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Commission adopts NPRM to reform and modernize contribution system

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Released: April 30, 2012

Federal Communications Commission

FCC 12-46

Before the

Federal Communications Commission

Washington, D.C. 20554



)

In the Matter of
)


)

Universal Service Contribution Methodology
)
WC Docket No. 06-122

)

A National Broadband Plan For Our Future
)
GN Docket No. 09-51
)

FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: April 27, 2012

Released: April 30, 2012


Comment Date:


(30 days after date of publication in the Federal Register)

Reply Comment Date:

(60 days after date of publication in the Federal Register)
By the Commission: Chairman Genachowski and Commissioners McDowell and Clyburn issuing
separate statements.

TABLE OF CONTENTS

Heading
Paragraph #
I.
INTRODUCTION ........................................................................................................................... 1
II.
BACKGROUND ............................................................................................................................. 7
A. Today’s Contribution System.................................................................................................... 7
B. Industry Developments and Contribution Reform Efforts ...................................................... 18
III.
GOALS OF CONTRIBUTION METHODOLOGY REFORM.................................................... 22
IV.
WHO SHOULD CONTRIBUTE TO UNIVERSAL SERVICE ................................................... 28
A. Statutory Authority to Require Contributions ......................................................................... 31
1. “Provider of Interstate Telecommunications”................................................................... 32
2. “If the Public Interest So Requires”.................................................................................. 35
B. Determining Contribution Obligations on a Case-by-Case Basis with Respect to
Providers of Specific Services................................................................................................. 36
1. Enterprise Communications Services Providers ............................................................... 41
2. Text Messaging Providers ................................................................................................ 49
3. One-way VoIP Service Providers ..................................................................................... 57
4. Broadband Internet Access Service Providers .................................................................. 65
5. Listing of Services Subject to Universal Service Contribution Assessment..................... 73
C. Determining Contribution Obligations Through a Broader Definitional Approach ............... 74
V.
HOW CONTRIBUTIONS SHOULD BE ASSESSED ................................................................. 95
A. Reforming the Current Revenues-Based System .................................................................... 98
1. Apportioning Revenues from Bundled Services............................................................. 101
2. Contributions for Services with an Interstate Telecommunications Component............ 114
3. Allocating Revenues Between Inter- and Intrastate Jurisdictions................................... 121
4. Contribution Obligations of Wholesalers and Their Customers ..................................... 143
5. Reporting Prepaid Calling Card Revenues ..................................................................... 179
6. International Telecommunications Providers ................................................................. 193
7. Reforming the De Minimis Exemption ........................................................................... 209
B. Assessing Contributions Based on Connections ................................................................... 219


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1. Legal Authority............................................................................................................... 223
2. Defining “Connections”.................................................................................................. 226
3. Trends in Connections .................................................................................................... 245
4. Assessment and Use of Speed or Capacity Tiers............................................................ 249
5. Policy Arguments Related to Connections-Based Assessment ...................................... 264
6. Implementation ............................................................................................................... 270
C. Assessing Contributions Based on Numbers......................................................................... 284
1. Legal Authority............................................................................................................... 290
2. Defining Assessable Numbers for Contribution Purposes.............................................. 294
3. Trends in Numbers.......................................................................................................... 310
4. Differential Treatment of Certain Types of Numbers..................................................... 312
5. Use of a Hybrid System with a Numbers-Component.................................................... 322
6. Policy Arguments Related to Numbers-Based Assessment............................................ 325
7. Implementation ............................................................................................................... 332
VI.
IMPROVING THE ADMINISTRATION OF THE CONTRIBUTION SYSTEM .................... 342
A. Updating the Telecommunications Reporting Worksheet..................................................... 344
B. Revising the Frequency of Adjustments to the Contribution Factor ..................................... 350
C. Pay-and-Dispute Policy......................................................................................................... 360
D. Oversight and Accountability................................................................................................ 367
E. Paper-Filing Fees................................................................................................................... 376
F. Filer Registration and Deregistration .................................................................................... 381
VII.
RECOVERY OF UNIVERSAL SERVICE CONTRIBUTIONS FROM END USERS............. 387
A. Pass-Through of USF Contributions as Separate Line Item Charge ..................................... 389
B. Segregation of USF Pass-Through Charges .......................................................................... 398
C. Limiting Pass-Through of USF Charges to Lifeline Subscribers.......................................... 401
VIII. PROCEDURAL MATTERS ....................................................................................................... 411
A. Filing Requirements .............................................................................................................. 411
B. Initial Regulatory Flexibility Analysis .................................................................................. 414
C. Paperwork Reduction Act Analysis....................................................................................... 415
IX.
ORDERING CLAUSES .............................................................................................................. 416
APPENDIX A – Proposed Rules
APPENDIX B – Summary Analysis of Wireless and Interconnected VoIP Traffic Studies
APPENDIX C – Form 499-A Reporting of Interstate/International Revenues
APPENDIX D – Data Analysis for Prior Period Adjustments
APPENDIX E – Initial Regulatory Flexibility Analysis

I.

INTRODUCTION

1.
Today we seek comment on proposals to reform and modernize how Universal Service
Fund (USF or Fund) contributions are assessed and recovered. In doing so, we take the next step in the
Commission’s ongoing efforts to modernize its universal service programs to efficiently bring the benefits
of 21st century broadband networks, and the economic growth, jobs and opportunities they provide, to all
Americans.1
2.
The universal service contribution system is the system by which the Commission’s
various universal service programs are funded. The total amount of money that must be collected each
year is determined based on quarterly projections of demand for each of the four universal service

1 See Joint Statement on Broadband, GN Docket No. 10-66, Joint Statement on Broadband, 25 FCC Rcd 3420, 3421
(2010) (identifying comprehensive universal service reform as an essential goal for the Commission).

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programs.2 In October 2011 and January 2012, the Commission adopted sweeping reforms to modernize
the High-Cost (now known as the Connect America Fund) and Low-Income components of the Fund to
ensure that robust, affordable voice and broadband service are available to Americans throughout the
nation. These reforms also adopted, for the first time, a budget for the Connect America Fund, and set a
savings target of $200 million for 2012 for the USF Lifeline program.3 Along with the existing caps for
the Schools and Libraries (commonly referred to as the E-Rate) and Rural Health Care components of the
Fund, these reforms will assist in limiting the overall contribution burden.
3.
Building on our efforts to limit the overall contribution burden, in this Further Notice of
Proposed Rulemaking (Notice) we seek comment on a variety of proposals to reform the system by which
universal service demand is met. Since the adoption of the current contribution system after the
Telecommunications Act of 1996,4 the communications ecosystem has undergone extensive changes that
have brought tremendous benefits to consumers. Consistent with the pro-competitive goals of the 1996
Act, many firms have entered into the telecommunications marketplace and given consumers and
businesses many more choices for purchasing communications services. Most consumers now subscribe
to mobile wireless services. Many service providers now offer Internet Protocol-based (IP) services that
deliver voice, data, and video functionality to consumers and businesses. Meanwhile, the Commission’s
universal service contribution system has not kept pace with some of these changes.
4.
The evolution in the communications ecosystem has led to a series of stresses on the
contribution system. The contribution system has become increasingly complex for the Commission and
the Universal Service Administrative Company (USAC) to administer and burdensome for contributing
telecommunications providers to comply with. Some aspects of today’s contributions methodology may
result in competitive distortions because different contribution obligations may apply to similar services
depending on how a service is provided. Furthermore, the USF contribution base, largely comprised of
assessable telecommunications service revenues reported by companies,5 has recently begun to shrink as
residential and business customers have begun to migrate to communication services that do not
contribute to the Fund.
5.
This Notice seeks comment on ways to reform the USF contribution system in an effort
to promote efficiency, fairness, and sustainability. In particular, we seek comment on:

Who Should Contribute. We seek comment on clarifying or modifying the Commission’s
rules on what services and service providers must contribute to the USF in order to
reduce uncertainty, minimize competitive distortions, and ensure the sustainability of the
Fund. In particular, we seek comment on two alternative approaches to defining what
services or providers should be subject to contribution obligations: (1) using our
permissive authority, and/or other tools to clarify or modify on a service-by-service basis
whether particular services or providers are required to contribute to the Fund; or (2)

2 47 C.F.R. § 54.709(a)(2).
3 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 17663 (2011) (USF/ICC Transformation Order and FNPRM), pets. for review pending
sub nom. In re: FCC 11-161,
No. 11-9900 (10th Cir. filed Dec. 8, 2011); Lifeline and Link Up Reform and
Modernization Order et al.
, WC Docket No. 11-42 et al., Report and Order and Further Notice of Proposed
Rulemaking, FCC 12-11 (rel. Feb. 6, 2012) (Lifeline and Link Up Reform and Modernization Order).
4 See 47 U.S.C. § 254(d); Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (1996 Act).
The 1996 Act amended the Communications Act of 1934 (Communications Act or Act).
5 As discussed later in the Notice, see infra paras. 9-10, certain provisions of telecommunications, like private line
service, do not constitute a telecommunications service as that term is defined in the Act, but are included in the
USF contribution base. See 47 C.F.R. § 54.706(a).

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adopting a more general definition of contributing interstate telecommunications
providers that could be more future proof as the marketplace continues to evolve.

How Contributions Should Be Assessed. We then seek comment on how contributions
should be assessed – specifically, what methodology we should use to determine the
relative contribution obligations among those providers who are required to contribute.
In particular, we seek to refresh the record and update proposals to assess based on
revenues, connections, numbers, or a hybrid approach. For each alternative, we ask
parties to address the current and projected impact on the relative contribution burden for
consumers and businesses in light of marketplace trends.

How the Administration of the Contribution System Can Be Improved. We also seek
comment on potential rule changes that would reduce the costs associated with
complying with contribution obligations and promote the transparency and clarity of the
contribution system. For example, we seek comment on whether to adopt an annual
review of the instructions and content of the form that telecommunications providers
must submit to determine the scope of their contribution obligations (FCC Form 499).
We also seek comment on ways to improve administration of the contribution system,
such as setting performance goals for timely reporting by contributors and prompt
payment of contributions.

Recovery of Universal Service Contributions from Consumers. Finally, we seek
comment on whether the Commission could promote fairness and transparency by
modifying the methods by which providers recover the costs of universal service
contributions from consumers. In particular, we seek comment on whether to require
additional information on customer bills about contributions, whether to limit the
flexibility of contributors to pass through contribution costs as a separately stated line
item on customer bills, and whether to extend to non-incumbent eligible
telecommunications carriers our existing rules that preclude incumbent carriers from
recovering from their Lifeline subscribers universal service contributions for Lifeline
offerings. We also seek comment on measures to ensure contributions are made by
contributors that become insolvent.
6.
We encourage detailed input from all stakeholders on our efforts to reform the universal
service contribution methodology. Input from contributors, potential contributors, consumers (both
individuals and business users, who ultimately pay for USF),6 and consumer advocacy groups will be
crucial in fully evaluating the impact of potential reforms to the contribution system. We also specifically
solicit input from state governments, with whom we have had an historic partnership in ensuring
universal service, and Tribal governments, who play a crucial role in overseeing telecommunications
services provided on Tribal lands.7

6 See USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17682-83, para. 57; Lifeline and Link Up
Reform and Modernization Order
, FCC 12-11 at 22, para. 37.
7 Throughout this Notice, “Tribal lands” include any federally recognized Indian tribe’s reservation, pueblo or
colony, including former reservations in Oklahoma, Alaska Native regions established pursuant to the Alaska Native
Claims Settlement Act (85 Stat. 688), and Indian Allotments, as well as Hawaiian Home Lands—areas held in trust
for native Hawaiians by the state of Hawaii, pursuant to the Hawaiian Homes Commission Act, 1920, Pub. L. No.
67-34, 42 Stat. 108, et seq., as amended (1921). This definition is consistent with the definition of Tribal lands
recently adopted in our orders establishing the Connect America Fund and reforming the Low-Income universal
service support mechanism. USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17739, para. 126, n.197;
Lifeline and Link Up Reform and Modernization Order, FCC 12-11 at 5-6, para 4, n.4.

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II.

BACKGROUND

A.

Today’s Contribution System

7.
The Commission’s authority to require contributions to the USF derives from section
254(d) of the Act, which provides that “[e]very telecommunications carrier that provides interstate
telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific,
predictable, and sufficient mechanisms established by the Commission to preserve and advance universal
service.”8 Under this mandatory contribution provision, every provider of interstate telecommunications
services must contribute,9 although the Commission has authority to exempt a carrier or class of carriers
if their contributions would be de minimis.10 Section 254(d) also vests the Commission with broader,
permissive authority to assess contributions, such that “[a]ny other provider of interstate
telecommunications may be required to contribute to the preservation and advancement of universal
service if the public interest so requires.”11
8.
Several concepts historically have guided the Commission’s approach to universal
service contributions. First, since the initial implementation of section 254 after passage of the 1996 Act,
the Commission has held that the universal service rules should be competitively neutral and should
“neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor
disfavor one technology over another.”12 Thus in developing the existing contribution methodology in
1997, the Commission endeavored to reduce the “possibility that carriers with universal service
obligations [would] compete directly with carriers without such obligations.”13 Second, the Commission
found it appropriate to extend universal service contribution obligations to providers that compete with
common carriers, because common carriers are subject to mandatory contributions. In reaching that
conclusion in 1997, it noted that those who benefit from access to the public switched telephone network
(PSTN), which is supported by the universal service fund, should contribute.14 As the U.S. Court of
Appeals for the Fifth Circuit has explained, “Congress designed the universal service scheme to exact

8 47 U.S.C. § 254(d).
9 Section 254(d) refers to “telecommunications carriers,” which are defined as “any provider of telecommunications
services.” 47 U.S.C. § 153(51).
10 47 U.S.C. § 254(d).
11 Id.
12 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776,
8801, para. 47 (1997) (Universal Service First Report and Order) (subsequent history omitted); see also Federal-
State Board on Universal Service et al.
, CC Docket No. 96-45 et al., Further Notice of Proposed Rulemaking and
Report and Order, 17 FCC Rcd 3752, 3759, para. 15 (2002) (2002 First Contribution Methodology Order and
FNPRM
) (identifying the following goals in considering reform to the USF contribution system: ensuring stability
and sufficiency of the universal service fund as the marketplace continues to evolve; ensuring that contributors
continue to be assessed in an equitable and nondiscriminatory manner; and minimizing the regulatory costs of
complying with universal service obligations).
13 Universal Service First Report and Order, 12 FCC Rcd at 9183–84, para. 795.
14 Id. at 9184-85, paras. 796-97 (extending contribution obligations to payphone aggregators because they
interconnect with the public-switched telephone network); see also Universal Service Contribution Methodology et
al.
, WC Docket No. 06-122 et al., Report and Order and Notice of Proposed Rulemaking, 21 FCC Rcd 7518, 7540,
para. 43 (2006) (2006 Contribution Methodology Order).

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payments from those companies benefiting from the provision of universal service.”15 Third, the
Commission has sought to ensure that the contribution rules are easy to comply with and administer.16
9.
Contributors. The current system requires contributions both from common carriers17
(under the Act’s mandatory contribution requirements), and certain other providers of
telecommunications (under the Commission’s permissive authority). Specifically, in 1997, the
Commission exercised its permissive authority to require payphone aggregators and private carriers (i.e.,
companies that sell services on an individualized contractual basis) to contribute to the Fund.18 More
recently, in 2006, the Commission exercised its permissive authority to require interconnected Voice over
Internet Protocol (VoIP) providers to contribute as a means of ensuring a level playing field among direct
competitors.19 The Commission has exempted common carriers whose contributions would be de
minimis
and declined to exercise permissive authority over various providers of interstate
telecommunications that generally do not compete directly with common carriers.20 Today, about 2,900
telecommunications providers contribute to the USF. 3,100 providers that would otherwise be required to
contribute qualify for the de minimis exemption.21 Nearly three-quarters of USF contributions come from
five companies: AT&T Inc., CenturyLink, Inc., Sprint Nextel Corporation, T-Mobile USA, Inc., and
Verizon Communications, Inc.22 Contributors commonly recover their universal service contribution

15 Texas Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 428 (5th Cir. 1999) (TOPUC).
16 Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 843.
17 The D.C. Circuit has affirmed the Commission’s interpretation that “telecommunications service” means
“essentially the same as common carrier” service. See Virgin Islands Telephone Corp. v. FCC, 198 F.3d 921 (D.C.
Cir. 1999) (VITELCO).
18 See Universal Service First Report and Order, 12 FCC Rcd at 9183–85, paras. 794–98.
19 See 2006 Contribution Methodology Order, 21 FCC Rcd at 7541, para. 44 (extending contribution obligations to
interconnected VoIP service providers). Although the Commission has not addressed the regulatory classification of
interconnected VoIP services under the Act, the Commission has concluded that interconnected VoIP providers are
“providers of interstate telecommunications” for purposes of universal service. Id. at 7537, para. 35 (citing 47
U.S.C. § 254(d)).
20 47 C.F.R. § 54.708 (“If a contributor’s contribution to universal service in any given year is less than $10,000 that
contributor will not be required to submit a contribution . . . .”); 47 C.F.R. § 54.706(d) (“The following entities will
not be required to contribute to universal service: non-profit health care providers; broadcasters; systems integrators
that derive less than five percent of their systems integration revenues from the resale of telecommunications.”);
Universal Service First Report and Order, 12 FCC Rcd at 9186, para. 800 (holding that “government entities that
purchase telecommunications services in bulk on behalf of themselves,” entities that offer “interstate
telecommunications to public safety or government entities” but not to others, and “public safety and local
governmental entities licensed under Subpart B of Part 90 of our rules” are not required to contribute to universal
service); Federal-State Joint Board on Universal Service et al., CC Docket No. 96-45 et al., Fourth Order on
Reconsideration and Report and Order, 13 FCC Rcd 5318, 5476, para. 284 (1997) (Universal Service Fourth Order
on Reconsideration
) (non-profit schools, colleges, universities, and libraries “should not be made subject to
universal service contribution requirements.”).
21 This information was calculated based on a review of the annual Telecommunications Reporting Worksheets filed
in April 2011.
22 Universal Service Monitoring Report, Dec. 2011, CC Docket No. 98-202, Table 1.6, available at
http://www.fcc.gov/wcb/stats (last visited Mar. 20, 2012) (2011 Universal Service Monitoring Report). In 2011,
Qwest Communications International and CenturyTel, Inc. merged to become CenturyLink, Inc. T-Mobile USA,
Inc. is a subsidiary of Deutsche Telekom AG.

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costs from their customers, and providers that bill their customers on a monthly basis often include a line
item on the consumer bill for such USF pass-through charges.23
10.
Contribution Base. When the Commission implemented the 1996 Act, it chose to assess
contributions based on end-user revenues.24 Under this system, contributions are currently assessed based
on a contributor’s “projected collected interstate and international end-user telecommunications revenues,
net of projected contributions.”25 In determining what revenues should be assessed and how contributors
must report those revenues, the Commission requires contributors to distinguish revenues in three ways,
as illustrated in Diagram 1 below. First, contributors are required to allocate between revenues derived
from either “telecommunications services”26 or certain provisions of “telecommunications” (whether
offered on a common carrier or private carrier basis),27 and revenues derived from “information
services”28 or consumer premises equipment (CPE).29 Revenues from interstate telecommunications
services have always been part of the contribution base, and the codified rules specifically enumerate
services that generate assessable revenues, such as cellular telephone service, paging service, and prepaid
calling cards.30 This includes revenues from “stand-alone broadband telecommunications service
[offered] on a common carrier basis,” as described in the Wireline Broadband Internet Access Order.31

23 See supra n.6. We note that carriers also have the flexibility to recover their contribution costs through the rates
they charge for service.
24 The Commission had sought comment on basing contributions on gross revenues, net telecommunications
revenues (gross revenues net of payments to other carriers for telecommunications services), or a per line or per-
minute charge. Universal Service First Report and Order, 12 FCC Rcd at 9205, para. 842.
25 47 C.F.R. § 54.706(b); see also Federal-State Joint Board on Universal Service; Access Charge Reform, CC
Docket Nos. 96-45, 96-262, Sixteenth Order on Reconsideration and Eighth Report and Order, Sixth Report and
Order, 15 FCC Rcd 1679, 1685, para. 15 (1999) (Universal Service Eighth Report and Order) (establishing a single
contribution obligation for all universal service support mechanisms); Federal-State Joint Board on Universal
Service et al.
, CC Docket No. 96-45 et al., Report and Order and Second Further Notice of Proposed Rulemaking,
17 FCC Rcd 24952, 24969, para. 29 (2002) (2002 Second Contribution Methodology Order and FNPRM)
(establishing projected collected revenues (net of contributions) as the appropriate contribution base).
26 See 47 U.S.C. § 153(53) (defining “telecommunications service” as “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”).
27 See 47 U.S.C. § 153(50) (defining “telecommunications” as “the transmission, between or among points specified
by the user, of information of the user’s choosing, without change in the form or content of the information as sent
and received”); Universal Service First Report and Order, 12 FCC Rcd at 9173, para. 777 (requiring those who
offer telecommunications on a common-carriage basis for a fee to contribute); id. at 9183, para. 795 (requiring those
who offer telecommunications on a private-carriage basis for a fee to contribute).
28 See 47 U.S.C. § 153(24) (defining “information service” as “the offering of a capability for generating, acquiring,
storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications”).
29 Policy and Rules Concerning the Interstate, Interexchange Marketplace et al., CC Docket Nos. 96-61, 98-183,
Report and Order, 16 FCC Rcd 7418, 7446, para. 47 (2001) (CPE Bundling Order).
30 47 C.F.R. § 54.706(a)(1)-(19). This list, however, is not comprehensive, as the rule states that “[i]nterstate
telecommunications include, but are not limited to. . . .” To support our troops, the Commission has carved out an
exemption for “revenues derived from prepaid calling cards sold by, to, or pursuant to contract with the Department
of Defense (DoD) or a DoD entity.” 47 C.F.R. § 54.706(d).
31 Appropriate Framework for Broadband Access to the Internet over Wireline Facilities et al., CC Docket No. 02-
33 et. al., Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14853, 14916 n.357 (2005) (Wireline
Broadband Internet Access Service Order
) (subsequent history omitted). Small rate of return carriers that provide
broadband transmission through the National Exchange Carrier Association (NECA) tariff contribute on those
revenues.

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Revenues from interstate telecommunications to which the Commission has extended its permissive
authority are also included in the contribution base.32 In contrast, revenues from information services
(including retail broadband Internet access services) have never been included in the contribution base.33
A contributor that provides a mix of these different types of services must therefore apportion its revenues
between telecommunications and non-telecommunications sources for purposes of contribution
assessment.34
11.
Second, because our present rules require contribution only once along the distribution
chain (when a contributor provides telecommunications to an “end user”), a contributor also must
apportion its telecommunications revenues between two categories: (1) revenues derived from sales by
one carrier or provider to another carrier or provider that is expected to contribute, known as “carrier’s
carrier” or wholesale revenues; and (2) revenues derived from sales to all other entities, known as “end-
user” or retail revenues.35 “Carrier’s carrier” revenues are not currently assessed. “End-user”
telecommunications revenues include revenues from sales to carriers or providers that do not contribute to
USF, such as de minimis carriers and exempted providers of interstate telecommunications.36 To ensure
that all telecommunications revenues are assessed only once,37 contributors must treat a customer as an
end-user unless that customer “incorporates the purchased telecommunications . . . into its own offerings
and . . . can reasonably be expected to contribute to support universal service based on revenues from
those offerings.”38
12.
Third, contributors must determine how much of their end-user telecommunications
revenues are derived from the provision of intrastate, interstate, and international services.39 Intrastate

32 See Universal Service First Report and Order, 12 FCC Rcd at 8797, para. 39.
33 See Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14909, para. 102 (classifying wireline
broadband Internet access service as an information service). Prior to the Wireline Broadband Internet Access
Service Order
, facilities-based wireline broadband Internet access service providers were required to contribute to
the Fund on the transmission component of the service. See id. at 14921-22, para. 12.
34 See infra Section V.A.1. In this Notice, the use of the term “non-telecommunications” refers to services that are
not currently in the USF contribution base. Included in this category are certain information services. We note,
however, that this should not be read to suggest that information services do not include a telecommunications
component that may be assessable.
35 Changes to the Board of Directors of the National Exchange Carrier Association, Inc.; Federal-State Joint Board
on Universal Service
, CC Docket Nos. 96-45, 97-21, Report and Order and Second Order on Reconsideration, 12
FCC Rcd 18400, 18507 (1997) (Universal Service Second Order on Reconsideration).
36 Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18507 (App. C); Universal Service Fourth
Order on Reconsideration
, 13 FCC Rcd at 5482, para. 298 (“Entities that resell telecommunications and qualify for
the de minimis exemption must notify the underlying facilities-based carriers from which they purchase
telecommunications that they are exempt from contribution requirements and must be considered end users for
universal service contribution purposes.”).
37 Universal Service First Report and Order, 12 FCC Rcd at 9206-07, paras. 844-46.
38 Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18507 (App. C).
39 Telecommunications providers with purely intrastate or international revenues are not required to contribute.
Universal Service First Report and Order, 12 FCC Rcd at 9174, para. 779; Universal Service Eighth Report and
Order
, 15 FCC Rcd at 1685, para. 15. Moreover, to the extent that a contributor’s universal service obligation
would exceed its total interstate revenues, our rules provide a limited international revenues exemption (LIRE),
which allows carrier to omit projections of, and contributions based on, collected international end-user
telecommunications revenues if the contributor’s interstate end-user telecommunications revenues comprise less
than 12 percent of its combined projected collected interstate and international end-user telecommunications
revenues. See infra Section V.A.6.

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revenues are not assessed. All contributors are free to classify and report revenues based on the
jurisdictional nature of all of their traffic during the relevant reporting period. In addition, the
Commission has established safe harbors for allocating revenues for certain services.40 If a contributor
relies on an established safe harbor, the contributor’s allocation of interstate/international revenues is
presumed reasonable. Wireless and interconnected VoIP service providers also are free to allocate
revenues based on a ratio derived from a sample of traffic in the relevant reporting period, also known as
a traffic study. If such a provider chooses to allocate its end-user telecommunications revenues using a
traffic study, it must submit that study to the Commission.41 Whatever their choice, contributors are
required to decide whether to report either actual or safe harbor revenues for all of their affiliated legal
entities within the same safe harbor category.42

40 The interstate safe harbor for analog Specialized Mobile Radio (SMR) revenues is 1%, Federal-State Joint Board
on Universal Service
, CC Docket No. 96-45, Memorandum Opinion and Order and Further Notice of Proposed
Rulemaking, 13 FCC Rcd 21252, 21255, para. 6 (1998) (Wireless Safe Harbor Order), for paging revenues is 12%,
id., for wireless revenues is 37.1%, 2006 Contribution Methodology Order, 21 FCC Rcd at 7532, para. 25, and for
interconnected VoIP service revenues is 64.9%, id. at 7545, para. 53.
41 See 2006 Contribution Methodology Order, 21 FCC Rcd at 7535–36, para. 32 (requiring wireless providers to
submit traffic studies); id. at 7547, para. 57 (requiring interconnected VoIP service providers to submit traffic
studies for pre-approval and review); Vonage Holdings Corp. v. FCC, 489 F.3d 1232, 1243 (D.C. Cir. 2007)
(eliminating the pre-approval requirement for interconnected VoIP service providers).
42 See 2006 Contribution Methodology Order, 21 FCC Rcd at 7535-36, para. 32.

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Diagram 1

43

Provider Process for Apportioning Revenues to Determine

the Federal Universal Service Fund Contribution Base

Revenues from Telecommunications
Services & Certain Interstate
Telecommunications

Not in Federal Base

$ from sales to resellers
$ from sales to end users

$ from non-assessable

services sold to end users

$ from services sold to
end users
-

May be in State Base

$ from intrastate telecom
services sold to end users

$ from interstate and international
services sold to end users

13.
Recovering Contributions. A contributor may recover the costs of universal service
contributions by passing through an explicit charge to its customers.44 If a contributor chooses to pass
through the contribution directly to its customers, the amount of the federal universal service line-item
charge may not exceed the interstate telecommunications portion of that customer’s bill multiplied by the
relevant contribution factor.45

43 We note that the more explicit reporting instructions for the Telecommunications Reporting Worksheet may be
different in layout and content than this simplified diagram.
44 47 C.F.R. § 54.712(a). See also infra Part VII.
45 47 C.F.R. § 54.712(a). Section 54.709(a) provides, in relevant part, that contributions to the universal service
support mechanisms shall be based on contributors’ projected collected end-user telecommunications revenues and
on a contribution factor determined quarterly by the Commission based on information submitted by USAC. The
quarterly contribution factor is based on the ratio of total projected quarterly expenses of the universal service
support mechanisms to total projected collected end-user telecommunications revenues. 47 C.F.R. § 54.709(a).

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14.
Administering the Contribution System. The Commission has designated USAC as the
entity responsible for administering the universal service support mechanisms.46 Pursuant to the
Commission’s rules, contributors report their revenues by filing Telecommunications Reporting
Worksheets quarterly (FCC Form 499-Q) and annually (FCC Form 499-A) with USAC.47 An executive
officer of the reporting entity must certify that historical data are true and accurate and that projections are
good-faith estimates.48
15.
Contributors project future quarters’ revenues and also report prior quarters’ actual
historical revenues on the FCC Form 499-Q, which is generally due on February 1, May 1, August 1, and
November 1 of each year.49 Contributors may revise their quarterly filings (FCC Form 499-Q) up to 45
days after filing them.50 Once USAC has processed and aggregated the information in each quarter’s
filings, it reports the total quarterly contribution base to the Commission.51 USAC also projects the
quarterly expenses for the universal service support mechanisms, adjusting those expenses to account for
any excess or inadequate contributions from the prior quarter,52 and submits its projections to the
Commission.53 The Commission uses the ratio of projected expenses to the projected contribution base to
establish the quarterly contribution factor.54 USAC then bills contributors for their universal service
contributions based on this factor.55 Contributors report their annual historical revenues for the prior
calendar year on the FCC Form 499-A, which is generally due on April 1 of each year.56 Contributors
must revise their Form 499-A filings within one year if the revision would result in a decrease in the
contributor’s contribution obligation.57
16.
Oversight of the Contribution System. The Commission’s existing rules require
contributors to “retain, for at least five years from the date of the contribution, all records that may be
required to demonstrate to auditors that the contributions made were in compliance with the

46 47 C.F.R. § 54.701; Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18423–24, para. 41.
47 47 C.F.R. § 54.711(a); 47 C.F.R. § 54.708 (“all interconnected VoIP providers, including those whose
contributions would be de minimis, must file the Telecommunications Reporting Worksheet.”). In addition to de
minimis
interconnected VoIP service providers, certain other non-contributors are also required to file the
Telecommunications Reporting Worksheets pursuant to the Commission’s rules governing Telecommunications
Relay Service, see 47 C.F.R. § 64.601 et seq., numbering administration, see 47 C.F.R. § 52.1 et seq., and the shared
costs of local number portability, see 47 C.F.R. § 52.21 et seq.
48 47 C.F.R. § 54.711(a).
49 See Universal Service Administrative Company, Filing and Managing My 499s: Schedule of Filings, available at
http://www.usac.org/cont/499/filing-schedule.aspx (last visited Apr. 16, 2012) (USAC Form 499 Filing Schedule).
50 See id.
51 47 C.F.R. § 54.709(a)(3).
52 47 C.F.R. § 54.709(b)-(c).
53 47 C.F.R. § 54.709(a)(3).
54 47 C.F.R. § 54.709(a)(2). In contrast to the USF contribution methodology, other regulatory programs are
assessed based on a contribution factor determined annually by the Commission. See, e.g., 47 C.F.R. § 64.604
(providing that contributors’ contribution to the Interstate Telecommunications Relay Service (TRS) fund shall be
the product of all subject revenues for the prior calendar and an annual contribution factor).
55 47 C.F.R. § 54.702(b); 47 C.F.R. § 54.709(a).
56 See USAC Form 499 Filing Schedule.
57 See Federal-State Joint Board on Universal Service et al., CC Docket No. 96-45 et al., Order, 20 FCC Rcd 1012,
1013, para. 2 (Wireline Comp. Bur. 2004), applications for review pending (One-Year Deadline Order).

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Commission’s universal service rules.”58 Commission rules also require contributors to retain for three
years “records and documentation to justify information reported in the Telecommunications Reporting
Worksheet, including the methodology used to determine projections.”59 Contributors must provide these
records to the Commission or to USAC upon request.60 USAC has the authority to audit contributors, and
conducts both random and targeted audits pursuant to this authority.61
17.
The Commission’s rules penalize contributors that fail to comply with their universal
service contribution obligations. If a contributor falsely claims exemption from filing, for example, it
may be subject to criminal sanctions.62 If a contributor fails to file a timely FCC Form 499-Q, USAC
bills the contributor based on a reasonable estimate of the contributor’s contribution obligation.63 USAC
may also assess the contributor for the reasonable costs USAC incurs because of the failure to file,64 or
impose a late fee, penalties, and interest on the contributor if the filing becomes more than 30 days
overdue.65 Consistent with section 503 of the Act,66 the Commission’s Enforcement Bureau actively
pursues violators of section 254(d) of the Act and related Commission rules by means of independent
investigations, which may result in citations, monetary forfeitures, suspensions and debarments of
violators, and revocations of operating authority.67

B.

Industry Developments and Contribution Reform Efforts

18.
When the Commission first implemented the universal service requirements set forth in
section 254 of the 1996 Act, wireline voice services produced the vast majority of the revenue in the
contribution base.68 Since then, network convergence and technological innovation have transformed the
telecommunications industry. The use of mobile services has grown dramatically, driven by increased
adoption of mobile phones and non-voice devices such as mobile broadband-enabled tablets.69 Changes

58 47 C.F.R. § 54.706(e).
59 47 C.F.R. § 54.711(a).
60 Id.
61 47 C.F.R. § 54.707. See Universal Service Administrative Company, Program Integrity: Audits & Assessments,
available at http://www.usac.org/cont/about/program-integrity/audits.aspx (last visited Apr. 17, 2012). Contributors
that disagree with USAC audits findings may seek review by the Commission. See 47 C.F.R. § 54.722.
62 47 C.F.R. § 54.708.
63 47 C.F.R. § 54.709(d).
64 47 C.F.R. § 54.713(a).
65 47 C.F.R. § 54.713(c).
66 47 U.S.C. § 503.
67 See Federal Communications Commission, Enforcement Bureau, Universal Service Fund Enforcement, available
at
http://transition.fcc.gov/eb/usfc/Oth.html (last visited Mar. 14, 2012). Since 2003, the Enforcement Bureau has
issued over 50 Notices of Apparent Liability, Forfeiture Orders, and Consent Decrees relating to universal service
contribution compliance.
68 See, e.g., Indus. Analysis and Tech. Div., Telecommunications Industry Revenues: 1997, Table 7 (Common
Carrier Bur., 1998), available at http://www.fcc.gov/wcb/stats (last visited Mar. 20, 2012) (1997 Revenues Report)
(reporting that only 2.7% of interstate telecommunications revenues in 1997 were attributable to wireless service
providers).
69 See Telecommunications Industry Association, 2012 ICT Market Review and Forecast, 5-134 to 5-135 (2012)
(2012 TIA Review and Forecast) (indicating that since 2010, consumer spending for wireless services has increased
due to the increased reach of 3G and 4G networks that facilitate mobile data). See also Stephen J. Blumberg, Ph.D.,
and Julian V. Luke, Division of Health Interview Statistics, National Center for Health Statistics, Wireless
Substitution: Early Release of Estimates from the National Health Interview Survey, January-June 2011
, available
(continued…)

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have also been dramatic in fixed networks, with 31 million Americans subscribing to interconnected VoIP
service in 2010,70 and rapid growth in residential broadband.71 Over the last fifteen years, cable
companies have entered the voice market, local exchange carriers have entered the long-distance,
broadband, and video markets, and most telecommunications providers are marketing services in bundles,
whether of fixed voice, broadband, and video, or mobile wireless voice, text messaging, and data.72
19.
Changes to the telecommunications ecosystem complicate the methodology by which
contributions are assessed. For example, the lines drawn to distinguish “local service” revenues and
“toll” (i.e., long distance) revenues have become increasingly blurred for industry participants even
though contributors are required to classify their revenues in these categories for USF contributions
purposes.73 Bundling of intrastate and interstate voice calling with data services and equipment has
further complicated the Commission’s and providers’ ability to identify the revenues that should be
included in the contribution base.74
20.
These changes to the marketplace also have led to a decline in the contribution base at the
same time that the communications market has grown. Due in part to the introduction of new services
into the marketplace, total revenues reported to the Commission by communications firms grew from
$335 billion in 2000 to more than $444 billion in 2010.75 Demand for universal service support also

(Continued from previous page)
at http://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201112.htm (last visited Feb. 21, 2012) (indicating that
31.6% of American homes had only wireless telephones); Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions With Respect to Mobile
Wireless, Including Commercial Mobile Services
, WT Docket No. 10-133, Fifteenth Report, 26 FCC Rcd 9664,
9759-60, para. 160 (2011) (Fifteenth Mobile Wireless Report) (estimating that there were 290.7 million mobile
wireless connections at the end of 2009); id. at 9776, para. 180 (noting that the trend of declining voice minutes may
be due to the substitution by mobile messaging and other mobile data services, particularly among younger users);
Nielsen, Average U.S. Internet Usage for December 2011, Nielsenwire, available at
http://blog.nielsen.com/nielsenwire/online_mobile/december-2011-top-u-s-web-brands/ (last visited Feb. 7, 2012)
(projecting that smartphones will outnumber cell phones in 2012); Federal Communications Commission,
Connecting America: The National Broadband Plan, at 162 n.113 (rel. Mar. 16, 2010) (National Broadband Plan)
(industry estimates project that wireless data revenue will expand at a 24.6% compound annual growth rate between
2009 and 2012).
70 Indus. Analysis and Tech. Div., Local Telephone Competition Status as of December 31, 2010, Figure 1 (Wireline
Comp. Bur., 2011), available at http://www.fcc.gov/wcb/stats (last visited Mar. 20, 2012) (2010 Local Telephone
Competition Report
).
71 See Nielsen, Average U.S. Internet Usage for December 2011, Nielsenwire, available at
http://blog.nielsen.com/nielsenwire/online_mobile/december-2011-top-u-s-web-brands/ (last visited Feb. 7, 2012)
(stating that the average American spent 28 hours online in December 2011).
72 National Broadband Plan at 38; Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of
1993; Annual Report and Analysis of Competitive Market Conditions With Respect to Mobile Wireless, Including
Commercial Mobile Services
, WT Docket No. 09-66, Fourteenth Report, 25 FCC Rcd 11407, 11437, para. 22 (2010)
(Fourteenth Mobile Wireless Competition Report).
73 See 2012 Instructions to the Telecommunications Reporting Worksheet, Form 499-A at 22–25 (2012 FCC Form
499-A Instructions
).
74 2006 Contribution Methodology Order, 21 FCC Rcd at 7531–38, paras. 23–37. When a contributor bundles
assessable and non-assessable services in a single offering, the contributor must determine how much of the revenue
from the offering should be allocated to the assessable service. This can incentivize the contributor to game the
system by allocating the revenue in a manner that reduces contributions burdens.
75 See Indus. Analysis and Tech. Div., Telecommunications Industry Revenues: 2009, Table 2 (Wireline Comp. Bur.,
2011), available at http://www.fcc.gov/wcb/stats (last visited Mar. 20, 2012) (2009 Revenues Report).

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increased, from $4.5 billion in 2000 to $8.1 billion in 2011.76 As shown in Chart 1 below,77 during this
period, the revenue base for universal service contributions remained relatively stable from 2004
(approximately $75.8 billion) to 2008 (approximately $74.9 billion), but has fallen since 2008, declining
to approximately $67 billion in 2011, as demonstrated in the following chart:

Chart 1

Contribution Base

(in billions of dollars)
$80.0
s
n
io

$70.0
i
ll
B

$60.0
$50.0
$40.0
$30.0
$20.0
$10.0
$-
2004
2005
2006
2007
2008
2009
2010
2011E

As shown in Chart 2 below,78 reported toll revenue (i.e., long-distance voice revenue), which historically
comprised the largest share of the contribution base, has steadily declined over the last decade, due in part
to intercarrier compensation reform occurring more than a decade ago that led to reductions in long

76 According to USAC, the total amount of disbursements for all four support mechanisms in CY 2011 was $8.1
billion. Universal Service Administrative Company, 2011 Annual Report at 1, available at
http://www.usac.org/about/tools/publications/annual-reports/2011/index.html (last visited Apr. 17, 2012) (2011
USAC Annual Report
). This number reflects payments that were actually issued to companies from January 1 –
December 31, 2011. It does not necessarily reflect payments authorized during that time period, since (i) some
payments may have been authorized prior to 2011, and (ii) some payments may have been authorized in 2011 but
may not yet have been paid in that year.
77 Staff analysis of actual revenue base information for 2004-2010 filed with USAC through FCC Form 499-A. The
amounts shown include USF pass through charges, which are reported as revenues on Form 499. The revenue base
estimate for 2011 is taken from 2011 quarterly fund size projections, available at
http://www.usac.org/about/tools/fcc/filings/default.aspx.
78 Staff analysis based on actual revenue base information for 2004-2011 filed with USAC through FCC Form 499-
A. Revenue information for 2011 is preliminary and may be adjusted.

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FCC 12-46

distance rates.79 Meanwhile, reported mobile revenue, which typically is a combination of interstate and
intrastate revenues, has increased significantly.80

Chart 2

Interstate/International Revenue 2004-2011

$45.0
$40.0
$35.0
)
Toll 
$30.0
l
l
i
ons

$25.0
i
n bi

Mobile
( $20.0
nue
e
$15.0
v
Fixed
e
R
$10.0
$5.0
$0.0
2004
2005
2006
2007
2008
2009
2010
2011
Fixed Local Services
Toll Services
Mobile Services

21.
Recognizing the impact of new market entrants, growth in the wireless sector, the advent
of IP telephony, and increased bundling of services, the Commission began a proceeding in 2001 to
revisit the universal service contribution methodology.81 On several occasions, the Commission has
sought to develop the record on alternative methodologies to the current system that assesses
contributions based on revenues.82 In addition, the Commission has taken several interim steps to ensure

79 As discussed in the USF/ICC Transformation Order and FNPRM, retail toll charges fell sharply after the 2000
CALLS Order, by 18 percent in 2000 alone. Competitive pressure from wireless providers led to fixed line carriers
offering unlimited domestic calling, at lower prices. See USF/ICC Transformation Order and FNPRM, 26 FCC Rcd
at 17910-11, para. 751.
80 Compare 2009 Revenues Report, Table 6, with 2009 Revenues Report, Table 7. In 1999, $4.58 billion in end-user
mobile revenues were reported as interstate or international, out of the $44 billion total end-user mobile revenues.
In comparison, by 2009, $29 billion in end-user mobile revenues were reported as interstate or international, out of
$111 billion in total end-user mobile revenues. Compare Universal Service Monitoring Report, Sept. 2000, CC
Docket No. 98-202, Table 1.6, available at http://www.fcc.gov/wcb/stats (last visited Mar. 20, 2012) (2000
Universal Service Monitoring Report
), with 2011 Universal Service Monitoring Report, Table 1.6.
81 See Federal-State Joint Board on Universal Service et al., CC Docket No. 96-45 et al., Notice of Proposed
Rulemaking, 16 FCC Rcd 9892, 9895 (2001) (2001 Contribution Methodology Notice).
82 See id. at 9905–06, paras. 25–30 (seeking comment on modifications to the existing revenue-based contribution
methodology and on replacing that methodology with one that assessed contributions on the basis of a flat-fee
charge, such as a per line charge); see also 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd
at 3766–89, paras. 31, 34–83 (seeking comment on other universal service contribution methodologies, including
moving to a numbers-based methodology); 2002 Second Contribution Methodology Order and FNPRM, 17 FCC
Rcd at 24983–97, paras. 66–100 (seeking comment on capacity-based proposals that had been developed in the
(continued…)

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the viability and sustainability of the Fund. In 2002 and 2006, the Commission adjusted upwards the
wireless safe harbor percentage to reflect increased usage of wireless phones for placing interstate calls.83
In addition, in 2006, the Commission extended universal service contribution obligations to providers of
interconnected VoIP services, as consumers are increasingly purchasing VoIP service instead of
traditional phone service.84 Finally, the Commission has sought comment several times on whether and
how broadband Internet access service providers should contribute to the Fund.85

III.

GOALS OF CONTRIBUTION METHODOLOGY REFORM

22.
In this portion of the Notice, we seek comment on our proposed goals for reforming the
contribution methodology both in the short term and in the long term. Although stakeholders may have
differing views on the specifics of how to reform the contribution system,86 as discussed below, many
parties have suggested that our overarching objectives should be to simplify compliance and
administration, maintain competitive neutrality, and ensure long term sustainability of the Fund to achieve
our objectives of ensuring that robust and affordable voice and broadband services are available to
Americans across the nation.

(Continued from previous page)
record and on telephone number-based proposals advocated by certain parties); Commission Seeks Comment on Staff
Study Regarding Alternative Contribution Methodologies
, CC Docket No. 96-45 et al., Public Notice, 18 FCC Rcd
3006 (2003) (2003 Staff Study PN); High Cost Universal Service Support et al., CC Docket No. 96-45 et al., Order
on Remand and Report and Order and Further Notice of Proposed Rulemaking, 24 FCC Rcd 6475, 6536–64, paras.
92–156 (2008) (2008 Comprehensive Reform FNPRM) (App. A: seeking comment on a proposal to modify the
contribution methodology); id. at 6669–95, paras. 39–104 (App. B: same); id. at 6735–62, paras. 88–151 (App. C:
same).
83 See, e.g., Wireless Safe Harbor Order, 13 FCC Rcd at 21258–59, paras. 13–15; 2002 Second Contribution
Methodology Order and FNPRM
, 17 FCC Rcd at 24983–95, paras. 66–95; 2006 Contribution Methodology Order,
21 FCC Rcd at 7531–38, paras. 23–37.
84 2006 Contribution Methodology Order, 21 FCC Rcd at 7540, para. 43.
85 Appropriate Framework for Broadband Access to Internet over Wireline Facilities, CC Docket No. 02-33 et al.,
Notice of Proposed Rulemaking, 17 FCC Rcd 3019, 3048–56, paras. 65–83 (2002) (Wireline Broadband NPRM)
(seeking comment on whether requiring wireline broadband Internet access service providers and other facilities-
based providers of broadband Internet access services to contribute to universal service would be in the public
interest); see also IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, 19 FCC Rcd 4863,
4905–06, paras. 63–64 (2004) (seeking comment on whether non-facilities-based providers of broadband Internet
access services and other IP-enabled service providers should contribute to universal service); Inquiry Concerning
High-Speed Access to the Internet Over Cable and Other Facilities
, GN Docket No. 00-185, CS Docket No. 02-52,
Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4853, para. 110 (2002) (Cable
Broadband Internet Access Service Order
); 2002 Second Contribution Methodology Order and FNPRM, 17 FCC
Rcd at 24983–95, paras. 66–95 (seeking comment on how to stabilize the contribution base, including the
assessment of broadband data connections).
86 Compare, e.g., Letter from Brad E. Mutschelknaus, Counsel for XO Communications, Inc., to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, at 7 (filed Sept. 17, 2010) (XO Sept. 17, 2010 Ex Parte Letter) (arguing
for improving the revenues-based system); Letter from David C. Bergmann, Chair, NASUCA Telecommunications
Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at 1 (filed Sept. 7, 2010) (NASUCA
Sept. 7, 2010 Ex Parte Letter) (same), with Letter from Alan Buzacott, Verizon, to Marlene H. Dortch, Secretary,
FCC, WC Docket No. 06-122, at 1 (filed Aug. 13, 2010) (Verizon Aug. 13, 2010 Ex Parte Letter) (arguing for a
numbers-based system); Letter from Jennifer K. McKee, National Cable & Telecommunications Association, to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 et. al., at 2 (filed Aug. 20, 2010) (NCTA Aug. 20, 2010
Ex Parte Letter) (same); Letter from John P. Janka, Counsel for ViaSat, Inc. and WildBlue Communications, Inc., to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, GN Docket No. 09-51, Attach. at 3 (filed Sept. 9,
2010) (arguing for a connections-based system) (WildBlue Sept. 9, 2010 Ex Parte Letter).

16


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23.
Efficiency. Since the contribution system was put in place more than a decade ago, it has
become increasingly complex for all stakeholders in light of changes in the marketplace. As noted above,
bundling of different kinds of services and a blurring of the line between local and toll service make it
more challenging for contributors to allocate revenues as required under the current contributions
methodology. Meanwhile, the emergence of new services has complicated contribution obligations over
time, and exacerbates concerns that some providers are contributing on specific services, while other
providers are not. In light of these problems, we propose that one goal for reform should be to make
compliance with and administration of the contribution system more efficient (1) by developing rules that
operate clearly within the evolving structure of the marketplace, and (2) by closing loopholes. Many
stakeholders encourage the Commission to adopt reforms that would simplify the USF contribution
system and limit undue provider discretion.87 Stakeholders also have urged the Commission to avoid any
changes to the contribution system that would increase its complexity.88 Clearer, simpler rules that can
be applied in new situations could deter gaming of the system and save consumers, companies, and the
government money.
24.
Fairness. Section 254(d) is grounded on the principle that the contributions system
should be fair for contributors.89 The Commission has been committed to competitive neutrality since it
first implemented the 1996 Act.90 Over time, however, the industry and the technology used to provide
telecommunications have evolved, so that service providers that once were thought to compete in wholly
distinct markets may now compete with each other. By treating similar or substitutable services
differently, our contributions rules may create unintended market distortions.91 Stakeholders have urged
that any reforms to the contribution system should be designed to provide that similar services are treated
in a similar manner, regardless of technology or type of provider.92 Treating competitors equally could

87 Letter from Mary L. Henze, AT&T Services, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122,
at 1 (filed Aug. 24, 2010) (AT&T Aug. 24, 2010 Ex Parte Letter) (“[I]t is most critical to establish ‘bright-line’ rules
regarding the entities that are obligated to contribute and on what basis.”); NASUCA Sept. 7, 2010 Ex Parte Letter
at 1–2 (arguing against a system that would be complicated, complex, or subject to claims of arbitrage); Letter from
Norina Moy, Sprint, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 et. al., at 1 (filed Aug. 20,
2010) (Sprint Aug. 20, 2010 Ex Parte Letter) (arguing that reforms should make the system “easy to administer ...
and unambiguous (not subject to interpretation or manipulation, a problem with the current contribution
methodology)”).
88 See, e.g., Letter from Joshua Seidemann, Independent Telephone & Telecommunications Alliance, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 05-337 et. al., at 1 (filed Sept. 29, 2010) (ITTA Sept. 29, 2010 Ex Parte
Letter) (arguing that “new contribution mechanisms should be administratively simple in order to contain associated
costs”); Letter from Melissa E. Newman, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at
1–2 (filed Sept. 9, 2010) (Qwest Sept. 9, 2010 Ex Parte Letter) (arguing the importance of simplicity in reforming
the contribution system); XO Sept. 17, 2010 Ex Parte Letter at 1, 4 (arguing against contribution systems that would
increase the complexity of the system).
89 See 47 U.S.C. § 254(d) (requiring telecommunications carriers to contribute on an equitable and non-
discriminatory basis).
90 In implementing section 254(b) of the 1996 Act, the Commission, based on the recommendation of the Federal-
State Universal Service Joint Board, adopted the additional principle of competitive neutrality. See 47 U.S.C.
§§ 254(b)(4), 254(d); Universal Service First Report and Order, 12 FCC Rcd at 8801, para. 47.
91 See supra para. 4.
92 See, e.g., ITTA Sept. 29, 2010 Ex Parte Letter at 1–2 (arguing for “competitively equitable outcomes” and
“regulatory parity”); Letter from Douglas D. Orvis II, Counsel for PAETEC Holdings, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, at 1 (filed Sept. 24, 2010) (stressing the “Act’s requirement for
competitively-neutral contributions”); Qwest Sept. 9, 2010 Ex Parte Letter at 2 (“[F]ewer buckets and similar
contribution treatment across buckets will also help to keep contribution requirements competitively neutral.”);
Sprint Aug 20, 2010 Ex Parte Letter at 1 (arguing that the system should be “competitively neutral”); Letter from
Tamar E. Finn, Counsel for U.S. TelePacific Corp. d/b/a TelePacific Communications, to Marlene H. Dortch,
(continued…)

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protect robust competition on service and price. We also seek to reform the system in a way that is fair to
consumers, both residential and business, who ultimately bear the cost of universal service contributions.
Accordingly, we propose that a second goal for reform should be ensuring fairness and competitive
neutrality in the contribution system.
25.
Sustainability. There is widespread agreement that the methodology for universal service
contributions should be dynamic enough to keep pace with changes in the marketplace.93 The National
Broadband Plan recognized the need to ensure the Fund remains sustainable over time and recommended
that the contribution base be broadened.94 Universal service goals could be undermined by declines in the
contribution base. Such declines could result in the obligation to support universal service being borne by
a shrinking pool of contributors and, ultimately, consumers. Parties have argued that changes in today’s
marketplace have created potential loopholes in our current system as providers grapple with how to
classify services for USF assessment purposes, with competing providers coming to different conclusions
as to their contribution obligations.95 One of the proposed goals for reform is to create an improved
system that will adapt to market changes and stabilize the contribution base.
26.
As we undertake contributions reform, we are guided by our overarching goal of ensuring
the delivery of affordable communications to all Americans.96 This includes ensuring that any reforms to
the contributions system must safeguard the core Commission objectives of promoting broadband
innovation, investment and adoption.97 Similarly, we propose that reforms should incorporate appropriate
transition periods to allow service providers and consumers to adapt.
27.
We seek comment on these goals for contribution methodology reform and whether we
should be guided by any additional goals.

IV.

WHO SHOULD CONTRIBUTE TO UNIVERSAL SERVICE

28.
In this section we seek comment on clarifying or modifying the Commission’s rules on
what services and service providers must contribute to USF in order to reduce uncertainty, minimize
competitive distortions, and ensure the sustainability of the Fund. The question of who should contribute
is at the core of much of the uncertainty and competitive distortions that plague the system today. The
question is also in many ways distinct from the question of how contributions should be assessed. Even if
we were to shift from a revenues-based approach to an alternative approach, such as connections,

(Continued from previous page)
Secretary, FCC, WC Docket No. 06-122, at 2 (filed Sept. 17, 2010) (arguing for “contribution rules that are
transparent and competitively neutral, to ensure that all market participants operate on a level playing field”);
Verizon Aug. 13, 2010 Ex Parte Letter at 1 (complaining that today’s system “skew[s] the competitive landscape”
because “companies that use different technologies to compete for the same customers pay into the [F]und in
different ways”).
93 See 47 U.S.C. § 254(d) (requiring telecommunications carriers to contribute to specific, predictable and sufficient
mechanisms to preserve and advance universal service). Many recognize that if the contribution base itself is not
sustainable, that could jeopardize universal service goals. See, e.g., Verizon Aug. 13, 2010 Ex Parte Letter at 1
(arguing that the contribution methodology must be sustainable); AT&T Aug. 24, 2010 Ex Parte Letter at 1
(suggesting that system should be “fair and sustainable”).
94 National Broadband Plan at 149.
95 See, e.g., Letter from David B. Cohen, USTelecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-
122 et al., at 4 (filed Mar. 28, 2012) (USTelecom Mar. 28, 2012 Ex Parte Letter) (noting differences in classification
of prepaid calling card revenue in the IDT and AT&T 2006 contributor appeals).
96 See generally 47 U.S.C. § 254(b).
97 See FCC Strategic Plan for FY 2012-2016 at 4, available at http://www.fcc.gov/encyclopedia/fcc-strategic-plan.

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numbers, or a connections/numbers hybrid approach as discussed in past Notices, we would still need to
determine which providers and services are appropriate to assess.98 We would still need to determine, for
example, whether it would be in the public interest to assess connections or numbers/connections
associated with certain information services. We therefore invite commenters to address the question of
who should contribute, even if those commenters advocate an alternative assessment methodology to the
Commission’s current revenues-based approach.99
29.
In determining whether it is appropriate to assess a particular provider or service, we
must first determine whether that provider or service is within the scope of our statutory authority to
assess “providers of interstate telecommunications,” and whether assessing that provider or service would
be in the public interest. Therefore, we begin by seeking comment on how to interpret the scope of the
Commission’s permissive authority under section 254(d). We then seek comment on two basic
approaches to increase clarity as to what services and providers contribute to universal service and to
address various proposals to expand the base of contributors: (1) using our permissive authority, and/or
other tools, such as forbearance,100 to address outstanding contribution issues, and clarify or modify on a
service-by-service basis whether particular services or providers are required to contribute to the Fund; or
(2) adopting a more general definition of contributing interstate telecommunications providers that could
be more future proof as the marketplace continues to evolve.
30.
Throughout this section, we seek data to help us evaluate how proposed methods of
exercising our permissive authority would impact the contribution base.101 We observe that although
assessing additional providers and services might expand the contribution base and affect the relative
obligations of who contributes,102 nothing we propose in this section or anywhere else in this Notice will

98 Below we seek comment on how to define the terms “connections” and “numbers” for contributions purposes if
the Commission were to adopt an alternative contribution methodology. See infra Part V.
99 In some circumstances the method of assessment may have implications for who we would assess. For example,
if we were to adopt a numbers-only approach that was limited to North American Numbering Plan (NANP)
numbers, fixed broadband as provided in today’s marketplace would not be assessed. However, wireless broadband
might be assessed, because NANP numbers are often assigned to wireless devices that only have data connections
(such as air cards). The question, therefore, of who should contribute remains relevant even if we adopt a narrowly
defined assessment methodology.
100 Pursuant to section 10 of the Act, the Commission may forbear from applying any requirement of the Act or of
our regulations to a telecommunications carrier if and only if the Commission determines that: (1) enforcement of
the requirement is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in
connection with that telecommunications carrier are just and reasonable and are not unjustly or unreasonably
discriminatory; (2) enforcement of that requirement is not necessary for the protection of consumers; and
(3) forbearance from applying that requirement is consistent with the public interest. 47 U.S.C. § 160(a)–(b). In
making a public interest determination, section 10(b) requires the Commission to consider whether forbearance will
promote competitive market conditions.
101 While we ask about the revenues associated with certain services in this section, this does not prejudge whether
we ultimately will maintain the existing revenue-based system or move to an alternative contribution methodology.
Even if we exercise our permissive authority with respect to specific providers or specific services, we still must
decide the appropriate methodology for determining how much each provider will contribute. In Section V below,
we separately seek comment on the methodology we should use to assess contributions.
102 A number of stakeholders have suggested that broadening the base is a necessary prerequisite for any reform of
the contribution methodology. See, e.g., Letter from Jill Canfield, Senior Regulatory Counsel, National
Telecommunications Cooperative Association, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at 2–
4 (filed Oct. 8, 2010) (NTCA Oct. 8, 2010 Ex Parte Letter); XO Sept. 17, 2010 Ex Parte Letter at 7–10; Letter from
Shana Knutson, Nebraska Public Service Commission, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-
122, at 1 (filed Aug. 20, 2010); Letter from Todd Daubert, Counsel for SouthernLINC Wireless, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 06-122, at 1 (filed Aug. 20, 2010). See also Letter from David B. Cohen,
(continued…)

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affect the total amount of contributions collected or the overall size of the Fund. The size of the Fund is
determined by demand projections, independent of how contributions are assessed.103 The Commission
recently adopted reforms that will limit growth in the Fund over time.104 Here we address how those
contributions can be best collected in ways that promote efficiency, fairness, and sustainability. We seek
comment on how the proposals below will affect the distribution of contribution obligations among
different industry segments and the impact of contributions among different categories of end users.

A.

Statutory Authority to Require Contributions

31.
Section 254(d) of the Act speaks to classes of providers who must contribute to the Fund.
“[E]very telecommunications carrier that provides interstate telecommunications services” is a mandatory
contributor to the Fund.105 In addition, the Commission’s “permissive” authority extends to “any…
provider of interstate telecommunications… if the public interest so requires.”106 Over time, the
Commission has periodically exercised its permissive authority to extend contribution obligations to
particular classes of providers on a service-specific basis. In this section we seek comment on the scope
of our permissive authority, including how we should interpret the statutory terms that define that
authority.
1.
“Provider of Interstate Telecommunications”
32.
The threshold issue in exercising permissive authority is whether an entity is “providing”
interstate “telecommunications” as defined in the Act.107 We seek comment on how we should interpret
these terms and whether it is appropriate to revisit any previous Commission interpretations based on the
evolution of the industry and significant marketplace changes over the last decade.
33.
Provide.” In exercising our permissive authority, we must determine whether an entity is
a “provider” of interstate telecommunications as specified in section 254(d). Although Congress has not
defined the terms “provide,” “provider,” or “provision,” the Commission has addressed these terms in
several orders.108 First, the Commission has concluded that “provide” is a different term from “offer.”109

(Continued from previous page)
USTelecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122 et al., at 2 (filed Mar. 29, 2012) (urging
Commission to consider whether it is appropriate to include a broader range of participants in the broadband
ecosystem to participate in funding universal service).
103 47 C.F.R. § 54.709(a)(2).
104 See, e.g., USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17710-11, para. 123 (establishing a
defined budget for the high cost component of the universal service fund); Lifeline and Link Up Reform and
Modernization Order
at 170, para. 357 (“as the reforms adopted in this Order take effect, they will substantially
constrain program growth”).
105 The 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.” 47 U.S.C. § 153(53). The D.C. Circuit has affirmed the Commission’s interpretation that
“telecommunications service” means “essentially the same as common carrier” service. See VITELCO, 198 F.3d at
922. A “telecommunications carrier” is defined as “any provider of telecommunications services.” 47 U.S.C. at §
153(51).
106 47 U.S.C. § 254(d).
107 Interstate/intrastate jurisdictional issues will vary depending on the assessment methodology. Therefore, these
issues are discussed below in Sections V.A.3, V.B.5 and V.C.6.
108 2006 Contribution Methodology Order, 21 FCC Rcd at 7539, para. 40.
109 Id. In the 2006 Contribution Methodology Order, the Commission acknowledged that the Commission had, prior
to that order, sometimes used the terms “offer” and “provide” interchangeably. The Commission noted, however,
that in those instances the Commission was clearly discussing telecommunications services (rather than
(continued…)

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The Commission has drawn a distinction between what is “offered” from a demand perspective (i.e., what
the customer perceives to be the integrated product),110 and what is “provided” from a supply perspective
i.e., what the provider is furnishing or supplying to the end user, including not only the integrated product
but also the discrete components of the product).111 Second, the Commission has previously held that
“provide” is broader than “offer.”112 Under this view, an entity may both “provide” and “offer”
telecommunications, but an entity may also provide telecommunications without offering
telecommunications. Many participants in today’s marketplace do not separately offer
telecommunications to end users, but instead offer integrated services that include both
telecommunications (i.e., transmission) and non-telecommunications components. For such integrated
services, however, the service provider still “provides” telecommunications as part of the “offering.” The
D.C. Circuit has upheld the Commission’s interpretation.113 In light of the marketplace changes over the
last decade, should the Commission revisit its interpretation of what it means to “provide” or to be a
“provider of” telecommunications?
34.
“Telecommunications.” The Act defines the term “telecommunications” as “the
transmission, between or among points specified by the user, of information of the user’s choosing,
without change in the form or content of the information as sent and received.”114 Here and in Section
IV.C below, we seek comment on how we should interpret each component of this definition for purposes
of potentially exercising our permissive authority.
2.
“If the Public Interest So Requires”
35.
We seek comment on what factors we should consider in deciding whether the public
interest warrants exercising our permissive authority. We seek comment generally on whether the public
interest would be served, and to what extent exercising our permissive authority would achieve any or all
of the goals set forth above – efficiency, fairness, and sustainability. For example, is it in the public
interest to exercise permissive authority over a provider of telecommunications if the telecommunications
is part of a service that competes with or is used by consumers or businesses in lieu of
telecommunications services that are subject to assessment? In the past, the Commission has stated that
the principle of competitive neutrality dictates that it should assess contributions from entities that are not
mandatory contributors, but benefit from access to the PSTN.115 Is that consideration relevant in today’s

(Continued from previous page)
telecommunications) and did not intend to make any sort of statement about how the terms “offer” and “provide”
should be interpreted relative to each other. Id. at 7539 n.139.
110 Cable Broadband Internet Access Service Order, 17 FCC Rcd at 4820-24, para. 34-41; Nat’l Cable & Telecomm.
Ass’n v. Brand X Internet Servs.
, 545 U.S. 967, 990 (2005) (Brand X) (“It is common usage to describe what a
company ‘offers’ to a consumer as what the consumer perceives to be the integrated finished product, even to the
exclusion of discrete components that compose the product . . . . One might as well say that a car dealership ‘offers’
cars, but does not ‘offer’ the integrated major inputs that make purchasing the car valuable, such as the engine or the
chassis. It would, in fact, be odd to describe a car dealership as ‘offering’ consumers the car’s components in
addition to the car itself.”).
111 2006 Contribution Methodology Order, 21 FCC Rcd at 7539, para. 40; Vonage Holdings Corp. v. FCC, 489 F.3d
1232, 1240–41 (D.C. Cir. 2007) (Vonage) (“Returning to Brand X’s car dealership hypothetical, we see nothing
strange about the statement that a dealership provides both cars and engines. Indeed, one could reasonably interpret
the statement that a dealership ‘does not provide engines’ to mean that it sells cars without engines, not that it won’t
sell disconnected engines.” (emphasis in original)).
112 2006 Contribution Methodology Order, 21 FCC Rcd at 7539, para. 40.
113 Vonage, 489 F.3d at 1232.
114 47 U.S.C. § 153(50).
115 Universal Service First Report and Order, 12 FCC Rcd at 9173-74, para. 796.

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marketplace? Should we assess providers of services that are capturing a growing portion of overall
communications spending as a means of achieving sustainability? Should we consider whether those
services are being used in ways that may replace, partially or wholly, services that are subject to
mandatory assessment? Does the public interest analysis differ depending on whether we are considering
consumer services or business/enterprise services? What other factors should we take into account?

B.

Determining Contribution Obligations on a Case-by-Case Basis with Respect to
Providers of Specific Services

36.
In this section, we seek comment on whether and if so, to what extent, the Commission
should exercise its permissive authority contained in section 254(d) of the Act to clarify or modify
contribution requirements for providers of several specific services, or if we should otherwise modify or
clarify the contribution obligations of such services. As discussed above, the Commission has exercised
its permissive authority on several occasions to expand or clarify contribution obligations on a service-
specific basis.116 In the Universal Service First Report and Order, it required private line service
providers and payphone aggregators to contribute to the Fund, reasoning that the services offered by these
entities rely on access to the PSTN and compete with services offered by mandatory contributors to the
Fund (i.e., common carriers).117 In 2006, the Commission assessed interconnected VoIP services without
reaching the statutory classification of such services. The Commission concluded that deciding the
statutory classification was unnecessary, because even if interconnected VoIP services did not fall under
the mandatory contribution provision of section 254(d), it was appropriate to assess such services as an
exercise of permissive authority.118 The Commission determined that an immediate extension of
contribution obligations to interconnected VoIP service was warranted due to the growth in demand for
the Fund, the decline in the contribution base overall, and the “robust growth in subscribership” to
interconnected VoIP services, from 150,000 subscribers in 2003 to 4.2 million subscribers in 2005.119
37.
We seek comment on continuing this general approach of addressing the contribution
obligations of specific services on a service-by-service basis. First, we seek comment on exercising
permissive authority with respect to certain services for which contribution obligations are currently
subject to dispute. To the extent commenters believe that any such services should be non-assessable, we
also seek comment on alternative approaches to clarifying contributions, including forbearing from any
applicable contribution obligations to the extent these services are telecommunications services, and we
seek comment on the effect of such approaches on the contribution base and the sustainability of the
Fund. Second, we seek comment on exercising permissive authority with respect to other services that
are clearly not currently assessable, but which various commenters have proposed should be assessed.
38.
In particular, we seek comment on exercising our permissive authority to require
contributions from providers of enterprise communications services that include interstate
telecommunications;120 text messaging; one-way VoIP;121 and broadband Internet access services. Each
of these services has found a significant niche in today’s communications marketplace. The question of

116 See, e.g., 47 C.F.R. § 54.706(a) (listing services subject to assessment); 2006 Contribution Methodology Order,
21 FCC Rcd at 7538-41, paras. 38-45 (exercising permissive authority over interconnected VoIP services).
117 Universal Service First Report and Order, 12 FCC Rcd at 9183–85, paras. 794–97.
118 2006 Contribution Methodology Order, 21 FCC Rcd at 7537, para. 35.
119 Id. at 7528–29, para. 19.
120 For purposes of this discussion, we use the term “enterprise” to include service provided to both commercial
business customers and community anchor institutions that may have significantly different requirements than the
typical residential consumer.
121 “One-way VoIP” is defined below. See infra para. 58.

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whether certain enterprise communications services are currently assessable as telecommunications
services or non-assessable as information services has led to significant disputes, uncertainty,122 and
incentives for providers to attempt to characterize their services in a particular way in order to avoid
contribution requirements, resulting in a pending request for guidance from USAC regarding the
treatment of certain services.123 Likewise, the question of whether text messaging is currently assessable
has been disputed, and there is a pending request for guidance from USAC regarding text messaging.124
In contrast, one-way VoIP services and broadband Internet access services are clearly not in the
contribution base today, although various parties have argued they should be assessed.125 We seek
comment on these arguments.
39.
We seek comment on addressing the contribution obligations of such services, regardless
of their statutory classification as information services or telecommunications services, in order to provide
clarity for contributors and greater stability for the Fund.126 We also seek comment on whether
exercising our permissive authority would ensure that competitive services are not unfairly disadvantaged
by disparate contribution obligations, while further simplifying the requirements imposed on contributors.
40.
We seek comment on adopting the following rule, in whole or in part:
Providers of the following are subject to contributions:
* * *
Enterprise communications services that include a provision of
telecommunications;


122 See e.g., Comments of BT Americas Inc., WC Docket No. 06-122, at 11 (filed June 8, 2009) (arguing that lack of
clarity on the proper classification of Multiprotocol Label Switching (MPLS)-based services will lead providers to
avoid contribution obligations) (BT Americas June 8, 2009 Comments).
123 See Letter from Richard A. Belden, USAC, to Julie Veach, Wireline Competition Bureau, FCC, WC Docket Nos.
06-122, 05-337 (filed Aug. 24, 2009) (USAC 2009 Guidance Request).
124 Letter from Richard A. Belden, USAC, to Sharon Gillett, Wireline Competition Bureau, FCC, WC Docket No.
06-122 (filed Apr. 26, 2011) (USAC 2011 Guidance Request).
125 See Letter from Michael R. Romano, National Telecommunications Cooperative Association, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 06-122, Attach. at 8 (filed Jan. 24, 2011) (arguing that including one-way
VoIP service revenues in the contribution base would help remedy the “supply” of universal service funding); Letter
from Robert W. Quinn, Jr., AT&T Services, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at
2 (filed Aug. 14, 2009) (“Our entire universal service support system . . . is modeled around TDM-based interstate
voice services and the revenues associated with those services. That business model is eroding faster than anyone
could have imagined 10 years ago. Voice service and revenues associated with it are plummeting in the developing
packet-based communications industry. Whether we are talking about voice replacements like Skype In, Skype Out
(neither of which contributes directly to universal service because the services do not meet the definition of
‘Interconnected VoIP service’), Google-Voice, or Magic Jack . . . it is clear that the existing, traditional voice-based
business model is disappearing and with it will go the universal service support provided by those traditional
services today.”).
126 In this Notice, we are not proposing to classify any of these services as telecommunications services or
information services. We note, however, that to the extent that a service is a “telecommunications service” under
the Act, it would be subject to mandatory USF contributions, unless the Commission were to conclude that the
carrier’s contribution would be de minimis under section 254(d) or the statutory requirements for section 10
forbearance are met. To the extent that there exists any question as to whether a particular service is a
telecommunications service, we seek comment on whether to exercise our permissive authority under section 254(d)
to bring the service into the contribution base, or, to the extent it is a telecommunications service, whether to forbear
from contribution obligations.

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Text messaging service;
One-way VoIP service; and
Broadband Internet access services.
1.

Enterprise Communications Services Providers

41.
Background. In the Wireline Broadband Internet Access Service Order, the Commission
noted that carriers and end users, including enterprise customers, have traditionally used services such as
standalone Asynchronous Transfer Mode (ATM) service, frame relay (FR), gigabit Ethernet service, and
“other high-capacity special access services” for basic data transmission purposes.127 The Commission
distinguished these services from broadband Internet access services, which it concluded intertwined
information-processing capabilities with data transmission.128 Data transmission services based on older
technologies, such as standalone ATM129 and frame relay130 are currently subject to contribution
obligations. In recent years, however, enterprises have increasingly replaced such legacy services with
new services that perform substitutable functions, but are based on other technologies.131 The current
generation of services, such as Dedicated IP, Virtual Private Networks (VPNs), and Wide Area Networks
(WANs) that are implemented with various protocols such as ATM/FR, Multiprotocol Label Switching
(MPLS),132 and Provider Backbone Bridging (PBB), allow providers to create a single integrated network
infrastructure that can be used to provide multiple services to the enterprise customer, including (but not
limited to) voice-over-IP service; data transmission service; managed email; corporate intranets; website
and data hosting; caching; managed application services; Internet Protocol television (IPTV); and/or
video conferencing.133 USAC has sought Commission guidance regarding the classification of certain

127 Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14860-61, para. 9.
128 Id.
129 ATM is a “high bandwidth, low-delay, connection-oriented packet-like switching and multiplexing technique” in
which “[u]sable capacity is segmented into 53-byte fixed-sized cells, consisting of header and information fields
[and] allocated to services on demand.” See Review of Regulatory Requirements for Incumbent LEC Broadband
Telecommunications Services
, CC Docket No. 01-337, Memorandum Opinion and Order, 17 FCC Rcd 27000,
27003, para. 6 n.22 (2002) (quoting Harry Newton, Newton's Telecom Dictionary: The Official Dictionary of
Telecommunications and the Internet
63 (17th ed. 2001)). The ATM technique was developed, in part, to address
the need to carry real time voice and video across data networks.
130 Frame Relay is a “high-speed packet-switched technology used to communicate digital data between, among
other things, geographically dispersed local area networks.” Independent Data Communications Manufacturers
Association, Inc.; American Telephone and Telegraph Company
, Memorandum Opinion and Order, 10 FCC Rcd
13717, 13720, para. 6 (1995) (Frame Relay Order). For a discussion of frame-relay technology, see id. at 13720-21,
paras. 6-8.
131 See, e.g., 2012 TIA Review and Forecast at 3-39 (“carrier Ethernet is gaining ground for companies with high
bandwidth requirements …. Although Ethernet remains a small component of the overall market in terms of
spending, it surpassed all legacy connections in 2011 in terms of bandwidth…. For companies with less extensive
bandwidth needs, the dominant trend in recent years is the migration to IP VPNs from frame relay and ATM, while
the leased line market continues to hold on, supported in part by growth in the dedicated IP VPN market, which uses
leased lines for connectivity.”).
132 A group of carriers has submitted a proposal for how the Commission could assess MPLS-based services under
the current revenues-based system, focusing on how to properly allocate revenues from such services for
contributions purposes. See Letter from Sprint Nextel et al, to Marlene H. Dortch, FCC, WC Docket No. 06-122
(filed Mar. 29, 2012) (Industry MPLS Proposal). In Section V.A.2 below, we seek comment on this proposal.
133 See, e.g., BT Americas June 8, 2009 Comments. Many services currently offered in the enterprise market are not
limited to a single protocol, but can enable the transmission of data between networks that rely on different protocols
(for example, FR/ATM service, which allows seamless data transfer between Frame Relay and ATM networks).
(continued…)

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enterprise services that are provided over networks utilizing these newer technologies, and the
Commission has several pending appeals or requests for guidance involving the contribution requirements
for such services.134
42.
Discussion. We seek comment on clarifying the contribution obligations of various
enterprise communications services that include the provision of telecommunications, without classifying
those services as telecommunication services or information services, to advance our proposed goals for
contributions reform, namely, creating greater efficiency, fairness, and sustainability of the Fund.135
Several commenters have stated that uncertainty over the appropriate treatment of certain services today
increases regulatory costs and results in gaming that has unfairly disadvantaged carriers who make good-
faith attempts to comply with their contribution obligations.136 For example, BT Americas Inc. has
argued that a continued lack of clarity on which MPLS-enabled services are assessable “will lead one or
more providers (whether a network services-based provider, systems integrator, or other) to leverage the
lack of clarity and not pay into the [F]und,” and that “[c]ustomers may use this situation to demand that
other providers do the same.” BT Americas further argues that it “is not realistic for one or more
providers to charge corporate customers 11 to 12 percent more in USF fees on MPLS-enabled services
and maintain market share when other providers do not assess their customers for such fees.”137
43.
We note that, as stated above, the Act defines telecommunications as “the transmission,
between or among points specified by the user, of information of the user’s choosing, without change in
the form or content of the information as sent and received.”138 The Commission has found that

(Continued from previous page)
AT&T Inc. and BellSouth Corp. Application for Transfer of Control, WC Docket No. 06-74, Memorandum Opinion
and Order, 22 FCC Rcd 5662, 5698, para. 63 & n.180 (2007).
134 See USAC 2009 Guidance Request, supra note 123. Masergy Communications Inc. Petition for Clarification,
WC Docket No. 06-122 et al., at 2 (filed Mar. 27, 2009) (Masergy Petition for Clarification) (seeking clarification
from the Commission on the classification of MPLS service revenues); Request for Review by XO Communications
Services, Inc. of a Decision of the Universal Service Administrator, WC Docket No. 06-122 (filed Dec. 29, 2010)
(XO Request for Review) (challenging USAC’s reclassification of MPLS revenues); Equant, Inc. Request for
Review of Decision of the Universal Service Administrator, WC Docket No. 06-122 (filed Jan. 3, 2012) (Equant
Request for Review) (challenging USAC’s reclassification of IP-based virtual private network revenues).
135 We note that to the extent that enterprise communications services are telecommunications services, they are
already subject to mandatory contribution obligations under section 254(d). 47 U.S.C. § 254(d). See, e.g.,
Comments of Verizon and Verizon Wireless, WC Docket No. 05-337 et al. (filed Oct. 28, 2009) (Verizon Oct. 28,
2009 Comments) (stating that whether a particular service that uses ATM or FR technology is assessable for USF
purposes depends on whether that particular service meets the statutory definition of a telecommunications service);
Comments of the United States Telecom Association, CC Docket No. 96-45 et al., at 7 (filed Oct. 28, 2009) (stating
that services that use MPLS technology can be either telecommunications or information services depending on
product characteristics).
136 See, e.g., Masergy Petition for Clarification, at 2-3 (discussing how the diversity of methods used by carriers to
collect USF for MPLS services creates artificial competitive advantages for carriers that do not collect USF on the
underlying transport); Equant Request for Review (arguing that USAC's reclassification of Equant's VPN revenues
as telecommunications revenues will place Equant at a competitive disadvantage vis-a-vis other carriers who have
elected to classify all of their VPN revenues as non-telecommunications); NTT America Comments, WC Docket
No. 06-122 (filed June 8, 2009) (seeking clarification on classification of MPLS and stating that the lack of clarity
surrounding the classification of MPLS will allow uncertainty to persist among USF contributors).
137 BT Americas June 8, 2009 Comments at 11 (arguing that lack of clarity on the proper classification of MPLS-
based services will lead providers to avoid contribution obligations).
138 47 U.S.C. § 153(50).

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transmission is the heart of telecommunications,139 and has classified data transmission services that have
“traditionally” and “typically” been used for basic transmission purposes, such as “stand-alone ATM
service, frame relay, gigabit Ethernet service, and other high-capacity special access services,” as
telecommunications services.140
44.
We have not formally addressed enterprise communications services such as Dedicated
IP, VPNs, WANs, and other network services that are implemented with various protocols such as Frame
Relay/ATM, MPLS and PBB for purposes of determining USF contribution obligations. To the extent
that such enterprise communications services would not fall within the definition of telecommunications
services, should we exercise our permissive authority with respect to providers of those services? Are
such enterprise communications services substitutes for other enterprise communications services that are
subject to mandatory contributions, and would such an exercise of permissive authority increase clarity
and fairness?141 If we were to exercise our permissive authority over enterprise communications services
that may be information services, should we enumerate the specific services that would be subject to a
contribution obligation, or should we attempt to craft a more general definition that would capture future
generations of such services that deliver similar functionality, regardless of technology used, in order to
promote the sustainability of the Fund? What would be the appropriate transition period for such
changes?
45.
If we choose to exercise our permissive authority in this fashion, how would that affect
the size of the contribution base? To what extent would assessing enterprise communications services
bring additional contributors into the system that do not otherwise contribute today directly or
indirectly?142 How would an assessment of additional enterprise communications services affect the
distribution of contribution obligations among various industry segments? How would such assessment
affect the relative distribution of contribution obligations between services provided to enterprise and
residential customers? How would such assessment affect the average contributions of different
categories of residential end users, such as low-volume versus high-volume users, or vulnerable
populations such as low-income consumers?
46.
To the extent we conclude that Dedicated IP, VPNs, WANs, or other communications
services for which contribution obligations have been in dispute should not be subject to contribution
obligations, should we exercise our forbearance authority under section 10 of the Act to exempt these
services from mandatory contribution insofar as they may be viewed as telecommunications services?
How would that impact the current contribution base, and the relative distribution of contribution
obligations between enterprise and residential consumers? Do these services differ from other explicitly
assessed enterprise communications services in a way that makes their exemption from contribution
appropriate, and would the section 10 criteria otherwise be met?

139 Petition for Declaratory Ruling that Pulver.com’s Free World Dialup is Neither Telecommunications nor a
Telecommunications Service
, WC Docket No. 03-45, Memorandum Opinion and Order, 19 FCC Rcd 3307, 3312,
para. 9 (2004) (Pulver Order).
140 Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14860–61, para. 9.
141 Consistent with precedent, the Commission may exercise its permissive authority to subject a provider or service
to universal service contribution requirements without classifying such a provider or offering as a
“telecommunications service” or “information service,” as those terms are defined in the Act. See, e.g., 2006
Contribution Methodology Order
, 21 FCC Rcd at 7537, para. 35.
142 For example, systems integrators, which are defined in the Universal Service Fourth Order on Reconsideration
as entities that do not provide services over their own facilities, may contribute indirectly to the Fund (even if they
are not direct contributors to the Fund) if their underlying providers pass through USF surcharges to them. See
Universal Service Fourth Order on Reconsideration
, 13 FCC Rcd at 5472, para. 278.

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47.
We note that the Commission has expressly declined to exercise permissive authority
over systems integrators for whom telecommunications represents a small fraction (less than five percent)
of total revenues derived from systems integration services.143 To the extent that we explicitly exercise
our permissive authority to assess enterprise communications services, should we also eliminate the
system integrators exemption, so that systems integrators would contribute even if their
telecommunications revenues were under the current threshold? In the alternative, if we determine that
we should clarify that certain enterprise communications services are not subject to contributions, should
we modify the systems integrators exemption, and if so how? How would our decision to clarify the
contribution obligations for any category of these services affect current contributions?
48.
The Telecommunications Industry Association (TIA) estimates 2011 revenues of
approximately $41 billion for enterprise services, including data communications services (which can be
used for, among other things, Internet access), unified communications, videoconferencing public room
services, audio conferencing service bureau spending, and web conferencing.144 We seek comment on
the size of the enterprise communications services marketplace, including comment on the TIA estimates,
and whether this marketplace is likely to grow or shrink in the future. If commenters believe the
estimates are too high or too low, they should provide specific data to more accurately size this segment
of the communications marketplace. We also seek comment and data submissions on how assessing these
services would affect the contribution base under the different methodologies proposed in Section V
below. We seek comment and data on the extent to which service providers are currently treating these
services as assessable. 145 In Section V.A.2 below, we seek comment on how revenues from such services
should be apportioned into assessable and non-assessable segments if the Commission continues with a
revenues-based methodology. We encourage commenters to provide comments and data regarding the
structure of typical enterprise communications services contracts. In particular, we seek comment on
whether such contracts typically break out costs for different parts of the services provided and, if so, how
they generally do so.
2.

Text Messaging Providers

49.
Background. The Commission has not addressed whether text messaging revenues are
subject to federal universal service contribution requirements. As noted above, the Act requires all
providers of interstate telecommunications services to contribute to the Fund, and our rules require
providers to contribute based on their telecommunications service revenues.146 Moreover, the obligation
has never been limited to voice services.147 On April 22, 2011, USAC filed a request for guidance from
the Commission regarding the proper treatment of text messaging for USF contribution purposes.148
USAC stated that some carriers are reporting text messaging revenue as assessable telecommunications

143 Systems integrators are non-facilities-based, non-common carrier providers of telecommunications that integrate
the telecommunications they purchase from other providers with computer capabilities, data processing, and other
services to offer an integrated voice and data package to their customers. Universal Service Fourth Order on
Reconsideration
, 13 FCC Rcd at 5472, para. 278. System integrators that derive more than five percent of systems
integration services revenues from telecommunications are required to contribute to universal service. Id. at 5472-3,
para. 280; 47 C.F.R. § 54.706(d).
144 See 2012 TIA Market Review and Forecast at 3-4.
145 We note that companies may request confidential treatment for any such company-specific data, or related data,
submitted in response to this Notice. 47 C.F.R. § 0.459.
146 47 U.S.C. § 254(d); 47 C.F.R. §§ 54.706, 54.709.
147 See, e.g., 47 C.F.R. § 54.706(a)(13)–(14) (listing “telegraph” and “video services” (to the extent provided on a
common carrier basis) among the services on which providers are assessed).
148 See USAC 2011 Guidance Request, supra n.124.

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revenues, and other carriers are reporting revenues from these services as non-assessable information
services revenues.149
50.
Discussion. We seek comment on whether text messaging services should be assessed in
light of our proposed goals for contribution reform. To what extent is there a lack of clarity within the
industry over whether such services are subject to universal service contributions? Would adopting a
clear rule establishing that text messaging is in the contribution base further the Commission’s efforts to
promote fairness and competitive neutrality? If providers of text messaging services were required to
contribute, would that create competitive distortions between text messaging service providers and
providers that offer applications that allow users to send messages using a wireless customer’s general
data plan – applications that consumers may increasingly view as a substitute to text messaging? Given
the rapid growth in the text messaging marketplace, a number of stakeholders have suggested in recent
years that text messaging revenues should be added to the contribution base to enhance the sustainability
of the Fund.150 To what extent would including these services in the contribution base add to the stability
of the Fund? If we modified our rules to explicitly assess text messaging, what would be an appropriate
transition period?
51.
If we conclude text messaging services should be assessed, should we exercise the
Commission’s permissive authority under section 254(d) of the Act to assess providers of these services,
without determining whether such services are telecommunications services or information services?151
Alternatively, if we conclude that text messaging services should not be assessed, should the Commission
conclude that even if such services are telecommunications services, we should exercise our forbearance
authority under section 10 of the Act to exempt text messaging from contribution obligations?152

149 In addition, the Commission has a pending Petition for Declaratory Ruling asking whether text messaging is a
telecommunications service or an information service. See Petition of Public Knowledge et al. for Declaratory
Ruling Stating that Text Messaging and Short Codes are Title II Services or are Title I Services Subject to Section
202 Nondiscrimination Rules, WC Docket No. 08-7, at 7–13 (filed Dec. 11, 2007) (arguing that text messaging
services meet the requirements for classification as a “commercial mobile service” under Section 332 of the Act and
are thus subject to Title II regulation). Some parties argue that text messaging is a Title II service, subject to USF
contributions. See, e.g., Comments of the National Telecommunications Cooperative Association, WC Docket No.
06-122 (filed June 6, 2011); Comments of Public Knowledge and National Hispanic Media Coalition, WC Docket
No. 06-122 (filed June 6, 2011). Other parties argue that text messaging is an information service, and cannot be
assessed until the Commission amends its rules to encompass text messaging. See, e.g., CTIA – The Wireless
Association Comments, WC Docket No. 06-122, at 13 (filed June 6, 2011) (arguing that SMS is an information
service because it involves the storing and forwarding of messages, data conversion, and data retrieval functions);
Comments of Verizon Wireless, WC Docket No. 06-122 (filed June 6, 2011).
150 See, e.g., AT&T Petition for Immediate Commission Action to Reform Its Universal Service Contribution
Methodology, WC Docket No. 06-122, at 8–9 (filed July 10, 2009) (“Anyone in their 20’s will tell you that text-
messaging . . . and other applications are increasingly important avenues of communication, which are not subject to
universal service contributions . . . . Unless the Commission is prepared to use its ancillary jurisdiction in ways that
it has not previously, the consequences of these changes will be an even smaller contribution base”); NTCA Oct. 8,
2010 Ex Parte Letter at Attach. p. 8 (arguing that including text messaging revenues in the contribution base would
help remedy the “supply” of universal service funding); XO Sept. 17, 2010 Ex Parte Letter at 8 (recommending that
the Commission, at a minimum, consider making at least a reasonable allocation of the revenue attributable to the
telecommunications transmission input for wireless text messaging services assessable).
151 If text messaging is a telecommunications service, it is subject to mandatory contribution obligations under
section 254(d). 47 U.S.C. § 254(d). As discussed above, we are not proposing to classify text messaging as a
telecommunications service or an information service in this Notice.
152 47 U.S.C. § 160.

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52.
We seek comment on the extent to which consumers are substituting text messaging for
traditional voice services and other services that are subject to universal service contributions. Are there
any reasons to treat short message service (SMS) or multimedia messaging service (MMS) differently for
this analysis? Commenters should provide data to support their assertions.
53.
We also seek comment on whether wireless providers include revenues generated
through the use of common short codes in their text messaging revenues.153 If common short code
revenues are not reported as part of the text messaging revenues, are there any reasons to treat such
revenues differently in calculating the universal service contributions?
54.
We note that the telecommunications industry has seen explosive growth in the wireless
segment over the last decade, with end-user mobile revenues reported on FCC Form 499-A almost
tripling from $44 billion in 1999 to about $111 billion in 2010.154 TIA estimates that U.S. spending on
wireless voice in 2011 was $102.3 billion, and spending in wireless data was $73.6 billion.155 TIA also
estimates that spending in wireless data will exceed wireless voice by 2013, and by 2015 wireless data
spending will be approximately double that of wireless voice.156 Hand-in-hand with that growth has been
the expansion of text messaging. In the most recent Mobile Wireless Competition Report, the
Commission found that “consumers are increasingly substituting among voice, messaging, and data
services, and, in particular, are willing to move from voice to messaging or data services for an increasing
portion of their communications needs.”157 One study showed that over 70 percent of U.S. mobile
subscribers used text messaging on their mobile devices in 2010.158 Industry-wide text messaging
revenues were approximately $11 billion in 2008 and $16 billion in 2009,159 and we estimate that those
revenues were approximately $17 to $19 billion in 2010 and 2011.160 CTIA estimates that approximately
two trillion text messages were sent in 2011, in comparison to 113.5 billion in 2006.161 We seek

153 A common short code is a number to which a text message can be sent that is common across all wireless service
providers in the United States. The Common Short Code Administration (CTIA with Neustar) assigns common
short codes to applicants allowing them to be used for the same application across multiple wireless providers.
Under this system, users send a short message to a five or six-digit short code that belongs to a particular content
provider and then receive, on their handsets, the information requested from that provider. The short codes can be
used for applications such as voting in TV or radio shows, or receiving specific information such as a sports or
weather update. See CTIA-The Wireless Association, About CSCs—Common Short Codes, Common Short Code
Administration, available at http://www.usshortcodes.com/csc_csc.html (last visited Apr. 17, 2012).
154 2011 Universal Service Monitoring Report, Table 1.1.
155 2012 TIA Review and Forecast at 1-6.
156 Id.
157 Fifteenth Mobile Wireless Report, 26 FCC Rcd at 9687-9688, para. 4.
158 Id. at 9765, Chart 9.
159 Id. at 9677-9677, para. 4 (2008 estimate); XO Sept, 17, 2010 Ex Parte Letter at 8 (2009 estimate). The
Commission has not developed an estimate of text messaging revenues after 2009 because the industry has stopped
reporting text messaging revenues separately from overall mobile data service revenues. Fifteenth Mobile Wireless
Report,
26 FCC Rcd at 9676-9677, para. 4.
160 See Chetan Sharma, US Mobile Messaging Market – Growth and Opportunities 5 (2011), available at
http://mobilebroadbandopportunities.com/chetansharma/Sharma3.pdf (last visited Mar. 6, 2012) (estimating that
messaging revenues were approximately $17 billion in 2010); Chetan Sharma, US Wireless Market Update Q2 2011
(Aug. 18, 2011), available at http://www.chetansharma.com/blog/2011/08/18/us-wireless-market-update-q2-2011/
(last visited Mar. 6, 2012) (reporting $5 billion in text messaging revenues for 2Q 2011).
161 CTIA—The Wireless Association, U.S. Wireless Quick Facts, CTIA Advocacy, available at
http://www.ctia.org/advocacy/research/index.cfm/aid/10323 (last visited Mar. 8, 2012) (annualizing mid-year 2011
and mid-year 2006 figures).

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comment on the size of the text messaging marketplace, including the industry revenue figures referenced
above, and whether this marketplace is likely to grow or shrink in the future.162 Commenters who
disagree with the estimates above should submit specific revenue data to support their assertions.
55.
To the extent commenters advocate a position on whether text messaging providers
should be assessed, we view it as highly relevant whether those commenters earn text message revenues
themselves and, if so, whether they have reported it as assessable in recent years. We thus ask
commenters to include in their comments their estimated recent text messaging revenues, and the extent
to which they reported those revenues as assessable.163 If we explicitly assess text messaging providers,
how would that affect the size of the contribution base? How would such assessment affect the
distribution of contribution obligations between services for enterprise and residential customers? How
would it affect the total average impact of contributions on residential end users? How would it affect the
distribution of obligations between low-volume and high-volume users? How would an assessment of
text messaging providers affect the distribution of contribution obligations among various industry
segments?
56.
We also seek comment and data submissions on how assessing these providers of these
services would affect the contribution base under the different methodologies proposed in Section V
below. We note that to the extent that providers of text messaging also are providers of assessable voice
services, explicitly assessing text messaging would not necessarily broaden the base, to the extent we
were to adopt a non-revenues-based contribution methodology. We also seek comment and data on the
extent to which service providers are currently treating these services as assessable.
3.

One-way VoIP Service Providers

57.
Background. In 2005, when the Commission first asserted regulatory authority over
interconnected VoIP service providers, it defined “interconnected VoIP” as a service that permits users
generally “to receive calls that originate on the [PSTN] and to terminate calls to the public switched
telephone network.”164 In 2006, the Commission relied on this same “two-way” definition when it
extended universal service contribution obligations to interconnected VoIP service providers.165 At the
same time, the Commission recognized that the definition of interconnected VoIP service for purposes of
universal service contributions might “need to expand as new VoIP services increasingly substitute for
traditional phone service.”166

162 See, e.g., Jenna Wortham, Free Texts Pose Threat to Carriers, New York Times (Oct. 9, 2011), available at
http://www.nytimes.com/2011/10/10/technology/paying-to-text-is-becoming-passe-companies-
fret.html?pagewanted=all (last visited Mar. 14, 2012) (discussing analyst reports that free messaging applications
could reduce carrier text messaging profits); Chetan Sharma, US Wireless Market Update: Q4 2011 and Full Year
2011
(Mar. 19, 2012), available at http://www.chetansharma.com/USmarketupdate2011.htm (stating that US text
messaging continued to grow in 2011, but at a slower pace).
163 We note that companies may request confidential treatment for any such company-specific data, or related data,
submitted in response to this Notice. 47 C.F.R. § 0.459.
164 47 C.F.R. § 9.3 (emphasis added); see also IP-Enabled Services; E911 Requirements for IP-Enabled Service
Providers
, WC Docket Nos. 04-36, 05-196, First Report and Order and Notice of Proposed Rulemaking, 20 FCC
Rcd 10245, 10257–58, para. 24 (2005) (VoIP 911 Order).
165 47 C.F.R. § 54.5 (referring to rule 9.3 to define an interconnected VoIP service for contribution purposes); see
also
2006 Contribution Methodology Order, 21 FCC Rcd at 7536, para. 34 & n.119.
166 2006 Contribution Methodology Order, 21 FCC Rcd at 7537, para. 36. The Commission also noted that USF
obligations would continue to apply to any modified definition of “interconnected VoIP.” Id. at n.129.

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58.
Discussion. We seek comment on whether the Commission should exercise its
permissive authority under section 254(d) to include in the contribution base providers of “one-way”
VoIP with respect to such service offerings, regardless of the statutory classification of such services.167
Such offerings would include all services that provide users with the capability to originate calls to the
PSTN or terminate calls from the PSTN, but in all other respects meet the definition of “interconnected
VoIP.” We seek comment below on a potential definition of such services for the purpose of USF
contributions:
One-way VoIP service. A service that (1) enables real-time, two-way voice
communications; (2) requires a broadband connection from the user’s location;
(3) requires Internet protocol-compatible customer premises equipment; and (4)
permits users generally to receive calls that originate on the public switched
telephone network or terminate calls to the public switched telephone network.

59.
As noted above, the Commission has previously found it to be in the public interest to
extend universal service contribution obligations to discrete classes of providers that compete with
common carriers and that benefit from universal service through their interconnection with the PSTN,
including providers of interconnected VoIP service.168 The Commission found that it is in the public
interest to require providers of two-way interconnected VoIP services to contribute, noting that among
other things, such providers benefit from universal service because much of the appeal of their services to
consumers derives from the ability to place calls to and receive calls from the PSTN, and that
interconnected VoIP increasingly was being used by consumers in lieu of traditional voice telephony.169
60.
To what extent does this rationale apply today to one-way VoIP services? We note that
one-way VoIP enables consumers to originate or terminate calls on the PSTN.170 Would the public

167 The Commission has not classified one-way VoIP as a telecommunications service or an information service.
Consistent with precedent, the Commission may exercise its permissive authority to subject a provider or service to
universal service contribution requirements without classifying such a provider or offering as a “telecommunications
service” or “information service,” as those terms are defined in the Act. See, e.g., 2006 Contribution Methodology
Order
, 21 FCC Rcd at 7537, para. 35. To the extent we conclude that one-way VoIP should not be subject to
contribution obligations, we seek comment on whether we should exercise our forbearance authority under section
10 to the extent one way VoIP could be viewed as a telecommunications service.
168 2006 Contribution Methodology Order, 21 FCC Rcd at 7540–41, para. 43; see also Universal Service First
Report and Order
, 12 FCC Rcd at 9184–85, para. 797.
169 2006 Contribution Methodology Order, 21 FCC Rcd at 7540-41, para. 43. The Commission found that like other
contributors to the Fund, interconnected VoIP providers are “dependent on the widespread telecommunications
network for the maintenance and expansion of their business,” and they “directly benefit[] from a larger and larger
network.” Id., quoting TOPUC, 183 F.3d at 428. The Commission also relied on its ancillary jurisdiction under
Title I as an additional source of authority to require contributions from interconnected VoIP providers. See id. at
7541–43, paras. 46–49. The Commission noted that the Act grants subject matter jurisdiction over interconnected
VoIP because it involves “transmission” of voice by wire or radio, and that imposing contribution obligations on
interconnected VoIP providers was “reasonably ancillary” to the effective performance of the Commission’s
responsibilities to establish “specific, predictable, and sufficient mechanisms . . . to preserve and advance universal
service.” The Commission also noted that interconnected VoIP providers “benefit from their interconnection to the
PSTN.” See id. at 7538–40, paras. 39–42.
170 Under existing precedent, a provider of one-way VoIP provides telecommunications. See USF/ICC
Transformation Order and FNPRM,
26 FCC Rcd at 18013-4, para. 954; 2006 Contribution Methodology Order, 21
FCC Rcd at 7539, para. 41. In this regard, we note that when the Commission exercised permissive authority over
two-way interconnected VoIP, it reasoned that interconnected VoIP providers provide telecommunications
regardless of whether they own or operate their own transmission facilities or arrange for the end user to access the
PSTN through a third party (commonly referred to as “over-the-top interconnected VoIP”). See id. (“To provide this
(continued…)

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interest be served by exercising permissive authority over one-way VoIP to further our proposed goals of
efficiency, fairness and sustainability?
61.
In particular, we seek comment on whether competitive neutrality concerns now support
the inclusion of one-way VoIP services within the contribution base. Some parties argue that the one-way
VoIP exemption is “an enormous loophole” that creates competitive disparities.171 USTelecom has
argued that the current system “unfairly penalizes traditional voice providers (and ultimately their
customers) and artificially skews the market.”172 One-way VoIP providers, on one hand, and providers of
traditional telephone and interconnected VoIP services, on the other hand, have acknowledged that they
compete against each other.173 XO, for example, argues that the exemption provides “a significant
artificial cost advantage” for non-assessable services that provides “a powerful incentive for consumers to
replace [assessable services] with less costly non-assessable services.”174 We seek comment on the extent
of competition between one-way VoIP and other services that are subject to assessment, and how that
should affect our analysis. Commenters are encouraged to provide data to support their analysis. If one-
way VoIP providers are brought into the contribution base, what would be the appropriate transition
period?
62.
We seek comment on the size of the one-way VoIP marketplace in the United States, and
whether this marketplace is likely to grow or shrink in the future. Skype, which separately offers a
service that permits users to receive calls that originate on the PSTN and a service that permits users to
terminate calls to the PSTN, reported that it had over 8.8 million paying users worldwide for its SkypeIn
and SkypeOut services and domestic revenues of over $140 million in 2010.175 How many providers of
one-way VoIP are there, and who are other major providers of such services? What are the overall U.S.
revenues for this group of providers, and how many customers do they have? Commenters are
encouraged to provide specific data to support their assertions. We also seek comment and data
submissions on how assessing these services would affect the contribution base under the different
methodologies proposed in Section V below.
63.
If we assess one-way VoIP, how would that affect the size of the contribution base? How
would such assessment affect the distribution of contribution obligations between services for enterprise
and residential customers? How would it affect the total average impact of contributions on residential
end users? How would it affect the distribution of obligations between low-volume and high-volume
users, and how would it impact low-income consumers? How would an assessment of one-way VoIP
affect the distribution of contribution obligations among various industry segments?
64.
We note that, in other contexts, the Commission has subjected one-way VoIP providers
to the same regulatory requirements as two-way interconnected VoIP providers. For instance, in the
USF/ICC Transformation Order and FNPRM, the Commission included providers of one-way VoIP

(Continued from previous page)
capability [telecommunications], interconnected VoIP providers may rely on their own facilities or provide access to
the PSTN through others.”).
171 XO Sept. 17, 2010 Ex Parte Letter at 8.
172 USTelecom Mar. 28, 2012 Ex Parte Letter at 3.
173 Skype S.a.r.l., Amendment No. 2 to Form S-1 Registration Statement at 132 (filed with the SEC, Mar. 4, 2011)
(Skype S-1) at 30–31 (listing primary competitors as Internet and software companies, telecommunications
companies and hardware-based VoIP providers, and small and medium-size enterprise telecommunications services
providers); Verizon Oct. 28, 2009 Comments at 5 (“IP-based services such as Google Voice, SkypeIn, ooma, and
magicJack . . . compete with traditional telephone services”).
174 XO Sept. 17, 2010 Ex Parte Letter at 5–6.
175 Skype S-1 at 132.

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services (defined as services that “that allow end users to place calls to, or receive calls from the PSTN,
but not both”) within the intercarrier compensation framework for VoIP-PSTN traffic.176 Providers of
“non-interconnected VoIP,” a term that can include providers of one-way VoIP, also are required to
contribute to the interstate Telecommunications Relay Services (TRS) Fund under the Twenty-First
Century Communications and Video Accessibility Act of 2010.177 We seek comment on the relevance of
these precedents to the question of whether one-way providers should contribute to universal service.
4.

Broadband Internet Access Service Providers

65.
Background. The State Members of the Federal-State Universal Service Joint Board
(State Members of the Joint Board) have proposed that the Commission include “broadband and services
closely associated with the delivery of broadband” in the base, including Digital Subscriber Line (DSL),
cable, and wireless broadband Internet access.178 Other commenters also support extending assessments
to broadband Internet access.179

176 USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 18006-7, para. 941. See also id. at 18008-18018,
paras. 943-959 (adopting an intercarrier compensation framework that brings all VoIP-PSTN traffic within the
section 251(b)(5) framework).
177 Twenty-First Century Communications and Video Accessibility Act of 2010, Pub. L. No. 111-260, §103(b), 124
Stat. 2751, 2755 (2010) (CVAA). See Contributions to the Telecommunications Relay Services Fund, CG Docket
No. 11-47, Report and Order, 26 FCC Rcd 14532, 14543, para. 23 (2011) (requiring providers that offer non-
interconnected VoIP services on a stand-alone basis for a fee to contribute to the TRS Fund). “Non-interconnected
VoIP services” are defined under the CVAA as “service that enables real-time voice communications that originate
from or terminate to the user's location using Internet protocol or any successor protocol; and requires Internet
protocol compatible customer premises equipment; and does not include any service that is an interconnected VoIP
service.” 47 U.S.C. § 153(36).
178 Comments of State Members of Universal Service Joint Board, WC Docket No. 10-90 et al (filed May 2, 2011)
at 119 (State Members of Joint Board CAF Comments). State Staff of the Joint Board have also developed
proposals recommending that the base be expanded to include broadband Internet access service. Robert Haga et
al.
, The Omaha Plan: A White Paper to the State Members of the Federal-State Joint Board on Universal Service,
Feb. 2011, available at http://www.kcc.state.ks.us/telecom/roundtable032011/Omaha_Plan.pdf (last visited Apr. 17,
2012) (Omaha Plan); Peter Bluhm, Robert Loube, Consultants’ Plan for Universal Service: A White Paper to the
State Members of the Federal-State Joint Board for Universal Service
(Feb 2011), available at
http://www.kcc.state.ks.us/telecom/roundtable032011/Consultants_Plan.pdf (last visited Apr. 17, 2012)
(Consultants’ Plan); Joel Shifman, Shifman’s Universal Service and Intercarrier Compensation Reform Plan: A
White Paper to the State Members of the Federal-State Joint Board on Universal Service
4 (2011), available at
http://www.kcc.state.ks.us/telecom/roundtable032011/Shifman_White_Paper.pdf (last visited Apr. 17, 2012)
(Shifman Plan).
179 See, e.g., National Exchange Carrier Association, Inc. et al Joint Comments, WC Docket No. 10-90 et al. at 68
(filed July 12, 2010) (stating that the Commission should assess broadband Internet access). See also AT&T Aug.
24, 2010 Ex Parte Letter (stating that “any new mechanism must reflect the entire broadband ecosystem”); Letter
from Brad E. Mutschelknaus, Counsel for XO Communications, to Marlene H. Dortch, Secretary, FCC, WC Docket
No. 06-122, CC Docket No. 96-45 (filed Aug. 19, 2010); Letter from Matthew F. Wood, Media Access Project, to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122 et al. (filed Aug. 19, 2010); Letter from Jeffry H.
Smith, GVNW Consulting, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122 et al. (filed Aug. 16,
2010); Letter from Kenneth E. Hardman, Counsel for American Association of Paging Carriers, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 06-122 (filed Aug. 19, 2010); Letter from Kenneth E. Hardman, Counsel
for Association of TeleServices International, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122
(filed Aug. 19, 2012); Sprint Aug. 20, 2010 Ex Parte Letter.

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66.
In 2002, the Commission sought comment on whether and how broadband Internet
access service providers should contribute to universal service.180 In the Wireline Broadband Internet
Service Access Order,
the Commission classified wireline broadband Internet access as an information
service.181 The Commission also recognized, however, that wireline broadband Internet access service
includes a provision of telecommunications.182 In the Wireline Broadband Internet Access Order, the
Commission stated that it intended to address contribution obligations for providers of broadband Internet
access in a comprehensive fashion in the future, either in that docket or in this docket.183
67.
Discussion. Some commenters have suggested that the Commission should exercise its
permissive authority to assess providers of broadband Internet access services.184 Several parties,
however, have expressed concern that assessing broadband Internet access could discourage broadband
adoption.185 We seek comment on those concerns and invite commenters to submit empirical data into
the record of this proceeding regarding the potential impact of assessing broadband Internet access
services on consumer adoption or usage of services. Would assessing broadband Internet access service
in the near term undermine the goals of universal service? Could the Commission address such concerns
by phasing in contributions for mass market broadband Internet access services over time?
68.
In the USF/ICC Transformation Order, we adopted new rules to ensure that robust and
affordable voice and broadband, both fixed and mobile, are available to Americans throughout the nation.
In this proceeding, we are looking to update and modernize the method by which funds are collected to
support universal service. Some have expressed concern that assessing broadband Internet access may
indirectly raise the price of broadband Internet access for some consumers.186 To what extent, if any,
would assessing broadband services discourage consumers from subscribing? To what extent, if any,
would that in turn slow down deployment of broadband infrastructure? We seek comments and economic

180 Wireline Broadband NPRM, 17 FCC Rcd at 3048–56, paras. 65–83 (seeking comment on whether requiring
wireline broadband Internet access service providers and other facilities-based providers of broadband Internet
access services to contribute to universal service would be in the public interest); see also Cable Broadband Internet
Access Service Order
, 17 FCC Rcd at 4853, para. 110; 2002 Second Contribution Methodology Order and FNPRM,
17 FCC Rcd at 24983–95, paras. 66–95 (seeking comment on how to stabilize the contribution base, including the
assessment of broadband data connections).
181 Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14863-64, para. 14. The Commission has
similarly classified as an information service broadband Internet access services provided over cable modem,
wireless, and broadband over power line facilities. Cable Broadband Internet Access Service Order, 17 FCC Rcd at
4822, para. 38 (cable modem); Appropriate Regulatory Treatment for Broadband Access to the Internet Over
Wireless Networks
, WT Docket No. 07-53, Declaratory Ruling, 22 FCC Rcd 5901, 5909-11, paras. 22-27 (2007)
(wireless broadband); United Power Line Council’s Petition for Declaratory Ruling Regarding the Classification of
Broadband over Power Line Internet Access Service as an Information Service
, WC Docket No. 06-10,
Memorandum Opinion and Order, 21 FCC Rcd 13281 (2006) (broadband over power lines).
182 Brand X, 545 U.S. at 987-89; Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14861, 14864,
paras. 10, 15.
183 Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14915, para. 112.
184 See supra nn. 178-179 (citing comments and letters suggesting that the Commission assess broadband Internet
access services from the State Members of the Joint Board, trade associations, contributors, and other parties).
185 See Letter from S. Derek Turner, Free Press, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at 2
(filed Aug. 10, 2010) (Free Press Aug. 10, 2010 Ex Parte Letter); NCTA Aug. 20, 2010 Ex Parte Letter at 2.
186 See, e.g., Free Press Aug. 10, 2010 Ex Parte Letter, at 2.

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analyses that address the overall effect on broadband deployment of assessing or not assessing
broadband.187
69.
The State Members of the Joint Board recommend that both telecommunications services
and information services (such as broadband Internet access services) should be assessed and suggest that
if most of the revenues currently reported on FCC Form 499 Line 418 were assessed, that would reduce
the contribution factor to approximately two percent.188 They also suggest this would simplify billing
“since the new federal USF surcharge rate would generally apply to an end user’s total bill.”189 We seek
comment on this recommendation of the State Members of the Joint Board. Would such an approach
make telecommunications more affordable for consumers with lower overall telecommunications
expenditures? What is the relationship between household income and the percentage of a household’s
telecommunications bill subject to assessment under the current system, and what would it be under the
State Members’ proposed approach? Would such an approach affect consumer adoption of
telecommunications services that are not currently assessed? We ask commenters to provide any analysis
and data regarding their estimated reduction in the contribution factor, if we were to require contributions
based on the total bill. If we were to assess broadband Internet access, to what extent would that reduce
the contribution factor if we maintain a revenue-based methodology?
70.
If the Commission does assess broadband Internet access service, now or at some point in
the future, should the Commission assess all forms of broadband Internet access, including wired
(including over cable, telephone, and power-line networks), satellite, and fixed and mobile wireless?
Should it assess mass market broadband Internet access as well as enterprise broadband Internet access?
As a practical matter, how would the Commission differentiate between mass market broadband Internet
access, and other forms of broadband Internet access, and would such a distinction create any distortions
in the marketplace?
71.
We note that TIA estimates the wired broadband Internet access marketplace to be $38.3
billion in 2011 and $40.3 billion in 2012, and the marketplace for wireless data services to be $73.6
billion in 2011 and $89.8 billion in 2012.190 TIA also projects wireless data services to be over $140
billion, or double that for wireless voice, by 2015.191 It is not clear, however, from how TIA presents the
data whether its estimates include both enterprise as well as mass market broadband Internet access. To
what extent are any of these revenues in the contribution base today? What proportion of those revenues
should be considered mass market broadband Internet access, if we were to retain a revenues-based
system but adopt an approach that would exempt mass market broadband Internet access services from
contribution obligations? Under such an approach, how should we define “mass market”?192

187 See 47 U.S.C. § 1302(a) (“The Commission . . . shall encourage the deployment [of broadband] on a reasonable
and timely basis” and, upon finding that broadband is not “being deployed to all Americans in a reasonable and
timely fashion,” to “take immediate action to accelerate deployment of such capability by removing barriers to
infrastructure investment and by promoting competition in the telecommunications market.”).
188 State Members of Joint Board CAF Comments at 118-19.
189 Id. at 120.
190 2012 TIA Review and Forecast at 1-12, 4-4.
191 Id. at 1-6.
192 For purposes of this discussion, we note that the term “mass market” often is used to refer to a service marketed
and sold on a standardized basis to residential customers and small businesses. See, e.g., AT&T and BellSouth
Corp.,
Memorandum Opinion and Order, 22 FCC Rcd 5662, 5710, para 89 n.259 (2007) (AT&T and BellSouth
Order
); SBC Communications, Inc. and AT&T Corp. Applications for Approval of Transfer of Control, WC Docket
No. 05-65, Memorandum Opinion and Order, 20 FCC Rcd 18290, 18336, para. 82, n.243 (2005); Verizon
Communications, Inc. and MCI, Inc. Applications for Approval of Transfer of Control,
WC Docket No. 05-75,
(continued…)

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72.
In addition to our questions above regarding the effects on adoption of assessing
broadband Internet access, we seek comment on whether exercising our permissive authority with respect
to broadband Internet access services would be consistent with the Act and our potential goals for
contributions reform, namely, creating greater efficiency, fairness, sustainability, and other goals that
commenters identify. If we assess broadband Internet access services, how would that affect the size of
the contribution base? How would such assessment affect the distribution of contribution obligations
between enterprise and mass market customers if we assess only enterprise broadband Internet access
services, only mass market broadband Internet access services, or all broadband Internet access services?
How would these different approaches to assessing broadband Internet access services affect the total
average contribution impact for mass market end users? How would they affect the distribution of
contribution obligations between services offered to low-volume and high-volume users, or between low-
income and higher-income users? How would an assessment of broadband Internet access services affect
the distribution of contributions among various industry segments? Would assessing retail broadband
Internet access service eliminate the current competitive disparity that exists today between providers that
contribute on their broadband transmission (small rate of return companies) and their competitors, who do
not?
5.

Listing of Services Subject to Universal Service Contribution Assessment

73.
Section 54.706 of our rules sets forth a non-exhaustive list of services that are currently
included in the contribution base.193 Should we continue to specify in our codified regulations specific
services that are subject to assessment? Should that list be updated to reflect marketplace changes over
the last decade? Does it advance our potential goals for reform of providing predictability and
simplifying compliance and administration to maintain a non-exhaustive list of services that are subject to
contributions, which by definition does not provide clarity as to whether services not on the list are
subject to contribution obligations? Could we adopt a simpler approach that is flexible enough to be
applied to services that exist today and ones that will emerge in the future, without a need to continually
update our codified rules? Should the Commission periodically set forth a list of assessable services,
similar to the eligible services list used for the schools and libraries universal service support
mechanism?194

C.

Determining Contribution Obligations Through a Broader Definitional Approach

74.
In the previous section, we inquired about using our section 254(d) permissive authority
or other tools to modify or clarify the contribution obligations of providers of specific services. In this
section, we seek comment on an alternative approach: exercising our permissive authority to craft a
general rule that would specify which “providers of interstate telecommunications” must contribute,
without enumerating the specific services subject to assessment. Like the approach discussed above, such

(Continued from previous page)
Memorandum Opinion and Order, 20 FCC Rcd 18433,18477, para. 83, n.245 (2005). The term does not include
enterprise service offerings, which are typically offered to larger organizations through customized or individually
negotiated arrangements. See, e.g., AT&T and BellSouth Order, 22 FCC Rcd at 5709-10, para. 85 (“[E]nterprise
customers tend to be sophisticated and knowledgeable (often with the assistance of consultants), . . . contracts are
typically the result of RFPs and are individually-negotiated (and frequently subject to non-disclosure clauses), . . .
contracts are generally for customized service packages, and [] the contracts usually remain in effect for a number of
years.”).
193 The list includes cellular telephone and paging services, mobile radio services, operator services, personal
communications services (PCS), access to interexchange service, special access service, WATS, toll-free service,
900 service, message telephone service (MTS), private line service, telex, telegraph, video services, satellite service,
resale of interstate services, payphone services, and interconnected VoIP services. 47 C.F.R. § 54.706(a).
194 See, e.g., Schools and Libraries Universal Service Mechanism, CC Docket No. 02-6, Order, DA 11-1600 (rel.
Sept. 28, 2011) (releasing funding year 2012 eligible services list).

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a rule would not require us to resolve the statutory classification of specific services as information
services or telecommunications services in order to conclude that contributions should be assessed. Such
a rule could potentially produce a more sustainable contribution system by avoiding the need to
continually update a list of specific services subject to assessment. At the same time, such an approach
leaves open the possibility of carving out or excluding a specifically defined list of providers or services,
if inclusion of those providers or services is not in the public interest.
75.
For example, we seek comment on exercising our permissive authority to adopt a rule
such as the following:
Any interstate information service or interstate telecommunications is assessable
if the provider also provides the transmission (wired or wireless), directly or
indirectly through an affiliate, to end users.

76.
The rule above is intended to encompass only entities that provide transmission to their
users, whether using their own facilities or by utilizing transmission service purchased from other entities.
As discussed above, the provision of “telecommunications” means, in part, the provision of transmission
capability.195 Under the approach historically taken by the Commission, some, but not all, providers of
information services “provide” telecommunications. By statutory definition, an information service
provider offers the “capability for generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications.”196 In the past, the Commission has
found that the telecommunications component may be provided by the information services provider or
the customer.197 In other words, some information service providers “provide” the telecommunications
required to utilize the information service, but others require their customers to “bring their own
telecommunications” (in other words, to “bring their own transmission capability”).198 The rule set forth
above is intended to include entities that provide transmission capability to their users, whether through
their own facilities or through incorporation of services purchased from others, but not to include entities
that require their users to “bring their own” transmission capability in order to use a service.199 This is
consistent with Commission precedent where the Commission has exercised its permissive authority to
extend USF contribution requirements to providers of telecommunications that are competing directly
with common carriers.200 We seek comment on whether the rule would achieve this intended result. To

195 See supra Section IV.A.1.
196 47 U.S.C. § 153(24).
197 Pulver Order, 19 FCC Rcd at 3315–16, para. 14; see also Federal-State Joint Board on Universal Service, CC
Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501, 11522, para. 41 (1998) (“When an entity offers
subscribers the ‘capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing or
making available information via telecommunications,’ it does not provide telecommunications; it is using
telecommunications.”); Implementation of the Non-Accounting Safeguards of Section 271 and 272 of the
Communications Act of 1934, as amended
, CC Docket No. 96-149, Order on Remand, 16 FCC Rcd 9751, 9759,
para. 17 (2001) (Non-Accounting Safeguards Order on Remand) (“Information services therefore are, as explicitly
stated in the statutory definition, conveyed ‘via telecommunications,’ whether or not the telecommunications
component is separately supplied by either the provider or the customer.” (emphasis added)).
198 See Vonage, 489 F.3d at 1241 (a provider of “information services” can also be a “provider of
telecommunications” for purposes of section 254(d)).
199 An example of an information service that would fall outside the scope of this rule might be an email service that
the consumer accesses through a separately purchased broadband Internet access connection.
200 See, e.g., Universal Service First Report and Order, 12 FCC Rcd at 9183–85, paras. 794–97 (extending
contribution obligations to private line service providers and payphone aggregators based, in part, on the fact that
these providers compete directly with common carriers subject to mandatory contribution authority).

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the extent the rule above would not achieve this intended result, we seek comment on how the rule could
be altered to achieve this result.
77.
We seek comment on whether a rule such as the one above would further our proposed
goals of contributions reform by improving efficiency, fairness, and the sustainability of the Fund.
Would adopting such a rule provide sufficient guidance to potential contributors regarding their
contribution obligation? Would such a rule be simple to administer, monitor, and enforce? Would it
create market distortions or impede innovation?
78.
The National Broadband Plan recommended that however the Commission chooses to
reform contribution methodology, it should take steps to minimize opportunities for arbitrage as new
products and services are developed, so that there is no need to continuously update regulations to catch
up with changes in the market.201 Would a rule like the one discussed above achieve these goals,
minimizing opportunities for arbitrage and eliminating the need to continuously update regulations? Or,
alternatively, would it result in new definitional disputes and potential uncertainty?
79.
Could the above rule be read to make content fees assessable when content is provided by
the provider of the interstate telecommunications?202 For example, could an IP-based video-on-demand
service be assessable? We note that cable services are regulated under Title VI of the Act, and that video
service providers are currently only required to contribute to the extent they provide interstate
telecommunications services or other assessable telecommunications.203 We also note that many video-
on-demand services are being provided through Internet web sites, and thus are services that require the
viewer to bring their own “telecommunications” (i.e., Internet access). Could the above definition lead to
the assessment of any other services that compete largely or primarily against services that remain non-
assessable? If so, would this lead to competitive distortions? How could the definition be altered to
avoid this result?
80.
As noted above, the Commission has determined that “over-the-top” interconnected VoIP
providers provide transmission to or from the PSTN to end users, and has subjected these services to
contribution obligations. Even where a user obtains Internet access from an independent third party to
use an interconnected VoIP service, an over-the-top interconnected VoIP provider must still supply
termination to the PSTN for outgoing calls (which is not covered by the Internet access service), and
origination from the PSTN for incoming calls (which again is not covered by the Internet access service).
Over-the-top VoIP providers generally purchase this access to the PSTN from a telecommunications
carrier who accepts outgoing traffic from and delivers incoming traffic to the interconnected VoIP
provider’s media gateway. The Commission held that origination or termination of a communication via
the PSTN is “telecommunications,” and over-the-top interconnected VoIP providers, like other resellers,
are providing telecommunications when they provide their users with the ability to originate or terminate
a communication via the PSTN, regardless of whether they do so via their own facilities or obtain
transmission from third parties.204 Are there legal or policy considerations that would warrant revisiting
those rationales, if we were to exercise our permissive authority as set forth above? Are there reasons to
extend or not extend the rationale above to other services that provide origination or termination of a
communication via the PSTN? Would interconnected VoIP providers fall under the definition of an
assessable service set forth in this section? If the objective is to include only entities that provide a

201 National Broadband Plan at 149.
202 In Section V.A.1 below, we seek comment on issues concerning apportionment of revenues between assessable
and non-assessable services under a revenues-based system.
203 Universal Service First Report and Order, 12 FCC Rcd at 9176, para. 787.
204 See 2006 Contribution Methodology Order, 21 FCC Rcd at 7539-40, para. 41.

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physical connection (wired or wireless), should we consider entities that provide PSTN origination or
termination to be included within that group? If not, should we alter the proposed definition, or should
we add some additional provisions specifically including additional services, like interconnected VoIP or
other services that are substitutable for assessable services, for assessment?
81.
The State Members of the Joint Board have proposed an alternative broad definition,
recommending that the Commission exercise its permissive authority to broaden the contributions base to
include “all services that touch the public communications network.”205 The State Members conclude,
however, that contributions should not be required for “pure content delivered by non-
telecommunications over broadband facilities.” They acknowledge that their proposed rule could result in
difficult line drawing problems when the same company sells both broadband services and content.206
We seek comment on the State Members’ proposal.
82.
Potential Exclusions. If we were to adopt a rule such as the one above, we seek comment
on whether we should adopt any additional limitations.
83.
Non-Facilities-Based Providers: The rule discussed above would assess providers of
interstate telecommunications whether or not they own the physical facility, or hold license to the
spectrum, that is used to provide interstate telecommunications. In the alternative, should we limit
contribution obligations to facilities-based providers, and if so, how should we define “facilities-based”?
For example, would a provider be considered “facilities-based” for contributions purposes if it provides
service only partially over its own facilities?207 Should we define “facilities-based” services for
contributions purposes as those provided over unbundled network elements, special access lines, and
other leased lines and wireless channels that the provider obtains from another communications services
provider?208 For example, EarthLink has suggested that non-facilities-based providers of Internet access
service do not provide the “transmission service.”209 We seek comment on this viewpoint. The
Commission’s contribution methodology has never exempted non-facilities-based telecommunications
providers from their obligation to contribute, and the Act does not itself distinguish between facilities-
based and non-facilities-based telecommunications providers for purposes of contribution obligations.
We note that the Commission has previously found resellers to be telecommunications carriers supplying
telecommunications services to their customers even though they do not own or operate the transmission
facilities.210 Carriers that incorporate transmission obtained from other providers into their own
telecommunications services are currently subject to contribution requirements under the mandatory
contribution requirement in section 254(d). Likewise, firms contribute today when they resell private line

205 State Members of Joint Board CAF Comments at 118. They suggest that the “public communications network”
should be defined as “the interconnected communications network that uses public rights of way or licensed
frequencies for wireless communications.” As noted above, under their proposal, this would include “broadband
and services closely associated with the delivery of broadband” in the base, including DSL, cable, and wireless
broadband. State Staff of the Joint Board have also developed proposals recommending that the base be expanded
to include broadband Internet access service. Omaha Plan at 20-21; Consultants’ Plan at 2; Shifman Plan at 4.
206 The State Members suggest Westlaw or Lexis as examples of services that should not be assessed. State
Members of Joint Board CAF Comments at 119-20.
207 i-wireless, LLC Petition for Forbearance from 47 U.S.C. § 214(e)(1)(A), CC Docket No. 96-45 et al, Order, 25
FCC Rcd 8784, 8785, para. 3 (2010); see 47 U.S.C. § 214(e)(1)(A).
208 See 47 C.F.R. § 1.7001(a)(1).
209 Comments of Earthlink, Inc., GN Docket No. 10-127, at 18 (filed July 15, 2010).
210 Universal Service First Report and Order, 12 FCC Rcd at 9179, para. 787 (identifying resellers as
telecommunications carriers that provide interstate telecommunications services for purposes of section 254(d)).

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service provided by other carriers.211 Are there policy or administrative reasons not to exercise
permissive authority over entities that incorporate telecommunications purchased from others into their
own service offerings?
84.
Broadband Internet Access: If we were to adopt a rule such as the one above, should we
exclude broadband Internet access service? Several parties have expressed concern that assessing
broadband Internet access could discourage broadband adoption.212 As described above, we seek
comment on those concerns and invite commenters to submit empirical data into the record of this
proceeding regarding the impact of assessing broadband Internet access services on consumer or business
adoption or usage of services. To what extent would assessment of universal service contribution
obligations potentially deter adoption of such services? Is there less likelihood that assessment of USF
contributions would deter adoption of business broadband Internet access services?
85.
To the extent commenters believe that assessing mass market broadband Internet access
service in particular could discourage broadband adoption or harm other Commission goals, we seek
comment on a specific exemption for mass market broadband Internet access services (both fixed and
mobile). If we were to take such an approach, how should we define enterprise versus mass market
services, and from an administrative standpoint, how would carriers and USAC be able to distinguish
between the two? 213 To what extent would such an exemption potentially distort how business and
residential broadband Internet access is provided, as carriers may seek to characterize their offerings as
“mass market” to avoid contribution obligations?
86.
Free or Advertising-Supported Services: If we were to adopt a rule such as the one above,
should we do so only with respect to providers that offer service for a subscription fee?214 Given the
broad meaning of “fee” in other contexts, how would we frame an exclusion for free or advertising-
supported services? Would such an exclusion potentially cause marketplace distortions vis-à-vis firms
that have business models that derive revenues from other sources, such as advertising revenues? Would
imposing contribution obligations on free or advertising-supported services from contribution obligations
discourage innovative offerings? Commenters should provide specific examples and supporting data
regarding the business models of relevant services.
87.
Machine-to-Machine Connections: If we were to adopt a rule such as the one above,
should we exclude machine-to-machine services? Machine-to-machine connections have grown rapidly
in recent years.215 Would it be consistent with our statutory authority to exercise permissive authority
over machine-to-machine communications, such as smart meter/smart grids, remote health monitoring, or
remote home security systems? Should machine-to-machine connections be treated the same as
connections between or among people? As discussed above, the Act defines the term
“telecommunications” as “the transmission, between or among points specified by the user, of
information of the user’s choosing, without change in the form or content of the information as sent and

211 See 47 C.F.R. § 54.706(a)(11).
212 See supra n.185 (ex parte letters expressing concern that assessing broadband Internet access service could
discourage broadband adoption).
213 See supra para. 70.
214 Note that in the context of the definition of “telecommunications service,” the Commission has held that “for a
fee” broadly “means services rendered in exchange for something of value or a monetary payment.” Universal
Service First Report and Order
, 12 FCC Rcd at 9167, para. 784.
215 See generally OECD, Machine-to-Machine Communications: Connecting Billions of Devices, OECD Digital
Economy Papers (OECD Publishing, Working Paper No. 192, 2012), available at
http://dx.doi.org/10.1787/5k9gsh2gp043-en (last visited Mar. 26, 2012).

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received.”216 In the case of machine-to-machine communications, who is the “user” that is specifying
where the information should go? Is there any precedent outside the contribution methodology context
that should inform our interpretation of the statutory term here? Should we conclude that all machine-to-
machine connections that transmit information over the Internet include interstate telecommunications?
How would assessing machine-to-machine communications impact marketplace innovation in this arena?
88.
Statutory Interpretation. Above, we asked whether a general rule like that described in
this section would provide sufficient guidance to potential contributors regarding their contribution
obligation. The rule described in this section would not require us to resolve the statutory classification of
specific services as information services or telecommunications services in order to conclude that
contributions should be assessed. The Commission would, however, still be required to determine
whether services involved the provision of interstate “telecommunications.” We seek comment on
additional issues that may arise in interpreting the definition of “telecommunications” for contributions
purposes as the communications marketplace evolves. We also ask how resolution of these questions in
the context of USF contributions would impact other regulatory obligations, such as regulatory fees or
other assessments that utilize the Telecommunications Reporting Worksheets.
89.
First, we seek comment on how to interpret the statutory requirement that a
telecommunications transmission must be “between or among points specified by the user.” In particular,
we seek comment on whether we should interpret “the user” to be a subscriber to the service in question.
For example, suppose that Bookseller A sells an electronic reading device to Ms. Smith. The price of the
device includes a 3G wireless connection that allows Ms. Smith to connect to Bookseller A’s servers at
any time and purchase e-books. Bookseller A, in turn, purchases the wireless bandwidth for the
connection from Carrier B. In this instance, should we consider Ms. Smith to be the “user” of the service
provided by Bookseller A? Alternatively, is Bookseller A the “user” of the service provided by Carrier
B? Under the former view, would Bookseller A be viewed as “providing telecommunications” to Ms.
Smith, and therefore a contributor on that service? Or should Carrier B be viewed as the entity that is
providing telecommunications to Bookseller A, and therefore the contributor? What would be the
potential effects in other regulatory contexts if the Commission were to interpret the term “user” in a new
way here?
90.
We seek comment on what it means for the user to “specify” the “points” of transmission.
Many communications services today allow the user to specify the points of transmission – for example,
telephone and text messaging services generally allow a user to reach any other user on the PSTN, and
broadband Internet access services generally allow users to access any location on the Internet. Certain
services, however, arguably do not allow the “user” to specify the endpoints of the communication. To
return to the e-books example above, suppose that the free wireless connectivity on the reading device can
only be used to communicate between the device and Bookseller A’s server, and not to reach any other
destination on the PSTN or the Internet. In that case, is Ms. Smith, Bookseller A’s customer,
“specifying” the “points” of the transmission, or is Bookseller A?217
91.
We also seek comment on how to interpret the statutory requirement in the definition of
“telecommunications” that the information transmitted must also be “of the user’s choosing.” How

216 47 U.S.C. § 153(50).
217 Compare this hypothetical scenario to, for example, private line service which allows communications between
fixed points chosen by the subscriber to that service. See, e.g., American Telephone & Telegraph Company Private
Line Rate Structure and Volume Discount Practices,
CC Docket No. 79-246, Notice of Inquiry and Proposed
Rulemaking, 74 FCC 2d 226, 231, paras. 11-12 (1979) (“In a functional sense, a private line is a transmission
channel providing access between or among points specified by the customer on a permanent, or virtually permanent
basis during a specified time period. . . . In order to obtain access to the carrier’s plant, the customer must first
designate the geographical points at which service is desired.”).

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should we interpret this phrase? For example, suppose a doctor provides a remote monitoring device to a
patient that can send information back to the doctor’s office. The monitoring device is pre-programmed
to transmit only certain types of relevant medical data. Assuming that the other statutory components of
“telecommunications” are present, is this an instance where the patient should be deemed the “user” that
is transmitting information “of his or her choosing,” or would the fact that only information specified by
the doctor or manufacturer that provides the device to the patient is transmitted mean that this
communication does not meet the statutory definition of “telecommunications”?
92.
We also seek comment on whether, under a rule such as the one described in this section,
the Commission would have to interpret the statutory requirement that the transmission must be “without
change in the form or content of the information as sent and received.” Although information services
often include a component that “processes” information in some way, the Commission has in the past
recognized that an information service can also include a separate “telecommunications” component.218
Furthermore, the Commission has previously found that while all information services require the
transmission of information between customers and “computers or other processors,” the form or content
of the information is not altered during these transmissions, and such transmissions constitute
“telecommunications.”219 Would we be required to revisit any aspect of these interpretations in light of
changing technology and marketplace developments?
93.
Impact on the Contribution Base. We seek comment on the number of additional
contributors and impact on the contribution base if we were to adopt the general definitional approach
discussed in this section, and whether those figures are likely to grow or shrink in the future. How would
the answer to this question differ if we were to assess based on revenues, connections, numbers or some
other alternative? For each contribution methodology scenario, what services and providers would
contribute under such a rule that do not contribute today? To what extent are they contributing today?
What other services, not already discussed above, might be included if we were to adopt the general
definitional approach discussed in this section? How would the answer to these questions differ under the
definitional approach discussed in this section, as opposed to the service-by-service approach discussed in
the preceding section?
94.
Finally, to the extent not already covered by the questions above, we request clear and
specific comments on the Commission’s legal authority and the type and magnitude of likely benefits and
costs of each of these variants of the suggested rule, and request that parties claiming significant costs or
benefits provide supporting analysis and facts, including an explanation of how they were calculated and
an identification of all underlying assumptions.

V.

HOW CONTRIBUTIONS SHOULD BE ASSESSED

95.
In this portion of the Notice, we seek comment on how to simplify our contributions
system, consistent with the Act and our proposed goals for reform. In particular, this section focuses on
the question of how contributions should be calculated, whether based on revenues, connections,
numbers, or a hybrid system, once we have resolved the threshold decision of which providers should
contribute.

218 Wireline Broadband Internet Access Service Order, 20 FCC Rcd at 14910, para. 104 (finding that the
transmission component of a facilities-based provider’s offering of wireline broadband Internet access service is
“telecommunications”).
219 See Non-Accounting Safeguards Order on Remand, 16 FCC Rcd at 9758, para. 16 (“All information services
require the use of telecommunications to connect customers to the computers or other processors that are capable of
generating, storing, or manipulating information. The transmission of information to and from these computers
constitutes ‘telecommunications,’ for the transmission itself does not alter the form or content of the information”).

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96.
Over the last decade, the Commission has sought comment on a number of proposals for
alternative methodologies to the current revenues-based system, including methodologies based on
connections, numbers, and various hybrid solutions.220 The record is mixed on whether we should make
modifications to our existing revenues-based system, or move to an alternative system such as
connections or numbers.221 Here, we seek comment on reforming the current revenues-based system as
well as ask parties to update the record on these alternative methodologies. We seek comment on how
each option would further our proposed goals and ask about potential implementation issues that are
associated with specific methodologies. We ask commenters to provide data to quantify how potential
rule changes would impact the Fund and reduce compliance costs and burdens.
97.
We request specific comments on the type and magnitude of likely benefits and costs of
each of the possible rules discussed in this section, and request that parties claiming significant costs or
benefits provide supporting analysis and facts, including an explanation of how any data were calculated
and an identification of all underlying assumptions.

A.

Reforming the Current Revenues-Based System

98.
In this section, we seek comment on whether we should retain the existing revenues-
based system, and if so, how we can reform the current system to provide greater clarity to contributors,
thereby promoting efficiency, fairness, and sustainability. Specifically, we seek comment on the pros and
cons of retaining a revenues-based system. We ask parties claiming significant costs or benefits of a
revenues-based system to provide supporting analysis and facts for such assertions, including an
explanation of how they were calculated and all underlying assumptions.
99.
What are the benefits or disadvantages of retaining a revenues-based system for a
transitional or indefinite period? Are there market distortions caused by the existing revenues-based
system?222 We solicit comment on whether the modifications discussed below would sufficiently address
problems with the current revenues system. If we adopt any of the potential reforms discussed in this
section to modify the revenues system, would such a system better serve our proposed reform goals than a
connections-based, numbers-based, or other alternative contribution system? Would any of the potential
reforms suggested in this section also make sense for a connections-based, numbers-based, or other
alternative contribution system?
100.
To the extent that we retain the current system, we seek comment on rules to simplify
how revenues are apportioned for assessment, including the allocation of telecommunications service
revenues between the intrastate and interstate jurisdictions, and the reporting of assessable revenues when
a customer purchases a bundle of services only some of which are assessable. We also seek comment on
how to assess revenues from information services and services that have not been classified as
information or telecommunications services. Such adjustments could address some shortcomings in the
current system that stakeholders have raised and could reduce administrative burdens on providers and

220 See 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3766, para. 35; 2002 Second
Contribution
Methodology Order and FNPRM, 17 FCC Rcd at 24986, 24989, paras. 72, 78; 2008 Comprehensive
Reform FNPRM
, 24 FCC Rcd at 6686, App. B., para. 81.
221 Compare, e.g., XO Sept. 17, 2010 Ex Parte Letter at 7 (arguing for improving the revenues-based system);
NASUCA Sept. 7, 2010 Ex Parte Letter at 1 (same), with Verizon Aug. 13, 2010 Ex Parte Letter (arguing for a
numbers-based system); NCTA Aug. 20, 2010 Ex Parte Letter (same); WildBlue Sept. 9, 2010 Ex Parte Letter,
Attach. at 3 (arguing for a connections-based system).
222 The economics literature suggests that market distortions in a revenues-based system could potentially be
reduced by including the broadest set of services in the contribution base and by assessing competing services at the
same rate. See N. Gregory Mankiw, Matthew Weinzierl, and Danny Yagan, “Optimal Taxation in Theory and
Practice,” J. ECON. PERSP, Vol. 23, No. 4, Fall 2009, at 164-165.

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USAC.223 We also seek comment on alternative approaches to provide greater clarity regarding the
respective obligations of wholesalers and their customers, which has been subject to much dispute.224 We
seek comment on adopting a value-added revenues system that would require contributions from each
provider in the value chain,225 or, in the alternative, substantially revising the reseller certification
process. Adopting a value-added revenues system or revising the certification process could eliminate the
complications and loopholes associated with the current carrier’s carrier reporting requirements. In
addition, we seek comment on measures to clarify our prepaid calling card reporting requirements to
ensure that competitors are contributing in a consistent manner. Finally, we seek comment on eliminating
the international-only and the limited international revenues exemptions and on modifying the de minimis
exemption to reduce compliance burdens.226
1.

Apportioning Revenues from Bundled Services

101.
Today, many providers offer mass market end users bundled packages of voice (local and
long distance), video, and/or broadband services. Similarly, many providers serving the enterprise market
offer customized packages that provide voice and data connectivity as well as other services and products
such as IT support, web hosting, data centers, network management, IP-based cloud computing, customer
devices, networking and videoconferencing equipment, and more. Determining which portion of these
and similar bundled offerings are subject to contribution to the Fund has been an issue of dispute and
complexity.227 Bundled offerings of telecommunications and information services present two
contribution issues concerning how revenues from a bundled offering should be apportioned: (1) how to
apportion revenues when the provider does not offer the assessable service (i.e., telecommunications
service or interconnected VoIP) in the bundle on a stand-alone basis, and (2) how to apportion revenues
when the provider does offer the assessable service on a stand-alone basis, but does not explicitly allocate
the discount on a bundled offering to specific services comprising the bundle. In this section, we seek
comment on ways to simplify these determinations.
102.
Background. Due to technological and marketplace changes over the last decade,
providers are increasingly offering customers packages of bundled services that include both assessable
telecommunications services (e.g., voice) and information services that are not currently assessable (e.g.,
broadband Internet access service), and these revenues must be apportioned between assessable and non-
assessable services for contribution purposes. Our current contribution apportionment rules for bundled
services, which were established over ten years ago in the CPE Bundling Order, give providers fairly
wide latitude to determine assessable revenues within bundled services, which may result in contributors
adopting different methodologies to determine their contribution base. Taken to an extreme, if

223 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 1-5 (outlining problems with the current contribution
system).
224 See id. at 3 (outlining problems with the wholesale-reseller certification process).
225 See infra Section V.A.4.a.
226 The Commission’s current rules provide exemptions from contribution requirements for certain entities. See 47
C.F.R. §§ 54.706(c) (allowing entities to only contribute on revenues from interstate telecommunications if
projected collected interstate end-user telecommunications revenues comprise less than twelve percent of their
combined projected collected interstate and international end-user telecommunications revenues) and 54.708
(providing that certain providers are not required to contribute to universal service in a given year if their
contributions would be less than $10,000).
227 See, e.g., XO Request for Review at 52, 59 (arguing that MPLS ports provide information services that are
inseparable from the transmission functions); Masergy Petition for Clarification (seeking clarification on how to
classify components of MPLS service); see also Comments of Google Inc., WC Docket No. 10-90, et al., at 27 (filed
Aug. 24, 2011) (stating that the proliferation of bundled service offerings has made it more and more difficult for
carriers and regulators to separate telecommunications from information service-derived revenues).

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contributors have unrestricted latitude to determine assessable revenues, it jeopardizes the stability of the
Fund and could lead to competitive inequities in the marketplace.
103.
In the CPE Bundling Order, the Commission established three methods by which
providers could apportion revenues from a bundled offering for purposes of contribution assessment.
First, a provider could apportion its revenues based on “unbundled service offering prices, with no
discount from the bundled offering being apportioned to telecommunications service.”228 Second, a
provider could treat all bundled revenues as telecommunications revenues.229 Third, a provider could
apportion its bundled revenues using “any reasonable alternative method” as long as the provider does not
apply discounts to telecommunications services in a manner that attempts to circumvent its obligation to
contribute to the Fund.230 The first two methods were identified as “safe harbors” and presumed
reasonable, while the Commission cautioned that carriers utilizing the third method would have to justify
the reasonableness of their methodology in an audit or enforcement proceeding.231 The Commission also
stated that “we may in the future seek comment on whether we need to adopt additional rules.”232 Since
that time, however, the Commission has not addressed any specific factual situations that would provide
more clarity on what alternative methodologies might be viewed as reasonable. Thus, the Commission
has not adopted a bright-line rule with respect to bundled offerings, but rather has given contributors
substantial latitude in how they apportion bundled revenues.
104.
Discussion. We seek comment on modifying our bundled offering apportionment rules
to adopt more specific standards for determining what apportionment methods are deemed reasonable for
allocating revenues from bundled offerings, or to eliminate carrier discretion in determining how to
apportion revenues from bundled offerings. We ask whether doing so will further our proposed goals of
making the contributions system more efficient and fair, minimizing compliance burdens, and reducing
competitive distortions in the marketplace.
105.
We are concerned that the lack of bright-line rules may encourage providers to minimize
their allocation of revenues in a bundle to assessable services to reduce their contribution obligations in
order to gain a competitive edge. A number of commenters have suggested, for instance, that this is a
concern in the enterprise market, where there is fierce competition to win contracts from large corporate
clients.233 We seek data from commenters regarding what are common industry practices regarding the
allocation of revenues from bundled offerings. To what extent do contributors rely on market studies of
stand-alone services offered by other providers? To what extent do contributors allocate revenues based
on the allocated cost of the underlying individual services? To what extent do contributors allocate
revenues based on revenue reporting requirements imposed by other regulatory jurisdictions, such as
cable franchising authorities or state sales tax authorities?

228 CPE Bundling Order, 16 FCC Rcd at 7447, para. 50.
229 Id. at 7447, para. 51.
230 Id. at 7448, para. 53.
231 Id. at 7448, paras. 52–53.
232 Id. at 7448, para. 54.
233 See, e.g., BT Americas June 8, 2009 Comments at 11 (stating that failure to clarify the classification of MPLS-
enabled services will enable providers to circumvent their contribution obligation); Comments of Masergy
Communications Inc., WC Docket No. 05-337 et al., at 4 (filed Oct. 28, 2009) (stating that because the
Commission’s precedent on the proper classification of VPN-based services is not clear, it is not consistently applied
by either service providers or USAC); Verizon Oct. 28, 2009 Comments at 14-15 (stating that the classification of
revenues as information services or telecommunications services depends on the capabilities offered to the end
user).

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106.
We seek comment on adopting a revised apportionment rule that would codify a modified
version of the two safe harbors provided under the CPE Bundling Order for apportioning revenues from
bundled service offerings and eliminate providers’ discretion on how to apportion revenues derived from
bundled services. Specifically, we seek comment on the following rule for USF contributions purposes:
If an entity bundles non-assessable services or products (such as customer-
premises equipment) with one or more assessable services, it must either treat all
revenues for that bundled offering as assessable telecommunications revenues or
allocate revenues associated with the bundle consistent with the price it charges
for stand-alone offerings of equivalent services or products (with any discounts
from bundling assumed to be discounts in non-assessable revenues).

107.
We seek comment on whether this rule would simplify the process of apportioning
bundled revenues in a way that is transparent, enforceable, and easily administrable. How would such a
rule be enforceable if the provider does not offer stand-alone equivalent services? Would we need a
separate rule to address such circumstances? If so, how should that rule be structured? Would the
benefits of limiting the method by which providers determine assessable revenues for bundled services
outweigh any potential benefits of allowing providers to present individualized showing, as permitted
under the current rule? We seek comment and examples of instances where some providers of bundled
services may be allocating assessable revenues differently than their competitors, creating a competitive
disadvantage. Would eliminating the open-ended apportionment option in favor of the rule above
minimize competitive disparities?234 Would the rule change incentives to offer (or not offer) assessable
services on an unbundled basis?
108.
We seek comment on the technical aspects of such a rule. For example, if we were to
adopt such a rule, how much discretion should carriers have in determining what constitutes a “stand-
alone offering of equivalent service”? How could we prevent contributors from gaming a stand-alone
option to minimize their assessable revenues? Should there be a requirement, for instance, that such a
stand-alone offering be generally available and actually subscribed to by a minimum number of end
users? If so, how and how many end users? Are there any alternative ways to ensure that contributors are
not creating a sham stand-alone offering to minimize contribution obligations?
109.
We also seek comment on whether such a rule would create competitive disparities
between providers that offer stand-alone offerings of assessable services, and those that only sell bundled
services in the marketplace. Should we require carriers that do not offer a stand-alone service themselves
to rely on a market analysis of services offered by other carriers in the marketplace or a tariffed rate of
another provider? If so, should we require such carriers to submit any such market analyses used for
imputation purposes or third party tariffed rate to the Commission and to USAC? Should we require that
the stand-alone offering price be objectively verifiable by the Commission or USAC, such as by reference
to a public website or tariffed offering? What measures would need to be in place for USAC to be able to
verify stand-alone pricing for business services, which are often individually negotiated for individual
customers? Is there any reason to implement such a rule only for certain types of bundled offerings and
not others, or certain classes of customers and not others? What is the least burdensome mechanism to
ensure allocations are objectively verifiable?
110.
We seek comment on how the rule would impact the overall contributions base, as well
as the individual burden on consumers. What would be the impact of the rule on providers serving

234 To illustrate the point, a wireline telecommunications provider in a particular area may allocate $22 in its triple
play package to voice service, while a cable provider offering a functionally equivalent triple play package to the
same residential location may allocate only $10 to the voice service in the package. The former provider may be at
a competitive disadvantage as compared to the latter, because it would have a higher contribution burden.

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consumers with lower telecommunications expenditures (such as a voice only subscriber with limited
long distance calling) compared to providers serving consumers with higher expenditures (such as a
triple-play subscriber)? How would such a rule affect consumers with lower telecommunications
expenditures compared to consumers with higher expenditures? What would be the impact of such a rule
on mobile providers, who increasingly are deriving revenues from bundled voice-data packages, and their
consumers?
111.
We also seek comment on alternative rule language as well as alternative means of
determining contribution obligations for bundled service offerings. Parties that submit alternative
proposals should explain how such proposals further our proposed goals of reform and are consistent with
our legal authority. We ask commenters to quantify, where possible, how their proposed rule would
impact the contribution base and total assessable revenues.
112.
For each of these alternatives, we seek comment on how the approach would impact the
overall contribution base, as well as the individual burden on contributors and consumers. We also seek
comment on what steps would need to be taken to implement the proposals above or alternative proposals
for apportioning revenues from bundled service offerings for USF contribution purposes. How much
time would parties need to transition to a new method of apportioning revenues from bundled offerings?
113.
As discussed above, the Commission has the authority to assess all providers of interstate
telecommunications, if the public interest warrants. Would a contribution methodology that assesses the
full retail revenues of bundled services that contain “telecommunications,” as that term is defined in the
Act, without safe harbors or the ability to present individualized showings, conform to the statutory
requirements? Given the growth in bundled service offerings over the last decade, would adopting such a
bright-line rule make the contribution base more stable and thereby serve the public interest? Would it
further the principle of “equitable and non-discriminatory” contributions by reducing potential
competitive distortions among providers and service offerings that apportion revenues using different
methodologies? Would a simplified approach that assesses the total bill for bundled services promote
administrative efficiency and reduce compliance and enforcement expenditures? Would it be appropriate
to adopt such an approach even if the Commission chose not to make every component of a bundled
service individually assessable, or would that create market distortions and discourage bundled offerings?
2.

Contributions for Services with an Interstate Telecommunications
Component

114.
In this section, we seek comment on what revenues should be assessed to the extent we
choose to exercise our permissive authority over services that provide interstate telecommunications. For
example, to the extent enterprise communications services that are implemented with MPLS protocols are
information services that provide interstate telecommunications, we seek comment on whether we could
and should assess the full retail revenues of such enterprise communications services, or instead should
adopt a bright-line that would assess only a fraction or percentage of the retail revenues.
115.
Would it be consistent with our statutory authority under section 254(d) to require
contributions on the full retail revenues of an information service that provides interstate
telecommunications? Is there a potential for competitive disparity, to the extent a non-facilities-based
provider of such services is assessed on its retail revenues, and also may bear indirectly the cost of a
universal service contribution on underlying transmission that it purchases from a wholesale provider?
To what extent should the retail revenues derived from information services have some nexus with the
underlying transmission component, in order for the full retail revenues to be assessed?235 What are the

235 The State Members of the Joint Board suggest, for instance, that pure content should not be assessed, while
acknowledging difficult line drawing issues would arise in instances whether a broadband Internet access provider is
also providing content. State Members of Joint Board CAF Comments at 119.

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advantages and disadvantages of assessing retail information service revenues, if we were to exercise our
permissive authority?
116.
Alternatively, should we assess only the telecommunications (i.e., the transmission)
component, and if so, how would we determine what portion of the integrated service revenues should be
associated with the transmission component? For example, the MPLS Industry Group proposes that
revenues associated with the access transmission components of all MPLS-enabled services be imputed
on a uniform basis and made subject to USF contributions obligations through Commission-established
“MPLS Assessable Revenue Component” proxies.236 In other cases, the underlying transmission is
separately offered on a Title II basis, which could provide a basis for assessing only the revenues
associated with the transmission component.237 We seek comment on the MPLS Industry Group
proposal. Is such a proposal workable for other similar services?
117.
We seek comment on the following rule:
If an entity offers an assessable information service with an interstate
telecommunications component, it must treat all revenues for that information
service as assessable revenues, unless it offers the transmission underlying the
information service separately on a stand-alone basis. If it offers the
transmission on a stand-alone basis, it may treat as assessable revenues an
amount consistent with the price it charges for stand-alone offerings of
equivalent transmission.

118.
We seek comment on whether this rule would simplify the process of determining
assessable revenues for information services in a way that is transparent, enforceable, and easily
administrable. How would such a rule be enforceable if the provider did not offer the underlying
transmission on a stand-alone basis? In such circumstances, should we craft a rule that looks at the
general retail price of such transmission services when offered on a stand-alone basis by other providers?
Would the proposed rule change incentives to offer (or not offer) telecommunications transmission on an
unbundled basis? Would such a rule create competitive disparities between providers that choose to offer
transmission on a stand-alone basis (such as small rate-of-return carriers that offer broadband Internet
access) and providers that do not offer transmission separately (such as cable operators in the same
geographic area as those rate-of-return carriers)?
119.
In the alternative, should we craft a rule, or a safe harbor, that provides for assessment of
a certain percentage of the retail revenues of information services with a telecommunications
(transmission) component? Would it be legally permissible for the Commission to assess a set percentage
of the retail revenues, even when such percentage might exceed the allocated revenues associated with the

236 British Telecom, NTT America, Orange Business Services, Sprint Nextel Corporation, Verizon, and XO
Communications (MPLS Industry Group) propose that the Commission assess only the transmission associated with
MPLS-enabled services. Under the proposal, the Commission would establish a proxy or revenue value for different
types of MPLS connections (based on capacity and distance). Such proxy would be similar to NECA tariffs for such
services. For MPLS services, contributors would: (1) identify the speed of each access transmission component of
their MPLS-enabled services on a customer-by-customer basis; (2) apply the appropriate proxy established by the
Commission based on the speed of each access transmission component to determine their USF contribution base;
and (3) apply the current USF factor to that contribution base. The remaining revenues derived from the MPLS-
enabled services would not be assessed under their proposal. See Letter from MPLS Industry Group, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 06-122 (filed Mar. 29, 2012) (MPLS Industry Group Letter).
237 See Letter from Melissa E. Newman, CenturyLink to Marlene H. Dortch, Office of the Secretary, FCC, WC
Docket 06-122 (filed Apr. 4, 2012) (discussing the possibility of assessing the transmission component of MPLS-
enabled services using the Commission’s permissive authority under section 254(d) of the Act).

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underlying transmission in that information service? Would a set percentage be easier to administer,
reduce compliance costs, and otherwise be in the public interest? Would it create competitive distortions?
Should the percentage vary depending on the type of information service at issue? Is some other formula
for determining the assessable percentage of retail revenues of an information service appropriate?
120.
For each of these alternatives, we seek comment on how the approach would impact the
overall contributions base, as well as the individual burden on contributors and consumers. We also seek
comment on what steps would need to be taken to implement the proposals above or alternative proposals
for apportioning revenues from information services for USF contribution purposes. How much time
would parties need to transition to a new method of apportioning revenues from information services with
an interstate telecommunications component?
3.

Allocating Revenues Between Inter- and Intrastate Jurisdictions

121.
The current revenues-based mechanism requires contributors to distinguish revenues
from interstate and intrastate services, which has become increasingly difficult given today’s
communications marketplace. Such jurisdictional distinctions have become blurred and are often
irrelevant from the perspective of consumers selecting and buying communications services.238 In this
section, we seek comment on ways to simplify the allocation of interstate and intrastate revenues for USF
contributions and reporting purposes.
122.
Background. Many of the services that have developed and flourished since the 1996
Act, such as wireless, interconnected VoIP service, text messaging, and flat-rate long-distance services,
do not distinguish between inter- and intrastate communications from the consumer’s perspective.
Rather, these services enable consumers to communicate both within a state and across state lines, often
for a price that does not depend on the jurisdiction of the call; i.e., a user that places and receives only
intrastate calls pays the same rate as another user that places and receives only interstate calls.239
Allocating revenues between jurisdictions may be complicated and burdensome for contributors, and our
current allocation rules may be unfair because they allow certain providers to choose among various
methods of allocation, creating an incentive to minimize their contribution obligation.240
123.
Since the initial implementation of the 1996 Act, contributors have been directed to
report the amount of total revenues that are intrastate, interstate, and international using information from
their books of account or other internal data systems.241 To the extent the company cannot make that
determination directly from its corporate books of account, it should use “good faith estimates.”242 In
addition, wireless providers and interconnected VoIP service providers may use safe harbors or traffic
studies to allocate their revenues. The safe harbors allow contributors to designate the following
percentages of revenues (for the categories indicated) as interstate/international: paging services, 12
percent; wireless services, 37.1 percent; and interconnected VoIP services, 64.9 percent.243

238 USTelecom Mar. 28, 2012 Ex Parte Letter at 2-3.
239 USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17691, para 76.
240 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 2.
241 As a practical matter, only incumbent local exchange companies allocate their revenues between the intrastate
and interstate jurisdictions for cost-recovery purposes, pursuant to Part 36. See 47 C.F.R. §§ 36.201-36.225.
242 2012 FCC Form 499-A Instructions at 23.
243 See Wireless Safe Harbor Order, 13 FCC Rcd at 21259, para. 14 (setting a 12% safe harbor for paging
providers); 2006 Contribution Methodology Order, 21 FCC Rcd at 7532, para. 25 (setting a 37.1% safe harbor for
wireless telephony providers); id. at 7545, para. 53 (setting a 64.9% safe harbor for interconnected VoIP service
(continued…)

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124.
As shown in Chart 3 below and Appendix B,244 the 217 wireless providers submitting
traffic studies (and not relying on safe harbors for allocating intrastate and interstate/international
revenues) report anywhere from zero to 30 percent interstate/international revenues; the average of the
traffic studies on file is 23 percent, with the median study reporting 19 percent interstate/international.

Chart 3


Percentage of Interstate/International Revenues

Wireless Traffic Studies on File with USAC

120
i
es
d
t
u
100

S

f
f
i
c

80
r
a
T
ss

60
e
i
r
el

40
f

W

o
er

20
b
m
u
N

0
0%
0.1% -
10 % -
20% -
30% -
40% -
50% -
60% -
9%
19%
29%
39%
49%
59%
69%

Percentage of Interstate/International Revenues


125.
As shown in Chart 4 below and Appendix B,245 VoIP providers have filed traffic studies
showing interstate/international revenues ranging from zero to 59.9 percent. Forty-seven out of 243 VoIP
providers have submitted traffic studies showing no interstate/international traffic. Overall, the average
percentage for VoIP traffic studies is 22.1 percent interstate/international, with the median study reporting
14.7 percent interstate/international. Traffic studies on file thus report interstate/international usage
significantly lower than the safe harbors for both wireless and interconnected VoIP.

(Continued from previous page)
providers); see also Universal Service Contribution Methodology et al., WC Docket No. 06-122, Declaratory Order,
23 FCC Rcd 1411, 1417-18, paras. 13-15 (2008) (Traffic Study Toll Allocation Order).
244 Staff analysis of wireless traffic studies on file with USAC as of January 19, 2012. See Appendix B for the data
used to prepare this chart.
245 Staff analysis of interconnected VoIP traffic studies on file with USAC as of January 19, 2012. See Appendix B
for the data used to prepare this chart.

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Chart 4


Percentage of Interstate/International Revenues

Interconnected VoIP Traffic Studies on File with USAC

70
s
i
e
60
d
u
St
50
f
f
i
c

r
a
40

IP T

30
f

Vo

20
r
o
e
b
m
10
u
N

0
0%
0.1% -
10 % -
20% -
30% -
40% -
50% -
60% -
9%
19%
29%
39%
49%
59%
69%

Percentage of Interstate/International Revenues


126.
The Commission has not codified any rules for how contributors should allocate revenues
between the interstate and intrastate jurisdictions for contributions purposes,246 nor has it adopted any
rules specifying how precisely companies should classify their traffic when conducting a traffic study.
The fact that there is such a wide disparity in the reported percentages for wireless and mobile providers
suggests that companies may be utilizing different methods in how they classify calls in their traffic
studies, which lessens predictability and may lead to competitive distortions. The lack of standards in this
area may give providers an incentive “to bias any traffic studies [or good-faith estimates] to minimize
their amount of interstate and international end-user revenues and thereby minimize their Fund
contributions” with “no countervailing market forces to offset these incentives.”247
127.
Discussion. We seek comment on modifying or eliminating the requirement that carriers
are assessed based on interstate and international revenues. While that requirement may have made sense
when the Commission initially implemented the Act, the marketplace has changed dramatically since
1996 and will evolve with the continued deployment of IP-based networks. For each approach discussed
below, we ask commenters to address what would the impact be, if any, on the states’ ability to assess
revenues to support their state universal service funds.
128.
As a general matter, we seek comment on whether the Act compels us to only assess a
portion of revenues associated with services that operate interstate, intrastate, and internationally. We
also seek comment on whether as a policy matter we should require that revenues be allocated based on

246 While there are no codified rules on how to allocate revenues, the FCC Form 499-A Instructions provide some
guidance. The Instructions direct contributors to report all of the revenues for private lines as 100 percent interstate
if more than 10 percent of the traffic on that line is interstate, and to report federal number portability charges and
subscriber line charges as 100 percent because those charges are tariffed in the federal jurisdiction. 2012 FCC Form
499-A Instructions
at 24-25. The Instructions implicitly assume that the regulatory classification of the service in
question determines how it should be treated for contribution purposes.
247 2006 Contribution Methodology Order, 21 FCC Rcd at 7535, para. 32.

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the jurisdiction that regulates the associated service. Does this construct make sense in an environment
where many contributors are not rate regulated, and many of the services they offer are only lightly
regulated?
129.
One approach would be to adopt a rule that requires all providers that are subject to
contributions to report and contribute on all of the revenues derived from assessable services rather than
require providers to allocate revenues between the interstate and intrastate jurisdictions. Since many
services offered today are not priced and sold separately as intrastate or interstate service, any designated
allocation between jurisdictions may be arbitrary to some extent.248 In the TOPUC decision, the court
found that the Commission did not have jurisdiction to assess federal universal service contribution on
intrastate revenues.249 Given the changes in the marketplace, would the TOPUC decision prohibit
assessing a federal universal service fee on the entire service?
130.
The State Members of the Joint Board argue that the regulatory jurisdiction over a
service should not determine whether that service contributes to universal service. They note that the
states may constitutionally impose sales taxes on both interstate and intrastate telecommunications, and
they suggest that the U.S. Constitution does not prohibit there being both a federal universal service
surcharge and a state universal service surcharge on all services delivered over the public communications
network. They acknowledge that the 1999 TOPUC decision limited the Commission from imposing
universal service surcharges on intrastate services, but they contend that TOPUC was wrongly decided.250
We seek comment on the State Members’ analysis and ask commenters to address whether it would be
consistent with section 254(d) for the Commission to require contributions on all revenues derived from
services delivered over a public network.
131.
Would a rule that assesses all revenues from services that operate interstate, intrastate,
and internationally without allocation for intrastate operations advance our proposed goals for reform?
How would such a rule impact the contribution base, today and in the future? We note that the sum of
interstate, international, and intrastate revenues for all filers was $210 billion in 2010, while the
contribution base (the total of reported assessable revenues) for 2010 was $67 billion.251 If such a rule
had been in place in 2010, i.e., a rule that assesses all interstate, intrastate, and international revenues, the
contribution factor would have been roughly four percent, instead of 14 percent on an annualized basis.252
Would such a system be significantly simpler to administer, reducing the costs of complying with our
contribution rules? How would such a system affect states? How would such an approach affect the
allocation of the contribution burden, especially between residential consumers and enterprise consumers?
For example, would residential consumers end up paying (in USF pass through charges) a substantially
higher portion of the USF burden than they do today, compared to enterprise customers? If so, are there
ways to offset or limit this effect? Commenters are encouraged to provide additional data and analysis
regarding the impact of such a rule change.

248 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 2-3 (stating that “most wireless services are based on
pricing models, and state boundaries are simply irrelevant to how consumers select and buy communications
services” and that, “from a financial perspective of most consumers. . . a ‘long distance call’ is meaningless.”).
249 TOPUC, 183 F.3d at 417-18.
250 State Members of Joint Board CAF Comments at 121-24.
251 The $210 billion is the sum of interstate, international, and intrastate revenues for all filers in calendar year 2010
-- without deducting exempt LIRE and de minimis revenues. This information was calculated based on a review of
the Telecommunications Reporting Worksheets filed in April 2011.
252 In 2010, program demand and administrative expenses were $8.4 billion. 2011 Monitoring Report, Table 1.10.
Multiplying 4 percent times $210 billion equals $8.4 billion. During 2010, the quarterly contribution factor ranged
from 12.9 percent to 15.3 percent.

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132.
Another alternative would be to adopt bright-line rules for how companies should
allocate revenues between jurisdictions for broad categories of services. If we were to adopt such rules,
how narrowly or broadly should we define the relevant services? As shown in Chart 5 below,253 the
percentage of end user revenues that are reported as interstate/international have remained relatively
stable for the major subcategories of revenue that have been reported on FCC Form 499 between 2004
and 2011. Should we adopt a separate allocator for each major category of service presently reported on
Form 499 (fixed local services, mobile services, toll services), or should we follow a simpler approach,
for instance, with just two allocation rules: one for voice and one for data services? For instance, we
could adopt a standard allocator for all voice revenues, regardless of technology (fixed or mobile,
traditional telephony or interconnected VoIP). Under such an approach, we could specify that voice
revenues should be allocated according to a specified ratio, such as 20 percent interstate and 80 percent
intrastate.254 Should the interstate allocation be higher or lower? Is there any policy justification for
setting a different percentage for voice based on the type of carrier or technology used?

253 Percentages based on actual revenue information filed with USAC on FCC Form 499-A for 2004 through 2011.
See Appendix C for supporting data. Revenue information for 2011 is preliminary and may be adjusted.
254 We note that based on traffic studies on file, VoIP providers that file traffic studies on average report 21.5 percent
interstate/international revenues, while wireless providers on average report 23 percent interstate/international. In
2010, for example, incumbent LECs reported that 16.9 percent of their circuit-switched local exchange revenues
were assessable (i.e., interstate or international), competitive LECs reported that 17.3 percent of their circuit-
switched local exchange revenues were assessable, and interconnected VoIP providers reported that 22.7 percent of
their local exchange revenues were assessable. These numbers are based on revenues reported on the 2011
Telecommunications Reporting Worksheets (reporting calendar year 2010 data). It is unclear to what extent the
variation among different classes of filers is a product of different methodologies for allocating revenues among the
jurisdictions, or different calling patterns of different customer bases.

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Chart 5

Interstate/International Revenue as a Percent of All Revenue

2004-2011
80%
70%
60%
Toll 
50%
40%
30%
Fixed
20%
Mobile
10%
0%
2004
2005
2006
2007
2008
2009
2010
2011
Fixed Local Services
Toll Services
Mobile Services

133.
In other contexts, the Commission has recognized that Internet access services are
jurisdictionally interstate because end users access websites across state lines.255 We seek comment
whether a similar finding should be made for USF contribution purposes. Specifically, if we use our
permissive authority to expand or clarify USF contribution requirements to include enterprise
communications services, text messaging services, and broadband Internet access services (both fixed and
mobile), should we find that for USF contribution purposes, revenues from such services should be
reported as 100 percent interstate? Alternatively, should we use an allocator lower than 100 percent
interstate for contribution purposes, to preserve a revenue base that could be assessed for state universal
service funds?
134.
What data should be considered when developing that fixed percentage of interstate and
intrastate revenues for services? Appendix C presents in more detail the percentage of end user revenues
that are reported as interstate/international for each individual subcategory of end user revenue reported
on FCC Form 499 for the periods of 2004 through 2011.256 For 2011, filers reported $73.5B in total

255 See, e.g., National Association of Regulatory Utility Commissioners Petition for Clarification or Declaratory
Ruling that No FCC Order or Rule Limits State Authority to Collect Broadband Data
, WC Docket No. 09-193,
Memorandum Opinion and Order, 25 FCC Rcd 5051, 5054 n.24 (2010) (“Although the Commission has
acknowledged that broadband Internet access service traffic may include an intrastate component, it has concluded
that broadband Internet access service is properly considered jurisdictionally interstate for regulatory purposes.”);
2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6484–85, para. 21 & n.69 (reaffirming the “interstate nature
of ISP-bound traffic” and noting that the Commission has “consistently found that ISP-bound traffic is
jurisdictionally interstate” and that “services that offer access to the Internet are jurisdictionally interstate services”),
affirmed by Core Commc’ns, Inc. v. FCC, 592 F.3d 139, 144 (D.C. Cir. 2010) (“Petitioners do not dispute that dial-
up internet traffic extends from the ISP subscriber to the internet, or that the communications, viewed in that light,
are interstate.”).
256 Percentages based on actual revenue information filed with USAC on the 2011 FCC Form 499-A. Revenue
information for 2011 is preliminary and may be adjusted.

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revenues for fixed local revenues, with 30 percent allocated to the interstate category and 0.6 percent
allocated to the international category.257 For mobile services, filers reported $106.6 billion in total
revenues in 2011, with 22.8 percent allocated to the interstate category and 0.4 percent allocated to the
international category.258 For toll services in 2011, filers reported $34.3 billion in total revenues, with
50.3 percent allocated to the interstate category, and 21.4 percent allocated to the international
category.259 We note that there is significant variation in some of the individual subcategories of
revenues as currently reported on FCC Form 499. How should our decision be informed by the interstate
percentages reported for individual subcategories of service as reported on the current Form 499, such as
fixed local exchange (line 404) and mobile services monthly and activation charges (line 409)?
135.
To what extent should we take into account ratios reported by wireless carriers and
interconnected VoIP providers in their traffic studies? If we were to adopt a ratio applicable to the broad
category of “mobile services,” for instance, should we base the percentage for mobile services, on the
average (23 percent) or median (19 percent) ratio that carriers have reported in their most recent traffic
studies? Commenters that support a different percentage should explain why adoption of that alternative
is preferable.
136.
If we were to adopt such a rule specifying that a set percentage of revenues should be
reported as interstate for a category of service, should carriers still be permitted to make a particularized
showing that a higher percentage of their traffic is intrastate? Should the Commission adopt a mechanism
to periodically update the percentage and, if so, what would be the basis for updating the fixed percentage
factor? How would such a rule impact the contribution base, today and in the future? Commenters are
encouraged to provide additional data and analysis regarding the impact of such a rule change.
137.
Would adopting a fixed allocation method for categories of services, or an across the
board fixed allocation method, further our proposed goals for contribution reform? Using a single
allocation factor for contribution purposes could potentially minimize competitive distortions among
providers offering similar services. Would a single allocation factor help stabilize the contribution base
by eliminating incentives for providers to underreport their interstate telecommunications revenues?
Would a single allocation factor lessen providers’ compliance burdens by eliminating the need to perform
traffic studies or to maintain and update the methodology used to establish their good-faith estimates?
Would using a single allocation factor potentially provide greater predictability?
138.
We seek comment on whether, if we were to adopt a rule imposing a fixed interstate
allocator, we would be legally required to adopt a procedure by which a provider could “opt-out” of using
the single allocation factor and instead make an individualized showing.260 We seek comment on whether
allowing any telecommunications provider to opt-out would negate the administrative simplicity of
adopting a single allocator for purposes of universal service contributions. To the extent that any
commenter believes there should be a mechanism to “opt-out” of the fixed allocation factor, it should
explain what showing should be required to opt out, and what steps the Commission should take to
minimize competitive distortions that may arise if alternative allocations are used for certain types of
providers or for certain types of traffic. For example, should a provider that opts out of the fixed

257 See Appendix C.
258 Id.
259 Id.
260 Cf. Smith v. Ill. Bell Telephone Co., 282 U.S. 133, 151 (1930). The Supreme Court recognized with respect to
separations of revenues and expenses for purposes of regulated ratemaking for incumbent telephone companies
many decades ago, “extreme nicety is not required.” Id. at 150.

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allocation factor be required to allocate revenues on a customer-by-customer basis, given that each
customer actually uses the purchased telecommunications differently?
139.
We also seek to develop a factual record on the regulatory compliance costs stemming
from the current requirement to allocate revenue between the intrastate and interstate jurisdictions. We
seek comment and data submissions regarding the costs imposed on companies today to separate their
revenues in this fashion, and the costs associated with performing a traffic study on an annual basis. We
encourage companies to provide estimates not only of the costs associated with their legal and regulatory
personnel, but also to include any other costs that compliance with such requirements may pose on other
personnel, including accounting, billing, sales, network, IT, and marketing staff, and any costs associated
with hiring outside resources, such as attorneys or consultants, to assist in implementing such
requirements or responding to any audits or investigations relating to this aspect of our contribution rules.
140.
To the extent commenters have concerns about any of these proposals, they should
present alternative methods for simplifying the allocation of revenues between the interstate and intrastate
jurisdictions and explain how their proposals would meet the proposed contribution reform goals set forth
in this Notice. If we do not adopt a fixed factor or factors to allocate telecommunications revenues, what
modifications should we consider making to the current rules?
141.
If we continue to allow use of traffic studies to estimate the allocation of interstate
revenues, should we codify specific requirements or provide greater detail in the Form 499 instructions
for how traffic is categorized in traffic studies to ensure that reporting entities are conducting the studies
in a competitively neutral manner? We seek comment on current practices for classifying traffic for
traffic studies. We have some concerns that contributors may be using different methodologies in
conducting traffic studies, given the broad variation in reported ratios. It is surprising, for instance, that
nine wireless providers report no interstate or international revenues at all. Similarly, the fact that 47
VoIP filers report no interstate/international revenues, while some others report ratios relatively close (but
slightly under) the current 64.9 percent safe harbor, also suggests that VoIP providers may be classifying
their traffic in significantly different ways, and there may be a need to provide more standardized
guidance regarding how to perform a traffic study. We seek comment on this analysis.
142.
We seek comment on what steps would need to be taken to implement the approaches
above or alternative approaches to simplify the allocation of interstate and intrastate revenues for federal
USF contribution purposes. We also seek comment on how much time, if any, parties would need to
transition to any new allocation method.
4.

Contribution Obligations of Wholesalers and Their Customers

143.
In this section, we seek comment on potential rule changes to address recurring USF
contribution compliance issues that arise in instances involving the allocation that wholesale carriers must
make between “carrier’s carrier revenues” and “end-user revenues.” First, we seek comment on a value-
added approach, under which the Commission would eliminate the current exemption from contribution
obligations for wholesalers and instead assess each provider, with credits provided to subsequent
providers in the value chain. In the alternative, we seek comment on modifying the current reseller
certification process to provide greater clarity regarding contribution obligations when wholesale inputs
are incorporated into other services that are not telecommunications services.
144.
Background. Under today’s rules, wholesale carriers generally do not contribute on sales
to their customers that contribute to the Fund (carrier’s carrier revenues), but may be required to
contribute on sales to customers that do not contribute to the Fund (end-user revenues).261

261 See supra Section II.A. for a discussion of carrier’s carrier revenues and end-user revenues.

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145.
In recent years, there have been disputes over how to comply with this general
requirement, with USAC concluding in some cases that contributors have failed to properly report their
end-user revenues, and contributors facing significant financial liability for unpaid contributions.262
Issues relating to contribution obligations of wholesalers and their customers are pending in a number of
appeals of USAC decisions. While we intend to address specific factual circumstances in the context of
several adjudicatory proceedings in the near future, here we seek comment more broadly on how to
address such issues going forward under a revenues-based system, consistent with our proposed goals of
promoting efficiency, fairness, and the sustainability of the Fund.
146.
In the 1997 Universal Service First Report and Order, the Commission required
telecommunications providers to contribute to the USF based on end-user telecommunications
revenues.263 The Commission made a policy decision to exclude wholesale revenues from the
contribution requirements, though nothing in the Act requires such a result. In some wholesale/resale
situations, a reseller purchases telecommunications service from a carrier (the wholesaler) at a wholesale
discount, and resells such telecommunications services in unchanged form to customers (the end user)
with a retail mark-up.264 In other situations, the reseller may purchase one service that is used to provide
another service.265 In adopting the existing wholesale-resale distinction, the Commission concluded that
basing contributions on end-user revenues would relieve a wholesale carrier (in a wholesale/resale
distribution chain) from making direct contributions to the USF because the wholesale carrier does not
earn revenues directly from end-users.266 Instead, the reseller that provides the service to the end user,
and thereby earns end-user revenues, should contribute directly to the USF.267
147.
At that time, the Commission did not directly focus on the potential implementation
difficulties that such a rule would pose in situations where a wholesaler sells a service to another firm that
incorporates that wholesale telecommunications into a different offering for its retail customers that is not
subject to assessment. In some instances, the revenues from the finished offering may be assessable,
while in other cases, such as broadband Internet access service, the retail revenues may not be subject to a
contribution obligation.
148.
The Commission has directed wholesalers to have in place “documented procedures” to
ensure that the wholesaler reports as “revenues from resellers” only revenues from resellers that
“reasonably would be expected to contribute” to the Fund.268 This system may present two sources of

262 USTelecom Mar. 28, 2012 Ex Parte Letter at 3.
263 Universal Service First Report and Order, 12 FCC Rcd at 9206, para. 843.
264 See 47 U.S.C. § 251(c)(4). In the Local Competition Order, the Commission described “resale” in this fashion:
“carriers reselling incumbent [local exchange carrier (LEC)] services are limited to offering the same service an
incumbent offers at retail. This means that resellers cannot offer services or products that the incumbents do not
offer. The only means by which a reseller can distinguish the services it offers from the incumbent is through price,
billing services, marketing efforts, and to some extent, customer service.” Implementation of the Local Competition
Provisions in the Telecommunications Act of 1996; Interconnection between Local Exchange Carriers and
Commercial Mobile Radio Service Providers
, CC Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd
15499, 15667, para. 332 (1996) (Local Competition Order).
265 In the original Universal Service Worksheet instructions, the Commission provided an example of interexchange
carriers that use access services from other contributors (i.e., local exchange companies) to provide switched toll
service. Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18508, App. C.
266 Universal Service First Report and Order at 9207, paras. 846-47.
267 Id.
268 Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18508, App. C; see also Universal Service
Contribution Methodology; Request for Review of Decision of the Universal Service Administrator by Network
(continued…)

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complexity and inefficiency. First, wholesalers may incur non-trivial compliance costs in documenting
and enforcing procedures to support determinations that they “reasonably expect” that their customers are
contributing to the Fund. Such wholesalers may be concerned that if they fail to demonstrate a reasonable
expectation that their customers are contributing, they may be held accountable for USF contribution
obligations of their customers. Second, the procedures that many companies follow to demonstrate that
reasonable expectation regarding contributions by their customers may result in an unintended loss of
revenues to the Fund in situations where the customer of the wholesale provider provides both assessable
and non-assessable services to its retail customer.269
a.

Value-Added Approach to Assessing Contributions

149.
We seek comment on whether we should modify the existing universal service
contribution methodology to assess “value-added” revenues rather than “end-user” revenues. Under this
value-added approach, each telecommunications provider in a service value chain (including both
wholesalers and resellers) would contribute based on the value the provider adds to the service.270 Thus,
in a revenue-based system, a wholesaler would contribute on its wholesale revenues, and a reseller of
those services would contribute based on its retail mark-up.271
150.
Table 1 illustrates how reported revenues and contributions could be determined under a
value-added revenues system. In the table and throughout this section, A, B, and C are
telecommunications providers, and EU is the end user. We use the symbol AB to mean that A provides
a service to B. Also, we assume for purposes of illustration that the contribution factor is ten percent.

(Continued from previous page)
Enhanced Telecom, LLP, WC Docket No. 06-122, Order, 25 FCC Rcd 14533, 14539, para. 15 (Wireline Comp. Bur.
2010) (NetworkIP Order) (“The Commission requires... that wholesalers have a ‘reasonable expectation’ that its
reseller customers would contribute to universal service and have in place documented procedures to demonstrate
compliance with this requirement”).
269 Universal Service Contribution Methodology; Request for Review of the Decision of the Universal Service
Administrator and Emergency Petition for Stay by U.S. TelePacific Corp. d/b/a TelePacific Communications
, WC
Docket No. 06-122, Order, DA 10-752, paras. 13-15 (Wireline Comp. Bur., rel. Apr. 30, 2010) (TelePacific Order).
270 In 1997, the Joint Board recommended a value-added system, but the Commission adopted an end-user revenue
system. See Universal Service First Report and Order, 12 FCC Rcd at 9205-06, paras. 842-44.
271 While we discuss the value added system in the context of maintaining a revenues-based system in this section,
we note that similar issues exist if we were to move to a connections-based approach. We seek comment below on
whether all connections, whether they serve end users or not, should be subject to assessment. See infra para. 242.

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Table 1

272

Service
USF Line-Item * Total
Seller Seller’s
Direct
Price
Price**
Contribution***
AB
$100 $10
$110 A
$10

BC $150

$15
$165 B
$5
10%
($150 – $100)
CEU $200 $20
$220 C
$5 10%
($200 – $150)
EU Price
$200
Aggregate Contributions to USF
$20

151.
As reflected in the table above, under this value-added revenues approach each provider
in a distribution or value chain would contribute based on the provider’s total interstate and international
revenues, less a credit for any telecommunications services or telecommunications purchased from other
contributors in the distribution or value chain. Contributors would not, therefore, need to distinguish
between revenues from end users and revenues from other telecommunications providers.
152.
We seek comment on the following potential rule change, which could implement a
value-added revenues system:
A contributor must contribute based on its projected assessable revenue less a
credit for telecommunications services or telecommunications purchased from
other contributors. Contributors shall report such revenues on the FCC Form
499-A and 499-Q Telecommunications Reporting Worksheets or such other
forms or filings as the Commission may prescribe from time to time. Projected
revenue information shall be subject to an annual true up, as prescribed from
time to time by the Commission in its Telecommunications Reporting Worksheet
instructions.

153.
We ask whether the proposed value-added revenues approach would meet the proposed
goals of improving administrative efficiency, while ensuring sustainability of the Fund. For example,
how would a value-added system further our proposed goals of simplifying administration and oversight
of the contribution system? Would a value-added system reduce incentives to structure transactions to
avoid contribution obligations? Would adoption of a value-added system have unintended consequences
that undermine our proposed goals in reforming the system? What records should contributors be
required to retain to demonstrate compliance with a value-added system? For example, if we adopted the
rule proposed above, should contributors be required to retain (and/or report) back-up for the “credit for
telecommunications services or telecommunications purchased from other contributors”?
154.
As an alternative to reporting on the revenues earned minus any amounts paid for
telecommunications service inputs, should we implement a value-added methodology in which carriers
instead subtract from their final contribution liability any pass-through charges paid to other contributors?

272 Notes for Table 1:
* The “USF Line-Item” is the amount passed through to a customer as a line-item charge and equals the Service
Price times the Contribution Factor.
** The “Total Price” is the total amount a customer pays and equals the Service Price plus the USF Line-Item.
*** The “Seller’s Direct Contribution” is the amount the seller contributes to universal service as a direct payment to
USAC and equals the revenues earned from its service minus the amounts paid for services provided by the seller’s
underlying provider, times the contribution factor.

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If so, should we require or permit telecommunications providers to pass through an explicit universal
service line-item charge to customers that are also telecommunications providers? Would a pass-through
charge in these limited circumstances enable telecommunications providers and USAC to verify the
universal service charges paid by one contributor to another for purposes of calculating the credit the
contributor should receive against its own contribution obligation? Would mandated pass-through
charges benefit competition by eliminating the ability of wholesale providers to distinguish service
offerings based on whether or how they pass through universal service charges to their reseller
customers? Would allowing providers to retain discretion over whether to recover their contributions
implicitly or via an explicit line-item charge further our proposed goals of ensuring competitive neutrality
and simplicity in the USF contribution system? Under a value-added assessment system, how should we
treat transactions between wholesale providers and non-carriers (e.g., retailers or distributors of prepaid
calling cards), or transactions between wholesale providers and entities that are currently exempt from
directly contributing to the Fund (e.g., non-profit schools, non-profit libraries, non-profit colleges, non-
profit universities, and non-profit health care providers)?273
155.
If we adopt a value-added system based on credits for pass through charges paid to other
providers, we seek comment on whether we should scale or otherwise limit the credit a
telecommunications provider receives to account for the fact that this system may exclude some
telecommunications revenues from assessment. To illustrate the point, consider the retail chain in Table
1, but assume that provider C qualifies for the LIRE exemption and its international revenues are not
included in the contribution base. If C’s offering to the end user (EU) consists of $10 of interstate service
and $190 of international service, C’s assessable revenues from this sale would be $10 (the interstate
portion), and C’s contribution obligation would be $1 (10 percent of $10), which C could pass through to
EU. To calculate C’s payment to the Fund as proposed above, the value-added system would normally
take C’s contribution obligation and subtract the USF surcharge that C paid its underlying provider. But
in this case, the credit C would receive for USF surcharges paid ($15) would exceed C’s contribution
obligation ($1). Accordingly, applying a non-scaled credit when a contributor’s own contribution
obligations are reduced by exemptions may create a situation in which the Fund effectively subsidizes
certain offerings of those contributors. We seek comment on this analysis and any proposed solutions.
For example, should we limit a carrier’s credit to no more than its own contribution obligation?
156.
We also seek comment on the implementation of a value-added system. What would be
an appropriate time frame for implementing such a rule? For example, to what extent would the existence
of long-term contracts warrant delaying implementation of a value-added revenues system? If we delay
implementation, what would be a reasonable period of time to transition to this system?
157.
We request clear and specific comments on the type and magnitude of likely benefits and
costs of the suggested rule, and request that parties claiming significant costs or benefits provide
supporting analysis and facts, including an explanation of how data were calculated and identification all
underlying assumptions.
158.
Value-Added Approach for Alternative Contribution Methodologies. The value-added
revenues system discussed above assumes retaining a revenues-based contribution system. We seek
comment below on moving from a revenues-based contribution system to a system based on assessing
connections or numbers.274 Commenters should indicate whether a value-added system could and should
be developed for a connections-based or numbers-based contribution system. If value-added is needed or

273 See 47 C.F.R. § 54.706(d). We note that while such entities are exempt from direct USF contribution obligations,
there is no rule that prohibits carriers from passing through USF charges to such entities.
274 See infra Sections V.B. and V.C.

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advisable for such other contribution systems, commenters should explain the basis for such analysis, and
should indicate how a value-added system would work in such instances.
159.
We note that one of the considerations in crafting the current revenue-based system
focused on end users was to avoid “double counting” revenue.275 We ask commenters whether a
connections or numbers-based system may also raise concerns of double counting, and if so, how a value-
added proposal could be crafted to address this issue. More generally, we seek comment on whether
avoiding double counting remains a significant policy concern, and if it should inform the structure of a
contributions methodology system.
160.
In particular, we seek comment here on whether a value-added system similar in concept
to the value-added revenues proposal set forth above for a revenues-based system may be desirable for
connections, and if so, how such a system would operate. If we were to adopt a service-based definition
of connections, there could be situations in which a wholesaler sells a “connection” to a reseller who adds
value by separately selling more than one service over that connection. For instance, to the extent Carrier
A sells a connection to Carrier B, and then Carrier B sells two connections to the retail customer, would it
simplify administration of a connections-based system if both Carrier A and B are assessed based on the
connections provided to their respective customers, with Carrier B receiving a credit for the number of
connections it has purchased from a wholesale provider so that, in this example, Carrier A and B would
each be assessed for one connection?
161.
We also seek comment on how one might adopt a value-added approach for a numbers-
based methodology. Would a value-added approach work in which each provider of interstate
telecommunications in a service value chain (including both wholesalers providers and their customers)
that provides a number to a customer would contribute on that number, with a credit provided to the
extent a carrier obtains lines with numbers from another provider? Alternatively, would it make sense to
adopt a system in which a wholesaler could contribute on its wholesale numbers at a lesser adjusted rate,
and its customer could contribute based on a higher per-unit rate for numbers associated with services
provided to retail customers, with an adjustment made for any pass-through charges paid to the wholesale
provider?
b.

Contributor Certificates

162.
In this section, we seek comment on alternatives to the value-added approach that would
further our proposed goals of improving administrative efficiency, fairness and sustainability of the Fund.
163.
Part of the complexity that exists in wholesale-resale relationships today stems from the
fact that in some instances, a wholesaler may sell services to an entity that incorporates
telecommunications (such as a private line, which is subject to contributions) into a different finished
offering (such as broadband Internet access, which is exempt from contributing to the Fund).276 In such
instances, the Commission requires wholesalers to treat revenues from services to these non-contributing

275 Universal Service First Report and Order, 12 FCC Rcd at 9207-08, paras. 845-48. The Commission was
concerned that basing contributions on gross revenues would distort competition by disadvantaging resellers that
compete against non-resellers offering the same retail service. A reseller with a similarly priced service would have
to contribute on the revenues from its retail service as well as pay the USF contribution charge that its underlying
carrier would likely pass through to the reseller.
276 Such exempt resellers may include: (1) de minimis telecommunications providers; (2) carriers that do not resell
services as telecommunications or telecommunications services to ultimate end-user customers; (3) systems
integrators that incorporate only a minimal amount of telecommunications into their sales; (4) broadcasters that
provide non-common carrier interstate telecommunications to others, and (5) non-profit schools, colleges,
universities, libraries, and health care providers. See 2012 FCC Form 499-A Instructions at 4-5.

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customers as “end user” revenues. To implement this end-user revenues system, the instructions to the
Telecommunications Reporting Worksheet provide for wholesalers to distinguish between (1) revenues
from sales to telecommunications providers that “can reasonably be expected to contribute to” the Fund
(carrier’s carrier revenues) and (2) revenues from all other sources (end-user revenues, including revenues
from sale directly to end users as well as revenues from sale to non-contributing resellers or other non-
contributing entities).277
164.
While the Commission has not codified rules specifying the precise manner in which
wholesalers verify that their customers are contributing, most providers obtain certifications from their
customers specifying that the customer “is purchasing service for resale in the form of U.S.
telecommunications” and that it “contributes directly to the federal universal service support
mechanisms.”278 The Form 499 Instructions caution that if a customer does not provide such a
certification, the wholesaler should not assume that the customer contributes to the Fund on those
services, and should therefore report revenues from services provided to such customers as subject to USF
assessment.279 In such a scenario, the wholesale provider typically passes through a universal service
contribution charge to these customers.
165.
The Telecommunications Reporting Worksheet instructions have been amended several
times in an effort to provide additional guidance on how a telecommunications provider may establish a
reasonable expectation.280 For example, the instructions have been revised to explain that wholesalers
should obtain annual certifications from their resellers, certifying that the reseller will resell the services it
purchases from the wholesaler, and that it will contribute to the Fund.281 The instructions also direct
telecommunications providers to implement policies and procedures to comply with this requirement to
ensure they properly report carrier’s carrier revenues.282

277 See, e.g., Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18424, para. 43; id. at 18507–08
(adopting the Worksheet to collect information about end-user revenues for USF contribution purposes); 2012 FCC
Form 499-A Instructions
at 21.
278 2012 FCC Form 499-A Instructions at 19. We note, however, that a facilities-based carrier must determine
whether a carrier has registered with the Commission before it may offer services to that carrier for resale. See 47
C.F.R. § 64.1195(h).
279 See 2012 FCC Form 499-A Instructions at 22 (“Filers that do not comply with the above procedures will be
responsible for any additional universal service assessments that result if its customers must be reclassified as end
users.”).
280 See, e.g., 2000 Instructions to the Telecommunications Reporting Worksheet, Form 499-A at 13 (2000 FCC
Form 499-A Instructions
); 2001 Instructions to the Telecommunications Reporting Worksheet, Form 499-A at 15
(2001 FCC Form 499-A Instructions) (clarifying that a “reseller” did not need to be a “telecommunications service
provider” but could also be any “telecommunications provider” reasonably likely contribute); 2002 Instructions to
the Telecommunications Reporting Worksheet, Form 499-A at 15-16 (2002 FCC Form 499-A Instructions)
(clarifying that “resellers” incorporate the purchased telecommunications into their “own telecommunications
offerings,” advising providers to collect a reseller’s “Filer 499 ID,” and notifying providers of an online database of
current contributors); 2003 Instructions to the Telecommunications Reporting Worksheet, Form 499-A at 15-16
(2003 FCC Form 499-A Instructions) (clarifying that a reseller should resell the purchased telecommunications in
the form of telecommunications and “not as information services”); 2004 Instructions to the Telecommunications
Reporting Worksheet, Form 499-A at 16-17 (2004 FCC Form 499-A Instructions) (clarifying that providers should
submit documentation about resellers to the Administrator or Commission upon request and advising providers that
they may be responsible if their customers must be reclassified as end users).
281 2012 FCC Form 499-A Instructions at 22.
282 Id. Even these measures may be insufficient to safeguard the Fund. As discussed below, our rules currently
exempt providers with far more international revenues than interstate revenues from contributing on the
international revenues (known as the LIRE or limited international revenues exemption). See infra Section V.A.6.
(continued…)

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166.
Reasonable Expectation Standard. Implementing the “reasonable expectation standard”
has become a time consuming and complicated case-by-case exercise. Many carriers argue that the
current reseller certificate process is burdensome and ineffective, in essence requiring wholesale
providers to act as “enforcement agents to the Commission” by requiring them to collect certifications
from reseller customers attesting to being a USF contributor.283 A number of carriers have appealed
USAC audit findings reclassifying certain reseller revenues as end-user revenues, with the contributor
arguing that it had a reasonable expectation that its customer(s) would contribute to universal service.284
USAC and the Commission have to devote resources to detect evasion of contribution obligations, and
companies that purchase wholesale inputs from others can derive substantial monetary benefits by
providing a reseller certificate. Indeed, the end-user revenues system as currently structured may even
create incentives for a purchaser of wholesale telecommunications to claim falsely that it directly
contributes to the Fund, to avoid the universal service charge that the underlying provider would likely
otherwise pass through if the customer did not claim it contributes directly. We seek comment on
potential bright line rules that we could adopt that would provide greater clarity to contributors as to what
steps they must take to properly report their assessable revenues and lessen the need to engage in such
fact-intensive inquiries, if we maintain a revenue-based contribution methodology.
167.
Complying with the requirement to distinguish wholesale from end-user revenues likely
imposes non-trivial regulatory costs on firms with significant wholesale businesses. We seek comment
and data submissions regarding the costs imposed on companies today to separate their wholesale from
their retail revenues, and the costs associated with complying with the requirement that they demonstrate
a reasonable expectation that their customers are contributing to USF. We encourage companies to
provide estimates not only of the costs associated with their legal and regulatory personnel, but also to
include any other costs that compliance with such requirements may pose on other personnel, including
accounting, billing, sales, IT, and marketing staff, and any costs associated with hiring outside resources,
such as attorneys or consultants, to assist in implementing such requirements or responding to any audits
or investigations relating to this aspect of our contribution rules.
168.
We seek comment on whether we should adopt a rule mandating greater specificity in
contributor certifications regarding the services on which the certifying entity is contributing, so that
wholesalers are in a better position to determine which of their revenues should be classified as carrier’s
carrier revenues. Many contributors may obtain such certifications from their customers only on an
entity-wide basis, rather than on a service-specific basis, because the model certification language
provided in the instructions beginning in 2007 does not specify service-specific certifications.285

(Continued from previous page)
If a provider sells both interstate and international telecommunications to a reseller that qualifies for this exemption,
the reseller will not contribute on the basis of the international telecommunications it offers (because of this
exemption) and the underlying provider will not contribute on the basis of the international telecommunications it
offers (because the reseller is not an end user for these purposes). In other words, our end-user methodology may
unintentionally exempt certain revenue streams from the contribution base entirely.
283 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 3; Request for Review of Decision of Universal Service
Administrator by Global Crossing Bandwidth, Inc., CC Docket No. 96-45 at 17 (filed Sept. 16, 2009) (Global
Crossing Request for Review).
284 XO Request for Review at 40-43; Global Crossing Request for Review at 11-12.
285 The 2012 Form 499-A instructions state, in relevant part, that each filer should have documented procedures to
ensure that it reports as “revenues from resellers” only revenues from “entities” that reasonably would be expected
to contribute to support universal service. In addition, the instructions state that reseller certifications should include
a statement that “the company [i.e., the reseller] contributes directly to the federal universal service mechanisms.”
See 2012 FCC Form 499-A Instructions at 22.

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169. We seek comment on adopting a rule that would establish the following language for
customer certifications:
I certify under penalty of perjury that the company is purchasing service which is
incorporated into the company’s offerings. I also certify under penalty of perjury
that either my company contributes directly to the federal universal support
mechanisms for those offerings that incorporate this wholesale service, or that
each entity to which the company, in turn, sells those offerings has provided the
company with a certificate in the form specified by Commission rules.


OR
I certify under penalty of perjury that the company is purchasing service for
which is incorporated into the company’s offerings. I also certify under penalty
of perjury that:

(check one)
____ The company contributes directly to the federal universal service support
mechanisms for those service offerings that incorporate the wholesale service, or
if the company resells the service to another contributor, that the company has
received a certification from each customer in a form specified by Commission
rules that the customer will contribute directly based on revenues from each such
service.

____ The company contributes on [number] percent of the revenues for services
that incorporate the wholesale service, or has received a certification from its
customer stating that the customer will contribute directly based on revenues
from the service. On the remaining [number] percent of the revenues of the
service that incorporates the wholesale service, the company does not directly
contribute, and it does not sell that service to another contributor.

I also certify under penalty of perjury that the company will notify [name of
wholesale provider] within [30 or 60 days] if the information provided in this
certification changes.

170.
Specificity as to Incorporation of Wholesale Services into a Finished Service. It appears
that under our current requirements, certain revenues may be escaping assessment altogether, in situations
where a wholesaler does not contribute on revenues derived from customers that it believes to be
contributing when in fact the customer is not contributing on those revenues.286 For example, there may
be situations where a wholesaler provides wholesale circuits to a customer, some of which are used for an
assessable service, such as voice telephony, and some of which are used to provide retail broadband
Internet access service, which is not assessable. In some cases, the usage of a given circuit may vary over
the course of the year, or even at the request of the customer, between assessable and non-assessable
services.287 If the customer executes a certificate consistent with the model certification language

286 USTelecom Mar. 28, 2012 Ex Parte Letter at 3.
287 A number of business services dynamically allocate bandwidth to voice and broadband Internet access,
depending on customer demand. See, e.g., OneLink Voice and Data Circuit, Telnes Broadband,
http://www.telnesbroadband.com/services/onelink-voice-and-data (last visited Apr. 2, 2012); SIP Trunking with
(continued…)

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guidance provided in the current Form 499 instructions – stating “the company [i.e., the customer
incorporating the telecommunications into its finished offering] contributes directly to the federal
universal service mechanisms” – there is no way for the wholesaler to know that the customer is not
contributing on revenues derived from all of the circuits. We seek comment on the magnitude and
prevalence of this problem. In these and other analogous situations, should there be an affirmative
obligation on the part of the entity that purchases the wholesale telecommunications to specify in its
certification the extent to which the wholesale input is incorporated into assessable services versus non-
assessable services? For instance, should we adopt the following rule:
To the extent a company purchases services that are incorporated into its own
offerings, with some of the offerings subject to universal service contributions
and some of the offerings not subject to universal service contributions, the
purchaser has an affirmative obligation to provide information to its wholesale
provider sufficient for the wholesaler to allocate the revenues associated with its
service as carrier’s carrier revenue or end-user revenue.

171.
What burdens would such a rule impose on entities that purchase wholesale
telecommunications to incorporate into their finished offerings, and what measures could be implemented
to minimize such burdens?288 If we were to adopt such a rule, what metric should the purchasing entity
use in developing the relevant allocations? For instance, should it base the percentage on the number of
circuits, the revenues associated with individual circuits (to the extent that can be determined), the
average usage of a circuit, or something else?
172.
We seek comment on whether to adopt a rule imposing an affirmative obligation on
entities purchasing wholesale telecommunications that sign certifications to notify their wholesale carrier
within a specified period of time, such as 30 or 60 days, if their contribution status changes over the
course of the year. For instance, we seek comment on the following rule:
Providers who provide contributor certifications to their wholesale carriers must
notify their wholesale carrier within [30 or 60] days if the contribution status
provided in the certifications changes.

173.
Today, there may be situations where an entity certifies in good faith at the beginning of
the year that it is a contributor with respect to the services provided to its retail customers, but
subsequently it ceases to be a contributor. This could occur, for instance, if the entity purchases a special
access circuit from a wholesaler, and initially expects to provide special access to a retail customer, but
ultimately uses that circuit to provide broadband Internet access service, which is not assessable under our
current rules. Or an entity purchasing wholesale telecommunications may expect to contribute, but
ultimately it turns out to be a de minimis contributor due to lower than expected revenues. In both
situations, the wholesaler would not contribute on the services (because it has a contributor certificate

(Continued from previous page)
AT&T IP Flexible Reach, AT&T Enterprise, http://www.business.att.com/enterprise/Service/voice-
services/voip/sip-trunking/ (last visited Apr. 3, 2012); VoIP and Data Bundle, Windstream,
http://www.windstreambusiness.com/enterprise/data-solutions/voip-and-data-bundle (last visited Apr. 3, 2012);
VoIP for Your Small Business, XO Communications, http://smallbusiness.xo.com/small-business-voip.html (last
visited Apr. 3, 2012).
288 One party in an adjudicatory proceeding, for instance, has argued that it would be virtually impossible for
wholesale providers to classify their revenues based on the end user services provided by their carrier customers and
unreasonably burdensome for the wholesaler’s resale customers to comply with a service-specific certification
system. Opposition of U.S. TelePacific Corp. d/b/a TelePacific Communications to Petition for Clarification or In
the Alternative for Partial Reconsideration, WC Docket No. 06-122, at 10-11 (filed July 6, 2010).

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from its customer), but its customer ultimately does not contribute, resulting in revenues not being subject
to contributions at any point in the value chain. Commenters should address the time frame in which such
notification should occur, and what specific procedures should be followed. To the extent that parties
support elimination of certifications in favor of an alternative system or a bright line, we ask them to
provide specific details on how any such alternatives would be implemented, administered, and
enforced.289
174.
Another alternative on which we seek comment is whether we should assess wholesalers
at their point of sale, but not their customers, so long as the wholesaler certifies that the contribution has
been or will be paid. Would such an approach be easier to administer? Are there disadvantages to such
an approach? Commenters should indicate, to the extent possible, the reduction to the contribution base if
we were to adopt such an approach and how such an approach would impact contribution burdens.
175.
Improved Certification Requirements Compared to Value Added Revenues System. We
discuss above a value-added revenues system to address recurring issues arising in the wholesale/resale
context.290 Commenters are encouraged to compare and comment on both the improved certification
system discussed here and the value-added system discussed immediately above in this Notice.291 Is there
a particular advantage over one approach over the other? Do aspects of both approaches need to be
adopted? If we adopt a value-added revenues system, should we adopt modifications to our contributor
certification rules on an interim or transitional basis while we implement the value-added approach?
176.
Improved Certification Requirements for Alternative Contribution Methodologies. The
improved contributor certification requirements discussed above assume retaining a revenues-based
contribution system. In this Notice, we also seek comment on moving from a revenues-based
contribution system to a system based on assessing connections or numbers.292 Commenters should
indicate whether similar contributor certification requirements as discussed above should be developed
for a connections-based or numbers-based contribution system. If improved certification requirements
are needed or advisable for such other contribution systems, commenters should explain the basis for such
analysis, and should indicate how the contributor certifications would work in such instances.
177.
We ask commenters whether a connections or numbers-based system may also raise
concerns of double counting, and if so, how a contributor certification could be crafted to address this
issue.293 More generally, we seek comment on whether avoiding double counting remains a significant
policy concern, and if it should inform the structure of a contributions methodology system.
178.
In particular, we seek comment here on whether improved contributor certifications
similar in concept to the proposals discussed above might be desirable for connections, and if so, how
such a system would operate. If we were to adopt a service-based definition of connections, there could
be situations in which a wholesaler sells a “connection” to a customer who adds value by separately
selling more than one service over that connection. We also seek comment on how one might adopt
contributor certifications for a numbers-based system.

289 At least one industry group has suggested that the Commission consider elimination of “provider-to-provider
certifications” in favor or a bright-line rule based on widely accessible information in a Commission-maintained
database. See USTelecom Mar. 28, 2012 Ex Parte Letter at 7.
290 See supra Section V.A.4.a.
291 Id.
292 See infra Sections V.B. and V.C.
293 See supra para. 159 & n.275.

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5.

Reporting Prepaid Calling Card Revenues

179.
Our rules require prepaid calling card providers to contribute to the Fund based on their
end-user revenues. We seek comment on modifying existing rules to provide clarity to the industry in
response to requests from USAC and record evidence suggesting different prepaid calling card providers
may be interpreting our rules in different ways, which may result in an unlevel playing field for
competitors of these services. In this section we seek comment on revising the rules for prepaid calling
card providers, consistent with our proposed reform goals of simplifying compliance and ensuring
fairness across competitors.
180.
Background. On the Telecommunications Reporting Worksheet, contributors report
revenues based on the amount paid by end users for prepaid cards, whether the prepaid calling card is
purchased by the end user directly from the prepaid calling card provider or from a marketing agent,
distributor, or retailer.294 On August 24, 2009, USAC sought guidance on universal service reporting and
contribution obligations on revenues from prepaid calling card services.295 In particular, USAC asked the
Commission to provide guidance on how prepaid calling card providers must report revenues where:
(1) the prepaid calling card does not have a face value, or where the customer pays less than face value
because of discounting; (2) the prepaid calling card provider does not know how much the end user paid
for the card;296 and (3) the cards are measured in units of time rather than by dollar amounts.297 USAC
also asked the Commission to clarify when prepaid calling card providers should report revenues from
prepaid calling card services.298 Many parties assert that the Commission should adopt rules or
requirements that clarify contribution obligations for prepaid calling card providers and address the
unique characteristics of prepaid calling card services.299
181.
Discussion. We seek comment on adopting a rule to require prepaid calling card
providers to report and contribute on all end-user revenues, and who should be deemed the end user for
purposes of such a rule. We ask whether prepaid calling card providers should only report amounts paid
by the entity to which the provider directly sells the prepaid service. Alternatively, we seek comment on
adopting a rule to require prepaid calling card providers to contribute based on the amounts paid by end
users for prepaid cards, whether the prepaid calling card is purchased by the end user directly from the
prepaid calling card provider or from a marketing agent, distributor, or retailer. We also ask about the
application of the value-added contribution paradigm, discussed above, to assessment of prepaid calling
card service. In addition, we seek comment on measures to standardize how providers report prepaid
calling card revenues, eliminating incentives or opportunities for providers to avoid their USF

294 See, e.g., 2012 FCC Form 499-A Instructions at 17-18.
295 USAC 2009 Guidance Request at 2. USAC also sought guidance on other issues not related to reporting
requirements for prepaid calling card providers. Id.
296 This may occur where the prepaid calling card provider does not sell the cards directly to the end user.
297 USAC 2009 Guidance Request at 1–2.
298 Id. at 2. Several parties filed comments on the issue of contribution reporting requirements for prepaid calling
card providers in response to USAC’s request for guidance. See Letter from Jonathan S. Marashlian, Ad Hoc
Coalition of International Telecommunications Companies, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
05-337 et al., at 1–6 (filed Nov. 18, 2009); Comments of AT&T Inc., WC Docket No. 05-337 et al., at 6-11 (filed
Oct. 28, 2009) (AT&T Guidance Comments); Comments of Network Enhanced Telecom, LLP, WC Docket No. 05-
337 et al., at 1-10 (filed Oct. 28, 2009) (NetworkIP Oct. 28, 2009 Comments); Verizon Oct. 28, 2009 Comments at
7–9; Comments of STi Prepaid, LLC, WC Docket No. 05-337 et al., at 1–10 (filed Oct. 28, 2009) (STi Oct. 28, 2009
Comments).
299 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 7-8; Request for Review of AT&T Inc. of Decision of the
Universal Service Administrator, CC Docket No. 96-45, at 17-20 (filed Oct. 10, 2006) (AT&T Prepaid Calling Card
Request for Review); STi Oct. 28, 2009 Comments.

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contribution obligations. We also solicit comment on whether adopting these reforms would further our
proposed goals for reform and the potential impact on the Fund if we were to adopt the measures
described below.
182.
Defined Terms. We first seek comment on modifying the definition of prepaid calling
cards as explained below. The terms “prepaid calling cards,” and “prepaid calling card providers” are
defined in section 64.5000 of our rules, as adopted by the Commission in the Prepaid Calling Card
Services Order
.300 The definition of a prepaid calling card is fairly expansive, encompassing not just
physical cards that require the input of a personal identification number (PIN) but also any “device” that
provides end users with the same or similar functionality.301 Although we propose retaining these
definitions, we seek comment on whether we should add the phrase “or service” to the definition to make
clear that our prepaid calling card rules will encompass new ways to market prepaid telecommunications
services that do not involve using a PIN or a device. Such a modification could read as follows (new
language in italics):
(a)
Prepaid calling card. The term “prepaid calling card” means a card or
similar device or service that allows users to pay in advance for a specified
amount of calling, without regard to additional features, functions, or capabilities
available in conjunction with the calling service.
(b)
Prepaid calling card provider. The term “prepaid calling card provider”
means any entity that provides telecommunications service to consumers through
the use of a prepaid calling card.
183.
We also seek comment on whether we should define, for purposes of prepaid calling
cards, the term “prepaid calling card distributor” as we use it in the context of reporting prepaid calling
card revenues. The use of such term would acknowledge that prepaid calling cards are often sold by
means of marketing agents, distributors or retailers. We seek comment on the following proposed
definition:
Prepaid calling card distributor. A marketing agent, distributor, retailer, or
other third party that sells or resells prepaid calling cards on behalf of a prepaid
calling card provider.

184.
Reporting Prepaid Calling Card Revenues. We also seek comment on alternative
methods prepaid calling card providers should use to report revenues from prepaid calling card services.
Today, prepaid calling card providers are required to report and contribute on the end-user revenues from
the sale of prepaid calling card services.302 The current version of the Telecommunications Reporting

300 Regulation of Prepaid Calling Card Services, WC Docket No. 05-68, Declaratory Ruling and Report and Order,
21 FCC Rcd 7290, 7316 (2006) (Prepaid Calling Card Services Order); 47 C.F.R. § 64.5000.
301 See 47 C.F.R. § 64.5000; see also Letter from Pete Pattullo, Chief Executive Officer, Network Enhanced
Telecom, LLP, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, Attach. at 1-2 (filed Sept. 28, 2010)
(NetworkIP Sept. 28, 2010 Ex Parte Letter) (noting the growing trend toward “CARD-less and PIN-less prepaid
products,” and questioning if these products qualify as prepaid calling cards under our rules).
302 See Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18505, App. C (identifying prepaid
calling card providers as contributors); AT&T Corp. Petition for Declaratory Ruling Regarding Enhanced Prepaid
Calling Card Services; Regulation of Prepaid Calling Card Services
, WC Docket Nos. 03-133, 05-68, Order and
Notice of Proposed Rulemaking, 20 FCC Rcd 4826, 4827, paras. 4-5 (2005) (AT&T Prepaid Calling Card Services
Declaratory Ruling); Prepaid Calling Card Services Order, 21 FCC Rcd at 7300, para. 27; see also 2012
Telecommunications Reporting Worksheet, FCC Form 499-A, Line 411; 2012 FCC Form 499-A Instructions at 17–
18.

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Worksheet instructions calls for reporting of such revenues by the prepaid calling card provider, whether
the end user purchases the card from the prepaid calling card service provider or a marketing agent,
distributor, or retailer.303 Some stakeholders contend that this method, which requires providers to report
the “face value” of a card as assessable revenue—not the amount actually paid by the provider’s end-user
customer—is unrealistic considering that many cards do not have a face value, and contributing providers
often do not know and have no control over the ultimate retail price of a calling card.304
185.
We first seek comment on limiting the contribution and reporting requirements of prepaid
calling card providers to report amounts paid only by the person or firm to whom the provider directly
sells the prepaid card. Prepaid calling card providers that sell directly to an end-user customer would, as
now, easily identify and report the assessable revenue amount. However, in situations where the provider
sells the card to an intermediate distributor or retailer, rather than an end-user customer, under this
paradigm we would require the provider to report revenue actually received from the intermediate
distributor. This concept presumably would make it simpler for prepaid providers to report accurate
revenues because they would recognize actual assessable revenue amounts from the sale to the end-user
customer or the intermediate distributor and would not be required to estimate the amount paid by an end-
user customer with whom the provider has no retail relationship. This approach could benefit providers
and the Fund by permitting providers to report the revenue realized in a more timely fashion. We seek
comment on this alternative and ask whether including an intermediate distributor or retailer in the
definition of an end user for the purpose of reporting prepaid calling card revenue would create any
competitive distortions or create disparities among different types of contributors.
186.
In the alternative, we seek comment on codifying in greater detail the approach reflected
in the existing Form 499 instructions. We first specifically inquire how prepaid calling card providers
should report revenues from sales of prepaid calling card services to marketing agents, distributors, or
retailers. The Form 499 instructions state that the revenue to be included in a provider’s contribution
calculation is the amount actually paid by the end-user customer, not the price paid to the prepaid calling
card provider by intermediate marketing agents, distributors, or retailers, even when the distributor pays a
different amount than the end user.305
187.
Should there be symmetry in the way that prepaid calling card service transactions and
other transactions are treated for USF contribution purposes? For example, the Form 499 instructions
also state that payphone providers should not deduct from reported revenues commission payments to
owners of premises where payphones are located.306 Should we also adopt a rule that payphone providers
may deduct from reported revenues discounts provided to intermediate distributors? We seek comment
on potential bright lines that would simplify administration of contributions reporting for prepaid calling
providers.
188.
Under the current system, filers may be using disparate methods for reporting prepaid
calling card revenues when the prepaid cards do not have a face value or the customer paid less than face

303 See, e.g., 2012 FCC Form 499-A Instructions at 17-18.
304 See USTelecom Mar. 28, 2012 Ex Parte Letter at 7-8.
305 Universal Service Second Order on Reconsideration, 12 FCC Rcd at 18510, App. C (“[Line 411] should include
all revenues from prepaid calling cards provided either to customers or to retail establishments. Gross billed
revenues should represent the amount actually paid by customers and not the amounts paid by distributors or
retailers, and should not be reduced or adjusted for discounts provided to distributors or retail establishments. All
prepaid card revenues are classified as end-user revenue.”). In 2002, the FCC Form 499-A instructions were
clarified to include “distributors.” 2002 FCC Form 499-A Instructions at 20.
306 See 2012 FCC Form 499-A Instructions at 16 (prohibiting payphone providers from deducting commission
payments to premises’ owners).

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value because of discounting.307 Our current contribution reporting requirements permit prepaid calling
card providers to use “good faith estimates” where actual revenues cannot be determined from the
provider’s books of account.308 The lack of a uniform and bright-line standard for estimating end-user
revenues may give some prepaid calling card providers undue discretion, with an inherent incentive to
underreport such revenues.309 The lack of a bright-line standard may also limit the ability for USAC and
the Commission to conduct meaningful audits of reported revenues. Adopting a bright-line standard for
reporting end-user revenues could reduce or eliminate competitive disparities among providers of similar
services.310 We seek comment generally on adopting a bright-line standard that contributors must use to
report prepaid calling card revenues. Would a bright-line standard create an incentive for prepaid calling
card providers to establish a process with their marketing agents, distributors, and retailers to specifically
identify and report the actual prices paid by end users? Should we also consider implementing a safe
harbor for providers to estimate end-user revenues when the price paid by the end-user customer cannot
readily be determined by the prepaid calling card provider?311
189.
If we adopt a bright-line standard as suggested above, we seek comment on what mark-
up would be appropriate for prepaid calling card providers to use in determining end-user revenues.
Previously, Verizon suggested that a 35 percent mark-up on the price paid by marketing agents,
distributors or retailers to the prepaid calling card provider, would be a reasonable proxy for determining
the price paid for the card by end users, in part because the Internal Revenue Service (IRS) historically
used that percentage to calculate and report prepaid calling card revenues for excise tax purposes.312
AT&T notes that mark-ups of 50 percent are common in its experience,313 while others have suggested
mark-ups as high as 100 percent.314 Given this wide range of estimated mark-ups, we seek comment on
whether a standard mark-up of 50 percent would be a reasonable mid-point between the various estimates
that have previously been suggested by commenters. We also seek comment on whether a higher or
lower standard mark-up would be more representative of industry practice or would better serve in
creating an incentive for providers to work with their marketing agents, distributors and retailers to

307 USAC 2009 Guidance Request at 1–2; see, e.g., AT&T Guidance Comments at 7–9; NetworkIP Oct. 28, 2009
Comments at 10.
308 47 C.F.R. § 54.711(a).
309 Cf. Reply Comments of AT&T Inc., WC Docket No. 05-337 et al., at 5-6 (filed Nov. 12, 2009) (AT&T Nov. 12,
2009 Comments); STi Oct. 28, 2009 Comments at 4-6; Reply Comments of Verizon and Verizon Wireless, WC
Docket No. 06-122 at 5-6 (filed Nov. 12, 2009) (Verizon Nov. 12, 2009 Comments).
310 USTelecom Mar. 28, 2012 Ex Parte Letter at 4.
311 See Wireless Safe Harbor Order, 13 FCC Rcd at 21255-257, paras. 6-11 (creating safe harbor percentages to
approximate the percentage of interstate revenue because providers asserted they could not identify without
substantial difficulty, the amount of their revenues that are interstate as opposed to intrastate.
312 See Verizon Oct. 28, 2009 Comments at 9; 26 C.F.R. § 49.4251-4. The IRS determined that a 35% mark-up
“corresponds to markups in the retail sector generally” in 2000 for purposes of collecting an excise tax. T.D. 8855,
2000-4 I.R.B. 374 (Jan. 24, 2000). We note that the excise tax no longer applies to long-distance service or bundled
service. I.R.S. Notice 2006-50, 2006-25 I.R.B. 1141.
313 AT&T Nov. 12, 2009 Comments at 9 (stating that markups of 50% are common in the industry).
314 See STi Oct. 28, 2009 Comments at 4 n.5 (“‘Most prepaid calling cards are sold through retailers, who sell the
cards at face value but purchase them at discounts of up to 50 percent.’”) (quoting Sprint Reply Comments, WC
Docket No. 05-68, at 7 n.21 (filed Oct. 23, 2006)). If a prepaid calling card distributor purchases a card at a 50%
discount, then the end-user revenues from that card are 100% higher than the price paid by the prepaid calling card
distributor. See also NetworkIP Sept. 28, 2010 Ex Parte Letter at 3 (describing how prepaid calling card distributors
regularly pay 55–75% of the face value of the card to the prepaid calling card provider; for example, if a prepaid
calling card has a face value allowing the end user $100 of call time, the retailer purchasing such card would pay the
underlying carrier from $55 to $75).

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identify the actual price paid by end-users. Adopting a standard mark-up that falls at the higher end of the
scale, for example, may provide a greater incentive for prepaid calling card providers to determine and
report the actual prices paid by end users. Parties should provide specific data to support their arguments.
190.
To further ensure that all reporting entities are reporting prepaid calling card revenues in
a consistent manner under the current system, we seek comment on requiring prepaid calling card
providers to report revenues derived from the sale of prepaid calling cards not later than 60 days after the
date the cards are sold by the prepaid calling card provider to a prepaid calling card distributor. The
Telecommunications Reporting Worksheet instructions presently state that prepaid calling card providers
should report their prepaid calling card revenues at the time the cards are sold to the end user, as opposed
to the time the end user activates the prepaid minutes on the card.315 In the case of cards sold indirectly
through prepaid calling card distributors, the underlying service provider may not, in some instances, be
able to identify the actual date the cards are purchased or activated by the end users. Adopting a rule that
creates an appropriate time limit for recognizing revenue derived from the sale of prepaid calling cards
could serve to further reduce competitive distortions that arise from disparate interpretations and
application of our rules. We seek comment on this analysis. We also seek comment on whether it is
reasonable to expect that most cards are sold within sixty days of the date the provider bills the prepaid
calling card distributor for the cards, taking into account a 30-day billing cycle and an additional 30 days
for the end user to purchase the card.
191.
We seek comment on whether these alternative ideas further our proposed goal of
ensuring that contribution assessments are fair. Would such a rule be simple to administer? Are there
policy reasons prepaid calling card providers should be allowed to reduce or adjust reported revenues
based on discounts provided to prepaid calling card distributors?
192.
We also ask about the relationship between assessment of prepaid calling card providers
and the “value-added” approach to assessing revenues discussed above.316 Under this approach, each
telecommunications provider in a service value chain (including wholesalers, distributors, and reselling
retailers) would contribute based on the value the provider adds to the service.317 As applied to the
prepaid calling card marketplace, any firm that derives revenue from the sale of prepaid calling card
services would report and contribute based on that revenue and would be permitted to take a credit based
on contributions made by other contributors in the chain. Given the structure of the prepaid marketplace,
this concept would presumably require any intermediate distributor or retailer to report and make
contributions, including some retail stores that would be contributing to the Fund for the first time. We
seek comment generally on this approach and inquire about the potential impact on firms that are not
already reporting revenue or contributing to the Fund, such as retailers and other non-contributors.
Should we consider an exemption from any reporting and contribution obligations for certain categories
of retailers or distributors? If so, what would be the basis for such an exemption? What would be the
impact on other contributors in the prepaid card chain, such as the service provider? Should we also
consider a more limited exemption such that we require these companies only to report revenue derived
from the card in order to ensure the Fund is fully compensated? Finally, we seek comment on what steps
would need to be taken to implement any of the ideas discussed above or any alternative proposals to
modify the contribution reporting requirements for prepaid calling card revenues. We also seek comment
on how much time parties would need to transition to any such new rules.

315 See, e.g., 2012 FCC Form 499-A Instructions at 17-18.
316 See supra Section V.A.4.a.
317 In 1997, the Joint Board recommended a value-added system, but the Commission adopted an end-user revenue
system. See Universal Service First Report and Order, 12 FCC Rcd at 9205-06, paras. 842-44.

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6.

International Telecommunications Providers

193.
In this section, we seek comment on whether we should eliminate the limited exemption
for providers whose revenues are exclusively or predominantly international. In addition, consistent with
our proposed goals, we seek comment on how we could modify our rules regarding international revenues
so as to avoid competitive distortions in the market.
194.
Background. As currently used in the USF contributions system, interstate and
international telecommunications means communications or transmission between a point in one state,
territory, possession of the United States or the District of Columbia and a point outside that state,
territory, possession of the United States or the District of Columbia.318 “International revenues” do not
currently include revenues between two points outside of the United States and its territories. Also,
carriers that only have international revenues, but have no interstate revenues, are not currently required
to contribute to the Fund.
195.
Section 254(d) provides that “[e]very telecommunications carrier that provides interstate
telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific,
predictable, and sufficient mechanisms established by the Commission to preserve and advance universal
service. . . . Any other provider of interstate telecommunications may be required to contribute to the
preservation and advancement of universal service if the public interest so requires”.319 In the Universal
Service First Report and Order
, the Commission concluded that contributions to the Fund will be based
on the interstate and international revenues of providers of interstate telecommunications services.320
Regarding contributors’ international revenues, the Commission determined that interstate providers that
also provide international telecommunications services should contribute to universal service based on
revenues derived from both their interstate and international services. The Commission reasoned that
contributors that provide international telecommunications services benefit from universal service
because they must either terminate or originate telecommunications on the domestic public switched
telephone network. The Commission did not include in the revenue base revenues derived from
communications between two international points or foreign countries.321 Nor did the Commission
require carriers that provide only international telecommunications services to contribute to universal
service because such carriers are not "telecommunications carriers that provide interstate
telecommunications," as required by section 254(d) of the Act.322
196.
The Commission created the current international-revenues exemption even though the
Commission recognized that it would result in some providers of international services being treated
differently from other such providers and that international-only providers benefited from federal
universal service policies.323 Later, in response to the Fifth Circuit’s TOPUC decision, the Commission
created a limited international revenues exemption (LIRE) for providers that offer predominantly

318 2012 FCC Form 499-A Instructions at 22. “International” for USF purposes includes all “foreign
communication,” which is defined as “communication or transmission from or to any place in the United States to or
from a foreign country, or between a station in the United States and a mobile station located outside the United
States.” 47 U.S.C. § 153(21).
319 47 U.S.C. § 254(d) (emphasis supplied).
320 Universal Service First Report and Order, 12 FCC Rcd at 9205, para. 841.
321 Id. at 9174, para. 779.
322 Id.
323 Id.

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international service.324 The LIRE exempts international revenues from reporting and contribution where
a provider’s interstate revenue is less than 12 percent of its combined interstate and international
revenue.325 The LIRE is designed to ensure that no contributor’s universal service obligation exceeds its
total interstate revenues326 and allows a qualifying contributor to exclude its international
telecommunications revenues from its contribution base.327
197.
Industry trends highlight the need to take a fresh look at how international end-user
telecommunications revenues are assessed under the contribution system.328 Although the Commission
once predicted that the “disparity among providers [caused by the international-revenues exemption]
should be minimal,”329 recent data suggest otherwise. As an example, the prepaid calling card market has
grown from $955 million in revenues in 1997 to $2.0 billion in 2010.330 Because many of the calls placed
using prepaid calling cards are international and because per-minute rates for international calls tend to be
higher than rates for interstate calls, it is unsurprising that 87.2 percent of prepaid calling card revenues
are international revenues,331 or that many providers that specialize in prepaid calling cards qualify for the
LIRE and thus do not contribute on their international revenues.332 A provider that does not qualify for
the LIRE may not be able to compete in the prepaid calling card market because it must contribute on its
international prepaid calling card revenues, suggesting that the current exemption may distort the
competitive market among international-only providers, LIRE-qualifying providers, and providers that
must contribute on all of their international revenues.
198.
In 1999, the international revenue exemptions were minimal—international revenues not
subject to assessment totaled only $333 million, or 0.4 percent of the total assessable revenue base.333

324 The Fifth Circuit in TOPUC held that the Commission’s previous rule, which had required providers with limited
interstate telecommunications revenues to contribute based on both their interstate and international revenues but
exempted providers without interstate telecommunications revenues, was not “equitable and nondiscriminatory.”
TOPUC, 183 F.3d at 434.
325 See 47 C.F.R. § 54.706(c).
326 See Universal Service Eighth Report and Order, 15 FCC Rcd at 1687, para. 19.
327 See 47 C.F.R. § 54.706(c) (allowing reporting entities whose projected collected interstate telecommunications
revenues are less than 12% of all assessable revenues to exclude their international revenues from their contribution
base).
328 Universal Service First Report and Order, 12 FCC Rcd at 9175, para. 779. We note that ending the exemption
for international-only telecommunications providers would not change our contribution rules’ treatment of revenues
from telecommunications that neither originate nor terminate in the United States or its territories or possessions.
329 Id.
330 See 2011 Telecommunications Reporting Worksheets, FCC Form 499-A (reporting calendar year 2010
revenues). See also 1997 Revenues Report, Table 6.
331 This information was calculated based on a review of the Telecommunications Reporting Worksheets filed in
April 2011.
332 See, e.g., Letter from Craig Neeld, Budget Prepay Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No.
05-68, at 2 (filed Sept. 28, 2010) (reporting that only 4.5% of Budget Prepay’s interstate and international prepaid
calling card revenues were interstate); Letter from Wael Manasra, ChitChat Communications, Inc. to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 05-68, at 2 (filed Sept. 30, 2010) (reporting that only 2.9% of ChitChat’s
interstate and international prepaid calling card revenues were interstate).
333 See Indus. Analysis & Tech Div., Telecommunications Industry Revenues: 1999, Table 4 (Common Carrier Bur.,
2000), available at http://www.fcc.gov/wcb/stats (last visited Apr. 3, 2012) (1999 Revenues Report). We use figures
for 1999 because that is the first reporting year in which both the exemption for international-only providers and the
LIRE were in effect.

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Since that time, the revenues foregone through these exemptions have increased more than tenfold, with
international revenues not subject to assessment representing about $3.4 billion, or almost five percent of
the assessable revenue base in 2010.334 One potential reason for this increase is that our contribution
rules narrowly focus on the amount of a provider’s end-user interstate revenues, rather than whether or
not the provider provides interstate telecommunications. As such, these exemptions may shelter not only
international providers with a limited presence in the domestic market, but also domestic providers that
report limited revenues for interstate telecommunications provided to end users. For example, of the 383
filers who qualified for the LIRE in 2010, 86 filers reported that less than half of their total domestic
revenues came from the sale of international telecommunications. Thirty filers reported higher interstate
telecommunications revenues from resellers than from end users.335 Indeed, other providers have even
offered free interstate calling while only charging customers for international calls.336 The current
system’s focus on the ratio of each provider’s end-user interstate telecommunications revenues to its total
interstate and international telecommunications revenues ignores the fact that international-only and
LIRE-qualifying providers may have a substantial, non-de minimis presence in the domestic market—and
amending the de minimis rules may be a better means of exempting telecommunications providers that
truly have a de minimis presence.
199.
Discussion. In this section, we seek comment on modifications to our current rules
regarding the contribution obligations of international providers.
200.
Eliminating the “International Only” and the “Limited International Revenues”
Exemptions. We seek comment on whether the Commission should eliminate the exemption for
international-only providers and LIRE-qualifying providers, and our legal authority for doing so. In
1997, the Commission interpreted section 254 of the Act, and specifically our authority to assess all
“providers of interstate telecommunications,” as drawing a three-way distinction between intrastate,
interstate, and international telecommunications.337 We seek comment on whether, in light of the changes
in the industry and telecommunications marketplace, section 254’s reference to interstate
telecommunications in the context of universal service contributions is better viewed as drawing a
jurisdictional line between the authority of the states (which have authority over providers of intrastate
telecommunications under section 254(f)) and the authority of the Commission (which has authority over
providers of interstate telecommunications under section 254(d)).338 Such a reading of section 254 would
parallel the Commission’s reading of other sections of that Act that divide responsibility between the state
and federal jurisdictions and include international services within the Commission’s jurisdiction.339

334 This information was calculated based on a review of the Telecommunications Reporting Worksheets filed in
April 2011.
335 This information was calculated based on a review of the Telecommunications Reporting Worksheets filed in
April 2011.
336 See, e.g., David Pogue, Google Shakes It Up Again With Free Phone Calls, Pogue’s Posts, N.Y. Times (Aug. 25,
2010), available at http://pogue.blogs.nytimes.com/2010/08/26/google-shakes-it-up-again-with-free-phone-calls/
(“The idea, clearly, is that Google will make enough money from the overseas calls to make the domestic ones
free.”).
337 See Universal Service First Report and Order, 12 FCC Rcd at 9174–75, para. 779 (interpreting 47 U.S.C.
§ 254(d)).
338 Compare 47 U.S.C. § 254(f) (giving states authority over “every telecommunications carrier that provides
intrastate telecommunications services”), with 47 U.S.C. § 254(d) (Commission has authority over every “provider
of interstate telecommunications”).
339 See, e.g., 47 U.S.C. § 225(d)(3)(B) (stating that “costs caused by interstate telecommunications relay services
shall be recovered from all subscribers for every interstate service and costs caused by intrastate telecommunications
relay services shall be recovered from the intrastate jurisdiction”); 47 C.F.R. § 64.604(c)(5)(iii)(A) (defining
“interstate services” to include “international . . . services”); see also, e.g., 47 U.S.C. § 410(c) (requiring referral of
(continued…)

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Alternatively, we seek comment on whether we could rely on section 254(b)(4)’s principle of “equitable
and nondiscriminatory contributions” to require international-only and LIRE-qualifying providers to
contribute because these providers also benefit from being able to originate or terminate traffic in the
United States.340 We note that the Act distinguishes “foreign communication” from both interstate and
intrastate.341 Does that distinction affect the Commission’s authority to treat interstate and foreign
telecommunications in the same manner?
201.
We also seek comment on whether the TOPUC decision limits our ability to re-examine
the international-only and LIRE exemptions today. The Fifth Circuit in TOPUC held that the
Commission’s previous rule, which had required providers with limited interstate telecommunications
revenues to contribute based on both their interstate and international revenues but exempted providers
without interstate telecommunications revenues, was not “equitable and nondiscriminatory.”342 The court
held that the previous rule “damage[d] some international carriers [i.e., limited-interstate-revenue
providers] more than it harm[ed] others [i.e., no-interstate-revenue providers].”343 The court also found
the rule inequitable because it required limited-interstate-revenue providers “to incur a loss to participate
in interstate service.”344 The court did not, however, make any findings or opine about the Commission’s
jurisdiction to assess international revenues. Thus the Commission should have significant discretion to
revise its rules regarding contributions on international revenues, consistent with the Fifth Circuit
decisions, so long as the new rule is equitable and nondiscriminatory. We seek comment on this analysis
and our ability to eliminate the LIRE and to assess one hundred percent of a contributor’s interstate and
international revenues, without a LIRE exemption.
202.
Commenters that oppose the elimination of the “international only” and the “limited
international revenues” exemptions should provide specific alternative rules and explain how their
proposals will support the proposed goals set forth in this Notice. We ask commenters to provide data to
quantify how our proposals or alternatives will impact the Fund and reduce compliance costs and burdens.
203.
Modifying the Limited International Revenues Exemption. If we were to assess all
international telecommunications revenues, as suggested above, should we also eliminate the LIRE? In
the alternative, if we maintain an exemption for international-only providers, we seek comment on
whether modifying the LIRE and the contribution obligations of LIRE-qualifying contributors may be
appropriate.
204.
Today’s LIRE is designed to ensure that no contributor’s universal service obligation
exceeds its total interstate (i.e., non-international) revenues.345 As explained above, the exemption of

(Continued from previous page)
matters regarding the “jurisdictional separation of common carrier property and expenses between interstate and
intrastate operations”); 47 C.F.R. Part 36 (requiring carriers to separate costs based on usage but not distinguishing
between interstate and international telecommunications).
340 47 U.S.C. § 254(b)(4); see 47 U.S.C. §§ 154(i) (“The Commission may . . . make such rules and regulations . . .
not inconsistent with this Act, as may be necessary in the execution of its functions.”); 201(b) (The Commission
“may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of
this Act.”); see also AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 380 (1999) (Section 201(b) “explicitly gives the
FCC jurisdiction to make rules governing matters to which the 1996 Act applies.”); Telecommunications Act of
1996, Pub. L. No. 104-104, § 101(a), 110 Stat. 56, 71–75 (1996) (adding section 254 to the Act).
341 See, e.g., 47 U.S.C. §§ 151-153.
342 TOPUC, 183 F.3d at 434.
343 Id. at 435.
344 Id.
345 See Universal Service Eighth Report and Order, 15 FCC Rcd at 1687, para. 19.

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international telecommunications revenues for LIRE-qualifying providers may potentially distort certain
markets for international telecommunications. If we nonetheless retain the LIRE, modifying it may be
appropriate to limit the advantage that LIRE-qualifying providers have over their competitors and to
ensure that all providers fairly and equitably contribute to supporting universal service. Specifically, if
we do not require LIRE-qualifying providers to contribute on all of their end-user international
telecommunications revenues, we propose to require LIRE-qualifying providers to contribute on at least a
portion of those revenues. Moreover, the LIRE-qualifying factor codified in our current rules (12
percent) may no longer provide the “adequate margin of safety” it once did for providers that primarily
offer international services,346 given that the contribution factor has remained above 12 percent over the
past two years.347 We therefore seek comment on ways to modify the LIRE-qualifying factor.
205.
If we retain the LIRE, we seek comment on whether we should modify the LIRE as
follows:
If the ratio of an entity’s collected interstate end-user telecommunications
revenues to its combined collected interstate and international end-user
telecommunications revenues is less than that year’s LIRE-qualifying factor, that
entity’s assessable revenues shall be its collected interstate end-user
telecommunications revenues plus an equal amount of its collected international
end-user telecommunications revenues, net of contributions.

(1) The LIRE-qualifying factor for a given year shall be equal to the highest
contribution factor established for any quarter of the previous year plus three
percent.

(2) For purposes of this subsection, an “entity” shall refer to the entity that is
subject to the universal service reporting requirements and shall include all of
that entity’s affiliated providers of interstate and international
telecommunications and telecommunications services.

206.
We seek comment and (if appropriate) examples of how the LIRE results in a competitive
advantage for some providers. Providers that qualify for the LIRE compete against non-qualifying
providers that must include all of their international revenues in calculating their contribution base.348
LIRE-qualifying providers benefit from being able to originate and terminate both interstate and
international calls in the United States. Further, we seek comment on whether the proposed modification
of the LIRE would advance the goal of fairness by treating competitive providers in a like manner.
Would it advance other of our proposed goals for contribution reform, such as ensuring a stable
contribution base? Would requiring LIRE-qualifying providers to contribute based on an amount of their

346 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3806, para. 125.
347 The average contribution factor for 2010 was 13.97 percent and the average contribution factor for 2011 was 15.9
percent. The quarterly factor for the second quarter 2012 is 17.4 percent. See Public Notices on Proposed
Contribution Factors for 2010-2012
, Contribution Factor and Quarterly Filings—Universal Service Fund
Management Support, available at http://www.fcc.gov/encyclopedia/contribution-factor-quarterly-filings-universal-
service-fund-usf-management-support (last visited Mar. 8, 2012).
348As discussed above, the Commission adopted the LIRE in 1997 in response to the TOPUC decision. See
Universal Service Eighth Report and Order, 15 FCC Rcd at 1687, para. 19; TOPUC, 183 F.3d at 433–35. The Fifth
Circuit and the Commission focused at the time on the need to ensure that our rules do not discriminate against
primarily international providers vis-à-vis purely international providers. See, e.g., TOPUC, 183 F.3d at 435
(holding that requiring “companies such as COMSAT to incur a loss to participate in interstate service” is
inequitable and discriminatory, especially when “the agency concedes that its rule damages some international
carriers like COMSAT more than it harms others”).

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international revenues equal to their interstate revenues be a more equitable approach in today’s
marketplace? Would the modification proposed above reduce the potential regulatory advantage that
LIRE-qualifying providers have over their competitors? What impact would such a modification have on
the Fund?
207.
We also seek comment on whether we should set the LIRE-qualifying factor based upon
a formula rather than fixed percentage. A fixed percentage assumes that the Commission can easily
forecast changes in the contribution base as well as changes in the demand for universal service support.
Neither of these assumptions has been valid in recent years. The Commission has already had to increase
the LIRE-qualifying factor once to respond to the rising contribution factor.349 Using a formula to
establish the LIRE-qualifying factor should eliminate the need for us to periodically rewrite our rules.
Moreover, a formula tied to the current contribution factor would also respond to changes in the
contribution factor. If, for example, future events bring the contribution factor down, the LIRE-qualifying
factor would automatically decrease in future years, which should increase the contribution base. Should
we set the LIRE-qualifying factor one year at a time to provide regulatory certainty for contributors? A
three percent increase tied to the current or anticipated contribution factor is generally in line with
previous increases to the LIRE.350 Would a three percent increase, for example, over the previous year’s
highest contribution factor, be sufficient to address unexpected events in the future?351
208.
We seek comment on what steps would need to be taken to implement the potential
modifications outlined above or alternative proposals to modify the contribution requirements for
international-only and predominantly international providers. We also seek comment on how much time
parties would need to transition to any modified or new reporting requirements.
7.

Reforming the De Minimis

Exemption
209.
In this section, we seek comment on streamlining the de minimis exemption to ease
administrative burdens. In particular, we seek comment on whether we should modify the de minimis
exemption to base the threshold on a provider’s assessable revenues rather than on the amount of its
contributions. We also seek comment on how we could potentially reform our rules to minimize the
filing requirements for companies that may be subject to the exemption.
210.
Background. The Act gives the Commission authority to exempt a carrier from
contributing to universal service if the carrier’s telecommunications activities “are limited to such an
extent that the level of such carrier’s contribution to the preservation and advancement of universal
service would be de minimis.”352 Accordingly, our rules exempt from contribution any
telecommunications provider whose “contribution to universal service in any given year is less than
$10,000.”353 These de minimis telecommunications providers also are not required to file the

349 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3806-07, paras. 123-128.
350 When the Commission established the LIRE at 8 percent in 1999, the universal service contribution factor was
5.8995 percent. In 2002, when the Commission raised the LIRE to 12 percent, the contribution factor had risen to
6.808 percent, and the Commission anticipated that it would exceed 8 percent for the year. See 2002 First
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 3806, para. 125.
351 Although we anticipate that the contribution factor will be less likely to increase above that year’s LIRE-
qualifying factor if we use a formula rather than a fixed percentage, the Commission’s waiver rules would remain in
effect even with revision of the LIRE, as discussed herein. See 47 C.F.R. § 1.3.
352 47 U.S.C. § 254(d).
353 47 C.F.R. § 54.708.

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Telecommunications Reporting Worksheet unless required by our rules governing contributions to other
federal regulatory programs.354
211.
In 2010, about 55 percent of all Telecommunications Reporting Worksheet filers
qualified for the de minimis exemption; absent that exemption, 1,708 additional filers would have been
required to contribute to universal service directly.355 We estimate that, during that same year, 96 percent
of the financial benefits of the de minimis exemption went to the largest 1,020 de minimis
telecommunications filers, all of whom would have contributed more than $1,000 to universal service that
year.356
212.
Today’s de minimis exemption creates administrative burdens and uncertainty for many
qualifying providers and USAC.357 Specifically, tying de minimis status to a telecommunications
provider’s annual contribution amount means that some providers cannot project with reasonable
certainty whether or not they will qualify as de minimis each year until mid-September, when the
Commission announces the fourth-quarter contribution factor.358 Because of this uncertainty, many
telecommunications providers close to the existing de minimis threshold must file the quarterly
Telecommunications Reporting Worksheet and contribute on a quarterly basis out of precaution—if a
provider fails to do so and it turns out not to qualify for the exemption, it faces late filing fees, penalties,
and other sanctions.359 Moreover, the uncertainty caused by today’s de minimis exemption extends
beyond potentially qualifying entities to any providers from which they purchase telecommunications—if
the potentially qualifying provider turns out to be de minimis, then the underlying provider should have
contributed on its revenues from sales to that provider; if not, then the underlying provider has no such
obligation.
213.
Discussion. We seek comment on whether we should modify the Commission’s de
minimis rules in an effort to reduce administrative burdens. Specifically, we seek comment on revising
the rule as follows to base the de minimis threshold on a provider’s assessable revenues rather than on the
amount of its contributions:
If a potential contributor’s annual assessable revenues in any given year is
$50,000 or less, that contributor will not be required to submit a contribution or
Telecommunications Reporting Worksheet for that year unless it is required to do


354 Id.
355 The 55 percent includes 1,920 filers that reported no revenue. This information was calculated based on a review
of the Telecommunications Reporting Worksheets filed in April 2011.
356 De minimis telecommunications providers may indirectly contribute to the universal service support mechanisms
through contribution pass through charges that they pay to their wholesale providers. De minimis
telecommunications providers still benefit from the exemption, however, because their wholesale provider only
contributes on its (wholesale) revenues rather than the de minimis telecommunications provider’s (retail) revenues.
357 See, e.g., Letter from L. Charles Keller, Counsel for Network Enhanced Telecom LLP, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, Attach. at 7 (filed Aug. 19, 2010) (“It is very difficult for these [de
minimis
] carriers to determine, in a forward-looking way, whether they will be de minimis for the coming
year . . . .”).
358 For example, assume that a provider projects that it will collect $14,500 each quarter in assessable revenues. If
the provider assumes that the contribution factor will remain constant throughout this next year at its current level
(17.4%), the provider’s contribution obligation would be $10,092 and the provider would not qualify as de minimis.
If the contribution factor drops to 17%, however, the provider’s calculated obligation would drop to $9,860 and the
provider would not need to contribute at all.
359 47 C.F.R. § 54.708.

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so by our rules governing TRS, numbering administration, or shared costs of
local number portability. ...

A potential contributor may—but need not—file the quarterly
Telecommunications Reporting Worksheet for the year after it qualifies as a de
minimis telecommunications provider.

214.
Such a rule would set the de minimis threshold based on a telecommunications provider’s
assessable revenues rather than what it would have contributed. A potentially qualifying
telecommunications provider (and its underlying providers) should know with increased certainty whether
it will actually qualify as a de minimis telecommunications provider as the exemption will no longer
depend on each year’s quarterly contribution factors. We seek comment on this analysis.
215.
If we adopt this approach, is $50,000 the right cutoff for assessable revenues to qualify
for the de minimis exemption, or should we adopt some other cutoff? We use $50,000 as a potential cut
off because today the de minimis exemption applies when the contribution would be less than $10,000. If
a contributor (under the existing de minimis rule) has $50,000 in annual assessable revenues, and we
assume an average contribution factor for the year of 17 percent, that contributor would qualify for the de
minimis
exception. We believe that adopting a $50,000 revenues threshold would not change the number
of contributors that would qualify for the de minimis exemption, but would simplify the application of the
de minimis rule. Modifying the de minimis exemption in this manner could be more equitable, could have
a smaller marginal impact, and may better align our requirements for reporting and contributing without
affecting those whose “telecommunications activities are limited to such an extent that the level of such
carrier’s contribution to the preservation and advancement of universal service would be de minimis.”360
We seek comment on this analysis.
216.
We also seek comment on whether such a rule would also reduce the reporting
obligations and regulatory uncertainty for de minimis telecommunications providers with growing
revenues. If so, we ask commenters to quantify the savings. Should we make it optional for contributors
to file quarterly Telecommunications Reporting Worksheets for a year after which a contributor qualified
as de minimis? To illustrate, consider a telecommunications provider that had $9,000 in assessable
revenues in 2011. Currently, the provider would need to have projected its assessable revenues for 2012
(and thus forecast whether or not it would still qualify for the de minimis exemption) by November 1,
2011, when the Telecommunications Reporting Worksheet projecting revenues for the first quarter of
2012 was due. Further, the telecommunications provider could face late filing fees and other sanctions if
it did not file the quarterly Telecommunications Reporting Worksheet, but later determines that it should
have (because it no longer qualifies for the de minimis exemption). We seek comment on whether we
should adopt a rule that allows telecommunications providers in that position to avoid filing quarterly
Telecommunications Reporting Worksheet in the first year for which they are no longer a de minimis
filer. Such a rule could strike a reasonable balance between providing certainty to small (and growing)
businesses in the telecommunications marketplace and the need for all telecommunications providers with
a substantial presence to contribute to universal service in an equitable manner. We note that such a rule
would not alter the obligation of telecommunications providers to file the annual Telecommunications
Reporting Worksheet.
217.
We also seek comment on other reforms the Commission could make to all of its de
minimis rules—in the context of funding universal service, Telecommunications Relay Services
(Interstate TRS), North American Numbering Plan, Local Number Portability, and regulatory fees
administration programs—to relieve de minimis companies of the burden of filing the annual
Telecommunications Reporting Worksheet. The de minimis exemption is meant to relieve small

360 47 U.S.C. § 254(d).

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businesses of the cost of complying with our contribution rules when that cost would outweigh the
contributions we could expect from the provider.361 Today, however, thousands of de minimis
telecommunications providers must nevertheless complete the annual Telecommunications Reporting
Worksheet. We seek comment on whether we should reform our rules for filing the annual
Telecommunications Reporting Worksheet and set the de minimis threshold based on a metric that does
not require completing the entire worksheet. For example, should we establish an abbreviated form for
telecommunications providers with less than some cutoff value in gross revenues? What metric should
the Commission use for determining de minimis status? We ask commenters to discuss whether and how
alternative metrics would be consistent with the language of section 254(d).362 What threshold should the
Commission establish to permit filing of the abbreviated form? How could we ensure that any revisions
to these de minimis rules will not undermine the stability of funding for various federal regulatory
programs or allow telecommunications providers to evade contribution obligations? Commenters that
oppose such suggested rules should provide specific alternative rules and explain how their proposals will
support the goals of universal service. We also seek comment on what changes, if any, may be needed in
our de minimis rules if we were to assess the international telecommunications revenues of all
telecommunications providers.
218.
We seek comment on what steps would need to be taken to implement any of the
potential modifications detailed above or alternative proposals to improve the contribution reporting
requirements for de minimis providers. We also seek comment on how much time, if any, parties would
need to transition to any new rules.

B.

Assessing Contributions Based on Connections

219.
In this section, we seek comment on moving from a revenues-based contribution
assessment system to a system based on connections. Nothing in the Act requires contributions to be
based on revenues, and the Commission has explored a connections-based methodology in the past. We
ask whether a connections-based approach would better meet our proposed goals of promoting efficiency,
fairness, and sustainability in the Fund, as well as other goals identified by commenters.
220.
Under a connections-based system, providers would be assessed based on the number of
connections to a communications network provided to customers. Providers would contribute a set
amount per connection, regardless of the revenues derived from that connection. Under various
proposals, there would be one standard monthly assessment for certain kinds of connections, typically
provided to individuals, and a higher standard monthly assessment for higher speed or capacity
connections, typically provided to enterprise customers. There might be several tiers for assessment
based on speed or capacity. The standard assessment and higher assessment levels for higher speed or
capacity connections would be calculated by applying a formula based on the USF demand requirement
and the number of connections, however that term is defined. This contribution factor would apply
equally for all connections that fall into the same category, such that assessments would no longer be
based on revenues.
221.
In 2001, the Commission first sought comment on replacing the existing revenues-based
methodology with one that assesses contributions on the basis of a flat fee “per unit” charge.363 In early
2002, the Commission proposed an assessment mechanism based on the number or speed of connections

361 See 2001 Contribution Methodology Notice, 16 FCC Rcd at 9906–07, para. 31.
362 47 U.S.C. § 254(d) (“The Commission may exempt a carrier or class of carriers from [the requirement to
contribute] if the carrier’s telecommunications activities are limited to such an extent that the level of such carrier’s
contribution to the preservation and advancement of universal service would be de minimis.”).
363 2001 Contribution Methodology Notice, 16 FCC Rcd at 9905-06, paras. 25-30.

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a contributor provides to a public network.364 The Commission subsequently sought comment on various
iterations of a connections-based system,365 including hybrid systems that would include a connections
and revenues component.366
222.
Proponents of connections-based methodologies have argued that a connections-based
system may provide a more stable contribution base than a revenue-based system because the number of
connections has historically been more stable than end-user interstate telecommunications revenues.367 In
addition, proponents have suggested that connections-based assessments may mitigate the need to
differentiate between revenues from interstate and intrastate jurisdictions and from telecommunications
and non-telecommunications services.368 Others have raised concerns that a connections-based system
would impose new costs on both industry and USAC in the form of new data collection and reporting
requirements, necessitating changes to billing and reporting systems.369 Some have argued that a
connections-based system may be at least as complex to implement and administer as a revenue-based
system,370 with many operational details that would need to be resolved. Despite several rounds of
comment, the industry as a whole has not reached consensus about whether connections-based
assessments are the best way to reform the contribution system: some providers have strongly opposed a

364 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3766, para. 34. In the 2002 NPRM,
the Commission used the term “capacity” to refer to the bandwidth, or speed, of a connection. Id. Here, we use the
term “speed” instead of “capacity” for such purposes. We use the term capacity here in the sense we used it in our
recent USF/ICC Transformation Order, to refer to “the total volume of data sent and/or received by the end user
over a period of time.” See USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17689, para. 97.
365 The Commission has inquired about various assessment methodologies including: (1) assessing residential,
single-line business, and mobile connections $1 and multi-line business customers a residual amount calculated to
meet with the remaining needs of the USF, 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd
at 3766, para. 35; (2) assessing a mandatory minimum annual contribution of $10,000 per provider, offset by an
assessment for each end-user connection based on the nature or capacity of the connection, 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24986, 24989, paras. 72, 78; and (3) assessing all
connections based solely on capacity, without regard for whether the connections are residential or business and
sharing the contribution obligation for switched end-user connections between switched and access providers, Id.
366 In the 2002 Second Contribution Methodology Order and FNPRM, the Commission sought comment on a hybrid
connections and revenues proposal and a hybrid numbers and connections proposal. 2002 Second Contribution
Methodology Order and FNPRM,
17 FCC Rcd at 24991–97, paras. 86–100. In 2008, the Commission sought
comment on assessing business connections as part of a hybrid numbers and connections methodology. See 2008
Comprehensive Reform FNPRM
, 24 FCC Rcd at 6686, App. B, para. 81. See also Comment Sought on the Role of
the Universal Service Fund and Intercarrier Compensation in the National Broadband Plan, NBP Notice #19, GN
Docket Nos. 09-47, 09, et al., Public Notice, 24 FCC Rcd 13757-58 (Wireline Comp. Bur. 2009) (seeking comment
on numbers or connections-based methodology, an expanded revenues-based methodology, or some combination
thereof).
367 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24985, para. 70. See Letter from Ad
Hoc Telecommunications Users Committee, Google, Inc. et al., to Julius Genachowski, Chairman, FCC et al., WC
Docket No. 10-90 et. al. (filed Aug. 8, 2011); Comments of SouthernLINC Wireless, GN Docket No. 09-47 et al., at
7-8 (filed Dec. 7, 2009); Comments of the USA Coalition, GN Docket No. 09-47 et al., at 9 (filed Dec. 7, 2009).
368 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24985, para. 70; see, e.g.,
Comments of the United States Telecommunications Association, WC Docket No. 05-337 et al., at 12 (filed Nov.
26, 2008) (USTA Nov. 26, 2008 Comments).
369 See, e.g., XO Sept. 17, 2010 Ex Parte Letter at 4.
370 See, e.g., id. at 3; Letter from L. Charles Keller, Counsel for Inmarsat, et al. to Marlene H. Dortch, Secretary,
FCC (filed Aug. 13, 2010) (Inmarsat Aug. 13, 2010 Ex Parte Letter).

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connections system,371 others have been agnostic about whether a connections-based system is the
optimal reform,372 and still others who once supported a move to a system that includes a connections-
based component appear to be re-evaluating their position on this issue.373 In light of the varied
connections-based proposals, the evolution of the communications ecosystem, and the comments received
over the past decade, we now seek to refresh the record on the operation of a connections-based system,
as well as the costs and benefits of such a system, as discussed below. We ask parties claiming
significant costs or benefits of a connections-based system to provide supporting analysis and facts for
such assertions, including an explanation of how data were calculated and all underlying assumptions.
1.

Legal Authority

223.
Section 254(d) of the Act requires that “[e]very telecommunications carrier that provides
interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to
the specific, predictable, and sufficient mechanisms established by the Commission to preserve and
advance universal service.”374 It also gives the Commission broad permissive authority to require
contributions from a variety of providers. We seek to refresh the record on whether a connections-based
assessment would satisfy the requirements of section 254(d). In responding to the specific questions
below, we invite commenters to address how a connections-based system should be structured to fulfill
the statutory requirement that telecommunications service providers contribute on an equitable and
nondiscriminatory basis. If we were to adopt a connections-based contribution methodology, should we
also explicitly exercise our permissive authority over specified providers to make clear that connections
provided by those providers would be assessed? How would we ensure that all entities that contribute
under a connections-based system are providers of interstate telecommunications?
224.
In 2002, the Commission proposed a hybrid revenues/connections-based system that
would require a mandatory minimum contribution based on interstate telecommunications revenues for all
providers of interstate telecommunications. Under this proposal, all non-de minimis telecommunications
carriers would contribute a mandatory minimum, either based on a percentage of total interstate revenue,
or based on increasing percentages of telecommunications revenues or increasing flat-fee amounts tied to
their telecommunications revenues.375 Providers with end-user customers would also be assessed on a
flat fee basis for residential, single line business, and mobile connections, and on a tiered basis based on
speed or capacity for multi-line businesses. Providers with end-user assessments could offset their
connections-based assessment against their minimum contribution.376 In crafting this proposal, the
Commission was specifically addressing concerns that a connections-based proposal would be
inconsistent with section 254(d)’s requirement that every provider of interstate telecommunications
service contribute.377 We seek to refresh the record on this proposal and seek comment on whether, in

371 See, e.g., XO Sept. 17, 2010 Ex Parte Letter at 3; Omaha Plan at 22 (arguing that proposals to collect USF costs
through connections are outdated, noting that connections fail to measure demand placed on the network by modern
day electronic multi-media communications).
372 See, e.g., Letter from Jeffrey S Lanning, CenturyLink, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
06-22 (filed Sept. 10, 2010) (supporting numbers and/or connections or revenues).
373 Compare, e.g., Comments of AT&T Inc., GN Docket No. 09-51 et al., at 3-5 (filed Dec. 7, 2009) with Letter
from Henry Hultquist, AT&T, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 09-51, et al., (filed Oct. 13,
2010) (setting out principles for contribution reform but not advocating a particular methodology).
374 See 47 U.S.C. § 254(d).
375 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24989-90, paras. 78, 80.
376 Id. at 24989, para. 78.
377 Id. at 24985, para. 71.

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fact, a mandatory contribution from every interstate telecommunications carrier is required to satisfy the
requirements of section 254(d) that contributions be equitable and nondiscriminatory.
225.
We also seek specific comment on whether a connections-based methodology is
consistent with the Fifth Circuit’s TOPUC decision, which held that section 2(b) of the Act prohibits the
Commission from assessing revenues associated with intrastate telecommunications service.378 The Fifth
Circuit also interpreted the Act as limiting the Commission’s authority to assess international revenues,
finding that the Commission’s contribution system may not inequitably and discriminatorily assess
providers more in universal service contributions than the provider generates in interstate revenues.379
We seek comment on the Commission’s authority under a connections-based system to assess
international connections that either originate or terminate in the United States and whether TOPUC
would apply under such a system. We also seek comment on whether, if we were to adopt a connections-
based system, we should adopt an exemption similar to the LIRE under the current revenues-based system
for connections that are primarily international in nature,380 and if so, how to craft such an exemption.
2.

Defining “Connections”

226.
Background. Unlike revenues, “connections” is not a universally-recognized or tracked
unit, and the Commission would need to create a definition of “connection” for purposes of moving to a
new connections-based contribution methodology. The definition of an assessable “connection” is
therefore integral to any connections-based proposal.381 And whereas total revenues are tracked and
reported for non-USF purposes, such as for IRS or Securities Exchange Commission (SEC) requirements,
connections generally are not tracked for other governmental purposes.382
227.
Over the years, the Commission and the industry have grappled with the appropriate
definition of connection for a connections-based methodology.383 In general, a “connection” can be
viewed as a physical facility (wired or wireless) that connects Point A to Point B, or a service provided
over some physical facility.
228.
The Commission has sought comment for purposes of universal service contributions on
the definition of “connection” several times over the last decade in a series of Notices. As such, the

378 TOPUC, 183 F.3d at 446-48. But see State Members of Joint Board CAF Comments at 121-24 (both the
Commission and states should be able to assess interstate and intrastate telecommunications revenues; TOPUC was
wrongly decided).
379 TOPUC, 183 F.3d at 434-35.
380 Under the LIRE, a contributor need not contribute on its projected collected international end-user
telecommunications revenues if that contributor’s projected collected interstate end-user telecommunications
revenues comprise less than 12 percent of its combined projected collected interstate and international end-user
telecommunications revenue. 47 C.F.R. § 54.706(c).
381 See, e.g., Inmarsat Aug. 13, 2010 Ex Parte Letter; Letter from Andrew M. Brown, Counsel for Ad Hoc
Telecommunications Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, et al., at 3
(filed Apr. 13, 2012) (Ad Hoc Telecom Users Apr. 13, 2012 Ex Parte Letter) (details of implementation will
determine whether connections-based system is fair).
382 As discussed in further detail below, the Commission collects information about broadband connections to end
user locations, wired and wireless local telephone services, and interconnected VoIP service in individual states
through FCC Form 477 filings. See infra para. 229.
383 See, e.g., Comments of the Coalition for Rational Universal Service and Intercarrier Reform, WC Docket No. 03-
109, et al., at 18 (filed Nov. 26, 2008) (arguing that proposed numbers-and-connections fees are based on historical
time-division multiplexing network technical constructs, and become clouded when applied to new packet-based
voice services).

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Commission has several potential definitions of the term “connection” on which to draw. In early 2002,
the Commission sought comment on a facilities-based definition that would define a connection as “a
facility that provides an end user with independent access to a public network regardless of whether that
connection is circuit-switched, packet-switched, or a leased line (e.g., special access).”384 Later in 2002,
the Commission sought further comment on a modified definition which deleted the qualifier
“independent” before “access” and included private as well as public networks. Under that definition, a
connection is a facility that provides end users “with access to an interstate public or private network,
regardless of whether the connection is circuit-switched, packet-switched, wireline or wireless, or leased
line.” Subsequently, in 2008, the Commission proposed a service-based definition for business
connections as part of a hybrid numbers-connection methodology, when it sought comment on defining a
connection as “an interstate telecommunications service or an interstate service with a
telecommunications component that connects a business end-user’s physical location (e.g., premises) on a
dedicated basis to the contributor’s network or the PSTN.”385
229.
In addition to the definitions proposed in the various Notices in the contributions
rulemaking proceeding, the Commission also currently collects data from certain communications
providers about “connections” as defined in the FCC Form 477. FCC Form 477 requires four types of
providers to report on their connections: (1) “facilities-based providers of broadband connections to end
user locations,” whether wireline or wireless;386 (2) providers of “wired or fixed wireless local exchange
telephone service”;387 (3) providers of interconnected VoIP service;388 and (4) providers of “mobile

384 The Commission did not define the term “independent access,” but asked whether a connection should be
considered “independent” if it does not require the presence of any other activated end-user connection to provide
access to the network. The Commission then invited comment on whether, for example, two activated voice-grade
connections via a single loop might be deemed “independent” because each allows stand-alone access to a public
network. The Commission, likewise, sought comment on whether line-shared or line-split voice-band service and
digital subscriber line (DSL) service provided over the same loop might both be deemed “independent,” and
therefore separately assessed, because each allows stand-alone access to a public network. The Commission also
pointed out that certain information services, such as voice mail or dial-up Internet access, may not be deemed
“independent” because they would not allow access to a public network without an activated voice-grade
connection. 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3769-70, para. 42.
385 See 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6686, App. B, para. 81 (emphasis added).
386 For FCC Form 477 purposes, facilities-based providers of broadband connections must report wired lines or
wireless channels that enable an end user to receive information from, or send information to, the Internet at transfer
rates exceeding 200 kbps in at least one direction. 2012 Instructions for Local Telephone Competition and
Broadband Reporting, Form 477 at 2 (2012 FCC Form 477 Instructions). For the purposes of FCC Form 477, a
broadband “end user” is a residential, business, institutional, or government entity who uses broadband services for
its own purposes and who does not resell such services to other entities or incorporate such services into retail
Internet-access services. For purposes of Part I of FCC Form 477, an Internet Service Provider (ISP) is not an “end
user” of a broadband connection. Id. For the purposes of FCC Form 477, an entity is a “facilities-based” provider
of broadband connections to end user locations if any of the following conditions are met: (1) it owns the portion of
the physical facility that terminates at the end user location; (2) it obtains unbundled network elements (UNEs),
special access lines, or other leased facilities that terminate at the end user location and provisions/equips them as
broadband, or (3) it provisions/equips a broadband wireless channel to the end user location over licensed or
unlicensed spectrum. Id.
387 Providers of wired or fixed wireless local exchange telephone service must report voice grade equivalent lines
and voice grade equivalent wireless channels. 2012 FCC Form 477 Instructions at 2.
388 Interconnected VoIP service providers must report service that enables real-time, two-way voice
communications; requires a broadband connection from the user’s location; requires Internet-protocol compatible
customer premises equipment; and permits users generally to receive calls that originate on the public switched
network and to terminate calls to the public switched network. 2012 FCC Form 477 Instructions at 3.

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telephony services.”389 Form 477 thus effectively categorizes connections according to services, so that a
given provider may report separately about voice and broadband services delivered over the same
physical facility.
230.
Discussion. We seek comment on the definition of an assessable connection that best
meets our proposed goals of promoting efficiency, fairness, and the sustainability of the Fund, as well as
other goals identified by commenters. As described below, the question of the appropriate definition of
an assessable connection is related to, but may be distinct from, the questions raised in Section IV of this
Notice regarding what providers and services should contribute to universal service.390
231.
Facilities-Based Definition. A facilities-based definition focuses on the physical facility
– either wired line or wireless channel – that is provided by the contributor. Under a facilities-based
definition, the connection itself, and not the services that are provided over the connection, would be
assessed. For example, a physical line to a residential home would be assessed as one “assessable
connection” even if it provided multiple assessable services to the customer. A multi-line business
connection would likewise be assessed based on speed or capacity of the facility and not the services
provided over the facility. A facilities-based approach raises complexities, however, to the extent that the
assessment varies based on the speed of the facility, in circumstances where the physical connection
provides variable speed on demand.
232.
If we were to adopt a facilities-based definition, would it be appropriate to build on the
definition that was suggested in late 2002: a facility that provides end users with “access to an interstate
public or private network, regardless of whether the connection is circuit-switched, packet-switched,
wireline or wireless, or leased line”?391 For example, we seek comment on the following potential
definition of connection:
Connection. A facility that provides end users with access to any assessable
service, whether circuit-switched, packet-switched, wireline or wireless, leased
line or provisioned wireless channel.

Alternatively, we seek comment on the following potential definition of connection, building on the FCC
Form 477:
Connection. A wired line or wireless channel used to provide end users with
access to any assessable service.

233.
Are there any significant differences in what would qualify as “connections” under these
definitions?
234.
We believe either definition could be used with either of the two general approaches to
defining assessable services described in Section IV of this Notice. That is, either definition could be
used either if, as described in Section IV.B, we were to continue defining assessable services as

389 Facilities-based mobile telephony service providers must report real-time, two-way switched voice service that is
interconnected with the public switched network using an in-network switching facility that enables the provider to
reuse frequencies and accomplish seamless handoff of subscriber calls. 2012 FCC Form 477 Instructions at 3. A
mobile telephony service provider is considered “facilities-based” if it serves a subscriber using spectrum for which
the entity holds a license that it manages, or for which it has obtained the right to use via lease or other arrangement
with a Band Manager. Id.
390 See supra Section IV.
391 See, e.g., 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24987, para. 76.

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telecommunications services plus certain enumerated other services, or if, as described in Section IV.C,
we were to adopt a more general definition of assessable services. We seek comment on this analysis.
235.
We also seek comment on the impact of adopting a facilities-based definition of
connection. How would adopting such a definition affect the distribution of contribution obligations
among different industry sectors, or the relative contribution burden borne by mass market versus
enterprise customers? Would such a definition provide predictability for contributors, while retaining
sufficient flexibility to accommodate the evolution of the telecommunications marketplace? Are there
variations on the definitions, or alternate definitions, that would better meet our proposed goals for
contribution reform?
236.
Service-Based Definition. Under a service-based definition, the definition of the
connection “unit” would focus on the service or services that are delivered over the facility. Under such a
definition, each interstate telecommunications service using the connection would be assessed as one
“unit,” as could any service that had an interstate telecommunications component. For example, in
contrast to the facilities-based definition, if a customer purchases two services that we have determined
are assessable and that are delivered over the same facility, the provider would be assessed for two
connections.392 Multi-line business services could likewise be assessed based on the services that are
provided over the connection.
237.
For example, we seek comment on the following potential service-based definition of
connection:
Connection. An assessable service provided to an end user.
238.
As above, we seek comment on the impact of adopting this definition of connection.
How many total connections would there be under this definition, given the different approaches to
defining assessable services in Section IV of this Notice? Would this definition raise questions regarding
whether particular offerings were one “service” or multiple bundled services? For example, under such a
definition, should a subscriber purchasing both text messaging service and voice service be counted as
two connections or one? How would family plans or other multi-user or multi-device scenarios be
treated?
239.
How would adopting this definition affect the distribution of contribution obligations
among different industry sectors, or the relative contribution burden borne by mass market versus
enterprise customers? Would this definition provide predictability for contributors, while retaining
sufficient flexibility to accommodate the evolution of the telecommunications marketplace? Are there
variations on this definition, or alternate definitions, which would better meet our proposed goals for
contribution reform?
240.
We also seek comment on alternative service-based definition that would focus on usage
(i.e., how much throughput actually traverses the connection in a given period).
241.
Defining “End User.” We also seek comment on whether a definition of connection
should be limited to connections provided to “end users.” In prior years, the Commission sought
comment on whether to apply the same definition of end user that is used under the current revenue-based
system.393 As discussed above, under the existing system, “end users” include purchasers of retail
interstate telecommunications or telecommunications services that do not contribute on their finished

392 The question of which services are assessable would be addressed separately, as discussed in Part IV.
393 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3769, para. 41.

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offerings.394 End users do not include entities that purchase wholesale inputs and contribute on the
services they provide to other customers.395 Would including the use of the term “end user” in the
definition of a connection perpetuate some of the challenges we see under the current revenue-based
system discussed above, such as, for example, the difficulty of determining whether a customer is an end
user or reseller of specific services for purposes of USF contribution obligations?396 How should we
define end user if we adopt a connections-based approach? Should we, for instance, define an end user as
a residential, business, institutional, or governmental entity who uses the services provided for its own
purposes, and does not sell the service to other entities, or incorporate the service into another service sold
to other entities?
242.
Would a system that requires each provider to “pay its own way” – that is, each provider
would contribute based on the connection it provides to another entity – be simpler from a compliance
and administrative perspective? In 2002, the Commission sought comment on a proposal that would split
connections-based contribution obligations between switched access and interstate transport providers.397
Under such an approach, a provider of both local and interexchange services to the end user would be
assessed two units per connection (one for access and one for transport), while a provider that provided
only local service would be assessed one unit and the interexchange carrier would be assessed one unit.398
We invite comment on whether a more general system of this type that requires each provider of
connections to contribute would be simpler from a compliance and administration perspective than a
system that requires only the provider with the relationship to the end user customer to contribute. For
instance, as discussed above, if we were to adopt a service definition of connection, and Carrier A sells a
private line to Carrier B, and Carrier B in turn uses that circuit to provide both an enterprise
communications service and VoIP to its retail customer, should Carrier A be assessed one unit for that
high-speed line, while Carrier B is assessed one unit for the communications service and a second unit for
the VoIP service?
243.
Connections Provided to Lifeline Subscribers. Today there are approximately 14.8
million Lifeline subscribers.399 We seek comment on whether the Commission has statutory authority to
exclude from assessment connections provided to Lifeline subscribers. Would it be consistent with
section 10 to forbear from imposing contribution obligations on such connections?
244.
How would the exclusion of such connections impact a connections-based regime? What
would be the policy justifications for excluding these connections from contribution obligations?
Alternatively, should such connections associated with Lifeline services be assessed at a pro-rated or
reduced rate, and if so, what would be an appropriate amount?
3.

Trends in Connections

245.
We seek comment regarding trends in connections over time. We seek data to project the
number of connections that exist today under the facilities-based definitions discussed above. If we were
to adopt a service-based definition, the number of connections would largely depend on how narrowly or
broadly we were to define the relevant assessable services. We invite commenters to present data and

394 See Universal Service First Report and Order, 12 FCC Rcd at 9207, para. 844.
395 See id. at 9207, 9208, paras. 844, 848.
396 See supra Section V.A.4.
397 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24991, para. 86.
398 Id.
399 USAC Second Quarter 2012 Filings, LI08 - Lifeline Subscribers by State or Jurisdiction.xls available at
http://www.usac.org/about/tools/fcc/filings/2012/q2.aspx.

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their underlying assumptions regarding the number of connections under the alternative connection
definitions discussed above.
246.
The FCC Form 477 data collection provides some information that may be useful in
projecting the number of connections. As discussed above, FCC Form 477 counts broadband connections
separately from connections that are used for local telephone service, which provides some basis for
estimating the number of connections if we were to exercise our permissive authority over broadband
Internet access services and also adopted a definition of connections that counted broadband separately
from voice. Notably, because the form is designed mainly to track residential connections, it does not
capture many connections provided to businesses, governmental entities, and other large institutions.
247.
As shown in Chart 6 below,400 there were 616 million connections reported under the
FCC Form 477 connection categories in 2010: 117 million local landlines (switched access lines), 32
million interconnected VoIP subscriptions, 285 million mobile telephone subscriptions, and 182 million
broadband connections. If one assumes continued growth in mobile subscriptions, interconnected VoIP
and broadband connections, the total number of connections could grow to approximately 800 million
connections under the FCC Form 477 connection categories by 2015.
248.
We seek comment on our analysis of the 477 data and invite commenters to present their
own analysis and underlying assumptions. In particular, how many enterprise connections are there under
different definitions of connections and of assessable enterprise services? And if we were to adopt a
facilities-based definition of connections, rather than the service-based approach used in Form 477, how
many connections are there, and what is the likely trend in the number of connections over time? To what
extent are the landlines or mobile subscriptions reported in FCC Form 477 also providing broadband?

400 The FCC Form 477 data contain counts of connections, subscriptions, and lines for a diverse set of voice and data
services. Counts may be sensitive to assumptions on how specific services are defined. Projections are based on
staff estimates.

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Chart 6


4.

Assessment and Use of Speed or Capacity Tiers

249.
Another key question is whether a connections-based assessment should be based on
speed or capacity tiers and how to define any such tiers. In the past, the Commission’s proposals have
assumed a connections-based methodology would classify connections into various tiers, and each
connection within a tier would be assessed the same flat fee.401 We seek comment on how assessment
based on speed or capacity tiers would operate under a service or facilities-based definition of
“connection,” and whether such an assessment structure would further our proposed reform goals of
promoting efficiency, fairness, and sustainability of the Fund.
250.
Determining the Per-Unit Assessment. In the past, the Commission has sought comment
on grouping residential, single-line business, and mobile wireless connections together in a separate

401 See, e.g., 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3774, para. 52 (proposing
three tiers of up to 1.544 Mbps, 1.544 to 45 Mbps, and 45 Mbps or higher for multi-line business connections); 2002
Second Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24989–90, para. 81 (proposing four tiers of
up to 725 kbps, 726 kbps to 5 Mbps, 5.01 Mbps to 90 Mbps, and greater than 90 Mbps for multi-line business
connections); 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6686, App. B, para. 81 (proposing two tiers of
up to 64 kbps and over 64 kbps for business services). See also, e.g., Letter from Mary L. Henze, AT&T Services,
Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 1-2 (filed Oct. 29,
2008) (AT&T Oct. 29, 2008 Ex Parte Letter) (proposing three tiers of up to 25 Mbps, over 25 Mbps up to and
including 100 Mbps, and over 100 Mbps for dedicated business connections). In addition, some parties have
questioned whether it is appropriate to base the tiers on capacity rather than usage. See, e.g., XO Sept. 17, 2010 Ex
Parte
Letter at 3.

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category from multi-line business connections, and assessing each based on a flat fee.402 Under such a
system, the initial proposed amount for the residential, single-line business, and mobile wireless
connections has been in the range of $1 per month.403 The residual USF demand would then be met
through assessments on multi-line business connections based on the number and capacity of the
connections.404 We seek comment to refresh the record on such an approach. How would the
contribution amount for a typical consumer vary under such an approach compared to the revenues-based
approach in place today?
251.
In the past, in response to proposals based on a per-unit assessment, various segments of
the industry have requested that they be treated differently for USF contribution purposes. For example,
paging providers have sought a reduced assessment because of the limited functionality of the service and
because the proposed per-unit assessment exceeds by a large multiple the amount of assessment paid
under the current revenue-based system.405 Likewise, providers offering free services, telematics,
wireless prepaid plans, and family wireless plans have, in the past, all requested that such connections be
treated differently because a flat $1 per month assessment would increase their USF obligation
dramatically.406 If we were to adopt a connections-based approach, should certain providers be eligible
for special consideration or exemption? We seek comment on whether a connections-based system that
provides special treatment for a myriad of services would meet our proposed goals of ensuring
sustainability of the Fund, while simplifying compliance and administration.
252.
As noted above,407 a recent development is the growth in machine-to-machine
connections,408 enabling such innovations as smart meter/smart grids, remote health monitoring, or supply

402 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3766-67, para. 35. See 2008
Comprehensive Reform FNPRM
, 24 FCC Rcd at 6678, App. B, para. 59; AT&T Oct. 29, 2008 Ex Parte Letter at 1.
403 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3766-67, para. 35 (proposing a $1.00
fee per residential, single-line business, and mobile connection). See 2008 Comprehensive Reform FNPRM, 24 FCC
Rcd at 6678, App. B, para. 59 (proposing an $0.85 fee per telephone number for each residential, single-line
business, and mobile connection); AT&T Oct. 29, 2008 Ex Parte Letter at 1 (proposing an $0.85 fee per telephone
number for each residential, single-line business, and mobile connection).
404 See, e.g., 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6686, App. B, para. 81 (proposing monthly per-
connection assessments of $5 and $35 for higher capacity connections); AT&T Oct. 29, 2008 Ex Parte Letter at 1-2
(proposing monthly per-connection assessments of $2, $15, and $250 for higher capacity connections); 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24989–90, para. 81(seeking comment on four-tier
structure, with Tier 1 having a “maximum capacity” of up to 724 Kbps, a Tier 2 between 725 Kbps and 5 Mbps, a
Tier 3 between 5.01 Mbps and 90 Mbps, and a Tier 4 for connections with maximum capacity greater than 90
Mbps). As used in the earlier contribution methodology Notices, the term “capacity” referred to the maximum
speed available for a given connection.
405 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3768, para. 39.
406 See, e.g., Letter from Samuel L. Feder, Counsel for j2 Global Communications, Inc., to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, at 1 (filed Aug. 20, 2010) (arguing that free and low-volume services
should be exempt from flat-rate, per unit assessment); Letter from Matthew A. Brill, Counsel for Toyota Motor
Sales, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at 1-2 (filed Aug. 12, 2010) (arguing
against a connections system because of the dramatically higher costs on telematics providers); Letter from Scott
Bergmann, CTIA, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 01-92 et al., Attach. at 8 (filed Apr. 14,
2010) (arguing for assessment of prepaid wireless service on a per-minute-of-use basis and assessment of non-
primary wireless family plan at 50% of the flat-rate, per unit charge).
407 See supra Section IV.C.
408 See generally OECD Digital Economy Papers, Machine-to-Machine Communications, Connecting Billions of
Devices (Working Paper No. 192, 2012), available at http://dx.doi.org/10.1787/5k9gsh2gp043-en (last visited Apr.
16, 2012).

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chain tracking. To the extent we were to exercise permissive authority over some or all machine-to-
machine connections, should they be assessed at the same level, or flat rate, as other connections? If not,
how should they be assessed?
253.
Another question that would need to be resolved under a connections-based approach
with tiers is whether and how to update the tiers and/or assessment amounts as business and residential
users move to higher bandwidth services and new technologies and services develop.409 In previous
Notices, the Commission recognized that, to ensure an appropriate amount of funds for universal service,
it would need to revisit and adjust the assessment amount periodically.410 Recently, the Commission has
taken significant strides to minimize future growth of the Fund by adopting a budget in the recent USF
Transformation Order
and a savings target in the Lifeline and Link-Up Reform and Modernization
Order
.411 These measures to instill fiscal responsibility in these programs are in addition to the caps on
other universal service support mechanisms (i.e., the schools and libraries and rural health care
mechanisms).412 We seek comment on how often we should revisit any per-unit amount, if we were to
adopt a connections-based proposal, in light of these reforms. Would a semi-annual or annual review be
sufficient to meet the needs of the Fund? We also seek comment on whether any re-evaluation of the
assessment should happen on a set schedule or an ad hoc basis, either on our own motion or at the request
of industry participants or USAC. What factors should we consider in determining whether to adjust the
assessment? When periodically readjusting the unit amounts, should we aim to maintain the relative
proportion of contribution burdens between residential and business consumers? How could that
proportion be accurately determined?
254.
Tiers. In 2002, the Commission proposed that contributions from providers of multi-line
business connections be a residual amount calculated to meet the remaining universal service funding
needs not met by contributions for residential, single-line business, and mobile connections. The
Commission reasoned that this proposal would make contribution obligations more predictable and
understandable for residential, single-line business, and mobile customers, and that multi-line businesses
may be better equipped to understand the fluctuations in assessments from quarter to quarter.413 We seek
comment on whether this reasoning remains valid in today’s marketplace.
255.
In the past, the Commission sought comment on defining a connection as either a
residential/single-line business or a multi-line business connection based on whether the
residential/single-line business or multi-line business subscriber line charge (SLC) is assigned to the
connection.414 We seek to update the record on whether this delineation is an effective way to identify

409 See Internet Society, Growing Pains: Bandwidth on the Internet 6 (Mar. 2010) (Briefing Paper), available at
http://www.isoc.org/isoc/conferences/bwpanel/docs/bp-growingp-201003-en.pdf (last visited Apr. 9, 2012)
(discussing studies showing that the annual growth rate for global Internet bandwidth lies somewhere between 40
percent and 50 percent).
410 See, e.g., 2001 Contribution Methodology Notice, 16 FCC Rcd at 9908, paras. 33-35; 2002 First Contribution
Methodology Order and FNPRM
, 17 FCC Rcd at 3787, para. 78; 2002 Second Contribution Methodology Order
and FNPRM
, 17 FCC Rcd at 24988, para 77.
411 See USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17672, para. 18; Lifeline and Link Up Reform
and Modernization Order
, FCC 12-11, para. 358.
412 See USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17672, para. 18; Lifeline and Link Up Reform
and Modernization Order
, FCC 12-11, para. 358.
413 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3773, para. 51. But see, Ad Hoc
Telecom Users Apr. 13, 2012 Ex Parte Letter at 3 (no residual funding requirements should be imposed on business
users or services).
414 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3766-67, para. 35.

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residential and single-line business connections in today’s market, particularly given the growth in
wireless and VoIP connections—which typically do not charge SLCs or their equivalent.415 Not only is
such a method for distinguishing residential connections from business connections possibly outdated
today, but we are concerned it will become increasingly more so as users move to alternative providers
that do not charge SLCs.416 We seek comment on whether, if we adopt a connections-based approach, we
should distinguish between residential/mass market connections and business/enterprise connections.
And, if so, we seek comment on other objective measures aside from the SLC that we could use to
distinguish between these two categories of connections.
256.
We understand anecdotally that many companies are moving away from purchasing
mobile service directly for employees in favor of providing employees with reimbursements for their
personal mobile monthly plans.417 To the extent we were to make a distinction between residential and
business connections, how should such connections be classified as residential or multi-line business
connections? How would contributors distinguish such connections absent a corporate identifier on the
account? We seek comment on these issues and whether such a distinction serves our proposed policy
goals of administrative efficiency, fairness, and sustainability.
257.
Tier Structures. Over the years, the Commission and the industry have proposed various
tiers to calculate assessments for multi-line business connections, with no one approach emerging as the
preferred alternative. In 2002, the Commission proposed a structure of three tiers of up to 1.544 Mbps,
1.544 to 45 Mbps, and 45 Mbps or higher for multi-line business connections.418 Later in 2002, the
Commission updated the proposed tiers to four tiers of up to 725 kbps, 726 kbps to 5 Mbps, 5.01 Mbps to
90 Mbps, and greater than 90 Mbps for multi-line business connections.419 At that time, the Commission
sought to set the speed ranges so that then-common service offerings would fall well within each tier in
order to minimize market distortion.420 Subsequently in 2008, the Commission proposed just two tiers of
up to 64 kbps and over 64 kbps for business services.421 Commenters have also proposed different set of
tiers. AT&T, for example, proposed three tiers of up to 25 Mbps, over 25 Mbps up to and including 100
Mbps, and over 100 Mbps for dedicated business connections.422

415 See Lifeline and Link Up Reform and Modernization Order, FCC 12-11, paras. 55-56 (noting that many Lifeline
subscribers take service from competitive ETCs, who do not assess SLCs on their subscribers and whose cost
structure is unrelated to the SLC). See also Universal Service First Report and Order, 12 FCC Rcd at 8970-71,
paras. 366-67.
416 Moreover, we note that the recent USF/ICC Transformation Order sought comment on the continuing relevance
of SLCs even for incumbent LECs and sought comment on reexamining and possibly phasing out SLCs. See
USF/ICC Transformation Order
, 26 FCC Rcd at 18121-23, paras. 1330-33. See also Ad Hoc Telecom Users Apr.
13, 2012 Ex Parte Letter at 3 (there is no basis for distinguishing between residential and business connections).
417 See Global Survey: Dispelling Six Myths of Consumerization of IT, Avanade (Jan. 2012), available at
http://www.avanade.com/Documents/Resources/consumerization-of-it-executive-summary.pdf; see also Roger
Cheng, So You Want to Use Your iPhone for Work? Uh-oh., Wall St. J. (Apr. 24, 2011), available at
http://online.wsj.com/article/SB10001424052748704641604576255223445021138.html.
418 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3774, para. 52.
419 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24989–90, para. 81.
420 Id. at 24990-91, para. 83.
421 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6686, App. B, para. 81.
422 See, e.g., AT&T Oct. 29, 2008 Ex Parte Letter at 1-3.

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258.
In today’s ever evolving marketplace, there is increased demand for multi-line business
connections to have more bandwidth.423 One of the proposed goals of our reformed contribution system
is to simplify administration and reporting. Is there a way to structure the speed tiers in a future-proof
manner? Or, would a system based on available speed tiers inevitably become outdated as the
communications industry continues to evolve? Is there a reasonable way to have tiers automatically
adjusted, for example by setting tiers based on percentile, such that the slowest quartile of connections
would fall into one tier, the next quartile in another tier, etc.?
259.
We seek comment on whether any of the previously proposed tier structures would be
appropriate in today’s marketplace, and whether any such tiers should be limited to business customers or
whether they should extend to residential or mass market connections as well. We seek to refresh the
record in light of recent actions taken in the USF-ICC Transformation Order and FNPRM and other
pending proceedings.424 For instance, in establishing tiers, to what extent, if at all, should we take into
account the Commission’s decision to establish 4 Mbps down/1 Mbps up as the minimum speed for fixed
broadband connections under the Connect America Fund? Should speed tiers for universal service
contribution purposes be based on actual speeds or advertised speeds? Is one approach preferable to
another for purposes of auditing and enforcing compliance with our contributions rules?
260.
To the extent commenters believe one of the previously proposed tier structures is
appropriate for today’s market, we seek detailed comments to support such a position. Additionally, we
encourage commenters to propose a tier structure that accounts for the qualities of connections in the
marketplace today. In the past, the Commission sought comment on a tier structure based on speed.
Should tiers also be set based upon capacity, or the total volume of data that can be sent and/or received
over the connection by the end user over a period of time? Commenters should explain why they propose
tiers at the particular capacity range and propose the appropriate assessment amount for each tier.
Commenters should also discuss how we can structure the tiers so that they will accommodate future
evolution. We seek to minimize the potential for market distortion based on the tier structure;
commenters should address how their proposal addresses this concern in their responses.425 Commenters
proposing new tier structures should also provide an analysis of the impact on the Fund and the relevant
burdens to residential and business consumers.
261.
Would the current FCC Form 477 tier structure work in the context of a USF
connections-based assessment? For example, FCC Form 477 tracks facility-based broadband connections
in ten different technology categories (e.g., asymmetrical and symmetrical xDSL, cable modem, fiber-to-
the-home, mobile wireless) based on transfer rates ranging from 200 kbps to greater than 100 mbps.426
We seek comment on whether this categorization and tier structure as well as the other data collection
requirements in the FCC Form 477 could work for universal service contribution purposes, or whether
they could be easily modified to satisfy the requirements of both the FCC Form 477 and any established
USF contribution rules and requirements. If we were to modify our FCC Form 477 data collection,
should we also make corresponding modifications to the tiers for purposes of USF contributions?

423 See, e.g., Cisco Visual Networking Index: Forecast and Methodology, 2010–2015, at Table 17 (Jun. 1, 2011)
available at http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-
481360.pdf.
424 See, e.g., Modernizing the FCC Form 477 Data Program, et. al., WC Docket No. 07-38, Notice of Proposed
Rulemaking, 26 FCC Rcd 1508 (2001) (seeking comment on whether and how to reform the FCC Form 477 data
program).
425 See, e.g., 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24990, para. 80.
426 2012 FCC Form 477 Instructions at 8-9; 2012 Local Telephone Competition and Broadband Reporting Form
477, Part I.

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262.
While multi-line business connections may provide a specific maximum level of speed
or capacity, other connections provide customers, through contractual agreements, with the option of
utilizing additional speed or capacity on a short-term basis.427 One of the challenges of a tiered
connections-based approach is how it would address connections that provide varying speed at different
points in time. For example, should we consider how “burstable” bandwidth would be assessed under a
connections-based system? Burstable bandwidth allows a connection to exceed its stated speed, usually
up to a pre-chosen maximum capacity for a period of time, such as during periods of heavy network
activity or peak network usage.428 We seek comment on what rules should be adopted to address such
situations, if we were to adopt a connections-based system.
263.
Some commenters argue that there is little correlation between connection speed and
telecommunications usage.429 These commenters ask whether it is more appropriate to base the tiers on
usage rather than speed.430 Under prior connections-based proposals, contributors would be assessed for
multi-line business connections based on the maximum amount of bandwidth they allocate to the
connection, not the actual amount of bandwidth used.431 Because customers often purchase excess
bandwidth for backup or future growth, some commenters argue that assessing a connection at the
maximum available speed taxes spare bandwidth and could lead to poor network management
practices.432 We seek comment on this position. We also seek comment on how a provider would
measure the actual usage of a customer’s connection and the burdens associated with such reporting.
Finally, we seek comment on how we would audit actual usage.
5.

Policy Arguments Related to Connections-Based Assessment

264.
In 2002, the Commission outlined a number of potential benefits of a connections-based
assessment methodology: the number of connections has been more stable than interstate revenues and
therefore connections-based assessment may provide a more predictable and sufficient funding source for
universal service; under a connections-based approach, providers would not have to allocate revenues
between interstate and intrastate jurisdictions or between telecommunications and non-
telecommunications services; and under a connections-based end-user approach, only one entity – the one
with the direct relationship with the end user – would be responsible for contributing, thereby potentially
reducing the complexities associated with collecting and reporting USF fees.433 We seek comment to

427 See, e.g., XO Sept. 17, 2010 Ex Parte Letter at 3. In 2002, the Commission used the example of Centrex services
that offer the potential to utilize additional capacity in those instances where the demand for capacity exceeds the
amount of capacity that the carrier has allocated for the customer. For example, if a private branch exchange switch
has a 1.544 Mbps trunk, and all of that capacity is being used, the customer would be unable to make or receive
phone calls. A customer that uses a Centrex switch, however, that has a 1.544 Mbps trunk in which all of the
capacity is being used would be able to continue to make or receive phone calls because the carrier establishes the
service with reserve capacity. 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3775, para.
55 & n.134.
428 See, e.g., H. Newton, Newton’s Telecom Dictionary 217 (25th ed. 2009) (“burstable T1”).
429 See, e.g., XO Sept. 17, 2010 Ex Parte Letter at 3.
430 See, e.g., id.
431 See 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3773, para. 50; 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24987, para. 75.
432 See, e.g., XO Sept. 17, 2010 Ex Parte Letter at 3.
433 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3784, para. 71. Although payphone
aggregators may not have a direct relationship with the end user, the Commission requires that payphone
aggregators contribute because they directly compete with mandatory contributors and the public interest so
requires. Universal Service First Report and Order, 12 FCC Rcd at 9184-85, para. 797 (exercising its permissive
authority).

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refresh the record on these issues given the changes that have occurred in the telecommunications
marketplace since 2002 and the potential rule changes discussed in this Notice. Is a connections-based
contribution methodology consistent with the proposed goals of having a contribution methodology that is
efficient, fair, and sustainable?
265.
Distinguishing Telecommunications from Non-Telecommunications. In 2002, the
Commission and commenters suggested as a potential benefit that a connections-based methodology
might not require carriers to distinguish between telecommunications and non-telecommunications
services, distinctions that may be increasingly difficult as the marketplace evolves.434 We seek comment
above on approaches to provide clarity to contributors with respect to specific services, without the need
to classify those services as either information services or telecommunications services. We also seek
comment on assessing revenues associated with information services.435 In light of those potential
approaches, is this potential advantage of a connections-based methodology still relevant? If we were to
adopt a facilities-based connections approach, should we make an affirmative finding that each
connection within the scope of our definition “provides interstate telecommunications” in order to subject
that connection to assessment?
266.
Jurisdictional Considerations. As discussed above, the current revenues-based system
requires contributors to separately account for revenues derived from interstate, intrastate, and
international services.436 The Commission and industry participants have suggested in the past that a
connections-based system might mitigate the need to differentiate between interstate and intrastate
jurisdictions.437 We seek comment on whether this remains a relevant consideration.
267.
In the connections-based methodology proposed in 2002, the Commission stated that
international-only and intrastate-only connections would be exempt because they do not have an interstate
component.438 We seek comment on how specifically we would determine whether a particular
connection should be deemed to be intrastate-only for contribution purposes, if we were to adopt a
connections-based methodology, and how such a rule could be applied. We note that today, private lines
with less than ten percent interstate traffic are deemed to be jurisdictionally intrastate.439 For contribution
purposes, the Form 499 instructions specify that if over ten percent of the traffic is interstate, all of the
revenues for that line are classified as interstate.440 We seek comment above in this Notice on a revenues-
based approach that would be simpler to administer, which would allocate revenues to the different
jurisdictions according to a set percentage.441 If we were to adopt a connections-based approach, should
we adopt a rule that any connection that provides the capability to originate or terminate communications

434 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3784, para. 71; 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24985, para. 70.
435 See supra Section V.A.1.
436 See supra Section V.A.2.
437 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3784, para. 71; 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24985, para. 70; see, e.g., USTelecom Nov. 26, 2008
Comments.
438 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24987, para 76.
439 MTS and WATS Market Structure; Amendment of Part 36 of the Commission's Rules and Establishment of a Joint
Board
, CC Docket Nos. 78–72, 80–286, Decision and Order, 4 FCC Rcd 5660, 5660, paras. 2, 6 (1989).
440 See 2010 FCC Form 499-A Instructions at 22.
441 See supra Section V.A.3.

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that may cross state lines is subject to assessment, regardless of the physical end points of the facility or
the actual traffic carried on a particular circuit?442
268.
To the extent we exercise our permissive authority to assess broadband Internet access
connections, we seek comment on whether such connections should be presumed interstate for purposes
of universal service contributions. Should we conclude that any connection that connects to an Internet
point of presence should be deemed interstate for federal USF contribution purposes? Would such a rule
allow states to assess connections (or revenues associated with connections) to support state universal
service funds? Would a connections-based system increase compliance burdens if states continue to
employ a revenues-based assessment for state-based funds? What is a simple way to determine
jurisdiction for connections in a manner that is fair and competitively neutral, and could such an approach
reduce compliance burdens on contributors?
269.
Consumer Impact. In the past, certain contributors have argued that a connections- or
numbers-based contribution methodology would disproportionately impact vulnerable populations, such
as low-income consumers and the elderly.443 How would moving to a connections-based approach
change the relative distribution of the contribution burden between enterprise users and consumers, as
well as among different types of enterprise users and consumers? Is moving to a connections-based
approach where connections are assessed a flat rate (or a flat rate within a tier) fair to low-income
consumers and other users on low-cost service plans? Are there modifications that could be made to a
connections-based methodology to make the level of assessment fairer to consumers on low-cost service
plans? If we were to adopt a connections-based approach, would low-income households be likely to see
a contribution pass-through charge for a larger percentage of their monthly telecommunications bill than
higher-income households? Would low-volume customers bear an assessment that constitutes a larger
percentage of their bill than high-volume users?
6.

Implementation

270.
Implementing a connections-based system would presumably require new data collection
and reporting requirements and, at least in the near term, impose additional costs on both filers and USAC
to implement new reporting systems. A connections-based system could also present complexities related
to compliance and auditing, particularly because connections are not generally reported for other
governmental purposes. Further, a move to a connections-based system may affect other programs that
currently report on the FCC Form 499, including Interstate TRS, North American Numbering Plan, Local
Number Portability, and regulatory fees administration. Finally, a new system would require some period
of transition. We seek comment on all these issues below.
271.
Reporting. We seek comment on how to implement reporting requirements under a
connections-based contributions system. Under the existing revenue-based contribution methodology,
contributors report to USAC their historical gross-billed, projected gross-billed, and projected collected
end-user interstate and international revenues quarterly on the FCC Form 499-Q and their gross-billed and
actual collected end-user interstate and international revenues annually on the FCC Form 499-A.444

442 This issue, application of the so-called “10% rule” is the subject of pending appeals. See, e.g., XO Request for
Review at 11; Grande Communications Request for Review of Decision of the Universal Service Administrator,
WC Docket No. 06-122, at 7-12 (filed Dec. 28, 2009).
443 See, e.g., Comments of TracFone Wireless, Inc., WC Docket No. 05-337 et al., at 3 (filed Nov. 26, 2008); Reply
Comments of TracFone Wireless, Inc., WC Docket No. 05-337 et al., at 2-4 (filed Dec. 19, 2008); Letter from
Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 et al., at
1-3 (filed Dec. 3, 2008).
444 47 C.F.R. §§ 54.706(b). 54.709, 54.711. Filers are required to file revisions to FCC Form 499-A by March 31 of
the year after the original filing date. See 2012 FCC Form 499-A Instructions at 8.

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USAC then bills contributors for their universal service contribution obligations on a monthly basis based
on the contributors’ quarterly projected collected revenue.445 Contributors report actual revenues on the
FCC Form 499-A, which USAC uses to perform true-ups to the quarterly projected revenue data.446
272.
How should a connections-based system be implemented? In particular, we seek
comment on the specific changes necessary to enable USAC to administer the Fund under a connections-
based system. How would contributors report the number and speed or capacity of their connections
under a connections-based assessment methodology? For a service-based connections methodology, how
should providers report the service type? Should we continue to use a FCC Form 499 or use a different
system, and why? What would be the administrative impact of a new reporting system on providers and
on USAC as the administrator of the Fund? Could we modify the FCC Form 477 to capture the data
necessary for a connections-based system, thus eliminating the need to file separately for contribution
purposes? What measures should we take to ensure that providers would not be able to avoid their
contribution obligation? To what extent do connections fluctuate due to churn or other factors, and, as a
result, how often should providers report their data to ensure the stability and sufficiency of the Fund?
Should we limit reporting requirements to twice a year, to coincide with the requirement to report
connections data on the FCC Form 477? We seek comment on whether reporting only twice a year would
satisfy our proposed goal of a more simplified contribution system. We also seek comment on the
potential impact of a six-month reporting interval on periodic adjustments to the per-connection
assessment. Would such a reporting schedule provide USAC and the Commission with the data
necessary to effectively administer the universal service programs? We specifically seek comment and
data on whether it is necessary to monitor individual provider fluctuations through frequent reporting or
whether less frequent reporting would suffice.
273.
Alternatively, we seek comment on the costs and benefits of reporting at monthly or
quarterly intervals. Since a more frequent interval would likely provide a larger number of “snapshots” of
a contributor’s connection counts over a year, would a more frequent interval provide more accurate data
and lead to more stability in the Fund than would a six-month interval? Would a more frequent reporting
period make adjustments to the contributions requirements more incremental? Would longer or shorter
reporting intervals advantage or disadvantage some types of providers more than others? In 2002, the
Commission sought comment on a monthly reporting system under which the contributor would report
the number and speed or capacity of their connections at the end of each month on a new FCC Form 499-
M. Under that approach the new form would also serve as a contributor’s monthly bill. We seek
comment on the costs and benefits of such an approach.
274.
Costs Associated with Implementing a Connections System. We seek comment on
contributors’ out-of-pocket costs for implementing a new connections-based contribution methodology.
Would contributors be able to use their current billing and operating systems to report connections for
universal service contributions? If not, what would be the incremental costs associated with modifying
billing systems and internal controls and processes to collect and track connections for purposes of
reporting and contributing to the Fund? Would contributors have to implement entirely new systems to
track the type of data needed to report connections? Does the answer to this question depend on whether
the Commission adopts the FCC Form 477 connection categories as opposed to other categories of
providers or services whose connections are assessable? Are there cost savings that could be realized by
moving away from the current system, which requires contributors to report revenues quarterly
(projected) and annually (actual) for USF purposes? Would those costs vary depending on the definition
of connections we adopt? We also seek comment on whether the cost of updating billing and internal
systems for this regulatory purpose would outweigh any benefit achieved. What would be the

445 47 C.F.R. §§ 54.702(b), 54.709(a).
446 See 47 C.F.R. §54.709.

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implications for reporting for other regulatory programs such as regulatory fees, Interstate TRS, and the
North American Numbering Plan? Would increased operational costs negatively impact certain carriers
more as compared to other carriers (for example, smaller rate of return companies that recover some of
these costs from high-cost loop support, which is capped)?
275.
We specifically seek comment on any implementation costs associated with other
programs that rely on the data reported on the FCC Form 499-A. For example, if we were to move to a
connections-based system for contributions, would there be additional costs associated with reporting for
the Interstate TRS Fund, North American Numbering Plan, Local Number Portability, and regulatory fees
administration programs which currently rely on the FCC Form 499-A data? Would a change in the
contribution system to a connections-based approach only be feasible and cost-effective if these other
programs also changed to a connections-based approach? We also ask whether adopting a connections-
based system would increase compliance burdens if states continue to employ a revenues-based
assessment.
276.
We also seek to refresh the record on whether there are other costs associated with a
connections system, and in particular ask providers if there are any new costs that were not foreseen when
we last asked for comments on this methodology. Would the cost of a new assessment methodology
increase for certain classes of customers or certain industry segments? To what extent would this analysis
change depending on how a connection is defined and assessed? Do the additional costs associated with
implementation and reporting requirements outlined below outweigh the benefits of moving to a
connections-based methodology?
277.
Auditing. Audits are an essential tool for the Commission and USAC to ensure program
integrity and to detect and deter waste, fraud, and abuse. Among its duties, USAC conducts regular
audits of USF contributors to monitor compliance with our contribution reporting rules and requirements.
Any new connections methodology must be auditable in order to ensure that contributors are reporting
accurately, and that the system operates in an equitable and nondiscriminatory manner, maintains stability
in the contribution base, and minimizes market distortions and gamesmanship. Auditing a connections-
based system could be difficult, however, if the manner in which providers track their connections for
business reasons does not overlap with the Commission’s definitions of “connections” and “tiers.” As
previously noted, unlike revenues, connections are not universally tracked, and thus there are no standards
or regular means of auditing a “connection.” In addition, unlike revenues, “connections” are not reported
to other federal agencies, such as the SEC, nor are connections routinely tracked on a company’s books.
Because companies would be tracking connections solely or primarily for the Commission, we seek
comment on how to structure a connections-based system to be auditable and enforceable. How, in fact,
would companies track their connections for USF contribution reporting purposes? Would companies
need to create internal records solely for this purpose? How would an auditor verify the accuracy of the
internal records, especially in light of customer churn and customer change orders? Because revenue is
reported for other governmental purposes there are, to some extent, inherent checks and balances built
into a revenues-based system.447 We seek comment on whether any potential lack of checks and balances
under a connections system is a fatal flaw, or if it could be remediated. Proponents of a connections-
based system should provide specific details about how contributors would report their data and how
auditors could verify the accuracy of connections data reported. In addition to audits, what other steps
should be taken under a connections-based system to detect and deter waste, fraud, and abuse?
278.
Under the current revenues-based system, filers are required to maintain records and
documentation to justify information reported on the FCC Form 499 for five years.448 These include

447 See, e.g., Department of Treasury, Internal Revenue Service Form 1120 - U.S. Corporation Income Tax Return;
Securities and Exchange Commission, Form 10-K Annual Report, 15 U.S.C. §§ 78m or 78o(d).
448 47 C.F.R. §54.706(e).

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financial statements and supporting documentation, accounting records, historical customer records, and
general ledgers, which companies generally retain for other purposes, not just compliance with the USF
contribution rules and requirements.449 Filers must make available all documents and records, including
those of contractors and consultants working on their behalf, to the Commission or to USAC, and to
auditors upon request.450 In addition, providers track and retain financial information for other regulatory
programs that carry criminal and/or monetary sanctions for inaccurate filings.451 In contrast, other than
the Commission’s FCC Form 477, there are no other regulatory programs that we are aware of that
require providers to collect and report connections, and the FCC Form 477 filing requirements do not
carry financial penalties for inaccurate reporting.452 We seek comment on how, under a connections-
based system, we could create the proper incentives for providers to accurately report connections data.
What types of procedures are necessary to verify the accuracy of the number of connections reported by a
provider? How would USAC measure the accuracy of the data, especially given customer churn that may
occur between reporting periods?
279.
Effect on Other Programs. As in previous comment cycles, we ask parties to provide
comment on the impact of moving to a connections-based approach on the Interstate TRS, North
American Numbering Plan, Local Number Portability, and regulatory fees administration programs.453
The revenue information currently reported on an annual basis in FCC Form 499-A is also used to
calculate assessments for these programs.454 As in previous comment cycles, we ask parties to provide
comment on the best approach for ensuring proper funding of these programs were we to move to a
connections-based methodology.455 Should contributors continue reporting gross billed end-user
revenues for purposes of these programs, and if so, should they continue to report on an annual basis?
Could we dramatically simplify the FCC Form 499 for purposes of revenue reporting in that instance,
such as by eliminating the multi-line breakout of reported revenues into sub-categories? We specifically
seek comment on whether to maintain revenue-based reporting for the regulatory fee program if we move
to a connections-based approach for USF contributions and/or the other progra s.
m
280.
If we were to adopt a connections-based approach for the USF, should we also move to a
connections-based approach for Interstate TRS, North American Numbering Plan, Local Number
Portability, and regulatory fees administration programs? If so, would a connections-based approach for
these programs vary, if at all, from a connections-based approach for the USF? We specifically seek
comment on how a connections-based system could be implemented to satisfy the requirements of section
715 of the Act. This section requires that each interconnected VoIP service provider and each provider of
non-interconnected VoIP service shall participate in and contribute to the Interstate Telecommunications
Relay Services Fund in a manner “consistent with and comparable to the obligations of other contributors

449 Id.
450 47 C.F.R. §54.711(a).
451 Providers must keep financial records for tax purposes. Cf. 26 U.S.C. § 6662 (imposing penalties for “substantial
understatement” of income tax), 18 U.S.C. § 1520 (providing criminal penalties for corporations that fail to keep
audit records for five years). Additionally, a number of states have regulatory programs that require providers to file
regular reports and provide for penalties if reports are inaccurate. See. e.g., N.Y. Pub. Serv. Law § 95; 52 Pa. Code
§ 63.36.
452 47 C.F.R. § 0.111. We note, however, that failure to comply with the Commission’s reporting rules could subject
an entity to the enforcement provisions of the Act. See 47 U.S.C. § 503.
453 2001 Contribution Methodology Notice, 16 FCC Rcd at 9909, para. 38.
454 See 47 C.F.R. §§ 159(a), 159(b)(1)(A), 159(g), 52.17, 52.32(b), 64.604(c)(5)(iii)(B).
455 See 2001 Contribution Methodology Notice, 16 FCC Rcd at 9909, para. 38.

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to such Fund.”456 Finally, are there alternative ways to calculate contributions for the Interstate TRS,
North American Numbering Plan, Local Number Portability, and regulatory fees programs?
281.
Transition. A connections-based methodology would constitute a substantial change
from the current revenue-based system and would likely require a transition period, especially if reporting
entities need to implement new billing and accounting systems and a process for recording connection
counts in a manner that is auditable. We seek comment on what steps would need to be taken to
transition between the current revenues-based system and a connections-based system and how much
time would be needed to ensure that the new process is applied in an equitable manner.
282.
If we were to adopt a connections-based methodology, the Commission and USAC
would likely need to go through multiple reporting cycles to determine whether information is being
reported consistently and to determine whether contributors understand what information they are being
asked to report. In addition, contributors and USAC would need time to update their billing and tracking
systems to accommodate the new methodology. Is a one-year transition period sufficient to ensure that
all affected parties would have adequate time to address any implementation issues that arise? How much
time would be necessary for contributors, including new contributors, to adjust their record-keeping and
reporting systems in order to comply with new reporting procedures? Are there new considerations that
would favor a longer or shorter transition period? Would there be a benefit in adopting different
transition periods for residential and business markets?
283.
We also seek comment on the value of requiring dual reporting during all or some of the
transition time – where reporting entities would continue to report and pay under the current revenues-
based system, while they also begin reporting under the new system. Would having providers report
under both systems for a specified amount of time during the transition provide the opportunity for both
providers and USAC to address unforeseen implementation issues that are likely to arise under the new
reporting system? Should new filers begin reporting sooner since USAC does not have any historical
data on their revenues and services?

C.

Assessing Contributions Based on Numbers

284.
In this section, we seek comment on moving away from the current revenues-based
contribution system and adopting a numbers-based contribution methodology. The Commission has
explored a numbers-based methodology in the past, including as recently as 2008, when it sought
comment on using telephone numbers as the basis for a new contributions system.457 We seek to refresh
the record given developments in technology and communications.
285.
Under a numbers-based system, in its simplest form, providers would be assessed based
on their count of North American Numbering Plan (NANP) phone numbers. There would be a standard
monthly assessment per phone number, such as $1 per month, with potentially higher and lower tiers for
certain categories of numbers based on how these numbers are assigned or used. The monthly assessment
per number would be calculated by applying a formula based on the USF demand requirement and the
relevant count of numbers, however that term is defined. This contribution factor would no longer be
based on revenues.
286.
In 2002, the Commission first sought comment on replacing the existing revenues-based
methodology with a system that would assess providers on the basis of telephone numbers assigned to
end users (assigned numbers), while assessing special access and private lines that do not have assigned

456 47 U.S.C. § 616.
457 See 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24995, para. 96; 2008
Comprehensive Reform FNPRM
, 24 FCC Rcd at 1639, para. 40.

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numbers based on their speed.458 The Commission also sought comment on how to treat multi-line
switched business services, such as Centrex and private branch exchange, and other types of services,
such as electronic fax services under a telephone-number based approach.459 Thereafter, in the 2008
Comprehensive Reform FNPRM
, the Commission sought comment on a series of proposals to adopt a
new contribution methodology based on assessing telephone numbers.460 The FNPRM contained three
proposals, each with a numbers-based assessment component. Two of the proposals (2008 Appendix A
Proposal and 2008 Appendix C Proposal) would have assessed USF contributions based on telephone
numbers used for residential services, at a flat $1.00 per month charge for each number, and would have
assessed business services based on connections.461 The third proposal (2008 Appendix B Proposal)
would have assessed USF contributions based on telephone numbers used for consumer and business
services, at a flat $.85 per month charge for each number.462
287.
Proponents of numbers-based methodologies have historically argued that such a system
would enhance the specificity and predictability of the carriers’ contributions by eliminating the need to
distinguish between information and telecommunications revenues, or interstate and intrastate
revenues.463 Proponents have argued that a numbers-based system would benefit end users because it is
technologically and competitively neutral—consumers would pay the same pass-through charge
regardless of the type of services they choose— and such pass-through charges would be more stable.464
Parties have also asserted that assessing universal service contributions based on telephone numbers
would promote number conservation.465 Others, however, have raised concerns that a numbers-based
methodology would not satisfy the Act’s statutory requirements that telecommunications service
providers contribute to universal service on an “equitable and nondiscriminatory basis” because it could
reduce contributions from certain industry segments and increase them for others.466 Some assert that
assessing a flat universal service charge (such as a telephone-number based charge) is inherently unfair
because it does not take into account the fact that some people make many interstate and international

458 See 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24995, para. 96.
459 Id. at 24995-96, para. 97.
460 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 1639, para. 40.
461 Id. at 6536, App. A, para. 92 & at 6735, App. C, para. 88.
462 Id. at 6669, App. B, para. 39.
463 Letter from Mary L. Henze, AT&T Services, Inc., and Kathleen Grillo, Verizon, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach. 2 at 1 (filed Sept. 11, 2008) (AT&T and
Verizon Sept. 11, 2008 Ex Parte Letter).
464 See, e.g., Comments of National Cable and Telecommunications Association, WC Docket No. 06-122, at 5 (filed
Aug. 9, 2006); Comments of Vonage America, Inc., WC Docket No. 06-122, at 6 (filed Aug. 9, 2006) (Vonage Aug.
9 2006 Comments); AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 1.
465 See, e.g., Comments of the Information Technology Industry Council, WC Docket No. 06-122, at 6 (filed Aug. 9,
2006) (IT Aug. 9 2006 Comments); Vonage Aug. 9 2006 Comments at 7.
466 See, e.g., Comments of Fred Williamson & Associates, Inc., CC Docket No. 96-45 et al., at 13-15 (filed Apr. 12,
2002); Comments of NRTA and OPASTCO, CC Docket No. 96-45 et al., at 7-11 (filed Apr. 22, 2002); Comments
of SBC Communications, Inc., C Docket No. 96-45 et al., at 18 (filed Apr. 22, 2002); Reply Comments of Verizon
Wireless, CC Docket No. 96-45 et al., at 6 (filed May 13, 2002); Comments of Verizon Wireless, CC Docket No.
96-45, at 5–6 (filed Apr. 22, 2002); see also State Members of Joint Board CAF Comments at 121-23; Letter from
Michael R. Romano, Senior Vice President-Policy, National Telecommunications Cooperative Association, to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 at 2 (filed Feb. 3, 2012).

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calls, while others make few calls in a given month, yet all users (heavy users or light users) would be
subject to the same flat monthly assessment amount.467
288.
In light of the varied numbers-based proposals in the record, the evolution of the
communications ecosystem, and the comments received over the past decade, we now seek to refresh the
record on a numbers-based assessment methodology, as discussed below. We seek comment on whether
a numbers-based methodology would further our proposed reform goals of greater administrative
efficiency, fairness, and sustainability of the Fund. We also seek comment on the costs and benefits of a
numbers-based contribution methodology. We ask parties claiming significant costs or benefits of a
numbers-based system to provide supporting analysis and facts for such assertions, including an
explanation of how data were calculated and all underlying assumptions.
289. As with connections, questions related to the design of a numbers-based assessment system
are distinct from, although complementary to, questions raised in Section IV of this Notice regarding
which providers and services should contribute to universal service.468 While it is true that in an
exclusively numbers-based system, services that do not rely on numbers would not be assessed, even
within such an approach, we might choose to include or exclude from assessment particular number-
reliant services. We therefore encourage commenters who advocate a numbers-based methodology to
address the questions raised in Section IV of this Notice in addition to specific definitional questions in
this section, such as which numbers should be assessable.
1.

Legal Authority

290.
In this section, we seek comment on our legal authority to adopt a numbers-based
contributions methodology. As noted above, section 254(d) of the Act requires that “[e]very
telecommunications carrier that provides interstate telecommunications services shall contribute on an
equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established
by the Commission to preserve and advance universal service.”469 Section 254(d) also provides the
Commission with permissive authority to require “providers of interstate telecommunications” to
contribute to the Fund.470 Title I of the Act gives the Commission ancillary jurisdiction over matters
reasonably related to “the effective performance of [its] various responsibilities” where the Commission
has subject matter jurisdiction over the service.471
291.
The Commission previously has sought comment on whether the Commission’s “plenary
authority” over numbering in section 251(e) provides additional authority to adopt a numbers-based
methodology.472 The Commission has “exclusive jurisdiction over those portions of the NANP that
pertain to the United States.”473 In the VoIP 911 Order, the Commission relied on its section 251(e)

467 See, e.g., Letter from Maureen A. Thompson, Executive Director, Keep USF Fair Coalition, to Marlene H.
Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 5–7 (filed Mar. 27, 2006); see also Letter from David C.
Bergmann, NASUCA, to Kevin Martin, Chairman, FCC et al., WC Docket No. 08-152 et al., at 9 (filed Sept. 30,
2008).
468 See supra Section IV.
469 47 U.S.C. § 254(d). See supra Section IV.A.
470 47 U.S.C. § 254(d).
471 See FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979); United States v. Midwest Video Corp., 406 U.S.
649, 667-68 (1972);United States v. Southwestern Cable Co., 392 U.S. 157, 177-178 (1968); see also American
Library Ass’n v. FCC
, 406 F.3d 689 (D.C. Cir. 2005).
472 See 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6539, para. 98.
473 47 U.S.C. § 251(e)(1).

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authority to require interconnected VoIP providers to provide E911 services.474 In so doing, the
Commission noted that it exercised its authority under section 251(e) because, among other reasons,
“interconnected VoIP providers use NANP numbers to provide their services.”475
292.
We seek to refresh the record on the Commission’s authority pursuant to sections 254(d),
251(e), and Title I of the Act to establish a numbers-based contributions methodology. Under a numbers-
based approach, some providers could be required to contribute directly to the Fund that historically may
have contributed indirectly or not at all. For example, under a numbers-based approach based on
“assessable numbers,” any provider who provides a service or device with an assessable number to an end
user could be required to contribute, irrespective of whether the provider is a “telecommunications
carrier” subject to the mandatory contribution obligation of section 254.476 We seek comment on whether
the public interest would be served if the Commission were to exercise its permissive authority to require
these providers to contribute to the Fund. What is the extent of the Commission’s ancillary authority
under Title I of the Act? Does the provision of a service that relies on the assignment of an assessable
number to an end user bring such a service offering under the Commission’s broad subject matter
jurisdiction because it involves, in some manner, “interstate…communication by wire or radio?”477 Does
the Commission’s plenary authority over numbering under section 251 of the Act support use of a
numbers-based contribution methodology?
293.
In responding to the questions below, we invite commenters to address how a numbers-
based system should be structured to fulfill the statutory requirement that telecommunications service
providers contribute on an equitable and nondiscriminatory basis. If we were to adopt a numbers-based
contribution methodology, should we also explicitly exercise our permissive authority over providers of
telecommunications or specified services to make clear that providers of those services would be
assessed? How would we ensure that all entities that contribute under a numbers-based system are
providers of interstate telecommunications?
2.

Defining Assessable Numbers for Contribution Purposes

294.
Below, we seek comment on which numbers should be assessed under a numbers-based
contribution methodology. We also seek comment on whether defining assessable numbers or
alternatives that commenters may suggest would best further our proposed goals for contribution reform.
We specifically ask commenters to estimate the per-number assessment under their preferred definition of
assessable numbers and the scope of any exemptions that they propose. We also ask parties to address the
impact of differing definitions of assessable numbers on who would contribute in the future, compared to
today.
295.
Definition of Assessable Numbers. We seek comment on how the Commission should
define an “assessable” number for purposes of a numbers-based contributions methodology. In other
contexts, the Commission has defined “numbers” for purposes of Commission reporting requirements.
For example, the Commission requires that each telecommunications carrier that receives numbering
resources from the North American Numbering Plan Administrator (NANPA), the Pooling Administrator,
or another telecommunications carrier, report its numbering resources in each of six defined categories of
numbers set forth in section 52.15(f) of our rules.478 In the regulatory fee context, the Commission has

474 See VoIP 911 Order, 20 FCC Rcd at 10265, para. 33.
475 Id.
476 A proposed definition of “assessable number” is discussed below. See infra Section V.B.2.
477 47 U.S.C. § 152(a); see also VoIP 911 Order, 20 FCC Rcd at 10261-62, para. 28 (providing detailed explanation
of why interconnected VoIP falls within the Commission’s subject matter jurisdiction).
478 These six categories of numbers are defined in 47 C.F.R. §52.15(f) as follows:
(continued…)

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adopted the category of “assigned numbers” as the starting point for determining how to assess fees on
certain providers, but found it necessary to modify that definition to account for different regulatory
contexts.479 Specifically, in assessing regulatory fees for commercial mobile radio service (CMRS)
providers that report number utilization to NANPA based on the reported assigned number count in their
Numbering Resource Utilization and Forecast (NRUF) data, the Commission requires these providers to
adjust their assigned number count to account for number porting. The Commission found that adjusting
the NRUF data to account for porting was necessary for the data to be sufficiently accurate and reliable
for purposes of regulatory fee assessment.480 We seek comment on whether we should adopt any of these
definitions of numbers for purposes of defining an “assessable number” for USF contributions.
296.
Specifically, we seek comment on the following definition of assessable numbers:481
An “Assessable Number” is a NANP telephone number that is in use by an end
user and that enables the end user to receive communications from or terminate
communications to (1) an interstate public telecommunications network or (2) a
network that traverses (in any manner) an interstate public telecommunications
network in the United States and its Territories and possessions. Assessable
Numbers include geographic as well as non-geographic telephone numbers (such
as toll-free numbers and 500-NXX numbers) as long as they meet the other
criteria described in this part for Assessable Numbers.

297.
We seek comment on whether the above definition furthers our overall proposed goals of
reform. Is the above definition sufficiently broad to capture all types of numbers, including those

(Continued from previous page)
(i) Administrative numbers are numbers used by telecommunications carriers to perform internal
administrative or operational functions necessary to maintain reasonable quality of service standards.
(ii) Aging numbers are disconnected numbers that are not available for assignment to another end user or
customer for a specified period of time. Numbers previously assigned to residential customers may be aged
for no more than 90 days. Numbers previously assigned to business customers may be aged for no more
than 365 days.
(iii) Assigned numbers are numbers working in the Public Switched Telephone Network under an
agreement such as a contract or tariff at the request of specific end users or customers for their use, or
numbers not yet working but having a customer service order pending. Numbers that are not yet working
and have a service order pending for more than five days shall not be classified as assigned numbers.
(iv) Available numbers are numbers that are available for assignment to subscriber access lines, or their
equivalents, within a switching entity or point of interconnection and are not classified as assigned,
intermediate, administrative, aging, or reserved.
(v) Intermediate numbers are numbers that are made available for use by another telecommunications
carrier or non-carrier entity for the purpose of providing telecommunications service to an end user or
customer. Numbers ported for the purpose of transferring an established customer’s service to another
service provider shall not be classified as intermediate numbers.
(vi) Reserved numbers are numbers that are held by service providers at the request of specific end users or
customers for their future use. Numbers held for specific end users or customers for more than 180 days
shall not be classified as reserved numbers.
479 47 C.F.R. § 52.15(f)(iii).
480 See Assessment and Collection of Regulatory Fees for Fiscal Year 2005; Assessment and Collection of
Regulatory Fees for Fiscal Year 2004
, MD Dockets Nos. 05-59, 04-73, Report and Order and Order on
Reconsideration, 20 FCC Rcd 12259, 12271, paras. 39–40 (2005).
481 See 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6547-6548, App. A, para. 116, at 6680, App. B, para.
63, & at 6746, App. C, para. 112.

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associated with services aimed primarily at international calls that either commence or end in the United
States and its Territories? Should we include in the above definition of numbers toll-free numbers that
are also part of the North American Numbering Plan, but are governed by sections 52.101 through
52.111?482
298.
We also seek comment on alternatives. For instance, should we define assessable
numbers consistent with the definition of “Assigned numbers” in Part 52: “Assessable numbers are
numbers working in the Public Switched Telephone Network under an agreement such as a contract or
tariff at the request of specific end users or customers for their use, or numbers not yet working but
having a customer service order pending. Numbers that are not yet working and have a service order
pending for more than five days shall not be classified as assessable numbers.”483 Would such a
definition include NANP numbers assigned to mobile broadband-only devices, such as 3G tablets or
laptop cards? If not, should we modify this definition, or would it be appropriate to exclude numbers
associated with such devices and services associated with them? Commenters proposing alternative
definitions of “assessable numbers” should explain how their proposal satisfies our proposed goals for
contributions reform.
299.
We note that any definition of assessable numbers may exclude special access services
and possibly other services that are clearly assessed today, but that do not include a telephone number. In
addition, such a definition may exclude some of the services mentioned in Section IV.B of this Notice.484
We seek comment on how such services should be treated under a pure numbers-based approach.
300.
Cyclical Numbers. We seek comment below on whether contributors should report
numbers on a monthly basis.485 If we were to adopt such a rule, should numbers used for intermittent or
cyclical purposes (and that may not be fully in use at the time of a monthly reporting obligation) be
excluded or included from the definition of Assessable Numbers?
301.
For purposes of this discussion, we define numbers used for cyclical purposes as numbers
designated for use that are typically “working” or in use by the end user for regular intervals of time.
These numbers include, for example, an end-user’s summer home telephone number that is in service for
six months out of the year.486 In the NRO III Order, the Commission clarified that these types of numbers
should generally be categorized as “assigned” numbers if they meet certain thresholds and that, if they do
not meet these thresholds, they “must be made available for use by other customers” (i.e., they are
“available” numbers).487 Is there a bright-line way for providers to determine, and for the Commission or

482 See 47 C.F.R. § 52.101 – 52.111.
483 See 47 C.F.R. § 52.15(f)(iii).
484 See supra Section IV.B.
485 See infra Section V.C.7.
486 See Numbering Resource Optimization et al., CC Docket No. 99-200 et al., Third Report and Order and Second
Order on Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17 FCC Rcd 252, 303, para. 119
(2001) (NRO III Order).
487 NRO III Order, 17 FCC Rcd at 304, para. 122 (“With this requirement, we seek to limit the amount of numbers
that are set aside for use by a particular customer, but are not being used to provide service on a regular basis. Thus,
in order to categorize such blocks of numbers as assigned numbers, carriers may have to decrease the amount [of]
numbers set aside for a particular customer. We also clarify that numbers ‘working’ periodically for regular
intervals of time, such as numbers assigned to summer homes or student residences, may be categorized as assigned
numbers, to the extent that they are ‘working’ for a minimum of 90 days during each calendar year in which they are
assigned to a particular customer. Any numbers used for intermittent or cyclical purposes that do not meet these
requirements may not be categorized as assigned numbers, and must be made available for use by other
customers.”).

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USAC to verify and audit, which numbers are cyclical versus which numbers are not cyclical? If not,
would excluding such numbers be consistent with our proposed goals for contribution reform? What are
the implications of excluding such numbers in the contribution base? Would excluding these numbers be
consistent with the requirements of section 254(d)? What would be the policy justifications for excluding
or including these numbers in the contribution base? For example, one policy reason for assessing
cyclical numbers would be that each cyclical number obtains the full benefits of accessing the public
network. If cyclical numbers are not excluded from the definition of assessable numbers, should such
numbers be assessed at a pro-rated or reduced rate? We ask commenters to provide data as to the count of
numbers that would fall into the category of cyclical numbers, and explain how the Commission and
USAC would verify and audit the use of such numbers.
302.
Assigned but Not Operational Numbers. Section 52.15 of our rules define “assigned
numbers” as numbers that have been assigned to a customer (within a period of five days or less) but have
not yet been put into service.488 Since providers generally do not bill for services that have yet to be
provisioned and therefore are not compensated for services during the pendency of the service order,
should such numbers be excluded from the definition of Assessable Numbers? We seek comment on
whether our definition of assessable numbers should include numbers that are not yet operational to send
or receive calls. Would it be consistent with the “equitable and non-discriminatory” language in section
254(d) to exclude these numbers? Would the exclusion of assigned but not operational numbers have a
material impact on the contribution base and associated per month charge for assessable numbers? What
would be the policy justifications for excluding these numbers from contribution obligations? In the
alternative, should such numbers be assessed at a pro-rated or reduced rate? We ask commenters to
provide data as to the volume of numbers that would fall into the category of “assigned but not
operational numbers.”
303.
Available but Not Assigned Numbers. We seek comment on whether the definition of
assessable numbers should include or exclude other numbers that are held by service providers from the
definition of Assessable Numbers. In particular, should we exclude from the definition of Assessable
Numbers those numbers that meet the definition of an Available Number, an Administrative Number, an
Aging Number, or an Intermediate Number as those terms are defined in section 52.15(f) of the
Commission’s rules?489 Carriers will not have an end user associated with a number in any of these
categories of numbers. For example, an intermediate number is a number that is “made available for use
by another telecommunications carrier or non-carrier entity for the purpose of providing
telecommunications service to an end user or customer.”490 Should the receiving provider be responsible
for including the number as an Assessable Number only when it provides the number to an end user? We
seek comment on whether a numbers-based approach should assess Reserved Numbers. Would it be
consistent with the “equitable and non-discriminatory” language in section 254(d) to exclude these
numbers? Would the exclusion of available but not assigned numbers have a material impact on the
contribution base and associated per month charge for assessable numbers? What would be the policy
justifications for excluding these numbers from contribution obligations? Should such numbers be
assessed at a pro-rated or reduced rate? We ask commenters to provide data as to the volume of numbers
that would fall into the category of “reserved numbers.”
304. Assigned but Non-Working Numbers. The 2008 proposals sought comment on excluding
non-working telephone numbers from the definition of Assessable Number.491 Several commenters

488 47 C.F.R. § 52.15(f)(iii).
489 See 47 C.F.R. § 52.15(f).
490 See 47 C.F.R. § 52.15(f)(v).
491 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6549, App. A, para. 119, at 6682-83, App. B, para. 67, &
at 6748, App. C, para. 118.

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supported the Commission’s proposal that assigned but non-working numbers should be excluded from
contributions.492 Carriers report as assigned numbers for NRUF purposes entire codes or blocks of
numbers dedicated to specific end-user customers if at least fifty percent of the numbers in the code or
block are working in the PSTN.493 Would it be consistent with the definition of an Assessable Numbers
above for carriers to exclude the non-working numbers in these blocks in their Assessable Number
counts, because the non-working numbers portion of these blocks are not “in use by an end user”? We
seek to update the record on whether a numbers-based approach, if adopted, should assess non-working
numbers. Would it be consistent with the “equitable and non-discriminatory” language in section 254(d)
to exclude these numbers? Would the exclusion of non-working numbers have a material impact on the
contribution base and associated per month charge for assessable numbers? What would be the policy
justifications for excluding these numbers from contribution obligations? Would this create loopholes
and make it difficult for the Commission or USAC to audit a provider to determine if non-working
numbers were properly counted? In the alternative, should such numbers be assessed at a pro-rated or
reduced rate? We also seek comment on the count of non-working numbers, as well as the trend for this
category.
305.
Numbers Used for Routing Purposes. The 2008 Comprehensive Reform FNPRM sought
comment on excluding from the definition of “Assessable Number” numbers that are used merely for
routing purposes in a network, as long as such numbers are always—without exception—provided
without charge to the end user, are used for routing only to Assessable Numbers for which a universal
service contribution has been paid, and the ratio of such routing numbers to Assessable Numbers is no
greater than 1.494 We seek to update the record on whether a NANP number used solely to route or
forward calls should be excluded from the definition of Assessable Number in a numbers-based approach,
if such routing number were provided for free, and such number routes calls only to Assessable Numbers.
Should these numbers be assessed on a different basis, if such routing or forwarding were provided for a
fee, such as with remote call forward service or foreign exchange service? We seek comment on whether
such numbers should be excluded under a numbers-based contribution system. Would it be consistent
with the “equitable and non-discriminatory” language in section 254(d) to exclude these numbers?
Would the exclusion of numbers used for routing purposes have a material impact on the contribution
base and associated per month charge for assessable numbers? How would the exclusion of routing
numbers impact a numbers-based regime? What would be the policy justifications for excluding these
numbers from contribution obligations? Should such numbers be assessed at a pro-rated or reduced rate?
We also seek data on numbers used for routing purposes, including trend information for this category of
numbers.
306.
Toll-Free Numbers. We seek comment on whether a numbers-based methodology should
make special accommodations for toll-free numbers. Toll-free numbers are different from other NANP
numbers in that the toll-free subscriber pays the long distance charges associated with calls it receives,
rather than the persons making the calls.495 For this reason, the Commission has adopted rules specific to
the administration of toll-free numbers, as opposed to local area numbers.496 Under the current revenues-

492 See Letter from Jeanine Poltronieri, BellSouth, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45,
Attach. at 1 (filed Oct. 24, 2005); Comments of Time Warner Inc., WC Docket No. 06-122, at 5 (filed Aug. 9,
2006); Letter from Patricia Todus, President, ACUTA, & Mark Luker, Vice President, EDUCAUSE, CC Docket
No. 96-45, Attach. at 2 (filed May 31, 2006).
493 NRO III Order, 17 FCC Rcd at 304, para. 122.
494 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6550, App. A, para. 123, at 6683, App. B, para. 71, & at
6748-49, App. C, para. 119.
495 The term “subscriber” refers to the Toll-Free Subscriber, currently defined in § 52.101 (e) of the rules.
496 See 47 C.F.R. § 52.101 – 52.111.

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based system, there is no specific exemption for revenues associated with toll-free numbers. We seek
comment on whether the proposed definition for assessable number should exclude from assessment toll-
free numbers. Would it be consistent with the “equitable and discriminatory language” in section 254(d)
to exclude these numbers? How would the exclusion of toll-free numbers impact a numbers-based
regime? What would be the policy justifications for excluding these numbers from contribution
obligations? Should such numbers be assessed at a pro-rated or reduced rate? We also seek data on toll-
free numbers, including trend information for this category of numbers.
307.
All Public or Private Interstate Networks. We note that the 2008 Comprehensive Reform
FNPRM definition of an “assessable number” would include numbers associated with services that
traverse any interstate private or public network, which would not necessarily be limited to numbers for
calling that originate or terminate on the PSTN. In the 2008 Comprehensive Reform FNPRM, the
Commission discussed the evolution in communications technology away from the PSTN to alternative
networks that may only partially (if at all) traverse the PSTN as one of the causes in the erosion of the
contribution base under the current revenue-based methodology.497 As more services migrate to
alternative networks that only partially traverse the PSTN, is there a danger that a NANP numbers-based
contributions methodology in time could result in declines in the base, and may conflict with our
proposed reform goals of ensuring sustainability in the Fund and promoting fairness in the USF
contribution assessment system?498 Or are NANP numbers being used in association with new
technologies that do not originate or terminate on the PSTN? If so, do commenters expect that growth in
these alternative usages will outpace other declines? We seek comment generally on whether a
contribution system based on NANP numbers would be sustainable as the marketplace evolves in the
future.
308.
Numbers Provided to End Users. We seek comment on which providers should
contribute to the Fund under a numbers-based contribution methodology. We seek comment on whether
the provider with the retail relationship with the end user should have the contribution obligation under a
numbers-based approach.499 We note that in 2008, several telecommunications providers, including
Qwest, XO Communications, AT&T, and Verizon supported the Commission’s proposal that providers
with the retail relationship to the residential customer should be the providers contributing under a
numbers-based methodology.500 Would such a provider have the most accurate and up-to-date
information about how many Assessable Numbers it currently has assigned to end users and how many
are in use? If we adopt a different approach for numbers used for consumer versus enterprise services,

497 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6550-51, App. A, para. 126, and at 6683-84, App. B, para.
74, and at 6749-50, App. C, para. 122.
498 See, e.g., Technical Advisory Council Chairman’s Report (Apr. 22, 2011) available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-306065A1.pdf (last visited Apr. 12, 2012); Technology
Advisory Council, Summary of Meeting, June 29, 2011 available at http://transition.fcc.gov/oet/tac/tacdocs/tac-
meeting-summary-6-29-11-final.docx (last visited Apr. 12, 2012) (suggesting the transition away from the PSTN
should end by 2018); USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17670, 17676-17677, paras. 11,
34-35 (citing promotion of the transition to IP networks as a goal of ICC reform).
499 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6548, App. A, para. 117, at 6680-6681, App. B, para. 64-
65, & at 6746-6747, App. C, para. 113 (seeking comment whether the provider with the retail relationship to the end
user should be the entity responsible for contributing)
500 See Letter from Melissa E. Newman, Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 06-122, at 7 (filed Sept. 24, 2008); AT&T and Verizon Sept. 11, 2008 Ex Parte
Letter, Attach. 1 at 1-2, Letter from Brad E. Mutschelknaus, Counsel for XO Communications, to Marlene H.
Dortch, Secretary, FCC, CC Docket No. 96-45 et al. Attach. at 9 (filed Oct. 3, 2008); Letter from Donna N.
Lampert, Counsel for Google Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No.
96-45 (filed Oct. 3, 2008).

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would the provider with the retail relationship be in the best position to distinguish consumer users from
business users?
309.
We seek comment on how a numbers-based approach should be implemented with
respect to wholesalers, resellers, and other providers incorporating NANP numbers into retail services.
Would a system that assesses only numbers provided to end-users invite problems similar to those that
exist today under the current revenues-based system, whereby some providers do not contribute for
services provided?501 We note that in some instances wholesalers may provide telecommunications
services to customers with numbers. For example, would a numbers-based system create
wholesale/reseller/retailer problems of the type discussed earlier in this Notice?502
3.

Trends in Numbers

310.
We seek comment and data on the count of numbers that would be assessable under a
number-based USF contribution assessment system. Neustar, the administrator of the NANP, estimates
that there are currently 770 million numbers in active use in the United States.503 As shown in Chart 7
below,504 one projection suggests there could be over 832 million numbers in active use by 2015.

501 See supra Section V.A.4.
502 Id.
503 Letter from Aaron M. Panner, Counsel for Neustar, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket No.
95-116, WC Docket No. 07-149 (filed Mar. 9, 2012).
504 The number of assigned numbers presented in Chart 8 is from NRUF Table 1. Missing values for June in the
earlier years are interpolated. Historical data are as of end December 2006 to 2010. Projected number of incumbent
local exchange carrier (ILEC) assigned numbers and total assigned numbers (ILEC, mobile, competitive local
exchange carrier (CLEC), and paging) assume a linear trend. Projected numbers of paging assigned numbers
assumes a logarithmic trend. Bass model is used to project mobile wireless assigned numbers. CLEC assigned
numbers are assumed to be residual. CLEC figures include numbers provided to VoIP providers.

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Chart 7

Number of Assigned Numbers 

(Thousands, Source:  NRUF, Projections 2011‐
2015)
900,000    
800,000    
700,000    
600,000    
500,000    
400,000    
300,000    
200,000    
100,000    
0    
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ILEC
Mobile
CLEC
Paging

We seek comment on this estimate and the underlying assumptions, and invite commenters to present
their own estimates for the growth or decline in the count of actively-used numbers as well as any
additional data regarding their own estimates and the key drivers for such growth or decline. To what
extent is the growth in the volume of numbers due to new services and applications, and to what extent is
it due to greater penetration of phone service, such as cell phone family plans and usage by younger
children? Do commenters believe the volume of numbers will increase in the foreseeable future? Is the
growth trend sustainable given anticipated technology changes? What other factors will impact the
continued growth in the volume of numbers? What impact would the growth in numbers have on future
contribution assessments? To the extent commenters predict the volume of numbers in use will decline
over time rather than grow, they should similarly identify the basis for their assumptions and describe in
detail their projections for the foreseeable future. What challenges would a numbers-based contribution
system face if the volume of numbers were to shrink?
311.
We note that in 2008, AT&T and Verizon estimated that under a numbers-based
assessment methodology, the contribution would be between $1 and $1.10 per number per month.505
They further estimated that if the Commission were to move to a numbers-based system, the residential
share of the contribution burden would drop from 50 percent to 46 percent, while the business share
would rise from 50 percent to 54 percent.506 We seek to update the record on what the per-number charge

505 AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 2.
506 Id.

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would be, given current and projected trends in numbers and overall universal service demand.
Commenters also should provide revised estimates of the impact on different industry contributors, and
residential and business consumers, in light of current marketplace developments. Commenters should
indicate which definition of “assessable numbers” (and exclusions from assessable numbers) they use in
their projections.
4.

Differential Treatment of Certain Types of Numbers

312.
In this section, we seek comment on whether to provide differential treatment or exclude
altogether certain types of numbers from the definition of Assessable Numbers under a numbers-based
contribution methodology, and whether doing so would further or undermine our proposed goals for
contributions reform. To the extent commenters contend certain types of numbers should be assessed at a
different rate, i.e. a percentage of the basic per number assessment per month, we ask commenters to
include a policy rationale for their proposal. For example, is there a reason why certain types of numbers
should be assessed at some fraction, such as 33 or 50 percent, of other numbers based on usage? Would
assessing numbers used for certain types of services promote or discourage innovation?
313.
Family Plan Numbers. In the 2008 Comprehensive Reform FNPRM, the Commission
sought comment on including additional numbers in a family plan in the definition of an Assessable
Number because (1) each number associated with a family plan obtains the full benefits of accessing the
public network, and (2) an exemption for additional family plan handsets would not be competitively
neutral and would advantage wireless family plan consumers over other residential service consumers.507
Parties have argued in the past that telephone numbers assigned to the additional handsets in family
wireless plans should be assessed at a reduced rate, either permanently or for a transitional period.508
These commenters suggested that assessing contributions at the full per-number rate would cause family
plan customers to experience “rate shock.”509
314.
We seek to refresh the record on this issue. We seek comment on whether a numbers-
based approach should count equally all numbers that are used for family plans. If we were to adopt a
differentiated approach for family plans, how would we define a “family plan” that would be subject to
such differential treatment? Would this create incentives for service providers to consolidate accounts
and take other measures to characterize service offerings as “family plans”? Would such a rule be limited
to mass market consumers, and if so, how should we distinguish between mass market plans and
enterprise plans? Would differential treatment of such numbers satisfy the statutory requirements that
contributions by telecommunications service providers be equitable and non-discriminatory? What would
be the policy justifications for assessing such numbers at a pro-rated or reduced rate? We ask
commenters to provide data with underlying assumptions as to the count of numbers that would fall into
this category, specifically, how many phone numbers are associated with a primary phone number in a
family plan.

507 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6560, App. A, para. 145.
508 See, e.g., AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 4; Comments of CTIA-The Wireless
Association, WC Docket No. 06-122, at 5-6 (filed Aug. 9, 2006) (CTIA Aug. 9, 2006 Comments); Comments of
Leap Wireless International, Inc., WC Docket No. 06-122 et al., at 2-3 (filed Aug. 9, 2006) (Leap Wireless 2006
Contribution FNPRM
Comments); Letter from Thomas J. Sugrue, Vice President—Government Affairs, T-Mobile,
to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, at 2 (filed Apr. 4, 2006) (T-Mobile Apr. 4,
2006 Ex Parte Letter).
509 AT&T and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 2 at 4; CTIA Aug. 9, 2006 Comments at 5–6; Leap
Wireless Aug. 9, 2006 Comments at 2–3; T-Mobile Apr. 4, 2006 Ex Parte Letter at 2–3. But see Letter from
Kenneth E. Hardman, American Association of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, WC Docket
No. 06-122, CC Docket No. 96-45, at 2 (filed Oct. 9, 2008).

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315.
Services-Based Exceptions. Prior commenters have proposed that we should exempt
from any numbers-based contribution methodology services provided by telematics providers,510 one-way
service providers,511 two-way paging services,512 and alarm companies.513 In 2008, the Commission
sought comment on excluding such services from any numbers-based system.514 Various commenters
argued for special treatment for these services.515 In response, other commenters opposed granting
exemptions for these services because it would provide them with an advantage over other services that
are required to contribute based on residential telephone numbers.516 We seek to update the record on
these proposals, noting that since 2008, additional marketplace developments have emerged that may
similarly not fit neatly into the numbers paradigm, including numbers assigned to devices reliant on
mobile broadband, such as data cards, e-readers, and tablet computers. Should these types of numbers be
assessed at a different rate, e.g.,. a percentage of the basic per number monthly assessment? For example,
should a number assigned to a telematics device, where the customer is not paying a monthly fee and the
device can only make a “call” in an emergency situation be assessed differently from a number assigned
to a consumer cell phone or a business landline? Would exclusion of numbers associated with such
services be consistent with the statutory requirement that all carriers providing interstate
telecommunications services shall contribute on an equitable and non-discriminatory basis?517 How

510 Telematics is a service that is provided through a transceiver, which is usually built into a vehicle but can also be
a handheld device, that provides public safety information to public safety answering points (PSAPs) using global
positioning satellite data to provide location information regarding accidents, airbag deployments, and other
emergencies in real time. See, e.g., Letter from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch,
Secretary, FCC, CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006); Revision of the Commission’s Rules To
Ensure Compatibility with Enhanced 911 Emergency Systems
, CC Docket No. 94-102, Order, 18 FCC Rcd 21531,
21531–33, paras. 2, 8 (2003).
511 One-way services include, but are not limited to, one-way paging, electronic facsimile (e-fax), and voicemail
services (other than stand-alone voicemail services, as discussed above).
512 See, e.g., Letter from Matthew Brill, Counsel for USA Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC
Docket No. 06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing the assessment of a numbers-based
fee on paging carriers and their customers); Letter from Kenneth Hardman, Counsel for the American Association of
Paging Carriers, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at Attach.
(filed Oct. 22, 2008).
513 See Letter from Donald J. Evans, Counsel for Corr Wireless Communications, LLC, to Marlene H. Dortch,
Secretary, FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No. 05-194, at 2 (filed Oct. 23, 2008).
514 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6558-59, App. A, para. 144, at 6690-91, App. B, para. 92,
& at 6756-57, App. C, para. 139.
515 See Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz USA, LLC, to Marlene H. Dortch, Secretary, FCC,
CC Docket No. 96-45, at 1 (filed Apr. 12, 2006); see also Letter from John E. Logan, ATX Group, Inc., to Marlene
H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed Mar. 16, 2006); Letter from David M. Don, Counsel
for j2 Global Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18,
2005); Letter from William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom Navin, Chief, Wireline
Competition Bureau, FCC, CC Docket No. 96-45 (filed Feb. 13, 2006); Comments of j2 Global Communications,
Inc., CC Docket No. 96-45, at 2 (filed Feb. 28, 2003); Letter from Kenneth E. Hardman, Counsel for the American
Association of Paging Carriers, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1 (filed
Oct. 6, 2005); Letter from Frederick M. Joyce, Counsel for USA Mobility, to Marlene H. Dortch, Secretary, FCC,
CC Docket No. 96-45, Attach. at 1–3 (filed Mar. 22, 2006).
516 See, e.g., Letter from James S. Blaszak, Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch,
Secretary, FCC, CC Docket No. 96-45, at 2 (filed Aug. 15, 2006) (Ad Hoc Telecommunications Users Aug. 15,
2006 Comments); Letter from Douglas D. Orvis, Counsel for IDT Corporation, to Marlene H. Dortch, Secretary,
FCC, Docket No. 96-45, Attach. A at 5 (filed Feb. 23, 2006).
517 47 U.S.C. § 254(d).

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would the exclusion of such numbers impact a numbers-based regime? What would be the policy
justifications for excluding these numbers altogether from contribution obligations? We ask commenters
to provide data as to the volume of numbers that would fall into this category.
316.
Numbers Provided to Lifeline Subscribers. In 2008, the Commission sought comment on
a proposal to prohibit contributors from passing through any universal service charges to their Lifeline
subscribers.518 Several contributors suggested that telephone numbers assigned to Lifeline subscribers
should be excluded from the universal service contribution base and providers of Lifeline service should
not pass-through contribution assessments to Lifeline subscribers.519 As a threshold matter, we seek
comment on whether the Commission has statutory authority to exclude numbers associated with service
offerings provided to Lifeline subscribers, given the mandatory contribution obligation for
telecommunications service providers. To the extent such numbers are provided with
telecommunications services, would it be consistent with our section 10 authority to forebear from
imposing contribution obligations on such numbers?520
317.
In our prior proceedings, consumer groups, large telecommunications customers, LECs,
and wireless providers all supported an exemption for numbers provided to Lifeline subscribers, and no
commenter opposed an exemption for numbers provided to Lifeline subscribers.521 We seek to update the
record on whether it is appropriate to not assess numbers for Lifeline subscribers, if we were to adopt a
numbers-based contribution methodology. We note that today there are approximately 14.8 million
Lifeline subscribers.522 How would the exclusion of such numbers impact a numbers-based regime?
What would be the policy justifications for excluding these numbers from contribution obligations?
Alternatively, should such numbers associated with Lifeline services be assessed at a pro-rated or reduced
rate, and if so, what would be an appropriate amount?
318.
Free Services. Some providers have argued in the past that their services are offered on a
free, or nearly-free basis, and if these services are assessed on a per telephone number basis, providers
will no longer be able to offer such services for free.523 In 2008, the Commission sought comment on a
proposal to include free services in a number-based contributions system, noting that although these
services may be marketed as “free” to the end user, these services are not truly free.524 Commenters,

518 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6557, App. A, para. 141, at 6683, 6689, App. B, para. 71,
90, & at 6756-57, App. C, para. 136, 137.
519 See, e.g., Letter from Mary L. Henze, AT&T Services, Inc. & Kathleen Grillo, Verizon, WC Docket No. 06-122,
CC Docket No. 96-45, Attach. at 4 (filed Oct. 20, 2008) (AT&T and Verizon Oct. 20, 2008 Ex Parte Letter)
(proposing that numbers assigned to Lifeline subscribers be excluded from the monthly number count for
contribution purposes).
520 We seek comment below on the separate question of whether ETCs should be prohibited from passing through to
Lifeline subscribers any contribution obligations they may have with respect to Lifeline services. See infra Section
VII.C.
521 See, e.g., CTIA Aug. 9, 2006 Comments at 5; Reply Comments of Consumers Union et al., WC Docket No. 05-
337, CC Docket No. 96-45, at 58 (filed June 2, 2008); Letter from James S. Blaszak, Ad Hoc Telecommunications
Users Committee, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, at 4 (filed Nov. 19, 2007); AT&T
and Verizon Sept. 11, 2008 Ex Parte Letter, Attach. 1 at 5.
522 USAC Second Quarter 2012 Filings, LI08 - Lifeline Subscribers by State or Jurisdiction.xls available at
http://www.usac.org/about/tools/fcc/filings/2012/q2.aspx.
523 See, e.g., j2 Global Feb. 28, 2003 Comments at 7 (arguing that a connections-based universal service
methodology would force many heavily used one-way communications services out of existence).
524 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6558-59, App. A, para. 144, at 6689-90, App. B, para. 91,
& at 6756-57, App. C, para. 139.

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other than the providers of such free services, generally supported the inclusion of these numbers.525 We
seek to refresh the record on this issue. Since commercial providers of free or nearly-free services
generate revenue in other ways, such as through advertising or through more sophisticated paid service
offerings or product offerings, should they be exempt from contribution obligations? Whether these
providers continue to offer free services would be a business decision based upon the circumstances of the
particular business. Would the inclusion of such services under a numbers-based approach be equitable?
Some commenters have argued in the past that assessing a per-number contribution obligation on these
services is consistent with prior Commission determinations that services that benefit from a ubiquitous
public network are fairly charged with supporting the network.526 We ask commenters to provide
estimates with supporting data regarding the number of numbers that would fall into this category.
319.
Community Voice Mail. In 2008, the Commission sought comment on whether stand-
alone voice mail service, provided for free to “phoneless” people, should be exempted from direct
contribution obligations under a numbers-based methodology.527 Such services are provide for free, and
therefore generate no revenues. Provided we did not otherwise exempt free services, we seek comment
on whether a numbers-based approach should assess numbers associated with services such as community
voicemail. Would exclusion of these numbers satisfy the statutory requirements for universal service
contributions from providers of telecommunications services? How would the exclusion of such numbers
impact a numbers-based regime? What would be the policy justifications for excluding these numbers
from contribution obligations? Should such numbers be assessed at a pro-rated or reduced rate? We ask
commenters to provide data as to the volume of numbers that would fall into this category.
320.
TRS and VRS Numbers. Some parties have previously suggested that if we adopt a
numbers-based contribution methodology, we should exempt Internet-based telecommunications relay
services (TRS), including video relay services (VRS) and IP Relay services.528 Such services are
provided for free to people with hearing and speech disabilities, under Congressional mandate.529 The
2008 Comprehensive Reform FNPRM did not propose to exempt these services, because the treatment of
costs related to the acquisition of numbers for TRS and VRS was pending in another proceeding.530 We
seek to update the record on this issue. Would inclusion of these numbers satisfy the statutory

525 See, e.g., Ad Hoc Telecommunications Users Aug. 15, 2006 Comments at 2 (stating that there should only be an
exemption for Lifeline subscriber numbers).
526 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6558-59, App. A, para. 144, at 6689-90, App. B, para. 91,
& at 6756-57, App. C, para. 139.
527 Id. at 6557-58, App. A, para. 142. Appendix B and C proposals were against an exemption for such services. Id.
at 6690-91, App. B, para. 92, & at 6756-57, App. C, para. 139. Specifically, Community Voice Mail National
(CVM) argued that stand-alone voice mail services that consist of free voice mail access to “phoneless” people
should be exempt. Letter from Jennifer D. Brandon, Executive Director, Community Voice Mail National, to Tom
Navin, Wireline Competition Bureau, FCC, CC Docket No. 96-45, at 1 (filed May 30, 2006) (CVM provides “free,
personalized voicemail access to people in crisis and transition (homeless, victims of domestic violence, and other
‘phoneless’ people”).
528 See Letter from Deb MacLean, Communication Access Center for the Deaf and Hard of Hearing, et al. to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 1–2 (filed Sept. 29, 2008).
529 47 U.S.C. §§ 151, 152, 154(i), 154(j), 225, 251, 254, 303(r)
530 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6558-59, App. A, para. 144, at 6691, App. B, para. 91, &
at 6756-57, App. C, para. 139. In each proposal, the Commission deferred to an open TRS proceeding in which the
Commission considered whether certain costs related to the acquisition of ten-digit numbers by TRS customers
should be reimbursed by the TRS Fund. See Telecommunications Relay Services and Speech-to-Speech Services for
Individuals with Hearing and Speech Disabilities
, CG Docket No. 02-123; E911 Requirements for IP-Enabled
Service Providers, WC Docket No. 05-196, Report and Order and Further Notice of Proposed Rulemaking, 23 FCC
Rcd 11591, 11646, para. 100 (2008).

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requirements for universal service contributions? How would the exclusion of such numbers impact a
numbers-based regime? What would be the policy justifications for excluding these numbers from
contribution obligations? Should such numbers be assessed at a pro-rated or reduced rate? We ask
commenters to provide data as to the volume of numbers that would fall into this category.
321.
Other Exemptions. Are there other types of numbers or services that should be excluded
from a numbers-based contribution mechanism, if we were to adopt such an approach? For instance,
should we adopt exemptions for numbers used by non-profit health care providers,531 libraries, colleges
and universities, entities that typically administer their own numbers? Would inclusion of these numbers
satisfy the statutory requirements for universal service contributions? How would the exclusion of such
numbers impact a numbers-based regime? What would be the policy justifications for excluding these
numbers from contribution obligations? Should such numbers be assessed at a pro-rated or reduced rate?
We ask commenters to provide data as to the volume of numbers that would fall into each category of
proposed exemptions.
5.

Use of a Hybrid System with a Numbers-Component

322.
We seek specific comment on adopting a hybrid numbers-connections based
methodology. As previously discussed, the Commission sought comment in 2008 proposals on two
hybrid approaches. Under the 2008 proposals, consumer numbers would be assessed on a numbers-based
methodology, and business lines would be assessed on a connections-based methodology.532 The
Commission has also sought comment on a hybrid numbers-connections methodology that would assess
providers a flat fee for each assessable NANP telephone number and assess services not associated with a
telephone number as connections.533 A hybrid numbers and connections system may have advantages
over a numbers-only system insofar as it captures services that are provided without numbers. In other
respects, however, such a system might incorporate all of the potential disadvantages of both numbers-
based and connections-based systems. Moreover, regardless of the particular methodologies used, hybrid
systems may be more complex and expensive to administer than a single system.534 Should carriers that

531 This proposal is consistent with the current exemption under the revenues contribution methodology. See 47
C.F.R. § 54.706(d).
532 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6536, App. A, para. 92 & at 6735, App. C, para. 88.
533 In 2002, the Commission sought comment on a proposal to assess providers based on telephone numbers
assigned to end users, but to assess special access and private lines that do not have assigned numbers based on
capacity. 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24995–97, paras. 96–100. In
2008, the Commission sought comment on two proposals to assess contributions based on numbers for residential
services and connections for business services. 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6536–64,
paras. 92–156 (App. A); id. at 6735–6762, paras. 88–151 (App. C). The Commission has also previously sought
comment on a hybrid connections and revenues system. See 2002 Second Contribution Methodology Order and
FNPRM
, 17 FCC Rcd at 24991–95, paras. 86–95.
534 See, e.g., Verizon and Verizon Wireless Comments, GN Docket No. 09-47 et al., at 9 (filed Dec. 7, 2009)
(arguing that a numbers-only system is preferable to a numbers-connections system or a numbers-revenues system
because there are significant costs associated with tracking and assessing contributions based on multiple
contribution units, regardless of the mechanisms involved); Comments of Broadview Networks, Inc. et al., GN
Docket No. 09-47 et al., at 15-17 (filed Dec. 7, 2009) (describing burdens imposed by hybrid numbers and revenues
systems and hybrid numbers and connections systems); TCA Comments, GN Docket No. 09-47 et al., at 4 (filed
Dec. 7, 2009) (arguing that a revenues-connections methodology would add unnecessary complexity and consumer
confusion).

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do not have working numbers or end-user connections continue to contribute based on their interstate
telecommunications revenues?535 We ask parties to refresh the record and seek comment on this analysis.
323.
To what extent would a hybrid system create competitive distortions in the marketplace?
Any system that would make distinctions between mass market and enterprise users would require an
ability for contributors in the first instance, and USAC and this Commission, to distinguish between the
two, in order to ensure that contributions are appropriately made. Would such a system advance our
proposed reform goals of administrative efficiency, fairness and sustainability? Would a hybrid system
satisfy the statutory requirements that contributions be equitable and non-discriminatory? Would using a
different methodology for contributions for the provision of service to businesses dissuade investment in
higher speed and robust communications facilities?536 Recognizing that the answer may depend on the
specific tiers that are adopted, and the assessment levels for each tier, would such a system, potentially,
unfairly advantage or disadvantage purchasers of higher speed connections?537
324.
Commenters who support a numbers-connections methodology should address the
feasibility of the methodology in light of recent industry developments and the continuing evolution of
telecommunications technology.538 Commenters should also address the advantages and disadvantages of
such a system. Are there any entities that would be contributing for the first time, if we were to adopt a
hybrid approach? We specifically seek comment on whether a hybrid numbers-connections methodology
would better meet our goals for reform in comparison to the options discussed above, including an
improved revenues system, a connections-based approach, and a numbers-based contribution assessment
system. We ask parties claiming significant costs or benefits of a hybrid approach to provide supporting
analysis and facts for such assertions, including an explanation of how data were calculated and all
underlying assumptions.
6.

Policy Arguments Related to Numbers-Based Assessment

325.
In the 2008 Comprehensive Reform FNPRM, the Commission sought comment on
several potential benefits of a numbers-based contribution methodology. The Commission noted that
adoption of a numbers-based approach would benefit both consumers and contributors by simplifying the
basis for assessments and stabilizing assessments at a set amount (for example, $1.00 per month per
consumer telephone number).539 The Commission also noted that a numbers-based contribution
methodology could benefit consumers because it would be technologically and competitively neutral in
that a consumer would pay the same universal service charge regardless of whether the consumer receives
service from a cable provider, an interconnected VoIP provider, a wireless provider, or other wireline

535 CTIA Aug. 9, 2006 Comments at 5 (carriers without working numbers or end-user connections could contribute
based on their interstate revenues).
536 Comments of Verizon and Verizon Wireless, WC Docket No. 05-337 et al., at 37-39 (filed Nov. 26, 2008)
(Verizon Nov. 26, 2008 Comments) (assessing business lines that are equivalent to residential broadband products at
a higher business rate will discourage providers from “rolling out innovative, high speed products” at reasonable
prices).
537 See Letter from J.G. Harrington, ACUTA, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC
Docket No. 96-45, Attach. at 14 (filed May 31, 2006)(capacity tiers should not provide an unfair advantage or
disadvantage for purchases of higher-capacity connections).
538 See AT&T Aug. 24, 2010 Ex Parte Letter at 1 (“While a numbers only-based system was adequate just a few
years ago . . . changes in the marketplace and the direction of USF reform require a more inclusive methodology.”)
539 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6543, App. A, para. 105, at 6675-76, App. B, para. 53, &
at 6742, 6743, App. C, para. 103, 106.

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provider.540 As a result, the Commission stated that such an approach would enable consumers to choose
the providers and services they want without regard to any distortions that may otherwise be caused by
differing contribution charges.541 The 2008 Comprehensive Reform FNPRM also noted that, by
subjecting contributors to the same regulatory framework for assessments on services regardless of
technology, the numbers-based methodology would eliminate incentives under the current revenues-based
system for providers to migrate to services and technologies that are either exempt from contribution
obligations or are subject to safe harbors.542
326.
We seek to refresh the record on the potential benefits of a numbers-based contribution
methodology. We also seek comment on whether a numbers-based system (compared to a connections-
based system or the current revenues-based system) would be simpler to understand. Would it be
competitively neutral? Would a numbers methodology be inequitable or discriminatory for low volume
users?543 Would a numbers-based system, be easier to audit for compliance? Could such a system reduce
compliance costs for contributors? Could it also reduce marketplace distortions that may be present in
either the consumer or enterprise markets? We ask parties claiming significant costs or benefits of a
numbers-based system to provide supporting analysis and facts for such assertions, including an
explanation of how data were calculated and all underlying assumptions.
327.
In the past, several commenters have argued that moving to a numbers-based approach
where numbers are assessed with fixed amounts is disproportionately burdensome for low-income
consumers and other users on low-cost service plans.544 Are there modifications that could be made to a
numbers-based methodology to make assessment fairer to consumers on low-cost service plans? Would a
numbers-based system shift the universal service contributions from higher-volume users of
communications services to lower-volume users? Overall, would low-income households pay a larger
percentage of communications bills in contribution assessments than higher income households compared
to today?
328. Would adoption of a numbers-based contribution approach discourage the emergence of
innovative new functions and services, such as “follow-me” services or unified communications
applications?545 If the Commission were to adopt a numbers-based contribution methodology, how could
it structure such a system so as not to inhibit innovation? For example, should the Commission exempt
numbers associated with certain services to be exempt for a defined period of time, analogous to the
Commission’s pioneer’s preference rules?546

540 Id. at 6554, App. A, para. 108, at 6676-77, App. B, para. 55, & at 6742-43, App. C, para. 104. But see supra
Section V.C.4, para. 311 (discussion of family plans).
541 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6554, App. A, para. 108, at 6676-77, App. B, para. 55, &
at 6742-43, App. C, para. 104.
542 Id. at 6544, App. A, para. 109, at 6677, App. B, para. 56, & at 6743, App. C, para. 105.
543 Comments of AT&T, Inc., WC Docket No. 05-337 et al., at 47-49 (filed Nov. 26, 2008) (AT&T Nov. 26, 2008
Comments).
544 See, e.g., IDT Corp. May 2008 Comments at 1; Leap Wireless Aug. 9, 2006 Comments at 3; and CTIA Aug. 9,
2006 Comments at 4.
545 See, e.g., Google Voice, available at http://www.google.com/googlevoice/about.html (last visited Apr. 10, 2012);
Twilio Home Page, available at http://www.twilio.com/ (last visited Apr. 10, 2012).
546 The Commission’s pioneer’s preference program was established in 1991 to provide a means of extending
preferential treatment in the Commission’s spectrum licensing processes to parties that demonstrated their
responsibility for developing new spectrum-using communications services and technologies. Under the pioneer's
preference rules, a necessary condition for the grant of a preference was that the applicant demonstrate that it had
developed the capabilities or possibilities of a new service or technology, or had brought the service or technology to
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329.
Distinguishing Telecommunications from Non-Telecommunications. Would a numbers-
based methodology more easily accommodate new services and technologies without requiring service
providers or the Commission to make service classification judgments?547 We seek comment above on
approaches to provide clarity to contributors with respect to specific services, without the need to classify
those services as either information services or telecommunications services.548 We also seek comment
on assessing revenues associated with information services.549 In light of those potential approaches to
determining who should contribute, would a numbers-based methodology continue to offer advantages as
a relatively simple basis for assessing those providers’ contributions? To what extent have numbers
become increasingly associated with information services? Would a numbers-based assessment
mechanism ensure that contribution obligations are applied in a fair and predictable manner to all
interstate telecommunications providers?
330.
Jurisdictional Considerations. As discussed above, the current revenues-based system
requires contributors to separately report revenues derived from interstate, intrastate and international
services.550 The Commission and industry participants have suggested in the past that a connections-
based system might mitigate the need to differentiate between interstate and intrastate jurisdictions.551
We seek comment on whether the same is true for a numbers-based system.
331.
Given that NANP numbers enable users to connect with other users across state lines, is it
reasonable to conclude that a numbers-based methodology would be directed at interstate providers and
therefore consistent with the statutory requirements of section 254? We seek specific comment on the
implications of the Fifth Circuit’s TOPUC decision, which held that section 2(b) of the Act prohibits the
Commission from assessing revenues associated with intrastate telecommunications service.552 Does
TOPUC impose any limitations on a numbers-based contribution system, particularly in light of the
Commission’s authority over numbering in section 251? We also seek comment on whether TOPUC
raises any concerns related to assessing international services. If so, we seek comment on whether a
numbers-based system should include an exemption similar to the limited international revenues
exemption under the current revenues-based system for providers that are primarily international in
nature,553 and if so, how such an exemption should be crafted.

(Continued from previous page)
a more advanced or effective state. See Office of Engineering and Tech. Pioneer’s Preference Program, FCC,
available at http://transition.fcc.gov/oet/faqs/pioneerfaqs.html (last updated Jan. 13, 2000).
547AT&T Nov. 26, 2008 Comments at 50; Verizon Nov. 26, 2008 Comments at 32-33 (supporting the argument that
a numbers methodology avoids the need to distinguish between types of revenues, or between telecommunications
and information services).
548 See supra Section IV.B.
549 See supra Section V.A.1.
550 See supra Section II.A.
551 2002 First Contribution Methodology Order and FNPRM, 17 FCC Rcd at 3784, para. 71; 2002 Second
Contribution Methodology Order and FNPRM
, 17 FCC Rcd at 24985, para. 70; see, e.g., USTelecom Nov. 26,
2008 Comments.
552 TOPUC, 183 F.3d at 446-48. But see State Members of Joint Board CAF Comments at 121-24 (both the
Commission and states should be able to assess interstate and intrastate telecommunications revenues; TOPUC was
wrongly decided).
553 Under the LIRE, a contributor need not contribute on its projected collected international end-user
telecommunications revenues if that contributor’s projected collected interstate end-user telecommunications
revenues comprise less than 12 percent of its combined projected collected interstate and international end-user
telecommunications revenue. 47 C.F.R. § 54.706(c).

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7.

Implementation

332.
Implementing a numbers-based system would require revised data collection and
reporting requirements. In this section, we seek comment on how the Commission would transition to a
numbers-based system. We also ask whether adopting a numbers-based system would increase
compliance burdens if states that administer their own universal service programs continue to employ
revenues-based assessments.
333.
Reporting of Numbers. We seek comment on how to implement reporting requirements
under a numbers-based contributions system. Under the existing revenue-based contribution
methodology, contributors report to USAC their historical gross-billed, projected gross-billed, and
projected collected end-user interstate and international revenues quarterly on the FCC Form 499-Q and
their gross-billed and actual collected end-user interstate and international revenues annually on the FCC
Form 499-A.554 USAC then bills contributors for their universal service contribution obligations on a
monthly basis based on the contributors’ quarterly projected collected revenue.555 Contributors report
actual revenues on the FCC Form 499-A, which USAC uses to perform true-ups to the quarterly projected
revenue data.556
334.
We seek comment on how a numbers-based system should be implemented and the
transition process, should we adopt such a system. In particular, we seek comment on the specific
changes necessary to enable USAC to collect contributions under a numbers-based system. How would
contributors report the assessable numbers (and potentially speed or capacity under a numbers-connection
hybrid system) under a numbers-based assessment methodology? Should we continue to use a FCC Form
499 (with changes), leverage the existing NRUF reporting requirements, or develop a completely new
data collection?557 What would be the administrative impact of a new reporting system on providers and
on USAC as the administrator of the Fund? If the Commission were to adopt a numbers-based
methodology, should contributors be required to report assessable numbers on a monthly basis, quarterly
basis or some other period? Currently, under the revenues-based system, revenues are reported quarterly
(with annual true-up reporting). Should we retain the same quarterly and annual true up reporting periods
for a numbers-based system? Would a monthly reporting requirement create a burden that is not
outweighed by the simplification posed by a numbers-based system? Should the information be reported
as actual numbers, forecasted numbers, or historical numbers? Would historical reporting unnecessarily
complicate the numbers reporting system? Is there any information that would be particularly difficult to
report on a monthly basis? Would a more frequent reporting period be less likely to require adjustments
to the contributions requirements? Would longer or shorter reporting intervals advantage or disadvantage
some types of providers more than others?
335.
Costs Associated with Implementing a Numbers System. We seek comment on what out-
of-pocket costs contributors would incur to implement a new numbers-based contribution methodology,
both in the short term to transition to a new system and on an annual basis once a new system is in place.
Commenters should explain the categories of costs that would be incurred. To the extent possible,
commenters should quantify these costs and indicate how they compare to the costs of complying with
the existing revenues-based system. Would contributors be able to use their current billing and operating
systems to report numbers for universal service contributions? If not, what would be the incremental
costs associated with modifying billing systems and internal controls and processes to collect and track

554 See 47 C.F.R. §§ 54.706(b), 54.709, 54.711.
555 See 47 C.F.R. §§ 54.702(b), 54.709(a).
556 See 47 C.F.R. § 54.709.
557 The NRUF reports are due on or before February 1 and on or before August 1 of each year. See 47 C.F.R. §
52.15(f)(6).

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numbers for purposes of reporting and contributing to the Fund? Would contributors have to implement
entirely new systems to track the type of data needed to report assessable numbers? Are there cost
savings that could be realized by moving away from the current revenues-based system, which requires
contributors to report revenues quarterly (projected) and annually (actual) for USF purposes, and potential
efficiencies based on other existing number reporting requirements for other regulatory requirements?
Would those costs vary depending on the definition of assessable numbers? We also seek comment on
whether the cost of updating billing and internal systems for this narrow regulatory purpose would
outweigh any benefit achieved. Would increased operational costs of moving to a numbers system
negatively impact certain carriers as compared to other carriers? Commenters should provide data on any
such increased costs.
336.
We also seek comment and data on other costs associated with a numbers-based system,
and in particular ask providers if there are any costs that are not discussed above. Would the cost of
moving to a new numbers system be relatively greater for certain classes of customers or certain industry
segments? To what extent would this analysis change depending on how “assessable numbers” is defined
and assessed? Do the additional costs associated with implementation and the reporting requirements
outlined below outweigh the benefits of moving to a numbers-based methodology?
337.
Auditing. We seek comment on how to define an “Assessable Number” to make it easier
to audit to ensure that contributors are reporting accurately, and that the system operates in an equitable
and nondiscriminatory manner, maintains stability in the contribution base, and minimizes market
distortions and gamesmanship. We seek comment on whether we should allow carriers to self-certify
which numbers are assessable numbers for contributions purposes. We also seek comment on whether we
should modify the current recordkeeping requirements to further improve the auditing process for both
contributors and auditors. Should we adopt additional rules or provide further guidance regarding the
types of records and supporting documentation that should be maintained? Proponents of a numbers-
based system should provide specific details about how contributors would report their data and how
auditors could verify the accuracy of assessable numbers reported.
338. Effect on Other Programs. We ask parties to provide comment on the impact of moving to
a numbers-based approach on the Interstate TRS, North American Numbering Plan, Local Number
Portability, and regulatory fees administration programs.558 The revenue information currently reported
on an annual basis in FCC Form 499-A is also used to calculate assessments for these programs.559 We
ask parties to provide comment on the best approach for ensuring proper funding of these programs were
we to move to a numbers-based methodology.560 Should contributors continue reporting gross billed end-
user revenues for purposes of these programs, and if so, should they continue to report on an annual
basis? Should we simplify the Form 499 for purposes of revenue reporting in that instance? Are there
alternative ways to calculate contributions for these programs?
339.
Transition. A numbers-based methodology would constitute a change from the current
revenue-based system and would likely require a transition period, especially if reporting entities need to
implement new billing and accounting systems and a process for recording number counts in a manner
that is auditable. In the 2008 Comprehensive Reform FNPRM, the Commission proposed a 12-month
transition period, that including six months where contributors reported their numbers on a monthly basis
in addition to their revenues.561 In the past, commenters have supported a 12-month transition period.562

558 2001 Contribution Methodology Notice, 16 FCC Rcd at 9909, para. 38.
559 See supra n.454.
560 Id.
561 See 2008 Comprehensive Reform FNPRM, 24 FCC Rcd at 6563, App. A, para. 154, at 6694, App. B, para. 102,
& at 6761-6762, App. C, para. 149.

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We seek to refresh the record on whether a 12-month period would give contributors sufficient time to
adjust their record-keeping and reporting systems so that they may comply with modified reporting
procedures. Could such a transition be implemented within a given calendar year, and if so, should it be
tied in some fashion to the current quarterly filing of Form 499-Q? We seek comment on what steps
would need to be taken to transition between the current revenues-based system and a numbers-based
system and how much time would be needed to ensure that the new process is applied in an equitable
manner. Commenters should indicate whether the other changes discussed in this Notice would require
less or more time to implement.
340.
If we were to adopt a numbers-based methodology, the Commission and USAC would
likely need to go through multiple reporting cycles to determine whether information is being reported
consistently and to determine whether carriers understand what information they are being asked to
report. In addition, contributors and USAC would need time to update their billing and tracking systems
to accommodate the new methodology. Is a 12-month transition period sufficient to ensure that all
affected parties would have adequate time to address any implementation issues that arise? How much
time would be necessary for contributors, including new contributors, to adjust their record-keeping and
reporting systems in order to comply with new reporting procedures? Are there considerations that would
favor a longer or shorter transition period? Would there be a benefit in adopting different transitional
periods for residential and business markets?
341.
We also seek comment on requiring dual reporting during all or some of the transition
time – where reporting entities would continue to report and pay under the current revenues-based system,
while they also begin reporting under the new system. Would having providers report under both systems
for a specified amount of time during the transition provide the opportunity for both providers and USAC
to address unforeseen implementation issues that are likely to arise under the new reporting system?
Should new filers begin reporting sooner since USAC does not have any historical data on their revenues
and services?

VI.

IMPROVING THE ADMINISTRATION OF THE CONTRIBUTION SYSTEM

342.
Consistent with our overall proposed goals for contributions reform, in this section, we
seek comment on potential rule changes that could be implemented to provide greater transparency and
clarity regarding contribution obligations, reduce costs associated with administering the contribution
system, and improve the operation and administration of the contributions system. For each issue
discussed below, we seek comment on whether and how the potential rule change could or should be
implemented on an accelerated timetable, in advance of other reforms under consideration in this
proceeding, as well as the potential reduction in compliance costs associated with adopting each proposal.
343.
We request clear and specific comments on the type and magnitude of likely benefits and
costs of each of the rules discussed in this section, and request that parties claiming significant costs or
benefits provide supporting analysis and facts, including an explanation of how data were calculated and
identification all underlying assumptions.

A.

Updating the Telecommunications Reporting Worksheet

344.
Each year, the Wireline Competition Bureau, on delegated authority, releases updated
instructions for the Telecommunications Reporting Worksheets (FCC Forms 499-A and 499-Q).563 These

(Continued from previous page)
562 See AT&T and Verizon Oct. 20, 2008 Ex Parte Letter, Attach. at 3 (proposing a 12-month transition to the new
mechanism taking effect).
563 See 47 C.F.R. § 54.711(c). The Commission has delegated authority to the Wireline Competition Bureau
(Bureau) to modify the Telecommunications Reporting Worksheets (FCC Forms 499-A and 499-Q) as “necessary to
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Worksheets are submitted by contributors to USAC, which uses the information contained therein to
calculate each individual contributor’s contribution requirements. In this section, we seek comment on
whether we should modify the process by which these forms are revised by soliciting public comment
from interested parties prior to adopting revisions to the Telecommunications Reporting Worksheet and
instructions. We also seek comment on whether to adopt a rule specifying that the worksheets and
instructions constitute binding agency requirements.
345.
Background. Historically, the Bureau has released annual revisions to the
Telecommunications Reporting Worksheets and accompanying instructions within one to two months
prior to the April 1 deadline for the annual submission of the Form 499-A.564 In so doing, the Bureau
updates the worksheets and makes non-substantive changes to the accompanying instructions to reflect
new Commission rules or requirements enunciated in orders and provide guidance on issues of rule
interpretation.565 We understand that parties typically refer to the worksheet instructions for assistance in
complying with our revenue reporting and USF contribution requirements. Moreover, as reflected in
USAC audit reports, USAC considers the worksheet instructions, as well as Commission orders, as the
Commission’s public announcement of how our rules should be interpreted. The Commission has not,
however, adopted those instructions pursuant to the rulemaking provisions of the Administrative
Procedure Act.566 Therefore, questions have been raised about whether the instructions have the force of
binding rules, or whether they constitute non-binding agency guidance.567 Other parties have argued that
the Commission should provide a more transparent process for modifying the Form 499 instruction
changes.568
346.
Discussion. We propose to adopt a formalized annual process for the Bureau to update
and adopt the Telecommunications Reporting Worksheets and their accompanying instructions. We
propose to amend section 54.711 to include the following proposed rule:
Telecommunications Reporting Worksheet Revisions. The Wireline Competition
Bureau shall annually issue a Public Notice seeking comment on the
Telecommunications Reporting Worksheets and accompanying instructions. No
later than 60 days prior to the annual filing deadline, the Wireline Competition


(Continued from previous page)
the sound and efficient administration of the universal service support mechanisms.” See id. We note that the
Commission has an analogous process for the E-rate Eligible Service List. See 47 C.F.R. § 54.522.
564 For example, for the Form 499-A due on April 1, 2012, the Bureau released the revised form and instructions on
March 5, 2012.
565 See, e.g., Wireline Competition Bureau Releases 2012 Annual Telecommunications Reporting Worksheet (FCC
Form 499-A) and Accompanying Instructions
, WC Docket No. 06-122, Public Notice, DA 12-337 (Wireline Comp.
Bur., rel. Mar. 5, 2012) (2012 FCC Form 499 Public Notice); Wireline Competition Bureau Releases 2011 Annual
Telecommunications Reporting Worksheet (FCC Form 499-A) and Accompanying Instructions,
WC Docket No. 06-
122, Public Notice, 26 FCC Rcd 2272 (Wireline Comp. Bur. 2011); Wireline Competition Bureau Announces
Release of the Revised 2010 FCC Forms 499-A and 499-Q and Accompanying Instructions
, WC Docket No. 06-122,
Public Notice, 25 FCC Rcd 1778 (Wireline Comp. Bur. 2010).
566 5 U.S.C. § 553.
567 See, e.g., Global Crossing Order, 24 FCC Rcd at 10828, paras. 13-14 (“Although the Commission has not
dictated how a carrier may meet the reasonable expectation standard, it has provided guidance in the FCC Form
499-A instructions”; “USAC relied upon the guidance in the Commission’s 2005 FCC Form 499-A”) (emphasis
added); Universal Service Contribution Methodology; Request for Review of a Decision of the Universal Service
Administrator by Network Enhanced Telecom, LLP
, WC Docket No. 06-122, Order on Reconsideration, 26 FCC
Rcd 6169, 6171 (Wireline Comp. Bur. 2011) (same).
568 See, e.g., USTelecom Mar. 28, 2012 Ex Parte Letter at 6; BT Americas June 8, 2009 Comments at 12.

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Bureau shall issue a Public Notice attaching the finalized Telecommunications
Reporting Worksheet and instructions.569

Adopting such a rule would respond to requests in the record asking that parties be given prior notice of
any proposed revisions to the worksheet instructions, and an opportunity to comment on such revisions.570
If the Bureau were to put instructions out for public comment before they are adopted, at what point in the
calendar year should the Bureau place the proposed form and instructions on public notice, and when
should it be required to issue the revised form and instructions? Would this proposed rule change support
our proposed reform goals of fairness and simplifying compliance and administration? Parties are
encouraged to provide information and data addressing how such a rule would simplify compliance and
administration.
347.
The Bureau currently releases instructions a year after revenues are reported – e.g., the
Bureau released instructions for 2011 revenues in 2012.571 We ask whether the Bureau should instead
release the form and related instructions during or prior to the relevant reporting period. In particular, we
seek comment on whether releasing the form after the calendar year is over makes it more difficult for
contributors to track the information that must be reported for the prior year in a manner consistent with
the prescribed format. If so, commenters should provide specific examples of such burden, and quantify
such examples with data.
348.
Should the Commission specify that contributors are required to comply with the Form
499 instructions adopted pursuant to such a process? Should the Bureau have delegated authority to make
changes to the Form and related instructions to the extent that they constitute binding requirements, and if
so, what should be the scope of its authority?
349.
Finally, some of the reforms proposed in this Notice could, if adopted, require extensive
revision of the Telecommunications Reporting Worksheet. Even if we do not adopt an annual process for
publicizing the updated form, should we require the Bureau to set out for comment the proposed revisions
to the Telecommunications Reporting Worksheets and accompanying instructions before implementation
of any significant changes resulting from the reforms identified in this Notice? What is the most efficient
way to seek public input on how to implement these changes in a straightforward and readable manner so
that all reporting entities can know their obligations and comply with our rules?

B.

Revising the Frequency of Adjustments to the Contribution Factor

350.
In this section, we seek comment on revising the frequency with which certain
adjustments are made to the contribution factor.
351.
Background. Each quarter, USAC projects the expected expenses of the Fund,
accounting for any “prior period adjustments.” More precisely, USAC calculates the difference between
projected and actual revenue requirements (i.e., demand for funding from the four distribution programs
plus associated administrative expenses) in a given quarter and carries forward the difference to the next
quarterly demand filing.572 This adjustment for the immediately preceding quarter affects the
contribution factor in the subsequent quarter; prior period adjustments that result in a reduction to the
contribution base for the prior periods increase the contribution factor for the following quarter (referred

569 See Appendix A, 47 C.F.R. § 54.711(d).
570 See, e.g., USTelecom Mar. 28 2012 Ex Parte Letter at 6; Comments of AT&T Inc., WC Docket No. 06-122, at 4
(filed June 8, 2009); BT Americas June 8, 2009 Comments at 12.
571 2012 FCC Form 499 Public Notice.
572 47 C.F.R. § 54.709(b).

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to below as increased demand adjustments). Conversely, prior period adjustments that result in an
increase to the contribution base for prior periods decrease the contribution factor for the following
quarter (referred to below as decreased demand adjustments).573 As a result, the Commission currently
adjusts the contribution factor each quarter if USAC collects insufficient funds, or if USAC collects funds
in excess of actual expenses in the prior quarter under the current system.574
352. Over the last seven quarters, the contribution factor has been revised both up (for increased
demand adjustments) and down (for decreased demand adjustments) to reflect prior period adjustments to
the contribution base. In this period, there was an aggregate of approximately $405.13 million in
increased demand adjustments to the contribution factor, and an aggregate of $206.65 million in
decreased demand adjustments. This, in turn, contributed to a fluctuation in the contribution factor from a
low of 13 percent in one quarter to a high of over 17 percent in another quarter.575 We note, however,
that prior period adjustments are not the only source for fluctuations in the contribution factor from one
quarter to the next. Fluctuations in the contribution factor from quarter to quarter are also caused by
increased and decreased program demand.
353. Discussion. If the Commission continues a revenues-based system or alternative system
that will use a contribution factor, we seek comment on modifying the frequency of changes to the
contribution factor. Presently, the contribution factor is revised on a quarterly basis. We seek comment
on revising the contribution factor less frequently, such as annually. USTelecom has argued that the
Commission should take decisive steps to address volatility in the contribution factor, including
considering an annual contribution factor, which is used for Interstate TRS and other Commission
programs, and other “process changes to enhance program stability.”576 Such a change could provide
greater predictability to contributors, particularly those that enter into term contracts with their customers.
354. Historically, the Commission utilized quarterly adjustments in the contribution factor to
ensure there would be sufficient funding to meet any changes in demand from each of the four
distribution programs. We seek comment on whether we should revise our rules, for example, to use
reserves, to the extent necessary, to meet any quarterly fluctuation in demand. Would such a method
better serve our proposed reform goals of increasing efficiency, fairness, and sustainability of the Fund?
If we were to adopt a rule requiring annual adjustments to the contribution factor, should we wait to
implement such a rule until 2013, when the Commission expects to have the information needed to be in
the position to determine an appropriate budget for the Lifeline program?577
355. Would adjusting the contribution factor on an annual basis advance our proposed reform
goals of increasing administrative efficiency, fairness and sustainability? For example, does the
fluctuation in the contribution factor create revenue reporting difficulties for stakeholders? Does it cause
difficulties in marketing services to consumers? Does the fluctuation from one quarter to the next in the

573 Quarterly adjustments to the contribution factor are announced by public notices. See, e.g., Proposed Second
Quarter 2012 Universal Service Contribution Factor
, CC Docket No. 96-45, Public Notice, DA 12-396 (rel. Mar.
13, 2012); Proposed First Quarter 2012 Universal Service Contribution Factor, CC Docket No. 96-45, Public
Notice, DA 11-2020 (rel. Dec. 14, 2011).
574 47 C.F.R. § 54.709(c).
575 The total of all prior period adjustments to universal service demand between 2009Q1 and 2012Q2 is a net
decrease in demand of $48.97 million.
576 USTelecom Mar. 28, 2012 Ex Parte Letter at 7. See 47 C.F.R. § 64.604 (providing that contributors’
contribution to the TRS fund shall be the product of all subject revenues for the prior calendar and an annual
contribution factor).
577 See Lifeline and Link Up Reform and Modernization Order, FCC 12-11 at para. 359.

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contribution factor make it difficult for contributors to anticipate their likely contribution obligations for
the year, or for end-user customers to forecast the total cost of their communications packages, including
any universal service pass through charges? To the extent there are reasons to adjust the factor more
often than annually, would it be an improvement to the current system to make such adjustments every six
months?
356. Another option to reduce fluctuations in the contribution factor caused by prior period
adjustments is to extend the period of time during which such prior period adjustments are taken into
account for subsequent adjustments to the contribution factor. For example, we could require that prior
period adjustments be leveled out over a period of two subsequent quarters under a rule that provides as
follows:
If the contributions received by the Administrator in a quarter exceed or are
inadequate to meet the actual expenses for that quarter, the Administrator shall
adjust its projected expenses for the following two quarters to account for the
excess or inadequate payments (and any associated costs) unless instructed to do
otherwise by the Commission. The contribution factor for the following two
quarters will take into consideration the projected costs of the support
mechanism for those two quarters, and the excess or insufficient contributions
carried over from the previous quarter.

357.
We seek comment on whether accounting for prior-period adjustments over a longer
period, such as two quarters rather than one, could reduce the amount and severity of the fluctuation in the
contribution factor from one period to the next.578 For illustrative purposes, Chart 8 below contrasts the
quarter-to-quarter change in the contribution factor under our existing rule (“Historical Change in CF”) to
the quarter-to-quarter change in the contribution factor that would have occurred if prior period
adjustments had occurred over two quarters (“Two Quarter Prior Period Adjustment in CF”):

Chart 8


 
358.
By providing USAC with more than one quarter to account for these adjustments, the
increases and decreases may help to offset each other, and thereby reduce the period to period fluctuations

578 Chart 8 presents staff analysis of the quarterly contribution factors, as further described in Appendix D.

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in the contribution factor. For example, the quarterly contribution factor increased or decreased by more
than one percentage point eleven times since 2005. We estimate that there would have been only seven
such fluctuations during this period if instead USAC had been able to account for prior-period
adjustments over two quarters. Looking at it another way, the average quarter-to-quarter fluctuation of
the contribution factor was 0.99 percent; whereas, the average fluctuation for the adjusted factor under
this proposal would have been 0.67 percent. Appendix D illustrates these estimations. We seek comment
on this analysis.
359.
We seek comment on the merits and technical aspects of a rule change to address quarter
to quarter fluctuations in the contribution factor. What would be the benefits of modifying our rules as
discussed above, and would such a change have any negative or positive impact on administration of the
Fund? What are the potential unintended consequences of extending the period of time during which
prior period adjustments are taken into account? Would authorizing USAC to make prior period
adjustments over an even longer period be appropriate, and if so, over how many quarters? If we were to
move to an alternative to the current revenue-based system, should we similarly direct USAC to account
for any fluctuations in demand over a period of time longer than one quarter in order to minimize
quarterly variation in the contribution obligation associated with the assessable unit of measure?

C.

Pay-and-Dispute Policy

360.
In this section we propose to adopt either as Commission policy or a codified rule the
current USAC practice commonly referred to as the “pay-and-dispute” policy. This policy requires
contributors that wish to challenge a USAC invoice to keep their accounts current while disputing the
amounts billed in order to avoid late fees, interest, and penalties.579 We seek comment on whether
adopting “pay-and–dispute” as a policy or rule supports our proposed reform goals, including ensuring
predictability and sustainability of the Fund, simplifying compliance and administration, and fairness.
361.
Background. It is a contributor’s responsibility to report accurate data in a timely manner
and correct any forms filed with USAC.580 Under the current revenues-based system, each quarter,
USAC calculates each contributor’s contribution obligation based on the projected revenues reported on a
contributor’s quarterly Telecommunications Reporting Worksheets.581 USAC adjusts these contribution
obligations if the contributor has filed a Worksheet that requires a true-up. USAC then issues invoices
each month billing the contributor for its calculated contribution obligation. Our rules require
contributors to pay the amount billed by the due date to avoid late fees, interest, and penalties.582
362.
The Commission’s rules do not create an exception when a contributor has filed a
revision to, or appeal of, its contribution assessment. In other words, nothing in our rules specifically
exempts a contributor from paying the amount shown on the invoice if a contributor disagrees with

579 See USAC, Understanding Invoices, available at http://www.usac.org/cont/invoices/default.aspx (last visited
Apr. 16, 2012).
580 See 47 C.F.R. §§ 54.711, 54.713.
581 See 47 C.F.R. § 54.709(a). If a contributor fails to file the quarterly worksheet by its due date, USAC is required
to bill that contributor “based on whatever relevant data the Administrator has available, including, but not limited
to, the number of lines presubscribed to the contributor and data from previous years, taking into consideration any
estimated changes in such data.” 47 C.F.R. § 54.709(d).
582 See 47 C.F.R. § 54.713(a) (“A contributor that fails to file a Telecommunications Reporting Worksheet and
subsequently is billed by the Administrator shall pay the amount for which it is billed.”), (b) (“If a universal service
fund contributor fails to make full payment on or before the date due of the monthly amount established by the
contributor’s applicable Form 499-A or Form 499-Q, or the monthly invoice provided by the Administrator, the
payment is delinquent.”).

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USAC’s assessment of its universal service contribution obligation and has filed an appeal with USAC or
the Commission.583 USAC, in its role as the Administrator of the USF, has formalized this as the pay-
and-dispute policy.584 If a contributor does not pay the disputed amount, USAC cannot waive any late
fees, interest charges, or penalties unless the disputed charges are later found to be a result of a USAC
error, or USAC is directed to do so by the Commission.585
363.
Discussion. We propose to amend section 54.713 of our rules to adopt a pay-and-dispute
rule as follows:
If a universal service fund contributor fails to make full payment of the monthly
amount established by the contributor’s applicable Form 499-A or Form 499-Q,
or the monthly invoice provided by the Administrator, on or before the date due,
the payment is delinquent. Late fees, interest charges, and penalties for failure to
remit any payment by the date due shall apply regardless of whether the
obligation to pay that amount is appealed or otherwise disputed unless the
Administrator or the Commission (pursuant to section 54.719) finds the disputed
charges are the result of clear error by the Administrator.586

364.
Although the Bureau has consistently upheld USAC’s implementation of the pay-and-
dispute requirement, contributors continue to challenge USAC’s use of the pay-and-dispute requirement
in specific instances by withholding payment pending resolution of a disputed charge.587 Adopting as a
Commission policy or rule or, at a minimum, affirming the pay-and-dispute requirement could lessen
administrative burdens for both USAC and Commission staff, while also putting all contributors on notice
of the procedures for appealing contested invoices. We seek comment on this analysis.
365.
We seek comment on whether adopting the pay-and-dispute requirement serves our
proposed reform goals. We specifically seek other proposals that create the proper incentive for
contributors to pay their invoices in a timely manner.
366.
In 2004, the Commission adopted rules implementing the requirements of the Debt
Collection Improvement Act of 1996 (DCIA).588 The Commission’s DCIA rules require that entities or

583 See USAC, Program Integrity: Appeals, available at http://www.usac.org/cont/about/program-
integrity/appeals.aspx (last visited Apr. 16, 2012).
584 Id. See, e.g., Universal Service Contribution Methodology; Emergency Request for Review of Universal Service
Administrator Decision by Level 3 Communications, LLC, et al.
, WC Docket No. 06-122, Order, 25 FCC Rcd 1115,
1120, para. 9 (Wireline Comp. Bur. 2010), application for review pending (Level 3 Order) (noting that contributor
could have avoided incurring late fees, interest charges, and penalties by paying the full invoiced amount in
compliance with the pay-and-dispute policy); Federal State Joint Board on Universal Service et al., CC Docket No.
96-45, WC Docket No. 06-122, Order, 23 FCC Rcd 10096, 10097-98, para. 5 (Wireline Comp. Bur. 2008) (granting
waiver of the FCC Form 499-Q revision deadline due in part to contributor’s compliance with the pay-and-dispute
policy); Universal Service Contribution Methodology; Requests for Waiver of Decisions of the Universal Service
Administrator by Achieve Telecom Network of Massachusetts, LLC, et al.
, WC Docket No. 06-122, Order, 23 FCC
Rcd 17903 (Wireline Comp. Bur. 2008), petition for reconsideration pending (dismissing requests as moot because
petitioners’ contributions had been corrected in the true-up process).
585 See USAC, Program Integrity: Appeals, http://www.usac.org/cont/about/program-integrity/appeals.aspx (last
visited Apr. 16, 2012).
586 See Appendix A, 47 C.F.R. §54.713(b).
587 See, e.g., Level 3 Order, 25 FCC Rcd at 1121, para. 9.
588 See 47 C.F.R. Part 1, Subpart O. Congress enacted the DCIA to strengthen federal debt collection procedures.
Debt Collection Improvement Act of 1996, Pub. L. No. 104-134, 110 Stat. 1321, 1358 (1996).

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individuals doing business with the Commission pay their debts in a timely manner. The rules also
explain how entities or individuals are notified of debts owed to the Commission, and how the
Commission will collect those debts. We seek comment on whether adopting USAC’s pay-and-dispute
requirement is consistent with the Commission’s DCIA rules. We also seek comment on any other
changes to our rules that would ensure better compliance with our rules and the Debt Collection
Improvement Act.

D.

Oversight and Accountability

367.
One proposed goal for reform is to increase administrative efficiency, which should
reduce the costs of compliance associated with USF contributions. At the same time, we must ensure
accountability for all contributors. In this section, we seek comment on various issues relating to
oversight and accountability for the contributions system.
368.
No system is fair when some telecommunications providers play by the rules and others
do not. To ensure that data actually reported closely approaches our best estimate of industry-wide
assessable services, should we establish a performance goal of reducing the number of contributors that
do not satisfy their contributions obligations? If so, what information should we rely upon to track that
goal?
369.
USAC employs several practices to identify entities that should register and contribute to
the Fund. For example, during contributor audits, USAC obtains a list of resellers from the auditee and
identifies companies that have not registered. USAC contacts these companies to determine why they are
not registered or contributing to the Fund. USAC also contacts companies that it independently identifies
from industry news sources and whistleblowers. We seek comment on additional steps that could be
taken to identify those telecommunications providers that are not meeting their contribution requirements.
What measures could the Commission direct USAC to take to ensure industry-wide compliance with our
contribution rules?
370.
We seek comment on the extent to which potential rule changes that could simplify the
contribution system discussed in this Notice could help ensure that contribution assessments are made and
collected in accordance with Commission rules and requirements. Further, we seek comment on how we
could measure the benefits of simplification in the contribution system. What information would we
need, and what would be an appropriate performance goal?
371.
USAC Audits. Audits have been, and will continue to be, an important part of our efforts
to ensure compliance with universal service contribution requirements. USAC initiates a certain number
of audits each year drawing from a random, representative sample of contributors. We seek comment on
processes and procedures that USAC could implement to make the contributor audit process more
efficient. We seek public comment on how to most efficiently use our administrative resources to ensure
that contributions are made in accordance with the Commission’s rules and requirements, while
minimizing compliance burden on companies subject to audit.
372.
In the Lifeline Link Up Reform and Modernization Order and the USF/ICC
Transformation Order and FNPRM, the Commission directed USAC to provide an updated audit plan to
the Commission’s Office of the Managing Director (OMD) and the Wireline Competition Bureau, in light
of the reforms made in the orders.589 The Commission directed OMD and the Bureau to work with
USAC to ensure that there is consistency in the compliance standards. We seek comment on whether we
should require USAC to produce a similar audit plan for OMD and the Bureau for USF contribution

589 See Lifeline and Link Up Reform and Modernization Order, FCC 12-11 at para. 286; USF/ICC Transformation
Order and FNPRM
, 26 FCC Rcd at 17866, para. 628.

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purposes. How many audits should USAC initiate (at a minimum) each year? How should USAC ensure
that audits encompass a representative sample of the industry?
373.
Timely and Efficient Reporting. Efficient operation of the contribution system depends
on reporting entities timely filing their quarterly and annual Telecommunications Reporting Worksheets.
We seek comment on whether we should adopt as a performance goal that a specified percentage of
reporting entities file their Worksheets on time. The target threshold could be established by the Bureau
and periodically revisited. Timely filing is especially important for the quarterly Worksheet given the fact
that USAC must compile the results of those Worksheets for the Commission within thirty days. We seek
comment on what additional outreach and training USAC may need to do to encourage more reporting
entities to file their Worksheets on time and electronically. We also seek comment on any revisions to
our rules that would create the proper incentives for timely filing. We seek comment on this analysis and
the time frame in which we should implement and monitor our progress towards meeting such a goal, if
adopted.
374.
Prompt Payment and Collection of Contribution Obligations. The Commission has
already taken several measures under the DCIA to ensure prompt collection of contribution obligations.590
We seek comment on adopting several performance goals related to that task. First, we seek comment on
adopting a performance goal of decreasing the aggregate number and dollar amount of delinquent
contributions payments. Second, we seek comment on adopting performance goals of reducing the
percentage of contributors that are delinquent in payments, the percentage of contributors delinquent more
than 30 days, and the percentage of contributors delinquent more than 90 days. We seek comment on
these performance goals and also on the specific targets that USAC and the Commission should strive to
reach. We seek comment on what additional outreach and training USAC may need to do to encourage
more contributors to pay their debts on time, and whether any revisions to our rules would encourage
timely payment. We seek comment on what allowances we can and should make in consideration of any
economic conditions impacting the industry.
375. We seek comment on whether these measures would assist the Commission with
monitoring either the costs of compliance for contributors or the contributions burden on consumers and
businesses, especially when coupled with other proposals in this Notice. We seek specific comment on
whether any particular reforms identified in this Notice would help or hinder oversight over the
contribution system. We also invite parties to suggest additional or alternative goals and measures for
assessing the performance of the contribution system.

E.

Paper-Filing Fees

376.
The Commission has implemented several initiatives to encourage and facilitate
electronic filing of forms.591 In this section, we propose to adopt a filing fee for contributors that choose
to submit the Telecommunications Reporting Worksheets by paper rather than electronically.

590 See Comprehensive Review of the Universal Service Fund Management, Administration, and Oversight et al.,
WC Docket No. 05-195 et al., Report and Order, 22 FCC Rcd 16372, 16377–82, paras. 11–18 (2007) (2007
Comprehensive Review Order
).
591 See, e.g., Cable Operations and Licensing System (COALS) Website, available at http://fjallfoss.fcc.gov/coals7/
(last visited Apr. 16,,2012) (permitting electronic filing of Cable Operator and Multichannel Video Programming
Distributor forms with the FCC); Electronic Comment Filing System (ECFS) Home Page, available at
http://apps.fcc.gov/ecfs// (last visited Apr. 16, 2012) (permitting electronic access to rulemakings and docketed
proceedings); International Bureau Electronic Filing System (MyIBFS), available at http://licensing.fcc.gov/myibfs/
(last visited Apr. 16, 2012) (allowing electronic filing of applications and forms, including space station, earth
station and cable landing licenses).

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377.
Background. The majority of reporting entities presently file their annual and quarterly
worksheets electronically.592 Electronic filings substantially reduce administrative costs allowing for
computerized processing instead of additional labor costs for manual data entry.593
378.
Discussion. In order to increase efficiency in program administrative, we propose to
amend section 54.711 to require that reporting entities file the Telecommunications Reporting Worksheet
electronically:
Electronic Filings. Reporting entities must file the Telecommunications
Reporting Worksheet electronically. The Administrator shall assess a $25 fee on
reporting entities for filing paper copies of the quarterly Telecommunications
Reporting Worksheet. The Administrator shall assess a $50 fee on reporting
entities for filing paper copies of the annual Telecommunications Reporting
Worksheet. The Administrator shall not assess a paper-filing fee on reporting
entities that electronically file their Telecommunications Reporting Worksheet,
but such entities must also submit either a paper or electronic certification
attesting to the accuracy of the information reported therein under penalty of
perjury.594

379.
Based on information provided by USAC, the proposed paper-filing fees would be set at
a level so as to compensate the Fund for the additional costs incurred by USAC to manually process these
paper filings and encourage more reporting entities to file electronically.595 We seek comment on this
analysis.
380. We seek comment on the merits and technical aspects of a rule change assessing a paper
filing fee. What is the potential impact on contributors and the Fund if we adopt a paper filing fee? We
seek specific comment on setting the appropriate size of a paper filing fee so that reporting entities would
have an appropriate incentive to file electronically and in a timely manner. We seek comment on any
other changes to our rules that would ensure better compliance with our rules and the Debt Collection
Improvement Act. The above proposed rule requires electronic filers to submit either a paper or
electronic certification attesting the accuracy of the electronic filing. We seek comment on what
procedures we should adopt to facilitate the certification to be done electronically, per the E-Sign Act.596
In addition, we seek comment on what modifications, if any, USAC should make to its electronic filing
system to ensure that it is accessible to persons with disabilities.597 In lieu of imposing a filing fee, is
there a different approach that would incent contributors to file electronically?

592 According to USAC, approximately 76% of reporting entities filed their 2011 annual Telecommunications
Reporting Worksheet electronically and 77% filed the November 2010 quarterly Worksheet electronically.
593 See 1998 Biennial Regulatory Review—Streamlined Contributor Reporting Requirements Associated with
Administration of Telecommunications Relay Services, North American Numbering Plan, Local Number Portability,
and Universal Service Support Mechanisms
, CC Docket No. 98-171, Report and Order, 14 FCC Rcd 16602, 16626,
para. 52 (1999) (Telecommunications Reporting Worksheet Consolidation Order).
594 See Appendix A, 47 C.F.R. § 54.711(e).
595 USAC has estimated that the incremental costs of processing a paper (versus an electronic) FCC Form 499-Q are
approximately $15 per form, and the incremental costs for the FCC Form 499-A are approximately $35 per form.
These amounts were calculate assuming a per hour rate of the employees multiplied by the amount of time needed to
process a hardcopy form, excluding management oversight and overhead.
596 See 15 U.S.C. §§ 7001-7006, especially at § 7001(b)(2).
597 See 29 U.S.C. § 794D. In 1998, Congress amended the Rehabilitation Act of 1978 to require Federal agencies to
make their electronic and information technology accessible to people with disabilities. Id.

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F.

Filer Registration and Deregistration

381.
Background. Under our current requirements, within thirty days of the commencement
of providing services, telecommunications carriers and interconnected VoIP service providers must
register with the Commission and designate agents for service of process in the District of Columbia.598
USAC routinely conducts outreach to newly-registered providers to inform them of their reporting and
contribution requirements. USAC typically sends regular notifications to all registered contributors
alerting them of contribution filing deadlines, and providing other useful information including
notification of any missed filing deadlines. One of the purposes of registration is that it allows the
Commission to better monitor registered providers for compliance with our rules and regulations. In
addition, a filer registration requirement provides transparency to the public, making available important
information including the relevant regulatory contact information.599 In order to facilitate the registration
requirement, and the public’s access to registration information, the Commission maintains a Form 499
Filer Database with the registration information it collects from all Form 499 reporting entities.600 In
addition, the Commission requires wholesale carriers to confirm the registration status of potential carrier
customers before commencing service with such resellers.601
382.
Currently, the Commission’s Form 499 Filer Database does not always include
information from telecommunications providers that are not common carriers, because certain of these
providers are not subject to the Commission’s registration requirement.602 These providers, however, file
Form 499-A (and complete the registration information contained therein) on the normal Form 499-A
filing schedule. There are also non-common carrier telecommunications providers that may be unaware
of their obligations to file the Telecommunications Reporting Worksheet. Furthermore, our current rules
require common carriers to check the registration status of their carrier customers, but do not put such an
obligation on non-common carrier telecommunications providers that offer telecommunications for
resale.603 This difference may create disparate burdens for common carriers versus telecommunications
providers that are not common carriers.
383.
Discussion. We seek comment on tightening our registration requirements so that all
telecommunications providers with FCC Form 499-A reporting obligations (whether they are common
carriers or not) have the obligation to register within thirty days of commencing service. We propose to
amend section 54.706 to include the following proposed rule:

598 See 47 C.F.R. § 1.47(h); 47 C.F.R. § 64.1195(a); 2006 Contribution Methodology Order, 21 FCC Rcd at 7549
n.205.
599 See 47 C.F.R. § 64.1195(b).
600 See 47 C.F.R. § 64.1195(h); see also FCC Form 499 Filer Database, available
at
http://apps.fcc.gov/cgb/form499/499a.cfm?CFID=178928&CFTOKEN=89260093&jsessionid=phZFPvyR1XSLz
65gpBxVypXc1cg5G3hQltQL7KqHGRWjCNfW54s0!-690065246!1331832945195 (last visited Apr. 16, 2012).
601 See 47 C.F.R. § 64.1195(h). Although this requirement was adopted in the context of combating slamming
violations, the application of the rule has never been confined to that context. See Implementation of the Subscriber
Carrier Selection Changes Provisions of the Telecommunications Act of 1996; Policies and Rules Concerning
Unauthorized Changes of Consumers Long Distance Carriers
, CC Docket No. 94-129, Third Report and Order and
Second Order on Reconsideration, 15 FCC Rcd 15996, 16027, paras. 65-66 (2000) (Slamming Order).
602 See 47 C.F.R. § 1.47(h); 47 C.F.R. § 64.604(c)(4); Contributions to the Telecommunications Relay Service Fund,
CG Docket No. 11-47, Report and Order, 26 FCC Rcd 14532, 14542, para. 21 (2011) (adopting rule requiring non-
interconnected VoIP providers with interstate end-user revenues to register prior to commencing services.)
603 See 47 C.F.R. § 64.1195(h)

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(f) Registration Requirements. Every common carrier subject to the
Communications Act of 1934, as amended, and every entity required to submit a
Telecommunications Reporting Worksheet shall register with the Commission in
accordance with the provisions of 47 C.F.R. § 64.1195(a)-(c) and the
Instructions to the Telecommunications Reporting Worksheet within thirty days
of the commencement of provision of service.604

384.
Deregistration Requirements. We also propose to require registered entities that no
longer meet the requirements to register to file a deregistration with the Commission. A deregistration
requirement could ensure that the Commission’s Form 499 Filer Database is current and complete.
Currently, if a contributor has previously filed a Form 499-A or Form 499-Q, but has not notified USAC
that it no longer providers telecommunicates services, USAC estimates the provider’s quarterly revenues
and sends an invoice to that provider for its estimated contributions.605 This may create confusion and
generate late fees for providers that no longer provide service. A formal deregistration requirement could
streamline USAC’s and the Commission’s processes by eliminating unnecessary invoices and removing
entities that no longer provide service from the Commission’s database. We propose to amend section
54.706 to include the following proposed rule:
(g) Deregistration Requirements. If a registrant stops providing interstate and
international telecommunications to others, it shall deregister with the
Commission within thirty days of its last provision of telecommunications. To
deregister, a registrant must comply with the Instructions to the
Telecommunications Reporting Worksheet.606

Would adoption of such a rule simplify the process of billing contributors, and thereby lessen USAC’s
administrative costs? Would adoption of such a rule further other proposed reform goals?
385.
Wholesale-Reseller Confirmation Requirements. As discussed above in this Notice, we
seek comment on adopting a value-added revenue system to address recurring USF contribution issues
that arise in instances where wholesale carriers provide services to other carriers.607 To the extent that we
do not adopt a value-added system, however, we seek comment on requiring all registrants that provide
telecommunications to other carriers to check the registration status of their customers.608 We seek
comment on whether imposing such an obligation could “deter [registrants] from providing service to
resellers that have not registered with the Commission, which will, in turn, make it more difficult for ‘bad
actor’ resellers to stay in business.”609 We propose to amend section 54.706 to include the following
proposed rule:
Customer Confirmation Requirements. A telecommunications carrier or
provider providing telecommunications to other carriers or providers shall have
an affirmative duty to ascertain whether a customer that is required to register


604 See Appendix A, 47 C.F.R. § 54.706(f).
605 See 47 C.F.R. § 54.709(d).
606 See Appendix A, 47 C.F.R. § 54.706(g).
607 See supra Section V.A.4(a).
608 Id.
609 Slamming Order, 15 FCC Rcd at 16027, para. 66.

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has in fact registered with the Commission prior to offering service to that
customer.
610
386.
Would adoption of each of the above proposed rules increase the likelihood that all
potential contributors register with the Commission and comply with universal service contribution
reporting obligations? What are the costs and benefits of imposing such an obligation on FCC registrants,
and how would that vary if the Commission adopts other rule changes discussed in this Notice? For
instance, if the Commission were to require contributions from wholesalers, would that lessen the
potential policy rationale for ensuring the reseller is registered with the Commission?

VII.

RECOVERY OF UNIVERSAL SERVICE CONTRIBUTIONS FROM END USERS

387.
In this section, we seek comment on issues relating to recovery of universal service
contributions from customers. We request clear and specific comments on the type and magnitude of
likely benefits and costs of each of the rules discussed in this section, and request that parties claiming
significant costs or benefits provide supporting analysis and facts, including an explanation of how they
were calculated and identification of all underlying assumptions.
388.
The statutory framework established by Congress in the Act governs the recovery of
universal service contributions by telecommunications service providers.611 Although a contributor may
generally recover its universal service contributions from its customers, the Commission has placed two
restrictions on doing so. First, a “federal universal service line-item charge” may not “exceed the
interstate telecommunications portion of that customer’s bill times the relevant contribution factor.”612
Second, eligible telecommunications carriers (ETCs) that are incumbent LECs may not pass through a
federal universal service line-item charge to their Lifeline subscribers except to recover “contribution
costs associated with the provision of interstate telecommunications services that are not supported by the
Commission’s universal service mechanisms.”613 In practice, this means that incumbent ETCs
historically have not been permitted to pass through to Lifeline subscribers the contribution costs
associated with the subscriber line charge (which is deemed 100 percent interstate), but they may pass
through contribution costs associated with other interstate services, such as long distance calling. There is
no comparable restriction for competitive ETCs that serve Lifeline subscribers.

A.

Pass-Through of USF Contributions as Separate Line Item Charge

389.
In this section, we seek comment on ways to improve transparency relating to the amount
of universal service contribution charges that are being passed through by the carriers to their customers.
390.
Providing Clarity in Customer Bills. Under today’s system, the contribution factor is
typically applied to only a fraction of the total end user revenues derived from a customer. Currently,
section 54.712(a) only addresses line items on customer bills and does not address situations in which
there is no billing relationship. Moreover, our rules do not require contributors to indicate how the
universal service charge on a customer’s bill is calculated. In many instances, customer bills include a
line item for USF, but do not indicate the USF contribution factor used to determine such line item, or the
portion of the bill to which the contribution factor was applied. We seek comment on whether we should

610 See Appendix A, 47 C.F.R. § 54.706(h).
611 47 U.S.C. §§ 201, 202.
612 47 C.F.R. § 54.712(a).
613 See 47 C.F.R. §§ 69.131, 69.158; Federal-State Joint Board on Universal Service et al., CC Docket No. 96-45 et
al.
, Order and Second Order on Reconsideration, 18 FCC Rcd 4818, 4822, para. 10 (2003) (2003 Interim
Contribution Methodology Recon Order
).

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limit the flexibility currently afforded contributors in the recovery of universal service obligations or
adopt measures to provide greater transparency regarding such recovery to enable consumers to make
informed choices regarding their service. For example, we could adopt a rule that contributors must
identify on the consumer bill the portion of the bill (whether based on revenues or another unit) that is
subject to assessment. This could enable end users to determine whether they are being properly charged
a USF pass-through charge. What modifications, if any, would we need to make to section 54.712 of the
existing rules, which prohibits a carrier from charging more than the interstate portion of the bill times the
relevant contribution factor.
391.
Publication of a separate line item has the potential benefit of informing the end user of
the extent to which his or her payments are contributing to the preservation and advancement of universal
service. Preventing such publication would obscure, from the consumer’s standpoint, the nature of the
contribution burden that each end user bears. We seek comment on the value of making the burden of the
universal service contribution plain, and whether this can be obtained without distorting the pricing
strategies of individual providers. For example, would it be possible to require that the advertised price
include the universal service contribution, while allowing the continued publication of the universal
service contribution as a line item in end-users’ bills? What additional rules should the Commission
adopt to provide clarity to customers regarding USF pass-through charges? How should these rules be
enforced? What benefits to consumers and/or cost burden to providers would such rules result in?
392.
Advertising USF Charges. In addition, should we also mandate that carriers disclose at
the time of initial service subscription the amount of the quoted rate or other assessable units that would
be subject to assessment? Are there alternative approaches the Commission should take to ensure greater
disclosure of such charges to customers in a way that advances price comparison and evaluation?614
393. Mass Market Customers vs. Business Customers. If we were to adopt either of these rules,
should the rule apply broadly to all customers, or be limited to mass market customers, who typically
have less leverage than businesses, institutions and governmental entities that purchase communications
services? If we were to adopt such a distinction, how should we define “mass market” for these
purposes?615
394.
Eliminating Line Items. An alternative approach to the rules described above would be to
limit carrier flexibility to recover their universal service contributions from end users through a line-item
or “surcharge” on end-user bills.616 Under such an approach, while contributors would retain the
flexibility to include the cost of contributing to the universal service fund in determining their overall rate
structure, they would not be permitted to represent any line item on end-user customer bills as a federal
universal service charge.617 For instance, section 54.712 of the Commission’s rules, which currently

614 See, e.g., Consumer Information and Disclosure et al., CG Docket No. 09-158 et al., Notice of Inquiry, 24 FCC
Rcd 11380, 11389- 92, 11395 paras. 25-34, 45 (2009) (seeking comment on information needed by consumers to
make purchasing decisions); Truth-in-Billing and Billing Format; National Association of State Utility Consumer
Advocates’ Petition for Declaratory Ruling Regarding Truth-in-Billing
, CC Docket Nos. 98-170, 04-208, Second
Report and Order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking, 20 FCC Rcd 6448,
6476-77, paras. 55-56 (2005) (seeking comment on disclosures at the point of sale and tentatively concluding that
“carriers must disclose the full rate, including any non-mandated line items and a reasonable estimate of government
mandated surcharges, to the consumer at the point of sale”).
615 See supra n.192.
616 See 47 C.F.R. § 54.712(a).
617 We note that carriers are not permitted to recover interstate TRS costs as part of a specifically identified charge
on end users’ lines. See Telecommunications Services for Individuals with Hearing and Speech Disabilities, and the
Americans with Disabilities Act of 1990
, CC Docket No. 90-571, Order on Reconsideration, Second Report and
Order, and Further Notice of Proposed Rulemaking, 8 FCC Rcd 1802, 1806, para. 22 (1993).

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specifies that line items may not exceed the assessable portion of the bill times the contribution factor,
could be replaced with the following rule:
Federal universal service contribution costs may not be recovered by
contributors as a separate line-item charge on a customer’s bill.

395.
We seek comment on the relative advantages of any of these potential changes over our
current rules regarding the recovery of universal service contributions. In particular, we invite
commenters to address whether such rules would benefit consumers by requiring contributors to quote
prices for their services that are subject to USF obligations. What cost/burdens would this impose on
service providers, and how can such cost/burdens be mitigated? We additionally ask commenters to
address whether such rules would result in bills that are simpler and easier to understand. We particularly
seek comment from consumer groups on the benefits or disadvantages of such a rule. We also seek
comment on whether a rule limiting the pass through of USF charges would unnecessarily reduce
carriers’ pricing flexibility, resulting in fewer options for consumers.
396.
We seek comment on our authority to impose these constraints on contributors’ recovery
of universal service contributions from their customers. We seek comment on whether sections 4(i), 201,
202, and 254 of the Act, or other statutory provisions, provide sufficient authority to adopt these
proposals.618 Could the Commission adopt such requirements pursuant to its authority to regulate
common carrier billing practices under section 201(b) of the Act?619 Because sections 201 and 202 of the
Act only apply to “common carriers” or “telecommunications carriers,” could the Commission make
these rules applicable to the broader category of “telecommunications providers” under its authority to
regulate universal service contribution obligations pursuant to section 254(d) of the Act?
397.
We also ask commenters to address whether any of these rules would raise First
Amendment or other constitutional concerns, and, if so, how we should address those concerns. Would
such rules be consistent with the Commission’s other policies and regulations, including the
Commission’s goals of promoting competition, deregulation, innovation, and universal service?

B.

Segregation of USF Pass-Through Charges

398.
When a telecommunications provider files bankruptcy, the funds collected by the
provider from end-user customers to recover universal service contribution costs are often claimed as part
of the bankruptcy estate for the benefit of all the carrier's creditors, rather than for the benefit of the Fund.
From 2001 through 2011, the USF was unable to collect, due to provider bankruptcies, $80 million of the
$90.7 million in funds that such providers had collected as universal service line items. The Fund
collected the remaining $10.7 million through participation in the providers’ bankruptcy cases, but only
after significant delays and the expenditure of attorneys’ fees.
399.
We seek comment on whether we should take steps to ensure contributions are made by
contributors that become insolvent. Should we adopt a rule specifying that telecommunications providers
that impose line items on their customers for federal universal service contributions are acting on behalf
of the Fund? Would such a codified rule strengthen the position of USAC and the Commission in
bankruptcy proceedings?

618 See 47 U.S.C. §§ 154(i), 201, 202, 254.
619 Section 201(b) of the Act requires that all charges, practices, classifications, and regulations “for and in
connection with” interstate communications service be just and reasonable, and gives the Commission jurisdiction to
enact rules to implement that requirement. See 47 U.S.C. §§ 201(b), 202(a).

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400.
One potential solution to this problem would be to amend section 54.712 of our rules to
require contributors that recover their contribution obligation from end-users to segregate those end-user
payments in dedicated trust accounts for the sole benefit of the USF. We seek comment on whether the
Commission should adopt such a requirement, and the particulars of its implementation. Should we, for
instance, require the account to be interest-bearing? Should we require that USAC have access to or be a
co-signatory on each account? In the event of late payment, should we permit contributors to use the trust
funds to pay interest, penalties and/or costs assessed against the contributor under our rules for late
payment? How would such a requirement best be enforced? We also seek comment on alternative means
of ensuring payment of contribution amounts to the Fund in cases of insolvency and financial distress,
and their advantages and disadvantages.

C.

Limiting Pass-Through of USF Charges to Lifeline Subscribers

401. An increasing number of non-incumbent carriers are serving low-income individuals as
eligible telecommunications carriers -- and in doing so bundling long-distance calling, voicemail, text
messaging, and other unsupported services into the package purchased by those customers. Indeed, in
2011, more than 69 percent of Lifeline support was provided to competitive ETCs serving low-income
consumers.620 Many Lifeline service providers offer a Lifeline offering that provides the consumer with a
set number of minutes per month, which can be used for both intrastate and interstate calls in the
continental U.S.
402.
As noted above, historically incumbent ETCs have not been allowed to pass through
universal service contribution obligations associated with the subscriber line charge although they are free
to recover any USF contributions associated with interstate (i.e., long-distance) calling.621 Nothing in our
rules prevents non-incumbent ETCs from passing universal service contribution assessments through to
their Lifeline subscribers, regardless of how they structure their Lifeline offering. We understand that
some competitive ETCs have sought informal staff guidance regarding to what extent, if any, they may
pass a universal service line-item charge through to their Lifeline subscribers.
403.
Recently, the Commission adopted a number of significant changes to the Lifeline
program to modernize the program in light of current marketplace conditions. It revised the definition of
Lifeline to be “voice telephony service,” and it replaced the former system – which linked Lifeline
support amounts to the subscriber line charge – to a uniform $9.25 per month flat rate of support for all
providers.622
404.
Discussion. We seek comment on rule changes to provide a more level playing field
among incumbent ETCs and competitive ETCs regarding their recovery of universal service pass-through
charges.623 In particular, we propose to extend the current rules that apply only to incumbent carriers by

620 See 2011 USAC Annual Report at 44 (reporting that more than 69% of low-income support was distributed to
competitive ETCs in 2011). In the recent Lifeline Reform Order, the Commission noted that prepaid wireless ETCs
account for more than 40 percent of all Lifeline support. Lifeline and Link Up Reform and Modernization Order,
FCC 12-11, at para. 23.
621 See supra para. 388.
622 See USF/ICC Transformation Order and FNPRM, FCC 11-161 at para. 77; Lifeline and Link Up Reform and
Modernization Order,
FCC 12-11 at para. 58.
623 Competitive ETCs includes Lifeline-only ETCs. ETCs typically are designated and eligible to receive both high-
cost and low-income universal service support. Lifeline-only ETCs, however, are carriers authorized to receive
support only for the provision of the Lifeline supported services to eligible low-income consumers. These carriers
are not eligible to receive high-cost universal service support. See Lifeline and Link Up Reform and Modernization
Order,
FCC 12-11 at n.647.

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amending section 54.712 to prohibit competitive ETCs from recovering USF charges for Lifeline
offerings from Lifeline subscribers as follows:
Lifeline Subscribers. Eligible telecommunications carriers covered by §69.131
and §69.158 are subject to the limitations on universal service end user charges
set forth therein. All other eligible telecommunications carriers shall not recover
federal universal service contribution costs from Lifeline services to Lifeline
subscribers. This limitation does not apply to services to Lifeline subscribers
that are not supported by Lifeline, such as per-minute or other additional
charges beyond the service for which the customer receives Lifeline support.624

Such a rule could offer an easily administrable bright-line rule: ETCs would be free to pass along
contribution costs through a line-item (or prepaid charge in the case of prepaid cards or services)
only if the Lifeline subscriber chooses to purchase additional services beyond the basic Lifeline
service. We seek comment on this analysis.
405.
The Commission has previously recognized that prohibiting recovery of universal service
contributions for the supported Lifeline service from Lifeline subscribers “helps to increase
subscribership by reducing qualifying low-income consumers’ monthly basic local service charges” and
helps fulfill the statutory goal of making telecommunications services available to low-income
consumers.625 As such, would it be appropriate to bar competitive ETCs from passing through universal
service contribution costs associated with their basic Lifeline offering, comparable to the restriction that
exists today for incumbent carriers?
406.
We recognize that this proposed rule would prevent a competitive ETC from fully
recovering its contribution costs attributable to a given Lifeline subscriber, to the extent it has a
contribution obligation associated with its provision of service to such a customer.626 Would such a rule
result in competitive ETCs reducing the number of minutes provided in a Lifeline offering? We note that
competitive ETCs are not required to allocate their costs and tariff their basic local exchange service (as
incumbent LECs generally must), and there may be no reliable way to determine whether a competitive
ETC is effectively recovering the contribution costs associated with the eligible Lifeline service included
in the package. How would the Commission treat Lifeline service offerings by competitive ETCs?
407.
We seek to develop the record on carrier practices today regarding recovery of USF
contribution costs for Lifeline offerings from Lifeline subscribers. For example, we seek comment and
data on the extent to which ETCs that offer prepaid services supported by the Lifeline program effectively
recover from their Lifeline subscribers the cost of their universal service contributions associated with
that Lifeline plan. Do they recover those costs by adjusting the number of minutes provided for the
established Lifeline rate? Do competitive ETCs providers that have monthly billing arrangements with
Lifeline subscribers pass through USF contribution costs for Lifeline offerings?

624 See Appendix A, 47 C.F.R. § 54.712(b).
625 2002 Second Contribution Methodology Order and FNPRM, 17 FCC Rcd at 24982, para. 62.
626 Under a revenues-based system, a competitive ETC may have a contribution obligation associated with the
Lifeline service, for instance to the extent the Lifeline subscriber uses an all-distance Lifeline offering to make
interstate calls. If the Commission were to adopt a connections- or a number-based contribution methodology,
whether the provider would have a contribution obligation would depend on whether the Commission chose to
exempt connections provided to Lifeline subscribers or numbers associated with Lifeline service offerings from any
contribution obligation.

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408.
We seek comment on the potential impact of a rule prohibiting recovery of contribution
costs for Lifeline offerings on Lifeline service providers and their Lifeline subscribers. Given the
Commission’s steps in the last decade to increase telephone penetration on Tribal lands via the low-
income program,627 we are particularly interested in comment from Tribal governments and Tribally-
owned and operated Lifeline service providers on the impact of such a rule on Tribal lands and their
Lifeline subscribers. Commenters that oppose such a rule should provide specific alternative rules and
explain how their proposals would support the goals of universal service.
409.
As the Commission has previously noted, if an ETC offers additional unsupported
services to a Lifeline subscriber, it historically has been permitted to recover its contribution costs
attributed to those service offerings from the customer through line-item charges.628 We seek comment
on whether we need to update our rules applicable to both incumbent and competitive ETCs in light of the
emergence of Lifeline offerings that may permit the Lifeline subscriber to make calls across state lines as
well as within the state. For instance, should we adopt a rule that expressly prohibits all ETCs from
recovering any contribution costs associated with a Lifeline offering that provides all-distance calling
from their Lifeline subscriber?
410.
Finally, we also seek comment on the impact on low-income subscribers generally, i.e.,
those subscribers that would be eligible for Lifeline, even if they do not participate in the program, of the
different contribution methodologies discussed in Section V above. What is the average amount of USF
pass-through charge imposed and collected today for low-income consumers?

VIII. PROCEDURAL MATTERS

A.

Filing Requirements

411.
Ex Parte Rules. The proceeding this Notice initiates shall be treated as a “permit-but-
disclose” proceeding in accordance with the Commission’s ex parte rules.629 Persons making ex parte
presentations must file a copy of any written presentation or a memorandum summarizing any oral
presentation within two business days after the presentation (unless a different deadline applicable to the
Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda
summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting
at which the ex parte presentation was made, and (2) summarize all data presented and arguments made
during the presentation. If the presentation consisted in whole or in part of the presentation of data or
arguments already reflected in the presenter’s written comments, memoranda or other filings in the
proceeding, the presenter may provide citations to such data or arguments in his or her prior comments,
memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or
arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given
to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule 1.1206(b). In proceedings governed by rule 1.49(f) or for which the
Commission has made available a method of electronic filing, written ex parte presentations and
memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through

627 See, e.g., Federal-State Joint Board on Universal Service; Promoting Deployment and Subscribership in
Unserved and Underserved Areas, Including Tribal and Insular Areas et al.
, CC Docket No. 96-45, Twelfth Report
and Order, Memorandum Opinion and Order, and Further Notice of Proposed Rulemaking, 15 FCC Rcd 12208
(2000).
628 2003 Interim Contribution Methodology Recon Order, 18 FCC Rcd at 4822, para. 10 (recognizing that “ETCs
have always been free to recover” the USF contribution costs of long-distance and other unsupported services from
these customers).
629 47 C.F.R. §§ 1.1200 et seq.

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the electronic comment filing system available for that proceeding, and must be filed in their native
format (e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize
themselves with the Commission’s ex parte rules.
412.
Comments and Reply Comments. Pursuant to sections 1.415 and 1.419 of the
Commission’s rules,630 interested parties may file comments and reply comments on or before the dates
indicated on the first page of this document. Comments may be filed using the Commission’s Electronic
Comment Filing System (ECFS).631
Electronic Filers: Comments may be filed electronically using the Internet by accessing the
ECFS: http://fjallfoss.fcc.gov/ecfs2/.
Paper Filers: Parties who choose to file by paper must file an original and one copy of each
filing. If more than one docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-
class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s
Secretary, Office of the Secretary, Federal Communications Commission.
All hand-delivered or messenger-delivered paper filings for the Commission’s Secretary
must be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325,
Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries
must be held together with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority
Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th
Street, SW, Washington DC 20554.
People with Disabilities: To request materials in accessible formats for people with disabilities
(braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).
413.
Further Information: For further information, contact Vickie S. Robinson,
Telecommunications Access Policy Division, Wireline Competition Bureau at 202-418-7400 (voice),
202-418-0484 (tty).

B.

Initial Regulatory Flexibility Analysis

414.
As required by the Regulatory Flexibility Act of 1980, as amended,632 the Commission
has prepared an Initial Regulatory Flexibility Analysis (IRFA) for this Notice, of the possible significant
economic impact on small entities of the policies and rules addressed in this document. The IRFA is set
forth as Appendix E. Written public comments are requested on this IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines for comments on the Notice
provided on or before the dates indicated on the first page of this Notice.

630 47 C.F.R. §§ 1.415, 1.419.
631 See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24121 (May 1, 1998).
632 5 U.S.C. § 603.

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C.

Paperwork Reduction Act Analysis

415.
This document contains proposed modified information collection requirements. The
Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and
the Office of Management and Budget (OMB) to comment on the information collection requirements
contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. In
addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), we seek specific comment on how we might further reduce the information collection
burden for small business concerns with fewer than 25 employees.

IX.

ORDERING CLAUSES

416.
Accordingly, IT IS ORDERED that, pursuant to sections 1, 2, 4(i), 201-206, 214, 218-
220, 251, 252, 254, 256, 303(r), 332, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.
§§ 151, 152, 154(i), 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, and sections 1.1 and
1.421 of the Commission’s rules, 47 C.F.R. §§ 1.1, 1.421, this Further Notice of Proposed Rulemaking IS
ADOPTED.
417.
IT IS FURTHER ORDERED that the Commission’s Consumer and Governmental
Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Further Notice of Proposed
Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of
the Small Business Administration.
418.
IT IS FURTHER ORDERED, pursuant to sections 1.4(b)(1) and 1.103(a) of the
Commission’s rules, 47 C.F.R. §§ 1.4(b)(1), 1.103(a), that this Further Notice of Proposed Rulemaking
SHALL BE EFFECTIVE on the date of publication of a summary thereof in the Federal Register.

FEDERAL COMMUNICATIONS COMMISSION



Marlene H. Dortch
Secretary

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APPENDIX A



Proposed Rules

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend
47 C.F.R. Part 54, Subpart H, as follows:

PART 54—UNIVERSAL SERVICE

Subpart H—Administration

1.
The authority citation for Part 54 continues to read as follows:
47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless
otherwise noted.
2.
Amend § 54.706 by adding paragraphs (f), (g), and (h) to read as follows:
§ 54.706 Contributions.
(a)
* * *
(b)
* * *
(c)
* * *
(d)
* *
(e)
* * *
(f)
Registration Requirements. Every common carrier subject to the Communications Act of
1934, as amended, and every entity required to submit a Telecommunications Reporting
Worksheet shall register with the Commission in accordance with the provisions of 47
C.F.R. § 64.1195(a)-(c) and the Instructions to the Telecommunications Reporting
Worksheet within thirty days of the commencement of provision of service.
(g)
Deregistration Requirements. If a registrant stops providing interstate and international
telecommunications to others, it shall deregister with the Commission within thirty days
of its last provision of telecommunications. To deregister, a registrant must comply with
the Instructions to the Telecommunications Reporting Worksheet.
(h)
Customer Confirmation Requirements. A telecommunications carrier or provider
providing telecommunications to other carriers or providers shall have an affirmative
duty to ascertain whether a customer that is required to register has in fact registered with
the Commission prior to offering service to that customer.
3.
Amend § 54.711 by adding paragraphs (d) and (e) to read as follows:
§ 54.711 Contributor reporting requirements.
(a)
* * *
(b)
* * *

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(c)
* * *
(d)
Telecommunications Reporting Worksheet Revisions. The Wireline Competition Bureau
shall annually issue a Public Notice seeking comment on the Telecommunications
Reporting Worksheets and accompanying instructions. No later than 60 days prior to the
annual filing deadline, the Wireline Competition Bureau shall issue a Public Notice
attaching the finalized Telecommunications Reporting Worksheet and instructions.
(e)
Electronic Filings. Reporting entities must file the Telecommunications Reporting
Worksheet electronically. The Administrator shall assess a $25 fee on reporting entities
for filing paper copies of the quarterly Telecommunications Reporting Worksheet. The
Administrator shall assess a $50 fee on reporting entities for filing paper copies of the
annual Telecommunications Reporting Worksheet. The Administrator shall not assess a
paper-filing fee on reporting entities that electronically file their Telecommunications
Reporting Worksheet, but such entities must also submit either a paper or electronic
certification attesting to the accuracy of the information reported therein under penalty of
perjury.
4.
Amend § 54.712 by adding paragraph (b) to read as follows:

§ 54.712 Contributor recovery of universal service costs from end users.
(a)
* * *
(b)
Lifeline Subscribers. Eligible telecommunications carriers covered by §69.131 and
§69.158 are subject to the limitations on universal service end user charges set forth
therein. All other eligible telecommunications carriers shall not recover federal universal
service contribution costs from Lifeline services to Lifeline subscribers. This limitation
does not apply to services to Lifeline subscribers that are not supported by Lifeline, such
as per-minute or other additional charges beyond the service for which the customer
receives Lifeline support.
5.
Amend § 54.713 by revising paragraph (b) to read as follows:

§ 54.713 Contributor’s failure to report or to contribute.
(a)
* * *
(b)
If a universal service fund contributor fails to make full payment of the monthly amount
established by the contributor’s applicable Form 499-A or Form 499-Q, or the monthly
invoice provided by the Administrator, on or before the date due, the payment is
delinquent. Late fees, interest charges, and penalties for failure to remit any payment by
the date due shall apply regardless of whether the obligation to pay that amount is
appealed or otherwise disputed unless the Administrator or the Commission (pursuant to
section 54.719) finds the disputed charges are the result of clear error by the
Administrator. All such delinquent amounts shall incur from the date of delinquency,
and until all charges and costs are paid in full, interest at the rate equal to the U.S. prime
rate (in effect on the date of the delinquency) plus 3.5 percent, as well as administrative
charges of collection and/or penalties and charges permitted by the applicable law (e.g.,
31 U.S.C. 3717 and implementing regulations).
(c)
* * *
(d)
* * *

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(e)
* * *

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APPENDIX B



Summary Analysis of Wireless and Interconnected VoIP Traffic Studies



Percentage of Interstate/International Revenues

Wireless Traffic Studies


Percentages

Number of Studies on File

30% 2
20-29.9% 100
10-19.9% 65
0.1-9% 40
0% 9


Percentage of Interstate/International Revenues

Interconnected VoIP Traffic Studies


Percentages

Number of Studies on File

50%-59.9% 16
40%-49.9% 12
30%-39.9% 25
20%-29.9% 43
10%-19.9% 59
0.1-9.9% 40
0% 47


Source: Traffic Studies on file as of January 19, 2012, Universal Service Administrative Company.

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APPENDIX C



Summary of 2011 FCC Form 499-A Filings

Table 1

Interstate/International Revenue as a Percent of All Revenue

2004-2011

Line


Year

2004
2005
2006
2007
2008
2009
2010
2011
Federal or State
USF
403
Surcharges
91.4% 88.8%
89.6%
88.1%
88.5%
88.2% 89.6% 90.7%

Fixed Local Services









Local portion
of flat rate
fixed monthly
404.1 service
2.5% 6.0%
6.1%
1.2%
0.8%
1.6% 2.2% 1.0%
Toll portion of
flat rate fixed
local monthly
404.2 service
--
--
--
36.7%
48.2%
46.7% 54.7% 54.3%
Fixed local
service without
interstate toll
404.3 included
1.1% 0.7%
0.3%
0.1%
0.1%
0.2% 0.4% 0.3%
Interconnected
VoIP offered
404.4 with
broadband --
--
--
16.8%
11.4%
7.4% 13.4% 17.0%
Interconnected
VoIP offered
independent of
404.5 broadband
--
--
--
47.1%
45.1%
35.4% 32.5% 33.5%
Subscriber line
405
charge
97.1% 97.6%
97.4%
97.6%
97.7%
97.7% 97.3% 98.3%
Local private
line and special
406
access
57.9% 61.5%
65.0%
60.2%
47.6%
51.2% 45.5% 44.5%
407
Payphone
7.4% 3.3%
6.2%
3.1%
4.0%
4.9% 4.9% 3.4%
Other local
408
telecom
service 3.9% 5.5%
3.8%
5.4%
6.5%
6.8% 5.6% 4.5%

Subtotal Fixed Local
Services

21.9% 23.9%
24.7%
24.3%
22.7%
23.1% 22.9% 23.3%

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Appendix C, Table 1 – continued


Line


Year

2004
2005
2006
2007
2008
2009
2010
2011

Mobile Services









Mobile
monthly and
activation
409
charges
21.0% 21.4%
21.1%
22.2%
23.1%
23.4% 23.6% 23.3%
Mobile
message
charges
including
roaming and air
410
time for toll
22.8%
22.7%
22.4%
23.1%
23.0%
22.9%
23.6%
21.8%

Subtotal Mobile
Services

21.7% 21.7%
21.3%
22.3%
23.1%
23.3% 23.6% 23.1%

Toll Services









Prepaid calling
411
cards 88.1%
89.4%
94.3%
90.0%
90.2%
91.2%
90.4%
91.5%
International
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
412
calls
%
%
%
%
%
%
%
%
Operator and
413
toll calls
60.1%
56.0%
50.6%
41.2%
41.8%
40.6%
42.2%
42.8%
Long distance
(all itemized
toll on wireline
and wireless,
other than
414.1
VoIP) 61.8%
59.8%
61.6%
62.0%
66.9%
67.3%
66.5%
66.8%
Interconnected
VoIP long
414.2
distance
-- -- -- 70.8%
63.7%
64.6%
60.0%
62.3%
Long distance
415
private line
82.7%
81.7%
81.5%
80.1%
80.9%
80.0%
73.3%
76.1%
416
Satellite 91.1%
93.8%
92.2%
90.8%
92.7%
96.2% 96.3%
95.0%
All other long
417
distance
74.2% 74.2%
79.2%
62.7%
75.8%
70.7% 85.9%
89.7%

Subtotal Toll Services

68.1% 66.9%
68.8%
67.2%
71.6%
71.8% 70.7%
71.7%










Grand Total

35.5% 34.7%
34.6%
33.4%
33.7%
33.7% 33.5%
33.7%


Source: FCC Form 499-A End User Revenue Analysis as of January 19, 2012, Universal Service
Administrative Company. Revenue information for 2011 is preliminary and may be adjusted.


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Appendix C (continued)

Table 2

Interstate/International Revenue

2004-2011
(in billions)

Line

Year

2004
2005
2006
2007
2008
2009
2010
2011

Federal or
State USF
403
Surcharges
$5.9 $5.8
$5.8
$6.5
$7.0
$7.2 $7.0 $7.9

Fixed Local Services









Local portion
of flat rate
fixed monthly
404.1 service
$0.4 $1.2
$1.2
$0.2
$0.1
$0.1 $0.1 $0.1
Toll portion of
flat rate fixed
local monthly
404.2 service
-- --
--
$0.9
$1.8
$1.8 $2.0 $1.8
Fixed local
service without
interstate toll
404.3 included
$0.5 $0.3
$0.3
$0.1
$0.0
$0.1 $0.1 $0.1
Interconnected
VoIP offered
with
404.4 broadband
-- --
--
$0.1
$0.3
$0.4 $0.5 $0.7
Interconnected
VoIP offered
independent of
404.5 broadband
-- --
--
$0.4
$0.9
$0.9 $1.1 $1.5
Subscriber line
405
charge
$11.9 $11.4
$11.4
$10.6
$9.9
$9.1 $8.1 $7.3
Local private
line and
406
special access
$5.6 $6.9
$6.9
$6.6
$4.2
$4.8 $3.7 $3.6
407
Payphone
$0.1 $0.0
$0.0
$0.0
$0.0
$0.0 $0.0 $0.0
Other local
telecom
408
service
$0.0 $0.0
$0.0
$0.0
$0.0
$0.1 $0.0 $0.0

Subtotal Fixed Local
Services

$18.5 $19.9
$19.9
$18.9
$17.3
$17.2 $15.8 $15.1

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Appendix C, Table 2 continued


Line

Year

2004
2005
2006
2007
2008
2009
2010
2011

Mobile Services









Mobile
monthly and
activation
409
charges
$10.9 $15.6
$15.6
$20.4
$22.3
$22.8 $22.8 $22.0
Mobile
message
charges
including
roaming and
air time for
410
toll
$7.1 $4.1
$4.1
$3.6
$3.7
$4.0 $3.2 $2.7

Subtotal Mobile
Services

$17.9 $19.7
$19.7
$23.9
$26.0
$26.9 $26.0 $24.6

Toll Services









Prepaid
411
calling
cards $3.0 $3.4
$3.4
$1.9
$2.5
$2.5 $2.0 $1.8
International
412
calls
$0.6 $0.6
$0.6
$0.7
$0.8
$0.8 $0.7 $0.5
Operator and
413
toll
calls
$1.7 $1.3
$1.3
$0.8
$0.6
$0.5 $0.4 $0.4
Long distance
(all itemized
toll on
wireline and
wireless, other
414.1
than
VoIP)
$24.3 $21.0
$21.0
$17.5
$17.6
$16.1 $13.5 $12.1
Interconnected
VoIP long
414.2
distance
$0.0 $0.0
$0.0
$0.3
$0.6
$0.9 $1.0 $1.2
Long distance
415
private
line
$9.5 $8.6
$8.6
$7.4
$7.1
$6.8 $6.4 $6.7
416
Satellite
$0.3 $0.3
$0.3
$0.3
$0.4
$0.4 $0.4 $0.4
All other long
417
distance
$0.8 $0.6
$0.6
$0.8
$0.6
$1.2 $1.8 $1.6

Subtotal Toll
Services

$40.2 $35.9
$35.9
$29.6
$30.1
$29.1 $26.4 $24.6










Grand Total

$82.6 $81.3
$81.3
$79.0
$80.5
$80.4 $75.2 $72.2













Source: FCC Form 499-A End User Revenue Analysis as of January 19, 2012, Universal Service
Administrative Company

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APPENDIX D



Data Analysis for Prior Period Adjustments


For illustrative purposes, the table below contrasts the effect that prior period adjustments (“PPAs”) has
on the contribution factor under our existing rule (“Historical CF”) compared to the effect that would
have occurred if prior period adjustments had occurred over two quarters (“Two Quarter CF”).

All data is from the Public Notices the Commission releases each quarter announcing the quarterly
contribution factor.1 All dollar figures are reported in millions. The demand excludes the effects of prior
period adjustments. The Two Quarter PPA is a simple average of the Historical PPA for that quarter and
the Historical PPA of the previous quarter. The column “No-PPA CF” represents what the contribution
factor would have been if there had been no PPAs at all.


Quarter Contribution Demand Historical Two
Historical
Two
No-PPA
Base
PPA
Quarter
CF
Quarter
CF
PPA
CF
2005Q1 $18,351.88
41,753.22
$4.31
4(45.37)
10.7%
10.4%
10.7%
2005Q2 418,331.56
41,754.33
$52.17
428.24
11.1%
10.9%
10.7%
2005Q3 418,370.22
41,784.91
$(106.25) 4(27.04)
10.2%
10.7%
10.9%
2005Q4 417,869.74
41,748.15
$(115.23) 4(110.74)
10.2%
10.2%
11.0%
2006Q1 418,450.88
41,798.63
$(109.42) 4(112.32)
10.2%
10.2%
11.0%
2006Q2 418,317.96
41,807.18
$(33.37)
4(71.40)
10.9%
10.6%
11.1%
2006Q3 418,773.68
41,780.05
$(17.51)
4(25.44)
10.5%
10.5%
10.6%
2006Q4 419,362.70
41,777.42
$(189.79) 4(103.65)
9.1%
9.6%
10.3%
2007Q1 418,549.12
41,833.08
$(211.29) 4(200.54)
9.7%
9.8%
11.1%
2007Q2 418,013.57
41,843.83
$12.50
4(99.39)
11.7%
10.9%
11.6%
2007Q3 418,566.48
41,886.09
4(18.65)
4(3.07)
11.3%
11.5%
11.5%
2007Q4 418,949.19
41,887.42
4(30.83)
4(24.74)
11.0%
11.1%
11.2%
2008Q1 419,193.84
41,892.96
4(147.40) 4(89.12)
10.2%
10.5%
11.1%
2008Q2 418,977.95
41,949.17
4(41.72)
4(94.56)
11.3%
11.0%
11.6%
2008Q3 419,039.35
41,984.23
4(65.97)
4(53.85)
11.4%
11.4%
11.8%
2008Q4 419,011.92
42,018.11
4(98.29)
4(82.13)
11.4%
11.5%
12.0%
2009Q1 418,871.05
41,872.54
4(262.34) 4(180.32)
9.5%
10.0%
11.2%
2009Q2 418,714.72
41,895.69
4(12.75)
4(137.55)
11.3%
10.5%
11.4%
2009Q3 418,032.83
41,991.58
437.37
412.31
12.9%
12.7%
12.6%
2009Q4 417,164.44
42,019.39
4(158.64) 4(60.64)
12.3%
13.1%
13.5%
2010Q1 417,254.24
42,037.21
469.33
4(44.66)
14.1%
13.2%
13.6%
2010Q2 416,637.88
42,100.79
479.58
474.46
15.3%
15.2%
14.6%
2010Q3 417,575.57
42,112.43
4(32.61)
423.49
13.6%
14.0%
13.8%
2010Q4 417,441.38
42,100.70
4(131.78) 4(82.20)
12.9%
13.3%
13.9%
2011Q1 416,674.39
42,051.02
4161.46
414.84
15.5%
14.3%
14.2%
2011Q2 416,403.46
42,070.42
427.22
494.34
14.9%
15.4%
14.6%

1 See Federal Communications Commission, Contribution Factor & Quarterly Filings—Universal Service Fund,
available at http://www.fcc.gov/encyclopedia/contribution-factor-quarterly-filings-universal-service-fund-usf-
management-support (last visited Apr. 16, 2012).

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APPENDIX E



Initial Regulatory Flexibility Analysis

1.
As required by the Regulatory Flexibility Act of 1980, as amended (RFA),1 the
Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant
economic impact on small entities by the policies and rules proposed in this Further Notice of Proposed
Rulemaking (Notice). Written public comments are requested on this IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines for comments on the Notice. The
Commission will send a copy of the Notice, including this IRFA, to the Chief Counsel for Advocacy of
the Small Business Administration (SBA).2 In addition, the Notice and IRFA (or summaries thereof) will
be published in the Federal Register.3

A.

Need for, and Objectives of, the Proposed Rules

2.
In the Notice, we seek public comment on approaches to reform and modernize how
Universal Service Fund (USF or Fund) contributions are assessed and recovered. We seek comment on
ways to reform the USF contribution system in an effort to promote efficiency, fairness, and
sustainability. We seek comment in four key areas regarding the contributions system: (1) who should
contribute to the Fund; (2) how contributions should be assessed; (3) how the administration of the
contribution system can be improved; and (4) recovery of universal service contributions from consumers.
3.
First, we seek comment on who should contribute to the Fund. Specifically, we seek
comment on how we could exercise our permissive authority to define what services or providers should
be subject to contribution obligations, either by: (1) clarifying or modifying on a service-by-service basis
whether particular services or providers are required to contribute to the Fund;4 or (2) adopting a more
general rule that would specify which interstate telecommunications providers must contribute without
enumerating the specific services subject to assessment.5
4.
Second, we seek comment on how contributions should be assessed. In particular, what
methodology we should use to determine the relative contribution obligation among those providers who
are required to contribute. In particular, we seek to refresh the record and update proposals to assess
based on revenues,6 connections,7 numbers,8 or a hybrid approach.9 For each alternative, we ask parties
to address the current and projected impact on the relative contribution burden for consumers and
businesses in light of marketplace trends.

1 See 5 U.S.C. § 603. The RFA has been amended by the Small Business Regulatory Enforcement Fairness Act of
1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996). See 5 U.S.C. §§ 601–612.
2 5 U.S.C. § 603(a).
3 See id.
4 See supra Section IV.B (Determining Contribution Obligations on a Case-by-Case Basis with Respect to Specific
Services), paras. 36 – 73.
5 See supra Section IV.C (Determining Contribution Obligations Through a Broader Definitional Approach), paras.
74 – 94.
6 See supra Section V.A (Reforming the Current Revenues-Based System), paras. 98 – 218.
7 See supra Section V.B (Assessing Contributions Based on Connections), paras. 219 – 283.
8 See supra Section V.C (Assessing Contributions Based on Numbers), paras. 284 – 341.
9 See supra Section V.C.5 (Use of a Hybrid System with a Numbers-Component), paras. 322 – 324.

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5.
Third, we seek comment on how to improve the administration of the contribution
system. We seek comment on potential rule changes that could be implemented to provide greater
transparency and clarity regarding contribution obligations, reduce costs of administering the program,
and improve the operation and administration of the program. Specifically, we seek comment on
potential rule changes in six areas that should improve administration: (1) updating the
Telecommunications Reporting Worksheet and its instructions;10 (2) revising the frequency of
adjustments to the contribution factor;11 (3) codifying the pay-and-dispute policy;12 (4) improving
oversight and accountability;13 (5) mandating electronic filing of the Telecommunications Reporting
Worksheet with a fee for paper filer;14 and (6) implementing a filer registration and deregistration
requirement for all parties required to file the Telecommunications Reporting Worksheet.15
6.
Finally, we seek comment on whether the Commission could promote fairness and
transparency by modifying the methods by which providers recover the costs of universal contributions
from consumers. Specifically, we seek comment on the following questions: (1) whether to limit the
flexibility of contributors to pass through contribution costs as a separately stated line item on customer
bills;16 (2) whether to implement measures to ensure contributions are made by contributors that become
insolvent;17 and (3) whether to prohibit competitive carriers from recovering universal service
contributions for Lifeline offerings from Lifeline subscribers.18

B. Legal

Basis

7.
The legal basis for any action that may be taken pursuant to the Notice is contained in
sections 1, 2, 4(i), 4(j), 201, 202, 218-220, 254, and 303(r) of the Communications Act of 1934, as
amended,19 and section 706 of the Telecommunications Act of 1996, as amended.20

C.

Description and Estimate of the Number of Small Entities to Which the Proposed
Rules Will Apply

8.
The RFA directs agencies to provide a description of, and where feasible, an estimate of
the number of small entities that may be affected by the proposed rules, if adopted.21 The RFA generally
defines the term “small entity” as having the same meaning as the terms “small business,” “small
organization,” and “small governmental jurisdiction.”22 In addition, the term “small business” has the

10 See supra Section VI.A (Updating the Telecommunications Reporting Worksheet), paras. 344 – 349.
11 See supra Section VI.B (Revising the Frequency of Adjustments to the Contribution Factor), paras. 350 – 359.
12 See supra Section VI.C (Pay-and-Dispute Policy), paras. 360 – 366.
13 See supra Section VI.D (Oversight and Accountability), paras. 367 – 375.
14 See supra Section VI.E (Paper-Filing Fees), paras. 376 – 380.
15 See supra, Section VI.F (Filer Registration and Deregistration), paras. 381 – 386.
16 See supra Section VII.A (Pass-Through of USF Contributions as Separate Line Item Charge), paras. 389 – 397.
17 See supra Section VII.B (Segregation of USF Pass-Through Charges), paras. 398 – 400.
18 See supra section VII.C (Limiting Pass-Through of USF Charges to Lifeline Subscribers), paras. 401 – 410.
19 47 U.S.C. §§ 151, 152, 154(i)–(j), 201, 202, 218-220, 254, 257, 303(r), 503, 1302.
20 Telecommunications Act of 1996, Pub. L. No. 104-104, § 706(b), 110 Stat. 153 (codified at 47 U.S.C. § 157
note).
21 See 5 U.S.C. § 603(b)(3).
22 See 5 U.S.C. § 601(6).

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same meaning as the term “small-business concern” under the Small Business Act.23 A “small-business
concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the SBA.24 Nationwide, there are a total
of approximately 29.6 million small businesses, according to the SBA.25
1.

Wireline Carriers and Service Providers

9.
Wired Telecommunications Carriers. The SBA has developed a small business size
standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or
fewer employees.26 According to Census Bureau data for 2007, there were a total of 3,188 firms in this
category, that operated for the entire year.27 Of this total, 3144 firms employed 999 or fewer employees,
and 44 firms employed 1000 employees or more.28 Thus, under this size standard, the majority of firms
can be considered small entities that may be affected by rules adopted pursuant to the Notice.
10.
Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a
size standard for small businesses specifically applicable to local exchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.29 According to Commission data,
1,307 carriers reported that they were incumbent local exchange service providers.30 Of these carriers, an
estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees.31
Consequently, the Commission estimates that most providers of local exchange service are small entities
that may be affected by rules adopted pursuant to the Notice.
11.
Incumbent Local Exchange Carriers (incumbent LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically applicable to incumbent local
exchange services. The closest applicable size standard under SBA rules is for Wired
Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer
employees.32 According to Commission data, 1,307 carriers reported that they were incumbent local

23 See 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small
Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies
“unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after
opportunity for public comment, establishes one or more definitions of such term which are appropriate to the
activities of the agency and publishes such definition(s) in the Federal Register.”
24 See 15 U.S.C. § 632.
25 See SBA, Office of Advocacy, “Frequently Asked Questions,” available at
http://www.sba.gov/advo/stats/sbfaq.pdf.
26 13 C.F.R. § 121.201, NAICS code 517110.
27 U.S. Census Bureau, 2007 Economic Census Report, Subject Series: Information, Sector 51, “Establishment and
Firm Size: Employment Size of Firms for the United States: 2007 NAICS,” at NAICS Code 174, available at
http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&;-
ds_name=EC0751SSSZ2&-_lang=en (2007 Economic Census Report Employment Size of Firms).
28 See id.
29 13 C.F.R. § 121.201, NAICS code 517110.
30 See Trends in Telephone Service, Federal Communications Commission, Wireline Competition Bureau, Industry
Analysis and Technology Division at Table 5.3 (Sept. 2010), available at http://www.fcc.gov/reports/trends-
telephony-service-2010 (Trends in Telephone Service).
31 See id.
32 See 13 C.F.R. § 121.201, NAICS code 517110.

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exchange service providers.33 Of these carriers, an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees.34 Consequently, the Commission estimates that most providers of
incumbent local exchange service are small entities that may be affected by rules adopted pursuant to the
Notice.
12.
We have included small incumbent LECs in this present RFA analysis. As noted above,
a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its
field of operation.”35 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent
LECs are not dominant in their field of operation because any such dominance is not “national” in
scope.36 We have therefore included small incumbent LECs in this RFA analysis, although we emphasize
that this RFA action has no effect on Commission analyses and determinations in other, non-RFA
contexts.
13.
Competitive Local Exchange Carriers (competitive LECs), Competitive Access Providers
(CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither the Commission
nor the SBA has developed a small business size standard specifically for these service providers. The
closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that
size standard, such a business is small if it has 1,500 or fewer employees.37 According to Commission
data, 1,442 carriers reported that they were engaged in the provision of either competitive local exchange
services or competitive access provider services.38 Of these carriers, an estimated 1,256 have 1,500 or
fewer employees and 186 have more than 1,500 employees.39 In addition, 17 carriers have reported that
they are Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 or fewer employees.40
In addition, 72 carriers have reported that they are Other Local Service Providers.41 Of these 72 carriers,
an estimated 70 have 1,500 or fewer employees and two have more than 1,500 employees.42
Consequently, the Commission estimates that most providers of competitive local exchange service,
competitive access providers, Shared-Tenant Service Providers, and Other Local Service Providers are
small entities that may be affected by rules adopted pursuant to the Notice.
14.
Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a
size standard for small businesses specifically applicable to interexchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.43 According to Commission data,
359 companies reported that their primary telecommunications service activity was the provision of

33 See Trends in Telephone Service at Table 5.3.
34 See id.
35 5 U.S.C. § 601(3).
36 See Letter from Jere W. Glover, SBA, to William E. Kennard, Chairman, FCC (May 27, 1999). The Small
Business Act contains a definition of “small business concern,” which the RFA incorporates into its own definition
of “small business.” See 15 U.S.C. § 632(a); see also 5 U.S.C. § 601(3). SBA regulations interpret “small business
concern” to include the concept of dominance on a national basis. See 13 C.F.R. § 121.102(b).
37 See 13 C.F.R. § 121.201, NAICS code 517110.
38 See Trends in Telephone Service at Table 5.3.
39 See id.
40 See id.
41 See id.
42 See id.
43 See 13 C.F.R. § 121.201, NAICS code 517110.

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interexchange services.44 Of these companies, an estimated 317 have 1,500 or fewer employees and 42
have more than 1,500 employees.45 Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected by rules adopted pursuant to the
Notice.
15.
Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed a
small business size standard specifically for prepaid calling card providers. The closest applicable size
standard under SBA rules is for Telecommunications Resellers. Under that size standard, such a business
is small if it has 1,500 or fewer employees.46 According to Commission data, 193 providers have
reported that they are engaged in the provision of prepaid calling cards.47 Of these providers, an
estimated 193, or all such providers, have 1,500 or fewer employees and none have more than 1,500
employees.48 Consequently, the Commission estimates that the majority of prepaid calling card providers
are small entities that may be affected by rules adopted pursuant to the Notice.
16.
Local Resellers. The SBA has developed a small business size standard for the category
of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or
fewer employees.49 According to Commission data, 213 carriers have reported that they are engaged in
the provision of local resale services.50 Of these, an estimated 211 have 1,500 or fewer employees and
two have more than 1,500 employees.51 Consequently, the Commission estimates that the majority of
local resellers are small entities that may be affected by rules adopted pursuant to the Notice.
17.
Toll Resellers. The SBA has developed a small business size standard for the category of
Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer
employees.52 According to Commission data, 881 carriers have reported that they are engaged in the
provision of toll resale services.53 Of these, an estimated 857 have 1,500 or fewer employees and 24 have
more than 1,500 employees.54 Consequently, the Commission estimates that the majority of toll resellers
are small entities that may be affected by rules adopted pursuant to the Notice.
18.
Payphone Service Providers (PSPs). Neither the Commission nor the SBA has
developed a small business size standard specifically for payphone services providers. The appropriate
size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.55 According to Commission data,56
535 carriers have reported that they are engaged in the provision of payphone services. Of these, an
estimated 531 have 1,500 or fewer employees and four have more than 1,500 employees. Consequently,

44 See Trends in Telephone Service at Table 5.3.
45 See id.
46 See 13 C.F.R. § 121.201, NAICS code 517911.
47 See Trends in Telephone Service at Table 5.3.
48 See id.
49 See 13 C.F.R. § 121.201, NAICS code 517911.
50 See Trends in Telephone Service at Table 5.3.
51 See id.
52 See 13 C.F.R. § 121.201, NAICS code 517911.
53 See Trends in Telephone Service at Table 5.3.
54 See id.
55 13 C.F.R. § 121.201, NAICS code 517110.
56 See Trends in Telephone Service at Table 5.3.

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the Commission estimates that the majority of payphone service providers are small entities that may be
affected by rules adopted pursuant to the Notice.
19.
Operator Service Providers (OSPs). Neither the Commission nor the SBA has developed
a small business size standard specifically for operator service providers. The appropriate size standard
under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees.57 According to Commission data,58 33 carriers have
reported that they are engaged in the provision of operator services. Of these, an estimated 31 have 1,500
or fewer employees and two have more than 1,500 employees. Consequently, the Commission estimates
that the majority of OSPs are small entities that may be affected by rules adopted pursuant to the Notice.
20.
Other Toll Carriers. Neither the Commission nor the SBA has developed a size standard
for small businesses specifically applicable to Other Toll Carriers. This category includes toll carriers
that do not fall within the categories of interexchange carriers, operator service providers, prepaid calling
card providers, satellite service carriers, or toll resellers. The closest applicable size standard under SBA
rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it
has 1,500 or fewer employees.59 According to Commission data, 284 companies reported that their
primary telecommunications service activity was the provision of other toll carriage.60 Of these, an
estimated 279 have 1,500 or fewer employees and five have more than 1,500 employees.61 Consequently,
the Commission estimates that the majority of Other Toll Carriers are small entities that may be affected
by the rules adopted pursuant to the Notice.
21.
800 and 800-Like Service Subscribers.62 Neither the Commission nor the SBA has
developed a small business size standard specifically for 800 and 800-like service (toll-free) subscribers.
The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under
that size standard, such a business is small if it has 1,500 or fewer employees.63 The most reliable source
of information regarding the number of these service subscribers appears to be data the Commission
collects on the 800, 888, 877, and 866 numbers in use.64 According to this data, as of September 2009,
the number of 800 numbers assigned was 7,860,000; the number of 888 numbers assigned was 5,588,687;
the number of 877 numbers assigned was 4,721,866; and the number of 866 numbers assigned was
7,867,736.65 We do not have data specifying the number of these subscribers that are not independently
owned and operated or have more than 1,500 employees, and thus are unable at this time to estimate with
greater precision the number of toll-free subscribers that would qualify as small businesses under the SBA
size standard. Consequently, we estimate that there are 7,860,000 or fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer small entity 877 subscribers; and
7,867,736 or fewer small entity 866 subscribers.

57 See 13 C.F.R. § 121.201, NAICS code 517110.
58 See Trends in Telephone Service at Table 5.3.
59 See 13 C.F.R. § 121.201, NAICS code 517110.
60 See Trends in Telephone Service at Table 5.3.
61 See id.
62 We include all toll-free number subscribers in this category, including those for 888 numbers.
63 See 13 C.F.R. § 121.201, NAICS code 517911.
64 See Trends in Telephone Service at Tables 18.7-18.10.
65 See id.

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2.

Wireless Telecommunications Service Providers

22.
Wireless Telecommunications Carriers (except Satellite). Since 2007, the SBA has
recognized wireless firms within this new, broad, economic census category.66 Prior to that time, such
firms were within the now-superseded categories of “Paging” and “Cellular and Other Wireless
Telecommunications.”67 Under the present and prior categories, the SBA has deemed a wireless business
to be small if it has 1,500 or fewer employees.68 For this category, census data for 2007 show that there
were 1,383 firms that operated for the entire year.69 Of this total, 1,368 firms employed 999 or fewer
employees and 15 employed 1000 employees or more.70 Similarly, according to Commission data, 413
carriers reported that they were engaged in the provision of wireless telephony, including cellular service,
Personal Communications Service (PCS), and Specialized Mobile Radio (SMR) Telephony services.71
Of these, an estimated 261 have 1,500 or fewer employees and 152 have more than 1,500 employees.72
Consequently, the Commission estimates that approximately half or more of these firms can be
considered small. Thus, using available data, we estimate that the majority of wireless firms can be
considered small entities that may be affected by the rules adopted pursuant to the Notice.

23.
Broadband Personal Communications Service. The broadband personal communications
service (PCS) spectrum is divided into six frequency blocks designated A through F, and the Commission
has held auctions for each block. The Commission defined “small entity” for Blocks C and F as an entity
that has average gross revenues of $40 million or less in the three previous calendar years.73 For Block F,
an additional classification for “very small business” was added and is defined as an entity that, together
with its affiliates, has average gross revenues of not more than $15 million for the preceding three
calendar years.74 These standards defining “small entity” in the context of broadband PCS auctions have
been approved by the SBA.75 No small businesses, within the SBA-approved small business size
standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified
as small entities in the Block C auctions. A total of 93 small and very small business bidders won
approximately 40 percent of the 1,479 licenses for Blocks D, E, and F.76 In 1999, the Commission re-

66 See 13 C.F.R. § 121.201, NAICS code 517210.
67 U.S. Census Bureau, 2002 NAICS Definitions, “517211 – Paging,” available at
http://www.census.gov/epcd/naics02/def/NDEF517.HTM; U.S. Census Bureau, 2002 NAICS Definitions, “517212
– Cellular and Other Wireless Telecommunications,” available at
http://www.census.gov/epcd/naics02/def/NDEF517.HTM.
68 13 C.F.R. § 121.201, NAICS code 517210. The now-superseded, pre-2007 C.F.R. citations were 13 C.F.R. §
121.201, NAICS codes 517211 and 517212 (referring to the 2002 NAICS).
69 U.S. Census Bureau, Subject Series: Information, Table 5, “Establishment and Firm Size: Employment Size of
Firms for the United States: 2007 NAICS Code 517210” (issued Nov. 2010).
70 Id. Available census data do not provide a more precise estimate of the number of firms that have employment of
1,500 or fewer employees; the largest category provided is for firms with “100 employees or more.”
71 See Trends in Telephone Service at Table 5.3.
72 See id.
73 See generally Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding
and the Commercial Mobile Radio Service Spectrum Cap
, WT Docket No. 96-59, GN Docket No. 90-314, Report
and Order, 11 FCC Rcd 7824 (1996); see also 47 C.F.R. § 24.720(b)(1).
74 See id.; see also 47 C.F.R. § 24.720(b)(2).
75 See, e.g., Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket No. 93-
253, Fifth Report and Order, 9 FCC Rcd 5532 (1994).
76 See FCC News, Broadband PCS, D, E and F Block Auction Closes, No. 71744 (rel. Jan. 14, 1997). See also
Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications
(continued…)

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auctioned 347 C, E, and F Block licenses.77 There were 48 small business winning bidders. In 2001, the
Commission completed the auction of 422 C and F Broadband PCS licenses in Auction 35.78 Of the 35
winning bidders in this auction, 29 qualified as “small” or “very small” businesses. Subsequent events,
concerning Auction 35, including judicial and agency determinations, resulted in a total of 163 C and F
Block licenses being available for grant. In 2005, the Commission completed an auction of 188 C block
licenses and 21 F block licenses in Auction 58. There were 24 winning bidders for 217 licenses.79 Of the
24 winning bidders, 16 claimed small business status and won 156 licenses. In 2007, the Commission
completed an auction of 33 licenses in the A, C, and F Blocks in Auction 71.80 Of the 14 winning
bidders, six were designated entities.81 In 2008, the Commission completed an auction of 20 Broadband
PCS licenses in the C, D, E and F block licenses in Auction 78.82
24.
Advanced Wireless Services. In 2008, the Commission conducted the auction of
Advanced Wireless Services (“AWS”) licenses.83 This auction, which as designated as Auction 78,
offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands (“AWS-1”). The AWS-1
licenses were licenses for which there were no winning bids in Auction 66. That same year, the
Commission completed Auction 78. A bidder with attributed average annual gross revenues that
exceeded $15 million and did not exceed $40 million for the preceding three years (“small business”)
received a 15 percent discount on its winning bid. A bidder with attributed average annual gross revenues
that did not exceed $15 million for the preceding three years (“very small business”) received a 25
percent discount on its winning bid. A bidder that had combined total assets of less than $500 million and
combined gross revenues of less than $125 million in each of the last two years qualified for entrepreneur
status.84 Four winning bidders that identified themselves as very small businesses won 17 licenses.85
Three of the winning bidders that identified themselves as a small business won five licenses.
Additionally, one other winning bidder that qualified for entrepreneur status won two licenses.
25.
Narrowband Personal Communications Services. In 1994, the Commission conducted an
auction for Narrowband PCS licenses. A second auction was also conducted later in 1994. For purposes
of the first two Narrowband PCS auctions, “small businesses” were entities with average gross revenues

(Continued from previous page)
Services (PCS) Licensees, WT Docket No. 97-82, Second Report and Order and Further Notice of Proposed
Rulemaking, 12 FCC Rcd 16436 (1997).
77 See C, D, E, and F Block Broadband PCS Auction Closes, Public Notice, 14 FCC Rcd 6688 (Wireless Tel. Bur.
1999).
78 See C and F Block Broadband PCS Auction Closes; Winning Bidders Announced, Public Notice, 16 FCC Rcd
2339 (Wireless Tel. Bur. 2001).
79 See Broadband PCS Spectrum Auction Closes, Winning Bidders Announced for Auction No. 58, Public Notice, 20
FCC Rcd 3703 (Wireless Tel. Bur. 2005).
80 See Auction of Broadband PCS Spectrum Licenses Closes Winning Bidders Announced for Auction No. 71, Public
Notice, 22 FCC Rcd 9247 (Wireless Tel. Bur. 2007).
81 Id.
82 See Auction of AWS-1 and Broadband PCS Licenses Rescheduled For August 13, 3008, Notice of Filing
Requirements, Minimum Opening Bids, Upfront Payments and Other Procedures for Auction 78
, Public Notice, 23
FCC Rcd 7496 (Wireless Tel. Bur. 2008).
83 Id. Auction 78 also included an auction of Broadband PCS licenses.
84 Id. at 7521–22.
85 See Auction of AWS-1 and Broadband PCS Licenses Closes, Winning Bidders Announced for Auction 78, , Public
Notice, 23 FCC Rcd 12749 (Wireless Tel. Bur. 2008).

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for the prior three calendar years of $40 million or less.86 Through these auctions, the Commission
awarded a total of 41 licenses, 11 of which were obtained by four small businesses.87 To ensure
meaningful participation by small business entities in future auctions, the Commission adopted a two-
tiered small business size standard in the Narrowband PCS Second Report and Order.88 A “small
business” is an entity that, together with affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $40 million.89 A “very small business” is an entity that,
together with affiliates and controlling interests, has average gross revenues for the three preceding years
of not more than $15 million.90 The SBA has approved these small business size standards.91 A third
auction was conducted in 2001. Here, five bidders won 317 (Metropolitan Trading Areas and
nationwide) licenses.92 Three of these claimed status as a small or very small entity and won 311
licenses.
26.
Paging (Private and Common Carrier). In the Paging Third Report and Order, the
Commission developed a small business size standard for “small businesses” and “very small businesses”
for purposes of determining their eligibility for special provisions such as bidding credits and installment
payments.93 A “small business” is an entity that, together with its affiliates and controlling principals, has
average gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very
small business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $3 million for the preceding three years. The SBA has approved these
small business size standards.94 According to Commission data, 291 carriers have reported that they are
engaged in Paging or Messaging Service.95 Of these, an estimated 289 have 1,500 or fewer employees,
and two have more than 1,500 employees.96 Consequently, the Commission estimates that the majority
of paging providers are small entities that may be affected by rules adopted pursuant to the Notice. An
auction of Metropolitan Economic Area licenses commenced on February 24, 2000, and closed on March
2, 2000. Of the 2,499 licenses auctioned, 985 were sold.97 Fifty-seven companies claiming small

86 Implementation of Section 309(j) of the Communications Act – Competitive Bidding Narrowband PCS, PP Docket
No. 93-253, GEN Docket No. 90-314, ET Docket No. 92-100, Third Memorandum Opinion and Order and Further
Notice of Proposed Rulemaking, 10 FCC Rcd 175, 196, para. 46 (1994).
87 See Announcing the High Bidders in the Auction of Ten Nationwide Narrowband PCS Licenses, Winning Bids
Total $617,006,674
, Public Notice, PNWL 94-004 (rel. Aug. 2, 1994); Announcing the High Bidders in the Auction
of 30 Regional Narrowband PCS Licenses; Winning Bids Total $490,901,787, Public Notice, (rel. Nov. 9, 1994).
88 Amendment of the Commission’s Rules to Establish New Personal Communications Services, GEN Docket No.
90-314, ET Docket No. 92-100, PP Docket No. 93-253, Narrowband PCS, Second Report and Order and Second
Further Notice of Proposed Rule Making, 15 FCC Rcd 10456, 10476, para. 40 (2000) (Narrowband PCS Second
Report and Order
).
89.Id. at 10476, para. 40.
90 Id.
91 See Letter from Aida Alvarez, SBA, to Amy Zoslov, Wireless Telecommunications Bureau, FCC (dated Dec. 2,
1998) (1998 Alvarez Letter).
92 See Narrowband PCS Auction Closes, Public Notice, 16 FCC Rcd 18663 (Wireless Tel. Bur. 2001).
93 See Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging
Systems
, WT Docket No. 96-18, PR Docket No. 93-253, Memorandum Opinion and Order on Reconsideration and
Third Report and Order, 14 FCC Rcd 100030, 10085-88, paras. 98-107 (1999) (Paging Third Report and Order).
94 See 1998 Alvarez Letter.
95 See Trends in Telephone Service at Table 5.3.
96 See id.
97 See 929 and 931 MHz Paging Auction Closes, Public Notice, 15 FCC Rcd 4858 (2000).

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business status won 440 licenses. A subsequent auction of MEA and Economic Area (“EA”) licenses was
held in the year 2001. Of the 15,514 licenses auctioned, 5,323 were sold.98 One hundred thirty-two
companies claiming small business status purchased 3,724 licenses. A third auction, consisting of 8,874
licenses in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 2003.
Seventy-seven bidders claiming small or very small business status won 2,093 licenses.99 A fourth
auction of 9,603 lower and upper band paging licenses was held in the year 2010. Twenty-nine bidders
claiming small or very small business status won 3,016 licenses.100
27.
220 MHz Radio Service – Phase I Licensees. The 220 MHz service has both Phase I and
Phase II licenses. Phase I licensing was conducted by lotteries in 1992 and 1993. There are
approximately 1,515 such non-nationwide licensees and four nationwide licensees currently authorized to
operate in the 220 MHz band. The Commission has not developed a small business size standard for
small entities specifically applicable to such incumbent 220 MHz Phase I licensees. To estimate the
number of such licensees that are small businesses, we apply the small business size standard under the
SBA rules applicable to Wireless Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer employees.101 The Commission
estimates that nearly all such licensees are small businesses under the SBA’s small business size standard
that may be affected by rules adopted pursuant to the Notice.
28.
220 MHz Radio Service – Phase II Licensees. The 220 MHz service has both Phase I and
Phase II licenses. The Phase II 220 MHz service is subject to spectrum auctions. In the 220 MHz Third
Report and Order
, we adopted a small business size standard for “small” and “very small” businesses for
purposes of determining their eligibility for special provisions such as bidding credits and installment
payments.102 This small business size standard indicates that a “small business” is an entity that, together
with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the
preceding three years.103 A “very small business” is an entity that, together with its affiliates and
controlling principals, has average gross revenues that do not exceed $3 million for the preceding three
years.104 The SBA has approved these small business size standards.105 Auctions of Phase II licenses
commenced on September 15, 1998, and closed on October 22, 1998.106 In the first auction, 908 licenses
were auctioned in three different-sized geographic areas: three nationwide licenses, 30 Regional
Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908 licenses
auctioned, 693 were sold. Thirty-nine small businesses won licenses in the first 220 MHz auction. The

98 See Lower and Upper Paging Band Auction Closes, Public Notice, 16 FCC Rcd 21821 (2002).
99 See Lower and Upper Paging Bands Auction Closes, Public Notice, 18 FCC Rcd 11154 (2003) The current
number of small or very small business entities that hold wireless licenses may differ significantly from the number
of such entities that won in spectrum auctions due to assignments and transfers of licenses in the secondary market
over time. In addition, some of the same small business entities may have won licenses in more than one auction.
100 See Lower and Upper Paging Bands Auction Closes, Public Notice, 25 FCC Rcd 18164 (2010).
101 See 13 C.F.R. § 121.201, NAICS code 517210.
102 See Amendment of Part 90 of the Commission’s Rules to Provide for the Use of the 220-222 MHz Band by the
Private Land Mobile Radio Service
, PR Docket No. 89-552, GN Docket No. 93-252, PP Docket No. 93-253, Third
Report and Order and Fifth Notice of Proposed Rulemaking, 12 FCC Rcd 10943, 11068-70, paras. 291-295 (1997)
(220 MHz Third Report and Order).
103 See id. at 11068–69, para. 291.
104 See id. at 11068–70, paras. 291–95.
105 See Letter from Aida Alvarez, SBA to D. Phythyon, Wireless Telecommunications Bureau, FCC (Jan. 6,
1998)(Alvarez to Phythyon 1998 Letter).
106 See Phase II 220 MHz Service Auction Closes, Public Notice, 14 FCC Rcd 605 (1998).

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second auction included 225 licenses: 216 EA licenses and nine EAG licenses. Fourteen companies
claiming small business status won 158 licenses.107
29.
Specialized Mobile Radio. The Commission awards small business bidding credits in
auctions for Specialized Mobile Radio (“SMR”) geographic area licenses in the 800 MHz and 900 MHz
bands to entities that had revenues of no more than $15 million in each of the three previous calendar
years.108 The Commission awards very small business bidding credits to entities that had revenues of no
more than $3 million in each of the three previous calendar years.109 The SBA has approved these small
business size standards for the 800 MHz and 900 MHz SMR Services.110 The Commission has held
auctions for geographic area licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction
was completed in 1996.111 Sixty bidders claiming that they qualified as small businesses under the $15
million size standard won 263 geographic area licenses in the 900 MHz SMR band.112 The 800 MHz
SMR auction for the upper 200 channels was conducted in 1997. Ten bidders claiming that they qualified
as small businesses under the $15 million size standard won 38 geographic area licenses for the upper 200
channels in the 800 MHz SMR band.113 A second auction for the 800 MHz band was conducted in 2002
and included 23 BEA licenses. One bidder claiming small business status won five licenses.114
30.
The auction of the 1,053 800 MHz SMR geographic area licenses for the General
Category channels was conducted in 2000. Eleven bidders won 108 geographic area licenses for the
General Category channels in the 800 MHz SMR band qualified as small businesses under the $15
million size standard.115 In an auction completed in 2000, a total of 2,800 Economic Area licenses in the
lower 80 channels of the 800 MHz SMR service were awarded.116 Of the 22 winning bidders, 19 claimed
small business status and won 129 licenses. Thus, combining all three auctions, 40 winning bidders for
geographic licenses in the 800 MHz SMR band claimed status as small business.
31.
In addition, there are numerous incumbent site-by-site SMR licensees and licensees with
extended implementation authorizations in the 800 and 900 MHz bands. We do not know how many
firms provide 800 MHz or 900 MHz geographic area SMR pursuant to extended implementation
authorizations, nor how many of these providers have annual revenues of no more than $15 million. One
firm has over $15 million in revenues. In addition, we do not know how many of these firms have 1,500
or fewer employees.117 We assume, for purposes of this analysis, that all of the remaining existing

107 See Phase II 220 MHz Service Spectrum Auction Closes, Public Notice, 14 FCC Rcd 11218 (1999).
108 47 C.F.R. §§ 90.810, 90.814(b), 90.912.
109 Id.
110 See Letter from Aida Alvarez, SBA, to Thomas Sugrue, Wireless Telecommunications Bureau, FCC (Aug. 10,
1999) (1999 Alvarez Letter).
111 FCC Announces Winning Bidders in the Auction of 1,020 Licenses to Provide 900 MHz SMR in Major Trading
Areas: Down Payments due April 22, 1996, FCC Form 600s due April 29, 1996
, Public Notice, 11 FCC Rcd 18599
(Wireless Tel. Bur. 1996).
112 Id.
113 See Correction to Public Notice DA 96-586 ‘FCC Announces Winning Bidders in the Auction of 1020 Licenses to
Provide 900 MHz SMR in Major Trading Areas’
, Public Notice, 11 FCC Rcd 18637 (Wireless Tel. Bur. 1996).
114 See Multi-Radio Service Auction Closes, Public Notice, 17 FCC Rcd 1446 (Wireless Tel. Bur. 2002).
115 See 800 MHz Specialized Mobile Radio (SMR) Service General Category (851-854 MHz) and Upper Band (861-
865 MHz) Auction Closes Winning Bidders Announced
, Public Notice, 15 FCC Rcd 17162 (Wireless Tel. Bur.
2000).
116 See 800 MHz SMR Service Lower 80 Channels Auction Closes; Winning Bidders Announced, Public Notice, 16
FCC Rcd 1736 (Wireless Tel. Bur. 2000).
117 See generally 13 C.F.R. § 121.201, NAICS code 517210.

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extended implementation authorizations are held by small entities, as that small business size standard is
approved by the SBA.
32.
Broadband Radio Service and Educational Broadband Service. Broadband Radio
Service systems, previously referred to as Multipoint Distribution Service (“MDS”) and Multichannel
Multipoint Distribution Service (“MMDS”) systems, and “wireless cable,” transmit video programming
to subscribers and provide two-way high speed data operations using the microwave frequencies of the
Broadband Radio Service (“BRS”) and Educational Broadband Service (“EBS”) (previously referred to as
the Instructional Television Fixed Service (“ITFS”)).118 In connection with the 1996 BRS auction, the
Commission established a small business size standard as an entity that had annual average gross
revenues of no more than $40 million in the previous three calendar years.119 The BRS auctions resulted
in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (“BTAs”). Of the
67 auction winners, 61 met the definition of a small business. BRS also includes licensees of stations
authorized prior to the auction. At this time, we estimate that of the 61 small business BRS auction
winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA
authorizations, there are approximately 392 incumbent BRS licensees that are considered small entities.120
After adding the number of small business auction licensees to the number of incumbent licensees not
already counted, we find that there are currently approximately 440 BRS licensees that are defined as
small businesses under either the SBA or the Commission’s rules. The Commission has adopted three
levels of bidding credits for BRS: (i) a bidder with attributed average annual gross revenues that exceed
$15 million and do not exceed $40 million for the preceding three years (small business) is eligible to
receive a 15 percent discount on its winning bid; (ii) a bidder with attributed average annual gross
revenues that exceed $3 million and do not exceed $15 million for the preceding three years (very small
business) is eligible to receive a 25 percent discount on its winning bid; and (iii) a bidder with attributed
average annual gross revenues that do not exceed $3 million for the preceding three years (entrepreneur)
is eligible to receive a 35 percent discount on its winning bid.121 In 2009, the Commission conducted
Auction 86, which offered 78 BRS licenses.122 Auction 86 concluded with ten bidders winning 61
licenses.123 Of the ten, two bidders claimed small business status and won four licenses; one bidder
claimed very small business status and won three licenses; and two bidders claimed entrepreneur status
and won six licenses.
33.
In addition, the SBA’s Cable Television Distribution Services small business size
standard is applicable to EBS. There are presently 2,032 EBS licensees. All but 100 of these licenses are

118 Amendment of Parts 21 and 74 of the Commission’s Rules with Regard to Filing Procedures in the Multipoint
Distribution Service and in the Instructional Television Fixed Service and Implementation of Section 309(j) of the
Communications Act – Competitive Bidding
, MM Docket No. 94-131 and PP Docket No. 93-253, Report and Order,
10 FCC Rcd 9589, 9593, para. 7 (1995).
119 47 C.F.R. § 21.961(b)(1).
120 47 U.S.C. § 309(j). Hundreds of stations were licensed to incumbent MDS licensees prior to implementation of
Section 309(j) of the Communications Act of 1934, 47 U.S.C. § 309(j). For these pre-auction licenses, the
applicable standard is SBA’s small business size standard.
121 47 C.F.R. § 27.1218. See also Auction of Broadband Radio Service (BRS) Licenses, Scheduled for October 27,
2009, Notice and Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for
Auction 86
, Public Notice, 24 FCC Rcd 8277, 8296 (2009)(Auction 86 Procedures Public Notice).
122 Auction 86 Procedures Public Notice, 24 FCC Rcd at 8280.
123 Auction of Broadband Radio Service Licenses Closes, Winning Bidders Announced for Auction 86, Down
Payments Due November 23, 2009, Final Payments Due December 8, 2009, Ten-Day Petition to Deny Period
,
Public Notice, 24 FCC Rcd 13572 (Wireless Tel. Bur. 2009).

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held by educational institutions. Educational institutions are included in this analysis as small entities.124
Thus, we estimate that at least 1,932 licensees are small businesses. Since 2007, Cable Television
Distribution Services have been defined within the broad economic census category of Wired
Telecommunications Carriers; that category is defined as follows: “This industry comprises
establishments primarily engaged in operating and/or providing access to transmission facilities and
infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based on a single technology or a
combination of technologies.”125 The SBA defines a small business size standard for this category as any
such firms having 1,500 or fewer employees. The SBA has developed a small business size standard for
this category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau
data for 2007, there were a total of 955 firms in this previous category that operated for the entire year.126
Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of
1000 employees or more.127 Thus, under this size standard, the majority of firms can be considered small
entities that may be affected by rules adopted pursuant to the Notice.
34.
Lower 700 MHz Band Licenses. The Commission previously adopted criteria for
defining three groups of small businesses for purposes of determining their eligibility for special
provisions such as bidding credits.128 The Commission defined a “small business” as an entity that,
together with its affiliates and controlling principals, has average gross revenues not exceeding $40
million for the preceding three years.129 A “very small business” is defined as an entity that, together
with its affiliates and controlling principals, has average gross revenues that are not more than $15 m

illion
for the preceding three years.130 Additionally, the Lower 700 MHz Band had a third category
all
of sm
business status for Metropolitan/Rural Service Area (“MSA/RSA”) licenses, identified as “entrepreneur”
and defined as an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $3 million for the preceding three years.131 The SBA approved these
small size standards.132 The Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in each of the six Economic Area
Groupings (EAGs)). Of the 740 licenses available for auction, 484 licenses were sold to 102 winning
bidders.133 Seventy-two of the winning bidders claimed small business, very small business or
entrepreneur status and won a total of 329 licenses.134 The Commission conducted a second Lower 700
MHz Band auction in 2003 that included 256 licenses: Five EAG licenses and 476 Cellular Market Area

124 The term “small entity” within SBREFA applies to small organizations (nonprofits) and to small governmental
jurisdictions (cities, counties, towns, townships, villages, school districts, and special districts with populations of
less than 50,000). 5 U.S.C. §§ 601(4)–(6). We do not collect annual revenue data on EBS licensees.
125 U.S. Census Bureau, 2007 NAICS Definitions, “517110 – Wired Telecommunications Carriers” (partial
definition); available at http://www.census.gov/eos/naics/2007/def/ND517110,HTM#N517110.
126 U.S. Census Bureau, 2007 Economic Census, Subject Series; Information, Table 5, Employment size of Firms
for the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
127 See id.
128 See Reallocation and Service Rules for the 698-746 MHz Spectrum Band (Television Channels 52–59), GN
Docket No. 01-74, Report and Order, 17 FCC Rcd 1022 (2002) (Channels 52–59 Report and Order).
129 See Channels 52-59 Report and Order, 17 FCC Rcd at 1087–88, para. 172.
130 See id.
131 See id. at 1088, para. 173.
132 See 1999 Alvarez Letter.
133 See Lower 700 MHz Band Auction Closes, Public Notice, 17 FCC Rcd 17272 (Wireless Tel. Bur. 2002).
134 Id.

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licenses.135 Seventeen winning bidders claimed small or very small business status and won 60 licenses,
and nine winning bidders claimed entrepreneur status and won 154 licenses.136 In 2005, the Commission
completed an auction of five licenses in the Lower 700 MHz Band, designated Auction 60. There were
three winning bidders for five licenses. All three winning bidders claimed small business status.137
35.
In 2007, the Commission reexamined its rules governing the 700 MHz band in the 700
MHz Second Report and Order.138 The 700 MHz Second Report and Order revised the band plan for the
commercial (including Guard Band) and public safety spectrum, adopted services rules, including
stringent build-out requirements, an open platform requirement on the C Block, and a requirement on the
D Block licensee to construct and operate a nationwide, interoperable wireless broadband network for
public safety users.139 An auction of A, B and E block licenses in the Lower 700 MHz band was held in
2008.140 Twenty winning bidders claimed small business status (those with attributable average annual
gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years).
Thirty-three winning bidders claimed very small business status (those with attributable average annual
gross revenues that do not exceed $15 million for the preceding three years). In 2011, the Commission
conducted Auction 92, which offered 16 Lower 700 MHz band licenses that had been made available in
Auction 73 but either remained unsold or were licenses on which a winning bidder defaulted. Two of the
seven winning bidders in Auction 92 claimed very small business status, winning a total of four
licenses.141
36.
Upper 700 MHz Band Licenses. In the 700 MHz Second Report and Order, the
Commission revised its rules regarding Upper 700 MHz band licenses.142 In 2008, the Commission
conducted Auction 73 in which C and D block licenses in the Upper 700 MHz band were available.143
Three winning bidders claimed very small business status (those with attributable average annual gross
revenues that do not exceed $15 million for the preceding three years).144

135 See Lower 700 MHz Band Auction Closes, Public Notice, 18 FCC Rcd 11873 (Wireless Tel. Bur. 2003).
136 See id.
137 Auction of Lower 700 MHz Band Licenses Closes, Winning Bidders Announced for Auction No. 60, Public
Notice, 20 FCC Rcd 13424 (Wireless Tel. Bur. 2005).
138 Service Rules for the 698–746, 747–762 and 777–792 MHz Band, WT Docket No. 06-150, Revision of the
Commission’s Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, Section 68.4(a) of the
Commission’s Rules Governing Hearing Aid-Compatible Telephone, Biennial Regulatory Review – Amendment of
Parts 1, 22, 24, 27, and 90 to Streamline and Harmonize Various Rules Affecting Wireless Radio Services, Former
Nextel Communications, Inc. Upper 700 MHz Guard Band Licenses and Revisions to Part 27 of the Commission’s
Rules, Implementing a Nationwide, Broadband Interoperable Public Safety Network in the 700 MHz Band,
Development of Operational, Technical and Spectrum Requirements for Meeting Federal, State, and Local Public
Safety Communications Requirements Through the Year 2010
, CC Docket No. 94-102, WT Docket Nos. 96-86, 01-
309, 03-264, 06-169, PS Docket No. 06-229, Second Report and Order, 22 FCC Rcd 15289 (2007) (700 MHz
Second Report and Order
).
139 Id.
140 See Auction of 700 MHz Band Licenses Closes, Public Notice, 23 FCC Rcd 4572 (Wireless Tel. Bur. 2008) (700
MHz Band Auction Closes Public Notice
).
141 See Auction of 700 MHz Band Licenses Closes, Winning Bidders Announced for Auction 92, Down Payments and
FCC Forms 601 and 602 Due August 11, 2011, Final Payments Due August 25, 2011, Ten-Day Petition to Deny
Period
, Public Notice, 26 FCC Rcd 10494 (Wireless Tel. Bur. 2011).
142 See 700 MHz Second Report and Order, 22 FCC Rcd 15289.
143 See 700 MHz Band Auction Closes Public Notice at 4572.
144 Id.

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37.
700 MHz Guard Band Licenses. In the 700 MHz Guard Band Order, we adopted a small
business size standard for “small businesses” and “very small businesses” for purposes of determining
their eligibility for special provisions such as bidding credits and installment payments.145 A “small
business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues not exceeding $40 million for the preceding three years.146 Additionally, a “very small
business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $15 million for the preceding three years.147 An auction of 52 Major
Economic Area (MEA) licenses commenced on September 6, 2000, and closed on September 21, 2000.148
Of the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small
businesses that won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses
commenced on February 13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned
were sold to three bidders. One of these bidders was a small business that won a total of two licenses.149
38.
Cellular Radiotelephone Service. Auction 77 was held to resolve one group of mutually
exclusive applications for Cellular Radiotelephone Service licenses for unserved areas in New Mexico.150
Bidding credits for designated entities were not available in Auction 77.151 In 2008, the Commission
completed the closed auction of one unserved service area in the Cellular Radiotelephone Service,
designated as Auction 77. Auction 77 concluded with one provisionally winning bid for the unserved
area totaling $25,002.152
39.
Private Land Mobile Radio (PLMR). PLMR systems serve an essential role in a range of
industrial, business, land transportation, and public safety activities. These radios are used by companies
of all sizes operating in all U.S. business categories, and are often used in support of the licensee’s
primary (non-telecommunications) business operations. For the purpose of determining whether a
licensee of a PLMR system is a small business as defined by the SBA, we use the broad census category,
Wireless Telecommunications Carriers (except Satellite). This definition provides that a small entity is
any such entity employing no more than 1,500 persons.153 The Commission does not require PLMR
licensees to disclose information about number of employees, so the Commission does not have
information that could be used to determine how many PLMR licensees constitute small entities under
this definition. We note that PLMR licensees generally use the licensed facilities in support of other
business activities, and therefore, it would also be helpful to assess PLMR licensees under the standards
applied to the particular industry subsector to which the licensee belongs.154

145 See Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules,
WT Docket No. 99-168, Second Report and Order, 15 FCC Rcd 5299 (2000) (700 MHz Guard Band Order).
146 See id. at 5343–45, paras. 106–10.
147 See id.
148 See 700 MHz Guard Band Auction Closes, Winning Bidders Announced, Public Notice, 15 FCC Rcd 18026
(Wireless Tel. Bur. 2000).
149 See 700 MHz Guard Band Auction Closes, Public Notice, 16 FCC Rcd 4590 (Wireless Tel. Bur. 2001).
150 See Closed Auction of Licenses for Cellular Unserved Service Area Scheduled for June 17, 2008, Notice and
Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for Auction 77,
Public
Notice, 23 FCC Rcd 6670 (Wireless Tel. Bur. 2008).
151 Id. at 6685.
152 See Auction of Cellular Unserved Service Area License Closes, Winning Bidder Announced for Auction 77,
Public Notice, 23 FCC Rcd 9501 (Wireless Tel. Bur. 2008).
153 See 13 C.F.R. § 121.201, NAICS code 517210.
154 See generally 13 C.F.R. § 121.201.

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40.
As of March 2010, there were 424,162 PLMR licensees operating 921,909 transmitters in
the PLMR bands below 512 MHz. We note that any entity engaged in a commercial activity is eligible to
hold a PLMR license, and that any revised rules in this context could therefore potentially impact small
entities covering a great variety of industries.
41.
Rural Radiotelephone Service. The Commission has not adopted a size standard for
small businesses specific to the Rural Radiotelephone Service.155 A significant subset of the Rural
Radiotelephone Service is the Basic Exchange Telephone Radio System (“BETRS”).156 In the present
context, we will use the SBA’s small business size standard applicable to Wireless Telecommunications
Carriers (except Satellite), i.e., an entity employing no more than 1,500 persons.157 There are
approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that
there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected
by rules proposed in the Notice.
42.
Air-Ground Radiotelephone Service. The Commission has not adopted a small business
size standard specific to the Air-Ground Radiotelephone Service.158 We will use SBA’s small business
size standard applicable to Wireless Telecommunications Carriers (except Satellite), i.e., an entity
employing no more than 1,500 persons.159 There are approximately 100 licensees in the Air-Ground
Radiotelephone Service, and we estimate that almost all of them qualify as small under the SBA small
business size standard and may be affected by rules adopted pursuant to the Notice.
43.
Aviation and Marine Radio Services. Small businesses in the aviation and marine radio
services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency
position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has
not developed a small business size standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business size standard for the category
Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees.160 Census
data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that
operated that year.161 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than
100 employees. Most applicants for recreational licenses are individuals. Approximately 581,000 ship
station licensees and 131,000 aircraft station licensees operate domestically and are not subject to the
radio carriage requirements of any statute or treaty. For purposes of our evaluations in this analysis, we
estimate that there are up to approximately 712,000 licensees that are small businesses (or individuals)
under the SBA standard. In addition, between December 3, 1998 and December 14, 1998, the
Commission held an auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship
transmit) and 161.775-162.0125 MHz (coast transmit) bands. For purposes of the auction, the
Commission defined a “small” business as an entity that, together with controlling interests and affiliates,
has average gross revenues for the preceding three years not to exceed $15 million dollars.162 In addition,
a “very small” business is one that, together with controlling interests and affiliates, has average gross

155 The service is defined in 47 C.F.R. § 22.99.
156 BETRS is defined in 47 C.F.R. §§ 22.757 and 22.759.
157 13 C.F.R. § 121.201, NAICS code 517210.
158 See 47 C.F.R. § 22.99.
159 See 13 C.F.R. § 121.201, NAICS code 517210.
160 See id.
161 2007 Economic Census Report Employment Size of Firms, at NAICS Code 517210.
162 See generally Amendment of the Commission’s Rules Concerning Maritime Communications, PR Docket No. 92-
257, Third Report and Order and Memorandum Opinion and Order, 13 FCC Rcd 19853, 19884–88 paras. 64–73
(1998).

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revenues for the preceding three years not to exceed $3 million dollars.163 There are approximately
10,672 licensees in the Marine Coast Service, and the Commission estimates that almost all of them
qualify as “small” businesses under the above special small business size standards and may be affected
by rules adopted pursuant to the Notice.
44.
Fixed Microwave Services. Fixed microwave services include common carrier,164 private
operational-fixed,165 and broadcast auxiliary radio services.166 At present, there are approximately 22,015
common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast auxiliary
radio licensees in the microwave services. The Commission has not created a size standard for a small
business specifically with respect to fixed microwave services. For purposes of this analysis, the
Commission uses the SBA small business size standard for Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees.167 The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and thus is unable at this time to
estimate with greater precision the number of fixed microwave service licensees that would qualify as
small business concerns under the SBA’s small business size standard. Consequently, the Commission
estimates that there are up to 22,015 common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the microwave services that may be small and
may be affected by rules adopted pursuant to the Notice. We note, however, that the common carrier
microwave fixed licensee category includes some large entities.
45.
Offshore Radiotelephone Service. This service operates on several UHF television
broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the
Gulf of Mexico.168 There are presently approximately 55 licensees in this service. We are unable to
estimate at this time the number of licensees that would qualify as small under the SBA’s small business
size standard for Cellular and Other Wireless Telecommunications Carriers (except Satellite). Under that
SBA small business size standard, a business is small if it has 1,500 or fewer employees.169 Census data
for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that
operated that year.170 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than
100 employees. Thus under this category and the associated small business size standard, the majority of
firms can be considered small.
46.
39 GHz Service. The Commission created a special small business size standard for 39
GHz licenses – an entity that has average gross revenues of $40 million or less in the three previous

163 See id.
164 See 47 C.F.R. §§ 101 et seq. (formerly, Part 21 of the Commission’s Rules) for common carrier fixed microwave
services (except Multipoint Distribution Service).
165 Persons eligible under parts 80 and 90 of the Commission’s Rules can use Private Operational-Fixed Microwave
services. See 47 C.F.R. Parts 80 and 90. Stations in this service are called operational-fixed to distinguish them
from common carrier and public fixed stations. Only the licensee may use the operational-fixed station, and only for
communications related to the licensee’s commercial, industrial, or safety operations.
166 Auxiliary Microwave Service is governed by Part 74 of Title 47 of the Commission’s Rules. See 47 C.F.R. Part
74. This service is available to licensees of broadcast stations and to broadcast and cable network entities.
Broadcast auxiliary microwave stations are used for relaying broadcast television signals from the studio to the
transmitter, or between two points such as a main studio and an auxiliary studio. The service also includes mobile
television pickups, which relay signals from a remote location back to the studio.
167 See 13 C.F.R. § 121.201, NAICS code 517210.
168 This service is governed by Subpart I of Part 22 of the Commission’s Rules. See 47 C.F.R. §§ 22.1001–1037,
NAICS code 517210.
169 See id.
170 2007 Economic Census Report Employment Size of Firms, at NAICS Code 517210.

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calendar years.171 An additional size standard for “very small business” is: an entity that, together with
affiliates, has average gross revenues of not more than $15 million for the preceding three calendar
years.172 The SBA has approved these small business size standards.173 The auction of the 2,173 39 GHz
licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business
status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are
small entities that may be affected by rules adopted pursuant to the Notice.
47.
Local Multipoint Distribution Service. Local Multipoint Distribution Service (“LMDS”)
is a fixed broadband point-to-multipoint microwave service that provides for two-way video
telecommunications.174 The auction of the 986 LMDS licenses began and closed in 1998. The
Commission established a small business size standard for LMDS licenses as an entity that has average
gross revenues of less than $40 million in the three previous calendar years.175 An additional small
business size standard for “very small business” was added as an entity that, together with its affiliates,
has average gross revenues of not more than $15 million for the preceding three calendar years.176 The
SBA has approved these small business size standards in the context of LMDS auctions.177 There were
93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very
small business bidders won approximately 277 A Block licenses and 387 B Block licenses. In 1999, the
Commission re-auctioned 161 licenses; there were 32 small and very small businesses winning that won
119 licenses.
48.
218–219 MHz Service. The first auction of 218–219 MHz spectrum resulted in 170
entities winning licenses for 594 Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses, 557
were won by entities qualifying as a small business. For that auction, the small business size standard
was an entity that, together with its affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2 million in annual profits each year
for the previous two years.178 In the 218–219 MHz Report and Order and Memorandum Opinion and
Order
, we established a small business size standard for a “small business” as an entity that, together with
its affiliates and persons or entities that hold interests in such an entity and their affiliates, has average
annual gross revenues not to exceed $15 million for the preceding three years.179 A “very small business”
is defined as an entity that, together with its affiliates and persons or entities that hold interests in such an

171 See Amendment of the Commission’s Rules Regarding the 37.0-38.6 GHz and 38.6-40.0 GHz Bands, ET Docket
No. 95-183, PP Docket No. 93-253, Report and Order, 12 FCC Rcd 18600, 18661–64, paras. 149–51 (1997).
172 See id.
173 See Letter from Aida Alvarez, SBA to Kathleen O’Brien Ham, Auctions and Industry Analysis Division,
Wireless Telecommunications Bureau, FCC (dated Feb. 4, 1998).
174 See Rulemaking to Amend Parts 1, 2, 21, 25, of the Commission’s Rules to Redesignate the 27.5-29.5 GHz
Frequency Band, Reallocate the 29.5-30.5 Frequency Band, to Establish Rules and Policies for Local Multipoint
Distribution Service and for Fixed Satellite Services
, CC Docket No. 92-297, Second Report and Order, Order on
Reconsideration, and Fifth Notice of Proposed Rule Making, 12 FCC Rcd 12545, 12689-90, para. 348 (1997)
(LMDS Second Report and Order).
175 See id. at 12689–90, para. 348.
176 See id.
177 See 1998 Alvarez to Phythyon Letter.
178 See generally Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket
No. 93-253, Fourth Report and Order, 9 FCC Rcd 2330 (1994).
179 See generally Amendment of Part 95 of the Commission’s Rules to Provide Regulatory Flexibility in the 218–219
MHz Service
, WT Docket No. 98-169, Report and Order and Memorandum Opinion and Order, 15 FCC Rcd 1497
(1999) (218-219 MHz Report and Order and Memorandum Opinion and Order).

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entity and its affiliates, has average annual gross revenues not to exceed $3 million for the preceding three
years.180 These size standards will be used in future auctions of 218–219 MHz spectrum.
49.
2.3 GHz Wireless Communications Services. This service can be used for fixed, mobile,
radiolocation, and digital audio broadcasting satellite uses. The Commission defined “small business” for
the wireless communications services (“WCS”) auction as an entity with average gross revenues of $40
million for each of the three preceding years, and a “very small business” as an entity with average gross
revenues of $15 million for each of the three preceding years.181 The SBA has approved these
definitions.182 The Commission auctioned geographic area licenses in the WCS service. In the auction,
which was conducted in 1997, there were seven bidders that won 31 licenses that qualified as very small
business entities, and one bidder that won one license that qualified as a small business entity.
50.
1670–1675 MHz Band. An auction for one license in the 1670–1675 MHz band was
conducted in 2003. The Commission defined a “small business” as an entity with attributable average
annual gross revenues of not more than $40 million for the preceding three years and thus would be
eligible for a 15 percent discount on its winning bid for the 1670–1675 MHz band license. Further, the
Commission defined a “very small business” as an entity with attributable average annual gross revenues
of not more than $15 million for the preceding three years and thus would be eligible to receive a 25
percent discount on its winning bid for the 1670–1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
51.
3650–3700 MHz band. In March 2005, the Commission released a Report and Order
and Memorandum Opinion and Order that provides for nationwide, non-exclusive licensing of terrestrial
operations, utilizing contention-based technologies, in the 3650 MHz band (i.e., 3650–3700 MHz).183 As
of April 2010, more than 1270 licenses have been granted and more than 7433 sites have been registered.
The Commission has not developed a definition of small entities applicable to 3650–3700 MHz band
nationwide, non-exclusive licensees. However, we estimate that the majority of these licensees are
Internet Access Service Providers (ISPs) and that most of those licensees are small businesses.
52.
24 GHz – Incumbent Licensees. This analysis may affect incumbent licensees who were
relocated to the 24 GHz band from the 18 GHz band, and applicants who wish to provide services in the
24 GHz band. For this service, the Commission uses the SBA small business size standard of “Cellular
and Other Wireless Telecommunications Carriers (except satellite),” which is 1,500 or fewer
employees.184 We believe that there are only two licensees in the 24 GHz band that were relocated from
the 18 GHz band, Teligent185 and TRW, Inc. It is our understanding that Teligent and its related
companies have fewer than 1,500 employees, though this may change in the future. TRW is not a small
entity. Thus, only one incumbent licensee in the 24 GHz band is a small business entity.
53.
24 GHz – Future Licensees. With respect to new applicants in the 24 GHz band, the size
standard for “small business” is an entity that, together with controlling interests and affiliates, has

180 See id.
181 Amendment of the Commission’s Rules to Establish Part 27, the Wireless Communications Service (WCS), GN
Docket No. 96-228, Report and Order, 12 FCC Rcd 10785, 10879, para. 194 (1997).
182 See 1998 Alvarez Letter.
183 The service is defined in section 90.1301 et seq. of the Commission’s rules, 47 C.F.R. §1301 et seq.
184 See 13 C.F.R. § 121.201, NAICS code 517210.
185 Teligent acquired the DEMS licenses of FirstMark, the only licensee other than TRW in the 24 GHz band whose
license has been modified to require relocation to the 24 GHz band.

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average annual gross revenues for the three preceding years not in excess of $15 million.186 “Very small
business” in the 24 GHz band is an entity that, together with controlling interests and affiliates, has
average gross revenues not exceeding $3 million for the preceding three years.187 The SBA has approved
these small business size standards.188 These size standards will apply to a future 24 GHz license auction,
if held.
3.

International Service Providers

54.
Satellite Telecommunications. Since 2007, the SBA has recognized satellite firms within
this revised category, with a small business size standard of $15 million.189 The most current Census
Bureau data are from the economic census of 2007, and we will use those figures to gauge the prevalence
of small businesses in this category. Those size standards are for the two census categories of “Satellite
Telecommunications” and “Other Telecommunications.” Under the “Satellite Telecommunications”
category, a business is considered small if it had $15 million or less in average annual receipts.190 Under
the “Other Telecommunications” category, a business is considered small if it had $25 million or less in
average annual receipts.191
55.
The first category of Satellite Telecommunications “comprises establishments primarily
engaged in providing point-to-point telecommunications services to other establishments in the
telecommunications and broadcasting industries by forwarding and receiving communications signals via
a system of satellites or reselling satellite telecommunications.”192 For this category, Census Bureau data
for 2007 show that there were a total of 512 firms that operated for the entire year.193 Of this total, 464
firms had annual receipts of under $10 million, and 18 firms had receipts of $10 million to
$24,999,999.194 Consequently, we estimate that the majority of Satellite Telecommunications firms are
small entities that might be affected by rules adopted pursuant to the Notice.
56.
The second category of Other Telecommunications “primarily engaged in providing
specialized telecommunications services, such as satellite tracking, communications telemetry, and radar
station operation. This industry also includes establishments primarily engaged in providing satellite
terminal stations and associated facilities connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications from, satellite systems.
Establishments providing Internet services or voice over Internet protocol (VoIP) services via client-
supplied telecommunications connections are also included in this industry.”195 For this category, Census
Bureau data for 2007 show that there were a total of 2,383 firms that operated for the entire year.196 Of

186 See Amendments to Parts 1, 2, 87 and 101 of the Commission’s Rules to License Fixed Services at 24 GHz, WT
Docket No. 99-327, Report and Order, 15 FCC Rcd 16934, 16967, para. 77 (2000) (24 GHz Amendment Order); see
also
47 C.F.R. § 101.538(a)(2).
187 See 24 GHz Amendment Order, 15 FCC Rcd at 16967 para. 77; see also 47 C.F.R. § 101.538(a)(1).
188 See Letter from Gary M. Jackson, SBA to Margaret W. Wiener, Auctions and Industry Analysis Division,
Wireless Telecommunications Bureau, FCC (dated July 28, 2000).
189 See 13 C.F.R. § 121.201, NAICS code 517410.
190 Id.
191 See 13 C.F.R. § 121.201, NAICS code 517919.
192 U.S. Census Bureau, 2007 NAICS Definitions, “517410 – Satellite Telecommunications.”
193 See 13 C.F.R. § 121.201, NAICS code 517410.
194 See id. An additional 38 firms had annual receipts of $25 million or more.
195 U.S. Census Bureau, 2007 NAICS Definitions, “517919 Other Telecommunications,” available at
http://www.census.gov/naics/2007/def/ND517919.HTM.
196 See 13 C.F.R. § 121.201, NAICS code 517919.

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this total, 2,346 firms had annual receipts of under $25 million.197 Consequently, we estimate that the
majority of Other Telecommunications firms are small entities that might be affected by our action.
4.

Cable and OVS Operators

57.
Cable and Other Program Distribution. Since 2007, these services have been defined
within the broad economic census category of Wired Telecommunications Carriers; that category is
defined as follows: “This industry comprises establishments primarily engaged in operating and/or
providing access to transmission facilities and infrastructure that they own and/or lease for the
transmission of voice, data, text, sound, and video using wired telecommunications networks.
Transmission facilities may be based on a single technology or a combination of technologies.”198 The
SBA has developed a small business size standard for this category, which is: all such firms having 1,500
or fewer employees.199 According to Census Bureau data for 2007, there were a total of 955 firms in this
previous category that operated for the entire year.200 Of this total, 939 firms employed 999 or fewer
employees, and 16 firms employed 1000 employees or more.201 Thus, under this size standard, the
majority of firms can be considered small and may be affected by rules adopted pursuant to the Notice.
58.
Cable Companies and Systems. The Commission has developed its own small business
size standards, for the purpose of cable rate regulation. Under the Commission’s rules, a “small cable
company” is one serving 400,000 or fewer subscribers, nationwide.202 Industry data indicate that, of
1,076 cable operators nationwide, all but 11 are small under this size standard.203 In addition, under the
Commission’s rules, a “small system” is a cable system serving 15,000 or fewer subscribers.204 Industry
data indicate that, of 1,076 cable operators nationwide, all but eleven are small under this size standard.205
In addition, under the Commission’s rules, a “small system” is a cable system serving 15,000 or fewer
subscribers.206 Industry data indicate that, of 7,208 systems nationwide, 6,139 systems have under 10,000
subscribers. Thus, under this second size standard, most cable systems have 10,000 – 19,999

197 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007, NAICS Code 517919” (issued Nov. 2010).
198 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial definition)
available at http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
199 See 13 C.F.R. § 121.201, NAICS code 517110.
200 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007, NAICS Code 517919” (issued Nov. 2010).
201 See id.
202 See 47 C.F.R. § 76.901(e). The Commission determined that this size standard equates approximately to a size
standard of $100 million or less in annual revenues. See Implementation of Sections of the 1992 Cable Television
Consumer Protection and Competition Act: Rate Regulation
, MM Docket Nos. 92-266, 93-215, Sixth Report and
Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7408 para. 28 (1995).
203 These data are derived from R.R. Bowker, BROADCASTING & CABLE YEARBOOK 2006, “Top 25
Cable/Satellite Operators,” pgs. A-8 & C-2 (data current as of June 30, 2005); WARREN COMMUNICATIONS
NEWS, TELEVISION & CABLE FACTBOOK 2006, “Ownership of Cable Systems in the United States,” pgs. D-
1805 to D-1857.
204 See 47 C.F.R. § 76.901(c).
205 These data are derived from R.R. Bowker, BROADCASTING & CABLE YEARBOOK 2006, “Top 25
Cable/Satellite Operators,” pgs. A-8 & C-2 (data current as of Jun. 30, 2005); WARREN COMMUNICATIONS
NEWS, TELEVISION & CABLE FACTBOOK 2006, “Ownership of Cable Systems in the United States,” pgs. D-
1805 - D-1857.
206 See 47 C.F.R. § 76.901(c).

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subscribers.207 Thus, under this second size standard, most cable systems are small and may be affected
by rules adopted pursuant to the Notice.
59.
Cable System Operators. The Act also contains a size standard for small cable system
operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer
than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose
gross annual revenues in the aggregate exceed $250,000,000.”208 The Commission has determined that
an operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual
revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 m on in
illi
the aggregate.209 Industry data indicate that, of 1,076 cable operators nationwide, all but ten are small
under this size standard.210 We note that the Commission neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross annual revenues exceed $250
million,211 and therefore we are unable to estimate more accurately the number of cable system operators
that would qualify
standard.
as small under this size
60.
Open Video Services. The open video system (“OVS”) framework was established in
1996, and is one of four statutorily recognized options for the provision of video programming services
by local exchange carriers.212 The OVS framework provides opportunities for the distribution of video
programming other than through cable systems. Because OVS operators provide subscription services,213
OVS falls within the SBA small business size standard covering cable services, which is “Wired
Telecommunications Carriers.”214 The SBA has developed a small business size standard for this
category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau data
for 2007, there were a total of 955 firms in this previous category that operated for the entire year.215 Of
this total, 939 firms employed 999 or fewer employees, and 16 firms employed 1000 employees or
more.216 Thus, under this second size standard, most cable systems are small and may be affected by
rules adopted pursuant to the Notice. In addition, we note that the Commission has certified some OVS

207 WARREN COMMUNICATIONS NEWS, TELEVISION & CABLE FACTBOOK 2006, “Ownership of Cable
Systems in the United States,” pg. F-2 (data current as of Oct. 2005). The data do not include 718 systems for which
classifying data were not available.
208 47 U.S.C. § 543(m)(2); see also 47 C.F.R. § 76.901(f) & nn. 1-3.
209 47 C.F.R. § 76.901(f); see FCC Announces New Subscriber Count for the Definition of Small Cable Operator,
Public Notice, 16 FCC Rcd 2225 (Cable Serv. Bur. 2001).
210 These data are derived from R.R. Bowker, BROADCASTING & CABLE YEARBOOK 2006, “Top 25
Cable/Satellite Operators,” pgs. A-8 & C-2 (data current as of June 30, 2005); WARREN COMMUNICATIONS
NEWS, TELEVISION & CABLE FACTBOOK 2006, “Ownership of Cable Systems in the United States,” pgs. D-
1805 - D-1857.
211 The Commission does receive such information on a case-by-case basis if a cable operator appeals a local
franchise authority’s finding that the operator does not qualify as a small cable operator pursuant to § 76.901(f) of
the Commission’s rules.
212 47 U.S.C. § 571(a)(3)–(4). See Annual Assessment of the Status of Competition in the Market for the Delivery of
Video Programming
, MB Docket No. 06-189, Thirteenth Annual Report, 24 FCC Rcd 542, 606 para. 135 (2009)
(Thirteenth Annual Cable Competition Report).
213 See 47 U.S.C. § 573.
214 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial definition)
available at http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
215 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007, NAICS Code 517919” (issued Nov. 2010).
216 See id.

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operators, with some now providing service.217 Broadband service providers (“BSPs”) are currently the
only significant holders of OVS certifications or local OVS franchises.218 The Commission does not have
financial or employment information regarding the entities authorized to provide OVS, some of which
may not yet be operational. Thus, again, at least some of the OVS operators may qualify as small entities.
5.

Internet Service Providers

61.
Internet Service Providers. Since 2007, these services have been defined within the
broad economic census category of Wired Telecommunications Carriers; that category is defined as
follows: “This industry comprises establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data,
text, sound, and video using wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.”219 The SBA has developed a small business
size standard of 1,500 or fewer employees.220 According to Census Bureau data from 2007, there were
3,188 firms in this category, total, that operated for the entire year.221 Of this total, 3,144 firms had
employment of 999 or fewer employees, and 44 firms had employment of 1000 employees or more.222
Consequently, we estimate that the majority of these firms are small entities that may be affected by rules
adopted pursuant to this Notice.
6. Other

Internet-Related

Entities

62.
Internet Publishing and Broadcasting and Web Search Portals. Our action may pertain
to interconnected VoIP services, which could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled
services. The Commission has not adopted a size standard for entities that create or provide these types
of services or applications. However, the Census Bureau has identified firms that “primarily engaged in
1) publishing and/or broadcasting content on the Internet exclusively or 2) operating Web sites that use a
search engine to generate and maintain extensive databases of Internet addresses and content in an easily
searchable format (and known as Web search portals).”223 The SBA has developed a small business size
standard for this category, which is: all such firms having 500 or fewer employees.224 According to
Census Bureau data for 2007, there were 2,705 firms in this category that operated for the entire year.225
Of this total, 2,682 firms employed 499 or fewer employees, and 23 firms employed 500 employees or

217 A list of OVS certifications may be found at http://www.fcc.gov/mb/ovs/csovscer.html.
218 See Thirteenth Annual Cable Competition Report, 24 FCC Rcd at 606-07 para. 135. BSPs are newer firms that
are building state-of-the-art, facilities-based networks to provide video, voice, and data services over a single
network.
219 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial definition)
available at http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
220 13 C.F.R. § 121.201, NAICS code 517110.
221 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007, NAICS Code 517919” (issued Nov. 2010).
222 See id.
223 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Employment Size of Firms
for the United States: 2007”, NAICS code 517110 (issued Nov. 2010).
224 See id.
225 U.S. Census Bureau, 2007 NAICS Definitions, “519130 Internet Publishing and Broadcasting and Web Search
Portals,” available at http://www.naics.com/censusfiles/ND519130.HTM.

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more.226 Consequently, we estimate that the majority of these firms are small entities that may be
affected by rules adopted pursuant to the Notice.
63.
Data Processing, Hosting, and Related Services. Entities in this category “primarily …
provid[e] infrastructure for hosting or data processing services.”227 The SBA has developed a small
business size standard for this category; that size standard is $25 million or less in average annual
receipts.228 According to Census Bureau data for 2007, there were 8,060 firms in this category that
operated for the entire year.229 Of these, 7,744 had annual receipts of under $24,999,999.230
Consequently, we estimate that the majority of these firms are small entities that may be affected by rules
adopted pursuant to the Notice.
64.
All Other Information Services. The Census Bureau defines this industry as including
“establishments primarily engaged in providing other information services (except news syndicates,
libraries, archives, Internet publishing and broadcasting, and Web search portals).”231 Our action pertains
to interconnected VoIP services, which could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled
services. The SBA has developed a small business size standard for this category; that size standard is
$7.0 million or less in average annual receipts.232 According to Census Bureau data for 2007, there were
367 firms in this category that operated for the entire year.233 Of these, 334 had annual receipts of under
$5.0 million, and an additional 11 firms had receipts of between $5 million and $9,999,999.
Consequently, we estimate that the majority of these firms are small entities that may be affected by rules
adopted pursuant to the Notice.
7. Other

Entities

65.
Responsible Organizations (RespOrgs). Toll-free numbers are assigned on a first-come,
first-served basis by entities referred to as “Responsible Organizations” or “RespOrgs.” These entities,
which may or may not be telephone companies, have access to the SMS/800 database, which contains
information regarding the status of all toll-free numbers. RespOrgs are certified by the SMS/800 database
administrator, which manages toll-free service.234 Most RespOrgs are telephone carriers or companies.
Other companies that apply for RespOrg status are enhanced voice mail providers, VoIP carriers, call
tracking and marketing analytics firms, or vanity number firms. Neither the Commission nor the SBA
has developed a small business size standard specifically for RespOrgs. There are 404 RespOrgs certified

226 See 13 C.F.R. § 121.201, NAICS code 519130.
227 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007”, NAICS code 519130” (issued Nov. 2010).
228 Id.
229 U.S. Census Bureau, 2007 NAICS Definitions, “518210 Data Processing, Hosting, and Related Services,”
available at http://www.naics.com/2007/def/NDEF518.HTM.
230 See 13 C.F.R. § 121.201, NAICS code 518210.
231 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 4, “Establishment and Firm
Size: Receipts Size of Firms for the United States: 2007”, NAICS code 519130” (issued Nov. 2010).
232 Id.
233 U.S. Census Bureau, 2007 NAICS Definitions, “519190 All Other Information Services,” available at
http://www.census.gov/naics/2007/def/ND519190.HTM.
234 FCC Fact Sheet, “What is a Toll-Free Number,” available at
http://www.fcc.gov/cgb/consumerfacts/tollfree.html.

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by SMS/800.235 Consequently, we estimate that there are not more than 404 RespOrgs that are small
entities.

D.

Description of Projected Reporting, Recordkeeping, and Other Compliance
Requirements for Small Entities

66.
The transition to a simplified contribution system could affect all telecommunications
providers, including small entities, and may include new administrative processes. The Commission
seeks comment on various reporting, recordkeeping, and other compliance requirements that may apply to
all telecommunications providers, including small entities. We seek comment on any costs and burdens
on small entities associated with the proposed rules, including data quantifying the extent of such costs or
burdens.
67.
Apportioning Revenues from Bundled Services. Under the current Fund contribution
system, revenues from telecommunications offerings are subject to contribution assessment while
revenues from information services and consumer-premises equipment (CPE) are excluded from the
contribution base. A telecommunications provider must therefore apportion its revenues between
telecommunications and non-telecommunications sources for purposes of contribution assessment.
Telecommunications providers can currently apportion their bundled revenues pursuant to two safe harbor
methods established by the Commission. In addition to the safe harbors, a telecommunications provider
could apportion its bundled revenues using any reasonable alternative method. In the Notice, we seek
comment on ways to simplify the apportionment of bundled offerings.236 We seek comment on a bright-
line rule that codifies a modified version of the two safe harbors.237 If adopted, this change would affect
how telecommunications providers apportion and report revenues from bundled services.
68.
Contributions for Services with an Interstate Telecommunications Component. We seek
comment on what revenues should be assessed to the extent we choose to exercise our permissive
authority over services that provide interstate telecommunications.238 We seek comment on whether we
could and should require contributions on the full retail revenues of an information service that provides
interstate telecommunications. We also seek comment on whether to assess only the telecommunications
(i.e., the transmission) component and, if so, how we would we determine what portion of the integrated
service revenues should be associated with the transmission component. We also ask whether we should
craft a rule, or safe harbor, that provides for assessment of a certain percentage of retail revenues of
information services with a telecommunications (transmission) component. If adopted, this change would
affect all providers of services that contain an interstate telecommunications component.
69.
Allocating Revenues Between Inter- and Intrastate Jurisdictions. We also seek comment
on whether the Act compels us to only assess a portion of revenues associated with services that operate
interstate, intrastate, or internationally. In the Notice, we seek comment on whether to (1) adopt a rule
that requires all providers subject to contributions to report and contribute on all revenues derived from
assessable services rather than require providers to allocate revenues between the interstate and intrastate
jurisdictions; (2) adopt a bright line rule for how companies should allocate revenues between
jurisdictions for broad categories of services; or (3) find that for USF contribution purposes, revenues
from such services should be reported as 100 percent interstate. If adopted, this change would affect how
telecommunications providers allocate and report mixed jurisdiction revenues.

235 See SMS/800 website, http://www.sms800.com (listing RespOrgs).
236 See supra Section V.A.1 (Apportioning Revenues from Bundled Services), paras. 101 – 113.
237 Id. at para. 106.
238 See supra Section V.A.1 (Apportioning Revenues from Bundled Services), paras. 101 – 113.

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70.
Contribution Obligations of Wholesalers and Their Customers. We seek comment on
modifying the existing Fund contribution methodology to assess value-added revenues rather than end-
user revenues.239 Under a value-added approach, each telecommunications provider in a service chain
would contribute based on the value it “adds” to the service. Alternatively, we seek comment on whether
we should mandate greater specificity in contributor certifications to their wholesalers. If adopted, this
change would affect how revenues are reported.
71.
Reporting Prepaid Calling Card Revenues. In the Notice, we seek comment on adopting
a rule to require prepaid calling card providers to report and contribute on all end-user revenues, and who
should be deemed the end user for purposes of such a rule.240 We seek comment on rules standardizing
the reporting of prepaid calling card revenues. We propose rules requiring all telecommunications
providers (as well as telecommunications carriers) to register with the Commission, and rules requiring
entities that provide telecommunications to others for resale to check the registration status of the their
customers.241 We believe these rules will provide reporting entities with enhanced certainty regarding
their contributions obligations. If adopted, this change would affect telecommunications providers that
are wholesalers and resellers of prepaid calling cards.
72.
International Telecommunications Providers. We seek comment on eliminating the
exemption for international-only providers and limited international revenues exemption (LIRE)-
qualifying providers.242 We also seek comment on modifying the LIRE exemption by requiring LIRE-
qualifying providers to contribute on at least a portion of its revenues. If adopted, this change would
affect international-only telecommunications providers and telecommunications providers who may have
previously relied on the LIRE exemption.
73.
Reforming the De Minimis Exemption. The Commission has authority to exempt a carrier
or class of carriers from Fund contribution requirements if their contributions would be de minimis.
Currently, de minimis status is determined on a providers’ annual contribution amount. In the Notice, we
seek comment on simplifying the exemption by basing it on a provider’s annual assessable revenues.
This should simplify the process by which entities may determine if they qualify for the de minimis
exception. If adopted, this change would affect de minimis telecommunications providers.
74.
Assessing Contributions Based on Connections. In this Notice, we seek comment on
whether we should adopt a contribution system based on connections.243 Under a connections-based
system, providers could be assessed based on the number, speed, or capacity of connections to a
communications network provided to customers. Providers would contribute a set amount per
connection, regardless of the revenues derived from that connection. We seek comment on whether a
connections-based approach would better meet our proposed goals of promoting efficiency, fairness, and
sustainability in the Fund, as well as other goals identified by commenters. If adopted, this change would
affect all telecommunications providers.
75.
Assessing Contributions Based on Numbers. We also seek comment on whether we
should adopt a contributions system based on numbers.244 Under a numbers-based system, in its simplest
form, providers would be assessed based on their count of North American Numbering Plan telephone
numbers. There would be a standard monthly assessment per telephone number, such as $1 per month,
with potentially higher and lower tiers for certain categories of numbers based on how these numbers are

239 See supra Section V.A.4 (Contributions Obligations of Wholesalers and Their Customers), paras 143 – 178.
240 See supra Section V.A.5 (Reporting Prepaid Calling Card Revenues), paras. 179 – 192.
241 Id.; see supra Section VI.F (Filer Registration and Deregistration), paras. 381 – 386.
242 See supra Section V.A.6 (International Telecommunications Providers), paras. 193 – 208.
243 See supra Section V.B (Assessing Contributions Based on Connections), paras. 219 – 283.
244 See supra Section V.C (Assessing Contributions Based on Numbers), paras. 284 – 341.

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assigned or used. The monthly assessment per number would be calculated by applying a formula based
on the USF demand requirement and the relevant count of numbers, however that term is defined. We
seek comment on whether a numbers-based approach would better meet our proposed goals of promoting
efficiency, fairness, and sustainability in the Fund, as well as other goals identified by commenters. If
adopted, this change would affect all telecommunications providers.
76.
Assessing Contributions Based on a Hybrid Methodology with a Numbers Component.
In this Notice, we also seek comment on whether we should consider a hybrid approach that combines a
telephone numbers component with a connections component.245 Under such an approach, providers
could be assessed a flat fee for each assessable NANP telephone number and assessed a fee based on the
connection for services not associated with a NANP telephone number. We seek comment on whether a
hybrid approach would better meet our proposed goals for reforming the contributions methodology. If
adopted, this change would affect all telecommunications providers.
77.
Pass-Through of USF Contributions as a Separate Line Item Charge. In this Notice, we
seek comment on ways to improve the transparency for customers relating to the amount of universal
service contribution charges that are being passed through by the providers to their customers. We seek
comment on whether to: (1) require greater clarity on customer bills regarding how the USF charge was
calculated; (2) require providers to disclose at initiation of service the amount of the quoted rate or
assessable units would be USF-assessable; and (3) if we were to adopt either of these rules, apply them to
all customers, or limit the rules to mass market customers. We seek comment on whether to prohibit
contributors from recovering contribution costs as a separate line item on the customer bill. We also seek
comment on whether we should take steps to ensure that contributions are made by contributors that
become insolvent, specifically by requiring contributors that recover their contribution obligation from
end-users to segregate those end-user payments in dedicated trust accounts for the sole benefit of the
USF. Finally, we propose to level the playing field between incumbent LECs and competitive LECs by
adopting a rule that would prohibit competitive ETCs from recovering USF contribution costs for their
Lifeline offerings from Lifeline subscribers. If adopted, this change would affect competitive
telecommunications providers that serve Lifeline customers.
78.
Other Reporting Changes. We propose requiring all telecommunications providers (as
well as telecommunications carriers) to register with the Commission, and propose rules requiring
registrants that provide telecommunications to others for resale to check the registration status of their
customers.246 We also propose that telecommunications providers file electronically their quarterly and
annual Telecommunications Reporting Worksheet, with a fee for those that file by paper.247 We believe
these rules will provide reporting entities enhanced certainty regarding their contribution obligations.

E.

Steps Taken to Minimize the Significant Economic Impact on Small Entities, and
Significant Alternatives Considered

79.
The RFA requires an agency to describe any significant, specifically small business,
alternatives that it has considered in reaching its proposed approach, which may include the following
four alternatives (among others): “(1) the establishment of differing compliance or reporting requirements
or timetables that take into account the resources available to small entities; (2) the clarification,
consolidation, or simplification of compliance and reporting requirements under the rules for such small
entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of
the rule, or any part thereof, for such small entities.”248

245 See supra Section V.C.5 (Use of a Hybrid System with a Numbers-Component), paras. 324 – 326.
246 See supra Section VI.F (Filer Registration and Deregistration), paras. 381 – 386.
247 See supra Section VI.E (Paper-Filing Fees), paras. 376 – 380.
248 5 U.S.C. § 603(c)(1)–(c)(4).

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80.
As indicated in the Notice, we seek to reform the contribution system. We believe our
proposed rules will provide reporting entities enhanced certainty regarding their contribution obligations,
which is especially important for small businesses that may not have the resources of larger business to
comply with complex rules.
81.
We believe that adopting a simplified and clearly defined apportionment method will
provide greater predictability to all telecommunications providers and customers. The Notice seeks
comment on a modified version of the two safe harbors available for apportioning revenues from bundled
service offerings.249 We believe that providing a bright line rule for providers reduces the administrative
burden for small entities.
82.
We seek comment on whether we should modify the contribution methodology to assess
“value-added” revenues rather than “end user” revenues. Under this approach, each telecommunications
provider in a service value chain (including both wholelesalers and resellers) would contribute based on
the value in the providers adds to the service. We also seek comment on modifying the current reseller
certification process to provide greater clarity regarding contribution obligations when wholesale inputs
are incorporated into other services that are not telecommunications services. We believe that either of
these approaches would simplify the reporting process for all parties, and provide greater certainty. For
each approach, we seek comment on ways to streamline the overall reporting requirements for all parties.
In addition, these potential rule changes would increase the Commission’s administration and oversight of
the contributions system in the wholesaler–reseller context.
83.
We believe that our registration and deregistration proposals for all parties required to file
the Telecommunications Reporting Worksheet will help ensure that the Commission’s FCC Form 499-A
Filer Database is current and complete.250 One of the purposes of registration is that it allows the
Commission to better monitor registered providers for compliance with our rules and regulations. In
addition, a filer registration requirement provides transparency to the public, making available important
information including the relevant regulatory contact information. We recognize that the proposed
registration and deregistration process may impose a small one-time burden on parties that were not
previously required to register, but we believe the benefit of having a current and complete database may
outweigh the burden.
84.
We seek comment on modifying the de minimis exemption to base the threshold on
assessable revenues rather than the amount of contributions. We believe this will simplify the
contributions system and reduce the administrative burden for small entities. We also seek comment on
whether this proposal might also reduce the reporting obligations and regulatory uncertainty for de
minimis
telecommunications providers that have growing revenues. Specifically, we seek comment on
whether to make it optional for a telecommunications provider to file quarterly Telecommunications
Reporting Worksheets for a year after which the provider qualifies as de minimis.251 We believe these
changes might simplify the reporting obligations of small entities and reduces their administrative burden.
85.
We seek comment on updating the Telecommunications Reporting Worksheets (FCC
Forms 499-A and 499-Q) and its instructions.252 Specifically, we seek comment on whether we should
modify the process by which these forms are revised by soliciting public comment from interested parties
prior to adopting revisions to the forms or the instructions. We believe these changes would provide
greater clarity to contributors and simplify compliance and the administration of the contributions
process.

249 See supra para. 67.
250 See supra para. 71 and 78.
251 See supra para. 73.
252 See supra Section VI.A (Updating the Telecommunications Reporting Worksheet), paras. 344 – 349.

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86.
We note that in past contribution reform proceedings some parties have proposed
alternative contribution methodologies based on numbers, connections, or a combination of numbers and
connections. To the extent that parties believe that alternative systems would better promote our goals for
contribution reform, we seek comment on the benefits of such systems relative to our proposed improved
revenues system and ask for specific proposals on how such systems could be implemented.253
87.
The Notice seeks comment from all interested parties. The Commission is aware that
some of the proposals or approaches under consideration may impact small entities. Small entities are
encouraged to bring to the Commission’s attention any specific concerns they may have with the
proposals or approaches outlined in the Notice. We invite comment on how these proposals or
approaches might be made less burdensome for small entities but still in keeping with our goals for
contribution reform. We also invite commenters to discuss the benefits of such changes on small entities
and to weigh these benefits against the burdens for telecommunications providers that might also be small
entities. The Commission expects to consider the economic impact on small entities, as identified in
comments filed in response to the Notice, in reaching its final conclusions and taking action in this
proceeding.

F.

Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules

88.
None.

253 See supra para. 74 – 76.

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STATEMENT OF

CHAIRMAN JULIUS GENACHOWSKI


Re:
Universal Service Contribution Methodology, WC Docket No. 06-122; A National Broadband
Plan For Our Future
, GN Docket No. 09-51

Over the past several months, a unanimous Commission has taken on two major reforms of
Universal Service programs. Last November, we adopted a once-in-a-generation overhaul of universal
service support for rural areas.

Today, nearly 18 million Americans can’t get broadband. Our creation of an efficient,
accountable Connect America Fund will accelerate wired and wireless broadband buildout to these
unserved rural homes, connecting these Americans to the massive benefits of high-speed Internet.

We also modernized the Lifeline program for the 21st century, eliminating waste and misuse of
public funds, imposing fiscal discipline and accountability, while enabling Lifeline to continue playing a
vital role in ensuring that the neediest among us are connected to our communications networks.


At the same time, we also eliminated duplicative and unnecessary funding, ended arbitrage
schemes, closed loopholes, and instituted competitive bidding. These reforms will keep billions of dollars
in consumers’ pockets in the coming years.


Universal service reform is part of a broader agency effort to modernize outdated programs,
eliminating unnecessary rules and improving efficiency and effectiveness.


Today, we take the next step in our universal service overhaul – contribution reform.

For years, there have been bipartisan calls to fix this outdated system. I am pleased that today we
are formally seeking solutions that will improve the efficiency, fairness, and sustainability of the system.

In our USF Reform Order creating the Connect America Fund and our Lifeline Reform Order, we
took major strides to address the total amount Americans contribute to universal service and how
universal service support should be allocated. With today’s item, we propose bringing the same smart
government and regulatory reform principles to the system for how contributions are assessed and
collected.

The contribution system we have in place is still largely the same as the one the FCC adopted 15
years ago. Not surprisingly, the system is showing its age and suffers from a number of problems.


The current contribution system imposes significant compliance costs and creates
inconsistencies. Responding to a contribution audit can cost upwards of half a million dollars, and some
contributors can find themselves on the hook for tens of millions of dollars in unpaid contributions.


The current system creates market distortions. Outdated rules and loopholes mean that services
that compete directly against each other may face different treatment. For example, providers of business
communications services that are required to contribute may find themselves bidding against providers of
very similar services that are not contributing.

And due to massive changes in the marketplace, the system has recently begun to suffer from
declines in the revenue of services required to contribute. The contribution base has declined by roughly
10% since 2008.


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Today we propose three goals for contribution reform: efficiency, fairness, and sustainability.
And we underscore that any reforms to the contribution system must safeguard core Commission
objectives, including the promotion of broadband innovation, investment, and adoption. Reforms must
also account for business realities, including reasonable transition periods for any changes.


I look forward to working with my fellow Commissioners and with all stakeholders in pursuit of
these goals. This is a hard task, and those seeking reform should be concrete on how to do so.

Finally, I thank the staff for once again taking on the Universal Service issues with thoughtfulness
and care.

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STATEMENT OF

COMMISSIONER ROBERT M. McDOWELL


Re:

Universal Service Contribution Methodology, WC Docket No. 06-122; A National Broadband
Plan For Our Future
, GN Docket No. 09-51


For several years, I have maintained that contribution reform was a vital cornerstone to any
comprehensive effort to modernize the Universal Service Fund (USF). Ideally, I would have preferred
that the Commission have tackled both distribution reform and contribution reform in one comprehensive
proceeding as we were poised to do in 2008. But, the Commission has opted to break our effort into
pieces instead. Last fall, we modernized the distribution or spending side of the USF high cost program.
Furthermore, in January we overhauled the Lifeline/Link-up program. Equally important, however, is the
need to fix the contribution methodology, or the “taxing” side of the ledger. In other words, who is going
to pay for all of this and how? Today, we start to collect an array of ideas to answer these questions.


To put the importance of contribution reform into perspective, the contribution factor, a type of
tax paid by telephone consumers, has risen each year from approximately 5.5 percent in 1998 to almost
18 percent in the first quarter of this year. This trend is unacceptable because it is unsustainable.
Furthermore, the cryptic language on consumers’ phone bills, combined with the skyrocketing “tax” rate,
has produced a new form of “bill shock.” We must tame this wild automatic tax increase as soon as
possible.


I am delighted that we are finally picking up where the Commission left off in 2008. I recognize
that implementing reform will not be easy. Precisely because today’s notice asks such a broad range of
questions, all stakeholders will have an opportunity to find something controversial and undesirable, in
their view. Controversy, however, should not deter us from lowering the tax rate while broadening the
base according to the authority granted to us by Congress. The current pool of contributors is shrinking.
It must be expanded, but we must do so only within our statutory authority while keeping in mind the
international implications of our actions. Accordingly, I hope that all commenting parties will also tell us
what they like about any of the proposed ideas as well as offer us their new ideas.


In years past, I supported the concept of broadening the assessments pool to include a phone
numbers based system. Market conditions have changed since then, so I will pay particular attention to
fact-based arguments for and against a phone numbers based contribution methodology.


In sum, I may not agree with the potential outcome that could result from some approaches that
are discussed in this further notice, but I am encouraged that we are moving forward and asking a wide
variety of questions. The data and opinions we start gathering today will help the Commission and all
stakeholders illuminate a path that leads to a decision we should make no later than this fall.


Many thanks to the Chairman for his leadership as well as to the bureau staff for their diligence
on this further notice. I look forward to working with my colleagues and all stakeholders to craft a
pragmatic and fair solution that will put consumers first.

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STATEMENT OF

COMMISSIONER MIGNON L. CLYBURN


Re:
Universal Service Contribution Methodology, WC Docket No. 06-122; A National Broadband
Plan For Our Future
, GN Docket No. 09-51

One of the most consistent calls I have heard from many is for this Commission to complete its
reform of the Universal Service Fund by addressing the contributions side of the equation. I agree. While
the FCC has attempted to keep up with technological changes and has added new services to the
contributions list, there is more work to be done to ensure that the system is both equitable and
predictable. This is especially important because as we all know it is consumers who ultimately pay for
the Fund.

I support the objectives we seek comment on today—namely to improve this system’s
administrative efficiency, fairness, and sustainability. Whatever path we ultimately take on reforming
contributions, it should reflect our goals for the Fund—to promote the availability and adoption of
affordable broadband and voice services for all Americans. I want to thank the staff for putting together a
thorough Further Notice, the Chairman for his leadership on this matter, and for Commissioner
McDowell who has worked diligently to ensure that we take this matter up for Commission action. I look
forward to working with all interested parties to complete this proceeding in a timely fashion.



182

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