Connect America Fund, ETC Annual Reports and Certification; Developing a Unified Intercarrier Compensation Regime, 21511-21532 [2016-08376]
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jstallworth on DSK7TPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Proposed Rules
GEPS 3
Global Bulk Economy (GBE) Contracts
Global Plus Contracts
Global Plus 1C
Global Plus 2C
Global Reseller Expedited Package
Contracts
Global Reseller Expedited Package Services
1
Global Reseller Expedited Package Services
2
Global Reseller Expedited Package Services
3
Global Reseller Expedited Package Services
4
Global Expedited Package Services
(GEPS)—Non-Published Rates
Global Expedited Package Services
(GEPS)—Non-Published Rates 2
Global Expedited Package Services
(GEPS)—Non-Published Rates 3
Global Expedited Package Services
(GEPS)—Non-Published Rates 4
Global Expedited Package Services
(GEPS)—Non-Published Rates 5
Global Expedited Package Services
(GEPS)—Non-Published Rates 6
Global Expedited Package Services
(GEPS)—Non-Published Rates 7
Global Expedited Package Services
(GEPS)—Non-Published Rates 8
Global Expedited Package Services
(GEPS)—Non-Published Rates 9
Global Expedited Package Services
(GEPS)—Non-Published Rates 10
Priority Mail International Regional Rate
Boxes—Non-Published Rates
Outbound Competitive International
Merchandise Return Service Agreement
with Royal Mail Group, Ltd.
Priority Mail International Regional Rate
Boxes Contracts
Priority Mail International Regional Rate
Boxes Contracts 1
Competitive International Merchandise
Return Service Agreements with Foreign
Postal Operators
Competitive International Merchandise
Return Service Agreements with Foreign
Postal Operators 1
Competitive International Merchandise
Return Service Agreements with Foreign
Postal Operators 2
Inbound International *
International Business Reply Service
(IBRS) Competitive Contracts
International Business Reply Service
Competitive Contract 1
International Business Reply Service
Competitive Contract 3
Inbound Direct Entry Contracts with
Customers
Inbound Direct Entry Contracts with
Foreign Postal Administrations
Inbound Direct Entry Contracts with
Foreign Postal Administrations
Inbound Direct Entry Contracts with
Foreign Postal Administrations 1
Inbound EMS
Inbound EMS 2
Inbound Air Parcel Post (at non-UPU rates)
Royal Mail Group Inbound Air Parcel Post
Agreement
Inbound Competitive Multi-Service
Agreements with Foreign Postal
Operators 1
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Special Services *
Address Enhancement Services
Greeting Cards, Gift Cards, and Stationery
International Ancillary Services
International Money Transfer Service—
Outbound
International Money Transfer Service—
Inbound
Premium Forwarding Service
Shipping and Mailing Supplies
Post Office Box Service
Competitive Ancillary Services
Nonpostal Services *
Advertising
Licensing of Intellectual Property other
than Officially Licensed Retail Products
(OLRP)
Mail Service Promotion
Officially Licensed Retail Products (OLRP)
Passport Photo Service
Photocopying Service
Rental, Leasing, Licensing or other NonSale Disposition of Tangible Property
Training Facilities and Related Services
USPS Electronic Postmark (EPM) Program
Market Tests *
International Merchandise Return Service
(IMRS)—Non-Published Rates
Customized Delivery
Subpart B—Requests Initiated by the
Postal Service To Modify the Product
Lists
3. Revise the heading of subpart B to
read as set forth above.
■ 4. Revise § 3020.30 to read as follows:
■
§ 3020.30
General.
The Postal Service, by filing a request
with the Commission, may propose a
modification to the market dominant
product list or the competitive product
list. For purposes of this part,
modification shall be defined as adding
a product to a list, removing a product
from a list, or moving a product from
one list to the other list.
Subpart C—Requests Initiated by
Users of the Mail To Modify the
Product Lists
5. Revise the heading of subpart C as
set forth above.
■ 6. Revise § 3020.50 to read as follows:
■
§ 3020.50
General.
Users of the mail, by filing a request
with the Commission, may propose a
modification to the market dominant
product list or the competitive product
list. For purposes of this part,
modification shall be defined as adding
a product to a list, removing a product
from a list, or transferring a product
from one list to the other list.
Subpart D—Proposal of the
Commission To Modify the Product
Lists
7. Revise the heading of subpart D as
set forth above.
■
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Subpart D—Proposal of the
Commission To Modify the Product
Lists
■
8. Revise § 3020.70 to read as follows:
§ 3020.70
General.
The Commission, of its own initiative,
may propose a modification to the
market dominant product list or the
competitive product list. For purposes
of this part, modification shall be
defined as adding a product to a list,
removing a product from a list, or
transferring a product from one list to
the other list.
[FR Doc. 2016–08322 Filed 4–11–16; 8:45 am]
BILLING CODE 7710–FW–P
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 65
[WC Docket Nos. 10–90, 14–58; CC Docket
No. 01–92; FCC 16–33]
Connect America Fund, ETC Annual
Reports and Certification; Developing
a Unified Intercarrier Compensation
Regime
Federal Communications
Commission.
ACTION: Proposed rule.
AGENCY:
In this document, the Federal
Communications Commission
(Commission) proposes targeted rule
changes to our existing accounting and
affiliate transaction rules to eliminate
inefficiencies and provide guidance to
rate-of-return carriers regarding our
expectations for appropriate
expenditures.
SUMMARY:
Comments are due on or before
May 12, 2016 and reply comments are
due on or before June 13, 2016. If you
anticipate that you will be submitting
comments, but find it difficult to do so
within the period of time allowed by
this document, you should advise the
contact listed below as soon as possible.
ADDRESSES: You may submit comments,
identified by either WC Docket No. 10–
90, WC Docket No. 14–58 or CC Docket
No. 01–92, by any of the following
methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Federal Communications
Commission’s Web site: https://
fjallfoss.fcc.gov/ecfs2/. Follow the
instructions for submitting comments.
• People with Disabilities: Contact the
FCC to request reasonable
accommodations (accessible format
DATES:
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Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Proposed Rules
documents, sign language interpreters,
CART, etc.) by email: FCC504@fcc.gov
or phone: (202) 418–0530 or TTY: (202)
418–0432.
For detailed instructions for
submitting comments and additional
information on the rulemaking process,
see the SUPPLEMENTARY INFORMATION
section of this document.
FOR FURTHER INFORMATION CONTACT:
Alexander Minard, Wireline
Competition Bureau, or Suzanne Yelen,
Wireline Competition Bureau, (202)
418–7400 or TTY: (202) 418–0484.
SUPPLEMENTARY INFORMATION: This is a
synopsis of the Commission’s Further
Notice of Proposed Rulemaking
(FNPRM) in WC Docket Nos. 10–90, 14–
58 and CC Docket No. 01–92; FCC 16–
33, adopted on March 23, 2016 and
released on March 30, 2016. 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 St.
SW., Washington, DC 20554 or at the
following Internet address: https://
transition.fcc.gov/Daily_Releases/Daily_
Business/2016/db0330/FCC-1633A1.pdf. The Report and Order, Order
and Order on Reconsideration that was
adopted concurrently with the FNPRM
are published elsewhere in this issue of
the Federal Register.
jstallworth on DSK7TPTVN1PROD with PROPOSALS
I. Introduction
1. With this Further Notice of
Proposed Rulemaking (FNPRM) and
concurrently adopted Report and Order,
Order, Order on Reconsideration, the
Commission adopts significant reforms
to place the universal service program
on solid footing for the next decade to
‘‘preserve and advance’’ voice and
broadband service in areas served by
rate-of-return carriers. In 2011, the
Commission unanimously adopted
transformational reforms to modernize
universal service for the 21st century,
creating programs to support explicitly
broadband-capable networks. In this
Report and Order, Order, Order on
Reconsideration, and FNPRM, the
Commission takes necessary and crucial
steps to reform our rate-of-return
universal service mechanisms to fulfill
our statutory mandate of ensuring that
all consumers ‘‘have access to . . .
advanced telecommunications and
information services.’’ In particular,
after extensive coordination and
engagement with carriers and their
associations, the Commission
modernizes the rate-of-return program
to support the types of broadband
offerings that consumers increasingly
demand, efficiently target support to
areas that need it the most, and establish
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concrete deployment obligations to
ensure demonstrable progress in
connecting unserved consumers. This
will provide the certainty and stability
that carriers seek in order to invest for
the future in the years to come. The
Commission welcomes ongoing input
and partnership as they move forward to
implementing these reforms.
2. Rate-of-return carriers play a vital
role in the high-cost universal service
program. Many of them have made great
strides in deploying 21st century
networks in their service territories, in
spite of the technological and
marketplace challenges to serving some
of the most rural and remote areas of the
country. At the same time, millions of
rural Americans remain unserved. In
2011, the Commission unanimously
concluded that extending broadband
service to those communities that
lacked any service was one of core
objectives of reform. At that time, it
identified a rural-rural divide, observing
that ‘‘some parts of rural America are
connected to state-of-the art broadband,
while other parts of rural America have
no broadband access.’’ The Commission
focuses now on the rural divide that
exists within areas served by rate-ofreturn carriers. According to December
2014 Form 477 data, an estimated 20
percent of the housing units in areas
served by rate-of-return carriers lack
access to 10 Mbps downstream/1 Mbps
upstream (10/1 Mbps) terrestrial fixed
broadband service. It is time to close the
gap, and take action to bring service to
the consumers served by rate-of-return
carriers that lack access to broadband.
The Commission needs to modernize
comprehensively the rate-of-return
universal service program in order to
benefit rural consumers throughout the
country.
3. For years, the Commission has
worked with active engagement from a
wide range of interested stakeholders to
develop new rules to support
broadband-capable networks. One
shortcoming of the current high-cost
rules identified by rate-of-return carriers
is that support is not provided if
consumers choose to drop voice service,
often referred to as ‘‘stand-alone
broadband’’ or ‘‘broadband-only’’ lines.
In the April 2014 Connect America
FNPRM, 79 FR 39196, July 9, 2014, the
Commission unanimously articulated
four general principles for reform to
address this problem, indicating that
new rules should provide support
within the established budget for areas
served by rate-of-return carriers;
distribute support equitably and
efficiently, so that all rate-of-return
carriers have the opportunity to extend
broadband service where it is cost-
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effective to do so; support broadbandcapable networks in a manner that is
forward looking; and ensure no doublerecovery of costs. The package of
reforms outlined below solve the standalone broadband issue and update the
rate-of-return program consistent with
those principles. The Commission also
takes important steps to act on the
recommendation of the Governmental
Accountability Office to ensure greater
accountability and transparency in the
high-cost program.
4. In the FNPRM, the Commission
proposes targeted rule changes to our
existing accounting and affiliate
transaction rules to eliminate
inefficiencies and provide guidance to
rate-of-return carriers regarding our
expectations for appropriate
expenditures. Consumers are harmed
when ‘‘universal service provides more
support than necessary to achieve our
goals.’’ The statute requires that
universal service funds be used for their
intended purposes—maintaining and
upgrading supported facilities and
services. The Commission proposes to
eliminate a number of expenses from
inclusion in a rate-of-return carrier’s
revenue requirement and calculations of
high-cost support. The Commission also
seeks comment on establishing
measures governing prudent or
reasonable expense levels for certain
expense categories. The FNPRM further
seeks comment on ways in which the
cost allocation procedures between
regulated and non-regulated activities
and the affiliate transaction rules can be
improved to reduce the potential for a
carrier to shift costs from non-regulated
to regulated services or to the regulated
affiliate.
5. Second, the Commission seeks
comment in the FNPRM on additional
options for disaggregating support for
those discrete areas that are served by
an unsubsidized competitor and other
issues associated with implementation
of the competitive overlap rule.
6. Third, the FNPRM seeks comment
on proposals to adopt a mechanism to
provide additional support to unserved
Tribal lands. The Commission has long
recognized the distinct challenges in
bringing communications service to
Tribal lands.
7. Fourth, the FNPRM seeks comment
on other measures that the Commission
could take within the existing budget to
encourage further broadband
deployment by rate-of-return carriers.
8. Lastly, the FNPRM seeks comment
on additional proposals to modify or
potentially eliminate certain eligible
telecommunications carriers’ (ETC)
certifications and reporting obligations
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so as to streamline ETC reporting
requirements.
9. The actions the Commission takes
today, combined with the rate-of-return
reforms undertaken in the past two
years, will allow us to continue to
advance the goal of ensuring
deployment of advanced
telecommunications and information
services networks throughout ‘‘all
regions of the nation.’’ Importantly, they
build on proposals from and
collaboration with the carriers and their
associations. Through the coordinated
reforms the Commission takes today,
they will provide rate-of-return carriers
with equitable and sustainable support
for investment in the deployment and
operation of 21st century broadband
networks throughout the country,
providing stability for the future.
Achieving universal access to
broadband will not occur overnight, but
today marks another step on the path
toward that goal.
jstallworth on DSK7TPTVN1PROD with PROPOSALS
II. Further Notice of Proposed
Rulemaking
A. Permitted Expenses, Cost Allocation
and Affiliate Transactions
10. With this Notice, the Commission
commences a review of the extent to
which certain investments and expenses
incurred by a regulated local exchange
carrier may be included in its rate base
and revenue requirement for ratemaking
and universal service fund (USF)
purposes. The Commission’s rules
provide that local exchange carriers may
not include expenses in their revenue
requirement unless such expenses are
‘‘recognized by the Commission as
necessary to the provision’’ of interstate
telecommunications services. Similarly,
high-cost support provided to an ETC
must be used ‘‘only for the provision,
maintenance, and upgrading of facilities
and services for which the support is
intended.’’
11. The Commission has not
comprehensively reviewed the
continued reasonableness of its existing
rules regarding permissible investments
and expenses for local exchange carriers
since the passage of the
Telecommunications Act of 1996.
Market and regulatory conditions have
changed substantially since that time.
Notably, regulated telecommunications
carriers have expanded into the
provision of retail broadband services,
either directly or through affiliated
entities. Regulated carriers also
increasingly face competition, for both
voice and broadband services, in
portions of their incumbent territory
from other facilities-based providers,
such as cable and wireless providers.
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These changing conditions may impact
the types of costs carriers attempt to
include in their revenue requirement
and the ways in which carriers allocate
costs between regulated and nonregulated services and affiliates.
12. Moreover, with steady demands
on the high-cost program and a
shrinking contribution base, it is more
important than ever that these limited
funds be used solely for their intended
purposes. Likewise, amidst challenging
economic conditions, it simply is not
right to expect consumers across the
country, including those in rural areas,
to reimburse rate-of-return carriers—
through the regulated rates for interstate
service—for excessive or otherwise
inappropriate expenses.
13. While the Commission believes
that most rate-of-return carriers properly
record their costs and seek support only
for the intended purposes, through
audits, inquiries and other
investigations, the Commission has
recently been made aware of alleged
abuses by rate-of-return carriers of the
used and useful principles and its cost
allocation rules. These situations
involve rate-of-return carriers, for
example, including questionable
expenses in their revenue requirement,
using support for purposes unrelated to
the provision of services, and
misallocating expenses among affiliates,
or between regulated and non-regulated
activities. Against that backdrop, the
Commission concludes it is time to
reevaluate the types of expenses that
should be permitted—both in a carrier’s
revenue requirement and for recovery
through high-cost support. Looking into
the expenses permitted and the
allocation of those expenses will help
ensure that carriers are only recovering
costs that are used and useful and
prudently incurred, and in the case of
high cost support, only costs that are
necessary to the provision of interstate
telecommunications services.
1. Discussion
a. Review of Permitted Expenses
14. The Commission begins our
reevaluation of a rate-of-return carrier’s
ability to include certain types of
expenses in their revenue requirement
and high-cost support with
consideration of the appropriate
standard to be applied. As noted above,
the Commission has used different
terms in different situations—‘‘used and
useful,’’ ‘‘prudent expenditure,’’ and
‘‘necessary to the provision of.’’ The
Commission believes that these terms
should be read consistently to describe
those expenses that a carrier may
appropriately include in its interstate
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rate base, interstate revenue
requirement, and cost studies used to
calculate high-cost support. Thus, they
should reflect a business operation that
is run efficiently to provide
telecommunications services. The costs
should include amounts of long-term
investment and current expenditures
that a business would reasonably incur
to provide telecommunications services,
taking into account current and
reasonably forecasted operating
conditions and business levels. The
Commission invites parties to comment
on these standards and whether they
should be viewed as applying a
consistent standard to regulated, tariffed
services and to expenditures that are
recovered through high-cost support. To
the extent that a party believes different
standards should be applied, it should
specify the situations in which such
differences should apply, what the
differences are, and how they should be
treated within the accounting and cost
allocation processes of the Commission.
As parties respond to the issues raised
below, they should consider the
application of the standards in their
comments.
15. The Commission recently
indicated that ETCs may not recover
certain types of expenses through highcost support. Those expenses include
the following: Personal travel;
entertainment; alcohol; food, including
but not limited to meals to celebrate
personal events, such as weddings,
births, or retirements; political
contributions; charitable donations;
scholarships; penalties or fines for
statutory or regulatory violations;
penalties or fees for any late payments
on debt, loans, or other payments;
membership fees and dues in clubs and
organizations; sponsorships of
conferences or community events; gifts
to employees; and, personal expenses of
employees, board members, family
members of employees and board
members, contractors, or any other
individuals affiliated with the ETC,
including but not limited to personal
expenses for housing, such as rent or
mortgages.
16. The Commission seeks comment
on explicitly prohibiting the inclusion
of any of these expenses in a carrier’s
interstate revenue requirement, which
would supersede any existing rules or
precedent that might otherwise suggest
these are legitimate expenditures. The
Commission tentatively concludes that
these expenditures are unnecessary to
the provision of regulated interstate
services and thus are not appropriately
included in a rate-of-return carrier’s
interstate revenue requirement, just as
they are not appropriately included in
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calculating the level of high-cost
support a carrier receives. Recognizing
that some of these enumerated types of
expenditures are quite broad, however,
the Commission invites parties to
indicate whether there is a definable
subset of expenses within any of the
categories that should not be excluded
from a carrier’s interstate revenue
requirement. Parties believing there are
specific types of expenses that should
be included in the interstate revenue
requirement should provide examples of
such expenses, the reasons they are
necessary, as well as specific language
that would allow the Commission to
distinguish these expenses from those
that are appropriately excluded. The
Commission also seeks comment on
whether, if the Commission ultimately
decides some of these expense
categories, or a portion of them, should
be allowed in a carrier’s interstate
revenue requirement, whether similar
treatment should be accorded those
expenses for purposes of high-cost
support.
17. In addition to the expenses
identified in the High Cost Oct. 19, 2015
Public Notice, the Commission proposes
to prohibit additional expenses from
inclusion in a carrier’s interstate
revenue requirement and also preclude
their recovery through high-cost
support. The additional expenses that
the Commission proposes to disallow
for these purposes include: Artwork and
other objects which possess aesthetic
value; corporate aircraft, watercraft, and
other motor vehicles designed for offroad use, except insofar as necessary to
access inhabited portions of the study
area not reachable by motor vehicles
travelling on roads; any vehicles for
personal use; tangible property not
logically related or necessary to the
offering of voice or broadband services;
childcare; cafeterias and dining
facilities; and, housing allowances or
other forms of mortgage or rent
assistance for employees. Like the
expenses listed above, the Commission
is concerned that some carriers may
incur additional expenses of this nature
that are not necessary to the provision
of the supported service—voice
telephony—and not necessary to the
provision of regulated interstate
services. If adopted, such a rule would
overturn any existing rule or precedent
that might suggest such expenditures
are permissible.
18. The Commission invites parties to
comment on whether there is any reason
that these expense categories should not
be completely excluded from a carrier’s
revenue requirement or its high-cost
support. Parties making an argument for
inclusion of these expenses in a carrier’s
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revenue requirement should explain
clearly why such expenses are necessary
to the provision of a supported service
or to the provision of a regulated
interstate telecommunications service.
The Commission invites parties to
indicate whether there is a definable
subset of expenses within any of the
categories that should not be excluded
from a carrier’s interstate revenue
requirement or high-cost support.
Parties believing that to be the case
should provide examples of such
expenses, the reason they are necessary,
as well as specific language that would
allow the Commission to distinguish
these expenses from those that are
appropriately excluded.
19. The Commission also invites
parties to identify additional expenses
that should be excluded from either a
carrier’s interstate revenue requirement,
from calculations of high-cost support,
or both. Parties identifying additional
expenses to be excluded should address
the reasons they are unnecessary to the
provision of telecommunications service
or to the provision of supported
services. Parties seeking additional
exclusions should also provide language
that would allow the Commission to
exclude such items if it elects to do so.
With respect to ensuring the appropriate
use of high-cost funds for certain
expenses, our proposals apply to both
price cap and rate-of-return carriers. Our
proposals concerning permitted
expenses for the revenue requirement
would primarily apply to rate-of-return
carriers, but they would also apply to
price cap carriers in limited
circumstances.
20. In addition to these categories, the
Commission has seen instances in
which ‘‘companies maintain
comparatively high compensation
portfolios for their executives.’’ The
Commission expressed concern that
these and other expenses were not
reasonable and necessary given a
number of considerations. The
Commission seeks comment on how to
address potential concerns regarding
such expenses for executives, those with
close relationships to those executives,
and a carrier’s other employees and
contractors.
21. The Commission is also aware of
at least one instance in which costly
benefits were sought to be provided to
board members. Are there
circumstances under which
compensation for board members,
including fees per-meeting, for special
duties assumed, and for travel and per
diem expenses should be deemed
unreasonable? If so, on what basis? Is
additional evaluation warranted where
board members have a close
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relationship to someone in the
company?
22. The Commission seeks comment
on whether the costs that may be
included in a carrier’s revenue
requirement for buildings purchased or
rented by regulated telecommunications
carriers should be limited. For example,
in cases where excessive square footage
of office or warehouse space is
purchased by a regulated carrier in
order to earn a rate of return on that
space, should part of the price paid for
the building be excluded from the
revenue requirement? How should
‘‘excessive’’ be defined for this purpose?
Are there objective metrics available on
the square footage of office space per
employee that is reasonable, or on the
square footage of warehouse space that
a carrier should reasonably require
given the number of loops the carrier
provides and the density of its service
area? Are there objective metrics on the
price per square foot that should be paid
for office or warehouse space in specific
locations?
23. Section 32.2002 provides that
plant held for future use must be
utilized within two years. This plant is
included in the carrier’s rate base. The
Commission is concerned that carriers
may have incentives to place excess
capacity in the interstate regulated rate
base that will not be used in the
foreseeable future, with ratepayers
bearing the cost. The Commission
reminds carriers that the benefit from a
used and useful investment must be
realized within a reasonable amount of
time. Thus, the Commission invites
parties to comment on whether they
should adopt a rule that would prohibit
a regulated carrier from leasing capacity
from its unregulated affiliate that is not
presently utilized in the provision of
voice or broadband services.
Alternatively, could this concern be
addressed by defining more precisely
what constitutes reasonable projections
of use and/or requiring that such
capacity be used within a shorter
timeframe than two years? Parties are
invited to address the types of uses that
should be considered to meet the
requirement that excess capacity be
used in the foreseeable future.
24. As explained above, carriers
record their financial transactions in the
USOA books of account as they occur.
These amounts then flow through the
allocation procedures in Parts 64, 36,
and 69 with the implied assumption
that the recorded amounts are
reasonable, and thus prudently
incurred. While the used and useful and
prudent expenditure standards apply to
all investments and expenses of the
carrier, the principles considered under
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this standard have been interpreted only
in limited, specific cases. The
Commission now seeks comment on
whether the Commission should adopt
more precise guidance regarding what
constitutes a used and useful or
otherwise prudent expenditure.
25. The Commission notes that
transactions between non-affiliated
parties that are negotiated at arm’s
length are generally presumed to
produce commercially reasonable
prices. Affiliate transactions, however,
are not negotiated at arm’s length and
thus, may result in unreasonable prices
absent standards governing how those
transactions should be priced; that is
why the Commission adopted rules for
the pricing of affiliate transactions
decades ago. The Commission now
invites parties to comment on whether
there are circumstances surrounding
transactions between non-affiliated
parties that might raise concerns about
whether the resulting prices are
reasonable. For example, would a close
family relationship or crossparticipation on boards of directors be
situations that warrant more scrutiny of
the price? The Commission invites
parties to discuss these examples and to
identify other examples that might raise
concerns. Parties are invited to discuss
whether presumptions concerning what
would be a prudent expenditure could
be employed to ensure that prices are
reasonable.
26. The Commission’s rules require a
carrier in specified situations to record
the purchase of a good or service from
an affiliate at fair market value. The
Commission invites parties to comment
on whether the affiliate transaction
standard should also be applied to
goods and services acquired from nonaffiliated entities. If not, parties should
propose an alternative standard and
explain why it is a preferable approach.
The Commission also invites parties to
comment on the factors that should be
considered in determining whether a
transaction is a prudent expenditure or
is a reasonable market price in
evaluating prices in situations identified
as warranting a closer look. Are there
circumstances where a prudent
expenditure might be something other
than the absolute lowest identified
price? Parties are invited to identify
other metrics beside cost and reliability
that are relevant in determining whether
an investment or expense is prudent for
the purposes of our rules. Finally, are
there specific circumstances under
which a carrier should be required to
make a good faith determination of fair
market value for a good or service
obtained from a non-affiliate, prior to
incurring such expenses, for instance
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when the total aggregate annual value of
the good(s) or service(s) reaches or
exceeds a specified threshold for
purchases from a non-affiliate, as is
done under section 32.27(b)(3) and
(c)(3) for affiliates?
27. Finally, the Commission invites
parties to comment on the best manner
of implementing any decision to
exclude the expenses identified in this
section. Specifically, parties should
address whether it would be sufficient
to adopt an order simply identifying and
defining which costs are not allowed, as
has generally been the process in the
past, or whether some rule revisions are
necessary. If rule revisions are thought
necessary, parties should address where
in the process they can best be
implemented. Part 32 excludes certain
investments and expenses as nonregulated, while Part 64 allocates
investments and expenses used to
provide both regulated and nonregulated activities that are recorded in
the regulated accounts of Part 32
between regulated and non-regulated
activities. In addition, for purposes of
determining whether a carrier’s realized
rate-of-return exceeds the maximum
allowable rate of return, Part 65
specifies the determination of earnings
and rate base. Parties are encouraged to
address whether some cost
disallowances would be better achieved
through revisions to the Part 32 rules,
while other cost disallowances could
best be addressed through revisions to
other rules in Parts 64, 65, 69, or some
combination of these rules. The
Commission is providing state
commissions with notice of this in
compliance with the requirements of
section 220(i) of the Act in the event
they decide to make some revisions to
Part 32. In other words, is it better to
first enumerate which expenses should
be excluded from the revenue
requirement as not used and useful in
the provision of regulated services and
then proceed with allocating costs, or is
it better to rely on the cost allocation
procedures in Part 64 to exclude such
expenses? One of the goals of the USOA
at the time it was adopted was that it
remain stable over time. How should
this be factored into the decision of
where to make certain disallowances?
Parties are invited to submit proposed
language to accomplish the approach
they recommend. Lastly, the
Commission invites parties to comment
on whether they should require rate-ofreturn carriers to identify their cost
consultants, if any, in their FCC Form
481s.
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b. Issues Related to Cost Allocation and
Affiliate Transactions
28. Rate-of-return carriers are subject
to the Commission’s longstanding Part
64 rules regarding the allocation of costs
between regulated and non-regulated
activities and to the affiliate transaction
rules in Part 32. Under these rules,
carriers currently apply broad principles
in making such allocations, and the lack
of specificity in the rules gives carriers
a degree of discretion in making these
allocation decisions. Therefore, there is
an incentive to interpret the allocation
rules in order to allocate as many costs
as possible to their regulated activities,
both to justify a higher interstate
revenue requirement and to receive
additional high-cost support. For
instance, marketing costs could be
recorded solely as regulated expenses,
even though those marketing activities
are designed to increase subscribership
of retail broadband, i.e., non-regulated
services. Given the lack of specific
guidance, the additional costs
associated with the provision of retail
broadband services, and the incentive to
allocate costs to regulated activities, the
Commission concludes that it is time to
revisit our allocation rules in order to
provide greater clarity to rate-of-return
carriers regarding how to determine the
relative allocation of costs between
regulated and non-regulated activities
and affiliates.
29. As noted, the Commission’s
existing cost allocation rules relating to
regulated versus non-regulated activities
generally provide that costs shall be
directly assigned to either regulated or
non-regulated activities where possible,
and common costs are to be allocated
according to a hierarchy of principles.
To the extent costs cannot be allocated
on direct or indirect cost causation
principles, they are allocated based on
a ratio of all expenses directly assigned
or attributed to regulated and nonregulated activities. In certain cases, the
affiliate transaction rule requires fully
distributed costs to be used to determine
the charge to the affiliate or the carrier.
30. The Commission seeks comment
on adopting new rules to improve the
process of allocating costs among
regulated and non-regulated services
and between affiliates. The Commission
also seeks a better understanding of how
to detect cases of misallocation. Our
goal is to reduce the potential ability of
carriers to include expenses associated
with non-regulated services in their
regulated revenue requirements, and to
preclude carriers from artificially
inflating their high-cost support through
such actions. To this end, the
Commission seeks comment on
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adopting a rule that would classify
certain costs, such as general and
administrative expenses, as common
costs for purposes of applying the Part
64 and affiliate transaction rules when
an entity provides broadband services
directly, or through an affiliated entity.
Are there other costs that should be
treated as common costs in applying
these allocation rules? Under such an
approach, carriers would be precluded
from including all of these expenses in
their regulated revenue requirement,
and instead, would be required to
exclude some expenses based on the
prescribed manner of allocation.
Accordingly, the Commission also seeks
comment on adopting rules that would
prescribe the manner of allocation of
common costs in particular situations.
For example, are there certain common
costs that the Commission should
specify by rule that they should be
allocated on the basis of the relative
number of regulated lines compared to
the total number of lines (both regulated
and non-regulated) for the rate-of-return
carrier and its broadband affiliate, if
any? Are there other instances in which
relative revenues or some other measure
would be a better allocator, taking into
account the ease of administering any
such rule?
31. The Commission is concerned
about the potential for carriers to
provide shared operational services to
their affiliates under fully-distributed
cost (FDC) allocation procedures that do
not include all of the associated costs.
The affiliate transaction rules employ a
higher of cost or market standard when
applicable, or a FDC standard to ensure
that all costs of services provided by a
regulated telecommunications company
are recovered from its affiliates. The
general nature of the FDC allocation
guidelines, however, allows carriers
significant discretion in performing the
FDC cost study. This discretion allows
carriers to exclude expenses associated
with providing shared functions to their
non-regulated affiliates, especially to
those affiliates that then sell retail
broadband services to end users on an
unregulated basis, thus recovering these
costs from rate payers. The Commission
seeks comment on clarifying or adopting
new rules to ensure the proper
application of the affiliate transaction
rules in light of provision of retail
broadband by affiliates in certain
telecommunications markets.
32. Our accounting and high-cost
universal service support rules rely on
proper allocation of costs to work as
intended. The Commission seeks
comment on specific instances in which
additional rules or further clarification
could minimize potential misallocations
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and thereby protect ratepayers of
regulated services. Are there other
methods that would help ensure proper
allocation of costs between regulated
and non-regulated services?
33. The Commission is also concerned
that problems similar to those
associated with regulated versus nonregulated allocations may arise in the
application of the FDC process in
connection with affiliate transactions.
Section 32.27 of the Commission’s rules
requires an incumbent LEC to record
assets or services received from its
affiliated entities at the lesser of FDC or
fair market value when no tariff rate,
prevailing price, or publicly filed
agreement exists. FDC may be overinclusive, however, if it includes
investment and expenses of the affiliate
that would not properly be included in
a carrier’s revenue requirement or
calculations for high-cost support.
While the used and useful and prudent
expenditure standards apply to costs
included in affiliate transactions, the
Commission seeks comment on whether
they should adopt a rule that explicitly
prohibits carriers from including in the
FDC of an affiliate any costs that are
disallowed from the regulated rate base
or revenue requirement, or considered
not to be used and useful or prudent
expenditures. Without such a rule,
carriers could shift costs to an affiliate
and then effectively recover those
disallowed costs through payments to
the affiliate. The Commission invites
parties to comment on how such an
approach could be implemented, and
whether there are circumstances under
which these costs of affiliates should be
properly included in the regulated rate
base or costs used to calculate high-cost
support.
34. The Commission seeks comment
on whether additional data would assist
in enforcement of the Commission’s
accounting and cost allocation rules,
while minimizing ETC reporting
burden.
c. Compliance Issues
35. Finally, the Commission seeks
comment on the most effective way to
ensure compliance with the proposed
rules for universal service support and
tariffing purposes. Rate-of-return
affiliates of price cap carriers would be
subject to any revised rules in
establishing their tariffed rates for
interstate services. In addition, if a price
cap carrier is required to make a costbased showing in the future, any
expense rules adopted in this
proceeding would apply to such
showings. The Commission invites
parties to comment on whether they
should require carriers to certify that
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they have not included any prohibited
expenses in their cost submissions used
to calculate high-cost support. If so, is
there a current certification that can be
modified to encompass this aspect, or is
a new rule necessary? Because audit
findings can be used to recover
overpayments of high-cost support, the
Commission also invites parties to
comment on how the Commission
should implement any requirements it
may adopt. Are there other proposals or
considerations that the Commission
should consider to ensure compliance
with any revised requirements?
36. Ensuring compliance with any
revised investment, expense, or cost
allocation rules in the tariffing context
raises different challenges. Rate-ofreturn carrier tariffs must be filed in
advance of their effective date, and
pursuant to section 204 of the Act, the
Commission, during the notice period,
may suspend the effectiveness of a tariff
and initiate an investigation to
determine whether the tariff is just and
reasonable. Section 204(a)(3) provides
that local exchange carrier tariffs that
take effect on 7-days notice after filing
(when rates are reduced) or 15-days
notice (for any other change) after filing
are ‘‘deemed lawful’’ unless rejected or
suspended and investigated by the
Commission. If a tariff investigation has
not been completed within five months
of the tariff’s specified effective date, the
proposed tariff goes into effect subject to
the results of the investigation. At the
conclusion of the investigation, the
Commission may prescribe rates
prospectively and order refunds as
necessary for any period in which the
tariff was in effect. With these
constraints on timing and prohibition
on retroactive relief, the Commission
invites parties to comment on steps the
Commission could take to ensure that
carriers follow these requirements. As a
starting point, the Commission proposes
to require a certification and seek
comment on what it should entail. The
Commission also invites parties to
comment on what sanctions should be
used to give some meaning to the
certifications.
37. The Commission invites parties to
comment on whether, and if so, when
an exception to the ‘‘deemed lawful’’
provision of section 204 of the Act
would apply where a carrier violated
these rules. The Commission notes that
in ACS v. FCC, the D.C. Circuit
indicated that although the ‘‘deemed
lawful’’ language is unambiguous, ‘‘[w]e
do not, of course, address the case of a
carrier that furtively employs improper
accounting techniques in a tariff filing,
thereby concealing potential rate of
return violations. The Order here makes
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no claim of such misconduct.’’ The D.C.
Circuit thus acknowledged that there
may be extenuating circumstances (such
as using improper accounting
techniques or willfully misrepresenting
expenses) that warrant an exception to
the deemed lawful language. The
Commission proposes to adopt a rule
that would find an exception to the
deemed lawful rule when a carrier
incorrectly certifies that its revenue
requirements are compliant with the
applicable standards. The Commission
invites parties to comment on this
proposal. In particular, parties should
address the amount of the discrepancy
in actual and projected costs that must
exist before such an exception would be
invoked. The Commission also asks
parties to comment on how any cost
recovery should be returned to
customers. For example, should it be
used to reduce the revenue requirement
for the following tariff period? Should
there be an interest component to what
must be returned to the customers. If so,
what should the applicable interest rate
be—the authorized rate of return, the
corporate tax underpayment rate, or
something else? Are there other
mechanisms the Commission should
consider to deter inclusion of
inappropriate expenses in a rate-ofreturn carrier’s revenue requirement?
38. The vast majority of rate-of-return
carriers are members of the NECA pool,
and their costs are combined to
establish pool rates. The Commission
invites parties to comment on NECA’s
role in enforcing these rules. Should
carriers be barred from pool
participation if determined to be
including expenses prohibited by
Commission rules? How should the
magnitude of the violation be
determined? What percent level of
prohibited cost inclusion should be
required before immediate expulsion
from pool participation is deemed
necessary? Are there any other metrics
that should be considered in making
this determination? Should carrier
violations for inclusion of prohibited
expenses have a ‘‘repeated occurrences’’
component, or should one time
inclusion of a certain percentage of
prohibited expenses impact pool
participation?
B. Reducing Support in Competitive
Areas
39. In section II.B of the concurrently
adopted Report and Order, the
Commission concludes that CAF BLS
should not be provided in areas served
by a qualifying unsubsidized
competitor. The Commission adopts
several methods of disaggregating
Connect America Fund Broadband Loop
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Support (CAF BLS) for areas found to be
competitively service, and allow carriers
to select which method will be used.
USTelecom and NTCA propose that in
addition to the methods they
specifically presented, carriers should
also have the option of disaggregating
support based on a ‘‘method approved
by the Commission.’’ Here, the
Commission invites commenters to
propose other methods of disaggregation
of support that can be implemented
with minimal administrative burden for
affected carriers and USAC. The
Commission seeks to avoid complex
allocations of the cost of facilities that
that serve both competitive and noncompetitive areas, which could be
burdensome for rate-of-return carriers to
implement.
40. The Commission also invites
parties to comment on how the nonsupported amount is to be recovered by
the carrier, assuming such expenses
remain regulated expenses for
ratemaking purposes. At the outset, the
Commission notes that rate-of-return
carriers currently receive compensation
for interstate loop costs through a
combination of end-user charges, e.g.,
SLCs and universal service support. The
SLCs most rate-of-return carriers assess
are at the maximum levels. Thus, in
many situations, carriers would be
prohibited by our current rules from
increasing SLC rates to recover
investment and associated expenses that
will not be supported under the highcost program in competitive areas. The
Commission invites parties to comment
on the two approaches for recovery of
those amounts.
41. First, the Commission could treat
the non-supported expenses as being
outside the tariffed regulated revenue
requirement and allow carriers to assess
a detariffed regulated rate to recover
those non-supported costs. This would
remove those costs from the NECA
pooling process. The Commission
invites parties to comment on whether
the detariffed rates would be outside the
prohibition on tariffing deaveraged rates
in a study area, or whether a new rule
should be adopted. The Commission
invites parties to comment on this
alternative. Does it present any
opportunities for carriers to game the
tariffing process?
42. A second option would be to raise
the SLC caps for a particular study area
to permit the recovery of the amounts
not supported by the high-cost program.
The Commission invites parties to
comment on this alternative, including
whether any SLC increases should be
allowed only in the competitive area or
should apply to the entire study area. In
the former case, a modification of the
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21517
rule prohibiting deaveraging within the
study area would need to be made.
Parties should particularly address the
effects of deaveraging on the NECA
pooling and tariffing processes. The
Commission also invites parties to
comment on the effects of deaveraging
on carriers’ billing and operation
support systems. Are there other
alternatives that the Commission should
consider for recovery of the nonsupported investment and associated
expenses?
C. Tribal Support
43. Discussion. Given the difficulties
that some carriers have experienced in
deploying basic telecommunications
services on Tribal lands, the
Commission recognizes the important
role of universal service support to
foster the deployment of broadband in
unserved areas. Therefore, the
Commission seeks comment on
adopting rules to increase support to
rate-of-return carriers for census blocks
that include Tribal lands and unserved
with broadband meeting the
Commission’s current requirements.
44. The Commission recognizes the
distinct challenges in bringing
communications services to Tribal lands
and seek comment on how best to
achieve broadband deployment on
Tribal lands commensurate with that in
other areas. However, the Commission
has acknowledged that there are areas
throughout the United States that are
expensive to serve and that face
challenges in demographics, weather,
and geography.
45. NTTA proposes that a TBF be
applied to any non-model-based rate-ofreturn mechanism that the Commission
adopts. In light of the other changes
adopted today, including measures to
provide a larger capital investment
allowance for carriers that are below
average in terms of broadband
deployment, and defined deployment
obligations for all rate-of-return carriers,
is there a need for a separate mechanism
for Tribal lands? The Commission seeks
comment on whether a multiplier
applied to the revised ICLS (i.e. CAF
BLS) mechanism would foster
broadband deployment on Tribal lands
and ensure ‘‘universal service funds are
used for their intended purposes.’’ Are
there other approaches that would better
advance of our goals?
46. If the Commission determines that
a multiplier of support amounts under
CAF BLS is an appropriate mechanism,
what factor is appropriate? NTTA
provides little support of why 1.25x is
the appropriate factor to ensure
broadband deployment on Tribal lands,
other than pointing to the 25 percent
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credit the Commission provided in the
Tribal Mobility Fund Phase I. The
Commission seeks comment on the
appropriate figure for the multiplier, if
they were to adopt such an approach.
When providing comment on the
appropriate multiplier, specific data and
figures are encouraged. The Commission
also emphasizes that high-cost universal
service support is a finite resource that
must be equitably distributed in a
manner that effectuates the goals of
section 254. Therefore, the Commission
seeks comment on how implementation
of Tribal-specific additional support
may affect the resources available to
extend broadband deployment to nonTribal rate-of-return service areas with
equally minimal broadband build out
and located in geographies as equally
hard to serve as Tribal lands.
47. The Commission also seeks
comment on how best to target Tribal
land-specific support to Tribal lands
most in need of broadband deployment.
NTTA recommends offering TBF
support to all rate-of-return carriers
serving Tribal lands and limiting the
applicability of the TBF to specific
census blocks that include Tribal lands.
As noted above, broadband deployment
differs substantially among Tribal lands.
In light of this, should all Tribal lands
be eligible for additional support, or
only those with lower levels of
deployment? Above, the Commission
adopts a mechanism to allow a larger
allowable loop expenditure for carriers
below the average and to limit the
allowable loop expenditure for those
above the average. The Commission
notes that the weighted average
nationwide for rate-of-return carrier
deployment of 10/1 Mbps service is
currently 68 percent. Should Tribalspecific support only be provided to
those rate-of-return carriers that are
serving Tribal lands that report
broadband deployment lower than the
weighted average, based on Form 477
data? If so, should eligibility for Tribalspecific support be determined annually
or on a less frequent basis? Should it be
provided for a specified period of time,
and if so, what is the appropriate time
period?
48. If a rate-of-return carrier’s study
area is mostly non-Tribal, should that
carrier be eligible to receive additional
Tribal-specific support? Should there be
some threshold percentage, for example
50 percent, of a carrier’s service area is
on Tribal lands in order to qualify for
additional Tribal-specific support? The
Commission also seeks comment on the
appropriate data source to use to
determine whether a census block
contains Tribal lands. For example,
should the Commission utilize maps
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and data distributed by the U.S. Census
Bureau, or would maps and data
provided by the Bureau of Indian Affairs
be more appropriate? What other
sources of data might the Commission
use? The Commission notes that the
Commission is currently engaged in
consultation with the Tribal Nations of
Oklahoma on the operational
functionality and use of the Oklahoma
Historical Map at the local and
individual Tribal Nation level as part of
the Lifeline rulemaking proceeding. The
Commission seeks comment on how
this process may affect our
determination of which census blocks
would be eligible for Tribal-specific
support.
49. In addition, the Commission seeks
comment on what specific broadband
deployment obligations should be
established, if they were to adopt a
mechanism to provide additional
support on Tribal lands that lag behind.
NTTA supports tying build-out
obligations to additional support, and
proposes specific build-out obligations
tied to a sliding scale based on current
broadband deployment levels to
‘‘meaningfully improve broadband
connectivity on Tribal lands . . .
particularly in areas that are unserved
today.’’ For instance, it proposes that
recipients of TBF that currently have
deployed 10/1 Mbps to less than 10
percent of their locations be required to
provide 4/1 Mbps service to at least 25
percent of their locations within three
years, and 10/1 Mbps to at least 10
percent of locations, within three years;
for those that already have deployed 10/
1 Mbps to at least 10 percent but not 25
percent of their locations, they would be
required to offer 4/1 Mbps service to 50
percent of their locations and 10/1 Mbps
service to 25 percent of locations within
three years. If the Commission were to
adopt some form of additional Tribalspecific support, how should these
proposals be harmonized with the
mandatory deployment obligations they
adopt above for all rate-of-return
carriers?
50. NTTA recommends that
participation in the TBF be voluntary.
The Commission seeks comment on
whether carriers should have the option
to decline Tribal-specific support if the
Commission determines that the
provision of additional support to Tribal
lands is necessary to close the
broadband deployment gap in such
areas. NTTA suggests that if acceptance
of Tribal-specific support is conditioned
on build-out obligations, such support
presents a ‘‘unique opportunity to
promote greater deployment of
broadband to Tribal lands.’’ Should
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participation in such a program be
mandatory?
51. In the USF/ICC Transformation
Order, 76 FR 73830, November 29, 2011,
the Commission required that ETCs
serving Tribal lands must meaningfully
engage with Tribal governments in their
supported areas. The Commission seeks
comment on whether the offer of
additional voluntary Tribal-specific
support would encourage more robust
ETC engagement by carriers with Tribal
governments on whose lands they
provide service.
52. Finally, the Commission asks
whether carriers that serve Tribal lands,
in whole or in part, should not be
subject to the measures to limit
operating expenses and the overall
budget control mechanism concurrently
adopted in the Report and Order. Parties
have noted, for instance, that Tribal
lands may pose unique challenges for
obtaining permitting and other
authorizations. If the Commission were
to exempt such providers from those
opex and overall budget limitations,
how should they determine the
providers subject to such limitations?
For instance, to be eligible for such an
exemption, should 50 percent or more
of the carrier’s study area be Tribal
lands? What would the budgetary
impact be on other rate-of-return
carriers that remain on legacy support
mechanisms if the Commission were to
adopt such exemptions?
D. Other Measures To Improve the
Operation of the Current Rate-of-Return
System
53. Some companies have informed
us they have been unable to extend
broadband despite their sincere desire
to do so due to lack of access to capital.
Some companies have seen declining
support under the existing legacy
mechanisms, and others are not eligible
for high cost loop support (HCLS)
support due to the prior ‘‘race to the
top’’ that the Commission took steps to
address in December 2014.
54. In the April 2014 Connect
America Fund FNPRM, the Commission
questioned the long term viability of
HCLS and ICLS in their current form;
that is why they encouraged
stakeholders to focus on creating a
Connect America Fund for cost recovery
that would be consistent with our core
principles for reform. As noted in the
concurrently adopted Report and Order,
the Commission expect the voluntary
path to the model to be an attractive
option for some of the carriers that no
longer receive HCLS. Moreover, our
reforms to the existing interstate
common line support (ICLS) mechanism
will enable carriers that are, relatively
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speaking, lower cost than some of their
peers to obtain more high-cost support
for broadband only lines from CAF BLS
than they would have received for
voice-broadband lines under the
existing HCLS mechanism. This may
provide an incentive for them to migrate
customers to broadband-only lines.
55. The Commission intends to
monitor the impact of these reforms
over time. The Commission are
optimistic that together, these two paths
will provide sufficient options for
carriers to make a business case to
extend broadband service where it is
lacking, while minimizing disruption
for those carriers that prefer to remain
under the reformed legacy mechanisms.
The Commission invites commenters to
submit into the record any other
proposals or ideas for steps the
Commission should take to provide
appropriate incentives for broadband
deployment to unserved areas working
within the framework of the existing
budget for rate-of-return areas.
56. As the Commission evaluates
ways to improve the overall framework
governing rate-of-return carriers, they
also believe it is appropriate to ensure
that the administration of the current
rate-of-return system, a function largely
performed by NECA, is as efficient as
possible to ensure that the costs of
administration, ultimately borne by
consumers, are reasonable. The role of
NECA has changed over the last few
decades due to a number of factors,
including market changes, significant
regulatory reforms, and the creation of
USAC as the Administrator for the
federal universal service mechanisms.
The Commission asks parties to address
whether and how the Commission
should amend subpart G of Part 69 to
reflect these changes. The Commission
also seeks comment on whether they
should adopt rule changes to facilitate
transparency into and evaluation of
whether NECA’s functions are
accomplished in an efficient, cost
effective, and neutral manner.
E. Streamlining ETC Annual Reporting
Requirements
57. In addition to the modifications to
ETC annual reporting obligations
adopted above, the Commission seeks
comment on certain, narrowly-tailored
reporting changes to improve the
Commission’s ability to protect against
waste, fraud, and abuse. The
Commission also seeks comment on
additional ways to lessen regulatory
reporting burdens on ETCs, particularly
those that are small businesses.
58. Here, the Commission seeks
comment on whether to modify or
eliminate five sets of requirements:
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specifically, the requirements by ETCs
to provide outage information,
unfulfilled service requests, the number
of complaints per 1,000 subscribers for
both voice and broadband service,
pricing for both voice and broadband,
and certification that it is complying
with applicable service quality
standards. What are the regulatory costs
associated with requiring such
information to be included in the
annual Form 481, particularly for those
categories of information that may be
collected in some fashion through other
means (the Commission’s outage
reporting system and consumer
complaint system)? In the case of outage
reporting, the Commission notes that all
carriers are under a separate obligation
to report outages under part 4 of our
rules. Are the ETC-specific rules
therefore duplicative, and can other
means of collection be improved?
59. To the extent commenters believe
such information should continue to be
collected from ETCs, the Commission
asks for specific suggestions on how to
modify these requirements so that the
information is more useful to analyze,
both on an individual ETC and
aggregate basis.
60. The underlying purpose of the
unfulfilled service request reporting rule
was to monitor rate-of-return carriers’
progress in deploying broadband
pursuant to the reasonable request
standard. The Commission has
concerns, however, that the rule, as
implemented, is not adequately
advancing that purpose. Similarly, the
Commission has found the information
regarding complaints to be of limited
value, in large part because it is not
clear that ETCs are reporting such
information in a consistent fashion. If
the Commission were to retain some
form of reporting requirements for
complaints and unfulfilled requests,
should they implement more specific
standardized instructions regarding the
reporting of complaints and unfulfilled
requests so that the information can be
analyzed and aggregated in a more
useful fashion? For the reporting of
pricing information, would it be less
burdensome if ETCs were to report only
the price offering that meets or exceeds
our minimum requirements, and not the
full range of service offerings?
61. The Commission also seeks
comment on whether, in light of our
experience with the reporting
requirements to date, they should
modify or eliminate the requirement
that an ETC certify it is complying with
applicable service quality standards and
consumer protection rules. Absent
greater specificity, affected ETCs may
not know what standards and rules are
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‘‘applicable.’’ Should the Commission
clarify that the obligation applies only
to legally binding rules and/or voluntary
guidelines with which the ETC has
agreed to comply? If so, how should the
ETC report its compliance? Are other
clarifications or modifications to the
rule appropriate?
62. Above the Commission directs
USAC to establish an online tool to
permit access to all information
submitted by ETCs, including Form 481
data. USAC shall ensure that state
regulators, and Tribal governments
where applicable, will have access full
Form 481 data filings, including any
data marked confidential. In light of that
change, the Commission proposes to
eliminate ETCs’ requirement to file a
duplicate copy of Form 481 with states
and/or Tribal governments. Instead,
they would make a single filing with
USAC, and both the Commission and
other regulators would obtain the
information through online access. The
Commission tentatively concludes that
centralizing all filing requirements with
USAC would be beneficial for states and
Tribal governments as it would reduce
the need to sort through, in some cases,
dozens of paper documents containing
the same information that would be
available more readily through an
online tool. Interested parties have
suggested that the Commission should
reduce or eliminate duplicate filings of
the same information. Having one place
for ETCs to file their annual reports,
instead of three or more, may reduce the
filing burden on ETCs. The Commission
seeks comment on this tentative
conclusion.
63. Lastly, the Commission seeks
comment on modifying or eliminating
any other reporting requirements
applicable to all ETCs that have
broadband obligations as a condition of
receiving high-cost support in order to
further improve the alignment of
carriers’ obligations with our ability to
monitor them through our reporting
requirements.
III. Procedural Matters
A. Paperwork Reduction Act Analysis
64. 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
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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) in
Appendix B, infra.
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B. Initial Regulatory Flexibility Analysis
65. As required by the Regulatory
Flexibility Act of 1980, as amended
(RFA), the Commission has prepared
this Initial Regulatory Flexibility
Analysis (IRFA) of the possible
significant economic impact on a
substantial number of small entities
from the policies and rules proposed in
this Further Notice of Proposed
Rulemaking. The Commission requests
written public comment on this IRFA.
Comments must be identified as
responses to the IRFA and must be filed
by the deadlines for comments on the
Further Notice provided on Further
Notice of Proposed Rulemaking and the
concurrently adopted Report and Order,
Order and Order on Reconsideration.
The Commission will send a copy of the
Further Notice, including this IRFA, to
the Chief Counsel for Advocacy of the
Small Business Administration (SBA).
In addition, the Further Notice and
IRFA (or summaries thereof) will be
published in the Federal Register.
1. Need for, and Objectives of, the
Proposed Rules
66. In the Further Notice, the
Commission commences a review of the
extent to which certain investments and
expenses incurred by a rate-of-return
regulated local exchange carrier may be
included in its rate base and revenue
requirement for ratemaking and USF
purposes. The Commission notes that
there may be very limited circumstances
where our proposed reforms would
impact price cap regulated carriers’ use
of high-cost USF support. The
Commission has not comprehensively
reviewed the continued reasonableness
of its existing rules regarding
permissible investments and expenses
for regulated local exchange carriers
since the passage of the
Telecommunications Act of 1996.
Market and regulatory conditions have
changed substantially since that time.
Regulated telecommunications carriers
have expanded into the provision of
retail broadband services, either directly
or through affiliated entities. Regulated
carriers also increasingly face
competition, for both voice and
broadband services, in portions of their
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incumbent territory from other facilitiesbased providers, such as cable and
wireless providers. These changing
conditions may affect the incentives
regarding the types of costs carriers
attempt to include in their revenue
requirement and the ways in which
carriers allocate costs between regulated
and non-regulated services and
affiliates.
67. Through audits, inquiries, and
other investigations, the Commission
has recently become aware of alleged
abuses by rate-of-return carriers of the
used and useful principles and its cost
allocation rules. The Commission
therefore concluded that it is time to
reevaluate the types of expenses that
should be permitted—both in a carrier’s
revenue requirement and for recovery
through high-cost support. Looking into
the expenses permitted and the
allocation of those expenses will help
ensure that carriers are only recovering
costs that are used and useful and
prudently incurred, and in the case of
high cost support, only costs that are
necessary to the provision of interstate
telecommunications services.
68. In the concurrently adopted
Order, the Commission determined that
universal service support should be
targeted more specifically to those areas
where support is most needed to ensure
consumers are served with voice and
broadband service. Therefore, the
Commission adopted a process for
identifying those areas served by an
unsubsidized competitor and several
methods of disaggregating support to
those areas. However, the Commission
seeks comment on other methods for
disaggregating support that would be
minimally burdensome on carriers and
how the non-supported amount should
be recovered.
69. The Commission recognizes that
Tribal lands may need additional
financial support to ensure the
availability of broadband in these areas.
Therefore, the Further Notice seeks
comment on whether a separate
mechanism is needed to support
broadband in Tribal lands and, if so,
how such a mechanism should be
structured.
70. Some companies have informed
the Commission that they are unable to
extend broadband due to a lack of
access to capital. Other carriers have
seen declining support or are ineligible
for certain types of support, such as
HCLS. In the concurrently adopted
Order, the Commission has adopted
reforms to its high-cost universal service
support to support broadband
deployment. The Further Notice seeks
comment on other proposals to expand
broadband services in those areas served
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by rate-of-return carriers and any
changes needed to make the
administration of federal universal
service programs more efficient.
71. The Commission also seeks to
modify its ETC annual reporting
obligations to improve the
Commission’s ability to protect against
waste, fraud, and abuse. The Further
Notice seeks comment on how best to
make the information collected more
useful while minimizing the burdens on
those carriers subject to these reporting
requirements.
2. Review of Permitted Expenses
72. The Further Notice begins by
reevaluating a rate-of-return carrier’s
ability to include certain types of
expenses in its revenue requirement and
high-cost support with consideration of
the appropriate standard to be applied.
The Commission believes that the terms
‘‘used and useful,’’ ‘‘prudent
expenditure,’’ and ‘‘necessary to the
provision of’’ should be read
consistently to describe those expenses
that a carrier may appropriately include
in its interstate rate base, interstate
revenue requirement, and cost studies
used to calculate high-cost support. The
costs should include amounts of longterm investment and current
expenditures that a business would
reasonably incur to provide
telecommunications services, taking
into account current and reasonably
forecasted operating conditions and
business levels. Accordingly, the
Commission seeks comment on a variety
of expenses, and whether such expenses
should be included when making these
calculations.
3. Issues Related to Cost Allocation and
Affiliate Transactions
73. Rate-of-return carriers are subject
to the Commission’s longstanding Part
64 rules regarding the allocation of costs
between regulated and non-regulated
activities and to the affiliate transaction
rules in Part 32. Under these rules,
carriers currently apply broad principles
in making such allocations, and the lack
of specificity in the rules gives carriers
a degree of discretion in making these
allocation decisions. Carriers have an
incentive to interpret the allocation
rules in order to allocate as many costs
as possible to their regulated activities,
both to justify a higher interstate
revenue requirement and to receive
additional high-cost support. Given the
lack of specific guidance, the additional
costs associated with the provision of
retail broadband services, and the
incentive to allocate costs to regulated
activities, the Commission concludes
that it is time to revisit the allocation
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rules to provide greater clarity to rateof-return carriers regarding how to
determine the relative allocation of costs
between regulated and non-regulated
activities and affiliates. The
Commission seeks comment on
adopting new rules to improve the
process of allocating costs among
regulated and non-regulated services
and among affiliates, and also seeks
comment regarding how to detect cases
of misallocation.
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4. Compliance Issues
74. Additionally, the Commission
seeks comment on the most effective
way to ensure compliance with the
proposed rules for universal service
support and tariffing purposes. For
example, the Commission seeks
comment on what, if any, certification
or reporting requirements should be
implemented.
5. Reducing Support in Competitive
Areas
75. In the Further Notice, the
Commission seeks comment on
alternative methods of reducing support
for areas served by an unsubsidized
competitor. In the concurrently adopted
Order, the Commission adopts several
methods of disaggregating CAF BLS for
areas found to be competitively served
and allow carriers to select which
method will be used. However, the
Commission invites commenters to
propose other methods of disaggregation
of support that can be implemented
with minimal administrative burden for
affected carriers and USAC. The
Commission seeks to avoid complex
allocations of the cost of facilities that
serve both competitive and noncompetitive areas, which could be
burdensome for rate-of-return carriers to
implement.
76. The Commission also invites
parties to comment on how the nonsupported amount is to be recovered by
the carrier, assuming such expenses
remain regulated expenses for
ratemaking purposes. The Commission
notes that rate-of-return carriers
currently receive compensation for
interstate loop costs through a
combination of end-user charges, e.g.,
SLCs, and universal service support.
The SLCs most rate-of-return carriers
assess are at the maximum levels. Thus,
in many situations, carriers would be
prohibited by our current rules from
increasing SLC rates to recover
investment and associated expenses that
will not be supported under the highcost program in competitive areas.
Therefore, the Commission invites
parties to comment on two approaches
for recovery of those amounts.
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6. Tribal Support
77. In the Further Notice, the
Commission seeks comment on a
proposal to adopt a mechanism to
provide additional support to unserved
Tribal lands, and alternative
approaches. The Commission has
observed that communities on Tribal
lands have historically had less access
to telecommunications services than
any other segment of the population,
and that greater financial support
therefore may be needed in order to
ensure the availability of broadband on
Tribal lands. Therefore, the Commission
seeks comment on adopting rules to
increase support to rate-of-return
carriers for census blocks that include
Tribal lands and are unserved with
broadband meeting the Commission’s
current requirements. The Commission
also recognizes that broadband
deployment differs substantially among
Tribal lands. To assist small rate-ofreturn carriers that serve Tribal areas
with minimal infrastructure build out,
the Commission also seeks comment on
how best to target Tribal land-specific
support to Tribal areas most in need of
broadband deployment.
7. Other Measures To Improve the
Operation of the Current Rate-of-Return
System
78. Additionally, in the Further
Notice, the Commission invites
commenters to submit into the record
any other proposals or ideas for steps
the Commission should take to provide
appropriate incentives for broadband
deployment to unserved areas working
within the framework of the existing
budget for rate-of-return areas. Some
companies have indicated they have
been unable to extend broadband
despite their sincere desire to do so due
to lack of access to capital, while other
companies have seen declining support
under the existing legacy mechanisms.
Dome carriers are not eligible for HCLS
support due to the prior ‘‘race to the
top’’ that the Commission took steps to
address in December 2014. The
Commission expects our reforms to the
existing ICLS mechanism and addition
of a voluntary path to the model will
provide options for carriers to extend
broadband where it is lacking. While the
Commission intends to monitor the
impact of these reforms over time, they
invite commenters to submit into the
record any other proposals or ideas for
steps the Commission should take to
provide appropriate incentives for
broadband deployment to unserved
areas while minimizing disruption for
those carriers that prefer to remain
under the reformed legacy mechanisms.
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8. Streamlining ETC Annual Reporting
Requirements
79. Lastly, with respect to ETC
reporting requirements, the Commission
seeks comment on additional ways to
lessen regulatory reporting burdens on
ETCs, particularly those that are small
businesses. In the concurrently adopted
Order, the Commission updates our
annual reporting requirements for rateof-return ETCs as a necessary
component of our ongoing efforts to
update the support mechanisms for
such ETCs to reflect our dual objectives
of supporting existing voice and
broadband service, while extending
broadband to those areas of the country
where it is lacking. To further lessen the
regulatory burden on ETCs, many of
whom are small rate-of-return carriers,
and to improve on the Commission’s
ability to protect against waste, fraud,
and abuse, the Commission seeks
comment on certain, narrowly-tailored
reporting changes. Specifically, the
Commission seeks comment on whether
to modify or eliminate five sets of
requirements: the requirements to
provide outage information, unfulfilled
service requests, the number of
complaints per 1,000 subscribers for
both voice and broadband service,
pricing for both voice and broadband,
and certification of compliance with
applicable service quality standards.
9. Legal Basis
80. The legal basis for any action that
may be taken pursuant to the Notice is
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, 201–206,
214, 218–220, 251, 252, 254, 256, 303(r),
332, 403, 405, 1302, and sections 1.1,
1.3, 1.421, 1.427, and 1.429 of the
Commission’s rules, 47 CFR 1.1, 1.3,
1.421, 1.427, and 1.429.
10. Description and Estimate of the
Number of Small Entities To Which the
Rules Would Apply
81. The RFA directs agencies to
provide a description of, and where
feasible, an estimate of the number of
small entities that may be affected by
the proposed rules, if adopted. The RFA
generally defines the term ‘‘small
entity’’ as having the same meaning as
the terms ‘‘small business,’’ ‘‘small
organization,’’ and ‘‘small governmental
jurisdiction.’’ In addition, the term
‘‘small business’’ has the same meaning
as the term ‘‘small-business concern’’
under the Small Business Act. A small-
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business concern’’ is one which: (1) Is
independently owned and operated; (2)
is not dominant in its field of operation;
and (3) satisfies any additional criteria
established by the Small Business
Administration (SBA).
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11. Total Small Entities
82. Our proposed action, if
implemented, may, over time, affect
small entities that are not easily
categorized at present. The Commission
therefore describes here, at the outset,
three comprehensive, statutory small
entity size standards. First, nationwide,
there are a total of approximately 28.2
million small businesses, according to
the SBA, which represents 99.7% of all
businesses in the United States. In
addition, a ‘‘small organization’’ is
generally ‘‘any not-for-profit enterprise
which is independently owned and
operated and is not dominant in its
field.’’ Nationwide, as of 2007, there
were approximately 1,621,215 small
organizations. Finally, the term ‘‘small
governmental jurisdiction’’ is defined
generally as ‘‘governments of cities,
towns, townships, villages, school
districts, or special districts, with a
population of less than fifty thousand.’’
Census Bureau data for 2011 indicate
that there were 90,056 local
governmental jurisdictions in the
United States. The Commission
estimates that, of this total, as many as
89,327 entities may qualify as ‘‘small
governmental jurisdictions.’’ Thus, the
Commission estimates that most
governmental jurisdictions are small.
12. Broadband Internet Access Service
Providers
83. The rules adopted in the
concurrently adopted Order apply to
broadband Internet access service
providers. The Economic Census places
these firms, whose services might
include Voice over Internet Protocol
(VoIP), in either of two categories,
depending on whether the service is
provided over the provider’s own
telecommunications facilities (e.g., cable
and DSL ISPs), or over client-supplied
telecommunications connections (e.g.,
dial-up ISPs). The former are within the
category of Wired Telecommunications
Carriers, which has an SBA small
business size standard of 1,500 or fewer
employees. These are also labeled
‘‘broadband.’’ The latter are within the
category of All Other
Telecommunications, which has a size
standard of annual receipts of $32.5
million or less. These are labeled nonbroadband. According to Census Bureau
data for 2007, there were 3,188 firms in
the first category, total, that operated for
the entire year. Of this total, 3144 firms
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had employment of 999 or fewer
employees, and 44 firms had
employment of 1,000 employees or
more. For the second category, the data
show that 2,383 firms operated for the
entire year. Of those, 2,346 had annual
receipts below $32.5 million per year.
Consequently, the Commission
estimates that the majority of broadband
Internet access service provider firms
are small entities.
84. The broadband Internet access
service provider industry has changed
since this definition was introduced in
2007. The data cited above may
therefore include entities that no longer
provide broadband Internet access
service, and may exclude entities that
now provide such service. To ensure
that this FRFA describes the universe of
small entities that our action might
affect, the Commission discusses in turn
several different types of entities that
might be providing broadband Internet
access service. The Commission notes
that, although they have no specific
information on the number of small
entities that provide broadband Internet
access service over unlicensed
spectrum, they include these entities in
our Final Regulatory Flexibility
Analysis.
13. Wireline Providers
85. Incumbent Local Exchange
Carriers (Incumbent LECs). Neither the
Commission nor the SBA has developed
a small business size standard
specifically for incumbent LEC services.
The closest applicable 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, 1,307 carriers reported that they
were incumbent LEC 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 LEC service are small
businesses that may be affected by rules
adopted pursuant to the concurrently
adopted Order.
86. 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
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employees. According to Commission
data, 1,442 carriers reported that they
were engaged in the provision of either
competitive local exchange services or
competitive access provider services. Of
these 1,442 carriers, an estimated 1,256
have 1,500 or fewer employees and 186
have more than 1,500 employees. In
addition, 17 carriers have reported that
they are Shared-Tenant Service
Providers, and all 17 are estimated to
have 1,500 or fewer employees. In
addition, 72 carriers have reported that
they are Other Local Service Providers.
Of the 72, seventy have 1,500 or fewer
employees and two have more than
1,500 employees. Consequently, the
Commission estimates that most
providers of competitive local exchange
service, competitive access providers,
Shared-Tenant Service Providers, and
other local service providers are small
entities that may be affected by rules
adopted pursuant to the concurrently
adopted Order.
87. 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 the Commission
emphasizes that this RFA action has no
effect on Commission analyses and
determinations in other, non-RFA
contexts.
88. Interexchange Carriers. Neither
the Commission nor the SBA has
developed a small business size
standard specifically for providers of
interexchange services. 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, 359 carriers have
reported that they are engaged in the
provision of interexchange service. Of
these, 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 IXCs are small entities that may be
affected by rules adopted pursuant to
the concurrently adopted Order.
89. Operator Service Providers (OSPs).
Neither the Commission nor the SBA
has developed a small business size
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standard specifically for operator
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, 33 carriers have
reported that they are engaged in the
provision of operator services. Of these,
an estimated 31 have 1,500 or fewer
employees and two have more than
1,500 employees. Consequently, the
Commission estimates that the majority
of OSPs are small entities that may be
affected by rules adopted pursuant to
the concurrently adopted Order.
90. 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
concurrently adopted Order.
91. 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 concurrently adopted Order.
92. 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
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resellers are small entities that may be
affected by rules adopted pursuant to
the concurrently adopted Order.
93. 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.
94. 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.
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14. Wireless Providers—Fixed and
Mobile
95. The broadband Internet access
service provider category covered by the
concurrently adopted Order may cover
multiple wireless firms and categories of
regulated wireless services. Thus, to the
extent the wireless services listed below
are used by wireless firms for broadband
Internet access service, the proposed
actions may have an impact on those
small businesses as set forth above and
further below. In addition, for those
services subject to auctions, the
Commission notes that, as a general
matter, the number of winning bidders
that claim to qualify as small businesses
at the close of an auction does not
necessarily represent the number of
small businesses currently in service.
Also, the Commission does not
generally track subsequent business size
unless, in the context of assignments
and transfers or reportable eligibility
events, unjust enrichment issues are
implicated.
96. Wireless Telecommunications
Carriers (except Satellite). Since 2007,
the Census Bureau has placed wireless
firms within this new, broad, economic
census category. 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 the
category of Wireless
Telecommunications Carriers (except
Satellite), 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
1,000 employees or more. Since all
firms with fewer than 1,500 employees
are considered small, given the total
employment in the sector, the
Commission estimates that the vast
majority of wireless firms are small.
97. 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.
98. 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
were won by entities qualifying as a
small business. For that auction, the
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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.
99. 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.
100. 1670–1675 MHz Services. This
service can be used for fixed and mobile
uses, except aeronautical mobile. An
auction for one license in the 1670–1675
MHz band was conducted in 2003. One
license was awarded. The winning
bidder was not a small entity.
101. Wireless Telephony. Wireless
telephony includes cellular, personal
communications services, and
specialized mobile radio telephony
carriers. As noted, the SBA has
developed a small business size
standard for Wireless
Telecommunications Carriers (except
Satellite). Under the SBA small business
size standard, a business is small if it
has 1,500 or fewer employees.
According to Commission data, 413
carriers reported that they were engaged
in wireless telephony. Of these, an
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estimated 261 have 1,500 or fewer
employees and 152 have more than
1,500 employees. Therefore, a little less
than one third of these entities can be
considered small.
102. Broadband Personal
Communications Service. The
broadband personal communications
services (PCS) spectrum is divided into
six frequency blocks designated A
through F, and the Commission has held
auctions for each block. The
Commission initially defined a ‘‘small
business’’ for C– and F–Block licenses
as an entity that has average gross
revenues of $40 million or less in the
three previous calendar years. For F–
Block licenses, an additional small
business size standard 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 small business
size standards, in the context of
broadband PCS auctions, have been
approved by the SBA. No small
businesses within the SBA-approved
small business size standards bid
successfully for licenses in Blocks A
and B. There were 90 winning bidders
that claimed small business status in the
first two C–Block auctions. A total of 93
bidders that claimed small business
status won approximately 40 percent of
the 1,479 licenses in the first auction for
the D, E, and F Blocks. On April 15,
1999, the Commission completed the
reauction of 347 C–, D–, E–, and F–
Block licenses in Auction No. 22. Of the
57 winning bidders in that auction, 48
claimed small business status and won
277 licenses.
103. On January 26, 2001, the
Commission completed the auction of
422 C and F Block Broadband PCS
licenses in Auction No. 35. Of the 35
winning bidders in that auction, 29
claimed small business status.
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. On February 15, 2005, the
Commission completed an auction of
242 C–, D–, E–, and F–Block licenses in
Auction No. 58. Of the 24 winning
bidders in that auction, 16 claimed
small business status and won 156
licenses. On May 21, 2007, the
Commission completed an auction of 33
licenses in the A, C, and F Blocks in
Auction No. 71. Of the 12 winning
bidders in that auction, five claimed
small business status and won 18
licenses. On August 20, 2008, the
Commission completed the auction of
20 C–, D–, E–, and F–Block Broadband
PCS licenses in Auction No. 78. Of the
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eight winning bidders for Broadband
PCS licenses in that auction, six claimed
small business status and won 14
licenses.
104. Specialized Mobile Radio
Licenses. The Commission awards
‘‘small entity’’ bidding credits in
auctions for Specialized Mobile Radio
(SMR) geographic area licenses in the
800 MHz and 900 MHz bands to firms
that had revenues of no more than $15
million in each of the three previous
calendar years. The Commission awards
‘‘very small entity’’ bidding credits to
firms 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 900 MHz Service. The Commission
has held auctions for geographic area
licenses in the 800 MHz and 900 MHz
bands. The 900 MHz SMR auction began
on December 5, 1995, and closed on
April 15, 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
began on October 28, 1997, and was
completed on December 8, 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 held
on January 10, 2002 and closed on
January 17, 2002 and included 23 BEA
licenses. One bidder claiming small
business status won five licenses.
105. The auction of the 1,053 800
MHz SMR geographic area licenses for
the General Category channels began on
August 16, 2000, and was completed on
September 1, 2000. Eleven bidders won
108 geographic area licenses for the
General Category channels in the 800
MHz SMR band and qualified as small
businesses under the $15 million size
standard. In an auction completed on
December 5, 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 four auctions, 41 winning
bidders for geographic licenses in the
800 MHz SMR band claimed status as
small businesses.
106. In addition, there are numerous
incumbent site-by-site SMR licenses 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 service
pursuant to extended implementation
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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, which is the
SBA-determined size standard. The
Commission assumes, for purposes of
this analysis, that all of the remaining
extended implementation
authorizations are held by small
entities, as defined by the SBA.
107. 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 Service had a third category of
small business status for Metropolitan/
Rural Service Area (MSA/RSA)
licenses—‘‘entrepreneur’’—which is
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. An auction of 740
licenses (one license in each of the 734
MSAs/RSAs and one license in each of
the six Economic Area Groupings
(EAGs)) commenced on August 27,
2002, and closed on September 18,
2002. Of the 740 licenses available for
auction, 484 licenses were won by 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. A second auction
commenced on May 28, 2003, closed on
June 13, 2003, and 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. On July 26, 2005, the
Commission completed an auction of 5
licenses in the Lower 700 MHz band
(Auction No. 60). There were three
winning bidders for five licenses. All
three winning bidders claimed small
business status.
108. In 2007, the Commission
reexamined its rules governing the 700
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MHz band in the 700 MHz Second
Report and Order, 72 FR 48814, August
24, 2007. An auction of 700 MHz
licenses commenced January 24, 2008
and closed on March 18, 2008, which
included, 176 Economic Area licenses
in the A Block, 734 Cellular Market
Area licenses in the B Block, and 176
EA licenses in the E Block. Twenty
winning bidders, claiming 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) won 49 licenses. Thirty three
winning bidders claiming very small
business status (those with attributable
average annual gross revenues that do
not exceed $15 million for the preceding
three years) won 325 licenses.
109. Upper 700 MHz Band Licenses.
In the 700 MHz Second Report and
Order, the Commission revised its rules
regarding Upper 700 MHz licenses. On
January 24, 2008, the Commission
commenced Auction 73 in which
several licenses in the Upper 700 MHz
band were available for licensing: 12
Regional Economic Area Grouping
licenses in the C Block, and one
nationwide license in the D Block. The
auction concluded on March 18, 2008,
with 3 winning bidders claiming very
small business status (those with
attributable average annual gross
revenues that do not exceed $15 million
for the preceding three years) and
winning five licenses.
110. 700 MHz Guard Band Licensees.
In 2000, in the 700 MHz Guard Band
Order, 65 FR 17594, April 4, 2000, the
Commission adopted size standards 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 in this
service 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. SBA approval of these
definitions is not required. An auction
of 52 Major Economic Area 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.
111. 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.
112. 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.
113. 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.
114. 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.
115. Air-Ground Radiotelephone
Service. The Commission has previously
used the 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 AirGround Radiotelephone Service, and
under that definition, the Commission
estimates that almost all of them qualify
as small entities under the SBA
definition. For purposes of assigning
Air-Ground Radiotelephone Service
licenses through competitive bidding,
the Commission has defined ‘‘small
business’’ as an entity that, together
with controlling interests and affiliates,
has average annual gross revenues for
the preceding three years not exceeding
$40 million. A ‘‘very small business’’ is
defined as an entity that, together with
controlling interests and affiliates, has
average annual gross revenues for the
preceding three years not exceeding $15
million. These definitions were
approved by the SBA. In May 2006, the
Commission completed an auction of
nationwide commercial Air-Ground
Radiotelephone Service licenses in the
800 MHz band (Auction No. 65). On
June 2, 2006, the auction closed with
two winning bidders winning two AirGround Radiotelephone Services
licenses. Neither of the winning bidders
claimed small business status.
116. 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
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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 our
evaluations in this analysis, the
Commission 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 concurrently adopted Order.
117. Advanced Wireless Services
(AWS) (1710–1755 MHz and 2110–2155
MHz bands (AWS–1); 1915–1920 MHz,
1995–2000 MHz, 2020–2025 MHz and
2175–2180 MHz bands (AWS–2); 2155–
2175 MHz band (AWS–3)). For the
AWS–1 bands, the Commission has
defined a ‘‘small business’’ as an entity
with average annual gross revenues for
the preceding three years not exceeding
$40 million, and a ‘‘very small
business’’ as an entity with average
annual gross revenues for the preceding
three years not exceeding $15 million.
For AWS–2 and AWS–3, although the
Commission does not know for certain
which entities are likely to apply for
these frequencies, they note that the
AWS–1 bands are comparable to those
used for cellular service and personal
communications service. The
Commission has not yet adopted size
standards for the AWS–2 or AWS–3
bands but proposes to treat both AWS–
2 and AWS–3 similarly to broadband
PCS service and AWS–1 service due to
the comparable capital requirements
and other factors, such as issues
involved in relocating incumbents and
developing markets, technologies, and
services.
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118. 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.
119. Fixed Microwave Services.
Microwave services include common
carrier, private-operational fixed, and
broadcast auxiliary radio services. They
also include the Local Multipoint
Distribution Service (LMDS), the Digital
Electronic Message Service (DEMS), and
the 24 GHz Service, where licensees can
choose between common carrier and
non-common carrier status. At present,
there are approximately 36,708 common
carrier fixed licensees and 59,291
private operational-fixed licensees and
broadcast auxiliary radio licensees in
the microwave services. There are
approximately 135 LMDS licensees,
three DEMS licensees, and three 24 GHz
licensees. The Commission has not yet
defined a small business with respect to
microwave services. For purposes of the
FRFA, the Commission will use the
SBA’s definition applicable to Wireless
Telecommunications Carriers (except
satellite)—i.e., an entity with no more
than 1,500 persons. Under the present
and prior categories, the SBA has
deemed a wireless business to be small
if it has 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 36,708
common carrier fixed licensees and up
to 59,291 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.
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120. 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.
121. 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 concurrently adopted Order.
122. 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
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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.
123. In 2009, the Commission
conducted Auction 86, the sale of 78
licenses in the BRS areas. The
Commission offered three levels of
bidding credits: (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) received 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) received 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) received a 35 percent
discount on its winning bid. Auction 86
concluded in 2009 with the sale of 61
licenses. Of the ten winning bidders,
two bidders that claimed small business
status won 4 licenses; one bidder that
claimed very small business status won
three licenses; and two bidders that
claimed entrepreneur status won six
licenses.
124. In addition, the SBA’s Cable
Television Distribution Services small
business size standard is applicable to
EBS. There are presently 2,436 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 2,336
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
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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. To gauge
small business prevalence for these
cable services the Commission must,
however, use the most current census
data that are based on the previous
category of Cable and Other Program
Distribution and its associated size
standard; that size standard was: all
such firms having $13.5 million or less
in annual receipts. According to Census
Bureau data for 2007, there were a total
of 996 firms in this category that
operated for the entire year. Of this
total, 948 firms had annual receipts of
under $10 million, and 48 firms had
receipts of $10 million or more but less
than $25 million. Thus, the majority of
these firms can be considered small.
125. 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.
126. Paging (Private and Common
Carrier). In the Paging Third Report and
Order, 64 FR 33762, June 24, 1999, the
Commission developed a small business
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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.
127. 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
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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 concurrently
adopted Order.
128. 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
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.
15. Satellite Service Providers
129. Satellite Telecommunications
Providers. Two economic census
categories address the satellite industry.
The first category has a small business
size standard of $30 million or less in
average annual receipts, under SBA
rules. The second has a size standard of
$30 million or less in annual receipts.
130. The category of Satellite
Telecommunications ‘‘comprises
establishments primarily engaged in
providing 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 570 firms that
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operated for the entire year. Of this
total, 530 firms had annual receipts of
under $30 million, and 40 firms had
receipts of over $30 million.
Consequently, the Commission
estimates that the majority of Satellite
Telecommunications firms are small
entities that might be affected by our
action.
131. The second category of Other
Telecommunications comprises, inter
alia, ‘‘establishments 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.’’ For this category,
Census Bureau data for 2007 show that
there were a total of 1,274 firms that
operated for the entire year. Of this
total, 1,252 had annual receipts below
$25 million per year. Consequently, the
Commission estimates that the majority
of All Other Telecommunications firms
are small entities that might be affected
by our action.
16. Cable Service Providers
132. Because section 706 requires us
to monitor the deployment of broadband
using any technology, the Commission
anticipates that some broadband service
providers may not provide telephone
service. Accordingly, the Commission
describes below other types of firms that
may provide broadband services,
including cable companies, MDS
providers, and utilities, among others.
133. Cable and Other Program
Distributors. 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. To gauge
small business prevalence for these
cable services the Commission must,
however, use current census data that
are based on the previous category of
Cable and Other Program Distribution
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and its associated size standard; that
size standard was: all such firms having
$13.5 million or less in annual receipts.
According to Census Bureau data for
2007, there were a total of 2,048 firms
in this category that operated for the
entire year. Of this total, 1,393 firms had
annual receipts of under $10 million,
and 655 firms had receipts of $10
million or more. Thus, the majority of
these firms can be considered small.
134. Cable Companies and Systems.
The Commission has also 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 that there are currently
4,600 active cable systems in the United
States. Of this total, all but nine cable
operators are small under the 400,000
subscriber size standard. In addition,
under the Commission’s rules, a ‘‘small
system’’ is a cable system serving 15,000
or fewer subscribers. Current
Commission records show 4,945 cable
systems nationwide. Of this total, 4,380
cable systems have less than 20,000
subscribers, and 565 systems have
20,000 or more subscribers, based on the
same records. Thus, under this
standard, the Commission estimates that
most cable systems are small entities.
135. Cable System Operators. The
Communications Act of 1934, as
amended, 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.
Based on available data, the
Commission finds that all but ten
incumbent cable operators are small
entities under this size standard. The
Commission notes that the Commission
neither requests nor collects information
on whether cable system operators are
affiliated with entities whose gross
annual revenues exceed $250 million,
and therefore they are unable to
estimate more accurately the number of
cable system operators that would
qualify as small under this size
standard.
136. The open video system (‘‘OVS’’)
framework was established in 1996, and
is one of four statutorily recognized
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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 1,000
employees or more. Thus, under this
second size standard, most cable
systems are small and may be affected
by rules adopted pursuant to the
concurrently adopted Order. In
addition, the Commission notes that
they have 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.
17. Electric Power Generators,
Transmitters, and Distributors
137. Electric Power Generators,
Transmitters, and Distributors. The
Census Bureau defines an industry
group comprised of ‘‘establishments,
primarily engaged in generating,
transmitting, and/or distributing electric
power. Establishments in this industry
group may perform one or more of the
following activities: (1) Operate
generation facilities that produce
electric energy; (2) operate transmission
systems that convey the electricity from
the generation facility to the distribution
system; and (3) operate distribution
systems that convey electric power
received from the generation facility or
the transmission system to the final
consumer.’’ The SBA has developed a
small business size standard for firms in
this category: ‘‘A firm is small if,
including its affiliates, it is primarily
engaged in the generation, transmission,
and/or distribution of electric energy for
sale and its total electric output for the
preceding fiscal year did not exceed 4
million megawatt hours.’’ Census
Bureau data for 2007 show that there
were 1,174 firms that operated for the
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entire year in this category. Of these
firms, 50 had 1,000 employees or more,
and 1,124 had fewer than 1,000
employees. Based on this data, a
majority of these firms can be
considered small.
18. Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements for Small Entities
138. Permitted Expenses. In the
Further Notice, when reviewing
permitted expenses, the Commission
seeks comment on whether it should
require rate-of-return carriers to identify
their cost consultants, if any, in their
FCC Form 481s.
139. Cost Allocation and Affiliate
Transactions. The Commission seeks
comment on adopting a rule that would
classify certain costs, such as general
and administrative expenses, as
common costs for purposes of applying
the Part 64 and affiliate transaction rules
when an entity provides broadband
services directly, or through an affiliated
entity. Additionally, the Commission
asks whether it should clarify or adopt
new rules to ensure the proper
application of the affiliate transaction
rules in light of the provision of retail
broadband by affiliates in certain
telecommunications markets. More
generally, the Commission seeks
comment on instances in which
additional rules or further clarification
could minimize potential misallocations
and thereby protect ratepayers of
regulated services. While the
Commission notes that the used and
useful and prudent expenditure
standards apply to costs included in
affiliate transactions, it seeks comment
on whether it should adopt a rule that
explicitly prohibits carriers from
including in the fully distributed cost of
an affiliate any costs that are disallowed
from the regulated rate base or revenue
requirement, or considered not to be
used and useful or prudent
expenditures. Finally, the Commission
seeks comment on whether additional
data would assist in enforcement of the
Commission’s accounting and cost
allocation rules, while minimizing ETC
reporting burden, and if so, what kind
of reporting requirements should be
implemented.
140. Compliance. To ensure
compliance with the proposed rules for
universal service support and tariffing
purposes, the Commission invites
parties to comment on whether carriers
should be required to certify that they
have not included any prohibited
expenses in their cost submissions used
to calculate high-cost support.
Additionally, the Commission asked
parties to comment on NECA’s role in
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enforcing these rules, and whether
carriers should be subject to any
additional reporting requirements.
141. Reducing Support in Competitive
Areas. In the Further Notice, the
Commission also seeks comment on
methods of disaggregation of support
that can be implemented with minimal
administrative burden for affected
carriers and USAC. The Commission
seeks to avoid complex allocations of
the cost of facilities that that serve both
competitive and non-competitive areas,
which could be burdensome for rate-ofreturn carriers to implement.
142. Additionally, the Commission
asks how the non-supported amount is
to be recovered by the carrier, assuming
such expenses remain regulated
expenses for ratemaking purposes.
Specifically, the Commission invites
parties to comment on two approaches
for recovery of those amounts. First, the
Commission could treat the nonsupported expenses as being outside the
tariffed regulated revenue requirement
and allow carriers to assess a detariffed
regulated rate to recover those nonsupported costs. This would remove
those costs from the NECA pooling
process. The Commission invites parties
to comment on whether the detariffed
rates would be outside the prohibition
on tariffing deaveraged rates in a study
area, or whether a new rule should be
adopted. A second option would be to
raise the SLC caps for a particular study
area to permit the recovery of the
amounts not supported by the high-cost
program. The Commission invites
parties to comment on this alternative,
including whether any SLC increases
should be allowed only in the
competitive area or should apply to the
entire study area. Either of these
alternatives would create new
compliance requirements that could
create administrative burdens for small
rate-of-return carriers.
143. Tribal Support. The Commission
seeks comment on adopting rules to
increase support to rate-of-return
carriers for census blocks that include
Tribal lands and unserved with
broadband meeting the Commission’s
current requirements. As part of this
line of questioning, the Commission
asks how to how best to target Tribal
land-specific support to Tribal areas
most in need of broadband deployment,
which may require filing on behalf of
Tribal entities. Additionally, the
Commission seeks comment on what
specific broadband deployment
obligations should be established, if the
Commission were to adopt a mechanism
to provide additional support on Tribal
lands. Identification of specific areas to
deploy and the associated deployment
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obligations could place an
administrative and resource burden on
small rate-of-return carriers serving
Tribal lands.
144. Other Measures To Improve the
Operation of the Current Rate-of-Return
System. The Commission invites
commenters to submit into the record
any other proposals or ideas for steps
the Commission should take to provide
appropriate incentives for broadband
deployment to unserved areas working
within the framework of the existing
budget for rate-of-return areas. This line
of questioning by the Commission is
intended to gather new ideas or
proposals for further consideration.
Therefore, the Commission does not
foresee any major burdens being placed
on carriers as a result of this portion of
the Further Notice.
145. Streamlining ETC Annual
Reporting Requirements. Lastly, the
Commission seeks comment on whether
to modify or eliminate five sets of
requirements for ETCS to provide:
outage information, unfulfilled service
requests, the number of complaints per
1,000 subscribers for both voice and
broadband service, pricing for both
voice and broadband, and certification
that they are complying with applicable
service quality standards. Elimination of
these ETC reporting requirements would
relieve the administrative burden on
small rate-of-return carriers.
19. Steps Taken To Minimize the
Significant Economic Impact on Small
Entities and Significant Alternatives
Considered
146. The RFA requires an agency to
describe any significant alternatives that
it has considered in reaching its
proposed approach, which may include
(among others) the following four
alternatives: (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. The Commission
expects to consider all of these factors
when they have received substantive
comment from the public and
potentially affected entities.
147. With respect to the costs of
implementing the proposals to restrict
permitted expenses, the Commission
seeks comment on the least costly
means of implementing any revisions,
which would minimize burdens on
carriers. The Commission notes that
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many of the proposals with respect to
cost allocation would most likely
change the way cost allocation is
completed, but would not necessarily be
any more burdensome. The proposal of
identifying cost consultants would add
a minimal burden on small entities if
adopted because carriers should
typically utilize cost consultants to
submit information to NECA for
purposes of pooling.
148. In discussing potential
compliance procedures, the
Commission asks whether there is a
current certification that can be
modified to encompass a certification
that only permitted expenses are
included. This methodology seeks to
reduce the burden on smaller entities by
making a small change instead of
creating a new, more involved
compliance mechanism.
149. In the concurrently adopted
Order, the Commission adopts several
methods of disaggregating CAF BLS for
areas found to be competitively served
and allow carriers to select which
method will be used. However, in
seeking comment on other methods of
disaggregation of support that can be
implemented with minimal
administrative burden for affected
carriers and USAC, the Commission
takes further steps to reduce
administrative and resource burdens on
small rate-of-return carriers. The
Commission seeks to avoid complex
allocations of the cost of facilities that
that serve both competitive and noncompetitive areas, which could be
burdensome for rate-of-return carriers to
implement.
150. The Commission also invites
parties to comment on how the nonsupported amount is to be recovered by
the carrier, assuming such expenses
remain regulated expenses for
ratemaking purposes. The Commission
invites parties to comment on the two
approaches for recovery of those
amounts. The Commission seeks to
minimize administrative burden under
any approach.
151. The Commission also invites
commenters to submit into the record
any other proposals or ideas for steps
the Commission should take to provide
appropriate incentives for broadband
deployment to unserved areas working
within the framework of the existing
budget for rate-of-return areas. The
Commission is cognizant of the many
compliance burdens small rate-of-return
carriers face and seeks to minimize
these burdens overall with this line of
questioning.
152. In the concurrently adopted
Order, the Commission updates our
annual reporting requirements for rate-
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of-return ETCs as a necessary
component of our ongoing efforts to
update the support mechanisms for
such ETCs to reflect our dual objectives
of supporting existing voice and
broadband service, while extending
broadband to those areas of the country
where it is lacking. To further lessen the
regulatory burden on small rate-ofreturn carriers, and to improve on the
Commission’s ability to protect against
waste, fraud, and abuse they
Commission seeks comment on certain,
narrowly-tailored reporting changes.
Specifically, the sets of requirements the
Commission seeks comment on whether
to modify or eliminate would reduce
rate-of-returns ETCs’ compliance
burden.
153. More generally, the Commission
expects to consider the economic
impact on small entities, as identified in
comments filed in response to the
Notice and this IRFA, in reaching its
final conclusions and taking action in
this proceeding. The proposals and
questions laid out in the Further Notice
were designed to ensure the
Commission has a complete
understanding of the benefits and
potential burdens associated with the
different actions and methods.
20. Federal Rules That May Duplicate,
Overlap, or Conflict With the Proposed
Rules
154. None.
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C. Congressional Review Act
155. The Commission will send a
copy of the concurrently adopted 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).
D. Ex Parte Presentations
156. Permit-But-Disclose. The
proceeding this Second FNPRM initiates
shall be treated as a ‘‘permit-butdisclose’’ proceeding in accordance
with the Commission’s ex parte rules.
Persons making ex parte presentations
must file a copy of any written
presentation or a memorandum
summarizing any oral presentation
within two business days after the
presentation (unless a different deadline
applicable to the Sunshine period
applies). Persons making oral ex parte
presentations are reminded that
memoranda summarizing the
presentation must (1) list all persons
attending or otherwise participating in
the meeting at which the ex parte
presentation was made, and (2)
summarize all data presented and
arguments made during the
presentation. If the presentation
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consisted in whole or in part of the
presentation of data or arguments
already reflected in the presenter’s
written comments, memoranda, or other
filings in the proceeding, the presenter
may provide citations to such data or
arguments in his or her prior comments,
memoranda, or other filings (specifying
the relevant page and/or paragraph
numbers where such data or arguments
can be found) in lieu of summarizing
them in the memorandum. Documents
shown or given to Commission staff
during ex parte meetings are deemed to
be written ex parte presentations and
must be filed consistent with rule
1.1206(b). In proceedings governed by
rule 1.49(f) or for which the
Commission has made available a
method of electronic filing, written ex
parte presentations and memoranda
summarizing oral ex parte
presentations, and all attachments
thereto, must be filed through the
electronic comment filing system
available for that proceeding, and must
be filed in their native format (e.g., .doc,
.xml, .ppt, searchable .pdf). Participants
in this proceeding should familiarize
themselves with the Commission’s ex
parte rules.
E. Comment Filing Procedures
157. Comments and Replies. Pursuant
to sections 1.415 and 1.419 of the
Commission’s rules, 47 CFR 1.415,
1.419, interested parties may file
comments and reply comments on or
before the dates indicated on the first
page of this document. Comments may
be filed using the Commission’s
Electronic Comment Filing System
(ECFS). See Electronic Filing of
Documents in Rulemaking Proceedings,
63 FR 24121 (1998).
• Electronic Filers: Comments may be
filed electronically using the Internet by
accessing the ECFS: https://apps.fcc.gov/
ecfs.
• Paper Filers: Parties who choose to
file by paper must file an original and
one copy of each filing. If more than one
docket or rulemaking number appears in
the caption of this proceeding, filers
must submit two additional copies for
each additional docket or rulemaking
number.
Filings can be sent by hand or
messenger delivery, by commercial
overnight courier, or by first-class or
overnight U.S. Postal Service mail. All
filings must be addressed to the
Commission’s Secretary, Office of the
Secretary, Federal Communications
Commission.
• All hand-delivered or messengerdelivered paper filings for the
Commission’s Secretary must be
delivered to FCC Headquarters at 445
PO 00000
Frm 00048
Fmt 4702
Sfmt 4702
21531
12th St. SW., Room TW–A325,
Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand
deliveries must be held together with
rubber bands or fasteners. Any
envelopes and boxes must be disposed
of before entering the building.
• Commercial overnight mail (other
than U.S. Postal Service Express Mail
and Priority Mail) must be sent to 9300
East Hampton Drive, Capitol Heights,
MD 20743.
• U.S. Postal Service first-class,
Express, and Priority mail must be
addressed to 445 12th Street SW.,
Washington, DC 20554.
158. 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).
159. Comments and reply comments
must include a short and concise
summary of the substantive arguments
raised in the pleading. Comments and
reply comments must also comply with
section 1.49 and all other applicable
sections of the Commission’s rules. The
Commission directs all interested
parties to include the name of the filing
party and the date of the filing on each
page of their comments and reply
comments. All parties are encouraged to
utilize a table of contents, regardless of
the length of their submission. The
Commission also strongly encourages
parties to track the organization set forth
in the FNPRM in order to facilitate our
internal review process.
160. Additional Information. For
additional information on this
proceeding, contact Suzanne Yelen of
the Wireline Competition Bureau,
Industry Analysis and Technology
Division, Suzanne.Yelen@fcc.gov, (202)
418–7400 or Alexander Minard of the
Wireline Competition Bureau,
Technology Access Policy Division,
Alexander.Minard@fcc.gov, (202) 418–
7400.
IV. Ordering Clauses
161. 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,
201–206, 214, 218–220, 251, 252, 254,
256, 303(r), 332, 403, 405, 1302, and
sections 1.1, 1.3, 1.421, 1.427, and 1.429
of the Commission’s rules, 47 CFR 1.1,
1.3, 1.421, 1.427, and 1.429, that this
Further Notice of Proposed Rulemaking
E:\FR\FM\12APP1.SGM
12APP1
21532
Federal Register / Vol. 81, No. 70 / Tuesday, April 12, 2016 / Proposed Rules
and the concurrently adopted Report
and Order, Order and Order on
Reconsideration IS ADOPTED. It is our
intention in adopting these rules that if
any of the rules that the Commission
retains, modifies, or adopts 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.
162. IT IS FURTHER ORDERED that,
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,
201–206, 214, 218–220, 251, 252, 254,
256, 303(r), 332, 403, 405, 1302, and
sections 1.1, 1.3, 1.421, 1.427, and 1.429
of the Commission’s rules, 47 CFR 1.1,
1.3, 1.421, 1.427, and 1.429, NOTICE IS
HEREBY GIVEN of the proposals and
tentative conclusions described in this
Further Notice of Proposed Rulemaking.
163. IT IS FURTHER ORDERED that
the Commission SHALL SEND a copy of
this Further Notice of Proposed
Rulemaking and the concurrently
adopted Report and Order, Order and
Order on Reconsideration to Congress
and the Government Accountability
Office pursuant to the Congressional
Review Act, see 5 U.S.C. 801(a)(1)(A).
164. IT IS FURTHER ORDERED, that
the Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, SHALL SEND a
copy of this Further Notice of Proposed
Rulemaking and the concurrently
adopted Report and Order, Order and
Order on Reconsideration, including the
Initial Regulatory Flexibility Analysis
and the Final Regulatory Flexibility
Analysis, to the Chief Counsel for
Advocacy of the Small Business
Administration.
jstallworth on DSK7TPTVN1PROD with PROPOSALS
List of Subjects in 47 CFR Part 65
Administrative practice and
procedure, Communications common
carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Proposed Rules
For the reasons discussed in the
preamble, the Federal Communications
VerDate Sep<11>2014
15:12 Apr 11, 2016
Jkt 238001
Commission proposes to amend 47 CFR
part 65 as follows:
PART 65—INTERSTATE RATE OF
RETURN PRESCRIPTION
PROCEDURES AND METHODOLOGIES
1. The authority citation for part 65 is
revised to read as follows:
■
Authority: 47 U.S.C. 151, 154, 201, 202,
203, 204, 205, 218, 219, 220, 403.
2. Amend § 65.450 by revising
paragraph (d) and adding paragraph (e)
to read as follows:
■
§ 65.450
Net income.
*
*
*
*
*
(d) Except for the allowance for funds
used during construction and interest
related to customer deposits, the
amounts recorded as nonoperating
income and expenses and taxes
(Account 7300 and 7400) and interest
and related items (Account 7500) and
extraordinary items (Account 7600)
shall not be included unless this
Commission specifically determines
that particular items recorded in those
accounts shall be included.
(e) For purposes of determining
whether an expense is recognized by the
Commission as ‘‘necessary to the
provision of these services’’ under
paragraph (a) of this section, the
expense must be used and useful and a
prudent expenditure. The Commission
specifically provides that the following
expenses are not necessary to the
provision of interstate
telecommunications services regulated
by the Commission:
(1) Personal travel; gifts to employees;
childcare; housing allowances or other
forms of mortgage or rent assistance for
employees; personal expenses of
employees, board members, family
members of employees and board
members, contractors, or any other
individuals affiliated with the
incumbent LEC, including but not
limited to personal expenses for
housing, such as rent or mortgages;
personal use of company-owned
housing, buildings, or facilities used for
entertainment purposes by employees,
board members, family members of
employees and board members,
contractors, or any other individuals
affiliated with the incumbent local
exchange carrier;
(2) Entertainment; artwork and other
objects which possess aesthetic value;
tangible property not logically related or
PO 00000
Frm 00049
Fmt 4702
Sfmt 9990
necessary to the offering of voice or
broadband services;
(3) Aircraft, watercraft, and other
motor vehicles designed for off-road
use, except insofar as necessary to
access inhabited portions of the study
area not reachable by motor vehicles
travelling on roads; any vehicles
provided to employees, board members,
family members of employees and board
members, contractors, or any other
individuals affiliated with the
incumbent local exchange carrier for
personal use;
(4) Cafeterias and dining facilities;
alcohol and food, including but not
limited to meals to celebrate personal
events, such as weddings, births, or
retirements, except that a reasonable
amount for food shall be allowed for
work-related travel;
(5) Political contributions; charitable
donations; scholarships; membership
fees and dues in clubs and
organizations; sponsorships of
conferences or community events; and
(6) Penalties or fines for statutory or
regulatory violations; penalties or fees
for any late payments on debt, loans, or
other payments.
■ 3. Add paragraph (d) to § 65.830 to
read as follows:
§ 65.830
Deducted items.
*
*
*
*
*
(d) The following assets shall also be
deducted from the interstate rate base:
(1) Artwork and other objects which
possess aesthetic value;
(2) Tangible property not logically
related or necessary to the offering of
voice or broadband services;
(3) Personal residences and property
used for entertainment purposes;
(4) Aircraft, watercraft, and other
motor vehicles designed for off-road
use, except insofar as necessary to
access inhabited portions of the study
area not reachable by motor vehicles
travelling on roads;
(5) Any vehicles provided to
employees, board members, family
members of employees and board
members, contractors, or any other
individuals affiliated with the
incumbent local exchange carrier for
personal use; and
(6) Cafeterias and dining facilities.
[FR Doc. 2016–08376 Filed 4–11–16; 8:45 am]
BILLING CODE 6712–01–P
E:\FR\FM\12APP1.SGM
12APP1
Agencies
[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)]
[Proposed Rules]
[Pages 21511-21532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08376]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 65
[WC Docket Nos. 10-90, 14-58; CC Docket No. 01-92; FCC 16-33]
Connect America Fund, ETC Annual Reports and Certification;
Developing a Unified Intercarrier Compensation Regime
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
(Commission) proposes targeted rule changes to our existing accounting
and affiliate transaction rules to eliminate inefficiencies and provide
guidance to rate-of-return carriers regarding our expectations for
appropriate expenditures.
DATES: Comments are due on or before May 12, 2016 and reply comments
are due on or before June 13, 2016. If you anticipate that you will be
submitting comments, but find it difficult to do so within the period
of time allowed by this document, you should advise the contact listed
below as soon as possible.
ADDRESSES: You may submit comments, identified by either WC Docket No.
10-90, WC Docket No. 14-58 or CC Docket No. 01-92, by any of the
following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Federal Communications Commission's Web site: https://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting
comments.
People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format
[[Page 21512]]
documents, sign language interpreters, CART, etc.) by email:
FCC504@fcc.gov or phone: (202) 418-0530 or TTY: (202) 418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, or Suzanne Yelen, Wireline Competition Bureau, (202) 418-7400
or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket Nos. 10-90,
14-58 and CC Docket No. 01-92; FCC 16-33, adopted on March 23, 2016 and
released on March 30, 2016. 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 St. SW., Washington, DC 20554
or at the following Internet address: https://transition.fcc.gov/Daily_Releases/Daily_Business/2016/db0330/FCC-16-33A1.pdf. The Report
and Order, Order and Order on Reconsideration that was adopted
concurrently with the FNPRM are published elsewhere in this issue of
the Federal Register.
I. Introduction
1. With this Further Notice of Proposed Rulemaking (FNPRM) and
concurrently adopted Report and Order, Order, Order on Reconsideration,
the Commission adopts significant reforms to place the universal
service program on solid footing for the next decade to ``preserve and
advance'' voice and broadband service in areas served by rate-of-return
carriers. In 2011, the Commission unanimously adopted transformational
reforms to modernize universal service for the 21st century, creating
programs to support explicitly broadband-capable networks. In this
Report and Order, Order, Order on Reconsideration, and FNPRM, the
Commission takes necessary and crucial steps to reform our rate-of-
return universal service mechanisms to fulfill our statutory mandate of
ensuring that all consumers ``have access to . . . advanced
telecommunications and information services.'' In particular, after
extensive coordination and engagement with carriers and their
associations, the Commission modernizes the rate-of-return program to
support the types of broadband offerings that consumers increasingly
demand, efficiently target support to areas that need it the most, and
establish concrete deployment obligations to ensure demonstrable
progress in connecting unserved consumers. This will provide the
certainty and stability that carriers seek in order to invest for the
future in the years to come. The Commission welcomes ongoing input and
partnership as they move forward to implementing these reforms.
2. Rate-of-return carriers play a vital role in the high-cost
universal service program. Many of them have made great strides in
deploying 21st century networks in their service territories, in spite
of the technological and marketplace challenges to serving some of the
most rural and remote areas of the country. At the same time, millions
of rural Americans remain unserved. In 2011, the Commission unanimously
concluded that extending broadband service to those communities that
lacked any service was one of core objectives of reform. At that time,
it identified a rural-rural divide, observing that ``some parts of
rural America are connected to state-of-the art broadband, while other
parts of rural America have no broadband access.'' The Commission
focuses now on the rural divide that exists within areas served by
rate-of-return carriers. According to December 2014 Form 477 data, an
estimated 20 percent of the housing units in areas served by rate-of-
return carriers lack access to 10 Mbps downstream/1 Mbps upstream (10/1
Mbps) terrestrial fixed broadband service. It is time to close the gap,
and take action to bring service to the consumers served by rate-of-
return carriers that lack access to broadband. The Commission needs to
modernize comprehensively the rate-of-return universal service program
in order to benefit rural consumers throughout the country.
3. For years, the Commission has worked with active engagement from
a wide range of interested stakeholders to develop new rules to support
broadband-capable networks. One shortcoming of the current high-cost
rules identified by rate-of-return carriers is that support is not
provided if consumers choose to drop voice service, often referred to
as ``stand-alone broadband'' or ``broadband-only'' lines. In the April
2014 Connect America FNPRM, 79 FR 39196, July 9, 2014, the Commission
unanimously articulated four general principles for reform to address
this problem, indicating that new rules should provide support within
the established budget for areas served by rate-of-return carriers;
distribute support equitably and efficiently, so that all rate-of-
return carriers have the opportunity to extend broadband service where
it is cost-effective to do so; support broadband-capable networks in a
manner that is forward looking; and ensure no double-recovery of costs.
The package of reforms outlined below solve the stand-alone broadband
issue and update the rate-of-return program consistent with those
principles. The Commission also takes important steps to act on the
recommendation of the Governmental Accountability Office to ensure
greater accountability and transparency in the high-cost program.
4. In the FNPRM, the Commission proposes targeted rule changes to
our existing accounting and affiliate transaction rules to eliminate
inefficiencies and provide guidance to rate-of-return carriers
regarding our expectations for appropriate expenditures. Consumers are
harmed when ``universal service provides more support than necessary to
achieve our goals.'' The statute requires that universal service funds
be used for their intended purposes--maintaining and upgrading
supported facilities and services. The Commission proposes to eliminate
a number of expenses from inclusion in a rate-of-return carrier's
revenue requirement and calculations of high-cost support. The
Commission also seeks comment on establishing measures governing
prudent or reasonable expense levels for certain expense categories.
The FNPRM further seeks comment on ways in which the cost allocation
procedures between regulated and non-regulated activities and the
affiliate transaction rules can be improved to reduce the potential for
a carrier to shift costs from non-regulated to regulated services or to
the regulated affiliate.
5. Second, the Commission seeks comment in the FNPRM on additional
options for disaggregating support for those discrete areas that are
served by an unsubsidized competitor and other issues associated with
implementation of the competitive overlap rule.
6. Third, the FNPRM seeks comment on proposals to adopt a mechanism
to provide additional support to unserved Tribal lands. The Commission
has long recognized the distinct challenges in bringing communications
service to Tribal lands.
7. Fourth, the FNPRM seeks comment on other measures that the
Commission could take within the existing budget to encourage further
broadband deployment by rate-of-return carriers.
8. Lastly, the FNPRM seeks comment on additional proposals to
modify or potentially eliminate certain eligible telecommunications
carriers' (ETC) certifications and reporting obligations
[[Page 21513]]
so as to streamline ETC reporting requirements.
9. The actions the Commission takes today, combined with the rate-
of-return reforms undertaken in the past two years, will allow us to
continue to advance the goal of ensuring deployment of advanced
telecommunications and information services networks throughout ``all
regions of the nation.'' Importantly, they build on proposals from and
collaboration with the carriers and their associations. Through the
coordinated reforms the Commission takes today, they will provide rate-
of-return carriers with equitable and sustainable support for
investment in the deployment and operation of 21st century broadband
networks throughout the country, providing stability for the future.
Achieving universal access to broadband will not occur overnight, but
today marks another step on the path toward that goal.
II. Further Notice of Proposed Rulemaking
A. Permitted Expenses, Cost Allocation and Affiliate Transactions
10. With this Notice, the Commission commences a review of the
extent to which certain investments and expenses incurred by a
regulated local exchange carrier may be included in its rate base and
revenue requirement for ratemaking and universal service fund (USF)
purposes. The Commission's rules provide that local exchange carriers
may not include expenses in their revenue requirement unless such
expenses are ``recognized by the Commission as necessary to the
provision'' of interstate telecommunications services. Similarly, high-
cost support provided to an ETC must be used ``only for the provision,
maintenance, and upgrading of facilities and services for which the
support is intended.''
11. The Commission has not comprehensively reviewed the continued
reasonableness of its existing rules regarding permissible investments
and expenses for local exchange carriers since the passage of the
Telecommunications Act of 1996. Market and regulatory conditions have
changed substantially since that time. Notably, regulated
telecommunications carriers have expanded into the provision of retail
broadband services, either directly or through affiliated entities.
Regulated carriers also increasingly face competition, for both voice
and broadband services, in portions of their incumbent territory from
other facilities-based providers, such as cable and wireless providers.
These changing conditions may impact the types of costs carriers
attempt to include in their revenue requirement and the ways in which
carriers allocate costs between regulated and non-regulated services
and affiliates.
12. Moreover, with steady demands on the high-cost program and a
shrinking contribution base, it is more important than ever that these
limited funds be used solely for their intended purposes. Likewise,
amidst challenging economic conditions, it simply is not right to
expect consumers across the country, including those in rural areas, to
reimburse rate-of-return carriers--through the regulated rates for
interstate service--for excessive or otherwise inappropriate expenses.
13. While the Commission believes that most rate-of-return carriers
properly record their costs and seek support only for the intended
purposes, through audits, inquiries and other investigations, the
Commission has recently been made aware of alleged abuses by rate-of-
return carriers of the used and useful principles and its cost
allocation rules. These situations involve rate-of-return carriers, for
example, including questionable expenses in their revenue requirement,
using support for purposes unrelated to the provision of services, and
misallocating expenses among affiliates, or between regulated and non-
regulated activities. Against that backdrop, the Commission concludes
it is time to reevaluate the types of expenses that should be
permitted--both in a carrier's revenue requirement and for recovery
through high-cost support. Looking into the expenses permitted and the
allocation of those expenses will help ensure that carriers are only
recovering costs that are used and useful and prudently incurred, and
in the case of high cost support, only costs that are necessary to the
provision of interstate telecommunications services.
1. Discussion
a. Review of Permitted Expenses
14. The Commission begins our reevaluation of a rate-of-return
carrier's ability to include certain types of expenses in their revenue
requirement and high-cost support with consideration of the appropriate
standard to be applied. As noted above, the Commission has used
different terms in different situations--``used and useful,'' ``prudent
expenditure,'' and ``necessary to the provision of.'' The Commission
believes that these terms should be read consistently to describe those
expenses that a carrier may appropriately include in its interstate
rate base, interstate revenue requirement, and cost studies used to
calculate high-cost support. Thus, they should reflect a business
operation that is run efficiently to provide telecommunications
services. The costs should include amounts of long-term investment and
current expenditures that a business would reasonably incur to provide
telecommunications services, taking into account current and reasonably
forecasted operating conditions and business levels. The Commission
invites parties to comment on these standards and whether they should
be viewed as applying a consistent standard to regulated, tariffed
services and to expenditures that are recovered through high-cost
support. To the extent that a party believes different standards should
be applied, it should specify the situations in which such differences
should apply, what the differences are, and how they should be treated
within the accounting and cost allocation processes of the Commission.
As parties respond to the issues raised below, they should consider the
application of the standards in their comments.
15. The Commission recently indicated that ETCs may not recover
certain types of expenses through high-cost support. Those expenses
include the following: Personal travel; entertainment; alcohol; food,
including but not limited to meals to celebrate personal events, such
as weddings, births, or retirements; political contributions;
charitable donations; scholarships; penalties or fines for statutory or
regulatory violations; penalties or fees for any late payments on debt,
loans, or other payments; membership fees and dues in clubs and
organizations; sponsorships of conferences or community events; gifts
to employees; and, personal expenses of employees, board members,
family members of employees and board members, contractors, or any
other individuals affiliated with the ETC, including but not limited to
personal expenses for housing, such as rent or mortgages.
16. The Commission seeks comment on explicitly prohibiting the
inclusion of any of these expenses in a carrier's interstate revenue
requirement, which would supersede any existing rules or precedent that
might otherwise suggest these are legitimate expenditures. The
Commission tentatively concludes that these expenditures are
unnecessary to the provision of regulated interstate services and thus
are not appropriately included in a rate-of-return carrier's interstate
revenue requirement, just as they are not appropriately included in
[[Page 21514]]
calculating the level of high-cost support a carrier receives.
Recognizing that some of these enumerated types of expenditures are
quite broad, however, the Commission invites parties to indicate
whether there is a definable subset of expenses within any of the
categories that should not be excluded from a carrier's interstate
revenue requirement. Parties believing there are specific types of
expenses that should be included in the interstate revenue requirement
should provide examples of such expenses, the reasons they are
necessary, as well as specific language that would allow the Commission
to distinguish these expenses from those that are appropriately
excluded. The Commission also seeks comment on whether, if the
Commission ultimately decides some of these expense categories, or a
portion of them, should be allowed in a carrier's interstate revenue
requirement, whether similar treatment should be accorded those
expenses for purposes of high-cost support.
17. In addition to the expenses identified in the High Cost Oct.
19, 2015 Public Notice, the Commission proposes to prohibit additional
expenses from inclusion in a carrier's interstate revenue requirement
and also preclude their recovery through high-cost support. The
additional expenses that the Commission proposes to disallow for these
purposes include: Artwork and other objects which possess aesthetic
value; corporate aircraft, watercraft, and other motor vehicles
designed for off-road use, except insofar as necessary to access
inhabited portions of the study area not reachable by motor vehicles
travelling on roads; any vehicles for personal use; tangible property
not logically related or necessary to the offering of voice or
broadband services; childcare; cafeterias and dining facilities; and,
housing allowances or other forms of mortgage or rent assistance for
employees. Like the expenses listed above, the Commission is concerned
that some carriers may incur additional expenses of this nature that
are not necessary to the provision of the supported service--voice
telephony--and not necessary to the provision of regulated interstate
services. If adopted, such a rule would overturn any existing rule or
precedent that might suggest such expenditures are permissible.
18. The Commission invites parties to comment on whether there is
any reason that these expense categories should not be completely
excluded from a carrier's revenue requirement or its high-cost support.
Parties making an argument for inclusion of these expenses in a
carrier's revenue requirement should explain clearly why such expenses
are necessary to the provision of a supported service or to the
provision of a regulated interstate telecommunications service. The
Commission invites parties to indicate whether there is a definable
subset of expenses within any of the categories that should not be
excluded from a carrier's interstate revenue requirement or high-cost
support. Parties believing that to be the case should provide examples
of such expenses, the reason they are necessary, as well as specific
language that would allow the Commission to distinguish these expenses
from those that are appropriately excluded.
19. The Commission also invites parties to identify additional
expenses that should be excluded from either a carrier's interstate
revenue requirement, from calculations of high-cost support, or both.
Parties identifying additional expenses to be excluded should address
the reasons they are unnecessary to the provision of telecommunications
service or to the provision of supported services. Parties seeking
additional exclusions should also provide language that would allow the
Commission to exclude such items if it elects to do so. With respect to
ensuring the appropriate use of high-cost funds for certain expenses,
our proposals apply to both price cap and rate-of-return carriers. Our
proposals concerning permitted expenses for the revenue requirement
would primarily apply to rate-of-return carriers, but they would also
apply to price cap carriers in limited circumstances.
20. In addition to these categories, the Commission has seen
instances in which ``companies maintain comparatively high compensation
portfolios for their executives.'' The Commission expressed concern
that these and other expenses were not reasonable and necessary given a
number of considerations. The Commission seeks comment on how to
address potential concerns regarding such expenses for executives,
those with close relationships to those executives, and a carrier's
other employees and contractors.
21. The Commission is also aware of at least one instance in which
costly benefits were sought to be provided to board members. Are there
circumstances under which compensation for board members, including
fees per-meeting, for special duties assumed, and for travel and per
diem expenses should be deemed unreasonable? If so, on what basis? Is
additional evaluation warranted where board members have a close
relationship to someone in the company?
22. The Commission seeks comment on whether the costs that may be
included in a carrier's revenue requirement for buildings purchased or
rented by regulated telecommunications carriers should be limited. For
example, in cases where excessive square footage of office or warehouse
space is purchased by a regulated carrier in order to earn a rate of
return on that space, should part of the price paid for the building be
excluded from the revenue requirement? How should ``excessive'' be
defined for this purpose? Are there objective metrics available on the
square footage of office space per employee that is reasonable, or on
the square footage of warehouse space that a carrier should reasonably
require given the number of loops the carrier provides and the density
of its service area? Are there objective metrics on the price per
square foot that should be paid for office or warehouse space in
specific locations?
23. Section 32.2002 provides that plant held for future use must be
utilized within two years. This plant is included in the carrier's rate
base. The Commission is concerned that carriers may have incentives to
place excess capacity in the interstate regulated rate base that will
not be used in the foreseeable future, with ratepayers bearing the
cost. The Commission reminds carriers that the benefit from a used and
useful investment must be realized within a reasonable amount of time.
Thus, the Commission invites parties to comment on whether they should
adopt a rule that would prohibit a regulated carrier from leasing
capacity from its unregulated affiliate that is not presently utilized
in the provision of voice or broadband services. Alternatively, could
this concern be addressed by defining more precisely what constitutes
reasonable projections of use and/or requiring that such capacity be
used within a shorter timeframe than two years? Parties are invited to
address the types of uses that should be considered to meet the
requirement that excess capacity be used in the foreseeable future.
24. As explained above, carriers record their financial
transactions in the USOA books of account as they occur. These amounts
then flow through the allocation procedures in Parts 64, 36, and 69
with the implied assumption that the recorded amounts are reasonable,
and thus prudently incurred. While the used and useful and prudent
expenditure standards apply to all investments and expenses of the
carrier, the principles considered under
[[Page 21515]]
this standard have been interpreted only in limited, specific cases.
The Commission now seeks comment on whether the Commission should adopt
more precise guidance regarding what constitutes a used and useful or
otherwise prudent expenditure.
25. The Commission notes that transactions between non-affiliated
parties that are negotiated at arm's length are generally presumed to
produce commercially reasonable prices. Affiliate transactions,
however, are not negotiated at arm's length and thus, may result in
unreasonable prices absent standards governing how those transactions
should be priced; that is why the Commission adopted rules for the
pricing of affiliate transactions decades ago. The Commission now
invites parties to comment on whether there are circumstances
surrounding transactions between non-affiliated parties that might
raise concerns about whether the resulting prices are reasonable. For
example, would a close family relationship or cross-participation on
boards of directors be situations that warrant more scrutiny of the
price? The Commission invites parties to discuss these examples and to
identify other examples that might raise concerns. Parties are invited
to discuss whether presumptions concerning what would be a prudent
expenditure could be employed to ensure that prices are reasonable.
26. The Commission's rules require a carrier in specified
situations to record the purchase of a good or service from an
affiliate at fair market value. The Commission invites parties to
comment on whether the affiliate transaction standard should also be
applied to goods and services acquired from non-affiliated entities. If
not, parties should propose an alternative standard and explain why it
is a preferable approach. The Commission also invites parties to
comment on the factors that should be considered in determining whether
a transaction is a prudent expenditure or is a reasonable market price
in evaluating prices in situations identified as warranting a closer
look. Are there circumstances where a prudent expenditure might be
something other than the absolute lowest identified price? Parties are
invited to identify other metrics beside cost and reliability that are
relevant in determining whether an investment or expense is prudent for
the purposes of our rules. Finally, are there specific circumstances
under which a carrier should be required to make a good faith
determination of fair market value for a good or service obtained from
a non-affiliate, prior to incurring such expenses, for instance when
the total aggregate annual value of the good(s) or service(s) reaches
or exceeds a specified threshold for purchases from a non-affiliate, as
is done under section 32.27(b)(3) and (c)(3) for affiliates?
27. Finally, the Commission invites parties to comment on the best
manner of implementing any decision to exclude the expenses identified
in this section. Specifically, parties should address whether it would
be sufficient to adopt an order simply identifying and defining which
costs are not allowed, as has generally been the process in the past,
or whether some rule revisions are necessary. If rule revisions are
thought necessary, parties should address where in the process they can
best be implemented. Part 32 excludes certain investments and expenses
as non-regulated, while Part 64 allocates investments and expenses used
to provide both regulated and non-regulated activities that are
recorded in the regulated accounts of Part 32 between regulated and
non-regulated activities. In addition, for purposes of determining
whether a carrier's realized rate-of-return exceeds the maximum
allowable rate of return, Part 65 specifies the determination of
earnings and rate base. Parties are encouraged to address whether some
cost disallowances would be better achieved through revisions to the
Part 32 rules, while other cost disallowances could best be addressed
through revisions to other rules in Parts 64, 65, 69, or some
combination of these rules. The Commission is providing state
commissions with notice of this in compliance with the requirements of
section 220(i) of the Act in the event they decide to make some
revisions to Part 32. In other words, is it better to first enumerate
which expenses should be excluded from the revenue requirement as not
used and useful in the provision of regulated services and then proceed
with allocating costs, or is it better to rely on the cost allocation
procedures in Part 64 to exclude such expenses? One of the goals of the
USOA at the time it was adopted was that it remain stable over time.
How should this be factored into the decision of where to make certain
disallowances? Parties are invited to submit proposed language to
accomplish the approach they recommend. Lastly, the Commission invites
parties to comment on whether they should require rate-of-return
carriers to identify their cost consultants, if any, in their FCC Form
481s.
b. Issues Related to Cost Allocation and Affiliate Transactions
28. Rate-of-return carriers are subject to the Commission's
longstanding Part 64 rules regarding the allocation of costs between
regulated and non-regulated activities and to the affiliate transaction
rules in Part 32. Under these rules, carriers currently apply broad
principles in making such allocations, and the lack of specificity in
the rules gives carriers a degree of discretion in making these
allocation decisions. Therefore, there is an incentive to interpret the
allocation rules in order to allocate as many costs as possible to
their regulated activities, both to justify a higher interstate revenue
requirement and to receive additional high-cost support. For instance,
marketing costs could be recorded solely as regulated expenses, even
though those marketing activities are designed to increase
subscribership of retail broadband, i.e., non-regulated services. Given
the lack of specific guidance, the additional costs associated with the
provision of retail broadband services, and the incentive to allocate
costs to regulated activities, the Commission concludes that it is time
to revisit our allocation rules in order to provide greater clarity to
rate-of-return carriers regarding how to determine the relative
allocation of costs between regulated and non-regulated activities and
affiliates.
29. As noted, the Commission's existing cost allocation rules
relating to regulated versus non-regulated activities generally provide
that costs shall be directly assigned to either regulated or non-
regulated activities where possible, and common costs are to be
allocated according to a hierarchy of principles. To the extent costs
cannot be allocated on direct or indirect cost causation principles,
they are allocated based on a ratio of all expenses directly assigned
or attributed to regulated and non-regulated activities. In certain
cases, the affiliate transaction rule requires fully distributed costs
to be used to determine the charge to the affiliate or the carrier.
30. The Commission seeks comment on adopting new rules to improve
the process of allocating costs among regulated and non-regulated
services and between affiliates. The Commission also seeks a better
understanding of how to detect cases of misallocation. Our goal is to
reduce the potential ability of carriers to include expenses associated
with non-regulated services in their regulated revenue requirements,
and to preclude carriers from artificially inflating their high-cost
support through such actions. To this end, the Commission seeks comment
on
[[Page 21516]]
adopting a rule that would classify certain costs, such as general and
administrative expenses, as common costs for purposes of applying the
Part 64 and affiliate transaction rules when an entity provides
broadband services directly, or through an affiliated entity. Are there
other costs that should be treated as common costs in applying these
allocation rules? Under such an approach, carriers would be precluded
from including all of these expenses in their regulated revenue
requirement, and instead, would be required to exclude some expenses
based on the prescribed manner of allocation. Accordingly, the
Commission also seeks comment on adopting rules that would prescribe
the manner of allocation of common costs in particular situations. For
example, are there certain common costs that the Commission should
specify by rule that they should be allocated on the basis of the
relative number of regulated lines compared to the total number of
lines (both regulated and non-regulated) for the rate-of-return carrier
and its broadband affiliate, if any? Are there other instances in which
relative revenues or some other measure would be a better allocator,
taking into account the ease of administering any such rule?
31. The Commission is concerned about the potential for carriers to
provide shared operational services to their affiliates under fully-
distributed cost (FDC) allocation procedures that do not include all of
the associated costs. The affiliate transaction rules employ a higher
of cost or market standard when applicable, or a FDC standard to ensure
that all costs of services provided by a regulated telecommunications
company are recovered from its affiliates. The general nature of the
FDC allocation guidelines, however, allows carriers significant
discretion in performing the FDC cost study. This discretion allows
carriers to exclude expenses associated with providing shared functions
to their non-regulated affiliates, especially to those affiliates that
then sell retail broadband services to end users on an unregulated
basis, thus recovering these costs from rate payers. The Commission
seeks comment on clarifying or adopting new rules to ensure the proper
application of the affiliate transaction rules in light of provision of
retail broadband by affiliates in certain telecommunications markets.
32. Our accounting and high-cost universal service support rules
rely on proper allocation of costs to work as intended. The Commission
seeks comment on specific instances in which additional rules or
further clarification could minimize potential misallocations and
thereby protect ratepayers of regulated services. Are there other
methods that would help ensure proper allocation of costs between
regulated and non-regulated services?
33. The Commission is also concerned that problems similar to those
associated with regulated versus non-regulated allocations may arise in
the application of the FDC process in connection with affiliate
transactions. Section 32.27 of the Commission's rules requires an
incumbent LEC to record assets or services received from its affiliated
entities at the lesser of FDC or fair market value when no tariff rate,
prevailing price, or publicly filed agreement exists. FDC may be over-
inclusive, however, if it includes investment and expenses of the
affiliate that would not properly be included in a carrier's revenue
requirement or calculations for high-cost support. While the used and
useful and prudent expenditure standards apply to costs included in
affiliate transactions, the Commission seeks comment on whether they
should adopt a rule that explicitly prohibits carriers from including
in the FDC of an affiliate any costs that are disallowed from the
regulated rate base or revenue requirement, or considered not to be
used and useful or prudent expenditures. Without such a rule, carriers
could shift costs to an affiliate and then effectively recover those
disallowed costs through payments to the affiliate. The Commission
invites parties to comment on how such an approach could be
implemented, and whether there are circumstances under which these
costs of affiliates should be properly included in the regulated rate
base or costs used to calculate high-cost support.
34. The Commission seeks comment on whether additional data would
assist in enforcement of the Commission's accounting and cost
allocation rules, while minimizing ETC reporting burden.
c. Compliance Issues
35. Finally, the Commission seeks comment on the most effective way
to ensure compliance with the proposed rules for universal service
support and tariffing purposes. Rate-of-return affiliates of price cap
carriers would be subject to any revised rules in establishing their
tariffed rates for interstate services. In addition, if a price cap
carrier is required to make a cost-based showing in the future, any
expense rules adopted in this proceeding would apply to such showings.
The Commission invites parties to comment on whether they should
require carriers to certify that they have not included any prohibited
expenses in their cost submissions used to calculate high-cost support.
If so, is there a current certification that can be modified to
encompass this aspect, or is a new rule necessary? Because audit
findings can be used to recover overpayments of high-cost support, the
Commission also invites parties to comment on how the Commission should
implement any requirements it may adopt. Are there other proposals or
considerations that the Commission should consider to ensure compliance
with any revised requirements?
36. Ensuring compliance with any revised investment, expense, or
cost allocation rules in the tariffing context raises different
challenges. Rate-of-return carrier tariffs must be filed in advance of
their effective date, and pursuant to section 204 of the Act, the
Commission, during the notice period, may suspend the effectiveness of
a tariff and initiate an investigation to determine whether the tariff
is just and reasonable. Section 204(a)(3) provides that local exchange
carrier tariffs that take effect on 7-days notice after filing (when
rates are reduced) or 15-days notice (for any other change) after
filing are ``deemed lawful'' unless rejected or suspended and
investigated by the Commission. If a tariff investigation has not been
completed within five months of the tariff's specified effective date,
the proposed tariff goes into effect subject to the results of the
investigation. At the conclusion of the investigation, the Commission
may prescribe rates prospectively and order refunds as necessary for
any period in which the tariff was in effect. With these constraints on
timing and prohibition on retroactive relief, the Commission invites
parties to comment on steps the Commission could take to ensure that
carriers follow these requirements. As a starting point, the Commission
proposes to require a certification and seek comment on what it should
entail. The Commission also invites parties to comment on what
sanctions should be used to give some meaning to the certifications.
37. The Commission invites parties to comment on whether, and if
so, when an exception to the ``deemed lawful'' provision of section 204
of the Act would apply where a carrier violated these rules. The
Commission notes that in ACS v. FCC, the D.C. Circuit indicated that
although the ``deemed lawful'' language is unambiguous, ``[w]e do not,
of course, address the case of a carrier that furtively employs
improper accounting techniques in a tariff filing, thereby concealing
potential rate of return violations. The Order here makes
[[Page 21517]]
no claim of such misconduct.'' The D.C. Circuit thus acknowledged that
there may be extenuating circumstances (such as using improper
accounting techniques or willfully misrepresenting expenses) that
warrant an exception to the deemed lawful language. The Commission
proposes to adopt a rule that would find an exception to the deemed
lawful rule when a carrier incorrectly certifies that its revenue
requirements are compliant with the applicable standards. The
Commission invites parties to comment on this proposal. In particular,
parties should address the amount of the discrepancy in actual and
projected costs that must exist before such an exception would be
invoked. The Commission also asks parties to comment on how any cost
recovery should be returned to customers. For example, should it be
used to reduce the revenue requirement for the following tariff period?
Should there be an interest component to what must be returned to the
customers. If so, what should the applicable interest rate be--the
authorized rate of return, the corporate tax underpayment rate, or
something else? Are there other mechanisms the Commission should
consider to deter inclusion of inappropriate expenses in a rate-of-
return carrier's revenue requirement?
38. The vast majority of rate-of-return carriers are members of the
NECA pool, and their costs are combined to establish pool rates. The
Commission invites parties to comment on NECA's role in enforcing these
rules. Should carriers be barred from pool participation if determined
to be including expenses prohibited by Commission rules? How should the
magnitude of the violation be determined? What percent level of
prohibited cost inclusion should be required before immediate expulsion
from pool participation is deemed necessary? Are there any other
metrics that should be considered in making this determination? Should
carrier violations for inclusion of prohibited expenses have a
``repeated occurrences'' component, or should one time inclusion of a
certain percentage of prohibited expenses impact pool participation?
B. Reducing Support in Competitive Areas
39. In section II.B of the concurrently adopted Report and Order,
the Commission concludes that CAF BLS should not be provided in areas
served by a qualifying unsubsidized competitor. The Commission adopts
several methods of disaggregating Connect America Fund Broadband Loop
Support (CAF BLS) for areas found to be competitively service, and
allow carriers to select which method will be used. USTelecom and NTCA
propose that in addition to the methods they specifically presented,
carriers should also have the option of disaggregating support based on
a ``method approved by the Commission.'' Here, the Commission invites
commenters to propose other methods of disaggregation of support that
can be implemented with minimal administrative burden for affected
carriers and USAC. The Commission seeks to avoid complex allocations of
the cost of facilities that that serve both competitive and non-
competitive areas, which could be burdensome for rate-of-return
carriers to implement.
40. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. At the
outset, the Commission notes that rate-of-return carriers currently
receive compensation for interstate loop costs through a combination of
end-user charges, e.g., SLCs and universal service support. The SLCs
most rate-of-return carriers assess are at the maximum levels. Thus, in
many situations, carriers would be prohibited by our current rules from
increasing SLC rates to recover investment and associated expenses that
will not be supported under the high-cost program in competitive areas.
The Commission invites parties to comment on the two approaches for
recovery of those amounts.
41. First, the Commission could treat the non-supported expenses as
being outside the tariffed regulated revenue requirement and allow
carriers to assess a detariffed regulated rate to recover those non-
supported costs. This would remove those costs from the NECA pooling
process. The Commission invites parties to comment on whether the
detariffed rates would be outside the prohibition on tariffing
deaveraged rates in a study area, or whether a new rule should be
adopted. The Commission invites parties to comment on this alternative.
Does it present any opportunities for carriers to game the tariffing
process?
42. A second option would be to raise the SLC caps for a particular
study area to permit the recovery of the amounts not supported by the
high-cost program. The Commission invites parties to comment on this
alternative, including whether any SLC increases should be allowed only
in the competitive area or should apply to the entire study area. In
the former case, a modification of the rule prohibiting deaveraging
within the study area would need to be made. Parties should
particularly address the effects of deaveraging on the NECA pooling and
tariffing processes. The Commission also invites parties to comment on
the effects of deaveraging on carriers' billing and operation support
systems. Are there other alternatives that the Commission should
consider for recovery of the non-supported investment and associated
expenses?
C. Tribal Support
43. Discussion. Given the difficulties that some carriers have
experienced in deploying basic telecommunications services on Tribal
lands, the Commission recognizes the important role of universal
service support to foster the deployment of broadband in unserved
areas. Therefore, the Commission seeks comment on adopting rules to
increase support to rate-of-return carriers for census blocks that
include Tribal lands and unserved with broadband meeting the
Commission's current requirements.
44. The Commission recognizes the distinct challenges in bringing
communications services to Tribal lands and seek comment on how best to
achieve broadband deployment on Tribal lands commensurate with that in
other areas. However, the Commission has acknowledged that there are
areas throughout the United States that are expensive to serve and that
face challenges in demographics, weather, and geography.
45. NTTA proposes that a TBF be applied to any non-model-based
rate-of-return mechanism that the Commission adopts. In light of the
other changes adopted today, including measures to provide a larger
capital investment allowance for carriers that are below average in
terms of broadband deployment, and defined deployment obligations for
all rate-of-return carriers, is there a need for a separate mechanism
for Tribal lands? The Commission seeks comment on whether a multiplier
applied to the revised ICLS (i.e. CAF BLS) mechanism would foster
broadband deployment on Tribal lands and ensure ``universal service
funds are used for their intended purposes.'' Are there other
approaches that would better advance of our goals?
46. If the Commission determines that a multiplier of support
amounts under CAF BLS is an appropriate mechanism, what factor is
appropriate? NTTA provides little support of why 1.25x is the
appropriate factor to ensure broadband deployment on Tribal lands,
other than pointing to the 25 percent
[[Page 21518]]
credit the Commission provided in the Tribal Mobility Fund Phase I. The
Commission seeks comment on the appropriate figure for the multiplier,
if they were to adopt such an approach. When providing comment on the
appropriate multiplier, specific data and figures are encouraged. The
Commission also emphasizes that high-cost universal service support is
a finite resource that must be equitably distributed in a manner that
effectuates the goals of section 254. Therefore, the Commission seeks
comment on how implementation of Tribal-specific additional support may
affect the resources available to extend broadband deployment to non-
Tribal rate-of-return service areas with equally minimal broadband
build out and located in geographies as equally hard to serve as Tribal
lands.
47. The Commission also seeks comment on how best to target Tribal
land-specific support to Tribal lands most in need of broadband
deployment. NTTA recommends offering TBF support to all rate-of-return
carriers serving Tribal lands and limiting the applicability of the TBF
to specific census blocks that include Tribal lands. As noted above,
broadband deployment differs substantially among Tribal lands. In light
of this, should all Tribal lands be eligible for additional support, or
only those with lower levels of deployment? Above, the Commission
adopts a mechanism to allow a larger allowable loop expenditure for
carriers below the average and to limit the allowable loop expenditure
for those above the average. The Commission notes that the weighted
average nationwide for rate-of-return carrier deployment of 10/1 Mbps
service is currently 68 percent. Should Tribal-specific support only be
provided to those rate-of-return carriers that are serving Tribal lands
that report broadband deployment lower than the weighted average, based
on Form 477 data? If so, should eligibility for Tribal-specific support
be determined annually or on a less frequent basis? Should it be
provided for a specified period of time, and if so, what is the
appropriate time period?
48. If a rate-of-return carrier's study area is mostly non-Tribal,
should that carrier be eligible to receive additional Tribal-specific
support? Should there be some threshold percentage, for example 50
percent, of a carrier's service area is on Tribal lands in order to
qualify for additional Tribal-specific support? The Commission also
seeks comment on the appropriate data source to use to determine
whether a census block contains Tribal lands. For example, should the
Commission utilize maps and data distributed by the U.S. Census Bureau,
or would maps and data provided by the Bureau of Indian Affairs be more
appropriate? What other sources of data might the Commission use? The
Commission notes that the Commission is currently engaged in
consultation with the Tribal Nations of Oklahoma on the operational
functionality and use of the Oklahoma Historical Map at the local and
individual Tribal Nation level as part of the Lifeline rulemaking
proceeding. The Commission seeks comment on how this process may affect
our determination of which census blocks would be eligible for Tribal-
specific support.
49. In addition, the Commission seeks comment on what specific
broadband deployment obligations should be established, if they were to
adopt a mechanism to provide additional support on Tribal lands that
lag behind. NTTA supports tying build-out obligations to additional
support, and proposes specific build-out obligations tied to a sliding
scale based on current broadband deployment levels to ``meaningfully
improve broadband connectivity on Tribal lands . . . particularly in
areas that are unserved today.'' For instance, it proposes that
recipients of TBF that currently have deployed 10/1 Mbps to less than
10 percent of their locations be required to provide 4/1 Mbps service
to at least 25 percent of their locations within three years, and 10/1
Mbps to at least 10 percent of locations, within three years; for those
that already have deployed 10/1 Mbps to at least 10 percent but not 25
percent of their locations, they would be required to offer 4/1 Mbps
service to 50 percent of their locations and 10/1 Mbps service to 25
percent of locations within three years. If the Commission were to
adopt some form of additional Tribal-specific support, how should these
proposals be harmonized with the mandatory deployment obligations they
adopt above for all rate-of-return carriers?
50. NTTA recommends that participation in the TBF be voluntary. The
Commission seeks comment on whether carriers should have the option to
decline Tribal-specific support if the Commission determines that the
provision of additional support to Tribal lands is necessary to close
the broadband deployment gap in such areas. NTTA suggests that if
acceptance of Tribal-specific support is conditioned on build-out
obligations, such support presents a ``unique opportunity to promote
greater deployment of broadband to Tribal lands.'' Should participation
in such a program be mandatory?
51. In the USF/ICC Transformation Order, 76 FR 73830, November 29,
2011, the Commission required that ETCs serving Tribal lands must
meaningfully engage with Tribal governments in their supported areas.
The Commission seeks comment on whether the offer of additional
voluntary Tribal-specific support would encourage more robust ETC
engagement by carriers with Tribal governments on whose lands they
provide service.
52. Finally, the Commission asks whether carriers that serve Tribal
lands, in whole or in part, should not be subject to the measures to
limit operating expenses and the overall budget control mechanism
concurrently adopted in the Report and Order. Parties have noted, for
instance, that Tribal lands may pose unique challenges for obtaining
permitting and other authorizations. If the Commission were to exempt
such providers from those opex and overall budget limitations, how
should they determine the providers subject to such limitations? For
instance, to be eligible for such an exemption, should 50 percent or
more of the carrier's study area be Tribal lands? What would the
budgetary impact be on other rate-of-return carriers that remain on
legacy support mechanisms if the Commission were to adopt such
exemptions?
D. Other Measures To Improve the Operation of the Current Rate-of-
Return System
53. Some companies have informed us they have been unable to extend
broadband despite their sincere desire to do so due to lack of access
to capital. Some companies have seen declining support under the
existing legacy mechanisms, and others are not eligible for high cost
loop support (HCLS) support due to the prior ``race to the top'' that
the Commission took steps to address in December 2014.
54. In the April 2014 Connect America Fund FNPRM, the Commission
questioned the long term viability of HCLS and ICLS in their current
form; that is why they encouraged stakeholders to focus on creating a
Connect America Fund for cost recovery that would be consistent with
our core principles for reform. As noted in the concurrently adopted
Report and Order, the Commission expect the voluntary path to the model
to be an attractive option for some of the carriers that no longer
receive HCLS. Moreover, our reforms to the existing interstate common
line support (ICLS) mechanism will enable carriers that are, relatively
[[Page 21519]]
speaking, lower cost than some of their peers to obtain more high-cost
support for broadband only lines from CAF BLS than they would have
received for voice-broadband lines under the existing HCLS mechanism.
This may provide an incentive for them to migrate customers to
broadband-only lines.
55. The Commission intends to monitor the impact of these reforms
over time. The Commission are optimistic that together, these two paths
will provide sufficient options for carriers to make a business case to
extend broadband service where it is lacking, while minimizing
disruption for those carriers that prefer to remain under the reformed
legacy mechanisms. The Commission invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas.
56. As the Commission evaluates ways to improve the overall
framework governing rate-of-return carriers, they also believe it is
appropriate to ensure that the administration of the current rate-of-
return system, a function largely performed by NECA, is as efficient as
possible to ensure that the costs of administration, ultimately borne
by consumers, are reasonable. The role of NECA has changed over the
last few decades due to a number of factors, including market changes,
significant regulatory reforms, and the creation of USAC as the
Administrator for the federal universal service mechanisms. The
Commission asks parties to address whether and how the Commission
should amend subpart G of Part 69 to reflect these changes. The
Commission also seeks comment on whether they should adopt rule changes
to facilitate transparency into and evaluation of whether NECA's
functions are accomplished in an efficient, cost effective, and neutral
manner.
E. Streamlining ETC Annual Reporting Requirements
57. In addition to the modifications to ETC annual reporting
obligations adopted above, the Commission seeks comment on certain,
narrowly-tailored reporting changes to improve the Commission's ability
to protect against waste, fraud, and abuse. The Commission also seeks
comment on additional ways to lessen regulatory reporting burdens on
ETCs, particularly those that are small businesses.
58. Here, the Commission seeks comment on whether to modify or
eliminate five sets of requirements: specifically, the requirements by
ETCs to provide outage information, unfulfilled service requests, the
number of complaints per 1,000 subscribers for both voice and broadband
service, pricing for both voice and broadband, and certification that
it is complying with applicable service quality standards. What are the
regulatory costs associated with requiring such information to be
included in the annual Form 481, particularly for those categories of
information that may be collected in some fashion through other means
(the Commission's outage reporting system and consumer complaint
system)? In the case of outage reporting, the Commission notes that all
carriers are under a separate obligation to report outages under part 4
of our rules. Are the ETC-specific rules therefore duplicative, and can
other means of collection be improved?
59. To the extent commenters believe such information should
continue to be collected from ETCs, the Commission asks for specific
suggestions on how to modify these requirements so that the information
is more useful to analyze, both on an individual ETC and aggregate
basis.
60. The underlying purpose of the unfulfilled service request
reporting rule was to monitor rate-of-return carriers' progress in
deploying broadband pursuant to the reasonable request standard. The
Commission has concerns, however, that the rule, as implemented, is not
adequately advancing that purpose. Similarly, the Commission has found
the information regarding complaints to be of limited value, in large
part because it is not clear that ETCs are reporting such information
in a consistent fashion. If the Commission were to retain some form of
reporting requirements for complaints and unfulfilled requests, should
they implement more specific standardized instructions regarding the
reporting of complaints and unfulfilled requests so that the
information can be analyzed and aggregated in a more useful fashion?
For the reporting of pricing information, would it be less burdensome
if ETCs were to report only the price offering that meets or exceeds
our minimum requirements, and not the full range of service offerings?
61. The Commission also seeks comment on whether, in light of our
experience with the reporting requirements to date, they should modify
or eliminate the requirement that an ETC certify it is complying with
applicable service quality standards and consumer protection rules.
Absent greater specificity, affected ETCs may not know what standards
and rules are ``applicable.'' Should the Commission clarify that the
obligation applies only to legally binding rules and/or voluntary
guidelines with which the ETC has agreed to comply? If so, how should
the ETC report its compliance? Are other clarifications or
modifications to the rule appropriate?
62. Above the Commission directs USAC to establish an online tool
to permit access to all information submitted by ETCs, including Form
481 data. USAC shall ensure that state regulators, and Tribal
governments where applicable, will have access full Form 481 data
filings, including any data marked confidential. In light of that
change, the Commission proposes to eliminate ETCs' requirement to file
a duplicate copy of Form 481 with states and/or Tribal governments.
Instead, they would make a single filing with USAC, and both the
Commission and other regulators would obtain the information through
online access. The Commission tentatively concludes that centralizing
all filing requirements with USAC would be beneficial for states and
Tribal governments as it would reduce the need to sort through, in some
cases, dozens of paper documents containing the same information that
would be available more readily through an online tool. Interested
parties have suggested that the Commission should reduce or eliminate
duplicate filings of the same information. Having one place for ETCs to
file their annual reports, instead of three or more, may reduce the
filing burden on ETCs. The Commission seeks comment on this tentative
conclusion.
63. Lastly, the Commission seeks comment on modifying or
eliminating any other reporting requirements applicable to all ETCs
that have broadband obligations as a condition of receiving high-cost
support in order to further improve the alignment of carriers'
obligations with our ability to monitor them through our reporting
requirements.
III. Procedural Matters
A. Paperwork Reduction Act Analysis
64. 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
[[Page 21520]]
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) in
Appendix B, infra.
B. Initial Regulatory Flexibility Analysis
65. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Initial Regulatory
Flexibility Analysis (IRFA) of the possible significant economic impact
on a substantial number of small entities from the policies and rules
proposed in this Further Notice of Proposed Rulemaking. The Commission
requests written public comment on this IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines
for comments on the Further Notice provided on Further Notice of
Proposed Rulemaking and the concurrently adopted Report and Order,
Order and Order on Reconsideration. The Commission will send a copy of
the Further Notice, including this IRFA, to the Chief Counsel for
Advocacy of the Small Business Administration (SBA). In addition, the
Further Notice and IRFA (or summaries thereof) will be published in the
Federal Register.
1. Need for, and Objectives of, the Proposed Rules
66. In the Further Notice, the Commission commences a review of the
extent to which certain investments and expenses incurred by a rate-of-
return regulated local exchange carrier may be included in its rate
base and revenue requirement for ratemaking and USF purposes. The
Commission notes that there may be very limited circumstances where our
proposed reforms would impact price cap regulated carriers' use of
high-cost USF support. The Commission has not comprehensively reviewed
the continued reasonableness of its existing rules regarding
permissible investments and expenses for regulated local exchange
carriers since the passage of the Telecommunications Act of 1996.
Market and regulatory conditions have changed substantially since that
time. Regulated telecommunications carriers have expanded into the
provision of retail broadband services, either directly or through
affiliated entities. Regulated carriers also increasingly face
competition, for both voice and broadband services, in portions of
their incumbent territory from other facilities-based providers, such
as cable and wireless providers. These changing conditions may affect
the incentives regarding the types of costs carriers attempt to include
in their revenue requirement and the ways in which carriers allocate
costs between regulated and non-regulated services and affiliates.
67. Through audits, inquiries, and other investigations, the
Commission has recently become aware of alleged abuses by rate-of-
return carriers of the used and useful principles and its cost
allocation rules. The Commission therefore concluded that it is time to
reevaluate the types of expenses that should be permitted--both in a
carrier's revenue requirement and for recovery through high-cost
support. Looking into the expenses permitted and the allocation of
those expenses will help ensure that carriers are only recovering costs
that are used and useful and prudently incurred, and in the case of
high cost support, only costs that are necessary to the provision of
interstate telecommunications services.
68. In the concurrently adopted Order, the Commission determined
that universal service support should be targeted more specifically to
those areas where support is most needed to ensure consumers are served
with voice and broadband service. Therefore, the Commission adopted a
process for identifying those areas served by an unsubsidized
competitor and several methods of disaggregating support to those
areas. However, the Commission seeks comment on other methods for
disaggregating support that would be minimally burdensome on carriers
and how the non-supported amount should be recovered.
69. The Commission recognizes that Tribal lands may need additional
financial support to ensure the availability of broadband in these
areas. Therefore, the Further Notice seeks comment on whether a
separate mechanism is needed to support broadband in Tribal lands and,
if so, how such a mechanism should be structured.
70. Some companies have informed the Commission that they are
unable to extend broadband due to a lack of access to capital. Other
carriers have seen declining support or are ineligible for certain
types of support, such as HCLS. In the concurrently adopted Order, the
Commission has adopted reforms to its high-cost universal service
support to support broadband deployment. The Further Notice seeks
comment on other proposals to expand broadband services in those areas
served by rate-of-return carriers and any changes needed to make the
administration of federal universal service programs more efficient.
71. The Commission also seeks to modify its ETC annual reporting
obligations to improve the Commission's ability to protect against
waste, fraud, and abuse. The Further Notice seeks comment on how best
to make the information collected more useful while minimizing the
burdens on those carriers subject to these reporting requirements.
2. Review of Permitted Expenses
72. The Further Notice begins by reevaluating a rate-of-return
carrier's ability to include certain types of expenses in its revenue
requirement and high-cost support with consideration of the appropriate
standard to be applied. The Commission believes that the terms ``used
and useful,'' ``prudent expenditure,'' and ``necessary to the provision
of'' should be read consistently to describe those expenses that a
carrier may appropriately include in its interstate rate base,
interstate revenue requirement, and cost studies used to calculate
high-cost support. The costs should include amounts of long-term
investment and current expenditures that a business would reasonably
incur to provide telecommunications services, taking into account
current and reasonably forecasted operating conditions and business
levels. Accordingly, the Commission seeks comment on a variety of
expenses, and whether such expenses should be included when making
these calculations.
3. Issues Related to Cost Allocation and Affiliate Transactions
73. Rate-of-return carriers are subject to the Commission's
longstanding Part 64 rules regarding the allocation of costs between
regulated and non-regulated activities and to the affiliate transaction
rules in Part 32. Under these rules, carriers currently apply broad
principles in making such allocations, and the lack of specificity in
the rules gives carriers a degree of discretion in making these
allocation decisions. Carriers have an incentive to interpret the
allocation rules in order to allocate as many costs as possible to
their regulated activities, both to justify a higher interstate revenue
requirement and to receive additional high-cost support. Given the lack
of specific guidance, the additional costs associated with the
provision of retail broadband services, and the incentive to allocate
costs to regulated activities, the Commission concludes that it is time
to revisit the allocation
[[Page 21521]]
rules to provide greater clarity to rate-of-return carriers regarding
how to determine the relative allocation of costs between regulated and
non-regulated activities and affiliates. The Commission seeks comment
on adopting new rules to improve the process of allocating costs among
regulated and non-regulated services and among affiliates, and also
seeks comment regarding how to detect cases of misallocation.
4. Compliance Issues
74. Additionally, the Commission seeks comment on the most
effective way to ensure compliance with the proposed rules for
universal service support and tariffing purposes. For example, the
Commission seeks comment on what, if any, certification or reporting
requirements should be implemented.
5. Reducing Support in Competitive Areas
75. In the Further Notice, the Commission seeks comment on
alternative methods of reducing support for areas served by an
unsubsidized competitor. In the concurrently adopted Order, the
Commission adopts several methods of disaggregating CAF BLS for areas
found to be competitively served and allow carriers to select which
method will be used. However, the Commission invites commenters to
propose other methods of disaggregation of support that can be
implemented with minimal administrative burden for affected carriers
and USAC. The Commission seeks to avoid complex allocations of the cost
of facilities that serve both competitive and non-competitive areas,
which could be burdensome for rate-of-return carriers to implement.
76. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. The
Commission notes that rate-of-return carriers currently receive
compensation for interstate loop costs through a combination of end-
user charges, e.g., SLCs, and universal service support. The SLCs most
rate-of-return carriers assess are at the maximum levels. Thus, in many
situations, carriers would be prohibited by our current rules from
increasing SLC rates to recover investment and associated expenses that
will not be supported under the high-cost program in competitive areas.
Therefore, the Commission invites parties to comment on two approaches
for recovery of those amounts.
6. Tribal Support
77. In the Further Notice, the Commission seeks comment on a
proposal to adopt a mechanism to provide additional support to unserved
Tribal lands, and alternative approaches. The Commission has observed
that communities on Tribal lands have historically had less access to
telecommunications services than any other segment of the population,
and that greater financial support therefore may be needed in order to
ensure the availability of broadband on Tribal lands. Therefore, the
Commission seeks comment on adopting rules to increase support to rate-
of-return carriers for census blocks that include Tribal lands and are
unserved with broadband meeting the Commission's current requirements.
The Commission also recognizes that broadband deployment differs
substantially among Tribal lands. To assist small rate-of-return
carriers that serve Tribal areas with minimal infrastructure build out,
the Commission also seeks comment on how best to target Tribal land-
specific support to Tribal areas most in need of broadband deployment.
7. Other Measures To Improve the Operation of the Current Rate-of-
Return System
78. Additionally, in the Further Notice, the Commission invites
commenters to submit into the record any other proposals or ideas for
steps the Commission should take to provide appropriate incentives for
broadband deployment to unserved areas working within the framework of
the existing budget for rate-of-return areas. Some companies have
indicated they have been unable to extend broadband despite their
sincere desire to do so due to lack of access to capital, while other
companies have seen declining support under the existing legacy
mechanisms. Dome carriers are not eligible for HCLS support due to the
prior ``race to the top'' that the Commission took steps to address in
December 2014. The Commission expects our reforms to the existing ICLS
mechanism and addition of a voluntary path to the model will provide
options for carriers to extend broadband where it is lacking. While the
Commission intends to monitor the impact of these reforms over time,
they invite commenters to submit into the record any other proposals or
ideas for steps the Commission should take to provide appropriate
incentives for broadband deployment to unserved areas while minimizing
disruption for those carriers that prefer to remain under the reformed
legacy mechanisms.
8. Streamlining ETC Annual Reporting Requirements
79. Lastly, with respect to ETC reporting requirements, the
Commission seeks comment on additional ways to lessen regulatory
reporting burdens on ETCs, particularly those that are small
businesses. In the concurrently adopted Order, the Commission updates
our annual reporting requirements for rate-of-return ETCs as a
necessary component of our ongoing efforts to update the support
mechanisms for such ETCs to reflect our dual objectives of supporting
existing voice and broadband service, while extending broadband to
those areas of the country where it is lacking. To further lessen the
regulatory burden on ETCs, many of whom are small rate-of-return
carriers, and to improve on the Commission's ability to protect against
waste, fraud, and abuse, the Commission seeks comment on certain,
narrowly-tailored reporting changes. Specifically, the Commission seeks
comment on whether to modify or eliminate five sets of requirements:
the requirements to provide outage information, unfulfilled service
requests, the number of complaints per 1,000 subscribers for both voice
and broadband service, pricing for both voice and broadband, and
certification of compliance with applicable service quality standards.
9. Legal Basis
80. The legal basis for any action that may be taken pursuant to
the Notice is 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, 201-
206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, 405, 1302, and
sections 1.1, 1.3, 1.421, 1.427, and 1.429 of the Commission's rules,
47 CFR 1.1, 1.3, 1.421, 1.427, and 1.429.
10. Description and Estimate of the Number of Small Entities To Which
the Rules Would Apply
81. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small-business concern'' under the Small Business
Act. A small-
[[Page 21522]]
business concern'' is one which: (1) Is independently owned and
operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA).
11. Total Small Entities
82. Our proposed action, if implemented, may, over time, affect
small entities that are not easily categorized at present. The
Commission therefore describes here, at the outset, three
comprehensive, statutory small entity size standards. First,
nationwide, there are a total of approximately 28.2 million small
businesses, according to the SBA, which represents 99.7% of all
businesses in the United States. In addition, a ``small organization''
is generally ``any not-for-profit enterprise which is independently
owned and operated and is not dominant in its field.'' Nationwide, as
of 2007, there were approximately 1,621,215 small organizations.
Finally, the term ``small governmental jurisdiction'' is defined
generally as ``governments of cities, towns, townships, villages,
school districts, or special districts, with a population of less than
fifty thousand.'' Census Bureau data for 2011 indicate that there were
90,056 local governmental jurisdictions in the United States. The
Commission estimates that, of this total, as many as 89,327 entities
may qualify as ``small governmental jurisdictions.'' Thus, the
Commission estimates that most governmental jurisdictions are small.
12. Broadband Internet Access Service Providers
83. The rules adopted in the concurrently adopted Order apply to
broadband Internet access service providers. The Economic Census places
these firms, whose services might include Voice over Internet Protocol
(VoIP), in either of two categories, depending on whether the service
is provided over the provider's own telecommunications facilities
(e.g., cable and DSL ISPs), or over client-supplied telecommunications
connections (e.g., dial-up ISPs). The former are within the category of
Wired Telecommunications Carriers, which has an SBA small business size
standard of 1,500 or fewer employees. These are also labeled
``broadband.'' The latter are within the category of All Other
Telecommunications, which has a size standard of annual receipts of
$32.5 million or less. These are labeled non-broadband. According to
Census Bureau data for 2007, there were 3,188 firms in the first
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 1,000 employees or more. For the second category, the
data show that 2,383 firms operated for the entire year. Of those,
2,346 had annual receipts below $32.5 million per year. Consequently,
the Commission estimates that the majority of broadband Internet access
service provider firms are small entities.
84. The broadband Internet access service provider industry has
changed since this definition was introduced in 2007. The data cited
above may therefore include entities that no longer provide broadband
Internet access service, and may exclude entities that now provide such
service. To ensure that this FRFA describes the universe of small
entities that our action might affect, the Commission discusses in turn
several different types of entities that might be providing broadband
Internet access service. The Commission notes that, although they have
no specific information on the number of small entities that provide
broadband Internet access service over unlicensed spectrum, they
include these entities in our Final Regulatory Flexibility Analysis.
13. Wireline Providers
85. Incumbent Local Exchange Carriers (Incumbent LECs). Neither the
Commission nor the SBA has developed a small business size standard
specifically for incumbent LEC services. The closest applicable 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, 1,307 carriers
reported that they were incumbent LEC 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 LEC service are small businesses that may
be affected by rules adopted pursuant to the concurrently adopted
Order.
86. Competitive Local Exchange Carriers (Competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate size standard under SBA rules is for
the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,442 carriers reported that they were
engaged in the provision of either competitive local exchange services
or competitive access provider services. Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. In addition, 17 carriers have reported that they are
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500
or fewer employees. In addition, 72 carriers have reported that they
are Other Local Service Providers. Of the 72, seventy have 1,500 or
fewer employees and two have more than 1,500 employees. Consequently,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and other local service providers are small entities that
may be affected by rules adopted pursuant to the concurrently adopted
Order.
87. 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
the Commission emphasizes that this RFA action has no effect on
Commission analyses and determinations in other, non-RFA contexts.
88. Interexchange Carriers. Neither the Commission nor the SBA has
developed a small business size standard specifically for providers of
interexchange services. 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, 359 carriers have reported that they are
engaged in the provision of interexchange service. Of these, 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
IXCs are small entities that may be affected by rules adopted pursuant
to the concurrently adopted Order.
89. Operator Service Providers (OSPs). Neither the Commission nor
the SBA has developed a small business size
[[Page 21523]]
standard specifically for operator 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, 33 carriers have reported that they are engaged in the provision
of operator services. Of these, an estimated 31 have 1,500 or fewer
employees and two have more than 1,500 employees. Consequently, the
Commission estimates that the majority of OSPs are small entities that
may be affected by rules adopted pursuant to the concurrently adopted
Order.
90. 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 concurrently adopted
Order.
91. 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 concurrently adopted Order.
92. 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 concurrently adopted Order.
93. 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.
94. 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.
14. Wireless Providers--Fixed and Mobile
95. The broadband Internet access service provider category covered
by the concurrently adopted Order may cover multiple wireless firms and
categories of regulated wireless services. Thus, to the extent the
wireless services listed below are used by wireless firms for broadband
Internet access service, the proposed actions may have an impact on
those small businesses as set forth above and further below. In
addition, for those services subject to auctions, the Commission notes
that, as a general matter, the number of winning bidders that claim to
qualify as small businesses at the close of an auction does not
necessarily represent the number of small businesses currently in
service. Also, the Commission does not generally track subsequent
business size unless, in the context of assignments and transfers or
reportable eligibility events, unjust enrichment issues are implicated.
96. Wireless Telecommunications Carriers (except Satellite). Since
2007, the Census Bureau has placed wireless firms within this new,
broad, economic census category. 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 the category of Wireless
Telecommunications Carriers (except Satellite), 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 1,000 employees or more. Since all firms with fewer
than 1,500 employees are considered small, given the total employment
in the sector, the Commission estimates that the vast majority of
wireless firms are small.
97. 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.
98. 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 were won by
entities qualifying as a small business. For that auction, the
[[Page 21524]]
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.
99. 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.
100. 1670-1675 MHz Services. This service can be used for fixed and
mobile uses, except aeronautical mobile. An auction for one license in
the 1670-1675 MHz band was conducted in 2003. One license was awarded.
The winning bidder was not a small entity.
101. Wireless Telephony. Wireless telephony includes cellular,
personal communications services, and specialized mobile radio
telephony carriers. As noted, the SBA has developed a small business
size standard for Wireless Telecommunications Carriers (except
Satellite). Under the SBA small business size standard, a business is
small if it has 1,500 or fewer employees. According to Commission data,
413 carriers reported that they were engaged in wireless telephony. Of
these, an estimated 261 have 1,500 or fewer employees and 152 have more
than 1,500 employees. Therefore, a little less than one third of these
entities can be considered small.
102. Broadband Personal Communications Service. The broadband
personal communications services (PCS) spectrum is divided into six
frequency blocks designated A through F, and the Commission has held
auctions for each block. The Commission initially defined a ``small
business'' for C- and F-Block licenses as an entity that has average
gross revenues of $40 million or less in the three previous calendar
years. For F-Block licenses, an additional small business size standard
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 small
business size standards, in the context of broadband PCS auctions, have
been approved by the SBA. No small businesses within the SBA-approved
small business size standards bid successfully for licenses in Blocks A
and B. There were 90 winning bidders that claimed small business status
in the first two C-Block auctions. A total of 93 bidders that claimed
small business status won approximately 40 percent of the 1,479
licenses in the first auction for the D, E, and F Blocks. On April 15,
1999, the Commission completed the reauction of 347 C-, D-, E-, and F-
Block licenses in Auction No. 22. Of the 57 winning bidders in that
auction, 48 claimed small business status and won 277 licenses.
103. On January 26, 2001, the Commission completed the auction of
422 C and F Block Broadband PCS licenses in Auction No. 35. Of the 35
winning bidders in that auction, 29 claimed small business status.
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. On February 15, 2005, the Commission completed an
auction of 242 C-, D-, E-, and F-Block licenses in Auction No. 58. Of
the 24 winning bidders in that auction, 16 claimed small business
status and won 156 licenses. On May 21, 2007, the Commission completed
an auction of 33 licenses in the A, C, and F Blocks in Auction No. 71.
Of the 12 winning bidders in that auction, five claimed small business
status and won 18 licenses. On August 20, 2008, the Commission
completed the auction of 20 C-, D-, E-, and F-Block Broadband PCS
licenses in Auction No. 78. Of the eight winning bidders for Broadband
PCS licenses in that auction, six claimed small business status and won
14 licenses.
104. Specialized Mobile Radio Licenses. The Commission awards
``small entity'' bidding credits in auctions for Specialized Mobile
Radio (SMR) geographic area licenses in the 800 MHz and 900 MHz bands
to firms that had revenues of no more than $15 million in each of the
three previous calendar years. The Commission awards ``very small
entity'' bidding credits to firms 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 900 MHz Service.
The Commission has held auctions for geographic area licenses in the
800 MHz and 900 MHz bands. The 900 MHz SMR auction began on December 5,
1995, and closed on April 15, 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 began on October 28, 1997, and was
completed on December 8, 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 held on January 10,
2002 and closed on January 17, 2002 and included 23 BEA licenses. One
bidder claiming small business status won five licenses.
105. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels began on August 16, 2000, and was
completed on September 1, 2000. Eleven bidders won 108 geographic area
licenses for the General Category channels in the 800 MHz SMR band and
qualified as small businesses under the $15 million size standard. In
an auction completed on December 5, 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 four auctions, 41 winning
bidders for geographic licenses in the 800 MHz SMR band claimed status
as small businesses.
106. In addition, there are numerous incumbent site-by-site SMR
licenses 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 service pursuant to
extended implementation
[[Page 21525]]
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, which is the SBA-determined size standard.
The Commission assumes, for purposes of this analysis, that all of the
remaining extended implementation authorizations are held by small
entities, as defined by the SBA.
107. 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 Service had a third category of small
business status for Metropolitan/Rural Service Area (MSA/RSA)
licenses--``entrepreneur''--which is 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. An auction of
740 licenses (one license in each of the 734 MSAs/RSAs and one license
in each of the six Economic Area Groupings (EAGs)) commenced on August
27, 2002, and closed on September 18, 2002. Of the 740 licenses
available for auction, 484 licenses were won by 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. A
second auction commenced on May 28, 2003, closed on June 13, 2003, and
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. On July 26, 2005, the
Commission completed an auction of 5 licenses in the Lower 700 MHz band
(Auction No. 60). There were three winning bidders for five licenses.
All three winning bidders claimed small business status.
108. 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. An auction of 700 MHz licenses commenced January 24, 2008 and
closed on March 18, 2008, which included, 176 Economic Area licenses in
the A Block, 734 Cellular Market Area licenses in the B Block, and 176
EA licenses in the E Block. Twenty winning bidders, claiming 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) won 49 licenses. Thirty three winning bidders claiming
very small business status (those with attributable average annual
gross revenues that do not exceed $15 million for the preceding three
years) won 325 licenses.
109. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz
licenses. On January 24, 2008, the Commission commenced Auction 73 in
which several licenses in the Upper 700 MHz band were available for
licensing: 12 Regional Economic Area Grouping licenses in the C Block,
and one nationwide license in the D Block. The auction concluded on
March 18, 2008, with 3 winning bidders claiming very small business
status (those with attributable average annual gross revenues that do
not exceed $15 million for the preceding three years) and winning five
licenses.
110. 700 MHz Guard Band Licensees. In 2000, in the 700 MHz Guard
Band Order, 65 FR 17594, April 4, 2000, the Commission adopted size
standards 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 in this
service 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. SBA approval of these definitions is not
required. An auction of 52 Major Economic Area 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.
111. 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.
112. 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.
113. 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.
114. 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 21526]]
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.
115. Air-Ground Radiotelephone Service. The Commission has
previously used the 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 under that
definition, the Commission estimates that almost all of them qualify as
small entities under the SBA definition. For purposes of assigning Air-
Ground Radiotelephone Service licenses through competitive bidding, the
Commission has defined ``small business'' as an entity that, together
with controlling interests and affiliates, has average annual gross
revenues for the preceding three years not exceeding $40 million. A
``very small business'' is defined as an entity that, together with
controlling interests and affiliates, has average annual gross revenues
for the preceding three years not exceeding $15 million. These
definitions were approved by the SBA. In May 2006, the Commission
completed an auction of nationwide commercial Air-Ground Radiotelephone
Service licenses in the 800 MHz band (Auction No. 65). On June 2, 2006,
the auction closed with two winning bidders winning two Air-Ground
Radiotelephone Services licenses. Neither of the winning bidders
claimed small business status.
116. 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 our
evaluations in this analysis, the Commission 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 concurrently adopted
Order.
117. Advanced Wireless Services (AWS) (1710-1755 MHz and 2110-2155
MHz bands (AWS-1); 1915-1920 MHz, 1995-2000 MHz, 2020-2025 MHz and
2175-2180 MHz bands (AWS-2); 2155-2175 MHz band (AWS-3)). For the AWS-1
bands, the Commission has defined a ``small business'' as an entity
with average annual gross revenues for the preceding three years not
exceeding $40 million, and a ``very small business'' as an entity with
average annual gross revenues for the preceding three years not
exceeding $15 million. For AWS-2 and AWS-3, although the Commission
does not know for certain which entities are likely to apply for these
frequencies, they note that the AWS-1 bands are comparable to those
used for cellular service and personal communications service. The
Commission has not yet adopted size standards for the AWS-2 or AWS-3
bands but proposes to treat both AWS-2 and AWS-3 similarly to broadband
PCS service and AWS-1 service due to the comparable capital
requirements and other factors, such as issues involved in relocating
incumbents and developing markets, technologies, and services.
118. 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.
119. Fixed Microwave Services. Microwave services include common
carrier, private-operational fixed, and broadcast auxiliary radio
services. They also include the Local Multipoint Distribution Service
(LMDS), the Digital Electronic Message Service (DEMS), and the 24 GHz
Service, where licensees can choose between common carrier and non-
common carrier status. At present, there are approximately 36,708
common carrier fixed licensees and 59,291 private operational-fixed
licensees and broadcast auxiliary radio licensees in the microwave
services. There are approximately 135 LMDS licensees, three DEMS
licensees, and three 24 GHz licensees. The Commission has not yet
defined a small business with respect to microwave services. For
purposes of the FRFA, the Commission will use the SBA's definition
applicable to Wireless Telecommunications Carriers (except satellite)--
i.e., an entity with no more than 1,500 persons. Under the present and
prior categories, the SBA has deemed a wireless business to be small if
it has 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
36,708 common carrier fixed licensees and up to 59,291 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.
[[Page 21527]]
120. 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.
121. 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 concurrently adopted Order.
122. 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.
123. In 2009, the Commission conducted Auction 86, the sale of 78
licenses in the BRS areas. The Commission offered three levels of
bidding credits: (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) received 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) received 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) received a 35 percent discount on its
winning bid. Auction 86 concluded in 2009 with the sale of 61 licenses.
Of the ten winning bidders, two bidders that claimed small business
status won 4 licenses; one bidder that claimed very small business
status won three licenses; and two bidders that claimed entrepreneur
status won six licenses.
124. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,436 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 2,336 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 has
developed a small business size standard for this category, which is:
all such firms having 1,500 or fewer employees. To gauge small business
prevalence for these cable services the Commission must, however, use
the most current census data that are based on the previous category of
Cable and Other Program Distribution and its associated size standard;
that size standard was: all such firms having $13.5 million or less in
annual receipts. According to Census Bureau data for 2007, there were a
total of 996 firms in this category that operated for the entire year.
Of this total, 948 firms had annual receipts of under $10 million, and
48 firms had receipts of $10 million or more but less than $25 million.
Thus, the majority of these firms can be considered small.
125. 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.
126. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed
a small business
[[Page 21528]]
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.
127. 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 concurrently adopted
Order.
128. 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 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.
15. Satellite Service Providers
129. Satellite Telecommunications Providers. Two economic census
categories address the satellite industry. The first category has a
small business size standard of $30 million or less in average annual
receipts, under SBA rules. The second has a size standard of $30
million or less in annual receipts.
130. The category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing 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 570 firms that operated for the entire
year. Of this total, 530 firms had annual receipts of under $30
million, and 40 firms had receipts of over $30 million. Consequently,
the Commission estimates that the majority of Satellite
Telecommunications firms are small entities that might be affected by
our action.
131. The second category of Other Telecommunications comprises,
inter alia, ``establishments 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.'' For this
category, Census Bureau data for 2007 show that there were a total of
1,274 firms that operated for the entire year. Of this total, 1,252 had
annual receipts below $25 million per year. Consequently, the
Commission estimates that the majority of All Other Telecommunications
firms are small entities that might be affected by our action.
16. Cable Service Providers
132. Because section 706 requires us to monitor the deployment of
broadband using any technology, the Commission anticipates that some
broadband service providers may not provide telephone service.
Accordingly, the Commission describes below other types of firms that
may provide broadband services, including cable companies, MDS
providers, and utilities, among others.
133. Cable and Other Program Distributors. 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. To gauge small business prevalence for these cable services
the Commission must, however, use current census data that are based on
the previous category of Cable and Other Program Distribution
[[Page 21529]]
and its associated size standard; that size standard was: all such
firms having $13.5 million or less in annual receipts. According to
Census Bureau data for 2007, there were a total of 2,048 firms in this
category that operated for the entire year. Of this total, 1,393 firms
had annual receipts of under $10 million, and 655 firms had receipts of
$10 million or more. Thus, the majority of these firms can be
considered small.
134. Cable Companies and Systems. The Commission has also 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
that there are currently 4,600 active cable systems in the United
States. Of this total, all but nine cable operators are small under the
400,000 subscriber size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Current Commission records show 4,945 cable systems
nationwide. Of this total, 4,380 cable systems have less than 20,000
subscribers, and 565 systems have 20,000 or more subscribers, based on
the same records. Thus, under this standard, the Commission estimates
that most cable systems are small entities.
135. Cable System Operators. The Communications Act of 1934, as
amended, 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. Based on
available data, the Commission finds that all but ten incumbent cable
operators are small entities under this size standard. The Commission
notes that the Commission neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore they are unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
136. 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 1,000 employees or
more. Thus, under this second size standard, most cable systems are
small and may be affected by rules adopted pursuant to the concurrently
adopted Order. In addition, the Commission notes that they have
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.
17. Electric Power Generators, Transmitters, and Distributors
137. Electric Power Generators, Transmitters, and Distributors. The
Census Bureau defines an industry group comprised of ``establishments,
primarily engaged in generating, transmitting, and/or distributing
electric power. Establishments in this industry group may perform one
or more of the following activities: (1) Operate generation facilities
that produce electric energy; (2) operate transmission systems that
convey the electricity from the generation facility to the distribution
system; and (3) operate distribution systems that convey electric power
received from the generation facility or the transmission system to the
final consumer.'' The SBA has developed a small business size standard
for firms in this category: ``A firm is small if, including its
affiliates, it is primarily engaged in the generation, transmission,
and/or distribution of electric energy for sale and its total electric
output for the preceding fiscal year did not exceed 4 million megawatt
hours.'' Census Bureau data for 2007 show that there were 1,174 firms
that operated for the entire year in this category. Of these firms, 50
had 1,000 employees or more, and 1,124 had fewer than 1,000 employees.
Based on this data, a majority of these firms can be considered small.
18. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
138. Permitted Expenses. In the Further Notice, when reviewing
permitted expenses, the Commission seeks comment on whether it should
require rate-of-return carriers to identify their cost consultants, if
any, in their FCC Form 481s.
139. Cost Allocation and Affiliate Transactions. The Commission
seeks comment on adopting a rule that would classify certain costs,
such as general and administrative expenses, as common costs for
purposes of applying the Part 64 and affiliate transaction rules when
an entity provides broadband services directly, or through an
affiliated entity. Additionally, the Commission asks whether it should
clarify or adopt new rules to ensure the proper application of the
affiliate transaction rules in light of the provision of retail
broadband by affiliates in certain telecommunications markets. More
generally, the Commission seeks comment on instances in which
additional rules or further clarification could minimize potential
misallocations and thereby protect ratepayers of regulated services.
While the Commission notes that the used and useful and prudent
expenditure standards apply to costs included in affiliate
transactions, it seeks comment on whether it should adopt a rule that
explicitly prohibits carriers from including in the fully distributed
cost of an affiliate any costs that are disallowed from the regulated
rate base or revenue requirement, or considered not to be used and
useful or prudent expenditures. Finally, the Commission seeks comment
on whether additional data would assist in enforcement of the
Commission's accounting and cost allocation rules, while minimizing ETC
reporting burden, and if so, what kind of reporting requirements should
be implemented.
140. Compliance. To ensure compliance with the proposed rules for
universal service support and tariffing purposes, the Commission
invites parties to comment on whether carriers should be required to
certify that they have not included any prohibited expenses in their
cost submissions used to calculate high-cost support. Additionally, the
Commission asked parties to comment on NECA's role in
[[Page 21530]]
enforcing these rules, and whether carriers should be subject to any
additional reporting requirements.
141. Reducing Support in Competitive Areas. In the Further Notice,
the Commission also seeks comment on methods of disaggregation of
support that can be implemented with minimal administrative burden for
affected carriers and USAC. The Commission seeks to avoid complex
allocations of the cost of facilities that that serve both competitive
and non-competitive areas, which could be burdensome for rate-of-return
carriers to implement.
142. Additionally, the Commission asks how the non-supported amount
is to be recovered by the carrier, assuming such expenses remain
regulated expenses for ratemaking purposes. Specifically, the
Commission invites parties to comment on two approaches for recovery of
those amounts. First, the Commission could treat the non-supported
expenses as being outside the tariffed regulated revenue requirement
and allow carriers to assess a detariffed regulated rate to recover
those non-supported costs. This would remove those costs from the NECA
pooling process. The Commission invites parties to comment on whether
the detariffed rates would be outside the prohibition on tariffing
deaveraged rates in a study area, or whether a new rule should be
adopted. A second option would be to raise the SLC caps for a
particular study area to permit the recovery of the amounts not
supported by the high-cost program. The Commission invites parties to
comment on this alternative, including whether any SLC increases should
be allowed only in the competitive area or should apply to the entire
study area. Either of these alternatives would create new compliance
requirements that could create administrative burdens for small rate-
of-return carriers.
143. Tribal Support. The Commission seeks comment on adopting rules
to increase support to rate-of-return carriers for census blocks that
include Tribal lands and unserved with broadband meeting the
Commission's current requirements. As part of this line of questioning,
the Commission asks how to how best to target Tribal land-specific
support to Tribal areas most in need of broadband deployment, which may
require filing on behalf of Tribal entities. Additionally, the
Commission seeks comment on what specific broadband deployment
obligations should be established, if the Commission were to adopt a
mechanism to provide additional support on Tribal lands. Identification
of specific areas to deploy and the associated deployment obligations
could place an administrative and resource burden on small rate-of-
return carriers serving Tribal lands.
144. Other Measures To Improve the Operation of the Current Rate-
of-Return System. The Commission invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas. This line of questioning by the Commission is
intended to gather new ideas or proposals for further consideration.
Therefore, the Commission does not foresee any major burdens being
placed on carriers as a result of this portion of the Further Notice.
145. Streamlining ETC Annual Reporting Requirements. Lastly, the
Commission seeks comment on whether to modify or eliminate five sets of
requirements for ETCS to provide: outage information, unfulfilled
service requests, the number of complaints per 1,000 subscribers for
both voice and broadband service, pricing for both voice and broadband,
and certification that they are complying with applicable service
quality standards. Elimination of these ETC reporting requirements
would relieve the administrative burden on small rate-of-return
carriers.
19. Steps Taken To Minimize the Significant Economic Impact on Small
Entities and Significant Alternatives Considered
146. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include (among others) the following four alternatives: (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. The Commission expects to consider all of these factors when
they have received substantive comment from the public and potentially
affected entities.
147. With respect to the costs of implementing the proposals to
restrict permitted expenses, the Commission seeks comment on the least
costly means of implementing any revisions, which would minimize
burdens on carriers. The Commission notes that many of the proposals
with respect to cost allocation would most likely change the way cost
allocation is completed, but would not necessarily be any more
burdensome. The proposal of identifying cost consultants would add a
minimal burden on small entities if adopted because carriers should
typically utilize cost consultants to submit information to NECA for
purposes of pooling.
148. In discussing potential compliance procedures, the Commission
asks whether there is a current certification that can be modified to
encompass a certification that only permitted expenses are included.
This methodology seeks to reduce the burden on smaller entities by
making a small change instead of creating a new, more involved
compliance mechanism.
149. In the concurrently adopted Order, the Commission adopts
several methods of disaggregating CAF BLS for areas found to be
competitively served and allow carriers to select which method will be
used. However, in seeking comment on other methods of disaggregation of
support that can be implemented with minimal administrative burden for
affected carriers and USAC, the Commission takes further steps to
reduce administrative and resource burdens on small rate-of-return
carriers. The Commission seeks to avoid complex allocations of the cost
of facilities that that serve both competitive and non-competitive
areas, which could be burdensome for rate-of-return carriers to
implement.
150. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. The
Commission invites parties to comment on the two approaches for
recovery of those amounts. The Commission seeks to minimize
administrative burden under any approach.
151. The Commission also invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas. The Commission is cognizant of the many
compliance burdens small rate-of-return carriers face and seeks to
minimize these burdens overall with this line of questioning.
152. In the concurrently adopted Order, the Commission updates our
annual reporting requirements for rate-
[[Page 21531]]
of-return ETCs as a necessary component of our ongoing efforts to
update the support mechanisms for such ETCs to reflect our dual
objectives of supporting existing voice and broadband service, while
extending broadband to those areas of the country where it is lacking.
To further lessen the regulatory burden on small rate-of-return
carriers, and to improve on the Commission's ability to protect against
waste, fraud, and abuse they Commission seeks comment on certain,
narrowly-tailored reporting changes. Specifically, the sets of
requirements the Commission seeks comment on whether to modify or
eliminate would reduce rate-of-returns ETCs' compliance burden.
153. More generally, the Commission expects to consider the
economic impact on small entities, as identified in comments filed in
response to the Notice and this IRFA, in reaching its final conclusions
and taking action in this proceeding. The proposals and questions laid
out in the Further Notice were designed to ensure the Commission has a
complete understanding of the benefits and potential burdens associated
with the different actions and methods.
20. Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules
154. None.
C. Congressional Review Act
155. The Commission will send a copy of the concurrently adopted
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).
D. Ex Parte Presentations
156. Permit-But-Disclose. The proceeding this Second FNPRM
initiates shall be treated as a ``permit-but-disclose'' proceeding in
accordance with the Commission's ex parte rules. Persons making ex
parte presentations must file a copy of any written presentation or a
memorandum summarizing any oral presentation within two business days
after the presentation (unless a different deadline applicable to the
Sunshine period applies). Persons making oral ex parte presentations
are reminded that memoranda summarizing the presentation must (1) list
all persons attending or otherwise participating in the meeting at
which the ex parte presentation was made, and (2) summarize all data
presented and arguments made during the presentation. If the
presentation consisted in whole or in part of the presentation of data
or arguments already reflected in the presenter's written comments,
memoranda, or other filings in the proceeding, the presenter may
provide citations to such data or arguments in his or her prior
comments, memoranda, or other filings (specifying the relevant page
and/or paragraph numbers where such data or arguments can be found) in
lieu of summarizing them in the memorandum. Documents shown or given to
Commission staff during ex parte meetings are deemed to be written ex
parte presentations and must be filed consistent with rule 1.1206(b).
In proceedings governed by rule 1.49(f) or for which the Commission has
made available a method of electronic filing, written ex parte
presentations and memoranda summarizing oral ex parte presentations,
and all attachments thereto, must be filed through the electronic
comment filing system available for that proceeding, and must be filed
in their native format (e.g., .doc, .xml, .ppt, searchable .pdf).
Participants in this proceeding should familiarize themselves with the
Commission's ex parte rules.
E. Comment Filing Procedures
157. Comments and Replies. Pursuant to sections 1.415 and 1.419 of
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may
file comments and reply comments on or before the dates indicated on
the first page of this document. Comments may be filed using the
Commission's Electronic Comment Filing System (ECFS). See Electronic
Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: https://apps.fcc.gov/ecfs.
Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing. If more than one docket
or rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.
All hand-delivered or messenger-delivered paper filings
for the Commission's Secretary must be delivered to FCC Headquarters at
445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street SW., Washington, DC 20554.
158. 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).
159. Comments and reply comments must include a short and concise
summary of the substantive arguments raised in the pleading. Comments
and reply comments must also comply with section 1.49 and all other
applicable sections of the Commission's rules. The Commission directs
all interested parties to include the name of the filing party and the
date of the filing on each page of their comments and reply comments.
All parties are encouraged to utilize a table of contents, regardless
of the length of their submission. The Commission also strongly
encourages parties to track the organization set forth in the FNPRM in
order to facilitate our internal review process.
160. Additional Information. For additional information on this
proceeding, contact Suzanne Yelen of the Wireline Competition Bureau,
Industry Analysis and Technology Division, Suzanne.Yelen@fcc.gov, (202)
418-7400 or Alexander Minard of the Wireline Competition Bureau,
Technology Access Policy Division, Alexander.Minard@fcc.gov, (202) 418-
7400.
IV. Ordering Clauses
161. 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, 201-206, 214, 218-220, 251, 252,
254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.3, 1.421,
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.3, 1.421,
1.427, and 1.429, that this Further Notice of Proposed Rulemaking
[[Page 21532]]
and the concurrently adopted Report and Order, Order and Order on
Reconsideration IS ADOPTED. It is our intention in adopting these rules
that if any of the rules that the Commission retains, modifies, or
adopts 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.
162. IT IS FURTHER ORDERED that, 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, 201-206, 214, 218-220, 251, 252,
254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.3, 1.421,
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.3, 1.421,
1.427, and 1.429, NOTICE IS HEREBY GIVEN of the proposals and tentative
conclusions described in this Further Notice of Proposed Rulemaking.
163. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of
this Further Notice of Proposed Rulemaking and the concurrently adopted
Report and Order, Order and Order on Reconsideration to Congress and
the Government Accountability Office pursuant to the Congressional
Review Act, see 5 U.S.C. 801(a)(1)(A).
164. IT IS FURTHER ORDERED, that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, SHALL SEND a
copy of this Further Notice of Proposed Rulemaking and the concurrently
adopted Report and Order, Order and Order on Reconsideration, including
the Initial Regulatory Flexibility Analysis and the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 65
Administrative practice and procedure, Communications common
carriers, Reporting and recordkeeping requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Proposed Rules
For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR part 65 as follows:
PART 65--INTERSTATE RATE OF RETURN PRESCRIPTION PROCEDURES AND
METHODOLOGIES
0
1. The authority citation for part 65 is revised to read as follows:
Authority: 47 U.S.C. 151, 154, 201, 202, 203, 204, 205, 218,
219, 220, 403.
0
2. Amend Sec. 65.450 by revising paragraph (d) and adding paragraph
(e) to read as follows:
Sec. 65.450 Net income.
* * * * *
(d) Except for the allowance for funds used during construction and
interest related to customer deposits, the amounts recorded as
nonoperating income and expenses and taxes (Account 7300 and 7400) and
interest and related items (Account 7500) and extraordinary items
(Account 7600) shall not be included unless this Commission
specifically determines that particular items recorded in those
accounts shall be included.
(e) For purposes of determining whether an expense is recognized by
the Commission as ``necessary to the provision of these services''
under paragraph (a) of this section, the expense must be used and
useful and a prudent expenditure. The Commission specifically provides
that the following expenses are not necessary to the provision of
interstate telecommunications services regulated by the Commission:
(1) Personal travel; gifts to employees; childcare; housing
allowances or other forms of mortgage or rent assistance for employees;
personal expenses of employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent LEC, including but not limited to
personal expenses for housing, such as rent or mortgages; personal use
of company-owned housing, buildings, or facilities used for
entertainment purposes by employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent local exchange carrier;
(2) Entertainment; artwork and other objects which possess
aesthetic value; tangible property not logically related or necessary
to the offering of voice or broadband services;
(3) Aircraft, watercraft, and other motor vehicles designed for
off-road use, except insofar as necessary to access inhabited portions
of the study area not reachable by motor vehicles travelling on roads;
any vehicles provided to employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent local exchange carrier for personal use;
(4) Cafeterias and dining facilities; alcohol and food, including
but not limited to meals to celebrate personal events, such as
weddings, births, or retirements, except that a reasonable amount for
food shall be allowed for work-related travel;
(5) Political contributions; charitable donations; scholarships;
membership fees and dues in clubs and organizations; sponsorships of
conferences or community events; and
(6) Penalties or fines for statutory or regulatory violations;
penalties or fees for any late payments on debt, loans, or other
payments.
0
3. Add paragraph (d) to Sec. 65.830 to read as follows:
Sec. 65.830 Deducted items.
* * * * *
(d) The following assets shall also be deducted from the interstate
rate base:
(1) Artwork and other objects which possess aesthetic value;
(2) Tangible property not logically related or necessary to the
offering of voice or broadband services;
(3) Personal residences and property used for entertainment
purposes;
(4) Aircraft, watercraft, and other motor vehicles designed for
off-road use, except insofar as necessary to access inhabited portions
of the study area not reachable by motor vehicles travelling on roads;
(5) Any vehicles provided to employees, board members, family
members of employees and board members, contractors, or any other
individuals affiliated with the incumbent local exchange carrier for
personal use; and
(6) Cafeterias and dining facilities.
[FR Doc. 2016-08376 Filed 4-11-16; 8:45 am]
BILLING CODE 6712-01-P