Fixed
microwave services include common
carrier, private operational-fixed, and
broadcast auxiliary radio services. At
present, there are approximately 22,015
common carrier fixed licensees and
61,670 private operational-fixed
licensees and broadcast auxiliary radio
licensees in the microwave services.
The Commission has not created a size
standard for a small business
specifically with respect to fixed
microwave services. For purposes of
this analysis, the Commission uses the
SBA small business size standard for
Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or
fewer employees. The Commission does
not have data specifying the number of
these licensees that have more than
1,500 employees, and thus is unable at
this time to estimate with greater
precision the number of fixed
microwave service licensees that would
qualify as small business concerns
under the SBA’s small business size
standard. Consequently, the
Commission estimates that there are up
to 22,015 common carrier fixed
licensees and up to 61,670 private
operational-fixed licensees and
broadcast auxiliary radio licensees in
the microwave services that may be
small and may be affected by the rules
and policies adopted herein. The
Commission notes, however, that the
common carrier microwave fixed
licensee category includes some large
entities.
182. Offshore Radiotelephone Service.
This service operates on several UHF
television broadcast channels that are
not used for television broadcasting in
the coastal areas of states bordering the
Gulf of Mexico. There are presently
approximately 55 licensees in this
service. The Commission is unable to
estimate at this time the number of
licensees that would qualify as small
under the SBA’s small business size
standard for the category of Wireless
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Telecommunications Carriers (except
Satellite). Under that SBA small
business size standard, a business is
small if it has 1,500 or fewer employees.
Census data for 2007, which supersede
data contained in the 2002 Census,
show that there were 1,383 firms that
operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15
firms had more than 100 employees.
Thus, under this category and the
associated small business size standard,
the majority of firms can be considered
small.
183. 39 GHz Service. The Commission
created a special small business size
standard for 39 GHz licenses—an entity
that has average gross revenues of $40
million or less in the three previous
calendar years. An additional size
standard for ‘‘very small business’’ is:
An entity that, together with 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. The
auction of the 2,173 39 GHz licenses
began on April 12, 2000 and closed on
May 8, 2000. The 18 bidders who
claimed small business status won 849
licenses. Consequently, the Commission
estimates that 18 or fewer 39 GHz
licensees are small entities that may be
affected by rules adopted pursuant to
the Order.
184. 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 reauctioned 161 licenses; there were 32
small and very small businesses
winning that won 119 licenses.
185. 218–219 MHz Service. The first
auction of 218–219 MHz spectrum
resulted in 170 entities winning licenses
for 594 Metropolitan Statistical Area
(MSA) licenses. Of the 594 licenses, 557
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were won by entities qualifying as a
small business. For that auction, the
small business size standard was an
entity that, together with its affiliates,
has no more than a $6 million net worth
and, after federal income taxes
(excluding any carry over losses), has no
more than $2 million in annual profits
each year for the previous two years. In
the 218–219 MHz Report and Order and
Memorandum Opinion and Order, 64
FR 59656, November 3, 1999, the
Commission established a small
business size standard for a ‘‘small
business’’ as an entity that, together
with its affiliates and persons or entities
that hold interests in such an entity and
their affiliates, has average annual gross
revenues not to exceed $15 million for
the preceding three years. A ‘‘very small
business’’ is defined as an entity that,
together with its affiliates and persons
or entities that hold interests in such an
entity and its affiliates, has average
annual gross revenues not to exceed $3
million for the preceding three years.
These size standards will be used in
future auctions of 218–219 MHz
spectrum.
186. 2.3 GHz Wireless
Communications Services. This service
can be used for fixed, mobile,
radiolocation, and digital audio
broadcasting satellite uses. The
Commission defined ‘‘small business’’
for the wireless communications
services (‘‘WCS’’) auction as an entity
with average gross revenues of $40
million for each of the three preceding
years, and a ‘‘very small business’’ as an
entity with average gross revenues of
$15 million for each of the three
preceding years. The SBA has approved
these definitions. The Commission
auctioned geographic area licenses in
the WCS service. In the auction, which
was conducted in 1997, there were
seven bidders that won 31 licenses that
qualified as very small business entities,
and one bidder that won one license
that qualified as a small business entity.
187. 1670–1675 MHz Band. An
auction for one license in the 1670–1675
MHz band was conducted in 2003. The
Commission defined a ‘‘small business’’
as an entity with attributable average
annual gross revenues of not more than
$40 million for the preceding three
years and thus would be eligible for a
15 percent discount on its winning bid
for the 1670–1675 MHz band license.
Further, the Commission defined a
‘‘very small business’’ as an entity with
attributable average annual gross
revenues of not more than $15 million
for the preceding three years and thus
would be eligible to receive a 25 percent
discount on its winning bid for the
1670–1675 MHz band license. One
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license was awarded. The winning
bidder was not a small entity.
188. 3650–3700 MHz band. In March
2005, the Commission released a Report
and Order and Memorandum Opinion
and Order that provides for nationwide,
non-exclusive licensing of terrestrial
operations, utilizing contention-based
technologies, in the 3650 MHz band
(i.e., 3650–3700 MHz). As of April 2010,
more than 1270 licenses have been
granted and more than 7433 sites have
been registered. The Commission has
not developed a definition of small
entities applicable to 3650–3700 MHz
band nationwide, non-exclusive
licensees. However, the Commission
estimates that the majority of these
licensees are Internet Access Service
Providers (ISPs) and that most of those
licensees are small businesses.
189. 24 GHz—Incumbent Licensees.
This analysis may affect incumbent
licensees who were relocated to the 24
GHz band from the 18 GHz band, and
applicants who wish to provide services
in the 24 GHz band. For this service, the
Commission uses the SBA small
business size standard for the category
‘‘Wireless Telecommunications Carriers
(except satellite),’’ which is 1,500 or
fewer employees. To gauge small
business prevalence for these cable
services the Commission must,
however, use the most current census
data. Census data for 2007, which
supersede data contained in the 2002
Census, show that there were 1,383
firms that operated that year. Of those
1,383, 1,368 had fewer than 100
employees, and 15 firms had more than
100 employees. Thus under this
category and the associated small
business size standard, the majority of
firms can be considered small. The
Commission notes that the Census’ use
of the classifications ‘‘firms’’ does not
track the number of ‘‘licenses’’. The
Commission believes that there are only
two licensees in the 24 GHz band that
were relocated from the 18 GHz band,
Teligent and TRW, Inc. It is our
understanding that Teligent and its
related companies have less than 1,500
employees, though this may change in
the future. TRW is not a small entity.
Thus, only one incumbent licensee in
the 24 GHz band is a small business
entity.
190. 24 GHz—Future Licensees. With
respect to new applicants in the 24 GHz
band, the size standard for ‘‘small
business’’ is an entity that, together with
controlling interests and affiliates, has
average annual gross revenues for the
three preceding years not in excess of
$15 million. ‘‘Very small business’’ in
the 24 GHz band is an entity that,
together with controlling interests and
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affiliates, has average gross revenues not
exceeding $3 million for the preceding
three years. The SBA has approved
these small business size standards.
These size standards will apply to a
future 24 GHz license auction, if held.
191. 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 the
Commission 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.
192. 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, the Commission
estimates that the majority of Satellite
Telecommunications firms are small
entities that might be affected by rules
adopted pursuant to the Order.
193. 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
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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, the Commission
estimates that the majority of Other
Telecommunications firms are small
entities that might be affected by our
action.
194. 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 1000 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 Order.
195. 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 Order.
196. 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
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$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. The Commission notes that it
neither requests nor collects information
on whether cable system operators are
affiliated with entities whose gross
annual revenues exceed $250 million,
and therefore the Commission is unable
to estimate more accurately the number
of cable system operators that would
qualify as small under this size
standard.
197. 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
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 1000 employees or
more. Thus, under this second size
standard, most cable systems are small
and may be affected by rules adopted
pursuant to the Order. In addition, the
Commission notes that it 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.
198. 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
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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, 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. 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 1000
employees or more. Consequently, the
Commission estimates that the majority
of these firms are small entities that may
be affected by rules adopted pursuant to
the Order.
199. Internet Publishing and
Broadcasting and Web Search Portals.
Our action may pertain to
interconnected VoIP services, which
could be provided by entities that
provide other services such as email,
online gaming, web browsing, video
conferencing, instant messaging, and
other, similar IP-enabled services. The
Commission has not adopted a size
standard for entities that create or
provide these types of services or
applications. However, the Census
Bureau has identified firms that
‘‘primarily engaged in (1) publishing
and/or broadcasting content on the
Internet exclusively or (2) operating
Web sites that use a search engine to
generate and maintain extensive
databases of Internet addresses and
content in an easily searchable format
(and known as Web search portals).’’
The SBA has developed a small
business size standard for this category,
which is: all such firms having 500 or
fewer employees. According to Census
Bureau data for 2007, there were 2,705
firms in this category that operated for
the entire year. Of this total, 2,682 firms
had employment of 499 or fewer
employees, and 23 firms had
employment of 500 employees or more.
Consequently, the Commission
estimates that the majority of these firms
are small entities that may be affected
by rules adopted pursuant to the Order.
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200. Data Processing, Hosting, and
Related Services. Entities in this
category ‘‘primarily . . . provid[e]
infrastructure for hosting or data
processing services.’’ The SBA has
developed a small business size
standard for this category; that size
standard is $25 million or less in
average annual receipts. According to
Census Bureau data for 2007, there were
8,060 firms in this category that
operated for the entire year. Of these,
7,744 had annual receipts of under $
$24,999,999. Consequently, the
Commission estimates that the majority
of these firms are small entities that may
be affected by rules adopted pursuant to
the Order.
201. All Other Information Services.
The Census Bureau defines this industry
as including ‘‘establishments primarily
engaged in providing other information
services (except news syndicates,
libraries, archives, Internet publishing
and broadcasting, and Web search
portals).’’ Our action pertains to
interconnected VoIP services, which
could be provided by entities that
provide other services such as email,
online gaming, web browsing, video
conferencing, instant messaging, and
other, similar IP-enabled services. The
SBA has developed a small business
size standard for this category; that size
standard is $7.0 million or less in
average annual receipts. According to
Census Bureau data for 2007, there were
367 firms in this category that operated
for the entire year. Of these, 334 had
annual receipts of under $5.0 million,
and an additional 11 firms had receipts
of between $5 million and $9,999,999.
Consequently, the Commission
estimates that the majority of these firms
are small entities that may be affected
by our action.
4. Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements
202. In the Order, the Commission
amends section 54.313(a) to include a
new subsection 12 that requires
recipients of high-cost and/or Connect
America Fund support that are subject
to broadband performance obligations to
submit a broadband reasonable
comparability certification with their
annual section 54.313 report (FCC Form
481). In that certification, support
recipients must certify that the pricing
of the broadband offering they are
relying upon to meet their broadband
performance obligation is no more than
the applicable benchmark as specified
in a public notice issued by the Bureau,
or is no more than the non-promotional
prices charged for a comparable fixed
wireline service in urban areas in the
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states or U.S. Territories where the highcost support recipient receives support.
For purposes of the latter certification,
the Commission does not require that
the high-cost support recipient offer a
particular rate nationwide; rather it is
sufficient if for each state or U.S.
Territory where the high-cost support
recipient receives funding, the high-cost
support recipient or another provider
offers the same rate for a comparable
fixed wireline service in an urban area
in that state or U.S. Territory.
Recognizing that high-cost support
recipients are permitted to offer a
variety of broadband service offerings as
long as they offer at least one standalone
voice service plan and one service plan
that provides broadband that meets the
Commission’s requirements, it only
requires that they make the above
certification for one of their broadband
service offerings that satisfies all of the
Commission’s requirements, including
that the service be offered throughout
the high-cost support recipient’s
supported area, or for rate-of-return
carriers, be made available upon
reasonable request.
203. The Commission concludes that
requiring high-cost support recipients to
make this certification will ensure that
the Commission can monitor their
compliance with the section 254(b)
principle that ‘‘[c]onsumers in all
regions of the Nation . . . should have
access to telecommunications and
information services that are reasonably
comparable to rates charged for similar
services in urban areas.’’
204. The Commission requires that
high-cost support recipients that elect to
certify that their pricing of services in
rural areas is no greater than their
pricing in urban areas to rely upon the
non-promotional prices charged for
comparable fixed wireline services. This
certification will be included in the FCC
Form 481 to be filed in 2016, addressing
performance during 2015, after the
requirement has received Paperwork
Reduction Act (PRA) approval from the
Office of Management and Budget. All
parties subject to a broadband public
interest requirement that file this report
in 2016 will be required to make the
certification, and annually thereafter.
Recipients of funding through the Phase
II competitive bidding process must
submit their first certification with the
first section 54.313 annual report they
are required to submit after support is
authorized, and each year thereafter
with their annual report.
205. In the Order, the Commission
requires all price cap carriers accepting
model-based support to include in the
annual progress report that they submit
with their section 54.313 annual reports
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a list of the geocoded locations to which
they have newly deployed facilities
capable of delivering broadband
meeting the requisite requirements with
Connect America support in the prior
year. The list must identify which
locations are located in a Phase IIfunded block and which locations are
located in extremely high-cost census
blocks. The first list must be submitted
with their July 2016 annual report,
reflecting deployment status through the
end of 2015. This first list should also
include the geocoded locations that a
price cap carrier had already built out
to with service meeting the
Commission’s requirements before
receiving Phase II support. The
Commission will also collect from price
cap carriers accepting model-based
support in their annual section 54.313
reports the total amount of Connect
America Phase II support, if any, they
used for capital expenditures in the
previous calendar year. In the Order, the
Commission finds that it is in the public
interest to require price cap carriers
accepting model-based support to
provide this data on an annual basis.
206. In the Order, the Commission
also takes a necessary step to ensure the
most efficient use of high-cost support
by reducing on a pro-rata daily basis the
support of any ETC that misses
certification or data submission
deadlines. The Commission recognizes
that despite its best efforts, an ETC may
miss a deadline due to an administrative
oversight but still file within a few days
of the deadline, and therefore
implement a one-time grace period of
three days. A one-time grace period of
three days achieves an appropriate
balance between requiring strict
compliance with our rules and
providing an opportunity for ETCs that
may be first time filers or that make an
uncharacteristic mistake to rectify
quickly an error.
207. Given our decision to modify the
support reductions for late filings, the
Order announces that the Commission
otherwise requires strict adherence to
filing deadlines. The Commission will
cease the practice of finding there is
good cause for a waiver of high-cost
filing deadlines in circumstances where
an ETC has missed the deadline due to
an administrative or clerical oversight
and where that ETC has promised to
revise it procedures to ensure future
compliance.
208. Lastly, the Commission adopts
specific measures in the event that
certain ETCs do not meet their high-cost
obligations for fixed services.
Specifically, in the Order, the
Commission adopts a support reduction
regime for ETCs that fail to meet their
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deployment obligations subsequent to
accepting Connect America Phase II
support. For price cap ETCs the
Commission adopts a framework for
support reductions that are calibrated to
the extent of an ETC’s non-compliance
with these deployment milestones.
Because rate-of-return carriers are not at
this time required to build out to a
certain number of locations, the
Commission concludes it is appropriate
to handle matters regarding their
potential non-compliance on a case-bycase basis. Additionally, the
Commission concludes that noncompliance of the reasonable
comparability requirement is best dealt
with on a case-by-case basis for all ETCs
that must certify that the rates they offer
are reasonably comparable. The
Commission finds that it would not be
appropriate to apply a uniform support
reduction to all ETCs that fail to offer
reasonably comparable prices.
5. Steps Taken To Minimize Significant
Economic Impact on Small Entities, and
Significant Alternatives Considered
209. The RFA requires an agency to
describe any significant alternatives that
it has considered in reaching its
approach, which may include the
following four alternatives, among
others: (1) The establishment of
differing compliance or reporting
requirements or timetables that take into
account the resources available to small
entities; (2) the clarification,
consolidation, or simplification of
compliance or reporting requirements
under the rule for 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 small entities.
210. The rules that the Commission
adopts in the Order provide flexibility
in meeting the public interest
obligations that are a condition of the
receipt of high-cost support for those
price cap carriers accepting the offer of
model-based support, the Commission
adopts targeted adjustments to the
framework established by the
Commission in the USF/ICC
Transformation Order to provide
carriers flexibility. Specifically, the
Commission adopts evenly spaced
annual interim milestones for price cap
carriers to offer at least 10/1 Mbps to an
additional 20 percent of the requisite
number of high-cost locations each year.
The Commission also modifies the
build-out requirements established for
price cap carriers accepting modelbased support to create evenly spaced
annual interim milestones. The
Commission requires price cap carriers
accepting model-based support to
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complete construction to 40 percent of
the requisite number of locations in a
state by the end of calendar year 2017,
instead of 85 percent by the mid-2018,
which is a more realistic expectation,
given that carriers will not accept the
offer of support until mid-year in 2015
and then will be developing detailed
network construction plans. The
Commission also will permit a modest
adjustment to the number of modeldetermined funded locations in a given
state with a corresponding reduction in
support. The Commission expects the
flexibility in deployment for price-cap
carriers accepting model-based Phase II
support will minimize the economic
impact on small entities.
211. Additionally, as the Commission
did in 2011, it continues to offer a more
flexible approach to deploying
broadband for rate-of-return carriers.
Rate-of-return carriers are only required
to meet the higher speed if the request
for service is reasonable—meaning that
the carrier could cost effectively extend
voice and broadband-capable network to
that location, given its anticipated enduser revenues and other sources of
support. Rate-of-return carriers will be
required to offer at least 10/1 Mbps
broadband service upon reasonable
request, consistent with past guidance
regarding our expectations regarding the
reasonable request standard. If a request
for 10/1 Mbps is not reasonable in a
given circumstance, but offering 4/1
Mbps is reasonable, the Commission
would expect a rate-of-return carrier to
offer 4/1 Mbps.
212. The Commission also concludes,
based on our consideration of the
relevant statutory framework and the
record before us, that it is in the public
interest to forbear from enforcing a
federal high-cost requirement that price
cap carriers offer voice telephony
service throughout their service areas
pursuant to section 214(e)(1)(A) of the
Act in three types of geographic areas:
(1) Census blocks that are determined to
be low-cost, (2) census blocks served by
an unsubsidized competitor, and (3)
census blocks where a subsidized
competitor—i.e., another ETC—is
receiving federal high-cost support to
deploy modern networks capable of
providing voice and broadband to fixed
locations. The Commission finds that
limited forbearance from section
214(e)(1)(A) will promote competitive
market conditions by giving affected
carriers the flexibility to compete on a
more equal regulatory footing in the
voice telephony market with
competitors that already have the
opportunity to make decisions about
how best to offer voice telephone
service.
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4475
213. For those price cap carriers
serving non-contiguous areas that elect
to continue receiving frozen support
amounts in lieu of the offer of modelbased support, the Commission
recognizes that such carriers face unique
circumstances in the areas they serve
and experience different challenges in
deploying broadband service in those
areas. Consequently, a ‘‘one-size-fits-all’’
approach would leave some of these
carriers potentially unable to fulfill their
service obligations. The Commission is
confident that tailoring specific service
obligations to the individual
circumstances of each non-contiguous
carrier that elects to continue receiving
frozen support will best ensure that
Connect America funding is put to the
best possible use.
214. The Commission institutes a
broadband reasonably comparable rate
certification on all ETCs that receive
ongoing high-cost support in areas
served by price cap carriers and rate-ofreturn carriers. Although the
Commission notes that filing deadlines
will be strictly enforced, it adjusts the
reduction of support for all ETCs,
including small entities, and provides a
grace period to ensure it is not unduly
punitive given the nature of noncompliance.
215. The Commission also adopts
specific measures that the Bureau will
take in the event that certain ETCs do
not meet their high-cost support
deployment obligations for fixed
services or does not offer rates that are
reasonably comparable to rates offered
in urban areas. The reductions represent
a detailed calculus to ensure that no
carrier is penalized inappropriately for
its non-compliance. As such, price cap
ETC support reductions scale with the
extent of an ETC’s non-compliance, and
create incentives for ETCs to come into
compliance as soon as possible. For
rate-of-return ETCs, given that their
obligation is to provide voice and
broadband service upon reasonable
request and the Commission does not
have sufficient experience to create
specific deployment milestones, the
Commission finds it appropriate to
handle matters regarding their potential
non-compliance on a case-by-case basis.
Additionally, determined that noncompliance with the reasonable
comparability requirement is best dealt
with on a case-by-case basis for all ETCs
because of the variety of factors that go
into determining whether prices are
reasonably comparable. Accordingly,
the Commission determined that it
would not be appropriate to apply a
uniform support reduction to all ETCs
that fail to offer reasonably comparable
prices.
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6. Report to Congress
216. The Commission will send a
copy of the Order, including this FRFA,
in a report to be sent to Congress and
the Government Accountability Office
pursuant to the Small Business
Regulatory Enforcement Fairness Act of
1996. In addition, the Commission will
send a copy of the Report and Order,
including this FRFA, to the Chief
Counsel for Advocacy of the Small
Business Administration. A copy of the
Report and Order and FRA (or
summaries thereof) will also be
published in the Federal Register.
7. Additional Information
217. 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).
218. Additional Information. For
additional information on this
proceeding, contact Alexander Minard
of the Wireline Competition Bureau,
Telecommunications Access Policy
Division, Alexander.Minard@fcc.gov,
(202) 418–7400, or Suzanne Yelen of the
Wireline Competition Bureau, Industry
Analysis and Technology Division,
Suzanne.Yelen@fcc.gov, (202) 418–
7400.
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VIII. Ordering Clauses
219. Accordingly, IT IS ORDERED,
pursuant to the authority contained in
sections 1, 2, 4(i), 5, 10, 201–206, 214,
218–220, 251, 252, 254, 256, 303(r), 332,
403, and 405 of the Communications
Act of 1934, as amended, and section
706 of the Telecommunications Act of
1996, 47 U.S.C. 151, 152, 154(i), 155,
160, 201–206, 214, 218–220, 251, 252,
254, 256, 303(r), 332, 403, 405, 1302,
and sections 1.1, 1.427, and 1.429 of the
Commission’s rules, 47 CFR 1.1, 1.427,
and 1.429, that this Report and Order,
IS ADOPTED, effective thirty (30) days
after publication of the text or summary
thereof in the Federal Register, except
for those rules and requirements
involving Paperwork Reduction Act
burdens, which shall become effective
immediately upon announcement in the
Federal Register of OMB approval, and
except as otherwise provided below. It
is the Commission’s intention in
adopting these rules that if any of the
rules that it retains, modify, or adopt
herein, or the application thereof to any
person or circumstance, are held to be
unlawful, the remaining portions of the
rules not deemed unlawful, and the
application of such rules to other
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persons or circumstances, shall remain
in effect to the fullest extent permitted
by law.
220. IT IS FURTHER ORDERED that
the requirement for non-contiguous
carriers that wish to elect Phase II frozen
support in lieu of model-based support
discussed in paragraph 39 and the
requirement that bidders in the rural
broadband experiments that wish to
remain in consideration for rural
broadband experiment support
discussed in paragraph 71 are effective
upon release.
221. IT IS FURTHER ORDERED that
for the reasons stated in paragraph 71
the Commission finds good cause exists
to make excluding from the offer of
model-based support any census block
included in a non-winning rural
broadband experiment application
submitted in funding category one
discussed in paragraph 72 effective
upon Federal Register publication.
222. IT IS FURTHER ORDERED that
Part 54 of the Commission’s rules, 47
CFR part 54, IS AMENDED as set forth
below, and such rule amendments
SHALL BE EFFECTIVE February 26,
2015, except for §§ 54.313(a)(e) and
54.320 which contain new or modified
information collection requirements that
will not be effective until approved by
the Office of Management and Budget.
The Federal Communications
Commission will publish a document in
the Federal Register announcing the
effective date for those sections.
223. IT IS FURTHER ORDERED that,
pursuant to the authority contained in
sections 4(i), 4(j), 10, 214, and 254 of the
Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 154(j), 160,
214 and 254, the petition for forbearance
filed by the United States Telecom
Association on October 6, 2014, IS
GRANTED IN PART to the extent
described herein.
224. IT IS FURTHER ORDERED that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
section 1.429 of the Commission’s rules,
47 CFR 1.429, the Petition for
Reconsideration filed by the United
States Telecom Association on August
8, 2014, IS DISMISSED to the extent
described herein.
225. IT IS FURTHER ORDERED that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
section 1.429 of the Commission’s rules,
47 CFR 1.429, the Petition for
Reconsideration filed by the National
Exchange Carrier Association, Inc., et al.
on August 8, 2014, IS DISMISSED to the
extent described herein.
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226. IT IS FURTHER ORDERED that
the Commission SHALL SEND a copy of
this Report and Order to Congress and
the Government Accountability Office
pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
227. IT IS FURTHER ORDERED, that
the Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, SHALL SEND a
copy of this Report and Order, including
the Final Regulatory Flexibility
Analysis, to the Chief Counsel for
Advocacy of the Small Business
Administration.
List of Subjects in 47 CFR Part 54
Communications common carriers,
Reporting and recordkeeping
requirements, Telecommunications,
Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
For the reasons discussed in the
preamble, the Federal Communications
Commission amends 47 CFR part 54 as
follows:
PART 54—UNIVERSAL SERVICE
1. The authority citation for part 54 is
revised to read as follows:
■
Authority: 47 U.S.C. 151, 154(i), 155, 201,
205, 214, 219, 220, 254, 303(r), 403, and 1302
unless otherwise noted.
2. Amend § 54.5 by adding the
following term and definition
‘‘Qualifying competitor’’ in alphabetical
order to read as follows:
■
§ 54.5
Terms and definitions.
*
*
*
*
*
Qualifying competitor. A ‘‘qualifying
competitor’’ is a facilities-based
terrestrial provider of residential fixed
voice and broadband service access
meeting or exceeding 3 Mbps
downstream and 768 kbps upstream.
*
*
*
*
*
■ 3. Amend § 54.201 by revising
paragraph (d) introductory text and
adding paragraph (d)(3) to read as
follows:
§ 54.201 Definitions of eligible
telecommunications carriers, generally.
*
*
*
*
*
(d) A common carrier designated as
an eligible telecommunications carrier
under this section shall be eligible to
receive universal service support in
accordance with section 254 of the Act
and, except as described in paragraph
(d)(3) of this section, shall throughout
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the service area for which the
designation is received:
*
*
*
*
*
(3) Exception. Price cap carriers that
serve census blocks that are identified
by the forward-looking cost model as
low-cost, census blocks that are served
by an unsubsidized competitor as
defined in § 54.5 meeting the requisite
public interest obligations specified in
§ 54.309, or census blocks where a
subsidized competitor is receiving
federal high-cost support to deploy
modern networks capable of providing
voice and broadband to fixed locations,
are not required to comply with
paragraphs (d)(1) and (2) of this section
in these specific geographic areas. Such
price cap carriers remain obligated to
maintain existing voice telephony
service in these specific geographic
areas unless and until a discontinuance
is granted pursuant to § 63.71 of this
chapter.
*
*
*
*
*
■ 4. Add § 54.308 to read as follows:
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§ 54.308 Broadband public interest
obligations for recipients of high-cost
support.
(a) Rate-of-return carrier recipients of
high-cost support are required to offer
broadband service at actual speeds of at
least 10 Mbps downstream/1 Mbps
upstream, with latency suitable for realtime applications, including Voice over
Internet Protocol, and usage capacity
that is reasonably comparable to
comparable offerings in urban areas, at
rates that are reasonably comparable to
rates for comparable offerings in urban
areas, upon reasonable request. If a
request for broadband service at actual
speeds of at least 10 Mbps downstream/
1 Mbps upstream is unreasonable, and
offering broadband service at actual
speeds of at least 4 Mbps downstream/
1 Mbps upstream is reasonable, rate-ofreturn recipients of high-cost support
are required to offer broadband service
at actual speeds of at least 4 Mbps
downstream/1 Mbps upstream. For
purposes of determining reasonable
comparability of rates, recipients are
presumed to meet this requirement if
they offer rates at or below the
applicable benchmark to be announced
annually by public notice issued by the
Wireline Competition Bureau, or no
more than the non-promotional prices
charged for a comparable fixed wireline
service in urban areas in the state or
U.S. Territory where the eligible
telecommunications carrier receives
support.
(b) [Reserved]
■
5. Revise § 54.309 to read as follows:
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§ 54.309 Connect America Fund Phase II
Public Interest Obligations.
(a) Recipients of Connect America
Phase II model-based support are
required to offer broadband service at
actual speeds of at least 10 Mbps
downstream/1 Mbps upstream, with
latency suitable for real-time
applications, including Voice over
Internet Protocol, and usage capacity
that is reasonably comparable to
comparable offerings in urban areas, at
rates that are reasonably comparable to
rates for comparable offerings in urban
areas. For purposes of determining
reasonable comparability of rates,
recipients are presumed to meet this
requirement if they offer rates at or
below the applicable benchmark to be
announced annually by public notice
issued by the Wireline Competition
Bureau, or no more than the nonpromotional prices charged for a
comparable fixed wireline service in
urban areas in the state or U.S. Territory
where the eligible telecommunications
carrier receives support.
(b) [Reserved]
■ 6. Amend § 54.310 by revising
paragraphs (b) and (c) to read as follows:
§ 54.310 Connect America Fund for Price
Cap Territories—Phase II.
*
*
*
*
*
(b) Term of support. Connect America
Phase II model-based support shall be
provided to price cap carriers that elect
to make a state-level commitment for six
years. Connect America Phase II support
awarded through a competitive bidding
process shall be provided for ten years.
(c) Deployment obligation. Recipients
of Connect America Phase II modelbased support must complete
deployment to 40 percent of supported
locations by December 31, 2017, to 60
percent of supported locations by
December 31, 2018, to 80 percent of
supported locations by December 31,
2019, and to 100 percent of supported
locations by December 31, 2020.
Compliance shall be determined based
on the total number of supported
locations in a state.
(1) For purposes of meeting the
obligation to deploy to the requisite
number of supported locations in a
state, recipients may serve unserved
locations in census blocks with costs
above the extremely high-cost threshold
instead of locations in eligible census
blocks, provided that they meet the
public interest obligations set forth in
§ 54.309 for those locations and
provided that the total number of
locations covered is greater than or
equal to the number of supported
locations in the state.
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4477
(2) Recipients of Connect America
Phase II model-based support may elect
to deploy to 95 percent of the number
of supported locations in a given state
with a corresponding reduction in
support computed based on the average
support per location in the state times
1.89.
*
*
*
*
*
■ 7. Amend § 54.313 by adding
paragraph (a)(12) and revising
paragraphs (e) and (j) to read as follows:
§ 54.313 Annual reporting requirements
for high-cost recipients.
(a) * * *
(12) A certification that the pricing of
a service that meets the Commission’s
broadband public interest obligations is
no more than the applicable benchmark
to be announced annually in a public
notice issued by the Wireline
Competition Bureau, or is no more than
the non-promotional price charged for a
comparable fixed wireline service in
urban areas in the states or U.S.
Territories where the eligible
telecommunications carrier receives
support.
*
*
*
*
*
(e) In addition to the information and
certifications in paragraph (a) of this
section, any price cap carrier that elects
to receive Connect America Phase II
model-based support shall provide:
(1) On July 1, 2016 an initial service
quality improvement plan that includes
a list of the geocoded locations already
meeting the § 54.309 public interest
obligations at the end of calendar year
2015, and the total amount of Phase II
support, if any, the price cap carrier
used for capital expenditures in 2015.
(2) On July 1, 2017 and every year
thereafter ending July 1, 2021, a
progress report on the company’s
service quality improvement plan,
including the following information:
(i) A certification that it is meeting the
interim deployment milestones as set
forth;
(ii) The number, names, and
addresses of community anchor
institutions to which the eligible
telecommunications carrier newly began
providing access to broadband service
in the preceding calendar year;
(iii) A list of the geocoded locations
to which the eligible
telecommunications carrier newly
deployed facilities capable of delivering
broadband meeting the § 54.309 public
interest obligations with Connect
America support in the prior year. The
final progress report filed on July 1,
2021 must include the total number and
geocodes of all the supported locations
that a price cap carrier has built out to
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with service meeting the § 54.309 public
interest obligations; and
(iv) The total amount of Phase II
support, if any, the price cap carrier
used for capital expenditures in the
previous calendar year.
(3) On July 1, 2018, a certification that
the recipient offered broadband meeting
the requisite public interest obligations
specified in § 54.309 to 40% of its
supported locations in the state on
December 31, 2017.
(4) On July 1, 2019, a certification that
the recipient offered broadband meeting
the requisite public interest obligations
specified in § 54.309 to 60% of its
supported locations in the state on
December 31, 2018.
(5) On July 1, 2020, a certification that
the recipient offered broadband meeting
the requisite public interest obligations
specified in § 54.309 to 80% of its
supported locations in the state on
December 31, 2019.
(6) On July 1, 2021, a certification that
the recipient offered broadband meeting
the requisite public interest obligations
specified in § 54.309 to 100% of its
supported locations in the state on
December 31, 2020.
*
*
*
*
*
(j) Filing deadlines. (1) In order for a
recipient of high-cost support to
continue to receive support for the
following calendar year, or retain its
eligible telecommunications carrier
designation, it must submit the annual
reporting information required by this
section annually by July 1 of each year.
Eligible telecommunications carriers
that file their reports after the July 1
deadline shall receive a reduction in
support pursuant to the following
schedule:
(i) An eligible telecommunications
carrier that files after the July 1
deadline, but by July 8, will have its
support reduced in an amount
equivalent to seven days in support;
(ii) An eligible telecommunications
carrier that files on or after July 9 will
have its support reduced on a pro-rata
daily basis equivalent to the period of
non-compliance, plus the minimum
seven-day reduction.
(2) Grace period. An eligible
telecommunications carrier that submits
the annual reporting information
required by this section after July 1 but
before July 5 will not receive a
reduction in support if the eligible
telecommunications carrier and its
holding company, operating companies,
and affiliates as reported pursuant to
paragraph (a)(8) of this section have not
missed the July 1 deadline in any prior
year.
*
*
*
*
*
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8. Amend § 54.314 by revising
paragraph (d) to read as follows:
■
§ 54.314 Certification of support for
eligible telecommunications carriers.
*
*
*
*
*
(d) Filing deadlines. (1) In order for an
eligible telecommunications carrier to
receive federal high-cost support, the
state or the eligible telecommunications
carrier, if not subject to the jurisdiction
of a state, must file an annual
certification, as described in paragraph
(c) of this section, with both the
Administrator and the Commission by
October 1 of each year. If a state or
eligible telecommunications carrier files
the annual certification after the October
1 deadline, the carrier subject to the
certification shall receive a reduction in
its support pursuant to the following
schedule:
(i) An eligible telecommunications
carrier subject to certifications filed after
the October 1 deadline, but by October
8, will have its support reduced in an
amount equivalent to seven days in
support;
(ii) An eligible telecommunications
carrier subject to certifications filed on
or after October 9 will have its support
reduced on a pro-rata daily basis
equivalent to the period of noncompliance, plus the minimum sevenday reduction.
(2) Grace period. If an eligible
telecommunications carrier or state
submits the annual certification
required by this section after October 1
but before October 5, the eligible
telecommunications carrier subject to
the certification will not receive a
reduction in support if the eligible
telecommunications carrier and its
holding company, operating companies,
and affiliates as reported pursuant to
§ 54.313(a)(8) have not missed the
October 1 deadline in any prior year.
■ 9. Revise § 54.319 to read as follows:
§ 54.319 Elimination of high-cost support
in areas with 100 percent coverage by an
unsubsidized competitor.
(a) Universal service support shall be
eliminated in an incumbent rate-ofreturn local exchange carrier study area
where an unsubsidized competitor, or
combination of unsubsidized
competitors, as defined in § 54.5, offers
to 100 percent of residential and
business locations in the study area
voice and broadband service at speeds
of at least 10 Mbps downstream/1 Mbps
upstream, with latency suitable for realtime applications, including Voice over
Internet Protocol, and usage capacity
that is reasonably comparable to
comparable offerings in urban areas, at
rates that are reasonably comparable to
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rates for comparable offerings in urban
areas.
(b) After a determination there is a
100 percent overlap, the incumbent
local exchange carrier shall receive the
following amount of high-cost support:
(1) In the first year, two-thirds of the
lesser of the incumbent’s total high-cost
support in the immediately preceding
calendar year or $3000 times the
number of reported lines as of year-end
for the immediately preceding calendar
year;
(2) In the second year, one-third of the
lesser of the incumbent’s total high-cost
support in the immediately preceding
calendar year or $3000 times the
number of reported lines as of year-end
for the immediately preceding calendar
year;
(3) In the third year and thereafter, no
support shall be paid.
(c) The Wireline Competition Bureau
shall update its analysis of where there
is a 100 percent overlap on a biennial
basis.
■ 10. Amend § 54.320 by adding
paragraph (d) to read as follows:
§ 54.320 Compliance and recordkeeping
for the high-cost program.
*
*
*
*
*
(d) Eligible telecommunications
carriers subject to defined build-out
milestones must notify the Commission
and USAC, and the relevant state, U.S.
Territory, or Tribal government, if
applicable, within 10 business days
after the applicable deadline if they
have failed to meet a build-out
milestone.
(1) Interim build-out milestones. Upon
notification that an eligible
telecommunications carrier has
defaulted on an interim build-out
milestone after it has begun receiving
high-cost support, the Wireline
Competition Bureau will issue a letter
evidencing the default. The issuance of
this letter shall initiate reporting
obligations and withholding of a
percentage of the eligible
telecommunication carrier’s total
monthly high-cost support, if
applicable, starting the month following
the issuance of the letter:
(i) Tier 1. If an eligible
telecommunications carrier has a
compliance gap of at least five percent
but less than 15 percent of the number
of locations that the eligible
telecommunications carrier is required
to have built out to by the interim
milestone, the Wireline Competition
Bureau will issue a letter to that effect.
Starting three months after the issuance
of this letter, the eligible
telecommunications carrier will be
required to file a report every three
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months identifying the geocoded
locations to which the eligible
telecommunications carrier has newly
deployed facilities capable of delivering
broadband meeting the requisite
requirements with Connect America
support in the previous quarter. Eligible
telecommunications carriers that do not
file these quarterly reports on time will
be subject to support reductions as
specified in § 54.313(j). The eligible
telecommunications carrier must
continue to file quarterly reports until
the eligible telecommunications carrier
reports that it has reduced the
compliance gap to less than five percent
of the required number of locations for
that interim milestone and the Wireline
Competition Bureau issues a letter to
that effect.
(ii) Tier 2. If an eligible
telecommunications carrier has a
compliance gap of at least 15 percent
but less than 25 percent of the number
of locations that the eligible
telecommunications carrier is required
to have built out to by the interim
milestone, USAC will withhold 15
percent of the eligible
telecommunications carrier’s monthly
support for that state and the eligible
telecommunications carrier will be
required to file quarterly reports. Once
the eligible telecommunications carrier
has reported that it has reduced the
compliance gap to less than 15 percent
of the required number of locations for
that interim milestone for that state, the
Wireline Competition Bureau will issue
a letter to that effect, USAC will stop
withholding support, and the eligible
telecommunications carrier will receive
all of the support that had been
withheld. The eligible
telecommunications carrier will then
move to Tier 1 status.
(iii) Tier 3. If an eligible
telecommunications carrier has a
compliance gap of at least 25 percent
but less than 50 percent of the number
of locations that the eligible
telecommunications carrier is required
to have built out to by the interim
milestone, USAC will withhold 25
percent of the eligible
telecommunications carrier’s monthly
support for that state and the eligible
telecommunications carrier will be
required to file quarterly reports. Once
the eligible telecommunications carrier
has reported that it has reduced the
compliance gap to less than 25 percent
of the required number of locations for
that interim milestone for that state, the
Wireline Competition Bureau will issue
a letter to that effect, the eligible
telecommunications carrier will move to
Tier 2 status.
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(iv) Tier 4. If an eligible
telecommunications carrier has a
compliance gap of 50 percent or more of
the number of locations that the eligible
telecommunications carrier is required
to have built out to by the interim
milestone:
(A) USAC will withhold 50 percent of
the eligible telecommunications
carrier’s monthly support for that state,
and the eligible telecommunications
carrier will be required to file quarterly
reports. As with the other tiers, as the
eligible telecommunications carrier
reports that it has lessened the extent of
its non-compliance, and the Wireline
Competition Bureau issues a letter to
that effect, it will move down the tiers
until it reaches Tier 1 (or no longer is
out of compliance with the relevant
interim milestone).
(B) If after having 50 percent of its
support withheld for six months the
eligible telecommunications carrier has
not reported that it is eligible for Tier 3
status (or one of the other lower tiers),
USAC will withhold 100 percent of the
eligible telecommunications carrier’s
monthly support and will commence a
recovery action for a percentage of
support that is equal to the eligible
telecommunications carrier’s
compliance gap plus 10 percent of the
ETC’s support that has been disbursed
to that date.
(v) If at any point during the support
term, the eligible telecommunications
carrier reports that it is eligible for Tier
1 status, it will have its support fully
restored, USAC will repay any funds
that were recovered or withheld, and it
will move to Tier 1 status.
(2) Final build-out milestone. Upon
notification that the eligible
telecommunications carrier has not met
a final build-out milestone, the eligible
telecommunications carrier will have
twelve months from the date of the final
build-out milestone deadline to come
into full compliance with this
milestone. If the eligible
telecommunications carrier does not
report that it has come into full
compliance with this milestone within
twelve months, the Wireline
Competition Bureau will issue a letter to
this effect. USAC will then recover the
percentage of support that is equal to
1.89 times the average amount of
support per location received in the
state over the six-year term for the
relevant number of locations plus 10
percent of the eligible
telecommunications carrier’s total Phase
II support over the six-year term for that
state.
(3) Compliance reviews. If subsequent
to the eligible telecommunications
carrier’s support term, USAC
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4479
determines in the course of a
compliance review that the eligible
telecommunications carrier does not
have sufficient evidence to demonstrate
that it has built out to all of the locations
required by the final build-out
milestone, USAC shall recover a
percentage of support from the eligible
telecommunications carrier as specified
in paragraph (d)(2) of this section.
■ 11. Amend § 54.1309 by revising
paragraphs (a) introductory text, (c)
introductory text, and (c)(2) and adding
paragraph (d) to read as follows:
§ 54.1309 National and study area average
unseparated loop costs.
(a) National average unseparated loop
cost per working loop. Except as
provided in paragraphs (c) and (d) of
this section, this is equal to the sum of
the Loop Costs for each study area in the
country as calculated pursuant to
§ 54.1308(a) divided by the sum of the
working loops reported in § 54.1305(h)
for each study area in the country. The
national average unseparated loop cost
per working loop shall be calculated by
the National Exchange Carrier
Association. Until June 30, 2015 the
national average unseparated loop cost
for purposes of calculating expense
adjustments for rural incumbent local
exchange carriers, as that term is
defined in § 54.5 is frozen at $240.00.
*
*
*
*
*
(c) Until June 30, 2015, the national
average unseparated loop Cost per
working loop shall be the greater of:
*
*
*
*
*
(2) An amount calculated to produce
the maximum rural incumbent local
exchange carrier portion of the
nationwide loop cost expense
adjustment allowable pursuant to
§ 54.1302(a).
(d) Beginning July 1, 2015, the
national average unseparated loop cost
per working loop shall be frozen at the
national average unseparated loop cost
per working loop as recalculated by the
National Exchange Carrier Association
to reflect the March 2015 update filing.
■ 12. Revise § 54.1310 to read as
follows:
§ 54.1310
Expense adjustment.
(a) Until June 30, 2015, for study areas
reporting 200,000 or fewer working
loops pursuant to § 54.1305(h), the
expense adjustment (additional
interstate expense allocation) is equal to
the sum of paragraphs (a)(1) and (2) of
this section.
(1) Sixty-five percent of the study area
average unseparated loop cost per
working loop as calculated pursuant to
§ 54.1309(b) in excess of 115 percent of
the national average for this cost but not
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greater than 150 percent of the national
average for this cost as calculated
pursuant to § 54.1309(a) multiplied by
the number of working loops reported in
§ 54.1305(h) for the study area; and
(2) Seventy-five percent of the study
area average unseparated loop cost per
working loop as calculated pursuant to
§ 54.1309(b) in excess of 150 percent of
the national average for this cost as
calculated pursuant to § 54.1309(a)
multiplied by the number of working
loops reported in § 54.1305(h) for the
study area.
(b) Beginning July 1, 2015, the
expense adjustment for each study area
calculated pursuant to paragraph (a) of
this section will be adjusted as follows:
(1) If the aggregate expense
adjustments for all study areas exceed
the maximum rural incumbent local
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exchange carrier portion of nationwide
loop cost expense adjustment allowable
pursuant to § 54.1302(a) (the HCLS cap),
then each study area’s expense
adjustment will be reduced by
multiplying it by the ratio of the HCLS
cap to the aggregate expense
adjustments for all study areas.
(2) If the aggregate expense
adjustments for all study areas are less
than the HCLS cap set pursuant to
§ 54.1302(a), then the expense
adjustments for all study areas pursuant
to paragraph (a) of this section shall be
recalculated using a cost per loop
calculated to produce an aggregate
amount equal to the HCLS cap in place
of the national average cost per loop.
(c) The expense adjustment calculated
pursuant to paragraphs (a) and (b) of
this section shall be adjusted each year
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to reflect changes in the amount of highcost loop support resulting from
adjustments calculated pursuant to
§ 54.1306(a) made during the previous
year. If the resulting amount exceeds the
previous year’s fund size, the difference
will be added to the amount calculated
pursuant to paragraphs (a) and (b) of
this section for the following year. If the
adjustments made during the previous
year result in a decrease in the size of
the funding requirement, the difference
will be subtracted from the amount
calculated pursuant to paragraphs (a)
and (b) of this section for the following
year.
[FR Doc. 2015–00939 Filed 1–26–15; 8:45 am]
BILLING CODE 6712–01–P
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Agencies
[Federal Register Volume 80, Number 17 (Tuesday, January 27, 2015)]
[Rules and Regulations]
[Pages 4445-4480]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00939]
[[Page 4445]]
Vol. 80
Tuesday,
No. 17
January 27, 2015
Part III
Federal Communications Commission
-----------------------------------------------------------------------
47 CFR Part 54
Connect America Fund, ETC Annual Reports and Certifications, Petition
of USTelecom for Forbearance From Obsolete ILEC Regulatory Obligations
That Inhibit Deployment of Next-Generation Networks; Final Rule
Federal Register / Vol. 80 , No. 17 / Tuesday, January 27, 2015 /
Rules and Regulations
[[Page 4446]]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos. 10-90, 14-58, 14-192; FCC 14-190]
Connect America Fund, ETC Annual Reports and Certifications,
Petition of USTelecom for Forbearance From Obsolete ILEC Regulatory
Obligations That Inhibit Deployment of Next-Generation Networks
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
(Commission) takes momentous strides towards fully implementing a
modernized universal service regime capable of meeting consumer demands
for 21st century networks. The Commission also finalizes decisions
necessary to proceed with the offer of support to price cap carriers in
early 2015.
DATES: Effective February 26, 2015, except for Sec. Sec. 54.313(a)(e)
and 54.320 which contain new or modified information collection
requirements that will not be effective until approved by the Office of
Management and Budget. The Federal Communications Commission will
publish a document in the Federal Register announcing the effective
date for those sections.
FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, (202) 418-0428 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order, WC Docket Nos. 10-90, 14-58, 14-192; FCC 14-190, adopted on
December 11, 2014 and released on December 18, 2014. The full text of
this document is available for public inspection during regular
business hours in the FCC Reference Center, Room CY-A257, 445 12th
Street SW., Washington, DC 20554. Or at the following Internet address:
https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-190A1.pdf.
I. Introduction
1. With this Report and Order (Order), the Commission takes another
momentous stride towards fully implementing a modernized universal
service regime capable of meeting consumer demands for 21st century
networks. The Commission finalizes the decisions necessary to proceed
with the offer of support to price cap carriers in early 2015, thereby
paving the way for the deployment of new broadband infrastructure to
millions of unserved Americans. In the coming months, the Commission
will turn our attention to finalizing the rules for the Phase II
competitive bidding process that will occur in those states where the
price cap carrier declines the offer of model-based support.
2. Throughout the universal service reform process, the Commission
has sought to ensure that all consumers ``have access to . . . advanced
telecommunications and information services'' and benefit from the
historic technology transitions that are transforming our nation's
communications services. This Report and Order continues down that
path. The Commission adopts several revisions to Connect America Phase
II to account for changes in the marketplace since the USF/ICC
Transformation Order, 76 FR 73830, November 29, 2011, was adopted. In
particular, the Commission revises the minimum speed requirement that
recipients of high-cost universal service must offer. The Commission
finds that it is in the public interest to require recipients of high-
cost support subject to broadband performance obligations to serve
fixed locations to provide at least a minimum broadband speed of 10
Mbps downstream.
3. The Commission adopts targeted changes to the framework
established for the offer of model-based support to price cap carriers.
Specifically, the Commission makes an adjustment to the term of
support, adopts more evenly spaced interim deployment milestones, and
concludes that adjustments of up to five percent in the number of
locations that must be served with corresponding support reductions are
appropriate to ensure that deployment obligations recognize conditions
in the real world. The Commission also forbears from the federal high-
cost universal service obligation of price cap carriers to offer voice
service in low-cost areas where they do not receive high-cost support,
in areas served by an unsubsidized competitor, and in areas where the
price cap carrier is replaced by another eligible telecommunications
carrier (ETC).
4. In addition, the Commission addresses where Phase II support
will be available, both for the offer of model-based support to price
cap carriers and the subsequent Phase II competitive bidding process.
First, the Commission will exclude from the offer of Phase II model-
based support any census block served by a subsidized facilities-based
terrestrial competitor that offers fixed residential voice and
broadband services meeting or exceeding 4 Mbps downstream and 1 Mbps
upstream (4/1 Mbps), using 3 Mbps downstream/768 kbps upstream (3 Mbps/
768 kbps) as a proxy for this standard, as determined by the Wireline
Competition Bureau (Bureau) upon completion of the Phase II challenge
process. The Commission also reaffirms its decision to exclude from the
offer of model-based support any census block served by an unsubsidized
competitor that meets or exceeds the 3 Mbps/768 kbps performance
metrics. Second, the Commission concludes that those high-cost blocks
served by a subsidized carrier that are excluded from the offer of
model-based support--including blocks with service meeting or exceeding
the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed
requirement--will be eligible for support in the Phase II competitive
bidding process. Third, the Commission concludes that any area served
by an unsubsidized facilities-based terrestrial competitor that offers
10/1 Mbps will be ineligible for support in the Phase II competitive
bidding process.
5. In the April 2014 Connect America Fund FNPRM, 79 FR 39196, July
9, 2014, the Commission sought comment on a number of near-term and
longer-term reforms for rate-of-return carriers, including developing
and implementing a ``Connect America Fund'' for rate-of-return
carriers. Although a number of parties have submitted proposals that
may have promise, the Commission finds that further analysis and
development of these proposals is necessary. The Commission will
continue to explore the possibility of a voluntary path to model-based
support for those rate-of-return carriers that choose to pursue it. The
Commission also expects to continue to develop the record and act in
the coming year on alternatives for those who do not elect to receive
model-based support.
6. In this Order, the Commission focuses on near-term reforms for
rate-of-return carriers. Specifically, the Commission adopts a revised
methodology for applying the cap on high-cost loop support to
distribute that support on a more equitable basis. The Commission also
addresses the proposals from the April 2014 Connect America FNPRM
regarding the 100 percent overlap rule.
7. In the USF/ICC Transformation Order, the Commission established
a ``uniform national framework for accountability'' that replaced the
various data and certification filing deadlines that carriers
previously were
[[Page 4447]]
required to meet. In this Order, the Commission takes several steps to
strengthen that framework, including codifying the reasonable
comparability pricing requirement for broadband services, adjusting the
reductions in support for late-filed annual ETC reports and
certifications, and providing greater specificity regarding how the
Commission will address non-compliance with the Commission's service
obligations for voice and broadband.
8. The actions the Commission takes in this Order, combined with
the implementation of the rural broadband experiments and the reforms
the Commission implemented earlier in the year, will allow the
Commission to continue to advance further down the path outlined in the
USF/ICC Transformation Order. The Commission expects the Bureau to
complete the Connect America Phase II challenge process and then make a
final determination as to which census blocks will be eligible for the
offer of model-based Phase II support by early 2015. That final
determination will allow the Commission to extend the offers of Phase
II model-based support to price cap carriers to fund the deployment of
voice and broadband-capable infrastructure in their territories. The
carriers will then have 120 days to consider the offer, and in those
states where the price cap carrier declines the offer of support, the
Commission will move forward with the Phase II competitive bidding
process to determine support recipients.
II. Public Interest Obligations
A. Evolving Speed Obligations
9. Discussion. In this section, the Commission adopts a new minimum
speed standard of 10 Mbps downstream and 1 Mbps upstream (10[sol]1
Mbps) to further the statutory goal in section 254 of ensuring that
consumers in rural and high-cost areas of the country have access to
advanced telecommunications and information services that are
reasonably comparable to those services in urban areas, at reasonably
comparable rates. The marketplace for broadband has continued to evolve
since the Commission established its initial minimum speed benchmark of
4[sol]1 Mbps in 2011, and will continue to do so, given consumer demand
for an ever growing range of services and applications. Our task is to
implement policies with our available funds that will extend broadband
to high-cost and rural areas where the marketplace alone does not
currently provide a minimum level of broadband connectivity.
10. The most recent State Broadband Initiative (SBI) data for
December 2013 show that 99 percent of Americans living in urban areas
have access to fixed broadband with speeds of at least 10 Mbps
downstream/768 kbps upstream (10 Mbps/768 kbps), and a majority of
Americans have already chosen to adopt such service. Moreover, fixed
broadband services with even higher speeds, such as 25 Mbps downstream/
3 Mbps upstream (25/3 Mbps) or higher, are available to the vast
majority of urban households. In contrast, the SBI data indicate that
31 percent of the population residing in rural census blocks lack
access to fixed broadband providing at least 10 Mbps/768 kbps speeds.
11. Our objective with high-cost support is to extend broadband-
capable infrastructure to as many high-cost locations as efficiently as
possible, and at the same time ensure that the Commission is best
utilizing the funds that consumers and businesses pay into the
universal service system. The Commission finds that raising the minimum
downstream speed requirement to 10 Mbps is an appropriate way at the
present time to implement the statutory language in section 254
regarding reasonable comparability. As noted above, where available, a
majority of households adopt fixed broadband with speeds of at least 10
Mbps/768 kbps. This is not surprising, as fixed broadband with speeds
of at least 10 Mbps downstream offers more functionality to consumers
than 4 Mbps downstream, particularly when multiple users are relying
upon the broadband connection. For users browsing the Web, the total
time needed to load a page decreases with higher speeds up to about 10
Mbps. High definition video requires 5 Mbps downstream. Although VoIP
services are adequately supported by lower speeds, VoIP quality may
suffer when household bandwidth is shared by other services. When rural
households have access to speeds of 10 Mbps or more, they are just as
likely to adopt a 10 Mbps service as households in urban areas.
12. The Commission is setting a standard that is achievable in the
near term with support from the Connect America Fund, while mindful of
the need to balance the interests of both recipients and contributors
to the Fund. The Commission encourages recipients of funding to deploy
to the extent possible future proof infrastructure that will be capable
of meeting evolving broadband performance obligations over the longer
term. That will ensure that our policies will continue to support an
evolving level of universal service in the future.
13. Based on the record before us, the Commission finds ample basis
for revising the current broadband performance obligations to require
minimum speeds of 10 Mbps downstream. In contrast, while a few
commenters supported raising the upstream speed, there is little
analysis in this docket regarding the potential advantages and
disadvantages associated with raising the minimum upstream speed above
1 Mbps for purposes of high-cost funding. The Commission therefore does
not adjust the minimum upstream speed required for high-cost support
recipients at this time, but expect to consider the matter again when
the Commission revisits our broadband performance obligations for
recipients of high-cost support in the future. Accordingly, pursuant to
section 254, the Commission adopts a minimum speed standard of 10[sol]1
Mbps to ensure that Connect America funding is used efficiently, to
deploy broadband-capable networks to meet ever evolving consumer
demand.
14. As the Commission explained in the April 2014 Connect America
FNPRM, by increasing the current broadband downstream speed benchmark,
the Commission is primarily focusing on the minimum standard for new
deployments of broadband-capable infrastructure. Consistent with the
approach the Commission adopted for the previous speed benchmark, high-
cost support recipients will be expected to achieve the new standard
over a period of years, as they utilize that support to extend and
upgrade networks in high-cost areas that are otherwise uneconomic to
serve. Price cap carriers accepting a state-level commitment will be
required to offer at least 10[sol]1 Mbps broadband service to the
requisite number of high-cost locations in a given state by the end of
the support term. Rate-of-return carriers will be required to offer at
least 10[sol]1 Mbps broadband service upon reasonable request,
consistent with past guidance regarding our expectations regarding the
reasonable request standard. If a request for 10[sol]1 Mbps is not
reasonable in a given circumstance, but offering 4[sol]1 Mbps is
reasonable, the Commission would expect a rate-of-return carrier to
offer 4[sol]1 Mbps.
15. The Commission is not persuaded by arguments that increasing
the downstream speed benchmark to 10 Mbps requires fundamental changes
in the terms of the offer to price cap carriers that accept a state-
level commitment. Although price cap carriers generally support a 10
Mbps
[[Page 4448]]
speed benchmark, they contend concurrent changes should be made to
other terms of the state-level offer. The Commission does not agree
that by increasing the required broadband speed the Commission is
upending the ``delicate balance'' adopted by the Commission in the USF/
ICC Transformation Order. The Commission made clear in 2011 that it
expected broadband performance obligations to evolve, committed to
initiating a proceeding in three years to re-examine the standard, and
noted that carriers were expected to build ``robust, scalable
networks.'' Moreover, at that time, the Commission delegated authority
to the Bureau to require price cap carriers accepting model-based
support to deploy service delivering at least 6[sol]1.5 Mbps to a
number of supported locations. Thus, the framework adopted by the
Commission in 2011 expressly anticipated that a higher minimum speed
standard would be necessary in the future to provide an evolving level
of universal service.
16. Although the Commission recognizes that carriers upgrading
their networks may incur additional capital investment costs to offer
10[sol]1 Mbps as opposed to 4[sol]1 Mbps, how much more costly this is
in the real world depends on circumstances that vary by carrier, such
as the location of existing facilities and distances to unserved
locations. The fact that achieving this revised standard may require
additional network investment than would be the case if the speed
standard remained 4[sol]1 Mbps is not a justification, however, for not
adjusting the standard at all. Rather as discussed more fully below,
the Commission makes other modest adjustments to the Phase II framework
to ensure that the support provided is sufficient to meet the
obligations that are accepted through the state-level commitment. To
the extent a carrier believes the support offered is insufficient to
meet the obligations, it may turn down the offer of Phase II model-
based support.
17. The Commission expects carriers planning upgrades to their
networks today would take into account near term and future consumer
demand. As noted above, current data show that a majority of broadband
subscribers today purchase at least 10[sol]1 Mbps. A comparison of
adoption rates from 2011 to 2013 show a steady increase in adoption for
this level of service. The Commission therefore finds that it is
reasonable to assume that many carriers upgrading their networks with
Phase II support would aim to provide the capability to provide at
least 10[sol]1 Mbps, with higher speeds available to a subset of
locations.
18. Rate-of-return carriers are expected to take into account the
revised 10[sol]1 Mbps speed standard when considering whether and where
to upgrade existing plant in the ordinary course of business and will
be required to report on progress toward this goal in annual updates to
their five-year service quality plans. As the Commission emphasized in
proposing the revised speed standard, however, a rate-of-return carrier
will only be required to meet the higher speed standard if the request
for service is reasonable. Rate-of-return carriers will be able to
comply with the revised speed standard because the Commission already
has adopted a more flexible approach to determining compliance with our
broadband performance obligations for this segment of the industry. The
Commission previously have stated that a ``reasonable request is one
where the carrier could cost-effectively extend a voice and broadband-
capable network to that location. In determining whether a particular
upgrade is cost effective, the carrier should not consider only its
anticipated end-user revenues, for the services to be offered over that
network, both voice and broadband internet access, but also other
sources of support, such as federal and, where available, state
universal service funding.'' Among other things, the Commission has
explained that a request would not be reasonable if the incremental
cost of undertaking the necessary upgrades to a particular location
exceed the revenues that could be expected from that upgraded line. The
Commission has determined that carriers may take into account backhaul
costs or other unique circumstance that make it cost-prohibitive to
extend service to particular customers. Moreover, rate-of-return
carriers have no obligation to extend broadband-capable infrastructure
in any census block that is served by a competitor that meets the
Commission's revised performance standards.
19. Nor is the Commission persuaded that increasing the broadband
speed requirement requires enlarging the budget for rate-of-return
carriers. As discussed above, carriers evaluating whether or not a
request for service is reasonable may consider the cost of upgrading
the network and the support available. If, for instance, the cost of
extending fiber sufficiently close to a requesting customer to be able
to offer 10[sol]1 Mbps service is more than a rate-of-return carrier
could cover with existing universal service support and anticipated
end-user revenues, but it would be able to cover the cost of extending
fiber to provide 4[sol]1 Mbps service, the Commission would expect the
carrier to extend 4[sol]1 Mbps service.
20. The Commission is confident that these carriers will deploy
broadband-capable infrastructure meeting these new requirements to the
extent economically feasible in their communities and will continue to
work on creative ways to partner with each other and other entities to
provide service meeting these requirements. The Commission notes that
rate-of-return carriers have continued to deploy broadband-capable
infrastructure since the Commission adopted the landmark reforms in the
USF/ICC Transformation Order, and the Commission expects they will
continue to do so in the future. As discussed below, the Commission
adopts modifications to the current high-cost loop support mechanism to
provide a more equitable method of distributing funding among carriers
serving high-cost areas, ensuring that some carriers in high-cost areas
do not precipitously lose support. In the April 2014 Connect America
FNPRM, the Commission proposes longer-term reforms for rate-of-return
carriers, including a voluntary path to model-based support. The
Commission remains interested in finding a way to distribute support on
an equitable basis that will provide support for investment in
infrastructure capable of delivering 10/1 Mbps where reasonable in
areas served by rate-of-return carriers.
21. The Commission also rejects arguments that the Commission
should increase the high-cost universal service budget, as a means of
advancing broadband deployment in rural areas to an even greater degree
than the Commission already does in this Order. ``[T]he Commission has
to balance the principles of section 254(b) to ensure that support is
sufficient but does not impose an excessive burden on all ratepayers.''
The Commission previously conducted just such a balancing in adopting
the budget at issue here, and the Commission is not persuaded to depart
from it at this time. In particular, ``any determination about whether
the Commission has adequately implemented section 254 must look at the
cumulative effect of the four support programs, acting together.'' The
Commission has been undertaking comprehensive reforms of its universal
service programs to facilitate broadband deployment, and the Commission
continues to advance that objective through the reforms adopted in this
Order. Although the Commission recognizes that there are possible
broadband goals the Commission could
[[Page 4449]]
advance even more broadly here, the ratepayer impact that already will
occur as a result of its universal service programs collectively,
coupled with the particular circumstances here, persuade the Commission
to proceed cautiously when weighing any benefits from increased support
against the burden on ratepayers.
22. In that regard, the record here does not persuade the
Commission that an increased high-cost budget is warranted. When
comprehensively reforming the high-cost support mechanism to better
advance broadband deployment, the Commission began implementing certain
reforms immediately, while setting out a plan to advance broadband even
more widely over time through additional initiatives. For example,
noting that some areas may be too costly to serve with traditional
wireline or terrestrial wireless broadband technologies, the Commission
established the Remote Areas Fund to provide support for such
``extremely high-cost'' areas and set a budget of ``at least'' $100
million. In April 2014, the Commission concluded that extremely high-
cost areas would be eligible for the Phase II competitive bidding
process. In the coming year, the Commission expects to develop the
rules for the Phase II auction and how to address the areas that remain
unserved after that competitive bidding process. The Commission also is
considering, among other things, long term high-cost universal service
reforms for rate-of-return study areas. Against the backdrop of these
and other existing and planned efforts, some commenters nonetheless
advocate making increased high-cost support available here, but fail to
meaningfully quantify or demonstrate--even in an aggregate way--the
incremental cost (and associated burden on ratepayers) required to
achieve an incremental advancement of broadband deployment beyond what
the Commission already is achieving through the reforms adopted here
and through our universal service programs more broadly. The Commission
thus is not persuaded to increase high-cost universal service support
further. Instead, the Commission advances our broadband universal
service goals through the high-cost fund to the extent the Commission
is able within the existing budget. The Commission also notes that the
states have an important role to play in advancing universal service
goals. The Commission welcomes and encourages states to supplement our
federal funding, whether through state universal service funds or other
mechanisms.
23. Finally, the Commission concludes that recipients of support
through the Phase II competitive bidding process will be required to
meet an evolving broadband speed standard over the ten-year term. Given
the historical and anticipated trajectory of broadband speeds, the
Commission anticipates that consumers will increasingly demand greater
upstream speeds as well as downstream speeds. The Commission would
expect to initiate a proceeding to review the performance standards for
the Connect America Fund no later than 2018. While the Commission will
establish the specific performance obligations and auction design in an
upcoming order regarding the Phase II competitive bidding process, the
Commission decides now that 10/1 Mbps should not be our end goal for
recipients of support over a ten-year term. The Commission recognizes
that competitive bidding is likely to be more efficient if potential
bidders can predict what their performance obligations will be for the
length of the term. The Commission therefore now adopts a methodology
for determining the minimum speeds that will be required by the end of
the ten-year term for entities receiving support through the Phase II
competitive bidding process. The Commission concludes that the minimum
speed shall be based on the highest speed adopted by a majority of
households, as reported in the most recent Form 477 data available at
the time the Commission next revisits the specific performance
obligations for the Connect America Fund. The Commission encourages
parties receiving ten years of support through the Phase II competitive
bidding process to deploy future-proof networks that are capable of
meeting future demand.
B. Term of Support for Price Cap Carriers Accepting Phase II Model-
Based Support
24. The Commission makes a modest adjustment to the framework the
Commission adopted in 2011 for the Connect America Fund and adopts a
six-year term of support, which will begin in 2015 and extend through
2020, with an option for a seventh year in certain circumstances. The
Commission recognizes that upgrading existing networks to provide 10/1
Mbps requires deploying fiber further into the distribution network.
The Commission is not persuaded, however, that the ten-year term
advocated by some is warranted. When the Commission adopted the five-
year term it emphasized ``the limited scope and duration of the state-
level commitment procedure'' and expected that ``support after such
five-year period will be awarded through a competitive bidding process
in which all eligible providers will be given an equal opportunity to
compete.'' The Commission continues to believe that it should move to
competitive bidding processes in a timely manner in those areas where
support initially is awarded through the acceptance of state-level
commitments. In particular, the Commission expects to conduct a
competitive bidding process no later than the end of 2019 to ensure
there is continuity and a transition path to Connect America Phase III.
25. To the extent a price cap carrier that accepts the offer of
Phase II model-based support in a particular state is a winning bidder
in the Phase III auction, it will commence receiving that support in
2021. In the event that carrier either does not win in the Phase III
auction, or chooses not to bid on such support, its term of Phase II
support will be completed at the end of 2020. The Commission will
provide such carriers the option to elect one additional year of
support, however, with Phase II support continuing in calendar year
2021 as a gradual transition to the elimination of support. This is
consistent with the principle established in the USF/ICC Transformation
Order of ``no flash cuts,'' while also recognizing that additional
funding may be appropriate in particular circumstances in those states
where six years of support is insufficient to cover the capital
investment necessary to meet the revised 10 Mbps downstream standard.
The Commission also notes that even if a new entrant is authorized to
begin receiving Phase III support in 2020, there will be a certain
amount of time before that new provider will be able to deploy its
network and begin offering service. Providing another year of Phase II
support to the incumbent provider through the end of 2021 will ensure
that there is an appropriate transition from the incumbent to new ETCs.
C. Flexibility in Meeting Deployment Obligations
26. In the April 2014 Connect America FNPRM, the Commission sought
comment on a number of measures that would provide recipients of Phase
II support greater flexibility in meeting their deployment obligations.
In response, price cap carriers argue that if the Commission requires
10 Mbps, it should increase the build-out period of the state-level
commitment to eight or ten years. They claim that building
[[Page 4450]]
networks capable of providing 10/1 Mbps will take more time and more
funding than networks meeting the current 4/1 Mbps speed requirement,
because it will require extending fiber further into the network and
deploying additional remote terminals. In addition to taking more time
for planning network upgrades and obtaining necessary permits, they
also argue that the broadband construction industry as a whole may not
be capable of meeting the demand in a shorter timeframe.
27. Here, the Commission addresses flexibility for price cap
carriers accepting Phase II model-based support. The Commission expects
to provide similar flexibility to recipients of support awarded through
the Phase II competitive bidding process, which will be addressed in a
future order adopting the rules for the competitive bidding process.
1. Interim Deployment Obligations
28. The Commission modifies the build-out requirements established
for price cap carriers accepting model-based support to create straight
line interim milestones over the revised six-year term, rather than
front-loading the deployment obligations in the first three years of
the term. When the Commission adopted the interim deployment milestone
of deploying to 85 percent of locations by the end of the third year,
it noted that ``there were few concrete suggestions in the record on
what those interim milestones should be.'' The Commission recognizes
that the first task for any major network upgrade is to complete an
overall plan and then undertake detailed engineering analyses in the
field to plan the construction of particular routes. Recipients of
support--whether price cap carriers or bidders in a competitive
auction--will likely then proceed incrementally, route by route,
working to complete construction evenly over the course of the term
required for deployment. For that reason, rather than requiring price
cap carriers accepting a state-level commitment to offer broadband
service meeting the minimum requirements to at least 85 percent of
their high-cost locations by the end of the third year, the Commission
instead adopts evenly spaced annual interim milestones for price cap
carriers to offer at least 10/1 Mbps to an additional 20 percent of the
requisite number of high-cost locations each year, as shown in Table 1
below. Completing construction to 40 percent of the requisite number of
locations in a state by the end of calendar year 2017, instead of 85
percent by mid-2018 year, is a more realistic expectation, given that
carriers will not accept the offer of support until mid-year in 2015
and once authorized to receive support, will then be developing
detailed network construction plans.
Table 1--Deployment Milestones for Price Cap Carriers Accepting Phase II
Model-Based Support
------------------------------------------------------------------------
Revised interim
Current requirement milestones
------------------------------------------------------------------------
Year 1............ ............................ **%.
Year 2............ ............................ **%.
Year 3............ 85% of locations............ 40%.
End of 2017.
Year 4............ ............................ 60%.
End of 2018.
Year 5............ 100% of locations........... 80%.
End of 2019.
Year 6............ ............................ 100%
End of 2020.
------------------------------------------------------------------------
29. The Commission recognizes that price cap carriers may choose to
prioritize construction in certain states in any given year and
therefore do not expect them to be deploying new facilities in every
state in every year of the Phase II term. However, the Commission does
require that carriers annually deploy new infrastructure to some
locations that previously lacked 4[sol]1 Mbps in the earlier years of
the Phase II term so that consumers benefit from the availability of
new broadband services as early as possible. By the end of calendar
year 2017, the Commission requires that, at the holding company level,
at least five percent of the nationwide total of funded locations that
have been reported as newly served in the annual reports must be
locations that previously lacked 4/1 Mbps.
2. Number of Locations
30. In addition, the Commission recognizes that the ``facts on the
ground'' when price cap carriers are deploying facilities may
necessitate some additional flexibility regarding the scope of the
deployment obligations. At the outset, the Commission notes that there
may be some variance between the number of funded locations as
specified by the forward-looking cost model adopted by the Bureau and
the actual number of locations in a given area. For instance, the price
cap carrier model utilizes GeoResults study area boundaries, which in
some instances may be inaccurate, which in turn may result in the
inaccurate assignment of certain locations to a particular price cap
territory. The model also utilizes GeoResults business location data,
which in some instances may be inaccurate in terms of either business
counts or actual physical locations; this in turn may result in too
many or too few locations in a given census block. While these minor
inaccuracies should cancel one another out in most instances across
multiple census blocks, the Commission recognizes that in particular
areas that may not be the case, and the total number of locations
assigned to a particular price cap carrier in a given state according
to the model simply does not necessarily reflect the actual number of
locations. The Commission also recognizes that there may be a variety
of unforeseen factors, after the initial planning stage, that can cause
significant changes as a network is actually being deployed in the
field, and a variety of factors that can affect the time needed to
deploy a planned route. Finally, the Commission notes that the customer
location data utilized in the model reflect location data at a
particular point in time. The precise number of locations in some
funded census blocks is likely to change over time for a variety of
reasons, which may impact the orderly progress of the planned
construction cycle.
31. Given all of these factors, rather than requiring deployment to
100 percent of funded locations as identified by the model in a given
state, the Commission will permit a modest adjustment to the number of
model-determined funded locations in a given state with a corresponding
reduction in support in certain instances. Price cap carriers taking
advantage of this flexibility will be required to refund support based
on the number of required locations without access to broadband. The
Commission balances this flexibility with our goal of advancing the
availability of broadband to these high-cost locations. Therefore, the
Commission will require deployment to at least 95 percent of the funded
locations, but in order for a price cap carrier to take advantage of
this flexibility, the Commission requires them to identify by December
31, 2015, any specific census blocks where they do not intend to meet
their deployment commitments, with those blocks covering at least two
percent of their total eligible locations in a state. The Commission
recognizes there may be discrete census blocks identified during the
early planning stages that will be challenging to serve. By requiring
the price cap carriers to identify up front those particular census
blocks that they know they will not deploy to during Phase II, the
Commission can make those census blocks eligible for support in the
Phase II competitive bidding process. For those carriers that elect to
[[Page 4451]]
take advantage of this flexibility, the Commission then allows them to
identify an additional number of the eligible locations left unserved
at of the end of the term, up to three percent.
32. The Commission finds that requiring deployment to at least 95
percent of the number of funded locations will provide some flexibility
to price cap carriers in meeting their deployment obligations. The
Commission is not persuaded by commenters who argue that the Commission
should provide much more flexibility. For example, price cap carriers
argue that those accepting a state-level commitment should be permitted
to deploy to as few as 90 percent of their funded locations. Although
they propose to forego funding on a pro rata basis for the remaining
locations, the Commission is concerned that providing that degree of
flexibility across the board is inconsistent with the Commission's
rationale for providing these carriers the offer of model-based support
in the first instance: to ensure ubiquitous coverage. Rather, the
Commission may address unique situations through the waiver process
where specific circumstances justify additional flexibility.
33. Nor is the Commission persuaded by commenters who argue that
requiring anything less than 100 percent would allow recipients to
``cherry pick'' and opt out of serving the highest-cost locations. As
discussed above, there are a number of legitimate reasons why it may
not be possible for a provider--whether a price cap carrier or a
competitive provider awarded support in a competitive bidding process--
to deploy to 100 percent of the funded locations in Phase II areas by
the end of the deployment term. The Commission concludes that the
benefits of providing some flexibility to a price cap carrier to
address any variance between the cost model and real world
circumstances outweigh the theoretical risk that the carrier could
systematically identify and exclude the five percent of locations that
are highest-cost and are likely sprinkled throughout its funded
territory.
34. The Commission will require price cap Phase II recipients that
have deployed to at least 95 percent, but less than 100 percent, of the
number of funded locations to refund support based on the number of
funded locations left unserved in the state at the end of their support
term. The Commission recognizes that many factors determine a carrier's
deployment decisions, and affect costs even after those decisions are
made, so the Commission doubts that a carrier would or could
systematically exclude the highest cost locations. At the same time, it
is reasonable to assume that many of the locations left unserved would
have higher than the average costs calculated by the model. A higher
amount per location than the average therefore is appropriate.
Moreover, the Commission wants to provide more incentive to carriers to
build out to 100 percent of the required number of locations. On a
nationwide basis, the average support for the top five percent of the
highest-cost funded locations is 3.77 times the average support for all
funded locations. The Commission recognizes that costs will vary by
state and carrier, but find that the administrative simplicity of using
one-half of the nationwide aggregate factor outweighs the benefits of
false precision. Accordingly, the Commission will require a price cap
carrier at the end of its support term to refund an amount based on the
number of locations left unserved and the average Phase II support the
carrier receives in a state multiplied by 1.89.
35. The Commission concludes that the administrative simplicity of
this method outweighs the potential benefit of reducing support based
on a more complicated determination based on the relative costs of
particular locations as determined by the forward-looking cost model.
As discussed below, the Commission will require price cap carriers to
include in the final annual progress report that they submit with their
section 54.313 reports the total number and geocodes of all funded
locations to which they have deployed facilities capable of delivering
broadband meeting the requisite requirements, which will provide an
objective, easily verifiable basis for USAC to determine the amount of
support to recover in the event there is less than 100 percent
compliance with the deployment obligation.
36. Finally, for those carriers accepting Phase II model-based
support, the Commission declines to adopt the proposal to substitute
unserved locations within partially served census blocks for locations
within funded census blocks. While the Commission will continue to
explore this issue, questions remain in the record how best to
determine whether or not a particular location in a partially served
block is served or unserved without placing significant burdens on
interested parties and Bureau staff. The Commission notes that all
parties potentially interested in Connect America support--both
incumbents and new entrants alike--have an interest in building
economically efficient networks, and those networks do not neatly align
with census boundaries. Therefore, the Commission encourages all
stakeholders interested in the Phase II competitive bidding process to
work together to propose for future Commission consideration an
administratively feasible method for ensuring that unserved consumers
in partially served census blocks are not left behind.
D. Obligations of Carriers Serving Non-Contiguous Areas That Elect
Phase II Frozen Support
37. Discussion. Based on the record before the Commission, it
concludes that the best approach is to adopt tailored service
obligations for each of the non-contiguous carriers that elect to
continue to receive frozen support amounts for Phase II in lieu of the
offer of model-based support. The Commission recognizes that non-
contiguous carriers face unique circumstances in the areas they serve
and experience different challenges in deploying broadband service in
those areas. Consequently, a ``one-size-fits-all'' approach would leave
some of these carriers potentially unable to fulfill their service
obligations. The Commission believes that tailoring specific service
obligations to the individual circumstances of each non-contiguous
carrier that elects to continue receiving frozen support for Phase II
will best ensure that Connect America funding is put to the best
possible use.
38. Because the amount of frozen support may in some cases be
greater than the amount of model-based support, the Commission must
reserve sufficient funds for frozen support before generally making the
offer of support to price cap carriers in order to ensure that the
Commission does not exceed the overall budget for the offer of model-
based support. The Commission requires each non-contiguous carrier to
notify the Bureau no later than 15 days after the release of this Order
whether it is interested in Phase II frozen support in lieu of model-
based support. The Bureau then will be able to determine the
appropriate maximum amount of money that should be reserved out of the
$1.8 billion budget for those carriers. The Commission concludes that
waiting to extend the offer of model-based support until it adopts
tailored service obligations for each non-contiguous carrier would
unnecessarily delay the offer of model-based support to all other price
cap carriers.
39. As the Commission stated in the April 2014 Connect America
FNPRM, the Commission expects that any tailored service obligations
would be consistent with the Commission's goal
[[Page 4452]]
of ensuring universal availability of modern networks capable of
providing voice and broadband service to homes, businesses, and
community anchor institutions. The Commission anticipates being able to
adopt these tailored service obligations no later than the time the
Commission adopts the rules for the Phase II competitive bidding
process. The non-contiguous carriers then will have 60 days to
determine whether to accept or decline the Phase II frozen support. If
any non-contiguous carrier declines Phase II frozen support with
tailored service obligations, those areas may be eligible in the Phase
II competitive bidding process.
40. Though the Commission does not determine at this time specific
service obligations for non-contiguous carriers receiving Phase II
frozen support, the Commission concludes that carriers serving non-
contiguous areas will not be permitted to use Phase II frozen support
in any areas where there is a terrestrial provider of fixed residential
voice and broadband service that meets Phase II requirements, as
modified in this Order. Therefore, the Commission prohibits non-
contiguous carriers receiving frozen support from using that support in
any census block where there is a competitor providing service of 10/1
Mbps or greater. If a carrier is unable to meet this requirement in
certain areas, the Commission requires it to relinquish the relevant
Phase II frozen support for those areas.
E. ETC Obligations as Funding Transitions to New Mechanisms
41. Discussion. Based on the Commission's consideration of the
relevant statutory framework and the record before it, the Commission
now concludes that it is in the public interest to forbear, pursuant to
section 10 of the Communications Act of 1934, as amended (the Act) from
enforcing a federal high-cost requirement that price cap carriers offer
voice telephony service throughout their service areas pursuant to
section 214(e)(1)(A) in three types of geographic areas: (1) Census
blocks that are determined to be low-cost, (2) all census blocks served
by an unsubsidized competitor, as defined in our rules, offering voice
and broadband at speeds of 10/1 Mbps to all eligible locations, and (3)
census blocks where a subsidized competitor--i.e., another ETC--is
receiving federal high-cost support to deploy modern networks capable
of providing voice and broadband to fixed locations. They will remain
obligated, however, to maintain existing voice service unless and until
they receive authority under section 214(a) to discontinue that
service. They also will remain subject to the obligation to offer
Lifeline service to qualifying low-income households throughout their
service territory.
42. Effectively, as a result of this limited forbearance, price cap
carriers that accept the state-level commitment for Phase II support
will continue to have a federal high-cost universal service obligation
to offer voice telephony services in those census blocks that are
deemed to be extremely high-cost, unless and until they are replaced by
another ETC in those areas. The Commission does not address at this
time and in particular do not forbear from enforcing the section 214(e)
obligation of a price cap carrier to offer voice telephony services in
extremely high-cost areas where it is not receiving support, except for
the two circumstances expressly described herein: Those extremely high-
cost census blocks served by an unsubsidized competitor or where the
price cap carrier is replaced by another ETC selected through a
competitive bidding process that is required to offer voice and
broadband services to fixed locations that meet the Commission's public
service obligations. Price cap carriers that decline the state-level
commitment will have the federal high-cost universal service obligation
to offer voice telephony services in those census blocks that are
determined to be high-cost or extremely high-cost, and unserved by an
unsubsidized competitor, until they are replaced by another ETC that is
required to offer voice and broadband service to fixed locations that
meet the Commission's public service obligations.
43. As the Commission explained in the USF/ICC Transformation
FNPRM, 76 FR 78384, December 16, 2011, states have primary authority
for designating ETCs and defining their service areas except in cases
where they lack jurisdiction over the entity seeking designation. In
such situations, the Act gives the Commission responsibility for
designating the entity as an ETC. Once an entity is designated as an
ETC it must ``throughout the service area for which the designation is
received . . . offer the services that are supported by Federal
universal service support mechanisms under section 254(c).'' The
Commission defined the service supported by universal service support
mechanisms under section 254(c)(1) to be ``voice telephony'' in the
USF/ICC Transformation Order. An ETC's ``service area'' is defined to
be the geographic area as established by the relevant state commission
within which an ETC has universal service obligations and may receive
universal service support.
44. The Commission previously interpreted section 214(e) of the Act
to require that an ETC offer voice telephony service throughout its
designated service area. But with the Bureau's adoption of the CAM, the
Commission is now able to determine on a more granular level which
areas are low-cost and therefore do not need a subsidy because price
cap carriers can recoup their costs through reasonable end-user rates.
The Commission notes that these low-cost census blocks already have
voice telephony service with rates well below the reasonable
comparability benchmark for voice service. And in the other census
blocks where the Commission now grants limited forbearance, an
unsubsidized competitor exists that is offering voice telephony service
at reasonably comparable rates, or there is another ETC with an
obligation to offer reasonably comparable voice telephony service.
Thus, the Commission no longer finds that it is necessary as a matter
of federal universal service policy to require price cap carriers to
offer voice telephony service in these areas to achieve the section
254(b)(3) principle of ensuring that ``[c]onsumers in all regions of
the Nation . . . should have access to telecommunications . . .
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.''
45. Accordingly, as discussed below, the Commission concludes that
forbearance from the federal high-cost requirement that price cap
carriers offer voice telephony services throughout their service area
is warranted in these limited circumstances. The Act requires the
Commission to forbear from applying any requirement of the Act or our
regulations to a telecommunications carrier if the Commission
determines that: (1) Enforcement of the requirement is not necessary to
ensure that the charges, practices, classifications, or regulations by,
for, or in connection with that telecommunications carrier or
telecommunications service are just and reasonable and are not unjustly
or unreasonably discriminatory; (2) enforcement of that requirement is
not necessary for the protection of consumers; and (3) forbearance from
applying that requirement is consistent with the public interest. The
Commission concludes each of these statutory criteria is met for the
specific types of areas described above.
[[Page 4453]]
46. Just and Reasonable. The Commission concludes that enforcement
of the section 214(e)(1)(A) federal requirement that price cap carriers
offer voice telephony throughout their service areas is not necessary
to ensure that the charges, practices, or classifications of price cap
carriers are just and reasonable and not unjustly or unreasonably
discriminatory in specific geographic areas. The areas where the
Commission forbears from enforcing the federal requirement that price
cap carriers offer voice telephony services are census blocks (1) that
have been deemed low-cost, (2) where there is an unsubsidized
competitor meeting the Commission's standards, or (3) where there is
another ETC required to offer voice and broadband services to fixed
locations that meet the Commission's public service obligations.
47. ETCs receiving Connect America support will be required to
offer reasonably comparable voice and broadband services in their
funded high-cost census blocks at rates that are reasonably comparable
to urban areas. Therefore, there is no need to require a price cap
carrier that declines the offer of model-based support to offer voice
telephony in those census blocks where another ETC is subject to that
reasonable comparability requirement.
48. Moreover, in all the census blocks where the Commission grants
forbearance, the price cap carrier will remain subject to other Title
II requirements that ensure that voice telephony rates remain just and
reasonable and not unjustly or unreasonably discriminatory. Price cap
carriers will continue to be subject to sections 201 and 202 of the
Act, which place nondiscrimination obligations on common carriers.
Additionally, the Commission defers to the states' judgment in assuring
that the local rates that price cap carriers offer in the areas from
which the Commission forbears remain just and reasonable. It also is
reasonable to expect that the rates that price cap carriers charge in
these areas for voice telephony will constrain the rates of other
providers. And finally, in the event that the price cap carrier seeks
to cease offering voice telephony in these areas, it will be subject to
the section 214(a) discontinuance process that the Commission addresses
more fully below, during which any concerns that may be raised by the
price cap carrier's decision to cease offering voice service can be
addressed if necessary. The Commission concludes that these
circumstances ensure just, reasonable, and nondiscriminatory offerings
in the areas where the Commission grants forbearance. For these
reasons, the Commission finds that the first prong of section 10(a) is
met.
49. Protection of Consumers. The Commission finds that, in the
three types of census blocks subject to this forbearance determination,
other mechanisms will be sufficient to protect consumers, and therefore
it is unnecessary to enforce the obligation of price cap carriers to
offer voice telephony services to ensure that consumers are protected.
50. First, there are several safeguards that will prevent the
consumers living in these areas from losing access to voice telephony
services. Not enforcing the high-cost ETC obligation of price cap
carriers to offer voice telephony services in these areas does not mean
that price cap carriers can immediately cease providing voice telephony
service. Pursuant to section 214(a) of the Act and section 63.71 of the
Commission's rules, all carriers must provide notice to their customers
and the relevant states in writing that they plan to discontinue
service and then file an application with the Commission before
discontinuing voice telephony service in an area. Outside parties have
the opportunity to provide comment on the application, and the
Commission may then decide that the application should not be
automatically granted. The discontinuance rules are designed to ensure
that customers are fully informed of any proposed change that will
reduce or end service, ensure appropriate oversight by the Commission
of such changes, and provide an orderly transition of service, as
appropriate. This process allows the Commission to minimize harm to
customers and to satisfy its obligation under the Act to protect the
public interest.
51. The Commission has discretion to grant a discontinuance request
in whole or in part, and may attach conditions as necessary to protect
consumers and the public interest. Given the fact-intensive nature of
this inquiry for each affected market, the Commission is not persuaded
by suggestions in the record that it should grant blanket
discontinuance to price cap carriers in the areas where it grants
forbearance. Where there is a question as to appropriate alternatives
available to consumers or whether the present or future public
convenience and necessity will be adversely affected, the Commission
will scrutinize the discontinuance application, consistent with its
statutory obligations. In evaluating a section 214 discontinuance
application, the Commission generally considers a number of factors,
including the existence, availability, and adequacy of alternatives.
Through consideration of these factors, the Commission ensures that the
removal of a choice from the marketplace occurs in a manner that
respects consumer expectations and needs. The Commission will not
authorize a proposed discontinuance of service if customers or other
end users would be unable to receive service or a reasonable
alternative, or the public convenience and necessity would be otherwise
adversely affected. In such circumstances, the Commission will require
price cap carriers to continue offering voice telephony services in
those areas in those instances where there is no reasonable
alternative. Moreover, if an area is unserved and no common carrier
will serve that area, the relevant state commission (or the Commission
if applicable) is directed by the Act to designate an ETC to serve the
area with voice telephony service.
52. Second, it is reasonable to expect that price cap carriers will
continue to offer voice service in these areas even after they have
been relieved of the federal ETC requirement to do so. They already
have existing networks and customers in these areas. They have an
economic incentive to continue to serve these customers and to offer
them innovative new services.
53. Third, even if price cap carriers were to exit these areas, in
areas where there is an unsubsidized competitor or another ETC
receiving federal high-cost support to deploy modern networks capable
of providing voice and broadband to fixed locations, there will be at
least one provider in that area offering a voice telephony service that
is reasonably comparable to service available in urban areas. Because
consumers in these areas will have at least one other option for fixed
voice telephony service at reasonable rates, there is no need to
require price cap carriers to continue to offer such services as a
federal ETC obligation. And as explained above, whether appropriate
substitutes exist in all of the geographic areas in which the
Commission grants limited forbearance will be addressed through the
section 214(a) discontinuance process; thus, the Commission is
comfortable that there is no need to continue to apply ETC obligations
in these areas.
54. The Commission disagrees with the claim that the Commission
should not forbear from section 214(e) because the Commission should
ensure that there is at least one carrier that has a federal obligation
to provide voice telephony service to all consumers in a particular
area. As explained above, there are existing regulatory protections
that provide reasonable assurance that
[[Page 4454]]
consumers in the areas where the Commission forbears from the federal
high-cost ETC obligation to provide voice telephony service will
continue to have access to voice telephony service. And as the
Commission explains below, our decision to grant forbearance in these
limited circumstances does not disturb existing state carrier of last
resort obligations and does not preclude states that do not have
carrier of last resort obligations from imposing such obligations. In
sum, the Commission finds that consumers will be protected, and the
second prong of section 10(a) is satisfied.
55. Public Interest. The Commission concludes that it is in the
public interest to forbear from the federal high-cost obligation to
offer voice service throughout the service territory because
enforcement of that obligation is unnecessary to preserve voice
service. As noted above, the section 214 discontinuance process will
ensure that consumers will continue to have access to voice service.
Price cap carriers that are granted the ability to discontinue their
voice telephony service as a matter of federal law because there are
alternatives available will no longer be required to spend their
resources on maintaining existing voice telephony services or deploying
new infrastructure to offer voice telephony service in newly
constructed homes where there are already reasonable substitutes.
Instead, price cap carriers can reallocate their resources towards
making upgrades to their networks to meet the broadband needs of their
existing or new customers.
56. The Commission also finds that limited forbearance from section
214(e)(1)(A) will promote competitive market conditions by giving price
cap carriers the flexibility to compete on a more equal regulatory
footing in the voice telephony market with competitors that already
have the opportunity to make business decisions about how best to offer
voice telephony service. Accordingly, the Commission's decision is
consistent with the principle that universal service policies be
equitable and nondiscriminatory and the principle of competitive
neutrality.
57. The Commission does not take the further steps suggested by
some commenters of reinterpreting section 214(e)(1) to sunset all
existing ETC designations and require states to re-designate ETCs so
that their service areas include only high-cost funded areas, imposing
rules on state ETC designations, adopting a federal process to redefine
service areas, or preempting states. State commenters argue that these
approaches would give insufficient consideration to the important role
that Congress has given the states in defining service areas and
designating ETCs. The Commission's decision to grant limited
forbearance does not redefine price cap carriers' service areas or
revoke price cap carriers' ETC designations in these areas, and the
Commission emphasizes that it does not preempt price cap carriers'
obligation to continue to comply with any state requirements, including
carrier of last resort obligations to the extent applicable. The
Commission also notes that it does not relieve ETCs of their other
``incumbent-specific obligations'' like interconnection and negotiating
unbundled network elements pursuant to sections 251 and 252 of the Act.
The continued existence of these obligations supports the Commission's
finding that the forbearance it grants in this Order is consistent with
the public interest.
58. The Commission's public-interest finding is also supported by
the fact that any incumbent price cap carrier must still comply with
the requirements of section 214(e)(4) of the Act regarding
relinquishment of ETC designation. The Commission is not persuaded that
its decision to not preempt state obligations constitutes a taking. The
Commission notes that no party has articulated which specific state
obligations constitute a taking, submitted specific evidence to show
how those state obligations are burdensome, or provided detailed
analysis as to how the preemption standard has been met for these
obligations.
59. Timing. Because many ETCs will no longer receive support for
discrete census blocks upon full implementation of Phase II in price
cap territories, the Commission believes that it is appropriate to
clarify its expectations regarding the specific timing of this
forbearance. The Commission finds that in the first month that support
is disbursed to another ETC that is required to serve particular census
blocks with voice and broadband service to fixed locations, incumbent
price cap carriers not receiving such support will be immediately
relieved of their federal high-cost ETC obligation to offer voice
telephony in those specific census blocks. Also, incumbent price cap
carrier ETCs will be relieved of the federal high-cost ETC obligation
to offer voice telephony service in the low-cost census blocks where
Phase II support is not available and also in census blocks where the
average cost is above the funding benchmark where an unsubsidized
provider is already providing service. Incumbent price cap carriers
shall be relieved of their existing federal high-cost universal service
obligations to offer voice telephony service in low-cost census blocks
beginning on the date on which they accept or decline to make a state-
level commitment. Incumbent price cap carriers shall be relieved of
their existing federal high-cost universal service obligations to offer
voice telephony service in census blocks served by unsubsidized
competitors on the date that there is a determination that there is an
unsubsidized competitor offering 10/1 Mbps in those census blocks.
60. Price cap carriers subject to this limited forbearance in these
three specific types of census blocks must continue to satisfy all
Lifeline ETC obligations. Therefore, they will effectively become
Lifeline-only ETCs in the specific census blocks that are the subject
of this forbearance. As such, they must continue to offer voice
telephony service to qualifying low-income households in those areas
unless or until they relinquish their ETC designations in those areas
pursuant to section 214(e)(4), and, in any event, must continue to
offer voice more generally until they receive discontinuance authority
under section 214.
III. Eligibilty of Areas for Phase II Support
A. Areas Served by Competitors
61. Discussion. Upon consideration of the record, the Commission
now adopts these proposals with certain modifications. First, to ensure
support is targeted to areas lacking 4/1 Mbps, the Commission will
exclude from the offer of Phase II model-based support to price cap
carriers any census block served by a subsidized facilities-based
terrestrial competitor that offers fixed residential voice and
broadband services meeting or exceeding 3 Mbps/768 kbps speed
requirement, as determined by the Bureau. Second, the Commission
concludes that any such high-cost blocks served by a subsidized carrier
that are excluded from the offer of model-based support--including
blocks with service meeting or exceeding the new 10/1 Mbps speed
requirement--will instead be eligible for support in the Phase II
competitive bidding process. Third, the Commission concludes that any
area served by an unsubsidized facilities-based terrestrial competitor
that offers 10/1 Mbps will be ineligible for support in the Phase II
competitive bidding process.
62. The Commission excludes areas served by subsidized competitors
providing 3 Mbps/768 kbps or greater
[[Page 4455]]
service from the offer of model-based support because the Commission is
persuaded that whether another provider receives high-cost universal
service support should not be the determining factor in excluding a
high-cost census block from the offer of model-based support. In the
USF/ICC Transformation Order, the Commission eliminated the identical
support rule and established Phase II of the Mobility Fund as the
mechanism to provide ongoing support for mobile services. Competitive
ETCs offering broadband services that meet the performance standards,
however, only have the opportunity to compete for ongoing support if
price cap companies decline the state-level commitment. Upon further
consideration, the Commission now concludes that areas served by a
subsidized facilities-based terrestrial competitor offering fixed
residential voice and broadband services meeting or exceeding 3 Mbps/
768 kbps should not be part of the price cap carrier state-level
commitment.
63. By excluding these areas from the offer of Phase II model-based
support and instead including them in the Phase II competitive bidding
process, the Commission gives competitive ETCs serving these areas the
opportunity to compete for ongoing support in their high-cost areas,
regardless of whether a price cap incumbent accepts or declines the
state-level commitment. This modification recognizes that these areas
are high-cost and, absent such ongoing support, it may not be
economically feasible for providers in these areas to continue
providing service. Removing these census blocks from the offer of
model-based support and instead immediately opening these areas to
competitive bidding allows competition to drive support to efficient
levels, to be awarded to the provider that will most effectively use
funds.
64. Changing the minimum speed threshold for network deployment to
10/1 Mbps does not mean, however, that the Commission should use the
10/1 Mbps coverage map in determining what areas are served by either
unsubsidized or subsidized competitors for purposes of the offer of
Phase II model-based support. The version of the CAM adopted by the
Bureau for purposes of identifying the initial list of eligible census
blocks provides support for census blocks with an average cost per
location per month of between $52.50 and $207.81 and that are unserved
by an unsubsidized competitor offering 3 Mbps/768 kbps broadband
service. While adjusting the CAM to provide support for census blocks
not served with 10/1 Mbps service would increase the number of
locations eligible for the offer of model-based support, this increase
would be predominately the result of the extremely high-cost threshold
shifting downwards. The end result would be that locations in those
blocks that are more expensive to serve, relatively speaking, that
currently do not receive even 3 Mbps/768 kbps service would no longer
be eligible for the offer of model-based support. In contrast, using
the same 3 Mbps/768 kbps coverage map to target the offer of Phase II
model-based support to locations in these higher cost census blocks
will result in Connect America model-based funding being targeted to
the very same areas that the Commission intended to be subject to the
offer of model-based support when it adopted the USF/ICC Transformation
Order in 2011--those lacking the most basic Internet access.
65. The Commission is not persuaded by the suggestion that it would
be more efficient to use the 10/1 Mbps coverage map because that will
result in more locations being served. The fact that areas that
currently have 3 Mbps/768 kbps service but not 10/1 Mbps are excluded
from the offer of model-based support does not mean there is no
mechanism to ensure that consumers in those areas have access to
service meeting the newly established standard. Instead, the Commission
concludes that any area lacking service from a facilities-based
terrestrial competitor that meets our new 10/1 Mbps standard and
existing latency/usage/pricing requirements will be eligible for
support in the Phase II competitive bidding process. The Commission
concludes it is preferable to address these areas in the competitive
bidding process, as competitive forces will drive support to efficient
levels in those geographic areas that now lack broadband by virtue of
our adjustment of the minimum speed threshold.
66. The Commission also is not persuaded by arguments that using
the 10/1 Mbps coverage map to determine eligibility for the offer of
model-based support is necessary to enable price cap carriers to build
more efficient networks. The Commission notes that price cap carriers--
like all other providers--will be able to bid on these census blocks in
the Phase II competitive bidding process, providing them with an
opportunity to gain additional territory for network efficiency.
67. Utilizing the 3 Mbps/768 kbps coverage map to exclude areas
eligible for model-based support also is administratively efficient.
Excluding areas served by qualifying competitors providing at least 10/
1 Mbps service would require the Bureau to conduct a new challenge
process to determine which areas that have 3 Mbps/768 kbps lack 10/1
Mbps service. The Phase II challenge process has been underway since
June 2014, and with the record now closed, the Bureau is poised to
complete these adjudications. The Commission believes that undertaking
such an effort to conduct a supplemental challenge process would
unnecessarily delay the offer of model-based support that otherwise
would occur in early 2015. The Commission therefore directs the Bureau
to complete the challenge process for the offer of model-based support
and to remove from eligibility any blocks it determines are served by a
qualifying competitor providing service of at least 3 Mbps/768 kbps.
68. Finally, the Commission concludes that any area served by an
unsubsidized facilities-based terrestrial competitor that offers 10/1
Mbps will be ineligible for support in the Phase II competitive bidding
process. Because these areas already have service that meets or exceeds
the new speed requirement without receiving high-cost funding, the
Commission does not have the same concern as it does for areas served
by subsidized competitors--that it may not be economically feasible for
providers in these areas to continue providing service absent support.
The Commission believes that it would be an inefficient use of Connect
America support to provide funding in these areas. The Commission
expects to update the list of census blocks that will be excluded from
eligibility from the Phase II competitive bidding process based on the
most current data available at the time shortly before that auction to
take into account any new deployment that is completed in the coming
year.
69. The Commission also notes that any areas left unserved after
the Phase II competitive bidding process will be addressed through the
Remote Areas Fund. The Commission does not establish a separate Remote
Areas Fund at this time, as the Commission has concluded that parties
should be free in the Phase II competitive bidding process to submit
bids to bring service to the highest cost, most remote areas of the
nation. Once that Phase II competitive bidding process occurs, and the
Commission has determined which winning bidders are authorized to
receive support, the Commission will be in a much better position to
determine what areas, if any, remain unserved and can be addressed
through a separate Remote Areas Fund.
[[Page 4456]]
B. Rural Broadband Experiments
70. Discussion. The Commission now establishes a process to enable
the selection of next-in-line bidders for rural broadband experiments
support, in the event any of the provisionally selected bidders
defaults by failing to meet our technical and financial requirements
before the time the Bureau finalizes the list of census blocks that
will be offered to the price cap carriers. All bidders in the rural
broadband experiments that wished to remain in consideration for rural
broadband experiment support should have filed their financial and
technical information no later than 7 p.m. EST on Tuesday, January 6,
2015, in WC Docket No. 14-259. In particular, they must file the most
recent three consecutive years of audited financial statements,
including balance sheets, net income, and cash flow, in order to enable
a thorough financial review. They also must submit a description of the
technology and system design that would be used to deliver voice and
broadband service meeting the requisite speeds to all locations in the
funded census blocks, including a network diagram, which must be
certified by a professional engineer. This will enable Bureau staff
quickly to identify additional provisionally selected bidders in the
event that any of the initially selected bidders default before the
Bureau finalizes the list of eligible census blocks for the offer of
model-based support, which the Commission expects may occur in early
2015. All bidders that wish to remain under consideration must seek
confidential treatment of their filing in order to protect the
integrity of the competitive bidding process.
71. The Commission concludes that excluding from the offer of
model-based support any census block included in a non-winning rural
broadband experiment application submitted in funding category one will
ensure the more efficient use of Connect America support. The
Commission will only exclude those census blocks where a losing bidder
has indicated that it wishes to remain in consideration for rural
broadband experiment support as described above. The Commission will
not exclude from the offer of model-based support any area where the
rural broadband experiment applicant is seeking a waiver of one or more
requirements established for rural broadband experiments, including the
submission of the requisite financial and technical information. The
Commission concludes that the time necessary to resolve such waiver
requests to determine which blocks to remove from the offer of model-
based support would unnecessarily delay the implementation of Phase II.
The Commission emphasizes that it has no intention of delaying the
offer of model-based support to the price cap carriers, and expect to
proceed with that offer in early 2015.
72. The Commission determines that rural broadband experiment
proposals submitted in funding category one that facially meet the
requirements for submission of financial and technical information
could help us achieve our universal service goals in a cost-effective
manner. Though all rural broadband experiment proposals seek an amount
of support at or below model-calculated levels, proposals in funding
category one are required to commit to constructing networks that are
capable of providing 100/25 Mbps. The Commission is not convinced that
providing model-based support to a price cap carrier in an area where
another entity has demonstrated an interest to provide service that so
significantly exceeds the Commission's new speed requirements, for an
amount at or below the model-determined support, would be an efficient
use of funding. Further, because the proposals the Commission received
in funding category one requested support below the level of support
that the model would otherwise provide, excluding these areas from the
offer of model-based support and instead making them available in the
Phase II competitive bidding process should enable us to stretch our
finite Connect America budget even further.
73. The Commission is not persuaded by concerns that this approach
could result in an opportunity for gaming by allowing a party to submit
a rural broadband experiments application that the party never intended
to honor simply to reserve its opportunity to participate in the Phase
II competitive bidding process. The Commission believes that the
parameters it establishes above--that only rural broadband experiment
proposals in category one for which the applicant submits the required
technical and financial information will be excluded from the offer of
model-based support--alleviate any concerns that the Commission's
decision would enable applicants to game the system. The submission of
a network engineering diagram certified by a professional engineer and
audited financial statements as described above provides some assurance
that these are serious bidders prepared to participate in the Phase II
competitive bidding process. Through such action, these parties will
demonstrate a baseline understanding of Commission regulations and
procedures. Moreover, entities with three years of audited financial
statements by definition are ongoing businesses.
74. This decision also reflects our balancing of section 254(b)
principles under the circumstances here. In the USF/ICC Transformation
Order, the Commission concluded--and it now reaffirms--that the CAF
``should ultimately rely on market-based mechanisms, such as
competitive bidding, to ensure the most efficient and effective use of
public resources.'' The Commission adopted a mechanism to offer
incumbent price cap carriers a right of first refusal to provide
service in exchange for model-based support due to its recognition that
the continued existence of legacy obligations could complicate the
transition to competitive bidding and might cause consumer disruption.
The Commission also reasoned that the offer would generally include
only areas where the incumbent price cap carrier would likely have the
only wireline facilities, and that other bidders may have the ability
to deliver scalable broadband meeting the Commission's requirements
over time. It was also ``our predictive judgment that the incumbent LEC
is likely to have at most the same, and sometimes lower, costs compared
to a new entrant in many of these areas.'' Under the analysis in the
USF/ICC Transformation Order, these considerations weighed against
strict application of the competitive neutrality principle and other
factors that might, on their own, otherwise have led us to move more
quickly to competitive bidding.
75. The Commission is persuaded to revisit that balancing in
certain targeted ways here. Today, the rural broadband experiments give
the Commission more of an ability to identify areas that are likely to
be candidates to transition more quickly to competitive bidding, and it
is the Commission's predictive judgment that those areas will be better
served, and the Connect America budget better used, by excluding those
areas from price cap carrier's right of first refusal, enabling both
incumbents and competitors to seek support through a competitive
process. In light of these new circumstances, and against the backdrop
of other changes adopted in this Order, the Commission finds that
moving more quickly to competitive bidding in certain respects as a
result of the changes adopted here is warranted under the Commission's
reevaluation of the balancing of the competitive
[[Page 4457]]
neutrality principle against other universal service goals.
76. The Commission does recognize the possibility that if it
removes these areas from the offer of model-based support, both the
price cap carrier and the rural broadband experiment applicant
ultimately may opt not to bid on such areas in the Phase II competitive
bidding process. That risk exists as well for areas where the price cap
carrier declines the offer of model-based support. On balance, however,
the Commission concludes that this risk is outweighed by the public
policy benefits potentially, and the Commission believes likely, to be
gained of having consumers in these areas receive higher-quality
service from a competitor at or below the amount of model-based support
and being able to ensure that additional consumers are served with that
unused funding. The Commission also notes that any areas left unserved
after the Phase II competitive bidding process will be addressed
through the Remote Areas Fund.
IV. Phase II Transitions
77. In this section, the Commission addresses several issues
relating to the implementation of Phase II in areas currently served by
price cap carriers. First, the Commission adopts our proposal to align
the funding years for price cap carriers accepting model-based Phase II
support with the calendar year, but clarify that the deployment
obligation will commence on the date of public notice of authorization
for Phase II funding. Second, the Commission eliminates the transition
year formerly adopted by the Commission in the USF/ICC Transformation
Order. Third, the Commission clarifies that Phase I incremental support
should not be included in the calculations of transitional support for
those price cap carriers that choose to accept model-based support that
is less than frozen support in a given state.
A. Aligning Connect America Phase II Funding and Calendar Years
78. Discussion. The Commission adopts its proposal to align the
funding years for the offer of model-based support with the calendar
year. Thus, the Commission adopts its proposal to disburse a lump sum
amount to those carriers for whom model-based support in a given state
will be greater than Connect America Phase I support. This lump sum
will represent the additional amount of model-based support (above the
frozen support that price cap carriers already receive) that would
accrue for the beginning months of the year while price cap carriers
are considering the offer of model-based support. Thus, as discussed
above, carriers accepting model-based support will receive such support
in calendar years 2015 through 2020.
79. The Commission anticipates extending the offer of model-based
support in early 2015, with carriers responding 120 days later. Then,
the Bureau will issue a Public Notice authorizing USAC to disburse the
new funding amounts for those providers electing model-based support.
The Commission directs USAC to disburse the lump sum payment in the
month after the issuance of this Public Notice, drawing the funds from
the broadband reserve account. The Commission will, however, provide an
option for a carrier to elect to defer this lump sum payment until
calendar year 2016, in recognition that may be the first year in which
significant capital investments are made to meet the deployment
obligations established for Phase II.
80. The Commission clarifies that while carriers will receive a
full year of Phase II support in calendar year 2015, the deployment
obligation commences on the date of the Public Notice authorizing Phase
II-model based support. The Commission acknowledges recipients that
accept model-based support thus will be subject to different
obligations for the time periods before and after they are authorized
to receive Phase II support in calendar year 2015, and direct USAC to
take that into account when conducting beneficiary compliance reviews
of price cap carrier ETCs for calendar year 2015.
B. Transition Where Model-Based Support is Greater Than Connect America
Phase I Support
81. Discussion. The Commission adopts its proposal to eliminate the
transition period for price cap carriers that elect to receive model-
based support in states where such support is greater than the frozen
support they receive under Phase I. Because the affected price cap
carriers will be receiving more support in these states than they did
in Phase I, the Commission finds that it is unnecessary to provide a
transition year for these carriers to adjust to receiving Phase II
support. Instead, it is in the public interest and will further our
Connect America goals immediately to provide these price cap carriers
with their full Phase II support, recognizing that significant capital
investments will be required to deploy voice and broadband capable
networks to unserved areas. The Commission also concludes that it will
lessen administrative costs for USAC: once the Bureau issues the Public
Notice authorizing model-based support for those entities electing to
make a state-level commitment, that monthly support amount will remain
unchanged for the duration of the term of support, rather than making
adjustments to account for a transition year.
C. Base Support Amount for Transition To Connect America Phase II
82. Discussion. The Commission adopts its proposal to clarify that
for purposes of transitioning from Connect America Phase I to Phase II,
the Commission will only provide a percentage of Connect America Phase
I frozen support; Phase I incremental support will not be included in
this transition. Because Phase I incremental support was intended to be
a one-time ``immediate boost to broadband deployment'' while the
Commission worked on implementing Phase II, the Commission concludes
that there is no need for price cap carriers to continue to receive a
percentage of that support as ongoing support as they transition to
Phase II.
V. Reforms in Rate-of-Return Study Areas
83. In the April 2014 Connect America FNPRM, the Commission sought
comment on several proposals for near-term reform of high-cost
universal service support for rate-of-return carriers. The Commission
addresses these here. First, the Commission adopts a revised
methodology for applying the cap on HCLS so that support is distributed
more equitably among all high-cost carriers, and so that carriers with
the highest loop costs have better incentives to curb waste in the
operation of their study areas. Second, the Commission adopts its
proposals regarding the 100 percent overlap rule, concluding that the
Bureau should determine whether there is a 100 percent overlap every
other year, and the prior year's support should be used as the basis
for the phase-down in support for any study area with a 100 percent
overlap. The Commission concludes that the Bureau should not determine
100 percent overlap based on the existence of a subsidized provider.
84. The Commission does not, at this time, take action with regard
to any of the proposals for long term reform for rate-of-return
carriers. Although a number of parties have submitted proposals that
may have promise, the Commission find that further analysis and
development of these proposals is necessary. The Commission expects to
[[Page 4458]]
continue to develop the record and act on long-term reform in the
coming year.
A. HCLS Reimbursement Rates Under the Cap
85. In the April 2014 Connect America FNPRM, the Commission noted
that it ``continues to have significant concerns regarding the
structure and incentives created under the existing high-cost
mechanisms for rate-of-return carriers, such as the `race to the top'
incentives that exist under HCLS and the `cliff effect' of the annual
adjustment of the HCLS cap.'' The Commission addresses this concern for
the near-term by modifying the methodology for reimbursements under
HCLS.
86. The indexed cap on HCLS has seen steady reductions in recent
years as a result of decreasing numbers of working loops and low
inflation rates. As a result, carriers with costs close to the ever
rising NACPL risk losing all HCLS for prior investments, while carriers
with a higher cost per loop are sheltered from the impact of the HCLS
cap. The carriers with the highest loop costs relative to the national
average have minimal incentive to reduce their expenses and eliminate
waste: between HCLS and interstate common line support, it is possible
for 100 percent of their incremental loop costs to be recovered through
universal service. The Commission observes that these carriers with the
highest HCLS reimbursement rates have steadily increased their reported
loop costs (by 36 percent since 2004), while carriers with lower
reimbursement rates have had stable or reduced loop costs. In
combination, the decreasing HCLS cap and the increasing demand from the
carriers reporting the highest cost per loop create yearly increases in
the NACPL used to calculate HCLS, precluding many carriers from
receiving any HCLS and significantly reducing support for others with
costs per loop close to the NACPL. A comparison of the 646 study areas
that submitted cost studies for each year from 2004 to 2013 shows what
has occurred over the last decade: in 2006, 579 of the 646 study areas
were receiving HCLS support, but by 2015, only 461 of them are
projected to receive support, meaning that 118 or 20 percent of these
study areas fell ``off the cliff'' over this ten-year period. These
features of the HCLS rule were not altered in the USF/ICC
Transformation Order.
87. In the April 2014 Connect America FNPRM, the Commission
proposed to mitigate these deficiencies by reducing support
proportionally among all HCLS recipients through decreased
reimbursement percentages for all carriers instead of adjusting the
NACPL. Specifically, the Commission proposed to freeze the NACPL that
is used to determine support and instead to decrease HCLS
proportionately among all HCLS recipients. As specified in the proposed
rule, the reduction would be achieved by multiplying each carrier's
calculated HCLS by the ratio of the indexed HCLS cap to the aggregate
amount of HCLS initially calculated for all carriers using the frozen
NACPL. This effectively would freeze the NACPL at the capped amount as
a date certain, such as December 31, 2014.
88. This proposal initially received widespread support from
commenters responding to the FNPRM. Subsequent to the closing of the
comment cycle, however, the Rural Associations argued the Commission's
proposed methodology should be modified to lessen the impact on the
companies with the highest reported cost per loop by continuing to
raise the NACPL as is done under the current methodology. In
particular, the Rural Associations propose that if HCLS as initially
calculated based on the frozen NACPL exceeds the indexed cap, then the
NACPL would be adjusted so the HCLS amounts equal the indexed cap plus
half of the difference between the initially calculated amount and the
indexed cap. The HCLS amounts calculated using this adjusted NACPL
would then be reduced proportionally so that total HCLS matched the
indexed cap. The Rural Associations argue that their proposal would
mitigate what they consider disproportionate effects on the carriers
with the highest cost per loop.
89. Discussion. After full consideration of the record, the
Commission now adopts their proposal, as described in the April 2014
Connect America Order and FNPRM, 79 FR 39164, July 9, 2014 and 79 FR
39196, July 9, 2014. The Commission finds that this targeted rule
change will be effective in addressing the lack of incentives to curb
waste that results from the race to the top and providing a more
equitable distribution of support to all high-cost rate-of-return
carriers, including those currently facing a loss of support due to the
cliff effect.
90. The Commission declines to adopt the Rural Associations'
proposed modification. Under their proposal current recipients of HCLS
would continue to lose HCLS as the HCLS cap is lowered, albeit not to
the same extent as occurs today. Yet addressing the cliff effect was
one of the core objectives of the Commission's proposal. Although the
Rural Associations' proposal may, to some degree, mitigate both the
cliff effect and the race to the top as compared to our current
methodology, based on the record before the Commission, it finds it
would be less effective at addressing both objectives than the
Commission's proposal. In a set of examples provided by the Rural
Associations, the two lowest cost companies in the set each would
receive approximately 40 percent less in the first year after
implementation of the proposed rule than they would under the
Commission's proposals and would have their HCLS entirely eliminated by
the fifth year of operation. Indeed, under NTCA's proposal, the cliff
effect would immediately eliminate support from 11 study areas that
would continue to receive support under the Commission's proposal. In
other words, the cliff effect would remain significant if the Rural
Associations' proposal were implemented. Similarly, the Rural
Associations' proposal significantly preserves the advantages under
HCLS of being a company reporting a relatively higher cost per loop,
even if it does eliminate the possibility that a carrier could recover
100 percent of any marginal loops costs it incurs.
91. Although the Rural Associations express concern that the
Commission's proposal may have a disproportionate effect on the
carriers with the highest cost per loop, in their own examples, the
Commission does not believe that this will result in insufficient
support for any carrier. Using NTCA's analysis, the highest cost
carrier would lose only seven percent of HCLS as compared to the
current rules (and receives only three percent less than it would
receive under the Commission's proposal). Because that carrier would
likely also be receiving a significant amount of ICLS, the reduction as
a fraction of total support would be even less than seven percent.
Moreover, the fact that reported costs have increased for some high-
cost recipients at rates substantially above that for other high-cost
recipients suggests that the current construct of the rule does not
create structural incentives for these carriers to take measures to
reduce their expenses to the extent possible. There are several
potential reasons why reported costs per loop for certain carriers are
increasing at rates in excess of that for other high-cost recipients:
They are investing more, they are subject to greater competition and
therefore experiencing line loss, or they are spending imprudently. One
of the Commission's goals as it considers proposals for longer-term
reform is to provide a more equitable opportunity for all carriers in
high-cost areas to invest in broadband-capable infrastructure. In the
meanwhile, the
[[Page 4459]]
rule change the Commission is adopting in this Order will strengthen
the incentive for the carriers with the highest reported costs per loop
to manage their expenditures in light of the existence of the cap on
HCLS.
92. The Commission also is not persuaded by commenters arguing that
these changes are unnecessary. TCA argues that the $250 per-line per
month cap effectively addresses the race to the top. In fact, the $250
per-line cap affects only a small number of the very highest cost
carriers and, for the reasons explained above, does not, it concludes,
comprehensively address the race to the top or the cliff effect. Those
higher cost carriers not subject to the $250 per-line cap still have
limited incentive to curb waste, and numerous others are hurt by the
cliff effect.
93. The Commission does not agree with the Concerned Rural ILECs
that the race to the top is a budgetary problem and could be solved by
increasing the size of the HCLS budget. Although significantly
increasing the HCLS budget might address the cliff effect, it would, if
anything, exacerbate the race to the top by eliminating the limited
constraints the HCLS mechanism currently has on carrier spending and
undermining the carriers' incentives to curb wasteful expenses related
to common line costs.
94. The Commission disagrees with TCA's contention that it should
not adopt its proposal due to retroactivity. As a matter of law, the
proposed rule is not impermissibly retroactive. The Commission notes
that the Tenth Circuit recently rejected arguments that the changes the
Commission made to the HCLS and Safety Net Additive (SNA) rules in the
USF/ICC Transformation Order violated the presumption against
retroactivity. The court there found that ``the Order . . ., which
makes only prospective changes to the reimbursement framework,
including the elimination of SNA, is not retroactive.'' A rule does not
operate retroactively merely because it is ``applied in a case arising
from conduct antedating [its] enactment'' or ``upsets expectations
based on prior law.'' Rather, a rule operates retroactively if it
``takes away or impairs vested rights acquired under existing law, or
creates a new obligation, imposes a new duty, or attaches a new
disability in respect to transactions or considerations already past.''
The application of the rules adopted here will not take away or impair
a vested right, create a new obligation, impose a new duty, or attach a
new disability in respect to the carriers' previous expenditures. There
is no statutory provision or Commission rule that provides companies
with a vested right to continue to receive support at particular levels
or through the use of a specific methodology. Although application of
these rules may affect the amount of support a carrier receives for
expenditures made in 2013, it does not change the legal landscape in
which those expenditures were made. Rather, as the Commission observed
in the USF/ICC Transformation Order, ``section 254 directs the
Commission to provide support that is sufficient to achieve universal
service goals, [but] that obligation does not create any entitlement or
expectation that ETCs will receive any particular level of support or
even any support at all.''
95. Moreover, as a matter of policy, the Commission is not
persuaded that even the highest cost rate-of-return carriers will be
unduly harmed by this rule. As noted above, in the Rural Associations'
examples, the highest cost company sees a reduction of only six percent
of its HCLS (and a smaller fraction of its total high-cost support) as
a result of this rule. TCA nonetheless argues that this rule change
``unfairly penalizes'' rate-of-return carriers ``that have made
investments to bring broadband to their customers in accordance with
the FCC's goals.'' TCA provides no basis, however, for distinguishing
between carriers that have, in fact, prudently invested in broadband
facilities and those that have failed to curb wasteful expenses. The
Commission notes that if any rate-of-return carrier suffers significant
harm as a result of this rule change and the carrier's earlier prudent
investment, it may seek waiver of our rules.
96. The Commission declines to adopt the Eastern Rural Telecom
Association's (ERTA) proposal that the frozen NACPL be indexed to
inflation or some other low-growth factor as a method of removing the
cliff effect. The Commission finds that the other steps taken here will
effectively address this issue. Moreover, because the Commission
anticipates that it will adopt more comprehensive reforms for rate-of-
return carriers in the coming year, indexing the NACPL is unlikely to
have a material effect.
97. The Commission recognizes that NTCA's analysis is sensitive to
a number of forecasting assumptions, including line growth or loss and
changes in cost per loop. For that reason, the Commission will closely
monitor the effects of this rule change on rate-of-return carriers and
will revisit this issue in the event that it has unanticipated results.
In sum, however, the Commission is not convinced based on the record
before us that the Rural Associations' proposal is superior to what the
Commission proposed in the April 2014 Connect America NPRM.
B. 100 Percent Overlap Rule
98. Discussion. The Commission previously directed the Bureau ``to
publish a finalized methodology for determining areas of overlap and a
list of companies for which there is a 100 percent overlap.'' The
Commission expects the Bureau will, in 2015, review study area boundary
data in conjunction with other data collected via FCC Form 477 or the
State Broadband Initiative to determine whether and where 100 percent
overlaps exist. The Bureau will publish its preliminary determination
of those areas subject to 100 percent overlap and then provide an
opportunity for comment on these preliminary determinations, building
on experience gained in conducting the Phase II challenge process in
price cap areas. Once the comment period is complete, the Bureau then
will finalize its determination of where there is a 100 percent
overlap. The Commission directs the Bureau to repeat this process every
other year to determine whether additional study areas have become
subject to the 100 percent overlap rule. Finally, the Commission adopts
its proposal to base support reduction phase down on the amount of
support awarded in the year prior to the determination, rather than
2010. Because implementation of the 100 percent overlap determinations
for rate-of-return carriers has taken longer than initially
anticipated, the Commission believes that basing reductions on current
support will lead to a smoother transition.
99. The Commission declines to modify the 100 percent overlap rule
to eliminate support in any study area with a qualifying competitor, as
opposed to an unsubsidized competitor. As explained above, the reason
the Commission is removing high-cost census blocks with a qualifying
competitor from eligibility for Connect America Phase II model support
is to provide an opportunity for all parties to compete for support for
those areas through a competitive bidding process. There is no
comparable process in place in rate-of-return study areas for several
subsidized competitors to compete with each other for support to serve
the study area. In the case of rate-of-return carriers, removing study
areas from eligibility where there are qualifying competitors would
mean that there is no mechanism to provide support for high-cost areas
that presumably need support in order for consumers to have access to
voice and broadband services, once the
[[Page 4460]]
phase-down in competitive ETC support is complete.
VI. Accountability and Oversight
100. In this section, the Commission takes several steps to
strengthen the uniform national framework for accountability that the
Commission adopted in the USF/ICC Transformation Order. First, the
Commission codifies a broadband reasonable comparability rates
certification requirement for all recipients of high-cost support that
are subject to obligations to deploy broadband to fixed locations.
Second, the Commission requires price cap carriers that accept model-
based support to submit specific location information with their
service quality improvement plans and progress reports to enhance the
Commission's ability to monitor their use of Connect America support.
Third, the Commission adjusts the framework for reduction in support
for late-filed section 54.313 and 54.314 reports and certifications.
Fourth, the Commission adopts measures to be used in the event specific
ETCs do not meet certain terms and conditions of high-cost support.
A. Reasonably Comparable Rates Certification for Broadband
101. Discussion. The Commission amends section 54.313(a) to include
a new subsection 12 that requires recipients of high-cost and/or
Connect America Fund support that are subject to broadband performance
obligations to submit a broadband reasonable comparability rate
certification with their annual section 54.313 report (FCC Form 481).
In that certification, support recipients must certify that the pricing
of the broadband offering they are relying upon to meet their broadband
performance obligation is no more than the applicable benchmark as
specified in a public notice annually issued by the Bureau, or is no
more than the non-promotional prices charged for a comparable fixed
wireline service in urban areas in the state or U.S. Territory where
that high-cost support recipient receives support. Recognizing that
high-cost support recipients are permitted to offer a variety of
broadband service offerings as long as they offer at least one
standalone voice service plan and one service plan that provides
broadband that meets our requirements, the Commission only requires
that they make the above certification for one of their broadband
service offerings that satisfies all of the Commission's requirements,
including that the service be offered throughout the high-cost support
recipient's supported area in the relevant state or U.S. Territory, or
for rate-of-return carriers, be made available upon reasonable request.
The Commission concludes that requiring high-cost support recipients to
make this certification will ensure that the Commission can monitor
their compliance with conditions that fulfill the section 254(b)
principle that ``[c]onsumers in all regions of the Nation . . . should
have access to telecommunications and information services . . . that
are available at rates that are reasonably comparable to rates charged
for similar services in urban areas.''
102. The Commission requires high-cost support recipients that
elect to certify that their pricing of services in rural areas is no
greater than their pricing in urban areas to rely upon the non-
promotional prices charged for comparable fixed wireline services. The
Commission declines to permit high-cost support recipients to certify
that the pricing they offer for their broadband services is no more
than the non-promotional prices charged for comparable ``broadband''
services. The Commission notes that the applicable benchmark adopted by
the Bureau is two standard deviations above the average urban rates for
a specific set of service characteristics, consistent with the
Commission's precedent for the voice reasonable comparability
benchmark. The Commission also already provides a presumption for high-
cost support recipients that offer rates that exceed the applicable
benchmark that those rates are reasonably comparable if they are the
same as rates being offered in urban areas for a comparable fixed
wireline service. Fixed wireless services tend to be more expensive
than fixed wireline services even when data usage allowances and the
speeds offered are taken into account. Moreover, consumers living in
urban areas typically have the choice of obtaining broadband service
from at least one fixed wireline provider. The Commission therefore
concludes it is appropriate to use fixed wireline services in urban
areas as the reference point for reasonably comparable rates,
recognizing that rates in rural areas may be higher than urban areas.
103. This certification will be included in the FCC Form 481 to be
filed in 2016, addressing performance during 2015, after the
requirement has received Paperwork Reduction Act (PRA) approval from
the Office of Management and Budget. All parties subject to a broadband
public interest requirement to serve fixed locations that file this
report in 2016 will be required to make the certification, and annually
thereafter.
104. Recipients of funding through the Phase II competitive bidding
process must submit their first certification with the first section
54.313 annual report they are required to submit after support is
authorized, and each year thereafter with their annual report.
B. Monitoring Progress in Meeting Deployment Obligations
105. Discussion. Here, the Commission takes action to enhance our
ability to monitor the use of Connect America support and ensure that
price cap carriers that accept model-based support use that support for
its intended purpose. Specifically, as proposed by USTelecom, the
Commission requires all price cap carriers accepting model-based
support to include in the annual progress report that they submit each
year with their section 54.313 annual reports a list of the geocoded
locations to which they have newly deployed facilities capable of
delivering broadband meeting the requisite requirements with Connect
America support in the prior year. The list must identify which
locations are located in a Phase II-funded block and which locations
are located in extremely high-cost census blocks. The first list must
be submitted with their July 2016 annual report, reflecting deployment
status through the end of 2015. This first list should also include the
geocoded locations that a price cap carrier had already built out to
with service meeting the Commission's requirements before receiving
Phase II support. In subsequent years, the list should provide the
relevant information for newly built locations in the prior calendar
year. The last list that price cap carriers submit with their July 2021
annual reports must include the total number and geocodes of all
supported locations to which they have deployed facilities capable of
delivering broadband meeting the requisite requirements.
106. The Commission concludes that it is in the public interest to
require price cap carriers accepting model-based support to provide
this data on an annual basis. The Commission and USAC will analyze the
data to determine how Connect America support is being used to
``improve broadband availability, service quality, and capacity,''
consistent with a recent recommendation of the Government
Accountability Office. The Commission also intends to make such data
available to the public on its Web site in a user-friendly manner so
that the public will be able to see at a granular level how
[[Page 4461]]
high-cost funds are being used to invest in new broadband
infrastructure to bring new services to the area. The Commission finds
that the benefits in collecting this data outweigh any potential
burdens on the price cap carriers in reporting this data annually,
given that the Commission expects that price cap carriers will already
be collecting such data for their own business purposes and to be
prepared to respond to the compliance reviews that the Commission
directs USAC to undertake.
107. The Commission will also collect from price cap carriers in
their annual section 54.313 reports the total amount of Connect America
Phase II support, if any, they used for capital expenditures in the
previous calendar year. The Commission concludes that the benefit to
the Commission of being able to determine how price cap carriers are
using Phase II funding outweighs any potential burden on price cap
carriers in submitting this information given that it expects that
price cap carriers will track their capital expenditures for Phase II
in the regular course of business.
108. The Commission directs USAC to review Phase II recipients'
compliance with deployment obligations and the Commission's public
interest obligations at the state level--that is, whether the carrier
is meeting interim and final deployment obligations for the total
number of locations required for the state. As discussed above, the
Commission concludes that conducting compliance reviews at the state
level would be less administratively burdensome for the Commission,
USAC, and the recipients of Phase II support than at the census block
level. The Commission expects USAC to review compliance with the
deployment obligations for all price cap recipients over the course of
the Phase II support term. This will ensure the Commission is able to
fulfill our responsibility to monitor each Phase II recipient's use of
high-cost support in areas subject to the state-level commitment.
C. Reduction in Support for Late Filing
109. Discussion. The Commission adopts a rule to reduce on a pro-
rata daily basis the support for ETCs that miss certification and data
submission deadlines. Based on the Commission's experience to date with
the current support reduction scheme, it has determined that reducing
support for late filers on a quarterly basis is unduly harsh given that
most late filings are inadvertent, particularly for those recipients
that file closer to the beginning of the quarter than the end of the
quarter. The Commission concludes that readjusting the support
reductions to more closely calibrate the reduction of support with the
period of non-compliance is a more reasonable approach for handling the
recurring problem of an occasional failure to file.
110. The Commission will impose a minimum reduction of support of
seven days given the importance of ETCs meeting filing deadlines. After
the initial seven days, support will be reduced further on a day-by-day
basis until the high-cost recipient files the required report or
certification, plus the minimum seven-day reduction. Reducing support
on a day-by-day basis plus an additional seven-day reduction is an
appropriate measure to create incentives for high-cost recipients to
make their filings as soon as they have determined that they have
missed the applicable deadlines.
111. The Commission recognizes that despite its best efforts, an
ETC may miss a deadline due to an administrative oversight but still
file within a few days of the deadline. For a late filer, the
Commission finds that it is appropriate to provide a one-time grace
period of three days so that an ETC that quickly rectifies its error
within three days of the deadline will not be subject to the seven-day
minimum loss of support. The Commission directs USAC to send a letter
to such an ETC notifying the ETC that its filing was late but cured
within the grace period. If the ETC again files any high-cost filing
late, the grace period will not be available. Repeated mistakes, even
inadvertent, are indicative of a lack of adequate policies and
procedures to ensure timely filing. If an ETC misses a filing deadline
more than once due to its inadvertence, the Commission finds that the
support reductions that it adopts should provide an incentive to ETCs
to revise their procedures to ensure that such inadvertence does not
become a pattern.
112. The Commission disagrees with arguments that it should
lengthen the one-time grace period because new ETCs receiving support
may be unfamiliar with high-cost filing requirements or that ETCs may
inadvertently forget to file. The Commission imposes support reductions
on late filers to impress upon high-cost recipients the importance of
understanding obligations that come with high-cost funding and the need
for the Commission and USAC to receive the data in a timely manner so
that it can properly administer the Universal Service Fund. A one-time
grace period of three days achieves an appropriate balance between
requiring strict compliance with our rules and providing an opportunity
for ETCs that may be first time filers or that make an uncharacteristic
mistake to rectify quickly an error.
113. Although ETCs are required to submit separate filings for each
operating company, the Commission notes that many holding companies
administer the filings for all of their operating companies that may
hold an ETC designation. The Commission expects that holding companies
will take measures to ensure that all of their operating companies meet
the required deadlines. Thus, the Commission will apply the grace
period at the holding company level. If an ETC misses the deadline and
exercises the grace period in a prior year, that grace period will not
be available for all subsequent years to another one of the holding
company's operating companies that holds an ETC designation to serve a
different study area.
114. The Commission is not persuaded by the Rural Associations'
argument, relying on precedent related to the Eighth Amendment to the
Constitution ``Excessive Fines'' clause, that the support reductions
are ``unreasonable'' and ``excessive penalties.'' Because ETCs have no
property interest in or right to continued universal service support,
nor any right to support other than as provided for by the Commission's
rules, the reduction of an ETC's universal support payment does not
constitute a payment by the ETC to the government that is subject to
the Excessive Fines clause of the Eighth Amendment.
115. In any case, even if that framework were viewed as applicable,
given the important role these data and certifications play in the
administration of the Universal Service Fund, the Commission finds that
the support reductions that it adopts are sufficiently proportional to
the harm caused by late filings. The reductions increase as the length
in delay of the filings increase, and thus are proportional to the
amount of harm that is caused when the Commission, state commissions,
and USAC are delayed in being able to monitor the use of universal
service funds. Moreover, by basing the support reductions on each ETC's
daily support amount, the Commission has calibrated the amount of
support that a late filer will have reduced with the benefit they
receive from the Universal Service Fund. Contrary to the arguments of
some commenters, the Commission finds that the benefits for consumers
nationwide of an effective oversight scheme outweigh the potential
impact of support reductions on the customers of late filing ETCs.
Congress gave the Commission broad discretion under
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section 254 to determine support levels and adjust them as needed, and
hence any reductions in support provided for under the Commission's
rules are well within our legislative mandate.
116. The Commission is not persuaded by suggestions that the
Commission should refrain from imposing support reductions for untimely
filings and instead rely on Commission enforcement authority in the
event of non-compliance. If the Commission were to conduct an
enforcement proceeding every time an ETC misses a deadline, that would
divert Commission resources from other Commission priorities. Instead,
by adopting a clear and predictable support reduction scheme, the
Commission, USAC, and ETCs will know exactly what consequences will
result under the rules if filings are missed, rather than having to
handle each issue on a case-by-case basis. Similarly, the Commission is
not persuaded that support reductions are unnecessary because ETCs are
already motivated to file on time to avoid a delay in receiving their
support. Support reductions provide more of an incentive to file on
time because ETCs actually lose support under the mechanism established
in our rules rather than simply have it delayed if they do not meet a
deadline.
117. Given the Commission's decision to modify the support
reductions for late filings, the Commission adopts its proposal to
require strict adherence to filing deadlines. The Commission will cease
the practice of finding there is good cause for a waiver of high-cost
filing deadlines in circumstances where an ETC has missed the deadline
due to an administrative or clerical oversight and where that ETC has
promised to revise its procedures to ensure future compliance, as
proposed in the April 2014 Connect America FNPRM. The Commission
expects all ETCs, even those new to the Commission's processes or with
small staffs, to implement appropriate procedures to ensure compliance
with the Commission's filing deadlines and other regulatory
requirements.
D. Measures To Address Non-Compliance
118. Discussion. In this Order the Commission adopts specific
measures that the Bureau will take in the event that certain ETCs do
not meet their high-cost support deployment obligations for fixed
services or do not offer rates for fixed services that are reasonably
comparable to rates offered in urban areas.
119. In addition, the Commission reminds all ETCs that they may
also be subject to other sanctions for non-compliance with the terms
and conditions of high-cost funding, including, but not limited to,
potential revocation of ETC designation and suspension or debarment.
The Commission emphasizes that it will enforce the terms and conditions
of high-cost support vigorously. The Enforcement Bureau may initiate an
enforcement proceeding in situations where waiver is not appropriate.
In proposing any forfeiture, consistent with the Commission's rules,
the Enforcement Bureau shall take into account the nature,
circumstances, extent, and gravity of the violations.
1. Non-Compliance With Deployment Obligations
120. For ETCs that must meet specific build-out milestones, the
Commission adopts a framework for support reductions that are
calibrated to the extent of an ETC's non-compliance with these
deployment milestones. The Commission concludes that adopting support
reductions that scale with the extent of an ETC's non-compliance will
create incentives for ETCs to come into compliance as soon as possible,
and that a support reduction scheme that is tied to specific milestones
is a clear, straightforward approach.
121. The Commission has given rate-of-return carriers greater
flexibility to build out their networks by requiring that they deploy
service meeting the Commission's requirements upon reasonable request.
Because rate-of-return carriers are not at this time required to build
out to a certain number of locations, the Commission concludes it is
appropriate to handle matters regarding their potential non-compliance
on a case-by-case basis.
122. Trigger for Default. A default will occur if an ETC is
receiving support and then fails to meet its high-cost support
deployment obligations. For example, a default will occur if a
recipient of Phase II funding fails to meet a build-out milestone. The
Commission directs USAC to confirm that Phase II ETCs are in fact
meeting the terms and conditions of that support by verifying the
build-out certifications that recipients of Phase II support are
required to provide to ensure that Connect America funds are being used
to deploy infrastructure to eligible locations.
123. To the extent that an ETC determines that it will not meet a
build-out milestone, that ETC must notify the Commission, USAC, and the
relevant state or U.S. Territory, and Tribal government as appropriate,
no later than ten business days after the relevant deadline, rather
than waiting until the filing of the next annual report. The Commission
also expects that the states, U.S. Territories, and Tribal governments
will continue to aid us in our joint oversight role and notify the
Commission when an ETC is not meeting its obligations.
124. Support Reductions for ETCs with Defined Build-Out Milestones.
If an ETC begins receiving support and the Bureau subsequently
determines that the ETC has defaulted, the Bureau will issue a letter
documenting the default, and USAC will take the steps outlined below in
the following month. The measures that will be taken will be dependent
on the extent of an ETC's non-compliance.
125. Specifically, for interim milestones that occur during the
support term:
Tier 1: If an ETC has a compliance gap of at least five
percent but less than 15 percent of the number of locations that the
ETC is required to have built out to by the interim milestone, the
Bureau will issue a letter to that effect. The ETC will then be
required to file quarterly reports identifying the geocoded locations
to which the ETC has newly deployed facilities capable of delivering
broadband meeting the requisite requirements with Connect America
support in the previous quarter. The ETC must continue to file these
quarterly reports until the ETC reports that it has reduced the
compliance gap to less than five percent of the required number of
locations for that interim milestone and the Bureau issues a letter to
that effect.
Tier 2: If an ETC has a compliance gap of at least 15
percent but less than 25 percent of the number of locations that the
ETC is required to have built out to by the interim milestone, USAC
will withhold 15 percent of the ETC's monthly support for the state and
the ETC will be required to file quarterly reports. Once the ETC has
reported that it has reduced the compliance gap to less than 15 percent
of the required number of locations for that interim milestone for that
state, the Bureau will issue a letter to that effect, USAC will stop
withholding support, and the ETC will receive all of the support that
had been withheld. The ETC will then move to Tier 1 status.
Tier 3: If an ETC has a compliance gap of at least 25
percent but less than 50 percent of the number of locations that the
ETC is required to have built out to by the interim milestone, USAC
will withhold 25 percent of the ETC's monthly support for the state and
the ETC will be required to file quarterly reports. Once the ETC has
reported that it has reduced the compliance gap to
[[Page 4463]]
less than 25 percent of the required number of locations for that
interim milestone, the Bureau will issue a letter to that effect, the
ETC will move to Tier 2 status, and USAC will withhold 15 percent of
its monthly support for that state until the ETC reports that it is
eligible to move to Tier 1 status. Once the ETC has reported that it
qualifies for Tier 1 status, and the Bureau issues a letter to that
effect, it will be eligible to have all of its support restored, the
ETC will receive all of the support that had been withheld, and it will
move to Tier 1.
Tier 4: If an ETC has a compliance gap of 50 percent or
more of the number of locations that the ETC is required to have built
out to by the interim milestone, USAC will withhold 50 percent of the
ETC's monthly support for the state, and the ETC will be required to
file quarterly reports. As with the other tiers, as the ETC reports
that it has lessened the extent of its non-compliance, and the Bureau
issues a letter to that effect, it will move down the tiers until it
reaches Tier 1 (or no longer is out of compliance with the relevant
interim milestone). At that point, the ETC will be eligible to have all
of its support restored, the ETC will receive all of the support that
had been withheld, and, if it now is meeting the interim milestone, it
will no longer be required to file quarterly reports.
On the other hand, if after having 50 percent of its support
withheld for six months the ETC has not reported that it is eligible
for Tier 3 status (or one of the other lower tiers), USAC will withhold
100 percent of the ETC's support for that state and will commence
recovery action for a percentage of support that is equal to the ETC's
compliance gap plus ten percent of the ETC's support that has been paid
to that point. For example, if an ETC has not built out to 75 percent
of the required number of locations in a state, USAC would recover 85
percent of the ETC's support that had been paid to that point. The
Commission concludes that recovering the additional ten percent of the
ETC's support that has been disbursed up to that point will deter ETCs
from deciding that they would rather return the support than meet their
commitments for the supported area. Because these are high-cost areas
that lack unsubsidized providers at the outset of the support term, an
ETC's refusal to serve these locations could potentially leave the
locations with no options for reasonably comparable service.
If at any point during the support term the ETC reports
that it is eligible for Tier 1 status, it will have its support fully
restored including any support that had been withheld, USAC will repay
any funds that were recovered, and the ETC will move to Tier 1 status.
126. As noted above, the Commission requires ETCs to report to the
Commission, USAC, and the relevant state or U.S. Territory, and Tribal
government as appropriate, within ten business days of the final build-
out milestone if they have missed this milestone. If an ETC misses the
final build-out milestone, it must identify by what percentage it has
missed the final build-out milestone. Absent an extension of time for
circumstances beyond the ETC's control, the ETC will then have twelve
months from the date of the final build-out milestone deadline to come
into full compliance with this milestone. If an ETC does not report
that it has come into full compliance within twelve months, the Bureau
will issue a letter to this effect. USAC will then recover an amount of
support that is equal to 1.89 times the average amount of support per
location received in the state over the six-year term for the relevant
number of locations that the ETC has failed to deploy to, plus ten
percent of the ETC's total Phase II support received in the state over
the six-year term. As explained above, the Commission concludes that
recovering an additional ten percent of the ETC's total Phase II
support will deter ETCs from deciding to return their support rather
than build out to more than a de minimis number of locations.
127. If after the ETC's support term has ended, USAC determines in
the course of a compliance review that the ETC has not retained
sufficient evidence to demonstrate that it has built out to all of the
locations required by the final build-out milestone, USAC must recover
support from that ETC. Specifically, if the ETC does not have
sufficient evidence to demonstrate that it has built out to the total
number of required locations, USAC will recover an amount of support
that is equal to 1.89 times the average amount of support per location
received in the state over the six-year term for the relevant number of
locations for which the ETC has failed to retain sufficient evidence,
plus ten percent of the ETC's total support received in that state over
the six-year term. The Commission expects that ETCs will have strong
incentives to adopt policies and procedures to retain sufficient
evidence to aid the Commission and USAC in our oversight
responsibility.
128. Table 2 below summarizes the regime the Commission adopts in
this Order.
Table 2--Non-Compliance Measures
----------------------------------------------------------------------------------------------------------------
Tier Compliance gap Non-compliance measure
----------------------------------------------------------------------------------------------------------------
1..................................... 5% to less than 15%................ Quarterly reporting.
2..................................... 15% to less than 25%............... Quarterly reporting + withhold 15%
of monthly support.
3..................................... 25% to less than 50%............... Quarterly reporting + withhold 25%
of monthly support.
4..................................... 50% or more........................ Quarterly reporting + withhold 50%
of monthly support for six months;
after six months withhold 100% of
monthly support and recover
percentage of support equal to
compliance gap plus 10% of support
disbursed to date.
Recovery after Last Milestone......... If carrier elects the flexibility Twelve months to come into full
option: its compliance gap will be compliance; after twelve months
determined by the percentage of recover support equal to 1.89
total locations it does not build times the average amount of
to after subtracting the support per location received in
percentage of locations it has the state over the six-year term
identified it will not serve for the relevant locations, plus
(e.g., if a carrier is offered 100 10% of total Phase II support.
total locations, and it elects not
to serve 4 locations but by the
end of the term it has not served
20 locations, its compliance gap
is 16% (20% minus 4% = 16%)). If
carrier does not elect flexibility
option: anything less than 100%
compliance.
----------------------------------------------------------------------------------------------------------------
[[Page 4464]]
129. The Commission provides the following example in Table 3 of
how these compliance measures will be implemented for a price cap
carrier that accepts the state-level commitment. For simplicity, the
Commission assumes the price cap carrier must serve 100 total locations
and does not elect the flexibility option.
Table 3--Non-Compliance Measures Example
----------------------------------------------------------------------------------------------------------------
Milestone Tier Compliance gap
----------------------------------------------------------------------------------------------------------------
December 31, 2017--40% of total 1...................... Serves 35 to 38 locations.
locations (40 locations).
2...................... Serves 31 to 34 locations.
3...................... Serves 21 to 30 locations.
4...................... Serves 20 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2018--60% of total 1...................... Serves 52 to 57 locations.
locations (60 locations).
2...................... Serves 46 to 51 locations.
3...................... Serves 31 to 45 locations.
4...................... Serves 30 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2019--80% of total 1...................... Serves 69 to 76 locations.
locations (80 locations).
2...................... Serves 61 to 68 locations.
3...................... Serves 41 to 60 locations.
4...................... Serves 40 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2020--100% of total Recovery............... Serves 99 locations or fewer.
locations (100 locations).
----------------------------------------------------------------------------------------------------------------
130. The Commission concludes that the approach it adopts in the
Order is preferable to the other alternative the Commission sought
comment on--permitting ETCs to submit a plan to USAC for coming into
compliance before support reductions would begin. Such an approach
would likely to be resource-intensive for Commission staff and USAC
because each default would need to be handled on a case-by-case basis.
When there are clear milestones that must be met, such an approach is
unnecessary. Moreover, it likely would take a significant amount of
time for an ETC to develop a compliance plan and for the plan to be
approved, and then it will take even more time for the ETC to come into
full compliance. During this extended period consumers will be without
service meeting the Commission's requirements. The Commission finds
that the more automatic support reduction scheme it adopts above will
more quickly motivate ETCs to come into compliance and is a clearer,
less resource-intensive process for the Commission, USAC, and ETCs.
131. Non-Compliance Measures for Rate-of-Return Carriers. The
Commission will determine on a case-by-case basis whether rate-of-
return carriers are fulfilling their obligation to provide voice and
broadband services meeting the Commission's requirements upon
reasonable request. The Commission clarifies that rate-of-return
carriers should report any requests that are deemed unreasonable as
unfulfilled requests in their section 54.313 annual reports. The
Commission expects that USAC will verify that rate-of-return carriers
have sufficient evidence to demonstrate that any unfulfilled requests
were in fact unreasonable. Rate-of-return carriers should consult the
Declaratory Ruling contained in the April 2014 Connect America Order,
79 FR 39164, July 9, 2014, for guidance on what constitutes an
unreasonable request to determine the types of evidence they should
retain to demonstrate that unfilled requests were unreasonable. The
Commission declines at this time to specify a schedule of support
reductions for rate-of-return carriers because they are not subject to
defined build-out milestones. To the extent USAC determines in the
course of an audit that a carrier has insufficient evidence to support
a decision to deny a request for service, such findings shall be
reported as ``other matters.'' Because rate-of-return carriers are not
required to serve a set number of locations, and the Commission only
recently issued guidance on the reasonable request standard, the
Commission does not have sufficient experience to create specific
milestones that would require support reductions. However, the
Commission reserves the right to adopt a more automatic support
reduction framework for rate-of-return carriers at a future date.
132. Adjustment of Deployment Obligations. In the event an ETC is
unable to meet the required deployment obligations due to circumstances
beyond its control (e.g., a severe weather event, an inability to
secure a right of way, or an unforeseen obstacle that prevents building
to a location), that ETC may petition for an extension of time or
waiver of the relevant build-out milestone pursuant to section 1.3 of
the Commission's rules. The Commission notes that to the extent the ETC
is seeking an extension or waiver of a specific build-out milestone,
the Commission expects that the ETC would file its petition seeking
that relief no later than 30 days prior to the build-out milestone. The
Commission encourages ETCs that submit such petitions to continue to
work diligently towards meeting the terms and conditions of their
support while their petitions are pending. If the petitioning ETC is
unable to meet the terms and conditions by the time the build-out
milestone occurs, then the Bureau will issue a letter finding default,
and if applicable, reporting obligations and support reductions will
begin as described above. If an extension of time or waiver
subsequently is granted, the petitioning ETC will have all of the funds
that have been withheld or recovered restored and will be entitled to
receive its subsequent disbursements.
2. Non-Compliance With Reasonably Comparable Pricing Obligations
133. The Commission concludes that this issue is best dealt with on
a case-by-case basis for the time being for all ETCs that must certify
that the rates they offer are reasonably comparable. The Commission
finds that it would not be appropriate to apply a uniform support
reduction to all ETCs that fail to offer reasonably comparable prices.
It would be inequitable to reduce support by the same percentage amount
regardless of whether the ETC was charging prices a few dollars above
what is considered to be reasonably comparable or charging much higher
prices. Similarly, because the pricing benchmarks for voice and
broadband are
[[Page 4465]]
presumptions, not mandates, the Commission must provide an opportunity
for affected ETCs to present information to rebut the presumption.
Because there may be a variety of factors that go into determining
whether prices are reasonably comparable (e.g., speeds and data usage
limits being offered), the Commission is not prepared at this time to
establish a method for scaling the support reductions based on a level
of non-compliance. The Commission finds that it would be beneficial to
consider each potential instance of non-compliance separately and
gather more information to inform future judgments as to what is a
reasonable approach.
134. The Commission directs USAC to gather additional information
when ETCs fail to make the reasonably comparable certification about
their voice or broadband rates in their section 54.313 annual report
and transmit that information to the Commission. The ETC may present
factual evidence explaining the unique circumstances that preclude it
from offering service at a rate meeting the requisite benchmark. Based
on this information, the Commission will be in a better position at a
future date to determine the appropriate steps to take when there is
non-compliance with this requirement.
VII. Procedural Matters
A. Paperwork Reduction Act Analysis
135. This document contains new information collection requirements
subject to the PRA. It will be submitted to the Office of Management
and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the
general public, and other Federal agencies are invited to comment on
the new information collection requirements contained in this
proceeding. In addition, the Commission notes that pursuant to the
Small Business Paperwork Relief Act of 2002, the Commission previously
sought specific comment on how the Commission might further reduce the
information collection burden for small business concerns with fewer
than 25 employees. The Commission describes impacts that might affect
small businesses, which includes most businesses with fewer than 25
employees, in the Final Regulatory Flexibility Analysis (FRFA).
B. Final Regulatory Flexibility Analysis
136. As required by the Regulatory Flexibility Act of 1980 (RFA),
as amended, an Initial Regulatory Flexibility Analyses (IRFA) was
incorporated in the April 2014 Connect America FNPRM. The Commission
sought written public comment on the proposals in the April 2014
Connect America FNPRM, including comment on the IRFA. The Commission
did not receive any relevant comments on the April 2014 Connect America
FNPRM IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms
to the RFA.
1. Need for, and Objectives of, the Report and Order
137. With this Order, the Commission takes another momentous stride
towards fully implementing a modernized universal service regime
capable of meeting consumer demands for 21st century networks. The
Commission finalizes the decisions necessary to proceed with the offer
of support to price cap carriers in early 2015, thereby paving the way
for the deployment of new broadband infrastructure to millions of
unserved Americans. In the coming months, the Commission will turn its
attention to finalizing the rules for the Phase II competitive bidding
process that will occur in those states where the price cap carrier
declines the offer of model-based support.
138. Throughout the universal service reform process, the
Commission has sought to ensure that all consumers ``have access to . .
. advanced telecommunications and information services'' and benefit
from the historic technology transitions that are transforming our
nation's communications services. The Order continues down that path.
The Commission adopts several revisions to Connect America Phase II to
account for changes in the marketplace since the USF/ICC Transformation
Order was adopted. In particular, the Commission revises the minimum
speed requirement that recipients of high-cost universal service must
offer. The Commission finds that it is in the public interest to
require recipients of high-cost support subject to broadband
performance obligations to serve fixed locations to provide at least a
minimum broadband speed of 10 Mbps downstream.
139. The Commission adopts targeted changes to the framework
established for the offer of model-based support to price cap carriers.
Specifically, the Commission makes an adjustment to the term of
support, adopts more evenly spaced interim deployment milestones, and
concludes that adjustments of up to five percent in the number of
locations that must be served with corresponding support reductions are
appropriate to ensure that deployment obligations recognize conditions
in the real world. The Commission also forbears from the federal high-
cost universal service obligation of price cap carriers to offer voice
service in low-cost areas where they do not receive high-cost support,
in areas served by an unsubsidized competitor, and in areas where the
price cap carrier is replaced by another ETC.
140. In addition, the Commission addresses where Phase II support
will be available, both for the offer of model-based support to price
cap carriers and the subsequent Phase II competitive bidding process.
First, the Commission will exclude from the offer of Phase II model-
based support any census block served by a subsidized facilities-based
terrestrial competitor that offers fixed residential voice and
broadband services meeting or exceeding the 3 Mbps downstream/768 kbps
upstream (3 Mbps/768 kbps) performance metrics, as determined by the
Bureau upon completion of the Phase II challenge process. The
Commission also reaffirms its decision to exclude from the offer of
model-based support any census block served by an unsubsidized
competitor that meets or exceeds the 3 Mbps/768 kbps performance
metrics. Second, the Commission concludes that those high-cost blocks
served by a subsidized carrier that are excluded from the offer of
model-based support--including blocks with service meeting or exceeding
the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed
requirement--will be eligible for support in the Phase II competitive
bidding process. Third, the Commission concludes that any area served
by an unsubsidized facilities-based terrestrial competitor that offers
10/1 Mbps will be ineligible for support in the Phase II competitive
bidding process. Fourth, the Commission excludes from the offer of
model-based support those areas that are the subject of category one
bids that were not selected for the rural broadband experiments and
where a losing bidder has filed specific information indicating that it
wishes to remain in consideration for rural broadband experiment
support.
141. In the Connect America Fund FNPRM, the Commission sought
comment on a number of near-term and longer-term reforms for rate-of-
return carriers, including developing and implementing a ``Connect
America Fund'' for rate-of-return carriers. Although a number of
parties have submitted proposals that may have promise, the Commission
finds that further analysis and development of these proposals is
necessary. The Commission will continue to explore the possibility of a
voluntary path to model-based support for those rate-of-return carriers
that choose to pursue it. The Commission also expects to continue to
develop the record and act in the coming year on alternatives for
[[Page 4466]]
those who do not elect to receive model-based support.
142. In this Order, the Commission focuses on near-term reforms for
rate-of-return carriers. Specifically, the Commission adopts a revised
methodology for applying the cap on high-cost loop support to
distribute that support on a more equitable basis. The Commission also
addresses the proposals from the April 2014 Connect America FNPRM
regarding the 100 percent overlap rule.
143. In the USF/ICC Transformation Order, the Commission
established a ``uniform national framework for accountability'' that
replaced the various data and certification filing deadlines that
carriers previously were required to meet. In the Order, the Commission
takes several steps to strengthen that framework, including codifying
the reasonable comparability pricing requirement for broadband
services, adjusting the reductions in support for late-filed annual ETC
reports and certifications, and providing greater specificity regarding
how the Commission will address non-compliance with the Commission's
service obligations for voice and broadband.
144. The actions the Commission takes in this Order, combined with
the implementation of the rural broadband experiments and the reforms
the Commission implemented earlier in the year, will allow the
Commission to continue to advance further down the path outlined in the
USF/ICC Transformation Order. The Commission expects the Bureau to
complete the Connect America Phase II challenge process and then make a
final determination as to which census blocks will be eligible for the
offer of model-based Phase II support by early 2015. That final
determination will allow the Commission to extend the offers of Phase
II model-based support to price cap carriers to fund the deployment of
voice and broadband-capable infrastructure in their territories. The
carriers will then have 120 days to consider the offer, and in those
states where the price cap carrier declines the offer of support, the
Commission will move forward with the Phase II competitive bidding
process to determine support recipients.
2. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
145. There were no relevant comments filed that specifically
addressed the rules and policies proposed in the April 2014 Connect
America FNPRM IRFA. Nonetheless, the agency considered the potential
impact of the rules proposed in the IRFA on small entities and reduced
the compliance burden for all small entities in order to reduce the
economic impact of the rules enacted herein on such entities.
3. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply
146. The RFA directs agencies to provide a description of, and
where feasible, an estimate of the number of small entities that may be
affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small-business concern'' under the Small Business
Act. 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.
147. Small Businesses. Nationwide, there are a total of
approximately 28.2 million small businesses, according to the SBA.
148. 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.
149. 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
Order.
150. 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 Order
151. The Commission has 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. The Commission has
therefore included small incumbent LECs in this RFA analysis, although
it emphasizes that this RFA action has no effect on Commission analyses
and determinations in other, non-RFA contexts.
152. 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
[[Page 4467]]
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
Order.
153. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to interexchange 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, 359 companies reported
that their primary telecommunications service activity was the
provision of interexchange services. Of these 359 companies, an
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500
employees. Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected
by rules adopted pursuant to the Order.
154. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business size standard specifically for
prepaid calling card providers. The appropriate size standard under SBA
rules is for the category Telecommunications Resellers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 193 carriers have reported that they are
engaged in the provision of prepaid calling cards. Of these, an
estimated all 193 have 1,500 or fewer employees and none have more than
1,500 employees. Consequently, the Commission estimates that the
majority of prepaid calling card providers are small entities that may
be affected by rules adopted pursuant to the Order.
155. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 213 carriers have reported
that they are engaged in the provision of local resale services. Of
these, an estimated 211 have 1,500 or fewer employees and two have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of local resellers are small entities that may be affected by
rules adopted pursuant to the Order.
156. Toll Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 881 carriers have reported
that they are engaged in the provision of toll resale services. Of
these, an estimated 857 have 1,500 or fewer employees and 24 have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of toll resellers are small entities that may be affected by
rules adopted pursuant to the Order.
157. Other Toll Carriers. Neither the Commission nor the SBA has
developed a size standard for small businesses specifically applicable
to Other Toll Carriers. This category includes toll carriers that do
not fall within the categories of interexchange carriers, operator
service providers, prepaid calling card providers, satellite service
carriers, or toll resellers. 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, 284 companies reported that their primary
telecommunications service activity was the provision of other toll
carriage. Of these, an estimated 279 have 1,500 or fewer employees and
five have more than 1,500 employees. Consequently, the Commission
estimates that most Other Toll Carriers are small entities that may be
affected by the rules and policies adopted pursuant to the Order.
158. 800 and 800-Like Service Subscribers. Neither the Commission
nor the SBA has developed a small business size standard specifically
for 800 and 800-like service (toll free) subscribers. The appropriate
size standard under SBA rules is for the category Telecommunications
Resellers. Under that size standard, such a business is small if it has
1,500 or fewer employees. The most reliable source of information
regarding the number of these service subscribers appears to be data
the Commission collects on the 800, 888, 877, and 866 numbers in use.
According to our data, as of September 2009, the number of 800 numbers
assigned was 7,860,000; the number of 888 numbers assigned was
5,588,687; the number of 877 numbers assigned was 4,721,866; and the
number of 866 numbers assigned was 7,867,736. The Commission does not
have data specifying the number of these subscribers that are not
independently owned and operated or have more than 1,500 employees, and
thus are unable at this time to estimate with greater precision the
number of toll free subscribers that would qualify as small businesses
under the SBA size standard. Consequently, the Commission estimates
that there are 7,860,000 or fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer
small entity 877 subscribers; and 7,867,736 or fewer small entity 866
subscribers.
159. 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 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, the Commission estimates that the majority
of wireless firms can be considered small.
160. Broadband Personal Communications Service. The broadband
personal communications service (PCS) spectrum is divided into six
frequency blocks designated A through F, and the Commission has held
auctions for each block. The Commission defined ``small entity'' for
Blocks C and F as an entity that has average gross revenues of $40
million or less in the three previous calendar years. For Block F, an
additional classification for ``very small business'' was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than $15 million for the preceding three
calendar years. These standards defining ``small entity'' in the
context of broadband PCS auctions have been approved by the SBA. No
small
[[Page 4468]]
businesses, within the SBA-approved small business size standards bid
successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auctions. A
total of 93 small and very small business bidders won approximately 40
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the
Commission re-auctioned 347 C, E, and F Block licenses. There were 48
small business winning bidders. In 2001, the Commission completed the
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35
winning bidders in this auction, 29 qualified as ``small'' or ``very
small'' businesses. Subsequent events, concerning Auction 35, including
judicial and agency determinations, resulted in a total of 163 C and F
Block licenses being available for grant. In 2005, the Commission
completed an auction of 188 C block licenses and 21 F block licenses in
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24
winning bidders, 16 claimed small business status and won 156 licenses.
In 2007, the Commission completed an auction of 33 licenses in the A,
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were
designated entities. In 2008, the Commission completed an auction of 20
Broadband PCS licenses in the C, D, E and F block licenses in Auction
78.
161. Advanced Wireless Services. In 2008, the Commission conducted
the auction of Advanced Wireless Services (``AWS'') licenses. This
auction, which as designated as Auction 78, offered 35 licenses in the
AWS 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1 licenses
were licenses for which there were no winning bids in Auction 66. That
same year, the Commission completed Auction 78. A bidder with
attributed average annual gross revenues that exceeded $15 million and
did not exceed $40 million for the preceding three years (``small
business'') received a 15 percent discount on its winning bid. A bidder
with attributed average annual gross revenues that did not exceed $15
million for the preceding three years (``very small business'')
received a 25 percent discount on its winning bid. A bidder that had
combined total assets of less than $500 million and combined gross
revenues of less than $125 million in each of the last two years
qualified for entrepreneur status. Four winning bidders that identified
themselves as very small businesses won 17 licenses. Three of the
winning bidders that identified themselves as a small business won five
licenses. Additionally, one other winning bidder that qualified for
entrepreneur status won 2 licenses.
162. Narrowband Personal Communications Services. In 1994, the
Commission conducted an auction for Narrowband PCS licenses. A second
auction was also conducted later in 1994. For purposes of the first two
Narrowband PCS auctions, ``small businesses'' were entities with
average gross revenues for the prior three calendar years of $40
million or less. Through these auctions, the Commission awarded a total
of 41 licenses, 11 of which were obtained by four small businesses. To
ensure meaningful participation by small business entities in future
auctions, the Commission adopted a two-tiered small business size
standard in the Narrowband PCS Second Report and Order, 65 FR 35843,
June 6, 2000. A ``small business'' is an entity that, together with
affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $40 million. A ``very small
business'' is an entity that, together with affiliates and controlling
interests, has average gross revenues for the three preceding years of
not more than $15 million. The SBA has approved these small business
size standards. A third auction was conducted in 2001. Here, five
bidders won 317 (Metropolitan Trading Areas and nationwide) licenses.
Three of these claimed status as a small or very small entity and won
311 licenses.
163. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed
a small business size standard for ``small businesses'' and ``very
small businesses'' for purposes of determining their eligibility for
special provisions such as bidding credits and installment payments. A
``small business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues not exceeding $15
million for the preceding three years. Additionally, a ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that are not more
than $3 million for the preceding three years. The SBA has approved
these small business size standards. According to Commission data, 291
carriers have reported that they are engaged in Paging or Messaging
Service. Of these, an estimated 289 have 1,500 or fewer employees, and
two have more than 1,500 employees. Consequently, the Commission
estimates that the majority of paging providers are small entities that
may be affected by our action. An auction of Metropolitan Economic Area
licenses commenced on February 24, 2000, and closed on March 2, 2000.
Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies
claiming small business status won 440 licenses. A subsequent auction
of MEA and Economic Area (``EA'') licenses was held in the year 2001.
Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-
two companies claiming small business status purchased 3,724 licenses.
A third auction, consisting of 8,874 licenses in each of 175 EAs and
1,328 licenses in all but three of the 51 MEAs, was held in 2003.
Seventy-seven bidders claiming small or very small business status won
2,093 licenses. A fourth auction, consisting of 9,603 lower and upper
paging band licenses was held in the year 2010. Twenty-nine bidders
claiming small or very small business status won 3,016 licenses.
164. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service
has both Phase I and Phase II licenses. Phase I licensing was conducted
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized
to operate in the 220 MHz band. The Commission has not developed a
small business size standard for small entities specifically applicable
to such incumbent 220 MHz Phase I licensees. To estimate the number of
such licensees that are small businesses, the Commission applies the
small business size standard under the SBA rules applicable to Wireless
Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer
employees. The Commission estimates that nearly all such licensees are
small businesses under the SBA's small business size standard that may
be affected by rules adopted pursuant to the Order.
165. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service
has both Phase I and Phase II licenses. The Phase II 220 MHz service is
subject to spectrum auctions. In the 220 MHz Third Report and Order, 62
FR 15978, April 3, 1997, the Commission adopted a small business size
standard for ``small'' and ``very small'' businesses for purposes of
determining their eligibility for special provisions such as bidding
credits and installment payments. This small business size standard
indicates that a ``small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
not exceeding $15 million for the preceding three years. A ``very small
business'' is an entity that, together with
[[Page 4469]]
its affiliates and controlling principals, has average gross revenues
that do not exceed $3 million for the preceding three years. The SBA
has approved these small business size standards. Auctions of Phase II
licenses commenced on September 15, 1998, and closed on October 22,
1998. In the first auction, 908 licenses were auctioned in three
different-sized geographic areas: three nationwide licenses, 30
Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA)
Licenses. Of the 908 licenses auctioned, 693 were sold. Thirty-nine
small businesses won licenses in the first 220 MHz auction. The second
auction included 225 licenses: 216 EA licenses and 9 EAG licenses.
Fourteen companies claiming small business status won 158 licenses.
166. Specialized Mobile Radio. The Commission awards small business
bidding credits in auctions for Specialized Mobile Radio (``SMR'')
geographic area licenses in the 800 MHz and 900 MHz bands to entities
that had revenues of no more than $15 million in each of the three
previous calendar years. The Commission awards very small business
bidding credits to entities that had revenues of no more than $3
million in each of the three previous calendar years. The SBA has
approved these small business size standards for the 800 MHz and 900
MHz SMR Services. The Commission has held auctions for geographic area
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was
completed in 1996. Sixty bidders claiming that they qualified as small
businesses under the $15 million size standard won 263 geographic area
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper
200 channels was conducted in 1997. Ten bidders claiming that they
qualified as small businesses under the $15 million size standard won
38 geographic area licenses for the upper 200 channels in the 800 MHz
SMR band. A second auction for the 800 MHz band was conducted in 2002
and included 23 BEA licenses. One bidder claiming small business status
won five licenses.
167. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels was conducted in 2000. Eleven bidders
won 108 geographic area licenses for the General Category channels in
the 800 MHz SMR band qualified as small businesses under the $15
million size standard. In an auction completed in 2000, a total of
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz
SMR service were awarded. Of the 22 winning bidders, 19 claimed small
business status and won 129 licenses. Thus, combining all three
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR
band claimed status as small business.
168. In addition, there are numerous incumbent site-by-site SMR
licensees and licensees with extended implementation authorizations in
the 800 and 900 MHz bands. The Commission does not know how many firms
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of no more than $15 million. One firm has over $15
million in revenues. In addition, the Commission does not know how many
of these firms have 1,500 or fewer employees. The Commission assumes,
for purposes of this analysis, that all of the remaining existing
extended implementation authorizations are held by small entities, as
that small business size standard is approved by the SBA.
169. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service systems, previously referred to as Multipoint
Distribution Service (``MDS'') and Multichannel Multipoint Distribution
Service (``MMDS'') systems, and ``wireless cable,'' transmit video
programming to subscribers and provide two-way high speed data
operations using the microwave frequencies of the Broadband Radio
Service (``BRS'') and Educational Broadband Service (``EBS'')
(previously referred to as the Instructional Television Fixed Service
(``ITFS'')). In connection with the 1996 BRS auction, the Commission
established a small business size standard as an entity that had annual
average gross revenues of no more than $40 million in the previous
three calendar years. The BRS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small
business. BRS also includes licensees of stations authorized prior to
the auction. At this time, the Commission estimates that of the 61
small business BRS auction winners, 48 remain small business licensees.
In addition to the 48 small businesses that hold BTA authorizations,
there are approximately 392 incumbent BRS licensees that are considered
small entities. After adding the number of small business auction
licensees to the number of incumbent licensees not already counted, the
Commission finds that there are currently approximately 440 BRS
licensees that are defined as small businesses under either the SBA or
the Commission's rules. The Commission has adopted three levels of
bidding credits for BRS: (i) A bidder with attributed average annual
gross revenues that exceed $15 million and do not exceed $40 million
for the preceding three years (small business) is eligible to receive a
15 percent discount on its winning bid; (ii) a bidder with attributed
average annual gross revenues that exceed $3 million and do not exceed
$15 million for the preceding three years (very small business) is
eligible to receive a 25 percent discount on its winning bid; and (iii)
a bidder with attributed average annual gross revenues that do not
exceed $3 million for the preceding three years (entrepreneur) is
eligible to receive a 35 percent discount on its winning bid. In 2009,
the Commission conducted Auction 86, which offered 78 BRS licenses.
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten,
two bidders claimed small business status and won 4 licenses; one
bidder claimed very small business status and won three licenses; and
two bidders claimed entrepreneur status and won six licenses.
170. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,032 EBS licensees. All but 100 of these licenses are held by
educational institutions. Educational institutions are included in this
analysis as small entities. Thus, the Commission estimates that at
least 1,932 licensees are small businesses. Since 2007, Cable
Television Distribution 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
defines a small business size standard for this category as any such
firms having 1,500 or fewer employees. 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
[[Page 4470]]
employees, and 16 firms had employment of 1000 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 Order.
171. Lower 700 MHz Band Licenses. The Commission previously adopted
criteria for defining three groups of small businesses for purposes of
determining their eligibility for special provisions such as bidding
credits. The Commission defined a ``small business'' as an entity that,
together with its affiliates and controlling principals, has average
gross revenues not exceeding $40 million for the preceding three years.
A ``very small business'' is defined as an entity that, together with
its affiliates and controlling principals, has average gross revenues
that are not more than $15 million for the preceding three years.
Additionally, the Lower 700 MHz Band had a third category of small
business status for Metropolitan/Rural Service Area (``MSA/RSA'')
licenses, identified as ``entrepreneur'' and defined as an entity that,
together with its affiliates and controlling principals, has average
gross revenues that are not more than $3 million for the preceding
three years. The SBA approved these small size standards. The
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses
available for auction, 484 licenses were sold to 102 winning bidders.
Seventy-two of the winning bidders claimed small business, very small
business or entrepreneur status and won a total of 329 licenses. The
Commission conducted a second Lower 700 MHz Band auction in 2003 that
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area
licenses. Seventeen winning bidders claimed small or very small
business status and won 60 licenses, and nine winning bidders claimed
entrepreneur status and won 154 licenses. In 2005, the Commission
completed an auction of 5 licenses in the Lower 700 MHz Band,
designated Auction 60. There were three winning bidders for five
licenses. All three winning bidders claimed small business status.
172. In 2007, the Commission reexamined its rules governing the 700
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August
24, 2007. The 700 MHz Second Report and Order revised the band plan for
the commercial (including Guard Band) and public safety spectrum,
adopted services rules, including stringent build-out requirements, an
open platform requirement on the C Block, and a requirement on the D
Block licensee to construct and operate a nationwide, interoperable
wireless broadband network for public safety users. An auction of A, B
and E block licenses in the Lower 700 MHz band was held in 2008. Twenty
winning bidders claimed small business status (those with attributable
average annual gross revenues that exceed $15 million and do not exceed
$40 million for the preceding three years). Thirty three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years). In 2011, the Commission conducted Auction 92,
which offered 16 Lower 700 MHz band licenses that had been made
available in Auction 73 but either remained unsold or were licenses on
which a winning bidder defaulted. Two of the seven winning bidders in
Auction 92 claimed very small business status, winning a total of four
licenses.
173. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz band
licenses. In 2008, the Commission conducted Auction 73 in which C and D
block licenses in the Upper 700 MHz band were available. Three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years).
174. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order,
65 FR 17594, April 4, 2000, the Commission adopted a small business
size standard for ``small businesses'' and ``very small businesses''
for purposes of determining their eligibility for special provisions
such as bidding credits and installment payments. A ``small business''
is an entity that, together with its affiliates and controlling
principals, has average gross revenues not exceeding $40 million for
the preceding three years. Additionally, a ``very small business'' is
an entity that, together with its affiliates and controlling
principals, has average gross revenues that are not more than $15
million for the preceding three years. An auction of 52 Major Economic
Area (MEA) licenses commenced on September 6, 2000, and closed on
September 21, 2000. Of the 104 licenses auctioned, 96 licenses were
sold to nine bidders. Five of these bidders were small businesses that
won a total of 26 licenses. A second auction of 700 MHz Guard Band
licenses commenced on February 13, 2001 and closed on February 21,
2001. All eight of the licenses auctioned were sold to three bidders.
One of these bidders was a small business that won a total of two
licenses.
175. Cellular Radiotelephone Service. Auction 77 was held to
resolve one group of mutually exclusive applications for Cellular
Radiotelephone Service licenses for unserved areas in New Mexico.
Bidding credits for designated entities were not available in Auction
77. In 2008, the Commission completed the closed auction of one
unserved service area in the Cellular Radiotelephone Service,
designated as Auction 77. Auction 77 concluded with one provisionally
winning bid for the unserved area totaling $25,002.
176. Private Land Mobile Radio (``PLMR''). PLMR systems serve an
essential role in a range of industrial, business, land transportation,
and public safety activities. These radios are used by companies of all
sizes operating in all U.S. business categories, and are often used in
support of the licensee's primary (non-telecommunications) business
operations. For the purpose of determining whether a licensee of a PLMR
system is a small business as defined by the SBA, the Commission uses
the broad census category, Wireless Telecommunications Carriers (except
Satellite). This definition provides that a small entity is any such
entity employing no more than 1,500 persons. The Commission does not
require PLMR licensees to disclose information about number of
employees, so the Commission does not have information that could be
used to determine how many PLMR licensees constitute small entities
under this definition. The Commission notes that PLMR licensees
generally use the licensed facilities in support of other business
activities, and therefore, it would also be helpful to assess PLMR
licensees under the standards applied to the particular industry
subsector to which the licensee belongs.
177. As of March 2010, there were 424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands below 512 MHz. The Commission
notes that any entity engaged in a commercial activity is eligible to
hold a PLMR license, and that any revised rules in this context could
therefore potentially impact small entities covering a great variety of
industries.
178. Rural Radiotelephone Service. The Commission has not adopted a
size standard for small businesses specific to the Rural Radiotelephone
Service. A significant subset of the Rural Radiotelephone Service is
the Basic Exchange Telephone Radio System (BETRS). In the present
context, the Commission will use the SBA's small
[[Page 4471]]
business size standard applicable to Wireless Telecommunications
Carriers (except Satellite), i.e., an entity employing no more than
1,500 persons. There are approximately 1,000 licensees in the Rural
Radiotelephone Service, and the Commission estimates that there are
1,000 or fewer small entity licensees in the Rural Radiotelephone
Service that may be affected by the rules and policies proposed herein.
179. Air-Ground Radiotelephone Service. The Commission has not
adopted a small business size standard specific to the Air-Ground
Radiotelephone Service. The Commission will use SBA's small business
size standard applicable to Wireless Telecommunications Carriers
(except Satellite), i.e., an entity employing no more than 1,500
persons. There are approximately 100 licensees in the Air-Ground
Radiotelephone Service, and the Commission estimates that almost all of
them qualify as small under the SBA small business size standard and
may be affected by rules adopted pursuant to the Order.
180. Aviation and Marine Radio Services. Small businesses in the
aviation and marine radio services use a very high frequency (VHF)
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator
transmitter. The Commission has not developed a small business size
standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business
size standard for the category Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of the
Commission's evaluations in this analysis, it estimates that there are
up to approximately 712,000 licensees that are small businesses (or
individuals) under the SBA standard. In addition, between December 3,
1998 and December 14, 1998, the Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and
161.775-162.0125 MHz (coast transmit) bands. For purposes of the
auction, the Commission defined a ``small'' business as an entity that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $15 million
dollars. In addition, a ``very small'' business is one that, together
with controlling interests and affiliates, has average gross revenues
for the preceding three years not to exceed $3 million dollars. There
are approximately 10,672 licensees in the Marine Coast Service, and the
Commission estimates that almost all of them qualify as ``small''
businesses under the above special small business size standards and
may be affected by rules adopted pursuant to the Order.
181. Fixed Microwave Services. Fixed microwave services include
common carrier, private operational-fixed, and broadcast auxiliary
radio services. At present, there are approximately 22,015 common
carrier fixed licensees and 61,670 private operational-fixed licensees
and broadcast auxiliary radio licensees in the microwave services. The
Commission has not created a size standard for a small business
specifically with respect to fixed microwave services. For purposes of
this analysis, the Commission uses the SBA small business size standard
for Wireless Telecommunications Carriers (except Satellite), which is
1,500 or fewer employees. The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and
thus is unable at this time to estimate with greater precision the
number of fixed microwave service licensees that would qualify as small
business concerns under the SBA's small business size standard.
Consequently, the Commission estimates that there are up to 22,015
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the
microwave services that may be small and may be affected by the rules
and policies adopted herein. The Commission notes, however, that the
common carrier microwave fixed licensee category includes some large
entities.
182. Offshore Radiotelephone Service. This service operates on
several UHF television broadcast channels that are not used for
television broadcasting in the coastal areas of states bordering the
Gulf of Mexico. There are presently approximately 55 licensees in this
service. The Commission is unable to estimate at this time the number
of licensees that would qualify as small under the SBA's small business
size standard for the category of Wireless Telecommunications Carriers
(except Satellite). Under that SBA small business size standard, a
business is small if it has 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Thus, under this category and the associated small business size
standard, the majority of firms can be considered small.
183. 39 GHz Service. The Commission created a special small
business size standard for 39 GHz licenses--an entity that has average
gross revenues of $40 million or less in the three previous calendar
years. An additional size standard for ``very small business'' is: An
entity that, together with 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. The auction of
the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8,
2000. The 18 bidders who claimed small business status won 849
licenses. Consequently, the Commission estimates that 18 or fewer 39
GHz licensees are small entities that may be affected by rules adopted
pursuant to the Order.
184. 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.
185. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557
[[Page 4472]]
were won by entities qualifying as a small business. For that auction,
the small business size standard was an entity that, together with its
affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2
million in annual profits each year for the previous two years. In the
218-219 MHz Report and Order and Memorandum Opinion and Order, 64 FR
59656, November 3, 1999, the Commission established a small business
size standard for a ``small business'' as an entity that, together with
its affiliates and persons or entities that hold interests in such an
entity and their affiliates, has average annual gross revenues not to
exceed $15 million for the preceding three years. A ``very small
business'' is defined as an entity that, together with its affiliates
and persons or entities that hold interests in such an entity and its
affiliates, has average annual gross revenues not to exceed $3 million
for the preceding three years. These size standards will be used in
future auctions of 218-219 MHz spectrum.
186. 2.3 GHz Wireless Communications Services. This service can be
used for fixed, mobile, radiolocation, and digital audio broadcasting
satellite uses. The Commission defined ``small business'' for the
wireless communications services (``WCS'') auction as an entity with
average gross revenues of $40 million for each of the three preceding
years, and a ``very small business'' as an entity with average gross
revenues of $15 million for each of the three preceding years. The SBA
has approved these definitions. The Commission auctioned geographic
area licenses in the WCS service. In the auction, which was conducted
in 1997, there were seven bidders that won 31 licenses that qualified
as very small business entities, and one bidder that won one license
that qualified as a small business entity.
187. 1670-1675 MHz Band. An auction for one license in the 1670-
1675 MHz band was conducted in 2003. The Commission defined a ``small
business'' as an entity with attributable average annual gross revenues
of not more than $40 million for the preceding three years and thus
would be eligible for a 15 percent discount on its winning bid for the
1670-1675 MHz band license. Further, the Commission defined a ``very
small business'' as an entity with attributable average annual gross
revenues of not more than $15 million for the preceding three years and
thus would be eligible to receive a 25 percent discount on its winning
bid for the 1670-1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
188. 3650-3700 MHz band. In March 2005, the Commission released a
Report and Order and Memorandum Opinion and Order that provides for
nationwide, non-exclusive licensing of terrestrial operations,
utilizing contention-based technologies, in the 3650 MHz band (i.e.,
3650-3700 MHz). As of April 2010, more than 1270 licenses have been
granted and more than 7433 sites have been registered. The Commission
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the
Commission estimates that the majority of these licensees are Internet
Access Service Providers (ISPs) and that most of those licensees are
small businesses.
189. 24 GHz--Incumbent Licensees. This analysis may affect
incumbent licensees who were relocated to the 24 GHz band from the 18
GHz band, and applicants who wish to provide services in the 24 GHz
band. For this service, the Commission uses the SBA small business size
standard for the category ``Wireless Telecommunications Carriers
(except satellite),'' which is 1,500 or fewer employees. To gauge small
business prevalence for these cable services the Commission must,
however, use the most current census data. Census data for 2007, which
supersede data contained in the 2002 Census, show that there were 1,383
firms that operated that year. Of those 1,383, 1,368 had fewer than 100
employees, and 15 firms had more than 100 employees. Thus under this
category and the associated small business size standard, the majority
of firms can be considered small. The Commission notes that the Census'
use of the classifications ``firms'' does not track the number of
``licenses''. The Commission believes that there are only two licensees
in the 24 GHz band that were relocated from the 18 GHz band, Teligent
and TRW, Inc. It is our understanding that Teligent and its related
companies have less than 1,500 employees, though this may change in the
future. TRW is not a small entity. Thus, only one incumbent licensee in
the 24 GHz band is a small business entity.
190. 24 GHz--Future Licensees. With respect to new applicants in
the 24 GHz band, the size standard for ``small business'' is an entity
that, together with controlling interests and affiliates, has average
annual gross revenues for the three preceding years not in excess of
$15 million. ``Very small business'' in the 24 GHz band is an entity
that, together with controlling interests and affiliates, has average
gross revenues not exceeding $3 million for the preceding three years.
The SBA has approved these small business size standards. These size
standards will apply to a future 24 GHz license auction, if held.
191. 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 the Commission 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.
192. 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, the Commission estimates that the
majority of Satellite Telecommunications firms are small entities that
might be affected by rules adopted pursuant to the Order.
193. 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
[[Page 4473]]
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, the Commission estimates
that the majority of Other Telecommunications firms are small entities
that might be affected by our action.
194. 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 1000 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 Order.
195. 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 Order.
196. 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. The
Commission notes that it neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore the Commission is
unable to estimate more accurately the number of cable system operators
that would qualify as small under this size standard.
197. 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 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 1000
employees or more. Thus, under this second size standard, most cable
systems are small and may be affected by rules adopted pursuant to the
Order. In addition, the Commission notes that it 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.
198. 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, 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. 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 1000
employees or more. Consequently, the Commission estimates that the
majority of these firms are small entities that may be affected by
rules adopted pursuant to the Order.
199. Internet Publishing and Broadcasting and Web Search Portals.
Our action may pertain to interconnected VoIP services, which could be
provided by entities that provide other services such as email, online
gaming, web browsing, video conferencing, instant messaging, and other,
similar IP-enabled services. The Commission has not adopted a size
standard for entities that create or provide these types of services or
applications. However, the Census Bureau has identified firms that
``primarily engaged in (1) publishing and/or broadcasting content on
the Internet exclusively or (2) operating Web sites that use a search
engine to generate and maintain extensive databases of Internet
addresses and content in an easily searchable format (and known as Web
search portals).'' The SBA has developed a small business size standard
for this category, which is: all such firms having 500 or fewer
employees. According to Census Bureau data for 2007, there were 2,705
firms in this category that operated for the entire year. Of this
total, 2,682 firms had employment of 499 or fewer employees, and 23
firms had employment of 500 employees or more. Consequently, the
Commission estimates that the majority of these firms are small
entities that may be affected by rules adopted pursuant to the Order.
[[Page 4474]]
200. Data Processing, Hosting, and Related Services. Entities in
this category ``primarily . . . provid[e] infrastructure for hosting or
data processing services.'' The SBA has developed a small business size
standard for this category; that size standard is $25 million or less
in average annual receipts. According to Census Bureau data for 2007,
there were 8,060 firms in this category that operated for the entire
year. Of these, 7,744 had annual receipts of under $ $24,999,999.
Consequently, the Commission estimates that the majority of these firms
are small entities that may be affected by rules adopted pursuant to
the Order.
201. All Other Information Services. The Census Bureau defines this
industry as including ``establishments primarily engaged in providing
other information services (except news syndicates, libraries,
archives, Internet publishing and broadcasting, and Web search
portals).'' Our action pertains to interconnected VoIP services, which
could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant
messaging, and other, similar IP-enabled services. The SBA has
developed a small business size standard for this category; that size
standard is $7.0 million or less in average annual receipts. According
to Census Bureau data for 2007, there were 367 firms in this category
that operated for the entire year. Of these, 334 had annual receipts of
under $5.0 million, and an additional 11 firms had receipts of between
$5 million and $9,999,999. Consequently, the Commission estimates that
the majority of these firms are small entities that may be affected by
our action.
4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
202. In the Order, the Commission amends section 54.313(a) to
include a new subsection 12 that requires recipients of high-cost and/
or Connect America Fund support that are subject to broadband
performance obligations to submit a broadband reasonable comparability
certification with their annual section 54.313 report (FCC Form 481).
In that certification, support recipients must certify that the pricing
of the broadband offering they are relying upon to meet their broadband
performance obligation is no more than the applicable benchmark as
specified in a public notice issued by the Bureau, or is no more than
the non-promotional prices charged for a comparable fixed wireline
service in urban areas in the states or U.S. Territories where the
high-cost support recipient receives support. For purposes of the
latter certification, the Commission does not require that the high-
cost support recipient offer a particular rate nationwide; rather it is
sufficient if for each state or U.S. Territory where the high-cost
support recipient receives funding, the high-cost support recipient or
another provider offers the same rate for a comparable fixed wireline
service in an urban area in that state or U.S. Territory. Recognizing
that high-cost support recipients are permitted to offer a variety of
broadband service offerings as long as they offer at least one
standalone voice service plan and one service plan that provides
broadband that meets the Commission's requirements, it only requires
that they make the above certification for one of their broadband
service offerings that satisfies all of the Commission's requirements,
including that the service be offered throughout the high-cost support
recipient's supported area, or for rate-of-return carriers, be made
available upon reasonable request.
203. The Commission concludes that requiring high-cost support
recipients to make this certification will ensure that the Commission
can monitor their compliance with the section 254(b) principle that
``[c]onsumers in all regions of the Nation . . . should have access to
telecommunications and information services that are reasonably
comparable to rates charged for similar services in urban areas.''
204. The Commission requires that high-cost support recipients that
elect to certify that their pricing of services in rural areas is no
greater than their pricing in urban areas to rely upon the non-
promotional prices charged for comparable fixed wireline services. This
certification will be included in the FCC Form 481 to be filed in 2016,
addressing performance during 2015, after the requirement has received
Paperwork Reduction Act (PRA) approval from the Office of Management
and Budget. All parties subject to a broadband public interest
requirement that file this report in 2016 will be required to make the
certification, and annually thereafter. Recipients of funding through
the Phase II competitive bidding process must submit their first
certification with the first section 54.313 annual report they are
required to submit after support is authorized, and each year
thereafter with their annual report.
205. In the Order, the Commission requires all price cap carriers
accepting model-based support to include in the annual progress report
that they submit with their section 54.313 annual reports a list of the
geocoded locations to which they have newly deployed facilities capable
of delivering broadband meeting the requisite requirements with Connect
America support in the prior year. The list must identify which
locations are located in a Phase II-funded block and which locations
are located in extremely high-cost census blocks. The first list must
be submitted with their July 2016 annual report, reflecting deployment
status through the end of 2015. This first list should also include the
geocoded locations that a price cap carrier had already built out to
with service meeting the Commission's requirements before receiving
Phase II support. The Commission will also collect from price cap
carriers accepting model-based support in their annual section 54.313
reports the total amount of Connect America Phase II support, if any,
they used for capital expenditures in the previous calendar year. In
the Order, the Commission finds that it is in the public interest to
require price cap carriers accepting model-based support to provide
this data on an annual basis.
206. In the Order, the Commission also takes a necessary step to
ensure the most efficient use of high-cost support by reducing on a
pro-rata daily basis the support of any ETC that misses certification
or data submission deadlines. The Commission recognizes that despite
its best efforts, an ETC may miss a deadline due to an administrative
oversight but still file within a few days of the deadline, and
therefore implement a one-time grace period of three days. A one-time
grace period of three days achieves an appropriate balance between
requiring strict compliance with our rules and providing an opportunity
for ETCs that may be first time filers or that make an uncharacteristic
mistake to rectify quickly an error.
207. Given our decision to modify the support reductions for late
filings, the Order announces that the Commission otherwise requires
strict adherence to filing deadlines. The Commission will cease the
practice of finding there is good cause for a waiver of high-cost
filing deadlines in circumstances where an ETC has missed the deadline
due to an administrative or clerical oversight and where that ETC has
promised to revise it procedures to ensure future compliance.
208. Lastly, the Commission adopts specific measures in the event
that certain ETCs do not meet their high-cost obligations for fixed
services. Specifically, in the Order, the Commission adopts a support
reduction regime for ETCs that fail to meet their
[[Page 4475]]
deployment obligations subsequent to accepting Connect America Phase II
support. For price cap ETCs the Commission adopts a framework for
support reductions that are calibrated to the extent of an ETC's non-
compliance with these deployment milestones. Because rate-of-return
carriers are not at this time required to build out to a certain number
of locations, the Commission concludes it is appropriate to handle
matters regarding their potential non-compliance on a case-by-case
basis. Additionally, the Commission concludes that non-compliance of
the reasonable comparability requirement is best dealt with on a case-
by-case basis for all ETCs that must certify that the rates they offer
are reasonably comparable. The Commission finds that it would not be
appropriate to apply a uniform support reduction to all ETCs that fail
to offer reasonably comparable prices.
5. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
209. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its approach, which may
include the following four alternatives, among others: (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for 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 small
entities.
210. The rules that the Commission adopts in the Order provide
flexibility in meeting the public interest obligations that are a
condition of the receipt of high-cost support for those price cap
carriers accepting the offer of model-based support, the Commission
adopts targeted adjustments to the framework established by the
Commission in the USF/ICC Transformation Order to provide carriers
flexibility. Specifically, the Commission adopts evenly spaced annual
interim milestones for price cap carriers to offer at least 10/1 Mbps
to an additional 20 percent of the requisite number of high-cost
locations each year. The Commission also modifies the build-out
requirements established for price cap carriers accepting model-based
support to create evenly spaced annual interim milestones. The
Commission requires price cap carriers accepting model-based support to
complete construction to 40 percent of the requisite number of
locations in a state by the end of calendar year 2017, instead of 85
percent by the mid-2018, which is a more realistic expectation, given
that carriers will not accept the offer of support until mid-year in
2015 and then will be developing detailed network construction plans.
The Commission also will permit a modest adjustment to the number of
model-determined funded locations in a given state with a corresponding
reduction in support. The Commission expects the flexibility in
deployment for price-cap carriers accepting model-based Phase II
support will minimize the economic impact on small entities.
211. Additionally, as the Commission did in 2011, it continues to
offer a more flexible approach to deploying broadband for rate-of-
return carriers. Rate-of-return carriers are only required to meet the
higher speed if the request for service is reasonable--meaning that the
carrier could cost effectively extend voice and broadband-capable
network to that location, given its anticipated end-user revenues and
other sources of support. Rate-of-return carriers will be required to
offer at least 10/1 Mbps broadband service upon reasonable request,
consistent with past guidance regarding our expectations regarding the
reasonable request standard. If a request for 10/1 Mbps is not
reasonable in a given circumstance, but offering 4/1 Mbps is
reasonable, the Commission would expect a rate-of-return carrier to
offer 4/1 Mbps.
212. The Commission also concludes, based on our consideration of
the relevant statutory framework and the record before us, that it is
in the public interest to forbear from enforcing a federal high-cost
requirement that price cap carriers offer voice telephony service
throughout their service areas pursuant to section 214(e)(1)(A) of the
Act in three types of geographic areas: (1) Census blocks that are
determined to be low-cost, (2) census blocks served by an unsubsidized
competitor, and (3) census blocks where a subsidized competitor--i.e.,
another ETC--is receiving federal high-cost support to deploy modern
networks capable of providing voice and broadband to fixed locations.
The Commission finds that limited forbearance from section 214(e)(1)(A)
will promote competitive market conditions by giving affected carriers
the flexibility to compete on a more equal regulatory footing in the
voice telephony market with competitors that already have the
opportunity to make decisions about how best to offer voice telephone
service.
213. For those price cap carriers serving non-contiguous areas that
elect to continue receiving frozen support amounts in lieu of the offer
of model-based support, the Commission recognizes that such carriers
face unique circumstances in the areas they serve and experience
different challenges in deploying broadband service in those areas.
Consequently, a ``one-size-fits-all'' approach would leave some of
these carriers potentially unable to fulfill their service obligations.
The Commission is confident that tailoring specific service obligations
to the individual circumstances of each non-contiguous carrier that
elects to continue receiving frozen support will best ensure that
Connect America funding is put to the best possible use.
214. The Commission institutes a broadband reasonably comparable
rate certification on all ETCs that receive ongoing high-cost support
in areas served by price cap carriers and rate-of-return carriers.
Although the Commission notes that filing deadlines will be strictly
enforced, it adjusts the reduction of support for all ETCs, including
small entities, and provides a grace period to ensure it is not unduly
punitive given the nature of non-compliance.
215. The Commission also adopts specific measures that the Bureau
will take in the event that certain ETCs do not meet their high-cost
support deployment obligations for fixed services or does not offer
rates that are reasonably comparable to rates offered in urban areas.
The reductions represent a detailed calculus to ensure that no carrier
is penalized inappropriately for its non-compliance. As such, price cap
ETC support reductions scale with the extent of an ETC's non-
compliance, and create incentives for ETCs to come into compliance as
soon as possible. For rate-of-return ETCs, given that their obligation
is to provide voice and broadband service upon reasonable request and
the Commission does not have sufficient experience to create specific
deployment milestones, the Commission finds it appropriate to handle
matters regarding their potential non-compliance on a case-by-case
basis. Additionally, determined that non-compliance with the reasonable
comparability requirement is best dealt with on a case-by-case basis
for all ETCs because of the variety of factors that go into determining
whether prices are reasonably comparable. Accordingly, the Commission
determined that it would not be appropriate to apply a uniform support
reduction to all ETCs that fail to offer reasonably comparable prices.
[[Page 4476]]
6. Report to Congress
216. The Commission will send a copy of the Order, including this
FRFA, in a report to be sent to Congress and the Government
Accountability Office pursuant to the Small Business Regulatory
Enforcement Fairness Act of 1996. In addition, the Commission will send
a copy of the Report and Order, including this FRFA, to the Chief
Counsel for Advocacy of the Small Business Administration. A copy of
the Report and Order and FRA (or summaries thereof) will also be
published in the Federal Register.
7. Additional Information
217. 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).
218. Additional Information. For additional information on this
proceeding, contact Alexander Minard of the Wireline Competition
Bureau, Telecommunications Access Policy Division,
Alexander.Minard@fcc.gov, (202) 418-7400, or Suzanne Yelen of the
Wireline Competition Bureau, Industry Analysis and Technology Division,
Suzanne.Yelen@fcc.gov, (202) 418-7400.
VIII. Ordering Clauses
219. Accordingly, IT IS ORDERED, pursuant to the authority
contained in sections 1, 2, 4(i), 5, 10, 201-206, 214, 218-220, 251,
252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act of
1934, as amended, and section 706 of the Telecommunications Act of
1996, 47 U.S.C. 151, 152, 154(i), 155, 160, 201-206, 214, 218-220, 251,
252, 254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.427,
and 1.429 of the Commission's rules, 47 CFR 1.1, 1.427, and 1.429, that
this Report and Order, IS ADOPTED, effective thirty (30) days after
publication of the text or summary thereof in the Federal Register,
except for those rules and requirements involving Paperwork Reduction
Act burdens, which shall become effective immediately upon announcement
in the Federal Register of OMB approval, and except as otherwise
provided below. It is the Commission's intention in adopting these
rules that if any of the rules that it retains, modify, or adopt
herein, or the application thereof to any person or circumstance, are
held to be unlawful, the remaining portions of the rules not deemed
unlawful, and the application of such rules to other persons or
circumstances, shall remain in effect to the fullest extent permitted
by law.
220. IT IS FURTHER ORDERED that the requirement for non-contiguous
carriers that wish to elect Phase II frozen support in lieu of model-
based support discussed in paragraph 39 and the requirement that
bidders in the rural broadband experiments that wish to remain in
consideration for rural broadband experiment support discussed in
paragraph 71 are effective upon release.
221. IT IS FURTHER ORDERED that for the reasons stated in paragraph
71 the Commission finds good cause exists to make excluding from the
offer of model-based support any census block included in a non-winning
rural broadband experiment application submitted in funding category
one discussed in paragraph 72 effective upon Federal Register
publication.
222. IT IS FURTHER ORDERED that Part 54 of the Commission's rules,
47 CFR part 54, IS AMENDED as set forth below, and such rule amendments
SHALL BE EFFECTIVE February 26, 2015, except for Sec. Sec.
54.313(a)(e) and 54.320 which contain new or modified information
collection requirements that will not be effective until approved by
the Office of Management and Budget. The Federal Communications
Commission will publish a document in the Federal Register announcing
the effective date for those sections.
223. IT IS FURTHER ORDERED that, pursuant to the authority
contained in sections 4(i), 4(j), 10, 214, and 254 of the
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 160,
214 and 254, the petition for forbearance filed by the United States
Telecom Association on October 6, 2014, IS GRANTED IN PART to the
extent described herein.
224. IT IS FURTHER ORDERED that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR
1.429, the Petition for Reconsideration filed by the United States
Telecom Association on August 8, 2014, IS DISMISSED to the extent
described herein.
225. IT IS FURTHER ORDERED that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR
1.429, the Petition for Reconsideration filed by the National Exchange
Carrier Association, Inc., et al. on August 8, 2014, IS DISMISSED to
the extent described herein.
226. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of
this Report and Order to Congress and the Government Accountability
Office pursuant to the Congressional Review Act, see 5 U.S.C.
801(a)(1)(A).
227. IT IS FURTHER ORDERED, that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, SHALL SEND a
copy of this Report and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 54
Communications common carriers, Reporting and recordkeeping
requirements, Telecommunications, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation for part 54 is revised to read as follows:
Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220,
254, 303(r), 403, and 1302 unless otherwise noted.
0
2. Amend Sec. 54.5 by adding the following term and definition
``Qualifying competitor'' in alphabetical order to read as follows:
Sec. 54.5 Terms and definitions.
* * * * *
Qualifying competitor. A ``qualifying competitor'' is a facilities-
based terrestrial provider of residential fixed voice and broadband
service access meeting or exceeding 3 Mbps downstream and 768 kbps
upstream.
* * * * *
0
3. Amend Sec. 54.201 by revising paragraph (d) introductory text and
adding paragraph (d)(3) to read as follows:
Sec. 54.201 Definitions of eligible telecommunications carriers,
generally.
* * * * *
(d) A common carrier designated as an eligible telecommunications
carrier under this section shall be eligible to receive universal
service support in accordance with section 254 of the Act and, except
as described in paragraph (d)(3) of this section, shall throughout
[[Page 4477]]
the service area for which the designation is received:
* * * * *
(3) Exception. Price cap carriers that serve census blocks that are
identified by the forward-looking cost model as low-cost, census blocks
that are served by an unsubsidized competitor as defined in Sec. 54.5
meeting the requisite public interest obligations specified in Sec.
54.309, or census blocks where a subsidized competitor is receiving
federal high-cost support to deploy modern networks capable of
providing voice and broadband to fixed locations, are not required to
comply with paragraphs (d)(1) and (2) of this section in these specific
geographic areas. Such price cap carriers remain obligated to maintain
existing voice telephony service in these specific geographic areas
unless and until a discontinuance is granted pursuant to Sec. 63.71 of
this chapter.
* * * * *
0
4. Add Sec. 54.308 to read as follows:
Sec. 54.308 Broadband public interest obligations for recipients of
high-cost support.
(a) Rate-of-return carrier recipients of high-cost support are
required to offer broadband service at actual speeds of at least 10
Mbps downstream/1 Mbps upstream, with latency suitable for real-time
applications, including Voice over Internet Protocol, and usage
capacity that is reasonably comparable to comparable offerings in urban
areas, at rates that are reasonably comparable to rates for comparable
offerings in urban areas, upon reasonable request. If a request for
broadband service at actual speeds of at least 10 Mbps downstream/1
Mbps upstream is unreasonable, and offering broadband service at actual
speeds of at least 4 Mbps downstream/1 Mbps upstream is reasonable,
rate-of-return recipients of high-cost support are required to offer
broadband service at actual speeds of at least 4 Mbps downstream/1 Mbps
upstream. For purposes of determining reasonable comparability of
rates, recipients are presumed to meet this requirement if they offer
rates at or below the applicable benchmark to be announced annually by
public notice issued by the Wireline Competition Bureau, or no more
than the non-promotional prices charged for a comparable fixed wireline
service in urban areas in the state or U.S. Territory where the
eligible telecommunications carrier receives support.
(b) [Reserved]
0
5. Revise Sec. 54.309 to read as follows:
Sec. 54.309 Connect America Fund Phase II Public Interest
Obligations.
(a) Recipients of Connect America Phase II model-based support are
required to offer broadband service at actual speeds of at least 10
Mbps downstream/1 Mbps upstream, with latency suitable for real-time
applications, including Voice over Internet Protocol, and usage
capacity that is reasonably comparable to comparable offerings in urban
areas, at rates that are reasonably comparable to rates for comparable
offerings in urban areas. For purposes of determining reasonable
comparability of rates, recipients are presumed to meet this
requirement if they offer rates at or below the applicable benchmark to
be announced annually by public notice issued by the Wireline
Competition Bureau, or no more than the non-promotional prices charged
for a comparable fixed wireline service in urban areas in the state or
U.S. Territory where the eligible telecommunications carrier receives
support.
(b) [Reserved]
0
6. Amend Sec. 54.310 by revising paragraphs (b) and (c) to read as
follows:
Sec. 54.310 Connect America Fund for Price Cap Territories--Phase II.
* * * * *
(b) Term of support. Connect America Phase II model-based support
shall be provided to price cap carriers that elect to make a state-
level commitment for six years. Connect America Phase II support
awarded through a competitive bidding process shall be provided for ten
years.
(c) Deployment obligation. Recipients of Connect America Phase II
model-based support must complete deployment to 40 percent of supported
locations by December 31, 2017, to 60 percent of supported locations by
December 31, 2018, to 80 percent of supported locations by December 31,
2019, and to 100 percent of supported locations by December 31, 2020.
Compliance shall be determined based on the total number of supported
locations in a state.
(1) For purposes of meeting the obligation to deploy to the
requisite number of supported locations in a state, recipients may
serve unserved locations in census blocks with costs above the
extremely high-cost threshold instead of locations in eligible census
blocks, provided that they meet the public interest obligations set
forth in Sec. 54.309 for those locations and provided that the total
number of locations covered is greater than or equal to the number of
supported locations in the state.
(2) Recipients of Connect America Phase II model-based support may
elect to deploy to 95 percent of the number of supported locations in a
given state with a corresponding reduction in support computed based on
the average support per location in the state times 1.89.
* * * * *
0
7. Amend Sec. 54.313 by adding paragraph (a)(12) and revising
paragraphs (e) and (j) to read as follows:
Sec. 54.313 Annual reporting requirements for high-cost recipients.
(a) * * *
(12) A certification that the pricing of a service that meets the
Commission's broadband public interest obligations is no more than the
applicable benchmark to be announced annually in a public notice issued
by the Wireline Competition Bureau, or is no more than the non-
promotional price charged for a comparable fixed wireline service in
urban areas in the states or U.S. Territories where the eligible
telecommunications carrier receives support.
* * * * *
(e) In addition to the information and certifications in paragraph
(a) of this section, any price cap carrier that elects to receive
Connect America Phase II model-based support shall provide:
(1) On July 1, 2016 an initial service quality improvement plan
that includes a list of the geocoded locations already meeting the
Sec. 54.309 public interest obligations at the end of calendar year
2015, and the total amount of Phase II support, if any, the price cap
carrier used for capital expenditures in 2015.
(2) On July 1, 2017 and every year thereafter ending July 1, 2021,
a progress report on the company's service quality improvement plan,
including the following information:
(i) A certification that it is meeting the interim deployment
milestones as set forth;
(ii) The number, names, and addresses of community anchor
institutions to which the eligible telecommunications carrier newly
began providing access to broadband service in the preceding calendar
year;
(iii) A list of the geocoded locations to which the eligible
telecommunications carrier newly deployed facilities capable of
delivering broadband meeting the Sec. 54.309 public interest
obligations with Connect America support in the prior year. The final
progress report filed on July 1, 2021 must include the total number and
geocodes of all the supported locations that a price cap carrier has
built out to
[[Page 4478]]
with service meeting the Sec. 54.309 public interest obligations; and
(iv) The total amount of Phase II support, if any, the price cap
carrier used for capital expenditures in the previous calendar year.
(3) On July 1, 2018, a certification that the recipient offered
broadband meeting the requisite public interest obligations specified
in Sec. 54.309 to 40% of its supported locations in the state on
December 31, 2017.
(4) On July 1, 2019, a certification that the recipient offered
broadband meeting the requisite public interest obligations specified
in Sec. 54.309 to 60% of its supported locations in the state on
December 31, 2018.
(5) On July 1, 2020, a certification that the recipient offered
broadband meeting the requisite public interest obligations specified
in Sec. 54.309 to 80% of its supported locations in the state on
December 31, 2019.
(6) On July 1, 2021, a certification that the recipient offered
broadband meeting the requisite public interest obligations specified
in Sec. 54.309 to 100% of its supported locations in the state on
December 31, 2020.
* * * * *
(j) Filing deadlines. (1) In order for a recipient of high-cost
support to continue to receive support for the following calendar year,
or retain its eligible telecommunications carrier designation, it must
submit the annual reporting information required by this section
annually by July 1 of each year. Eligible telecommunications carriers
that file their reports after the July 1 deadline shall receive a
reduction in support pursuant to the following schedule:
(i) An eligible telecommunications carrier that files after the
July 1 deadline, but by July 8, will have its support reduced in an
amount equivalent to seven days in support;
(ii) An eligible telecommunications carrier that files on or after
July 9 will have its support reduced on a pro-rata daily basis
equivalent to the period of non-compliance, plus the minimum seven-day
reduction.
(2) Grace period. An eligible telecommunications carrier that
submits the annual reporting information required by this section after
July 1 but before July 5 will not receive a reduction in support if the
eligible telecommunications carrier and its holding company, operating
companies, and affiliates as reported pursuant to paragraph (a)(8) of
this section have not missed the July 1 deadline in any prior year.
* * * * *
0
8. Amend Sec. 54.314 by revising paragraph (d) to read as follows:
Sec. 54.314 Certification of support for eligible telecommunications
carriers.
* * * * *
(d) Filing deadlines. (1) In order for an eligible
telecommunications carrier to receive federal high-cost support, the
state or the eligible telecommunications carrier, if not subject to the
jurisdiction of a state, must file an annual certification, as
described in paragraph (c) of this section, with both the Administrator
and the Commission by October 1 of each year. If a state or eligible
telecommunications carrier files the annual certification after the
October 1 deadline, the carrier subject to the certification shall
receive a reduction in its support pursuant to the following schedule:
(i) An eligible telecommunications carrier subject to
certifications filed after the October 1 deadline, but by October 8,
will have its support reduced in an amount equivalent to seven days in
support;
(ii) An eligible telecommunications carrier subject to
certifications filed on or after October 9 will have its support
reduced on a pro-rata daily basis equivalent to the period of non-
compliance, plus the minimum seven-day reduction.
(2) Grace period. If an eligible telecommunications carrier or
state submits the annual certification required by this section after
October 1 but before October 5, the eligible telecommunications carrier
subject to the certification will not receive a reduction in support if
the eligible telecommunications carrier and its holding company,
operating companies, and affiliates as reported pursuant to Sec.
54.313(a)(8) have not missed the October 1 deadline in any prior year.
0
9. Revise Sec. 54.319 to read as follows:
Sec. 54.319 Elimination of high-cost support in areas with 100
percent coverage by an unsubsidized competitor.
(a) Universal service support shall be eliminated in an incumbent
rate-of-return local exchange carrier study area where an unsubsidized
competitor, or combination of unsubsidized competitors, as defined in
Sec. 54.5, offers to 100 percent of residential and business locations
in the study area voice and broadband service at speeds of at least 10
Mbps downstream/1 Mbps upstream, with latency suitable for real-time
applications, including Voice over Internet Protocol, and usage
capacity that is reasonably comparable to comparable offerings in urban
areas, at rates that are reasonably comparable to rates for comparable
offerings in urban areas.
(b) After a determination there is a 100 percent overlap, the
incumbent local exchange carrier shall receive the following amount of
high-cost support:
(1) In the first year, two-thirds of the lesser of the incumbent's
total high-cost support in the immediately preceding calendar year or
$3000 times the number of reported lines as of year-end for the
immediately preceding calendar year;
(2) In the second year, one-third of the lesser of the incumbent's
total high-cost support in the immediately preceding calendar year or
$3000 times the number of reported lines as of year-end for the
immediately preceding calendar year;
(3) In the third year and thereafter, no support shall be paid.
(c) The Wireline Competition Bureau shall update its analysis of
where there is a 100 percent overlap on a biennial basis.
0
10. Amend Sec. 54.320 by adding paragraph (d) to read as follows:
Sec. 54.320 Compliance and recordkeeping for the high-cost program.
* * * * *
(d) Eligible telecommunications carriers subject to defined build-
out milestones must notify the Commission and USAC, and the relevant
state, U.S. Territory, or Tribal government, if applicable, within 10
business days after the applicable deadline if they have failed to meet
a build-out milestone.
(1) Interim build-out milestones. Upon notification that an
eligible telecommunications carrier has defaulted on an interim build-
out milestone after it has begun receiving high-cost support, the
Wireline Competition Bureau will issue a letter evidencing the default.
The issuance of this letter shall initiate reporting obligations and
withholding of a percentage of the eligible telecommunication carrier's
total monthly high-cost support, if applicable, starting the month
following the issuance of the letter:
(i) Tier 1. If an eligible telecommunications carrier has a
compliance gap of at least five percent but less than 15 percent of the
number of locations that the eligible telecommunications carrier is
required to have built out to by the interim milestone, the Wireline
Competition Bureau will issue a letter to that effect. Starting three
months after the issuance of this letter, the eligible
telecommunications carrier will be required to file a report every
three
[[Page 4479]]
months identifying the geocoded locations to which the eligible
telecommunications carrier has newly deployed facilities capable of
delivering broadband meeting the requisite requirements with Connect
America support in the previous quarter. Eligible telecommunications
carriers that do not file these quarterly reports on time will be
subject to support reductions as specified in Sec. 54.313(j). The
eligible telecommunications carrier must continue to file quarterly
reports until the eligible telecommunications carrier reports that it
has reduced the compliance gap to less than five percent of the
required number of locations for that interim milestone and the
Wireline Competition Bureau issues a letter to that effect.
(ii) Tier 2. If an eligible telecommunications carrier has a
compliance gap of at least 15 percent but less than 25 percent of the
number of locations that the eligible telecommunications carrier is
required to have built out to by the interim milestone, USAC will
withhold 15 percent of the eligible telecommunications carrier's
monthly support for that state and the eligible telecommunications
carrier will be required to file quarterly reports. Once the eligible
telecommunications carrier has reported that it has reduced the
compliance gap to less than 15 percent of the required number of
locations for that interim milestone for that state, the Wireline
Competition Bureau will issue a letter to that effect, USAC will stop
withholding support, and the eligible telecommunications carrier will
receive all of the support that had been withheld. The eligible
telecommunications carrier will then move to Tier 1 status.
(iii) Tier 3. If an eligible telecommunications carrier has a
compliance gap of at least 25 percent but less than 50 percent of the
number of locations that the eligible telecommunications carrier is
required to have built out to by the interim milestone, USAC will
withhold 25 percent of the eligible telecommunications carrier's
monthly support for that state and the eligible telecommunications
carrier will be required to file quarterly reports. Once the eligible
telecommunications carrier has reported that it has reduced the
compliance gap to less than 25 percent of the required number of
locations for that interim milestone for that state, the Wireline
Competition Bureau will issue a letter to that effect, the eligible
telecommunications carrier will move to Tier 2 status.
(iv) Tier 4. If an eligible telecommunications carrier has a
compliance gap of 50 percent or more of the number of locations that
the eligible telecommunications carrier is required to have built out
to by the interim milestone:
(A) USAC will withhold 50 percent of the eligible
telecommunications carrier's monthly support for that state, and the
eligible telecommunications carrier will be required to file quarterly
reports. As with the other tiers, as the eligible telecommunications
carrier reports that it has lessened the extent of its non-compliance,
and the Wireline Competition Bureau issues a letter to that effect, it
will move down the tiers until it reaches Tier 1 (or no longer is out
of compliance with the relevant interim milestone).
(B) If after having 50 percent of its support withheld for six
months the eligible telecommunications carrier has not reported that it
is eligible for Tier 3 status (or one of the other lower tiers), USAC
will withhold 100 percent of the eligible telecommunications carrier's
monthly support and will commence a recovery action for a percentage of
support that is equal to the eligible telecommunications carrier's
compliance gap plus 10 percent of the ETC's support that has been
disbursed to that date.
(v) If at any point during the support term, the eligible
telecommunications carrier reports that it is eligible for Tier 1
status, it will have its support fully restored, USAC will repay any
funds that were recovered or withheld, and it will move to Tier 1
status.
(2) Final build-out milestone. Upon notification that the eligible
telecommunications carrier has not met a final build-out milestone, the
eligible telecommunications carrier will have twelve months from the
date of the final build-out milestone deadline to come into full
compliance with this milestone. If the eligible telecommunications
carrier does not report that it has come into full compliance with this
milestone within twelve months, the Wireline Competition Bureau will
issue a letter to this effect. USAC will then recover the percentage of
support that is equal to 1.89 times the average amount of support per
location received in the state over the six-year term for the relevant
number of locations plus 10 percent of the eligible telecommunications
carrier's total Phase II support over the six-year term for that state.
(3) Compliance reviews. If subsequent to the eligible
telecommunications carrier's support term, USAC determines in the
course of a compliance review that the eligible telecommunications
carrier does not have sufficient evidence to demonstrate that it has
built out to all of the locations required by the final build-out
milestone, USAC shall recover a percentage of support from the eligible
telecommunications carrier as specified in paragraph (d)(2) of this
section.
0
11. Amend Sec. 54.1309 by revising paragraphs (a) introductory text,
(c) introductory text, and (c)(2) and adding paragraph (d) to read as
follows:
Sec. 54.1309 National and study area average unseparated loop costs.
(a) National average unseparated loop cost per working loop. Except
as provided in paragraphs (c) and (d) of this section, this is equal to
the sum of the Loop Costs for each study area in the country as
calculated pursuant to Sec. 54.1308(a) divided by the sum of the
working loops reported in Sec. 54.1305(h) for each study area in the
country. The national average unseparated loop cost per working loop
shall be calculated by the National Exchange Carrier Association. Until
June 30, 2015 the national average unseparated loop cost for purposes
of calculating expense adjustments for rural incumbent local exchange
carriers, as that term is defined in Sec. 54.5 is frozen at $240.00.
* * * * *
(c) Until June 30, 2015, the national average unseparated loop Cost
per working loop shall be the greater of:
* * * * *
(2) An amount calculated to produce the maximum rural incumbent
local exchange carrier portion of the nationwide loop cost expense
adjustment allowable pursuant to Sec. 54.1302(a).
(d) Beginning July 1, 2015, the national average unseparated loop
cost per working loop shall be frozen at the national average
unseparated loop cost per working loop as recalculated by the National
Exchange Carrier Association to reflect the March 2015 update filing.
0
12. Revise Sec. 54.1310 to read as follows:
Sec. 54.1310 Expense adjustment.
(a) Until June 30, 2015, for study areas reporting 200,000 or fewer
working loops pursuant to Sec. 54.1305(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of
paragraphs (a)(1) and (2) of this section.
(1) Sixty-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 54.1309(b) in
excess of 115 percent of the national average for this cost but not
[[Page 4480]]
greater than 150 percent of the national average for this cost as
calculated pursuant to Sec. 54.1309(a) multiplied by the number of
working loops reported in Sec. 54.1305(h) for the study area; and
(2) Seventy-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 54.1309(b) in
excess of 150 percent of the national average for this cost as
calculated pursuant to Sec. 54.1309(a) multiplied by the number of
working loops reported in Sec. 54.1305(h) for the study area.
(b) Beginning July 1, 2015, the expense adjustment for each study
area calculated pursuant to paragraph (a) of this section will be
adjusted as follows:
(1) If the aggregate expense adjustments for all study areas exceed
the maximum rural incumbent local exchange carrier portion of
nationwide loop cost expense adjustment allowable pursuant to Sec.
54.1302(a) (the HCLS cap), then each study area's expense adjustment
will be reduced by multiplying it by the ratio of the HCLS cap to the
aggregate expense adjustments for all study areas.
(2) If the aggregate expense adjustments for all study areas are
less than the HCLS cap set pursuant to Sec. 54.1302(a), then the
expense adjustments for all study areas pursuant to paragraph (a) of
this section shall be recalculated using a cost per loop calculated to
produce an aggregate amount equal to the HCLS cap in place of the
national average cost per loop.
(c) The expense adjustment calculated pursuant to paragraphs (a)
and (b) of this section shall be adjusted each year to reflect changes
in the amount of high-cost loop support resulting from adjustments
calculated pursuant to Sec. 54.1306(a) made during the previous year.
If the resulting amount exceeds the previous year's fund size, the
difference will be added to the amount calculated pursuant to
paragraphs (a) and (b) of this section for the following year. If the
adjustments made during the previous year result in a decrease in the
size of the funding requirement, the difference will be subtracted from
the amount calculated pursuant to paragraphs (a) and (b) of this
section for the following year.
[FR Doc. 2015-00939 Filed 1-26-15; 8:45 am]
BILLING CODE 6712-01-P