Report No. DC 95-96  ACTION IN DOCKET CASE          July 13, 1995
     
                        COMMISSION PROPOSES CHANGES TO
                   HIGH COST TELEPHONE ASSISTANCE PROGRAMS
                                     (CC DOCKET NOS. 80-286)
     
              In its continuing effort to review, improve and update
     universal service programs, the Commission has issued a
     Notice of Proposed Rulemaking (NPRM) and a Notice of Inquiry
     (NOI) seeking comment on two programs that provide
     assistance to high cost telephone service areas by allowing
     local telephone companies to transfer costs to interstate
     toll services.  The Commission said that it seeks to better
     target the distribution of Universal Service Fund (USF)
     revenues and ensure the fund does not inhibit the growth of
     competition in local telephone service.  The Commission also
     stated that USF assistance should be technology neutral in
     order to promote efficient investment and operation and
     should not impose excessive subsidy costs on interstate
     carriers and ratepayers.  The Notice adopted today also
     addresses dial equipment minute (DEM) weighting.
     
              First adopted in 1984, the USF was intended to promote
     universally available telephone service at reasonable rates. 
     The current rules allow LECs whose local loop costs exceed
     115 percent of the nationwide average to allocate certain
     percentages of their loop costs to the interstate
     jurisdiction.   (The local loop refers to the section of the
     telephone network that connects a subscriber's home or
     business with the local telephone company central office.)
     
              DEM weighting allows local exchange carriers (LECs)
     with no more than 50,000 lines in a state to allocate a
     higher percentage of local switching costs to the interstate
     jurisdiction than larger LECs are permitted to allocate. 
     The program assists all very small LECs because they have
     been thought to have higher switching costs, and to be
     unable to take advantage of economies of scale.
     
              To ensure that the USF does not impede competition, the
     NPRM proposes to use high-cost credits in distributing the
     USF.  A "high-cost credit" is a credit on a subscriber's 
     
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     bill for the amount of USF assistance directed to the
     subscriber's line.  The credit would be assignable to the
     local carrier of the subscriber's choice.  To ensure that
     the credits would be targeted to subscribers that reside in
     high cost areas, the Commission proposed to determine
     eligibility for high-cost credits, and the level of the per-
     line high-cost credit, for each individual Census Block
     Group.  Census Block Groups are small (approximately 400
     households) geographical units that the Census Bureau uses
     in recording population information.  The Commission
     proposed also to establish minimum service requirements as a
     precondition to receipt of the credits.
                                                    
              The Commission proposed three alternatives for
     determining how the amount of USF assistance should be
     distributed.  The alternatives are:
     
               1) to continue to base assistance on reported costs,
     and revise the details of the current rules;
     
               2) to base assistance on projected costs, as indicated
     by proxy factors; and 
     
               3)  to allow state commissions to propose plans,
     subject to approval by the FCC, for distribution of high-
     cost assistance within their respective states.
     
              The Commission proposed also to require companies to
     calculate costs and loops on a combined basis for all
     affiliated companies providing service in the same State,
     and to remove administrative expenses from the costs used to
     determine USF assistance.                                       
     
              The Commission also requested comment on proposals to
     revise or eliminate the DEM weighting program in light of
     technological changes.  These proposals include combining
     local switching costs with local loop costs, or targeting
     this assistance more narrowly.
     
          The Commission referred the proposed changes in the USF
     and DEM weighting rules to the Federal-State Joint Board for
     a recommended decision, as required by Section 410(c) of the
     Communications Act. 
     
              In the NOI, the Commission is seeking comment on the
     need for further rulemaking to consider using competitive
     bidding to determine the amount of USF assistance and
     suggestions regarding the appropriate long-range treatment
     of universal service issues.
     
     
     
     
     
     
     
     
     
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              Action by the Commission July 13, 1995, by Notice of
     Proposed Rulemaking and Notice of Inquiry (FCC 95-282). 
     Chairman Hundt, Commissioners Quello, Barrett, Ness, and
     Chong. 
     
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              News Media contact: Susan Lewis Sallet at (202) 418-
     1500.
              Common Carrier Bureau contact: Deborah A. Dupont at
     (202) 418-0873, Jon Reel at (202) 418-0834.