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2a=5,u&a\  P6G;&P P:% ,J:\  P6G;JPH<!,X,< PE37,Pz-b81,aub&_ x7X<?xxx,qx6X@`7X@ ?xxx,yΡx6Nhez7XH#mt,ؐ\  P6G;P6jC:,<̃Xj9 xOG;X8wC;,X|Xw PE37XPD7zC;,EXz_ pi7X6uC;,aE;Xu&_ x7XX9NC,Ӽ2PG;P6ND,A2pPG;T9ND,Å2xjAG;Xj"L/(,L2PG;Pk!O/),O2pPG;l;xC4,SXxjp P7XPlT$H(,phHjp P7hP&;sC0,Xs4@ x7XX=Times New Roman &^  Z[\]^_`abcdefghijklmnopqrstu X-  "4% yO-#X\  P6G;ɒP#Federal Communications Commission`F (#QFCC 96J3  yxxdddy "  `(#CORRECTED VERSION FCC 96J3 ă  X-vK #X\  P6G;ɒP#Before the à FEDERAL COMMUNICATIONS COMMISSION  yOa Washington, D.C. 20554 #Xj\  P6G;ynXP#у  X-In the Matter of hh,V) ` `  hh,V)  X-FederalState Joint Board onhh,V)ppCC Docket No. 9645  X-Universal Service hh,V) ` `  hh,V)  X - RECOMMENDED DECISION ă Adopted: November 7, 1996`(#Released: November 8, 1996 By the FederalState Joint Board (Chairman Hundt and Commissioners Johnson, Nelson, and Ness, and the Honorable Martha Hogerty issuing separate statements; Commissioners McClure, Schoenfelder, and Chong concurring in part and dissenting in part and issuing separate statements):  X-4 Table of Contents ă  X- Topic`!(#& Paragraph No. ă  Xh-X` hp x (#%'0*,.8135@8:", } {O!-ԍ See, e.g., Florida PSC comments at 4; LINCT Coalition comments at 2 (stating "all four goals need not be met"); Oregon PUC comments at 5 (urging the FCC and the Joint Board to interpret the four criteria in a way that does not require that every criterion be met before a service can be included in the definition of universal service); RTC comments at 78. For instance, Florida PSC strongly endorses the FCC's interpretation that the use of the verb "consider" allows selection of services for support that">*&&dd"  X-do not meet all four criteria.D?} yOy-ԍ Florida PSC comments at 4.D In addition, RTC argues that "a service need not satisfy all  X-four criteria" for inclusion in the federal universal service definition.>@X} yO-ԍ RTC comments at 78.> Some parties,  X-however, disagree.A} {Ok-ԍ See Florida Cable comments at 5; Georgia PSC comments at 6; NCTA comments at 4; USTA comments at 5. Georgia PSC argues that all four principles must be met before designating a service for support, and that a failure to do so could be "an abuse of discretion  X-by the Commission, arbitrary and capricious, and a violation of the intent of Congress."DBB} yO -ԍ Georgia PSC comments at 6.D NCTA, USTA and Florida Cable maintain that the use of the conjunction "and," rather than the disjunctive word "or," indicates a service must meet each and all of the statutory criteria  X_-to be included within the definition of universal service.nC_} yO-ԍ Florida Cable comments at 5; NCTA comments at 4; USTA comments at 5.n Florida Cable argues that, at a minimum, all of the criteria must be considered when determining whether access to a service  X1-should be guaranteed.FD1b } yOD-ԍ Florida Cable comments at 5.F  X - 33.` ` On another matter of statutory interpretation, a few commenters argue that the 1996 Act's statutory language and legislative history indicate that section 254(c)(1) does not permit universal service support for information services, but expressly limits support to  X -telecommunications services.ZE } yOa-ԍ ITA/EMA comments at 510; TCI comments at 56. Z Specifically, these parties construe the 1996 Act's definition of "telecommunications" as excluding those services that "change . . . the form or content of  X-the information as sent and received."F } {O-ԍ ITA/EMA comments at 6 (citing 47 U.S.C.  153(43)). See also TCI comments at 56 (citing 47 U.S.C.  153(43)). Further, these parties cite legislative history to bolster their arguments that universal service support must be limited to telecommunications  Xb-services.Gb} yO -ԍ ITA/EMA comments at 67 (noting that Congress adopted the Senate's definition of "telecommunications" which excludes information services and citing H.R. Conf. Rep. No. 458, 104th Cong., 2d Sess. 116 (1996)); TCI comments at 67 (noting that Congress rejected an earlier version of a Senate bill which included information services within the description of universal service and citing S. 1822, 103d Cong. 2d Sess.  102(a) (1994)).  X4-!34.` ` Defining Universal Service. Some commenters disagree with the NPRM's"4G*&&dd"  X-approach to defining universal service.H} {Oy-ԍ See, e.g., Georgia PSC comments at 5; Washington UTC comments at 7; Alliance for Public Technology further comments at 4. Washington UTC, for example, argues that listing specific services to support "freeze[s] universal service policy in the technology and services  X-of 1996."GI"} yO-ԍ Washington UTC comments at 7.G Washington UTC proposes instead that a description of functionalities and access,  X-rather than services, be used to define universal service.3J} {O -ԍ Id.3 Alliance for Public Technology  X-also asserts that defining universal service in terms of specific services is unworkable._KD} yO -ԍ Alliance for Public Technology further comments at 4._ Instead, Alliance for Public Technology recommends that carriers choose the amount of  Xv-bandwidth they will offer.3Lv} {O-ԍ Id.3 Carriers would then earn 100 percent of the maximum support  X_-available for maximum bandwidth and lesser percentages for lesser bandwidth offerings.3M_f } {Ov-ԍ Id.3 Other parties argue that access to services, but not any service itself, should be eligible for  X1-support.vN1 } {O-ԍ See, e.g., Georgia PSC comments at 5; CompTel further comments at 89.v  X -"35.` ` A crosssection of commenters and most of the commenters that addressed this issue including LECs, IXCs, consumer groups and state PUCs, favor designating all  X -five services for federal universal service support for purposes of section 254(c)(1).O" } {O-ԍ See, e.g., 360 comments at 3; Ameritech comments at 6; Florida PSC comments at 6; GTE comments at 2; ITA/EMA comments at 4; Michigan Consumer Federation comments at 20; NCTA comments at 5; PULP comments at 9; SBA comments at 5; SWBT comments at 8; Sprint comments at 6; Time Warner comments at 4; U S West comments at 5; Western comments at 7. Alaska PUC, for example, argues that a substantial majority of customers subscribe to each of these  X -and they are commonly deployed in the public telecommunications network.CP t} yO-ԍ Alaska PUC comments at 2.C Washington UTC, however, advises the Joint Board to allow the market to determine the definition of universal service in order to avoid creating barriers to entry by requiring the provision of  Xb-certain services.GQb} yO$-ԍ Washington UTC comments at 9.G Similarly, Western opposes requiring dialtone, which, it states, effectively"bQ*&&dd"  X-discriminates against wireless carriers.R} yOy-ԍ Western comments at 8 (describing dial tone as "a frequency tone audible to a caller"). In contrast, some commenters submit that each of these services can be offered by cellular providers and, thus, they do not provide a barrier to  X-entry for cellular carriers.SX} {O-ԍ See, e.g., Commnet Cellular reply comments at 8. See also 360 comments at 4.  X-#36.` ` Voice Grade Access to the Public Switched Network. Parties that address this issue overwhelmingly favor supporting voice grade access to the public switched network with  Xv-the ability to place and receive calls.DTZv} {O -ԍ  See, e.g., Bell South comments at 5; Florida PSC comments at 6; MCI comments at 3; Michigan Consumer Federation comments at 20; North Dakota PSC comments at 1; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 8; AT&T reply comments at 17; NTIA reply comments at 7.D Georgia PSC, however, argues that voice grade access is a group of services rather than one service, and that some of these services will qualify for  XH-support while others will not.UH } yO-ԍ Georgia PSC comments at 7 (arguing that single party wireline service qualifies for universal service support, but the Commission is prohibited from providing universal service support for cellular service).  X -$37.` ` Several commenters argue that usage of, and not merely access to, the local  X -network should be supported.V  d } yO-ԍ AARP comments at 9; Edgemont comments at 12; Florida PSC comments at 6; LINCT Coalition comments at 34; MCI comments at 3; People For comments at 11; Texas PSC comments at 8; Time Warner comments at 4; CPI reply comments at 5 n.10; NTIA reply comments at 7 n.14; Ohio Consumers' Council reply comments at 1213; Pennsylvania PUC reply comments at 6; Citizens Utilities further comments at 5. For example, Time Warner states that a basic level of local usage should be included within the definition of universal service because, it argues, the  X -ability to place calls is equally, if not more, important than the ability to receive calls.MW L } yO-ԍ Time Warner further comments at 12.M Pennsylvania PUC interprets the "singleparty service" component of the NPRM's proposed  X -core services to include local service usage.QX } yO4-ԍ Pennsylvania PUC reply comments at 34.Q Illinois CC, in contrast, opposes universal  X-service support for local usage.Yl} {O -ԍ Illinois CC comments at 4. See also CSE Foundation reply comments at 4; AirTouch further comments at 5.  Xb-%38.` ` In addition, Florida PSC proposes supporting flatrate service and unlimited  XK-calling within a subscriber's local calling area.oZK} {O%-ԍ Florida PSC comments at 6. See also Texas OPUC comments at 16.o Some parties note that a large number of"KXZ*&&dd"  X-consumers consistently choose flatrate service over measuredrate service.[} yOy-ԍ AARP comments at 9; Georgia PSC comments at 89; Ohio Consumers' Council comments at 13. California PUC advocates a support mechanism that would allow consumers to choose between flat or  X-measuredrate service.G\X} yO-ԍ California PUC comments at 6.G CSE Foundation, in contrast, states that mandating flatrate service for all subscribers restricts their options, because, it argues, some consumers may desire more  X-limited service at a price lower than that of flatrate service.M]} yO= -ԍ CSE Foundation reply comments at 4.M  Xv-&39.` ` Some parties favor using universal service funding to ensure that consumers may access their "community of interest" or area in which essential public services are  XH-located, by placing local calls.^ZHx} {Oq-ԍ See, e.g., Colorado PUC comments at 3; Louisiana PSC comments at 3; Michigan Consumer Federation comments at 20; Montana PSC comments at 4; New Jersey Advocate comments at 8; OITAWITA comments at 35. Various commenters note that subscribers in rural areas must often place toll calls in order to access essential services such as schools, health care providers  X -and local government offices._" } {Oe-ԍ See, e.g., AARP comments at 18; Century comments at 46; Keystone comments at 8; Montana PSC comments at 4; Rural Iowa Indep. Tel. Coalition comments at 3; Telec Consulting comments at 5; Minnesota Indep. Coalition reply comments at 34; Alaska Tel. further comments at 5; CFA further comments at 23; Western Alliance further comments at 2.  X -'40.` ` TouchTone.` } yO!-ԍ Florida PSC suggests the Joint Board refer to this function as "dual tone multifrequency" (DTMF) 116 rather than touchtone. Florida PSC comments at 6. Parties express widespread support for providing universal  X -service support for touch tone service.aZ } {Ob-ԍ  See, e.g., Bell Atlantic comments at 7; Farmers Tel. comments at 2; Michigan Consumer Federation comments at 20; Missouri PSC comments at 4; TCA comments at 5; NENA reply comments at 1; NTIA reply comments at 7. SBA, for example, maintains that touchtone service plays an important role in allowing customers to connect to a variety of voice mail systems,  X -information services, and productordering services.>b } yOV!-ԍ SBA comments at 56.> In addition, Citizens Utilities contends  X-that touchtone service meets the statutory criteria of section 254(c)(1)(B), (C) and (D).zc} {O#-ԍ Citizens Utilities comments at 6 (citing 47 U.S.C.  254(c)(1)(B)(D)).z Bell Atlantic, however, argues that the decision to provide support for touchtone service is a"y c*&&dd"  X-matter that should be left to the states.Fd} yOy-ԍ Bell Atlantic comments at 8.F  X-(41.` ` SingleParty Service. Many parties support including singleparty service in the  X-definition of universal service.eX} {O-ԍ See, e.g., Bell Atlantic comments at 7; Florida PSC comments at 6; Frontier comments at 2; Georgia PSC comments at 7; NASUCA comments at 1718; CPI reply comments at 6. Bell Atlantic, for example, argues that singleparty service  X-meets all four of the criteria of section 254(c)(1).nf} {O -ԍ Bell Atlantic comments at 7 (citing 47 U.S.C.  254(c)(1)).n Bar of New York argues that singleparty  X-service is essential because it is recognized to be a prerequisite for Internet access.IgD} yO -ԍ Bar of New York comments at 14.I SWBT contends that a transition period is required to permit upgrades that transform multiparty  X_-service to singleparty service.=h_} yO-ԍ SWBT comments at 8.= Washington UTC, however, states that in some cases,  XH-converting to singleparty service might be costprohibitive.GiHd } yO]-ԍ Washington UTC comments at 8.G  X -)42.` ` Access to Emergency Service. Several commenters favor providing universal service support for access to emergency services, where the actual service, i.e., Public Safety  X -Answering Point (PSAP), is provided by local authorities.~j } yO-ԍ Oregon PUC comments at 5; SWBT comments at 8; Texas Emergency reply comments at 12.~ Wisconsin PSC recommends that the Joint Board and Commission carefully define "access to emergency services" to indicate whether this term means the ability to place calls to these numbers or whether it includes the specialized call routing network that delivers calls to the designated governmentchosen  X-PSAP.Hk } yO-ԍ Wisconsin PSC comments at 8. H Michigan Consumer Federation argues that emergency services, and not merely  Xy-access to emergency services such as 911, should be offered at no cost.Vly} yO>-ԍ Michigan Consumer Federation comments at 20.V Some parties assert that carriers should not receive universal service support for 911 service if existing state  XK-funding mechanisms already provide support.GmK} {O"-ԍ See Ameritech comments at 7 (stating that support should be provided for the transmission facility that connects a subscriber to the location manned by public safety personnel, but not for the equipment used by those personnel or their training, as these costs are generally supported by tax revenues); Missouri PSC comments at 45 (noting that the Commission must distinguish between the cost of the switch necessary for E911 and the cost of the service itself because Missourians already pay taxes to cover the cost of the service).G Texas Emergency suggests that carriers"KVm*&&dd" seeking support should certify that 911 service is being provided by the local government in geographic areas they serve and that network costs are not already being recovered by the  X-rates paid by local government authorities for 911 service.Nn} yOK-ԍ Texas Emergency reply comments at 3.N Georgia PSC believes that  X-access to emergency services should be delegated to the states.FoX} yO-ԍ Georgia PSC comments at 7. F  X-*43.` ` Some commenters recommend supporting enhanced 911 (E911) service.TpD} yO& -ԍ Michigan Consumer Federation comments at 20; NENA comments at 2. E911 is a system wherein, when a wireline 911 call is placed in a region with E911 capability, the telephone number of the telephone from which the 911 call is made is passed to the LEC central office at which a database, usually maintained by the LEC, is then used to route the call to the most appropriate PSAP. The caller's telephone number and other information are transmitted to the PSAP along with the location of the telephone, as determined from LEC  {O-records. See Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling  {O-Systems, CC Docket No. 94102, Report and Order and Further Notice of Proposed Rulemaking, FCC 96264 (rel. July 26, 1996).T AlabamaMississippi Tel. Ass'n, however, contends that most states have their own separate funding mechanisms for E911 and, therefore, E911 should not be supported by the universal  XH-service fund at this time.WqH } yO-ԍ AlabamaMississippi Tel. Ass'n comments at 3.W Commnet Cellular asserts that consideration of support for E911 should wait until the Commission concludes its existing public safety proceeding to determine  X -whether to impose E911 requirements on wireless carriers.zr } {OO-ԍ Comnet Cellular reply comments at 8 (citing Commission Docket No. 94102).z  X -+44.` ` Access to Operator Service. Various parties favor supporting access to operator  X -services.s } {O-ԍ See, e.g., AT&T comments at 12; BellSouth comments at 5; Florida PSC comments at 6; Michigan Consumer Federation comments at 20; Cincinnati Bell reply comments at 3; LDDS reply comments at 7. Bell Atlantic, for example, contends that access to operator service meets each of the criteria set forth in section 254(c)(1), and therefore, it argues, should be supported through  X -universal service mechanisms.ut p} {O-ԍ Bell Atlantic comments at 7 (citing 47 U.S.C.  254(c)(1)(A)(D)).u Georgia PSC, in contrast, submits that access to operator  X-services is competitive in Georgia and does not require federal universal service support.Du} yOC"-ԍ Georgia PSC comments at 7.D  Xb- ` ` 3. Discussion (#  X4-,45. ` ` As previously mentioned, the 1996 Act defines "telecommunications services""4u*&&dd" as "the offering of telecommunications for a fee directly to the public . . . regardless of the  X-facilities used."Av} yOb-ԍ 47 U.S.C.  153(46).A With the exception of singleparty service and touchtone dialing, the core services proposed in the NPRM represent functionalities or applications associated with the provision of access to the public network, rather than tariffed services. The Joint Board concludes that defining telecommunications services in a functional sense, rather than on the basis of tariffed services alone, is consistent with the intent of section 254(c)(1). First, a functionalities approach to defining universal service will be more flexible than a servicesonly approach, particularly with respect to anticipated technological and marketplace changes and evolutions. Second, a functionalities approach is consistent with the overarching goal of the 1996 Act of encouraging competition, since it is technology neutral. Thus, we recommend that for purposes of defining universal service, "telecommunications services" should not be limited to tariffed services, but instead also should include functionalities and  X -applications associated with the provision of services.w X} yO-ԍ For discussion purposes, we hereafter refer to these functionalities and applications as "services."  X --46.` ` Based on the overwhelming support in the record, the Joint Board recommends that the services proposed in the NPRM should be included in the general definition of services supported under section 254(c)(1). We conclude that providing universal service support for each of these services, or access to the services, where applicable, is consistent with the statutory guidelines set forth in the 1996 Act. We reject the arguments of commenters that a service must meet all of the statutory criteria of section 254(c)(1)(A)(D)  X4-before it may be included within the definition of universal service.}x4} {O-ԍ See, e.g., Georgia PSC comments at 6; NCTA comments at 4; USTA comments at 5.} Instead, we conclude that while the Joint Board must consider all four criteria before determining that a service or functionality should be included, we need not find that a particular service meets each of the four criteria. Accordingly, we recommend that singleparty service, voice grade access to the  X-public switched telephone network (PTSN), DTMF or its functional digital equivalent,Cyz} {O-ԍ See infra para. 23.C access to emergency services and access to operator services be designated for universal service support pursuant to section 254(c)(1).  X|-.47. ` ` We conclude that singleparty service is widely available and subscribed to by a majority of residential customers. In addition, we find that singleparty service is essential to public health and safety in that it, among other things, allows access to emergency services without delay. Furthermore, singleparty service is consistent with the public interest, convenience and necessity. Therefore, the Joint Board recommends that singleparty service should receive universal service support. We further find that singleparty service means that"  y*&&ddy" only one customer will be served by each subscriber loop or access line, although carriers may offer consumers the choice of multiparty service in addition to singleparty service and remain eligible for universal service support. In addition, to the extent that wireless providers use spectrum shared among users to provide service, we find that wireless carriers provide the equivalent of singleparty service since users are given a dedicated channel for each  X-transmission.CzX} yO-ԍ Wireless carriers are not, however, required to provide a single channel dedicated to a particular user at all times; a wireless carrier provides the equivalent of singleparty service when it provides a dedicated message path for the length of a user's particular transmission. C Moreover, we recommend permitting a transition period for carriers to make upgrades to provide singleparty service, but only to the extent carriers can meet a heavy burden that such a transition period is necessary and in the public interest. Since state commissions will be responsible for designating carriers as eligible for purpose of receiving  X1-federal universal service support,{1} {O -ԍ See infra section VI for a discussion of carriers eligible for universal service support. we recommend that states make the determination as to the need for a transition period for a particular carrier.  X -/48. ` ` We find that the record provides ample support for our conclusion that voice grade access, an essential element to 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 that voice grade access should occur in the frequency range between approximately 500 Hertz and 4,000 Hertz, for a bandwidth of approximately 3,500 Hertz. Because we find that voice grade access should be defined within this range, we decline to adopt the sliding scale approach, which would base an eligible carrier's support amount on the bandwidth offered by the carrier, as advocated by Alliance for Public Technology. Voice grade access should also include the ability to place calls, including the ability to signal the network that the caller wishes to place a call, and the ability to receive calls, including the ability to signal the called party that there is an incoming  X-call.k|z} yO-ԍ We explicitly do not include call waiting within this definition.k  X-049. ` ` Based on strong support in the record, we also recommend including a local usage component within the definition of voice grade access. The record suggests that local usage is essential to realizing the full benefits of voice grade access. We conclude that the states are best positioned to determine the local usage component that represents affordable  Xe-service within their jurisdictions.f}e } {O #-ԍ See infra section V for a discussion of affordability.f Nonetheless, for purposes of determining the amount of federal universal service support, we recommend that the Commission determine a level of local usage. " }*&&dd"Ԍ X-150. ` ` We agree with commenters who argue that "touchtone" is more appropriately termed DTMF signaling. DTMF facilitates the transportation of signaling through the network. DTMF also accelerates call setup time. As noted in the NPRM, other methods of signaling, such as digital signaling, can provide network benefits equivalent to that of  X-DTMF.g~} yO-#]\  PCɒP#э NPRM at para. 19 n.53.g Therefore, we recommend that DTMF or its functional digital equivalent (hereinafter referred to as "DTMF") be supported under section 254(c)(1). We find that the network benefits that emanate from DTMF or its equivalent, particularly rapid call setup time, are essential to a modern telecommunications system. In addition, we find that supporting DTMF is competitively neutral, consistent with our recommended principle. We note that various wireless carriers favor inclusion of "touchtone" within the general definition  X -of universal service.; X} {O# -#]\  PCɒP#э See, e.g., PCIA comments at 14 n.38 (stating "PCIA [concurs] with the Commission's assessment that touch tone service is one of the elements that should be supported by the universal service plan. The Commission correctly points out that touch tone is increasingly essential to completing telecommunications transactions. This is certainly true in connection with the delivery of messages to a messaging service subscriber."); 360 comments at 3; Comnet Cellular reply comments at 8.;  X -251. ` ` Like the other core services, access to emergency service is a functionality that is widely deployed and subscribed to by a majority of residential subscribers. Further, access to emergency service is widely recognized as "essential to . . . public safety." In defining access, the record supports the inclusion of access to 911. Nearly 90 percent of lines today  X-have access to 911 capability. In addition, we recommend access to E911 service, where the locality has chosen to implement that service, be included in the definition of universal service. We do not recommend providing universal service support, however, for E911 service itself. As in the case of regular 911 service, the telecommunications network is only one component of E911 service; local governments provide the PSAP. E911 facilitates the determination of the location of the calling party, but wireless carriers are not currently capable of providing E911 service. The Commission has directed cellular, broadband Personal Communications Service (PCS) and certain Specialized Mobile Radio (SMR) carriers to provide E911 service, but the requirement will not be effective for five years because such a requirement will compel these wireless carriers to make technical upgrades before they will  X-be able to offer E911.B\ } {Og -ԍ See Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling  {O1!-Systems, CC Docket No. 94102, Report and Order and Further Notice of Proposed Rulemaking, FCC 96264  yO!-(rel. July 26, 1996).B Therefore, requiring carriers to provide E911 would presently  X-exclude all wireless carriers from eligibility to be "eligible telecommunications carriers,"e. } {Ot$-ԍ See infra section VI for a discussion of eligibility.e contrary to the principle that universal service be competitively neutral. Accordingly, we"~ *&&dd" recommend not including E911 service within the definition of services to be supported at this time, but may recommend its consideration when the definition is revisited, as anticipated by  X-section 254(c)(2). Nevertheless, we recommend supporting access to E911, in addition to access to 911 and other emergency services, when a local community requests that a carrier  X-provide such access.s} {O-ԍ See discussion of services supported but not mandated, infra.s  Xx-352. ` ` The record provides support for our conclusion that access to operator service is widely deployed and used by a majority of residential customers. Access to operator service is essential in public health and safety emergencies. In supporting this functionality, we recommend that the Commission adopt the definition of operator services it implemented for purposes of section 251(b)(3), namely, "any automatic or live assistance to a consumer to  X -arrange for billing or completion, or both, of a telephone call."& Z} {O-ԍ Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket  {O-No. 9698, Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket No. 95185, Second Report and Order and Memorandum Opinion and Order, FCC 96333 (rel. Sept.  {Ol-6, 1996) (Local Competition Second Report and Order). We note that the Commission has recently implemented rules to ensure that LECs permit nondiscriminatory  X -access to operator services by competing providers.L H} {O-ԍ Id. at paras. 114137.L  X -453.` ` There is no evidence in the record to suggest that any one of these services will create a barrier to entry for potential new competing carriers if it is included in the definition of universal service. One of the explicit goals of the 1996 Act is a "procompetitive" national  Xd-telecommunications policy.Md} yO-ԍ Joint Explanatory Statement at 113.M We find that including these services within the definition of universal service will not erect technical barriers that would prevent wireless and other telecommunications carriers from competing. In fact, two wireless providers, Commnet Cellular and 360, assert that each of the services proposed in the NPRM can be provided by wireless carriers. We find Western's argument regarding wireless carriers' inability to provide  X-dialtone to be immaterial because, as discussed infra, we recommend that the definition of voice grade access not require the provision of dialtone. Further, we find no merit in Georgia PUC's assertion that the Commission is prohibited from providing universal service support for cellular service, as this prohibition is neither a provision of the 1996 Act, nor consistent with the 1996 Act's procompetitive principle. Indeed, cellular service falls within the"j *&&dd3"  X-definition of telecommunications services:X} yOy-ԍ 47 U.S.C.  153(46) (stating that "[t]he term 'telecommunications service' means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used").: and section 254(c)(1) specifically requires this  X-Joint Board to recommend telecommunications services for which support will be provided.M} {O-ԍ See 47 U.S.C.  254(c)(1).M  X- C.` ` Other Services (#`  X-` ` 1. Background (#  X_-554.` ` The NPRM asked whether, consistent with the criteria enumerated in section  XH-254(c)(1), support should be available for services besides those proposed in the NPRM.@Hz} yOs-ԍ NPRM at paras. 17, 23.@ Specifically, the NPRM, noting the directive of section 254(b)(3) relating to "access to . . . interexchange services," sought comment on whether access to interexchange service, i.e., the  X -ability to originate and receive toll calls, should be supported.; } yO-ԍ NPRM at para. 23.; The NPRM also requested comment on whether services such as relay services, directory listings, and equal access to interexchange carriers, i.e., the ability to access the long distance carrier to which a customer  X -is presubscribed by dialing a 1+ number, should be supported.3 } {O -ԍ Id.3 In addition, the NPRM requested comment on whether advanced services, for example Internet access, data transmission capability, optional SS7 features or blocking of such features, enhanced services, and broadband services warrant inclusion, now or in the future, in the list of services  Xb-supported by the federal universal service fund.3b, } {O?-ԍ Id.3   X4-` ` 2. Comments (#  X-655.` ` Expanding the Definition of Universal Service. Several commenters oppose expanding the definition of services to be supported under section 254(c)(1) beyond those  X-services proposed in the NPRM. } {OG#-ԍ See, e.g., CSE Foundation comments at 6; DCA comments at 22; ITA/EMA comments at 5; MCI comments at 9; Sprint comments at 78; Citizens Utilities further comments at 5. A few parties advocate permitting the selection of services by consumers in the marketplace to dictate whether and when the definition of universal"*&&dd"  X-service evolves to include additional services.~ } yOy-ԍ AARP comments at 11; SWBT comments at 9 (asserting that customer demand, marketplace acceptance and deployment of costs should be considered); U S West comments at 6 (urging that "highmarketpenetration level" and "a net benefit to society from providing the service universally" should determine whether additional service are supported).~ Some parties cite as arguments against expanding supported services beyond the services proposed in the NPRM the goals of limiting  X-the amount of contribution needed to support universal service|} {O3-ԍ See, e.g., Washington UTC comments at 9; CSE Foundation reply comments at 4.| and ensuring the quality and  X-availability of services currently offered.JB} yO -ԍ Nat'l Retail Fed. comments at 2.J Ad Hoc Telecom. Users maintains that advanced services should not be supported because they are neither subscribed to by a majority of  X-subscribers nor necessary for health or safety.N} yO-ԍ Ad Hoc Telecom. Users comments at 4.N MCI asserts that other services should be supported only if, after analyzing the cost of the service and the effect of the support on the demand for the service, the subscribership benefit of the service exceeds the cost of the  XH-reduced subscribership of the subsidizing service.>Hb } yO[-ԍ MCI comments at 89.> NARUC contends that the definition of supported services should evolve over time to meet expanding needs and that states must be able to develop and refine universal service policies to meet the needs of subscribers within  X -their jurisdictions.? } yO-ԍ NARUC comments at 11.?  X -756.` ` As discussed in the following paragraphs, many parties, however, recommend expanding the definition of services to be supported beyond the services proposed in the  X -NPRM and suggest a wide range of other services. } {O-ԍ See, e.g., AARP comments at 10; Cincinnati Bell comments at 4; Farmers Tel. comments at 23; Michigan Consumer Federation comments at 2021; Minnesota Indep. Coalition comments at 9. According to GVNW, the services  X-proposed in the NPRM will provide nothing more than "plain old telephone service."E} yO-ԍ GVNW reply comments at 78.E In addition, Wyoming PSC asserts that providing universal service support for additional services will enhance the viability of rural states which, it states, have become "increasingly reliant on  XK-the deployment of modern telecommunications technology for economic growth."pKl} {Oh#-ԍ Wyoming PSC comments at 8. See also Alaska PSC comments at 36.p  X-857.` ` Access to Interexchange Service. Many commenters favor providing support"*&&dd"  X-for access to interexchange service.} {Oy-ԍ See, e.g., Florida PSC comments at 7; New Hope Tel. comments at 23; OITAWITA comments at 35; Fred Williamson comments at 1011. West Virginia Consumer Advocate, for example, argues that consumers who live in rural areas and must place toll calls to obtain essential  X-services especially require access to interexchange service."} yO-ԍ West Virginia Consumer Advocate comments at 7. The arguments of commenters who favor providing  {Om-universal service support for toll usage are discussed infra. AirTouch, however, contends that universal service suppresses interexchange usage because, it argues, long distance rates  X-rise as a result of IXCs' contributions to universal service.E|} yO -ԍ AirTouch comments at 1314.E  Xv-958.` ` Equal Access to IXCs. Some parties favor supporting equal access to long distance service, i.e., the ability to access the long distance carrier to which a customer is  XH-presubscribed by dialing a 1+ number./ZH } {O-ԍ See, e.g., AT&T comments at 12; Ardmore Tel. comments at 2; Bledsoe Tel. comments at 3; Bloutsville Tel. comments at 2; LDDS comments at 8; Minnesota Indep. Coalition comments at 9; Missouri PSC comments at 6; TCA comments at 5; Wyoming PSC comments at 7./ Ohio Consumers' Council asserts that consumers should have access to all available long distance carriers, but questions whether universal  X -service support is required to provide access.Q . } yO-ԍ Ohio Consumers' Council comments at 13.Q 360 argues that requiring eligible carriers to provide equal access to IXCs would preclude CMRS providers from receiving universal  X -service support and would be contrary to congressional intent."Z } {O[-ԍ 360 reply comments at 2, citing 47 U.S.C.  332(c)(8) ("A person engaged in the provision of commercial mobile services . . . shall not be required to provide equal access to common carriers for the provision of telephone toll services.")."  X -:59.` ` TRS. Many commenters favor universal service support for TRS, } {OO-ԍ See, e.g., Alaska PUC comments at 6; Michigan Consumer Federation comments at 21; Minnesota Indep. Coalition comments at 9; New York CPB comments at 6; Telec Consulting comments at 4. while  X -others argue that support should be limited to access to TRS. :} {O -ԍ See, e.g., California PUC comments at 6; Cincinnati Bell comments at 4; Louisiana PSC comments at 3; Pennsylvania PUC comments at 6. Some parties recognize that  X-TRS is currently supported through a separate TRS fund.o} {O#-ԍ See, e.g., AT&T comments at 13 n.17; NYNEX comments at 11 n.21.o  Xb-;60.` ` White Page Directories and Listings. Many commenters favor including a"b &*&&dd"  X-standard white page directory listing and directory assistance among supported services.2Z} {Oy-ԍ See, e.g., AARP comments at 10; Blountsville Tel. comments at 2, Michigan Consumer Federation comments at 21; NTIA reply comments at 7; New York DPS comments at 1213; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 8; Wyoming PSC comments at 7.2 Florida PSC argues, however, that eligible telecommunications carriers should be required to provide their subscribers with white page listings, but should not recover the cost from  X-universal service support mechanisms.F} yOV-ԍ Florida PSC comments at 78.F Instead, Florida PSC suggests that telecommunications providers can sell "designer" white page listings to pay for the cost of  X-producing directories.3z} {O -ԍ Id.3  X_-<61.` ` Directory Assistance. Some parties recommend that access to directory  XH-assistance be supported.H } {O-ԍ See, e.g., AARP comments at 10; Michigan Consumer Federation comments at 21; NTIA reply comments at 7; New York DPS comments at 1213; SWBT comments at 8. New York CPB, for example, asserts that directory listings and services are widely deployed by telecommunications providers, are used by "virtually all telephone subscribers," are essential for access to the network, and provide public safety and  X -health benefits, especially to users away from home.E f } yO-ԍ New York CPB comments at 6.E  X -=62.` ` Blocking Services. A few parties propose supporting 900 number blocking  X -through universal service mechanisms. } yOe-ԍ AARP comments at 10; Alaska PUC comments at 6; New York CPB comments at 67; Wyoming PSC comments at 7. Other parties favor providing universal service  X -support for toll blocking or toll controluX N } yO-ԍ With toll blocking, a subscriber voluntarily surrenders his ability to place toll calls over his subscriber loop. With toll control, a subscriber's long distance usage is capped at a certain dollar or minuteofuse amount per month. Both mechanisms are designed to enable subscribers to control their long distance service bills.u services.UZ n} {O-ԍ See, e.g., Alaska PUC comments at 6; Benton comments at 2; GSA comments at 8; Indiana URC comments at 23; LDDS comments at 89; Missouri PSC comments at 6; PULP comments at 1617 (noting that NYNEX currently provides voluntary toll blocking to all residents at no charge); RUS comments at 11.U Missouri PSC argues that toll blocking might increase subscribership levels by permitting those who have been disconnected due to unpaid toll bills to regain basic telephone service that would enable them to make and receive  Xb-local calls and to receive toll calls.Gb} yO%-ԍ Missouri PSC comments at 67.G Missouri PSC cites studies that, it argues, suggest that a"b! *&&dd" large number of individuals currently without phone service were disconnected due to unpaid  X-toll bills.U} {Ob-ԍ Missouri PSC comments at 67 (citing Field Research Corp., Affordability of Telephone Service S7, S19  {O,-to S20 (1993); Milton Mueller and Jorge Reina Schement, Rutgers University Project on Information Policy,  {O-Universal Service from the Bottom Up: A Profile of Telecommunications Access in Camden, New Jersey (1995);  {O-Chesapeake & Potomac Telephone Company, Submission of Telephone Penetration Studies in Formal Case No.  {O-850 (D.C. PSC, Oct. 1, 1993)).U  X->63.` ` Access to the Internet. Several parties argue that Internet access should be  X-supported.Z} {O -ԍ See, e.g., American Foundation for the Blind comments at 5; Bar of New York comments at 914; Community Colleges comments at 11; Iowa Utilities Board comments at 2; Michigan Consumer Federation comments at 2021. Other commenters, however, oppose allocating universal service support for  X-Internet access.}} {O-ԍ  See, e.g., MCI comments at 9; NYNEX comments at 12; LDDS reply comments at 9.} Some parties advocate providing universal service support for localdial up access to the Internet, so that consumers in rural areas do not have to pay for a toll call for  X_-access._6 } yOF-ԍ Alaska PSC comments at 5; Iowa Utilities Board comments at 2; Missouri PSC comments at 6. Some parties, however, oppose providing support for services like Internet access, because, they contend, doing so would be contrary to congressional intent that only  X1-"telecommunications services" may be included in the definition of universal service.|1 } {O-ԍ ITA/EMA comments at 3, 510; Information Technology Industry Council comments at 4, 67, citing 47  {Or-U.S.C.  254(c)(1) (universal service is "an evolving level of telecommunications services that the Commission shall establish periodically under this section, taking into account advances in telecommunications and information technologies and services.") (emphasis added). In addition, both ITA/EMA and ITI cite 47 U.S.C. sections 153(48) [sic] and 153(51) [sic] for the definitions of "telecommunications" and "telecommunications services." Because the new provisions were codified, these definitions are now found at 47 U.S.C.  153(43) and 153(46), respectively.   X -?64.` ` Other services and functionalities. Commenters suggest providing universal service funding for the following services and functionalities: access to basic local directory  X -assistance;Z } {O-ԍ See, e.g., Governor of Guam comments at 910; Information Technology Industry Council comments at 34; Ohio Consumers' Council comments at 1112; SWBT comments at 8; TCA comments at 5; AT&T reply comments at 18. call tracing;h ,} yO"-ԍ AARP comments at 10; Minnesota Indep. Coalition comments at 9.h call waiting;D } yOB$-ԍ Texas OPUC comments at 16.D interoffice digital facilities;> L} yO%-ԍ AARP comments at 10.> equal access to SS7" "*&&dd "  X-functionalities;} yOy-ԍ AARP comments at 10; Blountsville Tel. comments at 3; NorTel reply comments at 2, 56. ISDN services; X} yO -ԍ Alaska Tel. comments at 24 (arguing that supporting a lower level of functionality than ISDN would create a twotiered telecommunications system that would separate those with access to data capabilities from those without such access); Matanuska Tel. Ass'n comments at 2; Southwest Virginia Future comments at 1; Dell Tel. reply comments at 4. interconnection among carriers;>@} yO-ԍ AARP comments at 10.> reasonable toll usage;V} yO -ԍ Michigan Consumer Federation comments at 20.V  X-carrierprovided customer support services;PX` } yO -ԍ Louisiana PSC comments at 3 (supporting access to customer support services, including billing); Michigan Consumer Federation comments at 21 (advocating free calls to a carrier's office for requesting repairs, making billing inquiries and obtaining information about programs such as Lifeline).P adequate line quality for facsimile and data  X-transmission;q } {O-ԍ See, e.g., Colorado PUC comments at 2; Michigan Library Ass'n comments at 6; RUS comments at 10 (asserting that voice grade service should allow data transmission at 28.8 kbps rates through modems); Wyoming PSC comments at 7. endtoend digital service;D} yO<-ԍ Wyoming PSC comments at 7.D telecommunications services for handicapped and  X-disabled students and employees;<I} yO-ԍ ACE comments at 6.< guaranteed functional performance requirements; X} yOE-ԍ Alaska Health comments at 2 (supporting "voice grade access to dialup lines on the public switched network, with the ability to place and receive calls with a guaranteed functional transmission rate of 14.4 Kbps via modem").   X-guaranteed continued power for telephone service in the event of a power outage;G} yON-ԍ Colorado PUC comments at 24.G nocost  X-repair of the network on the provider's side of the network demarcation point;G} yO-ԍ New Jersey BPU comments at 2.G and number  Xv-portability.Dv} yOW-ԍ AT&T reply comments at 18.D  XH-` `  3.` Discussion (#  X -@65.` ` In addition to the services proposed to be included within the general definition of universal service by the NPRM, the Joint Board recommends that access to interexchange service be included. We find that Congress was unequivocal in its intent that the Commission should include access to interexchange services when it provided "customers in all regions of the nation . . . should have access to telecommunications and information services, including" #*&&dd "  X-interexchange services."C} yOy-ԍ 47 U.S.C.  254(b)(3).C In addition, we find that the majority of residential subscribers currently have access to interexchange service, consistent with the criterion of section 254(c)(1)(B). Moreover, the record in this proceeding supports our finding that access to  X-interexchange service is essential for education, public health and public safety.PX} {O-ԍ See 47 U.S.C.  254(c)(1)(A).P Customers who live in rural areas, especially, require access to interexchange service to reach medical and emergency services, schools, and local government. Although access may more properly be characterized as a functionality of the loop rather than a service, the record also supports the conclusion that access to interexchange service is demanded by a substantial majority of  XH-residential customers and is generally available.TH} {O -ԍ See 47 U.S.C.  254(c)(1)(B)(C).T Further, we find that access to  X1-interexchange service is consistent with the public interest.{1|} {O^-ԍ See AT&T reply comments at 18. See also 47 U.S.C.  254(c)(1)(D).{ Based on these considerations, and the strong support in the record, we recommend that access to interexchange service meaning the ability of a subscriber to place and receive interexchange calls be included as a  X -supported service.e } yO-ԍ We do not recommend, however, support for interstate usage.e  X -A66.` ` The Joint Board, however, recommends that access to interexchange service should not be defined, at this time, to include equal access to interexchange carriers. We acknowledge the importance of equal access to interexchange service in a competitive environment, but we conclude that equal access should not be supported because of the potential costs to wireless carriers involved in upgrading facilities and because wireless  XK-carriers are not currently required to provide equal access.K} {O-ԍ See 47 U.S.C.  332(c)(8) ("a person engaged in the provision of commercial mobile services . . . shall not be required to provide equal access to common carriers for the provision of telephone toll services").  X-B67. ` ` The Joint Board recommends including access to directory assistance, specifically, the ability to place a call to directory assistance, be included in the definition of universal service. Like access to interexchange service, access to directory service is a  X-functionality of the loop. We are recommending support be provided for access to directory assistance, not the service itself. We agree with the numerous commenters who favor providing universal service support for access to directory assistance because it is a necessity for consumers to access "telecommunications and information services." Directory assistance provides consumers access to necessary information, such as government, business, and customer listings. Indeed, we believe that without the ability to access directory assistance,"g$ *&&dd1" consumers' access to other telecommunications and information services is greatly diminished. In considering the statutory factors contained in section 254(c)(1), we find access to directory  X-assistance is essential for education, public health and safety. Although not a service per se, directory assistance is used by a substantial majority of residential customers, is widely  X-available, and is consistent with the public interest, convenience and necessity.} {O-ԍ 47 U.S.C.  254(c)(1)(A)(D). See also Minnesota Indep. Coalition comments at 5. The Joint Board, therefore, recommends that access to directory assistance be included in the definition of universal service, pursuant to section 254(c)(1). Therefore, we will refer to voice grade access to the public switched network, DTMF or touchtone, singleparty service, access to emergency service, access to operator service, access to interexchange service, and access to directory assistance as the "designated" or "core" services for universal service for purposes of section 254(c)(1).   X -C68.` ` Although the provision of "white page listings" received significant record support, we do not recommend that it be included it within the general definition of universal service. While we agree with the commenters that suggest that this is an important service that facilitates access to the telecommunications network, we do not consider white page  X-listings to be within the 1996 Act's definition of "telecommunication services."AZ} yO-ԍ 47 U.S.C.  153(46).A Therefore, white page listings should not receive universal service support. We agree with the Florida PSC that carriers have at their disposal the means to recover the costs of these services. Although we find that white page listings should not be included in the definition of universal service support, we strongly recommend that the states take the necessary and appropriate steps to ensure the continued availability of this fundamentally important offering.  X-D69.` ` We recommend that no additional services be included in the general definition  X-of universal service at this time.0Z} yOu-ԍ We do, however, recommend that toll blocking be provided without charge for low income subscribers. For a further discussion of this subject and other recommendations regarding services for low income consumers,  {O-see infra section VIII.0 For example, although we recognize the integral role of TRS in the provision of universal telephone service, we agree with the commenters that state that universal service support is not necessary because the service is already supported through  X-a separate fund.T } {OR!-ԍ See, e.g., AT&T comments at 13 n.17.T We find that access to the Internet, to the extent that this implies nontoll access, is provided through voicegrade access to the public switched network. The Joint Board rejects the position of some commenters that the actual use of Internet services be supported. We find that the provision of Internet service does not meet the statutory definition of a "telecommunications service." In addition, we decline to support toll access to Internet providers. We predict, however, that increasing demand for Internet service will""%*&&dd" result in broader accessibility of Internet service providers. This should have the effect of reducing or eliminating the need for customers in rural areas to place toll calls to obtain  X-Internet service.} {OK-ԍ See 47 U.S.C.  3(46), 254(c)(1). See also SWBT reply comments at 4.  X-E70.` ` We further conclude that no other services proposed by commenters in the record substantially meet the criteria stated in section 254(c)(1). Moreover, we find that an overly broad definition of universal service might have the unintended effect of creating a  X_-barrier to entry for some carriers because, as discussed infra, carriers must provide each of the core services in order to be eligible for universal service support. Because the definition of universal service is evolving, however, we must, as the 1996 Act instructs, consider the  X -definition again in the future.C Z} yO' -ԍ 47 U.S.C.  254(c)(1).C  X -` ` D. Feasibility of Providing Designated Services(#  X -` `  1.` Background (#  X-F71.` ` Section 214(e)(1)(A) requires eligible carriers to "offer the services that are  X{-supported by Federal universal service support mechanisms".F{} yO-ԍ 47 U.S.C.  214(e)(1)(A).F On July 3, 1996, the Common Carrier Bureau released a Public Notice to supplement the NPRM's requests for  XM-comment.Mz} {Ox-ԍ Public Notice, Common Carrier Bureau Seeks Further Comment on Specific Questions in Universal  {OB-Service Notice of Proposed Rulemaking, DA961078 (rel. July 3, 1996) (Public Notice). The Public Notice asked, inter alia, for comment on the effects on competition if a carrier is denied universal service support because it is technically infeasible for that  X!-carrier to provide one or more of the designated services.F!} yO-ԍ Public Notice at question 4.F  X-` `  2.` Comments (#  X-G72.` ` Carriers' Ability to Provide Designated Services. Several commenters representing various sections of the telecommunications industry maintain that the services proposed in the NPRM are so basic that no telecommunications provider will have difficulty  X-providing them.f } {O$-ԍ See, e.g., BellSouth further comments at 7; Bell Atlantic further comments at 2; MFS further comments at 12; NCTA further comments at 2; Vanguard further comments at 3. Florida PSC, for example, maintains that requiring carriers to provide the"& *&&dd2" core services, or even additional services, would not be unduly burdensome or adversely  X-affect competition.L} yOb-ԍ Florida PSC further comments at 7.L Some parties assert that because the 1996 Act permits carriers to provide services by resale, carriers are able to provide even those services that their facilities  X-do not support.X} yO-ԍ Century further comments at 9; NECA further comments at 4; NYNEX further comments at 5; Puerto  {O-Rico Tel. Co. further comments at 5; TCI further comments at 10; U S West further comments at 45. See also CompTel further comments at 8 (asserting that "the Joint Board should make clear that eligibility may not be denied simply because, for technical and economic reasons, the CLEC purchases ILEC elements necessary to provide core services."). Determining which carriers are eligible for universal service support is discussed  {O -further in section VI, infra.  X-H73.` ` Some parties contend, however, that expanding the list of services might stifle competition if carriers generally are unable to provide services designated for universal  X_-service._} {O-ԍ See, e.g., Ameritech further comments at 10; MCI further comments at 3; Time Warner further comments at 1314. Various parties argue, therefore, that universal service should be defined as  XH-narrowly as possible.H. } {O'-ԍ See, e.g., GCI further comments at 3; GTE further comments at 10; MCI further comments at 3; Time Warner further comments at 12; Vanguard further comments at 3. Teleport contends that, by limiting the definition of universal service to those services that "have . . . been subscribed to by a substantial majority of residential customers" and "are being deployed in public telecommunications networks by telecommunications carriers," Congress has attempted to ensure that the definition of universal  X -service remains competitively and technologically neutral.z } {O%-ԍ Teleport further comments at 3 (citing 47 U.S.C.  254(c)(1)(B) (C)).z Vanguard argues that a narrow definition of services will promote competition because support will not be limited to only  X -those carriers that can provide extensive services.I } yO-ԍ Vanguard further comments at 4.I Vanguard asserts that a narrow definition  X -of universal service will facilitate the addition of other services at a later time.3 } {O-ԍ Id.3  Xy-I74.` ` Effect of Interconnection and Unbundled Elements Requirements. Some parties, including AT&T and ALTS, link the ability of competitive carriers to provide core  XK-services with the implementation of the 1996 Act's requirements related to interconnection?K<} yO8$-ԍ 47 U.S.C.  251. ?"K'*&&dd"  X-and access to unbundled elements.v} {Oy-ԍ Id. See ALTS further comments at 12; AT&T further comments at 5.v Specifically, Citizens Utilities argues that competitive carriers have the right to acquire any or  X-all of the network elements they need, at costbased rates, from the incumbent LEC.Z} {O-ԍ Citizens Utilities further comments at 4 (citing 47 U.S.C.  251(c)(3), 252(d)(1)). ALTS contends that, if the cost of access to the databases necessary for the provision of emergency services were set at rates that make it economically infeasible for competitive carriers to use the incumbent LEC's databases, then competitive carriers would be unable to provide access  Xv-to emergency services.Ev} yO -ԍ ALTS further comments at 2.E Similarly, some parties argue that, if incumbent LECs deny new entrants access to unbundled elements, it may be technically infeasible for a new entrant to  XH-provide one or more of the core services.|H|} yOu-ԍ AT&T further comments at 5; MCI further comments at 3; MFS further comments at 12.|  X -J75.` ` Provision of Core Services and Eligibility. Some commenters argue that carriers that are unable to provide one or more of the core services should be ineligible to  X -receive universal service support." } {O-ԍ See, e.g., Ameritech further comments at 10; ITC further comments at 3; New York DOE further comments at 5; Puerto Rico Tel. Co. further comments at 5; RUS further comments at 4; SWBT further comments at 3; Sprint further comments at 3; Teleport further comments at 4; Time Warner further comments at 13; Vitelco further comments at 3; Washington UTC further comments at 5. SWBT argues that Congress intended to limit universal service funding to "eligible telecommunications carriers" that are required to "offer the  X -services supported by the Federal universal service support mechanisms. . . ."| } {Oe-ԍ SWBT further comments at 3 (citing 47 U.S.C.  254(e), 214(e)(1)(A)).| Thus, SWBT contends, providing support for a carrier that does not offer all of the core services would be contrary to the language of the statute which, SWBT argues, clearly expresses the intent of  Xy-Congress.3y } {O-ԍ Id.3 In addition, Ameritech asserts that competition would be harmed if a carrier that did not provide one or more core service was still eligible for support intended for core services, particularly when that carrier is competing with others that are providing core  X4-services "in accordance with the rules."K4} yO!-ԍ Ameritech further comments at 10.K Similarly, Minnesota Indep. Coalition contends that providing universal service support for a "partial provider" might raise the cost of full service  X-providers by reducing their revenue bases.[} yOa%-ԍ Minnesota Indep. Coalition further comments at 7.[ BellSouth argues that "niche" providers might"(:*&&ddF" choose not to provide all of the core services in a given area, and that these carriers should  X-not be eligible for support.J} yOb-ԍ BellSouth further comments at 7.J ITC maintains that the impact on consumers who might be denied core services should serve as a reason against providing support for carriers that do not  X-provide all the core services.rX} {O-ԍ ITC further comments at 3. See also Sprint further comments at 3.r  X-K76.` ` Waivers. A few comments favor permitting carriers that are unable to provide one or more of the core services to apply for waivers in order to receive universal service  X_-support.u_} {O -ԍ See, e.g., NENA further comments at 3; PacTel further comments at 12.u For example, NENA argues that waivers should be granted so that a carrier's failure to offer a service that would be technically infeasible for that carrier to provide would  X1-not make the carrier ineligible for universal service support.E1|} yO^-ԍ NENA further comments at 3.E NENA contends that, in the case of 911, infeasibility of providing access to emergency service could arise from a political  X -determination that an emergency calling system is not needed or wanted in a particular area.3 } {O-ԍ Id.3  X -In such an area, NENA argues, access to 911 should not be considered a core service.3 } {O;-ԍ Id.3 Similarly, PacTel asserts that carriers should be able to apply for waivers based on specific  X -facts and circumstances that make it unable to provide one or more core service.H 0 } yO-ԍ PacTel further comments at 12.H   X-L77.` ` PacTel also argues that geographic circumstances might prevent carriers serving  Xy-a particular area from providing a core service.3y } {O-ԍ Id.3 Accordingly, PacTel contends that the Commission could issue different standards relating to the provision of core services for  XK-different geographic areas.3KR } {ON -ԍ Id.3 PacTel, however, asserts that, to receive support, every company serving a particular geographic area should be required to provide the same core  X-services.3} {O#-ԍ Id.3 Similarly, Maine PSC contends that, because E911 is not available everywhere, its")v*&&dd"  X-absence should not disqualify carriers serving a particular area from receiving support.J} yOy-ԍ Maine PSC further comments at 6.J  X-M78.` ` Transition Period. Some parties favor implementing a transition period to enable carriers to meet the universal service requirements and provide the core services within  X-a reasonable time period.$X} {O-ԍ See, e.g., Century further comments at 910; GTE further comments at 10; SWBT further comments at 4.  {Ow-See also USTA further comments at 7 (arguing that incumbent carriers should be given additional time to provide core services without losing universal service support, but that competing carriers must provide all core services before they are eligible for support). For example, GTE maintains that a transition period is necessary  X-to permit some incumbent LECs to provide singleparty service.iD} {O -ԍ GTE further comments at 10. See also SWBT comments at 8.i Further, RTC argues that the 1996 Act requires the definition of universal service to evolve and, thus, at some time in the future, the definition of core services is likely to extend beyond the services carriers are  XH-capable of providing.GH} yO-ԍ RTC further comments at 910.G RTC recommends that state agencies, in their capacity to determine eligible carriers under section 214(e), should determine whether carriers continue to receive high cost support while they are upgrading their networks in order to provide all universal  X -services in an entire service area.3 f } {O-ԍ Id.3  X -` ` 3. Discussion (#  X -N79.` ` We generally agree with those commenters that argue that carriers designated as eligible telecommunications service providers must provide each of the services designated for support subject to certain exemptions as discussed below. We recommend that telecommunications carriers that are unable to provide one or more of these services should  XK-not receive universal service support unless exceptional circumstances exist.K } {O-ԍ As stated supra , we recommend that states have the discretion to provide for a transition period, for good cause, to allow carriers to make upgrades to provide singleparty service. We conclude that conditioning a carrier's eligibility for support upon its provision of the core services will  X-not impose an anticompetitive barrier to entry, as discussed supra.JR } {O "-ԍ See supra section IV.A.3.J We agree with Teleport that the statutory principles for defining universal service are designed to ensure competitive and technological neutrality. There is no compelling evidence in the record that demonstrates that requiring eligible carriers to provide these services would unduly burden new competitors or nonwireline carriers. In addition, we agree with commenters observing that the 1996 Act"**&&dd" facilitates the provision of services because it permits a telecommunications carrier to provide the supported services by using its own facilities in combination with resale of another  X-carrier's services.F} yOK-ԍ 47 U.S.C.  214(e)(1)(A).F  X-O80. ` ` A few commenters argue that it may not be feasible for competitive carriers to provide the designated services because incumbent LECs may set exorbitant rates for network elements or deny access to unbundled elements. We believe that these arguments are speculative given that section 252 requires network element charges to be based on cost and  XH-to be nondiscriminatoryNHX} yOQ -ԍ 47 U.S.C.  252(d)(1)(A)(i)(ii).N and section 251 requires incumbent LECs to provide requesting carriers "nondiscriminatory access to network elements on an unbundled basis . . . on rates,  X -terms and conditions that are just, reasonable, and nondiscriminatory."C } yO-ԍ 47 U.S.C.  251(c)(3).C  X -P81.` ` We recommend that the Commission not implement the general transition proposed by GTE, RTC, and others that would allow carriers to draw support from the universal service fund but provide only some of the services designated for universal service  X -support. x} yO-ԍ We note, however, that there will be a transition period leading up to the time the Commission's  {O-universal service rules take effect. See infra section VII.E. Such a transition period would appear to be inconsistent with section 254(e) which states that "[a]fter the date on which Commission regulations implementing this section take effect, only an eligible telecommunications carrier . . . shall be eligible to receive" Federal  Xb-universal service support.@b} yO-ԍ 47 U.S.C.  254(e).@ Moreover, we find that requiring some carriers to provide services while not imposing the same requirements on other carriers would be inconsistent with our recommended principle of competitive neutrality. We find little in the record that indicates that telecommunications carriers are generally unable to provide one or more of the recommended core services. A few commenters, however, maintain that some incumbent LECs are currently unable to provide singleparty service. Although we find that singleparty service is essential to modern life and to a modern telecommunications system, we recognize that exceptional circumstances may prevent some carriers from offering singleparty service  X-initially. Accordingly, as discussed supra, we recommend that state commissions, in their capacity to designate telecommunications providers that are eligible to receive universal service support, be permitted to grant an eligible carrier's request for a transition period after which the carrier must offer singleparty service. Such a request will be granted only if the state commission finds exceptional circumstances warrant an exemption from this requirement. "9+b *&&dd"Ԍ X-Q82.` ` In addition to our general conclusion that carriers must provide each of the designated services in order to receive support, we find that universal service support should be available in limited instances where a carrier is unable to provide a few specific services.  X-For example, based on our analysis of E911, discussed supra, we conclude that access to E911 should be among those services supported by universal service mechanisms because, for example, it is "essential to . . . public safety" consistent with section 254(c)(1)(A). We realize, however, that not all carriers are currently capable of providing access to E911 and, in fact, as noted by NENA, not all communities have the facilities in place to provide E911 service. Nevertheless, we conclude that access to E911 should be supported to the extent that  X3-carriers are providing such access. Similarly, as discussed infra, we find that toll blocking or control services should be supported when provided to qualifying lowincome consumers, to the extent that eligible carriers are technically capable of providing these services. Thus, we recommend that eligible carriers be required to provide all of those services we characterize as "designated" services, but we also recommend that the Commission support additional services such as E911 and toll limitation, to the extent eligible carriers are providing these important services.  X}-R83. ` ` Finally, we conclude that waivers should not generally be available to carriers  Xf-that do not provide one or more of the designated services. Nevertheless, as discussed supra, the record supports the contention that some carriers may currently be unable to offer singleparty service. Because section 214(e) requires eligible carriers to "offer the services that are supported by Federal universal service support mechanisms under section 254," we are unwilling to recommend that telecommunications providers be permitted to receive broad waivers from the requirement to provide the services we recommend designating for universal  X-service support. As discussed supra, however, we recommend that state commission be permitted to grant a request for a transition to carriers that cannot currently provide singleparty service if the circumstances warrant such a transition period.  X- E.` ` Extent of Universal Service Support (#`  XV-` ` 1. Background (#  X(-S84.` ` The 1996 Act states that "[c]onsumers in. . . high cost areas, should have  X-access to telecommunications and information services. . . ."C} yO -ԍ 47 U.S.C.  254(b)(3).C The NPRM asks for comment regarding whether universal service support should be limited to carriers providing designated services to residential users or residential and singleline business users, or whether support  X -should be provided for designated services provided to all users in high cost areas.= X} yO$-ԍ NPRM at para. 24. = "!,*&&dd "Ԍ X-` ` 2. Comments (#  X-T85.` ` Support for Single Residential Connections. Those commenters that addressed the issue of the extent of universal service generally favor limiting universal service support to  X-designated services carried on the initial line to residences.i} {O-ԍ See, e.g., Illinois CC comments at 5; NCTA comments at 6.i Washington UTC, for example,  X-opposes supporting two or more singleparty lines per residence.Z} {O-ԍ See, e.g., Washington UTC comments at 10. See also Ameritech comments at 8. NTIA contends that  Xv-federal universal service support should be targeted toward singleline residential service.Ev} yO -ԍ NTIA reply comments at 89.E GTE argues that a definition of "household" must be established if support is limited to primary residential lines so that carriers are not required to determine whether a customer  X1-sharing a house or apartment is a separate household.D1|} yO^-ԍ GTE reply comments at 89.D  X -U86.` ` Support for Services Carried to Additional Residences. GTE opposes any attempt to restrict universal service support to designated services carried on lines to primary  X -residences.B } yO-ԍ GTE reply comments at 8.B According to GTE, it would be impractical to make such a distinction and,  X -further, the record does not support this approach.3 } {O -ԍ Id.3  X-V87.` ` Support for Designated Services Carried to Businesses. Some commenters  Xy-favor extending support to connections to businesses in high cost areas.y. } {OX-ԍ See, e.g., Cincinnati Bell comments at 5; LDDS comments at 910; Montana Indep. Telecom. comments at 5; SWBT comments at 78; Staurulakis comments at 5; Telec Consulting comments at 4. For example, Nat'l Ass'n of Dev. Orgs. argues that rural economic viability depends upon access to communications services; thus, it argues, support should be extended to multipleconnection  X4-businesses.T4 } yOm -ԍ Nat'l Ass'n of Dev. Orgs. comments at 89.T Citizens Utilities argues that, if a proven need for support exists for business lines, a national affordability standard for businesses should be developed that is different  X-from any affordability standard established for residential service.K} yO#-ԍ Citizens Utilities comments at 7.K  X-W88.` ` Several parties, in contrast, oppose providing universal service support for"-*&&dd&"  X-designated services carried to businesses.AZ} {Oy-ԍ See, e.g., AT&T comments at 13; Ameritech comments at 8; LCI comments at 3 (stating that "universal service support has always been limited to baseline, residential services and the 1996 Act provides no indication that Congress intended otherwise."); Western comments at 9.A Florida PSC argues that the goal of promoting universal service relates to maximizing the number of households that have telephone  X-service.F} yOm-ԍ Florida PSC comments at 7. F NTIA maintains that the costs of telephone services are likely to be a small fraction of total operating costs for most businesses and, thus, affordability of service should  X-not generally be a problem for business users.Cz} yO -ԍ NTIA reply comments at 9.C Florida PSC and NTIA assert that states  X-should provide appropriate funding if they determine that businesses need support.^ } yOH -ԍ Florida PSC comments at 7; NTIA reply comments at 9.^ West Virginia Consumer Advocate contends support should be limited to designated services provided to residences because, it asserts, even singleline businesses can take tax deductions  XH-for telephone services as a cost of doing business.XH} yO-ԍ West Virginia Consumer Advocate comments at 8.X MCI opposes extending universal service support to businesses, because, it argues, supporting business lines would cause the level of  X -support to grow excessively.f * } {O-ԍ MCI comments at 9. See also NTIA reply comments at 9.f  X -  X -` ` 3. Discussion (#  X -X89.` ` We find that support for designated services provided to residential customers should be limited to those services carried on a single connection to a subscriber's principal  X-residence. } yO-ԍ In light of our recommended principle of competitive neutrality, we will hereinafter refer to "connections" rather than "lines." We find that supporting one connection per residence is consistent with section 254(b)(3), which states that access to services for low income consumers and those in rural,  Xb-insular and high cost areas should be reasonably comparable to that available in urban areas.Cb} yO' -ԍ 47 U.S.C.  254(b)(3).C We conclude that support for a single residential connection will permit a household complete access to telecommunications and information services. All supported services, including access to emergency services, would be available to a household by providing support for this residential connection. The Joint Board, however, declines at this time to provide support for other residential connections beyond the primary residential connection. Support for a second connection is not necessary for a household to have the required "access" to".*&&dd"  X-telecommunications and information services.} {Oy-ԍ Id. See also 47 U.S.C.  254(b)(2) (promoting "access to advanced services"). Moreover, the statutory language does not provide any guidance for determining what, if any, uses of a second connection are consistent with the goals of universal service. Nor does the record provide sufficient basis for supporting second residential lines. GTE contends that carriers will have difficulty determining whether a second connection to a residence is a household's second connection or whether the residence is shared by two or more households. It would appear, however, that carriers can use subscriber billing information to determine the number of households at a given address. Accordingly, we conclude that eligible carriers should receive support for designated services carried on the initial connection to a customer's primary residence.  X -Y90.` ` We are unpersuaded that universal service support should be extended to second residences in high cost areas. We conclude that the consumer benefits that result from support should not be extended to second homes, which may not be occupied at all times. There is no evidence that the additional cost of supporting second or vacation residences is justified in light of the presumption that owners of these residences can afford to pay rates that accurately reflect the carrier's costs to provide services carried on connections to second residences.   Xb-Z91.` ` We find that designated services carried to singleconnection businesses in rural, insular and other high cost areas should be supported by universal service mechanisms, although we find that a reduced level of support may be appropriate. We find general similarities between residential and singleline business customers. Both singleline business and residential subscribers require access for health, safety and employment reasons. Moreover, like residential subscribers, most singleline businesses have few or no competitive options for local telecommunications service. We disagree with Nat'l Ass'n of Dev. Orgs. that support should be extended to multipleconnection businesses. We note that the Commission has, in the past, elected to treat singleline businesses like residential customers,  X-that is, differently from multipleline businesses.ZZ} {O-ԍ See In the Matter of MTS and WATS Market Structure, Memorandum Opinion and Order, 101 FCC 2d 1222 (1985) (determining that all singleline subscribers, whether residential or business, should pay the same SLC). In one instance, the Commission, finding that small businesses lack the ability to use alternatives to the public switched network that are available to large corporations, held that the customer line charges should be the same for  XN-singleline business and residential customers.3 N|} {O{"-ԍ Id.3 We determine that a distinction between singleconnection and multipleconnection business is likewise appropriate for universal service purposes. The cost of service is unlikely to be a factor that would cause a multipleconnection business not to subscribe to telephone service. For small, singleconnection" / *&&dd[" businesses in high cost areas, however, the price of telephone service may be prohibitive without support. Therefore, we recommend making universal service support available for designated services carried to singleconnection businesses in high cost areas.  X-[92.` ` We conclude, however, that designated services carried to businesses subscribing to only one connection should not receive the full amount of support designated for residential connections in high cost areas. We agree with Citizens Utilities that, for business connections, a standard different from that applied to residential connections for determining support should be established. We recommend initially supporting the designated services carried on business connections in a high cost area at a lower level than that provided  X -for residential connections in the same area. As discussed, infra, we recommend that the Commission use a benchmark based on the revenue generated per line to determine the  X -amount of support carriers should receive.H  } {Og -ԍ See infra section VII.C.H Under this recommended approach, eligible carriers would receive less support for serving singleconnection businesses than they would  X -for residential service because business rates are higher than residential rates.  Z} {O-ԍ As discussed in greater detail in section VII.C, infra, we recommend that the amount of support be derived from calculating the difference between the cost of providing service and the benchmark amount. Moreover, we find that providing support for designated services carried to singleconnection businesses in high cost areas at a reduced level is not inconsistent with the 1996 Act. We note that, as competition develops, it may be unnecessary to provide even this reduced support for services carried on the initial connection of businesses in high cost areas.  X6- F.` ` Quality of Service (#`  X-` ` 1. Background (#  X-\93.` ` The 1996 Act requires that "quality services should be available at just,  X-reasonable and affordable rates."C } yO(-ԍ 47 U.S.C.  254(b)(1).C Accordingly, the NPRM asked for comment on how the  X-Commission can assess whether quality services are being made available.: D} yO-ԍ NPRM at para. 4.: In particular, the NPRM sought comment on the utility of performancebased measurements to evaluate  X~-whether this congressional objective is being met.3~} {O#-ԍ Id.3 Further, the NPRM stated that the Commission is disinclined to prescribe technical standards for telecommunications carriers or"g0f *&&dd"  X-other service providers.;} yOy-ԍ NPRM at para. 68.; Rather, the NPRM stated that the Commission preferred to let affected entities (such as IXCs, LECs, equipment manufacturers, and customers) develop technical and performance standards without direct intervention from the Commission, unless  X-necessary.3X} {O-ԍ Id.3 The NPRM, expressing the Commission's preference for encouraging existing standardsetting bodies to discuss and establish relevant technical standards, noted that there are currently several industry bodies that address standards for various aspects of  Xv-communications networks.v} {O -ԍ Id. (referring to the American National Standards Institute Committee T1, Electronic Industry Association and Telecommunications Industry Association).  XH-]94.` ` The NPRM also sought comment on whether, in implementing the congressional mandate to ensure that "quality services" are available, it would be useful to collect and publish certain basic information regarding technical performance levels of carriers  X -subject to the Commission's rules.; D} yO-ԍ NPRM at para. 69.; The NPRM noted that providing customers with easy access to service quality information could facilitate comparisons between the performance levels of various telecommunications carriers and could potentially create a marketbased  X -incentive for carriers to provide quality services.3 } {OC-ԍ Id.3 In addition, noting that competition will probably not develop in a uniform fashion throughout the Nation, the NPRM sought comment on whether it is necessary to obtain data that could be used by the public, regulators, and regulated entities to monitor service quality performance from carriers, particularly those carriers that serve rural areas and are not currently subject to the Commission's existing  XK-service quality monitoring program._Kf } {Ob-ԍ Id. (citing 47 C.F.R.  43.2122)._ The NPRM also emphasized that the collection and publication of these data should entail the least possible cost to the companies involved and, accordingly, solicited comment on whether industry organizations or state commissions  X-already collect the information that should be contained in these performance reports.2 } {O -ԍ Id.2 The NPRM also asked whether it would be reasonable to rely upon such existing information  X-rather than extending the Commission's reporting requirements to all carriers.3 } {O$-ԍ Id.3 Commenters were also asked to estimate the potential costs associated with these various proposals for collecting performance information, in accordance with the 1996 Act's mandate that support"1*&&dd"  X-mechanisms should be "specific, predictable and sufficient."\} {Oy-ԍ Id. (citing 47 U.S.C.  254(b)(5)).\ Finally, the NPRM sought comment on whether the Commission should take action at some fixed date to evaluate the  X-need for continuing performance reports.;Z} yO-ԍ NPRM at para. 70.; The NPRM requested that the Joint Board address in its recommended decision all of the issues raised in the NPRM with respect to monitoring  X-of telecommunications services.2} {O? -ԍ Id.2  Xv-` ` 2. Comments (#  XH-^95.` ` Assessing Existing Service Quality. As a preliminary matter, some parties maintain that high quality services currently exist, largely due to existing universal service  X -support.N |} {OG-ԍ See, e.g., NECA comments at 3.N A few commenters, however, contend that LECs operating under price cap  X -formulas are motivated to reduce costs to the extent that lower service quality often results. } {O-ԍ See International Communications Ass'n comments at 2; Michigan Consumer Federation comments at 5; NASUCA comments at 8. Harris argues that telephone customer service indicators should continue to be used to assess  X -service quality.  h } yO-ԍ Harris comments at 1718 (noting that current methods of evaluating customer service rely on engineering and customer service objectives such as central office blocking, time to clear outofservice reports, customer service call answer times, operator service call answer times, call completion rates, trouble reports and commission complaints). ACTA maintains that the concept of quality of service must incorporate service provided by one carrier to other carriers, such as underlying service provided by  X -carriers to resellers and by access carriers to IXCs.= P } yO-ԍ ACTA comments at 2.=  Xy-_96.` ` Quality of Service Standards. Some parties generally support the imposition of  Xb-service quality standards on telecommunications providers.b} {O -ԍ See, e.g., CWA comments at 6; GCI comments at 7; NTIA reply comments at 7 n.13. GCI, for example, argues that the Commission should adopt certain quality standards for core services including an evaluation of valid complaints filed by consumers and customers (such as IXCs) and the  X-amount of time taken to fill customer service orders.<r} yO@%-ԍ GCI comments at 7.< In addition, International"2*&&dde" Communications Ass'n recommends that the Commission impose quality of service rules that measure service availability, errors per second, mean time to restore outages, and service  X-disruption.] } yOK-ԍ International Communications Ass'n comments at 34.] Some parties argue that, if competition comes to rural areas, the Commission should institute sufficient safeguards to assure that the quality of service is equivalent to the  X-standards met by the incumbent provider.d!X} yO-ԍ GVNW comments at 2; Montana Indep. Telecom. comments at 2.d USTA, in contrast, opposes the implementation of quality of service standards, because, it argues, the market will provide the best means to  Xv-enforce quality services in competitive areas.>"v} yO -ԍ USTA comments at 14.>  XH-`97.` ` Some commenters provide specific models on which to base quality of service standards. Wyoming PSC recommends that the Commission adopt on a nationwide basis its service quality rules, which are based on the National Regulatory Research Institute service  X -quality framework model.F# x} yO,-ԍ Wyoming PSC comments at 23.F Michigan Library Ass'n also recommends the use of the  X -National Regulatory Research Institute model for a service quality framework.O$ } yO-ԍ Michigan Library Ass'n comments at 5.O Texas PUC cites NARUC's Model Telecommunications Service Quality Rules and Telephone Service  X -Quality Handbook as models for regulators to use to implement quality of service standards.B% } yO-ԍ Texas PUC comments at 2.B Some parties argue that the Commission should base its service quality standards on existing  X-standards in the statesZ&( } yOi-ԍ NASUCA comments at 9; Virginia CC comments at 1.Z or supplement those state standards.<' } yO-ԍ CWA comments at 9.<  Xb-a98.` ` A few parties argue that the receipt of universal service support should be  XK-contingent on maintaining certain quality of service levels.`(KH } {OD -ԍ See, e.g., CWA comments at 6; GCI comments at 7.` For example, CWA argues that any carrier wishing to receive federal universal service support must meet quality standards in all four prior calendar quarters in order to receive support, and that a carrier that does not reach this goal should be required to pay a penalty in the form of a contribution to universal  X-service.<)} yOz%-ԍ CWA comments at 6.<"3j)*&&dd'"Ԍ  X-b99.` ` State Roles. Several commenters believe state commissions should enforce  X-quality of service standards.*Z} {OK-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 4; Century comments at 9; GTE comments at 7 n.15; MCI comments at 22; OITAWITA comments at 16; Pennsylvania PUC comments at 8; Fred Williamson comments at 6. A few state public utility commissions argue that the  X-Commission should defer to the states to monitor service quality.\+} yOV-ԍ Idaho PUC comments at 6; Oregon PUC comments at 3.\ Other state commissions  X-submit that quality standards should be based on existing state standards.`,z} yO -ԍ New York DPS comments at 3; Wyoming PUC comments at 2.` A few parties maintain that states should monitor the quality of services provided by incumbent LECs until  Xv-a competitive market emerges.X-v } yO1-ԍ LDDS comments at 10; Oregon PUC comments at 3.X Taconic Tel. argues that states will have the responsibility to designate which carriers will be eligible to receive support, and, thus, states should have  XH-the responsibility to establish and monitor service quality levels.K.H} yO-ԍ Taconic Tel. reply comments at 4.K  X -c100.` ` Technical Standards. Some parties propose specific technical standards, such as transmission rates. For example, Merit argues that carriers should be required to provide voice grade access to the public switched network capable of supporting highspeed modem  X -access./ * } {O-ԍ Merit comments at 2 (proposing an initial definition of "high speed" equal to 28,000 kbps). See also People For comments at 10. Michigan Consumer Federation contends that quality standards tied to performance  X -level requirements are preferable to technical specifications that may become obsolete.U0 } yO-ԍ Michigan Consumer Federation comments at 8.U Michigan Consumer Federation argues that the Commission must ensure that any technical  X-standard setting bodies to which it defers include public representation.U1} yOU-ԍ Michigan Consumer Federation comments at 7.U NorTel, in contrast, supports the Commission's tentative conclusion that it is unnecessary for the Commission to  Xb-prescribe specific technical standards to ensure quality telecommunications services.2b} yO!-ԍ NorTel reply comments at 4 (also arguing that the industry should focus on the development of standards specifically adapted to the needs of rural and high costs areas).  X4-d101. ` ` Quality of Service Reporting Requirements. Several commenters contend that"442*&&dd"  X-imposing reporting requirements would be unduly burdensome to carriers.3} {Oy-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 4; Taconic Tel. reply comments at 4. For example, MCI argues that new entrants have no incentive to provide lower quality services, and, thus, although states should monitor quality of service generally, they should not burden new  X-entrants with the cost of collecting and filing service quality data.4XZ} yO-ԍ MCI comments at 22 (also arguing that the Commission and Joint Board should create a higher burden for any state that seeks to implement reporting requirements on new entrants that are equivalent to those imposed on incumbents). USTA contends that efforts to increase regulatory requirements are contrary to the 1996 Act's intent to provide for  X-a procompetitive, deregulatory national policy framework.e5z} {O -ԍ USTA comments at 14. See also ALTS comments at 20. e A few state commissions, however, argue that information that would enable comparisons between the performance  X_-levels of various telecommunications carriers must be available to consumers.6_ } yO-ԍ Florida PSC comments at 1819; NASUCA comments at 10; North Dakota PSC comments at 3; OPCDC comments at 14.  X1-e102.` ` Using PubliclyAvailable Data. A few parties maintain that carriers are already required to file quality of service reports with state agencies to which the Commission could  X -have access if necessary.~7 d } yO-ԍ AlabamaMississippi Tel. Ass'n comments at 4; Pennsylvania PUC reply comments at 17.~ GTE argues that the Commission's ARMIS reporting requirements on certain price cap carriers already provide the Commission with service quality  X -information on mandatory price cap carriers.A8 } yOz-ԍ GTE comments at 7 n.15.A North Dakota PSC, in contrast, states that the Commission would have to extend its reporting requirements to obtain quality of service information because many small carriers are currently exempt from its quality of service  X-oversight and from the Commission's existing reporting requirements.I9 } yO-ԍ North Dakota PSC comments at 3.I In addition, CWA argues that many states do not have service standards and that some that do have standards do  Xb-not make quality information available to the public.d:b} yO' -ԍ CWA comments at 6 (referring to a 1992 NARUC publication).d  X4-f103.` ` Future Evaluation of Continued Monitoring. North Dakota PSC argues that the Commission should review the need for quality of service reports as local service competition  X-develops.I;} yO[%-ԍ North Dakota PSC comments at 4.I"54;*&&ddF"Ԍ X-ԙ` ` 3. Discussion (#  X-g104. ` ` The 1996 Act enunciates the principle that "quality services" should be  X-available.M<} {O4-ԍ See 47 U.S.C.  254(b)(1).M We refrain from recommending that the Commission require that eligible carriers meet specific technical standards established by the Commission as a condition to receiving universal service support. We have already recommended the specific definitions of the services a telecommunications carrier must provide before receiving support. While we decline to recommend that the Commission establish federal service quality standards beyond the basic capabilities that carriers receiving universal service support must provide, we recognize that states may adopt and enforce service quality rules, on a competitively neutral basis, consistent with section 253(a), which furthers the congressional intent of ensuring that all Americans have quality services at just, reasonable and affordable rates.   X -h105. ` ` We recommend that the Commission, to the extent possible, rely on existing data to monitor service quality. Because many states already have adopted service quality  X -requirements,0=Z Z} {O-ԍ See, e.g., National Regulatory Research Institute, Telecommunications Service Quality (March 1996) (indicating that 32 state regulatory commissions and the District of Columbia have instituted quality of service standards since the AT&T divestiture).0 we do not recommend that the Commission undertake efforts to collect quality of service data in addition to those already in place with respect to price cap LECs. In many cases, additional requirements by the Commission would duplicate the states' efforts.  Xb- Instead, we recommend that state commissions submit to the Commission the service quality data provided to them by carriers. We further recommend that the Commission not impose  X4-data collection requirements on carriers at this time.>l 4|} yOa-ԍ We note that the Commission already imposes quality reporting requirements on some carriers. For example, price cap LECs are required to file service quality reports with the Commission. The ARMIS 4305 and ARMIS 4306 reports provide measures of service quality. Specifically, the ARMIS 4305 report covers service LECs provide to IXCs (Table I), the provision of local service (Table II), blockage on common trunk groups between the LEC wire centers and access tandems (Table III), LEC switch downtime (Table IV), and service quality complaints filed with the Commission and with state commissions (Table V). Table I of the  {O-ARMIS 4306 report covers subjective measures of customer satisfaction. See Second Report and Order, 5 FCC  {O-Rcd 6786 (1990) and Erratum, 5 FCC Rcd 7664 (1990) (LEC Price Cap Order), modified on recon., 6 FCC Rcd  {O-2637 (1991), further modified on recon. 6 FCC Rcd 4524 (1991) (ONA Part 69 Order), Second Further Recon.  {Oo -aff'd 7 FCC Rcd. 5235 (1992), upheld on appeal, National Rural Telecom Association v. FCC, 988 F.2d 174  {O9!-(D.C. Cir. 1993). See also Policy and Rules Concerning Rates for Dominant Carriers, Memorandum Opinion  {O"-and Order, 6 FCC Rcd 2974, pet. for recon. denied 6 FCC Rcd 7482 (1991). Therefore, we conclude that the Commission should rely on service quality data collected at the state level in making its determination that "quality services" are available, consistent with section 254(b)(1).  X-i106.` ` Further, we agree with NECA that competition should ultimately give carriers"6>*&&ddr" the incentive to provide quality services by allowing consumers to choose among various telecommunications providers. We are unpersuaded by the arguments of GVNW and Montana Indep. Telecom., which contend that the Commission should institute specific standards to ensure that competitors provide the same quality service as the incumbent. We believe that most competitors will strive to attain a level of service quality at least equal to the level currently provided by incumbents in order to attract and maintain subscribers. In addition, to the extent quality is readily observable to potential customers, competitive carriers will have an incentive to maintain service quality even in the absence of competition.  X1- G.` ` Revisiting the Definition of Universal Service(#`  X -` ` 1. Background(#  X -  X -j107.` ` 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  X -supported by Federal universal service support mechanisms."C? } yO -ԍ 47 U.S.C.  254(c)(2).C Accordingly, the NPRM provided that the Commission will periodically review, after obtaining Joint Board  Xy-recommendations, the definition of services supported by universal service mechanisms.:@yX} yO-ԍ NPRM at para. 2.: The NPRM suggested that the Joint Board and the Commission may wish to revisit the  XK-definition of universal service at fixed intervals such as fiveyear periods,A$K} yO-ԍ NPRM at para. 67 (citing Rulemaking on the Commission's Own Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643, R.9501020; and Investigation on the Commission's Own  {Ot-Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643, I.9501020, Interim  {O>-Opinion (Cal. Pub. Utils. Comm'n, filed Jan. 24, 1995)). but stated that, contingent upon the information collected in a Commission proceeding mandated by section  X-706 of the 1996 Act, the topic may be reconsidered even sooner.B} yO-ԍ NPRM at para. 67 n.147 (citing 47 U.S.C.  706(b) which states "[t]he Commission shall, within 30 months after the date of enactment of this Act, and regularly thereafter, initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans. . . . The Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion."). The NPRM stated that, in order to apply the criteria set forth in section 254(c)(1), additional information specifically, the extent to which particular services "are being deployed in public telecommunications networks" and "have been subscribed to . . . by a substantial majority of residential  X-customers" must be obtained.cC } {O$-ԍ NPRM at para. 67 (citing 47 U.S.C.  254(c)(1)).c The NPRM recognized that, although periodic review could help to ensure that the definition does not remain static, it could also entail the"7C*&&ddp"  X-expenditure of resources on unnecessary proceedings.;D} yOy-ԍ NPRM at para. 67.; Therefore, the NPRM proposed to rely on information sources that already exist and to initiate additional data collection efforts only if existing information is inadequate to assess proposed changes to the definition of universal service and a cost/benefit analysis demonstrates that the burden of collection would  X-not outweigh the value of the information requested.;EX} yO-ԍ NPRM at para. 67.;  Xv-` ` 2. Comments (#  XH-k108.` ` Periodic Reassessment. GTE proposes adopting the California PUC's plan for  X1-reviewing the definition of universal service.<F1} yO -ԍ GTE comments at 3.< Under the California PUC plan, a review is  X -made no more frequently than every three years.[G x} yOC-ԍ California PUC comments at 17; GTE comments at 3.[ According to GTE, the California plan  X -avoids toofrequent review, which can entail "unnecessary expenditure of resources"VH } yO-ԍ GTE comments at 3 (citing NPRM at para. 67).V and  X -allows eligible carriers to plan their network investments efficiently over time.<I } yO5-ԍ GTE comments at 3.< GTE and California PUC propose a system whereby parties wishing to amend the definition can petition  X -the Commission to add a new element if three years have passed since the last review.[J ( } yO-ԍ California PUC comments at 18; GTE comments at 3.[ GTE also recommends that the Commission could set a maximum interval, such as five years,  X-after which it would undertake a review if no petition has been acted upon.<K } yO-ԍ GTE comments at 3.<  X   Xb-l109.` ` Harris advocates allowing NARUC to decide when to reconsider the definition  XK-of universal service.?LKH } yOD -ԍ Harris comments at 6.? North Dakota PSC suggests that the list of services supported should be revisited each year for the first five years after implementation, and, thereafter, considered  X-every two years, with a monitoring report filed during the "off" years.IM} yO#-ԍ North Dakota PSC comments at 3.I New York DPS"8hM*&&dd"  X-recommends a triennial review.HN} yOy-ԍ New York DPS comments at 16. H Ohio Consumers' Council suggests a review no later than two years after the Commission's rules are issued and  X-no less often than every two years thereafter.QOX} yO-ԍ Ohio Consumers' Council comments at 18.Q USTA recommends implementing a review at  X-least every five years, but not more frequently than every three years.>P} yOT-ԍ USTA comments at 13.> Telec Consulting  X-recommends a periodic review set at fixed intervals such as every two or three years.JQx} yO -ԍ Telec Consulting comments at 15.J Wisconsin PSC advocates a biennial review, but believes that public comment and a Joint Board recommendation on the issue of reporting conditions should not be addressed until after new universal service programs are in place, so that the effectiveness of any new programs  XH-can be measured.JRH} yO-ԍ Wisconsin PSC comments at 1213.J  X -` ` 3. Discussion (#  X -m110.` ` We recommend that the Commission convene a Joint Board no later than January 1, 2001, to revisit the definition of universal service. We find that the Joint Board's and Commission's approach to revisiting the definition of universal service must strike a reasonable balance between too frequent reviews, which could result in an unnecessary expenditure of resources, and sporadic evaluation, which may not produce a definition of universal service that is consistent with the principles enumerated in section 254(b) and reflect the definitional criteria of section 254(c). In addition, the Commission may institute a review  XK-at any time upon its own motion or in response to petitions by interested parties.CSZK} yO-ԍ We note that, in complying with the statutory mandate of section 706(b) of the 1996 Act, the Commission may take additional steps to determine whether advanced telecommunications capability is being  {O$-deployed to all Americans. See 1996 Act,  706(b). C  X-n111.` ` We find the record to be insufficient at this time to support our recommending that the Commission adopt reporting requirements in order to collect data that may assist the Commission in reevaluating the definition of universal service. We recognize that, in order to apply the criteria set forth by Congress in section 254(c)(1), the Commission will need information regarding, for example, 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." Nevertheless, we recommend  X|-that the Commission base future analyses of the definition of universal service, inter alia, on"|9 S*&&ddP" data derived from the Commission's existing data collection mechanisms such as those collected through ARMIS.  X- V.  AFFORDABILITY  Xv-A.` ` Overview (#`  XH-o112. ` ` The 1996 Act states that "quality services should be available at just,  X1-reasonable, and affordable rates."ZT1} yO -ԍ 47 U.S.C.  254(b)(1) (emphasis added).Z This section examines the various ways the term "affordable" may be defined. In addition, it considers what factors should be considered in examining affordability including subscribership levels and other nonrate factors that may influence a consumer's decision to subscribe to local telephone service. Finally, in this section, the Joint Board considers the roles the Commission and state commissions should play in ensuring rates are affordable.  X- B.` ` Affordability (#`  Xd-` ` 1. Background (#  X6-p113. ` ` Section 254(b)(1) provides that "[q]uality services should be available at just,  X-reasonable and affordable rates."CUX} 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 just, reasonable  X-and affordable."V} {O-ԍ 47 U.S.C.  254(i). See also S. Rep. No. 230, 104th Cong., 2d Sess. 134 (1996) (Joint Explanatory Statement). The NPRM, noting that the "affordable" criterion has not previously been addressed in the context of universal service, requested comment on how the Joint Board can  X-assess whether affordable service is being provided to all Americans.@WB} yO-ԍ NPRM at para. 4.@ To facilitate discussion of the concept of affordability, the NPRM cited a dictionary definition of the term  X-"afford."XZ} {O"-ԍ NPRM at para. 4 (citing Webster's New World Dictionary at 23 (William Collins, Second College ed. 1980) ("afford" is defined as follows: "to have enough or the means for; bear the cost of without serious inconvenience")). The NPRM also sought comment proposing standards for evaluating the": X*&&dd3"  X-affordability of all telecommunications, not merely telephone exchange, services.eY} yOy-ԍ NPRM at para. 14 (citing 47 U.S.C.  254(c), (i)).e Specifically, the NPRM asked commenters to identify the criteria or principles that should be used to determine "affordable" rates, and whether there should be procedures to recalibrate these rates to reflect changes in inflation or other factors that may make periodic readjustment  X-necessary.;ZX} yO-ԍ NPRM at para. 25.;   Xv-q114. ` ` In addition to seeking public comment in the NPRM, on July 3, 1996 the Commission's Common Carrier Bureau released a Public Notice to supplement the NPRM's  XH-requests for comment ("Public Notice").Y[H} yO -ԍ Public Notice (DA961078) (rel. July 3, 1996).Y The Public Notice asked, inter alia, whether it is appropriate to assume that current rates for services included within the definition of universal  X -service are affordable, despite variations among companies and service areas.k\ x} yOE-ԍ Public Notice (DA961078) (released July 3, 1996) at question 1.k In addition, the Public Notice requested comment on the extent to which factors other than rate levels, such as subscribership levels, telephone expenditures as a percentage of income, cost of living, or local calling area size, should be considered in determining the affordability and reasonable  X -comparability of rates.] } yOy-ԍ Public Notice at question 2. The Public Notice also asked for comment on whether a specific national  {OA-benchmark rate for core services should be established. This issue is discussed infra in section IV.  X-` ` 2. Comments (#  Xd-r115. ` `  In General. As a preliminary matter, a few parties address how the word "affordable" should be defined. Texas OPUC, for example, maintains that "affordable" is not determined by whether one can pay a certain rate, but whether that price causes a serious  X-detriment, consequence, or inconvenience.D^b } yO2-ԍ Texas OPUC comments at 12.D United Church of Christ opposes defining  X-"affordability" as "acceptable harm."P_ } yO -ԍ United Church of Christ comments at 5.P Michigan Consumer Federation argues that the Webster definition cited in the NPRM is misplaced because, it argues, the concept of affordability "clearly means rates that are at or below the true and reasonable cost of  X-providing service."V` } yO$-ԍ Michigan Consumer Federation comments at 18.V AARP asserts that the relative concept of affordability, i.e., "to bear the  X-cost of without serious inconvenience," must be given equal emphasis as the absolute concept,";`*&&dd"  X-"to have enough or the means for."a} yOy-ԍ AARP comments at 6; CPI reply comments at 8; Ohio Consumer's Council reply comments at 10. Specifically, AARP avers that the concept of affordability should be defined to mean that people are not forced to pay so much for a  X-necessity that it causes serious inconvenience or detriment.CbX} yO-ԍ AARP comments at 7.C America's Carriers warns against defining "affordability" so that it equates with "free" and creates an entitlement to  X-telecommunications services.Kc} yO= -ԍ America's Carriers comments at 3.K  Xv-s116. ` ` Current Rates. Many commenters believe it is appropriate to conclude that  X_-current rates are affordable.gd_x} {O -ԍ See, e.g., AT&T comments at 16; BellSouth comments at 1; MCI comments at 4 n.4; Missouri PSC comments at 4; NCTA comments at 34; Time Warner comments at 6; Sprint comments at 9; West Virginia Consumer Advocate comments at 8; CPI reply comments at 8; AT&T further comments at 3; AirTouch further comments at 2; Ameritech further comments at 4; Bell Atlantic further comments at 1; Century further comments  yO-at 6; NYNEX further comments at 1; PacTel further comments at 57; Time Warner further comments at 2; Vanguard further comments at 23.g Time Warner contends that there is a high rate of acceptance  XH-of prevailing prices which indicates that rates are within an affordable range.LeH } yO-ԍ Time Warner further comments at 2.L BellSouth, AirTouch, and TCI argue that rates could be raised without significantly affecting  X -affordability.f } yOM-ԍ AirTouch further comments at 23; BellSouth further comments at 12; TCI further comments at 5. Other parties conclude that urban rates may be considered affordable, but that  X -rural rates must be equivalent to urban rates in order to be deemed affordable.eg } yO-ԍ Pennsylvania RDC comments at 2; Sprint comments at 9.e A few parties argue that the Commission cannot make a determination that existing rates are  X -affordable without explicitly defining "affordable."fh } {O(-ԍ See, e.g., Media Access Project further comments at 2.f  X -t117. ` ` Several commenters argue that the Commission may not conclude that current  X-rates are affordable.i4} {Ou!-ԍ See, e.g., Alliance for Public Technology further comments at 2 (stating that "a rate is not affordable unless it is the lowest rate that would be possible if the least cost transmission mode were used for that bandwidth"); ITC further comments at 1 (stating that local rates are often "subject to political considerations, the target of contributions, the product of 'value of service' pricing, subject to concurrence in other Exchange Carrier  yO$-local tariffs and often [set] absent any knowledge of true costs"); Maine PUC further comments at 13 (arguing that rates set by states are influenced by a variety of factors); Media Access Project further comments at 1"_%h*&&%" (arguing that current rates are likely to be artificially high as telecommunications providers are operating in a monopoly market); Vitelco further comments at 12 (stating that a company's existing rates must be measured against service areas and subscribers' income levels); Washington UTC further comments at 2 (arguing that affordability of current rates depends on the relationship between a serving company's costs and prices and nonrate factors). For example, Maine PUC cites "formidable measurement problems""<xi*&&dd" that must be overcome before any conclusion regarding the effect of rates on universal service for a particular area can be made, including differences among state policies on which rates  X-are based.Pjx} yO-ԍ Maine PUC further comments at 2.P In addition, ITC contends that rates are "far from being usable as a measure of affordability" because they are often subject to political considerations and other variable  X-factors.Fk} yO] -ԍ ITC further comments at 12.F  Xv-u118. ` ` Subscribership Levels and Other NonRate Factors. Some parties oppose considering affordability in terms of factors other than rates, such as subscribership and  XH-household income levels.lH} yO-ԍ AT&T further comments at 3; Ameritech further comments at 7; CompTel further comments at 6; GTE further comments at 5. Ameritech argues that any relationship that may exist between  X1-nonrate factors and affordability has not been established.m1 } yO-ԍ Ameritech further comments at 7 (arguing that the Commission should undertake an empirical study on impediments to subscribership before considering nonrate factors). Similarly, Sprint asserts that  X -rates have little to do with subscribership levels.Gn H } yO-ԍ Sprint further comments at 2.G Time Warner maintains that, before mandating that nonrate factors be considered when determining affordability, the Commission should consider whether data reflecting these nonrate factors are readily available, whether it will be difficult to obtain any necessary data, and what costs are associated with gathering and  X -processing the requested data with respect to individual consumers or groups.Lo } yOG-ԍ Time Warner further comments at 6.L United Church of Christ opposes linking affordability to subscribership levels because, it argues, in some markets consumers have no choice but to pay rate increases or do without  Xy-telecommunications services.~pyh} {O!-ԍ United Church of Christ comments at 6. See also Edgemont reply comments at 3.~ PacTel asserts that affordability is not necessarily correlated with income because, it argues, "affordability is a very personal decision based on many  XK-different factors for each individual."BqK} yO$-ԍ PacTel comments at 23. B "4=q*&&dd"Ԍ X-v119. ` ` Many parties contend that the present subscribership level indicates that current  X-rates are affordable.$r} yOb-ԍ NTIA reply comments at 12; AT&T further comments at 3; Ameritech further comments at 46; Citizens Utilities further comments at 2; GTE further comments at 5; MCI further comments at 12; MFS further comments at 2; Minnesota Indep. Coalition further comments at 1; NECA further comments at 1; NCTA further comments at 2; NYNEX further comments at 1; SWBT further comments at 2; TCI further comments at 5; Teleport further comments at 12; U S West further comments at 12; Vanguard further comments at 23.$ Vanguard argues that the Commission should take official notice of its own subscribership reports as demonstrating that current rates are sufficiently low to promote  X-widespread subscribership.OsXx} yO -ԍ Vanguard further comments at 2 (citing "Telephone Subscribership in the United States," Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission (released June 1996) (estimating that 93.8 percent of all households in the United States have telephone service).O Ameritech asserts that, even considering the lowest penetration rate in the various states referring to an 85 percent subscribership rate in New Mexico it is not unreasonable to conclude that telephone services are generally available when at least  Xv-85 percent of households subscribe to "core" services.Jtv} yO-ԍ Ameritech further comments at 4.J  XH-w120.` ` Other commenters argue that current subscribership levels demonstrate that  X1-rates are not affordable to all Americans.u1( } yO -ԍ Maine PUC comments at 3; Benton further comments at 2; CFA further comments at 1; Puerto Rico Tel. Co. further comments at 12. For example, New Mexico AG contends that the difference in subscribership rates between households with incomes above $50,000.00 and those below that amount indicate that affordable service is not currently available to all  X -Americans.tv } {O-ԍ New Mexico AG comments at 2. See also Benton further comments at 2.t Similarly, Idaho PUC argues that although prices could probably rise without a drastic reduction in subscribership, this does not mean that rates should be allowed to rise, as  X -affordability is a question of consumers' priorities, not just service prices.Dw } yO-ԍ Idaho PUC comments at 89.D  X-x121. ` ` Some commenters contend that affordability should be linked to subscriber  Xy-incomes.8xZy} yO -ԍ Ad Hoc Telecom. Users. comments at 20; California Dept. of Consumer Affairs comments at 18; Puerto Rico Tel. Co. comments at 10; SWBT comments at 10; AirTouch further comments at 3; Bell South further  {O\"-comments at 3. See also GTE comments at 8.8 For example, some parties view the percentage of a subscriber's income that is  Xb-spent on telecommunications expenditures as an appropriate way to assess affordability.Uyb} {O$-ԍ See, e.g., CFA further comments at 2.U SWBT and USTA support identifying the "affordable rate" for local service as 1 percent of"K>Vy*&&dd"  X-the statewide and national median household income, respectively.z} {Oy-ԍ SWBT comments at 1011; USTA comments at 15 n.21. See also BellSouth further comments at 2. AARP, however, arguing that residential rates would increase because residential customers currently spend less  X-than this amount on basic services on average, opposes these approaches.E{Z} yO-ԍ AARP reply comments at 78.E Other parties  X-favor measuring affordability by considering consumers' disposable income.a|} yOV-ԍ PULP comments at 7; Puerto Rico Tel. Co. comments at 6.a U S West, for example, supports comparing telephone service expenditures to expenditures for cable television services, entertainment services, other communication services, or other  Xv-discretionary household expenditures.I}vz} yO -ԍ U S West further comments at 2.I BellSouth argues that the affordability criteria should be based on what subscribers or households on the margins of the poverty level, specifically  XH-at 125 percent of the poverty level, consider to be affordable.F~H } yO-ԍ BellSouth comments at 3132.F  X -y122.  Some commenters argue that the concept of affordability must account for a consumer's entire telecommunications expenditure, and not just include the cost of local  X -service.X } yO7-ԍ Century comments at 45; Minnesota Indep. Coalition comments at 79; USTA comments at 1415; Virginia CC reply comments at 2; AirTouch further comments at 3; Minnesota Indep. Coalition further comments at 3. For example, PULP recommends considering the costs to a consumer of connection charges, deposits, advanced payments, late payment charges, and other costs  X -needed to obtain or reinstate service.= } yO)-ԍ PULP comments at 9.= Similarly, OPCDC argues that affordability might be  X -measured by the number of terminations or suspensions for nonpayment.[ J } yO-ԍ PULP comments at 89; OPCDC reply comments at 7.[ In addition, ITC argues that underlying costs such as access charges and wholesale rates for resold services  Xy-must also be affordable so that carriers can offer affordable services to end users.>y} yO -ԍ ITC comments at 56.> Several parties argue that calling scope must be factored into a determination of affordability, as rural  XK-consumers must often place toll calls outside their local calling areas.|"Kj} {Of#-ԍ See, e.g., AARP comments at 18; Century comments at 46; Keystone comments at 8; Rural Iowa Indep. Tel. Ass'n comments at 3; Telec Consulting Resources comments at 5; Minnesota Indep. Coalition reply comments at 34; Alaska Tel. further comments at 5; CFA further comments at 23; Western Alliance further comments at 2.| For example, Rural"K?T*&&dd" Iowa Indep. Tel. Ass'n asserts that rural subscribers may have to place toll calls to reach  X-schools, health care providers, and other institutions.U} yOb-ԍ Rural Iowa Indep. Tel. Ass'n comments at 3.U NECA contends that calling scope and total amount of bills should be considered, but subscribership levels, consumer income,  X-and cost of living should not be presumed to affect affordability.EX} yO-ԍ NECA further comments at 3.E  X-z123. ` ` State and Federal Determination of Affordability. A substantial number of commenters advocate permitting the states to define affordable rates, because of the unique  X_-circumstances of consumers in each state. _} {O -ԍ See, e.g., AARP comments at 18; California Dept. of Consumer Affairs comments at 17; NARUC comments at 5; New York DPS comments at 5; Ohio Consumer's Council comments at 11; PacTel comments at 20; Pennsylvania PUC comments at 9; Texas PUC comments at 5; Washington UTC comments at 7; Fred Williamson comments at 6, 12; CPI reply comments at 89; Virginia CC reply comments at 2; Bell Atlantic further comments at 1; GTE further comments at 8; NYNEX further comments at 2.  PacTel argues that states, in their ratemaking  XH-capacities, should determine what is affordable.GH} yO-ԍ PacTel further comments at 7.G Other parties favor the establishment of a  X1-nationwide affordability rate.-\1* } {O -ԍ See, e.g., AT&T comments at 17; Time Warner comments at 7. The comments of additional parties who  {O-advocate a nationwide affordability benchmark for purposes of establishing high cost support are discussed infra, section VII.C.- Citizens Utilities suggests that a national price affordability standard be created, but that states be permitted to create their own affordability standards and create their own support mechanism to fund the difference between federal support levels and  X -carrier costs that are above the state standard.O N } yO-ԍ Citizens Utilities comments at 1112.O ITC believes that national subscribership  X -goals should be established and affordability should then be determined at the local level.D } yOd-ԍ ITC further comments at 2.D  X-{124. ` ` Readjustment of Affordability. Texas OPUC opposes recalibrating rates to reflect changes in inflation because, it argues, the real cost of providing services is  Xb-declining.Dbn} yO"-ԍ Texas OPUC comments at 14.D Ohio Consumer's Council argues that any recalibration should be based on the growth or decline in consumers' incomes, but that declining industry costs should also be  X4-considered.Q4} yO%-ԍ Ohio Consumer's Council comments at 11.Q Citizens Utilities argues that periodic adjustments to national price affordability"4@*&&dd"  X-standards are necessary to account for inflation and pricing changes.L} yOy-ԍ Citizens Utilities comments at 11.L Similarly, GTE supports an automatic adjustment for inflation to prevent support from being diluted over time  X-and to avoid future concerns regarding the growth of funding levels.AX} yO-ԍ GTE comments at 8 n.16.A     X-` ` 3. Discussion (#  Xv-|125. ` ` In the 1996 Act, Congress not only reaffirmed the continued applicability of the  X_-principle of just and reasonable rates, but also introduced the concept of affordability.O_} yO -ԍ 47 U.S.C.  254(b)(1), 254(i).O Although we believe an increasingly refined understanding of the term affordability will  X1-evolve over time,q1x} yOZ-ԍ The principle of just and reasonable has been interpreted in numerous judicial and administrative  {O"-proceedings. See, e.g., Bluefield Water Works & Improvement Co. v. Public Serv. Commn of West Virginia, 262  {O-U.S. 679, 693 (1923) (finding just and reasonable rate "depends on circumstances, locality and risk"); Federal  {O-Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944) (holding "fixing of 'just and reasonable' rates involves a balancing of the investor and the consumer interests").q we find that the Webster Dictionary definition is instructive in determining how to interpret the concept for purposes of crafting universal service policies consistent with the congressional intent underlying section 254. As AARP and other commenters appropriately note, the definition of affordable contains both an absolute component ("to have enough or the means for") and a relative component ("to bear the cost of without serious detriment"). Therefore, we conclude that both the absolute and relative components must be considered in making the affordability determination required under the statute. We find that an evaluation that considers price alone does not effectively address either component of affordability.  XK-}126. ` ` In general, we find that factors other than rates, such as local calling area size, income levels, cost of living, population density, and other socioeconomic indicators may  X-affect affordability.. } {O-ԍ We note that the specific needs of low income consumers are addressed in section VIII, infra. Washington UTC and other commenters observe that these other factors may vary by region. We conclude that the concept of affordability should encompass a consideration of factors other than rates.  X-~127. ` ` Although subscribership levels can be influenced by many factors, } yO2$-ԍ Subscribership levels may also be influenced by such factors as the level of toll charges or service connection charges. we agree with the many commenters finding a general correlation between subscribership level and"A*&&dd" affordability. We find that a relatively high penetration rate suggests, but does not ensure,  X-that rate levels are affordable.,G} {Ob-ԍ See PULP comments at 6 (arguing that subscription data do not reveal whether a particular service can  X,-be afforded without hardship).#XN\  P ynXP# #A\  P ɒP#As a number of commenters noted, because telephone service is considered a  {O-modern necessity, some consumers subscribe irrespective of whether the rate causes serious inconvenience. See,  {O-e.g., CFA further comments, (App. I) at 12., We further conclude, however, that a low or declining penetration rate may be an indicator that rate levels in a jurisdiction are not affordable. In general, we find subscribership levels provide relevant information addressing the basic  X-question of whether consumers have the means to subscribe to telephone service.#XN\  P ynXP# We find monitoring subscribership to be a tool in evaluating the affordability of rates. It should not,  Xv-however, be the exclusive tool in measuring affordability.Vv} {O -ԍ See Alaska Tel. further comments at 4.V Subscribership levels do not address the second component of the definition of affordability, namely, whether paying the rates charged for services imposes a hardship for those who subscribe.  X -128. ` ` We also find, consistent with the arguments of Montana PSC and other parties, that the scope of the local calling area directly and significantly impacts affordability. The rate design described by Puerto Rico Tel. Co. illustrates the correlation between scope of  X -calling area and rate.P i} yO-ԍ Puerto Rico Tel. Co. comments at 910.P According to Puerto Rico Tel. Co., its rates for unlimited basic residential calling range from $18.80 in the densely populated San Juan area with access to  X -more than 340,000 access lines to $6.45 in an area with access to 200 or fewer access lines." } yOQ-ԍ Puerto Rico Tel. Co. subscribers with access to between 10,000 and 40,000 callers in their local calling area pay $15.10; with access to 5,001 to 10,000, the rate is $14.00; and with access to 201 to 1,000, the rate is  {O-$7.60. Id. See also Alaska Tel. further comments at 5; Minnesota Indep. Coalition further comments at 34; RTC further comments at 7. Implicit in the Puerto Rico Tel. Co. rate design is recognition that, with more limited local calling areas, subscribers may have to incur greater toll charges to reach an equivalent number of lines. If rates charged for local service were the only consideration, the $6.45 rate would be considered "more affordable" than the $18.80 rate. Yet consideration of the scope of the calling area suggests that rates disparate on their face may in fact be similarly affordable for a given level of toll charges. Conversely, identical rates may not be equally affordable when the extent of their associated local calling areas differ. Therefore, the Joint Board concludes that the scope of the local calling area should be considered as another factor to be weighed when determining the affordability of rates. In addition, we find that in considering this last factor, examining the number of subscribers to which one has access for local service in a local calling area alone is not sufficient. A determination should be made that the calling area reflects the pertinent community of interest, allowing subscribers to call hospitals, schools, and other essential services without incurring a toll charge."|B *&&dd"Ԍ X-ԙ129. ` ` Customer income level also is a factor that should be examined when addressing affordability. While a specific rate may be affordable to most customers in an affluent area, the same rate may not be affordable to lower income customers. We agree with the conclusions of many commenters regarding the nexus between income level and ability to  X-afford telephone service.W} {O-ԍ See, e.g., Benton reply comments at 10.W We reject, however, SWBT's proposal to define affordability based on a percentage of national median income. Such an approach would be inequitable because of the significant disparity in income levels throughout the country. For example, a rate equal to 1 percent of the national median income level would equal 7 percent of the  XH-average annual income level for a household in Birch Creek, Alaska.xHZ} {OS -ԍ Alaska PUC comments at 34. See also Florida PSC further comments at 3.x Therefore, we conclude that per capita income of a local or regional area, and not a national median, should be considered in determining affordability. In addition to income level, we agree with CNMI and other commenters that conclude that the cost of living in an area may affect the affordability of a given rate.  X -129A.` ` We also agree with Maine PUC when it recognizes that many variations in a states rates reflect legitimate local variations in rate design. 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 revenues from customers  XM-located a significant distance from the wire center.MM} yO-ԍ Maine PUC comments at 1112. M We find that these factors too should be considered in making the determination of affordability of rates.  X-130. ` ` In summary, we find that a determination of affordability must take into  X-consideration both rates and other factors.V|} {O-ԍ See supra for a list of those factors.V In addition, we agree with commenters that argue that scope of local calling area should be considered in determining whether rates are affordable. We also find that customer income level and cost of living are factors that should be considered on a local rather than nationwide basis in order to accurately capture the effects of local circumstances on affordability. Finally, we conclude that, because a variety of factors contribute to the establishment of local rates, these factors should also be considered when determining whether rates are affordable.  X9-131. ` ` In light of our conclusions regarding the importance of the particular factors other than rates identified in the preceding paragraphs, we recommend that the states exercise primary responsibility, consistent with the standard enumerated above, for determining the" C*&&ddy" affordability of rates. As many commenters note, the characteristics of each jurisdiction are unique, and the states possess both the knowledge and expertise to understand and evaluate these factors and to determine ultimately how they affect rate affordability. In finding that states should assume the primary responsibility in ensuring affordability, we expressly reject the approach favored by some commenters that the Commission designate a nationwide affordable rate. A nationwide affordable rate would ignore the vast differences within and between regions that can affect what constitutes affordable service. Because, as commenters have noted, various factors contribute to the establishment of rates, we further reject the assertion that an average of current unadjusted rates would accurately reflect an affordable rate. To the extent that consumers wish to challenge whether a rate is truly "affordable," we find the state commissions, in light of their ratesetting roles, are the appropriate forums for raising such issues. Additionally, we conclude that the Commission will continue to oversee the development of the concept of affordability, and may take action to ensure rates are affordable, where necessary and appropriate.   X -132. ` ` Although we recommend that the states should make the primary determination of rate affordability, we recognize that Congress, through the 1996 Act, gave the Commission a role in ensuring universal service affordability. Subscribership levels, while not dispositive on the issue of affordability, provide an objective criterion to assess the overall success of state and federal universal service policies in maintaining affordable rates. Therefore, we recommend that, to the extent that subscribership levels fall from the current levels on a statewide basis, the Commission and affected state work together informally to determine the cause of the decrease and the implications for rate affordability in that state. If necessary and appropriate, the Commission may open a formal inquiry on such matters and, in concert with the affected state, take such action as is necessary to fulfill the requirements of section 254. We find that this proposed dual approach in which both the states and the Commission play roles in ensuring affordable rates is consistent with the statutory mandate embodied in section 254(i).  Xe-133. ` ` While we view local rates as generally affordable throughout the nation based on subscribership levels, a formal determination that current rates are affordable is unnecessary at this time given the recommended decisions we reach in the paragraph above. Each state will continue to have the primary responsibility for making the finding that rates for local service are affordable based upon its consideration of the rates in question in light of the abovedescribed nonrate factors.  X!- VI.XCarriers Eligible for Universal Service Support (#  X#- A.` ` Overview (#`  XQ%-134.` ` In this section of the Recommended Decision, we discuss which"Q%D*&&dd $" telecommunications carriers will be eligible to receive support from the federal universal service support mechanisms. We recommend that the statutory criteria set out in section 214(e) be used to determine which carriers are designated eligible telecommunications carriers. Pursuant to section 214(e), carriers must offer all the services supported by the federal universal service support mechanism throughout their service areas to be eligible for universal service support, except that only carriers with the technical capability to offer toll limitation services should be required to offer such services to qualifying lowincome  X_-consumers, as discussed infra in section VIII. Specifically, section 214(e) requires that, throughout its designated service area, an eligible carrier: (1) offer all of the services that are supported by the federal universal service mechanism; (2) offer such services using its own facilities or a combination of its own facilities and resale of another carrier's services; and (3) advertise the availability and charges for such services. In the case of areas served by rural telephone companies, we recommend that such a company's existing study area be used as the designated service area. With respect to areas served by nonrural carriers, the states have primary responsibility for designating the service area. We recommend, however, that the service areas chosen by the states not be unreasonably large.   X{- B.` ` Eligible Telecommunications Carriers (#`  XM-` ` 1. Background (#  X-135.` ` Section 254(e) provides that, after the effective date of the Commission's regulations implementing section 254, "only an eligible telecommunications carrier designated  X-under section 214(e) shall be eligible to receive specific Federal universal service support."@} yOj-ԍ 47 U.S.C.  254(e).@ 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  X-which the support is intended."@X} yO-ԍ 47 U.S.C.  254(e).@ Additionally, section 254(k) prohibits a carrier from using  X-noncompetitive services to subsidize services that are subject to competition.@} yO.-ԍ 47 U.S.C.  254(k).@  Xg-136.` ` Section 214(e)(1) of the 1996 Act provides that:  XP- X(# X"A common carrier designated as an eligible telecommunications carrier under paragraph [214(e)(2)] or [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"Ex*&&dd" 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  X-therefor using media of general distribution."C} yO-ԍ 47 U.S.C.  214(e)(1).Cx`  X_-137.` ` Pursuant to section 214(e)(2), state commissions must, either upon their own motion or upon a carrier's 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  X -the State commission."C X} yO# -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  X -telephone company, } yO@-ԍ The term "rural telephone company" is defined at 47 U.S.C.  153(37) as follows: X"The 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`  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 paragraph (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"4F0*&&dd"  X-the public interest.@} yOy-ԍ 47 U.S.C.  214(e)(2). 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 state to give remaining carriers time to construct or purchase facilities if necessary. 47 U.S.C.  214(e)(4). The NPRM noted that section 214(e)(4) reserves to the states the consideration of requests from designated eligible carriers to relinquish their designation. The Commission invited commenters to identify any of the Commission's regulations that may be inconsistent with that reservation of authority to the states. NPRM at para. 49.   X-138.` ` The NPRM sought comment and the Joint Board's recommendation on various issues raised by the provisions of sections 214(e) and 254(e). It sought comment regarding the need for any measures to ensure that universal service support is used for its intended  X-purpose, as required by section 254(e).;} yO-ԍ NPRM at para. 41.; The Commission also invited commenters to propose means to ensure that all eligible carriers and no ineligible carriers receive the  X_-appropriate amount of universal service support.=_` } yOp-ԍ NPRM at para. 41. = The Commission sought comment on the need to ensure that telecommunications carriers do not use services that are not competitive to  X1-subsidize competitive services, which is barred by section 254(k).;1 } yO-ԍ NPRM at para. 41.; The NPRM further sought comment regarding standards for compliance with the requirement in section 214(e)(1) that eligible telecommunications carriers provide universal service using their own facilities or  X -a combination of their own facilities and resale.; } yO-ԍ NPRM at para. 43.; The Commission also stated its belief that it may be useful to develop guidelines defining the steps that would be sufficient to meet the 1996 Act's requirement that carriers advertise the availability of universal services and the rates charged for those services throughout the service area. The NPRM invited parties to  X-suggest guidelines for such advertising.;} yOQ-ԍ NPRM at para. 46.;  Xb-139.` ` In its Public Notice seeking further comment in this proceeding, the Common Carrier Bureau raised specific questions relating to the provision of high cost support to companies subject to price cap regulation. The Bureau asked whether companies subject to price cap regulation should be eligible for high cost support, and if not, whether the exclusion  X-of price cap carriers would be consistent with the provisions of section 214(e).=} yOW%-ԍ Public Notice at 5.= "G0*&&dd " Alternatively, the Bureau asked if high cost support should be structured differently for price cap carriers than for other carriers. The Public Notice also solicited comment on how a price cap company should be defined, assuming that such companies are treated differently. It asked whether a company participating in a state, but not a federal price cap plan, should be  X-deemed a price cap company.=} yO-ԍ Public Notice at 5.= Finally, the Bureau asked if there should be a distinction between carriers operating under price caps and carriers that have agreed, for a specified period of time, to limit increases in some or all rates as part of a "social contract" regulatory  X_-approach.=_X} yOh -ԍ Public Notice at 5.=  X1-` ` 2. Comments (#  X -140.` ` Eligibility in general. Most commenters argue that any telecommunications carrier that meets the eligibility criteria contained in section 214(e)(1) (e.g., offers and advertises universal services throughout the service area) should be eligible to receive  X -universal service support. } {OW-ԍ See, e.g., 360 comments at 4; ALTS comments at 1213; Colorado PUC comments at 67; CompTel comments at 16; LCI comments at 5; LDDS comments at 47; NASUCA comments at 2223; NCTA comments at 12; PacTel comments at 13; Sprint comments at 1516; WinStar comments at 10; MFS reply comments at 6;  {O-Ohio Consumers' Council reply comments at 1718. See also California PUC comments at 10 (arguing that all carriers of last resort, defined as those willing to serve all customers in a census block group either with their own facilities or on a resale basis, should be eligible.) Commenters specifically argue that the definition of eligible carriers must be technologically neutral, so that CMRS providers, for example, can become eligible for universal service support, particularly since such companies must contribute to universal service support mechanisms and can be cost efficient providers of services in rural  Xb-areas.Zbd } {Ow-ԍ See, e.g., 360 comments at 35; CTIA comments at 34; Vanguard comments at 78; Western comments at 14; AT&T reply comments at 1516; Comnet Cellular reply comments at 6; MCI reply comments at 1516; MFS reply comments at 6.  As discussed in section IV above, some commenters suggest that carriers should be eligible to receive support even if they provide only some of the defined core services, at least  X4-during a transition period, but that any such carrier's support would be reduced.4 } {Ok -ԍ New Jersey Advocate comments at 16. See also Missouri PSC comments 78 (proposing a fiveyear transition period during which carriers could offer some, but not all, core services). Bell Atlantic argues that eligibility should be determined by which states are high cost, not which carriers are high cost. Funds would then be distributed by eligible states to eligible carriers  X-that provide universal service over their own loops.G} yO%-ԍ Bell Atlantic comments at 10.G"Hp*&&dd"Ԍ X-ԙ141.` ` Some commenters maintain that the Commission should issue guidelines to aid  X-the states in determining which carriers are eligible.} {Ob-ԍ See, e.g., AT&T comments at 21; GTE comments at 6; Pennsylvania PUC comments at 22; CompTel reply comments at 13; LDDS reply comments at 6. Several commenters assert that such guidelines should include requiring carriers to provide the core universal services on a stand X-alone basis.""} yO-ԍ AT&T comments at 21; Lincoln reply comments at 67; Ohio Consumers' Council reply comments at  {OV-18. See also NASUCA comments at 2223 (proposing that, to receive funds, carriers must agree to provide basic telephone service on an unbundled basis at prescribed rates); NYNEX reply comments at 2 (arguing that services must be provided as a single package).  NECA argues that the Commission's rules should emphasize that support would be available only to carriers who actually serve the entire service area, not simply  X-portions thereof or selected highvolume customers. } {OJ -ԍ NECA comments at 8. See also SDITC reply comments at 6 (supporting NECA's comments). Some states, however, contend that the designation of eligible carriers should be left entirely to them, perhaps as an adjunct of their  X_-certification process.Z_} {O-ԍ See, e.g., Florida PSC comments at 13; Ohio Consumers' Council comments at 6. See also SWBT comments at 18 (contending that statute expressly leaves to states to certify eligible carriers and Commission has no role in this process).  X1-142.` ` Other commenters contend that additional requirements must be imposed on carriers before they may receive universal service support. For example, some commenters argue that, as a condition of eligibility, new entrants must meet the same regulatory  X -obligations as are imposed by the states on the incumbent. } {O]-ԍ See, e.g., Ameritech comments at 12; BellSouth comments at 14 n.26; GTE comments at 67; USTA comments at 23; Tel. Assoc. of Michigan reply comments at 5. Certain commenters contend  X -that these requirements specifically include carrier of last resort (COLR) obligations.2z } {O-ԍ  See, e.g., California PUC comments at 13; Telec Consulting comments at 14. See also ICORE comments at 89 (viewing section 214 requirements as establishing carrier of last resort requirement for rural LECs); Ameritech reply comments at 45. GTE defines a COLR as a carrier eligible for universal support that undertakes the obligations established by a state agency, within federal guidelines, as a condition of receipt of federal universal service support. GTE comments at 8 n.19. GTE suggests that such obligations might include a ceiling on the rate the COLR can charge, terms and conditions of service and quality standards, limits on the carrier's ability to exit, and an obligation to serve all customer in the area. GTE further comments at 4648.2 GTE argues that universal service support can be competitively neutral only if all carriers receiving  X -such support are subject to the same obligations.U \} {O#-ԍ See, e.g., GTE reply comments at 45.U GTE contends that, without symmetrical regulation of all carriers receiving universal support, new entrants may offer the core services throughout the service area in theory only, while in fact targeting low cost customers by"yI*&&dd"  X-quoting them far better prices than it would charge high cost customers.{} {Oy-ԍ GTE comments at 67. See also Tel. Assoc. of Michigan reply comments at 5.{ GTE further maintains that, unless new entrants are subject to the same exit barriers imposed on incumbents, new entrants would race to flee an area, rather than become the sole remaining eligible carrier once any other carrier announced its intention to relinquish its eligibility  X-designation pursuant to section 214(e)(4).Z} {O-ԍ Letter from Whitney Hatch, GTE, to Mr. William Caton, FCC, September 18, 1996, at 4 (GTE ex  {My-parte).Ĩ Ameritech expresses concern that new entrants that are not required to meet COLR obligations, which it defines as a requirement to serve all customers in an area and a barrier to exit, could nevertheless receive the same level of  X_-universal service support as the incumbent, which is subject to such obligations._} yO -ԍ Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. Ameritech argues that such a situation would threaten the incumbent COLR because the new entrant would receive the same level of compensation but with lesser obligations and therefore a  X -lower financial burden. D} yO-ԍ Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. Commenters also propose that carriers be required to meet service  X -quality standards as a condition of eligibility. } yO-ԍ Alaska PUC comments at 17; CWA comments at 6; GTE comments at 7 n.15; Texas PUC comments at 3. WinStar argues that telecommunications carriers, to be eligible, must meet the minimum broadband capability standards set forth in the  X -Rural Electrification Loan Restructuring Act.F , } yO-ԍ WinStar reply comments at 4.F  X -143.` ` Some commenters would exclude certain classes of carriers from eligibility. Certain rural carriers contend that only statecertified carriers should be eligible for support and that, for the foreseeable future, the incumbent LEC will continue to be the carrier of last  Xb-resort for rural areas and should be the proper recipient for such support.b } {O-ԍ See, e.g., AlabamaMississippi Tel. Ass'n comments at 6; Farmers Tel. comments at 4; MonCre comments at 4; New Hope Tel. comments at 4. Cincinnati Bell asserts that the new entrants should not be eligible for support because their decisions to enter new markets should be based on market forces, not the availability of subsidies, and because new entrants do not have any of the obligations from past regulatory decisions, such as average pricing, implicit crossproduct subsidies, and depreciation rates that do not reflect a  X-competitive environment.L} yO$-ԍ Cincinnati Bell comments at 1011.L Rural Iowa Indep. Tel. Ass'n argues that only private sector entities should receive universal service support because of Congress's expressed goal of"J*&&dd"  X-rapidly accelerating private sector deployment of advanced telecommunications.T} yOy-ԍ Rural Iowa Indep.Tel. Ass'n comments at 2.T Frontier argues that only small companies defined as those with less than 50,000 access lines in a  X-state should be eligible for support. X} yO-ԍ Frontier comments at 6. Frontier achieves this result by proposing that, in determining the service areas that a designated eligible carrier must serve, the states include in that area all of an incumbent LEC's access lines in the state. Any area that is served by an incumbent LEC that serves more than 50,000 access lines would not qualify for high cost support. Frontier comments at 7. Alliance for Public Technology, on the other hand, suggests that small telephone companies should not receive support because they are  X-"uneconomic business enterprises."]@} yO -ԍ Alliance for Public Technology comments at 14 n.11.] GVNW responds that excluding small telephone companies from support would discourage the development of advanced telecommunications since small companies provide advanced services to consumers that larger companies  X_-traditionally have not served well.E_} yO-ԍ GVNW reply comments at 34.E   X1-144.` ` Exclusion of price cap companies. Several commenters argue that carriers  X -subject to price cap regulation should not be eligible for universal service support. ` } {O--ԍ See, e.g.,Time Warner comments at 1112; Staurulakis comments at 1112; NCTA further comments at 8; Teleport further comments at 78 . Time Warner, for example, asserts that carriers subject to incentive regulation, such as price caps, have flexibility and increased earnings opportunities and are expected to accept and anticipate risks from which rateofreturn regulated companies have been insulated. Time Warner argues that price cap regulated companies, having been given the opportunity for increased  X -earnings, should not have increased earnings guaranteed through universal service support.H } yO-ԍ Time Warner comments at 1112.H Teleport maintains that price cap companies should not be eligible because they have agreed that they have full responsibility for their costs. It further contends that permitting universal service subsidies would undermine the incentive of price caps. To retain competitive neutrality, Teleport proposes to exclude any carrier from receiving support in an area where  X6-the incumbent is a price cap carrier and for that reason is excluded from eligibility.K6J } yO1!-ԍ Teleport further comments at 78.K  X-145.` ` Some commenters maintain that, while price cap companies should be eligible for universal service support, such companies should receive different treatment. Some commenters argue price cap companies should not receive high cost support unless they can"K*&&dd"  X-demonstrate the need for such support on a statewide or companywide basis.x} yOy-ԍ ALTS further comments at 79 (arguing that carriers subject to price cap regulation should not receive universal service support unless and until they can show that without an explicit subsidy the company as a whole will be unable to earn a fair return); AirTouch further comments at 21 (arguing that price cap regulated companies must be required to base claims of high costs on the same level of aggregation as the price cap ceilings, i.e, an RBOC must show high costs on average over its entire multistate service area); SNET further comments at 6 (arguing that "[p]rice cap companies should not be eligible for highcost support unless they meet the highcost support test for their entire service area"). ALTS contends that such different treatment is entirely reasonable given the flexibility that price cap regulation grants these companies and that these companies, by agreeing to price cap regulation, have signalled their ability to manage overall costs and make a reasonable firm X-wide profit, even if they operate in some high cost areas.G} yO] -ԍ ALTS further comments at 79.G CFA argues that companies should be eligible for support only if the price cap includes an exogenous factor that would  Xv-allow rates to be adjusted up or down if the level of high cost support changes.v} yO-ԍ CFA further comments at 13. Maine PUC notes that many state price caps expressly provide for rate adjustments following changes in high cost assistance levels. Maine PUC further comments at 17 n.12. CFA further maintains that such an adjustment should not occur if the carrier's loss of revenue is  XH-the result of competition rather than a loss or reduction of high cost support.EH } yO-ԍ CFA further comments at 13.E MCI argues that price cap companies should not be treated differently if costs are computed using MCI's proposed methodology but that these companies should not be eligible for high cost support that is computed based on the carrier's booked costs as this would dilute the price cap  X -incentives to control costs.!Z } {O-ԍ MCI further comments at 1314. See also TCI further comments at 26 (arguing that price cap companies should not be eligible in areas where they face little or no competition and where the universal service subsidy is based on booked costs).! NYNEX, while arguing that price cap companies are eligible to receive support, contends that support should be structured differently for price cap companies. It maintains that the Commission should use a cost proxy model like the Benchmark Cost Model (BCM) to identify areas served by price cap LECs that are likely to have higherthanaverage costs. NYNEX argues that carriers subject to rateofreturn regulation, however, should have universal service support levels based on such company's  Xb-"actual" costs determined on a study area basis.Sb} yO!-ԍ NYNEX further comments at 2021, 2426. S  X4-146. ` ` Most commenters, however, argue that price cap companies should not be excluded from receiving universal service support or treated differently from other companies"L2*&&dd)"  X-receiving such support.F} {Oy-ԍ See, e.g., AT&T further comments at 2627; Ameritech further comments at 2627; BellSouth further comments at 3435; Bell Atlantic further comments at 10; Citizens Utilities further comments at 89; GSA  {O -further comments at 56; GTE further comments at 3133; MFS further comments at 36; Maine PUC further comments at 1618; NECA further comments at 2021; PacTel further comments at 30; Puerto Rico Tel. Co. further comments at 9; RTC further comments at 1819; SWBT further comments at 2425; Sprint further  {Oe-comments at 89; USTA further comments at 2122; U S West further comments at 15. See also ITC further comments at 1213 (arguing that, while price cap companies should not be excluded, there may be a need for some special cost allocation rules or other minor changes in the way they are treated).  They argue that excluding price cap companies would be contrary to the statute and that the cost characteristics of a particular area and the obligations that the carrier has agreed to undertake, not the carrier's regulatory regime, govern the determination  X-of eligibility.} {OB -ԍ See, e.g., BellSouth comments at 3435; Ameritech further comments at 2627; Bell Atlantic further comments at 10; Citizens Utilities further comments at 89; GTE further comments at 3233 (arguing that price cap companies cannot be excluded from eligibility as a matter of law); Maine PUC further comments at 1618; PacTel further comments at 30; SWBT further comments at 2425; Sprint further comments at 89; USTA further comments at 2122. Alliance for Public Technology asserts that price cap regulation is an important tool to promote competition and excluding price cap companies from receiving  X-support would discourage the use of price caps.I } {O-ԍ Alliance for Public Technology further comments at 1012. See also Maine PUC further comments at 17 (excluding price cap companies would have the perverse effect of discouraging the form of regulation the 1996 Act encourages). Alliance for Public Technology also argues that the Commission should utilize the universal service proceeding to address ways to require or ensure that price cap regulation can be used to finance the deployment of advance telecommunications services. Alliance for Public Technology further comments at 1112.I Bell Atlantic contends that excluding price  Xv-cap companies would increase the incentive of such companies to sell high cost exchanges.Ov:} yOa-ԍ Bell Atlantic further comments at 10.O  X_-Bell Atlantic also contends that it would be very difficult to define a price cap carrier._} {O-ԍ Bell Atlantic further comments at 10. See also Citizens Utilities further comments at 9. Citizens Utilities points out that many smaller companies that serve rural, high cost areas are subject to price cap regulation and an exclusion of price cap companies would not just affect  X -the large companies.U \} yO'-ԍ Citizens Utilities further comments at 89.U NYNEX contends that, since the Commission has decided in the  X -Local Competition Order to remove most of the access charge revenue stream from the rates for unbundled elements, the price cap LECs will require universal service support to replace the contribution from access charge revenues that they have used to support affordable service  X -to high cost areas.G } yO]$-ԍ NYNEX further comments at 24.G Sprint argues that excluding price cap carriers would result in a policy that is not competitively neutral, since a nonprice cap competitor could receive a subsidy in a" M|*&&dd"  X-high cost area served by the excluded price cap LEC.I} yOy-ԍ Sprint further comments at 89.I Sprint also asserts that excluding price cap carriers would violate the statute's directive to make universal service funding explicit because many price cap carriers today maintain internal, implicit subsidies between  X-low cost and high cost areas in their regions.IX} yO-ԍ Sprint further comments at 89.I Washington UTC opposes any blanket exclusion of price cap companies and contends that the issue should be decided by state  X-commissions on a casebycase basis.P} yO& -ԍ Washington UTC further comments at 18.P  X_-147. ` ` Those carriers proposing to exclude or vary the treatment of carriers subject to price cap regulation suggest varying definitions of what would constitute a price cap company for these purposes. Some argue that a price cap company should be defined as a company  X -subject to price cap regulation at the federal or state level or pursuant to a social contract.] x} {OC-ԍ See, e.g., AirTouch further comments at 22. ] Some commenters also maintain that the definition should include any form of regulation that  X -is, in substance, similar to price cap regulation.$x } yO-ԍ ALTS further comments at 9 (companies subject to any plan that gives the carrier sufficient pricing flexibility to warrant different treatment); AirTouch further comments at 22; (any company subject to any plan in which rateofreturn review is suspended); NCTA further comments at 8 (any carrier under a form of regulation, at the federal or state level, that permits it to retain earnings substantially above what it could earn under rateofreturn regulation); Teleport further comments at 8 ("If it looks like price caps, then it should be treated like price caps."); Time Warner further comments at 36 (any incentive regulation that offers the incumbent LEC significant regulatory and pricing flexibility and the ability to increase earnings substantially).$ ITC contends that only carriers subject to  X -the Commission's price caps should be considered for these purposes.X J } yO-ԍ ITC further comments at 1314; SNET further comments at 6 (arguing that, for a federal universal service mechanism, a price cap company should be defined as one under price cap regulation at the federal level). MCI maintains that only companies under the price caps at the federal level should be included if the Commission adopts an interstateonly fund and, if the Commission adopts a unitary fund, then companies  X-under price caps at the state or federal level would be included.Hj} yO -ԍ MCI further comments at 1314.H In either case, MCI would include companies under either explicit price caps or a "social contract" to limit price  Xb-increases.Hb} yO $-ԍ MCI further comments at 1314.H SWBT maintains that a price cap company should be defined, in both the federal and state jurisdictions, as one under price cap regulation with no obligation to share earnings above certain levels with its customers and no price freezes on any of the regulated"N*&&dd"  X-services.F} yOy-ԍ SWBT further comments at 26.F  X-148.` ` Ensuring that universal service support is used as intended. In response to the Commission's question concerning how to ensure that carriers use universal service support for its intended purposes, several commenters suggest that carriers certify that the funds  X-received will only be used for their intended purposes,dX} yO-ԍ AT&T comments at 21 n.33; Governor of Guam comments at 12.d or that carriers must follow accounting standards or cost allocation rules required by the 1996 Act and be subject to  X_-federal or state audits to ensure that funds are used properly. _} {O -ԍ See Alaska Tel. reply comments at 3. See also Alaska PUC comments at 17; Pacific Telecom comments at 3 (proposing that recipients of support should demonstrate annually the source and application of the funds).  ALTS contends that the most important thing the Commission can do to ensure that funds are used as intended is to make  X1-support mechanisms explicit.>1B} yO$-ԍ ALTS comments at 14.> Moreover, argues ALTS, to the extent that support is set at the "appropriate level," there will be far less ability to use universal service support for  X -inappropriate purposes.> } yO-ԍ ALTS comments at 14.> GVNW argues that reimbursing companies on the basis of "actual cost[s]" will ensure that companies have used universal service support for the intended purpose and that it would be extremely difficult to make this determination using a proxy  X -model.| b } {O-ԍ GVNW comments at 1415. See also Montana Indep. Telecom. comments at 1011.| NCTA suggests that using high cost credits or customer vouchers given to the  X -service provider could minimize carrier misuse of funding.> } yOL-ԍ NCTA comments at 12.> MCI suggests that the Commission require recipients of universal service support to provide specified network features, such as use of digital switches, that will enhance the ability of carriers to provide  Xb-more advanced and reliable service.@b } yO-ԍ MCI comments at 1617.@ Ohio Consumers' Council argues that the states are best equipped to address whether carriers are misusing funds and no specific, national rules are  X4-necessary.R4} yO!-ԍ Ohio Consumers' Council comments at 67.R  X-149. ` ` Prohibiting crosssubsidization. Some commenters argue that the prohibition against crosssubsidization contained in section 254(k) can only be enforced if cost data are"O*&&ddE"  X-regularly collected and audited.?} {Oy-ԍ Michigan Consumer Federation comments at 14; Michigan Library Ass'n comments at 10.  See also NCTA comments at 12 (arguing that stringent reporting rules or cost allocations rules are appropriate); Texas PUC comments at 10 (encouraging further study of incremental costs of telecommunications services and maintaining current monitoring programs such as ARMIS); NorTel reply comments at 6 n.11 (contending that accounting safeguards should be sufficient; separate networks or facilities for universal services are unnecessary).? AirTouch maintains that carefully targeting support to only those groups that need it as opposed to subsidizing local services to everyone will reduce  X-crosssubsidization.z} {O-ԍ AirTouch comments at 7. See also PCIA comments at 14 (suggesting that narrow targeting and limiting of the size of the fund will prevent crosssubsidization). AirTouch further contends that carriers offering noncompetitive services must put in place accounting methods and other nonstructural safeguards to prevent  X-crosssubsidization.J} yO) -ԍ AirTouch further comments at 21.J MCI states that competition will ensure that rates are set at the carrier's cost and that the Commission must adopt regulations to ensure that result in noncompetitive  Xv-markets.=vd } yO-ԍ MCI comments at 17.= WinStar argues that crosssubsidization can be mitigated by ensuring that universal service support payments not be used to allow less efficient providers to match the  XH-rates charged by more efficient competitors.BH } yO-ԍ WinStar comments at 34.B  X -150.` ` Ensuring only eligible carriers get support. Few commenters addressed the issue of how the Commission could ensure that only eligible carriers receive universal service support. ALTS argues that the Commission's concerns about ineligible carriers obtaining support are probably unfounded because only carriers found eligible by a state commission  X -would receive support.> } yO-ԍ ALTS comments at 13.> MCI contends that, as long as carriers must offer services throughout the service area and the area the LEC carrier must serve coincides with the area used to compute support, there should be no problem with ineligible carriers receiving  Xy-support.=y} yO>-ԍ MCI comments at 18.= Ohio Consumers' Council argues that this issue should be left to the states and that the states can provide the Commission with a list of companies they find eligible to  XK-receive support.PK} yO"-ԍ Ohio Consumers' Council comments at 6.P  X-151.` ` Use of a carrier's own facilities. Various commenters address the question of whether the Commission should establish standards concerning compliance with the"P4*&&ddF" requirement in section 214(e)(1) that eligible telecommunications carriers provide universal service using their own facilities or a combination of their facilities and resale. Several commenters contend that "facilities" should include any unbundled network elements obtained  X-by the carrier and any network transmission capacity obtained on a leased basis.QZ} {O4-ԍ CompTel comments at 16; Ohio Consumers' Council reply comments at 18. See also LDDS comments at 67 (arguing that the term "facilities" should not only include facilities constructed and deployed by the carrier, but also facilities that are leased from incumbent LECs and other carriers).Q CompTel argues that a carrier is using its own facilities when it purchases unbundled elements at cost  X-from the incumbent and creates a local service product using them.J} yO( -ԍ CompTel reply comments at 1213.J AT&T argues that any carrier using its own facilities, using another carrier's network elements, or using any  X_-combination of such facilities and elements should be eligible.>_z} yO -ԍ AT&T comments at 21.> Sprint asserts that, while carriers may offer services in part through resold facilities, such carriers must also use some  X1-of their own facilities.C1 } yO-ԍ Sprint comments at 1516.C LDDS contends that a carrier should be eligible as long as at least  X -some portion of its services is not resold service.C } yOe-ԍ LDDS reply comments at 4.C  X -152.` ` TRA argues that carriers that offer service solely through the resale of another carrier's telecommunications services or through the use of unbundled network elements  X -should be eligible to receive universal services support.p * } {O-ԍ TRA comments at 810. See also CompTel reply comments at 1213.p TRA asserts that resellers should be eligible for universal service support because they have "stepped into the shoes" of the underlying carrier and, by purchasing services or elements, have guaranteed the underlying carrier a return on its investment and thus assumed some of the underlying carrier's risk. It further contends that denying resellers universal service support would provide the underlying  XK-carrier with a competitive advantage.ZK } {O-ԍ TRA comments at 810. But see Colorado Indep.Tel. comments at 5 (maintaining that pure resellers should not be eligible because they have made no investment in the facilities supported by universal service support mechanisms). TRA contends that reading section 214(e) as precluding "pure" resellers would be unduly narrow, but if that reading is valid, the Commission should exercise its forbearance authority to allow universal support to such  X-carriers.<} yO$-ԍ TRA comments at 9.< "Qn*&&dd'"Ԍ X-153.` ` Other commenters contend that only facilitiesbased carriers should be eligible  X-for support.2} {Ob-ԍ See, e.g., Alaska Tel. comments at 3; Minnesota Tel. Ass'n comments at 3; TCA comments at 5; Telec  {O,-Consulting comments at 14; United Utilities comments at 1; Siskiyou reply comments at 4. See also Bell Atlantic comments at 10 (proposing that universal service funds should be distributed to eligible LECs that "provide local service using their own loop facilities"); RTC comments at 9 (contending that support "must only go to those carriers that actually own and maintain facilities").2 They argue that, if new entrants are allowed to offer universal service via resale, new entrants could disadvantage incumbents by constructing facilities only for the lowest cost customers in the area and reselling the incumbent's services to serve the high cost  X-customers, creating a potentially confiscatory situation for incumbents.D|} yO -ԍ Alaska Tel. comments at 3.D Still others contend that, while carriers may provide services through a combination of their own facilities and resale, support for the resold services should go to the underlying carrier providing the  X_-facilities since that carrier bears the cost of building and maintaining those facilities.kZ_ } {O-ԍ See, e.g., BellSouth comments at 6 n.8; Colorado Indep .Tel. comments at 5; NECA comments at 89; RTC comments at 810; SWBT comments at 2122; NYNEX reply comments at 2 n.6; TCA reply comments at 3 (arguing that eligible carriers should not receive support for the portion of the service provided through resale).k USTA argues that, when eligible carriers resell the incumbent's universal service package, the incumbent should continue to receive the support, but when the eligible carrier purchases unbundled network elements "at the market price" to provide universal service, the new  X -carrier, not the incumbent, should receive the support. . } {O-ԍ USTA comments at 17 n.24.  See also TCA reply comments at 3 ("If a reseller becomes eligible for funding on a facility that they are leasing from a facilities based carrier, then the rate they pay must be fully costbased"); TCG reply comments at 78 (proposing that universal service support should flow to the reseller when the reseller pays the facilitiesbased carrier the full cost, otherwise the underlying carrier should receive the subsidy). PacTel contends that, if the reseller pays the underlying carrier full deaveraged cost (including some recovery of shared and common costs) and that cost is above the benchmark, the reseller should get the subsidy; if the reseller purchases a line at rates below full deaveraged cost, the underlying facilitiesbased  X -carrier should receive the subsidy.,Z } {O8-ԍ PacTel reply comments at 10.  See also WinStar reply comments at 6 (contending that carriers that purchase unbundled elements at cost should be eligible; pure resellers should be eligible only if they purchase resold service at or above "actual cost")., CompTel maintains that, if the new entrant pays economic costs for the unbundled element, the underlying carrier receives full compensation, and the new entrant, as the retail provider of the services, is entitled to the universal support  Xb-payment.Gb} yO$-ԍ CompTel reply comments at 13.G  X4-154.` ` Guidelines for advertising. Washington UTC urges the Commission to take an"4R*&&ddH" affirmative role and define as narrowly as possible the types and scope of advertising that  X-should be considered as being required by section 214(e)(1).M} yOb-ԍ Washington UTC reply comments at 6.M Washington UTC contends that rateofreturn regulated carriers might seek to justify including in their rates the costs of  X-imageenhancing advertising just because such advertising may mention universal services.OX} yO-ԍ Washington UTC reply comments at 56.O Governor of Guam recommends the development of standards that include a minimum of  X-consumer education through advertising in local media outlets.J} yO& -ԍ Governor of Guam comments at 12.J New Jersey Advocate argues that adequate, understandable information is essential in a competitive market and recommends that the Commission adopt or strengthen standards relating to truthinadvertising; the presentation of clear, written terms of service and rates; and the provision of  X1-bilingual information.M1x} yOZ-ԍ New Jersey Advocate comments at 13.M Several commenters propose guidelines that require carriers to publicly post information concerning available services and rates at appropriate government agencies and libraries and that ensure that this information is accessible to persons with  X -disabilities or language barriers. } yO-ԍ ACE comments at 7; Catholic Conference comments at 22; Michigan Library Ass'n comments at 1011; Benton reply comments at 16; NAD reply comments at 2122. Florida PSC, on the other hand, suggests leaving to the  X -states the establishment of any guidelines governing advertising.H ` } yO-ԍ Florida PSC comments at 1314.H MCI argues that no standards are necessary because competition will ensure that LECs make known the services  X -they will offer to their potential customers.= } yOH-ԍ MCI comments at 18.=  X-  Xy-` ` 3. Discussion  XK-155.` ` Determination of eligible carriers. We recommend that the Commission adopt, without further elaboration, the statutory criteria contained in section 214(e)(1) as the rules for determining whether a telecommunications carrier is eligible to receive universal service support. Pursuant to these criteria, a telecommunications carrier would be eligible to receive  X-universal service support if the carrier is a common carrier&" } yO #-ԍ The Circuit Court for the District of Columbia defines a common carrier as one that undertakes to carry  {O#-for all people indifferently. National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630,  {O$-64142 (D.C. Cir. 1976), cert. denied, 425 U.S. 992 (1976) (NARUC I); National Association of Regulatory  {O|%-Utility Commissioners v. FCC, 533 F.2d 601, 608 (D.C. Cir. 1976) (NARUC II). The NARUC I Court"|%*&&%" established a test to determine whether a carrier may be regulated as a common carrier. This test requires a determination of "whether there will be a legal compulsion . . . to serve [the public] indifferently, and, if not, . . . whether there are reasons implicit in the nature of . . . [the] operations to expect an indifferent holding out  {O-to the eligible user public." NARUC  I, 525 F.2d at 642. and if, throughout the service"S*&&dd " area for which the carrier is designated by the state commission as an eligible carrier, the carrier: (1) offers all of the services that are supported by federal universal service support  X-mechanisms under section 254(c);%Z} yO5-ԍ We recommend, however, that carriers that lack the technical capability to offer toll limitation services  {O-not be required to offer such services to qualifying lowincome consumers, as otherwise provided infra in section VIII.% (2) offers 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) advertises the availability of and charges for such services using media of general distribution. We agree with the majority of commenters who argue that any carrier that meets these criteria is eligible to receive  X_-federal universal service support, regardless of the technology used by that carrier."_} {O-ԍ See, e.g., 360 comments at 4; ALTS comments at 1213; Colorado PUC comments at 67; CompTel comments at 16; LCI comments at 5; LDDS comments at 47; NASUCA comments at 2223; NCTA comments at 12; PacTel comments at 13; Sprint comments at 1516; WinStar comments at 10; MFS reply comments at 6; Ohio Consumers' Council reply comments at 1718. We conclude that this approach best embodies the procompetitive, deregulatory spirit of the 1996 Act and ensures the preservation and enhancement of universal service.  X -156.` ` We recommend that the Commission not impose eligibility criteria in addition to those contained in section 214(e)(1). For example, some commenters argue that the Commission should require competing telecommunications carriers to meet all the obligations  X -imposed by the state on the incumbent LEC, such as COLR requirements or rate regulation. } {O--ԍ See, e.g., Ameritech comments at 12; BellSouth comments at 14 n.26; GTE comments at 67; USTA comments at 23; Tel. Ass'n of Michigan reply comments at 5. The proponents of this point of view argue that such symmetrical regulation is necessary to prevent new entrants from selectively targeting only the lowest cost customers in an area, and  Xy-to prevent unfair treatment of incumbent LECs.y} {OB-ԍ See, e.g., GTE comments at 67; Tel. Ass'n of Michigan reply comments at 5; GTE further comments at 4748; Ameritech Ex Parte Materials Regarding Competitive Bidding Process, July 31, 1996 at 89. We conclude that establishing specific federal rules or guidelines that would impose symmetrical regulatory obligations on all carriers receiving universal service support are unnecessary to protect the incumbent and  X4-would chill competitive entry into high cost areas.r^"4r} {OW$-ԍ We note that, in the Local Competition Order, the Commission concluded that states may not unilaterally  {O!%-impose on nonincumbent LECs the additional obligations imposed on incumbent LECs in section 251(c). Local  {O%-Competition Order at para. 124748. The Commission there ruled that it would not anticipate imposing such"%*&& &" additional obligations on nonincumbent LECs absent a clear and convincing showing that the LEC occupies a position in the telephone exchange market comparable to the position held by an incumbent LEC, has substantially replaced an incumbent LEC, and that such treatment would serve the public interest, convenience,  {O-and necessity and the purposes of section 251. Local Competition Order at para. 1248.r The statute already conditions eligibility"4T*&&dd " for support on the requirement that telecommunications carriers be common carriers and offer  X-the defined services "throughout the service area."C} yOL-ԍ 47 U.S.C.  214(e)(1).C The plain meaning of these two requirements is that eligible carriers must hold themselves out to provide the specified services to any customer in the service area. We find that GTE's concern that eligible carriers will fulfill this mandate in theory only and attempt to "cherry pick" customers by offering differential rates is misplaced. The 1996 Act requires carriers to advertise their rates for universal service throughout the service area. Any attempt to "cherry pick" or "cream skim" customers through differential charges would thus be readily detected.  X1-157.` ` We also reject arguments that a carrier must be subject to whatever exit barriers are imposed on the incumbent LEC as a condition of eligibility. The 1996 Act limits the ability of an eligible carrier to exit a market in which there is more than one eligible carrier. Section 214(e)(4) requires an eligible carrier to notify the state of that carrier's intent to relinquish its designation as an eligible carrier. Section 214(e)(4) also requires the state commission, before permitting the carrier to cease providing service, to ensure that the  X -remaining carriers can serve the relinquishing carrier's customers.C B} yO-ԍ 47 U.S.C.  214(e)(4).C The state commission must also ensure sufficient notice to permit the purchase or construction of adequate facilities  Xy-by any remaining eligible carrier.Cy} yO-ԍ 47 U.S.C.  214(e)(4).C This obligation to serve the entire service area upon the cessation of service by another carrier or carriers applies to incumbents and new entrants alike. We find that additional exit restrictions are unnecessary.  X-158.` ` We recommend that the Commission reject arguments to disqualify certain classes of carriers from eligibility. Commenters suggest, for example, that only incumbents  X-should be eligible for universal service support]b } {O -ԍ See, e.g., Cincinnati Bell comments at 1011.] or that price cap companies should be  X-excluded from eligibility.  } {O}"-ԍ See, e.g., Staurulakis comments at 1112; Time Warner comments at 1112; NCTA further comments at 8; Teleport further comments at 78. We believe that any such wholesale exclusion of classes of carriers from eligibility is inconsistent with the plain language of the 1996 Act. Section 214 contemplates that any telecommunications carrier that meets the eligibility criteria of section 214(e)(1) shall be eligible to receive universal service support. The statute directs a state"UN *&&ddQ" commission "upon its own motion or upon request [to] designate a common carrier that meets the requirements of [section 214(e)(1)] as an eligible telecommunications carrier for a service  X-area designated by the State commission."C } yOK-ԍ 47 U.S.C.  214(e)(2).C Moreover, section 214(e)(2) provides that more than one carrier could be eligible for universal service support in an area. It requires the designation of multiple eligible carriers in areas not served by rural telephone companies as  X-long as such carriers meet the eligibility criteria of section 214(e)(1).C X} yO-ԍ 47 U.S.C.  214(e)(2).C Even for areas served by rural telephone companies, section 214(e)(2) gives state commissions the discretion to designate more than one common carrier as an eligible carrier, as long as such designation is  XH-found by the state commission to be in the public interest.C H} yO -ԍ 47 U.S.C.  214(e)(2).C Moreover, we recommend against limiting eligibility for universal service support to incumbents. We conclude that restricting universal service support to incumbent local exchange carriers would not be in accord with section 214(e).  X -159.` ` In addition, we recommend that companies subject to price cap regulation be eligible to receive universal service support. No persuasive rationale has been advanced to explain why the flexibility and the opportunity for increased earnings that companies obtain  X-when they are subject or price caps x} {O-ԍ See e.g., Teleport comments at 78; Time Warner comments at 1112. See also ALTS further comments at 79 (proposing to treat price cap companies differently). should disqualify such companies from receiving universal service support as long as they otherwise meet the statutory criteria for eligibility. Rather, we agree with those commenters that argue that price cap regulation is an important tool to smooth the transition to competition and that its use should not foreclose price cap  X4-companies from receiving universal service support.4} {O-ԍ See e.g., Alliance for Public Technology further comments at 1012; Maine PUC further comments at 17. Having recommended against the exclusion of price cap companies, we conclude that we need not address how to define precisely which carriers are subject to price cap regulation.  X-160.` ` Section 214(e)(1) requires that, in order to be eligible for universal service support, a common carrier must offer universal service throughout the statedesignated service area either using its own facilities or a combination of its own facilities and the resale of  X-another carrier's services, including those of another eligible carrier.Cd } yO#-ԍ 47 U.S.C.  214(e)(1).C We find that the plain meaning of this provision is that a carrier would be eligible for universal service support if it offers all of the specified services throughout the service area using its own facilities or using"eV *&&dd1" its own facilities in combination with the resale of the specified services purchased from another carrier, including the incumbent LEC or any other carrier.  X-161.` ` We recommend that the Commission reject the arguments of TRA and others that a carrier that offers universal service solely through reselling another carrier's universal  X-service package should be eligible for universal support.p} {O-ԍ TRA comments at 810. See also CompTel reply comments at 1213.p We find that the statute precludes such a result because it plainly states that a carrier shall be eligible for support only if the carrier offers universal service by using its own facilities and reselling another carrier's  XH-services.FHZ} yOS -ԍ 47 U.S.C.  214(e)(1)(A).F Similarly, we recommend that the Commission reject arguments that only those telecommunications carriers that offer universal service wholly over their own facilities should  X -be eligible for universal service.@\ } {O-ԍ See, e.g., Alaska Tel. comments at 3; Minnesota Tel. Ass'n comments at 3; TCA comments at 5; Telec  {O-Consulting comments at 14; United Utilities comments at 1; Siskiyou reply comments at 4. See also Bell Atlantic comments at 10; RTC comments at 9.@ The statute precludes this result because section 214 permits a carrier to offer universal service through a combination of its own facilities and resale and still be eligible for support.  X -162.` ` We also recommend that the Commission reject TRA's request that the Commission exercise its forbearance authority to permit "pure" resellers to become eligible for  X-universal service support. } yOO-ԍ TRA comments at 9 (citing 47 U.S.C.  160). In this case, TRA asks the Commission to forbear from the requirement that, in order to be eligible for universal services support, a carrier must offer the supported services through its own facilities or its own facilities in combination with resale. TRA requests that the Commission forbear from applying this provision in order to allow pure resellers to be eligible for support. We find that TRA's pleading does not sufficiently address the statutory criteria for forbearance. TRA's sole argument in support of forbearance is that it is necessary "to avoid discriminatory treatment that might either discourage competitive entry by resale carriers . . . or provide incumbent LECs with an unjustified competitive advantage. . .  X4-."=4 } yO-ԍ TRA comments at 10.= Yet, in order to exercise its authority under section 160(a) to forbear from applying a provision of the Act, the Commission must determine that three criteria are met. It must 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"W *&&ddp"  X-with the public interest."X} yOy-ԍ 47 U.S.C.  160(a). Section 160(b) provides that a Commission determination that forbearance will promote competition may be the basis for a finding that forbearance is in the public interest. 47 U.S.C.  160(b). TRA's pleading fails to show that these criteria are met. For example, it fails to address whether enforcement of the facilities requirement in section 214(e) is not necessary for the protection of consumers.  X-163.` ` Other issues related to eligibility. The NPRM sought comment on various other issues related to eligibility. Specifically, it sought comment on whether rules should be developed to: (1) ensure that universal service support be used as intended (i.e., for the "provision, maintenance, and upgrading of facilities and services for which the support is  XH-intended");@H} yO -ԍ 47 U.S.C.  254(e).@ (2) ensure that only eligible carriers receive support; and (3) set guidelines for advertising. Because relatively few commenters addressed these issues, there are few detailed proposals in the record on how to resolve them. For the first of these issues, developing rules to ensure that universal service support is used as intended, we believe that concerns about misuse of funds would largely be alleviated once competition arrives. We find that a competitive market would minimize the incentives and opportunities to misuse funds. In the absence of competition, we find that the optimal approach to minimizing misuse of funds is to adopt a mechanism that will set universal support at levels that reflect the costs of providing universal service efficiently. Should additional measures be necessary, we recommend that the Commission, to the extent that states monitor carriers to ensure the provision of the  Xb-supported services, rely on the states' monitoring.bx} {O-ԍ See, e.g., Ohio Consumers' Council comments at 67 (arguing that states are best equipped to address whether carriers are misusing funds). Where necessary, for example, if the state has insufficient resources to support such monitoring programs, we recommend that the Commission conduct periodic reviews to ensure that universal service is being provided. On the question of ensuring that only eligible carriers receive support, we agree with commenters that additional rules are unnecessary because only carriers found eligible by the states will  X-receive funding.o} {Or-ԍ See ALTS comments at 13; Ohio Consumers' Council comments at 6.o We recommend no additional rules at this time.  X-164.` ` We recommend that the Commission not adopt, at this time, any national guidelines relating to the requirement that carriers advertise throughout the service area the availability of and rates for universal service using media of general distribution. We agree with the Florida PSC that states should, in the first instance, establish guidelines, if needed, to  Xe-govern such advertising.Hed } yOz%-ԍ Florida PSC comments at 1314.H Pursuant to the 1996 Act, the states designate eligible carriers, and"eX *&&dd" areawide advertising is an explicit condition of eligibility. The states may be in the better position to monitor the effectiveness of advertising by carriers offering universal service. We also agree with MCI that competition will help ensure that carriers make known the services  X-they offer.=} yO4-ԍ MCI comments at 18.=   X- C. Definition of Service Areas  X_-` ` 1. Background  X1-165.` ` 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  X -and support mechanisms."C X} yO -ԍ 47 U.S.C.  214(e)(5).C For areas served by a rural telephone company,b } {O-ԍ The term rural telephone company is defined supra.b section 214(e)(5) provides that the term "service area" means the rural telephone company's study  X -area z} yO-ԍ A "study area" is generally an incumbent LEC's preexisting service area in a given state. The study  {O-area boundaries are fixed as of November 15, 1984. MTS and WATS Market Structure: Amendment of Part 67  {O-of the Commission's Rules and Establishment of a Joint Board, Decision and Order, 50 Fed. Reg. 939 (1985  {O\-Lifeline Order) (adopting with minor modifications the Joint Board recommendations issued in MTS and WATS  {O&-Market Structure: Amendment of the Commission's Rules and Establishment of a Joint Board, Recommended Decision and Order, 49 Fed. Reg. 48,325 (1984)). "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 different definition of service area for such company."  Xy-166.` ` The Commission sought comment on issues relating to the definition of the service areas for which carriers would receive designation. The Commission asked parties to comment on the appropriate basis to define the "service area" of a rural telephone company, taking into account the possible effect on competition, and requested comment on whether the  X-Commission should amend its rules to revise existing study area boundaries."; } yO-ԍ NPRM at para. 45.; In the  X-context of implementing a "procompetitive, deregulatory national policy framework",M } yOA"-ԍ Joint Explanatory Statement at 113.M the Commission asked the Joint Board to prepare recommendations regarding the appropriate  X-"service area" boundaries of areas served by a "rural telephone company."; } yO%-ԍ NPRM at para. 45.;"Y *&&dd"Ԍ X-ԙ` ` 2. Comments  X-167.` ` Service areas for rural telephone companies. Many commenters support retaining the current study areas for rural telephone companies as the service area for  X-universal service support.[!Z} {O-ԍ See, e.g., Century comments at 1415; Evans Tel. comments at 14; Pacific Telecom comments at 2; Pennsylvania PUC comments at 20; RTC comments at 10; Rural Iowa Indep. Tel. Ass'n. comments at 4; Sprint comments at 15; USTA comments at 18; Fred Williamson comments at 1213; SDITC reply comments at 6.[ Commenters contend that the intent of the statute in retaining existing study areas is to protect rural companies from the effects of competitors entering a  Xv-market and serving only the lowest cost portion of a rural telephone company's territory.p"v} {O -ԍ See, e.g., Evans Tel. comments at 14; SDITC reply comments at 6.p Century asserts that simply retaining a rural telephone company's study area as its new service area may not be sufficient to protect against this sort of "cream skimming" by new entrants. It proposes that, once a new entrant is allowed to compete in a rural telephone company's area, the rural telephone company should be allowed to redistribute its universal service high cost compensation to any geographically disaggregated area within its study area. At the same time, Century argues, the new entrant should receive support only for its own  X -demonstrably high cost, facilitiesbased locations.D# |} yO-ԍ Century comments at 1415.D Montana Indep. Telecom. similarly argues that areas smaller than study areas will be needed if a competitor begins serving only a portion of incumbent's study area. It recommends that the service area be based on the area  X-of the incumbent's wire centers or exchanges, at least initially.P$ } yOM-ԍ Montana Indep. Telecom. comments at 8.P It further asserts that an area smaller than a wire center should be used as the service area in rural areas only upon a  Xb-finding by the state that using such a smaller area is in the public interest.P%b} yO-ԍ Montana Indep. Telecom. comments at 8.P RTC also argues that, in a competitive environment, incumbents must have the option to disaggregate perunit  X4-costs to areas smaller than the study area in order to address "cream skimming" concerns.@&4, } yO-ԍ RTC comments at 1314.@ RTC contends that these smaller areas would be used solely for the purpose of targeting support and would not affect the size of the service area that a competitor must serve in order  X-to receive funding as an eligible carrier.B' } yO\"-ԍ RTC comments at 14 n.27.B It proposes that the support amounts for these smaller areas would be derived from the known and existing "actual cost levels already  X-established for the larger, total study area."@(L } yO%-ԍ RTC comments at 1314.@"Z(*&&dd"Ԍ X-ԙ168.` ` Service areas in general. Most commenters addressing the question regarding the appropriate geographic service area for eligibility did not limit their comments to areas served by rural telephone companies. Instead, they address the question of appropriate service area size for all universal service support purposes. Potential competitors argue that, to ensure that the new universal program is competitively neutral, service areas in which new entrants would be designated to serve should not be based on the existing study areas of the incumbent  Xv-LECs.)v} {O-ԍ See, e.g., 360 comments at 78; ALTS reply comments at 4; Commnet Cellular reply comments at 7 (arguing that the Commission should design service areas so that it would be technically and economically feasible for CMRS providers to serve the subscribers in that service area); MFS reply comments at 67 (contending that it would be anticompetitive to require new entrant's service areas to mimic an incumbent's study area or certified area).  Beyond this, industry and state commenters differed sharply on the appropriate size of the service area.  X1-169. ` ` Missouri PSC recommends using a LEC's entire service area within a state or  X -local access and transport area (LATA).`*  z} yOE-ԍ Missouri PSC comments at 8. A LATA generally is defined as a "contiguous geographic area" established by a Bell Operating Company (BOC) before the date of enactment of the 1996 Act or an area established or modified after the date of enactment by a BOC and approved by the Commission. 47 U.S.C.  153(25).` It contends that analysis of costs in such a large area best reflects the overall circumstance of each LEC and will prevent a large LEC from receiving universal service funding related to its high cost areas even though the LEC's  X -overall costs are no higher than average.+ b } {O-ԍ Missouri PSC comments at 8. See also Dell Tel. reply comments at 34 (suggesting inclusion of all operations within a state in order to remove support for large companies). SWBT, however, argues that continuing to use statewide areas would retain the current implicit subsidy flows between low cost areas and high cost areas served by a LEC within a state and will discourage competitive entry into high  X-cost areas while concentrating entry in urban population centers.A, } yO-ԍ SWBT comments at 1213.A Others oppose using study  Xy-areas because they are too large to accurately distribute high cost support.H-yL } yOv-ԍ Cincinnati Bell comments at 8.H AirTouch maintains that the use of large areas, such as statewide study areas, to determine eligibility will have the effect of "freezing out" new entrants that initially may need to enter a market in  X4-more limited areas.G.4} yO"-ԍ AirTouch reply comments at 6.G  X-170.` ` Most commenters support using areas smaller than existing study areas as the"[l.*&&dd "  X-service area. New Jersey BPU, for example suggests using countywide areas.H/} yOy-ԍ New Jersey BPU comments at 3. H NECA  X-asserts that carriers should have the option to disaggregate costs below the study area level.=0X} yO-ԍ NECA comments at 9.=  X-Various commenters support using census block groups (CBGs)1 } yOk-ԍ The proponents of the BCM define a census block group as "a geographic unit defined by the Bureau of Census which contains approximately 400 households." MCI, NYNEX, Sprint/United Management Co., and U S West, Benchmark Costing Model: A Joint Submission, Copyright 1995, CC Docket No. 80826, filed December 1, 1995, at I1. 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 (1992). It further defines a "geographic block group" as "generally contain[ing] between 250 and 550 housing units, with the ideal  {O -size being 400 housing units." Id. as the appropriate service  X-area.2 } {O&-ԍ See, e.g., California PUC comments at 910 (noting that it will develop costs on a CBG level for intrastate services); PacTel comments at 18 n.33; Sprint comments at 15; Wyoming PSC comments at 8. Sprint, for example, argues that the use of CBGs will better target high cost areas and will keep service areas in line with how costs are developed through the use of cost proxy  X-models.@3} yOR-ԍ Sprint comments at 15.@ Sprint also contends that using CBGs will eliminate the implicit subsidy that occurs when costs are averaged over wire centers, exchanges or larger areas that contain both  X_-high cost and low costs areas.F4_} yO-ԍ Sprint reply comments at 13.F Opponents of using CBGs contend that they are inaccurate  XH-because they bear no relation to the actual telecommunications network and associated costs5H4} {O--ԍ See, e.g., GSA comments at 810; GVNW reply comments at 14 (arguing that CBGs are inherently inaccurate and administratively costly to use). and, in very sparsely populated areas, CBGs may be so large that cost may vary greatly  X -within a CBG.j6 } yOY-ԍ Alaska PUC comments at 1314; Citizens Utilities comments at 12.j GVNW argues that using CBGs will be administratively burdensome.D7 } yO-ԍ GVNW reply comments at 14.D  X -171.` ` Some commenters suggest that the service area be based on LEC wire centers  X -(or areas no smaller than wire centers)8 } yO4$-ԍ BellSouth comments at 14 (proposing wire centers or groups of wire centers); GSA comments at 910. or exchanges (or areas no larger than exchanges).9 >} {O-ԍ See, e.g., Citizens Utilities comments at 1213 (suggesting that exchanges or wire centers would be appropriate); Montana Indep. Telecom. comments at 8 (same); GVNW reply comments at 14. " \"9*&&dd] " USTA recommends using an area no larger than a wire center for nonrural telephone  X-companies to determine costs.>:"} yO-ԍ USTA comments at 18.> Proponents of using wire center areas to determine costs contend that such areas are small enough to represent reasonably homogenous cost characteristics and that LECs can disaggregate their costs to those areas much more readily  X-than they can disaggregate costs to the CBG level.O;} yO -ԍ Citizens Utilities comments at 1213.O They argue that wire center boundaries have evolved to reflect the specific characteristics of the telephone plant required to serve an area and thus are a much more accurate area to determine costs than are CBGs, which bear no  X_-direct relationship with how the telephone plant is designed or installed.Z<_B} yOR-ԍ GSA comments at 910; GVNW reply comments at 14.Z Teleport recommends using areas no larger than a wire center and no smaller than a CBG to establish costs. It contends that establishing service areas at this level will encourage competition by  X -facilitating entry.E= } yO-ԍ Teleport comments at 1516.E GVNW proposes that, for nonrural companies, support areas smaller than wire centers should be used only after a showing that competition exists only in a portion of a wire center. For rural companies, the decision to use areas smaller than a wire center  X -should be part of the state's public interest determination.D> b } yO-ԍ GVNW reply comments at 14.D  X -  X -` ` 3. Discussion  Xy-172.` ` Service areas for areas served by rural telephone companies. We recommend that the Commission retain the current study areas of rural telephone companies as the service areas for such companies. Section 214(e)(5) provides that for an area served by a rural telephone company, the term "service area" means such company's study area "unless or until the Commission and the States, after taking into account the recommendations of a FederalState Joint Board instituted under section 410(c), establish a different definition of service  X-area for such company."C? } yO!-ԍ 47 U.S.C.  214(e)(5).C We find no persuasive rationale in the record for adopting, at this  X-time, a service area that differs from a rural telephone company's present study area.Y@Z } {O $-ԍ See, e.g., Century comments at 1415; Evans Tel. comments at 14; Pacific Telecom comments at 2; Pennsylvania PUC comments at 20; RTC comments at 10; Rural Iowa Indep.Tel. Ass'n comments at 4; Sprint comments at 15; USTA comments at 18; Fred Williamson comments at 1213; SDITC reply comments at 6.Y We"]@*&&dd" note that some commenters argue that Congress presumptively retained study areas as the service area for rural telephone companies in order to minimize "cream skimming" by  X-potential competitors.pA} {OK-ԍ See, e.g., Evans Tel. comments at 14; SDITC reply comments at 6.p Potential "cream skimming" is minimized because competitors, as a condition of eligibility, must provide services throughout the rural telephone company's study area. Competitors would thus not be eligible for universal service support if they sought to serve only the lowest cost portions of a rural telephone company's study area.  X_-173.` ` We note that the 1996 Act in many respects places rural telephone companies on a different competitive footing from other local exchange companies. For example, rural telephone companies are initially exempt from the interconnection, unbundling, and resale requirements of 47 U.S.C.  251(c). The 1996 Act continues this exemption until the relevant  X -state commission finds, inter alia, that a request of a rural telephone company for interconnection, unbundling, or resale would not be unduly economically burdensome, would  X -be technically feasible, and would be consistent with section 254.CB Z} yO-ԍ 47 U.S.C.  251(f)(1).C Moreover, while a state commission must designate other eligible carriers for nonrural areas, states may designate additional eligible carriers for areas served by a rural telephone company only upon a specific  X-finding that such a designation is in the public interest.CC} yO--ԍ 47 U.S.C.  214(e)(2).C  Xd-174.` ` Another reason to retain existing study areas is that it is consistent with our recommendation that the determination of the costs of providing universal service by a rural telephone company should be based, at least initially, on that company's embedded costs. Rural telephone companies currently determine such costs at the studyarea level. We conclude, therefore, that it is reasonable to adopt the current study areas as the service areas for rural telephone companies rather than impose the administrative burden of requiring rural telephone companies to determine embedded costs on a basis other than study areas.  X-175.` ` Service areas for areas not served by rural telephone companies. We find that sections 214(e)(2) and 214(e)(5) grant to the state commissions the authority and responsibility to designate the area throughout which a carrier must provide the defined core services in order to be eligible for universal service support. We further conclude that, while 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 universal service principles of section 254. The Joint Board thus recommends that the Commission urge the states to designate service areas for nonrural telephone company areas that are of sufficiently small geographic scope to permit efficient targeting of high cost support and to facilitate entry by competing carriers. "^zC*&&dd"Ԍ X-ԙ176.` ` We recommend that the Commission encourage states, where appropriate to foster competition, to designate service areas that do not disadvantage new entrants. Consequently, we recommend that the geographic size of the state designated service areas should not be unreasonably large. An unreasonably large area may deter entry because fewer competitors may be able to cover startup costs that increase as the size of the area they must serve increases. This would be especially true if the states adopt as the service area the existing study areas of larger local exchange companies, such as the BOCs, which usually include most of the geographic area of a state, urban as well as rural. Additionally, if states simply structure service areas 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  X -to the precise contours of the incumbent's area.D } {O -ԍ See, e.g., 360 comments at 78; ALTS reply comments at 4; Commnet Cellular reply comments at 7.  X -177.` ` We note that state adoption of unreasonably large service areas could potentially violate section 254(f), which prohibits states from adopting regulations that are  X -"inconsistent with the Commission's rules to preserve and advance universal service."@E Z} yO-ԍ 47 U.S.C.  254(f).@ State designation of an unreasonably large service area could also implicate section 253 if it "prohibit[s] or ha[s] the effect of prohibiting the ability of an entity to provide any interstate  Xy-or intrastate telecommunications service,"@Fy} yO-ԍ 47 U.S.C.  253(a).@ and is not "competitively neutral" and "necessary  Xb-to preserve and advance universal service."@Gbz} yO-ԍ 47 U.S.C.  253(b).@   X4-178.` ` Even if the state commission were to designate a large service area, however, we believe that it would be consistent with the 1996 Act to base the actual level of support, if any, that nonrural telephone company carriers would receive for the service area on the costs to provide service in subunits of that area. We recommend that the Commission, where necessary to permit efficient targeting of universal support, establish the level of universal service support based on areas that may be smaller than the service area designated by the state. The service area designated by the state is the geographic area used for "the purpose of  X-determining universal support obligations and support mechanisms."CH } yON!-ԍ 47 U.S.C.  214(e)(5).C We find that this language refers to the designation of the area throughout which a carrier is obligated to offer and advertise universal service. It defines the overall area for which the carrier will receive support from the "specific, predictable, and sufficient mechanism established by the"N_H*&&dd"  X-Commission to preserve and advance universal service."@I} yOy-ԍ 47 U.S.C.  254(d).@ We conclude that this language would not bar the Commission from disaggregating the statedesignated service area into smaller areas in order to: (1) identify high cost areas within the service area; and (2) determine the level of support payments that a carrier would receive for the overall service area based on the sum of the support levels as determined by the costs of serving each of the disaggregated areas.   X_- D. Unserved Areas  X1-` ` 1. Background  X -179.` ` 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 service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such services for that unserved community  Xy-or portion thereof."CJyX} yO-ԍ 47 U.S.C.  214(e)(3).C Any carrier so ordered shall be designated as the eligible  Xb-telecommunications carrier for that community or portion of a community.CKb} 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 respect to intrastate  X-services, to order a common carrier to provide [the supported services]."MLx} yOF-ԍ Joint Explanatory Statement at 141.M  X-180.` ` The NPRM solicited comment on how the Commission should implement its responsibilities under section 214(e)(3) to designate carriers for unserved areas and whether the Commission and the state commissioners should develop a cooperative program to ensure that all areas receive each of the services supported by federal universal support  X-mechanisms.;M} yOL!-ԍ NPRM at para. 47.;  Xe-` ` 2. Comments  X7-181.` ` Few commenters responded to the Commission's request for comments on whether the Commission and the states should develop a cooperative program to ensure" `M*&&dd" service for unserved areas. Some of these commenters support the concept of a cooperative  X-program between the Commission and the states.N} yOb-ԍ Alaska Library comments at 5; California PUC comments at 1314; Missouri PSC comments at 9. Some commenters recommend using a competitive bidding system to select carriers to provide universal service to customers in areas  X-that no carrier is serving.OBX} yO-ԍ California PUC comments at 1314. Under California's proposal, the carrier with the lowest bid, or subsidy request, would win and become the carrier of last resort for the area. California PUC comments at 13 {OT-14. See also MCI comments at 1819 (advocating use of competitive bidding to select carriers in those few areas that no carrier is willing to serve at the established support level); USTA comments at 1920. USTA recommends that the Commission should adopt a voluntary bidding process to identify carriers willing to serve unserved areas at the lowest cost per line. The carrier submitting the lowest bid would be declared the eligible carrier for both interstate and intrastate services and would receive the universal service support targeted to that area from the high cost support mechanism. USTA comments at 1920. USTA argues that unserved areas should be defined as those areas no carrier is willing to serve voluntarily. Such areas, USTA maintains, should be  X-unique and not combined with any established universal service area.APb } yO-ԍ USTA comments at 1920.A Some cellular carriers argue that wireless technology can play an important role in ensuring that remote areas receive basic telephone service and that they should be given an opportunity to provide such  XH-service in these areas.qQH } {O-ԍ See, e.g., Vanguard comments at 78; Western comments at 57, 14.q AMSC urges the Commission to permit LECs to receive universal service support for the costs of using Mobile Satellite Service technology to provide universal service to remote areas, just as the Commission allows LECs that provide basic exchange  X -telecommunications radio systems (BETRS) R } yO8-ԍ BETRS uses radio frequencies to connect subscribers at fixed locations to LEC central offices. AMSC  {O-comments at 6 (citing Basic Exchange Telecommunications Radio Service, 3 FCC Rcd 214 (1988)).  as a substitute for wireline local service in rural  X -areas to be eligible for high cost assistance.=S } yO{-ԍ AMSC comments at 6.= Washington UTC cautions against adopting rules that will require universal support to every community, no matter how expensive  X -providing that service would be.MT n} yO-ԍ Washington UTC reply comments at 3.M Washington UTC offers an example of a small community of about a dozen families located on the eastern side of the Cascade Mountains that currently is not receiving even basic telephone service because the installation of facilities would cost about $8,000.00 per customer and would cost approximately $260.00 per access line per  Xb-month after installation.MUb} yO$-ԍ Washington UTC reply comments at 3.M  X4-` ` 3. Discussion "4aU*&&dd"Ԍ X-ԙ182.` ` Other than the requirements contained in section 214(e)(3), we recommend that the Commission not adopt any particular rules to govern how carriers for unserved areas are designated. While a few commenters support the concept of a cooperative state and federal  X-program to select such carriers,zV} {O4-ԍ See e.g., Alaska Library comments at 5; California PUC comments at 1314.z no specific program was proposed. Similarly, while several commenters support using competitive bidding to select carriers for unserved areas, no detailed proposal was submitted for use of competitive bidding for this limited purpose.   XH- vVII. RURAL, INSULAR, AND HIGH COST  X -A. Overview  X -183.` ` In this section of the Recommended Decision, we discuss the universal service suppovrt mechanisms for rural, insular, and high cost areas. There are three pieces of information required to calculate the amount of support an eligible telecommunications carrier may draw from federal universal service support mechanisms. The first is the number of subscribers that the carrier is serving in the high cost area. The second is the cost of providing the supported services to those subscribers. The third is the amount of that cost that the carrier must recover from sources other than the federal universal support mechanisms. In this section the Joint Board presents its recommendations concerning the process that should be used to determine the level of support to be provided for the supported services and related issues. We also present our recommendations on how the amount the carrier needs to recover from other sources should be set.  X-184.` ` We first discuss how to determine the cost of providing the supported services to subscribers. We conclude that the proper measure of "cost" for purposes of calculating universal service support is the forwardlooking economic cost of developing and operating the network facility and functions used to provide services supported under section 254(c)(1). The Joint Board recommends that the Commission work with the state commissions to develop a proxy cost model for calculating these forwardlooking economic costs, and what support, if any, that a carrier should receive for serving a particular geographic area. We believe that all of the costs of the network and retail costs that are incurred to provide the supported services should be included in the cost calculation. We recognize, however, that the use of a proxy model could cause some small carriers to receive levels of support different from what they currently receive. In order to allow those carriers a reasonable period to adjust to the use of proxy models, we recommend that "rural telephone companies," as  X -defined in the Communications Act, as amended,AW Z} yO$-ԍ 47 U.S.C.  153(37).A be allowed to continue using embedded costs as the basis for calculating their universal service support levels for three years after"!bW*&&dd "  X-nonrural carriers begin to use proxy models.XX} yOy-ԍ #X\  P6G;ɒP# Many of the commenters use the term"embedded costs" when referring to a carrier's historic loop or switching costs. For the purpose of our discussion in this proceeding, we will also use the term "embedded  yO -costs," but note that we mean it to be synonymous with the terms "booked costs" and "reported costs." #X\  P6G;ɒP# We recommend that, during that period, high cost assistance, DEM weighting, and LTS benefits for rural carriers be frozen based on historical perline amounts. At the end of that threeyear period, rural companies will transition to a proxy model over three years. Because of the nature of providing service in Alaska and the insular areas, we recommend that rural carriers serving those areas continue to use embedded costs until further review.  X_-185.` ` We next discuss the benchmark amount or share of carrier proxyderived cost that must be recovered from other sources. We believe it is desirable that the benchmark be based on the amount the carrier would expect to recover from other services to cover the cost of providing supported services, but final determination of the methodology for selecting the benchmark must also consider the revenue base for universal service contributions. The amount of support a carrier would receive would be calculated by subtracting this benchmark amount from the cost of service determined for that carrier.  X -186.` ` Finally, we look at an alternative means of establishing support levels. Competitive bidding would allow the marketplace to determine the level of support by having competing carriers bid for the support level they need to serve high cost areas. We recommend that the Commission, together with the state commissions, continue to explore the possibility of using competitive bidding in the future.  X- B. Calculation of Cost  X-` ` 1. Background  X-187.` ` The existing universal service support mechanisms. Currently there are three mechanisms designed expressly to provide support for high cost and small telephone  X-companies: the Universal Service Fund (high cost assistance fundX01Í ÍX0Í Í),Y {O,-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.601 et. seq. the DEM weighting  X|-program,Z|z yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b). and LTS.[|  yO7"-#X\  P6G;ɒP#э 47 C.F.R.  69.105, 69.502, 69.603(e), 69.612.#Xj\  P6G;ynXP#ѭ  XN-188.` ` The jurisdictional separations rules currently assign 25 percent of each LEC's"Nc[*&&dd"  X-loop costss\ yOy-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Loop cost is the fixed cost of connecting customers to the LEC central office. LECs' local loop costs vary widely due to many factors, including subscriber density, terrain, local exchange size, and labor costs.s to the interstate jurisdiction.]  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 LEC's local loop  X-costs are recovered through rates charged to its customers for interstate services.t^Z yOJ-#X\  P6G;ɒP#э #X\  P6G;ɒP#Currently, the Commission's access charge rules require that these costs be recovered through subscriber  {O-line charges and carrier common line charges. The operation of both types of charges is discussed infra in section XII. t For LECs with aboveaverage loop costs, the existing high cost assistance fund shifts a larger percentage of the loop costs to the interstate jurisdiction and permits those LECs to recover this  X-incremental allocation from the high cost assistance fund._ yO' -#X\  P6G;ɒP#э #X\  P6G;ɒP#The high cost assistance fund is currently administered by NECA. Each LEC's embedded costs determine the support payments the LEC will receive. Currently, a LEC is eligible for support if its embedded loop costs exceed 115 percent of the national average loop cost.  X_-LECs with study areas`_b  yOr-#X\  P6G;ɒP#э #X\  P6G;ɒP#A study area is a geographic segment of a carrier's telephone operations within a state. Carriers perform jurisdictional separations at the study area level.  of 200,000 or fewer loops receive a greater percentage of their  XH-aboveaverage loop costs than those with study areas with more than 200,000 loops.X0Í ÍX0Í ÍaH  yO-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.631(c), (d). LECs with study areas of 200,000 or fewer working loops receive an additional interstate allocation of 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 working loops. This 65 percent additional allocation coupled with the 25 percent allocation 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. Those 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 25 percent allocation for all carriers, means that carriers with loop costs greater than 150 percent of the national average receive a 100 percent allocation to the interstate jurisdiction for the costs above 150 percent of the national average. 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. For LECs with study areas of more than 200,000 working loops, the additional interstate allocation of unseparated loop costs 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"dJ a*&&dd"  X-average. This program is funded entirely by IXCs.X0Í ÍX0Í Í&b yOy-#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.&  X-189.` ` The Commission's jurisdictional separations rules include a second universal  X-service subsidy mechanism known as DEM weighting.c   yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b). Dial equipment minutes, or DEM, are the minutes of holding time of local switching equipment used to originate and terminate a call. The jurisdictional separations rules allocate local switching equipment costs between the interstate and intrastate jurisdictions on the basis of each jurisdiction's relative number of dial equipment minutes of use. At the time the DEM weighting subsidy was created, it was assumed that smaller telephone companies would have higher local switching costs than larger LECs because the smaller companies cannot take advantage of certain economies of scale. LECs with fewer than 50,000 access lines are directed to apportion a greater proportion of these local switching costs to the interstate jurisdiction than  XH-larger LECs may allocate.dH yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 C.F.R.  36.125(b).#Xj\  P6G;ynXP#Ѹ For these small LECs, the actual DEMs are weighted (multiplied by a factor) to shift what would otherwise be intrastate costs to the interstate jurisdiction. DEM weighting applies independent of, and unrelated to, the high cost assistance fund.  X -190. ` ` The LTS program supports carriers with higherthan average subscriber line costs by providing carriers which are members of the NECA pool with enough support to  X -enable them to charge IXCs only a nationwide average CCL interstate access rate.*e  yO-#X\  P6G;ɒP#э #]\  PCɒP#Prior to 1989 all local exchange carriers were required to participate in a pool of carrier common line costs and revenues. Beginning in April 1989, LECs were permitted to withdraw from the pool, but LECs with below average subscriber line charges that choose to exit the pool are required to contribute enough so that LECs remaining in the pool would be able to charge the same industry average CCL rates they would have charged if  {O'-the pool were still mandadtory for all LECs. See MTS and WATS Market Structure; Amendment of Part 67 of  {O-the Commission's Rules and Establishment of a Joint Board, Report and Order, 2 FCC Rcd 2953 (1987).* 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  Xy-in the common line pool.fXy yO>-#X\  P6G;ɒP#э The actual rate of return that pooling companies earn on a monthly basis is determined by the total rate of return that the pool earns, i.e., the difference between the total costs that the pooling companies submit and the total amount of revenue in the pool, as a percentage of all pooling companies' total common line investment. NECA then computes the total amount of LTS support needed by subtracting the amount pooling carriers will receive in SLCs and CCL charges from the pool's projected revenue requirement (after removing pay telephone costs and revenues). LTS is funded by ILECs that do not participate in the common line pool. Nonpooling ILECs' LTS contributions to the common line pool are set annually based on the total projected amount of LTS, converted to a monthly payment amount. NECA computes the monthly"e4f*&&dd" "draws" for the ILEC common line pool members 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 receives a draw from the "pooled" common line revenues rather than a "LTS payment."  X-191.` ` The Commission initiated a rulemaking proceeding in CC Docket No. 80286  Xv-to modify the current support mechanism for high cost and small telephone companies.g\v {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Amendment of Part 36 of the Commission's Rules and Establishment of a Joint Board, Notice of Inquiry, 9 FCC Rcd 7404 (1994); Order, 9 FCC Rcd 7962 (1994) (Data Request); Notice of Proposed Rulemaking and  {O -Notice of Inquiry, 10 FCC Rcd 12309 (1995) (80286 NPRM). The primary goals of that proceeding were to eliminate barriers to competitive entry, contain the size of the fund at a reasonable level, and promote efficient investment and operation of local  X1-service networks.h1 {O -#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#80286 NPRM at para. 5.  X -192.` ` In the 80286 NPRM, the Commission sought comment on ways to improve the high cost assistance fund, including: (1) using credits to deliver high cost assistance in a competitively neutral manner; (2) excluding administrative costs from the loop costs that form the basis for high cost assistance; (3) basing assistance on the average number of subscriber lines; (4) increasing the threshold for receiving assistance; (5) reconsidering the distinctions in  X-the current rules between large and small study areas; (6) adopting a permanent indexed cap; (7) using high cost credits for large carriers' study areas only; and (8) using proxy factors to  Xd-compute high cost assistance.id~ {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Id. at paras. 1775. The Commission also proposed to modify DEM weighting by: (1) establishing a high cost test to qualify for DEM weighting; (2) determining DEM weighting factors on the basis of average local switch size; or (3) determining DEM weighting  X-assistance through the use of a scale sliding on the basis of the number of access lines.j {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id. at paras. 916.  X-193.` ` NPRM in this Proceeding. In the NPRM, the Commission sought comments to identify methods for determining the level of support required to ensure that carriers are  X-financially able to provide universal service in rural, insular, and high cost areas.k yO!-#X\  P6G;ɒP#э #X\  P6G;ɒP#NPRM at paras. 2739. The Commission specifically sought comment on whether continuing to use the Commission's jurisdictional separations rules to provide support to LECs with high loop costs, or local switching costs of small LECs, is consistent with Congress's intent "to provide for a procompetitive, deregulatory national policy framework ... opening all telecommunications"gf2 k*&&dd"  X-markets to competition,"l {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#See S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 1 (1996). or with its intent relating to the characteristics of universal service  X-support mechanisms to be adopted pursuant to section 254.mZ X-#X\  P6G;ɒP#э#X\  P6G;ɒP# NPRM at para. 30#Xj\  P6G;ynXP#. In addition, the Commission sought comment regarding the statutory requirement "that any support mechanisms continued  X-or created under new section 254 should be explicit."n  yOw-#X\  P6G;ɒP#э #X\  P6G;ɒP#47 U.S.C.  254(e)#X\  P6G;ɒP#. The Commission sought comment on whether the DEM weighting assistance mechanism should be retained in light of the principles  X-enunciated in the 1996 Act.o yO -#X\  P6G;ɒP#э #X\  P6G;ɒP# NPRM at para. 30. The NPRM also asked commenters to identify the total amount  Xv-of support currently required for each proposed core service.pv+ {OR-#X\  P6G;ɒP#э #]\  PCɒP# Id. at para. 15.  XH-194.` ` The Commission also incorporated into this proceeding by reference the portion of the record from CC Docket No. 80286 that relates to changing the support mechanisms  X -found in Part 36 of its rules.q  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id. at para. 39. The Commission noted, however, that the legislative history of the 1996 Act indicates that Congress determined that CC Docket No. 80286 was not an  X -appropriate foundation on which to base the section 254 universal service proceeding.r O  {O-#X\  P6G;ɒP##X\  P6G;ɒP#э #]\  PCɒP#Id. at para. 39 (citing S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 131 (1996)).  X -195.` ` Regarding LTS, the NPRM observed that the CCL charges of ILECs not  X -participating in the NECA pool recover LECs' LTS obligations.s  yO9-#X\  P6G;ɒP#э#X\  P6G;ɒP# NPRM at para. 115.#Xj\  P6G;ynXP#ѱ As noted in the NPRM, LTS payments serve to equalize access charges among LECs by requiring larger LECs that no longer participate in the NECA access charge pool to contribute funds sufficient to reduce  Xb-pooling companies' access charges to the national average.tbq  X-#X\  P6G;ɒP#э #X\  P6G;ɒP# Id. at para. 115#Xj\  P6G;ynXP#. The NPRM tentatively concluded that "LTS payments, which directly increase interstate access charges assessed by some LECs so as to reduce charges assessed by other LECs, are an identifiable support flow in the existing interstate access charge system" and "propose[d] to eliminate the recovery of  X-LTS revenues through ILECs' interstate CCL charges."u" {O$-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id. at para. 115.#Xj\  P6G;ynXP#Ѷ "gu*&&ddc"Ԍ X-196.` ` In the NPRM, the Commission noted that several telecommunications carriers had jointly filed a proxy model to calculate a "benchmark" cost for providing local  X-telecommunications access in every CBG in the nation.)v {OK-#X\  P6G;ɒP#э Id. at para. 31 (citing MCI, NYNEX, Sprint/United Management, and U S West, Benchmark Costing  {O-Model: A Joint Submission, Copyright 1995, CC Docket No. 80286, filed Dec. 1, 1995).) As explained in the NPRM, the purpose of that proxy model the BCM is to identify areas where the cost of service is expected to be high enough to require cost support to preserve and advance universal  X-service.w$ yOb -#X\  P6G;ɒP#э #X\  P6G;ɒP#NPRM at para. 32. The Commission incorporated the BCM into the record of this proceeding, and asked for comment on the merits of using a proxy model to calculate universal service support requirements. The Commission sought comment on, among other things, whether the model could be made technology neutral, whether a proxy model should use embedded costs or forwardlooking costs, what engineering assumptions should be used in the model, and whether the model's choice of CBGs as the geographic unit for calculating the costs of local telephone service was the best alternative. The NPRM also sought comment on a proxy model that had been developed by PacTel for use in the California state universal service  X -proceeding the Cost Proxy Model (CPM).x  {O:-#X\  P6G;ɒP#э  Id. at para. 33 n.81.#Xj\  P6G;ynXP#ѓ  X -197.` ` Public Notice. The Common Carrier Bureau's July 3 Public Notice sought comments on approximately 50 questions regarding the calculation of the cost of providing universal service. The Public Notice requested comment on whether loop costs accurately represent the actual cost of providing services such as access to directory assistance and emergency assistance, and the advanced services that commenters have proposed for inclusion among those services to be supported. To the extent that loop costs do not fully represent the costs associated with including a service in the definition of universal service, the question  X-also asked parties to identify and quantify other costs that should be considered.yF yO-#X\  P6G;ɒP#э #]\  PCɒP# Public Notice (DA961078) (rel. July 3, 1996) question 5. Parties were also asked to comment on what modifications to the existing universal service support  X-mechanisms, if any, are required to comply with the 1996 Act.z {O_-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., question 26. The Public Notice also asked for comment on how existing support mechanisms could be better targeted for rural  X-areas.{h  {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., question 27.  X|-198.` ` Twentyeight questions in the Public Notice dealt with proxy models 15"|h {*&&ddP"  X-asked about proxy models in general,| {Oy-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id,, questions 3448.#Xj\  P6G;ynXP#Ѻ eight asked about the BCM,}Z yO -#X\  P6G;ɒP#э Public Notice, questions 5663.#Xj\  P6G;ynXP#ї and five asked about  X-the CPM.~ {O-#X\  P6G;ɒP#э#X\  P6G;ɒP# Id., questions 5663.#Xj\  P6G;ynXP#Ѻ Further comment was requested on what, if any, activities were being undertaken to harmonize the proposed proxy models; and, how support should be calculated  X-for insular areas and Alaska, which were not included in the BCM.| {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#Id., questions 36, 41, 4548. Comment was sought on how the costs calculated by the BCM compare to the book costs of ILECs for the same  X-geographic areas; what the default inputs were for the BCM (e.g., the fill factors); XL -#X\  P6G;ɒP#э #X\  P6G;ɒP#A fill factor represents the percentage of the loop facility that is currently being used#Xj\  P6G;ynXP#. and, whether it is possible to integrate the grid cell structure used in the CPM into the BCM  X_-model._ yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Public Notice, questions 56, 60, 63#X\  P6G;ɒP#. Comment was sought on whether the CPM could be used on a nationwide basis and  XH-whether it could be modified to identify terrain and soil type by grid cell.lHO  {OH-#X\  P6G;ɒP#э Id., questions 65, 66.l  X -199.` ` Cost Models Public Notice. On July 10, 1996, the Common Carrier Bureau released another Public Notice (Cost Models Public Notice) on the proxy models that had been filed in this proceeding the BCM, a revised version of the BCM (BCM2), the CPM,  X -and the Hatfield model7"  yOg-#X\  P6G;ɒP#э #X\  P6G;ɒP#The BCM was submitted by MCI, NYNEX, Sprint, and U S West. The BCM2 was submitted by Sprint  yO/-and U S West. The CPM was submitted by PacTel. The Hatfield model was submitted by MCI and AT&T.   {O-See Public Notice, Common Carrier Bureau Seeks Further Comment on Cost Models in Universal Service Notice of Proposed Rulemaking, CC Docket 9645, DA 961094 (rel. July 10, 1996)("Cost Models Public Notice").7 and gave notice on how interested parties could obtain copies of  X -the models.  {O:-#X\  P6G;ɒP#э #X\  P6G;ɒP#See Cost Models Public Notice. That Public Notice also set out procedures for interested parties to file  X -comments on the models. ] {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#See Id.  Xy-200.` ` Data Request. On August 2, 1996, the Common Carrier Bureau sent a letter to each of the proponents of the BCM2, CPM, and Hatfield models requesting additional"bi*&&dd"  X-information about the models.0" {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#See Letters from John S. Morabito, Deputy Chief, Accounting and Audits Division, Common Carrier Bureau to (1) Glenn Brown, Executive DirectorPublic Policy, U S West, Inc., (2) Alan Ciamporcero, Vice PresidentFederal Regulatory Relations, PacTel, (3) Mike Pelcovits, Chief Economist, MCI, and Joel Lubin, Vice  yO-PresidentLaw and Government Affairs, AT&T (dated Aug. 2, 1996).#X\  P6G;ɒP#0 The letter asked how the costs calculated by the model compare with actual embedded loop costs of incumbent local exchange carriers and asked each proponent to submit the results from its model for three specific study areas. The letter also requested further information needed to answer modelspecific questions, such as how the current versions compared to the previous versions of these models.  Xv-` ` 2. Comments  XH-` `  a. Cost of Providing Universal Services  X -201.` ` Loop Costs. MCI and NYNEX maintain that loop costs represent the actual  X -costs of providing core services for the purpose of universal service.  yOf-#X\  P6G;ɒP#э#]\  PCɒP# MCI further comments at 3 (arguing, however, that some trunking costs may also be involved for providing services such as 911); NYNEX further comments at 5. Bell Atlantic argues that the local loop is the principal component of supported services, and thus, loop costs are a reasonable surrogate for the costs of all supported services in determining relative costs  X -among exchange carriers.  yOy-#X\  P6G;ɒP#э#]\  PCɒP# Bell Atlantic further comments at 2. According to Bell Atlantic, the costs of providing nonloop core services should not affect the state wide average costs enough to change the amount of universal service support flowing to the states, nor should these costs vary significantly among  Xy-carriers.y {O-#X\  P6G;ɒP#э #]\  PCɒP# Id. at 2. Similarly, CompTel argues that access to supported services is provided by the loop and that loop costs do not vary according to the services the end user connects through  XK-the use of the loops.K,  yO(-#X\  P6G;ɒP#э#]\  PCɒP# CompTel further comments at 9. USTA argues that the local loop cost is the actual cost of providing  X4-access to emergency services and directory assistance.4  yO-#X\  P6G;ɒP#э #]\  PCɒP# USTA further comments at 8.  X-202.` ` NCTA and the Washington UTC contend that it is not appropriate to allocate 100 percent of loop costs to universal service because not all of loop costs are attributable to"jL *&&dd"  X-the provision of supported services, but are also used to provide toll and other services.y\ {Oy-#X\  P6G;ɒP#э #]\  PCɒP#NCTA further comments at 3; Washington UTC further comments at 6 (citing Washington Utilities and  {OC-Transportation Commission v. U S West Communications, Inc., Docket No. UT950200, Fifteenth Supplemental Order, April 11, 1996).y MFS argues that additional costs should not be included in loop costs for purposes of calculating universal service support unless the costs of providing a particular service vary by  X-census block and contribute to making a census block a high cost area.l yOX-#X\  P6G;ɒP#э MFS further comments at 13.l  X-203.` ` Costs in Addition to Loop Costs. Several parties, however, contend that loop  Xv-costs do not represent the total cost involved in providing core services.fZv| {O -#X\  P6G;ɒP#э See, e.g., Florida PSC further comments at 8; Maine PUC further comments at 5; New York DOE further comments at 5; PacTel further comments at 12; SWBT further comments at 4; Sprint further comments at 3; Time Warner further comments at 15; Vitelco further comments at 4.f Commenters assert  X_-that other joint, common and residual costs must be included in calculating total costs.r_ yO-#X\  P6G;ɒP#э Ameritech further comments at 11.r  XH-Commenters contend that switching,1XH.  yO'-#X\  P6G;ɒP#э AT&T further comments at 6; Citizens Utilities further comments at 4; Florida PSC further comments at 8; Maine PUC further comments at 5; RTC further comments at 10; SWBT further comments at 4; Vitelco further comments at 4.1 transportHN  yOG-#X\  P6G;ɒP#э Citizens Utilities further comments at 4; Maine PUC further comments at 6; RTC further comments at 10; Vitelco further comments at 4. or transmission,lH yO-#X\  P6G;ɒP#э AT&T further comments at 6.l signaling,`H6 {O/-#X\  P6G;ɒP#э Id. at 6.` unbundled  X1-element costsa1 {O-#X\  P6G;ɒP#э Id. at 6. a and other coststX1Z yO<-#X\  P6G;ɒP#э Florida PSC further comments at 9 (billing and collections costs); SWBT further comments at 6 (services expenses and support costs); Sprint further comments at 3 (maintenance, depreciation and overhead expenses); Vitelco further comments at 4 (information services costs and billing costs).t are implicated in the provision of a service. For example, Ameritech argues that the cost of singleparty, voice grade service includes not only the cost of the loops, but also a portion of the local switch, as well as maintenance and other joint and  X -common costs and residual costs.r z yO$-#X\  P6G;ɒP#э Ameritech further comments at 11.r In addition, USTA argues that the provision of voice grade access to the public switched network, touchtone and singleparty service entail" k *&&dd? "  X-switching and transport costs in addition to loop costs.l yOy-#X\  P6G;ɒP#э USTA further comments at 8.l SWBT asserts that providing operator service requires substantial costs for facilities and the provision of customer  X-assistance.oX yO-#X\  P6G;ɒP#э SWBT further comments at 5, 7.o Maine PUC contends that even basic services such as the ability to connect with  X-the interexchange network require switches and trunks at the local wire center.q yOT-#X\  P6G;ɒP#э Maine PUC further comments at 5.q  X-204.` ` A few parties argue that support for high switching costs associated with low volume switching, which are currently compensated through DEM weighting, should be  X_-maintained.UX_x yO -#X\  P6G;ɒP#э Century further comments at 1011 (arguing that the Joint Board should develop an explicit high cost mechanism to reduce the disparity between traffic sensitive access charges in rural and urban areas); NECA further comments at 5; USTA further comments at 8. U In addition, RTC maintains that the Commission should provide support for  XH-access charges that cause significant disparities between rural and urban areas.H yO-#X\  P6G;ɒP#э RTC further comments at 10 (arguing that such support would facilitate toll rate averaging required by 47 U.S.C.  254(g) and promote long distance competition). RTC also maintains that support must be available for any network upgrades that rural telephone  X -companies will have to undertake to offer number portability.-X  yO-#X\  P6G;ɒP#э RTC further comments at 11 (arguing that carriers will have to develop and install software and hardware to provide number portability even if they have no customer requesting the service from whom to recover the costs).- NECA argues that the current method for assigning loop costs, wherein loop costs include not only the direct costs of providing physical loop plant facilities but also a portion of other costs such as general and administrative costs, must be maintained as part of any new universal service support  X -mechanism.l  yO-#X\  P6G;ɒP#э NECA further comments at 5.l  X-205.` ` Costs of Additional Services. Few parties commented on the costs associated with advanced services. SWBT asserts that the provision of ISDN requires special switching  Xb-equipment and that the cost of that equipment should be supported.lb yO!-#X\  P6G;ɒP#э SWBT further comments at 5.l USTA contends that access to some advanced services may require a different form of loop connection, such as fiber optic cable, and, thus, loop cost would not represent the actual cost of providing the  X-service in those instances.l0 yO%-#X\  P6G;ɒP#э USTA further comments at 8.l We note that a few parties state or reiterate their belief that"l*&&dde" support should be limited to core services, with no universal service support going toward  X-advanced services. yOb-#X\  P6G;ɒP#э Citizens Utilities further comments at 5; GCI further comments at 3.  X-` `  b. Existing Universal Service Support Mechanisms  X-` `   i. Retain existing Universal Service mechanisms   X_-206.` ` In General. Commenters greatly disagree on whether to retain the current universal service support mechanisms. Most small and rural LECs insist that the existing high  X1-cost assistance fund should be retained in its current form.?1X {O: -#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Century comments at 10; MonCre comments at 34; Montana Indep. Telecom. comments at 6; John Staurulakis comments at 7; SDITC reply comments at 3; Vitelco reply comments at 1. ? Many IXCs, large LECs, and others, however, criticize the existing support mechanisms as contrary to the principles and  X -goals of the 1996 Act.  {Of-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ad Hoc Telecom. Users comments at 12; NARUC comments at 1315; Texas PUC comments at 9; AT&T reply comments at 67.  They contend that the current system encourages inefficiencies and inhibits competition.  X -207.` ` Continue using embedded costs. Supporters of the current program contend  X -that it has successfully achieved the goals of universal service.  {Od-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Harris comments at 12; Minnesota Indep. Coalition comments at 13; OITAWITA comments at 1112. They argue that the current accounting and jurisdictional separation rules are the most accurate method for computing  Xy-support levels.yf  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Park Region Tel. comments at 4. See also MonCre comments at 34; New Hope Tel. Coop. comments at 34; Ragland Tel. Co. comments at 34. In addition, Ft. Mojave Telecom. asserts that the current program is  Xb-"equitable and nondiscriminatory."b  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Ft. Mojave Telecom. comments at 4. West Virginia Consumer Advocate insists that the existing universal service fund is an explicit support mechanism as contemplated in section  X4-254(e).4P  yP5!-#X\  P6G;ɒP#э#c PE37 P# # X\  P6G;ɒP# West Virginia Consumer Advocate comments at 910. While acknowledging that the current jurisdictional separations rules may not advance the cause of creating a procompetitive, deregulatory policy framework, Montana PSC argues that they do "advance the cause of keeping rural rates and services comparable to urban rates and services, and therefore the Commission should maintain these subsidies during"m*&&dd "  X-the transition to a competitive market." yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#Montana PSC comments at 10. Michigan Library Ass'n offers that inefficiencies  X-can be audited by state and Commission staff.X yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Michigan Library Ass'n comments at 10. Meanwhile, SDITC states that it objects to the idea that universal service is a subsidy because it believes it is a "quid pro quo" for artificially capping at 25 percent those common costs which are allocated between interstate and intrastate jurisdictions, implying that the interstate allocation does not sufficiently recover  X-its costs.% {O& -#X\  P6G;ɒP#э #X\  P6G;ɒP#SDITC reply comments at 10 (citing Smith v. Illinois Bell Tele. Co., 282 U.S. 133 (1930) and Decision  {O -and Order, 96 FCC 2d 781, 789 (1984)). % This commenter also argues that the current system should be maintained because  Xv-"local competition is unlikely to occur in rural America for some time."vD yOk -#X\  P6G;ɒP#э #X\  P6G;ɒP# SDITC reply comments at 4.  XH-208.` ` Furthermore, many commenters maintain that any new universal service support  X1-mechanisms must continue to be based on embedded costs.L1 {O-#X\  P6G;ɒP#э See, e.g., 360 comments at 78; BellSouth comments at 2; Frederick & Warinner comments at 23; Keystone comments at 7; LDDS comments at 1112; Maine PUC comments at 4; Michigan PSC comments at 2; OITAWITA comments at 1112; Rock Port Tel. comments at 2; Rural Iowa Indep. Tel. Ass'n comments at 2; SWBT comments at 1314; South Carolina PSC comments at 2; Staurulakis comments at 7; TCA comments at 5; Telec Consulting comments at 4; United Utilities comments at 1; Fred Williamson comments at 1213.L These commenters dispute the  X -reliability of proxy models to set adequate support levels.  {OQ-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ameritech comments at 12; NECA comments at 6. NECA argues further that allowing support levels to be set on the basis of competitive bids or proxy models would trigger a "race for the bottom" because competitors would seek to capture funding without  X -maintaining or improving the quality of service or investing in new technology.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#NECA comments at 6. See also ITC comments at 4; TCA reply comments at 2, 5. Alaska PUC, Vitelco, and Puerto Rico Tel. Co. contend the peculiar topography and extreme weather in their service areas result in high loop costs and argue that any resulting loss of revenues  X-from the existing fund levels would greatly increase local rates. yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska PUC comments at 12; Puerto Rico Tel. Co. comments at 89; Vitelco reply comments at 4. In addition, some commenters assert that small rural companies will not be able to compete under a system that  Xb-does not use embedded costs.b: {OM#-#X\  P6G;ɒP#э See, e.g., Alaska Tel. comments at 4; Harris comments at 11; OITAWITA comments at 1112; SDITC reply comments at 5.  X4-209.` ` Some commenters rely on particular interpretations of the 1996 Act to support"4n*&&dd" their position that universal service mechanisms must be based on an incumbent carrier's embedded costs. Western Alliance asserts that the 1996 Act and the Fifth Amendment of the U.S. Constitution require a system of universal service supports based on embedded costs of  X-service." {O4-#X\  P6G;ɒP#э #X\  P6G;ɒP#Western Alliance comments at 1 (citing Duquesne Light. Co. v. Barasch, 488 U.S. 299, 307 (1989) to argue that the implementation of any system that results in a sharp reduction of universal service support will effectively confiscate incumbent LECs' investments without just compensation in violation of the 5th Amendment). Alaska claims that nothing in the legislative history of the 1996 Act requires abolition of jurisdictional separationsbased support mechanisms and not all support  X-mechanisms are required to be explicit.UX yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska comments at 89 (citing  103(d) of the Senate bill, 141 Cong. Rec. S 8570, S 8575 (daily ed. June 16, 1995) and interpreting the prefaced phrase, "To the extent possible, .." of the Joint Explanatory Statement.U Moreover, Alaska Tel. argues that the embedded  Xv-costs method is necessary to meet the sufficiency requirement of section 254(b)(5).v yO-#X\  P6G;ɒP# Alaska Tel. comments at 4. Section 254(b)(5) of the 1996 Act states that "[T]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service." In addition, Cincinnati Bell contends that the LECs' obligations under the 1996 Act as COLRs  XH-for universal service obligations mandate the recovery of their investment in facilities.H*  {O#-#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell comments at 11. See also Western Alliance comments at 4. Alaska Tel. concludes that the requirement for cost allocation rules and accounting safeguards found in the 1996 Act clearly demonstrates Congress's intent to use historical costs as a basis  X -for determining universal service support.  yOp-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska Tel. reply comments at 3.  X -210.` ` Many commenters contend that a universal service mechanism based on embedded costs, rather than costs determined using a proxy model, will be the easiest to administer when CLECs want to serve a study area that already receives universal service  X-support.L  {O-#X\  P6G;ɒP#э S#X\  P6G;ɒP#ee, e.g., Ardmore Tel. comments at 3; BellSouth comments at 1014; Bledsoe Tel. comments at 3;  {OW-Hopper comments at 3; Ragland Tel. Co. comments at 3; Puerto Rico Tel. Co. further comments at 8. But see, USTA further comments at 2021 (arguing that a competitive carrier in a rural area should receive support based on its own costs to discourage cream skimming and a competitive carrier in high cost areas served by nonrural telephone companies should use the incumbent's costs to encourage competition). Pacific Telecom states that basing payments on the embedded costs of ILECs has the advantages of (i) being "specific, predictable and sufficient" for rural needs; (ii) being auditable; (iii) preventing overrecovery and incentives for gaming the system; (iv) being technologically neutral; and (v) serving as the best economic signal for potential competitive  X4-entry.4 yO%-#X\  P6G;ɒP#э #X\  P6G;ɒP#Pacific Telecom further comments at 89. Washington UTC suggests that this method might encourage the resale of embedded"4o*&&ddH" LEC facilities, while allowing competition, because it argues that competitors are more likely  X-to want to use ILEC facilities if they are compensated for doing so.Z yOb-#X\  P6G;ɒP#э #X\  P6G;ɒP#Washington UTC further comments at 1718. Washington UTC, however, also notes that the disadvantages of using the incumbents embedded costs are that those costs may not reflect newer, less expensive  {O-technology and would result in over recovery by the competitors. See also AT&T further comments at 2526.  BellSouth further contends that, when CLECs with lower enduser rates receive the same support as the incumbent, they lower the enduser cost. BellSouth explains that the enduser rates would eventually fall due to competition and the support could be adjusted to reflect the lower  X-rates. yO( -#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth further comments at 3334. Vitelco advocates that a CLEC that meets all COLR obligations should be entitled to high cost funds based on its own embedded costs, subject to a cap at the embedded costs of  X_-the incumbent._z yO -#X\  P6G;ɒP#э #X\  P6G;ɒP# Vitelco further comments at 7.  X1-211.` ` Discontinue use of embedded costs. Commenters who maintain that LEC embedded costs are not a reasonable basis for determining support express concern that this  X -method does not encourage companies to operate efficiently.Q  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., TRA comments at 11. But see, Western Alliance further comments at 5 (arguing that no commenter has ever demonstrated that the high cost fund has led to abuse or inefficiency by rural carriers).Q MCI contends that the ILECs embedded costs are likely to include many inefficiencies, and thus be higher than necessary.  X -This would result in a competitor receiving more support than required. d  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#MCI further comments at 12. See also Citizens Utilities further comments at 8. In addition, AirTouch asserts that the use of embedded costs would create incentives for inefficient bypass of ILEC networks and manipulation and inflation of the costs, as well as an increase in the  X-burden borne by subscribers.  yO7-#X\  P6G;ɒP#э #X\  P6G;ɒP#AirTouch further comments at 2021. NARUC contends that an ILECs embedded costs do not reflect the true cost of providing local service. It reports that many states have determined that cost studies produced by LECs overstate the costs significantly by assuming that the cost of a local loop is the real cost of local service, even though the loop cost is a joint cost shared among many services, and by including costs associated with redesign of network for non X-basic services.  yOT!-#X\  P6G;ɒP#э #X\  P6G;ɒP#NARUC comments at 1315. Ad Hoc Telecom. Users argues that the LECs have deployed more  X-transmission capacity than required to provide one line per household. yO#-#X\  P6G;ɒP#э #X\  P6G;ɒP#Ad Hoc Telecom. Users comments at 12. Moreover, Time Warner contends that the use of embedded costs does nothing to cure what it considers the fundamental problems with using embedded costs as the basis for universal service support. "p*&&dd" These include verification of embedded costs, obsolete past engineering practices and investment decisions, past investment initiatives that were not undertaken to serve any  X-legitimate universal service objective, and no incentive to control or reduce expenses. yOK-#X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 3233.  X-212.` ` Moreover, commenters assert that the use of embedded costs does not promote  X-competitive neutrality.X {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., Ad Hoc Telecom. Users comments at 6; California PUC reply comments at 5; Time Warner further comments at 31. RUS argues that historical costs as a basis of support is inconsistent with the goals of the 1996 Act because this method would provide no incentive  X_-for competition._ yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#RUS reply comments at 13. AT&T contends that forcing the recovery of embedded costs distorts the competitive market and allows the ILEC to thwart entry by other more efficient  X1-competitors.1B yO$-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T further comments at 2326. Time Warner asserts that allowing rural companies to retain universal service  X -support based on embedded costs, in combination with the section 251(f) exceptions,M  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Section 251(f) of the 1996 Act exempts rural carriers with fewer than 2 percent of nationwide subscriber lines from complying with all of the interconnection requirements of subsections (b) and (c) of section 251.M creates a protected environment that would operate to consumers' longterm detriment by insulating  X -these companies from competitive pressure to lower costsX0Í ÍX01Í Í. *  yO-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 31. In addition, MCI argues that ILECs are not entitled to a guaranteed complete recovery of their past investments, any more  X -than is any other competitive firm.   {O)-#X\  P6G;ɒP##X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP# MCI reply comments at 11. See also ALTS reply comments at 12.  Teleport further contends that prior investment is not an implicit subsidy and an ILECs ability to recover its investment will not be hindered by the  X-development of competition.L  yO-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Teleport reply comments at 56.  Xb-213.` ` ITA/EMA argue that the collection of universal service support through interstate access charges would violate the express mandate of the 1996 Act that all universal  X4-service supports be made explicit.4 yO"-#X\  P6G;ɒP#э #X\  P6G;ɒP#ITA/EMA comments at 11. RUS also contends that the use of embedded costs fails to provide for the future evolution of telecommunications services and fails to ensure"ql*&&dd"  X-affordable service by ignoring probable revenue losses from the appearance of new entrants. yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#RUS reply comments at 13. AT&T also argues that this method would result in state commissions having to undertake  X-frequent, unwieldy and expensive inquiries into the value and prudence of claimed costs.X {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T further comments at 2326.  See also TCI further comments at 2526. TCI also argues that targeting the support only to high cost areas under the embedded costs  X-approach will be difficult because ILECs report costs on a study area basis. yO? -#X\  P6G;ɒP#э #X\  P6G;ɒP#TCI further comments at 2526.  Xv-214.` ` Use of ILEC costs for CLECs. Some ILEC commenters support the use of embedded costs to calculate assistance for ILECs to determine the universal service support  XH-they would receive, but oppose their use for calculating such support to CLECs.QZHz {Os-#X\  P6G;ɒP##X\  P6G;ɒP#э See, e.g., Minnesota Indep. Coalition comments at 13; PacTel further comments at 30; RTC further comments at 18 (it is unlawful, uneconomic and unfair to base high cost payments to CLECs on the ILECs costs).Q Alaska Tel. claims that providing payments to a competitor based on the embedded costs of an incumbent is not lawful because it contends that the language of section 254 is explicit in limiting the use of universal service support only for the provision, maintenance, and  X -upgrading of facilities and services for which the support is intended.  yO9-#X\  P6G;ɒP##X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska Tel. further comments at 10. Minnesota Indep. Coalition contends that basing the support for CLECs on the incumbents embedded costs may lead to payments to the new competitors that are far in excess of the costs of providing service and that these payments would unreasonably subsidize new competitors and cause  X-uneconomic investment. ",  {Om-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#Minnesota Indep. Coalition comments at 10. See also NYNEX further comments at 24 (noting that because CLECs tend to concentrate initial entry on areas with loop costs below the statewide average cost, basing the support for a CLEC on the ILECs study area average book cost would give windfall profits to the competitor); PacTel further comments at 30.  SWBT argues that such a system of competition would not reflect the competitors actual costs, would reduce incentives for efficiency, would disadvantage  Xb-ILECs by requiring cost studies, and would require continued monitoring and regulation.b yO) -#X\  P6G;ɒP#э #X\  P6G;ɒP# SWBT further comments at 2324. At the same time, SWBT asserts that new entrants should only receive support for an area if an ILEC receives support, but limited to costs associated with its own facilities. Moreover, SWBT states that competitors should have the same reporting requirements as ILECs and be required to justify their own costs. It maintains that the ILECs costs should be the cap on support levels. It notes, however, that allowing a new entrant to use an ILECs costs would be simple to administer, and each carrier would receive the same level of support.  Several other commenters, including IXCs, large LECs, and nonwireline telecommunication companies, also oppose the use of an ILECs embedded costs as a basis for calculating the"4r*&&ddf" support to be provided to a CLEC for the same reasons they criticize the use of embedded  X-costs generally.Z {Ob-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, e.g., AT&T further comments at 7; AirTouch further comments at 26; Ameritech further comments at 26; Citizens Utilities further comments at 8; MCI further comments at 12; NCTA comments at 3233; Sprint further comments at 7; TCI further comments at 2526; U S West further comments at 13.  Ameritech and NCTA maintain that the incumbents embedded costs bear  X-no relationship to the new entrants costs. yOm-#X\  P6G;ɒP#э #X\  P6G;ɒP#NCTA comments at 3233; Ameritech further comments at 26. NYNEX, however, argues that the CLEC should use the ILEC's booked costs only if it offers universal service throughout the ILEC's study  X-area.z yO -#X\  P6G;ɒP#э#X\  P6G;ɒP# NYNEX further comments at 20. Time Warner contends that, if the embedded costs methodology is maintained, CLECs should be allowed to use the ILEC's embedded costs in order for the fund to be  Xv-competitively neutral.v  yO1-#X\  P6G;ɒP#э #X\  P6G;ɒP#Time Warner further comments at 27.  XH-` `  ii. Modify the Existing High Cost Assistance Fund  X -215.` ` In General. Commenters in both the current proceeding and the CC Docket No. 80826 proceeding have suggested modifications to the current system that would continue to use embedded costs to determine the level of support. The proposed modifications that appear to enjoy more widespread support include: adjusting the existing support formula by increasing the qualifying threshold; reducing the support percentages; eliminating specific ILECs from eligibility; excluding particular categories of administrative and overhead expenses for calculating loops; readjusting study areas; and changing the methodology of counting loops.  XK-216.` ` Increasing the threshold for receiving assistance. NYNEX contends that the current threshold is too low to distinguish a high cost area from an average cost area  X-effectively. yOh-#X\  P6G;ɒP#э #X\  P6G;ɒP# NYNEX further comments at 1820. AT&T, Time Warner, and Citizens Utilities join NYNEX in supporting raising  X-the eligibility threshold from the current 115 percent to 130 percent*  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#This would be the approximate equivalent of one standard deviation above national average loop costs perline. above national average  X-loop costs perline to target the support more effectively.\  {O"#-#X\  P6G;ɒP#э #X\  P6G;ɒP#See, AT&T further comments at 24, App. A; Citizens Utilities further comments at 67; NYNEX further comments at 1820; Time Warner further comments at 28. These four commenters also continue to oppose the  {O$-use of embedded costs in calculating the support levels. See also Bledsoe Tel. 80286 NPRM comments at 5.  In response to the 80-286 NPRM, the Maine PUC and Vermont DPS agreed with this modification because it would more"s*&&dd"  X-accurately target funding.^ {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC 80286 NPRM comments at 3; Vermont DPS 80286 NPRM comments at 22. See also Ad  {OC-Hoc Telecom. Users 80286 NPRM comments at 12; Frontier 80286 NPRM comments at 69; Sprint 80286  {O -NPRM comments at 1014; Teleport 80286 NPRM comments at 1618; Time Warner further comments at 28. In the 80286 proceeding, SWBT, however, opposed increasing the perline threshold because it claimed that this would shift over $200 million to the state  X-jurisdiction and would harm small ILECs. {Oq-#X\  P6G;ɒP#э #X\  P6G;ɒP#SWBT 80286 NPRM comments at 4652, Att. 1.  See also Ohio PUC 80286 NPRM comments at 911. Century argued in the 80286 proceeding that increasing the threshold does not better target high cost assistance, but simply reduces the size  X-of the fund. {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#Century 80286 NPRM comments at 1821  Xv-217.` ` Lower the high cost fund payout percentages. Citizens Utilities proposes that  X_-the current payout percentages of up to 75 percent_ yO"-#X\  P6G;ɒP#э #X\  P6G;ɒP#If a company has 200,000 or fewer lines in its study area, for its loop costs in excess of 150 percent of the national average, an additional 75 percent of the LEC's costs may be recovered from the interstate jurisdiction. As 25 percent of its loop costs are already recoverable under the regular jurisdictional separations rules, the additional 75 percent support from the high cost assistance fund allows that LEC to recover 100 percent of their incremental loop costs in excess of the national average from the interstate jurisdiction. recovery that applies when an ILEC with 200,000 or fewer loops has perloop costs in excess of 150 percent of the national average be  X1-reduced in order to encourage efficiencies in operation.#1  S-#&a\  P6G; u&P#э # X\  P6G;ɒP#Citizens Utilities further comments at 67. See also Great Plains 80286 NPRM comments at 11112;  {O|-MCI 80286 NPRM comments at 1016.# In response to the 80286 NPRM, GVNW argued that reducing the payout percentage to 70 percent will reduce the size of the  X -fund. , {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#GVNW 80286 NPRM comments at 34. Arvig Enterprises in the 80286 proceeding suggested that the current payout percentage be reduced to 65 percent to eliminate the perception that current cost  X -methodologies discourage efficient operation.  {OF-#X\  P6G;ɒP#э #X\  P6G;ɒP#Arvig 80286 NPRM comments at 4. In response to the 80286 NPRM, SWBT, however, contended that reducing the recovery level in this manner violated the Commission's proper targeting principle by reducing support to those companies most in need of  X-assistance.1P {O!-#X\  P6G;ɒP#э #X\  P6G;ɒP#SWBT 80286 NPRM comments at 4652, Att. 1. See also GTE 80286 NPRM comments at 4352;  {O_"-North Carolina UC 80286 NPRM comments at 34.1  Xf-218.` ` Eliminate the inclusion of administrative costs. To integrate efficiency incentives, AT&T recommends eliminating the inclusion of administrative costs in the"Ot*&&dd"  X-calculations of loop costs receiving high cost support.\ {Oy-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A. See also ACTA 80286 NPRM comments at 9; MFS 80286  {OC-NPRM comments at 12; Sprint 80286 NPRM comments at 1014 (arguing that this will help deter "gold plating"); Washington UTC further comments at 17. Ad Hoc Telecom. Users contends that administrative expenses, such as advertising and sales, should be eliminated because they  X-are not necessary for the provision of universal service. {Oo-#X\  P6G;ɒP#э #X\  P6G;ɒP#Ad Hoc Telecom. Users comments at 12.  See also MCI 80286 NPRM comments at 1016. New York DPS also advocates eliminating the inclusion of any costs not necessarily related to the provision of subscriber  X-loops.~ {O -#X\  P6G;ɒP#э #X\  P6G;ɒP# New York DPS comments at 6. See also NASUCA 80286 NPRM comments at 1112; Nebraska PSC  {O -80286 NPRM comments at 7. Missouri PSC proposes that, instead of using actual administrative costs, an average administrative cost perline imputed to the carrier should be used to prevent ILECs from  Xv-obtaining high cost support for excessive administrative costs.v {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Missouri PSC comments at 9. See also Florida PSC 80286 NPRM comments at 910. Meanwhile, SDITC recommends replacing the compensation of administrative expenses with compensation for "telephone plant investment" to encourage development of advanced telecommunications  X1-facilities in all areas.1l  yON-#X\  P6G;ɒP#э #X\  P6G;ɒP# SDITC reply comments at 3, 7. NECA, however, suggests that, if the Commission is concerned about excessive levels of general and administrative expenses in the high cost assistance fund, the Commission could consider using statistical measures, such as a twostandarddeviation test to  X -limit the amount of such expenses.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#NECA further comments at 19. See also Pacific Bell 80286 NPRM comments at 6; USTA 80286  {Oc-NPRM comments at 2425.  X -219.` ` Eliminate de minimis loop cost support. AT&T and Time Warner propose that high cost assistance to LECs receiving less than $1.00 in universal service support per loop  X-be eliminated to reduce the size of the fund.X  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A; Time Warner further comments at 28. See also MCI 80286  {Oe-NPRM comments at 1016. Maine PUC also favors this proposal on the  X{-basis that these payments are too low to make much difference to the recipients.U{ {O -#X\  P6G;ɒP#э #X\  P6G;ɒP# Maine PUC comments at 10. See also Alaska PUC 80286 NPRM comments at 1617; Iowa Utilities  {O!-Board 80286 NPRM comments at 25; Nebraska PSC 80286 NPRM comments at 710.U In  Xd-response to the 80286 NPRM, Cincinnati Bell and SWBT also supported elimination of de  XO-minimis assistance since applying this modification to large ILECs will pose the least potential  X:-harm to small LECs, while still reducing the size of the high cost support mechanism.: {O%-#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell 80286 NPRM comments at 10; SWBT 80286 NPRM comments at 4652, Att. 1. In":u*&&dd"  X-their response to the 80286 NPRM, however, GTE, Pacific Bell, and BellSouth opposed  X-eliminating de minimis loop cost support. {Od-#X\  P6G;ɒP##X\  P6G;ɒP#э #X\  P6G;ɒP#GTE 80286 NPRM comments at 4352. BellSouth contended that the Commission's proposal to withdraw assistance to ILECs receiving less than $1.00 per month is predicated on the "fiction" that, if the carrier is large, it can internalize the subsidies. BellSouth said this "easy way out" is no longer available and argued that, if the Commission eliminates high cost support below $1.00, the rules should be modified to permit the eliminated amount to be  Xz-assessed as an end user surcharge.zZ {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth 80286 NPRM comments at 2023.  XL-220.` ` Eliminate or reduce support to large carriers. AT&T, Time Warner, and  X5-SDITC promote the proposal of disqualifying Tier 1 LECsk|5 yO -#X\  P6G;ɒP#э #X\  P6G;ɒP#For tariff review purposes, the term Tier 1 LEC has traditionally referred to a company having annual revenues from regulated operations of $100 million or more. For accounting purposes, the Commission uses the terms Class A and B companies as defined in 47 C.F.R.  32.11(a)(1) and (2) to differentiate large and small carriers. Pursuant to section 402(c), the revenue threshold of Class A LECs has been indexed to inflation using  {O-the Gross Domestic ChainType Price Index (GDPCPI). See, Implementation of the Telecommunications Act of  {O-1996, Reform of Filing Requirements and Carrier Classifications, Order and Notice of Proposed Rulemaking, CC Docket 96193, FCC 96370 (Sept. 12, 1996). k from receiving high cost support  X -to target the support more appropriately.( 0  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#SDITC reply comments at 8; AT&T further comments at 24, App. A; Time Warner further comments  {O-29. See also NCTA 80286 NPRM comments at 2, 23. ( In response to the 80286 NPRM, ICORE recommends disqualifying Class 1 and Class 2 LECs from eligibility to target funding to  X -smaller ILECs.  {O--#X\  P6G;ɒP#э #X\  P6G;ɒP# ICORE 80286 NPRM comments at 1617. Alaska PUC supported the adoption of a slidingscale distinction between  X -small and large ILECs to target high cost support better.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Alaska PUC 80286 NPRM comments at 1718. See also TCA 80286 NPRM comments at 1517. Missouri PSC also supported  X -implementing a sliding scale in the 80286 NPRM proceeding on the basis that it would  X -eliminate the need to reconsider the distinction between large and small companies.  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Missouri PSC 80286 NPRM comments at 1316. In addition, Montana PSC and New York DPS stated that limiting the higher levels of assistance to study areas with 100,000 lines or less might be more consistent with the goal of targeting  Xj-assistance to smaller LECs.?j@ {O[#-#X\  P6G;ɒP#э #X\  P6G;ɒP#Montana PSC 80286 NPRM comments at 56; New York DPS 80286 NPRM comments at 78. See  {O%$-also Northeast Florida Tel. Coop. 80286 NPRM comments at para. 42.? Frontier recommended capping the amount of assistance to"jv*&&dd"  X-study areas with 50,000 or less lines. {Oy-#X\  P6G;ɒP#э#X\  P6G;ɒP# Frontier 80286 NPRM comments at 69. Roseville Tel., however, opposed limiting higher levels of assistance to study areas with 100,000 or fewer lines, arguing that to suggest that large companies serving high cost areas do not need high cost support assumes the large company's ability to continue internal subsidies from rates in low cost areas to rates in high cost areas. It stated that it cannot be assumed that this situation will continue in the face of  X-growing competition.Z {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# Roseville Tel. 80286 NPRM comments at 59. See also Vitelco reply comments at 1011.  X_-221.` ` Readjust study areas. NYNEX states that some large carriers have been able to qualify for assistance intended for small carriers by maintaining small study areas within a state. Thus, it recommends combining study areas within a state that are owned by the same  X -ILEC to apply the high cost assistance mechanisms uniformly and consistently.<  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# NYNEX further comments at 19. See also Bell Atlantic 80286 NPRM comments at 811; MCI 80286  {O-NPRM comments at 1016; AT&T further comments at 24, App. A. < Missouri PSC also promotes combining such study areas because it contends that the analysis of such broad areas will best reflect the overall circumstances of each ILEC. It explains that currently smaller study areas might permit a large ILEC to receive high cost assistance related to its  X -high cost areas even though the ILEC's overall costs were no higher than average. H {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#Missouri PSC comments at 8.  See also Iowa Utilities Board 80286 NPRM comments at 25; Nebraska  {O-PSC 80286 NPRM comments at 7. In  X -response to the 80286 NPRM, GSA, however, opposed this proposal on the basis that it does not address the problem of internal subsidization of supporting high cost areas with revenues  X{-from low cost areas.{ {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#GSA 80286 NPRM comments at 67. New York DPS also opposed combining loop costs for affiliated companies within a state because several small affiliated companies operate in New York and each company operates in a distinct service territory and charges rates unique to that  X6-company.66  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#New York DPS 80286 NPRM comments at 67. Pennsylvania PUC also stated that it was opposed to combining all affiliated study areas in a state because this would immediately disqualify large carriers from high cost  X-assistance even though they have high cost areas within a study area.  {O!-#X\  P6G;ɒP#э #X\  P6G;ɒP#Pennsylvania PUC 80286 NPRM comments at 1114.  X-222.` ` Citizens Utilities and BellSouth recommend using a smaller geographic area"wZ *&&dd"  X-than a study area, such as a wire center,, yOy-#X\  P6G;ɒP#э #X\  P6G;ɒP#A wire center is the location where the telephone company terminates subscriber outside cable plant (i.e. their local lines) with the necessary testing facilities to maintain them., as the basis for determining eligibility to target the  X-support better and reduce the size of the fund.^  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth further comments at 32; Citizens Utilities further comments at 7. See also Ameritech 80286  {O-NPRM comments at 1314; Cincinnati Bell 80286 NPRM comments at 6; NASUCA 80286 NPRM comments at  {ON-89, 19; SWBT 80286 NPRM comments at 19, Att. 1. Cincinnati Bell, in response to the 80286  X-NPRM, stated that wire centers are appropriate because they are a compromise between study  X-areas and CBGs.F {O -#X\  P6G;ɒP#э #X\  P6G;ɒP#Cincinnati Bell 80286 NPRM comments at 6. Also, Ameritech argued that collecting data by wire center may be less  X-difficult than collecting data by CBG. {O1 -#X\  P6G;ɒP#э #X\  P6G;ɒP# Ameritech 80286 NPRM comments at 1314. BellSouth asserted that the use of a wire center as the geographic basis for determining support would eliminate the need to divide carriers into  Xz-large and small categories.zj  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# BellSouth 80286 NPRM comments at 2023.  XL-223.` ` GTE proposes using a unit smaller than a wire center, such as a CBG, because, it states, this will result in better targeted support, minimize the amount of support provided,  X -and send more accurate price signals to new entrants.J  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP# GTE comments at 10. See also Jones Intercable 80286 NPRM comments at 45; Pennsylvania PUC 80 {O-286 NPRM comments at 79, 1415; Sprint 80286 NPRM comments at 1014.J In response to the 80286 NPRM, California PUC also advocating the use of CBGs, stated that the CBG is small enough to make the costs of an area more homogenous while keeping the distribution of the fund  X -manageable. X  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#California PUC 80286 NPRM comments at 4. Bell Atlantic, however, opposed the use of CBGs to identify high cost areas. It argued that attempting to administer a national CBGbased high cost support mechanism  X -would become overly complex and cumbersome.  {OH-#X\  P6G;ɒP#э #X\  P6G;ɒP#Bell Atlantic 80286 NPRM comments at 811. BellSouth also opposed the use of CBGs. It claimed that CBGs have no relationship to a local service obligation, have nothing to do with local service areas as defined by state commissions, and have no operational significance  Xh-to ILECs, and that no credible evidence exists that they bear any relationship to costs.h| {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth 80286 NPRM comments at 811, 2628. See also Alaska PUC 80286 NPRM comments at 79.  X:-224.` ` Adjust Rate Structure. GTE advocates imposing a rate ceiling to achieve":x*&&dd" specific level of enduser prices. It proposes that the level of support must initially be based  X-upon a measure of the cost of service with a rate ceiling.X yOb-#X\  P6G;ɒP#э #X\  P6G;ɒP#GTE comments at 89. GTE also asserts that the support should fund the difference when the rate ceiling is less than the embedded costs. A competitive bidding process should replace this costbased comparison to determine the support amount once carriers enter the market. In the 80286 NPRM proceeding,  X-the California PUC stated that it is addressing rate caps in certain areas as well. {Om-#X\  P6G;ɒP#э #X\  P6G;ɒP#California PUC 80286 NPRM comments at 4. ALLTEL recommended implementing rate rebalancing to reduce the fund size by allowing ILECs with a perline contribution of less than $1.00 to increase their SLCs, especially if the proposal to  X-eliminate de minimis support is adopted.z {O -#X\  P6G;ɒP#э #X\  P6G;ɒP# ALLTEL 80286 NPRM comments at 7.  See also BellSouth 80286 NPRM comments at 2023; Citizens Utilities further comments at 7.  Xc-225.` ` Implement additional accounting safeguards. Washington UTC proposes that the Commission implement additional accounting safeguards to book, track, and report appropriate revenues to explicit accounts to ensure that high cost funds are used for intended  X -purposes.  yO-#X\  P6G;ɒP#э #X\  P6G;ɒP#Washington UTC further comments at 16.` `  X -226.` ` Make the support portable. BellSouth and AT&T propose making the universal service support fully "portable" so that the support should move with the customer. They state that this will encourage competition and eventually reduce enduser rates for local  X -service. d  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#BellSouth comments at 1014; AT&T further comments at 20.  See also Sprint 80286 NPRM comments at 1014.  X}-227.` ` Adopt an indexed cap. AT&T recommends adopting an indexed cap on the growth of the universal service support to reduce the size of the fund and encourage efficient  XO-operation.BO  {O-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T further comments at 24, App. A. See also Frontier 80286 NPRM comments at 69; MCI 80286  {O-NPRM comments at 1016; Sprint 80286 NPRM comments at 1014.B In response to the 80286 NPRM, Alaska PUC expressed concern that a  X:-permanent cap would reduce support available to needy companies in an arbitrary manner.&: {O"-#X\  P6G;ɒP#э #X\  P6G;ɒP#Alaska PUC 80286 NPRM comments at 1718. See also USTA 80286 NPRM comments at 3132;  {O"-Vermont DPS 80286 NPRM comments at 2728.&  X -228.` ` Implement usagesensitive support. ITC and ETEX Tel. Coop. propose implementing a "usagesensitive" universal service mechanism, based on a company's"yv*&&dd " embedded costs, that lowers the high cost assistance funding as the usage perminute for each access line increases. These commenters contend that this methodology will promote toll and resale competition in rural areas while maintaining monopoly efficiencies of lowdensity rural  X-areas. yO4-#X\  P6G;ɒP#э #X\  P6G;ɒP#ITC comments at 10; ETEX Tel. Coop. reply comments at 2.  X-229.` ` Change current assessment structure. Many commenters recommend changing the current assessment structure to promote competitive neutrality to make the contribution  X_-mechanism more equitable. For example, ACTA in the 80286 NPRM proceeding argued that preserving high cost assistance should not be the burden of one segment of the  X3-telecommunications industry, namely the interexchange segment.3X {O< -#X\  P6G;ɒP#э #X\  P6G;ɒP#ACTA 80286 NPRM comments at 9. AT&T, GTE, NYNEX, and Lincoln propose that high cost support be funded on the basis of a single, uniform surcharge to all enduser telecommunications services. Thus, all telecommunications service providers, including IXCs, ILECs, CLECs, wireless carriers, and resellers, would finance high  X -cost support.  yOr-#X\  P6G;ɒP#э #X\  P6G;ɒP#AT&T comments at 7; GTE comments at 89; Lincoln reply comments at 7; NYNEX further comments at 20. AT&T contends that this surcharge will foster greater efficiency and new  X -entry that will result in lower prices for customers.  B yO-#X\  P6G;ɒP#э #X\  P6G;ɒP# AT&T comments at 8. Citizens Utilities recommends creating  X -a contribution mechanism that assesses all interstate carriers, instead of just IXCs.   yO,-#X\  P6G;ɒP#э #X\  P6G;ɒP#Citizens Utilities further comments at 7. In  X-response to the 80286 NPRM, Nebraska PSC proposed that the current