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Before the 
Federal Communications Commission
Washington. D.C.  20554

                                                                         
                                                                         
In the Matter of)
     )
Federal-State Joint Board on     )     CC Docket No. 96-45
Universal Service     )
     )


                       MEMORANDUM OPINION AND ORDER

Adopted:  January 2, 1998        Released:  January 2, 1998

By the Chief, Common Carrier Bureau:

                             I.  INTRODUCTION

     1.    On September 30, 1997, the Pennsylvania Public Utility Commission
("Pennsylvania Commission") submitted a request for waiver of the definition of "rural area"
contained in section 54.5 of the Commission's rules.  This definition is used to determine
which health care providers are eligible to participate in the universal service support
program and also partially determines the discount rate for schools and libraries that are
eligible for universal service support.  We conclude that the Pennsylvania Commission has
not demonstrated good cause justifying a waiver.  Accordingly, we deny the Pennsylvania
Commission's request.  

                              II.  BACKGROUND

     2.    With respect to support mechanisms for health care providers, section
254(h)(1)(A) of the Communications Act of 1934, as amended ("the Act"), requires the
Commission to adopt a definition of "rural area" both to determine the location of health care
providers eligible for universal service support, and to determine the "comparable rural
areas" used to calculate the credit or reimbursement to a telecommunications carrier that
provides services to those health care providers at reduced rates.  The Commission,
adopting the approach recommended by the Federal-State Joint Board on Universal Service
("Joint Board"), defined a "rural area" as one that is located in a non-metropolitan county, as
classified by the Office of Management and Budget's ("OMB's") list of Metropolitan
Statistical Areas ("MSAs"), or is identified by the Goldsmith Modification published by the
Office of Rural Health Policy of the U.S. Department of Health and Human Services
("ORHP/HHS").  The Commission agreed with the Joint Board's conclusion that the
MSA/Goldsmith approach is more easily used and administered than other proposals
suggested for identifying rural areas.

     3.    In addition, section 254(h)(1)(B) mandates that discounts for eligible schools
and libraries must be "appropriate and necessary to ensure affordable access to and use of"
the services designated for support.  Building on the Joint Board's recognition that schools
and libraries in high cost areas will confront relatively higher barriers to maintaining
communications links, the Commission identified high cost schools and libraries as those
located in rural, as opposed to urban, areas for purposes of determining discount amounts. 
The Commission concluded that, for purposes of discounts for telecommunications providers
serving eligible schools and libraries, "rural area" is defined as non-metropolitan counties, as
measured by the OMB's MSA list, and census blocks or tracts in metropolitan counties
identified by the Goldsmith Modification.  

                         III.  POSITION OF PARTIES

     4.    The Pennsylvania Commission contends that applying these rules will have an
"adverse impact" on the schools, libraries and health care providers located in nine
Pennsylvania counties.  Specifically, the Pennsylvania Commission argues that, although
these counties do not qualify as "rural" under the Commission's rules, they have a "strong
'rural' character and nature."  The Pennsylvania Commission cites various factors to
demonstrate that a waiver is necessary, including, relative to 24 Pennsylvania counties
classified as urban under the Commission's rules:  a significantly lower primary care
physician-to-population ratio; a significantly higher proportion of residents living within
designated areas of medical underservice; and significantly fewer hospitals and hospital
beds.

     5.    In addition, the Pennsylvania Commission attaches to its petition an "Interim
Report" prepared by the Pennsylvania Universal Telephone Service Task Force
("Pennsylvania Task Force").  This report presents an analysis of the fiscal impact of (1)
providing universal service support to the public or non-profit health care providers located
in the nine counties at issue and (2) increasing by ten percent the discount percentage eligible
schools and libraries located in these counties would receive if they were designated as
rural.  Based on its analysis, the Pennsylvania Task Force concluded that including the 46
health care providers located in the nine counties at issue would cost $475,087.00, or less
than 2/10 of one percent of the $400 million dollar cap imposed on the health care portion of
the universal service program.  The Pennsylvania Task Force also concluded that the
additional ten percent discount -- the most a school's discount can increase by reclassifying
its location as rural -- would result in approximately $504,955.00 of additional support for
the 317 schools located in the nine counties.  The Pennsylvania Task Force also concluded
that classifying the 55 libraries located in the nine counties would cost an additional
$39,600.00.  Based on its calculations, the Pennsylvania Task Force concluded that
designating the schools and libraries located in the nine counties would cost $544,555.00, or
less than 3/100 of one percent of the $2.25 billion dollars of support that will be available
for eligible schools and libraries.

                              IV.  DISCUSSION

     6.    Under section 1.3 of our rules, the Commission may waive any provision of
its rules or orders if "good cause" is shown.  The standard for good cause requires the
petitioner to demonstrate that special circumstances warrant deviation from the rule and that
such a deviation would better serve the public interest than the general rule.  The Court of
Appeals for the D.C. Circuit has stated that a waiver may permit a more rigorous adherence
to an effective regulation by allowing the agency to take into account considerations of
hardship, equity, or more effective implementation of overall policy on an individualized
basis, while also emphasizing that "[a]n applicant for waiver faces a high hurdle even at the
starting gate."  In WAIT Radio, the court explained that "[t]he very essence of a waiver is
the assumed validity of the general rule. . . ."  Therefore, the test for whether the
Pennsylvania Commission may be granted a waiver is whether it has shown such special
circumstances that warrant deviation from our definition of "rural area."  We conclude that
the Pennsylvania Commission has failed to make this showing.

     7.    The identification of a rural area under our rules is a two-part process.  First,
a school, library or health care provider must determine whether it is located in a
metropolitan county, as defined by the MSA lists published by OMB.  Second, if it is
located in a metropolitan county, a school, library or health care provider may nevertheless
be located in a rural area if its location falls within one of the rural pockets within
metropolitan counties identified by the Goldsmith Modification list used by ORHP/HHS. 
The Commission, based on the Joint Board's recommendation, found that adopting the
MSA/Goldsmith Modification approach to identifying rural areas is "consistent with the Joint
Board's recommendation and congressional intent to adopt a mechanism that includes the
largest reasonably practicable number of rural health care providers, that because of their
location, are prevented from obtaining telecommunications services at rates available to urban
customers."  We remain convinced that the MSA/Goldsmith approach is the best method of
identifying "rural areas" currently available.  

     8.    The Pennsylvania Commission's waiver petition fails to meet the "good cause"
standard.  The evidence submitted by the Pennsylvania Commission in support of its request,
including significantly fewer hospitals and hospital beds and a lower physician-to-resident
ratio in the nine counties relative to urban areas in Pennsylvania, does not demonstrate that a
waiver of our rules governing universal service support for telecommunications services is
justified.  Moreover, a showing that the rates charged for telecommunications services in
the nine counties exceed those charged in other non-rural areas, without more, would not
warrant a grant of a waiver from the Commission's rules.  We note that schools, libraries
and health care providers in the nine counties will benefit from universal service support
despite their location in non-rural areas.  To the extent that health care providers in these
counties are unable to obtain toll-free access to the Internet, they are eligible to benefit from
support designed to ensure such access.  With respect to the schools and libraries support
mechanism, the schools and libraries in the nine counties at issue are already entitled to
discounts, which are determined based on economic need as well as location in a rural area. 
We conclude that the evidentiary showing presented by the Pennsylvania Commission does
not establish the "special circumstances" that would justify a waiver of the Commission's
general rule.

     9.    We also note that the Commission set forth clear guidelines for determining
whether, and to what extent, rural health care providers and schools and libraries are eligible
for support.  These guidelines are designed to comply with the statutory mandate that
universal service mechanisms be "specific, predictable and sufficient."  The Pennsylvania
Commission, by presenting the calculations of the Pennsylvania Task Force included with the
Pennsylvania Commission's petition, provide estimates of the impact on universal service
support if its waiver request concerning the nine Pennsylvania counties were granted.  This
analysis, however, does not take into account the impact on universal service support if other
state commissions requested similar relief for non-rural counties in their states that have rural
characteristics.  Granting such waiver petitions would undermine the Commission's method
for ensuring that universal service support mechanisms are specific, predictable and
sufficient.  
 
     10.   It is THEREFORE ORDERED, pursuant to section 4(i) of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i) and sections 0.91, 0.291, and
1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291, and 1.3, that the Pennsylvania
Commission's request for waiver IS DENIED. 
     

     FEDERAL COMMUNICATIONS COMMISSION

     
     
     A. Richard Metzger, Jr.
     Chief, Common Carrier Bureau