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 + @@ y.X80,ɒX\  P6G;P 7jC:,ynXj\  P6G;XP7nC:,\4  pG;\5hC:,%rXh*f9 xr G;XX W!@(#,h@\  P6G;hPH5!,),5\  P6G;,P\ {,W80,%BZW*f9 xr G;X<r5ddd,<Nd6X@`7@#a$G,',مG\  P6G;P !y.X80,ɒX\  P6G;P <?xxx,<x6X@`7X@"6jC:,D̃Xj9 xOG;X$:*,*\  P6G;P%x/c81,` c PE37P&H<!,`,< PE37,P\b#E,',%KE*f9 xr G;X'{,W80,%BZW*f9 xr G;X(W!B(#,hB4  pG;hAPF,D\  P6G;P)APF,4  pG;*6ND,iA2pPG;l+;xC4,tSXxjp P7XP,<{C8,u1X{V p7X&-;sC0,Xs4@ x7XXl.T$H(,tphHjp P7hP/@ND,4  pG;0RdW,d\  P6G;P3@|ND,_|\  P6G;P1z-X80,D|X9 xOG;22a=5,u&a\  P6G;&P=,`@= PE37@P,` PE37P,@\  P6G;@P"%,q@%4  pG;@N  Z Z Z @I*c_dg!hDa_dgh%IbPBI*c_dg!hDa_dgh` IbPBI*p_kdgh DYB  O4% X4w #Xj\  P6G;ynXP# Federal Communications Commission`(#FCC 97157 #Xj\  P6G;ynXP#у   yxdddyO I. A. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a) TOC.FIN     X4v #X\  P6G;ɒP#Before the FEDERAL COMMUNICATIONS COMMISSION  yO'aWWashington, D.C. 20554 #Xj\  P6G;ynXP#у  XK4In the Matter of ,hh]) ` `  ,hh])  X4FederalState Joint Board onhh])ppCC Docket No. 9645  X4Universal Service ,hh])  X4P REPORT AND ORDER ă Adopted: May 7, 1997`(#cReleased: May 8, 1997 By the Commission (Chairman Hundt and Commissioners Quello and Ness concurring and issuing separate statements; Commissioner Chong concurring in part and dissenting in part and issuing a separate statement):  X 4e Table of Contents ă `(#Paragraph  X4X` hp x (#%'0*,.8135@8: |Vs yO0'#X\  P6G;ɒP#э 47 U.S.C.  254(b)(5).p We find that these principles include the concept of "economic efficiency" to the extent that they promote competition through an open and competitively neutral marketplace, and we therefore find it unnecessary to adopt economic efficiency as an  X 4additional principle, as one commenter suggests.<? Vs yO{'ԍ GSA comments at 3.< We also find it unnecessary to designate access to the select services, such as interactive services, that commenters have proposed as  X4additional principles for the Commission's universal service policies.Y@Vs {O'ԍ See, e.g., Bar of New York comments at 3.Y Instead, we consider,  Xy4as discussed below, whether, consistent with the principles of the 1996 Act, these services  Xb4should be included in the definition of universal service.Ab. Vs {OA'#X\  P6G;ɒP#э See infra section IV.#X\  P6G;ɒP#ѥ Finally, we reject proposals to  XK4establish a principle to minimize the size and growth of the universal service fund.BK Vs {O'ԍ See, e.g., Sprint PCS comments at 24; APC reply comments at 1; PCIA reply comments at 27. Although we take measures in this Order to maintain the size of the universal service support mechanisms at a level that is no higher than necessary to effectuate a comprehensive federal universal service policy, we note that section 254(b)(5) requires the Commission to ensure that there are "predictable and sufficient [f]ederal and [s]tate mechanisms to preserve and"R B0*&&qq"  X4advance universal service."#CVs yOy'ԍ 47 U.S.C.  254(b)(5). Consistent with the Joint Board's recommendation, we have sought to limit the services eligible for support to only those core services necessary to comply with the mandates of section 254.  {O 'See infra section IV. We are also maintaining the indexed cap on high cost loop support for the period in which  {O'carriers will continue to receive high cost loop support based on the existing mechanisms. See infra section VII. # In accordance with this principle, we decline to adopt measures that may restrict our ability to comply with this mandate. Moreover, we anticipate that competition and marketbased universal service techniques may eventually limit the size of the support mechanisms by providing affordable, costeffective telecommunications services in many regions of the nation that are now dependent upon universal service support. J:\MASTER\PRINC.FIN "|C0*&&qqP"  X' J:\MASTER\DEFIN.FIN IV.DEFINITION OF UNIVERSAL SERVICE: WHAT SERVICES TO SUPPORT  X' A. ` ` Overview  X4756. ` ` Section 254(c)(1) requires the Joint Board to recommend, and the Commission to establish, the services that should be supported by federal universal service support mechanisms. Based on the principles embodied in section 254, and guided by the recommendation of the Joint Board, we define the "core" or "designated" services that will receive universal service support as: singleparty service; voice grade access to the public  X14switched network; Dual Tone Multifrequency ("DTMF")D1Vs yO 'ԍ DTMF facilitates the transportation of signaling through the network, shortening call setup time. signaling or its functional equivalent; access to emergency services including, in some circumstances, access to 911 and  X 4Enhanced 911 ("E911");E XVs yO 'ԍ Enhanced 911 or "E911" service enables emergency service personnel to identify the approximate location of the party calling 911. access to operator services; access to interexchange service; access to directory assistance; and toll limitation services for qualifying lowincome consumers, as described in section VIII. In order to receive universal service support, eligible carriers must offer each of the designated services. A carrier that currently is unable to provide singleparty service may petition its state commission to permit this carrier to receive universal service support for a designated period of time while the carrier completes the network upgrades needed to offer singleparty service. In addition, carriers currently incapable of providing access to E911 service and toll limitation services may, for a specific period of time, also receive universal service support while completing network upgrades required for them to offer these services.  X4857. ` ` All business and residential connections that are currently supported will continue to be supported prior to the operation of a forwardlooking universal service support methodology. In assessing whether "quality services" are available, consistent with section 254(b)(1), because we will rely on existing data collection mechanisms, including data provided by states, we refrain from imposing additional data collection requirements at this time. Finally, the Commission will convene a FederalState Joint Board to review the  X|4definition of universal service on or before January 1, 2001.CF|Vs yO'ԍ 47 U.S.C.  254(c)(2).C  XN' B.` ` Designated Services  X '` ` 1. Background   X4958. ` ` Section 254(c)(1) states that "[u]niversal service [is] an evolving level of" @F0*&&qq " telecommunications services that the Commission shall establish periodically under this section, taking into account advances in telecommunications and information technologies and  X4services."CGVs yOK'ԍ 47 U.S.C.  254(c)(1).C Section 254(c)(2) states that "[t]he Joint Board may, from time to time, recommend to the Commission modifications in the definition of the services that are  X4supported by Federal universal service support mechanisms."CHXVs yO'ԍ 47 U.S.C.  254(c)(2).C Moreover, the 1996 Act's legislative history provides that "[t]he Commission is given specific authority to alter the definition from time to time" in order to "take into account advances in telecommunications  X_4and information technology."MI_Vs yO 'ԍ Joint Explanatory Statement at 131.M   X14:59. ` ` Section 254(c)(1)(A)(D) requires the Joint Board and the Commission to "consider the extent to which . . . telecommunications services" included in the definition of universal service:  X 4` ` (1) are essential to education, public health, or public safety;  X 4` ` (2) have, through the operation of market choices by customers, been ` `  subscribed to by a substantial majority of residential customers;  Xy4` ` (3) are being deployed in public telecommunications networks by ` `  telecommunications carriers; and   X44` ` (4) are consistent with the public interest, convenience and necessity.JJ4xVs yO]'ԍ 47 U.S.C.  254(c)(1)(A)(D).J The legislative history of this section instructs that "[t]he definition . . . should be based on a  X4consideration of the four criteria set forth in the subsection."MKVs yO'ԍ Joint Explanatory Statement at 131.M  X4;60. ` ` Section 254(b) establishes the principle that "consumers in all regions of the Nation . . . should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are  X|4reasonably comparable to those services provided in urban areas. . . ."@L|Vs yO#'ԍ 47 U.S.C.  254(b).@ The Joint Board recommended that all of the services and functionalities proposed in the NPRM be included in"e!( L0*&&qq"  X4the general definition of services supported under section 254(c)(1).M Vs yOy'ԍ Recommended Decision, 12 FCC Rcd at 112115. The NPRM sought comment on whether the following services should be designated for universal service support: voice grade access to the public switched network, with the ability to place and receive calls; touchtone; singleparty service; access to emergency services, including access to 911 and E911 services; and access to operator services. NPRM at paras. 16, 1822. The Joint Board also recommended that access to interexchange service meaning the ability of a subscriber to  X4place and receive interexchange calls be included as a supported service.RNVs yO3'ԍ Recommended Decision, 12 FCC Rcd at 121.R Finally, the Joint Board recommended supporting access to directory assistance, which the Board defined  X4as the ability to place a call to directory assistance.RO@Vs yO 'ԍ Recommended Decision, 12 FCC Rcd at 122.R  Xv'` ` 2.  Discussion   XH4<61. ` ` We generally adopt the Joint Board's recommendation and define the "core" or "designated" services that will be supported by universal service support mechanisms as: singleparty service; voice grade access to the public switched network; DTMF signaling or its functional equivalent; access to emergency services; access to operator services; access to interexchange service; access to directory assistance; and toll limitation services for qualifying lowincome consumers. In arriving at this definition, we have adopted the Joint Board's analysis and recommendation that, for purposes of section 254(c)(1), the Commission define "telecommunications services" in a functional sense, rather than on the basis of tariffed services. The record in this proceeding demonstrates ample support for the inclusion of the services, as defined in a functional sense, recommended by the Joint Board within the general  Xb4definition of universal service.PbVs {O'ԍ See, e.g., GSA comments at 89; ITI comments at 2; Teleport comments at 3; United Utilities comments at 2. We find, as the Joint Board concluded, that this definition of core universal services promotes competitive neutrality because it is technology neutral, and  X44provides more flexibility for defining universal service than would a servicesonly approach.RQ4* Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 112.R We also adopt the Joint Board's analysis and finding that all four criteria enumerated in section 254(c)(1) must be considered, but not each necessarily met, before a service may be  X4included within the general definition of universal service, should it be in the public interest.RR Vs yOZ"'ԍ Recommended Decision, 12 FCC Rcd at 112.R We interpret the statutory language, particularly the word "consider," as providing flexibility for the Commission to establish a definition of services to be supported, after it considers the criteria enumerated in section 254(c)(1)(A)(D). Thus, as discussed below, we conclude that""J R0*&&qq\" the core services that we have designated to receive universal service support are consistent with the statutory criteria in section 254(c)(1).  X4=62. ` ` SingleParty Service. We agree with and adopt the Joint Board's conclusion that singleparty service is widely available and that a majority of residential customers  X4subscribe to it, consistent with section 254(c)(1)(B).RSVs yO'ԍ Recommended Decision, 12 FCC Rcd at 112.R Moreover, we concur with the Joint Board's conclusion that singleparty service is essential to public health and safety in that it  X_4allows residential consumers access to emergency services without delay.RT_XVs yOh 'ԍ Recommended Decision, 12 FCC Rcd at 112.R Singleparty service also is generally consistent with the public interest, convenience, and necessity because, by eliminating the sharing required by multiparty service, singleparty service significantly increases the consumer's ability to place calls irrespective of the actions of other network users and with greater privacy than party line service can assure. In addition, singleparty service is being deployed in public telecommunications networks by telecommunications carriers. We adopt the Joint Board's finding that the term "singleparty service" means that  X 4only one customer will be served by each subscriber loop or access line.RU Vs yOW'ԍ Recommended Decision, 12 FCC Rcd at 112.R Eligible carriers must offer singleparty service in order to receive support regardless of whether consumers choose to subscribe to single or multiparty service. In addition, to the extent that wireless providers use spectrum shared among users to provide service, we find that wireless providers offer the equivalent of singleparty service when they offer a dedicated message path for the length of a user's particular transmission. We concur with the Joint Board's recommendation not to require wireless providers to offer a single channel dedicated to a particular user at all  X4times.RVxVs yOF'ԍ Recommended Decision, 12 FCC Rcd at 112.R   X4>63. ` ` Voice Grade Access to the Public Switched Network. As recommended by the Joint Board, we conclude that voice grade access includes the ability to place calls, and thus  X4incorporates the ability to signal the network that the caller wishes to place a call.RWVs yOz'ԍ Recommended Decision, 12 FCC Rcd at 113.R Voice grade access also includes the ability to receive calls, and thus incorporates the ability to  X4signal the called party that an incoming call is coming.XVs yO"'ԍ Consistent with the Joint Board's recommendation, we explicitly do not include call waiting, which is a discretionary service, within this definition. We agree that these components are necessary to make voice grade access fully beneficial to the consumer. We agree with and adopt the Joint Board's finding that, consistent with section 254(c)(1), voice grade access to"e# X0*&&qq" the public switched network is an essential element of telephone service, is subscribed to by a substantial majority of residential customers, and is being deployed in public telecommunications networks by telecommunications carriers. In addition, we find voice grade access to be essential to education, public health, and public safety because it allows consumers to contact essential services such as schools, health care providers, and public safety providers. For this reason, it is also consistent with the public interest, convenience, and necessity. Accordingly, we adopt the Joint Board's recommended definition of voice grade access to the public switched network among the core services designated pursuant to section 254(c)(1).  X 4?64. ` ` We also adopt the Joint Board's recommendation that voice grade access should occur in the frequency range between approximately 500 Hertz and 4,000 Hertz for a  X 4bandwidth of approximately 3,500 Hertz.RY Vs yOe 'ԍ Recommended Decision, 12 FCC Rcd at 113.R We note that, although a substantial number of  X 4commenters favored supporting the Joint Board's definition of voice grade access,Z XVs {O'ԍ See, e.g., GSA comments at 89; ITI comments at 2; Teleport comments at 3; United Utilities comments at 2. few  X 4supported greater bandwidth capacity.a[ Vs yO!'ԍ Bar of New York comments at 910; MFS comments at 511.a We are unpersuaded by Bar of New York's arguments in favor of including among the core services a higher level of telecommunications bandwidth capacity than was recommended by the Joint Board. Bar of New York notes the Joint Board's observation that services such as videoondemand, medical imaging, twoway interactive distance learning and high definition television might require bandwidth capacity  XK4of 1.544 Mbps.\KBVs {O>'ԍ Bar of New York comments at 910. See also MFS comments at 511 (recommending that universal service support mechanisms should support data transmissions of at least 1 Mbps). Although we conclude in sections X and XI below that certain higher bandwidth services should be supported under section 254(c)(3) for eligible schools, libraries,  X4and rural health care providers,x]Vs yOj'ԍ Pursuant to section 254(c)(3), the Commission may designate for support additional telecommunications services not included in the "core" services designated under section 254(c)(1) for schools, libraries, and health  {O'care providers. See infra sections X and XI for a discussion of services that we have designated for eligible schools, libraries, and health care providers may take at a discount and for which the carrier providing those services may receive compensation equal to that discount from universal service support mechanisms. x we decline to adopt, pursuant to section 254(c)(1), a higher bandwidth than that recommended by the Joint Board. We conclude, except as further designated with respect to eligible schools, libraries and health care providers, that voice grade access, and not high speed data transmission, is the appropriate goal of universal service policies at this time because we are concerned that supporting an overly expansive definition of core services could adversely affect all consumers by increasing the expense of the"$N ]0*&&qq5" universal service program and, thus, increasing the basic cost of telecommunications services  X4for all. As discussed above, voice grade access is subscribed to by a substantial majority of residential customers, and is being deployed in public telecommunications networks by telecommunications carriers. In contrast, the record in this proceeding does not demonstrate that the higher bandwidth services and data transmission capabilities advocated by Bar of New York and MFS are, at this time, necessary for the public health and safety and that a  Xv4substantial majority of residential customers currently subscribe to these services.^vVs yO'ԍ For example, recent data demonstrate that only .06 percent of residential connections are digital access lines, which are defined for purposes of the Commission's Automated Reporting and Management Information System ("ARMIS") as lines with capabilities of "64 Kpbs or 56 Kpbs or ISDN B channels or other equivalent  {OG 'communications channels." ARMIS Operating Data Reports, FCC Report 4308 (rel. April 1, 1997) (as filed by reporting local exchange carriers). Congress recognized, however, that the definition of services supported by universal service should advance with technology. Thus, we will periodically reexamine whether changes in technology, network capacity, consumer demand, and service deployment warrant a change in  X 4our definition of supported services._ zVs {OE'ԍ See infra section IV (discussing Joint Board's recommendation that the Commission convene a FederalState Joint Board to review the definition of universal service on or before January 1, 2001).   X 4@65. ` ` Support for Local Usage. We agree with the Joint Board that the Commission should determine the level of local usage to be supported by federal universal service mechanisms and that the states are best positioned to determine the local usage component for  X 4purposes of state universal service mechanisms.R` Vs yO,'ԍ Recommended Decision, 12 FCC Rcd at 113.R The Joint Board indicated strong record  X4support for including a local usage component within the definition of universal service.Rad Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 113.R Further, we agree with the Joint Board that, in order for consumers in rural, insular, and high cost areas to realize the full benefits of affordable voice grade access, usage of, and not  XK4merely access to, the local network should be supported.bK Vs {O'ԍ Recommended Decision, 12 FCC Rcd at 113. See also Ohio PUC reply comments at 2 (support for local usage is essential to make access to network truly beneficial for consumers).  X4A66. ` ` We find, consistent with the Joint Board's conclusion, that we have the authority to support a certain portion of local usage, pursuant to the universal service  X4principles adopted above.RcN Vs yO#'ԍ Recommended Decision, 12 FCC Rcd at 113.R In particular, section 254(b)(1) states that "[q]uality services should be available at just, reasonable, and affordable rates." As a result, ensuring affordable "access" to those services is not sufficient. We are unpersuaded by commenters who argue"%c0*&&qq"  X4generally against supporting local usage,dVs {Oy'ԍ See, e.g., Ameritech comments at 5 (states should support local usage through their own universal service  yOC'mechanisms). because those arguments ignore Congress's stated  X4intent that the universal service policies shall be based, inter alia, on the principle that services should be available at affordable rates, as set forth in section 254(b)(1). As articulated by Ohio PUC, universal service must encompass the ability to use the network,  X4including the ability to place calls at affordable rates.Ge"Vs yOy'ԍ Ohio PUC reply comments at 2.G We find that both access to and use of the public switched network at rates that are "just, reasonable and affordable," are necessary to promote the principles embodied in section 254(b)(1).  XJ4B67. ` ` We are also concerned, however, that consumers might not receive the benefits of universal service support unless we determine a minimum amount of local usage that must be included within the supported services. An eligible carrier, particularly one that recovers a substantial portion of its costs through perminute charges, could conceivably collect universal service support designed to promote affordable use of the network without, in turn, reducing the perminute rates charged to its customers. Unless we are able to quantify an amount of local usage that must be provided without additional charge to the consumer by carriers receiving universal service support for serving rural, insular, and high costs areas, we believe there is a potential that the consumer would have to pay additional perminute fees and would not receive the benefits universal service is designed to promote. We intend to consider this possible scenario in our Further Notice of Proposed Rulemaking ("FNPRM") on a forwardlooking economic cost methodology, which will be issued by June 1997. As discussed in section VII below, we are making various changes to the existing universal service support mechanisms including making support portable to competing carriers that will become  X4effective on January 1, 1998.HfVs {Ok'ԍ See infra section VII.D.H The Commission will also separately seek further information regarding, for example, local usage, and local usage patterns, in order to determine the appropriate amount of local usage that should be provided by carriers receiving universal service support. We will, by the end of 1997, quantify the amount of local usage that carriers receiving universal service support will be required to provide.  X~4C68. ` ` At this time, we conclude that it is important to determine a minimum level of local usage in order to implement a forwardlooking economic cost methodology, as described below in section VII. Without a prespecified amount of usage, it is not possible for forwardlooking economic cost methodologies to determine accurately the cost of serving customers in high cost areas. The forwardlooking economic cost methodologies require usage information""&Df0*&&qq""  X4to determine capacity requirements, such as switch size.HgVs {Oy'ԍ See infra section VII.C.H  X4D69. ` ` In addition, determining and supporting a minimum level of usage for local service is important to further our principle of competitive neutrality, which includes technological neutrality. Different means of local service entry and competition can have markedly different cost structures. For instance, a wireline telephone system might have large initial "access" costs and relatively low "usage" or perminute costs. In contrast, a wireless technology might have moderate "access" costs but high perminute costs than a wireline network. In such a situation, merely supporting "access" without supporting a certain amount of local usage could favor unfairly a particular technology. This result may violate our principle of competitive neutrality.  X 4E70. ` ` Further, the Joint Board anticipated that competitive bidding may become an  X 4efficient method of determining universal service support amounts.h ZVs {O'ԍ See Recommended Decision, 12 FCC Rcd at 266. See also infra section VII.  Defining minimum levels of usage is critical to the construction of a competitive bidding system for providing universal service to high cost areas. An auction for only the "access" portion of providing local service would be neither competitively nor technologically neutral, because competitors and technologies with low "access" costs yet high perminute costs would be unduly favored in such an auction. This could result in awarding universal service support to a less efficient technology, which is the precise result that a competitive bidding system is meant to avoid. In addition, a carrier with low access costs could then charge high perminute rates to consumers, which would increase consumers' overall bills, rather than reducing them, as is the expected result of competition. Such a result is not consistent with the principle in section 254(b)(1) that these "services" are to be "affordable."  X4F71. ` ` DTMF Signaling. The Joint Board recommended including DTMF signaling or its digital functional equivalent among the supported services, and we adopt this  X4recommendation.\iVs {O0'ԍ See Recommended Decision, 12 FCC Rcd at 114.\ We find that the network benefit that emanates from DTMF signaling, primarily rapid call setup, is consistent with the public interest, convenience, and necessity, pursuant to section 254(c)(1)(D). Although consumers do not elect to subscribe to DTMF  XN4signaling, per se, we find, as the Joint Board concluded, that DTMF signaling provides network benefits, such as accelerated call setup, that are essential to a modern telecommunications network. In addition, we agree with NENA's characterization of DTMF signaling as a potential life and propertysaving mechanism because it speeds access to emergency services. Thus, we find that supporting DTMF signaling is essential to public health and public safety, consistent with section 254(c)(1)(A), and is being deployed in public"'~i0*&&qq" telecommunications networks by telecommunications carriers, consistent with section 254(c)(1)(C). We also adopt the Joint Board's conclusion that other methods of signaling, such as digital signaling, can provide network benefits equivalent to those of DTMF signaling. In particular, we note that wireless carriers use outofband digital signaling mechanisms for call setup, rather than DTMF signaling. Consistent with the principle of competitive neutrality, we find it is appropriate to support outofband digital signaling mechanisms as an  Xv4alternative to DTMF signaling.jvVs yO'ԍ Hereafter, we refer to both DTMF signaling and its functional equivalent, digital signaling, as "DTMF signaling." Accordingly, we include DTMF signaling and equivalent digital signaling mechanisms among the services supported by federal universal service mechanisms.  X 4G72. ` ` Access to Emergency Services. In addition, we concur with the Joint Board's conclusion that access to emergency services, including access to 911 service, be supported by  X 4universal service mechanisms.\k Vs {O'ԍ See Recommended Decision, 12 FCC Rcd at 114.\ We agree with the Joint Board's conclusion that access to emergency service i.e., the ability to reach a public emergency service provider, is "widely  X 4recognized as essential to . . . public safety," consistent with section 254(c)(1)(A).\l Vs {O!'ԍ See Recommended Decision, 12 FCC Rcd at 114.\ Due to its obvious public safety benefits, including access to emergency services among the core services is also consistent with the public interest, convenience, and necessity. Further, consistent with the Joint Board's recommendation and NENA's comments in favor of supporting access to 911 service, we define access to emergency services to include access to  XK4911 service.fmKDVs yO@'ԍ Recommended Decision, 12 FCC Rcd at 114; NENA comments at 1.f Noting that nearly 90 percent of lines today have access to 911 service capability, the Joint Board found that access to 911 service is widely deployed and available  X4to a majority of residential subscribers.RnVs yO'ԍ Recommended Decision, 12 FCC Rcd at 114.R For these reasons, we include telecommunications network components necessary for access to emergency services, including access to 911, among the supported services.  X4H73. ` ` We also include the telecommunications network components necessary for access to E911 service among the services designated for universal service support. Access to E911 is essential to public health and safety because it facilitates the determination of the approximate geographic location of the calling party. We recognize, however, that the"|(d n0*&&qq"  X4Commission does not currently require wireless carriers to provide access to E911 service.oVs yOy'ԍ As the Joint Board recognized, cellular, broadband Personal Communications Service (PCS), and certain Specialized Mobile Radio (SMR) carriers are currently in a transition period during which they are making the technical upgrades needed to offer access to E911. Recommended Decision, 12 FCC Rcd at 114. These carriers need to complete the upgrades necessary to provide all of the E911 services specified in the Commission's Report and Order by 2001. It is significant, however, that a wireless carrier's obligation to provide such E911 services applies only if (1) a locality has implemented E911 service, i.e., if a public safety answering point (PSAP) capable of receiving and utilizing the data elements associated with the E911 services has requested that the carrier provide E911 service and (2) if a mechanism for the recovery of costs relating to the provision of such services is in place. Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911  {O 'Emergency Calling Systems, CC Docket No. 94102, Report and Order and Further Notice of Proposed  {OK 'Rulemaking, FCC 96264 (rel. July 26, 1996), recon. pending (Wireless E911 Decision).  X4As set forth in the Commission's Wireless E911 Decision, access to E911 includes the ability  X4to provide Automatic Numbering Information ("ANI"),Wp, Vs {O 'ԍ Wireless E911 Decision at paras. 6366.W which permits that the PSAP have call back capability if the call is disconnected, and Automatic Location Information  X4("ALI"),JqZ Vs yO'ԍ ALI is a requirement under which "covered carriers must achieve the capability to identify the latitude and longitude of a mobile unit making a 911 call, within a radius of no more than 125 meters in 67 percent of  {O'all cases." Wireless E911 Decision at para. 71.J which permits emergency service providers to identify the geographic location of the calling party. We recognize that wireless carriers are currently on a timetable, established  Xx4in the Wireless E911 Decision, for implementing both aspects of access to E911.WrxVs {O 'ԍ Wireless E911 Decision at para. 63, 68.W For universal service purposes, we define access to E911 as the capability of providing both ANI and ALI. We note, however, that wireless carriers are not required to provide ALI until  X54October 1, 2001.Ss5rVs {OX'ԍ Wireless E911 Decision at para. 68.S Nevertheless, we conclude that, because of the public health and safety benefits provided by access to E911 services the telecommunications network components necessary for such access will be supported by federal universal service mechanisms for those  X 4carriers that are providing it.&t Vs yO'ԍ As set forth below, we adopt a procedure that permits otherwise eligible carriers seeking universal service support to receive a grant of additional time for complying with our general requirement that eligible carriers provide access to E911, when the relevant locality has implemented E911 service, in order to receive  {O 'universal service support. See discussion below in section IV.C.2 addressing feasibility issues associated with providing access to 911 and E911 services.& We recognize that wireless providers will be providing access to E911 in the future to the extent that the relevant locality has implemented E911 service. In  X 4addition, because the Wireless E911 Decision establishes that wireless carriers are required to provide access to E911 only if a mechanism for the recovery of costs relating to the provision of such services is in place, there is at least the possibility that wireless carriers receiving")t0*&&qq"  X4universal service support will be compensated twice for providing access to E911.UuVs {Oy'ԍ Wireless E911 Decision at para. 89. U We intend to explore whether the possibility is in fact being realized and, if so, what steps we should take to avoid such overrecovery in a Further Notice of Proposed Rulemaking.  X4I74. ` ` Consistent with the Joint Board's recommendation, we support the telecommunications network components necessary for access to 911 service and access to E911 service, but not the underlying services themselves, which combine telecommunications service and the operation of the PSAP and, in the case of E911 service, a centralized database  XH4containing information identifying approximate end user locations.RvHZVs yOS 'ԍ Recommended Decision, 12 FCC Rcd at 114.R As noted by the Joint Board and commenters, the telecommunications network represents only one component of 911 and E911 services; local governments provide the PSAP and generally support the  X 4operation of the PSAP through local tax revenues.VwZ Vs {O'ԍ Recommended Decision, 12 FCC Rcd at 114. See also Ameritech NPRM comments at 7 (support should be provided for transmission facility that connects subscriber to location manned by public safety personnel but not for underlying service because local taxes generally support underlying service).V We conclude that both 911 service and E911 service include information service components that cannot be supported under section 254(c)(1), which describes universal service as "an evolving level of telecommunications  X 4services."Cx Vs yO{'ԍ 47 U.S.C.  254(c)(1).C Accordingly, we include only the telecommunications network components necessary for access to 911 and E911 services among the services that are supported by federal universal service mechanisms.  Xb4J75. ` ` Access to Operator Services. In addition, we adopt the Joint Board's recommendation to include access to operator services in the general definition of universal  X44service.Ry4Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 115.R As the Joint Board concluded, access to operator services is widely deployed and  X4used by a majority of residential customers.Rz, Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 115.R For purposes of defining the core section 254(c)(1) services and consistent with the Joint Board's recommendation, we base our definition of "operator services" on the definition the Commission used to define the duties imposed upon LECs by section 251(b)(3), namely, "any automatic or live assistance to a  X4consumer to arrange for billing or completion, or both, of a telephone call."K{\ Vs {O.$'ԍ Local Competition Second Report and Order at paras. 13, 110. We explicitly do not, however, include busy line verification and emergency interrupt within the definition of operator services for universal service  {O%'purposes because the record does not support including these functions. Cf. Local Competition Second Report"%z0*&&%"  {O'and Order at para. 111 (concluding that busy line verification and emergency interrupt are forms of operator services).K We reject"*"{0*&&qq" CWA's argument that access to operator services should include "initial contact with a live operator," which, it contends, is "indispensable for users in public health or safety  X4emergencies."B|"Vs yO'ԍ CWA reply comments at 4.B Contrary to the suggestion of CWA, there is no evidence on the record to suggest that automated systems provide inadequate access to operator services for consumers in emergency situations. We also do not require initial contact with a live operator for purposes of operator services because we expect that most consumers will more appropriately rely upon their local 911 service in an emergency situation. To the extent that access to operator services enables callers to place collect, thirdparty billed, and persontoperson calls, among other things, we find that such access may be essential to public health and is consistent with the public interest, convenience, and necessity.  X 4K76. ` ` Access to Interexchange Service. We adopt the Joint Board's recommendation to include access to interexchange service among the services supported by federal universal  X 4service mechanisms.V} Vs yO8'ԍ Recommended Decision, 12 FCC Rcd at 121122.V We conclude that access to interexchange service means the use of the loop, as well as that portion of the switch that is paid for by the end user, or the functional equivalent of these network elements in the case of a wireless carrier, necessary to access an  X4interexchange carrier's network.~BVs yO'ԍ For an interexchange call, the IXC rather than the end user currently pays for switching costs. To the extent that, under the access charge rate structure rules we adopt today, the end user may pay for a portion of the costs of line ports used to connect the loop to the local switch, which is used to access the IXC's network, that  {O'portion will be supported by universal service support mechanisms. See Access Charge Reform Order at section III.B. This decision is consistent with the principle set forth in section 254(b)(3) that "consumers . . . should have access to telecommunications and information services including interexchange services." In addition, we agree with the Joint Board that the majority of residential customers currently have access to interexchange  X44service, thus satisfying a criterion set forth in section 254(c)(1)(B).S4 Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 122. S Access to interexchange service also is widely deployed in public telecommunications networks by telecommunications carriers. Further, as observed by the Joint Board and commenters, access to interexchange service is essential for education, public health, and public safety, particularly for customers who live in rural areas and require access to interexchange service to reach medical and  X4emergency services, schools, and local government offices.S Vs yO$'ԍ Recommended Decision, 12 FCC Rcd at 122. S For these reasons, access to interexchange service also meets the public interest, convenience, and necessity criterion of"+0*&&qq5" section 254(c)(1)(D).  X4L77. ` ` Regarding GCI's argument that interexchange service should not be supported because it is a competitive service, we emphasize that universal service support will be  X4available for access to interexchange service, but not for the interexchange or toll service.FVs yO'ԍ GCI reply comments at 1011.F We find that the record does not support including toll service among the services designated for support, although, as discussed in section V below, we find that the extent to which rural consumers must place toll calls to reach essential services should be considered when assessing affordability. Nevertheless, universal service should not be limited only to "noncompetitive" services. One of the fundamental purposes of universal service is to ensure that rates are affordable regardless of whether rates are set by regulatory action or through the competitive marketplace. GCI's argument implies that, if there were multiple carriers competing to provide, for example, basic dialtone service at $1000 per month, there could be no universal service support because the price was set through competition. Such a result would be inconsistent with Congress's intentions to preserve and advance universal service in adopting section 254. We note that section 254(k), which forbids telecommunications carriers from using services that are not competitive to subsidize competitive services, is not  Xy4inconsistent with our conclusion that it is permissible to support competitive services.JyXVs {O'ԍ See 47 U.S.C.  254(k).J ` `  XK4M78. ` ` Consistent with the Joint Board's recommendation, we do not include equal access to interexchange service among the services supported by universal service  X4mechanisms.RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 122.R Equal access to interexchange service permits consumers to access the long  X4distance carrier to which the consumer is presubscribed by dialing a 1+ number. As discussed  X4below in section VI, including equal access to interexchange service among the services supported by universal service mechanisms would require a Commercial Mobile Radio Service (CMRS) provider to provide equal access in order to receive universal service support. We find that such an outcome would be contrary to the mandate of section 332(c)(8), which prohibits any requirement that CMRS providers offer "equal access to  X|4common carriers for the provision of toll services."|zVs yO 'ԍ Section 332(c)(8) states that CMRS providers shall not be "required to provide equal access to common carriers for the provision of toll service." 47 U.S.C.  332(c)(8). Accordingly, we decline to include equal access to interexchange service among the services supported under section 254(c)(1).  X74N79. ` ` Contrary to Ameritech's argument, competitive neutrality does not require that, in areas where incumbent LECs are required to offer equal access to interexchange service," ,0*&&qq<" other carriers receiving universal service support in that area should also be obligated to  X4provide equal access.MVs {Ob'ԍ See infra section IV. M As discussed in section VI below, statutory and policy considerations preclude us from imposing "symmetrical" service obligations on all eligible carriers, including the obligation to provide equal access to interexchange service, as a condition of eligibility under section 214(e). We note that the Commission has not required CMRS providers to  X4provide dialing parity ZVs yO'ԍ The term "dialing parity" means "that a person that is not an affiliate of a local exchange carrier is able to provide telecommunications services in such a manner that customers have the ability to route automatically, without the use of any access code, their telecommunications to the telecommunications services provider of the customer's designation from among two or more telecommunications services providers (including such local exchange carrier)." 47 U.S.C.  153(15).  to competing providers under section 251(b)(3) because the  Xv4Commission has not yet determined that any CMRS provider is a LEC.d v Vs {O1'ԍ See Local Competition Second Report and Order at para. 29. Pursuant to section 3(26), the term "local exchange carrier . . . does not include a person insofar as such person is engaged in the provision of a commercial mobile service under section 332(c), except to the extent that the Commission finds that such service should be included in the definition of such term." In adopting rules to implement the dialing parity obligations of section 251(b)(3), the Commission expressly concluded that, for purposes of that section, CMRS providers are  {O'not LECs. Local Competition Second Report and Order at para. 29. Under section 332(c)(8), if, in the future, the Commission determines that CMRS providers should be treated as LECs, it may then "prescribe regulations to afford subscribers unblocked access to the provider of telephone toll services of the subscriber's choice through the use of a carrier identification code assigned to such provider or other mechanism" if the Commission determines that "subscribers to [commercial mobile services] are denied access to the provider of telephone toll services of the subscriber's choice, and that such denial is contrary to the public interest, convenience, and necessity."  We seek to implement the universal service provisions of section 254 in a manner that is not "biased  XH4toward any particular technologies," consistent with the Joint Board's recommendation.RH6Vs yO/'ԍ Recommended Decision, 12 FCC Rcd at 101.R In light of the provision of section 332(c)(8) stating that nonLEC CMRS providers are  X 4statutorily exempt from providing equal accessE Vs yO'ԍ 47 U.S.C.  332(c)(8). E and because the Commission has not  X 4determined that any CMRS providers should be considered LECs,f VVs {O 'ԍ Local Competition Second Report and Order at para. 29.f we find that supporting equal access would undercut local competition and reduce consumer choice and, thus, would  X 4undermine one of Congress's overriding goals in adopting the 1996 Act. Vs {On#'ԍ See Joint Explanatory Statement at 113 ("to provide for a procompetitive, deregulatory national policy framework"). Accordingly, we do not include equal access to interexchange carriers in the definition of universal service at" -B0*&&qq' " this time.  X4O80. ` ` Access to Directory Assistance and White Pages Directories. We also adopt the Joint Board's recommendation to include access to directory assistance, specifically, the ability to place a call to directory assistance, among the core services pursuant to section  X4254(c)(1).RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 122.R Access to directory assistance enables customers to obtain essential information, such as the telephone numbers of government, business, and residential subscribers. We agree with and adopt the Joint Board's analysis and conclusion that directory assistance is used by a substantial majority of residential customers, is widely available, is essential for education, public health, and safety, and is consistent with the public interest, convenience, and  X 4necessity.U XVs yO# 'ԍ Recommended Decision, 12 FCC Rcd at 12223.U Accordingly, we conclude that providing universal service support for access to directory assistance is consistent with the statutory criteria of section 254(c)(1).  X 4P81. ` ` We further agree with the Joint Board's recommendation not to support white  X 4pages directories and listings.z Vs yOW'ԍ A white pages directory is a compilation of the individual white pages listings.z We concur with the Joint Board's determination that white  X 4pages listings are not "telecommunications services" as that term is defined in the Act.K xVs {O'ԍ See 47 U.S.C.  153(46).K We disagree with West Virginia Consumer Advocate's assertion that it is inconsistent to support  Xy4access to directory assistance, but not white pages directory listings.y Vs {O4'ԍ West Virginia Consumer Advocate comments at 2.  See also Ohio PUC comments at 5; CWA reply comments at 4. As the Joint Board recognized, unlike white pages directories and listings, access to directory assistance is a  XK4functionality of the loop and, therefore, is a service in the functional sense .RKd Vs yO`'ԍ Recommended Decision, 12 FCC Rcd at 122.R While we conclude that white pages directories do not meet the statutory requirements of section 254(c)(1), we find that they provide consumers with valuable information, encourage usage of  X4the network, and may facilitate access to telecommunications and information services.$X Vs yO 'ԍ In addition, we note that section 271(c)(2)(B)(viii) requires that BOCs, prior to providing interLATA service, provide white pages directory listings for customers of competing carriers' telephone exchange service. 47 U.S.C.  271(c)(2)(B)(viii).$ For these reasons, we encourage carriers to continue to make white pages directories available to consumers.  X4Q82. ` ` Toll Limitation Services. Additionally, we include the toll limitation services".0*&&qq" for qualifying lowincome consumers, as discussed more fully below in section VIII, among those that will be supported pursuant to section 254(c). In the Recommended Decision, the Joint Board concluded that Lifeline customers should have access to toll control services, at the customer's option, and at no charge, based on data showing that uncontrollable toll  X4charges were a major factor in low subscribership levels among lowincome consumers.RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 285.R Although the record does not indicate that a majority of residential subscribers currently subscribe to toll limitation services, the Joint Board found that telecommunications carriers are deploying toll limitation services in public telecommunications networks, consistent with  XH4section 254(c)(1)(C).qHXVs {OQ 'ԍ Recommended Decision, 12 FCC Rcd at 286. See infra section VIII.q We find that including these services within the supported services is essential to the public health and safety because, as discussed in section VIII below, toll limitation services will help prevent subscribership levels for lowincome consumers from declining. Thus, we find that toll limitation services will promote access to the public  X 4switched network for lowincome consumers Vs {O'ԍ See infra section VIII for a discussion of the increased penetration rates in areas in which Lifeline and Link Up programs are available for lowincome consumers. and, therefore, are in the public interest,  X 4consistent with the criteria of section 254(c)(1).M DVs {O'ԍ See 47 U.S.C.  254(c)(1).M  X 4  X 4R83. ` ` Access to Internet Services. We agree with the Joint Board's determination  X4that Internet access consists of more than one component.Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 323. Internet access consists of both a network transmission component and an information service component. Specifically, we recognize that Internet access includes a network transmission component, which is the connection over a LEC network from a subscriber to an Internet Service Provider, in addition to the underlying information service. We also concur with the Joint Board's observation that voice grade access to the public switched network usually enables customers to secure access to an  X4Internet Service Provider, and, thus, to the Internet.R. Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 123.R We conclude that the information service component of Internet access cannot be supported under section 254(c)(1), which  X4describes universal service as "an evolving level of telecommunications services."s Vs {O^"'ԍ See infra section X for a discussion of information services.s Furthermore, to the extent customers find that voice grade access to the public switched network is inadequate to provide a sufficient telecommunications link to an Internet service provider, we conclude that such higher quality access links should not yet be included among"/P 0*&&qq" the services designated for support pursuant to section 254(c)(1). We find that a network transmission component of Internet access beyond voice grade access should not be supported separately from voice grade access to the public switched network because the record does not indicate that a substantial majority of residential customers currently subscribe to Internet  X4access by using access links that provide higher quality than voice grade access.8zVs yO'ԍ Based on recent surveys, we estimate that approximately 6 percent of all residential Internet subscribers  {O'have access faster than dialup access. See "US OnLine Population Reaches 47 Million Intelliquest Survey Results," Internet IT Informer, February 2, 1997 (concluding that 22.3 million people in the United States primarily access the Internet from home); "Commercial Internet Exchange Internet Service Provider Study," March 1997, submitted with Commercial Internet Exchange comments in CC Docket 96263 (March 24, 2997) (indicating that 94 percent of residential Internet users use dialup access, five percent use Integrated Services Digital Network (ISDN), and one percent use other, presumably higherspeed, services to access the Internet). 8 In addition, although access to Internet services offers benefits that contribute to education and  Xv4public health, we conclude that it is not "essential to education, public health, or public  Xa4safety" as set forth in section 254(c)(1)(A).Wa Vs yO'ԍ 47 U.S.C.  254(c)(1)(A) (emphasis added).W We conclude that our decision not to support this component is consistent with the Joint Board's general finding that support beyond that provided for voice grade access to the public switched network is not warranted at this  X 4time.R Vs yOg'ԍ Recommended Decision, 12 FCC Rcd at 123.R Under the more expansive authority granted in section 254(h), however, we agree that supporting Internet access under that section is consistent with Congress's intent to  X 4support Internet access for eligible schools, libraries, and rural health care providers.P * Vs {O'ԍ See infra section X.P  Finally, just as the Joint Board concluded that increasing demand for Internet service will  X 4provide consumers with broader accessibility to Internet service providers,R Vs yO-'ԍ Recommended Decision, 12 FCC Rcd at 123.R we anticipate that the demand for Internet service will cause carriers to offer higher bandwidth services and data rates for residential customers.  Xd4S84. ` ` Other Services. We conclude that, at this time, no other services that commenters have proposed to include in the general definition of universal service  X64substantially meet the criteria set forth in section 254(c)(1).6L Vs yO3!'ԍ We address the proposal of Catholic Conference with respect to supporting voice messaging services for  yO!'individuals without residences in section VIII in our discussion of support for lowincome consumers. We emphasize that this section also defines universal service as "evolving" and, therefore, as described below, the Commission will review the services supported by universal service mechanisms no later than  X4January 1, 2001. In addition, as discussed below in section III, we find that the issues relating to the telecommunications needs of individuals with disabilities, including"00*&&qq" accessibility and affordability of services, will be addressed in the context of the  X4Commission's implementation of section 255.RVs {Ob'ԍ See supra section III.R  X4T85. ` ` Moreover, we disagree with the view expressed by Benton that universal  X4service should be defined by transport and termination requirements rather than services.?ZVs yO'ԍ Benton comments at 2.? As discussed above, we concur with the Joint Board's recommendation that, for purposes of section 254(c)(1), the Commission define telecommunications services in a functional sense. We find that Benton's concerns that this approach will favor "carriers traditionally associated  XH4with" the network elements needed to provide the designated services are unfounded.?HVs yO 'ԍ Benton comments at 2.? Contrary to Benton's contention, the record does not contradict the Joint Board's conclusion that none of the designated services creates a barrier to entry for potential new competing carriers or otherwise impedes the ability of wireless and other telecommunications carriers to  X 4provide universal service.R zVs yO'ԍ Recommended Decision, 12 FCC Rcd at 115.R  X 4U86. ` ` Further, we do not adopt the proposal advocated by GTE and others to require  X 4eligible carriers to offer the designated services on an unbundled basis. Vs {Ob'ԍ GTE comments at 16. See also Ameritech comments at 9 n.15; TCA comments at 34. As discussed more fully below in section VI, based on our analysis of section 214(e), we conclude that the statutory language set forth in that section prevents the Commission and the states from  Xb4imposing on eligible carriers requirements that are not included in the statutory language.@bVs yO'ԍ 47 U.S.C.  214(e).@ Even assuming that section 214(e) permitted the Commission to impose requirements on eligible carriers, we would not be inclined to adopt GTE's proposal because we find that, in areas in which there is no competition, states are charged with setting rates for local services and, where competing carriers are offering universal services, consumers would choose to receive service from the carrier that offers the service package that best suits the consumer's needs.  X4V87. ` ` Moreover, we are mindful of the concern expressed by commentersN, Vs {O#'ԍ See, e.g., CTIA comments at 9.N that an overly broad definition of universal service might have the unintended effect of creating a  X|4barrier to entry for some carriers because, as discussed below in section IV.C.2, carriers must"|1 0*&&qq=" provide each of the core services in order to be eligible for universal service support. We concur with the Joint Board's conclusion that conditioning a carrier's eligibility for support  X4upon its provision of the core services will not impose an anticompetitive barrier to entry.RVs yOK'ԍ Recommended Decision, 12 FCC Rcd at 128.R We note that other services proposed by commenters, at a later time, may become more widely deployed than they are at present, or otherwise satisfy the statutory criteria by which we and the Joint Board are guided. When reviewing the definition of universal service, as  Xv4anticipated by section 254(c)(2), the Commission and the Joint Board, after considering the implications for competition, may find that additional services proposed by commenters should be included in our list of core services.  X14  X ' C.` ` Feasibility of Providing Designated Services  X '` ` 1. Background  X 4W88. ` ` Section 214(e)(1)(A) requires eligible carriers to "offer the services that are  X 4supported by [f]ederal universal service support mechanisms."F XVs yO'ԍ 47 U.S.C.  214(e)(1)(A).F The Joint Board recommended that, pursuant to section 214(e), carriers designated as eligible telecommunications providers should be required to offer all of the services designated for  Xb4universal service support.RbVs yO'ԍ Recommended Decision, 12 FCC Rcd at 128.R Recognizing that some incumbent LECs may currently be unable to provide singleparty service, however, the Joint Board recommended that state commissions be permitted to grant a transition period to otherwise eligible carriers that initially are unable to provide singleparty service but only upon a finding that "exceptional circumstances"  X4warrant a transition period.RxVs yO/'ԍ Recommended Decision, 12 FCC Rcd at 129.R In addition, the Joint Board recommended supporting access to E911 service, to the extent that eligible carriers currently are capable of providing such access  X4and the relevant locality has chosen to implement E911 service.RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 130.R Similarly, the Joint Board recommended that toll blocking or control services should be supported when provided to eligible lowincome consumers, to the extent that eligible carriers are technically capable of  X4providing these services.RVs yO"'ԍ Recommended Decision, 12 FCC Rcd at 130.R   Xe'` ` 2. Discussion "N2( 0*&&qq"Ԍ X4X89. ` ` Consistent with the Joint Board's recommendation, we conclude that eligible carriers must provide each of the designated services in order to receive universal service  X4support.RVs yOK'ԍ Recommended Decision, 12 FCC Rcd at 128.R In three limited instances, however, we conclude that the public interest requires that we allow a reasonable period during which otherwise eligible carriers may complete network upgrades required for them to begin offering certain services that they are currently incapable of providing. Given the Joint Board's finding that not all incumbent carriers are  Xv4currently able to offer singleparty service,WvXVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 129, 130.W we find that excluding such carriers from eligibility for universal service support might leave some service areas without an eligible carrier, especially in areas where there currently is no evidence of competitive entry. Therefore, as to singleparty service, we will permit state commissions, upon a finding of "exceptional circumstances," to grant an otherwise eligible carrier's request that, for a designated period, the carrier will receive universal service support while it completes the specified network upgrades necessary to provide singleparty service. This is consistent with the Joint Board's recommendation that state commissions be permitted to grant requests by otherwise eligible carriers for a period to make necessary upgrades if they currently are unable  X 4to provide singleparty service.R Vs yO@'ԍ Recommended Decision, 12 FCC Rcd at 129.R  Xy4Y90. ` ` In addition, we conclude, consistent with the Joint Board's finding that some  Xb4carriers are not currently capable of providing access to E911 service,RbxVs yO'ԍ Recommended Decision, 12 FCC Rcd at 130.R that it may be warranted to provide universal service support to carriers that are not required under Commission rules to provide E911 service and to carriers that are completing the network upgrades required for them to provide access to E911 service. As recommended by the Joint  X4Board,RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 114.R access to E911 will be supported only to the extent that the relevant locality has  X4implemented E911 service.ZVs yO8'ԍ In fact, in the wireless context, we made the wireless carriers' obligation to provide E911 service contingent on (1) a request from a PSAP that is capable of receiving and utilizing the data elements associated  {O 'with the services; and (2) the establishment of a cost recovery mechanism. Wireless E911 Decision at para. 11. If the relevant locality has not implemented E911 service,  X4otherwise eligible carriers that are covered by the Commission's Wireless E911 Decision cited above are not required to provide such access at this time to qualify for universal service support. Even in cases in which the locality has implemented E911 service, some wireless carriers are not currently capable of providing access to E911 service. Although we have directed cellular, broadband PCS, and certain SMR carriers to provide access to E911 service,"~3 0*&&qq" we set a fiveyear period during which these carriers must make the technical upgrades  X4necessary to offer access to E911 service.WVs {Ob'ԍ See Wireless E911 Decision.W Consequently, requiring carriers to provide access to E911 service at this time may prevent many wireless carriers from receiving universal service support during the period that we have already determined to be appropriate for wireless carriers to complete preparations for their offering E911 service. We find that this would be contrary to the principle that universal service policies and rules be competitively neutral. In light of these considerations, we will, as described below, make some accommodation during the period in which these carriers are upgrading their systems.   X14Z91. ` ` The Joint Board envisioned granting a period to make upgrades while still receiving support only if a carrier could meet a "heavy burden that such a . . . period is necessary and in the public interest" and if "exceptional circumstances" warranted the granting  X 4of support during that period.W ZVs yO'ԍ Recommended Decision, 12 FCC Rcd at 112, 129.W We find that the Joint Board's recommendation provides a reasoned and reasonable approach to ensuring access to singleparty service while, at the same time, recognizing that "exceptional circumstances" may prevent certain carriers serving rural areas from offering singleparty service. We conclude that this approach also makes sense in the context of toll limitation service and access to E911 when a locality has implemented E911 service. Accordingly, we conclude that a carrier that is otherwise eligible to receive universal service support but is currently incapable of providing singleparty service, toll limitation service, or access to E911 in the case where the locality has implemented E911 service may, if it provides each of the other designated services, petition its state commission for permission to receive universal service support for the designated period during which it is completing the network upgrades required so that it can offer these services. A carrier that is incapable of offering one or more of these three specific universal services must demonstrate to the state commission that "exceptional circumstances" exist with respect to each service for which the carrier desires a grant of additional time to make network upgrades.  X4[92. ` ` We emphasize that this relief should be granted only upon a finding that "exceptional circumstances" prevent an otherwise eligible carrier from providing singleparty service, toll limitation, or access to E911 when the locality has implemented E911 service. A carrier can show that exceptional circumstances exist if individualized hardship or inequity warrants a grant of additional time to comply with the general requirement that eligible carriers must provide singleparty service, toll limitation service, and access to E911 when the locality has implemented E911 service and that a grant of additional time to comply with these requirements would better serve the public interest than strict adherence to the general requirement that an eligible telecommunications carrier must be able to provide these services to receive universal service support. The period during which a carrier could receive support while still completing essential upgrades should extend only as long as the relevant state"!40*&&qq? " commission finds that "exceptional circumstances" exist and should not extend beyond the time that the state commission deems necessary to complete network upgrades. We conclude that this is consistent with the intent of section 214(e) because it will ensure that ultimately all eligible telecommunications carriers offer all of the services designated for universal service support.  Xv4\93. ` ` We recognize that some state commissions already may have mandated single X_4party service for telecommunications service providers serving their jurisdictions.C_Vs yO'ԍ GTE comments at 84 n.124.C If a state commission has adopted a timetable by which carriers must offer singleparty service, a carrier may rely upon that previously established timetable and need not request another transition period for federal universal service purposes. Specifically, where a state has ordered a carrier to provide singleparty service within a specified period pursuant to a state order that precedes the release date of this Order, the carrier may rely upon the timetable established in that order and receive universal service support for the duration of that period.  X ' D.` ` Extent of Universal Service Support  Xy'` ` 1. Background  XK4]94. ` ` Section 254(b)(3) states that "[c]onsumers in . . . high cost areas, should have  X44access to telecommunications and information services. . . ."C4XVs yO='ԍ 47 U.S.C.  254(b)(3).C The Joint Board recommended that support be provided (1) for designated services carried on a single connection to a subscriber's primary residence, and (2) for designated services carried to businesses located in rural, insular and other high cost areas and with only single  X4connections.Vs yOq'ԍ Recommended Decision, 12 FCC Rcd at 132. Consistent with the principle of competitive neutrality, the Joint Board referred to "connections" rather than "lines." The Joint Board concluded that singleconnection residences and single X4connection businesses both require access for health, safety, and employment reasons.@Vs {O'ԍ Recommended Decision, 12 FCC Rcd at 133 (citing MTS and WATS Market Structure, Memorandum  {O|'Opinion and Order, 101 FCC 2d 1222 (1985)). The Joint Board found that support for a second connection is not necessary for a household to have "access" to telecommunications and information services, pursuant to section  X|4254(b)(2).R|Vs yO#'ԍ Recommended Decision, 12 FCC Rcd at 132.R In addition, the Joint Board determined that universal service support should not"|5, 0*&&qq"  X4be extended to second residences.RVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 133.R The Joint Board reasoned that the additional cost of supporting second or vacation residences is not justified because owners of such residences can likely afford to pay rates that accurately reflect the carrier's costs and because second  X4homes may not be occupied at all times.RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 133.R  X'` ` 2. Discussion  X_4^95. ` ` The Joint Board recommended that support for designated services be limited to those carried on a single connection to a subscriber's primary residence and to businesses with  X14only a single connection.V1Vs yO 'ԍ Recommended Decision, 12 FCC Rcd at 132134.V We share the Joint Board's concern that providing universal service support in high cost areas for second residential connections, second residences, and businesses with multiple connections may be inconsistent with the goals of universal service in that business and residential consumers that presumably can afford to pay rates that reflect  X 4the carrier's costs to provide services nevertheless would receive supported rates.R xVs yO'ԍ Recommended Decision, 12 FCC Rcd at 133.R We are also mindful that overly expansive universal service support mechanisms potentially could harm all consumers by increasing the expense of telecommunications services for all.  Xy4_96. ` ` In light of our determination below, however, to adopt a modified version of the existing universal service support system for high cost areas, we conclude, consistent with  XK4the proposal of the state Joint Board members,FKVs yO'ԍ State High Cost Report at 3.F that all residential and business connections in high cost areas that currently receive high cost support should continue to be supported for  X4the periods set forth in section VII below.Vs yOf'ԍ The Commission may, however, implement the Joint Board's recommendation to differentiate between  {O.'connections for purposes other than assigning universal service support. See infra section XII. For rural telephone companies this means that both multiple business connections and multiple residential connections will continue to receive universal service support at least until January 1, 2001. We intend, however, to continue to evaluate the Joint Board's recommendation to limit support for primary residential connections and businesses with a single connection as we further develop a means of precisely calculating the forwardlooking economic cost of providing universal service in areas currently served by nonrural telephone companies. As we determine how to calculate forwardlooking economic cost, or as states do so in stateconducted cost studies, we necessarily will examine the forwardlooking economic cost of supporting additional"e6 0*&&qq" residential connections or multiple connection businesses. Depending on how we determine the forwardlooking economic cost of the primary residential connection, for example, there may be little incremental cost to additional residential connections. In that case, for instance, there would be no need to support additional residential connections. We will consider the forwardlooking cost of supporting designated services provided to multipleconnection businesses as well. We recognize the arguments raised by the several parties that commented on this aspect of the Joint Board's recommendation, but we do not address the merits of these  X_4arguments at this time.z_Vs {O'ԍ See, e.g., Ameritech comments at 6 (additional residential connections should not be supported); Letter from Mark Sievers, MFS, to William F. Caton dated February 27, 1997 (universal service administrator should use ninedigit zip codes to identify subscribers with multiple connections and assign support); California SBA comments at 10 (all residential connections should be supported); APT comments at 5 (eligible carriers should receive support for providing service to primary residences); GTE comments at 7981 (connections to all residences should be supported); Ameritech comments at 7 (no businesses connections should be supported); SBA comments at 18 (eliminating support for multipleconnection businesses would harm rural economies). We intend to examine the record on this issue in our FNPRM on a forwardlooking economic cost methodology.  X ' E.` ` Quality of Service  X '` ` 1. Background  X 4`97. ` ` Section 254(b)(1) states that "quality services should be available at just,  X 4reasonable and affordable rates."C Vs yOb'ԍ 47 U.S.C.  254(b)(1).C The Joint Board declined to recommend that the Commission establish federal technical standards as a condition to receiving universal service  Xy4support.RyVs yO'ԍ Recommended Decision, 12 FCC Rcd at 140.R The Joint Board also declined to recommend that the Commission adopt service quality standards "beyond the basic capabilities that carriers receiving universal service  XK4support must provide."RK* Vs yO&'ԍ Recommended Decision, 12 FCC Rcd at 140.R The Joint Board noted that states may, on a competitively neutral  X44basis, adopt and enforce service quality rules that further the goals of universal service.S4 Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 140. S The Joint Board recommended that the Commission monitor service quality, by relying, to the extent possible, on existing data in order to avoid duplication of existing state data collection  X4efforts.RJ Vs yO#'ԍ Recommended Decision, 12 FCC Rcd at 140.R The Joint Board recommended that the Commission rely on service quality data submitted to the Commission by state commissions in determining whether "quality services""70*&&qq"  X4are available, consistent with section 254(b)(1).SVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 140. S   X'` ` 2. Discussion  X4a98. ` ` We concur with the Joint Board's recommendation against the establishment of  X4federal technical standards as a condition to receiving universal service support.RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 140.R Further, we agree with the Joint Board that the Commission should not adopt service quality standards "beyond the basic capabilities that carriers receiving universal service support must  XH4provide."RHVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 140.R Section 254(b)(1) establishes availability of quality services as one of the guiding principles of universal service, but, contrary to CWA's characterization of this section as a statutory requirement, section 254(b)(1) does not mandate specific measures designed to  X 4ensure service quality.< xVs yO,'ԍ CWA comments at 5.< Rather, section 254(b) sets forth the statutory principles that the Joint Board considered when making its recommendations and, similarly, must guide the Commission as it implements section 254. Although we recognize service quality to be an important goal, we conclude that implementing federallyimposed service quality or technical standards for promoting universal service is not required at this time, but we may reexamine this issue in the future.  Xb4b99. ` ` Based on the Joint Board's recommendation that the Commission not establish federal technical standards as a condition to receiving universal service support, we conclude that the Commission should rely upon existing data, rather than specific standards, to monitor  X4service quality at this time.\Vs {O'ԍ See Recommended Decision, 12 FCC Rcd at 140.\ Accordingly, we reject CWA's proposal that the Commission  X4establish federal reporting requirements.BVs yOQ'ԍ CWA reply comments at 6.B As the Joint Board concluded, several states currently have service quality reporting requirements in place for carriers serving their  X4jurisdictions.0* Vs {O!'ԍ Recommended Decision, 12 FCC Rcd at 140 (citing National Regulatory Research Institute,  {O}"' Telecommunications Service Quality (March 1996) (indicating that 32 state regulatory commissions and the  {OG#'District of Columbia have instituted quality of service standards since the AT&T divestiture.)). See also NARUC Compilation of Utility Regulatory Policy 19941995 at Table 159 (showing that 36 states require periodic telephone service quality reporting).0 We find, consistent with the Joint Board's recommendation, that imposing"80*&&qq"  X4additional requirements at the federal level would largely duplicate states' efforts.RVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 140.R In addition, imposing federal service quality reporting requirements could be overly burdensome for carriers, particularly small telecommunications providers that may lack the resources and staff needed to prepare and submit the necessary data. For this reason, we also decline to expand, solely for universal service purposes, the category of telecommunications providers required to file ARMIS service quality and infrastructure reporting data, as suggested by  Xv4North Dakota PSC.IvXVs yO 'ԍ North Dakota PSC comments at 2.I Currently, ARMIS filing requirements apply to carriers subject to price cap regulation that collectively serve 95 percent of access lines. We will not extend ARMIS reporting requirements to all carriers because we find that additional reporting requirements  X14would impose the greatest burdens on small telecommunications companies.&1Vs {O 'ԍ The Commission has recently reduced the number of filing requirements imposed on carriers. See  {O'Revision of Filing Requirements, Report and Order, CC Docket No. 9623, FCC 961873 (rel. November 13,  {O^'1996), Erratum, CC Docket No. 9623, FCC 962207 (rel. December 31, 1996) (eliminating 18 information  yO('reporting requirements imposed on common carriers). Although we recognize service quality to be an important goal, we conclude that implementing federallyimposed service quality or technical standards for promoting universal service would be inconsistent with the 1996 Act's goal of a "procompetitive, deregulatory national policy framework" because of the administrative burden on carriers resulting from the compilation and preparation of service quality reports that would be required for the Commission to assess  X 4whether carriers were meeting those standards.M Vs yO.'ԍ Joint Explanatory Statement at 113.M We conclude that the record before us does not demonstrate the need to do so at this time, but we may reevaluate the need for additional service quality reporting requirements in the future.  XK4c100. ` ` As recommended by the Joint Board,RKf Vs yOb'ԍ Recommended Decision, 12 FCC Rcd at 140.R we will rely upon service quality data provided by the states in combination with those data that the Commission already gathers from price cap carriers through existing data collection mechanisms in order to monitor  X4service quality trends. Vs yO 'ԍ For example, the Commission receives service quality data by carriers that submit ARMIS 4305 and ARMIS 4306 reports. We concur with the Joint Board's recommendation that state commissions share with the Commission, to the extent carriers provide such data, information regarding, for example, the number and type of service quality complaints filed with state  X4agencies.RN Vs yO%'ԍ Recommended Decision, 12 FCC Rcd at 140.R We encourage state commissions to submit to the Commission the service quality"90*&&qq" data they receive from their telecommunications carriers. We do not, however, establish the specific type of data that state commissions should submit to the Commission because imposing such requirements might hamper states' efforts to collect the data that they find to be most effective for ensuring service quality for their residents. Nor do we adopt CWA's proposal that the Commission require state commissions to impose the same quality standards  X4on competitive LECs that are imposed upon incumbent LECs.DVs yO'ԍ CWA reply comments at 78.D We find that state commissions, by virtue of their familiarity with the carriers serving their respective states, are best situated to determine the extent to which service quality standards should be applied in their jurisdictions. Moreover, we agree with the Joint Board's finding that, as competition in the telecommunications industry increases, consumers will select their providers based on,  X 4among other factors, the quality of service offered.R XVs yO# 'ԍ Recommended Decision, 12 FCC Rcd at 141.R We agree with North Dakota PSC that providing consumers with access to publicly available data on the performance of carriers serving a particular state could promote increased service quality by permitting consumers to  X 4compare the service quality records of competing carriers.I Vs yOn'ԍ North Dakota PSC comments at 1.I Therefore, we encourage state commissions, to the extent they collect such information, to make service quality data readily available to the public.   Xy4d101. ` ` Consistent with the Joint Board's recommendation, we conclude that states may adopt and enforce service quality rules that are competitively neutral, pursuant to section  XK4253(b), and that are not otherwise inconsistent with rules adopted herein. KxVs yOt'ԍ Recommended Decision, 12 FCC Rcd at 140. Section 253(b) reads: "Nothing in this section affects the authority of a State to impose, on a competitively neutral basis and consistent with section 254, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers." We concur with  X44commenters that favor state implementation of carrier performance standards.4` Vs {OE'ԍ See, e.g., California DCA comments at 19; Maryland PSC comments at 8; Ohio PUC comments at 6; WorldCom comments at 11. Relying on data compiled by the National Association of Regulatory Utilities Commissioners, we note that 40 states and the District of Columbia have service quality standards in place for  X4telecommunications companies.p Vs yOZ"'ԍ NARUC Compilation of Utility Regulatory Policy 19941995 at Table 157.p Because most states have established mechanisms designed to ensure service quality in their jurisdictions, we find that additional efforts undertaken at the federal level would be largely redundant. We conclude that stateimposed measures to monitor and enforce service quality standards will help "ensure the continued quality of":J 0*&&qq\" telecommunications services, and safeguard the rights of consumers," consistent with section  X4253(b).@Vs yOb'ԍ 47 U.S.C.  253(b).@ In light of the existing state mechanisms designed to promote service quality, we conclude that state commissions are the appropriate fora for resolving consumers' specific grievances regarding service quality. We may, in the future, however, address the need for federal service quality standards, in particular, with respect to states that currently do not have such standards in place. In addition, the Commission may address broader, more wideranging service quality issues during our ongoing monitoring of service quality trends.  XH4e102.` ` We agree with the Joint Board's conclusion that, to the extent the Joint Board recommended, and we adopt, specific definitions of the services designated for support, these  X 4basic capabilities establish minimum levels of service that carriers must provide in order to  X 4receive support.R XVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 140.R For example, we conclude above that voice grade access to the public switched network should occur in the frequency range between approximately 500 Hertz and 4,000 Hertz for a bandwidth of approximately 3,500 Hertz. Although not a service quality  X 4standard per se, this requirement will ensure that all consumers served by eligible carriers  X 4receive some minimum standard of service.  Xy' F.` ` Reviewing the Definition of Universal Service  XK'` ` 1. Background  X44  X4f103. ` ` Section 254(c)(2) states that "[t]he Joint Board may, from time to time, recommend to the Commission modifications in the definition of the services that are  X4supported by Federal universal service support mechanisms."CVs yO'ԍ 47 U.S.C.  254(c)(2).C The Joint Board recommended that the Commission convene a Joint Board no later than January 1, 2001, to  X4revisit the definition of universal service.RxVs yO'ԍ Recommended Decision, 12 FCC Rcd at 143.R The Joint Board further recommended that the  X4Commission base future analyses of the definition of universal service, inter alia, on data derived from the Commission's existing data collection mechanisms, such as those collected  X~4through ARMIS.R~Vs yO7"'ԍ Recommended Decision, 12 FCC Rcd at 143.R   XP'` ` 2. Discussion  X"4g104. ` ` As recommended by the Joint Board, the Commission shall convene a Joint"";0*&&qqc" Board no later than January 1, 2001, to revisit the definition of universal service, as section  X4254(c)(2) anticipates.RVs yOb'ԍ Recommended Decision, 12 FCC Rcd at 143.R As the Joint Board concluded, this approach to reexamining the services to be supported strikes a reasonable balance between too frequent reviews, which could cause unnecessary expenditure of resources, and sporadic evaluation, which may not produce a definition of universal service that is consistent with the principles enumerated in  X4section 254(b) and does not reflect the definitional criteria of section 254(c).RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 143.R  X_4h105. ` ` We disagree with GVNW's argument that carriers will lack incentive to invest in the infrastructure needed for services that may be designated for support in the future and,  X14thus, may fail to qualify for support under future definitions of universal services.=1Vs yO 'ԍ GVNW comments at 5.= As  X 4discussed below in section VII, we have carefully structured the universal service support mechanisms to be "sufficient" pursuant to section 254(b)(4). As the Joint Board concluded, in future assessments of the definition of universal service, the Commission and Joint Board will consider what services have "been subscribed to by a substantial majority of residential customers" and "are being deployed in public telecommunications networks by  X 4telecommunications carriers," pursuant to section 254(c)(1).R xVs yO'ԍ Recommended Decision, 12 FCC Rcd at 143.R GVNW's argument ignores the element of consumer demand that guides carriers' investment decisions and the statutory criteria upon which decisions to alter the list of supported services will be based.  XK4i106. ` ` We reject People For's contention that a formal biennial review is warranted.CKVs yO'ԍ People For comments at 7.C As recommended by the Joint Board, we conclude that the Commission may institute a review  X4at any time upon its own motion or in response to petitions by interested parties.RVs yOf'ԍ Recommended Decision, 12 FCC Rcd at 143.R We find that this approach to reviewing the definition of supported services permits sufficient flexibility to enable the Commission to respond to developments in the telecommunications industry. We agree with CNMI and other parties that "periodic" reviews are warranted to  X4keep pace with technical developments as well as consumer trends.( Vs {O"'ԍ CNMI comments at 37. See also GVNW comments at 5; NetAction comments at 4; Ohio PUC comments at 6. We reiterate that the Commission will convene a Joint Board no later than January 1, 2001, to revisit the definition of universal service."< 0*&&qq`"Ԍ X4ԙj107. ` ` Consistent with the Joint Board's recommendation, we do not adopt, at this time, additional reporting requirements to collect data for use in reevaluating the definition of  X4universal service.\Vs {OK'ԍ See Recommended Decision, 12 FCC Rcd at 143.\ We recognize that complying with reporting requirements is burdensome for carriers, especially for small carriers that may lack the resources and personnel needed to compile the relevant information. In order to determine whether new services or functionalities should be included within the definition of universal service, however, we and the Joint Board will need information that will enable us to determine whether a proposed service has "been subscribed to by a substantial majority of residential customers" and "is being deployed in public telecommunications networks by telecommunications carriers" pursuant to section 254(c)(1). In addition to relying upon existing data collection mechanisms, such as ARMIS reports, the Commission will conduct any surveys or statistical analysis that may be necessary to make the evaluations required by section 254(c)(1) to change the definition of universal service. Finally, we encourage states, to the extent they collect and monitor data relevant to assessing whether services meet the criteria set forth in section 254(c)(1), to provide such data to the Joint Board and the Commission in connection with any future reevaluation of the definition of universal service. J:\MASTER\DEFIN.FIN " =Z0*&&qq"  X' J:\MASTER\AFFORD.FIN V.  AFFORDABILITY  X'A.` ` Overview  X4k108. ` ` The 1996 Act requires that the Commission and the states ensure that universal  X4services are affordable.jVs {O'ԍ 47 U.S.C.  254(i). See also 47 U.S.C.  254(b)(1).j In this section, we determine the factors to be considered in examining affordability, including subscribership levels and other nonrate factors that may influence a consumer's decision to subscribe to services designated as universal services. We conclude that the states, by virtue of their local ratemaking authority, should exercise primary responsibility for determining the affordability of rates. Finally, the Commission and states, working in partnership, should jointly examine the factors identified at the state level that may contribute to low penetration rates in states where subscribership levels are particularly low. In such states, we believe joint efforts between the Commission and the states may be helpful in increasing subscription.   X ' B.` ` Affordability  Xy'` ` 1. Background  XK4l109. ` ` Section 254(b)(1) provides that "[q]uality services should be available at just,  X44reasonable, and affordable rates."C4ZVs yO?'ԍ 47 U.S.C.  254(b)(1).C In addition, section 254(i) requires that "[t]he Commission and the States should ensure that universal service is available at rates that are  X4just, reasonable, and affordable."tVs {O'ԍ 47 U.S.C.  254(i). See also Joint Explanatory Statement at 134.t The Joint Board recommended that a determination of affordability should take into consideration rate levels and nonrate factors such as local calling area size, income levels, cost of living, population density, and other socioeconomic  X4indicators.W|Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 151, 153.W In addition, the Joint Board found that both the states and the Commission should play roles in ensuring affordable rates, consistent with the statutory mandate embodied  X4in section 254(i).R Vs yOP!'ԍ Recommended Decision, 12 FCC Rcd at 154.R   Xe'` ` 2. Discussion  X74m110. ` ` In General. We agree with and adopt the Joint Board's finding that the definition of affordability contains both an absolute component ("to have enough or the means" >0*&&qq;" for"), which takes into account an individual's means to subscribe to universal service, and a relative component ("to bear the cost of without serious detriment"), which takes into account whether consumers are spending a disproportionate amount of their income on telephone  X4service.Vs {O4'ԍ Recommended Decision, 12 FCC Rcd at 151 (citing Webster's New World Dictionary at 23). The Joint Board noted the concern of commenters that, because telephone service is considered a modern necessity, some consumers may subscribe to telephone service irrespective of whether the rate charged imposes a significant hardship and therefore high  Xv4subscribership rates do not ensure that rate levels are affordable.XvZVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 152 n.403.X In light of the Joint Board's findings, we agree with the Joint Board that we and the states must consider both the absolute and relative components when making the affordability determinations required under  X14section 254.J1Vs {O 'ԍ See 47 U.S.C.  254(i).J To that end, we adopt the Joint Board's recommendation that a determination of affordability take into consideration both rate levels and nonrate factors, such as consumer income levels, that can be used to assess the financial burden subscribing to universal service  X 4places on consumers. |Vs yO'ԍ The nonrate factors affecting a consumer's ability to afford telephone service are discussed below.Ĕ  X 4n111.` ` The Joint Board expressly rejected suggestions that the Commission establish a nationwide affordable rate, including proposals to use an average of current rates as a measure  X4of affordability, and we agree with this approach.R Vs yOM'ԍ Recommended Decision, 12 FCC Rcd at 154.R As the Joint Board reasoned, a nationwide rate would ignore the vast differences within and among regions that can affect  Xb4what constitutes affordable service.RbVs yO'ԍ Recommended Decision, 12 FCC Rcd at 153.R Accordingly, we adopt the Joint Board's finding that, because various factors, many of which are local in nature, affect rate affordability, it is not  X44appropriate to establish a nationwide affordable rate.R4, Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 154.R  X4o112. ` ` Subscribership Levels. We also concur in the Joint Board's finding that subscribership levels provide relevant information regarding whether consumers have the means to subscribe to universal service and, thus, represent an important tool in evaluating the  X4affordability of rates.R Vs yO.$'ԍ Recommended Decision, 12 FCC Rcd at 152.R Based on recent nationwide subscribership data, the Joint Board"?L 0*&&qq"  X4judged that existing local rates are generally affordable.RVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 154.R We find that recent subscribership data, indicating that 94.2 percent of all American households subscribed to telephone service in 1996, and the record in this proceeding are consistent with the Joint Board's  X4determination.&XVs {O'ԍ Federal Communications Commission, Industry Analysis Division, Trends in Telephone Service (rel.  {O'March 28, 1997) at Table 2. See, e.g., Bell Atlantic comments at 2 (the Commission should affirm the Joint  {OX'Board's finding that local rates are generally affordable). But see Governor of Guam comments at 10 (rates are not affordable in Guam). We recognize that affordable rates are essential to inducing consumers to subscribe to telephone service, and also that increasing the number of people connected to the network increases the value of the telecommunications network. Further, we note that insular areas generally have subscribership levels that are lower than the national average, largely as a result of income disparity, compounded by the unique challenges these areas face by virtue of  XH4their locations.HFVs {O?'ԍ See, e.g., Puerto Rico Tel. Co. comments at 15 (national median income is 3.54 times higher than the Puerto Rico median income); CNMI NPRM comments at 9 (per capita income and telephone penetration rate in the Commonwealth of Northern Marianas Islands (CNMI) are among lowest in the nation); Puerto Rico Tel. Co. comments at 2526 (factors such as tropical climate, high cost of shipping and topography contribute to high cost of providing service to insular areas); CNMI NPRM comments at 6 (telecommunications services are essential in CNMI because the islands' distance from the U.S. mainland impedes travel and mail delivery).   X 4p113. ` ` We also agree with the Joint BoardR Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 152.R and commenters,T P Vs {O'ԍ See, e.g., People For comments at 9.T however, that subscribership levels are not dispositive of the issue of whether rates are affordable. For example, we agree with the view that subscribership levels do not reveal whether consumers  X 4are spending a disproportionate amount of income on telecommunications services.  Vs yOh'ԍ People For comments at 9. We also recognize that lower income levels make telephone service less affordable, as evidenced by Puerto Rico, which has a per capita income of $4,177 (compared with a per capita income of $14,420 for the rest of the United States) and a subscribership level of 74 percent (compared with approximately 94% for the rest of the United States). Puerto Rico Tel. Co. comments at 5, 15 n.29. As the Joint Board concluded, subscribership levels do not address the second component of affordability, namely, whether paying the rates charged for services imposes a hardship for  X4those who subscribe.RVs yO #'ԍ Recommended Decision, 12 FCC Rcd at 152.R Accordingly, we conclude, as discussed further below, that the Commission and states should use subscribership levels, in conjunction with rate levels and certain other nonrate factors, to identify those areas in which the services designated for support may not be affordable. "K@Z0*&&qqQ"Ԍ X4ԙq114. ` ` NonRate Factors. Consistent with the Joint Board's finding, the record demonstrates that various other nonrate factors affect a consumer's ability to afford telephone  X4service.VVs yOK'ԍ Recommended Decision, 12 FCC Rcd at 151153.V We agree with the Joint Board's assessment and commenters' contentions that the  X4size of a customer's local calling area is one factor to consider when assessing affordability.RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 152.R Specifically, we concur with the Joint Board's finding that the scope of the local calling area "directly and significantly impacts affordability," and, thus, should be a factor to be weighed  Xv4when determining the affordability of rates.RvVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 152.R We further agree with the Joint Board that, in considering this factor, an examination that would focus solely on the number of subscribers  XH4to which one has access for local service in a local calling area would be insufficient.RHxVs yOq'ԍ Recommended Decision, 12 FCC Rcd at 152.R Instead, as the Joint Board recommended, a determination that the calling area reflects the pertinent "community of interest," allowing subscribers to call hospitals, schools, and other  X 4essential services without incurring a toll charge, is appropriate.R Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 152.R In reaching this conclusion, we agree with United Utilities and other commenters that affordability is affected by the amount of toll charges a consumer incurs to contact essential service providers such as hospitals, schools, and government offices that are located outside of the consumer's local  X 4calling area. Vs {O'ԍ United Utilities comments at 4. See also People For comments at 89; Vermont comments at 14. Toll charges can greatly increase a consumer's expenditure on telecommunications services, mitigating the benefits of universal service support. In addition, rural consumers who must place toll calls to contact essential services that urban consumers may reach by placing a local call cannot be said to pay "reasonably comparable" rates for  XK4local telephone service when the base rates of the service are the same in both areas.MK* Vs {O&'ԍ See 47 U.S.C.  254(b)(3).M Thus, we find that a determination of rate affordability should consider the range of a subscriber's local calling area, particularly whether the subscriber must incur toll charges to contact essential public service providers.  X4r115. ` ` In addition, we agree with the Joint BoardR Vs yOE#'ԍ Recommended Decision, 12 FCC Rcd at 153.R and commentersL Vs yO$'ԍ Bell Atlantic comments at 16; CNMI comments at 35; Governor of Guam comments at 9; Minnesota Coalition comments at 10; People For comments at 910. that consumer"A0*&&qq" income levels should be among the factors considered when assessing rate affordability. We concur with the Joint Board's finding that a nexus exists between income level and the ability  X4to afford universal service.RVs yOK'ԍ Recommended Decision, 12 FCC Rcd at 153.R As the Joint Board observed, a rate that is affordable to affluent  X4customers may not be affordable to lowerincome customers.RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 153.R We agree with the Joint Board that, in light of the significant disparity in income levels throughout the country, percapita income of a local or regional area, and not a national median, should be considered in  Xv4determining affordability.RvVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 153.R As the Joint Board concluded, determining affordability based on a percentage of the national median income would be inequitable because of the significant  XH4disparities in income levels across the country.RHxVs yOq'ԍ Recommended Decision, 12 FCC Rcd at 153.R Specifically, we agree with Minnesota Coalition that such a standard would tend to overestimate the price at which services are affordable when applied to a service area where income level is significantly below the  X 4national median.M Vs yO'ԍ Minnesota Coalition comments at 12.M Accordingly, we decline to adopt proposals to establish nationwide  X 4standards for measuring the impact of customer income levels on affordability.T  Vs {O5'ԍ See, e.g., People For comments at 9.T We also find that establishing a formula based on percentages of consumers' disposable income dedicated to telecommunications services, as suggested by People For, would overemphasize income levels in relation to other nonrate factors that may affect affordability and fail to  X4reflect the effect of local circumstances on the affordability of a particular rate.M * Vs {Ok'ԍ See People For comments at 9.M  Xb4s116. ` ` We also agree with the Joint BoardX b Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 151.X and commenters that cost of living bL Vs {O_'ԍ See, e.g., Bell Atlantic comments at 16; CNMI comments at 35; Minnesota Coalition comments at 10. and  XK4population density KVs {O!'ԍ See, e.g., Bell Atlantic comments at 16; Governor of Guam comments at 9. Strictly speaking, population density affects cost because, in areas with low population density, carriers' costs are generally higher.  affect rate affordability. Like income levels, cost of living affects how much a consumer can afford to pay for universal services. As discussed above, the size of a consumer's calling area, which tends to be smaller in areas with low population density, affects affordability. In addition, given that cost of living and population density, like income"B8 0*&&qq]" levels, are factors that vary across local or regional areas, we find that these factors should be considered by region or locality.  X4t117. ` ` Finally, we agree with and adopt the Joint Board's finding that legitimate local  X4variations in rate design may affect affordability.RVs yO'ԍ Recommended Decision, 12 FCC Rcd at 153.R As identified by the Joint Board, such variations include the proportion of fixed costs allocated between local services and intrastate toll services; proportions of local service revenue derived from perminute charges and monthly recurring charges; and the imposition of mileage charges to recover additional  XH4revenues from customers located a significant distance from the wire center.RHXVs yOQ 'ԍ Recommended Decision, 12 FCC Rcd at 153.R We find that states, by virtue of their local ratesetting authority, are best qualified to assess these factors in the context of considering rate affordability.  X 4u118. ` ` Determining Rate Affordability. We agree with the Joint Board that states should exercise initial responsibility, consistent with the standards set forth above, for  X 4determining the affordability of rates.R Vs yOW'ԍ Recommended Decision, 12 FCC Rcd at 153.R We further concur with the Joint Board's conclusion that state commissions, by virtue of their ratesetting roles, are the appropriate fora for consumers wishing to challenge the affordability of intrastate rates for both local and toll  Xy4services.RyxVs yO'ԍ Recommended Decision, 12 FCC Rcd at 153.R As the Joint Board determined, the unique characteristics of each jurisdiction render the states better suited than the Commission to make determinations regarding rate  XK4affordability.RKVs yO'ԍ Recommended Decision, 12 FCC Rcd at 153.R Each of the factors proposed by parties and endorsed by the Joint Board with the exception of subscribership levels namely, local calling area size, income levels, cost of living, and population density represents data that state regulators, as opposed to the  X4Commission, are best situated to obtain and analyze.\Vs {OO'ԍ See Recommended Decision, 12 FCC Rcd at 153.\ For example, state regulators have access to information collected at the state level pertaining to income levels and the cost of living within their respective state. Guided by the Joint Board's recommended joint federal X4state approach to monitoring and assessing affordability,\* Vs {O"'ԍ See Recommended Decision, 12 FCC Rcd at 154.\ we encourage states to submit to the Commission summary reports of the data collected at the state level that could assist the Commission in its assessment of affordability. "|C 0*&&qq="Ԍ X4v119. ` ` We note that in the Recommended Decision the Joint Board envisioned the Commission and affected states working together informally in states where "subscribership  X4levels fall from the current levels on a statewide basis."RVs yOK'ԍ Recommended Decision, 12 FCC Rcd at 154.R We do not, however, adopt Puerto Rico Tel. Co.'s proposal for automatic federal intervention in states in which the  X4subscribership level is more than five percent below the national average.XXVs {O'ԍ See Puerto Rico Tel. Co. comments at 27.X Nor do we agree with Bell Atlantic's contention that the Commission should intervene only when a state experiences a "statistically significant" drop in telephone penetration levels and requests the  X_4Commission's assistance in providing a remedy for its declining subscribership.Q_Vs {O 'ԍ See Bell Atlantic comments at 16.Q Neither of these suggested approaches would give the Commission and the states sufficient flexibility to determine, on a state by state basis, when circumstances warrant Commission intervention, and when state action alone will remedy the cause or causes of a low or declining subscribership level.  X 4w120. ` ` As the Joint Board recommended, the Commission will work in concert with states and U.S. territories and possessions informally to address instances of low or declining  X 4subscribership levels. |Vs {O'ԍ See Recommended Decision, 12 FCC Rcd at 154. See also Washington UTC comments at 11. Such informal cooperation may consist of sharing data or conducting joint inquiries in an attempt to determine the cause of low or declining subscribership rates in a given state, or providing other assistance requested by a state. As the Joint Board recognized, states have the ability to make the primary determination of affordability. We will defer to the states for guidance on how best to implement federalstate collaborative efforts to ensure affordability. We find that this dual approach in which both the states and the Commission play significant roles in ensuring affordability is consistent with the statutory mandate embodied in section 254(i).  X4x121. ` ` In addition, consistent with the Joint Board's recommendation, where "necessary and appropriate," the Commission, working with the affected state or U.S. territory or possession, will open an inquiry to take such action as is necessary to fulfill the requirements of section 254. We conclude that such action is warranted with respect to insular areas. The record indicates that subscribership levels in insular areas are particularly  Xe4low.eVs {O$#'ԍ See Puerto Rico Tel. Co. comments at 5 (telephone subscribership is 72 percent in Puerto Rico); CNMI NPRM comments at 10 (telephone subscribership is 66.8 percent in CNMI according to 1990 Census data). Accordingly, we will issue a Public Notice to solicit further comment on the factors that contribute to the low subscribership levels that currently exist in insular areas, and to"NDh 0*&&qq"  X4examine ways to improve subscribership in these areas.XVs yOy'ԍ We recognize that, although the record includes data regarding Puerto Rico, Guam and CNMI, we have no data with respect to American Samoa. We strongly encourage American Samoa to supplement the record in this proceeding.  X4y122. ` ` Some commenters, including the Department of Interior, have suggested that the Commission provide universal service support for rates that are found to be unaffordable  X4or where subscribership levels decline from current levels.xVs {O= 'ԍ Interior reply comments at 2. See also Governor of Guam comments at 10.x We agree that, if subscribership levels begin to drop significantly from current levels, we may need to take further action. Among the benefits subscribership brings to individuals is access to essential services, such as emergency service providers, and access to entities such as schools, health care facilities and local governments. In addition, subscribers enjoy the increased value of the telephone network, i.e., the large numbers of people who can be reached via the network, that results from high subscribership levels. We agree with Puerto Rico Tel. Co. that, because the Puerto Rico subscribership level remains significantly below the national average, it is not  X 4appropriate to delay action until a subscribership level that is already low declines further.N zVs yO'ԍ Puerto Rico Tel. Co. comments at 17.N As discussed above, we find that further action is warranted with respect to insular areas.  X 4z123. ` ` In addition, we will continue actively to monitor subscribership across a wide variety of income levels and demographic groups and encourage states to do likewise. The Commission currently uses Census Bureau data to publish reports that illustrate subscribership trends among households, including subscribership by state, as well as nationwide subscribership rates by categories including income level, race, and age of household  X44members, and household size. 4 Vs yO'ԍ The Commission publishes these reports three time per year based on the Current Population Surveys of the Census Bureau for the months of March, July, and November. In addition, the Commission periodically publishes telephone penetration reports that relate subscribership data to other questions on the Current Population Survey questionnaires. We find that any response to a decline in subscribership revealed by our analysis of the relevant data should be tailored to those who need assistance  X4to stay connected to the network.G Vs {O 'ԍ See infra section VIII.G  X4{124. ` ` Contrary to the suggestion of those commenters that favor linking universal service support to subscribership levels, we concur with the Joint Board's recommendation to implement a national benchmark to calculate the amount of support eligible"E 0*&&qq5"  X4telecommunications carriers will receive for serving rural, insular, and high cost areas.RVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 247.R The Joint Board declined to establish a benchmark based on income or subscribership and  X4specifically did not equate the benchmark support levels with affordability.R XVs yO'ԍ Recommended Decision, 12 FCC Rcd at 247.R We agree. Setting the rural, insular and high cost support benchmark based on income and subscribership would fail to target universal service assistance and could therefore needlessly increase the amount of universal service support. Recent data show that telephone subscribership was 96.2 percent in 1996 for households with annual incomes of at least $15,175 and 85.4 percent for  X_4households with annual incomes below $15,175.!_Vs {O 'ԍ Federal Communications Commission, Industry Analysis Division, Telephone Penetration by Income by  {O 'State at 15, 24, 33 (rel. February 24, 1997). The Joint Board concluded that, because telephone penetration declines significantly for lowincome households, the impact of household income is more appropriately addressed through programs designed to help lowincome households obtain and retain telephone service, rather than as part of the high cost  X 4support mechanism.R" DVs yO'ԍ Recommended Decision, 12 FCC Rcd at 247.R Accordingly, we adopt the Joint Board's recommendation to channel support designed to assist lowincome consumers through the Lifeline and Link Up programs, rather than through the high cost support methodology. As discussed below, Lifeline and Link Up are programs that are specifically targeted to assisting lowincome consumers. Accordingly, these programs provide the best source of assistance for individuals to obtain and retain universal service, and, therefore, help maintain and improve telephone  Xy4subscribership.G#yVs {O'ԍ See infra section VIII.G   XK4|125. ` ` Maintaining Affordable Rates. Several parties express concern regarding the relationship between expanding the level of universal service funding and the affordability of rates for end users who, they argue, ultimately must pay for an expanded funding  X4obligation.$f Vs {O'ԍ See, e.g., PCIA comments at 7; Sprint comments at 23; Motorola comments at 910. As noted, an explicit principle of section 254 is that quality services should be  X4"affordable" for all consumers.1%X Vs yO!'ԍ 47 U.S.C.  254(b)(1) ("[q]uality services should be available at just, reasonable, and affordable rates") and 254(i) ("[t]he Commission and the States should ensure that universal service is available at rates that are just, reasonable, and affordable.").1 At the same time, the 1996 Act compels the Commission to"F%0*&&qq"  X4expand the category of beneficiaries of universal service support.&Vs {Oy'ԍ See 47 U.S.C  254(h) (universal service support for eligible schools, libraries, and rural health care providers). We are mindful of the effects that expanded universal service mechanisms may have on consumers, and adopt specific measures designed to ensure that the costs of universal service are no higher than  X4needed to comply with the statutory mandates of section 254.'\"Vs {O'ԍ See, e.g., supra section IV (including within the definition of universal service only those "core" services  {OX'deemed necessary to fulfill the Commission's responsibility under section 254); infra section X (adopting the Joint Board's proposal to cap the annual amount of support for schools and libraries).   X4}126. ` ` Regarding the concerns of Puerto Rico Tel. Co. and other parties that rates will increase as the Commission implements the universal service and other reforms required by  X_4the 1996 Act,(_FVs {OV'ԍ Puerto Rico Tel. Co. comments at 1011. See also Airtouch comments at 34; PCIA comments at 7; Sprint comments at 23; Motorola reply comments at 910. we note that the Commission and the states have a joint obligation to ensure  XH4that universal service is available at rates that are affordable.R)HVs {O'ԍ See 47 U.S.C.  254(i). R As discussed above, we believe that the states must play an important role in making affordability determinations, and the Commission will work in concert with the states to that end. Consistent with the Joint Board's recommendation that the Commission continue to oversee the development of the concept of affordability, we will continue to monitor subscribership and rates and, if necessary, will propose measures designed to ensure that consumers in all regions of the  X 4country receive universal service at just, reasonable and affordable rates.\* 2 Vs {O'ԍ See Recommended Decision, 12 FCC Rcd at 153.\ J:\MASTER\AFFORD.FIN " G *0*&&qq"  X' J:\MASTER\ELIGIBIL.FIN VI.XCarriers Eligible for Universal Service Support (#  X' A.` ` Overview (#`  X4~127.` ` In this section, we discuss which telecommunications carriers will be eligible to receive support from the federal universal service support mechanisms. We address eligibility for support for services provided to schools and libraries below in section X. We conclude that the plain language of section 214(e) precludes adoption of additional eligibility criteria beyond those enumerated in that section. Accordingly, as recommended by the Joint Board, we adopt without expansion the statutory criteria set out in section 214(e) as the rules governing eligibility.  X 4128.` ` We interpret the term "facilities" in section 214(e)(1) to mean any physical components of the telecommunications network that are used in the transmission or routing of the services designated for support under section 254(c)(1). We further conclude that a carrier that offers any of the services designated for universal service support, either in whole or in part, over facilities obtained as unbundled network elements pursuant to section 251(c)(3) satisfies the "own facilities" requirement of section 214(e). Consistent with the Joint Board's recommendation, we find that no additional measures are necessary to implement the advertising requirement of section 214(e)(1) and the provisions of section 254(e) that limit the purposes for which universal service funds may be used.  X4129.` ` We recognize that the states have responsibility for designating the service areas of nonrural carriers. We also agree with the Joint Board, however, that states should not designate service areas that are unreasonably large because we recognize, as did the Joint Board, that an unreasonably large service area could greatly increase the scale of operations required of new entrants. Thus, unreasonably large service areas may prohibit or have the effect of prohibiting the ability of entities to provide local exchange service and are not necessary to preserve and advance universal service. State designation of an unreasonably large service area could, therefore, violate section 253 as a market entry barrier. We conclude, as did the Joint Board, that rural telephone companies' study areas will be used as their designated service areas, although we encourage states to consider disaggregating a rural telephone company's study area into service areas composed of the contiguous portions of that study area. Finally, we agree with the Joint Board that no additional regulations are necessary at this time for the designation of carriers to serve unserved areas.  X ' B.` ` Eligible Telecommunications Carriers (#`  X"'` ` 1. Background (#  Xh$4130.` ` Section 254(e) provides that, after the effective date of the Commission's regulations implementing section 254, "only an eligible telecommunications carrier designated"Q%H*0*&&qq=&"  X4under section 214(e) shall be eligible to receive specific Federal universal service support."6+XVs yOy'ԍ 47 U.S.C.  254(e). Section 254(h)(1)(B)(ii) states that telecommunications carriers providing service to schools and libraries under section 254(h)(1)(B) shall receive support "notwithstanding the provisions of [section 254(e)]." 47 U.S.C.  254(h)(1)(B)(ii).6 The legislative history indicates that "this restriction should not be construed to prohibit any telecommunications carrier from using any particular method to establish rates or charges for its services to other telecommunications carriers, to the extent such rates or charges are  X4otherwise permissible under the Communications Act or other law."P,Vs yO= 'ԍ Joint Explanatory Statement at 13132.P Section 254(e) further prescribes that a carrier receiving universal service support "shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is  X_4intended."@-_xVs yO 'ԍ 47 U.S.C.  254(e).@ Additionally, section 254(k) prohibits a carrier from using noncompetitive  XH4services to subsidize services that are subject to competition..HVs yO'ԍ 47 U.S.C.  254(k). The Commission intends to address issues related to section 254(k) in a separate proceeding.  X 4131.` ` Section 214(e)(1) provides that: XA common carrier designated as an eligible telecommunications carrier under [subsection 214(e)(2)] or [subsection 214(e)(3)] shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received  XX` ` (A) offer the services that are supported by Federal universal service support mechanisms under section 254(c), either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier); andx` XX` ` (B) advertise the availability of such services and the charges  X4therefore using media of general distribution.C/` Vs yO 'ԍ 47 U.S.C.  214(e)(1).Cx`  X4132.` ` Pursuant to section 214(e)(2), state commissions must, either upon their own motion or upon request, designate a common carrier that meets the requirements of section 214(e)(1) "as an eligible telecommunications carrier for a service area designated by the State"I /0*&&qq"  X4commission."C0Vs yOy'ԍ 47 U.S.C.  214(e)(2).C Section 214(e)(2) also provides for the designation of more than one carrier as an eligible telecommunications carrier. It states: XUpon request and consistent with the public interest, convenience, and necessity, the State commission may, in the case of an area served by a rural  X4telephone company,1 XVs yO'ԍ 47 U.S.C.  153(37) provides as follows: XThe term rural telephone company means a local exchange carrier operating entity to the extent that such entity  XX` ` (A) provides common carrier service to any local exchange carrier study area that does not include eitherx` XX` ` (i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based on the most recently available population statistics of the Bureau of the Census; orx` XX` ` (ii) any territory, incorporated or unincorporated, included in a urbanized area, as defined by the Bureau of the Census as of August 10, 1993;x` XX` ` (B) provides telephone exchange service, including exchange access, to fewer that 50,000 access lines;x` XX` ` (C) provides telephone exchange service to any local exchange carrier study area with fewer than 100,000 access lines; or x` XX` ` (D) has less than 15 percent of its access lines in communities of more than 50,000 on the date of enactment of the Telecommunications Act of 1996.x` Ƣ and shall, in the case of all other areas, designate more than one common carrier as an eligible telecommunications carrier for a service area designated by the State commission, so long as each additional requesting carrier meets the requirements of [subsection 214(e)(1)]. Before designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the State commission shall find that the designation is in  X 4the public interest.E2 Vs yOT'ԍ 47 U.S.C.  214(e)(2). E  Section 214(e) also contains provisions governing a carrier's relinquishment of its eligible carrier designation in areas served by more than one eligible carrier. The statute requires states to permit eligible carriers to relinquish their designation after giving the state notice. The statute requires remaining eligible carriers to serve the relinquishing carrier's customers and requires the relinquishing carrier to give notice sufficient to permit remaining carriers to  Xb4construct or purchase facilities, if necessary.C3b0Vs yOC#'ԍ 47 U.S.C.  214(e)(4).C  X44133.` ` The Joint Board recommended that the Commission adopt, without elaboration,"4J30*&&qq"  X4the statutory criteria set out in section 214(e) as the rules that will govern eligibility.R4Vs yOy'ԍ Recommended Decision, 12 FCC Rcd at 169.R The Joint Board rejected arguments that all eligible telecommunications carriers should be required to meet the same obligations that are imposed on incumbent LECs after finding that such regulation would be unnecessary to protect incumbents and would chill competitive entry into  X4high cost areas.R5XVs yO'ԍ Recommended Decision, 12 FCC Rcd at 170.R The Joint Board recommended that the Commission find that a carrier may  X4satisfy the criteria of section 214(e) regardless of the technology used by that carrier,U6Vs yO& 'ԍ Recommended Decision, 12 FCC Rcd at 16970.U and that the Commission should exclude no class of carriers, such as price cap carriers, from  X_4eligible status.U7_xVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 17172.U The Joint Board also recommended that, at this time, the Commission adopt no national guidelines to implement the statutory requirement that carriers advertise the  X14availability and rates of federally supported services throughout their service areas.R81Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 174.R Further, the Joint Board found that the plain language of section 214(e)(1) precludes states from  X 4requiring eligible carriers to offer service wholly over their own facilities,R9 Vs yOL'ԍ Recommended Decision, 12 FCC Rcd at 173.R and also  X 4precludes states from designating "pure" resellers as eligible carriers.U: ( Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 17273.U The Joint Board recommended that the Commission reject arguments that it forbear from the section 214(e)(1) facilities requirement because the record before it did not demonstrate that the three statutory  X 4criteria for forbearance had been met.R; Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 173.R Finally, the Joint Board recommended that the Commission not adopt rules to implement section 254(e), which requires that an eligible carrier shall use universal service funds only to support the services and facilities for which it  Xb4is intended.R<bH Vs yO['ԍ Recommended Decision, 12 FCC Rcd at 174.R  X4'` ` 2. Discussion (#  X' ` `  a.` ,Eligibility Criteria (#  X4134.` ` Adoption of Section 214(e)(1) Criteria. Consistent with the Joint Board's recommendation and the record before us, we adopt the statutory criteria contained in section"K<0*&&qq" 214(e)(1) as the rules for determining whether a telecommunications carrier is eligible to  X4receive universal service support.=Vs {Ob'ԍ See Recommended Decision, 12 FCC Rcd at 169. Accord Ameritech comments at 8; California PUC comments at 9; CNMI comments at 39; CompTel comments at 13; GCI comments at 4; Maryland PSC at 89; Sprint comments at 20; Texas PUC comments at 5; TCA comments at 3; WorldCom comments at 14; AT&T reply comments at 1314; CPI reply comments at 12. Section 254(e) does not govern the ability of carriers to  {O'receive funds distributed pursuant to section 254(h)(1)(B). See 47 U.S.C.  254(h)(1)(B)(ii). We address  {ON'eligibility for support for services provided to schools and libraries infra in section X.B.2.b. Pursuant to those criteria, only a common carrier may be designated as an eligible telecommunications carrier, and therefore may receive universal service support, and each eligible carrier must, throughout its service area: (1)offer the services that are supported by federal universal service support mechanisms under section  X4254(c);>"FVs yO 'ԍ We note that, a carrier that currently is unable to provide single-party service, access to enhanced 911 service, or tolllimitation services may petition its state commission to receive universal service support for a designated period of time until the carrier has completed the network upgrades necessary to offer these services.  {O'See supra section IV and infra section VIII. (2) offer such services using its own facilities or a combination of its own facilities and resale of another carrier's services, including the services offered by another eligible telecommunications carrier; and (3)advertise the availability of and charges for such services  XH4using media of general distribution.l?H0 Vs yO)'ԍ 47 U.S.C.  214(e); Recommended Decision, 12 FCC Rcd at 16970.l  X 4135.` ` Statutory Construction of Section 214(e). We conclude that section 214(e)(2) does not permit the Commission or the states to adopt additional criteria for designation as an  X 4eligible telecommunications carrier.@ Vs {O]'ԍ Accord CompTel comments at 13; WorldCom comments at 14; AT&T reply comments at 14; GCI reply comments at 2. As noted by the Joint Board, "[s]ection 214 contemplates that any telecommunications carrier that meets the eligibility criteria of section  X 4214(e)(1) shall be eligible to receive universal service support."cA Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 171 (emphasis added).c Section 214(e)(2) states  X 4that "[a] state commission shall . . . designate a common carrier that meets the requirements  X4of paragraph(1) as an eligible telecommunications carrier . . . ."TBVs yO'ԍ 47 U.S.C.  214(e)(2) (emphasis added).T Section 214(e)(2) further  X}4states that ". . . the State commission may, in the case of an area served by a rural telephone  Xh4company, and shall, in the case of all other areas, designate more than one common carrier as an eligible telecommunications carrier for a service area designated by the State commission,  X<4so long as each additional requesting carrier meets the requirements of paragraph (1)."TC<:Vs yO'%'ԍ 47 U.S.C.  214(e)(2) (emphasis added).T "<LC0*&&qq." Read together, we find that these provisions dictate that a state commission must designate a common carrier as an eligible carrier if it determines that the carrier has met the requirements of section 214(e)(1). Consistent with the Joint Board's finding, the discretion afforded a state commission under section 214(e)(2) is the discretion to decline to designate more than one eligible carrier in an area that is served by a rural telephone company; in that context, the state commission must determine whether the designation of an additional eligible carrier is in  Xv4the public interest.#DXvVs yO'ԍ Recommended Decision, 12 FCC Rcd at 17172. Before designating an additional eligible carrier for an area served by a rural telephone company, a state commission must find that the designation "is in the public interest." 47 U.S.C.  214(e)(2).# The statute does not permit this Commission or a state commission to supplement the section 214(e)(1) criteria that govern a carrier's eligibility to receive federal universal service support.  X 4136.` ` In addition, state discretion is further limited by section 253: a state's refusal to designate an additional eligible carrier on grounds other than the criteria in section 214(e) could "prohibit or have the effect of prohibiting the ability of any entity to provide any  X 4interstate or intrastate telecommunications service"@E Vs yOn'ԍ 47 U.S.C.  253(a).@ and may not be "necessary to preserve  X 4universal service."@F xVs yO'ԍ 47 U.S.C.  253(b).@ Accordingly, we conclude that the statute precludes states from  X 4imposing additional prerequisites for designation as an eligible telecommunications carrier.eG\ Vs {O`'ԍ See California PUC comments at 910 (stating that it has already imposed carrier of last resort (COLR)  {O*'obligations upon eligible carriers). See also infra this section for our discussion concluding that COLR regulation is unnecessary in light of the requirements of section 214(e).e Although section 214(e) precludes states from imposing additional eligibility criteria, it does not preclude states from imposing requirements on carriers within their jurisdictions, if these requirements are unrelated to a carrier's eligibility to receive federal universal service support  XK4and are otherwise consistent with federal statutory requirements.QHK, Vs {O('ԍ  See, e.g., 47 U.S.C.  253(b).Q Further, section 214(e) does not prohibit a state from establishing criteria for designation of eligible carriers in connection with the operation of that state's universal service mechanism, consistent with  X4section 254(f).I Vs yOu!'ԍ State adoption of a second set of eligibility criteria for a state universal service mechanism would have no effect upon the statutory eligibility criteria for the federal universal service mechanisms. Section 254(f) provides that: "A State may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms." 47 U.S.C.  254(f)."M6I0*&&qq"Ԍ X4ԙ137.` ` Consistent with the findings we make above, we disagree with GTE's assertion that the use of the phrases "a carrier that receives such support" and "any such support..." instead of the phrase "such eligible carrier" in section 254(e) indicates that Congress intended  X4to require carriers to meet criteria in addition to the eligibility criteria in section 214(e).J"Vs {O4'ԍ See GTE reply comments at 8. Section 254(e) provides, in relevant part: "A carrier that receives such support shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. Any such support should be explicit and sufficient to achieve the purposes of this section."  We conclude that the quoted language indicates only that a carrier is not entitled automatically to receive universal service support once designated as an eligible telecommunications carrier. For example, a carrier must meet the section 214(e) criteria as a condition of its being  X_4designated an eligible carrier and then must provide the designated services to customers pursuant to the terms of section 214(e) in order to receive support. Indeed, the language of section 254(e), which states that "only an eligible telecommunications carrier designated under  X 4section 214(e) shall be eligible to receive" universal service support, suggests that a carrier is  X 4not automatically entitled to receive universal service support once designated as eligible.QK Vs yOj'ԍ 47 U.S.C.  254(e) (emphasis added).Q The language of section 254(e) does not imply, however, that the Commission or the states may expand upon the criteria for being designated as an eligible carrier.  X 4138.` ` We further reject GTE's contention that our interpretation would convert section 214(e) into an entitlement and would allow an eligible carrier to receive universal service support "regardless of whether the [eligible carrier] abides by the federal funding mechanism, and regardless of whether the [eligible carrier] makes any real contribution to  XO4preserving and advancing universal service."lL\OBVs {OB'ԍ GTE reply comments at 69 (citing 47 U.S.C.  254(i), which states that the Commission and the states  {O 'should ensure that universal service is available at rates that are just, reasonable, and affordable). See infra section VII.C. for a description of GTE's competitive bidding proposal.l We disagree with GTE to the extent that it suggests that a carrier, once designated as an eligible carrier, is not required to continue to  X!4comply with federal universal service requirements.0MX!f Vs yO8'ԍ GTE reply comments at 7 (suggesting that designation as eligible carrier would be converted into entitlement granted regardless of whether eligible carrier abides by federal funding mechanism or makes contributions to preserving and advancing universal service).0 As discussed immediately above, a carrier's continuing status as an eligible carrier is contingent upon continued compliance with the requirements of section 214(e) and only an eligible carrier that succeeds in attracting and/or maintaining a customer base to whom it provides universal service will receive universal service support. Moreover, contrary to the suggestion of GTE, an eligible carrier is  X4"preserving and advancing universal service"BN Vs yO%'ԍ GTE reply comments at 7.B by providing each of the core services"NN0*&&qq"  X4designated for support to lowincome consumers or in rural, insular, or high cost areas,bOVs {Oy'ԍ The core services are defined supra in section IV.b and by offering those services in accordance with the specific eligibility criteria contained in section 214(e).  X4139.` ` Additionally, we are not persuaded by GTE's argument that our interpretation of section 214(e) precludes adoption of its proposed competitive bidding mechanism and,  Xv4therefore, violates the Commission's duty to consider this proposal fully.PvZVs {O 'ԍ GTE reply comments at 1113 n.22 (citing Commission's duty to consider fully all reasonable  {OK 'alternatives in Brookings Mun. Tel. v. FCC, 822 F.2d 1153, 1169 (D.C. Cir. 1987)). First, the authority cited by GTE does not compel us to consider a proposal that is incompatible with  XH4the statute.Q$HVs {O 'ԍ Brookings Mun. Tel. v. FCC, 822 F.2d at 1169 (D.C. Cir. 1987) ("[A]n agency has a duty to consider responsible alternatives to its chosen policy and to give a reasoned explanation for its rejection of such  {OA'alternatives. Of course, . . . the duty extends only to significant and viable alternatives. . . .") (citations omitted) (emphasis added). Second, as we explain below,NRHVs {O'ԍ  See infra section VII.E.N we find that we may be able to craft a competitive bidding mechanism that is compatible with the statute, including section 214(e), and we intend, consistent with the Joint Board's recommendation and as suggested by GTE,  X 4to continue to explore this option further.6SX 4 Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 26566; GTE reply comments at 4346 (urging the Commission to issue a further notice of proposed rulemaking to "build upon the existing public record and create a sufficient record on the specifics of a workable auction mechanism").6  X 4140.` ` GTE contends that, even if the Commission may not add eligibility criteria, the Commission may nonetheless impose additional obligations on eligible carriers by conditioning the acceptance of federal universal service support upon compliance with  X4particular obligations, as the Commission now does in the Lifeline Assistance program.NTT Vs {O'ԍ See GTE reply comments at 10. N Moreover, GTE asserts that several recommendations of the Joint Board imply that the Joint Board believed that the Commission and the states have authority to impose additional eligibility criteria. For example, GTE cites as support for this view the Joint Board's recommendation that the Commission rely on service quality data collected by states to ensure  X4that the first universal service principle that "quality services" be available is realized.GUZVs {O#'ԍ GTE reply comments at 1011 (citing Recommended Decision, 12 FCC Rcd at 140). The first universal service principle is contained in section 254(b)(1), which states that "[q]uality services should be available at just, reasonable, and affordable rates." 47 U.S.C. 254(b)(1).G "OU0*&&qq" We reject GTE's argument because it appears to seek the imposition of additional eligibility criteria by recharacterizing the criteria as "conditions." Moreover, its reference to our existing Lifeline Assistance program is not relevant for purposes of construing section 214(e). The Commission created the existing Lifeline Assistance program in 1985 pursuant to its authority in sections 1, 4(i), 201, and 205. None of these provisions provides specific guidance on the  X4interpretation of section 214(e).!VVs yO'ԍ We note that we are changing the Lifeline Assistance program in this Order pursuant to section 254 and sections 1, 4(i), 201, and 205. In doing so, however, we are designating a bundle of services for universal service support that are collectively referred to as Lifeline service. Thus, provision of Lifeline service is not an additional obligation of eligible carriers, but instead is a supported service that must be provided by eligible  {O& 'carriers. See infra section VIII.! In addition, contrary to GTE's suggestion, the Joint Board's consideration of whether to impose service quality standards did not reference the  X_4possibility of adopting additional criteria under section 214(e)._W_zVs {O 'ԍ See Recommended Decision, 12 FCC Rcd at 14041._ Rather, the Joint Board relied on the first universal service principle in section 254(b)(1) when it considered the Commission's authority to incorporate minimum service standards into the definitions of  X 4services designated for support pursuant to section 254(c)(1).DX\ Vs {O'ԍ See Recommended Decision, 12 FCC Rcd at 14041. We note that the Joint Board declined to recommend that the Commission exercise its authority under section 254(b)(1) and (c)(1) to impose additional  {Oi'service quality standards. See supra section IV.E.D  X 4141.` ` The terms of section 214(e) do not allow us to alter an eligible carrier's duty to serve an entire service area. Consequently, we cannot, as WinStar requests, modify the requirements of section 214(e) for carriers whose technology limits their ability to provide  X 4service throughout a statedefined service area.Y 0 Vs yO'ԍ WinStar comments at 1213 (stating that its 39 GHz technology allows it to offer service only to customers within lineofsight of its facilities). We note, however, that any carrier may, for  X4example, use resale to supplement its facilitiesbased offerings in any given service area.Z Vs yO'ԍ Section 214(e) expressly allows an eligible telecommunications carrier to offer service using a "combination of its own facilities and resale of another carrier's services . . ." 47 U.S.C.  214(e)(1).  Xb4142.` ` Additional Obligations as a Condition of Eligibility. Several commenters maintain that, in order to create an equitable and sustainable federal universal service system and to prevent competitive carriers from attracting only those customers that order the most profitable services, the Commission must subject all eligible carriers to the regulatory requirements that govern ILECs, including pricing, marketing, service provisioning, and"PZ0*&&qq"  X4service quality requirements, as well as carrier of last resort (COLR) obligations.Z[Vs {Oy'ԍ See, e.g., Ameritech comments at 8; Ameritech comments, app. A at 3742; Cincinnati Bell comments at 78; Evans Tel. Co. comments at 1213; GTE comments at 50; Roseville Tel. Co. comments at 16; SBC comments at 1920; USTA comments at 2324; CWA reply comments at 910; USTA reply comments at 14. In addition, SBC and USTA argue that, irrespective of the obligations of ILECs, all eligible carriers should assume  {O'quality of service obligations. See SBC comments at 20; USTA at 23 (citing 47 U.S.C.  254(b)(1)).Z We reject proposals to impose these additional obligations as a condition of being designated an eligible telecommunications carrier pursuant to section 214(e) because section 214(e) does not grant the Commission authority to impose additional eligibility criteria.  X4143.` ` We emphasize that, even if we had the legal authority to impose additional obligations as a condition of being designated an eligible telecommunications carrier, we agree with the Joint Board that these additional criteria are unnecessary to protect against  XH4unreasonable practices by other carriers.H\~H|Vs {Ou'ԍ Recommended Decision, 12 FCC Rcd at 17071. We note that, in the Local Competition Order, we concluded that states may not unilaterally impose on nonILECs the additional obligations imposed on ILECs by  {O'section 251(c). Local Competition Order, 11 FCC Rcd at 16,10910. We stated that we did not anticipate imposing such additional obligations on a nonILEC absent a clear and convincing showing that the nonILEC occupies a position in the telephone exchange market comparable to the position held by an ILEC, that the nonILEC has substantially replaced an ILEC, and that such treatment would serve the public interest, convenience,  {O)'and necessity and the purposes of section 251. Local Competition Order, 11 FCC Rcd at 16,10910.H As the Joint Board explained, section 214(e) prevents eligible carriers from attracting only the most desirable customers by limiting  X 4eligibility to common carriers]  Vs yO'ԍ The Communications Act requires common carriers to furnish "communications service upon reasonable request therefore," 47 U.S.C.  201(a), and states that "[i]t shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.. . ." 47 U.S.C.  202(a). and by requiring eligible carriers to offer the supported  X 4services and advertise the availability of these services "throughout the service area."C^ Vs yO^'ԍ 47 U.S.C.  214(e)(1).C For this reason, we reject GTE's suggestion that we require carriers to offer the services  X 4designated for support on an unbundled basis.D_ :Vs yO'ԍ GTE comments at 16, 4950.D Similarly, we agree with the Joint Board's analysis and conclusion that exit barriers comparable to those imposed on ILECs are unnecessary because section 214(e)(4) already imposes exit barriers similar to the protections  X4imposed by traditional state COLR regulation.` Vs yO #'ԍ Recommended Decision, 12 FCC Rcd at 171. Pursuant to section 214(e)(4) of the Act, an eligible carrier seeking to exit a service area served by more than one eligible carrier must notify the relevant state commission of that carrier's intent to relinquish its designation as an eligible carrier. The Act then requires the state commission, before permitting the carrier to cease providing service, to ensure that the remaining carriers"c%_0*&&n%" will serve the relinquishing carrier's customers. The state commission must also require notice sufficient to permit any remaining eligible carrier to purchase or construct adequate facilities. 47 U.S.C.  214(e)(4). We conclude that additional exit barriers are"Q `0*&&qq" not only incompatible with the requirements of section 214(e)(1), but also that they are not warranted: parties have neither demonstrated that the exit barriers set forth in section 214(e)(4) are significantly different from the restrictions contained in traditional state COLR  X4requirements,a Vs {O'ԍ See, e.g., New Mexico Stat. Ann.  639A6.2 ("any telecommunications company which has a certificate of public convenience and necessity permitting it to provide message telecommunications service . . . shall not be allowed to terminate or withdraw from providing message telecommunications service . . . without an order of the commission upon a finding there is another telecommunications company in place capable of providing service without interruption."). nor have they demonstrated that the section 214(e) requirements are insufficient to protect subscribers. Moreover, we are reluctant to impose additional exit barriers or other additional requirements on carriers seeking to offer local service based on our finding that such additional requirements would raise potential competitors' expected costs of entry and thus discourage competition. Finally, for the reasons stated above, we reject other suggestions that we impose additional criteria for designation as an eligible telecommunications carrier because the proponents of these suggestions have presented  X 4insufficiently persuasive justifications for their inclusion.UbD Vs {O'ԍ See MFS comments at 7 (suggesting that Commission require eligible carriers to adhere to technical standards that Rural Utility Service imposes upon its borrowers); Ohio PUC reply comments at 3-4 (suggesting that, as condition of eligibility, Commission require non-rural carriers to provide interconnection under section 251(c)(2), unbundled network elements under section 251(c)(3), and wholesale services under section 251(c)(4)); CWA reply comments at 8 (suggesting that Commission foreclose carriers that violate National Labor Relations Act from receiving universal service support for twelve-month period following National Labor Relations Board  {OO'decision of labor-law violation). See also supra our discussion in section IV regarding the merits of MFS's suggestion.U  X 4144.` ` We further conclude that adopting the eligibility criteria imposed by the statute without elaboration is consistent with the Joint Board's recommended principle of competitive neutrality because, once the forwardlooking and more precisely targeted high cost methodology is in place, all carriers will receive comparable support for performing comparable functions. Several ILECs assert that the Joint Board's recommendation not to impose additional criteria is in conflict with its recommended principle of competitive neutrality because some carriers, such as those subject to COLR obligations or service quality regulation, perform more burdensome and costly functions than other carriers that are eligible  X44for the same amount of compensation.c4Vs yO"'ԍ Ameritech comments at 78, 9; GTE comments at 1314, 48; SBC comments at 22; CWA reply comments at 10; GTE reply comments at 17. The statute itself, however, imposes obligations on"4R6c0*&&qq"  X4ILECs that are greater than those imposed on other carriers,dVs {Oy'ԍ Compare 47 U.S.C.  251(c) (imposing duties on incumbent local exchange carriers only) with 47 U.S.C. 251(a), (b) (imposing duties on all telecommunications carriers and all local exchange carriers). yet section 254 does not limit eligible telecommunications carrier designation only to those carriers that assume the responsibilities of ILECs. We find that the Joint Board correctly concluded that the imposition of additional eligibility criteria would "chill competitive entry into high cost  X4areas."Re"Vs yOw'ԍ Recommended Decision, 12 FCC Rcd at 170.R We agree with the Joint Board's finding and conclude that the imposition of additional criteria, to the extent that they would preclude some carriers from being designated eligible pursuant to section 214(e), would violate the principle of competitive neutrality.  XH4145.` ` Treatment of Particular Classes of Carriers. We agree with the Joint Board's analysis and recommendation that any telecommunications carrier using any technology, including wireless technology, is eligible to receive universal service support if it meets the  X 4criteria under section 214(e)(1).#f\ Vs {Of'ԍ See Recommended Decision, 12 FCC Rcd at 170 (stating that eligibility is not limited to a specific use of  {O0'technology). Accord Vanguard comments at 2; Centennial reply comments at 13; Motorola reply comments at 1617.# We agree with the Joint Board that any wholesale exclusion of a class of carriers by the Commission would be inconsistent with the language of  X 4the statute and the procompetitive goals of the 1996 Act.Ug Vs yO\'ԍ Recommended Decision, 12 FCC Rcd at 16970.U The treatment granted to certain wireless carriers under section 332(c)(3)(A) does not allow states to deny wireless carriers  X 4eligible status.h f Vs {O'ԍ See Centennial reply comments at 13; Recommended Decision, 12 FCC Rcd at 17172. We also agree with the Joint Board that nonILECs and carriers subject to  X4price cap regulation should be eligible for support.Ui Vs yO9'ԍ Recommended Decision, 12 FCC Rcd at 17172.U We agree with the Joint Board that price cap regulation is an important tool for smoothing the transition to competition and that  Xb4its use should not foreclose price cap companies from receiving universal service support.Rjb Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 172.R We find that requiring price cap carriers to cover their costs of providing universal service through internal crosssubsidies, as Time Warner suggests, would violate the statutory  X4directive that support for universal service be "explicit."@kVs yO"'ԍ 47 U.S.C. 254(e).@ Consequently, in our decision here  X4and in the Access Charge Reform Order, we adopt a plan to eliminate implicit subsidies as we"Sk0*&&qq6"  X4identify and make explicit universal service support.[lVs {Oy'ԍ Access Charge Reform Order at section IV.A.[ Because we have determined that we will not exclude price cap companies from eligibility, we agree with the Joint Board that we need not delineate the difference between price cap carriers and other carriers, as proposed in  X4the Further Comment Public Notice.mZVs {O'ԍ Recommended Decision, 12 FCC Rcd at 172. See also Further Comment Public Notice at 5 (seeking comment on the definition of price cap carriers).  X4146.` ` We do not adopt, at this time, a rule stating that a wireless carrier may receive support only if the wireless carrier is a customer's primary carrier and the customer pays  X_4unsubsidized rates for its wireline service, as suggested by NYNEX.1nZ_Vs {O 'ԍ See NYNEX comments at 56 (asserting that, because there is no dedicated loop for wireless service, wireless carrier could claim it was providing universal service to customer even if customer did not use, or own, mobile phone); CWA reply comments at 1011.1 In addition, in light of our decision above that, under the modified existing high cost mechanism all business and residential connections will be supported, we conclude that such a rule is not necessary at this  X 4time.ao Vs {O'ԍ See supra section IV and infra section VII.a We also note that, to the extent that NYNEX's proposal is designed to prevent wireless carriers from receiving support for customers that they do not serve, such a rule is unnecessary because federal laws against fraud already prohibit wireless carriers, or any other  X 4carriers, from receiving universal service support for customers that they do not serve. p$ h Vs {O'ԍ See, e.g., 18 U.S.C.  1001 (imposing criminal penalties for, inter alia, making fraudulent statements to any agency of the United States); 47 U.S.C.  502 (establishing conditions under which fines for violation of Communications Act generally are allowed), 47 U.S.C.  503(b) (establishing conditions under which forfeiture  {OH'penalties for violation of Act or Commission rules generally are allowed). Accord PCIA reply comments at 32.   X 4147.` ` We note that not all carriers are subject to the jurisdiction of a state  X4commission.qT Vs {O'ԍ See letter from L. Marie Guillory, Regulatory Counsel, NTCA to William F. Caton, Secretary, FCC (May 7, 1997) (describing meeting on April 16, 1997). Nothing in section 214(e)(1), however, requires that a carrier be subject to the jurisdiction of a state commission in order to be designated an eligible telecommunications carrier. Thus tribal telephone companies, CMRS providers, and other carriers not subject to the full panoply of state regulation may still be designated as eligible telecommunications carriers.  X4148.` ` Advertising. We agree with the Joint Board's analysis and recommendation that we not adopt, at this time, nationwide standards to interpret the requirement of section 214(e)(1)(B) that eligible carriers advertise, throughout their service areas, the availability of,"Tq0*&&qq"  X4and charges for, the supported services using media of general distribution.rZVs {Oy'ԍ Recommended Decision, 12 FCC Rcd at 17475. See NPRM at para. 46 (seeking comment on whether Commission should adopt guidelines defining steps sufficient to meet section 214(e)(1)'s advertising requirement). We agree with the Joint Board that, in the first instance, states should establish any guidelines needed to  X4govern such advertising.UsVs yOm'ԍ Recommended Decision, 12 FCC Rcd at 17475.U We agree with the Joint Board that the states, as a corollary to their obligation to designate eligible telecommunications carriers, are in a better position to monitor the effectiveness of carriers' advertising throughout their service areas. We also agree with the Joint Board that competition will help ensure that carriers inform potential  Xv4customers of the services they offer.UtvzVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 17475.U Although we decline to adopt nationwide standards for interpreting section 214(e)(1)(B), we encourage states, as they determine whether to establish guidelines pursuant to that section, to consider the suggestion of Roseville Tel. Co. that the section 214(e)(1)(B) requirement that carriers advertise in "media of general distribution" is not satisfied by placing advertisements in business publications alone, but instead compels carriers to advertise in publications targeted to the general residential  X 4market.Vu Vs {O'ԍ See Roseville Tel. Co. comments at 16.V In response to the comments of CPI, we conclude that no further regulations are  X 4necessary to define the term "throughout."Hv Vs yO"'ԍ CPI reply comments at 13 n.24.H The dictionary definition "in or through all  X 4parts; everywhere" requires no further clarification.yw , Vs {O'ԍ See, e.g., Webster's II New Riverside University Dictionary (1984).y  X4149.` ` Relinquishment of Eligible Carrier Designation. We conclude that no additional measures are needed to implement section 214(e)(4), the provision that reserves to the states the authority to act upon an eligible carriers's request to relinquish its designation as  XK4an eligible carrier.MxK Vs {O'ԍ See 47 U.S.C.  214(e)(4).M We note that we received no recommendation from the Joint Board with respect to this issue and that no commenter responded to the question asked in the Commission's NPRM that invited commenters to identify Commission regulations that are  X4inconsistent with section 214(e)(4).myP Vs {O#'ԍ NPRM at para. 49. See also, e.g., 47 C.F.R.  63.60.100.m  X' ` `  b.` ,Section 214(e)(1) Facilities Requirement (# "Uy0*&&qq"Ԍ X4150.` ` Section 214(e)(1) requires that, in order to be eligible for universal service support, a common carrier must offer the services supported by federal universal service  X4support mechanisms throughout a service area "either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by  X4another eligible telecommunications carrier)."zVs yO'ԍ 47 U.S.C.  214(e)(1)(A) (emphasis added). Hereinafter we will refer to this requirement as the "section 214(e) facilities requirement." In interpreting the facilities requirement, we first address the meaning of the term "facilities" and then address the meaning of the phrase "own facilities."  XL4151.` ` Defining the Term "Facilities" in Section 214(e)(1). We note that the Joint Board made no recommendation regarding the type of facilities a carrier must provide to  X 4satisfy the facilities requirement of section 214(e)(1).+{ Vs {O 'ԍ Compare, e.g., Cathey, Hutton comments at 7 (asserting that "facilities" should be defined as loop and  {O'switching facilities only) with EXCEL comments at 9 (asserting that billing offices should qualify as "facilities").+ We interpret the term "facilities," for purposes of section 214(e), to mean any physical components of the telecommunications network that are used in the transmission or routing of the services designated for support  X 4under section 254(c)(1).| |Vs yO'ԍ For example, we would include within this definition: local loops, switches, transmission systems, and network control systems. As discussed immediately below, we conclude that this interpretation strikes a reasonable balance between adopting a more expansive definition of "facilities," which would undermine the Joint Board's recommendation to exclude resellers from eligible status, and adopting a more restrictive definition of "facilities," which we fear would thwart competitive entry into high cost areas.  XO4152.` ` We adopt this definition of "facilities," in part, to remain consistent with the Joint Board's recommendation that "a carrier that offers universal service solely through reselling another carrier's universal service package" should not be eligible to receive  X 4universal service support.R} Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 173.R We reject the suggestion of some commenters that we adopt a more expansive definition of facilities, based on our conclusion that such an interpretation would render meaningless the facilities requirement of section 214(e) by permitting any  X4carrier, including a "pure" reseller, to meet the definition.~d Vs {O!'ԍ See, e.g., MFS reply comments at 13 n.32 (suggesting "de minimis" use of facilities would satisfy section 214(e)). By encompassing only physical components of the telecommunications network that are used to transmit or route the supported services, this definition, in effect, excludes from eligibility a "pure" reseller that claims to satisfy the facilities requirement by providing facilities through its own billing office"V ~0*&&qq" or through some other facility that is not a "physical component" of the network, as defined in  X4this Order.Vs {Ob'ԍ See, e.g., EXCEL comments at 9 (asserting that billing offices should qualify as "facilities"). We find that our determination to define "facilities" in this manner is consistent with congressional intent to require that at least some portion of the supported services offered by an eligible carrier be services that are not offered through "resale of another carrier's  X4services."FZVs yO'ԍ 47 U.S.C.  214(e)(1)(A).F For these reasons, we reject EXCEL's suggestion that a carrier that establishes a  X4billing office would meet the definition of "facilities" for purposes of section 214(e).HVs {O( 'ԍ See EXCEL comments at 9.H  X_4153.` ` We also decline to adopt a more restrictive definition of the term "facilities," as  XH4some commenters suggest.H|Vs {Ou'ԍ See, e.g., Cathey, Hutton comments at 7 (asserting that "facilities" should be defined as loop and switching facilities only). For example, we reject the suggestion that we define "facilities"  X14as both loop and switching facilities based on our concern that such a restrictive definition would erect substantial entry barriers for potential competitors seeking to enter local markets and, therefore, would unduly restrict the class of carriers that may be designated as eligible  X 4telecommunications carriers.X Vs {Ou'ԍ See, e.g., Cathey, Hutton comments at 7.X Rather, we conclude that the definition of "facilities" that we adopt will serve the goals of universal service and competitive neutrality to the extent that it does not dictate the specific facilities that a carrier must provide or, by implication, the entry strategy a carrier must use and, therefore, will not unduly restrict the class of carriers that may be designated as eligible.  Xd4154.` ` Whether the Use of Unbundled Network Elements Qualifies as a Carrier's  XM4"Own Facilities". We conclude that a carrier that offers any of the services designated for universal service support, either in whole or in part, over facilities that are obtained as unbundled network elements pursuant to section 251(c)(3) and that meet the definition of  X4facilities set forth above,~h Vs yO!'ԍ We note that, because the definition of "facilities" we adopt above differs from the statutory definition of "network element," not all unbundled network elements will meet the facilities requirement of section 214(e).  {O 'See 47 U.S.C.  153(29). Thus, for example, operations support systems functions (OSS) as defined in the Local  {O{!'Competition Order, would not meet the definition of "facilities" that we adopt herein. See Local Competition  {OE"'Order, 11 FCC Rcd at 15,76368. See also 47 C.F.R.  51.319(f).~ satisfies the facilities requirement of section 214(e)(1)(A).ZVs {O#'ԍ Accord, e.g., Comptel comments at 1314 (urging Commission to find that carriers that purchase access to unbundled network elements are eligible for universal service support). Section 251(c)(3) requires ILECs "to provide, to any requesting telecommunications carrier . . . nondiscriminatory access to network elements on an"i%0*&&w%" unbundled basis . . .. " 47 U.S.C.  251(c)(3). "WX0*&&qq"Ԍ X4ԙ155.` ` In making this decision, we first look to the language of section 214(e)(1)(A), which references two classes of carriers that are eligible for support carriers using their "own facilities" and carriers using "a combination of [their] own facilities and resale of  X4another carrier's services."FXVs yO'ԍ 47 U.S.C.  214(e)(1)(A).F Neither the statute nor the legislative history defines the term  X4"own" as that term appears within the phrase "own facilities" in section 214(e)(1)(A).xVs {O= 'ԍ  See generally 47 U.S.C.  153; Joint Explanatory Statement at 14142.x In addition, neither category in section 214(e)(1)(A) explicitly refers to unbundled network elements. Notwithstanding the lack of an express reference to unbundled network elements in section 214(e), however, we conclude that it is unlikely that Congress intended to deny designation as eligible to a carrier that relies, even in part, on unbundled network elements to provide service, given the central role of unbundled network elements as a means of entry  X 4into local markets.9~ zVs {OE'ԍ Local Competition Order, 11 FCC Rcd at 15,509. If we were to determine that unbundled network  {O'elements are neither a carrier's "own facilities" nor "resale of another carrier's services," then a carrier that offers  {O'universal service by using facilities that it has constructed along with a single unbundled network element would be excluded from eligible status because the carrier would not be using the precise "combination" allowed under section 214(e) namely, a combination of "its own facilities" and "resale of another carrier's services." 47 U.S.C.  214(e)(1). We cannot reconcile this result with the Joint Board's principle of competitive neutrality or the goals of universal service and section 254.9 Because the statute is ambiguous with respect to whether a carrier providing service through the use of unbundled network elements is providing service through its "own facilities" or through the "resale of another carrier's services," we look to other sections of the Act and to legislative intent to resolve the ambiguity.  X 4156.` ` In so doing, we conclude that Congress did not intend to deny designation as eligible to a carrier that relies exclusively on unbundled network elements to provide service in a high cost area, given that the Act contemplates the use of unbundled network elements as  Xb4one of the three primary paths of entry into local markets.Cb Vs yO'ԍ 47 U.S.C.  251(c)(3).C We have consistently held that  XK4Congress did not intend to prefer one form of local entry over another.KP Vs {OL 'ԍ See, e.g., Local Competition Order, 11 FCC Rcd at 15,509 ("Section 251 neither explicitly nor implicitly expresses a preference for one particular entry strategy."). As we recognized  X44in the Local Competition Order, "[t]he Act contemplates three paths of entry into the local market the construction of new networks, the use of unbundled elements of the incumbent's network, and resale. The 1996 Act requires us to implement rules that eliminate statutory and"X0*&&qq"  X4regulatory barriers and remove economic impediments to each."^Vs {Oy'ԍ Local Competition Order, 11 FCC Rcd at 15,509.^ In the Recommended Decision, the Joint Board explicitly stated that "[c]ompetitive neutrality" is "embodied in"  X4section 214(e).RZVs yO'ԍ Recommended Decision, 12 FCC Rcd at 101.R Indeed, the Joint Board recommended "that the Commission reject arguments that only those telecommunications carriers that offer universal service wholly over  X4their own facilities should be eligible for universal service [support]."RVs yO? 'ԍ Recommended Decision, 12 FCC Rcd at 173.R Further, we agree with CompTel that the Joint Board's recommendation that a carrier may meet the eligibility criteria of section 214(e) "without regard to the technology used by that carrier" demonstrates  X_4that this interpretation is consistent with the Joint Board's approach.}_zVs {O 'ԍ CompTel comments at 14 (citing Recommended Decision, 12 FCC Rcd at 170 n.513)}  X14157.` ` We conclude that the phrase "resale of another carrier's services" does not encompass the provision of service through unbundled network elements. The term "resale" used in section 251 refers to an ILEC's duty to offer, at wholesale rates, "any  X 4telecommunications service that the carrier provides at retail"C Vs yO'ԍ 47 U.S.C.  251(c)(4).C as well as the duty of every  X 4LEC not to prohibit "the resale of its telecommunications services."C Vs yO"'ԍ 47 U.S.C.  251(b)(1).C Section 251 makes it clear that an ILEC's duty to offer retail services at wholesale rates is distinct from an ILEC's obligation to provide "nondiscriminatory access to network elements on an unbundled  X4basis."K, Vs yOm'ԍ 47 U.S.C.  251(c)(3), (c)(4).K We find that the statute's use, in section 214(e)(1), of the term used in subsections 251(b)(1) and 251(c)(4) "resale" suggests that Congress contemplated that the provision of services via unbundled network elements was different from the "resale of another carrier's  XK4services." In addition, to interpret the phrase "resale of another carrier's services" to encompass the provision of a telecommunications service through use of unbundled network elements obtained from an ILEC would require the Commission to find that the provision of nondiscriminatory access to an unbundled network element by an ILEC is the provision of a "telecommunications service" an interpretation that is not consistent with the Act. A  X4"network element" is defined as a "facility or equipment used in the provision of a telecommunications service" that also "includes features, functions, and capabilities that are  X4provided by means of such facility or equipment . . . ."R Vs yO%'ԍ 47 U.S.C.  153(29) (emphasis added).R A "network element" is not a"YL 0*&&qq"  X4"telecommunications service." Vs yOy'ԍ 47 U.S.C.  153(29). Section 153(46), in defining "telecommunications service," makes a clear distinction between "service" and "facilities" a "telecommunications service" is "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available  yO'directly to the public, regardless of the facilities used." 47 U.S.C.  153(46).  X4158.` ` We conclude that, when a requesting carrier obtains an unbundled element, such element if it is also a "facility" is the requesting carrier's "own facilit[y]" for purposes of Section 214(e)(1)(A) because the requesting carrier has the "exclusive use of that  X4facility for a period of time."aZVs {O 'ԍ Local Competition Order, 11 FCC Rcd at 15,635; see also Black's Law Dictionary 1106 (6th ed. 1990) ("ownership" is "a collection of rights to use and enjoy property" that may be "shared with one or more persons when the time of enjoyment is deferred or limited or when the use is restricted").a The courts have recognized many times that the word "own" as well as its numerous derivations is a "generic term" that "varies in its significance  X_4according to its use" and "designate[s] a great variety of interests in property."_Vs {O'ԍ Black's Law Dictionary 1105 (6th ed. 1990); 73 C.J.S. Property  24 (1972) (citing cases). The word "ownership" is said to "var[y] in its significance according to the context and the subject  X14matter with which it is used."1d Vs {OF'ԍ 73 C.J.S. Property  26 (1972), quoted in Blumenfield v. United States, 306 F.2d 892 (8th Cir. 1962). The word "owner" is a broad and flexible word, applying not  X 4only to legal title holders, but to others enjoying the beneficial use of property. Vs {O'ԍ See, e.g., Colley v. Carleton, 571 S.W.2d 572 (Tex. 1978) (The term "owner," as used in section of compensation statute dealing with partial taking, includes lessee for years as well as any other person who has  {OS'interest in property); Bowen v. Metropolitan Bd. of Zoning Appeals in Marion County, 317 N.E.2d 193, 200 (Ind. 1974) ("The only reasonable sense in which owner' could be said to be used on application form for zoning variance is in the sense of owner of the right to use the property, and would include lessee under 99 year  {O'lease."); United States v. NinetyNine Diamonds, 139 F. 961, 970971 (8th Cir. 1905), quoting Camp v. Rogers, 44 Conn. 291, 298 (1877) ("A person who hired a carriage for a limited time was held to have a special property interest in it, and to be the owner within the meaning of a statute which provided a remedy against one who shall drive against another vehicle and injure its owner.'"). Indeed, property may have more than one "owner" at the same time, and such "ownership" does not  X 4merely involve title interest to that property. Vs {Oi'ԍ 73 C.J.S. Property  2526 (1972); Judd v. Landin, 1 N.W.2d 861 (Minn. 1942); United States v.  {O3 'NinetyNine Diamonds, 139 F. 961 (8th Cir. 1905) ("The fact that the term owner' is not limited in its signification to one who holds a perfect title to property must not be overlooked. The word has other meanings, and must have its appropriate signification in each case in view of the subject, object, and terms of the legislation in which it is found. Thus, there may be many joint owners of the same property, yet each would undoubtedly be an owner.").  X 4159.` ` Additionally, we note that section 214(e)(1) uses the term "own facilities" and" ZH0*&&qq " does not refer to facilities "owned by" a carrier. We conclude that this distinction is salient based on our finding that, unlike the term "owned by," the term "own facilities" reasonably could refer to property that a carrier considers its own, such as unbundled network elements, but to which the carrier does not hold absolute title.  X4160.` ` In the context of section 214(e)(1)(A), unbundled network elements are the requesting carrier's "own facilities" in that the carrier has obtained the "exclusive use" of the facility for its own use in providing services, and has paid the full cost of the facility,  XH4including a reasonable profit, to the ILEC.MHVs {O 'ԍ See 47 U.S.C.  252(d)(1).M The opportunity to purchase access to  X14unbundled network elements, as we explained in the Local Competition Order, provides carriers with greater control over the physical elements of the network, thus giving them  X 4opportunities to create service offerings that differ from services offered by an incumbent.i ZVs {O'ԍ Local Competition Order, 11 FCC Rcd at 15,63132, 15,667.i This contrasts with the abilities of wholesale purchasers, which are limited to offering the  X 4same services that an incumbent offers at retail.i Vs {Ot'ԍ Local Competition Order, 11 FCC Rcd at 15,63132, 15,667.i This greater control distinguishes carriers that provide service over unbundled network elements from carriers that provide service by reselling wholesale service and leads us to conclude that, as between the two terms, carriers that provide service using unbundled network elements are better characterized as providing service over their "own facilities" as opposed to providing "resale of another carrier's services."  X64161.` ` In addition, we conclude that our interpretation of the term "own facilities" is consistent with the goals of universal service and that any contrary interpretation would frustrate the goals of the Act and lead to absurd results. For example, it is appropriate for Congress to deny pure resellers universal service support because pure resellers receive the benefit of universal service support by purchasing wholesale services at a price based on the retail price of a service a price that already includes the universal service support payment  X4received by the incumbent provider.m~Vs {O'ԍ The eligibility of resellers is discussed infra this section.m  X~4162.` ` Unlike a pure reseller, a carrier that provides service using unbundled network elements bears the full cost of providing that element, even in high cost areas. Section  XP4252(d)(1)(A)(i) requires that the price of an unbundled network element be based on cost;IPVs yO$'ԍ 47 U.S.C.  252(d)(1)(A)(i).I a carrier that purchases access to an unbundled network element incurs all of the forwardlooking costs associated with that element. As discussed below, we conclude that universal""[0*&&qqc" service support should be provided to the carrier that incurs the costs of providing service to a  X4customer.FVs {Ob'ԍ See infra section VII.F Because a carrier that purchases access to an unbundled network element incurs the costs of providing service, it is reasonable for us to find that such a carrier should be entitled to universal service support for the elements it obtains.  X4163.` ` We conclude that interpreting the term "own facilities" to include unbundled network elements is the most reasonable interpretation of the statute, given Congress's intent that all three forms of local entry must be treated in a competitively neutral manner. For example, suppose that the cost of providing service to a customer in a high cost area, on a forwardlooking basis, is $50.00 per month, and suppose that the universal service support payment for serving that customer is $20.00. This would leave $30.00 for the carrier to collect from the subscriber. A carrier that builds all the facilities it uses to provide service to that customer would be entitled to the $20.00 payment and would, assuming that it bills the customer $30.00, fully recover its $50.00 permonth costs. Under the pricing rule in section 252(d)(3), a carrier that serves the same customer by reselling wholesale service would  X 4receive a discount off of the retail rate of $30.00. ZVs yO'ԍ 47 U.S.C.  252(d)(3) (requiring wholesale rates to be based on retail rates excluding avoided costs). For example, a reseller might receive a 20 percent discount, which would result in a wholesale price of $24.00 per month, thus allowing it to charge, depending on its costs of doing business, a retail price of $30.00. As a result, both the carrier that constructs its facilities and the carrier that serves customers through resale benefit, directly or indirectly, from the full $20.00 percustomer universal service support payment. With regard to these two methods of providing service, therefore, the universal service high cost system is "competitively neutral."  X4164.` ` If the term "own facilities" is interpreted not to include service provided through unbundled network elements, however, a carrier providing service using unbundled network elements would suffer a substantial cost disadvantage compared with carriers using other entry strategies. Under this interpretation, a carrier providing service using unbundled network elements to the same customer would pay the ILEC the full $50.00 forwardlooking monthly cost to serve that customer, yet it would be unable to collect the $20.00 permonth  Xi4support payment because it would not qualify as an "eligible carrier." iVs yO 'ԍ For example, if we were to conclude that unbundled network elements were not included within the term "own facilities," a cable operator that provides universal service through a mixture of unbundled network elements (such as switching capabilities) and cable lines that it constructed and maintains would not be an eligible carrier because it would not, in this situation, resell "another carrier's services." As a result, the costs this carrier must recover from its customer would be well above the amount that a carrier serving a customer using facilities it constructed, or a carrier serving a customer using wholesale service, must recover from its customer. Such a structure would create a strong"$\0*&&qq" disincentive for this type of entry and is not consistent with the Joint Board's principle of "competitive neutrality." In effect, excluding a competitive local exchange carrier (CLEC) that uses exclusively unbundled network elements from being designated an eligible carrier could make it costprohibitive for CLECs choosing this entry strategy to serve high cost areas because ILECs serving those areas will receive universal service support. We cannot reconcile these implications with the "procompetitive" goals of the 1996 Act and the goals of universal service and section 254. As a result, the most reasonable interpretation of section 214(e)(1)(A) is that the phrase "own facilities" includes the provision of service through unbundled network elements, and that a carrier, as described above, that uses exclusively unbundled network elements to serve customers would be entitled to receive the $20.00  X 4support payment, subject to the cap that we describe below,8 Vs yO 'ԍ We conclude below that a CLEC serving a customer in a high cost area exclusively through the use of unbundled network elements will receive the lesser of the total amount of support given to the ILEC or the price of the unbundled network elements to which it obtains access. We also conclude that the ILEC will receive the  {O 'difference between the unbundled network element price and the support amount. See infra section VII; see also  {O'infra further discussion this section.8 that would allow it to compete with carriers utilizing other entry strategies.  X 4165.` ` To hold otherwise would threaten the central principles of the universal service  X 4system and the 1996 Act. In the Local Competition Order, we explicitly stated that, in enacting section 251(c)(3), Congress did not intend to restrict the entry of CLECs that use  X4exclusively unbundled network elements."|Vs {O'ԍ Local Competition Order, 11 FCC Rcd at 15,66667 (Congress did not intend to limit this form of entry by imposing a facilitiesownership requirement in conjunction with section 251(c)(3) because it "would seriously inhibit the ability of potential competitors to enter local markets through the use of unbundled elements, and thus would retard the development to local exchange competition."). Indeed, entry by exclusive use of unbundled elements might be common in high cost areas for example, a carrier considering providing service to a single highvolume customer or only to a portion of a high cost area might be encouraged to offer service using unbundled elements throughout an entire service area if it could compete with the incumbent and other entrants that may already be receiving a payment from the universal service fund.  X4166.` ` If we interpreted the term "own facilities" not to include the use of unbundled network elements, the end result would be that the entry strategy that includes the exclusive  X4use of unbundled network elements would be the only form of entry that would not benefit from, either directly or indirectly, universal service support. A carrier that has constructed all of its facilities would certainly be eligible for support under section 214(e)(1), as would an entrant that offers service through a mix of facilities that it had constructed and resold services. A pure reseller indirectly receives the benefit of the support payment, because, as discussed above, the retail rate of the resold service already incorporates the support paid to the underlying incumbent carrier. Such an environment in which some forms of entry are";]f 0*&&qq"  X4eligible for support but one form of entry is not is not "competitively neutral." Vs yOy'ԍ If we were to determine that unbundled network elements are "resale of another carrier's services," then a carrier that offers universal service exclusively through the use of unbundled network elements would be excluded from eligible status because section 214(e) requires an eligible carrier to provide service, at least in part, over its own facilities. 47 U.S.C.  214(e). In addition, this outcome would create an artificial disincentive for carriers using unbundled elements to enter into high cost areas. Thus, a carrier may be discouraged from offering the  X4supported services throughout a service area via unbundled elements solely because support may be available to its competitors and not to itself. By effectively precluding this form of entry and its attendant benefits, consumers in high cost areas would be denied the fullest range of telecommunications services that Congress sought to bring "to all regions of the  Xa4Nation."CaVs yO 'ԍ 47 U.S.C.  254(b)(3).C  X34167.` ` Several commenters urge us to adopt an interpretation of the term "own  X 4facilities" that would exclude the use of unbundled network elements.a @Vs {O 'ԍ See, e.g., LufkinConroe reply comments at 1516.a These commenters assert that, in light of the Joint Board's recommendation that support be "portable," a narrow interpretation of the section 214(e) facilities requirement is necessary to ensure that ILECs receive adequate funds to construct, maintain, and upgrade their telecommunications  X 4networks. Vs {OC'ԍ SBC comments at 21 (citing Recommended Decision, 12 FCC Rcd at 238); LufkinConroe reply comments at 1516. We are not persuaded by these arguments because we find that the pricing rule in section 252(d)(1) that applies to unbundled network elements assures that the costs associated with the construction, maintenance, and repair of an incumbent's facilities, including a reasonable profit, would already be recovered through the payments made by the  Xd4carrier purchasing access to unbundled network elements.d, Vs {OA'ԍ  See 47 U.S.C.  252(d)(1) (requiring, inter alia, that rates for unbundled network elements be based on cost and reasonable profit). The carrier purchasing access to  XM4those elements will, in turn, receive a universal service support payment.M Vs {O'ԍ  See infra section VII where we conclude that providers who provide serving using exclusively unbundled network elements may not receive universal service support in excess of the cost to them of those elements. To the extent that these commenters' arguments are premised on their contention that unbundled network element prices do not compensate ILECs for their embedded costs, and that ILECs are constitutionally entitled to recovery of their embedded costs, we will address that issue in a  X4later proceeding in our Access Charge Reform docket.XVs {O%'ԍ Access Charge Reform Order at section I.X"^r0*&&qq"Ԍ X4ԙ168.` ` Although the states have the ultimate responsibility under section 214(e) for deciding whether a particular carrier should be designated as eligible, we are fully authorized to interpret the statutory provisions that govern that determination. This language appears in a federal statute, establishing a federal universal service program. It is clearly appropriate for a federal agency to interpret the federal statute that it has been entrusted with implementing. Moreover, we believe it is particularly important for us to set out a federal interpretation of the "own facilities" language in section 214, particularly as it relates to the use of unbundled network elements. We note that the "own facilities" language in section 214(e)(1)(A) is very similar to language in section 271(c)(1)(A), governing Bell operating company (BOC) entry  X14into interLATA services.{1Vs {O 'ԍ Compare section 214(e)(1)(A), "using its own facilities or a combination of its own facilities and resale  {Ot 'of another carrier's services" with section 271(c)(1)(A), "telephone service may be offered . . . either exclusively  {O> 'over their own telephone exchange service facilities or predominantly over their own telephone exchange service  {O 'facilities in combination with the resale of the telecommunications services of another carrier." 47 U.S.C. 214(e)(1)(A), 271(c)(1)(A) (emphasis added).{ While we are not interpreting the language in section 271 in this Order, given the similarity of the language in these two sections, we would find it particularly troubling to allow the states unfettered discretion in interpreting and applying the "own facilities" language in section 214(e). In order to avoid the potential for conflicting interpretations from different states, we believe it is important to set forth a single, federal interpretation, so that the "own facilities" language is consistently construed and applied.  X4169.` ` Level of Facilities Required to Satisfy the Facilities Requirement. We adopt  Xy4the Joint Board's analysis and conclusion that a carrier need not offer universal service wholly over its own facilities in order to be designated as eligible because the statute allows an eligible carrier to offer the supported services through a combination of its own facilities and  X64resale.R6Vs yOg'ԍ Recommended Decision, 12 FCC Rcd at 173.R Although the Joint Board did not reach this issue, we find that the statute does not dictate that a carrier use a specific level of its "own facilities" in providing the services designated for universal service support given that the statute provides only that a carrier may use a "combination of its own facilities and resale" and does not qualify the term "own facilities" with respect to the amount of facilities a carrier must use. For the same reasons, we find that the statute does not require a carrier to use its own facilities to provide each of the designated services but, instead, permits a carrier to use its own facilities to provide at  X4least one of the supported services.HVs {OV!'ԍ See EXCEL comments at 8.H By including carriers relying on a combination of facilities and resale within the class of carriers eligible to receive universal service support, and by declining to specify the level of facilities required, we believe that Congress sought to accommodate the various entry strategies of common carriers seeking to compete in high cost areas. We conclude, therefore, that, if a carrier uses its own facilities to provide at least one of the designated services, and the carrier otherwise meets the definition of "facilities" adopted""_0*&&qq" above, then the facilities requirement of section 214(e) is satisfied. For example, we conclude that a carrier could satisfy the facilities requirement by using its own facilities to provide access to operator services, while providing the remaining services designated for support through resale.  X4170.` ` In arriving at this conclusion, we compare Congress's use of qualifying language in the section 271(c)(1)(A) facilities requirement with the absence of such language in the section 214(e) requirement. Section 271(c)(1)(A) provides that a BOC that is seeking  XH4authorization to originate inregion, interLATA services must, inter alia, enter into interconnection agreements with competitors that offer "telephone exchange service either  X 4exclusively over their own facilities or predominantly over their own telephone exchange service facilities in combination with the resale of the telecommunications services of another  X 4carrier."W Vs yOi 'ԍ 47 U.S.C.  271(c)(1)(A) (emphasis added).W By contrast, section 214(e) does not mandate the use of any particular level of a  X 4carrier's own facilities.F XVs yO'ԍ 47 U.S.C.  214(e)(1)(A).F  X 4171.` ` Several ILECs assert that eligible carriers that furnish only a de minimis level  X4of facilities should not be entitled to receive universal service support.PVs yO/'ԍ LufkinConroe reply comments at 1516.P ILECs are concerned that, unless a carrier is required to provide a substantial level of its own facilities throughout a service area, a CLEC may be able to receive a level of support in excess of its  XQ4actual costs, and thereby gain a competitive advantage over ILECs.NQxVs {Oz'ԍ See, e.g., SBC comments at 21.N For example, ILECs argue that, because the prices of unbundled network elements may be averaged over smaller geographic areas than universal service support, the cost that a competitive carrier will incur for serving a customer using unbundled network elements will not match the level of  X4universal service support the CLEC will receive for serving that customer.S Vs {O'ԍ See, e.g., NYNEX comments at 3233.S  X4172.` ` This asymmetry could arise because of the procedures currently used to calculate the cost of serving a customer. Because it is administratively infeasible to calculate the precise cost of providing service to each customer in a service area, and because rate averaging and the absence of competition generally have allowed it, the cost of providing"`0*&&qq"  X4service has been calculated over a geographic region, such as a study area,Vs yOy'ԍ A "study area" is usually an ILEC's existing service area in a given state. The study area boundaries are  yOA'fixed as of November 15, 1984. MTS and WATS Market Structure: Amendment of Part 67 of the  {O 'Commission's Rules and Establishment of a Joint Board, Decision and Order, 50 Fed. Reg. 939 (1985 Lifeline  {O'Order) (adopting with minor modifications the Joint Board recommendations issued in MTS and WATS Market  {O'Structure: Amendment of the Commission's Rules and Establishment of a Joint Board, Recommended Decision  {Og'and Order, 49 Fed. Reg. 48,325 (1984)). and the total cost of providing service in that area has been averaged over the number of customers in that  X4area.'HVs yO 'ԍ These calculations are performed by carriers that submit this data to NECA, which, in turn, submits it to  {O 'the Commission as part of its duties pursuant to part 36 of our rules. See generally 47 C.F.R.  36.601 et seq.' This average cost provides the basis for calculating universal service support in that  X4area.Vs {O 'ԍ See infra section VII.B for a more detailed explanation of the calculation of high cost support. To illustrate, the average cost of providing service in a study area might be $50.00 per customer, but the cost of providing service might be $10.00 in urban portions of the area, $40.00 in the suburban portions, and $100.00 in outlying regions. Although the cost of providing the supported services will be calculated at the study area level in 1998, the cost of unbundled network elements is calculated by the states, possibly over geographic areas smaller  XH4than study areas.^H4 Vs {O-'ԍ The Local Competition Order required states to create a minimum of three rate zones for calculating the  {O'price of unbundled network elements.  Local Competition Order, 11 FCC Rcd at 15,88283. This requirement is  {O'now stayed, pending review in the U. S. Court of Appeals for the Eighth Circuit. See supra note 7. Thus, the total support given to a carrier per customer in a study area might be $20.00, but the price of purchasing access to unbundled network elements to serve a customer in that study area might be $10.00, $60.00, or $100.00, depending on where the customer is located. Consequently, a CLEC might pay $10.00 to purchase access to an unbundled network element in order to serve a customer in a city, but receive $20.00 in universal service support.  X 4173.` ` We emphasize that the uneconomic incentives described above are largely connected with the modified existing high cost mechanism that will be in place until January  Xy41, 1999.yZ Vs yO'ԍ We discuss below other uneconomic incentives arising from the asymmetry between the price of  {OL'unbundled network elements and the level of universal service support. See infra section VII. We also conclude, based on the reasons set forth immediately below, that the situation described by the ILECs will occur, at most, infrequently during this period. We conclude that the ILECs' concerns should be significantly alleviated when the forwardlooking and more precisely targeted methodology to calculate high cost support becomes effective. Specifically, in our forthcoming proceeding on the high cost support mechanism that will take effect January 1, 1999, we intend to address fully any potential dissimilarities between the level of disaggregation of universal service support and the level of disaggregation of"a0*&&qq"  X4unbundled network element prices.KVs {Oy'ԍ See also infra section VII.K Nevertheless, we agree with the ILECs that we should limit the ability of competitors to make decisions to enter local markets based on artificial economic incentives created under the modified existing mechanism.  X4174.` ` To this end, we take the following actions to reduce the incentives that a CLEC may have to enter a rural or nonrural market in an attempt to exploit the asymmetry described above. First, we conclude that a carrier that serves customers by reselling wholesale service may not receive universal service support for those customers that it serves  XH4through resale alone.cHZVs {OS 'ԍ See supra this section and infra section VII.c In addition, we conclude below that a CLEC using exclusively unbundled network elements to provide the supported services will receive a level of universal service support not exceeding the price of the unbundled network elements to which it  X 4purchases access.^ Vs {O'ԍ We further conclude infra that a CLEC will get the lesser of the unbundled network element price for the  {Oj'loop or the ILEC's perline payment from the high cost loop support and LTS, if any. See infra section VII.D.1.  {O4'See also section VII.D.2. for a discussion of portable support in areas served by rural ILECs.  X 4175.` ` In markets served by nonrural carriers, we conclude that the risk of the anticompetitive behavior described above is minimal because, as of January 1, 1999, universal service support for large high cost carriers will be determined using a forwardlooking methodology that will more precisely target support. We doubt that carriers will incur the costs necessary to meet the eligibility requirements of section 214(e) in order to exploit this opportunity when the support mechanisms will soon change. Further, the incentive for a CLEC to enter an area served by a nonrural carrier to gain an unfair advantage is diminished because the level of universal service support per customer in these areas is small relative to the startup costs of attracting customers and the cost of providing service to those customers  X4using unbundled network elements.$d $Vs yO'ԍ The total amount of explicit perloop support for the BOCs, which provide service to over 75% of the nation's presubscribed access lines, ranges, according to our estimates, between approximately $.04 and approximately $.73 per customer. The highest level of universal service support that a CLEC could receive, according to our estimates, is $13.55, which occurs in the study area of United Telephone in Texas. In Texas, GTE receives $.28 per customer per month and SWBT receives no universal service support. This level of universal service support compares with a price range of $15.00 to $25.49 per month for each loop leased as an  {Oy!'unbundled network element in Texas. Arbitration Award, Consolidated Dockets Nos. 16189, 16196, 16226, 16285, and 16290 (Public Utility Commission of Texas Nov. 7, 1996) at 40 (adopting an interim rate of $15.00  {O #'for SWBT); Arbitration Award, Docket Nos. 16300/16355 (Public Utility Commission of Texas Dec. 12, 1996) at 164 (adopting an interim rate of $25.49 for GTE). The amount of universal service support that a carrier receives per customer in a high cost area can be approximated by dividing a carrier's total support in a state by the number of loops the carrier has in that state. For example, BellSouth received $11,317,044.94 for 1,291,819"e%0*&&D%" loops in South Carolina in 1995. This calculation yields a support level of approximately $.73 per loop per  {OX'month. See NECA Annual Filing, Study Area Detail at 33 (1996). The $.04 rate occurs for U S West in Idaho  {O"'and BellSouth in Kentucky. Id. at 7, 15. See also Statistics for Communications Common Carriers, tbl. 2.3 (199596 ed.)$"b0*&&qqs"Ԍ X4ԙ176.` ` We also expect that state commissions, in the process of making eligibility determinations, will play an important part in minimizing the risk of anticompetitive behavior as described above. Under section 214(e)(3), a state commission must make a finding that designation of more than one eligible carrier is in the public interest in a service area that is  X4served by a rural telephone company.KVs {O 'ԍ See supra section VI.B.2.a.K Accordingly, under section 214(e)(3), a state commission may consider whether a competitive carrier seeking designation as an eligible carrier will be able to exploit unjustly the asymmetry between the price of unbundled network elements and the level of universal service support. Under section 251(f), rural telephone  XH4companies are not required to provide, inter alia, nondiscriminatory access to unbundled network elements pursuant to section 251(c)(3) until the relevant state commission determines that a bona fide request under section 251(c) for such access "is not unduly economically burdensome, is technically feasible, and is consistent with section 254 (other than subsections  X 4(b)(7) and (c)(1)(D) thereof)."<Z FVs {O'ԍ 47 U.S.C.  251(f)(1)(B). See also 47 U.S.C.  253(f) (allowing state commission to require telecommunications carrier to meet eligibility criteria of section 214(e) in order to be permitted to provide service in service area served by rural telephone company).< Thus, state commissions may also consider whether a CLEC's request for nondiscriminatory access to unbundled network elements is consistent with universal service, and will be able to take into account the arguments of ILECs to the extent that they are not addressed by the measures discussed herein.  X{4177.` ` Location of Facilities for Purposes of Section 214(e). Although we conclude above that the term "facilities" includes any physical components of the telecommunications network that are used in the transmission or routing of the supported services, we find that the statute does not mandate that the facilities be physically located in that service area. For example, a switch located in San Antonio, Texas that is used to provide the supported services throughout the service area encompassing Dallas, Texas would be considered "facilities" for purposes of determining a carrier's eligibility to receive universal service support for the service area encompassing Dallas. We find that it is reasonable to draw a distinction between particular facilities based on the relationship of those facilities to the provision of specific services as opposed to their physical location within a service area both for reasons of promoting economic efficiency as well as competitive neutrality. Specifically, we find that allowing a carrier the flexibility to offer supported services in the service area encompassing San Antonio and in the service area encompassing Dallas through a single switch is economically efficient because it does not create artificial incentives to deploy redundant facilities when those facilities are not otherwise economically justified. In addition, we"9ch 0*&&qq" conclude that our determination not to impose restrictions based solely on the location of facilities used to provide the supported services is competitively neutral in that it will accommodate the various technologies and entry strategies that carriers may employ as they seek to compete in high cost areas.  X4178.` ` Eligibility of Resellers. We adopt the Joint Board's analysis and conclusion that section 214(e)(1) precludes a carrier that offers the supported services solely through resale from being designated eligible in light of the statutory requirement that a carrier  XH4provide universal service, at least in part, over its own facilities.WHVs yO 'ԍ Recommended Decision, 12 FCC Rcd at 17273. W EXCEL contends that the Joint Board's recommendation to exclude resellers is based on the flawed assumption that the meaning of the term "facilities" is commonly understood, and thus asserts that we should not  X 4adopt the Joint Board's recommendation.J\ XVs {O 'ԍ See EXCEL comments at 78 (citing Infrastructure Sharing Provisions in the Telecommunications Act of  {O'1996, Notice of Proposed Rulemaking, CC Docket 96237, FCC 96456 (rel. Nov. 22, 1996) which sought comment on meaning of "telecommunications facilities").J We reject this assertion because, under any reasonable interpretation of the term "facilities," a "pure" reseller uses none of its own  X 4facilities to serve a customer. Rather, a reseller purchases service from a facilities owner and  X 4resells that service to a customer. We also are not persuaded by commenters' arguments that, unless a reseller receives support directly from federal universal service mechanisms, it will be forced to absorb higher costs incurred in providing services in high cost areas and, ultimately,  X}4to increase prices charged to customers in those areas.a}|Vs yO'ԍ EXCEL comments at 56, 1415; TRA reply comments at 11.a As explained above, resellers should not be entitled to receive universal service support directly from federal universal service mechanisms because the universal service support payment received by the underlying provider of resold services is reflected in the price paid by the reseller to the underlying  X!4provider.F! Vs {O'ԍ See infra section VII.F  X4179.` ` We conclude that no party has demonstrated that the statutory criteria for  X4forbearance have been met=Vs yO+ 'ԍ 47 U.S.C.  160.= and therefore we agree with the Joint Board that we cannot exercise our forbearance authority to permit "pure" resellers to become eligible for universal  X4service support, as some commenters have proposed.. Vs {O#'ԍ Recommended Decision, 12 FCC Rcd at 173. See, e.g., EXCEL comments at 1113; Telco comments at  {OW$'810; TRA comments at 1516. See also 47 U.S.C.  160. In order to exercise our authority under section 10(a) of the Act to forbear from applying a provision of the Act, we must"d 0*&&qq9" determine that: (1) enforcement of the provision "is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;" (2) enforcement of such provision "is not necessary for the protection of consumers;" and (3) "forbearance from applying such provision . . . is consistent  X4with the public interest."BVs yO'ԍ 47 U.S.C.  160(a). B In addition, we must consider "whether forbearance . . . will  Xv4promote competitive market conditions."@vXVs yO 'ԍ 47 U.S.C.  160(b).@ As previously discussed, if pure resellers could be designated eligible carriers and were entitled to receive support for providing resold services, they, in essence, would receive a double recovery of universal service support because they would recover the support incorporated into the wholesale price of the resold services in addition to receiving universal service support directly from federal universal service support mechanisms. Making no finding with respect to the first two criteria, we conclude that it is neither in the public interest nor would it promote competitive market conditions to allow resellers to receive a double recovery. Indeed, allowing such a double recovery would appear to favor resellers over other carriers, which would not promote competitive market conditions. Allowing resellers a double recovery also would be inconsistent with the principle of competitive neutrality because it would provide inefficient economic signals to resellers.  Xb4180.` ` TRA cites the Commission's decision not to impose a facilities requirement  XK4with respect to section 251(c)(3) in the Local Competition Order to support its contention that  X64the Commission should forbear from the facilities requirement in section 214(e).6Vs {O'ԍ TRA comments at 12 (citing Local Competition Order, 11 FCC Rcd at 15,670). TRA specifically cites the Commission's finding that any facilities requirement the Commission  X4could construct "would likely be so easy to meet it would ultimately be meaningless."zVs {O3'ԍ TRA comments at 12 (citing Local Competition Order, 11 FCC Rcd at 15,670). In addition to our finding that the statutory forbearance criteria have not been met, we also reject this assertion because, unlike section 251(c)(3), which does not explicitly require a carrier to own facilities in order to obtain access to unbundled network elements, section 214(e)(1)(A) expressly mandates the use of a carrier's "own facilities" in the provision of the services  X4designated for universal service support. Vs {OR!'ԍ Compare Local Competition Order, 11 FCC Rcd at 15,670 (interpreting section 251(c)(3)) with 47 U.S.C.  214(e) and interpretation herein.  Xg' ` `  c.` ,Requirements of Section 254(e) Pertaining to Intended Uses  XP'of Universal Service Funds (# "9ef 0*&&qq"Ԍ X4181.` ` We adopt the Joint Board's recommendation that no additional guidelines are necessary to interpret section 254(e)'s requirement that a carrier that receives universal service  X4support shall only use that support for the facilities and services for which it is intended.Vs {OK'ԍ Recommended Decision, 12 FCC Rcd at 174. See also NPRM at para. 41 (seeking comment on this issue). We agree with the Joint Board's conclusion that the optimal approach to minimizing misuse of universal service support is to adopt mechanisms that will set universal support so that it  X4reflects the costs of providing universal service efficiently.R"Vs yO` 'ԍ Recommended Decision, 12 FCC Rcd at 174.R We conclude that we will adopt the Joint Board's recommended approach to minimizing the misuse of support by taking steps to implement forwardlooking high cost support mechanisms and implementing the rules set  XH4forth in our accompanying Access Charge Reform Order.xHVs {O 'ԍ See infra section VII; Access Charge Reform Order at section IV.A.x We also agree with the Joint Board that competitive markets, which we anticipate will develop over time, will minimize  X 4the incentives and opportunities to misuse funds.R DVs yO'ԍ Recommended Decision, 12 FCC Rcd at 174.R We adopt the Joint Board's recommendation that we rely upon state monitoring of the provision of supported services to  X 4ensure that universal service support is used as intended until competition develops.R Vs yOs'ԍ Recommended Decision, 12 FCC Rcd at 174.R We agree with the Joint Board and the North Dakota PSC that, if it becomes evident that federal monitoring is necessary to prevent the misuse of universal service support because states are unable to undertake such monitoring, the Commission, in cooperation with the Joint Board,  X4will consider the need for additional action.rd Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 174; North Dakota PSC comments at 2.r In addition, we agree with the Joint Board that no additional rules are necessary to ensure that only eligible carriers receive universal service support because a carrier must be designated as an eligible carrier by a state commission in  XM4order to receive funding."M Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 174. We note that below we adopt a rule stating that the administrator of the universal service support mechanisms shall not disburse funds to a carrier providing service to customers until the carrier has provided, to the administrator, a true and correct copy of the decision of a state  {OJ 'commission designating that carrier as an eligible telecommunications carrier. See infra section VI.E. Finally, as discussed below, because the services included in the  X64Lifeline program are supported services,6Vs yO"'ԍ We have determined that Lifeline service includes the services designated for high cost support as well as  {O#'toll limitation service. See infra section VIII. we note that only eligible carriers may receive"6f80*&&qqU"  X4universal service support for these services, as required by section 254(e).GVs {Oy'ԍ See infra section VIII.G  X' C.` ` Definition of Service Areas  X4` ` 1. Background  Xv4182.` ` Section 214(e)(5) defines the term "service area" as "a geographic area established by a State commission for the purpose of determining universal service obligations  XH4and support mechanisms."CHZVs yOS 'ԍ 47 U.S.C.  214(e)(5).C For areas served by a rural telephone company,HVs yO 'ԍ The term "rural telephone company" is defined at 47 U.S.C. 153(37). This definition is reproduced  {O 'supra at a note to section VI.B.1. section 214(e)(5) provides that the term "service area" means the rural telephone company's study  X 4areau DVs {O'ԍ The term "study area" is defined supra at a note to section VI.B.2.b.u "unless and until the Commission and the States, after taking into account the recommendations of a FederalState Joint Board instituted under section 410(c), establish a  X 4different definition of service area for such company." Vs yOs'ԍ Hereinafter we refer to a service area served by a rural telephone company as a "rural service area" and all other service areas as "nonrural service areas."  X 4183.` ` The Joint Board concluded that the states have primary responsibility for  X 4designating nonrural service areas.R . Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 179.R In arriving at this conclusion, the Joint Board also  X4strongly encouraged the states to designate service areas that are not unreasonably large.R Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 179.R The Joint Board recommended that rural telephone companies' existing study areas be used as  Xb4service areas for the purposes of section 214(e)(5).RbN Vs yOa'ԍ Recommended Decision, 12 FCC Rcd at 179.R Finally, the Joint Board found that it would be consistent with the Act for the Commission to base the actual level of support a  X44carrier receives on a high cost area that is a subunit of a statedesignated service area.U4Vs yO"'ԍ Recommended Decision, 12 FCC Rcd at 18182.U "gn0*&&qqf"Ԍ X'` ` 2. v Discussion  X' ` `  a.,NonRural Service Areas  X4184.` ` State Adoption of NonRural Service Areas. We adopt the Joint Board's finding that subsections 214(e)(2) and 214(e)(5) require state commissions vto designate the area throughout which a nonrural carrier must provide universal service in order to be  X_4eligible to receive universal service support.U_Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 18081.U We agree with the Joint Board that, although this authority is explicitly delegated to the state commissions, states should exercise this authority in a manner that promotes the procompetitive goals of the 1996 Act as well as the  X 4universal service principles of section 254.U XVs yO# 'ԍ Recommended Decision, 12 FCC Rcd at 18081.U We also adopt the Joint Board's analysis and  X 4recommendation that states designate service areas that are not unreasonably large.U Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 18082.U Specifically, we conclude that service areas should be sufficiently small to ensure accurate  X 4targeting of high cost support and to encourage entry by competitors.R xVs yO'ԍ Recommended Decision, 12 FCC Rcd at 181.R We also agree with the Joint Board's determination that large service areas increase startup costs for new entrants, which might discourage competitors from providing service throughout an area because startup costs increase with the size of a service area and potential competitors may  Xy4be discouraged from entering an area with high startup costs.RyVs yO2'ԍ Recommended Decision, 12 FCC Rcd at 181.R As such, an unreasonably large service area effectively could prevent a potential competitor from offering the supported services, would not be competitively neutral, would be inconsistent with section 254, and would not be necessary to preserve and advance universal service.  X4185.` ` We agree with the Joint Board that, if a state commission adopts as a service area for its state the existing study area of a large ILEC, this action would erect significant barriers to entry insofar as study areas usually comprise most of the geographic area of a state, geographically varied terrain, and both urban and rural areas. We concur in the Joint Board's finding that a state's adoption of unreasonably large service areas might even violate  X4several provisions of the Act.RVs yO"'ԍ Recommended Decision, 12 FCC Rcd at 181.R We also agree with the Joint Board that, if a state adopts a service area that is simply structured to fit the contours of an incumbent's facilities, a new entrant, especially a CMRSbased provider, might find it difficult to conform its signal or service area to the precise contours of the incumbent's area, giving the incumbent an"Nh( 0*&&qq"  X4advantage.}Vs {Oy'ԍ See Teleport comments at 5; WorldCom comments at 15; APC reply comments at 4.} We therefore encourage state commissions not to adopt, as service areas, the study areas of large ILECs. In order to promote competition, we further encourage state commissions to consider designating service areas that require ILECs to serve areas that they have not traditionally served. We recognize that a service area cannot be tailored to the natural facilitiesbased service area of each entrant, but note that ILECs, like other carriers, may use resold wholesale service or unbundled network elements to provide service in the portions of a service area where they have not constructed facilities. Specifically, as noted by the Joint Board, section 254(f) prohibits states from adopting regulations that are  XH4"inconsistent with the Commission's rules to preserve and advance universal service."@HZVs yOS 'ԍ 47 U.S.C.  254(f).@ As noted by the Joint Board, state designation of an unreasonably large service area could also violate section 253 if it "prohibit[s] or ha[s] the effect of prohibiting the ability of an entity to  X 4provide any interstate or intrastate telecommunications service,"@ Vs yO'ԍ 47 U.S.C.  253(a).@ and is not "competitively  X 4neutral" and "necessary to preserve and advance universal service."@ zVs yO'ԍ 47 U.S.C.  253(b).@  X ' ` `  b.,Rural Service Areas  X4186.` ` Authority to Alter Rural Service Areas. We find that, in contrast with nonrural service areas, the Act requires the Commission and the states to act in concert to alter the service areas for areas served by rural carriers. Section 214(e)(5) states: XIn the case of an area served by a rural telephone company, service area'  X4means such company's study area' unless and until the Commission and the  X4States, after taking into account the recommendations of a FederalState Joint Board instituted under section 410(c), establish a different definition of service  X4area for such company.?Z Vs yO'ԍ 47 U.S.C.  214(e)(5) (emphasis added). A "rural telephone company" is defined at 47 U.S.C.  {O_'153(37); this definition is reproduced supra at a note to section VI.B.1. The term "study area" is defined supra at a note to section VI.B.2.b.?   X4187.` ` We conclude that the plain language of section 214(e)(5) dictates that neither the Commission nor the states may act alone to alter the definition of service areas served by rural carriers. In addition, we conclude that the language "taking into account" indicates that the Commission and the states must each give full consideration to the Joint Board's recommendation and must each explain why they are not adopting the recommendations"Ri, 0*&&qq" included in the most recent Recommended Decision or the recommendations of any future Joint Board convened to provide recommendations with respect to federal universal service support mechanisms. Furthermore, although the Joint Board did not address this issue, we conclude that the "procompetitive, deregulatory" objectives of the 1996 Act would be furthered if we minimize any procedural delay caused by the need for federalstate  X4coordination on this issue.WVs {O'ԍ See Joint Explanatory Statement at 113.W Therefore, we conclude that we should determine, at this time, the procedure by which the state commissions, when proposing to redefine a rural service area, may obtain the agreement of the Commission.  X14188.` ` Under the procedures we adopt, after a state has concluded that a service area definition different from a rural telephone company's study area would better serve the universal service principles found in section 254(b), either the state or a carrier must seek the agreement of the Commission. Upon the receipt of the proposal, the Commission will issue a public notice on the proposal within 14 days. If the Commission does not act upon the proposal within 90 days of the release date of the public notice, the proposal will be deemed  X 4approved by the Commission and may take effect according to the state procedure. ZVs yO'ԍ Although the Commission intends to fully coordinate the two proceedings, it is important to note that approval of a service area change would not indicate Commission approval of a study area waiver. If the Commission determines further consideration is necessary, it will notify the state commission and the relevant carriers and initiate a proceeding to determine whether it can agree to the proposal. A proposal subject to further consideration by the Commission may not take effect until both the state commission and this Commission agree to establish a different definition of a rural service area, as required by section 214(e)(5). Similarly, if the Commission initiates a proceeding to consider a definition of a rural service area that is different from the ILEC's study area, we shall seek the agreement of the relevant state commission by submitting a petition to the relevant state commission according to that state commission's procedure. No definition of a rural service area proposed by the Commission will take effect until both the state commission and this Commission agree to establish a different definition. In keeping with our intent to use this procedure to minimize administrative delay, we intend to complete consideration of any proposed definition of a service area promptly.  Xe4189.` ` Adoption of Study Areas. We agree with the Joint Board that, at this time, retaining the study areas of rural telephone companies as the rural service areas is consistent  X74with section 214(e)(5) and the policy objectives underlying section 254.U7Vs yO"'ԍ Recommended Decision, 12 FCC Rcd at 17980.U We agree with the Joint Board that, if competitors, as a condition of eligibility, must provide services throughout a rural telephone company's study area, the competitors will not be able to target only the customers that are the least expensive to serve and thus undercut the ILEC's ability to provide"jB0*&&qq"  X4service throughout the area.UVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 17980.U In addition, we agree with the Joint Board that this decision is consistent with our decision to use a rural ILEC's embedded costs to determine, at least initially, that company's costs of providing universal service because rural telephone  X4companies currently average such costs at the studyarea level.RXVs yO'ԍ Recommended Decision, 12 FCC Rcd at 180.R Some wireless carriers have expressed concern that they might not be able to provide service throughout a rural telephone  X4company's study area because that study area might be noncontiguous.WVs yO& 'ԍ Nextel comments at 9; Vanguard comments at 4.W In such a case, we note that this carrier could supplement its facilitiesbased service with service provided via resale. In response to the concerns expressed by wireless carriers, however, we also encourage states, as discussed more fully below, to consider designating rural service areas that consist of only the contiguous portions of ILEC study areas. Further, we agree with TCA that any change to a study area made by the Commission should result in a corresponding  X 4change to the corresponding rural service area.F xVs {O,'ԍ See TCA comments at 4.F Thus, we encourage a carrier seeking to alter its study area to also request a corresponding change in its service area, preferably as a part of the same regulatory proceeding. If the carrier is not initiating any proceedings with  X 4this Commission,_X Vs yOy'ԍ We note that we sought comment in the NPRM on whether to amend our rules to revise existing study area boundaries. NPRM at para. 45. Any potential changes in the method used to redefine study areas might result in a change in the procedure to obtain a waiver, or, might result in the need for fewer waivers._ it should seek the approval of the relevant state commission first, and then either the state commission or the carrier should seek Commission agreement according to the procedures described above. We agree with the Joint Board that this differing treatment of  Xy4rural carriers sufficiently protects smaller carriers and is consistent with the Act.Uy* Vs {OT'ԍ See, e.g., 47 U.S.C.  251(f)(1). U  XK4190.` ` We also conclude, based on additional information presented to us in response to the Recommended Decision, that universal service policy objectives may be best served if a state defines rural service areas to consist only of the contiguous portion of a rural study area, rather than the entire rural study area. We conclude that requiring a carrier to serve a noncontiguous service area as a prerequisite to eligibility might impose a serious barrier to entry,  X4particularly for wireless carriers.Z Vs {OE#'ԍ See Cox comments at 7 (describing gaps of 70 to 80 miles between parts of Nebraska company's study area); Nextel comments at 9 (explaining that some wireless service providers are licensed within prescribed geographic regions). We find that imposing additional burdens on wireless entrants would be particularly harmful to competition in rural areas, where wireless carriers"k0*&&qq"  X4could potentially offer service at much lower costs than traditional wireline service.~Vs {Oy'ԍ See Nextel comments at 12 (stating that in many circumstances wireless service providers offer only costefficient alternative for delivery of communications to rural and high cost areas); Vanguard comments at 23 (stating that wireless providers are wellsuited to provide universal service in high cost areas, referring to Vanguard's provision of service to consumers who live in areas with extreme terrain in the Ohio Valley, and  {O'Vanguard's provision of service connecting fire watch towers in remote areas for Pennsylvania Park Service); see  {Oe'also Ameritech comments, app. A at 16 (noting that minimum efficient scale of wireless technology is lower for wireless than for wireline service).  Therefore, we encourage states to determine whether rural service areas should consist of only the contiguous portions of an ILEC's study area, and to submit such a determination to the Commission according to the procedures we describe above. We note that state commissions must make a special finding that the designation is in the public interest in order to designate  X4more than one eligible carrier in a rural service area,CVs yOL 'ԍ 47 U.S.C.  214(e)(2).C and we anticipate that state commissions will be able to consider the issue of contiguous service areas as they make such special findings.  X14191.` ` We reject Cox's suggestion that carriers could cooperate with each other to  X 4provide service throughout a service area.F Vs {Oi'ԍ See Cox comments at 8.F Given that section 214(e)(1) requires an eligible carrier to provide service "throughout" a service area, we find that the statute does not permit a cooperative arrangement, such as that advocated by Cox, because neither individual carrier  X 4could satisfy this explicit condition of eligibility.C 0 Vs yO'ԍ 47 U.S.C.  214(e)(1).C  X '` `  c.,Support Areas  Xy4192.` ` We agree with the Joint Board's analysis and conclusion that it would be consistent with the Act for the Commission to base the actual level of universal service support that carriers receive on the cost of providing service within subunits of a state X44defined service area, such as a wire center or a census block group (CBG).4 Vs {O'ԍ Recommended Decision, 12 FCC Rcd at 18182. See infra discussion in section VII. We reject Bell Atlantic's argument that the language in section 214(e)(5) gives the states exclusive authority to establish nonrural service areas "for the purpose of determining universal service  X4obligations and support mechanisms."oR Vs {O#'ԍ Bell Atlantic comments at 14 (citing 47 U.S.C.  214(e)(5)).o As the Joint Board concluded, the quoted language refers to the designation of the area throughout which a carrier is obligated to offer service and advertise the availability of that service, and defines the overall area for which the carrier"l0*&&qq"  X4may receive support from federal universal service support mechanisms.SVs yOy'ԍ Recommended Decision, 12 FCC Rcd at 181. S Bell Atlantic is therefore incorrect when it argues that the approach recommended by the Joint Board ignores  X4the phrase "and support mechanisms."QXVs {O'ԍ See Bell Atlantic comments at 14.Q The universal service support a carrier will receive will be based on the Commission's determination of the cost of providing the supported  X4services in the service area designated by a state commission.ZVs {O? 'ԍ Sprint PCS comments at 9; SBC comments at 31. See also Letter from Jay C. Keithly, Sprint, to William F. Caton, FCC at exhibit 2 (Oct. 14, 1996); letter from Whitney Hatch, GTE to William F. Caton, FCC at 45 (Sept. 18, 1996).  Xv4193.` ` We conclude that, consistent with our decision to use a modification of the existing high cost mechanisms until January 1, 1999, the Commission will continue to use  XH4study areas to calculate the level of high cost support that carriers receive.uH Vs {O'ԍ The term "study area" is defined supra at a note to section VI.B.2.b.u Because we are continuing to use study areas to calculate high cost support until January 1, 1999, if a state commission follows our admonition to designate a service area that is not unreasonably large, that service area will likely be smaller than the federal support areas during that period. We conclude that the decision to continue to use study areas to calculate the level of high cost support is nonetheless consistent with the Act for two reasons. First, as the Joint Board found, the Act does not prohibit the Commission from calculating support over a geographic  X 4area that is different from a statedefined service area.U Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 18182.U Second, so long as a carrier does not receive support for customers located outside the service area for which a carrier has been designated eligible by a state commission, our decision is consistent with section 214(e)(5)'s requirement that the area for which a carrier should receive universal service support is a statedesignated service area. We agree with the Joint Board, however, that calculating  X44support over small geographic areas will promote efficient targeting of support.R4. Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 181.R We therefore adopt the Joint Board's recommendation and conclude that, after January 1, 1999, we will calculate the amount of support that carriers receive over areas no larger than wire  X4centers.F Vs {O^"'ԍ See infra section VII.F We will further define support areas as part of our continuing effort to perfect the method by which we calculate forwardlooking economic costs. "mP 0*&&qq"Ԍ X'_ D.` ` Unserved Areas  X'` ` 1. Background  X4194.` ` Section 214(e)(3) provides that, if no common carrier is willing to provide the services supported by universal service support mechanisms to a community or portion of a _community that requests such services, "the Commission, with respect to interstate services, or a State, with respect to intrastate services, shall determine which common carrier or carriers are best able to provide such services to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such services for that unserved community  X 4or portion thereof."C Vs yO 'ԍ 47 U.S.C.  214(e)(3).C Any carrier ordered to provide service to an unserved community is to be designated as the eligible telecommunications carrier for that community or portion of a  X 4community.C XVs yO'ԍ 47 U.S.C.  214(e)(3).C The Joint Explanatory Statement states that section 214(e)(3) "makes explicit the implicit authority of the Commission, with respect to interstate services, and a State, with  X 4respect to intrastate services, to order a common carrier to provide [the supported services]."M Vs yOW'ԍ Joint Explanatory Statement at 141.M  X4195.` ` Because of the lack of information in the record, the Joint Board recommended  Xy4that the Commission not adopt particular rules implementing section 214(e)(3).RyxVs yO'ԍ Recommended Decision, 12 FCC Rcd at 184.R Although  Xb4the Joint Board supported the use of competitive bidding,RbVs yO'ԍ Recommended Decision, 12 FCC Rcd at 265.R it concluded that it could not recommend a particular competitive bidding proposal because no proposal before it was  X44sufficiently detailed to support a recommendation.R4Vs yO}'ԍ Recommended Decision, 12 FCC Rcd at 184.R  X'` ` 2.  Discussion  X4196.` ` We agree with the Joint Board that we should not adopt rules at this time  X4governing how to designate carriers for unserved areas.R( Vs yO"'ԍ Recommended Decision, 12 FCC Rcd at 184.R We conclude, as did the Joint Board, that the record remains inadequate for us to fashion a cooperative federalstate"n 0*&&qq"  X4program to select carriers for unserved areas, as proposed in the NPRM.J\Vs {Oy'ԍ See NPRM at para. 47. No specific program using competitive bidding to select carriers for unserved  {OC'areas was proposed to the Joint Board, see Recommended Decision, 12 FCC Rcd at 18284, and no program was proposed in response to the Recommended Decision.J We conclude that, consistent with the Joint Board's recommendation, if, in the future, it appears that a cooperative federalstate program is needed, we will then revisit this issue and work with state commissions and the Joint Board to create a program. We seek information that will allow us to determine whether additional measures are needed. Therefore, we strongly encourage state commissions to file with the Common Carrier Bureau reports detailing the status of unserved areas in their states. In order to raise subscribership to the highest possible levels, we seek to determine how best to provide service to currentlyunserved areas in a costeffective manner. We seek the assistance of state commissions with respect to this issue.  X 4197.` ` We reject the arguments of TCA that the issue of how universal service should be made available in unserved areas is one for state commissions alone; section 214(e)(3) clearly apportions to the Commission the responsibility for designating a carrier to provide  X 4interstate services to unserved areas." Vs yOr'ԍ 47 U.S.C.  214(e)(3) ("If no common carrier will provide [the supported services] to an unserved  {O:'community . . . the Commission, with respect to interstate services, or a State commission, with respect to intrastate services, shall determine which common carrier or carriers are best able to provide such service . . . and shall order such carrier or carriers to provide such service . . . .") (emphasis added). We also agree with the Joint Board that a properly  X 4structured competitive bidding system could have significant advantages.R Vs yOE'ԍ Recommended Decision, 12 FCC Rcd at 265.R We conclude, however, that the record is insufficient, at this time, to support the use of competitive bidding  X4to select carriers for unserved areas.Rf Vs yO'ԍ Recommended Decision, 12 FCC Rcd at 184.R We conclude below that the possibility of using competitive bidding warrants further inquiry and we intend, in cooperation with the Joint  Xb4Board and the state commissions, to undertake this inquiry shortly.Hb Vs {O 'ԍ See infra section VII.C.H  X4' E.` ` Implementation  X4198.` ` The administrator of the universal service support mechanisms shall not disburse funds to a carrier providing service to customers until the carrier has provided, to the administrator, a true and correct copy of the decision of a state commission designating that carrier as an eligible telecommunications carrier. A state commission seeking to alter a rural service area has the choice of either filing itself, or requiring an affected eligible telecommunications carrier to file, a petition with the Commission seeking the latter's"o 0*&&qq" agreement with the newly defined rural service area. We delegate authority to the Common Carrier Bureau to propose and act upon state proposals to redefine a rural service area. J:\MASTER\ELIGIBIL.FIN "p0*&&qq"  X' J:\MASTER\COST.FIN VII. RURAL, INSULAR, AND HIGH COST  X'A.` ` Overview  X4199. ` ` Informed by the further recommendations of the state members of the Joint Board, we implement the Joint Board's recommendations, including a specific timetable for implementation of federal universal service support to rural, insular and high cost areas. As the Joint Board recommended, we today establish that the level of support for service to a particular customer will ultimately be determined based upon the forwardlooking economic cost of constructing and operating the network facilities and functions used to provide that service. As the Joint Board stated, forwardlooking economic cost best approximates the costs that would be incurred by an efficient carrier in the market. Thus, as the Joint Board found, the use of forwardlooking economic cost as the basis for determining support will encourage and permit economically correct levels of entry, investment, and innovation. Use of forwardlooking economic cost helps us to ensure that we are providing the minimum support necessary for efficient provision of the supported services.  Xy4200. ` ` We further adopt the recommendation of the Joint Board that, in determining the amount of federal support, we should subtract a revenue benchmark from the forwardlooking economic cost of providing the supported services, and that the federal universal service mechanisms for rural, insular, and high cost areas should provide support for a portion of the difference between the forwardlooking economic cost and the revenue benchmark. As the Joint Board recommended, the revenue benchmark should take account not only of the retail price currently charged for local service, but also of other revenues the carrier receives as a result of providing service, including vertical service revenue and interstate and intrastate access revenues. Failure to include all revenues received by the carrier could result in substantial overpayment to the carrier. We also conclude that, because residential customers and singleline business customers pay different rates for service, the revenue benchmarks for these groups of subscribers should differ.  XN4201. ` ` We also conclude that the federal universal service mechanisms for rural, insular, and high cost areas will support 25 percent of the difference between the forwardlooking economic cost of providing the supported service and the appropriate revenue benchmark. Twentyfive percent approximates the cost of providing the supported network facilities that have historically been assigned to the interstate jurisdiction, and by funding the interstate costs, we will ensure that federal implicit universal service support is made explicit, consistent with section 254(e).  X"4202. ` ` We do not, by this Order, attempt to identify existing statedetermined intrastate implicit universal service support presently effectuated through intrastate rates or other state decisions, nor do we attempt to convert such implicit intrastate support into explicit federal universal service support. We believe that existing levels of implicit intrastate"Q%q0*&&qq=&" universal service support are substantial. We find, however, that the states, acting pursuant to sections 254(f) and 253 of the Communications Act, must in the first instance be responsible for identifying implicit intrastate universal service support. We believe that, as competition develops, states may be compelled by marketplace forces to convert implicit support to explicit, sustainable mechanisms consistent with section 254(f). As states do so, we will be able to assess whether additional federal universal service support is necessary to ensure that quality services remain available at just, reasonable, and affordable rates. We recognize, however, that we will need to continue to consult with the states as they undertake this process. We will reconvene the Joint Board later this year to provide a working forum for such consultations.  X 4203. ` ` Like the Joint Board, we do not anticipate that all carriers will begin to receive universal service support in rural, insular, and high cost areas based on forwardlooking economic cost at the same time or even in an identical manner. The state Joint Board members favor having a period prior to the activation of a forwardlooking mechanism in which carriers will receive support based on embedded costs. We agree with the state members and therefore adopt such plans for both rural and nonrural carriers. Nonrural carriers will begin to receive support based on forwardlooking economic cost on January 1, 1999. Rural carriers' support will not begin to be based on forwardlooking economic cost until further review. We anticipate that, at the time of such further review, we will set a date when rural carriers will begin to receive support based on forwardlooking economic cost.  X4204. ` ` Consistent with the Joint Board's recommendations, until a carrier begins to receive support based upon forwardlooking economic cost, the carrier will continue to receive support based upon the existing high cost fund, DEM weighting, and LTS programs. As further recommended by the Joint Board, rural carriers would not, on January 1, 2001, shift immediately from support based upon the existing high cost fund, DEM weighting, and LTS programs to support calculated based on forwardlooking economic costs. Rather, consistent with the Joint Board's recommendation, rural carriers would gradually shift to a support system based on forwardlooking economic cost at a date the Commission will set after further review, but in no event starting sooner than January 1, 2001.  X 4205. ` ` We recognize that federal determinations of forwardlooking economic cost must acknowledge state actions taken to meet state obligations imposed by the 1996 Act. Indeed, most states currently are conducting their own proceedings to determine the forwardlooking economic cost of providing interconnection and access to unbundled network elements. States such as California and Pennsylvania that have already concluded universal service proceedings use cost studies to calculate the forwardlooking economic cost of providing universal service. Our determinations of forwardlooking economic cost for the purpose of determining federal universal service support for rural, insular, and high cost areas must be coordinated with these ongoing state proceedings. Failure to do so would risk underfunding universal service or overcompensating carriers in some areas. We also"Q%r0*&&qqe#" recognize, however, that some states may lack the resources to conduct an examination of forwardlooking economic costs for universal service purposes.  X4206. ` ` Accordingly, to determine the appropriate level of federal support for service to rural, insular, and high cost areas, we invite states to submit cost studies consistent with the criteria that we prescribe herein and subject to Commission review and approval. State studies must be based on forwardlooking economic cost, be consistent with the study used for the state universal service program, and not impede the provision of advanced services. We encourage a state to use the same cost methodology to the extent possible for both its universal service program and its pricing of unbundled network elements. To assist the states, we enumerate below criteria for their cost studies. For states that do not elect to conduct their own cost studies, or for states that submit cost studies that do not meet the criteria that we prescribe, we will determine forwardlooking economic cost according to the methodology that we will develop. By the end of June 1997, we will issue a Further Notice of Proposed Rule Making (FNPRM) seeking information to permit us to make our own estimates of forwardlooking economic cost more reliable. The FNPRM will seek comment on a range of issues, and will explore options for a forwardlooking economic cost methodology for calculating high cost support for nonrural carriers, including forwardlooking cost studies and competitive bidding.  X44207. ` ` We agree with the Joint Board and commenters that there are many potential advantages to defining universal service support levels for rural, insular, and high cost areas through the use of a competitive bidding mechanism. We recognize, as did the Joint Board, that competitive bidding could supplement another forwardlooking economic cost methodology in determining the universal service support levels because a properly structured bidding system requires competitors to reveal expected revenue opportunities. Accordingly, we will continue to review competitive bidding systems to determine whether competitive bidding could be used to determine universal service support through marketbased mechanisms.   XN' B.` ` Background  X 4208.` ` Currently there are three mechanisms designed expressly to provide support for  X 4high cost and small telephone companies:F^ Vs {O 'ԍ For a more complete description of the existing universal service support mechanisms, see Common  {OL!'Carrier Bureau, Preparation for Addressing Universal Service Issues: A Review of Current Interstate Support  {O"'Mechanisms (Feb. 23, 1996).F the Universal Service Fund (high cost assistance  X4fundX01Í ÍX0Í Í),  {O$'#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.601 et. seq. the DEM weighting program,   yO'#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b). and LTS. X  yO '#X\  P6G;ɒP#э 47 C.F.R.  69.105, 69.502, 69.603(e), 69.612.#Xj\  P6G;ynXP#ѭ"s 0*&&qq"Ԍ X4ԙ209.` ` For high cost loops,0 $  yO'#X\  P6G;ɒP#э "Subscriber loops" or "loops" are the connection between the telephone company's central office and the  {Oa'customer's premises. In the Local Competition Order, the Commission defined the loop, for unbundling purposes, as "a transmission facility between a distribution frame, or its equivalent, in an ILEC central office,  {O'and the network interface device at the customer premises." Local Competition Order, 11 FCC Rcd at 15,691.0 the jurisdictional separations rules Z  yO '#X\  P6G;ɒP#э The Commission's jurisdictional separations rules are contained in Part 36 of the Commission's rules. 47 C.F.R. Part 36. The rules are designed to allocate property costs, revenues, expenses, taxes and reserves between  {O 'the interstate and intrastate jurisdictions. See 47 C.F.R.  36.1. currently assign 25  X4percent of each ILEC's loop costsu   yO '#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Loop cost is the fixed cost of connecting customers to the ILEC central office. ILECs' local loop costs vary widely due to many factors, including subscriber density, terrain, local exchange size, and labor costs.u to the interstate jurisdiction.N  yO'#X\  P6G;ɒP##X\  P6G;ɒP#э#X\  P6G;ɒP# 47 C.F.R. Part 36.#Xj\  P6G;ynXP# As a result, a portion of each ILEC's local loop costs is recovered through rates charged to its customers for interstate  X4services.Z  yOJ'#X\  P6G;ɒP#э #X\  P6G;ɒP#The access charge rules currently require that these costs be recovered through SLCs and CCL charges. We are, however, revising the access charge structure for ILECs under price cap regulation in a separate  {O'proceeding. See Access Charge Reform Order. ď For ILECs with aboveaverage loop costs, the existing high cost assistance fund mechanism shifts an additional percentage of the loop costs to the interstate jurisdiction and permits those ILECs to recover this incremental allocation from the high cost assistance  Xv4fund.v  yO''#X\  P6G;ɒP#э #X\  P6G;ɒP#The high cost assistance fund is currently administered by NECA. Each ILEC's embedded loop costs determine the support payments the ILEC will receive.  X14210. ` ` Currently, an ILEC is eligible for support if its embedded loop costs for a  X 4given study area exceed 115 percent of the national average loop cost.    yO['#X\  P6G;ɒP#э The national average cost per loop based on yearend data for 1995 was $248.43. Universal Service Fund 1996 Submission of 1995 Study Results by the National Exchange Carrier Association (filed Oct. 1,1996). Therefore, under the existing rules a carrier would have to have loop costs exceeding $285.69 per year ($23.81  yO 'per month) before it would be eligible to receive high cost support funding.#Xj\  P6G;ynXP# ILECs with study  X 4areasg x  yO,#'#X\  P6G;ɒP#э #X\  P6G;ɒP#Carriers perform jurisdictional separations at the study area level. A "study area" is usually an ILEC's  {O#'existing service area in a given state. The term "study area" is defined supra in section VI.B.2.b. g of 200,000 or fewer loops receive a greater percentage of their aboveaverage loop" t0*&&qqB "  X4costs than those with study areas with more than 200,000 loops.X0Í ÍX0Í Í  yOy'#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.631(c), (d). ILECs with study areas of 200,000 or fewer working loops recover from the fund an additional 65 percent of the unseparated cost per loop between 115 percent and 150 percent of the national average cost per loop, multiplied by the number of their working loops. This additional allocation of 65 percent coupled with the 25 percent allocation to the interstate for all carriers means that these companies allocate 90 percent of the loop costs between 115 percent and 150 percent of the national average to the interstate jurisdiction. These carriers receive an additional interstate allocation of 75 percent of the cost per loop that exceeds 150 percent of the national average cost per loop. That additional allocation, coupled with the base 25 percent allocation applicable to all carriers with 200,000 or fewer loops in their study area, means that carriers with loop costs greater than 150 percent of the national average recover 100 percent of their loop costs above 150 percent of the national average from the interstate jurisdiction. In other words, they receive a dollar from the interstate jurisdiction for each dollar of loop costs above 150 percent of the national average loop cost.  X 4211. ` ` For ILECs with study areas of more than 200,000 working loops, the additional interstate allocation of unseparated loop costs recovered from the federal high cost fund is as follows: 10 percent of such costs between 115 percent and 160 percent of the national average, 30 percent of such costs between 160 percent and 200 percent of the national average, 60 percent of such costs between 200 percent and 250 percent of the national average, and 75 percent of such costs in excess of 250 percent of the national average. Today  X4this program is funded entirely by interexchange carriers (IXCs).X0Í ÍX0Í Í&X  yO&'#X\  P6G;ɒP#э #X\  P6G;ɒP#Each IXC with at least .05 percent of presubscribed lines nationwide contributes to the fund an amount based on the number of its presubscribed lines. 47 C.F.R.  69.116.&  X4212.` ` Our jurisdictional separations rules also include a second universal service support mechanism known as DEM weighting, which was designed to support switching costs for small telephone companies. When the DEM weighting mechanism was created, it was assumed that smaller telephone companies have higher local switching costs than larger ILECs because the smaller companies cannot take advantage of certain economies of scale. For ILECs with fewer than 50,000 access lines, the interstate DEM factor is weighted (multiplied by a factor of up to three, depending on the number of lines served by the carrier) to shift what would otherwise be intrastate costs to the interstate jurisdiction. Thus small ILECs assign a greater proportion of these local switching costs to the interstate jurisdiction than  X 4larger ILECs may allocate.   yO#'#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b).#Xj\  P6G;ynXP#Ѹ Currently, DEM weighting assistance is an implicit support mechanism recovered through switched access rates charged to interexchange carriers by those ILECs serving fewer than 50,000 lines. DEM weighting applies independent of, and unrelated"u@0*&&qq" to, the high cost assistance fund.  X4213. ` ` The third support mechanism currently in place is LTS. The LTS program supports carriers with higherthanaverage loop costs by providing carriers that are members of the NECA pool with enough support to enable them to charge a nationwide average CCL  X4interstate access rate.  yO'#X\  P6G;ɒP#э Prior to 1989, all ILECs were required to pool their carrier common line costs and revenues. Beginning in April 1989, ILECs were permitted to withdraw from the pool, but ILECs that choose to exit the pool must contribute enough so that ILECs remaining in the pool would be able to charge the same industry average CCL  {O^ 'rates they would have charged if the pool were still mandatory for all ILECs. See MTS and WATS Market  {O( 'Structure; Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, Report and  {O 'Order, 2 FCC Rcd 2953 (1987). See infra section XII.B.1. Under the current LTS support system, NECA annually projects the common line revenue requirement (which includes an 11.25 percent return on investment) for ILECs that participate in the common line pool. NECA then calculates the average per XH4minute CCL charge that is charged by price cap ILECs,rHF  yO?'#X\  P6G;ɒP#э 47 C.F.R.  69.105(b)(2), (3).r and projects the revenues that ILECs participating in the NECA pool would expect to collect by charging that average CCL  X 4rate.(   {O'#X\  P6G;ɒP#э See MTS and WATS Market Structure: Amendment of Part 67 of the Commission's Rules and  {Ok'Establishment of a Joint Board, Recommended Decision and Order, 2 FCC Rcd 2324; MTS and WATS Market  {O5'Structure: Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, Report and  {O'Order, 2 FCC Rcd 2953 (1987). NECA then computes the total amount of LTS needed by subtracting the amount pooling carriers will receive in SLCs and CCL charges from the pool's projected revenue requirement. LTS is funded by ILECs that do not participate in the common line pool. Nonpooling ILECs' LTS contributions to the pool are set annually based on the total projected amount of LTS, converted to a monthly payment amount. The monthly payments received by the ILEC common line pool members are computed based on the pooling carriers' submissions to NECA of reported cost data (except for average schedule companies, whose monthly payments are based on average schedule data). As a result, each participating pool member does not receive an "LTS payment," but instead receives a payment from the "pooled" common line revenues. Nonpooling ILECs recover the LTS payments they make through their CCL charge to IXCs.  X4214.` ` The Joint Board recommended that the amount of support a carrier receives for providing service in rural, insular, and high cost areas be calculated by subtracting a benchmark amount from the cost of service for a particular geographic area. The Joint Board recommended that the cost of service be determined by a forwardlooking economic cost  X4model.  X!%4ԍ #X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 185. The Joint Board found that, in order to ensure that universal service support"vw 0*&&qq" mechanisms send the correct signals for entry, investment, and innovation in the long run, the Commission should use forwardlooking economic cost as the basis for determining support  X4levels.|  XK4ԍ#X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 23132.| Consequently, the Joint Board recommended basing universal service support for eligible carriers on the forwardlooking economic cost of building and operating the network needed to provide the services included in the list of services recommended for universal service support pursuant to section 254(c)(1).  X_4215. ` ` The Joint Board stated that, in principle, using cost estimates generated by a  XH4model is a reasonable technique for determining forwardlooking costs.Hy  Xr 4ԍ#X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 23132. The Joint Board discussed the three cost models that had been presented during the proceeding but did not  X 4endorse a specific model.9G *  X4ԍ#X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 229, 234. The BCM, BCM2, CPM, and Hatfield Version 2.2,  {O'Release 2, models were submitted to the Joint Board for its consideration. Id. at 23334. For a discussion of the  {O'BCM, BCM2, CPM, and Hatfield 2.2.2 models, see id. at 21729. Appendix F of the Recommended Decision  {Or'contained a review of the models. See Recommended Decision, 12 FCC Rcd at 529, App. F.9 The Joint Board concluded that, before a specific model could be selected, several issues would need to be resolved, including how the various assumptions regarding basic input levels among the models were determined, which input levels were reasonable, what the relationships were among the inputs, why certain functionalities included in one model were not present in the other models, and which of the unique set of  X 4engineering design principles for each model were most reasonable. 9  X4ԍ#X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 234.  Xy4216. ` ` Although it recommended using forwardlooking economic costs calculated by using a cost model to determine high cost support for all eligible telecommunications carriers, the Joint Board found that the models as proposed could not precisely calculate small, rural  X44carriers' costs.4  X4ԍ#X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 23435.#Xj\  P6G;ynXP#ѩ The Joint Board therefore recommended that rural carriers not use a cost model immediately to calculate their support for serving rural high cost areas, but rather shift  X4to a model over six years.8  XR!4ԍ#X\  P6G;ɒP# The Joint Board recommended that the Commission define "rural" as those carriers that meet the  yO;"'statutory definition of a "rural telephone company." 47 U.S.C.  153(47).#Xj\  P6G;ynXP#8 The Joint Board recommended that, for three years, starting on January 1, 1998, high cost assistance, DEM weighting, and LTS benefits for rural carriers be fixed based on historical perline amounts. Rural carriers would then shift over a three-year period beginning January 1, 2001 to a mechanism for calculating support based on a cost"w0*&&qq"  X4model.   Xy4ԍ#X\  P6G;ɒP# The Joint Board recommended that, beginning in the year 2001, and through the year 2003, that calculation of support be gradually shifted to a forwardlooking economic cost methodology. In the year 2001, support would be based on 75 percent fixed levels and 25 percent cost model; in 2002, support would be based on 50 percent fixed levels and 50 percent cost model; in 2003, support would be based on 25 percent fixed levels and 75 percent cost model. Beginning in 2004, support would be calculated solely on a forwardlooking  yO'economic cost methodology. Recommended Decision, 12 FCC Rcd at 236237.#Xj\  P6G;ynXP# The Joint Board recommended that, prior to the transition, the Commission work with the state commissions to review the model to ensure that the Commission considers the  X4unique situations of rural carriers.!a  X 4ԍ #X\  P6G;ɒP#Recommended Decision, 12 FCC Rcd at 235.#Xj\  P6G;ynXP#Ѧ The Joint Board also concluded that, due to the unique nature of providing service in Alaska and insular areas, rural carriers serving those areas should not be shifted to a forwardlooking cost methodology pending further review.  Xv4217. ` ` The Joint Board recommended that the benchmark used to calculate the support eligible telecommunications carriers would receive for serving rural, insular, and high cost  XH4areas be based on nationwide average revenue per line."H  X 4ԍ #X\  P6G;ɒP#Recommended Decision, 12 FCC Rcd at 246. #Xj\  P6G;ynXP#ѡ In addition, because it recommended that only primary residential and singleline business connections be supported, with singleline businesses receiving less support, the Joint Board recommended defining two  X 4benchmarks, one for residential service and a second for singleline business service.#  Xw4ԍ #X\  P6G;ɒP#Recommended Decision, 12 FCC Rcd at 247.#Xj\  P6G;ynXP#Ѧ According to the Joint Board, revenues per line are the sum of the revenue generated by local,  X 4discretionary,*$ t  X4ԍ #X\  P6G;ɒP# Discretionary services include services that may be added, at the user's option, to basic local service,  yO'such as call waiting, call forwarding, and caller ID.#Xj\  P6G;ynXP#* access services and "others as found appropriate," divided by the number of  X 4loops served.%  X\4ԍ #X\  P6G;ɒP#Recommended Decision, 12 FCC Rcd at 246.#Xj\  P6G;ynXP#Ѡ The Joint Board found that including revenues from those services would be consistent with the cost estimation process used in the models submitted to determine the cost  X4of service in high cost support areas.q&y  X4ԍ #X\  P6G;ɒP# Recommended Decision, 12 FCC Rcd at 246 (citing letter from Glenn Brown, U S West, to William F. Caton, FCC, dated Sep. 4, 1996, and letter from Richard N. Clarke, AT&T, to William F. Caton, FCC, dated  yO!'Sep. 10, 1996.)#Xj\  P6G;ynXP#q  Xy4#X\  P6G;ɒP#X0Í ÍX0Í Í#Xj\  P6G;ynXP#  Xb4218. ` ` On January 9, 1997, the Common Carrier Bureau released a staff analysis on the use of models for estimating forwardlooking economic cost and sought comment on the"Kx&0*&&qqx"  X4issues raised in the paper.' {Oy'ԍ See Public Notice, Commission Staff Releases Analysis of Forwardlooking Economic Cost Proxy Models, DA 9756 (rel. Jan. 9, 1997). The staff presented a detailed analysis of the structure and input requirements of the cost models that had been submitted to the Commission and Joint Board  X4for consideration.(" yO'ԍ The Use of Computer Models for Estimating Forwardlooking Economic Costs: A Staff Analysis (Jan. 9, 1997) at 47. The staff also raised several questions about the potential uses of models in several proceedings pending before the Commission, including this proceeding on universal service. The staff noted that the Joint Board had already recommended that the submitted  X4models undergo refinement before they were used to set universal service support levels.)z yO 'ԍ The Use of Computer Models for Estimating ForwardLooking Economic Costs: A Staff Analysis (Jan. 9, 1997) at 56. The Bureau sought comment on the different design assumptions that can or should be used in  X_4models when used for different purposes.*_ {O'ԍ See Public Notice, Commission Staff Releases Analysis of Forwardlooking Economic Cost Proxy Models, DA 9756 (rel. Jan. 9, 1997).  X14219. ` ` Pursuant to the Joint Board's recommendation that we work with the state commissions to develop an adequate cost model to calculate forwardlooking economic cost, on January 14 and 15, 1997, the federal staff of the Joint Board conducted workshops on the cost models on record in this proceeding. In a Public Notice issued on December 12, 1996,  X 4the staff announced the workshop and invited parties to submit cost models for discussion.+ ,  {O'ԍ See Public Notice, FederalState Joint Board on Universal Service: Staff to Hold Workshops on Proxy Cost Models on January 1415, 1997, CC Docket 9645, DA 962091 (rel. Dec. 12, 1996). In response to the Public Notice, parties submitted three cost models: (1)the Benchmark Cost Proxy Model (BCPM) was submitted by U S West, Sprint, and Pacific Bell; (2) the Hatfield Model, Version 2.2, Release 2, developed by Hatfield Associates, was submitted by AT&T and MCI; and (3) the Telecom Economic Cost Model (TECM), developed by Ben Johnson  Xb4Associates, Inc., was submitted by the New Jersey Ratepayer Advocate.,Zb  {O'ԍ See Public Notice, FederalState Joint Board on Universal Service: Agenda and Panelists Announced for Staff Workshops on Proxy Cost Models on January 1415, 1997, CC Docket 9645, DA 9760 (rel. Jan. 9, 1997) ("January9 Public Notice"). The workshops consisted of four round table discussions by representatives of the industry and the public on issues relating to the selection of a cost model for determining the cost of providing the"4y,0*&&qq."  X4services supported by the universal service support mechanism.x-Z yOy'ԍ The list of participants on each panel was set forth in the January 9 Public Notice. A transcript of the  {OA'workshop was prepared by USTA and placed into the record or this proceeding. See Letter from Porter E. Childers, USTA, to William F. Caton, FCC, dated Jan. 29, 1977, attachment ("Workshop Transcript").x  X4220. ` ` On March 26, 1997, the state members of the Joint Board filed a report with the Commission discussing their recommendations on a number of issues related to the use of  X4a model to calculate the cost of providing the supported services.. {O? 'ԍ See Letter from Kenneth McClure, Chair, State Members of the FederalState Joint Board on Universal Service, to Reed E. Hundt, FCC (dated Mar. 26, 1997). Although acknowledging remaining problems with the models, the state members recommend that the Commission select one model as the one to determine universal service support in this Order in order to  X_4focus the efforts of industry participants and regulators./_D yOT'ԍ State Members' Report on the Use of Cost Proxy Models, dated Mar. 26, 1997 ("State High Cost Report") at 1. The state members recommend that the Commission adopt a threeyear phasein for the use of a model by nonrural carriers to  X14allow evaluation of the model's accuracy.L01 yO~'ԍ State High Cost Report at 4.L The state members also recommend that the Commission and Joint Board members and staff work with the administrator to monitor the  X 4use of the model.L1 ,  yO'ԍ State High Cost Report at 5.L  X 4221. ` ` The state members recommend that, rather than the recommendation of the Joint Board, the Commission adopt an industry proposal regarding the determination of support for rural carriers before those carriers move to support based on a forwardlooking  X4economic cost methodology.]2^  {O'ԍ See Letter from Porter Childers, USTA, to William F. Caton, FCC, dated Feb. 14, 1997 (ILEC  {O'Associations' February 14  ex parte); Letter from Porter Childers, USTA, to William F. Caton, FCC, dated Mar.  {O'13, 1997 (ILEC Associations' March 13 ex parte).] The state members further recommend that, during the period before rural carriers begin to draw support based solely on a model, each carrier continue to receive support based on all of the carrier's working lines, and not just its primary residential  XK4and singleline business lines.F3K yO!'ԍ State High Cost Report at 3.F The state members also depart from the Joint Board recommendation in recommending that rural carriers not be allowed to elect to draw support solely based on forwardlooking economic cost until January 1, 2001, when all rural carriers would begin using a forwardlooking economic cost methodology for calculating their high"zr30*&&qq"  X4cost support.L4 yOy'ԍ State High Cost Report at 4.L  X4222. ` ` On April 21, 1997, a majority of the state members of the Joint Board filed a second report with the Commission regarding the selection of a cost model and a benchmark  X4to be used with the model.5X yO'ԍ Majority State Members' Second Report on the Use of Cost Proxy Models, dated Apr. 21, 1997 ("Majority State Members' Second High Cost Report"). In this report, three of the five state members of the Joint Board recommend that the Commission narrow its focus to the BCPM as the best platform at  Xv4this time from which to make revisions.e6v yO 'ԍ Majority State Members' Second High Cost Report at 7.e The majority state members assert, however, that the recommendation to select the BCPM is not a wholesale endorsement of all aspects of the  XH4model,e7H@ yO9'ԍ Majority State Members' Second High Cost Report at 8.e and discuss several aspects of the model, including the line counts used and the  X14dispersion of loops within a CBG,81 yO'ԍ A census block group is a geographic area defined by he Bureau of the Census which contains approximately 400 households. that they state will need to be refined before it is used.h91(  yO 'ԍ Majority State Members' Second High Cost Report at 913.h Two state members of the Joint Board, however, dissent from the report's recommendation of the BCPM, and assert that convincing evidence is lacking for the selection of either BCPM or  X 4the Hatfield 3.1 as the appropriate model.:  yOU'ԍ Dissenting Statement of Chairman Julia Johnson and Chairman Sharon Nelson, dated Apr. 22, 1997 ("Johnson/Nelson Dissent") at 1. The majority of the state members reiterate that the Commission should adopt a threeyear phasein for nonrural carriers, and state that such a transition would allow for evaluation of the accuracy of the model and continued examination  X 4of other methods of calculating universal service support.f;  yOh'ԍ Majority State Members' Second High Cost Report at 15.f These state members of the Joint Board depart from the Joint Board recommendation that a nationwide average revenue benchmark be used, and recommend the use of a benchmark based on the national average  Xb4cost of service as determined by the BCPM.f<b yO!'ԍ Majority State Members' Second High Cost Report at 14.f   X4' C.` ` Universal Service Support Based on ForwardLooking Economic Cost  X'` ` 1. Overview "{0<0*&&qq6"Ԍ X4ԙ223. ` ` We agree with the Joint Board's recommendation that federal support should be calculated by determining the forwardlooking economic cost of providing the supported services reduced by a nationwide revenue benchmark calculated on the basis of average revenue per line. Forwardlooking economic cost will be determined at the state's election according to stateconducted forwardlooking economic cost studies approved by the Commission, or cost models developed by the Commission, in consultation with the Joint Board. We further determine that, once we calculate the difference between forwardlooking economic cost and the nationwide revenue benchmark, federal support will be 25 percent of that amount, corresponding to the percentage of interstate allocated loop costs. We will continue to consult with states, individually and collectively, to determine whether additional federal universal service support will be necessary to replace existing intrastate implicit universal support so that rates remain "just, reasonable and affordable."  X '` ` 2. Scope of Costs to be Supported  X 4224. ` ` Use of ForwardLooking Economic Cost. We agree with the Joint Board's recommendation that the proper measure of cost for determining the level of universal service support is the forwardlooking economic cost of constructing and operating the network facilities and functions used to provide the supported services as defined per section  XK4254(c)(1).;=XK yO'ԍ Recommended Decision, 12 FCC Rcd at 23032. In using the term "forwardlooking economic cost," we mean the cost of producing services using the least cost, most efficient, and reasonable technology currently available for purchase with all inputs valued at current prices.; We agree with the Joint Board and many commenters that, in the long run, forwardlooking economic cost best approximates the costs that would be incurred by an  X4efficient carrier in the market.> {O'ԍ Recommended Decision, 12 FCC Rcd at 230. See, e.g., ITAA comments at 2; Texas PUC comments at 5; Chicago reply comments at 13. We concur with the Joint Board's finding that the use of forwardlooking economic costs as the basis for determining support will send the correct  X4signals for entry, investment, and innovation.?B {O'ԍ See Business Software Alliance comments at 910; CNMI Representative comments; MCI reply comments at 2.  X4225. ` ` We agree with the Joint Board that the use of forwardlooking economic cost will lead to support mechanisms that will ensure that universal service support corresponds to the cost of providing the supported services, and thus, will preserve and advance universal service and encourage efficiency because support levels will be based on the costs of an  Xe4efficient carrier.\@e {O$'ԍ See Recommended Decision, 12 FCC Rcd at 232.\ Because forwardlooking economic cost is sufficient for the provision of the supported services, setting support levels in excess of forwardlooking economic cost"N|. @0*&&qq" would enable the carriers providing the supported services to use the excess to offset inefficient operations or for purposes other than "the provision, maintenance, and upgrading of  X4facilities and services for which the support is intended."@A yOK'ԍ 47 U.S.C.  254(e).@ This excess, by increasing the burden on all contributors to the support mechanisms, would also unnecessarily reduce the demand for other telecommunications services.  Xv4226. ` ` We also agree with the Joint Board that a forwardlooking economic cost  X_4methodology is the best means for determining the level of universal service support.XB_X yOh 'ԍ Recommended Decision, 12 FCC Rcd at 184.X We find that a forwardlooking economic cost methodology creates the incentive for carriers to operate efficiently and does not give carriers any incentive to inflate their costs or to refrain from efficient costcutting. Moreover, a forwardlooking economic cost methodology could be designed to target support more accurately by calculating costs over a smaller geographical area than the cost accounting systems that the ILECs currently use. We note that California, Ohio, and Pennsylvania are using forwardlooking economic cost studies for determining  X 4support levels in their intrastate universal service programs.%C~  {OW'ԍ See Cal. P.U.C. R.9501020/I.9501021 (Oct. 25, 1996); Public Utility Commission of Ohio, Commission Investigation Into the Establishment of Local Exchange Competition and Other Competitive Issues,  {O'Entry on Rehearing, Case No. 95845TPCOI (Nov. 7, 1996); Pennsylvania Public Utility Commission, Formal Investigation to Examine and Establish Updated Universal Service Principles and Policies for  {O{'Telecommunications Services in the Commonwealth, Opinion and Order, Docket No. I00940035 (entered Jan. 28, 1997). As discussed below, most states are also currently using forwardlooking economic cost studies in proceedings to set interconnection rates for pricing access to unbundled network elements. %   X4227. ` ` Embedded Cost. Several ILECs have asserted that only a universal service  Xy4mechanism that calculates support based on a carriers embedded cost,DZy.  yOX'ԍ The term "embedded cost" refers to a carrier's historic loop or switching costs. The Joint Board used  {O '"embedded cost" as a synonym for the terms "booked cost" and "reported cost." See Recommended Decision, 12 FCC Rcd at 185 n.600., will provide sufficient  Xb4support.EbP  {Oc'ԍ See, e.g., Minnesota Coalition comments at 17; ITC reply comments at 5; SBC reply comments at 11. As we discussed above, we agree with the Joint Board that the use of forwardlooking economic cost will provide sufficient support for an efficient provider to provide the supported services for a particular geographic area. Thus, for the reasons articulated by the Joint Board, we conclude that the universal service support mechanisms should be based on  X4forwardlooking economic cost, and we reject the arguments for basing the support  X4mechanisms on a carrier's embedded cost.F {O%'ԍ  See, e.g., Ameritech comments at 10; Roseville Tel. Co. comments at 11; SBC reply comments at 9. "}tF0*&&qq"Ԍ X4ԙ228. ` ` As the Joint Board recognized, to the extent that it differs from forwardlooking economic cost, embedded cost provide the wrong signals to potential entrants and  X4existing carriers.\G {OK'ԍ See Recommended Decision, 12 FCC Rcd at 232.\ The use of embedded cost would discourage prudent investment planning because carriers could receive support for inefficient as well as efficient investments. The Joint Board explained that when "embedded costs are above forwardlooking costs, support of embedded costs would direct carriers to make inefficient investments that may not be  Xv4financially viable when there is competitive entry."XHvZ yO 'ԍ Recommended Decision, 12 FCC Rcd at 232.X The Joint Board also explained that if embedded cost is below forwardlooking economic cost, support based on embedded costs would erect an entry barrier to new competitors, because revenue per customer and support, together, would be less than the forwardlooking economic cost of providing the supported services. Consequently, we agree with the Joint Board's conclusion that support based on  X 4embedded cost could jeopardize the provision of universal service.XI  yO'ԍ Recommended Decision, 12 FCC Rcd at 232.X We also agree with CPI that the use of embedded cost to calculate universal service support would lead to subsidization of inefficient carriers at the expense of efficient carriers and could create  X 4disincentives for carriers to operate efficiently.LJ z {O'ԍ See CPI reply comments at 4.L  X4229. ` ` We also decline to adopt Bell Atlantic's proposal to use stateaveraged  Xy4embedded line cost for setting universal service support levels.TKy  {O6'ԍ See Bell Atlantic comments at 1213.T Under this proposal, states would receive universal service support if the statewide average cost for all carriers in that  XK4state exceed the nationwide average.WLK {O'ԍ See Bell Atlantic NPRM comments at 89.W By recommending the use of forwardlooking economic cost to establish universal service support levels, the Joint Board did not accept this proposal. Even though the use of stateaveraged costs might lessen disincentives for efficient operation and investment present in the existing universal service mechanisms as Bell Atlantic claims, we do not find that Bell Atlantic's particular proposal would eliminate those disincentives. In addition, support flows under this proposal would not target support to carriers serving high cost areas in states with low average embedded cost. That is, a carrier that serves high cost areas may not receive support for those areas, if the cost of serving other low cost areas in the state results in a low overall average cost of serving the state as a whole.  Xe4230. ` ` "Legacy" Cost. Several commenters assert that the use of forwardlooking economic cost necessitates the establishment of a separate mechanism to reimburse ILECs for"N~0 L0*&&qq"  X4their "legacy cost,"hMX yOy'ԍ PacTel defines "legacy" cost as "the costs associated with recovery (and in the interim, return on investment) for past investments in plant and equipment, previously found to be used and useful and includable in the ratebase for the purposes of providing regulated telecommunications services." PacTel comments at 6.h which they define to include the underdepreciated portion of the plant  X4and equipment.lN yO'ԍ GTE comments at 31; PacTel comments at 8; U S West comments at 11.l PacTel contends that moving to support mechanisms based on forwardlooking economic cost would renege on a longstanding agreement between regulators and  X4carriers regarding the recovery of the latter's costs.AOx yO 'ԍ PacTel comments at 68.A Several ILECs further contend that unless we explicitly provide a mechanism for them to recover their underdepreciated costs, the use of forwardlooking economic cost to determine universal service support would  Xv4constitute a taking under the Fifth Amendment.Pv {O/'ԍ See, e.g., Ameritech comments, att. at 4; GTE comments at 42; Western Alliance comments at 2627. No carrier, however, has presented any specific evidence that the use of forwardlooking economic cost to determine support amounts will deprive it of property without just compensation. Indeed, the mechanisms we are creating today provide support to carriers in addition to other revenues associated with the  X 4provision of service.Q  {Oe'ԍ The issues related to legacy costs will be addressed in the Access Reform Proceeding.  See Access  {O/'Charge Reform Order at section I.   X 4231. ` ` Construction Costs. U S West proposes to establish a separate support mechanism for the cost of constructing facilities. Under U S West's proposal, the carrier that first constructed the facility to serve an end user would receive support for its construction costs, even if the end user switched to another carrier. The second carrier to serve the end  X4user would receive support only for its operational expenses.ER  yO7'ԍ U S West comments at 1113.E Under the U S West proposal, only the carrier that constructed first, generally an ILEC, except in currently unserved areas, would receive support to cover the facilities' construction costs. We observe that allowing only the ILEC to receive support for the construction of the facilities used to provide universal service would, however, discourage new entrants from constructing additional facilities in high cost areas, thereby discouraging facilitiesbased competition, in contravention of Congress's explicit goals. Further investigation is needed to determine whether there are special circumstances, such as the need to attract carriers to unserved areas or to upgrade facilities, in which it may or may not be reasonable to compensate onetime costs with onetime payments. Because we believe this issue should be examined further, we will consider this proposal in a future proceeding. " R0*&&qq9"Ԍ X'` ` 3.  Determination of ForwardLooking Economic Cost For NonRural Carriers(#  X4  X4232. ` ` Having adopted the Joint Board recommendation that universal service support be based upon forwardlooking economic cost, we next consider how such cost should be determined. The Joint Board found that cost models provide an "efficient method of determining forwardlooking economic cost, and provide other benefits, such as the ability to determine costs at smaller geographic levels than would be practical using the existing cost  XH4accounting system."RSH yO 'ԍ Recommended Decision, 12 FCC Rcd at 230.R The Joint Board also found that because they are not based on any individual company's costs, cost models provide a competitively neutral estimate of the cost  X 4of providing the supported services.RT X yO# 'ԍ Recommended Decision, 12 FCC Rcd at 232.R Based on those conclusions, the Joint Board recommended that the amount of universal service support a carrier would receive should be calculated by subtracting a benchmark amount from the cost of service for a particular  X 4geographic area, as determined by the forwardlooking economic cost model.XU  yOn'ԍ Recommended Decision, 12 FCC Rcd at 185.X  X 4233. ` ` The Joint Board discussed the three cost models that had been presented to it  X4during the proceeding, but did not endorse a specific model.Vx yO'ԍ Recommended Decision, 12 FCC Rcd at 229, 234. The Benchmark Cost Model (BCM), the Benchmark Cost Model 2 (BCM2), the Cost Proxy Model (CPM), and Hatfield Version 2.2, Release 2, models were  {OI'submitted to the Joint Board for its consideration. Id. at 23334. For a discussion of the BCM, BCM2, CPM,  {O'and Hatfield 2.2.2 models, see id. at 21729. Appendix F of the Recommended Decision contained a review of  {O'the models. See Recommended Decision, 12 FCC Rcd at 529, app. F.#Xj\  P6G;ynXP#ф The Joint Board concluded that, before a specific model could be selected, several issues would need to be resolved, including how the various assumptions among the models regarding basic input levels were determined, which input levels were reasonable, what were the relationships among the inputs, why certain functionalities included in one model were not present in the other models, and which of the unique set of engineering design principles for each model were most  X4reasonable.RW.  yO'ԍ Recommended Decision, 12 FCC Rcd at 234.R   X4234. ` ` Three different forwardlooking cost models were submitted to the Commission for consideration in response to the January 9 Public Notice: the BCPM; the Hatfield model;  X4and the TECM.X  yO%'ԍ A description of each of the models, as submitted to the Commission, is included in Appendix J. These three models use many different engineering assumptions and input"N X0*&&qq5"  X4values to determine the cost of providing universal service.!YX yOy'ԍ We intend to discuss the models, and the areas in which they need refinement, more fully in the FNPRM. At that time we will seek comments on these and other issues regarding the models, such as structure sharing, expenses, and depreciation rates.! For example, Hatfield 3.1 uses loading coils in its outside plant to permit the use of longer copper loops, thereby reducing  X4the amount of fiber required for outside plant.Z$ {Ok'ԍ See Letter from Richard N. Clarke, AT&T, to William F. Caton, FCC, dated Feb. 28, 1997 (Hatfield Feb. 28 Submission). A loading coil is an induction device generally used with loops longer than 18,000 feet,  {O'that compensates for wire capacitance and boosts voice grade frequencies. See Newton's Telecom Dictionary (7th ed. 1994) at 61112. In contrast, the BCPM relies more heavily on fiber and avoids the use of loading coils; this assumption increases the cost of service that  X4BCPM predicts.[ {O) 'ԍ See Letter from Alan Ciamporcero, Pacific Telesis, Warren Hannah, Sprint, and Glenn Brown, U S West, to Office of the Secretary, FCC, dated Jan. 31, 1997 (BCPM Jan. 31 Submission). Another example is that Hatfield designs the interoffice network required to provide local service in a multiple switch environment, while the BCPM accounts for this  Xv4interoffice service by allowing the user to input a switch investment percentage.h\v.  {OU'ԍ See BCPM Jan. 31 Submission; Hatfield Feb. 28 Submissionh  XH4235. ` ` There has been significant progress in the development of the two major models the BCPM and Hatfield 3.1 since the Joint Board made its recommendation. For example, the ability of both models to identify which geographic areas are high cost for the provision of universal service has been improved. The BCPM uses seven different density groups, rather than the six zones used in the BCM2, to determine for a given CBG the mixture of aerial, buried, and underground plant, feeder fill factors, distribution fill factors, and the mix of activities in placing plant, such as aerial placement or burying, and the cost  X 4per foot to install plant.P]  yO'ԍ BCPM Jan. 31 Submission at 120.P Hatfield also increased the number of density zones, going from  X4six density zones in Hatfield Version 2.2.2 to nine in Hatfield 3.1.?^P  yO'ԍ The highest density zone in Hatfield 2.2.2 greater than 2,500 lines per square mile has been broken into three zones for Hatfield 3.1 2,5505,000, 5,00110,000, and more than 10,000 lines per square mile to better differentiate dense suburban from dense downtown areas. The second lowest density zone in Hatfield 2.2.2, 5200 lines per square mile, was divided into two zones, 5100 and 101200 lines per square mile, to provide more finegrained distinctions within low density areas. Hatfield Feb. 28 Submission at 8.?  Xb4236. ` ` Other areas where the BCPM and Hatfield models have made advancements during this proceeding include assigning CBGs to the correct wire centers, the inclusion of costs associated with general support facilities, and recognition of multitenant housing. Previous versions of the models assigned CBGs to the closest serving wire center. BCPM"^0*&&qq " associates the CBG with the wire center that actually serves the center point or centroid of the  X4CBG.R_ {Ob'ԍ See BCPM Jan 31 Submission at 3. R Hatfield 3.1 assigns each CBG to a wire center based on analysis of the NPANXXs  X4in the CBG.`Z {O'ԍ See Hatfield feb 28 Submission at 8. An NPANXX is a designation for the area code (NPA) and central office (NXX) numbers. Although BCM2 omitted capital costs and expenses associated with general  X4support facilities, these costs are now included in BCPM.\a {O 'ԍ See BCPM Jan. 31 Submission, att. 9 at 131. \ The Hatfield 3.1 model includes  X4support capital cost and associated expenses for all of the general support asset accounts.KbF yO 'ԍ Hatfield Feb. 28 Submission at 9.K Hatfield 2.2 had omitted the cost associated with motor vehicles and other work equipment. The distribution algorithms of both models also have been enhanced to calculate the impact of multitenant housing on the amount of cable needed in the distribution network. In general, as more households are in multi-tenant units rather than singlefamily dwellings, the amount of cable required to serve the households decreases. These enhancements required changes in the mathematical relationships within the model and the gathering of additional data to be  X 4used as inputs to the enhanced algorithm.yc  yO'ԍ BCPM Jan. 31 Submission, att. 9, app. B at 6; Hatfield Feb. 28 Submission at 9.y  X 4237. ` ` Another necessary requirement to identify high cost areas is the ability to determine the distribution of customers within the geographic area being examined. BCM and Hatfield 2.2.2 used a uniform distribution algorithm to locate customers within a CBG, the  X4geographic area used by the models.JdXf  yO'ԍ MCI Communications, Inc., NYNEX Corporation, Sprint/United Management Co., and U S West, Inc., Benchmark Costing Model: A Joint Submission, Copyright 1995, CC Docket No. 80286, filed December 1, 1995. Letter from Richard N. Clarke, AT&T, to William F. Caton, FCC, dated August 27, 1996.J This model assumes that customers are distributed evenly across the entire CBG area. Improving the accuracy of the models with regard to customer location should generate better estimates of the amount of outside cable required to serve the customers and, therefore, better estimates of the cost of the outside plant.  X4238. ` ` In response to criticisms of BCM, the BCM2 altered the customer distribution algorithm for lowdensity CBGs. The BCM2 did not alter the uniform distribution assumption, but reduced the area of the CBG in size by eliminating all segments of the CBG  X4that do not fall within 500 feet of the road network.e  yO$'ԍ Letter from Warren Hannah, Sprint, to William F. Cation, FCC, dated July 15, 1996, attachment. BCPM incorporates the BCM2 customer distribution algorithm without change. Each CBG consists of a number of census blocks (CBs), and using the CB data would allow the model to match the estimated customer"e0*&&qq" location to actual locations with greater accuracy than relying on more aggregated CBG data.  X4The BCPM proponents plan to revise the algorithm to reflect CB data.Gf yOb'ԍ BCPM Jan. 31 Submission at 3.G  X4239. ` ` Hatfield 3.1 replaces the Hatfield 2.2.2 uniform distribution assumption with a clustering algorithm. The algorithm first determines the empty space within each CBG as the area in empty CBs. The algorithm then reduces the size of each area served by subtracting the calculated empty space area from the total area. In low population density CBGs, the algorithm clusters 85 percent of the population within a town rather than assuming that the population is distributed uniformly throughout the remaining CBG area. Finally, in extremely high population density CBGs, the algorithm assumes that the population lives in multiunit  X 4dwellings.Og X yO# 'ԍ Hatfield Feb. 28 Submission at 2931.O  X 4240. ` ` While acknowledging remaining problems with the models in their report to the Commission, the state members of the Joint Board recommend that the Commission reject the TECM and select in this Order one of the remaining models to determine the needed level of  X 4universal service support in order to focus the efforts of industry participants and regulators.h  yO@'ԍ State High Cost Report at 1. The state members recommended that the TECM be excluded from consideration. Specifically, three of the state members recommend that the Commission select the BCPM as  Xy4the platform from which to seek further refinement to the modeling process.iy@ {Oj'ԍ See Majority State Members' Second High Cost Report at 1, 7; contra Johnson/Nelson Dissent. The state  Xb4members of the Joint Board recommend that the nonrural carriers move to the use of a model  XK4over a threeyear period. According to the state members, such a period will allow for continued evaluation of the model's accuracy and permit any needed improvements to be  X4made before nonrural carriers receive support based solely on the model.ej yO'ԍ Majority State Members' Second High Cost Report at 4.e The state members of the Joint Board also recommend that the Commission and Joint Board members  X4and staff work with the administrator to monitor the use of the model.ekb  yO 'ԍ Majority State Members' Second High Cost Report at 5.e  X4241. ` ` As we discussed previously, we agree with the Joint Board's recommendation that we should base universal service support for eligible telecommunications carriers on the forwardlooking economic cost of constructing and operating the network used to provide the" k0*&&qq9"  X4supported services.Ul yOy'ԍ Recommended Decision, 12 FCC Rcd at 23032.U We agree with the state members that the TECM should be excluded from further consideration for use as the cost model because the proponents have never provided nationwide estimates of universal service support using that model. We also agree with the state members that there are many issues that still need to be resolved before a cost  X4model can be used to determine support levels.imX {O'ԍ See Majority State Members' Second High Cost Report at 9.i In particular, the majority state members note that the model input values should not be accepted. Instead, they suggest specific input values for the cost of equity, the debtequity ratio, depreciation lives, the cost of switches, the  X_4cost of digital loop carrier equipment and the percentage of structures that should be shared.sn_ {O 'ԍ See Majority State Members' Second High Cost Report at app. a, 15.s The majority state members are also concerned with the models' logic for estimating building costs. They see no justification for tying building costs to the number of switched lines as Hatfield 3.1 does and they suggest that using BCPM's technique of estimating building costs  X 4as a percent of switch costs is not logical.mo | {O0'ԍ See Majority State Members' Second High Cost Report at 1213.m In light of the wide divergence and frequent changes in data provided to us, we agree with the recommendation of the dissenting state members of the Joint Board that we cannot at this time reasonably apply either of the models currently before us to calculate forwardlooking economic costs of providing universal  X 4service.p"  {Of'ԍ See Johnson/Nelson Dissent at 1. See also letter Cheryl L. Parino, Wisconsin PSC, to FCC Commissioners, dated Apr. 28, 1997, at 1 ("I agree with Joint Board Commissioner Julia Johnson that none of the proxies in this proceeding is ready for use."); letter from Roger Hamilton, Joan H. Smith, and Ron Eachus, Oregon PUC, dated Apr. 18, 1997, at 2 ("[T]he FCC should not adopt a model at this time.").  Xy4242. ` ` The proposed cost models also use widely varying input values to determine the cost of universal service, and in many cases the proponents have not filed the underlying justification for the use of those values. For example, BCPM no longer uses ARMIS expenses as the basis for its expense estimates. Instead, BCPM bases expenses on a survey of  X4eight ILECs.pq"  yO' I. 1. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)ҍ BCPM Jan. 31 Submission, att. 10 at 155157. For example, BCPM includes a $2.76 perline cable and wire maintenance expense as compared to BCM2, which set cable and wire plant specific expenses equal to 6.76  {OV!'percent of model investment. See BCPM Jan. 31 submission, att. 10 at 157; Letter from Warren D. Hannah, Sprint, and Glenn H. Brown, U S West, to William F. Caton, dated Aug. 22, 1996, att. 17.p Neither the survey instrument nor the individual carrier responses to the survey have been filed with the Commission. The proponents have not provided supporting"q0*&&qq"  X4information underlying their determinations of expenses.rX yOy'ԍ The expenses calculated by the cost methodologies include plant specific expenses such as the maintenance of facilities and equipment and plant nonspecific expenses such as marketing, customer operations, and general corporate overhead.  This lack of support fails to meet the Joint Board's criterion for evaluation that the underlying data and computations should be  X4available to all interested parties.s {Ok'ԍ See Recommended Decision, 12 FCC Rcd at 233. See also Majority State Members' Second High Cost Report at 56. We agree with the state members of the Joint Board that this lack of support makes it impossible to determine whether the estimated expenses are the  X4minimum necessary to provide service.tB {O 'Ѝ State High Cost Report at 19. See also Majority State Members' Second High Cost Report at 56, 13; Johnson/Nelson Dissent at 12. The Hatfield 3.1 model also is based on information that has not been fully made available to the Commission and all interested parties. For example, the Hatfield 3.1 model adjusts the number of supported lines assigned to a CBG on the basis of an undisclosed algorithm. This algorithm has not been filed with the Commission. The application of this algorithm, however, increased the number of  X14households in one state by 34 percent.u1 {O~'ԍ FCC Staff comparison of Hatfield model data for Massachusetts. See Letter from Richard N. Clarke, AT&T, to William F. Caton, Fcc, dated Sep. 10, 1996, attachment; Hatfield Feb. 28 Submission. Moreover, in regard to the fiber/copper crossover  X 4point,evX  yO'ԍ The fiber/copper crossover point determines when carriers will use fiber cable instead of copper cable in the feeder plant. The feeder plant is the portion of the outside local subscriber plant that connects the wire center to the service area interface, where the feeder plant connects to the distribution plant.e the proponents of the Hatfield 3.1 model have submitted no studies to show that the decision concerning the crossover point between the use of copper and fiber that they chose  X 4represents the leastcost configuration, as required by the Joint Board.\w  {O'ԍ See Recommended Decision, 12 FCC Rcd at 232.\   X 4243. ` ` We also agree with the state members of the Joint Board that efforts to study the models have been severely hampered by the delays in their submission to the Commission  X4and the constant updating of the models to correct technical problems, such as missing data.x yO'ԍ State High Cost Report at 1, 7; Majority State Members' Second High Cost Report at 5.  Xy4For example, BCPM was originally submitted on January 8, 1997 with data only for Texas.yy8 {Ob"'ԍ See Letter from Alan Ciamporcero, Pacific Bell, Warren Hannah, Sprint, and Glenn Brown, U S West, to William F. Caton, FCC, dated Jan. 8, 1997.  Xb4The proponents then resubmitted the BCPM with data for fifty states on January 31, 1997.Lzb {O%'ԍ See BCPM Jan. 31 Submission.L "b$z0*&&qq" The Hatfield Model 3.0 was submitted on February 7, 1997 with data for five states, and  X4resubmitted on February 28, 1997 with data for fifty states.P{ {Ob'ԍ See Hatfield Feb. 28 Submission.P The TECM was originally filed  X4on January 7, 1997, and a revised version submitted on January 31, 1997.|Z {O'ԍ See Comments of the New Jersey Division of the Ratepayer Advocate Concerning Improvements to the  {O'Telecom Economic Cost Model (filed Jan. 31, 1997) (New Jersey Advocate Jan. 31 ex parte). The complexity of these models, combined with the conflicting input assumptions, precludes sufficient analysis in the short interlude between the receipt of the models and issuance of this Order by the statutory deadline.  X_4244. ` ` Despite significant and sustained efforts by the commenters and the Commission, the versions of the models that we have reviewed to date have not provided dependable cost information to calculate the cost of providing service across the country. The majority state members emphasize that their recommendation to use the BCPM is not an endorsement of all aspects of the model, but rather that they regard the model as the best platform at this time from which the Commission, state commissions, and interested parties  X 4can make collective revisions._}  yO<'ԍ Majority State Members' Second High Cost Report at 7._ Indeed, the report finds that neither the Hatfield 3.1 model nor the BCPM meets the criteria set out by the Joint Board pertaining to openness,  X 4verifiability, and plausibility.j~ F yO'ԍ Majority State Members' Second High Cost Report at 2, 56.j The report also discusses several specific issues that the majority state members of the Joint Board contend must be addressed before the BCPM can be considered for use in determining support levels, including the dispersion of population within a CBG, the plantspecific operating expenses used by the model, and interoffice local  XK4transport investment.kK yO'ԍ Majority State Members' Second High Cost Report at 3, 913.k We agree with the state members that there are significant unresolved problems with each of these cost models, such as the input values for switching costs, digital  X4loop carrier equipment, depreciation rates, cost of capital, and structure sharing.f  yO4'ԍ State High Cost Report at 1; Majority State Members' Second State High Cost Report at 913; Johnson/Nelson Dissent at 1. We also agree with them that line count estimates should be more accurate and reflect actual ILEC  X4counts.  {O^"'ԍ See Majority State Members' Second High Cost Report at 11; Johnson/Nelson Dissent at 2.  X4245. ` ` Based on these problems with the models, we conclude that we cannot use any of the models at this time as a means to calculate the forwardlooking economic cost of the"P 0*&&qq" network on which to base support for universal service in high cost areas. Consequently, we  X4believe that it would be better to continue to review both the BCPM and Hatfield models.P {Ob'ԍ See Johnson/Nelson Dissent at 2.P Further review will allow the Commission and interested parties to compare and contrast more fully the structure and the input values used in these models. As two state members note, the  X4process has benefitted by the healthy competition among the model proponents.FZ yO'ԍ Johnson/Nelson Dissent at 2.F We find that continuing to examine the various models will not delay our implementation of a forwardlooking economic cost methodology for determining support for rural, insular, and  X_4high cost areas.;Z_ {O 'ԍ See Johnson/Nelson Dissent at 2 ("It is more important to establish a timetable to allow the development of mechanisms which will accurately compensate companies for the provision of universal service and ensure continued affordability of basic rates for consumers."); As discussed above, we will issue a FNPRM on a forwardlooking cost methodology for nonrural carriers by the end of June 1997. We anticipate that by the end of the year we will choose a specific model that we will use as the platform for developing that methodology. We anticipate that we will seek further comment on that selection and the refinements necessary to adopt a cost methodology by August 1998 that will be used for nonrural carriers starting on January 1, 1999. Consequently, as we explain below, we will continue using mechanisms currently in place to determine universal service support until  X 4January 1, 1999, while we resolve the issues related to the forwardlooking economic cost  X 4models.  Xy4246. ` ` We also agree with the dissenting state members of the Joint Board that our actions are consistent with the requirements of section 254 because we have identified the  XK4services to be supported by federal universal service support mechanisms,SK  {O'ԍ See supra section IV.B.S and we are setting forth a specific timetable for implementation of our forwardlooking cost  X4methodology.  yOl'ԍ Johnson/Nelson Dissent at 2 ("We would suggest, instead, that Section 254(a)(2) of the Telecommunications Act of 1996 clearly states that the FCC must only establish rules by May 8, 1997 which "... include a definition of the services that are supported by the Federal universal service support mechanisms and a specific timetable for implementation'.") Moreover, our actions here are consistent with section 254's requirement that  X4support should be explicit.@  yO="'ԍ 47 U.S.C.  254(e).@ Making "implicit" universal service subsidies "explicit" "to the  X4extent possible"W {O$'ԍ See Joint Explanatory Statement at 131.W means that we have authority at our discretion to craft a phasedin plan that relies in part on prescription and in part on competition to eliminate subsidies in the prices for"0*&&qq" various products sold in the market for telecommunications services. Consequently, we reject the arguments that section 254 compels us immediately to remove all costs associated with the  X4provision of universal service from interstate access charges.b {OK'ԍ See Access Charge Reform Order at section I.b Under the timetable we have set forth here, we will over the next year identify implicit interstate universal support and  X4make that support explicit, as further provided by section 254(e).Z yO'ԍ Costs associated with the provision of universal service are presently intermingled with all other costs, including the forwardlooking economic cost of interstate access and any historic costs associated with the provision of interstate access services. We cannot remove universal service costs from interstate access charges until we can identify those costs, which we will not be able to do, even for nonrural ILECs, before January 1, 1999.  Xv4247. ` ` We believe that the states can provide valuable assistance in our efforts to determine the cost of providing service in their areas because the states have been reviewing cost studies for several years and most recently have been reviewing forwardlooking economic cost studies in the context of local interconnection, unbundling, and resale  X 4arbitrations and in the review of statements of generally available terms and conditions.   {O'ԍ See, e.g. Petition of AT&T Communications of the Midwest, Inc. for Arbitration pursuant to  252(b) of  {O'the Telecommunications Act of 1996, Docket No. Arb963 (Iowa Utilities Board December 11, 1996); Petition of AT&T Communications of the Pacific Northwest, Inc. for Arbitration of Interconnection Rates, Terms, and  {O1'Conditions with GTE Northwest Incorporated Pursuant to 47 U.S.C.  252(b), Order No. 97021 (Oregon Public  {O'Utility Commission January 13, 1997); Petition of AT&T Communications of the Mountain States, Inc. for  {O'Arbitration of Interconnection Contract Negotiations with U S West Communications, Inc., Docket No. 96A345T  {O'(Colorado Public Utilities Commission November 27, 1996); Petition of AT&T Communications of the Southern States, Inc. for Arbitration of Interconnection Rates, Terms and Conditions with BellSouth Telecommunications,  {O!'Inc. Under the Telecommunications Act of 1996, Docket No. 6801U (Georgia Public Service Commission  {O'December 4, 1996); Petition of NYNEX for Arbitration of Interconnection Agreements with Teleport Communications Group, Inc., Brooks Fiber Communications, AT&T Communications of New England, Inc., MCI Communications Company, and Sprint Communications Company, L.P. Pursuant to Section 252(b) of the  {OE'Telecommunications Act of 1996, Nos. 9673174, 9675, 9680/81, 9683, 9694 (Massachusetts Department of  yO'Public Utilities December 4, 1996).Ę One alternative proposed by some commenters is to use, as the basis for calculating the forwardlooking economic cost of universal service, the cost studies relied upon by the states  X 4to determine the price of interconnection and unbundled network elements.Q  {OZ 'ԍ See BANX reply comments at 1415.Q We reject the use of current, generally interim, state-adopted unbundled elements prices for determining the cost of providing supported services for two reasons. First, many of these prices are only interim in nature, and thus do not provide adequate predictability. Second, to the extent that unbundled network elements offered on the market provide services in addition to the supported services, the cost of those elements may exceed the cost of providing supported services. We affirm our belief, however, that the underlying state-conducted cost studies can"Kf0*&&qq" be an appropriate basis upon which to determine the cost of providing universal service. We also affirm that state-conducted cost studies have the advantage of permitting states to coordinate the basis for pricing unbundled network elements and determining universal service support. This coordination can improve regulatory consistency and avoid such marketplace distortions as unbundled network element cost calculations unequal to universal service cost calculations for the elements that provide supported services. Such marketplace distortions may generate unintended and inefficient arbitrage opportunities. Thus, it is reasonable for the Commission to rely on this work by a state in determining federal universal service support for rural, insular, and high cost areas.  X 4248. ` ` Therefore, as the basis for calculating federal universal service support in their states, we will use forwardlooking economic cost studies conducted by state commissions that choose to submit such cost studies to determine universal service support. As discussed further below, we today adopt criteria appropriate for determining federal universal service support to guide the states as they conduct those studies. We ask states to elect, by August 15, 1997, whether they will conduct their own forwardlooking economic cost studies. States that elect to conduct such studies should file them with the Commission on or before February 6, 1998. We will then seek comment on those studies and determine whether they meet the criteria we set forth. The Commission will review the studies and comments received, and only if we find that the state has conducted a study that meets our criteria will we approve those studies for use in calculating federal support for nonrural eligible telecommunications carriers rural, insular, and high cost areas to be distributed beginning January 1, 1999. We intend to work closely with the states as they conduct these forwardlooking economic cost studies. We will also work together with the states and the Joint Board to develop a uniform cost study review plan that would standardize the format for presentation of cost studies in order to facilitate review by interested parties and by the Commission.  X4249. ` ` If a state elects not to conduct its own forwardlooking economic cost study or that the stateconducted study fails to meet the criteria we adopt today, the Commission will determine the forwardlooking economic cost of providing universal service in that state according to the Commission's forwardlooking cost methodology. We will seek the Joint Board's assistance in developing our method of calculating forwardlooking economic cost, which we intend to develop by building on the work already done by the Joint Board, its staff, and industry proponents of various cost models. We will issue a FNPRM by the end of June 1997 seeking additional information on which to base the development of a reliable means of determining the forwardlooking economic cost of providing universal service. We shall also separately seek information on issues such as the actual cost of purchasing switches, the current cost of digital loop carriers, and the location of customers in the lowest density areas.  Xh$4250. ` ` Criteria for ForwardLooking Economic Cost Determinations. Whether forwardlooking economic cost is determined according to a stateconducted cost study or a"Q%0*&&qqe#" Commissiondetermined methodology, we must prescribe certain criteria to ensure consistency in calculations of federal universal service support. Consistent with the eight criteria set out  X4in the Joint Board recommendation, yOK'ԍ The state members of the Joint Board also evaluated the models based on whether they meet the criteria  {O'set out in the Joint Board recommendation. See Majority State Members' Second State High Cost Report at 26. we agree that all methodologies used to calculate the forwardlooking economic cost of providing universal service in rural, insular, and high cost areas must meet the following criteria:  Xv4X(1)X` ` The technology assumed in the cost study or model must be the leastcost, most-efficient, and reasonable technology for providing the supported services that is currently being deployed A model, however, must include the ILECs' wire centers as the center of the loop network and the outside plant should terminate at ILECs' current wire centers. The loop design incorporated into a forwardlooking economic cost study or model should not impede the provision of advanced services. For example, loading coils should not be used because  X 4they impede the provision of advanced services.i " {O'ԍ See Majority State Members' Second High Cost Report at 7.i We note that the use of loading coils is inconsistent with the Rural Utilities Services guidelines for  X 4network deployment by its borrowers.H  yO 'ԍ RUS model reply comments at 4.H Wire center line counts should equal actual ILEC wire center line counts, and the study's or model's average loop length should reflect the incumbent carrier's actual average loop length.(#`  XK4X(2)X` ` Any network function or element, such as loop, switching, transport, or signaling, necessary to produce supported services must have an associated cost.(#`  X4X(3)X` ` Only longrun forwardlooking economic cost may be included. The longrun period used must be a period long enough that all costs may be treated as variable and avoidable. The costs must not be the embedded cost of the facilities, functions, or elements. The study or model, however, must be based upon an examination of the current cost of purchasing facilities and equipment, such as switches and digital loop carriers (rather than list prices). (#`  Xe4X(4)X` ` The rate of return must be either the authorized federal rate of return on interstate services, currently 11.25 percent, or the state's prescribed rate of return for intrastate services. We conclude that the current federal rate of return is a reasonable rate of return by which to determine forward looking" D0*&&qq"  X4costs. {Oy'ԍ See Represcribing the Authorized Rate of Return for Interstate Services of Local Exchange Carriers,  {OC'Order, 5 FCC Rcd 7507 (1990), recon., 6 FCC Rcd 7193 (1991). We realize that, with the passage of the 1996 Act, the level of local service competition may increase, and that this competition might increase the  X4ILECs' cost of capital.^$ {O'ԍ See Workshop Jan. 15 Transcript, panel three. ^ There are other factors, however, that may mitigate or offset any potential increase in the cost of capital associated with additional competition. For example, until facilitiesbased competition occurs, the impact of competition on the ILEC's risks associated with the supported services will be minimal because the ILEC's facilities will still be used by competitors using  X_4either resale or purchasing access to the ILEC's unbundled network elements.J_ yO 'ԍ NCTA model reply comments at 17.J In addition, the cost of debt has decreased since we last set the authorized rate  X14of return.1F {O('ԍ See Common Carrier Bureau Sets Pleading Schedule in Preliminary Rate of Return Inquiry, Public  {O'Notice, 11 FCC Rcd 3651 (Com. Car. Bur. 1996). The reduction in the cost of borrowing caused the Common Carrier Bureau to institute a preliminary inquiry as to whether the currently authorized federal rate of return is too high, given the current marketplace cost  X 4of equity and debt.  {O?'ԍ See Common Carrier Bureau Sets Pleading Schedule in Preliminary Rate of Return Inquiry, Public  {O 'Notice, 11 FCC Rcd 3651 (Com. Car. Bur. 1996). We will reevaluate the cost of capital as needed to ensure that it accurately reflects the market situation for carriers.(#`  X 4X(5)X` ` Economic lives and future net salvage percentages used in calculating depreciation expense must be within the FCCauthorized range. We agree with those commenters that argue that currently authorized lives should be used because the assets used to provide universal service in rural, insular, and high  XK4cost areas are unlikely to face serious competitive threat in the near term.iK  yO'ԍ Gabel model comments at 53; NCTA model reply comments at 1819.i To the extent that competition in the local exchange market changes the economic lives of the plant required to provide universal service, we will reevaluate our  X4authorized depreciation schedules.9X  yOE"'ԍ The Commission prescribes depreciation rates for 33 ILECs. Depreciation rates for each of these ILEC are represcribed every three years. The economic lives reflected in those schedules have been shortened considerably from those that were used ten to fifteen years ago.9 We intend shortly to issue a notice of proposed rule making to further examine the Commission's depreciation rules.(#` "0*&&qq"Ԍ X4X(6)X` ` The cost study or model must estimate the cost of providing service for all businesses and households within a geographic region. This includes the provision of multiline business services, special access, private lines, and multiple residential lines. Such inclusion of multiline business services and multiple residential lines will permit the cost study or model to reflect the economies of scale associated with the provision of these services.(#`  X_4X(7)X` ` A reasonable allocation of joint and common costs must be assigned to the cost of supported services. This allocation will ensure that the forwardlooking economic cost does not include an unreasonable share of the joint and common costs for nonsupported services. (#`  X 4X(8)X` ` The cost study or model and all underlying data, formulae, computations, and software associated with the model must be available to all interested parties for review and comment. All underlying data should be verifiable, engineering  X 4assumptions reasonable, and outputs plausible.}  {O 'ԍ See, e.g., GTE comments at 28; RTC comments at 4; TDS Telecom comments at 21.}(#`  Xy4X(9)X` ` The cost study or model must include the capability to examine and modify the critical assumptions and engineering principles. These assumptions and principles include, but are not limited to, the cost of capital, depreciation rates, fill factors, input costs, overhead adjustments, retail costs, structure sharing percentages, fibercopper crossover points, and terrain factors. (#`  X4X(10)X` ` The cost study or model must deaverage support calculations to the wire center serving area level at least, and, if feasible, to even smaller areas such as a Census Block Group, Census Block, or grid cell. We agree with the Joint Board's recommendation that support areas should be smaller than the carrier's  X4service area in order to target efficiently universal service support.\Z {O'ԍ See Recommended Decision, 12 FCC Rcd at 181.\ Although we agree with the majority of the commenters that smaller support areas better  Xe4target support,e {O 'ԍ See, e.g, GTE comments at 57; Washington UTC comments at 3; USTA model comments at 20. we are concerned that it becomes progressively more difficult to determine accurately where customers are located as the support areas grow smaller. As SBC notes, carriers currently keep records of the number of lines served at each wire center, but do not know which lines are associated with a" ~0*&&qq"  X4particular CBG, CB, or grid cell.<| yOy'ԍ SBC comments at 22. The Bureau of the Census defines "census blocks" as "small areas bounded on all sides by visible features such as streets, roads, streams, and railroad tracks, and by invisible boundaries such as city, town, township, and county limits, property lines, and short, imaginary extensions of streets and roads." Bureau of the Census, United States Department of Commerce, 1990 Census of population and Housing, A3. It further defines a "census block group" as "generally contain[ing] between 250 and 550 housing units, with the  {Oa'