Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

FCC Motion to Hold Case in Abeyance

Download Options

Released: June 25, 2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT









)
IN RE: FCC 11-161




)
No. 11-9900








)

MOTION TO HOLD IN ABEYANCE




The Federal Communications Commission (“FCC” or “Commission”)
respectfully moves the Court to hold this case in abeyance pending agency action
on reconsideration. Because numerous reconsideration petitions currently pending
before the FCC raise issues central to the claims petitioners intend to present to the
Court in this case, holding this case in abeyance pending further administrative
review is the appropriate course.

Statement of Liaison Counsels’ Positions



On May 31, 2012, counsel for the FCC notified the Liaison Counsel for
Petitioners that the Commission intended to file this motion.
The Liaison Counsel for Petitioners has indicated that most of the petitioners
oppose this motion. Several parties have told him that they intend to file
oppositions to this motion. The full statement of the position of the Liaison
Counsel for Petitioners is set forth in an attachment to this brief.

The Liaison Counsel for Respondents is authorized to state that the United
States, the FCC’s co-respondent in this case, does not oppose the Commission’s
motion to hold the case in abeyance. A number of intervenors supporting


2
respondents, including Verizon, Verizon Wireless, AT&T, the National Cable &
Telecommunications Association, Comcast, Cox, Sprint, and Vonage, have
informed the Liaison Counsel for Respondents that they support this motion.

Background

In the order on review in this case, the FCC undertook comprehensive
reform of two major federal regulatory regimes: the universal service (“USF”)
program, which subsidizes the provision of telephone service in areas where the
cost of providing service is high; and the intercarrier compensation (“ICC”)
system, which provides a framework for telephone companies to compensate each
other for the cost of originating and terminating telecommunications traffic.
Connect America Fund, 26 FCC Rcd 17663 (2011) (“Order”). Within 30 days
after the Order was published in the Federal Register, the Commission received
more than 20 petitions for administrative reconsideration.
The Commission is now in the process of responding to the petitions for
reconsideration. It has already issued three orders to address the issues raised by
several of the reconsideration petitions.1 At this point, however, many of the

1 See Connect America Fund, Third Order on Reconsideration, FCC 12-52
(released May 14, 2012) (“Third Reconsideration Order”), petition for review
pending, Accipiter Commc’ns, Inc. v. FCC,
No. 12-1258 (D.C. Cir. filed June 13,
2012); Connect America Fund, Second Order on Reconsideration, FCC 12-47
(released April 25, 2012); Connect America Fund, Order on Reconsideration, 26
FCC Rcd 17663 (2011).



3
petitions for reconsideration of the Order are still pending before the FCC. As we
explain below, a number of the pending petitions raise issues that are central to the
claims that petitioners intend to present to this Court, and there is a substantial
overlap between the issues raised in this litigation and those currently before the
agency.
Although petitioners purport to raise “around 120 issues” in this case,2 most
of the briefs they propose to file present challenges to the FCC’s new universal
service program that coalesce around a single, overarching issue: whether the
federal subsidy fund (the “Connect America Fund”) established by the FCC’s
Order provides sufficient support to achieve the goal of universal service. Several
of the pending petitions for FCC reconsideration concern the very same issue: the
sufficiency of the Commission’s new universal service funding regime. Indeed, a
number of the specific issues presented by the reconsideration petitions
substantially overlap with the matters identified by petitioners as issues that the
Court will be called upon to address in this litigation. For example:
 In its petition for administrative reconsideration, the National
Exchange Carrier Association (“NECA”) has argued that the total
amount of funds set aside for universal service is not “sufficient” to

2 See Report of Liaison Counsel for Petitioners and Intervenors in Support of
Petitioners, June 11, 2012, at 1. Petitioners’ liaison counsel acknowledges that the
petitioners’ Appendix of Issues Raised contains “significant” or “very significant”
“overlap” in places. Appendix of Issues Raised at 73, 76; see also id. at 36, 48, 52
(noting the presence of possible additional overlap).


4
satisfy the agency’s statutory obligation to “preserve and advance
universal service.” NECA Petition at 6-8 (citing 47 U.S.C.
§ 254(b)(5).3 Petitioners in this litigation have indicated that they
likewise plan to raise the issue of the sufficiency of universal service
funding in the first and second parts of their proposed First Main USF
Brief.4

 NECA and the United States Telecom Association (“USTA”) have
asked the FCC to reconsider the requirement that universal service
funding recipients offer broadband services that meet certain
minimum performance standards. NECA Petition at 2-6; USTA
Petition at 3-5, 9-11. Similarly, petitioners have indicated that they
plan to challenge this broadband service requirement in Part I of their
proposed Second Main USF Brief. See Scheduling Motion at 13 n.9.

 NECA seeks FCC reconsideration of the FCC’s caps on recovery of
capital and operating costs under the new universal service rules.
NECA Petition at 9-13. Those same caps will be challenged in Parts
II.D and II.G of the First Main USF Brief that petitioners propose to
file. See Scheduling Motion at 13 n.9.

 NECA has asked the Commission to reconsider whether its standards
for granting waivers of the universal service funding caps are too
strict. NECA Petition at 19-22. Likewise, petitioners intend to
challenge the reasonableness of the FCC’s waiver procedures in Part
II.E of their proposed First Main USF Brief. See Scheduling Motion
at 13 n.9.

 The Blooston Rural Carriers have asked the Commission to
reconsider its plan to use “reverse auctions” to distribute universal
service funds for the expansion of wireless telecommunications
service in rural areas. Blooston Rural Carriers Petition at 3-9. At the

3 Copies of the reconsideration petitions that are cited in this motion are attached.
4 See Petitioners’ Motion to Establish a Procedural Schedule (“Petitioners’
Procedural Motion”), filed June 11, 2012, at 12-13 n.9. We cite petitioners’
procedural motion solely to illustrate that petitioners plan to file briefs that address
a number of the same issues raised by the pending reconsideration petitions. As
we explain in our opposition to petitioners’ procedural motion (filed herewith), we
do not agree with various aspects of petitioners’ briefing proposals.


5
same time, in their proposed brief, wireless carrier petitioners plan to
challenge the lawfulness of this “single winner auction scheme” to
allocate universal service funding. See Scheduling Motion at 4 n.3.

Similarly, there is substantial overlap between the intercarrier compensation
issues that petitioners plan to raise in this litigation and the issues currently before
the FCC in the reconsideration petitions. For instance, NECA and USTA have
asked the FCC to reconsider its new rules establishing a recovery mechanism to
mitigate the effect of reduced intercarrier revenues. NECA Petition at 29-33;
USTA Petition at 30-34. Various petitioners plan to challenge the same cost
recovery mechanism in the proposed ICC “supplemental” brief. See Scheduling
Motion at 8 (ICC Issues for Supplemental Briefs, Issues 1 and 2). In addition,
Sprint Nextel, MetroPCS, and USTA have each asked the FCC to reconsider its
rules addressing access stimulation or “traffic pumping” (i.e., efforts by carriers to
increase the ICC payments they receive by artificially inflating their call volumes).
Sprint Nextel Petition at 7-11; MetroPCS Petition at 16-20; USTA Petition at 35-
37. Access stimulation is another issue that petitioners plan to address in the
proposed ICC “supplemental” brief. See Scheduling Motion at 9 (ICC Issues for
Supplemental Briefs, Issue 5).

Argument

As shown above, many of the petitions for administrative reconsideration
that are currently pending before the FCC concern the same core universal service


6
issue raised by petitioners in this litigation: the sufficiency and scope of the
agency’s new universal service system. Similarly, other reconsideration petitions
focus on the other principal issue raised by this litigation: the reasonableness of
the Commission’s plan to reform its intercarrier compensation system.
Because the reconsideration petitions currently pending before the FCC raise
issues central to the case before this Court – and because the issues raised on
reconsideration substantially overlap with those raised in this litigation – the Court
should “hold the appeal in abeyance pending the Commission’s further
proceedings, keeping the record open for supplementation to reflect those
proceedings.” Wrather-Alvarez Broad., Inc. v. FCC, 248 F.2d 646, 649 (D.C. Cir.
1957). This Court has taken that approach on a number of occasions in order to
“prevent[ ] the wasteful consumption of judicial resources when a timely petition
for reconsideration has been filed and further administrative action could render
judicial review unnecessary.” Reppy v. Dep’t of Interior, 874 F.2d 728, 730 (10th
Cir. 1989). See, e.g., Farmers Tel. Co. v. FCC, 184 F.3d 1241, 1247 (10th Cir.
1999); Springfield Television of Utah, Inc. v. FCC, 710 F.2d 620, 623 (10th Cir.
1983); Koppel, Inc. v. United States, 612 F.2d 1264, 1266 (10th Cir. 1979).
The Court should follow the same approach here. FCC action on
reconsideration could substantially narrow the scope of the issues before the Court
– or even render some issues moot. This should greatly assist the Court. Any FCC


7
action on reconsideration that might reduce the lengthy litany of issues petitioners
propose to present would help make this case more manageable and streamlined.
Even if none of petitioners’ claims is rendered moot by FCC action on
reconsideration, the Court will benefit from allowing the Commission to address
the reconsideration petitions before briefing begins in this case. Once the agency
has acted on reconsideration, the Court will be able to review the FCC’s Order on
the basis of a more complete record. Moreover, the Commission’s further
explanation of its reasoning on reconsideration could help facilitate the Court’s
review of the highly complex issues presented by this litigation.
Petitioners will not be prejudiced if the Court postpones review of this case
while the Commission addresses the pending reconsideration petitions. Petitioners
did not seek a stay of the challenged rules. Therefore, the rules are already in
effect.5 Moreover, petitioners themselves took nearly three months to respond to
the Court’s March 13, 2012 order requesting the submission of a list of issues in
this case. Petitioners’ delay in filing a list of issues with the Court belies any
suggestion that there is an urgent need for judicial review of this case. In any
event, if the Court grants this motion, it could direct the Commission to submit

5 We understand that one of the petitioners plans to seek a stay of universal service
rules that the Wireline Competition Bureau recently adopted in a separate order:
Connect America Fund, DA 12-646 (Wireline Comp. Bur. released April 25, 2012)
(“Bureau Order”). The Bureau Order is not before the Court in this case. It was
issued after the order that petitioners challenge here, and was based on a different
rulemaking record from the order on review.


8
periodic status reports on the reconsideration proceedings. Such reports would
allow the Court to monitor the agency’s progress and help ensure that this litigation
will not be unduly delayed.

Conclusion

For all of the foregoing reasons, the Court should grant this motion and hold
this case in abeyance until the FCC acts on pending petitions for reconsideration.
Respectfully
submitted,








Sean A. Lev






Acting General Counsel








Peter Karanjia
Deputy
General
Counsel








Jacob M. Lewis
Associate
General
Counsel


/s/James
M.
Carr
Laurence
N.
Bourne
James M. Carr
Counsel

Federal
Communications
Commission
Washington,
DC

20554
(202)
418-1762

June 25, 2012

11-9900


IN THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT


In re: FCC 11-161, Petitioners

v.

Federal Communications Commission
and United States of America, Respondents.


CERTIFICATE OF COMPLIANCE



Pursuant to the requirements of the Order Governing Motion Practice dated
March 13, 2012, I hereby certify that the accompanying Motion to Hold in
Abeyance contains 1,834 words.








/s/ James M. Carr







James M. Carr
Counsel
Federal
Communications
Commission
Washington,
D.C.
20554
(202)

418-1762


June 25, 2012










ATTACHMENTS


(1) Statement of Liaison Counsel for Petitioners
(2) NECA Petition for Reconsideration
(3) USTA Petition for Reconsideration
(4) Blooston Rural Carriers Petition for

Reconsideration

(5) Sprint Nextel Petition for Reconsideration
(6) MetroPCS Petition for Reconsideration


LIAISON COUNSEL FOR PETITIONER COMMENTS1


Respondent FCC’s James Carr notified me that the FCC planned to file a
motion to hold the entire case in abeyance about a week before Petitioner Liaison
Counsel filed the consensus motion for a comprehensive and expedited briefing
schedule. The FCC did not share a copy of the motion with me, but did spend a
few minutes on the phone orally describing the motion.
Specifically, the FCC indicated the agency will be claiming that outstanding
petitions seeking reconsideration on seven issues (out of - it should be noted - 160
specifications of error/out of 120 discrete issues/subissues) justifies holding this
case in abeyance.

While certainly not unexpected, the motion, at least as described, appears to
present very little to justify holding the entire case in abeyance. Viewed most
favorably, the motion, which I have not seen, might foreshadow FCC “ripeness”
arguments on brief of unspecified merit, but not much else. A more pointed

1
IMPORTANT CAVEAT: Liaison Counsel for Petitioners circulated his
draft comments to all parties (except the FCC and the United States) via the
Liaison Counsel listserve prior to supplying it to the FCC. However, shortly
before I forwarded my comments to the FCC, I discovered that several counsel on
the listserve DID NOT receive the notice. Therefore, it is unclear how many
parties actually saw my comments before I forwarded them to the FCC. I did
receive comments or responses from four parties.

review will necessarily have to wait until the undersigned can examine the actual
motion text.2
The minority of intervenors that ONLY filed in support of the FCC (and
are not also petitioners or supporting petitioners) and AT&T (who has stated they
will oppose all other petitioners’ specifications of error) are the only parties to this
proceeding likely to support this FCC motion. At least one party that intervened
both supporting and opposing the FCC on some aspects of the order indicated they
will take no position on the motion. Many others are likely to oppose delay. For
the overwhelming majority of petitioners/intervenors in support of Petitioners,
including NARUC, NASUCA, the other State petitioners/intervenors, as well as
the National Exchange Carrier Association, the Blooston Rural Carriers, and other
incumbent carriers, the opposition will be vigorously advanced and unequivocal -
unless of course, the FCC is willing to immediately stay ALL implementation of the

2
According to the FCC, those issues are [1] traffic pumping/access
stimulation rules; [2] sufficiency of the budget for the universal service fund; [3]
the required offering of broadband services; [4] caps the FCC has imposed on
operating costs; [5] wavier process objections; [6] use of reverse auctions to
designate Essential Telecommunication Carriers for certain areas; and [7] rules for
recovering costs, i.e., the access recovery charge, based on requests for
reconsideration filed by the National Exchange Carrier Association, at
http://apps.fcc.gov/ecfs/document/view?id=7021752064, on issues 2, 3, 4, 5, & 7,
United States Telecom Association, at http://apps.fcc.gov/ecsf/document/view?id=
7021752209, on issues 3 & 7, Blooston Rural Carriers, at http://apps.fcc.gov/ecfs/
document/view?id=7021752182, on issue 6, Sprint-Nextel, http://apps.fcc.gov/ecf
s/document/view?id=7021752209, on issue 1, and Metro PSC, http://apps.fcc.gov
/ecfs/document/view?id=7021752064, on issue 1.

order AND specify it will act on the listed outstanding petitions within a specific
timeframe. 3
Petitioners will present arguments demonstrating that expeditious resolution
of this appeal is crucial suggesting, inter alia, that:
States are already making major and expensive changes to State programs as
a result of the order on review’s blatant usurpation of authority Congress
specifically reserved to the States. At least two States are currently considering
the need to create a State fund to assure local rates remain affordable in areas
losing funding under the revised plan. Until specific provisions challenged in this
order are either vacated or upheld, States (and carriers) will be necessarily
operating in limbo – seeking State legislative fixes serially and adjusting
continuously State regulations to try to match up to the radical restructuring and
reallocation of authority and of resources presented by the FCC’s order. As

3
Counsel for [1] Halo and Transcom, [2] CenturyLink, [3] C-Spire, [4] RICA,
and [5] RBA sent e-mail specifying they will be filing to oppose this FCC motion.
Russ Lukas, representing Petitioners Cellular South U.S. Cellular, Nex-Tech
Wireless & Cellular Network Partnership, ALP DOCOMO Pacific, and PR
Wireless, sent an e-mail that said: “Our wireless carriers clients intend to oppose
the FCC’s motion to hold the case in abeyance primarily on the grounds that the
FCC was without jurisdiction to allow USF support to be used for broadband
Internet access service and holding the case in abeyance will serve to prolong the
FCC’s misappropriation of universal service funds.” Some counsel expressing
unequivocal opposition noted that “In the unlikely event [the FCC] motion
included an effective stay of the Order, we would reevaluate.”
 
 

described, the FCC motion does not cite issues related to the key preemptive ruling
in the order – its assumption of authority over intrastate access charges.
The issues actually raised present an interesting spectrum. For example, it is
certainly interesting, but very much typical of the FCC to ask this Court to hold the
case in abeyance based on the issue about the use of auctions and the fidelity of
that process to the statutory text until most certainly AFTER the reverse auctions
currently slated for third quarter 2012 are held (and if abeyance is granted for any
time at all – most likely pushing any possible Court decision also PAST the second
auction set for sometime in 2013).
However viewed, it is apparent that the issues raised are a very, very small
subset of those raised by petitioners. Moreover, even on the reconsideration issues,
this Court’s resolution of several statutory authority issues raised in the original
order is still justified. After all, by definition, any argument the FCC raises in the
abeyance motion, should translate directly into a ripeness argument on the
particular issue – arguments that, if the Court finds them persuasive, can defer
action on that narrow issue without delaying resolution of the others. In short, the
motion should not be granted. Alternatively, the Court could proceed with an
expedited review of all other issues raised on appeal and simply hold review of a
few of the discrete issues raised by the FCC in abeyance – subject to a 3 month
deadline for FCC action. Imposing a deadline is appropriate given the FCC’s not

infrequent problems with addressing universal service related petitions for
reconsideration in anything close to a timely manner. See, e.g., the July 11, 2001
FCC Notice4 to many parties that filed petitions for reconsideration of a much
smaller and less controversial FCC universal service order OVER THREE YEARS
earlier in 1997, asking that:
parties that filed petitions for reconsideration of the Universal Service
First Report and Order
in 1997 now file a supplemental notice
indicating which of such issues they still wish to be reconsidered. In
addition, parties may refresh the record with any new information or
arguments they believe to be relevant to deciding such issues.

Interestingly, in the same document, the FCC notes that:

Since then, there has been substantial litigation concerning many of
the rules adopted in the Universal Service First Report and Order. As
a result, many of the issues raised in the petitions for reconsideration
may no longer remain in dispute.”

Indeed, in the undersigned experience, often in the USF context, waiting for
the FCC to act is an exercise if not futility, of at least extreme patience.
Any further delay is enormously prejudicial to the petitioners.



4
Parties Asked To Refresh The Record Regarding Reconsideration Of Rules
Adopted In The 1997 Universal Service First Report And Order, FCC Notice DA
No. 01-1647 in Docket No. 96-45 (rel. July 11, 2001), available online at:
http://transition.fcc.gov/Daily_Releases/Daily_Digest/2001/dd010711.html.

Before the

Federal Communications Commission

Washington, D.C. 20554



In the Matter of
)


)
Connect America Fund
)
WC Docket No. 10-90

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

)

Establishing Just and Reasonable Rates
)
WC Docket No. 07-135
for Local Exchange Carriers
)

)
High-Cost Universal Service Support
)
WC Docket No. 05-337

)
Developing an Unified Intercarrier
)
CC Docket No. 01-92
Compensation Regime
)

)
Federal-State Joint Board on Universal
)
CC Docket No. 96-45
Service
)

)

Lifeline and Link-Up
)
WC Docket No. 03-109

)

Universal Service Reform – Mobility
)
WT Docket No. 10-208
Fund
)


PETITION FOR RECONSIDERATION AND CLARIFICATION


of the

NATIONAL EXCHANGE CARRIER ASSOCIATION, Inc.;

ORGANIZATION FOR THE PROMOTION AND ADVANCEMENT OF SMALL

TELECOMMUNICATIONS COMPANIES; and


WESTERN TELECOMMUNICATIONS ALLIANCE





December 29, 2011

TABLE OF CONTENTS


I.


THE COMMISSION SHOULD ADOPT A SUFFICIENT AND PREDICTABLE
CONNECT AMERICA FUND MECHANISM BEFORE

IMPOSING BROADBAND-
RELATED PUBLIC INTEREST OBLIGATIONS ON RATE-OF-RETURN
CARRIERS.
............................................................................................................................. 2

II.


THE SUPPORT CUTS AND COST RECOVERY LIMITATIONS IN THE ORDER
MUST BE RECONSIDERED OR CLARIFIED SO AS TO AVOID CONFLICTS
WITH THE PUBLIC INTEREST OBLIGATIONS IMPOSED BY THE ORDER,
THE GOALS OF THE REFORMS, AND THE NEW UNIVERSAL SERVICE
PRINCIPLE ADOPTED BY THE COMMISSION.

........................................................... 6

A.

The Commission Should Reconsider the Sufficiency of its Budget for High-Cost


Universal Service.

.............................................................................................................. 6

B.

The Commission Should Reconsider Several Aspects of its Caps on Capital and


Operating Expenses

.......................................................................................................... 9

C. The Commission Should Reconsider Or Modify Several Of The Other Capping


Mechanisms Adopted In The Order.

............................................................................ 13

1. The Commission Should Determine Reasonably Comparable Rates on the

Basis of Standard Deviations, Rather than Arithmetic Average. ..........................

13

2. The Commission Should Reconsider Several Aspects of its Decision with

Respect to the Elimination of Safety Net Additive Support. ..................................

14

3. The Order’s Adoption of a Per-Line Cap on High-Cost Support Imposes

Substantial Damage on Small Companies with Little Aggregate Public
Interest Benefit. ..........................................................................................................

16

4. The Commission Should Not Begin Phasing Out Support in Areas with

Competitive Overlap Without Addressing Ongoing RLEC Obligations as
COLRs and ILECs. ....................................................................................................

18

III.


THE ORDER ESTABLISHES UNREASONABLY STRINGENT STANDARDS
FOR OBTAINING WAIVERS OF THE SUPPORT REDUCTION RULES AND
FOR REQUESTING ADDITIONAL CAF ICC SUPPORT.

........................................... 19

IV.


NEW RULES IMPOSING ANNUAL REPORTING REQUIREMENTS ON
RLECs ARE UNDULY BURDENSOME AND SHOULD BE SUBSTANTIALLY
REVISED.

.............................................................................................................................. 22

V.


THE COMMISSION MUST ESTABLISH CLEAR RULES GOVERNING THE
RATE OF RETURN REPRESCRIPTION PROCESS BEFORE INITIATING A
REPRESCRIPTION HEARING.

........................................................................................ 26

A.

The FCC Must First Adopt New Substantive Rules Governing the Represcription


Process Before It Takes Evidence to Determine a Reasonable Rate-of-Return.

....... 26

B.

The Abbreviated Informal Notice and Comment Procedures Described in the


FNPRM Will Not Satisfy Section 205(a)’s “Hearing” Requirement.

......................... 27




VI.


RECONSIDERATION AND/OR CLARIFICATION IS REQUIRED REGARDING
THE APPLICATION OF NEW INTERCARRIER COMPENSATION RULES
ADOPTED IN THE ORDER.

.............................................................................................. 29

A.

The Commission Must Provide a Reasonable Opportunity for Rate-of-Return


Carriers to Recover Interstate Costs Allocated to Switched Access Rate
Elements.

.......................................................................................................................... 29

B.

Mechanics of CAF ICC Support Calculations.

............................................................ 31

1.

Rate-of-Return Baseline Interstate Revenue Requirements Should Be Based


on Actual Cost Studies Rather than Tariff Forecasts. ............................................ 31
2.

Inclusion of Tandem/Transit Costs in Reciprocal Compensation Calculations.

.. 33

C.

Identification of “Toll” VoIP Traffic.

........................................................................... 33

D.

Call Signaling Rules for VoIP Traffic.

.......................................................................... 35

E.

Application of Access Charges to IntraMTA Traffic Delivered by IXCs.

................. 36

F.

Phantom Traffic Issues.

.................................................................................................. 37

VII.


CONCLUSION

..................................................................................................................... 40







Summary



The Rural Associations listed above seek reconsideration and/or clarification of several
aspects of the Commission’s Order in the above-captioned proceeding.
RLECs are thoroughly committed to expanding broadband services to their customers.
However, any obligation to provide such services should be established only after a broadband-
oriented Connect American Fund (CAF) mechanism that provides sufficient and predictable
support is adopted for these carriers. The Associations accordingly first request the Commission
reconsider its decision to impose new, unfunded public interest obligations on rural rate-of-return
regulated local exchange carriers (RLECs) until such time that a new, sufficient CAF mechanism
is in place.
Second, the Associations seek reconsideration of the Commission’s imposition of various
new cost recovery caps and limitations on RLECs. In particular, the Commission should
reconsider the sufficiency of its overall high-cost support budget for RLEC areas and allow for
potential expansion of available funds to meet actual broadband needs. The Commission should
also reconsider its premature decision to adopt regression-based caps on recovery of capital and
operating expenses.
Several other aspects of the Order’s approach to cost recovery limitations should be
reconsidered as well. Specifically, the Commission should reconsider its decision to set an end-
user rate floor at the national average of such rates. By definition, an “average” rate cannot be
considered an “artificially low” rate. The Commission should also reconsider several aspects of
its decisions regarding phase-out or elimination of the safety net additive (SNA) support
mechanism. Additionally, the Commission should reconsider its decision to impose a per-line
cap on RLECs’ overall legacy high-cost support, as this will not accomplish any significant
i


savings for the universal service fund (USF), yet will have devastating effects on a small number
of RLECs and their customers.
Third, the Commission should abandon its unreasonably stringent approach to
considering waivers of rules governing USF disbursements and additional funding for access
replacement support. The waiver processes described in the Order will impose substantial
burdens on small companies, and appear designed primarily to discourage companies from
seeking relief. The Commission should instead continue to rely on the “good cause” standard
specified in section 1.3 of its rules, and provide a concrete and realistic path to obtaining such
waivers where needed to meet the objectives of universal service.
Fourth, the Commission should substantially revise the annual reporting requirements
imposed on RLECs by the Order. The Commission should instead continue to rely primarily on
existing monitoring mechanisms, including those established in cooperation with state
commissions under section 254 of the Act. The Commission should also refrain from requiring
RLECs to submit audit reports by April 1 of each year, as compliance with this rule may be
nearly impossible for most small companies. The burdensome performance reports required
under new section 54.313 should also be reconsidered, as regulatory requirements will require
RLECs to divert precious resources from providing service to customers to filling out reports.
Fifth, the Commission should reconsider its approach to represcribing the interstate rate
of return. The abbreviated notice-and-comment process adopted in the Order will not satisfy the
hearing requirement of section 205(a) of the Act. The Commission instead needs to follow a
two-step process, whereby it would first resolve the numerous flaws it has previously identified
with traditional cost of capital analyses as applied to small, non-publicly traded RLECs. At that
point, it would be possible for the Commission to conduct a fact-based paper hearing, including
ii


opportunities for parties to present direct cases and rebuttal testimony, that will conform to the
hearing requirement of section 205(a), as well as the Administrative Procedure Act.
Finally, the Commission should reconsider several aspects of the intercarrier
compensation (ICC) rules adopted in the Order. Most critically, the Commission must provide a
reasonable opportunity for RLECs to recover interstate costs allocated by the Commission’s own
rules to switched access rate elements. Under the Order, these costs will be relegated to the
regulatory and economic equivalent of a black hole. The Commission must resolve this problem
either by reconsidering its decision to cap and then reduce carriers’ eligible recovery amounts in
a lockstep manner, or by permitting RLECs to establish a new rate element designed to recover
allocated costs not otherwise recovered via end-user charges or ICC CAF support.
The Commission should also reconsider several other aspects of its ICC rules, including
methods used to calculate ICC CAF support. Specifically, the Commission should revise its rules
so that baseline interstate revenue requirements are based on actual cost studies rather than tariff
forecasts, clarify methods for estimating minutes of use (MOU), and change the proposed base
period Fiscal Year to July 1 – June 30 rather than ending it on September 1. The Commission
should also revise or clarify rules governing calculation of net reciprocal compensation revenues
to include transit costs, clarify the distinction between “local” and “toll” Voice Over Internet
Protocol (VoIP) traffic in light of today’s telecommunications marketplace, clarify that access
charges may be applied to intraMTA traffic routed via interexchange carriers (IXCs), and further
strengthen its call signaling rules, as the limited requirements imposed by the Order will not be
sufficient to address previously-identified problems.

iii


Before the

Federal Communications Commission

Washington, D.C. 20554



In the Matter of
)


)
Connect America Fund
)
WC Docket No. 10-90

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

)

Establishing Just and Reasonable Rates
)
WC Docket No. 07-135
for Local Exchange Carriers
)

)
High-Cost Universal Service Support
)
WC Docket No. 05-337

)
Developing an Unified Intercarrier
)
CC Docket No. 01-92
Compensation Regime
)

)
Federal-State Joint Board on Universal
)
CC Docket No. 96-45
Service
)

)

Lifeline and Link-Up
)
WC Docket No. 03-109

)

Universal Service Reform – Mobility
)
WT Docket No. 10-208
Fund
)


PETITION FOR RECONSIDERATION AND CLARIFICATION

of the

NATIONAL EXCHANGE CARRIER ASSOCIATION, Inc.;

ORGANIZATION FOR THE PROMOTION AND ADVANCEMENT OF SMALL

TELECOMMUNICATIONS COMPANIES; and


WESTERN TELECOMMUNICATIONS ALLIANCE


Pursuant to section 1.429 of the Commission’s rules, 47 C.F.R. § 1.429, the rural
telephone associations listed above hereby seek reconsideration and/or clarification of certain
aspects of the Commission’s November 18, 2011 Order1 in the above-captioned proceeding.

1 Connect America Fund, WC Docket No. 10-90, A National Broadband Plan for Our Future,
GN Docket No. 09-51, Establishing Just and Reasonable Rates for Local Exchange Carriers,
1


I.

THE COMMISSION SHOULD ADOPT A SUFFICIENT AND PREDICTABLE
CONNECT AMERICA FUND MECHANISM BEFORE

IMPOSING
BROADBAND-RELATED PUBLIC INTEREST OBLIGATIONS ON RATE-OF-
RETURN CARRIERS.


As carriers based in and committed to serving their communities, rural rate-of-return
regulated local exchange carriers (RLECs) are committed to universal broadband service.
Although they have obtained impressive broadband build-outs in reliance on existing high-cost
support mechanisms, expansion of such services will require additional, predictable support.
The Order imposes a number of new broadband-related public interest obligations on
eligible telecommunications carriers (ETCs), including RLECs, in connection with receipt of
legacy high-cost universal service fund (USF) and/or Connect America Fund (CAF) support,
including the requirement that offer broadband service that meets certain minimum performance
requirements exceeding what RLECs typically offer today.2 The Commission further expects
that such services will be provided at rates that are “reasonably comparable” to offerings of
comparable broadband services in urban areas. The Commission also imposed a series of
reporting requirements on USF/CAF recipients with respect to the provision of both voice and
broadband services to consumers.3

WC Docket No. 07-135, High-Cost Universal Service Support, WC Docket No. 05-337,
Developing an Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Federal-State
Joint Board on Universal Service,
CC Docket No. 96-45, Lifeline and Link-Up, WC Docket No.
03-109, Universal Service – Mobility Fund, WT Docket No. 10-208, Report and Order and
Further Notice of Proposed Rulemaking, FCC 11-161 (rel. Nov. 18, 2011) (Order or FNPRM).
2 Id. ¶ 206. As of July 2010, approximately 70 percent of RLEC service areas did not have
access to the 4/1 Mbps broadband service required under the Order. E.g., Comments of
OPASTCO, NECA, NTCA, and WTA, WC Docket No. 10-90, GN Docket No. 09-51, WC
Docket No. 05-337 (filed July 12, 2010) at 7. The performance level and extent of RLECs’
current broadband service deployments has generally been hampered by high “last mile” facility
costs, and the fact that existing support mechanisms do not include support for critical “middle
mile” connections to the Internet backbone. Id. at 58.
3 See 47 C.F.R. § 54.313(a)(11).
2


These obligations conflict, however, with many operative provisions of the Order. Most
glaringly, there is as yet no CAF for RLECs to permit achievement of these objectives. Instead,
USF changes applicable to RLECs consist entirely of cuts to existing support mechanisms and
additional limits on cost recovery, which together will undermine the ability of RLECs to deploy
new broadband services, maintain existing broadband services, and otherwise satisfy the new
broadband public interest obligations identified in the Order.4
If current levels of support have not enabled widespread availability of broadband service
meeting the Order’s performance metrics, then cutting that support will certainly not enable
carriers to extend or upgrade service upon “reasonable request” or otherwise. Moreover, even if
a carrier receives CAF support as part of ICC reform, that support – which represents an
explicitly declining revenue stream to replace lost ICC revenues – cannot reasonably be expected
to enable the delivery of standalone broadband services in high-cost areas where it is not
available today.
While the Commission repeatedly asserts that its USF and ICC reforms will provide
carriers with greater certainty and predictability, e.g., Order at ¶¶ 125, 221, 286, 291, the
opposite is true: in addition to uncertainty regarding the adequacy of funding under the yet-to-be-
determined CAF mechanism for RLECs, along with the unknown impacts of new regression-
based limitations on reimbursable capital and operating costs, RLECs are now threatened with
greater challenges through the FNPRM. These include, but are not limited to: the potential
reduction in the authorized rate-of-return; loss of support based on instances of competitive
overlap; and, despite Commission assurances to the contrary, potential increases in problems

4 E.g., Order ¶ 45.
3


with phantom traffic and access avoidance behaviors during a transition to a mandatory zero rate
for all switched services (except transit).
The Commission suggests that “waivers” might somehow allow carriers to obtain support
to meet broadband public interest obligations and achieve statutory universal service objectives,
but that supposed route is obstructed by both the plain language and clear tone of the Order. As
an initial matter, and as described below, the process for obtaining a waiver is quite onerous.5
Moreover, the Commission has warned explicitly that waivers will be difficult to come by.6
Given prior history, small companies facing the need for emergent relief are unlikely to have any
confidence that waivers can be obtained before irreparable harms occur.7
It is also unclear how a provider could obtain a waiver for failure to meet the
Commission’s broadband-oriented objectives and related public interest obligations when the
waiver process requires a showing “that the reduction in high-cost support would put consumers
at risk of losing voice services . . . .”8 An RLEC might be quite capable of providing voice
service throughout a massive study area, but face extreme difficulty in delivering any level of
higher-cost broadband (never mind 4/1 Mbps speeds) to wide portions of that study area at
anything approaching an affordable or reasonably comparable rate.
More astounding is the construct that would condition USF support to meet mandatory
performance obligations upon a discretionary waiver; that sequence simply fails to meet any

5 Id. ¶¶ 542-544; see also section III, infra.
6 Id. ¶ 540.
7 See Letter from Hon. Greg Walden, Chair, Subcommittee on Communications and Technology,
and Hon. Cliff Stearns, Chair, Subcommittee on Oversight and Investigations, Committee on
Energy and Commerce, U.S. House of Representatives, to Chairman Julius Genachowski (dated
Dec. 21, 2011) (noting that, as of July 2011, 5,328 petitions, more than a million consumer
complaints, and 4,185 license applications that had been sitting for more than two years).
8 Id. ¶ 540 (emphasis added).
4


notion of sufficiency or predictability required by section 254 of the Act.9 As an accounting
matter the amount of support available under the rules should “tick and tie” to the obligations
imposed, rather than leaving carriers to hope that they can “back into” compliance with specific
obligations based upon the slim likelihood of obtaining a waiver for additional support.
Accordingly, the purported availability of waivers will do little, if anything, to blunt the serious
impacts of the caps and cuts that merit reconsideration for the reasons described below.
In the face of cuts to existing high-cost support in the Order, with no specific or
predictable broadband-focused mechanism in place, and with the threat of more cuts in the
FNPRM, the Commission should not compel RLECs as a class of carriers to adhere to
broadband-focused obligations as a matter of law. It should instead revisit these issues at such
time as a new CAF mechanism can be shown to provide sufficient and predictable support that
enables them to satisfy such obligations. Specifically, the Commission should refrain from
requiring RLECs: (i) to provide broadband service “upon reasonable request” or otherwise; (ii)
to provide broadband at rates that are reasonably comparable to those charged in urban areas; or
(iii) to provide standalone broadband throughout an entire study area if it is offered in any
portion thereof.10 The Commission should also refrain from requiring RLECs to submit reports
of broadband network performance tests, as specified in new section 54.313(a)(11), unless and

9 47 U.S.C. § 254(b)(5).
10 Among the many items that must be addressed prior to imposition of new service extension
requirements is the nature of the “broadband” service RLECs will be expected to provide. That
is, while the Order defines certain technical characteristics of “broadband service”, it does not
address whether RLECs can satisfy these requirements by continuing to offer the common
carrier broadband transmission services they currently provide to their ISP customers, or
whether they must now begin offering broadband Internet access services directly to consumers
in order to continue qualifying for high-cost USF support. See generally Comments of NECA,
NTCA, OPASTCO, WTA, and ERTA, GN Docket No. 10-127 (filed July 15, 2010).
Clarification of this issue is needed before RLECs will even begin to be in a position to comply
with the speed, latency, capacity and price reporting requirements imposed by the Order.
5


until such time specific, sufficient and predictable funding is provided for the underlying
broadband services. Finally, the Commission should clarify that RLECs will not be required to
satisfy any specific performance criteria with respect to broadband services unless and until
sufficient funding is available, including the availability of funding explicitly intended to support
robust “middle mile” transport.

II.

THE SUPPORT CUTS AND COST RECOVERY LIMITATIONS IN THE
ORDER MUST BE RECONSIDERED OR CLARIFIED SO AS TO AVOID
CONFLICTS WITH THE PUBLIC INTEREST OBLIGATIONS IMPOSED BY
THE ORDER, THE GOALS OF THE REFORMS, AND THE NEW UNIVERSAL
SERVICE PRINCIPLE ADOPTED BY THE COMMISSION.


A. The Commission Should Reconsider the Sufficiency of its Budget for High-Cost

Universal Service.


The Order, for the first time, establishes a defined budget for the high-cost component of
the USF, set at the estimate for the size of the high-cost program for FY 2011 ($4.5 billion).11
The Commission asserts that setting the budget at this level will “minimize disruption and
provide the greatest certainty and predictability to all stakeholders.”12 Even if true, however, the
Commission’s budget-setting exercise fails to incorporate an explicit and detailed determination
of how this budget (and its particular piece-parts) would be sufficient. Once the Commission
defines the network facilities and services supported by federal universal service mechanisms,
sections 254(b) and (e) of the Act require it to preserve and advance universal service via
“specific, predictable, and sufficient” support mechanisms.13

The Order fails to provide any explanation as to how maintaining funding at current
levels – or reducing support to entire subsets of carriers of last resort (COLRs) within that budget

11 Order ¶ 125.
12 Id.
13 47 U.S.C. § 254(b)(5).
6


– is consistent with its statutory mandate of sufficiency.14 The Commission itself has
acknowledged that the higher-capacity broadband networks of tomorrow cannot be built with
today’s funding levels.15 As discussed above, the budgeted amount for RLEC areas in particular
is inadequate when compared to the new public interest obligations imposed by the Order and
requirements to ensure that services will remain “reasonably comparable” in scope and price
going forward. Under the reforms in the Order along with those threatened in the FNPRM, few,
if any, RLECs will be in position to advance broadband, and some may not even be able to
sustain the DSL-speed broadband they have deployed today.

The Commission should accordingly adopt a more practical approach to “budgeting” that
balances the need for fiscal responsibility with continued deployment and operation of
broadband-capable networks in rural areas. The RLEC Plan’s “budget target” for rate-of-return
service areas of $2 billion to start, growing to $2.3 billion over six years, was aimed to “edge
out” broadband to the unserved, while also making sure that consumers in RLEC areas would not
be left behind or “leapfrogged” as broadband service capabilities evolve.16 It provided
“headroom” for important mobility objectives and increased deployment in areas served by price
cap carriers while accommodating ICC reforms and adequate restructuring. In fixing support for
consumers in RLEC areas at $2 billion – including ICC restructuring – the Commission’s budget
will only ensure an ever-widening digital divide to the particular disadvantage of customers in

14 Order ¶ 2.
15 See Connecting America: The National Broadband Plan, FCC (rel. Mar. 16, 2010) at 136-138,
143-148. See also Omnibus Broadband Initiative, The Broadband Availability Gap: OBI
Technical Paper No. 1 (April 2010).
16 See Comments of NECA, NTCA, OPASTCO, and WTA, WC Docket No. 10-90, et al. (filed
April 18, 2011) (Rural Associations April 18 Comments).
7


RLEC service areas.17 The Commission should reconsider its budgeting approach and adopt the
RLEC Plan budget as proposed.
At a bare minimum, if the Commission does not adopt the RLEC Plan budget structure it
should incorporate an inflation adjustment within the budget set forth in the Order. The
Commission has recognized the value of inflation adjustments in other contexts. By way of
example, in measuring contribution burdens on consumers and businesses, the Commission
explains that it will divide total inflation-adjusted expenditures of the existing high-cost program
and CAF (including the Mobility Fund) each year by the number of American households and
express the measure as a monthly dollar figure.18 Similarly, section 54.507(a)(1) of the
Commission's rules adjusts the E-rate program’s annual cap based on the gross domestic product
chain-type price index (GDP-CPI) as a measure of inflation. 19 Allowing adjustments to a
“target” funding level consistent with the GDP-CPI measure of inflation will at least maintain the
target’s value and achieve consistency across programs.






17 The RLEC Plan’s proposed budget, as captured in a joint letter signed by and filed with
several larger carriers, included a provision pursuant to which AT&T and Verizon would forgo
certain funding, if needed, to enable growth in RLEC USF/CAF support from $2 billion to $2.3
billion over several years. See Letter from Walter B. McCormick, Jr., United States Telecom
Association, et al., to Chairman Genachowski, FCC, WC Docket No. 10-90 (filed July 29, 2011).
In other words, as part of the consensus framework, the two largest carriers in the industry
affirmatively and expressly agreed to enable reasonable growth in RLEC funding over six years
through their own initiative. Yet the Commission inexplicably declined to adopt the written
offer made by the two largest carriers in the industry to forgo a portion of their own support for
the good of rural customers served by the smallest carriers.
18 Order ¶ 58.
19 47 C.F.R § 54.507(a)(1).
8


B. The Commission Should Reconsider Several Aspects of its Caps on Capital and

Operating Expenses


The Commission’s proposal to apply “regression analysis” caps on recovery of capital
expenditures (CapEx) and operating expenses (OpEx) is unlawful and not rational in a number of
respects. In particular, the Commission’s decision to apply the caps retroactively to investments
made prior to the effective date of the Commission’s implementing rules is so fundamentally at
odds with the Act and basic principles of administrative law that certain parties have sought
review of the Commission’s Order before the appellate courts, in lieu of seeking
reconsideration.20 Other aspects of the Commission’s regression analyses approach remain to be
determined in the FNPRM phase of this proceeding. The Associations expect to file comments
on these issues in January 2012.
In this Petition, the Associations ask the Commission to reconsider specific
determinations with regard to regression-based caps that appear to pre-judge the operation of the
caps prior to allowing interested parties the opportunity to comment on specific methods to be
utilized and to analyze the impacts of such decisions. These issues are described below.
Premature Adoption of Regression Analysis-Based Constraints. The Commission’s
determination to use regression analyses to develop the new caps is premature and improper
given that the methodology for doing so is subject to further examination pursuant to the
FNPRM and Appendix H of the Order. Although the Associations understand the Commission
may alter this methodology based upon comments, its firm conclusion to utilize regression
analyses in the first instance leaves no room to argue that other approaches might be used in

20 See, e.g., National Telecommunications Cooperative Association v. Federal Communications
Commission
(4th Cir., filed Dec. 8, 2011).
9


whole or in part as a substitute to achieve the kinds of constraints sought by the Commission.21
By firmly adopting the use of a regression analysis before giving parties the ability to consider
whether this approach truly works or whether other constraints might yield better results, the
Commission has ventured down a path that could limit cost recovery in unworkable or unlawful
ways. The Commission should accordingly reconsider its conclusion to utilize a regression
analysis to develop the new caps, and should state instead that it will examine a regression
analysis approach such as that in Appendix H, subject to adequate notice and comment, before it
adopts and implements a particular form of investment or operating expense constraint.22
Unlawful Adoption of “Dynamic” Caps. The Commission should reconsider its decision
to change the caps each year based upon a refreshed “run” of the regression analyses. This
approach creates a “race to the bottom,” in which carriers will be encouraged to invest less in
plant and spend less on operations – even if the “job to be done” (such as delivering 4/1 Mbps
speed broadband) in a given area requires such expenditures – simply to avoid being affected by
the caps. Moreover, this dynamic capping does nothing to restore predictability to the high-cost
program but instead only exacerbates uncertainty. Under these caps, it appears that a carrier
could actually reduce or maintain existing investment and expense levels during a given year but
still suffer unexpected reductions in its HCLS (and/or ICLS) if its “peer group” has changed or if
its existing peers have reduced their costs faster.

21 The Associations suggested a reasonable constraint on investment as part of the RLEC Plan.
See Rural Associations April 18 Comments, Appendix A.
22 The Commission’s decision to delegate to the Wireline Competition Bureau the authority to
establish regression-based constraints raises serious legal concerns as well. E.g., Letter from
Michael R. Romano, NTCA, to Marlene H. Dortch, FCC, WC Docket No. 10-90, et al. (filed
Oct. 21, 2011) at 2.
10


The Commission dismissed these concerns in the Order by noting that the current HCLS
mechanism is unpredictable.23 This is hardly reassuring. The Commission should fix
uncertainty within the HCLS mechanism rather than exacerbate it by introducing more
unpredictability. To remedy this shortcoming, the Commission should find that any caps based
upon regression analyses will, once developed, remain in place for at least seven years before
being “refreshed.” This would give carriers a more reasonable time horizon against which to
plan investments and adjust operations than a cap that dynamically and unpredictably changes
each year.
Premature Application of Caps to ICLS. Application of new caps on cost recovery
through ICLS is hasty and injudicious. Even as it adopts this requirement, the Order
acknowledges that neither the Commission nor any party has any sense yet of how to implement
this or the effects of it.24 The Associations understand the Commission’s desire to examine this
issue, and welcome participation in a thorough debate about whether such a measure should be
adopted. But to adopt this approach first and then try to figure out later if and how it can work –
without any discussion or consideration of the impacts of doing so – is highly questionable as a
matter of reasoned rulemaking. The Commission should reconsider this decision and state
instead that it will examine the potential application of the new caps to ICLS, subject to adequate
notice and comment.25

23 Order ¶ 220.
24 Id. ¶ 225.
25 At a minimum, the Commission should reconsider the timing for extension of the corporate
operations expense cap to the ICLS mechanism, and the effective date of all other operating
expense caps to be developed through the regression analyses. Under the Order, the corporate
operations expense cap will immediately extend to ICLS well before any mechanisms that might
permit additional opportunities for interstate cost recovery through high-cost USF (such as
proposed in the RLEC Plan) are adopted. The expense caps to be developed through the
regression analyses would apparently take effect immediately upon adoption as of July 1, 2012,
11


“Double Capping” of HCLS. The Commission should reconsider its decision to siphon
support away from the HCLS mechanism based upon application of the new caps.26 The HCLS
mechanism is already subject to an overall cap that results in many carriers receiving less support
than they would by straightforward operation of the rules.27 For this reason, in the context of the
current corporate operations expense cap, any support reductions that occur as a result of the
application of that current cap are redistributed to other HCLS recipients – these carriers are
simply receiving support they would have received but for the overall cap on the mechanism.
This diversion of HCLS means that some carriers who are already suffering from a
shortfall in cost recovery due to the overall cap will see no relief. The Associations understand
that the Commission’s intent is to preclude the “recycling” of savings from the new caps to those
RLECs who are affected in some way by those caps.28 But this policy is punitive in that it
effectuates a “double cap” – the overall cap on HCLS and then the new caps – on RLECs who
need such support in the first instance precisely because they serve high-cost areas.
Indeed, this policy runs the risk of penalizing RLECs who are highly “efficient” in nearly
every way that the Commission might measure. For example, a carrier may exceed the
benchmark in a single cost category or two by a minimal amount, say $1,000, but otherwise be
hundreds of thousands of dollars below the benchmarks in all other cost categories subject to the

even though no carrier will have seen those caps prior to that time. To ensure that carriers have
adequate opportunity to adjust their operations for compliance with these new caps, the
Associations suggest the Commission at a minimum delay implementation of any new operating
expense caps, including extension of the corporate operations expense cap to ICLS, until no
sooner than January 1, 2013.
26 Id. ¶ 220.
27 See 47 C.F.R. § 36.601(c).
28 See Order ¶ 220. (support will only be redistributed to those carriers “whose unseparated loop
cost is not limited by operation of the benchmark methodology”).
12


regression analysis. Yet the Commission’s policy would deny that RLEC the benefit of any
“redistributed” HCLS. This is plainly irrational and contrary to the intent of the law.
The Commission’s decision seems to overlook the undisputable fact that these are small
companies who serve as COLRs in high-cost areas in which no other entity would serve.
Denying these carriers the chance to recover more but still not all of the high loop costs
associated with serving these large, sparsely populated areas is patently inconsistent with the
Order’s stated objectives for universal broadband service availability.29 The Commission should
reconsider its decision with respect to the handling of HCLS reductions resulting from
application of the new caps, and find instead that the entirety of those reductions will be
redistributed to other RLECs – including those impacted by new caps -- within the overall
capped HCLS mechanism.

C. The Commission Should Reconsider Or Modify Several Of The Other Capping

Mechanisms Adopted In The Order.

1. The Commission Should Determine Reasonably Comparable Rates on
the Basis of Standard Deviations, Rather than Arithmetic Average.

The Order limits high-cost support where end-user rates do not meet an urban rate floor
based on the national average of the local rate plus state-regulated fees.30 The Commission's
intent is to reduce support for “artificially low” end-user rates.31 The Associations submit that

29 E.g., id. ¶¶ 17, 22, 28, 48, 87.
30 Id. ¶ 238.
31 Id. ¶ 234.
13


the use of a statistical measure such as the standard deviation would identify more accurately
those carriers whose rates are so-called “artificially low” or beyond reasonable comparability.32
There is nothing “artificially low” about an end-user rate that is a penny or even a dollar
below the national average. Moreover, the Commission has previously relied upon standard
deviations to establish reasonable comparability for USF purposes.33 The plain language of the
statute contemplates variances of the type accommodated by standard deviations as it instructs
the Commission to ensure “reasonable comparability.”34 For these reasons, the Commission
should reconsider the rule and replace the arithmetic average with a statistical measure to
determine instances where end user rates are considered “artificially” low.
2.

The Commission Should Reconsider Several Aspects of its Decision
with Respect to the Elimination of Safety Net Additive Support.


In considering changes to the safety net additive (SNA) support mechanism, the
Commission declined to adopt the Associations’ suggestion that SNA qualification be based on
total year-over-year changes in total telecommunications plant in service (TPIS), rather than on
per-line changes in TPIS. It concluded instead that beneficiaries whose TPIS increased by more
than 14 percent over the prior year at the time of their initial qualification should continue to

32 Arithmetic averages are influenced unduly by the presence of outliers, both above and below
the mean. Therefore, even where the predominant number of rates is clustered closely to each
other, the inclusion of a substantially higher or lower figure can produce an average that deviates
from the cluster. In contrast, the standard deviation accommodates favorably a distribution of
data across a range.
33 E.g., High-Cost Universal Service Support, WC Docket No. 05-337, Federal-State Joint
Board on Universal Service
, CC Docket No. 96-45, Joint Petition of the Wyoming Public
Service Commission and the Wyoming Office of Consumer Advocate for Supplemental Federal
Universal Service Funds for Customers of Wyoming’s Non-Rural Incumbent Local Exchange
Carrier
, Order on Remand and Memorandum Opinion and Order, 25 FCC Rcd. 4072 (2010) ¶
43, n. 144; see also Order ¶ 592.
34 See, e.g., 47 U.S.C. § 254(b)(3). It is hard as a matter of logic to see how a single end-user rate
could be considered both “artificially low” and yet “reasonably comparable” at the same time.
Yet a benchmark floor based upon the national average would enable just such a result.
14


receive SNA support for the remainder of their eligibility period. For remaining beneficiaries,
SNA support will be phased down in 2012.35 No new SNA support for costs incurred after 2009
will be provided.36
In reaching these determinations, the Commission reasoned that even if SNA support is
based on total (rather than per-line) TPIS, it would not ensure proper targeting or efficiency in
investing.37 The Commission’s analysis failed to consider, however, that other provisions of the
Order designed to limit recovery of CapEx and OpEx amounts via other high-cost mechanisms
would also ensure that investment eligible for SNA support under the total TPIS test would be
similarly confined, thereby restoring SNA to its original purpose. The Associations therefore
request that the Commission reconsider its decision to eliminate SNA altogether, and instead
adopt new qualifications for SNA support based upon total year-over-year changes in TPIS, as
previously recommended.

At a minimum, the Commission should reconsider its conclusion that no SNA will be
available for costs incurred between 2009 and the effective date of the Order. The Commission
reasons that carriers are not “entitle[d]” to such support, and that “since early 2010, the
Commission has given carriers ample notice that we intended to undertake comprehensive
universal service reform in the near term."38 This purported justification assumes the industry
should have expected the Commission to engage in retroactive rulemaking. Parties aware of
impending rule changes might reasonably be expected to reconsider future investment plans, but
it is irrational to suppose carriers would refrain from making investments that qualify under

35 Order ¶ 249. For this group, SNA support will be reduced 50 percent in 2012, and eliminated
in 2013.
36 Id.
37 Id. ¶ 251.
38 Id. note 409.
15


current rules simply because future rules might change in some unforeseeable manner.39 This
outcome is patently inconsistent with "familiar considerations of fair notice, reasonable reliance,
[and] settled expectations" embodied in the general prohibition against retroactive rules.40

Finally, the Associations request that the Commission reconsider the pace of its phase-
down of support for those who are receiving SNA as a result of line loss. These recipients are
often companies struggling to adjust to market developments, and the precipitous loss of SNA –
coupled with many of the other significant reforms contained in the Order – could place some of
these companies in significant peril. At a minimum, the Commission should therefore extend the
phase-down of SNA support where attributable to line loss from two to four years, so that SNA
support would be eliminated at the end of 2015 rather than 2013.
3.

The Order’s Adoption of a Per-Line Cap on High-Cost Support
Imposes Substantial Damage on Small Companies with Little
Aggregate Public Interest Benefit.




The Commission should reconsider its imposition of a $250 monthly per-line high-cost
cap.41 First, the Order provides no explanation whatsoever as to the basis for choosing $250 per
month as a limit on per-line support. What is known, however, is that the rule as adopted will
have limited benefit but devastating impacts on affected small companies. While the
Commission has acknowledged an opportunity for waiver, the anticipated administrative and

39 Strict application of this logic would lead to the conclusion that no one should invest in
broadband-capable network deployment in 2012 in reliance upon high-cost USF support because
their support might change as a result of the pending FNPRM.
40 See, Marie v. Securities and Exchange Commission, 374 F.3d 1196, 1207 (D.C. Cir. 2004)
(Marie v. SEC) (SEC disciplinary action against auditors for 1994 actions invalidated because
standard imposed was not effective during period of auditors’ actions), quoting Landgraf v.
USI Film Products,
511 U.S. 244 (1994). The fact that USF processes in some cases incorporate
delays between expenditures and recovery does not mitigate the general principle that the impact
of regulations should be prospective-only.
41 Order ¶ 274.
16


financial burdens of executing those waivers as discussed below argue for reconsideration of the
rule.42

The Commission's imposition of a per-line cap on individual carrier high-cost support is
intended, ostensibly, to be “consistent with fiscally responsible universal service reform.”43 This
rule does not achieve that objective. By the Commission's own measure, the cap would only
affect a few high-cost RLECs.44 Savings from this measure would amount to less than three-
quarters of one percent the total high-cost support received by RLECs. For affected end-users,
however, the impacts would be disastrous – carriers would need to raise monthly rates anywhere
from about nine dollars to $1,200 in order to recover resulting revenue shortfalls.45
The Associations do not dispute the need to ensure fiscal responsibility. But the per-line
cap does not achieve that goal. There has been no finding that carriers requiring high per-line
support amounts are, by definition, “irresponsible” or that their costs above $250 per line per
month were not used, useful, or lawful; in fact, the FCC has recognized that the cost of providing
terrestrial phone service in some rural areas is significant.46 Nor are these carriers (or any other

42 Infra, section III.
43 Order ¶ 273.
44 Id. ¶ 277. (“We emphasize that virtually all (99 percent) of incumbent LEC study areas
currently receiving support are under the $250 per-line monthly limit. Only eighteen incumbent
carriers and one competitive ETC today receive support in excess of $250 per-line monthly, and
as a result of the other reforms described above, we estimate that only twelve will continue to
receive support in excess of $250 per-line monthly.”)
45 Id. at 46.
46 Connect America Fund, WC Docket No. 10-90, A National Broadband Plan for Our Future,
GN Docket No. 09-51, Establishing Just and Reasonable Rates for Local Exchange Carriers,
WC Docket No. 07-135, High-Cost Universal Service Support, WC Docket No. 05-337,
Developing an Unified Intercarrier Compensation Regime,
CC Docket No. 01-92, Federal-State
Joint Board on Universal Service,
CC Docket No. 96-45, Lifeline and Link-Up, WC Docket No.
03-109, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 26 FCC
Rcd. 4554 (2011) ¶ 210.
17


RLECs) placing significant strains on the high-cost USF program such that these draconian
measures are warranted – as noted several times before in this record, RLECs’ total high-cost
USF support increased by only 3 percent on average between 2006 and 2010.47
The Commission should accordingly set aside monthly per-line caps and not consider
similar measures until the impacts of other constraints the Commission has adopted are
evaluated. Alternatively, the per-line cap should be applied on a prospective basis only, after
costs of current investment have been recovered. Finally, if the Commission declines to
reconsider the cap in the short-term, it should provide for an expedited waiver process, avoid
applying the per-line cap while a waiver request is pending, and also lift the cap when other caps
are imposed, since those constraints should have a broader impact on the Commission’s
objective to meet high-cost funding budgets.
4. The Commission Should Not Begin Phasing Out Support in Areas with

Competitive Overlap Without Addressing Ongoing RLEC Obligations as
COLRs and ILECs.


The Order states that the Commission has adopted a rule phasing out all high-cost
support in study areas where an unsubsidized competitor, or combination of unsubsidized
competitors, offers voice and broadband service for 100 percent of residential and business
locations in an incumbent’s study area.48 Methods to identify overlaps and how to adjust support
where overlaps are less than 100 percent will be considered in the FNPRM. 49
Neither the Order nor the FNPRM address, however, the continued application of COLR
obligations to RLECs facing elimination or reductions in support as a result of competitive
overlap, or even whether such companies will continue to be treated as "incumbent" LECs under

47 Id. at 59, Figure 7. See also Rural Associations April 18 Comments at 56, note 116.
48 Order ¶ 283.
49 Id. ¶¶ 1061-78.
18


the Act. These issues are critical and must be addressed prior to implementation of any such
rule. The Associations accordingly request the Commission reconsider the Order insofar as it
would require any phase-out of support in RLEC areas with 100 percent overlap, at least until
such time that questions related to RLECs' ongoing obligations as COLRs and ILECs are
resolved.

III.

THE ORDER ESTABLISHES UNREASONABLY STRINGENT STANDARDS
FOR OBTAINING WAIVERS OF THE SUPPORT REDUCTION RULES AND
FOR REQUESTING ADDITIONAL CAF ICC SUPPORT.



Both the high-cost support waiver petition process established in section VII.G of the
Order (“USF waiver petition process”) and the additional access replacement support request
process established in section XIII.G thereof (“ICC additional support request process”) impose
unreasonable burdens on RLECs and other small businesses, and should be reconsidered.

The Commission’s general rule governing waiver requests permits the filing of relatively
brief, straightforward and inexpensive petitions for waiver.50 Existing procedures also permit the
Commission to exercise broad discretion to waive a rule where particular facts make strict
compliance inconsistent with the public interest, and to take into account considerations of
hardship, equity, or more effective implementation of overall policy on an individual basis.51

In stark contrast, the new high-cost USF waiver petition process requires submission of
extraordinarily detailed information that will be difficult, if not impossible, for small companies

50 See, e.g., Petitions for Waiver of Universal Service High-Cost Filing Deadlines, WC Docket
No. 08-71, Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Cedar-
Wapsie Communications, Inc. Petition for Waiver of Section 54.904(d) Filing Deadline For
Submission of Annual Interstate Common Line Support Certification, DialToneServices, L.P.
Petition for Waiver of Section 54.307(c) of the Commission’s Rules
, et al., Order, 26 FCC Rcd.
11069 (2011).
51 Id. ¶ 10, citing Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir.
1990) and WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969).
19


affected by funding cuts to assemble and submit.52 ICC additional support requests also require
RLECs to perform burdensome and outdated separations studies.53 The type of RLEC most
likely to consider filing a USF waiver petition and/or an ICC additional support request is one for
whom loss of substantial USF and/or ICC revenues will threaten its very ability to survive. Cuts
in support resulting from the changes announced in the Order will likely impose significant
hardship on many small companies, and may require them to reduce service and eliminate jobs
that are important to maintaining service, as well as the economic health of their local
communities. And, yet, the Commission would have these companies divert resources to prepare
and prosecute elaborate and extensive waiver petitions, while at the same time imposing new
limits on recovery of such expenses from support mechanisms.
The Order fails to assess the impacts of these burdens on small companies.54 Nor does
the Commission consider whether any reasonable alternatives might be employed to avoid such
burdens. Rather, by making it painfully apparent that such waiver requests will be subjected to a

52 USF waiver petitions under the Order will require, at a minimum, submission of (1) extensive
and expensive geographic and demographic information; (2) information regarding the existence
or lack of alternative voice providers, and whether any such alternative providers offer
broadband; (3) Part 32 and Part 36 accounting information regarding unused and/or spare
equipment; (4) detailed breakdowns of corporate operations expenses; (5) descriptions of all end-
user rate plans; (6) lists of all non-voice services provided over supported plant; (7) descriptions
of all cost allocation procedures; (8) audited (if available) or unaudited financial statements for
the most recent three fiscal years (including costs and revenues of unregulated operations); (9)
information regarding outstanding loans (including loan terms and recent restructuring
discussions); and (10) information regarding the specific facilities that will be taken out of
service if the waiver is not granted. Order ¶¶ 542-543.
53 Id. ¶ 932
54 The final Regulatory Flexibility Analysis (RFA) in Appendix O is deficient in that it does not
address the cost and burden of the USF waiver petition process or the ICC additional support
request process upon RLECs and other small businesses. Although the Commission recognizes
that RLECs are non-dominant small businesses for RFA purposes, it does not consider or adopt
any procedures that would make either process less burdensome and less expensive for RLECs
and other small businesses. Id., Appendix O ¶ 45.
20


rigorous review “comparable to a total company earnings review” and that they will not be
granted except in extreme circumstances,55 the Commission’s “waiver” process appears to be
nothing more than a fig leaf, designed to make small companies jump through administrative
hoops in futile attempts to pursue relief.56
On reconsideration, the Commission should revise both the USF waiver petition process
and the ICC additional support request process to make them much less burdensome and more
equitable and attainable for RLECs and other small companies.57 Specifically, the Commission
should discard the various hurdles specified in the Order and instead simply apply the “good
cause” standard applicable to waiver requests generally under section 1.3 of the rules.
If the Commission retains its stringent and inequitable waiver processes, it should afford
RLECs the option to sub-divide their study areas and terminate service to portions thereof if their
petitions for additional USF and/or ICC support are denied. Whereas this is a “solution” that
RLECs do not desire, there is concern that instances may arise where the Commission’s

55 See, e.g., Order ¶ 540.
56 Companies are also likely to be discouraged from filing such waiver requests by the prospect
of lengthy delays in receiving responses. Relatively simple waivers of high cost support filing
deadlines typically take about five months for processing, but many petitions languish for years.
See, e.g., Allo Communications Petition for Waiver of Section 54.307(c) of the FCC’s Rules et
al.,
CC Docket No. 96-45 and WC Docket No. 08-71, et al., Order, 26 FCC Rcd. 6178 (2011)
(waiver petitions filed from 11.5 months to 5.2 years earlier); Iowa Telecom Petition for Interim
Waiver of the Commission’s Universal Service High-Cost Loop Support Mechanism,
WC Docket
No. 05-337, Order, 25 FCC Rcd. 5573 (2010) (waiver petition filed over four years earlier).
57 The Commission’s selective approach to imposing support cuts and reductions on RLECs,
while proactively discouraging small companies from seeking relief, is patently unfair in
comparison to its treatment of larger carriers like Verizon and AT&T. Based on a review of
Verizon and AT&T’s 2010 Annual Reports, for example, each of these companies had average
annual net income during the 2001-2010 period in the range of $9.0 billion. That is, they each
could fund the entire proposed $4.5 billion annual high-cost budget about twice. Yet, the Order
will potentially provide these carriers with substantial new CAF and Mobility Fund support (as
well as major access and reciprocal compensation savings) without any reference whatsoever to
whether such funding is actually needed in light of their “total company earnings.”
21


broadband service requirements are so burdensome, and where support is so limited, that RLECs
may have no choice but to stop serving the more expensive portions of their study areas to
prevent their entire company from spiraling into bankruptcy, leaving customers in those areas
without service. This result would be in direct conflict with the universal service goals of the
Act.
Finally, given the serious potential consequences of support reductions to end users, and
the history of substantial delay in processing waiver petitions, the Commission should suspend
implementation of any support reductions pending release of a final order on submitted waiver
petitions regardless of what standard is applied in considering such waivers.

IV.

NEW RULES IMPOSING ANNUAL REPORTING REQUIREMENTS ON RLECs
ARE UNDULY BURDENSOME AND SHOULD BE SUBSTANTIALLY
REVISED.



The new annual federal reporting requirements in section 54.313 of the Commission’s
rules should be reconsidered, and limited in both scope and content. They not only override
established and effective state commission reporting and monitoring processes without any
showing they are defective, but also impose expensive, unduly burdensome, and in some cases
impossible information requirements and deadlines upon RLECs and other small companies.
Virtually all RLECs were designated as ETCs by their state commissions during the
initial implementation of the Telecommunications Act of 1996 and have been subject to state
commission ETC monitoring and reporting requirements since that time. Unless their state
commission independently implemented some or all of the reporting requirements that the
22


Commission adopted in 2005 for FCC-designated ETCs,58 these RLECs have not heretofore
been subject to federal ETC monitoring and reporting requirements.59
The Commission should accordingly reconsider and reduce the scope of section 54.313 to
encompass annual filing requirements solely for ETCs designated by the Commission pursuant
to section 214(e)(6) of the Act. Whereas the Commission can always recommend or suggest
reporting requirements to the states, it should continue to respect the rights and discretion of state
commissions to maintain reporting requirements and monitoring procedures for state-designated
ETCs that are congruent with the particular needs, resources and circumstances of each state.

Moreover, imposing the new federal reporting requirements on small RLECs will inflict
substantial additional regulatory burdens and filing expenses on these entities.60 For example, it
will be very difficult, if not impossible for most privately-held RLECs to comply with section
54.313(f)(2)’s mandate for the filing of a complete, audited annual financial report (including
non-regulated revenue) by April 1 of each year.61 Obtaining outside auditing services during the
January 1 to April 1 period is particularly problematic because accounting firms are
overwhelmed with year-end financial reports and audits for publicly traded companies as well as

58 47 C.F.R. § 54.209(a).
59 The Commission has repeatedly recognized that the USF and ICC are “hybrid state-federal
programs” and that the states need to remain “key partners” as these programs evolve (Order
15). The Order provides no evidence of inadequate, negligent or otherwise unsatisfactory
monitoring of state-designated ETCs by state commissions during the more than 14 years that
they have been responsible for that task. In fact, the Commission has retained its procedures and
requirements for the annual October 1 state commission certifications pursuant to section 54.314.
60 Again, the Commission’s RFA in Appendix O fails to address the major new burdens and
costs that new section 54.313’s requirements will place on RLECs and other small businesses.
61 Rural Utilities Service (RUS) procedures require RLECs and other borrowers to submit
audited financial reports to RUS by April 30 of each year, but RUS routinely grants formal and
informal extensions of this filing date, and does not impose self-effectuating penalties or funding
reductions like those included by the Commission in section 54.313(j) for late filings.
23


corporate and individual tax returns.62 A significant number of RLECs also participate in
wireless partnerships and other joint ventures, often with larger carriers over whom they have no
control or influence. Such RLECs often do not receive their year-end financial statements and/or
K-1 partnership tax forms until March or months later, and therefore cannot prepare their
consolidated financial statements for review by external auditors in time to meet an April 1
deadline. This requirement will also be particularly onerous for companies that have not been
required by regulators, investors or lenders to conduct financial audits during recent years, and
who therefore do not have recently-audited financial statements on which to base reports.
The self-effectuating penalties of section 54.313(j) will greatly exacerbate the difficulties
and severity of the April 1 deadline. RLECs who through no fault of their own are unable to
meet the current April 1 filing deadline stand to lose approximately 25 percent of the already
reduced annual USF and ICC support that they urgently need to sustain their existing operations
(and will lose another 25 percent if they cannot meet the secondary July 1 date). Section
54.313(j) is also far more onerous than similar prior rules that applied to individual high-cost
support mechanisms because it reduces an ETC’s entire USF and CAF support.

As noted above, the annual network performance tests required by section 54.313(a)(11)
of the Commission’s rules constitute another burdensome and expensive undertaking for RLECs,
particularly inasmuch as the reforms adopted in the Order fail to provide support for the services
these tests are intended to analyze. However, even if these services were being supported,
conducting network performance tests in the large and sparsely populated farming, ranching,
mountain, forest, desert and tundra areas served by many RLECs will require hundreds of man-

62 See Letter from David M. Marlett, Marlett and Associates, to Marlene H. Dortch, FCC, WC
Docket No. 10-90, et al. (filed Dec. 27, 2011).
24


hours, as well as the diversion of vehicles and monitoring equipment that would be better used
for providing quality service to rural consumers and businesses.63

It would be far more reasonable for the Commission to reduce such regulatory burdens
and encourage small carriers to expend their decreasing revenues upon facilities, maintenance
and service to customers. The Commission should accordingly limit the scope of its reporting
requirements to FCC-designated ETCs and reduce the significant economic burdens placed upon
RLECs and other small entities by (1) revising the filing deadline for RLEC annual reporting
from April 1 to September 1; (2) establishing a simplified waiver process that will allow RLECs
to avoid the harsh consequences of section 54.313(j) if they cannot meet the filing deadline for
reasons beyond their control or other good cause; and (3) establishing simplified and less
expensive network performance testing and reporting requirements for RLECs and other small
entities.
Finally, the Commission should treat any reports submitted by carriers pursuant to section
54.313 as confidential and proprietary, and exempt from disclosure under the Freedom of
Information Act. At a minimum, the Commission should make clear carriers submitting such
reports may obtain confidential treatment pursuant to standard protective orders.64



63 As also noted above, see supra note 10, it is not at all clear how RLECs providing only
broadband transmission services can be expected to comply with the end-to-end broadband
service reporting requirements specified in section 54.313 in any event.
64 E.g., Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, et al.,
Protective Order, 25 FCC Rcd. 13160 (2010); Supplemental Protective Order, 26 FCC Rcd.
12795 (2011).


25



V.

THE COMMISSION MUST ESTABLISH CLEAR RULES GOVERNING THE
RATE OF RETURN REPRESCRIPTION PROCESS BEFORE INITIATING A
REPRESCRIPTION HEARING.


The informal notice-and-comment procedures the Commission intends to follow to
represcribe the authorized interstate rate of return are insufficient to meet the hearing
requirement of section 205(a) and relevant provisions of the Administrative Procedure Act
(APA) and must accordingly be reconsidered.
The Associations have no objection to the Commission’s decision to waive portions of
the Part 65 rules that have clearly become obsolete (e.g., rules requiring service of paper copies,
page limits, etc.). Nor do the Associations expect the Commission to return to the “trial-type”
procedures previously used to prescribe the rate of return. The Commission must, however,
follow a two-step process whereby it first addresses identified flaws in current substantive rules
governing rate-of-return represcriptions. At that point it may conduct a hearing based on such
rules, using procedures that are sufficiently rigorous for the adjudicative, adversarial fact-finding
process required under section 205(a) of the Act and the APA.

A. The FCC Must First Adopt New Substantive Rules Governing the

Represcription Process Before It Takes Evidence to Determine a Reasonable
Rate-of-Return.



More than 20 years ago, the Commission concluded its Part 65 rules were deeply flawed
and, as such, could not be used, without revision, for a rate of return prescription.65 Among
other things, the FCC admitted its methodology for determining “comparable firms” was
deficient.66 It further stated that it did not know how to account properly for the fact that many

65 Represcribing the Authorized Rate-of-Return for Interstate Services of Local Exchange
Carriers
, Order, 5 FCC Rcd. 7507 (1990).
66 Refinement of Procedures and Methodologies for Represcribing Interstate Rates of Return for
AT&T Communications and Local Exchange Carriers;
and Represcribing the Authorized Rate of
26


RLECs are locally owned and not publicly traded.67 The Commission, however, never adopted
revised regulations addressing these and other flaws.
The Commission apparently expects these issues will be worked out via the FNPRM.
Given the significance of the support that flows from these rules to RLEC stability and service
delivery, the Commission cannot conduct a fair, fact-based hearing based on either the old,
flawed rules or revised rules that have not yet been adopted. A rate of return prescription based
on a record compiled in this manner is effectively “rate-making on the fly,” and will almost
certainly be overturned by a court as arbitrary and capricious, particularly insofar as the
Commission has not explained any reason why its earlier findings regarding flaws in traditional
methods used to estimate the cost of capital for RLECs are no longer a concern. Methodology
questions raised in the FNPRM must be resolved, and new “rules of the road” announced, before
the Commission can legitimately conduct a represcription hearing under section 205(a).

B. The Abbreviated Informal Notice and Comment Procedures Described in the

FNPRM Will Not Satisfy Section 205(a)’s “Hearing” Requirement.

A section 205(a) hearing need not be a trial-type proceeding – “paper hearing”

Return for Interstate Services of Local Exchange Carriers, Order, 5 FCC Rcd. 197 (1989) ¶ 47.
The FCC must evaluate earnings of “comparable firms” and ensure firms selected for evaluation
have similar risks to the RLECs. Petal Gas Storage, L.L.C. v. FERC, 496 F.3d 695 (D.C. Cir.
2007).
67 Regulatory Reform for Local Exchange Carriers Subject to Rate of Return Regulation, Notice
of Proposed Rulemaking, 7 FCC Rcd. 5023 (1992) ¶ 6. Other Part 65 concerns were raised by
the FCC in an even earlier notice of proposed rulemaking. Refinement of Procedures and
Methodologies for Represcribing Interstate Rates of Return for AT&T Communications and
Local Exchange Carriers
, Notice of Proposed Rulemaking, 2 FCC Rcd. 6491 (1987). The
problems identified included: 1) groupings of carriers in light of regulatory and market changes;
2) possible prescription of a return on equity only; 3) use of Capital Asset Pricing Model
(CAPM); and 4) use of accounting data to segregate overall company risk by jurisdiction or line
of business.
27


procedures may be used instead.68 But contrary to claims, the abbreviated notice and comment
procedures the Commission intends to follow in this proceeding will not satisfy section 205(a)’s
hearing requirement.69 This is because rate of return represcription proceedings are “adversarial
in nature and depend upon a thorough fact-based inquiry that develops a great amount of
probative evidence.”70
The Commission cannot avoid these requirements simply by “waiving” its Part 65 rules
governing represcriptions.71 No explanation is given as to why the Commission’s prior
statements regarding the need for adjudicative fact-finding – which underlie the Part 65 rules –
are no longer operative.72
Key to the ability to participate fully in a rate-of-return prescription hearing is access to
two basic tools: (1) disclosure of the information and assumptions underlying the factual
submissions of any parties seeking lower rates of return; and (2) the ability to probe others’

68 Order ¶¶ 641-642. Authorized Rates of Return for the Interstate Services of AT&T
Communications and Exchange Telephone Carriers
, Report and Order, 59 Rad. Reg. 2d (P&F)
651 (1985); Amendment of Parts 65 and 69 of the Commission’s Rules to Reform the Interstate
Rate of Return Represcription and Enforcement Processes
, Report and Order, 10 FCC Rcd. 6788
(1995) ¶¶ 51-57 (Rate of Return Streamlined Rules R&O).
69 Id. ¶ 51. Instances where the Commission has used “pure” notice and comment procedures to
prescribe rates and tariff regulations have typically involved policy matters requiring
determination of legislative facts as opposed to adjudicative facts. For example, the Commission
used informal notice and comment procedures to prescribe tariff regulations that permitted the
resale of interstate private lines (AT&T v. FCC, 572 F.2d 17 (2nd Cir. 1978)) and the
establishment of ceilings for subscriber line charges (SLC) (Access Charge Reform, CC Docket
No. 96-262, First Report & Order, 12 FCC Rcd. 15982 (1997) ¶¶ 75-87, aff’d Southwestern Bell
Tel. Co. v. FCC
, 153 F.3d 523 (8th Cir. 1998)).
70 Rate of Return Streamlined Rules R&O ¶ 51.
71 Order ¶ 642.
72 Informal notice and comment procedures are particularly inappropriate where, as here,
commenters are also expected to address a multitude of complex USF and ICC reform issues in
addition to presenting the equivalent of a direct case on RLEC cost of capital, all within a very
short time frame.
28


submissions for weaknesses and errors. Existing Part 65 rules address both.73
The Commission should accordingly reconsider its decision to conduct an abbreviated
all-in-one represcription proceeding utilizing inadequate notice and comment procedures. It
should instead first determine what methods will be used to represcribe the authorized rate of
return for RLECs, and it must then conduct an adjudicative hearing sufficient to meet section
205(a)’s requirements. At a minimum, the Commission should clarify procedures governing
presentation of data and discovery.74 The Commission should also reinstate the 60-60-21-day
time frames for adversarial filings set forth in section 65.103 of its rules. This is critical for
RLECs with limited resources to develop the data needed to prepare direct cases, to obtain the
services of qualified experts to analyze this data, and to respond fully to adversarial filings.

VI.

RECONSIDERATION AND/OR CLARIFICATION IS REQUIRED REGARDING
THE APPLICATION OF NEW INTERCARRIER COMPENSATION RULES
ADOPTED IN THE ORDER.


A. The Commission Must Provide a Reasonable Opportunity for Rate-of-Return

Carriers to Recover Interstate Costs Allocated to Switched Access Rate
Elements.


Under current Commission Part 36, 64 and 69 cost allocation rules, RLECs are required
to allocate costs between the interstate and intrastate jurisdictions and assign portions of those
costs to specific access rate elements for recovery from a combination of charges assessed upon
end users and interexchange carriers, along with high-cost universal service support mechanisms.
The Order, however, caps and then reduces charges that may be assessed upon other carriers for

73 Section 65.105, for example, combines mandatory disclosure and limited discovery. Of note,
while the Order waives Part 65 rules governing service of process and related matters, this
provision is not explicitly addressed. Order ¶¶ 643-645. It thus remains unclear whether these
procedures will be available to parties in the proceeding.
74 Id.
29


switched termination and permits RLECs to recover only a portion of the resulting shortfall from
a new end-user charge (the Access Recovery Charge (ARC)) and a new interstate recovery
mechanism (CAF ICC Support), which is scheduled to be reduced at a rate of five percent per
year.75 Since existing cost allocation rules remain in effect, however, RLECs are mathematically
required to allocate expenses and investments to the equivalent of a regulatory black hole, with
no opportunity whatsoever for recovery.
The Commission seeks to justify this result by asserting that rate-of-return carriers are
now "off of rate-of-return based recovery specifically for interstate switched access revenues."76
But in simply declaring that RLECs no longer recover switched access costs via rate-of-return
regulation, the Commission failed to address the numerous objections raised in comments to this
result.77 If the Commission’s intent was to implement some form of incentive regulation system
for RLECs’ switched access services, it failed to provide any basis for why earlier concerns, in
particular issues surrounding the need to develop appropriate and fair productivity factors for
RLECs, suddenly no longer apply.78
To resolve these concerns the Commission must provide a reasonable method for RLECs
to recover costs allocated to switched access elements under current rules. This may be
accomplished either by (a) reconsidering the decision to cap and then reduce annually carriers’

75 Id. ¶¶ 850-853.
76 Id. ¶ 900.
77 Comments of NECA, NTCA, OPASTCO, WTA, and the Rural Alliance, WC Docket No. 10-
90, et al. (filed July 12, 2010) at 45-62 (Rural Associations July 12 Comments).
78 Id. The Commission’s analysis of average reductions in switched access revenue
requirements among RLECs, Order ¶¶ 885-887, does not provide an adequate foundation for
assuming that individual RLECs will achieve such productivity gains. To the contrary, there is
and will continue to be tremendous variance among RLEC revenue requirement trends, which in
turn will cause some to experience significant shortfalls as their eligible recovery amount
declines year after year.
30


eligible recovery amounts, or (b) permitting RLECs to establish a new rate element applicable to
interexchange carriers (which may be flat-rated) designed to recover costs assigned to existing
switched rate elements in excess of those recovered via ARCs and CAF ICC Support.
Otherwise, put quite simply, neither switched access costs nor the “additional costs” of transport
and termination will be recoverable.

B. Mechanics of CAF ICC Support Calculations.



For rate-of-return carriers, the Order specifies that the “Rate-of-Return Eligible
Recovery” will be calculated from a carrier’s “Rate of Return Baseline” less its “ICC recovery
opportunity” for that year. The Order indicates that the starting point for calculating the Rate-of
Return Baseline will be a rate-of-return carrier’s 2011 interstate switched access revenue
requirement, plus its FY2011 intrastate switched access revenues for rates capped or reduced by
the Order, plus its FY2011 net reciprocal compensation revenues.79 Several aspects of this
calculation require reconsideration and/or clarification.
1.

Rate-of-Return Baseline Interstate Revenue Requirements Should Be
Based on Actual Cost Studies Rather than Tariff Forecasts.


The rules governing calculation of the Rate-of-Return Baseline generally specify that
rate-of-return carriers must use projected interstate switched access revenue requirements
associated with their most recent tariff filing.80 For purposes of calculating CAF ICC Support at
the individual study area level, however, the Commission should rely on each study area’s actual
2011 interstate revenue requirements rather than tariff projections.
The rule requiring carriers to use tariff forecasts to determine Baseline amounts comes as
a surprise. The Commission did not propose this approach in any of the notices leading up to the

79 Order ¶ 892.
80 47 C.F.R. § 51.917(b).
31


Order, and carriers certainly could not have reasonably anticipated such short-term forecasts
would form the basis for CAF ICC Support payments. For NECA tariff participants, use of
forecasts is especially problematic. While NECA’s overall tariff forecasts are reasonably
accurate, there are great variations at the study area level.81 Indeed, some companies do not
prepare individual forecasts at all, and instead rely on NECA to develop them. Actual revenue
requirements will, in contrast, be far more accurate and fair in establishing individual company
interstate Baseline amounts.82
As this Rate-of-Return Baseline revenue requirement will be used for years to come to
calculate individual study area CAF ICC Support amounts, the Associations request that the
Commission reconsider use of tariff forecasts to establish Rate-of-Return interstate Baseline
amounts for individual study areas and permit carriers to base such amounts on 2011 actual
interstate revenue requirements.
The Commission should also reconsider its decision to define Fiscal Year 2011 as the
period October 1, 2010 through September 30, 2011, for purposes of calculating rate-of-return
carriers’ base period revenues and demand.83 To assure that base period data are fully and fairly
representative of prior-year operations and provide a greater degree of certainty and closure to all

81 Based on an analysis of differences between forecasted and actual revenue requirement data
for 2010, tremendous differences exist in the extremes, with some study areas seeing increases
up to 120 percent from their forecast and some with decreases as low as 98 percent. In the 2010
data, there were 356 study areas that experienced increases and 320 study areas that experienced
decreases, with an average increase of 8 percent and an average decrease of 6 percent.
82 The Associations have previously explained the degree to which actual cost studies are subject
to review and verification by independent auditors, NECA review procedures, state regulators
and other entities. E.g., Rural Associations April 18 Comments at 29, note 62; Rural Associations
July 12 Comments
at 62. Concerns that cost studies might be manipulated in some way are thus
without foundation.
83 47 C.F.R. § 51.903(e).
32


parties, the Commission should consider instead establishing the period July 1, 2010 through
June 30, 2011 as the Fiscal Year under section 51.903 of the rules.
2.

Inclusion of Tandem/Transit Costs in Reciprocal Compensation
Calculations.


Section 51.701(a) specifies the term “reciprocal compensation” includes charges for both
transport and termination of non-access telecommunications traffic. Section 51.701(c) defines
transport as “the transmission and any necessary tandem switching of Non-Access
Telecommunications Traffic subject to section 251(b)(5) . . . .” Section 51.709 establishes the
rate structure for transport and termination for non-access reciprocal compensation, but specifies
that the rate for transmission facilities dedicated non-access traffic “shall recover only the costs
of the proportion of that trunk capacity used by an interconnecting carrier to send non-access
traffic that will terminate on the providing carrier's network.”84

To resolve this apparent inconsistency, the Associations request revision of these rules or
clarification that the reference to the definition of transmission facilities in section 51.709(b)
includes costs of any necessary tandem switched transport in the calculation of reciprocal
compensation for purposes of computing CAF ICC Support.85

C. Identification of “Toll” VoIP Traffic.


The Order specifies that the default compensation rate for “toll” traffic exchanged
between providers of Voice over Internet Protocol services and the public switched telephone

84 47 C.F.R. § 51.709(b)
85 Proposed ICC rules submitted by the Associations prior to adoption of the Order defined net
reciprocal compensation revenues as “the net difference between reciprocal compensation
amounts received by the carrier from other carriers or service providers (including payments for
transit service) and amounts paid by the carrier to other carriers or service providers (including
payments for transit service) pursuant to agreements established under Part 51 of this Chapter.”
Letter from Michael R. Romano, NTCA, to Marlene H. Dortch, FCC, WC Docket No. 10-90
Attach. at 24 (filed Oct. 17, 2011).
33


network (VoIP-PSTN traffic) will be a carrier’s interstate access rate, while applicable reciprocal
compensation rates apply to other VoIP-PSTN traffic.86 Local exchange carriers (LECs) are
permitted to tariff default charges for toll VoIP-PSTN traffic in relevant federal and state tariffs
in the absence of an agreement for different intercarrier compensation.87
Clarification is required regarding the distinction between “local” and “toll” VoIP. The
Act defines toll calls as those “for which there is made a separate charge not included in
contracts with subscribers for exchange service.”88 It is not clear how this definition applies in
the context of VoIP or other “all distance” calling plans that do not include a separate charge for
toll service. Consistent with current practice for traditional calling services, the Associations
request clarification that state defined local calling areas, in combination with originating and
terminating telephone numbers, will be used to determine whether particular VoIP calls should
be considered local or toll.
The Associations further request clarification as to whether originating interstate access
rates must be applied to intrastate “toll” calls originating on the PSTN and terminating to a VoIP
customer. Inasmuch as originating carriers have no way of knowing whether particular numbers
are associated with VoIP lines on the distant terminating end, it does not appear possible to apply
a differential rate to such calls. To the extent the Order can be read to require originating
carriers to bill such calls at interstate access rates, notwithstanding that signaling data indicates

86 Order ¶ 944.
87 Id.
88 47 U.S.C.§ 153(55).
34


such calls are intrastate toll, the Associations request the Commission reconsider this
requirement and confirm that normal billing rules apply.89

D. Call Signaling Rules for VoIP Traffic.


The Order extends the Commission’s call signaling rules to interconnected VoIP service
providers, requiring them to transmit the telephone number of the calling party for all traffic they
originate that is destined for the PSTN.90 Intermediate providers in a call path must pass,
unaltered, signaling information they receive indicating the telephone number, or billing number
if different, of the calling party.91
ICC obligations under the Order, however, apply to all VoIP-PSTN traffic, which is
defined as “traffic exchanged over PSTN facilities that originates and/or terminates in IP format”
and includes voice traffic from interconnected VoIP service providers as well as providers of
one-way VoIP service that allow end users to place calls to, or receive calls from the PSTN, but
not both. The Commission recognized that the scope of the ICC obligations for VoIP providers
adopted in the Order is broader than the definition of interconnected VoIP to which the call
signaling obligations will apply.92 The FNPRM now seeks comment (yet again) on the need for
signaling rules for one-way VoIP service providers.

89 The Commission did not explicitly address compensation obligations for VoIP traffic
exchanged prior to the Order’s effective date. See Order ¶ 945. To resolve numerous pending
disputes, the Commission should reconsider this “hands off” approach and confirm that VoIP
traffic exchanged prior to the Order’s effective date is and has always been subject to the same
ICC obligations as any other switched voice traffic. See e.g., Comments of NECA, NTCA,
OPASTCO, WTA, ERTA, the Rural Alliance, and the Rural Broadband Alliance, WC Docket
No. 10-90, et al. (filed Apr. 1, 2011) at 4-7.
90 Order ¶ 717.
91 Id. ¶ 719.
92 Id. ¶ 1400.
35


Pending the outcome of the FNPRM, the Associations seek clarification and/or
reconsideration that: (a) all kinds of VoIP services (not just interconnected) are subject to the call
signaling rules; and (b) the rules apply to all traffic terminating to the PSTN, regardless of
technology platform (e.g., softswitches). Otherwise, originating carriers can enter into
arrangements with least-cost routers that employ a VoIP platform to “launder” traffic and
thereby have all call signaling information stripped or altered from the call in question without
consequence. This would clearly undermine, if not invalidate, the Commission’s efforts to
resolve phantom traffic concerns and do nothing after all to close long-standing loopholes that
have led to arbitrage.

E. Application of Access Charges to IntraMTA Traffic Delivered by IXCs.


Under the Commission’s “intraMTA rule” all traffic exchanged between a LEC and a
CMRS provider that originates and terminates within the same MTA, as determined at the time
the call is initiated, is subject to reciprocal compensation regardless of whether or not the call is,
prior to termination, routed to a point located outside that MTA or outside the local calling area
of the LEC.93 The Order notes that there have been questions as to whether application of the
intraMTA rule is feasible or applicable when CMRS calls are routed through an IXC, but asserts
that many ILECs apply reciprocal compensation rates to intraMTA CMRS traffic without regard

93 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 (1996) ¶
1036 (Local Competition First Report and Order); 47 C.F.R. § 51.701(b)(2). The definition of an
MTA can be found in section 24.202(a) of the Commission’s rules. 47 C.F.R. § 24.202(a).
36


to IXC routing.94 The Commission accordingly declined to clarify that the intraMTA rules do
not necessarily apply to such traffic.95
This result will create significant billing and call flow concerns. When a terminating
RLEC receives intraMTA traffic routed through an IXC, there is no realistic way for the carrier
to determine whether such calls are in fact CMRS-originated or whether they are inter- or intra-
MTA. In addition, it should be recognized that the CMRS provider has made an affirmative
decision to route calls through an IXC rather than seeking a local interconnection agreement with
the LEC. Therefore the Commission should reconsider its denial of this request and clarify that
such traffic is subject to access charges notwithstanding potential qualification for reciprocal
compensation rates under the intraMTA rule.96

F. Phantom Traffic Issues.


In addressing “phantom traffic” problems, the Commission amended its call signaling
rules to require all carriers and providers of interconnected VoIP service to include the calling
party’s telephone number in all call signaling, and required intermediate carriers to pass this
signaling information, unaltered, to the next provider in a call path. However, it declined to

94 Order note 2132.
95 The Commission relied on findings in the Local Competition First Report and Order to the
effect that parties may calculate overall compensation amounts by extrapolating from traffic
studies and samples. Id., citing Local Competition First Report and Order ¶ 1044.
96 Concerns also arise in connection with LEC-to-CMRS calls that terminate to numbers rated
outside of the RLEC’s landline local calling area. As previously explained to the Commission,
RLEC switches need to be upgraded and programmed to perform several dips on each and every
outbound long distance call from a landline telephone customer to determine if the call is
destined for a CMRS customer and if so, if this customer is located inside the same MTA. In
instances where CMRS carriers operating in the same MTA have not chosen to establish direct
or indirect connections with the RLEC, such calls must often be routed through IXCs as well.
E.g., Letter from Michael R. Romano, NTCA, to Marlene H. Dortch, FCC, WC Docket No. 10-
90 (filed Dec. 9, 2011) at 2. These issues may require substantial study by industry technical
groups before workable solutions can be put in place.
37


require transmission of carrier identification information (CIC and/or OCN codes) in signaling
data.97 The Commission also denied requests from parties to clarify that, absent mutual
agreement on factors or the provision of information that can be used to determine with
reasonable accuracy the actual origination point of a call, terminating carriers may use as a
default the originating and terminating telephone numbers associated with a call to determine
jurisdiction for billing purposes.98 The Commission noted in this regard that its proposed rules
were not intended to affect existing agreements between service providers regarding how to
jurisdictionalize traffic in the event that traditional call identifying parameters are missing.99
In fact, standard industry practice relies on the “telephone numbers rule” to determine the
jurisdiction of calls for billing purposes.100 The Associations accordingly request the
Commission reconsider its decision and clarify that absent mutual agreement on factors or the
provision of information that can be used to determine with reasonable accuracy the actual
origination point of a call, terminating carriers may use as a default the originating and
terminating telephone numbers associated with a call to determine jurisdiction for billing
purposes.
The Associations also request reconsideration of the Commission’s decision not to
impose financial responsibility for traffic delivered without adequate billing information on the
last carrier in the call stream sending such traffic.101 In declining this suggestion, the
Commission found that imposing upstream liability or financial responsibility on carriers

97 Order ¶ 727.
98 Id. note 1212.
99 Id.
100 Even where percent interstate usage factors (PIUs) are used, carriers must still rely on calling
and called telephone numbers when conducting audits of PIUs submitted by sending carriers.
101 Order ¶¶ 731-732
38


threatens to unfairly burden tandem transit and other intermediate providers with investigative
obligations. Instead, the Commission placed the responsibility and liability with the party that
failed to provide the necessary information, or that stripped the call-identifying information from
the traffic before handing it off.
It will be difficult, however, for terminating carriers to identify “the party that failed to
provide the necessary information” because, as noted above, the Commission declined to require
transmission of adequate carrier identification information in signaling data. On the other hand,
upstream carriers accepting such traffic are fully aware of the identity of the financially-
responsible carrier or provider. Under the Associations’ proposal, the terminating carrier would
be allowed to charge its highest effective rate to the service provider delivering the phantom
traffic to it, when the call detail information is insufficient to bill for such calls. In turn, an
intermediate provider would be able to charge that rate to the service provider that preceded it in
the call path, until ultimately the carrier that improperly labeled the traffic would be required to
pay for its own traffic. Apart from assuring the correct entity is actually required to pay for the
services it receives, this approach will significantly reduce upward pressure on the CAF ICC
Support mechanism associated with non-payments.
The Associations accordingly request that the Commission either require passage of all
CIC, OCN, and other carrier identifying information necessary to establish with certainty the
financially responsible party for a call, or allow terminating carriers to bill the carrier or provider
sending the calls to them at their highest effective rate when those calls fail to carry sufficient
call signaling information to allow for proper billing.



39


VII.

CONCLUSION


For the reasons specified above the Associations seek reconsideration and/or clarification
of the Commission’s Order in the above-captioned proceeding.







Respectfully submitted,

NATIONAL EXCHANGE CARRIER
ASSOCIATION, INC.
By:

Richard A. Askoff



Its Attorney
Teresa Evert, Senior Regulatory Manager
80 South Jefferson Road

Whippany, NJ 07981



(973) 884-8000


ORGANIZATION FOR THE
WESTERN TELECOMMUNICATIONS
PROMOTION AND ADVANCEMENT
ALLIANCE
OF SMALL TELECOMMUNICATIONS
By: /s/ Derrick Owens
COMPANIES
Derrick Owens


By: /s/ Stuart Polikoff
Director of Government Affairs
Stuart Polikoff
317 Massachusetts Avenue N.E., Ste. 300C
Vice President – Regulatory Policy and
Washington, DC 20002
Business Development
(202) 548-0202
2020 K Street, NW, 7th Floor

Washington, DC 20006
By: /s/ Gerard J. Duffy
(202) 659-5990
Gerard J. Duffy

Regulatory Counsel for Western

Telecommunications Alliance

Blooston, Mordkofsky, Dickens, Duffy &

Prendergast, LLP

2120 L Street NW (Suite 300)

Washington, DC 20037

(202) 659-0830



December 29, 2011
40


Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554


In the Matter of
)


)

Connect America Fund
)
WC Docket No. 10-90

)

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

)

Establishing Just and Reasonable Rates for
)
WC Docket No. 07-135
Local Exchange Carriers
)


)

High-Cost Universal Service Support
)
WC Docket No. 05-337

)

Developing a Unified Intercarrier
)
CC Docket No. 01-92
Compensation Regime
)


)

Federal-State Joint Board on Universal
)
CC Docket No. 96-45
Service
)


)

Lifeline and Link-Up
)
WC Docket No. 03-109

)

Universal Service Reform – Mobility Fund
)
WT Docket No. 10-208




PETITION FOR RECONSIDERATION OF

THE UNITED STATES TELECOM ASSOCIATION







Jonathan Banks
Glenn Reynolds
607 14th Street, N.W.
Suite 400
Washington, D.C. 20005
(202) 326-7300

December 29, 2011

TABLE OF CONTENTS



Page



I.
INTRODUCTION AND SUMMARY .............................................................................. 1
II.
THE COMMISSION SHOULD RECONSIDER AND CLARIFY CERTAIN
ASPECTS OF ITS UNIVERSAL SERVICE REFORMS ................................................ 3
A.
The CAF Phase I Deployment Requirement is Unreasonable and
Counterproductive to Achieving The Commission’s Universal Service
Goals. ..................................................................................................................... 3
B.
Rather Than Requiring a Flash Cut to New CAF Phase II Support Levels,
The Commission Should Adopt A Five-Year Phase-down As
Recommended By the ABC Plan........................................................................... 5
C.
The Commission Should Reconsider Its Decision To Compel Providers to
Use Legacy Support to Deploy and Maintain Broadband Service ........................ 9
D.
The Commission Should Clarify That All ETCs Will Be Relieved of Their
Obligations and Designations When Their Universal Service Support Has
Been Eliminated................................................................................................... 11
E.
Reducing High-Cost Support Due to “Artificially Low End-User Rates” is
Misdirected And, in Any Event, Should be Limited Only to Certain
Categories of Support .......................................................................................... 12
F.
The Commission’s New ETC Reporting Requirements Are Unduly
Burdensome and Unnecessary, Should be Prospective Only, And Should
Be Implemented Effective July 1, 2012............................................................... 15
1.
The New ETC Reporting Requirements Should Not Apply to
Carriers Whose Support is Being Eliminated. ......................................... 15
2.
The FCC Should Clarify That the New Reporting Requirements
Preempt Existing State Requirements...................................................... 17
3.
The FCC Should Reconsider its Tribal Reporting Requirements............ 18
4.
The FCC should clarify that the new reporting requirements are
prospective only ....................................................................................... 19
5.
The FCC should reconsider its decision regarding the effective
date of its new reporting requirements..................................................... 21
G.
The Commission’s New ETC Document Retention Requirements Are
Unduly Burdensome and Unnecessary And Should Be Prospective Only.......... 22
H.
The Commission Should Clarify The Implications of Its Decision Not to
Designate Broadband As a Supported Service .................................................... 24
I.
The Commission’s Deployment Timeframes Should Exclude Delays Due
to Circumstances Outside the Control of the ETC............................................... 26
-i-



TABLE OF CONTENTS


(continued)

Page



J.
The Commission Should Clarify Implementation of Its Incremental
Support Regime ................................................................................................... 28
K.
The Commission Should Phase Out The Safety Net Additive Support
Under The Same Transition Plan Established For Competitive ETC
Support................................................................................................................. 28
L.
The Commission Should Reconsider Its Decision to Make Publicly
Available the Financial Disclosures of Privately Held Companies ..................... 29
III.
THE COMMISSION SHOULD RECONSIDER AND CLARIFY CERTAIN
ASPECTS OF ITS INTERCARRIER COMPENSATION REFORMS ......................... 30
A.
The Commission Should Make Modest Changes to the Access Recovery
Mechanism for Incumbent LECs ......................................................................... 30
1.
The baseline revenue calculation for determining the Eligible
Recovery for price cap carriers should be based on billed, not
“collected” revenues ................................................................................ 30
2.
The Commission should reconsider the level at which residential
rates are compared with the Residential Rate Ceiling ............................. 31
3.
The Commission should clarify that the ARC is an interstate
charge, even though it may include recovery of intrastate revenues ....... 32
4.
The Commission should permit incumbent LECs to receive
reimbursement from the Lifeline fund for ARC charges that
incumbent LECs cannot recover from Lifeline customers ...................... 33
B.
The Commission Should Take Additional Steps To Prevent Regulatory
Arbitrage .............................................................................................................. 34
1.
The Wireline Competition Bureau should clarify the definition of
VoIP-PSTN traffic in 47 C.F.R. § 51.913(a). .......................................... 34
2.
The Commission should limit the ability of LECs engaged in
access stimulation to circumvent the rules by inflating mileage ............. 35
3.
Competitive LECs engaged in access stimulation should be
required to lower their rates to $0.0007 ................................................... 36
4.
The intrastate rates charged by new entrants prior to July 1, 2013
should be subject to the mirroring rule at interstate levels ...................... 37
5.
The Commission should clarify that suspension decisions under
section 251(f)(2) do not extend to the Commission’s new
intercarrier compensation regime ............................................................ 37
-ii-



TABLE OF CONTENTS


(continued)

Page



6.
The Commission should clarify that its “interim default rule”
allocating responsibility for transport costs between rate-of-return
carriers and CMRS providers does not affect the current rules
governing points of interconnection ........................................................ 38
C.
The Commission Should Revisit Its Treatment of Certain Originating
Access Issues ....................................................................................................... 38
D.
The Commission Should Clarify The Date in Rule 51.705(c)(3) (July 1
instead of January 1) ............................................................................................ 39
IV. CONCLUSION................................................................................................................ 40
-iii-





Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554


In the Matter of
)


)

Connect America Fund
)
WC Docket No. 10-90

)

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

)

Establishing Just and Reasonable Rates for
)
WC Docket No. 07-135
Local Exchange Carriers
)


)

High-Cost Universal Service Support
)
WC Docket No. 05-337

)

Developing a Unified Intercarrier
)
CC Docket No. 01-92
Compensation Regime
)


)

Federal-State Joint Board on Universal
)
CC Docket No. 96-45
Service
)


)

Lifeline and Link-Up
)
WC Docket No. 03-109

)

Universal Service Reform – Mobility Fund
)
WT Docket No. 10-208




PETITION FOR RECONSIDERATION AND CLARIFICATION OF

THE UNITED STATES TELECOM ASSOCIATION

I.

INTRODUCTION AND SUMMARY

Pursuant to Section 1.429 of the Commission’s rules,1 the United States Telecom
Association (“USTelecom”) respectfully petitions the Commission to reconsider and clarify
certain aspects of its Order.2
The Commission’s Order represents a landmark decision in telecommunications
regulation, and the Commission’s willingness to tackle many of the problems that undermine the

1
47 C.F.R. § 1.429.
2
Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking,
WC Docket No. 10-90, FCC 11-161, ¶ 164 (rel. Nov. 18, 2011) (“Order”).





universal service and intercarrier compensation programs in a comprehensive way is an
unprecedented achievement. In a bold move, the Commission took long overdue steps to reform
and modernize these complicated programs, which in their present form no longer serve the
purposes for which they were established.
USTelecom and its members support the Commission’s efforts and largely endorse the
Order. However, the Order falls short in several important respects, particularly regarding: (i)
the Phase I of the Connect America Fund (“CAF”); (ii) the flash-cut to new CAF Phase II
support levels; (iii) compelling eligible telecommunications carriers (“ETCs”) to use legacy
support to deploy and maintain broadband; (iv) failing to relieve ETCs of their obligations and
designations when their universal service support has been eliminated; (v) reducing high-cost
support based on end-user rates; (vi) the new reporting and record retention requirements for
ETCs; and (vii) the Access Recovery Charge (“ARC”) mechanism. Accordingly, USTelecom
seeks reconsideration of these issues
In other respects, the Order raises issues that create potential implementation or other
problems, which require clarification from the Commission. These issues include: (i)
implications of the Commission’s decision not to make broadband a supported service; (ii) the
calculation of the Commission’s broadband deployment timeframes; (iii) implementation of the
incremental support regime; (iv) the phase-out of safety net additive support; (v) the treatment of
financial disclosures of privately held companies; (vi) additional steps to prevent regulatory
arbitrage; (vii) the treatment of originating access charges; and (viii) differences between the
Order and the Commission’s new rules.
-2-


II.

THE COMMISSION SHOULD RECONSIDER AND CLARIFY CERTAIN
ASPECTS OF ITS UNIVERSAL SERVICE REFORMS.

A. The CAF Phase I Deployment Requirement is Unreasonable and

Counterproductive to Achieving The Commission’s Universal Service Goals.

The Commission should reconsider its CAF Phase I deployment requirement, which
obligates recipients of CAF Phase I incremental support to deploy broadband to one household
for every $775 in support received. Order ¶ 138. This requirement is based on an unrealistic
assessment of the cost of deploying broadband to homes in unserved areas and likely will deter
carriers from accepting CAF Phase I incremental support and from deploying broadband to
unserved areas in any meaningful manner.
Although the Commission was clear that it was “not attempting to identify the precise
cost of deploying broadband to any particular location,” the $775 per household deployment
requirement will not succeed in “spur[ring] immediate broadband deployment to as many
unserved locations as possible.” Id. ¶ 139. First, it relies upon nationwide data, which ignores
that broadband deployment costs can vary considerably across geographic locations.3 Second, it
relies upon limited cost projections, which do not necessarily reflect the actual cost of deploying
broadband to unserved areas.4 Third, it relies upon the costs of a hypothetical broadband
provider, even though a provider’s actual deployment costs can vary considerably.5

3
For example, the Commission relied upon data from the cost model developed in
connection with the National Broadband Plan, though the model team itself noted that its results
should be relied on only for nationwide averages and specifically acknowledged that “[f]urther
analysis and improved source data would be required to refine estimates for particular
geographies.” Omnibus Broadband Initiative, The Broadband Availability Gap:OBI Technical
Paper No. 1
, at 5 (April 2010).
4
Specifically, in justifying the $775 figure, the Commission cited to projections by a
single mid-sized price cap carrier submitted to the Rural Utilities Service (“RUS”) as part of the
carrier’s application for funding under the Broadband Initiatives Program (“BIP”). See Order
140. Even assuming data from this carrier’s BIP deployment is sufficiently representative of the

-3-



The $775 figure is even more unreasonable in light of the Commission’s decision to
require that CAF Phase I incremental support recipients exclude areas covered by existing capital
improvement plans, BIP deployment obligations, and merger commitments from areas eligible to
meet a provider’s broadband deployment obligation. Id. ¶ 146. By excluding these areas, the
remaining unserved areas that are the intended beneficiaries of CAF Phase I incremental support
are the most costly to serve and could not reasonably be served for $775 per household.6
Accordingly, to ensure that CAF Phase I incremental support achieves its intended
purpose, the Commission should reconsider its $775 figure and develop more realistic
deployment requirements. In particular, such requirements should address not only an individual
broadband provider’s cost to deploy broadband in its unserved areas (i.e., areas lacking
broadband service at 768 Kbps speeds) but also the cost to upgrade service in its underserved

(footnote cont’d.)
costs of broadband deployment generally – a dubious proposition – the cost data submitted to
RUS were merely projections for broadband deployment to a combination of unserved and
underserved locations. These projected costs could vary considerably from actual costs for
deployment only to unserved locations, particularly when areas addressed by BIP are not even
eligible for CAF Phase I support.
5
The median cost of deploying broadband in an unserved census block group may differ
dramatically from one provider to another, largely for two reasons: (i) some providers have more
aggressively invested in broadband deployment in rural areas than others, as a result of which
only the most expensive areas remain unserved; and (ii) some providers’ service territories may
include a disproportionate number of higher cost census block groups. In either instance, by
establishing a per household figure that does not take into account a broadband provider’s actual
circumstances, the Commission would be unfairly penalizing providers based on their prior
deployment decisions or on the high cost of the areas they serve.
6
For example, Frontier currently provides broadband to 92 percent of the households in its
incumbent local exchange carrier (“LEC”) territory and must deploy broadband to 85 percent of
the households in the former Verizon territory under its merger commitments. See Applications
Filed by Frontier Communications Corp. & Verizon Communications Inc. for Assignment or
Transfer of Control
, Memorandum Opinion and Order, 25 FCC Rcd 5972, 6001 (2010). Not
surprisingly, $775 per household would not come close to covering the costs of deploying
broadband to the remaining 8 percent of the unserved households in Frontier’s incumbent
territory and the 15 percent of the unserved households in the former Verizon territory.
-4-


areas (i.e., areas lacking broadband service at 4 Mbps speeds). This approach is more likely to
“expand voice and broadband availability as much and as quickly as possible” because upgrades
in adjacent, underserved areas often must precede deployment of new broadband facilities in
outlying, unserved areas that are farther from a LEC’s central office. See Order ¶ 145.

B. Rather Than Requiring a Flash Cut to New CAF Phase II Support Levels,

The Commission Should Adopt A Five-Year Phase-down As Recommended
By the ABC Plan.

The Commission should reconsider its decision to adopt a flash-cut approach to
eliminating existing legacy support in connection with the implementation of CAF Phase II.
Under the transition mechanism for CAF Phase II, the Commission directed that, for a price cap
ETC that declines to serve all locations in its service territory in a state:
the carrier will continue to receive support in an amount equal to its CAF Phase I
support amount until the first month that the winner of any competitive process
receives support under CAF Phase II; at that time, the carrier declining the state-
wide commitment will cease to receive high-cost universal service support
.

Id. ¶ 180 (emphasis added). Under a literal reading of this provision, a price cap carrier’s
support throughout a given state could disappear overnight simply because some other provider
receives CAF Phase II support by virtue of committing to serve a few census blocks in that state.
Even worse, the language cited above also suggests that a price cap carrier in one state could lose
all its support in a flash-cut because some provider in another state is receiving CAF Phase II
support. See id. (“the winner of any competitive process”) (emphasis added). Presumably the
Commission did not intend such illogical results, which itself warrants reconsideration.
Reconsideration also is warranted because the Commission’s flash-cut approach is
contrary to the NPRM and the policies embodied in the Order. For example, in outlining
proposed reforms in the NPRM, the Commission stated its intent “to avoid sudden changes or
‘flash cuts’ in our policies” and acknowledged “the benefits of measured transitions that enable
-5-


stakeholders to adapt to changing circumstances and minimize disruption.”7 Consistent with this
intent, the Commission adopted other reforms that included multi-year transitions from legacy
support mechanisms.8 However, for reasons never explained, the Commission decided to adopt
a flash-cut mechanism in implementing CAF Phase II support levels that could result in an
immediate loss of a price cap carrier’s existing high-cost support.9
The Commission’s decision was adopted without notice in violation of the
Administrative Procedure Act (“APA”). See 5 U.S.C. § 553(b)(3) While the NPRM proposed
eliminating carriers’ IAS support in two years and phasing out competitive ETC support over

7
See Connect America Fund; A National Broadband Plan for Our Future; Establishing
Just and reasonable Rates for Local Exchange Carriers; High-Cost Universal Service Support;
Developing a Unified Intercarrier Compensation Regime; Federal-State Joint Board on
Universal Service; Lifeline and Link-Up
; WC Docket Nos. 10-90, 07-135, 05-337, 03-109, CC
Docket Nos. 01-92, 96-45, GN Docket No. 09-51, Notice of Proposed Rulemaking and Further
Notice of Proposed Rulemaking, 26 FCC Rcd 4554, ¶ 12 (2011) (“NPRM”); see also id. ¶ 17
(“[w]e do not propose any ‘flash cuts,’ but rather suggest transitions and glide paths that we
believe will facilitate adaptation to reforms. Change to USF and ICC policies need not and
should not be sudden or overly disruptive, but change must begin so that our country can reach
its broadband goals in an efficient and accountable way.”).
8
See, e.g., Order ¶ 242 (“By adopting a multi-year transition [for implementation of urban
rate floor], we seek to avoid a flash cut that would dramatically affect either carriers or the
consumers they serve”); id. ¶ 513 (explaining how a five-year transition for competitive ETCs is
“desirable in order to avoid shocks to service providers that may result in service disruptions for
consumers” and how such a multi-year transition is sufficient for affected carriers to “adjust and
make necessary operational changes to ensure that service is maintained during the transition”);
id. ¶ 802 (endorsing transition plans consistent with “our commitment to avoid flash cuts”).
9
While the federal courts may have deferred “to the agency’s reasonable judgment about
what will constitute ‘sufficient’ support during the transition period from one universal service
system to another,” NPRM ¶ 239 (quoting Texas Office of Public Utility Counsel v. FCC, 183
F.3d 393, 437 (5th Cir. 1999)), no such deference would be warranted here. First, the decision to
implement a flash-cut approach by which a price-cap carrier’s support could be eliminated
overnight is not predicated on any “predictive judgment.” Cf. TOPUC, 183 F.3d at 436-37
(noting that Commission “made a reasonable determination” regarding emerging competition in
local markets); Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523, 537, 556 (8th Cir. 1998)
(noting the Commission’s “predictive judgment” regarding competitive pressures in the local
exchange market). Second, in contrast to other transition plans to implement changes to the
universal service system, “the transition period” in this case is nonexistent.
-6-


five years, it did not propose to eliminate any other high-cost support provided to incumbent
LECs.10 In fact, the NPRM did not expressly seek comment on any Commission-proposed
transition plan for non-IAS high-cost support – let alone a flash-cut elimination.11
The flash-cut elimination of price cap carriers’ legacy support also violates the APA
because the Commission did not consider alternatives, namely the proposal to phase out such
support over a five-year period.12 AT&T included this proposal in its comments, and the five
year phase-down was an essential component of the ABC Plan on which the FCC sought public

10
See NPRM ¶ 234 (proposing a two-year phase-out for IAS support but seeking comment
on whether a longer transition is warranted to “minimize disruption to service providers”); see
also id.
¶ 242.
11
To satisfy the APA’s notice requirement, the NPRM and the final rule need not be
identical: “[a]n agency's final rule need only be a ‘logical outgrowth’ of its notice.” Covad
Commc'ns Co. v. FCC
, 450 F.3d 528, 548 (D.C. Cir. 2006). A final rule qualifies as a logical
outgrowth “if interested parties ‘should have anticipated’ that the change was possible, and thus
reasonably should have filed their comments on the subject during the notice-and-comment
period.” See, e.g., Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 952 (D.C. Cir. 2004)
(citations omitted). Here, the Commission fails the logical outgrowth test because the FCC
expressly stated “[w]e do not propose any ‘flash cuts.’” NPRM ¶ 17; see CSX Transportation,
Inc. v. Surface Transportation Board
, 584 F.3d 1076, 1082 (D.C. Cir. 2009); Int'l Union, United
Mine Workers of Am. v. Mine Safety & Health Admin
., 407 F.3d 1250, 1259-60 (D.C. Cir. 2005);
Environmental Integrity Project v. EPA, 425 F.3d 992, 998 (D.C. Cir. 2005).
12
See Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227, 242 (D.C. Cir. 2008) (agency
has the duty “to consider responsible alternatives to its chosen policy and to give a reasoned
explanation for its rejection of such alternatives”) (citation omitted); International Ladies'
Garment Workers' Union v. Donovan,
722 F.2d 795, 817 (D.C. Cir. 1983) (“[I]n addition to
requiring rational consideration of alternatives, the APA demands an adequate explanation when
these alternatives are rejected”).
-7-


comment.13 Nonetheless, contrary to the APA, the Commission adopted its flash-cut approach
without acknowledging – let alone explaining why it was rejecting – a five-year transition.14
The Commission’s decision to eliminate existing support on a flash-cut basis also is
inconsistent with the statutory requirement that universal service funding be “sufficient.” See 47
U.S.C. § 254(e). “Sufficiency” for universal service purposes relates to the level of support
necessary “to enable all customers to receive basic telecommunications service.”15 Under the
Commission’s approach, support that is sufficient (i.e., necessary) on January 1, 2013 to enable a
price cap carrier to provide basic telecommunications services throughout its service territory is
suddenly transformed into being unnecessary on January 2, 2013, simply because a CAF Phase II
recipient begins receiving support to provide service in a small part of that service territory. By
way of illustration, if $100 million in high-cost support was necessary for the provision of basic
service in Mississippi on January 1, 2013, it seems illogical that on January 2, 2013 only $5
million in CAF Phase II support is “sufficient to achieve universal service goals.” Order ¶ 510.16

13
See Comments of AT&T, WC Docket 10-90, at 109-11 (filed April 18, 2011) (“AT&T
Comments”); Public Notice, Further Inquiry Into Certain Issues in the Universal Service-
Intercarrier Compensation Transformation Proceeding
, WC Docket 10-90, DA 11-1348, at 9
(rel. Aug. 3, 2011).
14
See Public Citizen v. Steed, 733 F.2d 93, 105 (D.C. Cir 1984); Yakima Valley
Cablevision, Inc. v. FCC, 794 F.2d 737, 746 n.36 (D.C. Cir. 1986) (“The failure of an agency to
consider obvious alternatives has led uniformly to reversal”).
15
Alenco Communications, Inc. v. FCC, 201 F.3d 608, 620 (5th Cir. 2000) (section 254
requires that there be “sufficient and competitively-neutral funding to enable all customers to
receive basic telecommunications services…”); see also Rural Cellular Ass’n v. FCC, 588 F.3d
1095, 1103 (D.C. Cir. 2009) (level of high-cost support is insufficient when it “will undercut
adequate telephone services for customers …”).
16
Worse still, $0 in support would be deemed sufficient for a carrier that continues to be
designated as an ETC because, as discussed below, the Commission also has declined for the
time being to eliminate legacy ETC service obligations even when that carrier has lost all high-
cost support in certain areas. Order ¶ 79. That is nonsensical and cannot be consistent with
section 254(e).
-8-


C. The Commission Should Reconsider Its Decision To Compel Providers to

Use Legacy Support to Deploy And Maintain Broadband Service.

Support under CAF is voluntary; providers may decline CAF Phase I incremental support
if they “cannot meet [the Commission’s] broadband deployment requirement” and may decide
not to accept CAF Phase II support. Order ¶¶ 144 & 160. However, at the same time, the
Commission’s new framework compels ETCs to use their existing support to deploy or maintain
broadband service in their service territories and, beginning in 2013, imposes strict broadband
obligations on these carriers.17 The Commission should reconsider this decision, which runs
afoul of section 254 and contravenes Title I. Instead, the Commission should permit ETCs to use
legacy high-cost support to deploy and maintain broadband service but not obligate ETCs to
satisfy particular build-out requirements.
Requiring providers to use legacy universal service support to deploy broadband to
unserved areas or to maintain broadband service in areas without a subsidized competitor
contravenes section 254(b)(5), which requires “sufficient Federal and State mechanisms to
preserve and advance universal service,” and section 254(e), which provides that “any [universal
service] support should be … sufficient to achieve the purposes of this section.” 47 U.S.C. §§
254(b)(5), (e) (emphasis added). Even though ensuring the sufficiency of universal service
support is a direct statutory command,18 the Order is devoid of any analysis that legacy universal

17
See Order ¶ 150 ( requiring price cap carriers “receiving frozen high-cost support” to
transition such support over a two-year period to “build and operate broadband-capable networks
used to offer the provider’s own retail broadband service in areas substantially unserved by an
unsubsidized competitor”); id. ¶ 206 (requiring rate-of-return carriers to use legacy support to
deploy 4/1 Mbps broadband “upon reasonable request” throughout its service territory).
18
Qwest Corp. v. FCC, 258 F.3d 1191, 1197, 1200 (10th Cir. 2001) (explaining that “the
FCC must base its policies on the [enumerated] principles” in section 254(b) and holding that the
principles’ “language indicates a mandatory duty on the FCC”); TOPUC, 183 F.3d at 412

-9-


service amounts would represent sufficient funding to support the Commission’s broadband
deployment mandate and allow a carrier to meet its existing ETC obligations. In essence, the
Commission impermissibly bootstraps a broadband deployment and maintenance obligation onto
carriers that only receive federal universal service for the provision of voice telephony service in
their geographic serving areas,19 while turning a blind eye to the sufficiency of the support
necessary to satisfy this obligation.20

The Commission’s decision to allow rate-of-return carrier to assess “construction charges
… subject to limits” is no answer. Order ¶ 208. The Commission does not explain how a rate-
of-return carrier would reasonably recover the massive costs of broadband deployment
throughout its service territory by means of special construction charges, which, by the
Commission’s own estimates, could be several thousand dollars per location. Cf. id. ¶ 140 n.233
(noting per location broadband deployment costs as high as $3,000). Nor does the Commission
explain how such an ad hoc process would lend itself to the economies of scale necessary to
spread the cost of a broadband network.

(footnote cont’d.)
(holding that “the plain language of § 254(e) makes sufficiency of universal service support a
direct statutory command”).
19
Such bootstrapping itself violates section 254(e). First, it contravenes the mandate that
universal service support be used “only for the provision, maintenance, and upgrading of
facilities and services for which the support is intended.” 47 U.S.C. § 254(e). It also violates the
requirement that support be “explicit” by creating an implicit cross-subsidy running from voice
to broadband service. Id. Finally, such bootstrapping also could violate section 254(b)(1)’s
“affordability” mandate, as customers could be charged too much (through USF contributions)
for the service (voice) to which the funding is directed.
20
For rate-of-return carriers, the Commission conditions receipt of “new CAF funding in
conjunction with the implementation of intercarrier compensation reform” on the provision of
4/1 Mbps broadband service “upon reasonable request.” Order ¶ 206. However, the CAF
mechanism for rate-of-return providers simply replaces implicit revenues with explicit funding
for voice service and cannot reasonably be expected to cover the cost of broadband deployment.
-10-



The Commission also lacks authority under Title I to impose a broadband deployment
and maintenance obligation as a condition to carriers’ receipt of legacy federal universal service
support. Broadband is an information service regulated under Title I,21 and section 3(51) of the
Act expressly precludes the Commission from imposing common-carrier regulations on
broadband. See 47 U.S.C. § 153(51). Mandatory broadband deployment and maintenance
obligations are precisely the type of common-carrier regulation precluded by section 3(51).22

D. The Commission Should Clarify That All ETCs Will Be Relieved of Their

Obligations and Designations When Their Universal Service Support Has
Been Eliminated.

The Commission should clarify now—not in a future rulemaking—that ETCs will be
relieved of their legacy ETC obligations (and ETC designations) in those geographic areas in
which they do not receive either legacy high-cost support or CAF support. See Order ¶ 79. As
the Commission phases in its new universal service regime, it cannot sensibly or lawfully
maintain its existing interpretation of section 214(e) or its ETC rules, which require ETCs to
offer legacy services throughout their designated ETC service areas. See 47 U.S.C. § 214(e)(1);
47 C.F.R. § 54.101(a).
First, by definition, the purpose of the ETC designation is to identify carriers that are, in
fact, eligible to receive universal service funding. As section 214(e)(1) directs, a “common
carrier designated as an eligible telecommunications carrier . . . shall be eligible to receive
universal service support.” 47 U.S.C. § 214(e)(1) (emphasis added). The legacy regime satisfied

21
See, e.g., Appropriate Framework for Broadband Access to the Internet over Wireline
Facilities, Report and Order, 20 FCC Rcd 14853, 14855-56 ¶¶ 1-3 (2005).
22
See, e.g., 47 U.S.C. § 214(e)(3); Federal-State Joint Board on Universal Service:
Western Wireless Corporation Petition for Designation as an Eligible Telecommunications
Carrier for the Pine Ridge Reservation in South Dakota
, Memorandum Opinion and Order, 16
FCC Rcd 18133, 18140 ¶ 18 n.47 (2001) (noting that a “common carrier” may be ordered “to
provide the supported services to an unserved community”).
-11-


this requirement because it enabled more than one carrier to become an ETC and thereby qualify
for any universal service funding distributed in a given geographic area. But the new regime will
entitle just one provider to qualify for support in a given area in exchange for offering both
legacy voice services and broadband. See Order ¶¶ 171-79 & 316. Under this new framework,
many existing ETCs will no longer be eligible to receive funding. For that reason alone, the
Commission would violate section 214 if it perpetuated ETC service obligations and
designations for carriers that do not receive universal service support.
Second, for ETCs that lose their existing universal service support under the new regime
– funding that is necessary to offset the cost of providing supported services in high-cost areas –
the Commission could not lawfully compel these carriers to continue providing service after that
support has been eliminated. Such a result would contravene section 254, which requires the
Commission to design its universal service programs so that support is “sufficient” to enable
providers to offer the services deemed “universal.” 47 U.S.C. § 254(b)(5), (e), (f). It also would
violate section 254’s mandate that universal service policies be “equitable and
nondiscriminatory” and competitively neutral, since an ETC that has lost its universal service
support would be compelled to continue competing against a CAF-funded provider. See 47
U.S.C. § 254(b)(4), (d), (f).

E. Reducing High-Cost Support Due to “Artificially Low End-User Rates” is

Misdirected And, in Any Event, Should be Limited Only to Certain
Categories of Support.

The Commission should reconsider its decision to reduce universal service support to the
extent a carrier’s local rates do not meet “an urban rate floor,” which represents a national
average of local rates in addition to defined state-regulated fees. See Order ¶¶ 238-39. At the
very least, the Commission should clarify that any such reductions in legacy support will apply
only to high-cost loop and high-cost model support.
-12-


The Commission’s decision to reduce a carrier’s universal service support because its
local rates are too low ignores restrictions under state law that prevent or at the very least hinder
a carrier from increasing local rates. For example, in many jurisdictions, a price cap carrier is
prohibited from increasing rates for basic service.23 In other jurisdictions, state law limits rate
increases for basic local exchange service.24 By failing to even acknowledge these constraints,
the Commission’s decision is arbitrary and capricious.25
Furthermore, rather than penalizing a carrier for failing to do something that it cannot
lawfully do (i.e., raise local rates), the Commission should preempt any state laws that cause
customers to pay “local service rates that are significantly lower than the national urban
average.” Order ¶ 237. The Commission unquestionably possesses the authority to preempt
state laws and regulations.26 Indeed, the Commission has not hesitated to preempt state

23
See e.g., Ark. Code Ann. § 23-17-408(c)(1) (authorizing a company electing alternative
regulation to “increase or decrease its rates for telecommunications services other than basic
local exchange service . . .”); DPUC Investigation of the Southern New England Telephone
Company’s Alternative Regulation Plan
, Docket Nos. 00-07-17, 2001 Conn. PUC LEXIS 93
(Conn. Dep’t Pub. Util. Control May 16, 2001) (rejecting Southern New England Telephone
Company’s proposal to annually increase rates for residential local exchange service up to the
rate of inflation, subject to competitive forces).
24
See, e.g., Petition for Approval of Storm Cost Recovery Surcharge, and Stipulation with
Office of Public Counsel, by Sprint-Florida, Inc., Docket No. 050374-TL, Order No. PSC-05-
0946-FOF-TL at 1 (Fla. Pub. Serv. Comm’n Oct. 3, 2005) (noting that Florida law only
authorizes a price regulated LEC to seek a rate increase based on a “substantial change in
circumstances,” which is narrowly construed but includes costs associated with hurricane
damage); § 392.245 R.S. Mo. (limiting rate increases for basic local exchange to changes in
inflation).
25
See, e.g., National Treasury Employees Union v. FLRA, 466 F.3d 1079 (D.C. Cir. 2006);
Konan v. Attorney General of the United States, 432 F.3d 497 (3rd Cir. 2005).
26
See 47 U.S.C. § 251(d)(3); 47 U.S.C. § 253; Public Serv. Comm’n of Md. v. FCC, 909
F.2d 1510, 1514-15 (D.C. Cir. 1990); see also Geier v. American Honda Motor Co., 529 U.S.
861, 873 (2003); City of New York v. FCC, 486 U.S. 57, 64 (1988) (“The statutorily authorized
regulations of an agency will preempt any state or local law that conflicts with such regulations
or frustrates the purposes thereof”).
-13-


regulations that conflict with a federal regulatory objective and when that conflict impinges on
its exercise of its lawful authority.27 Under the Commission’s reasoning, state laws that result in
artificially low local rates frustrate the Act’s universal service policies and undermine the
Commission’s implementation of the universal service program, which warrants preemption.
See Order ¶¶ 237 & 767.
At the very least, the Commission should clarify the legacy mechanisms subject to
reduction when a carrier’s local rates do not meet the urban rate floor. The Order indicates that
the reductions will be made to “HCLS and CAF Phase I support,” id. ¶ 239, but the reference to
“CAF Phase I support” in this context is unclear. The term presumably does not refer to a
carrier’s “incremental support” under CAF Phase I, the purpose of which is to “provide an
immediate boost to broadband deployment in [unserved] areas.” Order ¶ 137. No relationship
exists between incremental support under CAF Phase I to fund the nonrecurring costs of
broadband deployment in unserved areas and basic local rates, which are intended to cover at
least a portion of the recurring cost of voice service in served areas. Furthermore, the term
should not be construed to refer to either legacy IAS or ICLS, since both mechanisms provide
support for interstate rather than local rates. Order ¶¶ 130, n.207 & 241. The Commission
should clarify that reductions in legacy support resulting from a failure to meet the urban rate
floor, at most, will extend only to high-cost loop and high-cost model support, which are focused
on providing voice service in high-cost areas.

27
See, e.g., Petition for Declaratory Ruling on Issues Contained in Thorpe v. GTE,
Memorandum Opinion and Order, 23 FCC Rcd 6371 (2008); Implementation of Section
621(a)(1) of the Cable Communications Policy Act of 1984 As Amended by the Cable Television
Consumer Protection and Competition Act of 1992,
Report and Order and Further Notice of
Proposed Rulemaking, 22 FCC Rcd 5101, 5157 (2007).
-14-


F. The Commission’s New ETC Reporting Requirements Are Unduly

Burdensome and Unnecessary, Should be Prospective Only, And Should Be
Implemented Effective July 1, 2012.

1. The New ETC Reporting Requirements Should Not Apply to Carriers

Whose Support is Being Eliminated.

The Commission should reconsider imposing new reporting requirements on ETCs
whose support is being eliminated. The new reporting requirements will involve significant
costs that are unreasonable to impose on ETCs whose support is being eliminated.
To take the most egregious example, the Commission’s new framework arguably will
require all ETCs to produce a new five-year build-out plan by April 1, 2013, which includes
progress on their broadband deployment. Order ¶ 587. The Commission does not explain how
it intends to use a five-year plan from a price cap carrier that does not intend to participate in the
CAF in the long term and that stands to lose all of its existing frozen high-cost support once CAF
Phase II has been implemented.
Imposing new reporting requirements on all ETCs also cannot be reconciled with the
Commission’s duty to “adopt regulation only upon a reasoned determination that its benefits
justify its costs.”28 Indeed, the Commission made no such determination, and, instead, vastly
underestimated the burdens imposed—noting only that the new reporting regime may impose
“some additional time and cost on individual ETCs.” Id. ¶ 575. Furthermore, these new
reporting requirements are inconsistent with the Chairman’s stated objective to “streamline and
modernize the Commission’s rules and reduce unneeded burdens on the private sector.”29

28
Exec. Order No. 13,563, Improving Regulation and Regulatory Review, 76 Fed. Reg.
3821 (2011); see also Exec. Order No.13,579, (Jul. 11, 2011).
29
International Reporting Requirements Order, 26 FCC Rcd 7274, 7365 (2011) (Statement
of Chairman Julius Genachowski).
-15-


Apart from failing to account for the costs and benefits of applying new reporting
requirements to all ETCs, including those that stand to soon lose all universal service support,
the Commission has not sought the requisite Office of Management and Budget (“OMB”)
approval of its extension of federal ETC reporting requirements for voice services to state-
designated ETCs. See id. ¶ 580. By extending existing federal reporting requirements to state-
designated ETCs, the Commission has made a “material modification” to a previously approved
information collection, which requires OMB approval under the Paperwork Reduction Act
(“PRA”).30 In seeking OMB approval of its current federal ETC reporting requirements in 2005,
the Commission anticipated that only twenty-two carriers would be affected—a key factor in its
determination of the total annual cost burden.31 Here, the Commission seeks to extend federal
ETC reporting requirements to 1,400 or more ETCs,32 which necessitates OMB approval.33
More broadly, many aspects of the new reporting requirements violate multiple other
substantive provisions of the PRA. Among other things, the PRA requires federal agencies to
ensure that data collections are “necessary for proper performance of the functions of the

30
The PRA in relevant part states that “[a]n agency may not make a substantive or material
modification to a collection of information after such collection has been approved by the
[OMB] Director, unless the modification has been submitted to the Director for review and
approval under this subchapter.” 44 U.S.C.A. § 3507(h)(3); see also 5 C.F.R. § 1320.5(g).
31
See Public Information Collections Approved by Office of Management and Budget, 70
Fed. Reg. 66407 (Nov. 2, 2005) (stating that the “Estimated Annual Burden” is “22 responses;
242 total annual burden hours; approximately 11 hours average per respondent”).
32
See United States Government Accountability Office, Report to Congressional
Committees, Telecommunications: FCC Needs to Improve Performance Management and
Strengthen Oversight of the High-Cost Program, at 6 (June 2008).
33
The Order replaces 47 C.F.R. § 54.209 with 47 C.F.R. § 54.313, and sections (1)-(6) are
virtually identical except for the major change that 54.313 applies to “any recipient of high-cost
support” instead of only federally-designated ETCs. Order, ¶ 580 & App. A. The Federal
Register announcement of the Order lists newly implemented rules that OMB must approve
before taking effect. Connect America Fund, 76 Fed. Reg. 73830 (Nov. 29, 2011). The list of
rules does not include 54.313(1)-(6). Id.
-16-


agency,” the information gathered has “practical utility,” and the collection itself “minimize[s]
the burden ... on those who are to respond[.]” 44 U.S.C. § 3506(c)(2)(A). The new reporting
requirements amount to a scatter-shot data collection effort—in many cases with no potential to
add any value to Commission decision-making.
2. The FCC Should Clarify That the New Reporting Requirements

Preempt Existing State Requirements.

The Commission should clarify that its new ETC reporting requirements—as applied to
CAF recipients—preempt existing state requirements. The Commission states that a primary
benefit of its new reporting requirements is “a uniform reporting and certification framework for
ETCs” that “will minimize regulatory compliance costs for those ETCs that operate in multiple
states.” Order ¶ 575. But this benefit will not be realized if the new reporting requirements
remain a “floor rather than a ceiling for the states.” Id. ¶ 574. Requiring that ETCs continue to
comply with existing state reporting requirements in addition to the new federal requirements
would be inconsistent with the Commission’s contention that its new rules will “minimize
regulatory compliance costs,” id. ¶ 575, particularly since it would result in many ETCs having
to prepare and submit two different USF reports per state and, in most cases, at different times of
the year.
3. The FCC Should Reconsider its Tribal Reporting Requirements.
The FCC should reconsider its Tribal engagement rules and reporting requirements,
which are unlawful for several reasons. See Order ¶ 604.
-17-


First, the Commission adopted the Tribal engagement rules without adhering to the
notice-and-comment requirements of the APA.34 Indeed, the Commission failed to “fairly
apprise interested persons” of the nature of the tribal engagement requirements that were
ultimately adopted. United Steelworkers of America, AFL-CIO-CLC v. Marshall, 647 F.2d 1189,
1221 (D.C. Cir. 1980). The NPRM generally sought comment on whether high-cost recipients
should “be required to engage with Tribal governments to provide broadband to Tribal and
Native community institutions” and asked, “Are there additional requirements that should apply
on Tribal Lands?” NPRM ¶ 151 (emphasis added). Such generic requests did not afford parties
notice that the Commission was planning to require all ETCs serving Tribal areas to engage with
Tribal governments in a specific manner and to require documentation of specific items.35
Second, the Commission should reconsider the Tribal engagement requirements to the
extent they mandate that an ETC have certain discussions with Tribal governments, document
such discussions, and “market[] services in a culturally sensitive manner.” See Order, App. A, §
54.313(a)(9)(iii). These mandates violate the First Amendment. Even speech regarding purely
factual “information, devoid of advocacy, political relevance, or artistic expression, has been
accorded First Amendment protection.” See Universal City Studios, Inc. v. Corley, 273 F.3d
429, 446 (2d Cir. 2001).The Commission’s Tribal engagement rules not only direct speech but
attempt to direct the nature of the speech in contravention of the First Amendment, which

34
5 U.S.C. § 553(b), (c). See, e.g., Kooritzky v. Reich, 17 F.3d 1509, 1513 (D.C. Cir.
1994).
35
Order ¶ 604. Furthermore, no comments or ex parte letters on the record provide a basis
for the new Tribal reporting requirements. The comments cited by the Commission, see id.
n.1049, provide no specific proposals on how ETCs should engage with Tribal governments.
See, e.g., Joint Comments of Native Public Media and the National Congress of American
Indians, WC Docket No. 10-90 at 8-9 (noting the importance of retaining USF support in Tribal
lands).
-18-


protects a speaker’s “right not only to advocate their cause but also to select what they believe to
be the most effective means for doing so.” See Meyer v. Grant, 486 U.S. 414, 424 (1988).
Finally, the Commission should reconsider the Tribal reporting requirements because
they are impermissibly vague. A regulation is void for vagueness if it (1) “fails to provide
people of ordinary intelligence a reasonable opportunity to understand what conduct it
prohibits,” or (2) “authorizes or even encourages arbitrary and discriminatory enforcement.” Hill
v. Colorado, 530 U.S. 703, 732 (2000). The Tribal reporting requirements fail on both counts.
The Order does not discuss, for example, what is meant by “feasibility and sustainability
planning” or “marketing services in a culturally sensitive manner,” let alone the “documents or
information” sufficient to demonstrate an ETC’s compliance. See id. ¶ 604. Nor does the Order
provide minimal enforcement guidelines, creating a license for arbitrary and discriminatory
enforcement. A regulation that “is so imprecise that discriminatory enforcement is a real
possibility” is impermissibly vague. See Gentile v. State Bar, 501 U.S. 1030, 1051 (1991).
4. The FCC should clarify that the new reporting requirements are
prospective only.
Even if the Commission does not reconsider its new ETC reporting requirements, it
should apply them prospectively only. As written, the Order applies the new reporting
requirements retroactively, which raises practical and legal concerns. Order ¶ 581.
To illustrate the practical problems, on April 1, 2012, a state-designated ETC would be
required to file outage reports covering 2011 in accordance with new section 54.313, even
though that ETC would have had no reason to keep its 2011 outage reports in the newly required
-19-


format.36 Repackaging existing reports would be burdensome, costly, and at odds with the
Chairman’s commitment to reducing unnecessary data collections.37 Moreover, applying the
reporting requirements retroactively would require carriers to produce data that may not exist.
For instance, if state-designated ETCs have not been under a state obligation to track unfulfilled
service requests or the number of complaints per 1,000 customers, new Section 54.313(a)(3) &
(4), these data may not be available for the 2012 report. Similarly, ETCs serving Tribal areas
would be required to provide in 2012 documentation on discussions with Tribal governments
that took place in 2011 on the five enumerated topics, even though such ETCs would have had
no reason under existing rules to retain such documentation.
Aside from presenting practical problems, retrospective application of the reporting
requirements is contrary to the APA, which requires that rules adopted pursuant to notice and
comment “be given future effect only.” Chadmoore Comm’ns Inc. v. FCC, 113 F.3d 235, 240
(D.C. Cir. 1997) (emphasis added) (quotation marks omitted). A rule is impermissibly retroactive
if it “increase[s] a party’s liability for past conduct, or impose[s] new duties with respect to
transactions already completed.” DirecTV, Inc. v. FCC, 110 F.3d 816, 825-26 (D.C. Cir. 1997)
(quotation marks and citations omitted). Here, an ETC would potentially be liable for failing to
comply with the reporting requirements in 2012 that relate to activities that took place in 2011,
which violates the APA.

36
Carriers generally keep outage reporting requirements according to section 4.5 of the
Commission’s rules, 47 C.F.R. § 4.5, which requires outage reporting in a different format than
the format required under the FCC’s ETC designation process. 47 C.F.R. § 54.209.
37
See Statement of Chairman Genachowski, WC Docket Nos. 11-10, 07-38, 08-190, 10-
132; CC Docket Nos. 95-20, 98-10 (rel. Feb. 8, 2011) (“the Commission shouldn’t waste
resources collecting data it doesn’t need”).
-20-


Moreover, imposing service quality reporting requirements on ETCs is wrong-headed
and directly at odds with President Obama’s directives to executive and independent agencies to
minimize costly and unnecessary regulations. In 2008, the Commission eliminated similar
service quality reporting requirements under the old ARMIS regime because the reports were
useless and not used by consumers.38 No reason exists to resurrect similar service quality
reporting requirements under the guise of new ETC obligations.
5. The FCC should reconsider its decision regarding the effective date of
its new reporting requirements.
Finally, the Commission should reconsider the April 1 deadline of its new reporting
requirements and, instead, make any new reporting requirements effective no earlier than July 1,
2012. See Order ¶ 575.
In adopting the April 1 deadline for its new extensive ETC compliance filings, the
Commission was laboring under the impression that states typically require a full six months to
review ETC reports prior to submitting their annual certification to the FCC on October 1 of each
year. Id. In fact, however, states do not require such a long lead time, and most state
commissions require that data be submitted after July 1, which provides ample opportunity for
them to complete their annual certifications to the FCC on a timely basis.39
Furthermore, an April 1 filing deadline is problematic from an ETC’s standpoint. ETCs
that report performance results on a calendar basis typically do not close their books until the end

38
See Service Quality, Customer Satisfaction, Infrastructure and Operating Data
Gathering, Memorandum Opinion and Order and Notice of Proposed Rulemaking, 23 FCC Rcd
13647, ¶ 11 (2008).
39
See, e.g., Washington (July 31), WAC § 480-123-060; North Dakota (August 1), N.D.
Admin. Code 69-09-05-12.1; Idaho (September 1), IDAPA 31.46.01; Texas (August 31), 16
TAC § 26.418; West Virginia (July 1), General Investigation Regarding Certification of Federal
Universal Service Funding for Eligible Telecommunications Carriers in West Virginia,
Commission Order, Case No. 11-0818-T-GI (Jun. 13, 2011).
-21-


of the first quarter, which would make it difficult, if not impossible, to comply with a April 1
filing deadline. A deadline on or after July 1 would be more consistent with existing state
certification procedures and would provide ample time for ETCs to close their books for the
preceding calendar year.

G. The Commission’s New ETC Document Retention Requirements Are Unduly

Burdensome and Unnecessary And Should Be Prospective Only.

The Commission should reconsider its decision to double the existing record retention
requirement from five to ten years for recipients of high-cost and CAF support. Order ¶ 620.
The Commission based its ten-year record retention requirement on the False Claims Act.
However, the False Claims Act is designed to ferret out fraudulent claims by government
contractors, not to increase the recordkeeping expense of government contractors. See 31 U.S.C.
§§ 3729-33. 40 In fact, the False Claims Act imposes no affirmative record-keeping requirements
on persons or entities submitting claims to the government.
Although the False Claims Act contains a ten-year statute of limitations, 31 U.S.C. §
3731(a)-(b), this provision hardly warrants establishing an equivalent record retention obligation.
Indeed, a statute of limitations period by which a claim must be brought and a recordkeeping
period during which records must be maintained serve fundamentally different purposes –
purposes that the Order conflates. Furthermore, the costs of maintaining and storing records for
ten years is significant – costs that the Commission ignores and that greatly outweigh any
purported benefit from having available records during the entire time that a person could assert
a hypothetical False Claims Act claim.

40
The False Claims Act provides in part that “any person who . . . knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval . . . is liable to the
United States Government for a civil penalty. . . .” 31 U.S.C. § 3729(a)(1)(a).
-22-


The ten-year document retention requirement is inconsistent with the Commission’s
existing five-year administrative limitations period for audits and investigations of universal
service fund beneficiaries. According to the Commission, five years “appropriately balance[d]
the beneficiary’s need for finality and our need to safeguard the USF programs from waste,
fraud, and abuse.”41
A ten-year document retention requirement also significantly exceeds the period for
maintaining documents under other federal programs. For example, five-year employment and
call record retention requirements apply for Video Relay Services,42 and other Commission
record retention requirements extend for two years or less.43 The unreasonableness of a ten-year
record retention requirement is underscored by regulations implementing the Sarbanes-Oxley
Act and the Equal Credit Opportunity Act that embody shorter record retention periods.44
The Commission’s ten-year record retention requirement also contravenes the purpose of
the PRA by maximizing the paperwork burden for USF recipients with little, if any,
corresponding benefit.

41
Comprehensive Review of the Universal Service Fund Management, Administration, and
Oversight, Report and Order, 22 FCC Rcd 16372, ¶ 29 (Aug. 29, 2007). See 47 C.F.R. §
54.320(a)-(b) (“Comprehensive Review Order”).
42
See Structure and Practices of the Video Relay Service Program, Second Report and
Order, 26 FCC Rcd 10898, ¶ 28 (July 28, 2011); Structure and Practices of the Video Relay
Service Program
, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd
5545, ¶¶ 85, 87 (2011).
43
See, e.g., 47 C.F.R. § 64.2008(a)(2) (one year record retention of customer proprietary
network information for telecommunications carriers); 47 C.F.R. § 42.6 (18 month record
retention of billing records for common carriers); Implementation of Sections 716 and 717 of the
Communications Act of 1934, as Enacted by the Twenty-First Century Communications and
Video Accessibility Act of 2010
, 26 FCC Rcd 14557, ¶ 225 (2011) (two year record retention
after a covered entity ceases to offer a product).
44
17 C.F.R. § 210.2-06 (seven-year retention of audit records); 12 C.F.R. § 202.12 (25-
month retention for creditor applications); 15 C.F.R. § 14.53(b)-(d) (three-year retention for
recipients of federal grants, which is extendable if audit commences during that time).
-23-


Even if the Commission declines to reconsider its ten-year record retention requirement,
it should clarify that it applies only to records accumulated from the effective date of the rule
going forward. In 2007, the Commission amended section 54.202(e) to mandate that all ETCs
must retain records for five years from the receipt of funding. Comprehensive Review Order
24. Practically speaking, this means that on January 1, 2012, compliant ETCs would have
retained records from January 1, 2007. If the ten-year requirement of new section 54.320 were
applied retroactively (even assuming it were lawful for the Commission to do so), otherwise
compliant ETCs with only five years of records would be unable to comply with 54.320.

H. The Commission Should Clarify The Implications of Its Decision Not to

Designate Broadband As a Supported Service.

The Commission declined to designate broadband as a “supported service” under section
254(c)(1) but obligated ETCs to deploy broadband as a condition for receiving universal service
support. See Order ¶¶ 76 & 86. This decision results in several potentially anomalous results
that require clarification by the Commission.
First, the Commission should clarify that states may not impose additional conditions on
an ETC’s provision of broadband services. According to the Fifth Circuit, section 214(e)(2),
which authorizes states to designate ETCs, does not expressly prohibit states from imposing
some additional eligibility requirements on ETCs. See TOPUC, 183 F.3d at 418. However, the
court’s holding is limited to supported services, and nothing in that decision or the Act could
reasonably be read to authorize a state commission to impose conditions on non-supported
services pursuant to section 214. Indeed, the court found that reading the plain language of
section 214 to allow states to impose additional eligibility requirements on ETCs’ provision of
supported voice services made sense “in light of the states’ historical role in ensuring service
-24-


quality standards for local [voice] service.” Id. Here, states have no similar historical role
regarding broadband.
Moreover, the plain language of section 214(e) as a whole further evidences Congress’s
intent that the states’ role in designating ETCs is circumscribed to the ETCs’ provision of the
supported service. Section 214(e)(1) provides that all designated ETCs “shall ... offer the
services that are supported by the Federal universal service support mechanisms,” 47 U.S.C. §
214(e)(1). And section 214(e)(2) permits states to designate ETCs only insofar as they “meet the
requirements of paragraph (1),” i.e., offer the supported service. Id. § 214(e)(2). Any attempt by
a state to impose conditions on an ETC in connection with its provision of broadband, which is
not a supported service, would run contrary to section 214(e), and the Commission should clarify
the Order accordingly.
Second, the Commission should clarify that to the extent states exercise their limited
authority to impose additional obligations on ETCs’ voice telephony services, states must fully
fund such obligations. Although the Order requests that state commissions “review their
respective regulations and policies” in light of the Commission’s reforms, id. ¶ 83, the
Commission should make clear that state obligations on voice telephony service that are not fully
funded by the state are “inconsistent” with the Commission’s rules and would “burden” the
federal universal service mechanisms, and thus, would be preempted under section 254(f) of the
Act. See 47 U.S.C. § 254(f).
Third, the Commission should clarify that support may be spent on equipment used solely
to provide broadband services that may be necessary to meet any broadband obligations imposed
on recipients. See, e.g., Order, ¶¶ 149-50, ¶¶ 205-09. The Commission indicates that CAF
recipients may use support for dual-purpose equipment, such as a DSLAMs. Id. at n.238.
-25-


However, the Order is silent on the ability of a CAF recipient to use funds to purchase
equipment – such as DSL line cards – that may only be necessary for the provision of broadband
services. If a recipient of CAF funding is going to be held to strict broadband deployment
requirements, it should have the flexibility to use funding in order to meet those requirements.
And, fourth, the Commission should clarify the scope of an ETC’s obligation to offer
voice telephony “as a standalone service” throughout its designated service area. See id. ¶ 80.
The Commission appears to interpret this requirement to prohibit an ETC that receives high-cost
support from requiring a customer to buy a service other than voice – such as broadband – “in
order to purchase voice service.” See id. n.117. However, the Order is silent on the ability of
ETCs that receive high-cost support to bundle voice services – specifically local and long
distance. Accordingly, the Commission should clarify that ETCs that receive high-cost support
are permitted to bundle local and long distance voice service without running afoul of the
obligation to offer voice on a standalone basis. Similarly, the Commission should clarify that
ETCs receiving no high-cost support have no obligation to offer voice telephony service on a
standalone basis. See id. ¶ 80.

I. The Commission’s Deployment Timeframes Should Exclude Delays Due to

Circumstances Outside the Control of the ETC.

The Commission should clarify that delays resulting from circumstances beyond an
ETC’s control will toll any CAF broadband build-out deadlines established in the Order.45 To
meet what the Commission rightly dubs “[t]he universal service challenge of our time” by

45
As part of CAF Phase I, ETCs “must complete deployment to no fewer than two-thirds of
the required number of locations within two years, and all required locations within three
years….” Order ¶ 147. As part of CAF Phase II, price cap ETCs accepting a state-level
commitment must deploy broadband services to at least 85 percent of covered high-cost
locations by the end of the third year and to all supported locations by the end of the fifth year.
Id. ¶ 160.
-26-


deploying new broadband capability to millions of Americans, Order, ¶¶ 4-5, the Commission
should afford ETCs some leeway when they confront the inevitable construction delays caused
by local zoning, permitting authorities, and the like.46
Commission rules and past decisions recognize that delays beyond the control of a
licensee warrant tolling applicable build-out deadlines. For example, the Commission will toll a
broadcast facility construction permit deadline “when construction is prevented by ... causes not
under the control of the permittee ... including any zoning or environmental requirement.”47
And, according to Commission’s 2009 Tower Siting Order, nearly one quarter of 3,300 pending
zoning applications for wireless facilities had been pending for more than a year. Tower Siting
Order ¶ 33. For this reason, the Commission defined specific timeframes beyond which a state or
local zoning authority’s inaction on a tower siting application constitutes a “failure to act” under
section 332(c)(7)(B). Id. ¶ 4. This same reasoning supports tolling any broadband build-out
deadlines due to events beyond an ETC’s control.

J. The Commission Should Clarify Implementation of Its Incremental Support

Regime.

The Commission should clarify how and when price cap carriers will be able to request
waivers of the upstream speed requirement. See Order ¶¶ 95 & 147. While noting that such

46
See Petition for Declaratory Ruling to Clarify Provisions of Section 332(c)(7)(B) to
Ensure Timely Siting Review and to Preempt under Section 253 State and Local Ordinances that
Classify All Wireless Siting Proposals as Requiring a Variance
, Declaratory Ruling, 24 FCC Rcd
13994, ¶¶ 32-33 (2009) (“Tower Siting Order”).
47
47 C.F.R. § 73.3598(b)(emphasis added) (listing causes beyond a permittee’s control as
“any cause of action pending before any court of competent jurisdiction relating to any necessary
local, state or federal requirement . . . including any zoning or environmental requirement,”
“administrative or judicial review,” acts of God, and delayed requests for international
coordination); 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
, 26 FCC Rcd 9664, ¶ 58 (2011) (noting how
zoning approval extends the process and increases the cost of mobile network deployment).
-27-


waiver requests are anticipated and will be handled by the Wireline Competition Bureau, the
Commission should specify whether price cap carriers must request a waiver before accepting
CAF Phase I incremental support or whether the waiver process will be available after such
support is accepted. See id. at n.234 (“Upon a showing that the specified support amount is
inadequate to enable build out of broadband with actual upstream speeds of at least 1 Mbps to
the required number of locations, a carrier may request a waiver.”).
Additionally, the Commission notes its expectation that any facilities build out pursuant
to a waiver of the minimum upstream speed “will eventually be upgraded.” See id. ¶ 95. The
Commission should clarify that carriers are not obligated to make such future upgrades as a
condition to receiving CAF Phase I incremental support and that a carrier will be given the
opportunity to decline support without adverse consequences should its waiver be denied.

K. The Commission Should Phase Out The Safety Net Additive Support Under

The Same Transition Plan Established For Competitive ETC Support.

The Commission should reconsider its safety net additive support phase-out. As
currently constituted, certain incumbent LECs that currently receive safety net additive support
will lose this support over a two-year period. Id. ¶ 252. However, competitive ETCs that benefit
from the same support mechanism will be able to retain safety net additive support for five years
under the Commission’s more generous phase-down of the identical support rule. Id. ¶ 519.
This result is unwarranted and violates section 254. See Alenco Communications, 201 F.3d at
616 (holding that the universal service program “must treat all market participants equally”). To
avoid this result and to ensure equal treatment of ETCs, the Commission should phase-out
incumbent LEC safety net additive support on the same five-year schedule as the Commission
adopted for the elimination of competitive ETC identical support. Alternatively, the
-28-


Commission must treat affected incumbent LECs equally to competitive ETCs that receive safety
net additive support when phasing out such support.

L. The Commission Should Reconsider Its Decision to Make Publicly Available

the Financial Disclosures of Privately Held Companies.
The Commission should allow privately held ETCs to seek confidential treatment of their
financial and operational reports which now must be filed with the Commission, USAC, and the
state commissions pursuant to the new ETC compliance reporting obligations. See Order ¶ 602.
Privately held companies do not routinely make available confidential financial and operational
reports that the Commission is now requiring be filed. The Commission should allow these
private companies to file such financial and operational information pursuant to Commission
rules and consistent with the Freedom of Information Act.48 Disclosure of confidential financial
information beyond the Commission, USAC, and the relevant state public service commissions,
id. ¶ 575 would serve no legitimate governmental or public interest, and the Commission has not
offered any justification for treating the financial records of privately held ETCs differently than
the financial records of other regulated entities.

48
See 47 C.F.R. § 0.457(d) (“Records not routinely available for public inspection; Trade
secrets and commercial or financial information obtained from any person and privileged or
confidential—categories of materials not routinely available for public inspection, 5 U.S.C.
552(b)(4) and 18 U.S.C. 1905.”); see also Examination of Current Policy Concerning the
Treatment of Confidential Information Submitted to the Commission
, 13 FCC Rcd 24816, 24823
(1998) (noting the Commission’s “policy of not authorizing the disclosure of confidential
financial information
…”) (emphasis added) (citations omitted).
-29-


III.

THE COMMISSION SHOULD RECONSIDER AND CLARIFY CERTAIN
ASPECTS OF ITS INTERCARRIER COMPENSATION REFORMS.

A. The Commission Should Make Modest Changes to the Access Recovery

Mechanism for Incumbent LECs.

1. The baseline revenue calculation for determining the Eligible

Recovery for price cap carriers should be based on billed, not
“collected” revenues.


The Commission should reconsider its decision to use “collected” revenues when
calculating “Price Cap Baseline Revenues” because this approach is operationally unworkable
and fundamentally unfair. See Order ¶ 880 (requiring for purposes of the baseline that total
switched access revenues include those “for which payment has been received by March 31,
2012”). No mechanized process exists to allocate interstate switched access revenues between
“billed” and “collected” revenue. Moreover, it would be difficult, if not impossible, to allocate
“collected” revenues between originating and terminating access as would be required by the
Commission’s formula. Because the formula only includes terminating access, incumbent LECs
would be forced to allocate revenues subject to billing disputes between originating and
terminating access – a process that would be costly and time consuming.49

Because the calculation in question is a one-time event imposed by the Commission for
purposes of a transition away from access charges, the Commission should not mandate the
creation of a new and unduly burdensome manual process. Doing so would conflict with the

49
More concerning, the requirement unjustly harms carriers subject to billing disputes by
enshrining their inability to collect revenue in 2011 (which in many cases may be lawfully billed
and ultimately collected) as a permanent reduction to the access revenue baseline for the entire
six-year terminating intercarrier compensation transition path. This unwarranted decision would
compound the result of a 2011 billing dispute by a factor of six. Moreover, the decision to base
the access revenue baseline on collected revenues irrationally and unfairly double counts the
effect of uncollectable revenue because the end-user ARC charges that will be permitted to
recover the access shift will also be subject to uncollectables, most likely at rates comparable to
the uncollectable rates that apply to terminating access revenue.
-30-


Commission’s stated goal to provide a measure of “certainty” through predictable revenue
streams as central to its intercarrier compensation reform. See Order ¶ 36. Rather than use all
revenues “for which payment has been received by March 31, 2012,” id. ¶ 868, the Commission
and price cap incumbent LECs would be better served by using “billed” interstate switched
access revenue for purposes of this calculation.
2. The Commission should reconsider the level at which residential rates
are compared with the Residential Rate Ceiling.

The Commission contemplates that the “Residential Rate Ceiling” will be calculated by
an incumbent LEC on a customer-by-customer basis. This approach is inconsistent with the
Commission’s pricing rules, which generally recognize the practical necessity of implementing
rules on a study area basis. Furthermore, with limited exceptions, the vast majority of charges to
be included as part of the Residential Rate Ceiling calculation do not vary across an incumbent
LEC’s study area, which obviates the need for a customer level calculation.50

However, some charges, such as E911 fees, can vary from jurisdiction to jurisdiction
within a study area. It would be extremely impractical for an incumbent LEC to modify its
billing systems to accommodate minor billing variations that may affect the Residential Rate
Ceiling when the purpose of the Commission’s rule – maintaining affordable rates – can be
accomplished by applying that ceiling on a study area basis. In such instances, the Commission
should allow a carrier to account for the average amount of fees varying within a study area.

50
The Commission identified the rate ceiling component charges as the federal Subscriber
Line Charge (“SLC”), the ARC, the flat rate for residential service, mandatory extended area
service charges, state subscriber line charges, state USF charges, state E911 charges, and state
TRS charges. See Order ¶ 914.
-31-


3. The Commission should clarify that the ARC is an interstate charge,
even though it may include recovery of intrastate revenues.

The Commission should make clear that the ARC is an interstate charge, even though it
may include the recovery of intrastate access revenues and reciprocal compensation revenues in
connection with the transition to a bill-and-keep intercarrier compensation regime. Order ¶¶
847-51. Although carriers are not required to charge the ARC, the Commission has carefully
delineated how the ARC is to be calculated, required that the ARC be “separately tariffed,” and
imposed reporting requirements on carriers charging the ARC to enable monitoring by the
Commission. Order ¶¶ 905-12. Indeed, the Commission “expect[s] incumbent LECs to include
the new ARC charges as part of the SLC charge for billing purposes.” Order ¶ 1334.

Under the circumstances, the ARC – like the SLC – is an interstate charge.51 However,
unlike the SLC, at least a portion of the ARC is intended to recover intrastate revenues lost by an
incumbent LEC as a result of the Commission’s reforms. To avoid any ambiguity regarding the
ARC’s regulatory status and to eliminate any possibility that a state commission may seek to
oversee the calculation or recovery of the ARC on an incumbent LEC’s bill, the Commission
should make clear that the ARC is an interstate charge subject to exclusive federal oversight.

This clarification also is necessary for practical reasons associated with universal service
contributions. If carriers include the ARC on the SLC line-item on customer bills, the total

51
Petition of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Phoenix, Arizona Metropolitan Statistical Area, Memorandum Opinion and Order, 25 FCC Rcd
8622 ¶ 53 n.160 (2010) (describing the SLC as “an end-user charge regulated by this
Commission, for interstate access”); Multi-Association Group (MAG) Plan for Regulation of
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange
Carriers; Federal-State Joint Board on Universal Service
, Order and Second Order on
Reconsideration, 17 FCC Rcd 11593, ¶ 4 n.12 (2002) (“The SLC is a flat, monthly charge
assessed directly on end users to recover interstate loop costs”); see also NARUC v. FCC, 737
F.2d 1095, 1113-1114 (D.C. Cir. 1984).

-32-


amount would be subject to USF contributions as an assessable interstate charge. LEC billing
systems in many cases are not capable of mapping some, but not all, of the revenue associated
with the SLC line-item on bills to its universal service contribution base of assessable revenues,
and modifying a billing system to add the ARC as a separate line-item charge would be a costly
and time-consuming exercise.
4. The Commission should permit incumbent LECs to receive
reimbursement from the Lifeline fund for ARC charges that
incumbent LECs cannot recover from Lifeline customers.


The Commission’s decision to exclude recovery of ARC charges for Lifeline customers
is arbitrary and capricious because it departs without explanation from prior Commission
precedent and contradicts the Commission’s articulated goal of eliminating implicit subsidies.
Accordingly, the Commission should reconsider this decision and allow ARC recovery for
Lifeline customers from the Lifeline fund.

First, ARC charges should be not be treated differently than SLCs under the existing
Lifeline mechanism. Under the Commission’s existing Lifeline program, an incumbent LEC
effectively “waives” its subscriber line charge for Lifeline customers and recovers that amount
from the Lifeline mechanism.52 Here, by contrast, the Commission proposes that an incumbent
LEC simply forgo that revenue without explanation. Order ¶ 909, n.1782.

Second, by prohibiting the recovery of an ARC charge from Lifeline customers, the
Commission creates a new implicit subsidy between customers that pay the ARC charge and
those that do not. This is the illogical consequence of the Commission’s determination that

52
See 47 C.F.R. §54.403(a)(1) (“The tariffed rate in effect for the primary residential End
User Common Line charge of the incumbent local exchange carrier serving the area in which the
qualifying low-income consumer receives service[.]”); see also Federal-State Joint Board on
Universal Service
, Report and Order, 12 FCC Rcd 8776, ¶ 341 (1997).
-33-


“incumbent LECs’ calculation of ARCs for purposes of the recovery mechanism must identify
and exclude such customers.” Id. By excluding Lifeline customer ARC revenues from the
calculation, the Commission’s formula requires that non-Lifeline customers will pay a higher
ARC than would otherwise be the case. This implicit subsidy is impossible to reconcile with
section 254(e) (stating that universal service support should be “explicit”) and the primary thrust
of the Commission’s reform efforts to eliminate implicit subsidies in general. Order ¶ 862.

B. The Commission Should Take Additional Steps To Prevent Regulatory

Arbitrage.

1. The Wireline Competition Bureau should clarify the definition of

VoIP-PSTN traffic in 47 C.F.R. § 51.913(a).


In including VoIP-PSTN traffic as part of a unified intercarrier compensation framework,
the Commission intended to “minimize future uncertainty and disputes regarding VoIP
compensation, and thereby meaningfully reduce carriers’ future costs.” Order ¶¶ 40 & 935.
However, the Commission’s ability to achieve that objective is threatened by alleged ambiguity
regarding the scope of “VoIP-PSTN traffic,” which the Commission should clarify.53

When seeking to collect terminating access charges for PSTN-originated calls, some
cable providers claim that their VoIP service does not utilize Internet protocol-compatible
customer premises equipment.54 The Order includes cable VoIP traffic within the new “IP-

53
This petition seeks clarification of the scope of that definition to avoid inconsistency with
the Commission’s stated policy goals. It does not seek reconsideration of an entirely distinct
issue that the Commission has already resolved: whether a LEC that accepts terminating traffic
bound for a non-LEC VoIP partner may collect access charges for the functions performed by
the non-LEC VoIP provider rather than the LEC. See Order ¶¶ 970-71; cf. 47 C.F.R. § 61.26.
The Commission’s resolution of that issue is now ripe for judicial review, irrespective of how the
Commission rules on this petition.
54
See, e.g., Complaint Against Verizon Florida, LLC and MCI Communications Services,
d/b/a Verizon Business Services for Failure to Pay Intrastate Access Charges for the Origination
and Termination of Intrastate Interexchange Telecommunications Services by Bright House

-34-


PSTN” category, regardless of how cable companies distribute traffic within a home or the
standard cable VoIP equipment used at the customer location. The Wireline Competition Bureau
should resolve any potential ambiguity between the Order and its rules by construing the term
“customer premises equipment” in new section 51.913(a) to include any equipment at or within
proximity of a customer premises that enables the use of voice handsets or other equipment used
for voice functions. In addition, or in the alternative, given the intent of the Order, the Bureau
could make clear in section 51.913 that the new rule covers terminating traffic when the
associated revenues are reported by providers as interconnected VoIP on their 2011 FCC Form
499As. The Bureau has delegated authority to revise section 51.913 to make these clarifications
under these circumstances. See Order ¶ 1404.
2. The Commission should limit the ability of LECs engaged in access
stimulation to circumvent the rules by inflating mileage.

The Commission has taken important steps to address access stimulation by LECs.
However, there is a potential loophole that the Commission should close – namely, the ability of
a LEC engaged in access stimulation to route traffic merely to increase its recovery of mileage-
sensitive charges.55

(footnote cont’d.)
Networks Information Services (Florida), LLC
, Docket No. 110056-TP, Direct Testimony of
Michael Starkey, at 10-14 & 38 (filed Nov. 1, 2011); Armstrong Telecommunications Inc. v.
Verizon Pennsylvania, Inc.
, Docket Nos. C-2010-2216205, et seq., Main Brief of Armstrong
Telecommunications Inc. at 36 (filed Dec. 6, 2011).
55
For example, unscrupulous LECs have rehomed their traffic to a new tandem located in a
distant geographic location in an attempt to increase terminating access charges, even though
doing so is less efficient from a network routing standpoint. LECs have also leased capacity on
equal access rings to inflate the mileage they collect. In this scenario, instead of paying the
standard rate charged by the equal access provider, IXCs are charged the higher transport rate
associated with the pumping LEC even though the traffic travels over the same facilities.
-35-



Accordingly, the Commission should make clear that the remedies associated with access
stimulation are not limited to a requirement that the access-stimulating LEC refile its interstate
access tariffs. See Order ¶ 679. If a LEC that meets the two conditions for access stimulation
engages in other questionable conduct to increase artificially mileage-sensitive transport charges,
the affected carrier should have the ability to utilize the Commission’s complaint procedures to
obtain appropriate relief.56
3. Competitive LECs engaged in access stimulation should be required
to lower their rates to $0.0007.

The Commission should not permit a competitive LEC engaged in access stimulation to
recover more that $.0007 per minute for terminating access. The Order concludes that “the
lowest interstate switched access rate of a price cap LEC in the state is the rate to which a
competitive LEC must benchmark if it meets the definition.” See id. ¶ 690. As AT&T and
Sprint have pointed out, competitive LECs engaged in access stimulation have extremely low
costs (because the equipment they use is almost always located in a carrier’s rural central office,
avoiding any outside plant charges), and a benchmark rate based on the incumbent LEC’s rate
would therefore continue to encourage access stimulation.57 The Commission’s approach to
dial-up ISP-bound traffic provides a better approach to dealing with carriers that incur minimal
costs to simply route high volumes of traffic, and thus the $.0007 rate provides a better
benchmark for competitive LECs engaged in access stimulation. See AT&T Comments at 16.

56
The Commission has recognized in other contexts that it should take steps to ensure “that
carriers do not shift costs between or among other rate elements, which would be counter to the
principles” adopted by the Commission. See Order ¶ 798.
57
Comments of AT&T, WC Docket No. 10-90 at 16-17 (filed Apr. 1, 2011); Comments of
Sprint Nextel Corp, WC Docket No. 10-90 at 2, 8-9 (filed Apr. 1, 2011).
-36-


4. The intrastate rates charged by new entrants prior to July 1, 2013
should be subject to the mirroring rule at interstate levels.
The
Commission’s
transition
plan in implementing bill-and-keep as the default
methodology for all intercarrier compensation traffic is, for the most part, carefully balanced.
However, it does not indicate the appropriate level of intrastate access rates charged by a new
entrant entering the market prior to July 1, 2013, the date by which intrastate terminating
switched end office and transport rates and reciprocal compensation, if above the carrier’s
interstate rate, are reduced to parity with interstate access rates. See Order ¶ 801.

To avoid disputes regarding appropriate rates to be charged by and paid to a new entrant,
the Commission should require a carrier entering the market after December 29, 2011, to charge
intrastate access rates that mirror interstate rates at the outset. Unlike existing carriers competing
in the market based on established business plans that include “implicit support on which they
have been permitted to rely for many years,” Order ¶ 870, a new entrant has no expectancy
interest in charging legacy intrastate access rates and no need for a transition to interstate rates.
5. The Commission should clarify that suspension decisions under
section 251(f)(2) do not extend to the Commission’s new intercarrier
compensation regime.


The Commission correctly recognized the dangers to achieving a uniform intercarrier
compensation regime if state commissions were permitted to suspend or modify requirements
under this regime pursuant to section 251(f)(2). See Order ¶¶ 822-24. However, the possibility
that section 251(f)(2) could be used to circumvent the Commission’s reform efforts is not limited
to future petitions seeking a suspension or modification of bill-and-keep. Specifically, state
commissions previously have granted numerous suspensions and modifications of obligations
under sections 251(b) and 251(c), which, if allowed to remain in effect, could undermine the
Commission’s reform efforts. Accordingly, the Commission should make clear that any
-37-


suspension or modification decision already adopted by a state public service commission under
section 251(f)(2) does not extend to the Commission’s new intercarrier compensation regime.
6. The Commission should clarify that its “interim default rule”
allocating responsibility for transport costs between rate-of-return
carriers and CMRS providers does not affect the current rules
governing points of interconnection.


To minimize adverse impacts on rural, rate-of-return carriers, the Commission adopted an
“interim default rule allocating responsibility for transport costs applicable to non-access traffic
exchanged between CMRS providers and rural, rate-of return regulated LECs,” including when a
CMRS provider selects an interconnection point outside the LEC’s service area. Order ¶¶ 998-
99. The Commission should clarify that nothing in the Order or its the interim default rule was
intended to affect the rules governing points of interconnection between CMRS providers and
price cap carriers. Section 251(c)(2) requires an incumbent LEC to provide interconnection “at
any technically feasible point within the carrier’s network.” See 47 U.S.C. § 251(c)(2)(B)
(emphasis added). And, the Commission specifically concluded that it would address issues
concerning the “default point at which financial responsibility for the exchange of traffic [under
a bill and keep regime] shifts from the originating carrier to the terminating carrier” in its
FNPRM. Order ¶ 998. In the meantime, the Commission should foreclose any suggestion that it
intended to modify the rules governing interconnection points between CMRS providers and
price cap carriers when it created the interim default rule for rate-of-return carriers.

C. The Commission Should Revisit Its Treatment of Certain Originating Access

Issues.

The Commission desired to “limit[] reform to terminating access charges at this
time,” given its intent to “further evaluate” other charges including originating access. Order
739. However, the Order may create anomalous results and potential arbitrage opportunities
regarding originating access, which the Commission should address.

-38-


First, like price cap carriers, rate-of-return carriers’ originating intrastate access charges
should be capped at current rates as of the effective date of the rules, subject to a rate-of-return
carrier’s ability to apply for and obtain a waiver. Notwithstanding the Commission’s suggestion
to the contrary, id. ¶ 805, there is no evidence that rate-of-return carriers would be financially
harmed by capping their originating intrastate access charges.
Second, if there was a decision to exempt toll traffic that is originated on the PSTN and
terminated on VoIP facilities from the payment of originating intrastate access charges (rather
than deferring this issue to the FNPRM), the Commission should address the consequences of
that decision. See id. ¶ 961. At a minimum, the Commission should provide for recovery
through the CAF for lost originating intrastate access revenues associated with toll VoIP-PSTN
traffic, including any such revenues lost during the first half of 2012.
Third, the Commission should reconsider its apparent decision to allow VoIP providers
for the first time to impose originating interstate access charges. To the extent the Commission
intended to create a new entitlement, it did not explain its rationale. Furthermore, if that was in
fact the Commission's intent, it would not be appropriate to rely, as the Commission
acknowledges doing, on section 251(b)(5), which cannot lawfully authorize the imposition of
originating access charges, whether on a transitional or permanent basis. Id. ¶ 961, n.1976.

D. The Commission Should Clarify The Date in Rule 51.705(c)(3) (July 1

instead of January 1).

In its default rules for non-access reciprocal compensation, the Commission states that
“[e]ffective July 1, 2013, no telecommunications carrier’s Non-Access Reciprocal Compensation
rates shall exceed that carrier’s tariffed interstate access rate in effect in the same state on
January 1 of that same year, for equivalent functionality.” Order, App. A, § 51.705(c)(3)
(emphasis added). The Commission’s Part 61 tariff rules typically anticipate a July 1st tariff
-39-


effective date. 58 As such, the Commission should conform Commission Rule 51.705(c)(3) to its
existing tariffing regime and January 1st to July 1st.

IV.

CONCLUSION

For the foregoing reasons, the Commission should grant USTelecom’s Petition for
Reconsideration.
Respectfully
submitted,

UNITED STATES TELECOM ASSOCIATION





By:


Jonathan Banks
Glenn Reynolds
607 14th Street, N.W.
Suite 400
Washington, D.C. 20005
(202) 326-7300



December 29, 2011

58
See, e.g., Commission Rule 61.3 definitions referring to July 1 effective date for certain
rate calculations. 47 C.F.R. § 61.3.
-40-








































Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

)
In the Matter of
)

)
Connect America Fund
) WC Docket No. 10-90
)
A National Broadband Plan for Our Future
) GN Docket No. 09-51
)
Establishing Just and Reasonable Rates for
) WC Docket No. 07-135
Local Exchange Carriers
)
)
High-Cost Universal Service Support
) WC Docket No. 05-337
)
Developing an Unified Intercarrier
) CC Docket No. 01-92
Compensation Regime
)
)
Federal-State Joint Board on Universal
) CC Docket No. 96-45
Service
)
)
Lifeline and Link-Up
) WC Docket No. 03-109
)
)
Universal Service Reform – Mobility Fund
) WT Docket No. 10-208
)

PETITION OF METROPCS COMMUNICATIONS, INC.

FOR CLARIFICATION AND LIMITED RECONSIDERATION

Carl W. Northrop
Mark A. Stachiw
Michael Lazarus
General Counsel, Secretary
Telecommunications Law Professionals PLLC
& Vice Chairman
875 15th Street, NW, Suite 750
2250 Lakeside Boulevard
Washington, DC 20005
Richardson, TX 75082
Telephone: (202) 789-3120
Telephone: (214) 570-5800
Facsimile: (202) 789-3112
Facsimile: (866) 685-9618
Its Attorneys
{00016991;v6}

TABLE OF CONTENTS

SUMMARY .................................................................................................................................. II
I.
INTRODUCTION ..............................................................................................................2
II.
BACKGROUND ................................................................................................................3
III.
THE LEGAL BASIS OF THIS PETITION .......................................................................7
IV.
THE DEFINITION OF “ACCESS STIMULATION” SHOULD BE CLARIFIED .........8
V.
THE COMMISSION SHOULD CLARIFY THE MANNER IN WHICH THE 3:1
TRAFFIC IMBALANCE COMPONENT OF THE ACCESS STIMULATION
DEFINITION IS TO APPLY ...........................................................................................13
VI.
THE COMMISSION SHOULD REVISE ITS RULES TO PROHIBIT TRAFFIC
STIMULATION VIA INTRASTATE ACCESS, INCLUDING INTRASTATE,
INTERMTA, TRAFFIC ...................................................................................................16
VII.
EXPEDITED ACTION IS REQUESTED .......................................................................20
VIII.
CONCLUSION ................................................................................................................20
{00016991;v6}

SUMMARY

MetroPCS Communications, Inc. (“MetroPCS”) is asking the Commission on
reconsideration to clarify or modify its rules pertaining to traffic stimulation in a few limited
respects in order to prevent profiteers from trying to exploit potential loopholes.
First, MetroPCS seeks a clarification of the definition of an “access revenue sharing
agreement” to make clear that an arrangement in which a third party receives compensation for
activities which result in traffic stimulation is included whether or not the payment is tied
directly to the amount of billings or collections of access charges. Otherwise, traffic stimulators
may try to evade the rule by adopting fixed fee arrangements.
Second, the Commission should clarify that the access stimulation definition extends to
third party arrangements not only with the terminating LEC, but also with any affiliate of the
terminating LEC. This is implied by the current definition, which extends to direct and indirect
arrangements, but should be express.
Third, MetroPCS is asking the Commission to clarify the manner in which the 3:1 traffic
imbalance ratio will be applied in order to deter foreseeable approaches unprincipled carriers
may take to evade this prong of the access stimulation test.
Finally, the Commission is asked to fill a gap in its traffic stimulation rules by applying
them to intrastate traffic. Otherwise, there is a gap in the Commission’s reforms that will
encourage arbitragers to move their traffic pumping schemes to the intrastate access segment of
the market.
{00016991;v6}

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

)
In the Matter of
)

)
Connect America Fund
) WC Docket No. 10-90
)
A National Broadband Plan for Our Future
) GN Docket No. 09-51
)
Establishing Just and Reasonable Rates for
) WC Docket No. 07-135
Local Exchange Carriers
)
)
High-Cost Universal Service Support
) WC Docket No. 05-337
)
Developing an Unified Intercarrier
) CC Docket No. 01-92
Compensation Regime
)
)
Federal-State Joint Board on Universal
) CC Docket No. 96-45
Service
)
)
Lifeline and Link-Up
) WC Docket No. 03-109
)
)
Universal Service Reform – Mobility Fund
) WT Docket No. 10-208
)

PETITION OF METROPCS COMMUNICATIONS, INC.

FOR CLARIFICATION AND LIMITED RECONSIDERATION

MetroPCS Communications, Inc. (“MetroPCS”),1 by its attorneys and pursuant to Section
1.429(a) of the Commission’s Rules,2 hereby respectfully requests that the Commission clarify
certain aspects, and to reconsider other aspects, of its Order, FCC 11-161, released November


1 For purposes of this Petition, the term “MetroPCS” refers collectively to MetroPCS Communications, Inc. and all
of its FCC-licensed subsidiaries.
2 47 C.F.R. Section 1.429(a).
{00016991;v6}

18, 2011 in the above-captioned proceedings (“Petition”).3 As set forth in detail below, the
Commission’s admirable steps to discourage traffic stimulation or traffic pumping are more
likely to succeed if the Commission clarifies or revises the rules in limited respects to prevent
opportunistic profiteers from exploiting potential loopholes. In support, the following is
respectfully shown:

I.

INTRODUCTION

MetroPCS previously has congratulated this Commission for crossing the finish line on
the first leg of what already has been a decade-long marathon to comprehensively reform both
the intercarrier compensation system and the universal service fund. The recent Order4 involved
significant tradeoffs for all affected carriers, and reflected a careful, well-reasoned balancing of
all interests after extensive deliberation.5 MetroPCS was particularly gratified by the significant
and long overdue strides the Commission has taken to curb traffic stimulation in both the
interstate access and local reciprocal compensation markets. The Commission, in its Order,
recognized that traffic stimulation is a major form of uneconomic regulatory arbitrage in the
current intercarrier compensation regime and, in response, adopted measures to eliminate, or at
the very least mitigate, disruptive traffic stimulation from occurring. Specifically, the
Commission adopted prophylactic measures: (1) with respect to interstate switched access


3 This petition is being filed within 30 days following the date of publication of the subject order in the Federal
Register, which occurred on November 29, 2011. See 76 Fed. Reg. 73830 (Nov. 29, 2011). Thus, the Petition for
Clarification and Reconsideration is timely under Sections 1.429(d) and 1.4(b) of the FCC Rules. 47 C.F.R. §§
1.4(b) and 1.429(d).
4 In the Matter of Connect America Fund; A National Broadband Plan for Our Future; Establishing Just and
Reasonable Rates for Local Exchange Carriers; High-Cost Universal Service Support; Developing an Unified
Intercarrier Compensation Regime; Federal-State Joint Board on Universal Service; Lifeline and Link-Up;
Universal Service Reform – Mobility Fund,
WC Docket Nos. 10-90, 07-135, 05-337, 03-109, GN Docket No. 09-51,
CC Docket Nos. 01-92, 96-45, WT Docket No. 10-208, Report and Order and Further Notice of Proposed
Rulemaking, FCC 11-161 (rel. Nov. 18, 2011) (the “Order”).
5 While MetroPCS applauds the Commission’s efforts, MetroPCS is disappointed that the Commission reconsidered
on its own motion certain aspects of the Order as they relate to CMRS-LEC interconnection and MetroPCS remains
concerned that the delay in effectiveness of the rules may lead to traffic stimulation. See MetroPCS Ex Parte filed
December 21, 2011 in this proceeding.
-2-
{00016991;v6}

traffic; and (2) with respect to intraMTA LEC-CMRS traffic. While these measures will go a
long way to mitigating historical arbitrage, MetroPCS is concerned that there are possible
ambiguities which unprincipled arbitrators might seek to exploit. In order to assure that the
Commission’s efforts do not result in continued or modified traffic stimulation, MetroPCS urges
the Commission to reconsider and/or clarify a few aspects of its new regulations pertaining to
traffic stimulation in order to prevent traffic stimulators from exploiting potential loopholes in
the Commission’s proposed rules.6

II.

BACKGROUND

The Commission correctly concluded that interstate access stimulation is a major
problem in the current intercarrier compensation regime, finding that “the record confirms the
need for prompt Commission action to address the adverse effects of access stimulation and to
help ensure that interstate access rates remain just and reasonable.”7 The Commission found that
uneconomic access stimulation occurs when “a [local exchange carrier] with high switched
access rates enters into an arrangement with a provider of high call volume operations such as
chat lines, adult entertainment calls, and ‘free’ conference calls,” and such arrangement inflates
or stimulates the access minutes terminated to the LEC, and “the LEC then shares a portion of
the increased access revenues resulting from the increased demand with the “free” service
provider, or offers some other benefit to the “free” service provider.”8 The Commission held
that “the combination of significant increases in switched access traffic with unchanged access


6 Traffic stimulation is like a balloon, unless the Commission constrains all ways it can occur, efforts to “squeeze” it
in one area will merely result in it “popping” up elsewhere.
7 Order at para. 662.
8 Id. at para. 656. To the knowledge of MetroPCS, traffic pumping has moved far beyond the traditional forms of
chat lines and free conference calling services. Some schemes involve the delivery of streaming audio services (e.g.,
radio broadcasts) which generate open lines of communication and inordinate call lengths. In other instances,
unscrupulous profiteers appears to be using auto-dialers to generate traffic solely for the purpose of triggering
terminating compensation obligations (and shared revenue).
-3-
{00016991;v6}

rates results in a jump in revenues and thus inflated profits that almost uniformly make the
LEC’s interstate switched access rates unjust and unreasonable under Section 201(b) of the
Act.”9 Thus, the Commission “adopt[ed] revisions to [its] interstate switched access charge rules
to address access stimulation.”10
As part of its revisions, the Commission adopted a two factor test to identify when a LEC
is engaged in traffic stimulation and therefore must refile its interstate tariffs at rates that are
presumptively consistent with the Act. The first factor may be satisfied by evidence
demonstrating that the LEC has met either of the following: “the LEC either has had a three-to-
one interstate terminating-to-originating traffic ratio in a calendar month, or has had a greater
than 100 percent increase in interstate originating and/or terminating switched access MOU in a
month compared to the same month in the preceding year.”11 This prong is designed to identify
particular traffic patterns which historically have been indicative of a traffic pumping scheme.
The second factor is that the LEC must have entered into an access revenue sharing
agreement with a third party. The Commission defined an access revenue sharing agreement as
an arrangement in which a rate-of-return LEC or competitive LEC
has an access revenue sharing agreement, whether express, implied, written or oral, that,
over the course of the agreement, would directly or indirectly result in a net payment to
the other party (including affiliates) to the agreement, in which payment by the rate-of-
return LEC or competitive LEC is based on the billing or collection of access charges
from interexchange carriers or wireless carriers. When determining whether there is a net
payment under this rule, all payments, discounts, credits, services, features, functions,
and other items of value, regardless or form, provided by the rate-of-return LEC or
competitive LEC to the other party to the agreement shall be taken into account.12


9Id. at para. 657.
10Id. at para. 656.
11Id. at para. 667.
12Id. at para. 669.
-4-
{00016991;v6}

The Commission held that a “complaining carrier may rely on the 3:1 terminating-to-originating
traffic ratio and/or the traffic growth factor for the traffic it exchanges with the LEC as the basis
for filing a complaint,” and that such a showing “will create a rebuttable presumption that
revenue sharing is occurring and the LEC has violated the Commission’s rules.”13 The LEC
would then “have the burden of showing that it does not meet both conditions of the
definition.”14 If the LEC is unable to make such a showing, it will have to refile its tariff in
accordance with the Commission’s rules, which the Commission anticipates will result in
significantly decreased access stimulation revenues.15
In addition, the Commission adopted separate measures to eliminate, or mitigate, traffic
stimulation in the local reciprocal compensation market. The Commission did so by adopting
bill-and-keep as the end point for intercarrier compensation reform. Of particular importance to
MetroPCS as a wireless carrier, the Commission adopted a prompt transition to a bill-and-keep
regime for the exchange of intraMTA LEC-CMRS traffic.16 The Commission found “a greater
need for immediate application of a bill-and-keep methodology in [the non-access] context to
address traffic stimulation.”17 The Commission correctly noted that the record demonstrates “a
significant and growing problem of traffic stimulation and regulatory arbitrage in LEC-CMRS


13 Id. at para. 699.
14 Id.
15 Id. at para. 679.
16 Initially, the CMRS/LEC transition to bill-and-keep was to be immediate. Id. at para. 995. The Commission later,
ostensibly on its own order, reversed its decision to immediately apply a bill-and-keep to all intraMTA LEC-CMRS
traffic. Rather, the Commission delayed the bill-and-keep transition for intraMTA LEC-CMRS traffic exchanged
pursuant to an existing interconnection agreement to July 1, 2012. See Order on Reconsideration (WC Docket No.
10-90), FCC 11-189 released December 23, 2011. The Commission retained the immediate transition to a bill-and-
keep regime for intraMTA LEC-CMRS traffic not exchanged pursuant to an existing interconnection agreement.
While the immediate transition for some of the traffic will curb some of the reciprocal compensation traffic
stimulation, to the extent traffic pumpers already have existing agreements, they will be incented to engage in traffic
pumping at an accelerated pace before the July 1, 2012 effective date.
17 Order at para. 995.
-5-
{00016991;v6}

non-access traffic.”18 Indeed, MetroPCS repeatedly has demonstrated that traffic stimulation is
an escalating problem that has moved from simple arbitrage to wide-scale fraud. What started as
a cottage industry where LECs with unjustifiably high rates encouraged customers of other
carriers to call, has morphed into an enterprise where carriers and other parties are going to
alarming lengths, such as using auto-dialers, third party “customers,” and streaming audio
services to generate fraudulent high-cost traffic. The Commission correctly found that
“addressing the traffic stimulation problem in reciprocal compensation is more urgent for LEC-
CMRS traffic, and the bill-and-keep methodology we adopt today should eliminate the
opportunity for parties to engage in such practices in connection with such traffic.”19
Thus, the Commission’s Order includes long needed mechanisms to decrease traffic
stimulation activities in both the interstate access and reciprocal compensation contexts.
However, the Commission’s Order neglects to address traffic stimulation in the intrastate access
context which is a matter of concern because MetroPCS has already started to see access
stimulation in this segment of the market.20 MetroPCS, therefore, urges the Commission to
adopt regulations on reconsideration that will immediately address intrastate access traffic
stimulation. In addition, MetroPCS also is concerned that the Commission’s definitions are
ambiguous in some respects and may lead to unnecessary confusion as to what qualifies as traffic
stimulation, as well as potential mischief from traffic stimulators who are attempting to evade the
Commission’s new regulations. Thus, the Commission should clarify its revenue sharing
agreement definition and the manner in which the 3:1 traffic imbalance component of the access


18 Id.
19 Id.
20 Since intrastate access rates are generally higher than interstate access rates, states with multiple MTAs no doubt
will experience an immediate explosion of traffic pumping in this market segment.
-6-
{00016991;v6}

stimulation is applied. Only when all of these issues are addressed can the Commission have
comfort that its traffic stimulation rules will have their intended result.

III.

THE LEGAL BASIS OF THIS PETITION

A petition for reconsideration is appropriate if it is based on new evidence, changed
circumstances, or if reconsideration is in the public interest.21 MetroPCS is an “interested
person” eligible to petition for reconsideration and clarification of the new construction
requirements and the other auction rules challenged herein.22 MetroPCS has been a very active
participant in the Commission’s intercarrier compensation proceedings over the past ten years,
filing substantial comments, reply comments and ex partes, as well as meeting on numerous
occasions with Commission staff. Moreover, MetroPCS will be directly adversely affected if the
rules are not changed. As a consequence, MetroPCS has standing to submit this petition for
clarification and reconsideration.23
As noted in detail below, the limited clarifications and reconsideration of the rules
requested here by MetroPCS meets the public interest requirement as contemplated by Section
1.429(b)(3). The Commission also has stated that “[r]econsideration is warranted . . . if the
petitioner cites material errors of fact or law or presents new or previously unknown facts and
circumstances which raise substantial or materials questions of fact that were not considered and
that otherwise warrant [the] review of [the] prior action.”24 Clarification and reconsideration of
the cited rules also is justified under this standard.


21 In the Matter of Numbering Resource Optimization, Fourth Order on Reconsideration, 22 FCC Rcd 8047 at para.
5 (rel. Apr. 26, 2007).
22 Cf. 47 C.F.R. Section 1.429(a).
23 47 C.F.R. Section 1.106(b)(1) (“any party to the proceeding, or any other person whose interests are adversely
affected by an action taken by the Commission … may file a petition requesting reconsideration of the action”).
24 Lancaster Communications, Inc., 22 FCC Rcd 2438 at para. 20 (rel. Feb. 7, 2007).
-7-
{00016991;v6}

IV.

THE DEFINITION OF “ACCESS STIMULATION” SHOULD BE CLARIFIED

As noted above, the Order wisely adopted rules to reduce uneconomic access
stimulation.25 The Commission recognized that certain local exchange carriers (“LEC”) with
high switched access rates (“High Priced Terminating Carriers”) were entering into arrangements
with third parties (“Traffic Stimulators”) to inflate, stimulate or pump traffic as a form of
arbitrage.26 In taking this action, the Commission recognized that access stimulation
arrangements can take a variety of forms, and purposefully adopted a broad definition of access
stimulation. Thus, the definition is not only limited to direct, express, written agreements
between the High Priced Terminating Carriers and the Traffic Stimulators. Rather, the definition
extends to express and implied as well as written or oral arrangements.27 The definition also
includes arrangements that not only result in a net payment to the Traffic Stimulator, but also to
its “affiliates.”28 And, the definition includes arrangements that would “directly or indirectly”
give rise to payment. The clear purpose of these expansive elements of the definition was to
make sure that it captured the broad variety of schemes that had been and could be put in place to
artificially pump traffic to High Priced Terminating Carriers. The Commission certainly was
justified in adopting such a broad definition as experience shows that arbitragers are quick to
exploit gaps in the intercarrier compensation system in order to create arbitrage opportunities.
There are, however, two aspects of the definition of “access stimulation” that should be
clarified to make sure that the Commission’s effort to eliminate all uneconomic arbitrage


25 See Order at Section XI.
26 While this originally manifested itself through free services offered using access revenues (e.g., free international
calling, free conference calling), it has now morphed into LECs sharing revenues with illegitimate customers who
use auto-dialers solely for the purpose of triggering terminating compensation payments and sharing a portion of the
proceeds.
27 FCC Rule Section 61.3(aaa)(1).
28 Id.
-8-
{00016991;v6}

schemes is successful. First, the Commission must clarify that its access stimulation definition
will be broadly construed so that the prohibited arrangements are not limited solely to those in
which the revenue payment is directly “based on the billing or collection of access charges” but
rather includes other circumstances when payment is being made for the purpose of traffic
stimulation. Absent clarification, Traffic Stimulators and High Priced Terminating Carriers may
try to craft revised payment schemes and claim that they do not fit squarely into the
Commission’s definition of access stimulation. For example, a terminating LEC might claim
that it is permissible to make a non-variable payment because the amount is not strictly tied to
access billings or collections. This should not be permitted when the arrangement at its core is
designed to stimulate traffic. Second, the Commission must make clear that the definition of
access stimulation includes arrangements that involve not only a terminating carrier which is a
CLEC, but also any “affiliate” of that CLEC. Without this clarification, traffic pumpers might
believe that it is permissible for a revenue sharing payment to be made by an affiliate of the
LEC, rather than the LEC themselves. Obviously, the relevant consideration should be whether
a net payment is being made to stimulate traffic to the LEC. As discussed in detail below, both
of these clarifications fall within the scope of the original rules when read in their proper context
and making them will prevent traffic stimulation activities from continuing under a difference
guise. While the Commission could clarify these points in the context of disputes, the better
course is for the Commission to clarify its intent so as to discourage gamesmanship before it
occurs.29


29 MetroPCS believes that such situations already are covered by the Commission’s existing language, and only
submits this clarification request out of an abundance of caution.
-9-
{00016991;v6}

A. The Phrase “based on the billing or collection of access revenues” Must be

Clarified

A simple illustration will demonstrate the basis of the MetroPCS concern that
unscrupulous High Priced Terminating Carriers and Traffic Stimulators may try to evade the
access stimulation definition by seizing upon the requirement that such arrangements be “based
on the billing or collection of access revenues.” Consider a situation in which a High Priced
Terminating Carrier and a Traffic Stimulator have a long-standing arrangement in which the
Traffic Stimulator receives a percentage of the switched access revenue generated by numbers
assigned to the Traffic Stimulator by the High Priced Terminating Carrier. This is a classic
traffic pumping arrangement that would fall squarely within the definition of “access
stimulation.” However, because the long operating history of these two parties will have resulted
in a measurable income stream, the participants could easily convert the arrangement to a fixed
monthly payment, unaffected directly on a going-forward basis by the “billing or collection of
access charges from interexchange or wireless carriers.”30 Neither, the substance of the
arrangement or the public harms identified by the Commission will have changed, but a technical
argument can be made that the new arrangement does not satisfy the letter of the definition.
This potential loophole can easily be closed by the Commission. On reconsideration, the
Commission need merely clarify that any arrangement between a LEC and a third party that
results in the generation of switched access traffic to the LEC and provides for the net payment
of consideration of any kind to the third party will be deemed by the Commission to be “based
upon the billing or collection of access charges,” regardless of the manner in which, or the
formula by which, the consideration is calculated. This simple clarification will prevent parties


30 A High Priced Terminating Carrier could elect to absorb any collection risk associated with access billings as
another way to funnel money to the Traffic Simulator in a manner unrelated directly to access traffic volume.
-10-
{00016991;v6}

to prior access stimulation arrangements, and parties to new arrangements, from attempting to
sidestep the Commission’s rules by restructuring or crafting their payment mechanisms.
Notably, this clarification will not serve to sweep in legitimate arrangements. The
arrangements encompassed by the clarified definition still will be those relating to traffic
stimulation. Other net payment arrangements not related to traffic generation will not meet this
definition. Further, since an arrangement also must trigger either the 3:1 traffic imbalance or
100% growth factor test in order to be deemed traffic stimulation, the clarification sought by
MetroPCS will not result in an overly inclusive definition.

B. Arrangements with Affiliates of High Priced Terminating Carriers Must be

Covered by the Commission’s Rules

As earlier noted, the access stimulation definition expressly provides that it encompasses
not only arrangements where a LEC makes net payments to another party, but extends to “a net
payment to the other party (including affiliates).”31 This reference to affiliates is important
because parties to traffic pumping schemes have been known to set up affiliated shell companies
to conceal access stimulation schemes and their economic effect. The same consideration
requires clarification that the definition of access stimulation encompasses arrangements
involving payments not only by the High Priced Terminating Carriers, but also affiliates of such
LECs.
This requested clarification falls well within both the letter and spirit of the current rule.
The rule makes clear that it applies to arrangements resulting in payments both “directly or
indirectly,”32 which should be interpreted by the Commission to include payments involving


31 FCC Rules Section 61.3(aaa)(1)(i) (emphasis added).
32 Id. (emphasis added).
-11-
{00016991;v6}

affiliates of the LEC.33 MetroPCS raises the point out of an abundance of caution since the rule
makes an explicit reference to “affiliates” with respect to the “other party,” but does not
explicitly do so with respect to the LEC. Again, MetroPCS fears that an unscrupulous LEC may
seize upon this fact to craft a semantic argument that the rule only reaches to arrangements to
which the LEC is a party and not to those involving the LEC’s affiliates. The clarification
sought by MetroPCS will avoid gamesmanship of this nature.
A final clarification of the rules also would reduce the prospect of controversies with
regard to the definition of access stimulation. MetroPCS notes that the word “affiliate” is not
specifically defined in Section 61.3 of the rules. However, the term “affiliate” is specifically
defined in the Communications Act as follows:
The term ‘affiliate’ means a person that (directly or indirectly) owns or controls,
is owned or controlled by, or is under common ownership or control with, another
person. For purposes of this paragraph, the term ‘own’ means to own an equity
interest (or the equivalent thereof) of more than 10 percent.34
MetroPCS assumes that the Commission plans to apply the statutory definition of affiliate in this
instance. However, since the legal term affiliate can be used to describe a variety of
relationships between two entities in different contexts, for the avoidance of doubt, the
Commission should clarify that the statutory definition of affiliate will be used in interpreting the
access stimulation definition.


33 To the extent that any such affiliate arrangement is unrelated to the delivery of traffic (e.g., such as the sale of
CPE), this clarification will not come into play because the traffic pattern should not change nor would such
payment be based on traffic. However, to the extent the arrangement is for the originations of traffic, such
arrangement with an affiliate should be swept into the traffic stimulation rules.
34 47 U.S.C. Section 153(1).
-12-
{00016991;v6}

V.

THE COMMISSION SHOULD CLARIFY THE MANNER IN WHICH THE 3:1
TRAFFIC IMBALANCE COMPONENT OF THE ACCESS STIMULATION
DEFINITION IS TO APPLY

In keeping with comments made by MetroPCS and others,35 the Order recognizes that an
imbalanced traffic flow can be an important indicator of a disruptive traffic stimulation scheme.
For example, chat lines and free conference call lines, which the Commission specifically
identifies as prime examples of services that stimulate high volumes of traffic,36 are essentially
one-way services; the numbers devoted to these services generate a high volume of inbound
calls, but rarely are used to generate outbound calls. This leads to a significant traffic imbalance.
Thus, the Commission wisely included within the test for access stimulation a criterion that the
LEC have “an interstate terminating-to-originating traffic ratio of at least 3:1 in a calendar
month.” MetroPCS supports this test and again commends the Commission for adopting it.
MetroPCS asks, however, that the Commission clarify the 3:1 test in two respects in order to
make sure that it works properly as traffic stimulation activities evolve over time.
First, the Commission should make clear that a carrier cannot defeat the 3:1 traffic
imbalance standard merely by offsetting a one-way business plan in one discrete line of business
that generates high volumes of inbound traffic against a separate and distinct one-way business
plan in a different discrete line of business that generates high volumes of outbound traffic only.
A real world example in which MetroPCS was directly involved serves to demonstrate the point.
As the Commission is aware, MetroPCS was involved in an extended controversy with CLEC
North County Communications Corp. (“North County”) arising out of North County’s chat line
services, which MetroPCS had identified as a local reciprocal compensation traffic pumping


35 See, e.g., Comments of MetroPCS filed April 1, 2011 at p. 6-14.
36 Order at para. 656
-13-
{00016991;v6}

scheme.37 Notably, although North County admitted that nearly 100% of the traffic from its chat
line service was inbound to North County, North County nonetheless claimed that, overall, its
inbound and outbound traffic was balanced. It made this claim based upon the fact that another
component of the North County business was to serve telemarketers, which generated high
volumes of outbound traffic and little or no inbound traffic.38
The important point here is that the distinct outbound telemarketing traffic of North
County did not in any way mitigate the uneconomic effect of the high volume of the inbound
chat line traffic that MetroPCS was being asked to pay for at an exorbitant termination rate.
Indeed, the North County business model resulted in uneconomic traffic stimulation in two
directions: inbound chat line traffic to garner intraMTA reciprocal compensation payments and
outbound telemarketing to garner originating access payments. The Commission’s goal should
be to deter all uneconomic traffic stimulation business plans, even if they are crafted as two
distinct one-way models. For example, to do so, in applying the 3:1 ratio, local reciprocal traffic
should be considered separately from interstate access, and interstate originating access should
be considered separately from intrastate access traffic. By doing so, the Commission would
eliminate the ability of carriers to evade the Commission’s traffic imbalance test.
Second, the Commission should clarify that there may be instances in which the traffic
imbalance threshold will be deemed to be met when there is a 3:1 or greater imbalance in the
traffic exchanged between a terminating carrier and another complaining carrier, even if the
terminating carrier’s overall traffic mix on an aggregate basis with all other carriers is more
balanced. The Commission’s access stimulation rules clearly contemplate that a complaining


37 The MetroPCS/North County controversy is cited throughout the Order and motivated the Commission to take a
series of steps to curb traffic stimulation in the wireless reciprocal compensation market. See, e.g., Order at paras.
977, 983, 985.
38 See North County Order on Review, 24 FCC Rcd 14036 at para. 3 (2009).
-14-
{00016991;v6}

carrier can make a prima facie case of traffic imbalance based on its own traffic exchange pattern
with the terminating carrier.39 However, the language in the 3:1 imbalance rule appears to
suggest that the ultimate determination of imbalance will be based upon the terminating carrier’s
overall traffic mix with all other carriers, not merely upon the bilateral exchange ratio with the
complaining carrier.40
It is a matter of concern that MetroPCS could experience a severe traffic imbalance with
a particular carrier that would not meet the definition of access stimulation because the
imbalance does not exist on an aggregate basis. For example, MetroPCS has reason to believe
that some Traffic Stimulators were buying multiple MetroPCS phones and using them in
connection with auto-dialers to generate high volumes of calls to certain LECs with high
termination rates, presumably to take maximum advantage of a revenue sharing scheme.41
MetroPCS, like all flat-rate, unlimited usage carriers, is particularly susceptible to schemes of
this nature. Schemes which generate a serious traffic imbalance between one originating carrier
and the terminating LEC can be pernicious whether or not the terminating LEC happens to meet
the 3:1 imbalance test considering its traffic as a whole with all of the carriers with which it
exchanges traffic. The risk is particularly great for flat-rate unlimited use carriers whose
customers are prime targets of the cost shifting that motivates Traffic Stimulators.42


39 Order at para. 675.
40 MetroPCS reaches this conclusion because the language in Section 61.43(aaa)(1)(ii) of the rule is framed in
general terms, and appears to refer to the terminating carrier’s overall ratio of traffic, not the ratio with the
terminating carrier. If this was not the Commission’s intent, the rule should be clarified.
41 The other Commission rule which amplifies this problem in the wireline interexchange market is the rate
averaging rule which requires all long distance rates to be averaged as opposed to particularly focused on the costs
imposed on the wireline carrier. This is not a problem for wireless carriers as the Commission has forborn from
applying this rule to such carriers.
42 Customers of post-paid carriers who pay metered rates are less likely to place an inordinate number of calls with
long average call lengths.
-15-
{00016991;v6}

To address this concern, MetroPCS asks the Commission to clarify that a terminating
LEC may overcome a prima facie case of traffic imbalance based upon the complaining carrier’s
own traffic data only with clear and convincing evidence that the carrier-to-carrier data is not
indicative of a traffic stimulation scheme directed at the complaining carrier.43

VI.

THE COMMISSION SHOULD REVISE ITS RULES TO PROHIBIT TRAFFIC
STIMULATION VIA INTRASTATE ACCESS, INCLUDING INTRASTATE,
INTERMTA, TRAFFIC

The Order does not specifically address traffic stimulation in the intrastate access
context.44 The Commission explicitly states that it is adopting revisions to its interstate
switched access charge rules to address access stimulation.45 While the Commission did seek to
address traffic stimulation in the local intraMTA market by moving to a bill-and-keep regime46
for LEC-CMRS non-access traffic, this still leaves a significant gap with respect to intrastate
access traffic, as well as intrastate, interMTA CMRS traffic. This gap is especially problematic
since the rates for intrastate access are generally higher than interstate rates. This has already
led to some carriers starting to stimulate traffic in the intrastate exchange context. Accordingly,
this gap must be rectified by the Commission.
MetroPCS operates in several states which encompass multiple MTAs, including
California, Texas, Florida, and Pennsylvania, among others, and is concerned that current traffic


43 If the Commission does not want to go this far, at a minimum, it should limit the balance to like kinds of traffic
(e.g., unlimited, measured, etc.). It is more likely that a High Priced Terminating Carrier will target a subsegment of
the market and try to balance it with other one-way traffic in another segment. Just like the Commission should
segment the traffic of the High Priced Terminating Carrier, it should likewise prevent it for the originating carrier as
well.
44 Of course, to the extent that the Order adopts a bill-and-keep regime for intraMTA traffic exchanged between
CMRS carriers and LECs, traffic stimulation will be deterred. However, in most instances, a single state
encompasses multiple MTAs (See Attachment A), which means that there can indeed be intrastate, interMTA traffic
that is not addressed by the local reciprocal compensation bill-and-keep rule for CMRS carriers. See discussion,
infra.
45 Order at para. 662.
46 Id. at para. 995.
-16-
{00016991;v6}

stimulation schemes to which it is subject will not be addressed by either the interstate access
stimulation rule or the wireless intraMTA bill-and-keep rule.47 Continuing to allow traffic
stimulation in the intrastate access charge marketplace would not serve the public interest. And,
creative arbitragers certainly will move to exploit this loophole by shifting their intraMTA and
interstate traffic pumping schemes to the intrastate, interMTA market. The Commission must
close this potential loophole immediately, as the Commission’s concerns with traffic stimulation
in the interstate access and reciprocal compensation markets apply equally to intrastate access
stimulation. Indeed, “an agency rule [is] arbitrary and capricious if the agency has . . . entirely
failed to consider an important aspect of the problem.”48 In this case, allowing traffic
stimulation in the intrastate access market to continue and expand is a critical problem that the
Commission did not adequately consider in its Order. The Commission must expect existing
traffic pumpers to try to salvage their arbitrage business. By not closing this loophole, the
Commission will no doubt see a significant rise in intrastate access stimulation complaints as
some of its other rules become effective.
The Commission correctly notes that it has the authority to regulate intrastate access
traffic exchanged between LECs and CMRS providers under Section 332 of the Act, and does
regulate such traffic with respect to the ultimate transition of all traffic to bill-and-keep.49
While such intrastate access rates will be capped by the Commission as of January 1, 2012, this
cap is not sufficient to ensure that traffic stimulation activities will not occur with respect to
intrastate access traffic because there is a substantial difference between intrastate and interstate


47 Indeed, MetroPCS already has seen such scenarios occur in California.
48 Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
49 Order at para. 779.
-17-
{00016991;v6}

access rates. Indeed, the Commission’s entire transition plan is premised on the finding that
intrastate rates are too high and must move down over time.
As noted above, MetroPCS already has seen evidence of traffic stimulation within the
intrastate access marketplace. Moreover, and most importantly, MetroPCS is certain that
intrastate traffic stimulation activities will increase materially due to the steps the Commission
has taken to eliminate traffic stimulation in the interstate access and local reciprocal
compensation markets. Traffic pumpers are arbitrage experts and are quite adept and have not
hesitated to exploit omissions, or loopholes, in the Commission’s rules. Providing such
profiteers with the potential opportunity to continue to exploit the Commission’s intercarrier
compensation regime via intrastate traffic stimulation activities – which the Commission has
condemned in the interstate and reciprocal compensation contexts – would go against the
Commission’s stated determination to reduce arbitrage.
The record evidence clearly establishes that traffic pumpers move quickly to exploit
arbitrage opportunities, which is why access stimulation morphed into reciprocal compensation
stimulation. For instance, the Commission noted that is was adopting a bill-and-keep regime for
all LEC-CMRS traffic, not only LEC-CLEC traffic, even though “the record reflects that LEC-
CMRS intraMTA traffic stimulation is growing most rapidly in traffic terminating by
competitive LECs.”50 The Commission took this step due to its concern that “absent any
measure to address traffic stimulation for intraMTA LEC-CMRS traffic, incumbent LECs that
sought revenues from access stimulation may quickly adapt their stimulation efforts to wireless
reciprocal compensation.” The Commission must expect the same to occur with respect to
intrastate access. Even if traffic stimulation in the intrastate access market has not been a focus


50 Id. at para. 995.
-18-
{00016991;v6}

of prior concern, the Commission should nonetheless anticipate and stop such arbitrage. Not
only is this good public policy, but it also will conserve scarce Commission resources by
relieving the Commission from having to address this problem in a separate rulemaking or
multiple complaint proceedings. Thus, the Commission must take similar measures to prevent
traffic stimulators from shifting their activities from the interstate access stimulation and
reciprocal compensation markets to the intrastate access and interMTA markets.
Revising its rules to discourage traffic stimulation activities in the intrastate access
market would help further “reduce some of the inefficient incentives enabled by the current
intercarrier compensation system, and permit the industry to devote resources to innovation and
investment rather than access stimulation and disputes.”51 The Commission should change its
new rules to include both interstate and intrastate traffic, and the separate rate caps that apply to
CLECs and rate of return LECs with respect to interstate access stimulation should apply to
intrastate access stimulation as well, subject, of course, to the bill-and-keep regime that applies
to CMRS-LEC intraMTA traffic.
In sum, the Commission noted in the Order that traffic stimulation schemes “involve
service providers exploiting loopholes in our rules and ultimately cost consumers hundreds of
millions of dollars.”52 This Commission should not allow similar loopholes to be exploited via
its revised intercarrier compensation reforms. A revision to incorporate prohibitions against
traffic stimulation in the intrastate access context would certainly be in the pubic interest, as it
would eliminate traffic stimulation schemes that currently are occurring in the context of
intrastate access, as well as prevent future schemes from being exploited in the intrastate access
context. Thus, the Commission should modify its rules to allow interexchange carriers and


51 Id. at para. 701.
52 Id. at para. 649.
-19-
{00016991;v6}

wireless providers to file intrastate access stimulation complaints, in addition to interstate access
stimulation complaints, to eliminate, or at the very least, mitigate, traffic stimulation activities.

VII.

EXPEDITED ACTION IS REQUESTED

MetroPCS urges the Commission to clarify and modify its traffic stimulation rules as
requested in this petition as soon as possible. The relief MetroPCS is seeking is narrowly drawn
and, if granted, will serve to better fulfill the worthy Commission goal of discouraging disruptive
and uneconomic arbitrage. In the absence of prompt relief, the traffic pumping activities that
already have survived too long in the intercarrier compensation market will be perpetuated. The
public interest will be served by expeditious Commission action to close the potential loopholes
identified by MetroPCS.

VIII. CONCLUSION

The foregoing premises having been duly considered, MetroPCS respectfully requests
that the Commission clarify and/or reconsider certain of its rules relating to access stimulation.
In doing so, the Commission would eliminate gaps that exist that could potentially undermine its
extensive findings relating to the dangers of access stimulation, and similar arbitrage.
-20-
{00016991;v6}

Respectfully submitted,

MetroPCS Communications, Inc.

/s/ Carl W. Northrop
By:
Carl W. Northrop
Michael Lazarus
TELECOMMUNICATIONS LAW
PROFESSIONALS PLLC
875 15th Street, NW, Suite 750
Washington, DC 20005
Telephone: (202) 789-3120
Facsimile: (202) 789-3112
Mark A. Stachiw
General Counsel, Secretary
& Vice Chairman
MetroPCS Communications, Inc.
2250 Lakeside Blvd.
Richardson, Texas 75082
Telephone: (214) 570-5800
Facsimile: (866) 685-9618
Its Attorneys
December 29, 2011
-21-
{00016991;v6}

Attachment A
The 51 major Trading Areas (MTAs)
-22-
{00016991;v6}



CERTIFICATE OF DIGITAL SUBMISSION



I, James M. Carr, hereby certify that with respect to the foregoing:


(1) there are no required privacy redactions to be made per 10th Cir. R. 25.5;

(2) if required to file additional hard copies, that the ECF submission is an
exact copy of those documents;

(3) the digital submissions have been scanned for viruses with the most
recent version of a commercial virus scanning program, Symantec Endpoint
Protection version 11.0.5002.333, and according to the program are free of
viruses.



/s/ James M. Carr

James M. Carr
Counsel
Federal Communications Commission
Washington, D.C. 20554
(202) 418-1762

11-9900


IN THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT


In re: FCC 11-161, Petitioners

v.

Federal Communications Commission and United States of America,
Respondents.


CERTIFICATE OF SERVICE



I, James M. Carr, hereby certify that on June 25, 2012, I electronically filed the
foregoing Motion to Hold in Abeyance with the Clerk of the Court for the United
States Court of Appeals for the Tenth Circuit by using the CM/ECF system.
Participants in the case who are registered CM/ECF users will be served by the
CM/ECF system.


Joseph K. Witmer
Charles A. Zdebski
Kathryn G. Sophy
James C. Falvey
Bohdan R. Pankiw
Jennifer E. Lattimore
Pennsylvania PUC
Eckert Seamans Cherin & Mellott
P.O. Box 3265
1717 Pennsylvania Avenue, N.W.
Harrisburg, PA 17105-3265
12th Floor
Counsel for: Pennsylvania PUC
Washington, D.C. 20006
Counsel for: Core Communications,
Inc.



Ernest C. Cooper
David Bergmann
Robert G. Kidwell
3293 Noreen Drive
Howard J. Symons
Columbus, OH 43221-4568
Mintz Levin Cohn Ferris Glovsky &
Counsel for: NASUCA
Popeo PC
701 Pennsylvania Avenue, N.W.

Suite 900
Washington, D.C. 20004
Counsel for: NCTA



Paula Marie Carmody
Christopher J. White
MD Office of People’s Counsel
New Jersey Division of Rate Counsel
Suite 2102
P.O. Box 46005
6 St. Paul Street
Newark, NJ 07101
Baltimore, MD 21202
Counsel for NASUCA
Counsel for NASUCA



Russell M. Blau
David A. LaFuria
Tamar Finn
Russell D. Lukas
Bingham & McCutchen, LLP
Todd B. Lantor
2020 K Street, N.W.
David L. Nace
Washington, D.C. 20006
Lukas, Nace, Gutierrez & Sachs,
Counsel for: NTCA and OPASTCO
LLP
Suite 1200
8300 Greensboro Drive
McLean, VA 22102
Counsel for: Cellular South, Inc.,et
al.


2




John H. Jones
Benjamin H. Dickens
Office of the Ohio Attorney General
Gerard J. Duffy
150 E. Gay Street, 16th Floor
Mary J. Sisak
Columbus, OH 43215
Robert M. Jackson
Counsel for: PUC of Ohio
Blooston & Mordkofsky
2120 L Street, N.W., Suite 300
Washington, D.C. 20037
Counsel for: Choctaw Telephone
Company, et al.




Craig S. Johnson
David R. Irvine
Johnson & Sporleder
Jenson Stavros & Guelker
304 E. High Street
747 East South Temple, Suite 130
P.O. Box 1606
Salt Lake City, UT 84102
Jefferson City, MO 65102
Counsel for: Direct
Counsel for: Choctaw Telephone
Communications Cedar Valley, LLC,
Company
et al.


David H. Solomon
Donna N. Lampert
Craig E. Gilmore
Mark J. O’Connor
Charles L. Keller
Jennifer P. Bagg
Wilkinson Barker Knauer, LLP
E. Ashton Johnston
2300 N Street, N.W., Suite 700
Joseph Bissonnette
Washington, D.C. 20037
Helen E. Disenhaus
Counsel for: T-Mobile USA, Inc.
Justin L. Faulb
Lampert, O’Connor & Johnston, PC
1776 K Street, N.W., Suite 700
Washington, D.C. 20006
Counsel for: Transcom Enhanced
Services, Inc ., et al.


3





William S. McCollough
Christopher M. Heimann
McColloughHenry, PC
Gary L. Phillips
1250 South Capital of Texas
Paul K. Mancini
Highway
AT&T Inc.
Suite 2-235
1120 20th Street, N.W., Suite 1000
West Lake Hills, TX 78746
Washington, DC 20036
Counsel for: Halo Wireless, Inc.
Counsel for: AT&T



Jonathan E. Nuechterlein
Bridget Asay
Elvis Stumbergs
State of Vermont office of the
Heather M. Zachary
Attorney General
Daniel Deacon
109 State Street
Wilmer Cutler, et al.
Montpelier, VT 05609
1875 Pennsylvania Avenue, N.W.
Counsel for: Vermont PSB
Washington, D.C. 20006-1420
Counsel for: AT&T Inc.


Nancy C. Garrison
Scott H. Angstreich
Robert B. Nicholson
Brendan J. Crimmins
U.S. Department of Justice
Kellogg, Huber, Hansen, Todd,
Antitrust Division, Appellate Section Evans & Figel, PLLC
950 Pennsylvania Avenue, N.W.
1615 M Street, N.W., Suite 400
Washington, D.C. 20530
Washington, D.C. 20036
Counsel for: USA
Counsel for: Verizon



Christopher J. Wright
Glenn Richards
Wiltshire & Grannis LLP
Pillsbury Winthrop Shaw Pittman
1200 18th Street, N.W.
2300 N Street, N.W.
Washington, D.C. 20036
Washington, D.C. 20037-1122
Counsel for: Level 3
Counsel for: The Voice on the Net
Communications, LLC and Sprint
Coalition
Nextel Corporation


4




Thomas Jones
Robert A. Long, Jr.
David Paul Murray
Gerald J. Waldron
Nirali Patel
Yaron Dori
Willkie, Farr & Gallagher LLP
Enrique Armijo
1875 K Street, N.W.
Covington & Burling LLP
Washington, D.C. 20006
1201 Pennsylvania Avenue, N.W.
Counsel for: tw telecom, inc.
Washington, D.C. 20004-2401
Counsel for: CenturyLink, Inc.


David E. Mills
Clare E. Kindall
J.G. Harrington
Assistant Attorney General
Dow Lohnes PLLC
Department Head-Energy
1200 Ner Hampshire Avenue, N.W.
Office of the Attorney General
Suite 800
Ten Franklin Square
Washington, D.C. 20036-6802
New Britain, CT 06051
Counsel for: Cox Communications,
Counsel for Connecticut PURA
Inc.



Genevieve Morelli
Craig S. Johnson
ITTA
Johnson & Sporleder, LLP
1101 Vermont Avenue, N.W.
304 E High Street, Suite 200
Suite 501
P.O. Box 1670
Washington, D.C. 20005
Jefferson City, MO 65102
Counsel for: ITTA
Counsel for: Choctaw Telephone
Company




Carl W. Northrop
Mark A. Stachiw
Telecommunications Law
MetroPCS Communications, Inc.
Professionals PLLC
2250 Lakeside Blvd.
875 15th Street, N.W., Suite 750
Richardson, TX 75082
Washington, D.C. 20005
Counsel for: MetroPCS
Counsel for: MetroPCS
Communications, Inc.
Communications, Inc.

5




Gregory J. Vogt
Paul M. Schudel
Law Offices of Gergory J. Vogt,
Thomas J. Moorman
PLLC
Woods & Aitken LLP
2121 Eisenhower Avenue, Suite 200
301 South 13th Street, Suite 500
Alexandria, VA 22314
Lincoln, Nebraska 68508
Counsel for: National Exchange
Counsel for: Nebraska Rural
Carriers Association, Inc.
Independent Companies


Matthew A. Brill
Steven H. Thomas
Latham & Watkins
McGuire Craddock & Strother, PC
555 11th Street, Suite 1000
2501 N. Harwood, Suite 1800
Washington, D.C. 20004
Dallas, TX 75201
Counsel for: Rural Cellular
Counsel for: Halo Wireless
Association



Sidney Powell
Walter H. Sargent
Torrence E. Lewis
1632 N. Cascade Avenue
3831 Turtle Creek Blvd. #5B
Colorado Springs, CO 80907
Dallas, TX 75219
Counsel for Transcom Enhanced
Counsel for: Transcom Enhanced
Services, Inc., et al..
Services, Inc.


Michael B. Wallace
Caressa D. Bennet
Rebecca Hawkins
Kenneth C. Johnson
Wise Carter Child & Caraway, P.A.
Daryl A. Zakov
401 E. Capitol Street
Anthony K. Veach
Heritage Building, Suite 600
Bennet & Bennet, PLLC
Jackson, MS 39201
4350 East West Highway, Suite 201
Counsel for: Cellular South, Inc.
Bethesda, MD 20814
Counsel for: Rural
Telecommunications Group, Inc. and
Central Texas Telephone
Cooperative, Inc.


6




Samuel L. Feder
John B. Messenger
Elaine J. Goldenberg
5700 Georgia Avenue
Jenner & Block LLP
West Palm Beach, FL 33405
1099 New York Avenue, N.W.
Counsel for: YMax Communications
Washington, D.C. 20001
Corp.
Counsel for: Comcast Corporation


Robert A. Fox
Patricia A. Millett
1500 SW Arrowhead Road
Kevin Amer
Topeka, KS 66604
Sean Conway
Counsel for The State Corporation
Akin Gump Strauss Hauer & Feld
Commission of the State of Kansas
LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Counsel for: Gila River Indian
Community, et al.




Don L. Keskey
Ivan C. Evilsizer
505 N. Capitol Avenue
Evilsizer Law Office, PLLC
Lansin, MI 48933
2301 Colonial Drive, Suite 2B
Counsel for: Allband
Helena, MT 59601-4995
Communications Cooperative
Counsel for: Ronan Telephone
Company, et al.



Alan L. Smith
Roger D. Dixon, Jr.
1169 East 4020 South
Law Offices of Dale Dixon
Salt Lake City, UT 84124
7316 Esfera Street
Counsel for Direct Communications
Carlsbad, CA 92009
Cedar Valley, LLC, et al.
Counsel for: North County
Communications Corporation


7




David Cosson
H. Russell Frisby, Jr.
2154 Wisconsin Avenue, N.W.
Dennis Lane
Washington, D.C. 20007
Harvey L. Reiter
Counsel for: Eastern Nebraska
Stinson Morrison Hecker
Telephone Company
1775 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Counsel for: Eastern Nebraska
Telephone Company



Robin K. Lunt
Maureen A. Scott
James B. Ramsay
Janet F. Wagner
NARUC 1101 Vermont Avenue,
Wesley C. Van Cleve
N.W., Suite 200
Arizona Corporation Commission
Washington, D.C. 20005
Legal Division
Counsel for: NARUC
1200 West Washington

Phoenix, AZ 85007
Counsel for: Arizona Corporation
Commission



Raymond L. Doggett, Jr.
Rick Chessen
D. Mathias Roussy, Jr.
Neal M. Goldberg
Virginia State Corporation
Jennifer McKee
Commission
Steven F. Morris
Office of General Counsel
NCTA
P.O. Box 1197
25 Masschusetts Avenue, N.W.
Richmond, VA 23218-1197
Suite 100
Counsel for: Virginia State
Washington, D.C. 20001
Corporation Commission
Counsel for: NCTA





/s/ James M. Carr

8

Document Outline

  • NECA.pdf
    • THE COMMISSION SHOULD ADOPT A SUFFICIENT AND PREDICTABLE CONNECT AMERICA FUND MECHANISM BEFORE IMPOSING BROADBAND-RELATED PUBLIC INTEREST OBLIGATIONS ON RATE-OF-RETURN CARRIERS.
    • THE SUPPORT CUTS AND COST RECOVERY LIMITATIONS IN THE ORDER MUST BE RECONSIDERED OR CLARIFIED SO AS TO AVOID CONFLICTS WITH THE PUBLIC INTEREST OBLIGATIONS IMPOSED BY THE ORDER, THE GOALS OF THE REFORMS, AND THE NEW UNIVERSAL SERVICE PRINCIPLE ADOPTED...
      • The Commission Should Reconsider the Sufficiency of its Budget for High-Cost Universal Service.
      • The Commission Should Reconsider Several Aspects of its Caps on Capital and Operating Expenses
      • The Commission Should Reconsider Or Modify Several Of The Other Capping Mechanisms Adopted In The Order.
        • The Commission Should Determine Reasonably Comparable Rates on the Basis of Standard Deviations, Rather than Arithmetic Average.
        • 2. The Commission Should Reconsider Several Aspects of its Decision with Respect to the Elimination of Safety Net Additive Support.
        • 3. The Orders Adoption of a Per-Line Cap on High-Cost Support Imposes Substantial Damage on Small Companies with Little Aggregate Public Interest Benefit.
        • The Commission Should Not Begin Phasing Out Support in Areas with Competitive Overlap Without Addressing Ongoing RLEC Obligations as COLRs and ILECs.
    • THE ORDER ESTABLISHES UNREASONABLY STRINGENT STANDARDS FOR OBTAINING WAIVERS OF THE SUPPORT REDUCTION RULES AND FOR REQUESTING ADDITIONAL CAF ICC SUPPORT.
    • NEW RULES IMPOSING ANNUAL REPORTING REQUIREMENTS ON RLECs ARE UNDULY BURDENSOME AND SHOULD BE SUBSTANTIALLY REVISED.
    • THE COMMISSION MUST ESTABLISH CLEAR RULES GOVERNING THE RATE OF RETURN REPRESCRIPTION PROCESS BEFORE INITIATING A REPRESCRIPTION HEARING.
      • The FCC Must First Adopt New Substantive Rules Governing the Represcription Process Before It Takes Evidence to Determine a Reasonable Rate-of-Return.
      • The Abbreviated Informal Notice and Comment Procedures Described in the FNPRM Will Not Satisfy Section 205(a)s Hearing Requirement.
    • RECONSIDERATION AND/OR CLARIFICATION IS REQUIRED REGARDING THE APPLICATION OF NEW INTERCARRIER COMPENSATION RULES ADOPTED IN THE ORDER.
      • The Commission Must Provide a Reasonable Opportunity for Rate-of-Return Carriers to Recover Interstate Costs Allocated to Switched Access Rate Elements.
      • Mechanics of CAF ICC Support Calculations.
        • Rate-of-Return Baseline Interstate Revenue Requirements Should Be Based on Actual Cost Studies Rather than Tariff Forecasts.
        • Inclusion of Tandem/Transit Costs in Reciprocal Compensation Calculations.
      • Identification of Toll VoIP Traffic.
      • Call Signaling Rules for VoIP Traffic.
      • Application of Access Charges to IntraMTA Traffic Delivered by IXCs.
      • Phantom Traffic Issues.
    • CONCLUSION
    • Respectfully submitted,
    • NATIONAL EXCHANGE CARRIER ASSOCIATION, INC.
    • By: / Richard A. Askoff Its Attorney
    • Teresa Evert, Senior Regulatory Manager
    • 80 South Jefferson Road Whippany, NJ 07981 (973) 884-8000

Note: We are currently transitioning our documents into web compatible formats for easier reading. We have done our best to supply this content to you in a presentable form, but there may be some formatting issues while we improve the technology. The original version of the document is available as a PDF, Word Document, or as plain text.

close
FCC

You are leaving the FCC website

You are about to leave the FCC website and visit a third-party, non-governmental website that the FCC does not maintain or control. The FCC does not endorse any product or service, and is not responsible for, nor can it guarantee the validity or timeliness of the content on the page you are about to visit. Additionally, the privacy policies of this third-party page may differ from those of the FCC.