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FCC Releases Connect America Fund Omnibus Order and FNPRM

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Released: June 10, 2014
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Federal Communications Commission

FCC 14-54

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

)

Connect America Fund

)

WC Docket No. 10-90

)

Universal Service Reform – Mobility Fund

)

WT Docket No. 10-208

)

ETC Annual Reports and Certifications

)

WC Docket No. 14-58

)

Establishing Just and Reasonable Rates for Local

)

WC Docket No. 07-135

Exchange Carriers

)

)

Developing an Unified Intercarrier Compensation

)

CC Docket No. 01-92

Regime

)

REPORT AND ORDER, DECLARATORY RULING, ORDER, MEMORANDUM OPINION

AND ORDER, SEVENTH ORDER ON RECONSIDERATION, AND FURTHER NOTICE OF

PROPOSED RULEMAKING

Adopted: April 23, 2014

Released: June 10, 2014

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

Reply Comment Date: (60 days after date of publication in the Federal Register)

By the Commission: Chairman Wheeler and Commissioners Clyburn and Rosenworcel issuing separate

statements; Commissioner O’Rielly approving in part, concurring in part and issuing a statement;

Commissioner Pai approving in part, dissenting in part, and issuing a statement.

TABLE OF CONTENTS

Heading

Paragraph #

I. INTRODUCTION................................................................................................................................ 1

II. BACKGROUND................................................................................................................................ 19

III. REPORT AND ORDER..................................................................................................................... 28

A. Connect America Phase II Competitive Bidding Process.............................................................. 28

1. Eligible Areas.......................................................................................................................... 29

2. Term of Support ...................................................................................................................... 34

3. Eligibility of Price Cap Carriers to Participate in Phase II Competitive Bidding ................... 37

B. Provider Eligibility Requirements ................................................................................................. 38

C. Transition into Phase II.................................................................................................................. 48

1.

Transition Where Model-Based Support is Less Than Connect America Phase I

Support .................................................................................................................................... 49

2.

Transition Where Competitive Eligible Telecommunications Carrier Receives

Support Based on Competitive Bidding Process..................................................................... 53

D. Elimination of Support in Areas with 100 Percent Overlap .......................................................... 54

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E. Rule Amendments.......................................................................................................................... 57

IV. DECLARATORY RULING .............................................................................................................. 59

V. ORDER............................................................................................................................................... 73

A. Delayed Implementation of Section 54.318(b).............................................................................. 73

B. Waiver of Fees for Study Area Boundary Waivers ....................................................................... 87

VI. MEMORANDUM OPINION AND ORDER .................................................................................... 90

A. ACS Application for Review......................................................................................................... 93

B. NCTA Application for Review.................................................................................................... 100

VII. SEVENTH ORDER ON RECONSIDERATION ............................................................................ 104

A. Safety Net Additive...................................................................................................................... 105

B. Broadband Public Interest Conditions ......................................................................................... 116

C. Elimination of the Benchmarking Rule ....................................................................................... 127

VIII. FURTHER NOTICE OF PROPOSED RULEMAKING................................................................. 138

A. Public Interest Obligations........................................................................................................... 138

B. Flexibility in Meeting Deployment Obligations.......................................................................... 162

C. Eligibility of Areas for Phase II Support ..................................................................................... 173

D. ETC Designation.......................................................................................................................... 179

E. Transitions to Phase II ................................................................................................................. 186

1. Frozen Support in High-Cost Areas ...................................................................................... 187

2. Obligations of Incumbent LECs that No Longer Receive High-Cost Support ..................... 195

3. Obligations of Carriers Serving Non-Contiguous Areas that Elect Frozen Support............. 199

4. Other Issues Relating to the Phase II Transition ................................................................... 212

a. Aligning Connect America Phase II Funding and Calendar Years................................. 213

b.

Transition Where Model-Based Support is Greater than Connect America Phase I

Support............................................................................................................................ 215

c. Base Support Amount for Transition to Connect America Phase II............................... 218

F. Interplay between Rural Broadband Experiments and Offer of Model-Based Support .............. 220

G. Phase II Competitive Bidding Process......................................................................................... 224

H. Mobility Fund Phase II ................................................................................................................ 235

I. Phase-down of Identical Support................................................................................................. 250

J. Reforms in Rate-of-Return Study Areas...................................................................................... 258

1. Near-Term Reforms for Rate-of-Return Carriers.................................................................. 259

2. Longer-Term Reforms for Rate-of-Return Carriers.............................................................. 267

3. Voluntary Transition of Rate-of-Return Carriers to Incentive Regulation............................ 276

4. Support for Middle Mile for Rate-of-Return Carriers........................................................... 300

K. Accountability and Oversight ...................................................................................................... 309

1. Reasonably Comparable Rates Certification for Broadband................................................. 311

2. Reduction in Support for Late Filing..................................................................................... 317

3. Support Reductions for Non-Compliance with Service Obligations..................................... 326

IX. PROCEDURAL MATTERS ............................................................................................................. 332

A. Paperwork Reduction Act Analysis............................................................................................. 332

B. Congressional Review Act........................................................................................................... 334

C. Final Regulatory Flexibility Analysis.......................................................................................... 335

D. Initial Regulatory Flexibility Analysis......................................................................................... 336

E. Ex Parte Presentations.................................................................................................................. 337

F. Filing Requirements..................................................................................................................... 338

X. ORDERING CLAUSES ..................................................................................................................... 342

APPENDIX A—Final Rules

APPENDIX B—Proposed Rules

APPENDIX C—Final Regulatory Flexibility Analysis

APPENDIX D—Initial Regulatory Flexibility Analysis

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I.

INTRODUCTION

1.

With this Report and Order, Declaratory Ruling, Order, Memorandum Opinion and

Order, Seventh Order on Reconsideration, and Further Notice of Proposed Rulemaking (FNPRM), the

Commission takes significant steps to continue the implementation of the landmark reforms unanimously

adopted by the Commission in 2011 to modernize universal service for the 21st century.1

We build on the

solid foundation created in 2011, taking into account what we have learned to date and new marketplace

developments, to fulfill our statutory mission to ensure that all consumers “have access to . . . advanced

telecommunications and information services.”2

2.

A core component of the 2011 reforms was the creation of the Connect America Fund to

preserve and advance voice and robust broadband services, both fixed and mobile, in high-cost areas of

the nation that the marketplace would not otherwise serve. Today, we adopt rules that build on the

framework established by the Commission in the USF/ICC Transformation Order, while proposing

targeted adjustments that we believe are necessary to ensure that we are best utilizing the funds that

consumers and businesses pay into the universal service system. In particular, we are mindful that

technological innovation is occurring at a rapid pace, and the marketplace has continued to evolve in the

intervening years. We must ensure that the reforms we implement now are not predicated on outdated

assumptions.

3.

Meeting the infrastructure challenge of the 21st century will be a multi-year journey. It

took the nation almost 50 years to bring electricity to 99 percent of rural farms;3 decades later, it took 35

years to complete the original portion of the interstate highway system.4 In just two years, the

Commission’s reforms have set the nation on a path that will bring new fixed broadband services to more

than 1.6 million Americans, new mobile services to historically unserved Tribal lands, and improved

mobile coverage along our nation’s roads. Achieving universal access to broadband will not occur

overnight. Today, we take further steps to bring broadband service to every corner of the country.

4.

The Report and Order adopts several rules to establish the foundation for the award of

support in price cap areas where the price cap carrier declines the offer of model-based support.

Specifically, we conclude that all areas where the average cost per location equals or exceeds a specified

cost benchmark are eligible for Phase II support in the competitive bidding process. We set a support

term of 10 years for support awarded through the competitive bidding process. We permit price cap

1 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; Universal Service

Reform – Mobility Fund; WC Docket Nos. 10-90, 07-135, 05-337, 03-109, CC Docket Nos. 01-92, 96-45, GN

Docket No. 09-51, WT Docket No. 10-208, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC

Rcd 17663 (2011) (USF/ICC Transformation Order and/or FNPRM); pets. for review pending sub nom. In re: FCC

11-161, No. 11-9900 (10th Cir. argued Nov. 19, 2013).

2 47 U.S.C. § 254(b)(3).

3 Anne Mayberry, Rural Utilities Service, United States Department of Agriculture Rural Development, Out of

Darkness, RURAL COOPERATIVES, May/June 2010, available at http://www.rurdev.usda.gov/rbs/pub/may10/out.htm.

See also United States Department of Agriculture, Rural Electrification Administration, A Brief History of the Rural

Electric and Telephone Programs c-2 (1982), http://www.rurdev.usda.gov/rd/70th/rea-history.pdf.

4 Karen Stufflebeam Row et. al, Glenwood Canyon 12 Years Later, ROADS, Mar./Apr. 2004, available at

http://www.fhwa.dot.gov/publications/publicroads/04mar/04.cfm (stating that the Glenwood Canyon project, opened

in 1992, connected the “final leg of Interstate 70” and “symbolized the completion of the original U.S. interstate

highway system”).

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carriers that decline model-based support to participate in the competitive bidding process that we expect

to be prepared to conduct by the end of 2015.

5.

We also address more generally provider eligibility for support through the competitive

bidding process and the Remote Areas Fund. We permit entities to seek designation as eligible

telecommunications carriers (ETCs) after notification they are winning bidders for the offer of Phase II

Connect America funding. We conclude that recipients of support through the competitive bidding

process or the Remote Areas Fund must certify as to their financial and technical capabilities to provide

the required services within the specified timeframe in the geographic area for which they seek support.

6.

We issue a declaratory ruling to provide rate-of-return carriers greater clarity regarding

their obligations to extend broadband service upon reasonable request.

7.

In the Order, we phase in support reductions associated with the 2014 rate floor of $20.46

over a multi-year period to provide time for incumbent carriers and state commissions to make any

adjustments they deem necessary. In particular, we defer any support reductions for lines that have rates

of $14 or greater until January 2, 2015. Between January 2, 2015, and June 30, 2016, we implement

support reductions only to the extent rates are below $16; between July 1, 2016 and June 30, 2017, we

implement support reductions only for lines with rates under $18 or the rate floor established by the 2016

rate survey, whichever is lower; and between July 1, 2017 and June 30, 2018, we implement support

reductions only for lines with rates under $20 or the 2017 rate floor, whichever is lower. Thus, the impact

of this rule is phased in over a four-year period.

8.

We also reconsider certain aspects of the USF/ICC Transformation Order in response to

petitions from a variety of stakeholders. These modifications reflect our continuing commitment in the

universal service reforms to efficiency and creating the appropriate incentives to invest and operate

modern voice and broadband-capable networks. First, to provide a more measured transition for rate-of-

return carriers that would have qualified under the prior rules for certain support known as Safety Net

Additive (SNA) based on their significant network investment, we permit such carriers to receive SNA

for such investments made in 2010 and 2011. Second, we eliminate the high-cost loop support (HCLS)

benchmarking rule so that rate-of-return carriers’ support will no longer by limited by benchmarks

calculated using quantile regression analysis (QRA).

9.

In addition, we waive certain application fees that deter companies from rationalizing

their service territory boundaries, deny a petition for reconsideration of the Commission’s decision to

impose broadband public interest obligations on recipients of high-cost support, while affirming that these

conditions do not constitute common carrier regulation, and dismiss or deny two applications for review

of the Wireline Competition Bureau’s (Bureau) Phase II Service Obligations Order.5

10.

In the FNPRM, we propose measures to update and implement further the framework

adopted by the Commission in 2011. We strive to adapt our universal service reforms to ensure those

living in high-cost areas have access to services that are reasonably comparable to services offered in

urban areas. Consistent with that goal, in the FNPRM we propose to revise our current broadband

performance obligations to require minimum speeds of 10 Mbps downstream to ensure that the services

delivered using Connect America funds are reasonably comparable to the services enjoyed by consumers

in urban areas of the country. The FNPRM also proposes to apply uniformly the same performance

obligations to all recipients of Phase II support and to rate-of-return carriers.6 In addition, we seek to

further develop the record on the ability of Phase II recipients to satisfy their obligations using any

5 See Connect America Fund, WC Docket No. 10-90, Report and Order, 28 FCC Rcd 15060 (Wireline Comp. Bur.

2013) (Phase II Service Obligations Order).

6 We use the term “Phase II” to refer to Connect America Fund Phase II, and distinguish it from Mobility Fund

Phase II.

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technology or a combination thereof – whether wireline or wireless, fixed or mobile, terrestrial or satellite

– that meets the performance standards for Phase II. The FNPRM also proposes to provide financial

incentives for recipients of Phase II support to accelerate their network deployment.

11.

To target our finite universal service funds most effectively, the FNPRM proposes to

exclude from eligibility for Phase II support those areas that are served by any provider that offers voice

and broadband services meeting the Commission’s service obligations – whether those providers are

subsidized or unsubsidized. The FNPRM seeks comment on the amount of frozen support to provide to

incumbents that decline the offer of model-based support where no other provider wishes to serve, and on

the obligations associated with such support. The FNPRM also proposes to define the public interest

obligations that would apply to recipients of frozen support in the non-contiguous areas of the United

States. We also propose several minor changes and clarifications regarding the implementation of the

transition to model-based support to ease the administration of Connect America Phase II.

12.

In addition, the FNPRM seeks comment on several proposals regarding ETC designation.

It proposes to require entities that are winning bidders for the offer of Phase II support in the competitive

bidding process to apply for ETC designation within 30 days of public announcement of winning bidders.

It also proposes to adopt a rebuttable presumption that a state commission lacks jurisdiction over an entity

seeking ETC designation if it fails to initiate a proceeding within 60 days.

13.

The FNPRM seeks comment on specific proposals for the design of the Phase II

competitive bidding process that will occur in areas where price cap carriers decline model-based support.

Through this public input, and what we learn from the expressions of interest already submitted for rural

broadband experiments,7 we should be prepared to make further decisions by the end of the year on the

design of the competitive bidding process that will be used for Phase II in price cap territories where the

price cap carrier declines the state-level commitment.

14.

The FNPRM also addresses significant developments that have occurred since the

adoption of the USF/ICC Transformation Order in the marketplace for mobile wireless services. Given

the commercial deployment of 4G Long Term Evolution (LTE), we propose to retarget the focus of

Mobility Fund Phase II. We seek comment on targeted measures that would address those areas of the

country where LTE is not and, to the best of our knowledge, will not be available in the foreseeable future

and would preserve existing mobile voice and broadband service where it would not otherwise exist

without government support. The FNPRM also proposes to maintain existing support levels (i.e., 60

percent of baseline support) for wireless competitive ETCs for whom competitive ETC support exceeds

one percent of their wireless revenues until a date certain after winning bidders are announced for the

offer of Mobility Fund Phase II support, and to accelerate the phase-down for wireless competitive ETCs

for whom high-cost support is one percent or less of their wireless revenues. The FNPRM seeks

comment on whether to take a different approach for wireline competitive ETCs and asks whether their

phase-down in support should be determined by the timing of the Phase II competitive bidding process.

The FNPRM also proposes to freeze support for carriers serving remote areas in Alaska, as of December

31, 2014, and to begin their phase-down in support on a date certain after the Mobility Fund Phase II

auction or Tribal Mobility Fund Phase II auction.

15.

In the FNPRM, we also focus on developing and implementing a “Connect America

Fund” for rate-of-return carriers. Specifically, we seek comment on reform proposals that would address

a number of the identified shortcomings in the current support mechanisms that provide support to rate-

of-return carriers. As a short term measure, we propose to apply the effect of the annual rebasing of the

cap on support known as HCLS equally on all recipients of HCLS, to address the problematic incentives

7 This Report and Order does not make any changes to the rural broadband experiments adopted in the January Tech

Transitions Order. See Technology Transitions et al., GN Docket No. 13-15 et al., Order et al., 29 FCC Rcd 1433,

1463-79, paras. 86-136 (2014) (Tech Transitions Order or Tech Transitions FNPRM).

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of the current rule. As another near term reform, we also propose to prohibit recovery of new investment

occurring on or after January 1, 2015, through either HCLS or interstate common line support (ICLS) in

areas that are served by a qualifying competitor that offers voice and broadband service meeting the

Commission’s standards. As a longer term measure, we seek comment on limiting recovery of new

investment through HCLS or ICLS as of a date certain, in conjunction with implementation of a Connect

America Fund for rate-of-return carriers. We propose to adopt a stand-alone broadband support

mechanism that meets defined parameters and seek to develop further the record on various industry

proposals. Building on a proposal recently submitted by the Independent Telephone &

Telecommunications Alliance (ITTA), we propose to provide rate-of-return carriers the option of

participating in a two-step transition to Phase II model-based support and seek comment on alternative

rate regulation measures and specific implementation issues. We also seek comment in the FNPRM on

providing one-time funding for middle mile projects on Tribal lands in 2015. Such an approach could

serve as a template for further implementation on a broader scale in subsequent years.

16.

In today’s decision, we also revisit some fundamental assumptions regarding

implementation of the Remote Areas Fund. Part of ensuring that we use our universal service funding

wisely is developing effective and targeted mechanisms to address the challenges of serving the most

remote, high-cost areas. Rather than prejudging which areas are appropriately served through the Remote

Areas Fund, we conclude that participants in the Phase II competitive bidding process should be permitted

to bid on any area where the estimated cost is at or above the funding benchmark adopted for the offer of

model-based support to price cap carriers in Phase II of the Connect America Fund. We conclude it

would be prudent to defer full implementation of the Remote Areas Fund until 2016, after completion of

the Phase II competitive bidding process. Only then will we be in a position to identify which specific

areas are appropriately served by alternative technologies, potentially with relaxed performance

standards.

17.

Finally, the FNPRM proposes to codify a broadband certification requirement for

recipients of funding that are subject to broadband performance obligations, seeks comment on specific

levels of support reduction for non-compliance with service obligations, and proposes to modify our rules

regarding reductions in support when parties miss filing deadlines in order to better calibrate the support

reduction to coincide with the period of noncompliance.

18.

With the actions we take today and those planned for later this year, we expect to move

forward to implement the offer of Phase II model-based support by the end of the year, as we noted in

January.8 We also expect to take further action to implement the rural broadband experiments we adopted

in our January Tech Transitions Order.9 Through these coordinated actions, we expect to create

incentives for both existing and new providers to extend robust, scalable next-generation voice and

broadband networks that provide high-quality performance, whether through fiber, wireless, or other

technology, as deep into high-cost areas as is feasible given the existing Connect America budget.

II.

BACKGROUND

19.

In the USF/ICC Transformation Order, the Commission comprehensively reformed and

modernized the high-cost program within the universal service fund and the intercarrier compensation

system to focus support on networks capable of providing voice and broadband services.10 The

Commission created the Connect America Fund and for the first time established an overall budget for the

high-cost program.11 Additionally, the Commission established new public interest obligations for

8 Id. at 1467-68, para. 98.

9 See id. at 1463-79, paras. 86-136.

10 USF/ICC Transformation Order and FNPRM, 26 FCC Rcd 17663.

11 Id. at 17710, para. 123.

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recipients of high-cost support, including the requirement that recipients, in their supported areas, provide

voice telephony services and offer broadband service that meets certain performance metrics (e.g., speed,

latency, and data usage limits).12 The Commission also established a “uniform national framework for

accountability” by adopting several reforms to harmonize and update annual ETC reporting and

certification requirements.13

20.

Recognizing that over 80 percent of the unserved locations in the nation at that time were

in areas where the incumbent provider was a price cap carrier, the Commission provided for up to $1.8

billion of the Connect America budget to be spent annually to make broadband-capable infrastructure

available to as many unserved locations as possible within these areas served by price cap carriers, while

sustaining voice and broadband-capable infrastructure in high-cost areas that would not be served absent

support.14 The Commission concluded that support in price cap areas would be provided through a

combination of “a new forward-looking model of the cost of constructing modern multi-purpose

networks” and a competitive bidding process.15 The forward-looking cost model would be used to

estimate the support necessary to serve price cap areas where costs are above a specified funding

benchmark but below a second “extremely high-cost” threshold.16 Each price cap carrier would be

offered a model-derived support amount in exchange for a commitment to serve locations in its service

territory in a state that, based on the model, fall within the high-cost range and are not served by a

competing, unsubsidized provider.17 In areas where the price cap carrier declines the state-level

commitment, support would be determined through a competitive bidding process.18

21.

For rate-of-return carriers, the Commission implemented a number of reforms to

eliminate waste and inefficiency and improve incentives for rational investment and operation. Noting

that rate-of-return carriers serve fewer than five percent of the access lines in the country, but operate in

many of the country’s most difficult-to-serve areas, the Commission set an annual budget of up to $2

billion in Connect America support for rate-of-return carriers.19 It largely maintained the existing legacy

universal support mechanisms for rate-of-return carriers and required that they provide broadband

meeting the Commission’s public service obligations upon reasonable request.20

22.

The Commission also established the Mobility Fund to advance the ubiquitous

availability of mobile services.21 For Mobility Fund Phase I, the Commission concluded it would award

up to $300 million in one-time Connect America support to mobile service providers through a reverse

auction, as well as up to $50 million in one-time Connect America support to mobile service providers

serving Tribal lands through a Tribal Mobility Fund reverse auction.22 For Mobility Fund Phase II, the

12 Id. at 17691-708, paras. 74-114.

13 Id. at 17848-67, paras. 568-635. The framework replaces the various data and certification filing deadlines that

carriers were required to meet previously, imposes document retention requirements, subjects Connect America

support recipients to audits, and establishes consequences for non-compliance with Connect America rules. Id. at

17850, para. 573.

14 See id. at 17725, para. 158.

15 Id. at 17725, para. 156.

16 Id.

17

Id.

18

Id.

19 Id. at 17674, 17711, paras. 26, 126.

20 Id. at 17740, para. 206.

21 Id. at 17773, para. 299.

22 Id. at 17773-824, paras. 301-492.

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Commission established a budget of $500 million per year of the Connect America budget to provide

ongoing support to mobile service providers through a competitive bidding process.23

23.

Noting that some areas may be too costly to serve with traditional wireline or terrestrial

wireless broadband technologies, the Commission also established the Remote Areas Fund to provide

support for such “extremely high-cost” areas.24 The Commission set a budget of “at least” $100 million

of Connect America funds for the Remote Areas Fund.25

24.

While establishing the overall framework for reforms, the Commission sought comment

on numerous issues in the USF/ICC Transformation FNPRM, including how to implement the

competitive bidding process for Phase II,26 Mobility Fund Phase II,27 and the Remote Areas Fund.28

25.

Over the past two and one-half years, significant progress has been made in

implementing the reforms established in the USF/ICC Transformation Order. Under its delegated

authority, the Wireline Competition Bureau adopted the forward-looking Connect America Cost Model

that will be used to determine the offer of model-based support to price cap carriers.29 In May 2013, the

Bureau adopted procedures for price cap carriers to accept Phase II support via the state-level

commitment and certain procedural requirements, including presumptions, to be used in determining

which areas are served by unsubsidized competitors.30 In October 2013, the Bureau adopted the Phase II

Service Obligations Order, which specified the latency, usage allowance, and pricing requirements for

deployments by price cap carriers that accept Connect America Phase II model-based support through the

state-level commitment process.31

26.

Concurrently, the Commission implemented targeted Connect America Phase I (Phase I)

funding to advance deployment of broadband-capable infrastructure.32 More than $438 million in funding

has been authorized for price cap carriers, which will bring new broadband service to more than 1.6

23 Id. at 17824-25, paras. 493-97.

24 Id. at 17837-39, paras. 533-38.

25 Id. at 17838, para. 534.

26 Id. at 18085-92, paras. 1189-1222.

27 Id. at 18069-85, paras. 1121-88. The Wireless Telecommunications Bureau and Wireline Competition Bureau

sought to further develop the record on a limited number of specific issues related to Mobility Fund Phase II in

November 2012. Further Inquiry Into Issues Related to Mobility Fund Phase II, WC Docket No. 10-90, WT Docket

No. 10-208, Public Notice, 27 FCC Rcd 14798 (Wireline Comp. Bur./Wireless Tel. Bur. 2012) (Further Inquiry

Public Notice).

28 USF/ICC Transformation Order, 26 FCC Rcd at 18092-108, paras. 1223-95. The Bureau sought to further

develop the record on discrete issues relating to the design for the Remote Areas Fund in January 2013. Wireline

Competition Bureau Seeks Further Comment on Issues Regarding the Design of the Remote Areas Fund, WC

Docket No. 10-90, Public Notice, 28 FCC Rcd 265 (Wireline Comp. Bur. 2013) (RAF Public Notice).

29 Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, 28 FCC Rcd 5301 (Wireline Comp.

Bur. 2013) (CAM Platform Order); Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, 29

FCC Rcd 3964 (Wireline Comp. Bur. 2014) (CAM Inputs Order).

30 Connect America Fund, WC Docket No. 10-90, Order, 28 FCC Rcd 7211, 7221-22, paras. 23-29 (Wireline Comp.

Bur. 2013) (Phase II Challenge Process Order).

31 Phase II Service Obligations Order.

32 USF/ICC Transformation Order, 26 FCC Rcd at 17715-17, paras. 133-38.

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million unserved Americans in the next several years.33 The Wireless Telecommunications Bureau

completed the auction for Mobility Fund Phase I on September 27, 2012 with 33 winning bidders eligible

to receive a total of up to $299,998,632 in one-time support to provide 3G or better mobile voice and

broadband services.34 The Wireless Telecommunications Bureau began authorizing Phase I

disbursements in April 2013 and anticipates disbursements will continue through 2016 as carriers

complete their deployments.35 It also recently completed the Tribal Mobility Fund Phase I auction, with

five winning bidders eligible to receive a total of up to $49,806,874 in one-time support to provide 3G or

better mobile voice and broadband services to Tribal lands.36

27.

In January 2014, the Commission invited expressions of interest for parties to participate

in an experiment that is testing, on a limited scale, the use of an application-based competitive bidding

process with objective selection criteria to award Connect America Fund support to entities willing to

extend robust broadband in high-cost areas.37 A wide range of entities have submitted more than 1,000

expressions of interest to date.38 We expect to adopt a budget and announce selection criteria before

soliciting formal proposals,39 and we sought comment on these issues in the accompanying FNPRM in

January. 40

III.

REPORT AND ORDER

A.

Connect America Phase II Competitive Bidding Process

28.

In the USF/ICC Transformation Order, the Commission decided that, in areas where the

price cap ETC refuses model-based support, support will be provided through a competitive bidding

process.41 It adopted general rules to govern competitive bidding processes to award universal service

support, codified in Subpart AA of Part 1 of the Commission’s rules.42 The Commission sought comment

in the USF/ICC Transformation FNPRM on a number of issues related to the design of the competitive

bidding process, including which areas should be eligible, the term of support, and whether price cap

33 Wireline Competition Bureau, Universal Service Implementation Progress Report, WC Docket No. 10-90

(Wireline Comp. Bur. rel. Mar. 24, 2014), http://www.fcc.gov/document/universal-service-implementation-

progress-report (Universal Service Implementation Progress Report).

34 Mobility Fund Phase I Auction Closes; Winning Bidders Announced for Auction 901, AU Docket No. 12-25,

Public Notice, 27 FCC Rcd 12031 (Wireless Tel. Bur. 2012) (Auction 901 Closing Public Notice).

35 Mobility Fund Phase I Support for 126 Winning Bids Ready to be Authorized, AU Docket No. 12-25, Public

Notice, 28 FCC Rcd 8479 (Wireless Tel. Bur./Wireline Comp. Bur. 2013). The Universal Service Administrative

Company (USAC) has made initial disbursements associated with winning bids totaling approximately $224

million. See Federal Communications Commission, Auction 901: Mobility Fund Phase I,

http://wireless.fcc.gov/auctions/default.htm?job=auction_summary&id=901 (last visited Apr. 24, 2014); USAC

Funding Disbursement Search, http://www.usac.org/hc/tools/disbursements/ (last visited Apr. 24, 2014).

36 Tribal Mobility Fund Phase I Auction Closes; Winning Bidders Announced for Auction 902, Public Notice, 29

FCC Rcd 1974 (Wireless Tel. Bur. 2014).

37 Tech Transitions Order, 29 FCC Rcd 1468-79, paras. 99-136.

38 See List of Expressions of Interest, http://www.fcc.gov/encyclopedia/rural-broadband-experiments (last visited

Apr. 25, 2014).

39 Tech Transitions Order, 29 FCC Rcd at 1470-71, paras. 105, 109.

40 Id. at 1498-1503, paras. 202-23.

41 USF/ICC Transformation Order, 26 FCC Rcd at 17725, para. 156.

42 47 C.F.R. pt. 1, subpt. AA.

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carriers that decline model-based support should be permitted to participate in the competitive bidding

process.43

1.

Eligible Areas

29.

Background. In the USF/ICC Transformation Order, the Commission proposed that

price cap census blocks would be eligible for award in the Phase II competitive bidding process as long as

the average cost per location falls between the funding benchmark and the extremely high-cost threshold

and the blocks are not served by an unsubsidized competitor. It proposed that price cap census blocks

where the average cost is above the extremely high-cost threshold would be served through the Remote

Areas Fund.44 As an alternative, however, the Commission sought comment on whether to do a combined

competitive bidding process in areas where the price cap carrier declines the state-level commitment such

that the competitive bidding process would include both high-cost areas and extremely high-cost areas.45

30.

Discussion. After reviewing the record before us, and based on what we have learned

over the last two years, we now conclude that we should provide more flexibility to parties in Phase II to

design effective bids for areas where the average cost is equal to or above the Connect America Phase II

funding benchmark. The work on the Connect America Cost Model has shown us that extremely high-

cost areas are actually interspersed among high-cost areas.46 Indeed, many of the census tracts containing

census blocks potentially eligible for the offer of model-based support (i.e., those census blocks where the

average cost per location is equal to or exceeds the funding benchmark but is lower than the extremely

high-cost threshold) also contain one or more census blocks where the average cost per location, as

determined by the model, exceeds the extremely high-cost threshold. We conclude that including both

high-cost and extremely high-cost areas in the competitive bidding process will enable parties to build

integrated networks that span both types of areas in adjacent census blocks as appropriate.47 In other

words, this approach allows potential providers to decide how best to upgrade or extend networks to serve

these areas rather than having the Commission artificially pre-determining which areas should be served

through one mechanism and which should be served through a separate mechanism.

31.

Moreover, we recognize that the actual cost for a provider to serve census blocks that are

above the extremely high-cost threshold may, in fact, be less than is predicted by the cost model.48

Potential service providers that have done the appropriate due diligence are in a better position to know

local conditions on the ground and thus determine whether the support potentially available will enable

them to meet the associated obligations. We believe it would be the most efficient use of Phase II funding

43 USF/ICC Transformation FNPRM, 26 FCC Rcd at 18085-92, paras. 1189-1222.

44 See id. at 18085-86, para. 1191 n.2277.

45 See id. at 18103, para. 1276.

46 See Letter from Michael J. Jacobs, Legal Advisor to the Chief, Wireline Competition Bureau, Federal

Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 10-90 (filed Apr. 21, 2014).

47 The Commission similarly recognized the benefits of providing greater flexibility to allow carriers to determine

how best to deploy networks in high-cost areas when it modified the rules in order to provide for a second round of

Phase I incremental support. Connect America Fund, WC Docket No. 10-90, Report and Order, 28 FCC Rcd 7766,

7771-74, paras. 14-21 (2013).

48 See Comments of Frontier Communications Corp., WC Docket No. 10-90 et al., at 14-15 (filed Jan. 18, 2012)

(noting that a provider could “pinpoint those areas that it feels the model may have misidentified the correct level of

support”). The decision to allow providers the flexibility to choose to serve extremely high-cost census blocks is

also consistent with the Commission’s recent decision in the Tech Transitions Order. Tech Transitions Order, 29

FCC Rcd at 1472, para. 111.

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to provide support to areas above the specified funding threshold and then target the discrete budget for

the Remote Areas Fund to those areas that remain unserved after the competitive bidding process.

32.

A price cap carrier that elects to make the state-level commitment is already free to

deploy to locations that would be above the extremely high-cost threshold to satisfy a portion of its build

out obligation.49 By making extremely high-cost areas eligible for support in the competitive bidding

process, we effectively provide participants in the competitive bidding process the same choice: they may

elect or not elect to serve those areas that the model has determined to be extremely high-cost.50

33.

We do not decide at this time whether to use census blocks, or aggregations of census

blocks such as census tracts, as the minimum size geographic unit eligible in the Phase II competitive

bidding process.51 We concluded we would entertain proposals in the rural broadband experiments in

price cap territories at the census tract level,52 and we currently are reviewing the expressions of interest

received to date. The lessons learned from our review of the expressions of interest in the rural

broadband experiments will give us better data and allow us to make a more informed decision on this

issue later this year.

2.

Term of Support

34.

Background. In the USF/ICC Transformation FNPRM, the Commission sought comment

on the term of support for service providers receiving support pursuant to the competitive bidding

process.53 Specifically, the Commission asked whether support should be available for a period of five

years, or for a longer period such as ten years.54

35.

Discussion. We conclude that Connect America Phase II support awarded through the

competitive bidding process should be available for ten years, subject to existing requirements and the

availability of funds. In the recent Tech Transitions Order, we adopted a framework for rural broadband

experiments and concluded that we would provide support for any approved experiments for periods of

up to ten years.55 While acknowledging the marketplace may change over time, we recognized that

“some entities may be unwilling to make the necessary long-term investments to build robust future-proof

networks in areas that are uneconomic to serve absent continued support beyond a five-year term.”56 We

similarly find that, for the competitive bidding process for Connect America Phase II, providing support

49 USF/ICC Transformation Order, 26 FCC Rcd at 17729, para. 171 n.279 (“In meeting its obligation to serve a

particular number of locations in a state, an incumbent that has accepted the state-level commitment may choose to

serve some census blocks with costs above the highest cost threshold instead of eligible census blocks (i.e., census

blocks with lower costs), provided that it meets the public interest obligations in those census blocks, and provided

that the total number of unserved locations and the total number of locations covered is greater than or equal to the

number of locations in the eligible census blocks.”).

50 Some parties in the record mentioned that we should exclude areas above the extremely high-cost threshold;

however, it appears these statements were made in passing rather than in advocacy for a particular decision. See,

e.g., Comments of the American Cable Association, WC Docket No. 10-90 et al., at 8-9 (filed Jan. 18, 2012) (ACA

Jan. 18, 2012 Comments). We conclude that there is no reason to prohibit providers from receiving funding to build

to these higher cost areas, as the competitive bidding process provides sufficient flexibility for a provider to choose

what areas it will deploy to.

51 See USF/ICC Transformation FNPRM, 26 FCC Rcd at 18086, para. 1192.

52 Tech Transitions Order, 29 FCC Rcd at 1472, para. 111.

53 USF/ICC Transformation FNPRM, 26 FCC Rcd at 18087, para. 1197.

54 Id.

55 Tech Transitions Order, 29 FCC Rcd at 1476-77, paras. 123-26.

56 Id. at 1476, para. 125.

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for a period of ten years may stimulate greater interest in the competitive bidding process, especially

given the increased investment participants may need to bring to the table to meet the higher speed

benchmark we propose below.57 Increased participation in the competitive bidding process will help

ensure that funding is targeted efficiently to expand broadband-capable infrastructure throughout the

country.

36.

We do not find any compelling reason to limit the term of support awarded through a

competitive bidding process to five years, as initially suggested by some commenters.58 Specifically, we

are not persuaded by the American Cable Association’s (ACA) arguments that the flexibility to re-

evaluate the need for support after five years outweighs the benefits of a longer term that we rely on

above.59 While we acknowledge that marketplace forces may bring new competitors to high-cost areas

where Phase II support is provided, we make the predictive judgment that such an outcome is unlikely to

occur due to the high-cost nature of these areas; if those areas could be cost-effectively served without

government support, we believe competitors would already be serving them. Nor are we persuaded that

the term of support should be the same for providers accepting Connect America Phase II support

pursuant to the state-level commitment as for those subject to competitive bidding.60 As we concluded in

the Tech Transitions Order, there is no inherent reason why the terms associated with a competitive offer

must be identical to the terms associated with the offer of model-based support.61 One reason why the

Commission established a five-year term of support for areas subject to model-based support was to move

to competitive bidding processes in a timely manner in those areas where support initially would be

awarded through the acceptance of state-level commitments.62 As noted by Windstream, this reason for

limiting the duration of the support term is inapplicable when support is awarded in the first instance

through a competitive bidding process.63

3.

Eligibility of Price Cap Carriers to Participate in Phase II Competitive

Bidding

37.

We conclude that a price cap carrier’s decision not to accept model-based support should

not preclude it from participating in the competitive bidding process. We find that maximizing the

number of qualified eligible participants is likely to improve the quality of the competitive bids and the

results of the process.64 Moreover, we do not find persuasive the arguments made by several commenters

that permitting price cap carriers to participate in the competitive bidding process would give them the

57 See Comments of Windstream Communications, Inc. (Windstream) on Section XVII.A-K, WC Docket No. 10-90

et al., at 22-25 (filed Jan. 18, 2012) (Windstream Jan. 18, 2012 Comments); Comments of ADTRAN, Inc., WC

Docket No. 10-90 et al., at 18-19 (filed Jan. 18, 2012) (ADTRAN Jan. 18, 2012 Comments).

58 ACA Jan. 18, 2012 Comments at 13; Reply Comments of the American Cable Association, WC Docket No. 10-90

et al., at 22-23 (filed Feb. 17, 2012) (ACA Feb. 17, 2012 Reply Comments).

59 ACA Feb. 17, 2012 Reply Comments at 22-23.

60 Comments of the Independent Telephone & Telecommunications Alliance, WC Docket No. 10-90 et al., at 15

(filed Jan. 18, 2012) (ITTA Jan. 18, 2012 Comments).

61 Tech Transitions Order, 29 FCC Rcd at 1476-77, para. 126.

62 USF/ICC Transformation Order, 26 FCC Rcd at 17732, para. 178.

63 Windstream Jan. 18, 2012 Comments at 24.

64 See ACA Jan. 18, 2012 Comments at 18; Comments of the United States Telecom Association, WC Docket No.

10-90 et al., at 22-23 (filed Jan. 18, 2012); ITTA Jan. 18, 2012 Comments at 15; Comments of CenturyLink, WC

Docket No. 10-90 et al., at 15 (filed Jan. 18, 2012) (CenturyLink Jan. 18, 2012 Comments); Windstream Jan. 18,

2012 Comments at 25-26; Comments of AT&T, WC Docket No. 10-90 et al., at 35 (filed Jan. 18, 2012).

See also

Comments of Verizon, WC Docket No. 10-90 et al., at 23-24 (filed Jan. 18, 2012) (in favor of maximizing

participation).

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ability to “cherry pick” the most desirable service areas.65 We expect that a price cap carrier will

determine whether to accept the offer of model-based support primarily based on its own analysis of

whether the support offered for the state justifies undertaking the associated obligations. It is not

unreasonable that a carrier might conclude that the total amount of state-level support would not meet the

obligations in the carrier’s specific circumstances, while also concluding that many or even all parts of the

state are worth serving at some other support level. In addition, though a carrier could strategically

decline the model-based support in the hope of favorably selecting only the most desirable service areas,

that strategy would have risks. Indeed, the very desirability of certain service areas creates the possibility

that the carrier might not be awarded those areas through the competitive bidding process or that the

support amount for those areas will be bid down to a level that is less than what the model would have

provided. In our predictive judgment, the costs of excluding price cap carriers that decline model-based

support exceed the possible benefits. We therefore decline to exclude price cap carriers from the

competitive bidding process.

B.

Provider Eligibility Requirements

38.

Background. In the USF/ICC Transformation FNPRM, the Commission proposed to

require applicants for support to be designated an ETC at the time they applied to participate in the Phase

II competitive bidding process, with a limited exception for Tribally-owned or controlled entities.66 It

proposed that all applicants seek support through an auction be required to certify that they are financially

and technically capable of providing the required service within the relevant geographic area.67 It

proposed similar requirements for recipients of support from the Remote Areas Fund.68

The Commission

indicated that it anticipated that price cap ETCs that decline model-determined support would be eligible

to participate in the competitive process, and it sought comment on the advantages and disadvantages of

65 See Comments of the National Association of State Utility Consumer Advocates et al., WC Docket No. 10-90 et

al., at 79 (filed Jan. 18, 2012); Comments of Massachusetts Department of Telecommunications and Cable, WC

Docket No. 10-90 et al., at 11-12 (filed Jan. 18, 2012). We are also not persuaded that permitting price cap carriers

to participate in the Phase II competitive process as wireless providers would be “inconsistent” with the

Commission’s objectives of promoting competition and the efficient use of Connect America support. See Letter

from Steven K. Berry, President & CEO, Competitive Carriers Association, to Marlene H. Dortch, Secretary,

Federal Communications Commission, WC Docket No. 10-90 et al., at 2 (filed Apr. 15, 2014). The Competitive

Carriers Association claims that awarding support to price cap carriers based on the costs of building a wireline

network, but permitting price cap carriers to use such support to offer wireless services “effectively put[s] the

identical support rule on steroids.” Id. As we discuss below in more detail, the Commission eliminated the identical

support rule after finding that it failed to efficiently target support where it was needed. See USF/ICC

Transformation Order, 26 FCC Rcd at 17827, para. 502; see also infra Section VIII.I. Assuming the Commission

adopts the proposal to use the Connect America Cost Model (CAM) to set reserve prices for the Phase II competitive

bidding process, price cap carriers will only win model-calculated support if no other provider participating in the

competitive bidding process bids to serve those areas for less support. See USF/ICC Transformation FNPRM, 26

FCC Rcd at 18090, para. 1212; infra Section VIII.G (seeking comment on using the cost model to determine reserve

prices). We expect the Phase II competitive bidding process will involve vigorous competition that will drive down

support amounts to efficient levels for providers that will offer the services meeting the Commission’s requirements

for speed, usage, latency, and pricing.

66 USF/ICC Transformation FNPRM, 26 FCC Rcd at 18087, para. 1199 & n.2278 (proposing to require that

applicants for support be designated as ETCs covering the relevant geographic area prior to participating in

competitive bidding process, but permitting a Tribally-owned or controlled entity that has an application for ETC

designation pending at relevant application deadline to participate).

67 Id. at 18087, para. 1200.

68 Id. at 18095, para. 1234 (proposing that applicants for support from the Remote Areas Fund be designated as an

ETC covering the relevant geographic area); id. at 18095, para. 1236 (proposing to require recipients of Remote

Areas Fund support to certify they are technically and financially qualified).

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such an approach.69 It also asked whether there were other steps the Commission should take to

encourage smaller entities to participate in the Phase II competitive bidding process.70

39.

In response to the proposals in the FNRPM, a number of parties raised concerns that

requiring ETC designation before participating in the Phase II competitive bidding process was a barrier

to participating in the auction, urging the Commission to allow providers to obtain ETC designation later

in the process.71 Similarly, a number of parties urged the Commission to remove barriers to participation

in the Remote Areas Fund.72

40.

Discussion. Under the statute, only ETCs designated pursuant to section 214(e) of the

Communications Act of 1934, as amended (Act) “shall be eligible to receive specific Federal universal

service support.”73 Section 214(e)(2) gives states the primary responsibility for ETC designation.74

However, section 214(e)(6) provides that this Commission is responsible for processing requests for ETC

designation when the service provider is not subject to the jurisdiction of the state public utility

commission.75 Support is disbursed only after the provider receives an ETC designation.

41.

We seek to encourage as many different types of providers as possible to participate in

the competitive bidding process that will award support to serve high-cost and extremely high-cost areas.

Likewise, we seek to encourage participation in the Remote Areas Fund. Recognizing that there may be

areas of the country that the incumbent price cap carriers do not wish to serve, it is time to take steps to

establish a framework that will enable other providers to become ETCs.76

42.

We reaffirm that entities selected to receive support from Connect America Phase II or

the Remote Areas Fund must obtain ETC designation from either a state public utility commission

pursuant to section 214(e)(2), or the Commission pursuant to section 214(e)(6), of the Act.77 We decline

at this time to adopt the suggestion of certain parties that we either forbear from ETC designation

requirements, or that we preempt states from issuing ETC designations.78 Rather, to address concerns in

the record and to encourage participation in the competitive process as well as the Remote Areas Fund,

we adopt a more liberal process for the timing of ETC designation.

43.

After consideration of the record, we conclude that potential applicants in the Phase II

competitive bidding process need not be ETCs at the time they initially apply for funding at the

Commission. Rather, we are persuaded that we should permit entities to obtain ETC designation after the

announcement of winning bidders for the offer of Phase II Connect America funding, which we believe

69 Id. at 18087-88, paras. 1198-1201.

70 Id. at 18088, para. 1202.

71 See, e.g., ACA Jan. 18, 2012 Comments at 20; Reply Comments of AT&T, WC Docket No. 10-90 et al., at 7

(filed Feb. 17, 2012) (AT&T Feb. 17, 2012 Reply Comments).

72 See, e.g., Comments of the Wireless Internet Service Providers Association, WC Docket No. 10-90 et al., at 11-15

(filed Jan. 18, 2012); Reply Comments of the Satellite Broadband Providers, WC Docket No. 10-90 et al., at 20

(filed Feb. 17, 2012) (SBP Feb. 17, 2012 Reply Comments).

73 47 U.S.C. § 254(e).

74 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 20 FCC Rcd 6371,

6397, para. 61 (2005) (ETC Designation Process Order).

75 47 U.S.C. § 214(e)(6).

76 47 U.S.C. § 254(b)(3).

77 USF/ICC Transformation FNPRM, 26 FCC Rcd at 18062, paras. 1089-90.

78 ACA Feb. 17, 2012 Reply Comments at 15-16; AT&T Feb. 17, 2012 Reply Comments at 6; Reply Comments of

Verizon, WC Docket No. 10-90 et al., at 4-7 (filed Feb. 17, 2012); ACA Jan. 18, 2012 Comments at 21.

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will encourage greater participation in the competitive process by a wider range of entities.79 ETC status

must be confirmed before funding awarded through the competitive process is disbursed. We find that

maximizing the number of qualified participants in the competitive bidding process is likely to improve

the overall quality of the process.80 Some qualified potential bidders may be hesitant to invest resources

to apply for an ETC designation absent any sense of whether they are likely to be awarded Phase II

support. Other potential bidders may have concerns about triggering obligations as an ETC pending the

result of the competitive bidding process or for areas for which they are not ultimately awarded support.81

Moreover, unlike entities that are already ETCs, entities that do not yet have ETC designation would risk

making public their bidding strategy if required to seek ETC designation in the states where they intend to

bid. On balance, we conclude that the benefits of encouraging greater participation in the Phase II

competitive bidding process outweigh any potential risk that winning bidders do not meet the necessary

requirements to be designated an ETC.

44.

We acknowledge that the Commission declined to take that approach for the Mobility

Fund Phase I and Tribal Mobility Fund Phase I. There, the Commission adopted the general requirement

for those auctions that parties obtain ETC designation prior to filing the short-form application in part to

ensure that applicants filing to participate in the auction were serious bidders.82 Based on our experience

with the Mobility Fund Phase I and our review of the record, however, we now conclude that a different

approach is warranted for the Connect America Phase II competitive bidding process. We are not

persuaded by arguments that the ETC designation must be received prior to the competitive bidding

process in order to ensure that only financially and technically qualified providers participate in the

competitive bidding process.83 While we acknowledge the possibility that in some cases a winning bidder

may not meet the requirements for designation as an ETC, we presume that prospective bidders will have

the appropriate incentives to undertake the necessary due diligence in advance of the competitive bidding

process to understand the requirements for ETC designation from the relevant state, or this Commission,

should the state lack jurisdiction. We note that if a winning bidder fails to receive an ETC designation, it

will be ineligible to receive any payments of support and will be considered in default of its obligations,

with the penalties that entails.84 This risk should be an adequate deterrent for prospective bidders to

ensure, in advance of bidding, that they meet the necessary requirements and have sufficient resources to

meet their obligations. Moreover, nothing we decide today precludes any prospective bidder from filing

an ETC application in advance of the competitive bidding process, should it choose to do so.

45.

In the Mobility Fund Phase I, the Commission expressly permitted potential bidders to

obtain conditional ETC designation prior to filing the short-form application.85 Given our decision to

permit entities to seek ETC designation after public notice of the winning bidders for the offer of Phase II

support, we do not anticipate many parties would seek conditional ETC designation prior to applying for

79 See, e.g., ACA Jan. 18, 2012 Comments at 20; AT&T Feb. 17, 2012 Reply Comments at 7; Comments of

Clearwire Corporation, WC Docket No. 10-90, at 8 (filed Jan. 18, 2012) (Clearwire Jan. 18, 2012 Comments);

Comments of NTCH, Inc., WC Docket No. 10-90, at 2-5 (filed Jan. 18, 2012); Comments of AT&T, WC Docket

No. 10-90 et al., at 101-02 (filed Apr. 18, 2011).

80 See AT&T Feb. 17, 2012 Reply Comments at 7; ACA Jan. 18, 2012 Comments at 18-21.

81 See AT&T Feb. 17, 2012 Reply Comments at 7.

82 USF/ICC Transformation Order, 26 FCC Rcd at 17799, 17809, paras. 392, 439.

83 See CenturyLink Jan. 18, 2012 Comments at 14); Reply Comments of ITTA, WC Docket No. 10-90 et al., at 3-5

(filed Feb. 17, 2012).

84 47 C.F.R. § 1.21004 (specifying that defaulting bidders may be liable for up to 20 percent of the defaulted bid

amount).

85 USF/ICC Transformation Order, 26 FCC Rcd at 17799, para. 391 n.665; 47 C.F.R. §§ 54.1003(a), 54.1005(a)(3).

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funding. To the extent a party chooses to do so, however, and a state or this Commission issues a

conditional ETC designation prior to the auction, we expect that the ETC designation in such situations

will be finalized quickly as a pro forma matter after announcement of the winning bidders for Phase II

support.

46.

We seek comment in the FNPRM below on implementation issues relating to ETC

designation, including the timeframe in which a winning bidder must seek ETC designation before being

deemed in default.

47.

Financial and Technical Qualifications. We adopt the FNPRM proposal that recipients

of support through the Phase II competitive bidding process and the Remote Areas Fund certify as to their

financial and technical capabilities to provide the required services within the specified timeframe in the

geographic area for which they seek support.86 The Commission implemented such a requirement for

Mobility Fund Phase I and Tribal Mobility Fund Phase I,87 and we conclude it is equally appropriate for

recipients of support through the Phase II competitive bidding process and the Remote Areas Fund. It

would not be administratively efficient to conduct a competitive bidding process with participation from

entities that are not prepared to make such commitments. Likewise, while we do not determine the details

of the Remote Areas Fund at this time, we conclude that entities receiving support through that

mechanism should similarly be financially and technically qualified to provide the required services.

C.

Transition into Phase II

48.

In this section, we address issues relating to the transition from existing support to

Connect America Phase II.

1.

Transition Where Model-Based Support is Less Than Connect America

Phase I Support

49.

Background. In the USF/ICC Transformation Order, the Commission concluded that it

would be “premature to specify the length” of the transition for carriers that would receive less support

from Connect America Phase II than frozen high-cost support, but “there will be an appropriate multi-

year transition to the lower amount,” which would be addressed in conjunction with the finalization of the

cost model.88 In a Public Notice released on December 3, 2013, the Bureau sought to develop more fully

the record on the appropriate phase-down period for a carrier accepting model-based support that is less

than the frozen high-cost support that it currently receives.89

50.

Discussion. We conclude that, where a carrier chooses to accept model-based support

that is less than its Connect America Phase I frozen support, the transition shall occur over a three-year

period of time. Any carrier exercising its right to make a state-level commitment will effectively be

making a decision that the model-based support is sufficient to meet its obligations in the areas for which

86 Commenters generally supported this proposal. See CenturyLink Jan. 18, 2012 Comments at 14-15; ACA Jan. 18,

2012 Comments at 19-20; but cf. ADTRAN Jan. 18, 2012 Comments at 22 (arguing that a certification requirement

would be duplicative to an ETC designation, if ETC designation was required prior to the competitive bidding

process).

87 See 47 C.F.R. § 1005(a)(2).

88 USF/ICC Transformation Order, 26 FCC Rcd at 17733, para. 180 n.294.

89 Wireline Competition Bureau Seeks Comment on Additional Connect America Fund Phase II Issues, WC Docket

No. 10-90, Public Notice, 28 FCC Rcd 16403, 16404 (Wireline Comp. Bur. 2013) (Additional Phase II Issues

Public Notice).

We note that the USF/ICC Transformation Order includes both frozen high-cost support and

incremental support in the context of the transition where model-based support is more than Connect America Phase

I support. See USF/ICC Transformation Order, 26 FCC Rcd at 17733, para. 180.

Resolving this tension is one

reason why we propose to clarify that the base amount includes only frozen high-cost support. See infra Section

VIII.E.4.c.

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it is making a commitment. However, the Commission generally prefers to avoid flash cuts in support

that would dramatically affect consumers.90

According to our estimates, some carriers in some states will

receive significantly less support than they receive today under Connect America Phase I.91 It appears

that seven carriers would face reductions in their current support in 30 states if they accept the offer of

model-based support.92 Because some states have more than one carrier with a reduction, there could be

52 discrete situations in which a carrier’s frozen support in a particular state would be less than its Phase I

frozen support if all price cap carriers accepted model-based support. Of these 52 situations, there are 12

situations where there would be reductions greater than $5 million per year.93 While the specific figures

for individual carriers may change after completion of the Phase II challenge process, we are persuaded of

the need for an appropriate transition to lower support levels.

51.

The Commission’s desire to avoid flash cuts has led it to adopt transitions of varying

lengths for various reforms adopted in the USF/ICC Transformation Order, including a four-year period

for the phase-down of identical support for competitive ETCs and a three-year phase-down of support in

rate-of-return areas where there is a 100 percent overlap with an unsubsidized competitor.94 Given that

carriers accepting model-based support have made a business decision that such support is adequate to

meet their obligations, we do not agree that a transition comparable to the phase-down in support for

competitive ETCs is required.95 To take that approach would effectively mean the price cap carrier would

not be receiving model-based support until the last year of the five-year term. Rather, we are persuaded

that a transition occurring over three years for carriers accepting state-level Connect America Phase II

support that is less than the frozen high-cost support is sufficient.

52.

Accordingly, we adopt the following transition: In all years, a carrier accepting state-

level support pursuant to Connect America Phase II that is less than the Connect America Phase I frozen

high-cost support will receive the full amount of Connect America Phase II support. Assuming we adopt

the proposal in the FNPRM below to make the funding term for Connect America Phase II coincide with

90 See USF/ICC Transformation Order, 26 FCC Rcd at 17752, 17936, paras. 242, 802 (discussing the Commission’s

desire to avoid flash-cuts).

91 This is true for several reasons. In some states, the model-determined amount will be significantly lower than

frozen support due to the Commission’s decision to target support to areas where there are no unsubsidized

competitors. Moreover, in other states, the prior high-cost support mechanisms that formed the basis of Connect

America Phase I frozen support may have been more generous to some carriers than the Connect America Phase II

state-level support.

For example, the high-cost model support mechanism used state-wide average costs and a

funding benchmark based on nationwide average costs, neither of which are used in the Connect America Phase II

state-level support, and the prior cost model estimated the costs associated with a different network topology than

the CAM. These changes may negatively affect a state like Mississippi, which received a significant amount of

support under the former high-cost model support. Similarly, rate-of-return affiliates of price cap carriers and recent

converts to price cap regulation have frozen support based on support mechanisms which used actual costs, rather

than model estimates of costs.

92 See Letter from Michael J. Jacobs, Legal Advisor to the Chief, Wireline Competition Bureau, to Marlene H.

Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90 (filed Mar. 28, 2014) (submitting

into the record illustrative model results and default inputs for CAM v4.1, including estimated offer of support for

each price cap study area) (WCB Mar. 28, 2014 Submission Letter); Universal Service Administrative Company,

Federal Universal Service Support Mechanisms Fund Size Projections for Second Quarter 2014, at App. HC08

(showing monthly frozen high-cost support for price cap study areas) (USAC Second Quarter 2014 Projected

Demand Filing).

93 See WCB Mar. 28, 2014 Submission Letter; USAC Second Quarter 2014 Projected Demand Filing, at App.

HC08.

94 USF/ICC Transformation Order, 26 FCC Rcd at 11768, 17830, paras. 284, 513.

95 Comments of ITTA, WC Docket No. 10-90, at 3 (Jan. 7, 2014).

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calendar years,96 in 2015 the carrier would receive, in addition to its Phase II support, 75 percent of the

difference between the annualized amount of Connect America Phase II support that it accepted and the

amount of Connect America Phase I frozen high-cost support that it received in 2014. In 2016, it would

receive 50 percent of the difference; in 2017, it would receive 25 percent of the difference; in 2018 and in

2019, it would receive only Connect America Phase II state-level support. For administrative

convenience, this phase-down will apply to all carriers accepting a lower amount of state-level support,

even if the absolute or relative size of the reduction is small.

2.

Transition Where Competitive Eligible Telecommunications Carrier

Receives Support Based on Competitive Bidding Process

53.

We conclude that competitive ETCs awarded Connect America Phase II support through

the competitive bidding process will cease to receive legacy phase-down support for those specific areas

upon commencement of Connect America Phase II support. The Commission previously concluded that,

with respect to any price cap carrier that declines the offer of model-based support, the carrier’s Phase I

support will terminate when support is provided to another provider for that area through the competitive

bidding process.97 Similarly, the Commission also determined that a competitive ETC’s legacy phase-

down support would be terminated in any area for which it is awarded Mobility Fund Phase II support

upon commencement of support.98 For similar reasons, we find that any competitive ETC that is

authorized to receive Phase II support through a competitive bidding process will no longer receive frozen

legacy support for the area in question. Given the carrier’s explicit endorsement of the support amount in

its bid, we see no need for additional support to ease the transition to Connect America Phase II.

D.

Elimination of Support in Areas with 100 Percent Overlap

54.

In the USF/ICC Transformation Order, the Commission adopted a rule to eliminate

support in incumbent local exchange carrier (LEC) study areas where an unsubsidized competitor or

combination of unsubsidized competitors offers voice and broadband that meet our service obligations

throughout the service area.99 We hereby codify that rule and the three-year phase-down of support

adopted therein.100

55.

The Commission sought comment on the methodology used for determining whether an

incumbent LEC is 100 percent overlapped by an unsubsidized competitor,101 and it directed the Bureau

“to publish a finalized methodology for determining areas of overlap and a list of companies for which

there is a 100 percent overlap.”102 Now that the study area boundary data collection has been

completed,103 we expect the Bureau will implement that directive in the months ahead.

96 See infra Section VIII.E.4.a.

97 USF/ICC Transformation Order, 26 FCC Rcd at 17733, para. 180.

98 Id. at 17831, para. 517.

99 Id. at 17766–68, paras. 280–84. The Bureau’s process to collect incumbent LEC study area boundaries was a

critical prerequisite to implementation of this rule.

100 The Commission concluded that the baseline for support reductions would be a carrier’s 2010 support, reducing

that amount by one third in the first year, two thirds in the second year, and no support in the third year.

101 USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 18056–59, paras. 1061–78.

102 Id. at 17768, para. 284.

103 Connect America Fund; High-Cost Universal Service Support, WC Docket Nos. 10-90, 05-337, Order, 29 FCC

Rcd 171 (Wireline Comp. Bur. 2014) (extending the deadline for parties to reconcile and file revised study area

boundary data to March 17, 2014).

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56.

We propose in the FNPRM below that the Bureau should review the study area boundary

data in conjunction with data collected on the FCC Form 477 and the National Broadband Map every

other year to determine whether and where 100 percent overlaps exist. We also propose to adjust the

baseline for support reductions to be the amount of support received in the year immediately preceding

the determination of 100 percent overlap, rather than 2010 support amounts.

E.

Rule Amendments

57.

Sections 54.313 and 54.314 of the Commission’s rules require that all reports and

certifications filed pursuant to these sections be filed with the Commission’s Office of the Secretary in

WC Docket No. 10-90.104 We take this opportunity to amend the Code of Federal Regulations to direct all

section 54.313 and 54.314 filers to file their reports and certifications with the Office of the Secretary in

the newly-opened WC Docket No. 14-58.105

58.

We also take this opportunity to make several rule amendments. First, we move the rules

regarding HCLS and safety net additive, which currently are located in subpart F of Part 36, into a new

subpart M in Part 54 in order to consolidate all high-cost rules in Part 54, and make conforming changes

throughout Part 54. In the course of moving those rules, we also delete those portions that are no longer

applicable due to the passage of time and other changes previously implemented in the USF/ICC

Transformation Order. We note that section 1.1105 of the Commission’s rules requires a filing fee in

connection with petitions for waiver of rules contained in Part 36.106 While consolidation of the high-cost

rules into one part may constitute a substantive rule change requiring notice and comment because of the

required filing fee, we utilize the good cause exemption for when notice and comment are “impracticable,

unnecessary, or contrary to the public interest.”107 Previously, the Commission issued a blanket waiver of

the filing fee for carriers seeking a waiver of the HCLS benchmark rule contained in Part 36, but did not

do so for the remainder of the universal service rules in Part 36 because that issue was not before it.108

However, we find today that parties seeking waiver of any of the universal service rules included in

subpart F of Part 36 similarly should not be subject to a filing fee, because parties seeking a waiver of

other high-cost universal service rules in Part 54 are not subject to any filing fee. In moving subpart F of

Part 36 to Part 54, we note that parties seeking waiver of the moved rules will no longer be subject to a

filing fee. We find that it is in the public interest to consolidate all high-cost universal service rules into

one part and to maintain consistency regarding filing fees throughout all of Part 54 of the Commission’s

rules and, therefore, that it is unnecessary, under the circumstances, to seek comment on otherwise non-

substantive change to the Commission’s rules. Second, we delete other codified universal service rules

104 47 C.F.R. §§ 54.313(i), 54.314(c).

105 Because these rule changes are procedural in nature, the Administrative Procedure Act (APA) does not require

that we provide notice and an opportunity for comment before changing the docket number. See 5 U.S.C. §

553(b)(A) (excepting “rules of agency organization, procedure, or practice” from the APA’s notice and comment

requirement). We note that this rule change applies to all recipients of high-cost support, including competitive

ETCs.

106 47 C.F.R. § 1.1105. Section 1.1105 specifies fees for waivers of some rules applicable to common carriers, such

as waivers of Part 32 (accounting), Part 36 (separations), and Part 64 (cost allocation), but does not require a fee for

waivers of other rules applicable to common carriers, such as Part 51 (interconnection), Part 52 (numbering), and

Part 54 (universal service).

107 5 U.S.C. § 553(b)(B).

108 See Connect America Fund et al., WC Docket No. 10-90 et al., Fifth Order on Reconsideration, 27 FCC Rcd

14549, 14558-59, para. 24 (2012) (Fifth Order on Reconsideration); Letter from Michael R. Romano, NTCA, to

Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90 et al., at 2 (filed June

25, 2012).

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that no longer are applicable because they govern time periods or support mechanisms that no longer are

in existence.109

IV.

DECLARATORY RULING

59.

Background. In the USF/ICC Transformation Order, the Commission adopted differing

approaches for the areas of the country served by rate-of-return carriers than it did for those areas served

by price cap carriers. It concluded that rate-of-return carriers would continue to receive support under

existing universal service support mechanisms, subject to some modifications.110 It expressly declined to

establish a mandatory requirement to deploy broadband-capable facilities to all locations within the

service territory of a rate-of-return carrier. Instead, as a condition on the continued receipt of HCLS,

ICLS, and Connect America intercarrier compensation (CAF-ICC) support, the Commission required

rate-of-return carriers to provide broadband service meeting the specified performance requirements upon

“reasonable request” for service and within a reasonable amount of time.111 The Commission

subsequently clarified in the Third Order on Reconsideration that the “rules provide sufficient flexibility

to take into account any unique circumstances that may impact the ability of rate-of-return companies to

extend broadband to their customers, including backhaul costs.”112

60.

In contrast, in the areas served by price cap carriers the Commission concluded it would

target support to high-cost areas, and support would be disbursed through a combination of a forward-

looking model and a competitive bidding mechanism. Price cap carriers accepting model-based support

must deploy voice and broadband-capable networks to all supported locations that are deemed “high-

cost” and not served by an unsubsidized competitor, but they are not required to extend broadband in

extremely high-cost areas as determined by the forward-looking cost model.113

61.

The Commission expressly recognized that there are some areas of the country where it is

cost prohibitive to extend broadband using terrestrial wireline technology and, that in some areas, satellite

or fixed wireless technologies may be more cost-effective options to extend service.114 It established a

Remote Areas Fund with a budget of at least $100 million annually to address those areas that are not

served. It envisioned that this dedicated funding would not be available in those remote areas in rural

America that already have broadband meeting the Commission’s performance requirements that it sought

comment on in the FNPRM.115 The Commission stated in the FNRPM that it intended “to use a forward-

looking cost model – once finalized – to identify a small number of extremely high-cost areas in both

109 See Appendix A. We note that the Commission previously delegated to the Wireline Competition Bureau and

Wireless Telecommunications Bureau authority to make adjustments as necessary to ensure that adopted reforms are

properly reflected in the codified rules. USF/ICC Transformation FNPRM, 26 FCC Rcd at 18149, para. 1404. This

includes correcting any conflicts between the new or revised rules and existing rules as well as addressing any

omissions or oversights.

110 USF/ICC Transformation Order, 26 FCC Rcd at 17738, para. 194.

111 Id. at 17740-41, paras. 206-08. The Commission stated that it would monitor ETCs’ progress in deploying

broadband-capable networks in part through the annual reporting process. See id. at para. 206; 47 C.F.R. §

54.313(a)(3). Rate-of-return carriers are required to certify annually in their section 54.313 reports that they are

taking reasonable steps to offer broadband service in their service area(s), and that requests for broadband service

are met within a reasonable amount of time. 47 C.F.R. § 54.313(f)(1)(i).

112 Connect America Fund et al., WC Docket No. 10-90 et al., Third Order on Reconsideration, 27 FCC Rcd 5622,

5638-39, para 46 (2012) (Third Order on Reconsideration).

113 USF/ICC Transformation Order and FNPRM, 26 FCC Rcd at 17728-29, paras. 167-70.

114 See id. at 18092, paras. 1223-24.

115 Id. at 17838, para. 535.

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rate-of-return and price cap areas that should receive support from the Remote Areas Fund.”116 It sought

comment in the FNPRM on various issues relating to the Remote Areas Fund, including performance

requirements, eligibility standards, which areas would be eligible for support, and measures to combat

waste and improve accountability.117 It noted that “pending development of the record and resolution of

these issues, rate-of-return carriers are simply required to extend broadband upon reasonable request.”118

62.

Since the issuance of the USF/ICC Transformation Order, a number of rate-of-return

carriers have informally sought guidance from Commission staff as to what they are required to do under

the “reasonable request” standard and what should be addressed in their five-year service improvement

plans. Commenters recognize that it is not reasonable to extend service in extremely high-cost areas,119

but the question remains how that standard might be applied in particular situations. Some carriers have

informally expressed concern that state commissions might conclude that high-cost support is not being

used for its intended purpose, as required by section 54.7 of the Commission’s rules, if a carrier fails to

extend broadband service upon request in particular situations or fails to meet deployment targets

contained in their five-year service improvement plans.120 Concerns also have been expressed that

support could be withheld, or recovery of support previously disbursed could be sought, for failure to

meet this standard. Moreover, certain state commissions have informally indicated to Commission staff

that they feel they do not have jurisdiction over broadband services and thus cannot determine where or

whether it is appropriate for a carrier to extend broadband service upon reasonable request.

63.

Discussion. We now conclude it would be appropriate to issue a declaratory ruling

regarding which requests should be deemed unreasonable under our current rules and policies to provide

greater clarity to all affected stakeholders.121

64.

We acknowledge there is some ambiguity in the USF/ICC Transformation Order on this

topic. The Commission suggested that to the extent states retain jurisdiction over voice service, they

would have jurisdiction to monitor the responsiveness of rate-of-return carriers to requests for service

over a broadband-capable voice network.122 The Commission did not address, however, what standards

might apply in those states where the public service commission lacks jurisdiction to address such

matters, nor did it provide any guidance as a matter of federal policy as to what factors might be relevant

to the extent a state does have jurisdiction. Moreover, when the Commission stated its expectation that

rate-of-return carriers would “follow pre-existing state requirements, if any, regarding service line

116 Id. at 18093-94, para. 1229. In the Order, the Commission stated that “we have excluded from carriers’

broadband service obligations in price-cap territories all areas where the model-estimated cost to serve a location is

above an ‘extremely high cost’ threshold. For rate-of-return areas, we may adopt a similar approach once the CAF

model is finalized.”

USF/ICC Transformation Order, 26 FCC Rcd at 17838, para. 533 n.893 (emphasis added).

117 The Wireline Competition Bureau subsequently issued a Public Notice to develop a more complete record on the

issues raised in the FNPRM. See generally RAF Public Notice, 28 FCC Rcd 265.

118 USF/ICC Transformation Order, 26 FCC Rcd at 17741, para. 209.

119 See, e.g., Comments of the National Exchange Carrier Association et al., WC Docket No. 10-90, at 9 (filed Feb.

19, 2013) (“Areas that are extremely costly to serve are, almost by definition, areas where existing carriers cannot be

expected to provide service on ‘reasonable request.’”).

120 47 C.F.R. § 54.7. Pursuant to section 54.314 of the Commission’s rules, state commissions are required annually

to certify that support is being used for its intended purpose, and high-cost support may only be provided to the

extent the state has filed the requisite certification. 47 C.F.R. § 54.314.

121 The Commission may issue a declaratory ruling “terminating a controversy or removing uncertainty.” 47 C.F.R.

§ 1.2.

122 USF/ICC Transformation Order, 26 FCC Rcd at 17740-41, paras. 206-09.

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extensions in their highest-cost areas,”123 it did not distinguish the situation in which a carrier is extending

new facilities to serve a location in the first instance (such as extending a line to a newly built home in a

high-cost area) from the situation in which the carrier has existing facilities in place to provide voice

service (i.e., a copper line) to a particular location and the customer is requesting that line be upgraded to

provide broadband service as well as voice service. We therefore conclude that it would be beneficial to

enunciate more clearly our requirements for the extension of broadband services where the rate-of-return

carrier already has a facility in place to provide voice service.

65.

Rate-of-return carriers evaluating a request to extend broadband service should consider

whether it would be reasonable to make the necessary upgrades in light of anticipated end-user revenues

from the retail provision of broadband service and other sources of revenues, including but not limited to

federal or state universal service funding projected to be available under current rules.124 In considering

end-user revenues, carriers should take into account the reasonable comparability benchmark for

broadband services. If the incremental cost of undertaking the necessary upgrades to a particular location

exceed the revenues that could be expected from that upgraded line, a request would not be reasonable.

66.

A request to upgrade an existing voice line to provide broadband service would not be

reasonable if it would require new investments that would cause total high-cost support, excluding CAF-

ICC, to exceed $250 per line per month in a given study area. The Commission determined in the

USF/ICC Transformation Order that “support drawn from limited public funds in excess of $250 per-line

monthly (not including any new CAF support resulting from ICC reform) should not be provided without

further justification.”125 The Commission subsequently determined in the Third Order on

Reconsideration that ETCs may take into account backhaul costs or other unique circumstances that may

make it cost-prohibitive to extend service to particular customers.126 Finally, in the Fifth Order on

Reconsideration, the Commission clarified that when reviewing petitions for waiver of the $250 per

month cap, it would “consider the impact of reforms not only on voice service alone, but also on

continued operation of a broadband-capable network and the effect on consumer rates.”127 In particular,

the Commission stated that it envisioned “granting relief to incumbent telephone companies only in those

circumstances in which the petitioner can demonstrate that consumers served by such carriers face a

significant risk of losing access to a broadband-capable network that provides both voice as well as

broadband today, at reasonably comparable rates, in areas where there are no alternative providers of

voice or broadband. To the extent carriers have already made the investment in such broadband-capable

networks, reductions in support that would threaten their ability to continue to maintain and operate those

existing networks offering service at reasonably comparable rates in areas where consumers have no

alternatives would be a public policy concern.”128

123 Id. at 17741, para. 209.

124 We agree with NTCA that when considering whether a request for service should be deemed reasonable, a carrier

may consider both universal service and intercarrier compensation support available at the time a request is made,

including the potential effect of pending reforms that could reduce future support essential to make necessary

upgrades. See Letter from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch,

Secretary, Federal Communications Commission, WC Docket No. 10-90 et al., at 2 (filed Apr. 16, 2014).

125 USF/ICC Transformation Order, 26 FCC Rcd at 17765, para. 274.

126 Third Order on Reconsideration, 27 FCC Rcd at 5638-39, para. 46. It further noted in that decision that it

intended “to carefully monitor developments in this regard and will consider making further clarifications or

revisions if necessary.” Id.

127 Fifth Order on Reconsideration, 27 FCC Rcd at 14557, para. 20.

128 Id. at 14557-58, para. 21 (emphasis added) (footnote omitted).

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67.

Thus, under these prior determinations, we declare that a request is not reasonable if it

would require a carrier to undertake new network upgrades to install new backhaul facilities or to replace

existing copper lines to the home with fiber merely for the purpose of newly providing broadband service

in study areas where total support already is subject to the $250 per line monthly cap. Moreover, we

declare that a request is not reasonable if it would require a carrier to undertake new network upgrades to

newly provide broadband service to requesting customers if that would cause total monthly support that

presently is under the $250 cap to exceed the cap, under our existing rules.129

68.

We also declare that a rate-of-return carrier has no obligation to extend broadband-

capable infrastructure in any census block that is served by an unsubsidized competitor that meets the

Commission’s current performance standards. Indeed, to do so would be inconsistent with the

Commission’s general policy – which is not limited to price cap territories – that “all broadband build out

obligations for fixed broadband are conditioned on not spending the funds to serve customers in areas

already served by an ‘unsubsidized competitor.’”130 We cannot and will not condone new investment

subsidized by universal service funds to occur in areas that are already served by marketplace forces, and

thus interpret our broadband public interest obligation consistent with that policy.

69.

For purposes of determining whether a census block is served by an unsubsidized

competitor, we provide flexibility to rate-of-return carriers to make that determination in one of several

ways. They are free to, but not required to, rely upon the treatment of a particular census block in the

forward-looking cost model recently adopted by the Wireline Competition Bureau for the offer of support

to price cap carriers.131

They are free to, but not required to, rely upon published coverage maps or online

tools provided by competitors to enable prospective customers to determine whether service is available

at particular addresses. There may be other ways a rate-of-return carrier may determine whether a

particular location already is served by another provider; we do not intend to suggest these are the only

means of making such a determination. We propose in the FNPRM below to preclude rate-of-return

carriers going forward, as of a date certain, from including in cost studies used for the determination of

HCLS and ICLS the costs associated with new investment in areas that are already served by a qualifying

provider that provides voice and broadband meeting the Commission’s Phase II performance

requirements. We seek comment in the FNPRM below on a rule to preclude new investment from being

recovered through HCLS and ICLS as of a date certain and instead to develop a new Connect America

129 This presumes that the existing copper line is adequate to provide voice service to the customer. In issuing this

Declaratory Ruling, we do not intend to suggest that it would be inappropriate under our universal service rules for a

carrier to replace any existing copper line, that has deteriorated to the point it no longer provides adequate voice

service, with fiber in the ordinary course of network maintenance, subject to any applicable regulatory requirements.

130 USF/ICC Transformation Order, 26 FCC Rcd at 17701, para. 103.

131 The model adopted by the Bureau utilizes National Broadband Map data in the first instance to classify a

particular census block as served by cable or fixed wireless technologies. See, e.g., CAM Inputs Order, 29 FCC Rcd

at 3971, para. 15. We acknowledge concerns expressed in the record regarding the accuracy of the National

Broadband Map. See, e.g., Reply Comments of the Nebraska Rural Independent Companies in Response to Sections

A through K of the Further Notice of Proposed Rulemaking, WC Docket No. 10-90 et al., at 22-23 (filed Feb. 17,

2012) (claiming that “[w]ireline coverage is grossly understated on the [National Broadband] Map due to the

manner in which data was requested and reported to NTIA”); Comments of Satellite Broadband Providers, WC

Docket No. 10-90, at 2-3 (filed Jan. 18, 2012) (SBP Jan. 18, 2012 Comments) (“Although providers often claim to

serve a given area in its entirety, inevitably some individual households within that area will not receive service –

even though this fact may not be reflected in the [National Broadband Map] data.”). Because in this instance the

classification of an area in the model as “served” would provide the carrier the basis to conclude there is no

obligation to extend service, rather than impose a new obligation, however, concerns about the accuracy of the map

are not relevant. To the extent the model overstates the extent of actual coverage by other competitors, it thus

narrows the universe of locations where a request to extend broadband may be reasonable. And in any event, use of

the model to identify areas served by competitors is entirely voluntary on the part of any rate-of-return carrier.

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Fund that will support voice and broadband-capable networks in rural America within the existing

Connect America Fund budget.132

70.

While we do not decide now as a general matter whether and if so how a forward-looking

cost model could be used to identify areas that would be eligible for funding from the Remote Areas

Fund, we believe the Connect America Cost Model developed by the Bureau potentially could be a useful

tool for rate-of-return carriers to consider where it might be reasonable to extend broadband-capable

infrastructure and for other purposes.133 We recognize that some parties have suggested that further work

would be required before the Connect America Cost Model could be used for any purpose in rate-of-

return territories.134 At a minimum, we conclude it should be updated to incorporate the new study area

boundaries data that the Bureau recently collected before it can be used for regulatory purposes in rate-of-

return territories.135 We therefore direct the Bureau to undertake further work to update the Connect

America Cost Model to incorporate study boundary data, and such other adjustments as may be

appropriate.

71.

In this regard, we recognize that a larger percentage of locations in rate-of-return areas lie

above the likely extremely high-cost threshold identified by the Bureau in its recent order adopting inputs

for the forward-looking cost model for the offer of support to price cap carriers.136 Commenters

expressing concern about the use of the model for determining rate-of-return areas that would be served

by the Remote Areas Fund appear to assume that such extremely high-cost areas would only be served by

the Remote Areas Fund, and that existing support for those areas would be eliminated.137 We emphasize

that we have made no decisions regarding how the Remote Areas Fund might be implemented in those

areas of the country where the incumbent provider is a rate-of-return carrier. Classification of a rate-of-

return area as extremely high-cost under the forward-looking model does not mean that support would

only be available from the Remote Areas Fund.

132 See infra Section VIII.J.2.

133 We recognize that the Bureau has made clear that its adoption of the model for the offer of support to price cap

carriers does not prejudge any decisions regarding the model for any other purpose. See, e.g., CAM Inputs Order, 29

FCC Rcd at 3997, 4012, paras. 66 n.227, 107. By allowing, but not requiring, rate-of-return carriers to consult the

model to determine whether the census block is deemed “extremely high-cost,” we do not suggest that determination

is conclusive. Even if the model classifies an area as “high-cost” but not “extremely high-cost,” it may be

appropriate in a particular instance for a rate-of-return carrier to conclude that a request to extend new broadband

service to a particular location is unreasonable. That would be the case, for instance, if the rate-of-return carrier

were to determine, based on its particular circumstances, that the cost to extend service to the requesting customer in

a particular instance is, in fact, higher than calculated by the model.

134 See, e.g., Letter from Genevieve Morelli, President, ITTA, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90, at 2 (filed Feb. 27, 2014) (ITTA Feb. 27, 2014 Ex Parte).

135 We seek comment in the FNPRM on ITTA’s proposal for a two-step voluntary path to model-based support for

rate-of-return carriers. See infra Section VIII.J.3.

136 In particular, 0.37 percent of locations in price cap areas lie above the likely extremely high-cost threshold

identified by the Bureau in the CAM Inputs Order. See CAM Inputs Order, 29 FCC Rcd at 4040, para. 181. In

contrast, approximately 5.51 percent of locations in rate-of-return areas lie above that same threshold. This is not

surprising, as historically many of the cooperatives came into existence many decades ago to serve those high-cost

areas that AT&T did not serve.

137 For instance, the Alaska Rural Coalition (ARC) states that Remote Areas Fund support that interrupts rate-of-

return funding would “devastate” that market. Reply Comments of the Alaska Rural Coalition, WC Docket No. 10-

90, at 10 (filed Mar. 18, 2013). Others expressed concern about providing support to “competitive providers to

serve part of the study area of a rural ROR LEC.” Reply Comments of the Blooston Rural Carriers, WC Docket No.

10-90, at 2 (filed Mar. 18, 2013).

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72.

Finally, we note that our decision today does not change support under the existing

support mechanisms for rate-of-return carriers, nor does it impact existing broadband service in extremely

high-cost areas. Rather, we issue this declaratory ruling so that carriers can make efficient and prudent

investments going forward in the near term, while the Commission considers the issues raised in the

FNPRM. As parties have recognized, rate-of-return carriers are free today to deploy alternative

technologies, or resell satellite service, in areas determined to be beyond a reasonable request for the

extension of fiber, in order to meet customer demand.138

V.

ORDER

A.

Delayed Implementation of Section 54.318(b)

73.

Background. In the USF/ICC Transformation Order, the Commission adopted a rate

floor “to ensure that states are contributing to support and advance universal service and that consumers

are not contributing to the Fund to support customers whose rates are below a reasonable level.”139 To

implement this requirement, the Wireline Competition Bureau and the Wireless Telecommunications

Bureau adopted an Order setting the form and content for a survey of urban rates for fixed voice and fixed

broadband residential services.140 That Order concluded that survey respondents would be selected using

FCC Form 477 data to create a statistically valid sample of all fixed terrestrial providers that serve urban

census tracts in Metropolitan Statistical Areas (MSAs) across the country.141 The Order concluded that

the average for the rate floor would be computed based on the non-promotional rate for stand-alone voice

service. The survey instrument was attached to the Order as an Appendix. No party sought

reconsideration of the Rate Floor Order. The Bureau initiated the survey in December 2013 and

collected the rates offered by a statistically valid sample of providers of fixed services identified using

FCC Form 477 data in 500 urban census tracts.142

138 See Comments of General Communication, Inc., WC Docket No. 10-90, at 5 (filed Feb. 19, 2013). We also

understand anecdotally that partnerships between rate-of-return carriers and alternative technology service providers

to resell broadband service exist in some areas. See, e.g., Reply Comments of Big Bend Telephone Company, Inc.,

WC Docket No. 10-90 et al., at 4 (filed Mar. 29, 2012).

139 USF/ICC Transformation Order, 26 FCC Rcd at 17751, para. 238 (emphasis omitted).

140 Connect America Fund, WC Docket No. 10-90, Order, 28 FCC Rcd 4242 (Wireline Comp. Bur./Wireless Tel.

Bur. 2013) (Rate Floor Order). Prior to adopting the form and content of the urban rate survey, the Bureau solicited

comment on how to conduct the survey and calculate the average urban rate. Wireline Competition Bureau Seeks

Comment on Proposed Urban Rates Survey and Issues Relating to Reasonable Comparability Benchmarks and the

Local Rate Floor, WC Docket No. 10-90, Public Notice, 27 FCC Rcd 8332, 8333-34, paras. 4, 11 (Wireline Comp.

Bur. 2012)

141 The Rate Floor Order defined “urban” for purposes of the survey as all 2010 Census urban areas and urban

clusters that sit within an MSA. Rate Floor Order, 28 FCC Rcd at 4244-45, para. 10.

142 Wireline Competition Bureau Announces Timeline for Completion of Urban Rates Survey, WC Docket No. 10-

90, Public Notice, 28 FCC Rcd 16753 (Wireline Comp. Bur. 2013). The sample was drawn from those facilities-

based, terrestrial providers that report on FCC Form 477 and provide fixed (not mobile) residential voice service,

such as incumbent LECs, cable companies, and fixed wireless providers. The Bureau calculated the rate floor based

on the survey data from incumbent providers. Had the Bureau established the rate floor based on the average for the

full sample of those providing unlimited flat-rate local voice service, the rate floor would have been significantly

higher, $26.85 instead of $20.46. Universal Service Implementation Progress Report at Figure 7. Of the 20

incumbent LECs that were surveyed, three indicated they do not offer flat rate local service in the census tracts

surveyed for those carriers, so the average was computed using the reported data of the 17 incumbents that indicated

they do provide this service in 135 different urban census tracts. The average was computed as a weighted average.

See Urban Rate Survey Data, http://www.fcc.gov/encyclopedia/urban-rate-survey-data (last visited Apr. 24, 2014).

The Bureau has posted on the Commission’s website the full data set for voice rates collected pursuant to the survey.

(continued...)

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74.

On March 20, 2014, the Bureau announced that the average local end-user rate plus state

regulated fees of the surveyed incumbent LECs in urban areas is $20.46.143 In addition, the Bureau

requested comment on a petition filed by the Eastern Rural Telecom Association (ERTA), ITTA, NTCA,

the National Exchange Carrier Association (NECA), the United States Telecom Association

(USTelecom), and WTA – Advocates for Rural Broadband requesting that the deadline for compliance

with the 2014 local service rate floor be extended from July 1, 2014 to January 2, 2015, and that

subsequent adjustments to the rate floor should then be made annually on January 2.144

75.

Under section 54.313(h), the $20.46 rate floor goes into effect on July 1, 2014, and all

incumbent ETCs are required to report their rates to USAC for the number of lines for which “the sum of

those rates and fees are below the rate floor.”145 Pursuant to section 54.318(b), any incumbent ETC

whose rate for local service plus state regulated fees is below the rate floor shall have its “high-cost

support reduced by an amount equal to the extent to which its rates for residential local service plus state

regulated fees are below the local urban rate floor, multiplied by the number of lines for which it is

receiving support.”146

76.

No parties opposed the Associations’ Petition. On reply, commenters overwhelmingly

supported an extension of the deadline to comply with the 2014 local service rate floor.147 In support of

the extension, commenters note that there would be roughly sixty days for incumbent LECs currently at

the $14 benchmark to take steps to adjust rates to be consistent with the 2014 local service rate floor,

which may require a full local rate proceeding before state regulators.148 Commenters also suggest that

carriers will need sufficient time to minimize the impact of the rate increase on consumers and complete

other necessary modifications.149 In addition to overwhelmingly supporting a delay in the implementation

of the rule, commenters suggest that a phase-in of the 2014 local service rate floor is appropriate and

(Continued from previous page)

See Wireline Competition Bureau Announces Posting of Voice Data from Urban Rate Survey, and Explanatory

Notes, WC Docket No. 10-90, Public Notice, 29 FCC Rcd 3892 (Wireline Comp. Bur. 2014).

143 Wireline Competition Bureau Announces Results of Urban Rate Survey for Voice Services; Seeks Comment on

Petition for Extension of Time To Comply with New Rate Floor, WC Docket No. 10-90, Public Notice, 29 FCC Rcd

2967 (Wireline Comp. Bur. 2014) (Rate Survey Results Public Notice).

144 Id. at 2-3; see also Petition for Extension of Time by ERTA, ITTA, NECA, NTCA, USTelecom and WTA, WC

Docket No. 10-90 (filed Mar. 11, 2014) (Associations’ Mar. 11, 2014 Petition).

145 47 C.F.R. § 54.313(h).

146 47 C.F.R. § 54.318(b).

147 See Reply Comments of ITTA and USTelecom, WC Docket No. 10-90, at 2-3 (filed Mar. 31, 2014) (ITTA &

USTelecom Mar. 31, 2014 Reply Comments); Reply Comments of the Montana Independent Telecommunications

Association, WC Docket No. 10-90, at 2-4 (filed Mar. 31, 2014) (MITA Mar. 31, 2014 Reply Comments); Reply

Comments of GVNW Consulting, Inc., WC Docket No. 10-90, at 5-6 (filed Mar. 31, 2014) (GVNW Mar. 31, 2014

Reply Comments); Reply Comments of Alaska Communications Systems, WC Docket No. 10-90, at 2-4 (filed Mar.

31, 2014) (ACS Mar. 31, 2014 Reply Comments); Reply Comments of NTCA; The National Exchange Carrier

Association, Inc.; The Eastern Rural Telecom Association; and WTA, WC Docket No. 10-90, at 2-6 (filed Mar. 31,

2014) (NTCA et al. Mar. 31, 2014 Reply Comments); Comments of The Colorado Telecommunications

Association, Idaho Telecom Alliance, Nevada Telecommunications Association, Oregon Telecommunications

Association, and Washington Independent Telecommunications Association, WC Docket No. 10-90, at 6-7 (filed

Mar. 31, 2014) (Western Association Mar. 31, 2014 Reply Comments); Reply Comments of the Washington

Utilities and Transportation Commission, WC Docket No. 10-90, at 2-4 (filed Mar. 31, 2014) (Washington UTC

Mar. 31, 2014 Reply Comments).

148 ITTA & USTelecom Mar. 31, 2014 Reply Comments at 2-3; GVNW Mar. 31, 2014 Reply Comments at 5-6;

NTCA et al. Mar. 31, 2014 Reply Comments at 2-6; ACS Mar. 31, 2014 Reply Comments at 2-4.

149 See id.

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necessary to mitigate the risk of rate shock for consumers.150 While comments vary on the appropriate

phase-in, two associations argued that an annual increase capped at roughly $2.00 would be acceptable.151

In addition, several commenters ask the Commission to re-evaluate the local service rate floor as a

general matter, suggesting that capping the annual increase in the local rate service floor would not

impact the high-cost budget adopted in the USF/ICC Transformation Order or affect the universal service

fund contribution factor.152

NARUC filed a petition asking the Commission to (1) maintain the current

benchmark ($14) pending release of information regarding the data and methodology that produced the

$20.46 rate, and (2) to seek comment on how to calculate the benchmark.153 Finally, the Maine Office of

Public Advocate argues that “a carrier should receive full universal service high cost support for each

Lifeline customer served even if that customer’s monthly rate is a rate that is below the Rate Floor.”154

77.

Discussion. Initially, we note that support under the federal high-cost program

historically has been provided to high-cost areas to ensure reasonable comparability of rates between

urban and rural areas without consideration of the relative income levels in such areas; the program has

not been designed to provide differing amounts of high-cost support for areas with lower incomes.155

Rather, other Commission mechanisms – specifically, the Lifeline program – are the primary means by

which the Commission seeks to ensure that rates are affordable for low-income households.156 The

150 See MITA Mar. 31, 2014 Reply Comments at 4-6; ITTA & USTelecom Mar. 31, 2014 Reply Comments at 3-5;

GVNW Mar. 31, 2014 Reply Comments at 6-7; Washington UTC Mar. 31, 2014 Reply Comments at 2-4.

151 See ITTA & USTelecom Mar. 31, 2014 Reply Comments at 3-5; GVNW Mar. 31, 2014 Reply Comments at 7.

In support of limiting the increase of the rate floor to $2 per year, commenters note that the Commission has capped

the Access Recovery Charge to an annual increase of $0.50. See ITTA & USTelecom Mar. 31, 2014 Reply

Comments at 3-4; NTCA et al. Mar. 31, 2014 Reply Comments at 5.

152 See ITTA & USTelecom Mar. 31, 2014 Reply Comments at 5-6; NTCA et al. Mar. 31, 2014 Reply Comments at

7; Letter from David Certner, Legislative Policy Counsel and Legislative Policy Director, AARP, to Marlene H.

Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90 et al., at 3 (filed Apr. 15, 2014)

(AARP Apr. 15, 2014 Letter).

153 Petition of the National Association of Regulatory Utility Commissioners (NARUC), WC Docket No. 10-90, at 7

(filed Apr. 15, 2014) (NARUC Apr. 15, 2014 Petition).

154 Letter from Timothy R. Schneider, Public Advocate, Maine Office of Public Advocate, to Marlene H. Dortch,

Secretary, Federal Communications Commission, WC Docket No. 10-90 et al. (filed Apr. 11, 2014) (Maine Public

Advocate Letter). The Maine Office of Public Advocate also requests that “when a carrier determines the average

rate paid by customers, the carrier should not include Lifeline customers.” Id. Carriers are required under the

current rules to report the number of lines under the rate floor, whether or not those lines are provided to Lifeline

customers.

155 See, e.g., High-Cost Universal Service Support et al., WC Docket No. 05-337 et al., Order and Notice of

Proposed Rulemaking, 25 FCC Rcd 4136, 4156-58, paras. 34-35 (2010) (finding that the low-income program is the

program best suited to address issues of affordability and subscribership in Puerto Rico).

156 As discussed below, lines serving Lifeline customers will not be subject to the rate floor. Moreover, even if rates

in some areas ultimately are increased to the level of the rate floor, see infra para. 81, anecdotes about income

differences between median households in areas that are not subsidized by federal high-cost support and those in

selected rural areas, see Dissent at 4-5, do not alone demonstrate that such rates would not be “affordable,” 47

U.S.C. § 254(b)(1), or would be materially less affordable than the status quo in rural areas. Finally, even assuming

arguendo that there was some incremental effect on affordability, using federal high-cost universal service support

to subsidize rates below a level necessary for reasonable comparability under section 254(b)(3) of the Act would

burden consumers across the country, in conflict with the sufficiency principle in section 254(b)(5) of the Act – a

situation the Commission has found to be inequitable. USF/ICC Transformation Order, 26 FCC Rcd at 17749-50,

17751, paras. 235, 237. See also, e.g., Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1102-03 (D.C. Cir. 2009) (the

Commission’s universal service policies must consider “not just affordability for those benefited, but fairness for

(continued...)

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underlying purpose of the rate floor is one of fairness: “we do not believe it is equitable for consumers

across the country to subsidize the cost of service for some consumers that pay local service rates that are

significantly lower than the national urban average.”157 As the Commission explained in adopting the rate

floor in 2011, “[i]t is inappropriate to provide federal high-cost support to subsidize local rates beyond

what is necessary to ensure reasonable comparability. Doing so places an undue burden on the Fund and

consumers that pay into it.”158

The results of the urban rate survey show there is significant variation

among the states in the local rates charged to residential consumers; nonetheless, in many states,

residential consumers are paying $25 or more per month for local service.159 To the extent that individual

states wish to maintain intrastate rates significantly lower than the national urban average, they are free to

do so. This rule merely prevents them from doing so in a manner that would burden ratepayers

nationwide.160

78.

In the USF/ICC Transformation Order, the Commission “anticipate[d] that the rate floor

for the third year will be set at a figure close to the sum of $15.62 plus state regulated fees.”161 To

mitigate the impact of the implementation of the rate floor and provide time to implement a new rate

survey, the Commission concluded that the rate floor should be phased in over several years: $10

beginning July 1, 2012, $14 beginning July 1, 2013, and then the average urban rate, as determined from

data in the Urban Rates Survey, beginning July 1, 2014.162 Its goal in adopting a multi-year transition was

“to avoid a flash cut that would dramatically affect either carriers or the consumers they serve.”163

79.

For 2014, the Bureau’s survey determined that the average urban rate is $19.81 plus

$0.65 in state fees (a total of $20.46). Because the survey average for flat-rate local service is more than

four dollars higher than the Commission anticipated, we agree with commenters that a more gradual

(Continued from previous page)

those burdened,” and the agency “enjoys broad discretion” when balancing potentially competing principles under

section 254).

157 USF/ICC Transformation Order, 26 FCC Rcd at 17751, para. 237.

158 Id.

159 See Urban Rate Survey Data, http://www.fcc.gov/encyclopedia/urban-rate-survey-data (last visited Apr. 25,

2014) (Urban Rate Survey Data); Letter from Michael J. Jacobs, Legal Advisor to the Chief, Wireline Competition

Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 10-90 (filed Apr. 2, 2014) (WCB Apr. 2, 2014 Letter).

160 47 U.S.C. § 254(f). See also USF/ICC Transformation Order, 26 FCC Rcd at 17751, para. 238 (“[T]he purposes

of this rule change are to ensure that states are contributing to support and advance universal service and that

consumers are not contributing to the Fund to support customers whose rates are below a reasonable level.”)

(emphasis in original). The Commission previously has recognized that “current retail rates . . . are the result of the

interplay of underlying costs and other factors that are unrelated to whether an area is high-cost,” and as noted in the

text above, states remain free to base intrastate policies on those additional considerations. High-Cost Universal

Service Support et al., WC Docket No. 05-337 et al., Order on Remand and Memorandum Opinion and Order, 25

FCC Rcd 4072, 4105, paras. 62-63 (2010), aff’d sub nom Vermont Pub. Svc. Bd. v. FCC, 661 F.3d 54 (D.C. Cir.

2011).

161 USF/ICC Transformation Order, 26 FCC Rcd at 17753, para. 243.

162 Id. at 17751, para. 239.

163 Id. at 17752, para. 242.

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approach to the reductions to universal service support under section 54.318(b) is warranted,164 and

waiver of this rule is appropriate.165

80.

Therefore, we waive the application of section 54.318(b) for lines reported July 1, 2014,

with a rate of $14 or above. Commencing January 2, 2015 (reflecting rates as of December 1, 2014), and

thereafter, through June 30, 2016, we waive section 54.318(b) to the extent reported lines are less than

$16. For the period between July 1, 2016, and June 30, 2017, we waive section 54.318(b) to the extent

reported rates are less than $18, or the 2016 rate floor, whichever is lower. For the period between July 1,

2017, and June 30, 2018, we waive section 54.318(b) to the extent reported rates are less than $20, or the

2017 rate floor, whichever is lower. We believe that this four-year transition should provide sufficient

time for carriers and state commissions to determine whether and how to make adjustments, without

unreasonable effects on carriers and consumers. Further, because we are extending implementation of the

support reductions associated with the next rate floor until July 2016, we do not believe that it is

necessary to change the annual date on which the annual rate floor goes into effect.166 Because ETCs

otherwise are required to submit their annual reports on July 1 each year,167 we think it will be easier to

keep the rate floor effective date consistent with these other filings.

We leave flexibility to the affected

parties to determine whether and, if they seek to adjust their rates, how to do so over the next four years.

We emphasize, however, that nothing in our rules requires carriers affected by the rate floor to adjust their

local rates.

81.

While we understand some parties are concerned about significant rate hikes,168 we are

not convinced based on the information before us that implementation of the approach adopted herein will

lead to widespread rate hikes. Our experience with the implementation of the rule thus far suggests that

not all carriers will raise rates to meet the rate floor. The $14 rate floor went into effect on July 1, 2013,

and carriers have now had two opportunities to report the number of lines below that rate floor. The rate

floor increased from $10 in 2012 to $14 in 2013, a 40 percent increase.169 When this occurred, interested

parties were largely silent and voiced little opposition. We note that three-quarters of the lines subject to

support reductions this year (based on the rates in effect on December 1, 2013) were price cap carrier

lines, while one-quarter of the lines affected were reported by rate-of-return carriers. The fact that many

carriers continue to report some lines with rates well below the $14 rate floor suggests that they may have

made a business decision to grandfather the lower rates for those customers and accept the associated

support reductions.170 Indeed, we note that more than two years after the Commission adopted the $14

164 See, e.g., ITTA & USTelecom Mar. 31, 2014 Reply Comments at 2-3; GVNW Mar. 31, 2014 Reply Comments

at 5-6; NTCA et al. Mar. 31, 2014 Reply Comments at 2-6; ACS Mar. 31, 2014 Reply Comments at 2-4.

165 The Commission’s rules may be waived for good cause shown. 47 C.F.R. § 1.3. The Commission may exercise

its discretion to waive a rule where the particular facts make strict compliance inconsistent with the public interest.

Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990).

166 See Associations’ Mar. 11, 2014 Petition.

167 See 47 C.F.R. § 54.313(j).

168 See ITTA & USTelecom Mar. 31, 2014 Reply Comments; MITA Mar. 31, 2014 Reply Comments; GVNW Mar.

31, 2014 Reply Comments; ACS Mar. 31, 2014 Reply Comments; NTCA et al. Mar. 31, 2014 Reply Comments;

Western Association Mar. 31, 2014 Reply Comments; Washington UTC Mar. 31, 2014 Reply Comments; Reply

Comments of Pioneer Communications, Inc., WC Docket No. 10-90 (filed Mar. 31, 2014); Reply Comments of Hot

Springs Telephone Company and Ronan Telephone Company, WC Docket No. 10-90 (filed Mar. 31, 2014).

169 USF/ICC Transformation Order, 26 FCC Rcd at 17751-53, paras. 239-43.

170 Based on their January 2014 filings, price cap carriers are subject to a monthly support reduction of $170,000, or

$2,040,000 on an annualized basis. This reduction in support represents less than 0.20 percent of the $1.1 billion in

Phase I frozen support that price cap carriers received in 2013. Additionally, rate-of-return carriers are subject to a

monthly support reduction of $120,000, or $1,440,000 on an annualized basis.

This reduction in support represents

(continued...)

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rate floor to be implemented in 2013, carriers in 34 study areas in 16 states still are reporting a number of

lines with residential local service charges of $5 or less,171 further reinforcing our view that individual

carriers may choose not to raise rates in response to the current rate floor. We therefore can predict that,

although there could be increases in some rates, it is unlikely that there will be a significant number of

dramatic increases.172

82.

In response to the NARUC petition, we note that the Bureau has posted on the

Commission’s website the data used to develop the rate floor with explanatory notes,173 effectively

granting that aspect of NARUC’s petition. Moreover, we also note that our action today to phase-in the

effect of the rule over a four-year period effectively responds to NARUC’s suggestion that “at a

minimum, delay and perhaps a phasing in of the new floor is warranted.”174 NARUC also suggests that

the Commission should seek comment on how to calculate the benchmark.175 In the Rate Floor Order,

the Bureau clearly explained that the sample would be drawn using FCC Form 477 data from fixed

terrestrial providers in urban census tracts, and that the average urban rate would be calculated based on

the non-promotional rate for stand-alone voice service.176 To the extent that NARUC is challenging that

methodology, its request is an untimely petition for reconsideration of the Rate Floor Order.177 If the

intent of NARUC’s petition is to challenge the Bureau’s decision to use only incumbent LEC data in

computing the average urban rate,178 we note that this decision resulted in a lower rate floor than would

have resulted if the Bureau had used the data from all providers.179 Therefore, seeking comment on that

aspect of the methodology would not advance NARUC’s objective, and we see no other reason to do so.

We therefore grant in part and deny in part NARUC’s petition.

83.

We are not persuaded by arguments that we should artificially cap the 2014 rate floor to

be a figure lower than what was calculated by the rate survey. The rate floor rule is separate from the rule

requiring reductions in support for rates below the rate floor; there is no reason why it is necessary to

“cap” the rate floor itself.

(Continued from previous page)

roughly 0.07 percent of the $1.958 billion that rate-of-return carriers received in 2013. See WCB Apr. 2, 2014

Letter.

171 Id.

172 Further, ETCs are required to use universal service support “only for the provision, maintenance, and upgrading

of facilities and services for which the support is intended.” 47 U.S.C. § 254(e); 47 C.F.R. § 54.314. High-cost

universal service support is intended for voice telephony service provided over broadband-capable networks.

USF/ICC Transformation Order, 26 FCC Rcd at 17684, 17685-86, paras. 62, 64. To the extent that the rate floor

leads carriers to increase low voice telephony rates, the carriers no longer could be using federal universal service

support to subsidize those artificially low rates, and instead will use those funds for the deployment and availability

of broadband-capable networks in the areas they serve. We thus reject the dissent’s contention, see Dissent at 5, that

consumers will not benefit when ETCs receive the full available federal high-cost universal service support upon

increasing rates to the rate floor.

173 See Urban Rate Survey Data.

174 NARUC Apr. 15, 2014 Petition at 6.

175 Id. at 7.

176 Rate Floor Order, 28 FCC Rcd at 4244-45, paras. 8-12.

177 NARUC Apr. 15, 2014 Petition at 7. To the extent that it instead is seeking a stay or waiver pursuant to section

1.3 of the Commission’s rules, 47 C.F.R. § 1.3, the good cause analysis here persuades us to grant a waiver of the

nature and extent discussed above, and not more broadly. See supra paras. 77-81.

178 Rate Survey Results Public Notice, 29 FCC Rcd 2967.

179 Universal Service Implementation Progress Report at Figure 7.

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84.

We do not waive section 54.313(h) of our rules. The announced urban rate floor is

$20.46; incumbent ETCs must report their rates to USAC to the extent that their rates plus state fees are

below this amount. Having information regarding ETC rates below the urban rate floor will facilitate our

ability over the next four years to monitor the impact of this rule on carriers and consumers. Effective

July 1, 2016, the rate floor will be determined by the next urban rate survey. We direct the Bureau to

conduct the next survey in sufficient time to announce the results in early 2015 and to announce the 2016

rate floor no later than January 31, 2016.

85.

We agree with the Maine Office of Public Advocate that a carrier should not be subject to

universal service support reductions as a result of the rate floor for those lines provided to Lifeline

customers.180 The Commission has consistently emphasized its commitment to ensuring that its reforms

do not negatively impact Lifeline customers.181 We therefore waive application of section 54.318(i) for

lines provided to customers enrolled in the Lifeline program. We conclude that allowing carriers to

maintain rate plans that are priced below the rate floor for Lifeline subscribers strikes the appropriate

balance between ensuring that consumers across America are not funding below-average rates for

selected consumers, while providing targeted relief to ensure this rule does not negatively impact Lifeline

subscribers.182 Therefore, we waive section 54.318(i) and direct USAC to take steps to ensure there will

be no reductions in high-cost support for lines provided to customers enrolled in the Lifeline program.

86.

We decline to reconsider the adoption of a rate floor.183 Such requests effectively are

untimely petitions for reconsideration of the original decision in the USF/ICC Transformation Order to

adopt the rate floor. The Commission denied petitions for reconsideration of the adoption of the rate floor

in the Third Order on Reconsideration.184 Moreover, as noted above, the Commission adopted the rate

floor as a matter of fairness to ensure that consumers throughout the country do not support consumers

and states with very low rates.185 While parties may disagree with the particular operation of the current

180 Maine Public Advocate Letter. We note that waiving support reductions for Lifeline customers will help address

AARP’s concerns regarding low-income older consumers. See AARP Apr. 15, 2014 Letter at 2.

181 See, e.g., USF/ICC Transformation FNPRM, 26 FCC Rcd at 18066, para. 1102 (emphasizing ongoing

commitment to ensuring Lifeline consumers have access to service); Lifeline and Link Up Reform and

Modernization et al., WC Docket No. 11-42 et al., Report and Order and Further Notice of Proposed Rulemaking,

27 FCC Rcd 6656, 6659, para. 1 (2012) (emphasizing importance of “ensuring that eligible low-income consumers

who do not have the means to pay for telephone service can maintain their current voice service through the Lifeline

program”).

182 The Wireline Competition Bureau provided similar relief last year in response to a petition filed by carriers in

West Virginia. Connect America Fund et al., WC Docket No. 10-90 et al., Order, 28 FCC Rcd 9230, 9235, para. 16

(Wireline Comp. Bur. 2013).

183 See, e.g., ITTA & USTelecom Mar. 31, 2014 Reply Comments at 5-6; NTCA et al. Mar. 31, 2014 Reply

Comments at 7. As courts have recognized, the mere fact that a Commission rule might have an incidental effect on

rates does not mean that the Commission is “regulating” rates. See, e.g., Cable & Wireless PLC v. FCC, 166 F.3d

1224, 1230 (D.C. Cir. 1999) (finding that even though “the practical effect of the Order will be to reduce settlement

rates charged by foreign carriers … the Commission does not exceed its authority simply because a regulatory action

has extraterritorial consequences”); Cellular Telecomms. Indus. Ass’n v. FCC, 168 F.3d 1332, 1336 (D.C. Cir. 1999)

(upholding the Commission’s determination that a state commission’s imposition of universal service contribution

requirements on wireless carriers did not amount to “rate regulation” preempted by 47 U.S.C. § 332(c)(3), even

though such requirements “impact the rates charged to customers”). Moreover, the Commission has authority under

section 254 “to create some inducement . . . for the states to assist in implementing the goals of universal service.”

Qwest Corp. v. FCC, 258 F.3d 1191, 1203-04 (10th Cir. 2001).

We also find no other basis for concluding that the

Commission is improperly exercising jurisdiction with respect to intrastate rates here, and thus conclude that the rate

floor does not violate section 2(b) of the Act, as the dissent alleges. See Dissent at 7.

184 Third Order on Reconsideration, 27 FCC Rcd at 5631, para. 23-24.

185 USF/ICC Transformation Order, 26 FCC Rcd at 17751, para. 238.

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rule, that does not change the fact that consumers across the country otherwise would be continuing to

subsidize, through federal universal service support, excessively low rates in some areas. As explained

above, in no sense does this policy require carriers to raise their rates, nor does it preclude states from

subsidizing low prices through their own universal-service mechanisms.186 We thus continue to believe

that the rate floor is necessary to maintain fairness in the universal service support mechanism and

accordingly grant in part and deny in part the Associations’ Petition to the extent described herein.

B.

Waiver of Fees for Study Area Boundary Waivers

87.

Background. A study area is the geographic territory of an incumbent LEC. The

Commission froze all study area boundaries effective November 15, 1984, in order to prevent incumbent

LECs from establishing separate study areas made up only of high-cost exchanges to maximize their

receipt of high-cost universal service support.187 A carrier must therefore apply to the Commission for a

waiver of the study area boundary freeze if it wishes to transfer or acquire additional exchanges or parts

of exchanges.188

88.

The Commission’s rules require carriers filing petitions for waiver of the study area

boundary freeze to submit a $7,990 application fee with their petitions.189 Historically, the Commission

has imposed application fees to recoup a portion of the direct cost it incurs to provide specific services to

individuals and companies.190 The $7,990 fee is a uniform fee that applies to all petitions for waiver of

Part 32 accounting rules, Part 36 separations rules, Part 43 reporting requirements, Part 64 cost allocation

rules, Part 65 rate of return rules, and Part 69 access charge rules.

89.

Discussion. In response to informal inquiries from state commissions and others, we now

waive on our own motion the $7,990 application fee for carriers seeking a study area waiver to transfer

lines below the exchange level.191 We note that the Bureau generally considers petitions seeking to

transfer lines at the sub-exchange level as routine.192 This burden and cost has been reduced even further

by the streamlined study area boundary freeze waiver process instituted in the USF/ICC Transformation

186 See 47 U.S.C. § 254(f).

187 See MTS and WATS Market Structure, Amendment of Part 67 of the Commission’s Rules and Establishment of a

Joint Board, CC Docket No. 78-72 et al., Decision and Order, 50 Fed. Reg. 939 (1985) (Part 67 Order). See also 47

C.F.R. pt. 36, App. (“Study area boundaries shall be frozen as they are on November 15, 1984.”).

188 See Part 67 Order, 50 Fed. Reg. at 939-40, para. 1; Sacred Wind Communications, Inc. and Qwest Corporation,

Joint Petition for Waiver of the Definition of “Study Area” Contained in Part 36, Appendix-Glossary of the

Commission's Rules; Sacred Wind Communications, Inc.; Related Waivers of Parts 36, 54, and 69 of the

Communication's Rules, CC Docket No. 96-45, Order, 21 FCC Rcd 9227 (Wireline Comp. Bur. 2006); Panora

Communications Cooperative and Prairie Telephone Co., Inc., Joint Petition for Waiver of the Definition of “Study

Area” Contained in Part 36 of the Commission’s Rules, CC Docket No. 96-45, Order, 25 FCC Rcd 5558 (Wireline

Comp. Bur. 2010).

189 See 47 C.F.R. § 1.1105; see also Federal Communications Commission, Wireline Competition Bureau Common

Carrier Services Fee Filing Guide at 7 (June 21, 2011), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-

308188A1.pdf.

190 The authority to collect these fees was provided by Congress in the Consolidated Omnibus Budget Reconciliation

Act of 1989. See Omnibus Budget Reconciliation Act of 1989, § 3001, 47 U.S.C. 158 (2012).

191 We note that the Commission has previously waived this fee on its own motion for parties seeking waiver of the

HCLS benchmarking rule. Fifth Order on Reconsideration, 27 FCC Rcd at 14558-59, para. 24.

192 See, e.g., Wireline Competition Bureau Grants Qwest/All West Joint Petition for Study Area Waivers, CC Docket

No. 96-45, Public Notice, 27 FCC Rcd 15968 (Wireline Comp. Bur. 2012); The Telecommunications Access Policy

Division of the Wireline Competition Bureau Grants Three Study Area Waiver Petitions, CC Docket No. 96-45,

Public Notice, 27 FCC Rcd 2193 (Wireline Comp. Bur. 2012).

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Order.193 The administrative burden and cost associated with reviewing these petitions and issuing

decisions, therefore, is relatively small, while the amount of the fee is a deterrent to transferring lines at

the sub-exchange level. Accordingly, there is good cause to grant this limited waiver.

VI.

MEMORANDUM OPINION AND ORDER

90.

In this section, we address two applications for review of the Bureau’s Phase II Service

Obligations Order related to the requirements for a provider to be designated an unsubsidized

competitor.194 Alaska Communications Systems (ACS) requests review of the Bureau’s statement that it

will consider challenges to a competitor’s unsubsidized status even if that competitor is receiving high-

cost support that is being phased out.195 The National Cable and Telecommunications Association

(NCTA) requests review of the decision to use the same criteria for determining whether a provider is an

unsubsidized competitor as are used in setting the obligations for Phase II funding recipients.196 For the

reasons set forth below, we deny ACS’s application, and we dismiss NCTA’s application. We conclude

that it is appropriate for the Bureau to commence the Phase II challenge process under the framework

established in the Phase II Service Obligations Order.197

91.

In the USF/ICC Transformation Order, the Commission decided that all ETCs “will be

required to offer broadband service in their supported areas that meets certain basic performance

requirements.”198 In setting those performance requirements for Phase II model-based funding recipients,

the Commission stated that those recipients must “offer broadband at actual speeds of at least 4 Mbps

downstream and 1 Mbps upstream, with latency suitable for real-time applications, such as VoIP, and

with usage capacity reasonably comparable to that available in comparable offerings in urban areas,”199

offered at rates that are reasonably comparable to the rates offered in urban areas. In determining the

areas that will be eligible for Connect America Phase II support, the Commission stated that it will

“exclude areas where an unsubsidized competitor offers broadband service that meets the [above-

mentioned] broadband performance requirements.”200 The task of assigning quantifiable metrics to the

193 In the USF/ICC Transformation Order, the Commission streamlined the process by which study area boundary

waiver petitions would be addressed. USF/ICC Transformation Order, 26 FCC Rcd at 17763, para. 267. Though

the Bureau continues to seek comment on these petitions, study area waivers eligible for streamlined treatment are

deemed granted, absent any further action by the Bureau, on the 60th day after the reply comment due date. See id.

The Commission stated that these reforms would reduce administrative burdens, provide greater regulatory certainty

and a more certain timetable for carriers, and allow the Bureau to process petitions for waiver of the study area

freeze more efficiently and effectively. See id.

194 47 C.F.R. § 1.115 (Application for review of action taken pursuant to delegated authority); Phase II Service

Obligations Order.

195 ACS, Application for Review, WC Docket No. 10-90 (filed Nov. 26, 2013) (ACS Nov. 26, 2013 Petition).

196 NCTA, Application for Review, WC Docket No. 10-90 (filed Dec. 23, 2013) (NCTA Dec. 23, 2013 Petition)

197 We recognize that we seek comment on a number of issues in the FNPRM that, if adopted, could change existing

requirements. In order to proceed in a timely fashion to make the offer of support to price cap carriers, we conclude

that the Bureau should conduct the challenge process in a way that does not prejudge the Commission’s ultimate

decisions. This will also ensure that the Phase II challenge process may proceed without delay. See Letter from

Thomas Cohen, Counsel, ACA, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC

Docket No. 10-90, at 4-5 (filed Apr. 15, 2014) (ACA Apr. 15, 2014 Ex Parte).

198 USF/ICC Transformation Order, 26 FCC Rcd at 17695, para. 86.

199 Id. at 17726, para. 160.

200 Id. at 17729, para. 170.

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Commission’s general performance criteria, both for Phase II recipients and for unsubsidized competitors,

was delegated to the Bureau.201

92.

In the Phase II Service Obligations Order, the Bureau implemented the Commission’s

direction that Connect America Phase II funding recipients meet certain performance criteria.202 The

Bureau specified the performance metrics that would be required of recipients of Phase II model-based

support.203 The Bureau also specified how those criteria would be used in determining what areas would

be considered served by an unsubsidized competitor, and therefore ineligible for support. The Bureau

noted that, per the Commission’s direction, “an unsubsidized competitor must be offering broadband and

voice service that would meet the Commission’s requirements for price cap carriers receiving model-

based support.”204 Thus, in order to qualify as an unsubsidized competitor, a provider must offer

broadband with speeds of 4 Mbps downstream and 1 Mbps upstream (4 Mbps/1 Mbps), roundtrip

provider network latency of 100 ms or less, minimum usage allowances of at least 100 GB per month,

and pricing that is reasonably comparable to that in urban areas.205

A.

ACS Application for Review

93.

In the Phase II Service Obligations Order, the Bureau stated that it would “presume that

any recipient of high-cost support at the time the challenge process is conducted” would not meet the

definition of “unsubsidized competitor,” but it would “entertain challenges to that presumption from any

competitive [ETC] that otherwise meets or exceeds the performance standards established [for price cap

carriers accepting model-based support] and whose high-cost support is scheduled to be eliminated during

the five-year term of Phase II.” It further stated that this would “provide an opportunity for the

Commission to consider whether to waive application of the ‘unsubsidized’ element of the unsubsidized

competitor definition in situations that would result in Phase II support being used to overbuild an

existing broadband-capable network.”206

94.

ACS requests that we review and reverse the Bureau’s decision.207 For the reasons

discussed below, we deny ACS’s application.

95.

The USF/ICC Transformation Order states, “[i]n determining the areas eligible for

support, [the Commission] will also exclude areas where an unsubsidized competitor offers broadband

service that meets the broadband performance requirements described above, with those areas determined

by the Wireline Competition Bureau as of a specified future date as close as possible to the completion of

the model.”208 ACS argues that allowing a provider to challenge its unsubsidized status even if it

continues to receive support after the start of Phase II violates the requirement that the determination be

made “as close as possible to the completion of the model.”209

201 See, e.g., id. at 17680, 17729, paras. 48, 170 (“We delegate authority to the [Wireline Competition Bureau and

Wireless Telecommunications Bureau] to finalize performance measures as appropriate consistent with the goals we

adopt today.”).

202 Phase II Service Obligations Order, 28 FCC Rcd at 15060, para. 1.

203 Id. at 15062-76, paras. 6-38.

204 Id. at 15077, para. 40.

205 Id. at 15063-75, paras. 7-36 (providing details regarding definition of standards).

206 Id. at 15077, para. 41.

207 ACS Nov. 26, 2013 Petition at 1.

208 Id. at 5-6; USF/ICC Transformation Order, 26 FCC Rcd at 17729, para. 170.

209 ACS Nov. 26, 2013 Petition at 5-6.

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96.

We conclude that the Bureau’s action falls within its delegated authority to interpret and

implement the requirements of the unsubsidized competitor rule.210 ACS’s arguments fail for two

reasons. First, while the Commission required that the list of eligible areas be determined as close as

possible to the completion of the cost model, that does not necessarily translate to a requirement that the

unsubsidized status of a provider be determined based on whether that provider is receiving funding at the

time the cost model is completed. While the former is a decision made by the Commission, the latter is

an interpretation of what it means to be “unsubsidized,” and the authority to make that interpretation is

delegated to the Bureau.

97.

Second, ACS’s argument is not ripe for our consideration. The Bureau has not ruled that

any and all providers receiving support after the start of Phase II qualify as unsubsidized. Quite the

opposite: the Bureau presumes such providers are subsidized and requires that they come forward to

present evidence if they wish to challenge that designation. In light of this, all the Bureau did was

provide a procedural vehicle through which interested parties could – if they so choose – present certain

evidence for consideration. Recognizing that the Commission delegated to the Bureau the

implementation of the challenge process, we are not persuaded that it was beyond the Bureau’s delegated

authority to invite parties to bring such evidence to the agency’s attention.

98.

Ultimately, the issue of the Bureau’s delegated authority is moot, however, because we

agree that the Phase II challenge process is the appropriate venue for parties to present evidence that they

serve areas with a service that meets the standards established for Phase II, and that those areas should be

excluded from the offer of support to price cap carriers. We therefore affirm the Bureau’s invitation to

interested parties to present such evidence in the challenge process. ACS will suffer no substantial

prejudice by the challenge process proceeding as the Bureau has outlined, as there will be time to make

any final determinations on this topic based on a full record before the offer of support is extended. It is

appropriate and timely for the Bureau to move forward with the Phase II challenge process now.

99.

To provide all interested parties, including those outside Alaska, the opportunity to weigh

in more broadly on how we can use Connect America funding most efficiently, we seek comment more

generally on this topic in the attached FNPRM.211 Specifically, we propose to exclude areas with

competitors, whether or not subsidized, from Phase II eligibility in certain circumstances. Parties are free

to raise substantive arguments in response to the FNPRM as to whether this approach would harm

universal service. As such, we decline to address ACS’s substantive policy arguments at this time,212 and

we deny ACS’s Application for Review.

B.

NCTA Application for Review

100.

NCTA challenges the Bureau’s determination that the standards used for Phase II

recipients’ service obligations will also be used in assessing whether a provider qualifies as an

unsubsidized competitor.213 We conclude that the arguments advanced by NCTA are not appropriate for

consideration in an application for review. We therefore dismiss NCTA’s Application for Review.

101.

NCTA seeks review of the Bureau’s determination that uniform standards will be used in

assessing whether areas are served by unsubsidized competitors as well as setting the requirements that

apply to recipients of Phase II model-based support. NCTA argues that using the same standards for both

210 USF/ICC Transformation Order, 26 FCC Rcd at 17729, para. 170.

211 See infra Section VIII.C.

212 However, given the broader rulemaking questions, in determining the ongoing applicability of the unsubsidized

requirement we will consider the arguments made in ACS’s Application for Review in conjunction with the record

we develop in response to the FNPRM.

213 NCTA Dec. 23, 2013 Petition at 1.

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groups will result in wasteful and inefficient use of universal service funds; that the decision is

tantamount to directly regulating broadband rates, terms, and conditions; and that unsubsidized

competitors should not be held to the same performance standards as Phase II recipients, but rather should

be evaluated based only on the speed of their offerings.214

102.

NCTA’s arguments constitute an untimely petition for reconsideration of the decisions

made in the USF/ICC Transformation Order, and, therefore, are not proper for an application for review.

The decision for which NCTA seeks review is not an action taken by the Bureau on delegated authority;

therefore, the matter is not properly addressed in an application for review. In the USF/ICC

Transformation Order, the Commission affirmatively decided that a uniform standard will apply in

determining what areas are served by an unsubsidized competitor as well as in setting the performance

obligations for recipients of Phase II model-based support.215 Rather than constituting a new decision

made under delegated authority, the Bureau’s Phase II Service Obligations Order simply implements the

Commission’s prior direction to use a uniform standard.216 Per the Commission’s rules, a party may file

an application for review if it is “aggrieved by any action taken pursuant to delegated authority.” 217 But

NCTA is not challenging a decision the Bureau made on delegated authority. Rather, NCTA challenges

the Bureau’s implementation of a prior Commission decision. An application for review of a Bureau

decision implementing a Commission directive may not be used as a vehicle to seek reconsideration of

the Commission’s earlier decision.218 The proper method for challenging the Commission’s decision on

this point would have been for NCTA to seek reconsideration of the USF/ICC Transformation Order.

However, the window for filing such a petition has passed.219 We therefore dismiss NCTA’s Application

for Review of the Phase II Service Obligations Order as improper on the grounds that the application

does not seek review of any Bureau action taken pursuant to delegated authority; to the extent the filing

should be viewed as a petition for reconsideration of the Commission’s decision in the USF/ICC

Transformation Order, we dismiss it as untimely.

103.

We conclude that NCTA’s application is procedurally defective. Therefore, we dismiss

NCTA’s Application for Review.

VII.

SEVENTH ORDER ON RECONSIDERATION

104.

In this section, we address several petitions for reconsideration of certain aspects of the

USF/ICC Transformation Order, making adjustments where appropriate. First, to provide a more

measured transition for rate-of-return carriers that would have qualified for SNA support based on their

significant network investment, we permit such carriers to receive SNA for such investments made in

2010 and 2011. Second, we deny a petition challenging the imposition of broadband public interest

214 Id. at 4-8.

215 See USF/ICC Transformation Order, 26 FCC Rcd at 17729, para. 170 (“In determining the areas eligible for

support, we will also exclude areas where an unsubsidized competitor offers broadband service that meets the

broadband performance requirements described above . . . .”).

216 See Phase II Service Obligations Order, 28 FCC Rcd at 15076-77, paras. 39-40 n.97 (“The Commission directed

the Bureau to exclude areas where an unsubsidized competitor meets the broadband performance requirements

‘described above,’ referring to the earlier discussion in the USF/ICC Transformation Order of public interest

obligations for ETCs.”).

217 47 C.F.R. § 1.115 (emphasis added).

218 The Commission’s bureaus and offices implement Commission regulations and precedent many times per day.

Allowing review of such implementation to reopen the Commission’s underlying regulatory and adjudicatory

decisions would generate uncertainty and hinder the functioning of the Commission.

219 47 U.S.C. § 405(a); 47 C.F.R. § 1.429(d) (“The petition for reconsideration and any supplement thereto shall be

filed within 30 days from the date of public notice of such action.”).

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conditions on recipients of high-cost support, concluding that does not constitute common carrier

regulation. Third, we eliminate the HCLS benchmarking rule so that carriers’ HCLS will no longer be

limited by benchmarks calculated using the QRA methodology.

A.

Safety Net Additive

105.

Background. In 2001, the Commission created the SNA high-cost universal service

support mechanism to provide further support to incumbent carriers that made significant investment in

their infrastructure.220 Such investment was measured by realized growth in year-end telecommunications

plant in service (TPIS) on a per-line basis of at least 14 percent more than the study area’s TPIS per-line

investment at the end of the prior period.221 Eligible carriers received SNA support in addition to their

capped HCLS.222 Once a carrier qualified for SNA, it would receive SNA support beginning in the

second year after costs were incurred for the qualifying year, plus four subsequent years, for a total of five

years.223

106.

When the Commission adopted SNA, the number of access lines was growing. At that

time, the Commission did not anticipate that incumbent telephone companies would lose access lines as

they have over the past decade. Because incumbent LECs qualified for SNA support by realizing growth

in TPIS on a per-line basis, decreasing access lines resulted in the majority of carriers receiving SNA

support due to significant loss of lines, rather than significant increases in investment. For example, in

2009 and 2010, close to sixty percent of incumbent LECs that qualified for SNA did so because of line

loss rather than increased investment.224

107.

In the 2011 USF/ICC Transformation Order, the Commission made the decision to

eliminate and phase out SNA.225 The Commission found that the mechanism was not fulfilling its

purpose of encouraging “additional significant investment in telecommunications plant” because the

majority of incumbent carriers qualified for SNA due to line loss rather than network investment.226 The

Commission decided that carriers that qualified for SNA support due to a 14 percent or greater increase in

total TPIS over the prior year would continue to receive support for the full five-year period for which

they were eligible.227 The Commission concluded that other carriers – i.e., those qualifying for SNA

based on line loss – would have their SNA support phased down by 50 percent in 2012 and completely

220 SNA was adopted based on the recommendation of the Rural Task Force. See Federal-State Joint Board on

Universal Service et al., CC Docket No. 96-45 et al., Fourteenth Report and Order et al., 16 FCC Rcd 11244, 11276-

81, paras. 77-90 (2001) (Rural Task Force Order).

221 See 47 C.F.R. §§ 32.2001, 36.605(c).

222 Specifically, for carriers that qualified prior to 2011, SNA support was calculated by the following equation:

SNA support = (Uncapped support in the qualifying year - Uncapped support in the base year) - (Capped support in

the qualifying year - Amount of support received in the base year). 47 C.F.R. § 36.605(b). In 1993, the

Commission imposed an indexed cap on HCLS, which limited total support to the previous year’s total, adjusted by

the rate of annual loop growth for all carriers. See Amendment of Part 36 of the Commission’s Rules and

Establishment of a Joint Board, CC Docket No. 80-286, Report and Order, 9 FCC Rcd 303, 305, paras. 19-20

(1993) (subsequent history omitted). In 2001, the Commission modified the cap to adjust it annually by an index

based on changes in the Gross Domestic Product/Consumer Price Index and access lines. See Rural Task Force

Order, 16 FCC Rcd at 11249, para. 12.

223 47 C.F.R. § 36.605(c)(3)(ii). For example, a carrier increasing TPIS on a per-line basis in 2009 would receive

support beginning in 2011 and continuing through 2015.

224 See USF/ICC Transformation Order, 26 FCC Rcd at 17757, para. 249.

225 See id. at para. 250.

226 Id. at paras. 249-50.

227 Id. at 17758, para. 252.

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eliminated in 2013 because such support was not being paid on the basis of significant investment in

telecommunications plant.228 Because the Commission eliminated SNA effective December 29, 2011,

carriers that otherwise would have newly received SNA in 2012 or 2013 based on qualifying investments

prior to the effective date of the Commission’s action were no longer eligible for SNA.229

108.

Since the release of the USF/ICC Transformation Order, rate-of-return carriers have

urged the Commission to reconsider its decision to eliminate SNA support.230 NECA, OPASTCO, and

WTA (NECA et al.) also argue that, rather than eliminating SNA support, the Commission should revise

the qualification requirements for SNA so that only those carriers that increase their total network

investment from year-to-year – i.e., carriers that experience total year-over-year, rather than per-line,

TPIS growth – would qualify for SNA support.231 Both NECA et al. and USTelecom urge the

Commission to extend the SNA phase down schedule for carriers that qualified for SNA based on line

loss.232 On December 20, 2012, North Central Telephone Cooperative, Inc. (North Central) filed a

petition seeking waiver of the Commission’s rules to enable it to receive SNA support for investments the

company made in 2010.233 North Central alleges that the decrease in support as a result of the elimination

of SNA has caused it to defer investments that would have resulted in lower annual operating costs and

increased broadband availability and adoption in very rural areas.234

109.

Discussion. On reconsideration, we conclude that a more measured transition for carriers

that qualified for SNA based on investment is appropriate. Specifically, we will allow carriers that would

have qualified for SNA based on increased investment – an increase of at least 14 percent in their total

TPIS in 2010 or 2011 – to receive such support. This relief applies only to carriers that would have

qualified for such support based on investment undertaken in 2010 or 2011 that led to a 14 percent or

greater increase in total TPIS, not carriers that would have qualified due to line loss.235 We conclude that

228 Id.

229 Under the previous rules, carriers began receiving SNA support two years after incurring significant network

investments. For example, under the former rules, a carrier increasing its total TPIS by 14 percent or greater in 2010

would receive SNA support beginning in 2012 and continuing for the four subsequent years. A carrier increasing its

total TPIS in 2011 would begin receiving SNA in 2013.

230 For example, NECA and other rural associations argue that the Commission should allow carriers to receive SNA

support for costs incurred after 2009. See Petition for Reconsideration and Clarification of the National Exchange

Carrier Association et al., WC Docket. No. 10-90 et al., at 15-16 (filed Dec. 29, 2011) (NECA Dec. 29, 2011

Petition). Similarly, the Organization for the Promotion and Advancement of Small Telecommunications

Companies (OPASTCO), WTA, and NTCA assert that eliminating SNA support for costs incurred after 2009

“amounts to inequitable treatment of similarly situated carriers.” See Letter from Stuart Polikoff, Vice President –

Regulatory Policy and Business Development, OPASTCO, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90 et al., at 3 (filed Nov. 14, 2012). OPASTCO and NTCA

subsequently unified to form a new association, NTCA – The Rural Broadband Association. See Press Release,

NTCA, Leading Rural Telecommunications Associations Agree to Unify (Feb. 6, 2013), http://www.ntca.org/2013-

press-releases/leading-rural-telecommunications-associations-agree-to-unify.html.

231 NECA Dec. 29, 2011 Petition at 14-15.

232 Id. at 16; Petition for Reconsideration of USTelecom, WC Docket No. 10-90 et al., at 28-29 (filed Dec. 29, 2011)

(USTelecom Dec. 29, 2011 Petition).

233 See Petition for Waiver of North Central Telephone Cooperative, Inc., WC Docket No. 10-90 (filed Dec. 20,

2012).

234 See Letter from David Cosson, Counsel to North Central Telephone Cooperative, Inc., to Marlene H. Dortch,

Secretary, Federal Communications Commission, WC Docket No. 10-90 et al. (filed Apr. 26, 2013).

235 We direct USAC to make a lump sum payment, no later than 60 days after the effective date of this Order, for the

monthly support that would have been received up until the effective date of this Order had the rule not been

eliminated, and then monthly payments under the normal schedule for SNA, until the end of 2016 or 2017, as

(continued...)

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providing SNA support for this limited group of carriers is consistent with our goal of increasing rural

broadband deployment by promoting investment in modern networks. Moreover, providing SNA for this

discrete group of carriers is consistent with the Commission’s goal of “phas[ing] in reform with measured

but certain transitions, so companies affected by reform have time to adapt to changing circumstances.”236

Because of the relief granted herein, we dismiss North Central’s petition as moot.

110.

We reiterate that carriers are not entitled to universal service support simply because they

may have an expectation of such support.237 However, we believe that providing a more measured

transition for carriers is not only consistent with the original intent of the SNA mechanism, but also

furthers the goals of the USF/ICC Transformation Order, which was intended to expand modern

communications networks in rural communities throughout the country.238

111.

We note that our decision, by focusing only on those carriers who qualify for SNA based

on significant network investments, will have a limited budgetary impact. In 2013, USAC disbursed

approximately $20 million in SNA support to eligible carriers.239 We estimate that allowing SNA support

for carriers qualifying for SNA based on investment in 2010 and 2011 will result in an increase of

approximately $31.5 million in SNA support in 2014, $12 million annually in 2015 and 2016, and $4.5

million in 2017.240

112.

We otherwise find that parties have presented no new evidence or raised new arguments

that convince us to delay or reverse the Commission’s general decision to eliminate and phase out SNA.

Accordingly, we deny other requests to reconsider actions relating to SNA.241

113.

As the Commission explained in the USF/ICC Transformation Order, allowing

qualification based on growth in total investment rather than per line investment, as petitioners suggest,

“would not address [the Commission’s] overarching concern that [SNA] as a whole does not provide the

right incentives for investment in modern communications networks.”242 For example, the rule provided

support for investment in terrestrial wireline networks in extremely high-cost areas where it may be more

cost effective to deploy alternative technologies. The rule also provided SNA to carriers for investments

in areas served by an unsubsidized competitor. Therefore, simply modifying the qualification

requirement, rather than eliminating SNA altogether, would fail to provide sufficient assurance that

(Continued from previous page)

applicable. We take this opportunity to remind these carriers that they must file the necessary documentation with

USAC verifying that they qualify for SNA in order to receive such support.

236 USF/ICC Transformation Order, 26 FCC Rcd at 17671, para. 11.

237 See id. at 17758, para. 252 n.409.

238 Id. at 17671, para. 14. The Commission’s reforms were designed to provide “access to critical employment,

public safety, educational, and health care opportunities to millions of Americans for the first time.” Id.

239 Wireline Competition Bureau staff determined the total amount of SNA disbursed in 2013 by analyzing USAC

disbursement data. See USAC, Funding Disbursement Search,

http://www.usac.org/hc/tools/disbursements/default.aspx (last visited Apr. 23, 2014) (USAC High-Cost

Disbursement Tool).

240 As directed above, carriers qualifying as a result of investment in 2010, that would have received support in

2012, will receive approximately $22.5 million in support in 2014, reflecting their support for 2012, 2013, and 2014.

See supra note 235. Carriers qualifying as a result of investment in 2011 will also receive $9 million in 2014,

reflecting their support for 2013 and 2014. Total support for 2015 and 2016 will be $12 million each year ($7.5

million per year for carriers investing in 2010, $4.5 million per year for carriers investing in 2011). In 2017, support

will decrease to $4.5 million, reflecting the last year of support for carriers investing in 2011.

241 NECA Dec. 29, 2011 Petition at 14-15.

242 USF/ICC Transformation Order, 26 FCC Rcd at 17757-58, para. 251.

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carriers receiving support in the future would make reasonable or cost-efficient investments or target

these investments to areas that would not otherwise be served, contrary to the goals of the USF/ICC

Transformation Order.243

114.

We also decline to alter the phase down of support for carriers that qualified for SNA due

to line loss prior to or during 2009. The phase down adopted by the Commission was part of a total

package of reforms designed to balance the Commission’s objectives of advancing the availability of

modern networks capable of supporting broadband and voice services at reasonably comparable rates and

encouraging efficient investment while minimizing the burden on consumers and businesses.244 The

Commission found that the SNA mechanism was not well designed to meet its intended purpose.

Extending the phase down for two additional years would thwart the Commission’s reform goals and

reward inefficiency.245

115.

We also are not persuaded by USTelecom’s argument that we should extend the phase

down of SNA support for incumbent rate-of-return carriers that qualified for SNA support due to line loss

to provide treatment equivalent to that provided to competitive ETCs. In the USF/ICC Transformation

Order, the Commission established a five-year transition period for competitive ETCs’ existing high-cost

universal service support in recognition of the fact that they were losing all support with the elimination

of the identical support rule.246 The Commission adopted this phase down to eliminate legacy support

entirely for competitive ETCs.247 Rate-of-return carriers remain eligible to receive support from existing

high-cost support mechanisms as reformed by the USF/ICC Transformation Order, as well as CAF-ICC

support.248 As such, the different approach for competitive ETCs makes sense in the context of the

overall set of reforms.

243 Id.

244 See id. at 17672, para. 17.

245 Id. at 17738, para. 194.

246 Id. at 17827, 17830-31, paras. 502, 513-14. The identical support rule provided competitive ETCs “the same per-

line amount of high-cost universal service support as the incumbent local exchange carrier serving the same area.”

Id. at 17825, para. 498.

247 The phase down for competitive ETCs is halted at 40 percent in the event that the Mobility Fund Phase II is not

operational by June 30, 2014. See id. at 17832, para. 519.

248 Id. at 17740, para. 204. We note that the Commission reached a similar conclusion when it denied ARC’s

petition for reconsideration urging the Commission to give rural incumbent carriers serving remote Alaska the same

phase down period as competitive ETCs serving remote Alaska. See Third Order on Reconsideration, 27 FCC Rcd

at 5637, paras. 41-42; see also Alaska Rural Coalition Petition for Reconsideration, WC Docket No. 10-90 et al., at

3-8 (filed Dec. 29, 2011). The Commission had delayed the five-year phase down of support for competitive ETCs

serving remote Alaska for an additional two years, “to ensure that support would not be reduced until after the

mechanism that will provide ongoing support targeted at such carriers – the Mobility Fund Phase II, including its

Tribal component – is operational.” Third Order on Reconsideration, 27 FCC Rcd at 5637, para. 42; see also

USF/ICC Transformation Order, 26 FCC Rcd at 17835-36, para. 529. In contrast, the Commission found that

incumbent rate-of-return carriers, like those represented by ARC, would continue to receive support while the

Commission considered how to provide long-term support for rate-of-return carriers. See Third Order on

Reconsideration, 27 FCC Rcd at 5637, para. 42. The Commission stated that “although some rate-of-return carriers

will receive less support based on the Commission’s decision to place reasonable limits on expenses and to phase

out mechanisms that were outdated and not operating as intended, other rate-of-return carriers will see little change

in support, and yet others will see increases in support.” Id. Based on this analysis, the Commission held that the

reasoning underlying its decision to delay the phase down of support for competitive ETCs serving remote areas of

Alaska did not apply to incumbent carriers. Id.

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B.

Broadband Public Interest Conditions

116.

Background. In the USF/ICC Transformation Order, the Commission held that, as a

“condition of receiving federal high-cost universal service support,” all recipients of such support must

offer broadband service meeting certain performance metrics (i.e., speed, latency, capacity), and at rates

in rural areas that are reasonably comparable to rates offered in urban areas.249 The recipients of high-cost

support also must comply with broadband reporting obligations.250 We refer to these requirements

collectively, hereinafter, as the “broadband public interest conditions.”

117.

For price cap carriers, the Commission began the process of transitioning high-cost

support to the Connect America Fund. In Connect America Phase I, the Commission froze existing high-

cost support for price cap carriers and their rate-of-return affiliates until Connect America Phase II is

implemented.251 As a condition of receiving this frozen support, the Commission required price cap

carriers to use a portion of that support “to build and operate broadband-capable networks” necessary “to

offer the provider’s own retail broadband service in areas substantially unserved by an unsubsidized

competitor.”252

118.

The USF/ICC Transformation Order also implemented a number of reforms for rate-of-

return carriers.253 Relevant here, the Commission determined that rate-of-return carriers would continue

to receive support under existing universal service support mechanisms (subject to some modifications to

improve the efficiency and effectiveness of those mechanisms).254 As a condition on the continued receipt

of high-cost loop support, interstate common line support, and support from the CAF-ICC recovery

mechanism, the Commission required rate-of-return carriers to provide broadband service meeting the

specified performance requirements upon reasonable request for service and within a reasonable amount

of time.255

119.

In its petition for reconsideration, USTelecom claims that the Commission “lacks

authority” to condition the receipt of “legacy” federal universal support on these broadband public interest

249 USF/ICC Transformation Order, 26 FCC Rcd at 17695, para. 86. The Commission noted that federal high-cost

universal service support included all existing high-cost universal service mechanisms and the Connect America

Fund. Id. at 17695, para. 86 n.126; see also id. at 17696-709, paras. 90-114 (describing broadband performance

metrics, reasonably comparable pricing, and broadband measuring obligations).

250 See 47 C.F.R. § 54.313; USF/ICC Transformation Order, 26 FCC Rcd at 17852-58, paras. 579-604.

251 See USF/ICC Transformation Order, 26 FCC Rcd at 17715, para. 133.

252 Id. at 17723, para. 150. In 2013, price cap carriers had to use at least one-third of their frozen high-cost support

for this purpose; in 2014, they must use at least two-thirds of their frozen high-cost support for this purpose; and for

2015 and subsequent years, all of their frozen support must be used for this purpose. Id.

253 See id. at 17738-40, paras. 194-204.

254 Id. at 17738, para. 194.

255 Id. at 17740-41, paras. 206-08. The Commission declined to disturb pre-existing state processes for determining

whether requests to extend voice service are reasonable. Id. at paras. 206-09. The Commission explained that it is

“funding a broadband-capable voice network,” so “to the extent states retain jurisdiction over voice service, states

will have jurisdiction to monitor [rate-of-return] carriers’ responsiveness to customer requests for service” over that

network. Id. at 17741, para. 208; see also ETC Designation Process Order, 20 FCC Rcd at 6380, para. 21 (stating

that states “should determine, pursuant to state law, what constitutes a ‘reasonable request’ for service”). Indeed, the

Commission “expect[s] that rate-of-return carriers will follow pre-existing state requirements, if any, regarding

service line extensions in their highest-cost areas.” USF/ICC Transformation Order, 26 FCC Rcd at 17741, para.

209. The Commission will monitor ETCs’ progress in deploying broadband-capable networks in part through the

annual reporting process. See id. at 17740-41, para. 206; 47 C.F.R. § 54.313(a)(3).

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conditions.256 It argues that these conditions constitute “common-carrier regulation,” and that because

broadband is classified as a Title I information service, the Commission is precluded from imposing such

conditions on support pursuant to section 3(51) of the Act.257 That section provides, in relevant part, that

“[a] telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent

that it is engaged in providing telecommunications services.”258

120.

Discussion. The broadband public interest conditions that the USF/ICC Transformation

Order imposes on the receipt of federal universal service subsidies do not constitute a per se common

carrier obligation. After the USF/ICC Transformation Order, as before, carriers or their affiliated Internet

Service Providers259 are free to offer or decline to sell broadband Internet access service to any end user.

Carriers need not hold themselves out to offer service indiscriminately to anyone. Instead, carriers only

have to provide broadband service to a customer if the carrier seeks designation as an ETC from a state

commission or the FCC and requests federal subsidies.260 As such, the USF/ICC Transformation Order

imposes funding conditions,261 not “regulation” – and certainly not a per se common carrier obligation.

Indeed, as the United States Court of Appeals for the Tenth Circuit has explained, conditions placed on

the receipt of federal universal service subsidies – even though they may be similar to the duties imposed

on common carriers – do not amount to a per se common carrier obligation because carriers voluntarily

assume the conditions in the first instance and “retain[] the ability to opt out of them entirely by declining

… federal universal service subsidies.”262 USTelecom concedes that price cap carriers “may decline

[Connect America] Phase I incremental support if they ‘cannot meet [the Commission’s] broadband

256 USTelecom Dec. 29, 2011 Petition at 11; see also Comments of AT&T, WC Docket 10-90 et al., at 27-28 (filed

Feb. 9, 2012).

257 USTelecom Dec. 29, 2011 Petition at 11 (citing 47 U.S.C. § 153(51) and Appropriate Framework for Broadband

Access to the Internet over Wireline Facilities et al., CC Docket No. 02-33 et al., Report and Order et al., 20 FCC

Rcd 14853, 14855-56, paras. 1-3 (2005)). USTelecom also raises arguments about whether the Commission’s

universal service reforms provide sufficient funding for carriers to meet the broadband public service conditions.

USTelecom Dec. 29, 2011 Petition at 10. We do not address these arguments at this time.

258 47 U.S.C. § 153(51).

259 See Connect America Fund, WC Docket No. 10-90, Order, 28 FCC Rcd 7227, 7228-29, para. 6 (Wireline Comp.

Bur. 2013).

260 See 47 U.S.C. § 214(e)(2),(6).

261 It is well-established that the federal government may impose conditions on universal service subsidies. See

United States v. Am. Library Ass’n, Inc., 539 U.S. 194, 211-12 (2003) (upholding the requirement that public

libraries use Internet filters as a condition on the receipt of federal universal service subsidies); Qwest Commc’ns

Int’l v. FCC, 398 F.3d 1222, 1238 (10th Cir. 2005) (affirming the Commission’s authority to condition universal

service support on state commission certification that local telephone rates are “reasonably comparable”); Tex.

Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 444 (5th Cir. 1999) (affirming the Commission’s authority to

condition federal universal service support on state-established discount rates for intrastate services provided to

schools, libraries, and rural health care providers). Absent the performance metrics and rate comparisons included

in the broadband public interest conditions, the Commission would have no means to ensure that federal universal

service subsidies are being used, as required by section 254(b)(1)-(3) of the Act, to deploy “in all regions of the

Nation” networks capable of providing affordable voice and broadband services that are reasonably comparable – in

terms of rates and quality – to voice and broadband in urban areas. See USF/ICC Transformation Order, 26 FCC

Rcd at 17695, 17696, 17703, 17708, paras. 87, 91, 106, 113; 47 U.S.C. § 254(b)(1)-(3).

262 WWC Holding Co. v. Sopkin, 488 F.3d 1262, 1274 (10th Cir. 2007); cf. Cellco P’ship v. FCC, 700 F.3d 534, 542-

43 (D.C. Cir. 2012) (finding that the rule at issue did not “mandate[] the provision of service,” it “merely defines the

form . . . [the] service must take for those who seek a license to offer it,” on the ground that the petitioner, “[l]ike

any other entity, . . . may choose not to provide . . . service”).

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deployment requirement’ and may decide not to accept [Connect America] Phase II support.”263 The

same holds true with respect to legacy support – price cap carriers have the option of declining legacy

high-cost support if they do not want to comply with the broadband public interest conditions in the

USF/ICC Transformation Order.

121.

We are not persuaded by the argument that the broadband public interest obligations are

not a voluntarily assumed condition on the receipt of federal subsidies because incumbent LECs cannot

recover the costs they incur fulfilling various other regulatory obligations in the absence of high-cost

universal service support and, therefore, incumbent LECs have no choice but to comply with the

broadband public interest conditions.264 Implicit in this argument is the notion that incumbent LECs are

entitled to universal service subsidies. The Commission considered and rejected a variation on this

argument, which is analogous to a takings claim, in the USF/ICC Transformation Order.265 Indeed,

consistent with our view, reviewing courts have uniformly rejected similar entitlement claims,

recognizing that the “purpose of universal service is to benefit the customer, not the carrier.”266

122.

Moreover, all incumbent LECs are subject to regulatory obligations as incumbents,

irrespective of whether they receive high-cost universal service support. Thus, those obligations, which

are distinct from the universal service objectives of section 254, do not entitle some subset of incumbent

LECs to high-cost universal service support.267 Further, incumbent LECs recover the costs associated

with many of those obligations from other sources.268 Accordingly, we do not agree that incumbent LECs

have no choice but to comply with the broadband public interest conditions because they will not be able

to recover their costs in the absence of federal subsidies.

123.

Likewise, we do not share the view that support is not “‘sufficient . . . to preserve and

advance universal service.’”269 The Commission explained, at length, the basis of its predictive judgment

that federal universal service subsidies would be sufficient to support both voice and broadband in the

263 USTelecom Dec. 29, 2011 Petition at 9 (citing USF/ICC Transformation Order, 26 FCC Rcd at 17720, 17726,

paras. 144, 160).

264 Dissent at 9-10.

265 See USF/ICC Transformation Order, 26 FCC Rcd at 17770-71, paras. 293-94.

266 Rural Cellular Ass’n, 588 F.3d at 1103 (quoting Alenco Commc’ns, Inc. v. FCC, 201 F.3d 608, 621 (5th Cir.

2000)).

267 See Dissent at 10.

We find no distinction between conditions on support distributed under the new funding

mechanisms and conditions on legacy high-cost universal service support. Dissent at 10 n.60. All incumbent LECs

are subject to specific regulatory obligations (e.g., the duty to provide Lifeline service), irrespective of whether they

receive high-cost universal service support or the source of such support (i.e., from legacy or new funding

mechanisms).

268 For example, the Commission reimburses incumbent LECs for their provision of Lifeline service through a low-

income universal service program that is distinct from the high-cost universal service program addressed in the

USF/ICC Transformation Order and this Seventh Order on Reconsideration. Likewise, state commissions, pursuant

to section 252(d)(1) of the Act, typically establish rates that allow an incumbent LEC to recover the costs associated

with its obligation to provide interconnection, unbundled network elements, and collocation pursuant to a federal

methodology. 47 U.S.C. § 252(d)(1); 47 C.F.R. pt. 51, subpt. F. Hence, a reduction in high-cost support should

have no bearing on the incumbent LEC’s ability to recover the costs associated with its provision of service to low-

income customers, or interconnection and unbundled network elements to its competitors.

Moreover, incumbent

LECs that opt out of the broadband public interest conditions can request other means of cost recovery (e.g., rate

increases, state universal service funding, etc.) from the relevant regulatory body (i.e., a state commission or the

Federal Communications Commission) to compensate for reductions in their high-cost universal service support to

the extent actually needed.

269 Dissent at 10, citing 47 U.S.C. § 254(b)(5).

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USF/ICC Transformation Order,270 and nothing leads us to reconsider that determination. As the courts

have held, consumers are the intended beneficiaries of universal service subsidies.271 Properly viewed

from the customer’s perspective, the evidence demonstrates that support is sufficient for purposes of

section 254(b)(5).

124.

Marketplace trends since the Commission adopted the USF/ICC Transformation Order

support the Commission’s conclusion that support is sufficient to meet the broadband public interest

obligations. For example, there has been an increase in broadband deployment by incumbent LECs, both

price-cap and rate-of-return carriers.272 Likewise, there have been increases in both broadband273 and

telephone274 penetration rates since the adoption of the USF/ICC Transformation Order. If support was

insufficient we would expect those rates to stagnate or decline. We also find no evidence that the

broadband public interest obligations have proved to be too onerous for incumbent LECs. To the

contrary, since the Commission adopted the USF/ICC Transformation Order in 2011, only 14 out of the

nation’s approximately 740 rate-of-return carriers have sought waivers of universal service support

reductions.275 Given the dearth of such waiver requests, we find no merit to the claim that we are

providing incumbent LECs insufficient support to satisfy the broadband public interest conditions.

125.

Even if the broadband public interest conditions amounted to regulation, which they do

not, they fall far short of a per se common carrier obligation. The D.C. Circuit has held that a carrier is

“being relegated to common carrier status” if that carrier “is forced to offer service indiscriminately and

on general terms.”276 USTelecom’s petition for reconsideration, which lacks any discussion of how the

broadband public interest conditions are commensurate with a per se common carrier obligation under

Title II of the Act,277 fails to demonstrate that those conditions impose such a duty on universal service

support recipients. After the USF/ICC Transformation Order, as before, providers are free to set their

own prices for broadband service and may charge different rates to different end-user customers. Indeed,

the broadband public interest conditions only require ETCs to offer broadband service if they request

federal subsidies,278 and then to do so at rates in rural areas that are “reasonably comparable” to those in

270 USF/ICC Transformation Order, 26 FCC Rcd at 17710-12, 17768-71, paras. 121-26, 285-94.

271 Alenco, 201 F.3d at 620; see also Rural Cellular Ass’n., 588 F.3d at 1103 (“So long as there is sufficient and

competitively-neutral funding to enable all customers to receive basic telecommunications service, the FCC has

satisfied the Act and is not further required to ensure sufficient funding of every local telephone provider as well.”).

272 Universal Service Implementation Progress Report at Figure 14. The Commission has consistently used 3

Mbps/768 kbps as a proxy for 4 Mbps downstream/1 Mbps upstream broadband service. See, e.g., USF/ICC

Transformation Order, 26 FCC Rcd at 17701, para. 103 n.168.

273 Universal Service Implementation Progress Report at Figure 13.

274 Wireline Competition Bureau Universal Service Monitoring Report (Data Through October 2013), Table 3.1,

available at: http://transition.fcc.gov/Bureaus/Common_Carrier/Reports/FCCState_Link/Monitor/

2013_Monitoring_Report.pdf.

275 Id. at Figure A1. There are just over 1,000 study areas served by rate-of-return carriers in the United States.

276 Verizon v. FCC, 740 F.3d 623, 652 (D.C. Cir. 2014) (citing Cellco P’ship, 700 F.3d at 547).

277 See USTelecom Dec. 29, 2011 Petition at 11.

278 Cf. Verizon, 740 F.3d at 656 (explaining that the regulation affirmed in United States v. Southwestern Cable Co.,

392 U.S. 157 (1968), which “compelled cable operators to transmit the signals of local broadcasters when cable

operators imported the competing signals of other broadcasters into the local service area,” did not constitute a per

se common carriage obligation because it was conditional – specifically, it “imposed no obligation on cable

operators to hold their facilities open to the public generally, but only to certain specific broadcasters if and when

the cable operators acted in ways that might harm those broadcasters”).

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urban areas.279 In other words, ETCs are free to offer their broadband services on terms they choose, and

may offer different pricing structures to different areas of the country, subject only to the condition that

the rates they offer in rural areas fall within a “reasonable range of urban rates for reasonably comparable

broadband service.”280

126.

If, for example, a customer such as a community anchor institution negotiated terms and

pricing for broadband services with an ETC to address the unique needs of that institution, the USF/ICC

Transformation Order does not then require the ETC to offer those same terms to any – let alone all – of

the ETC’s other customers.281 As such, the broadband public interest conditions “leave[] substantial room

for individualized bargaining and discrimination in terms,” distinguishing them from common carriage.282

C.

Elimination of the Benchmarking Rule

127.

Background. In the USF/ICC Transformation Order, the Commission reformed HCLS

by adopting a benchmarking rule that, for the first time, placed limits on capital and operating expenses

eligible for reimbursement from HCLS and redistributed freed-up HCLS to carriers that stay within these

limits.283 The objective of the benchmarking rule was twofold: to create incentives for rate-of-return

carriers with higher expenditures than their similarly situated peers to moderate their expenditures284 and

279 USF/ICC Transformation Order, 26 FCC Rcd at 17708, para. 113; see also 47 U.S.C. § 254(b)(3) (“Consumers

in all regions of the Nation . . . should have access to telecommunications and information services . . . that are

available at rates that are reasonably comparable to rates charged for similar services in urban areas.”).

280 USF/ICC Transformation Order, 26 FCC Rcd at 17708, para. 113. The Commission delegated authority to the

Wireline Competition Bureau and Wireless Telecommunications Bureau to conduct an annual survey to “derive a

national range of rates for broadband service.” Id. at para. 114; see also Cellco P’ship, 700 F.3d at 540, 548 (finding

that the data roaming rule, which requires wireless telephone companies to “offer data roaming arrangements on

commercially reasonable terms and conditions” but allows providers to “tailor roaming agreements to

‘individualized circumstances without having to hold themselves out to serve all comers indiscriminately on the

same or standardized terms,’” does not impose common carrier requirements); but see Verizon, 740 F.3d at 657

(holding that “[i]f the Commission will likely bar broadband providers from charging edge providers for using their

service, thus forcing them to sell this service to all who ask at a price of $0, we see no room at all for ‘individualized

bargaining’”) (citing Cellco P’ship, 700 F.3d at 548).

281 USF/ICC Transformation Order, 26 FCC Rcd at 17700, para. 102 n.164 (noting that the Commission expects

“ETCs would provide higher bandwidth offerings to community anchor institutions in high-cost areas at rates that

are reasonably comparable to comparable offerings to community anchor institutions in urban areas”).

282 Cellco P’ship, 700 F.3d at 548. We thus do not agree that the broadband public interest obligations “smack of

common carriage” simply because those conditions impose some constraints on broadband rates and service quality.

Dissent at 8-9. Comparing the broadband public interest conditions to the obligations associated with an ETC’s duty

to provide “voice telephony service” further underscores that the former does not constitute per se common carrier

regulation. “Voice telephony service” is the only service that receives high-cost universal service support under

section 254(c)(1) of the Act and the USF/ICC Transformation Order. See USF/ICC Transformation Order, 26 FCC

Rcd at 17684, 17693, 17776, paras. 62, 80, 309. To be eligible for support, “a common carrier designated as an

eligible telecommunications carrier . . . shall, throughout the service area for which the designation is received, offer

the services that are supported by Federal universal service support mechanisms under section 254(c) . . . and

advertise the availability of such services and the charges therefor using media of general distribution.” 47 U.S.C. §

214(e)(1)(A)-(B). The broadband public interest conditions in the USF/ICC Transformation Order do not impose

those duties on an ETC’s provision of broadband facilities and services.

283 USF/ICC Transformation Order, 26 FCC Rcd at 17741-42, 17744-45, paras. 210, 219.

284 The Commission delegated to the Bureau the authority to adopt and implement a methodology within the

parameters set forth by the Commission, after receiving public input in response to the proposal. See USF/ICC

Transformation Order, 26 FCC Rcd at 17743-44, 17747, paras. 214, 217, 226; 47 C.F.R. § 36.621(a)(5). In the

April 2012 HCLS Benchmarks Implementation Order, the Bureau adopted a QRA methodology for establishing

benchmarks for capital expenses (capex) and operating expenses (opex) to be used in the formula that determines

(continued...)

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to encourage other rate-of-return carriers to invest in and advance the deployment of voice and

broadband-capable networks by redistribution of support to carriers that did not exceed their

benchmarks.285

128.

In the February 2013 Sixth Order on Reconsideration, the Commission reconsidered

some aspects of the benchmarking rule.286 WTA, ERTA, and NECA (the Rural Associations) filed a

petition for reconsideration of that Order.287 In their petition, the Rural Associations claim that the current

benchmarking methodology results in unpredictable support and discourages investment in

telecommunications and broadband infrastructure; they urge the Commission to reconsider its conclusion

that the rule produces predictable support, or use at a minimum benchmarks solely as a trigger to

determine if a carrier’s costs require further examination.288

129.

Subsequently, the Bureau implemented a data collection to update study area boundaries

used in developing the geographical variables in the regression analysis.289 In July 2013, the Bureau took

(Continued from previous page)

HCLS for each rate-of-return cost company study area. Connect America Fund et al., WC Docket No. 10-90 et al.,

Order, 27 FCC Rcd 4235, 4238, para. 10 (Wireline Comp. Bur. 2012) (HCLS Benchmarks Implementation Order).

285 See USF/ICC Transformation Order, 26 FCC Rcd at 17745, para. 220.

286 See Connect America Fund et al., WC Docket No. 10-90 et al., Sixth Order on Reconsideration et al., 28 FCC

Rcd 2572 (2013) (Sixth Order on Reconsideration). Specifically, the Commission directed the Bureau to develop a

regression methodology that would generate a single total loop cost cap for each study area beginning in 2014. See

id. at 2581-83, paras. 24-28. As an interim measure toward a single cost cap, the Commission directed the Bureau to

sum capex and opex caps generated by its current methodology for purposes of calculating 2013 HCLS support. See

id. at 2583, para. 29; Wireline Competition Bureau Releases New High-Cost Loop Support Benchmarks for 2013,

WC Docket No. 10-90 et al., Public Notice, 28 FCC Rcd 3256 (Wireline Comp. Bur. 2013) (2013 Benchmarks

Public Notice) (providing new benchmarks for 2013 based on sum of capex and opex caps). The Commission also

modified the phase-in of the benchmarks for 2013 to provide carriers additional time to adjust to the changes. See

Sixth Order on Reconsideration, 28 FCC Rcd at 2583-84, para. 30. Further, the Commission reconsidered the

requirement that the benchmark regression be updated annually to generate new coefficients, and delegated

determination of the frequency for running the regression analysis to the Bureau. See id. at 2578-79, para. 16. As a

result of these modifications, 75 out of 747 study areas were capped by the benchmarks from April to June 2013.

See 2013 Benchmarks Public Notice, 28 FCC Rcd at 3256.

287 See Petition for Reconsideration of the WTA et al., WC Docket No. 10-90 et al. (filed Apr. 18, 2013) (Rural

Associations Apr. 18, 2013 Petition). The Small Company Coalition and NTCA filed comments in support of the

Rural Associations’ petition. See Comments of the Small Company Coalition, WC Docket No. 10-90 et al. (filed

June 3, 2013); Reply of NTCA to Oppositions to the Rural Associations Apr. 18, 2013 Petition, WC Docket No. 10-

90 et al. (filed June 11, 2013). The Arctic Slope Telephone Association Cooperative, Inc. (ASTAC) and Copper

Valley Telephone Cooperative (CVTC) also filed an untimely petition for reconsideration (improperly styled as an

application for review) of the Sixth Order on Reconsideration, claiming that there were Alaska-specific flaws in the

QRA’s climate variable. Application for Review of Arctic Slope Telephone Association Cooperative, Inc. and

Copper Valley Telephone Cooperative, WC Docket No. 10-90 et al. (filed May 20, 2013) (ASTAC and CVTC

Application for Review).

288 Rural Associations Apr. 18, 2013 Petition at 6-22.

289 The Bureau required that state commissions choosing to submit study area boundaries for incumbent carriers

within their states do so by June 28, 2013 and that carriers whose state commissions were not submitting data submit

study area boundaries by May 23, 2013. Wireline Competition Bureau Announces Brief Delay in Activation of Study

Area Boundary Collection Site, WC Docket No. 10-90 et al., Public Notice, 28 FCC Rcd 5704 (Wireline Comp. Bur.

2013). The Bureau published an online map of the submitted study area boundaries on December 2, 2013, and

requested that carriers review the map, resolve any overlaps and gaps with neighboring incumbents, and resubmit

modified data as necessary. Wireline Competition Bureau Publishes Online Map of Submitted Study Area

Boundaries, Announces Procedures for Filing Revised Data, WC Docket No. 10-90 et al., Public Notice, 28 FCC

Rcd 16315 (Wireline Comp. Bur. 2013). The deadline for updates was March 17, 2014. Id. at 16318.

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several additional measures to provide greater clarity regarding the support amounts that rate-of-return

carriers would receive in 2014.290

130.

Discussion. We remain firmly committed to the goal of ensuring that universal service

support is utilized efficiently to preserve voice and extend broadband-capable networks in high-cost areas

in rural America. As discussed in the USF/ICC Transformation Order, the Commission has taken steps

to reform the universal service mechanisms that support rate-of-return carriers “to address the misaligned

incentives” of the previous regime “by correcting program design flaws, extending successful safeguards,

ensuring basic fiscal responsibility, and closing loopholes to ensure our rules reward only prudent and

efficient investment in modern networks.”291

131.

We now conclude, however, that the benchmarking rule is not effectively advancing

those objectives. When the Commission adopted the benchmarking rule in the USF/ICC Transformation

Order,292 it anticipated that the rule would encourage carriers to make fiscally responsible investments in

their infrastructure and that the support redistributed by the rule would encourage new investment in

voice and broadband-capable networks.293 Based on our further experience with the rule, however, we

conclude that it is not functioning as originally intended. Therefore, on reconsideration, we eliminate the

benchmarking rule.294

132.

We now find that the rule unintentionally has encouraged carriers that were not subject to

the benchmarks to believe that they too needed to limit their investment in broadband-capable

networks.295 This was due in part to the fact that the new rule relied on a statistical methodology that was

unfamiliar to many affected stakeholders.

133.

The evidence before us does not permit us to draw a firm conclusion regarding the actual

impact of the rule in question; much of the concern appears to be focused on potential other reforms that

might be implemented in the future. A number of trade associations, carriers, and consultants have

expressed to the Commission that the benchmarking rule has been discouraging investment.296

According

to the Rural Associations, 69 percent of the NTCA members that responded to a survey stated that they

were “postponing or cancelling fixed network upgrades” due to “uncertainty surrounding” the

290 See Connect America Fund et al., WC Docket No. 10-90 et al., Order, 28 FCC Rcd 10999 (Wireline Comp. Bur.

2013). The Bureau concluded it would use the same regression coefficients for 2014 that were previously used for

2012 and 2013. Id. at 11003-04, para. 13. The Bureau also delayed the phase-in of support reductions for one year

rather than making the reductions fully effective in 2014, and it waived the benchmarking rule for rate-of-return

study areas in Alaska for 2014. Id. at 11004-05, paras. 14-17.

291 USF/ICC Transformation Order, 26 FCC Rcd at 17769, para. 288.

292 See id. at 17741-42, para. 210; Sixth Order on Reconsideration, 28 FCC Rcd at 2572-73, para. 2.

293 See Sixth Order on Reconsideration, 28 FCC Rcd at 2574, para. 4.

294 We also conclude that we will not extend the current benchmarking rule to the ICLS mechanism. See USF/ICC

Transformation FNPRM, 26 FCC Rcd at 18061-62, paras. 1085-88.

295 The number of uncapped study areas far exceeds the number of capped study areas. Universal Service

Implementation Progress Report at Figure A2.

296 See, e.g., Comments of John Staurulakis, Inc. on Rate of Return Represcription Staff Report, WC Docket No. 10-

90 et al., at 4 (filed July 25, 2013); Comments of USTelecom, WC Docket No. 10-90, at 8 (filed June 17, 2013);

Letter from Brenda Shepard, Chief Executive Officer, TelAlaska, Inc., to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90 et al., at 1 (filed Mar. 4, 2013); Letter from Stephen G.

Kraskin, Communications Advisory Counsel LLC, to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 10-90 et al., at 1 (filed Sept. 16, 2013); Letter from Vincent H. Wiemer, Principal,

Alexicon Consulting, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-

90 et al., Attach. at 21 (filed Sept. 5, 2013).

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benchmarking rule and other reforms in the USF/ICC Transformation Order.297 On the other hand, the

Bureau’s Universal Service Implementation Progress Report noted that in the year following the April

2012 implementation of the benchmarking rule, there was a 10 percent increase in the number of census

bocks reported by rate-of-return carriers in which service at speeds of at least 3 Mbps/768 kbps was

available.298 Investment thus has continued to occur post-USF/ICC Transformation Order, and we would

expect the steps we take today will lead to even greater investment in the deployment of next-generation

broadband networks.

134.

While the Bureau staff and affected stakeholders have proceeded in good faith to

implement the directives of the Commission in the Sixth Order on Reconsideration,299 we anticipate it still

would take many months for the Bureau develop new regressions, seek public input on potential

equations, and finalize the methodology to be used to calculate support in 2014 and beyond. No party has

provided any concrete suggestions as to what standards should be applied to determine excessive costs if

the benchmarking rule were used as a trigger for further examination of costs. Thus, we decline to adopt

the Rural Associations’ suggestion that we use the QRA as a trigger to determine if a carrier’s costs

require further examination,300 although we are firmly committed to developing standards for what are

reasonable and appropriate investments for rate-of-return carriers. We now conclude that eliminating the

benchmarking rule at this time is a prudent step that should enable rate-of-return carriers to evaluate

realistically the impact of the reforms adopted in the USF/ICC Transformation Order on their business

operations and extend broadband-capable infrastructure where economically appropriate. As a result of

this decision, carriers’ HCLS support will no longer be capped by benchmarks calculated using the QRA

methodology. Instead, we are leaving in place the HCLS mechanism that the Rural Associations

themselves argue is predictable,301 while we continue to evaluate alternative ways to ensure that rate-of-

return carriers have structural incentives to operate efficiently and make prudent expenditures with

universal service support.

135.

With the elimination of the benchmarking rule, carriers’ HCLS support will be

distributed as it previously had been prior to the USF/ICC Transformation Order.302 Nothing in today’s

decision disturbs the other rules governing eligibility for HCLS, such as the HCLS indexed cap, which

limits the total amount of HCLS provided to rate-of-return carriers and has been in effect for decades.303

297 Rural Associations Apr. 18, 2013 Petition at 6. 185 NTCA member companies responded to the survey. Letter

from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90 et al., Attach. at 18-19 (filed July 24, 2013) (submitting the

white paper by Simon J. Wilkie, “An Economic Analysis of the FCC’s Modifications to the High-Cost Loop

Support Mechanism” (July 2013)). See also Letter from Michael R. Romano, Senior Vice President – Policy,

NTCA, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90 et al., at 2

(filed Nov. 19, 2013).

298 Universal Service Implementation Progress Report at Figure 14.

299 See, e.g., Letter from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch,

Secretary, Federal Communications Commission, WC Docket No. 10-90 et al. (filed July 19, 2013); Letter from

Michael R. Romano, Senior Vice President – Policy, NTCA – The Rural Broadband Association, to Marlene H.

Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90 et al. (filed May 31, 2013) (both

letters, discussing issues with QRA identified by NTCA et al.).

300 Rural Associations Apr. 18, 2013 Petition at 18-22.

301 Id. at 13.

302 The elimination of the QRA benchmarks shall become effective as of the first of the month following publication

of a summary of this order in the Federal Register.

303 In the Report and Order, we move the current HCLS rules from Subpart F of Part 36 to a new Subpart M within

Part 54 in order to consolidate all universal service rules in one location. We seek comment in the FNPRM below

on certain modifications to the current HCLS rules.

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Likewise, the $250 monthly per-line cap on total high-cost federal universal service support and the

corporate operations expense limitations for ICLS remain in place for all rate-of-return carriers.304

136.

We continue to have significant concerns with the “race to the top” incentives that exist

under the HCLS rule.305 Given the perception of and concerns with the benchmarking rule, however, we

conclude it is appropriate to eliminate it while we consider options to increase incentives for efficient

investment of universal service funds. We will press forward with efforts to ensure that these funds are

disbursed efficiently and in the public interest. Such efforts are essential if we are to remain within the

budget framework established by a unanimous Commission in the USF/ICC Transformation Order.306

We seek comment in the FNPRM below on several specific reforms to the existing support mechanisms

for rate-of-return carriers, while inviting additional proposals that will create an appropriate framework

for network investment and expansion over the longer term.

137.

ASTAC and CVTC’s Application for Review. We also take this opportunity to dismiss

ASTAC and CVTC’s untimely filed application for review of the Sixth Order on Reconsideration.307 The

Sixth Order on Reconsideration was not properly subject to an application for review, because it was

adopted by the Commission and not by the Bureau on delegated authority.308 Moreover, even if we were

to treat the application as a petition for reconsideration, we dismiss the pleading pursuant to section

1.429(d) and (i) of the Commission’s rules.309 Not only does the application address an issue that is

wholly unrelated to and outside the scope of the Sixth Order on Reconsideration (the QRA’s climate

variable), but the application was also filed 30 days late – petitions for reconsideration must be filed

within 30 days of public notice,310 and whereas the Sixth Order on Reconsideration was published in the

Federal Register on March 19, 2013, the application for review was not filed until May 18, 2013.311

304 See 47 C.F.R. § 54.302; USF/ICC Transformation Order, 26 FCC Rcd at 17747-48, 17764-66, paras. 227-33,

272-79; see also Connect America Fund et al., WC Docket No. 10-90 et al., Order, 28 FCC Rcd 3319, 3332, para.

29 (Wireline Comp. Bur. 2013).

305 USF/ICC Transformation Order, 26 FCC Rcd at 17742, para. 211.

306 In that order, the Commission concluded that if actual program demand exceeded $4.5 billion for any consecutive

four quarters, the Bureau would be required to initiate a process to return expenditures to budgeted levels. Id. at

17847-48, para. 563.

307 See ASTAC and CVTC Application for Review.

308 See 47 C.F.R. § 1.115(a) (providing that a party may file an application for review by the Commission of “any

action taken pursuant to delegated authority”).

309 47 C.F.R. § 1.429(d), (i).

310 47 C.F.R. § 1.429(d); see 47 U.S.C. § 405(a).

311 See Sixth Order on Reconsideration, 78 Fed. Reg. 16808 (Mar. 19, 2013). We deny ASTAC and CVTC’s

request that the Commission grant an exception to the 30-day filing rule because of the complexity of calculations

required for exhibits supporting their pleading. See ASTAC and CVTC Application for Review at 3, Exh. B & C.

Courts have discouraged the Commission from considering an untimely filed petition for reconsideration, see, e.g.,

Virgin Islands Telephone Corp. v. FCC, 989 F.2d 1231, 1237 (D.C. Cir. 1993), and we waive the rule only in

“extremely unusual circumstances.” See, e.g., Warren C. Havens, Applications to Provide Automated Maritime

Telecommunications System Stations at Various Locations in Texas, and Applications to Provide Automated

Maritime Telecommunications System Stations at Chaffee, Aspen, Colorado Springs, Copper Mountain, and

Leadville, Colorado, Memorandum Opinion and Order, 23 FCC Rcd 3210, 3212, para. 7 (2008); see also 21st

Century Telesis Joint Venture v. FCC, 318 F.3d 192, 199-200 (D.C. Cir. 2003). The circumstances cited by ASTAC

and CVTC do not support an exception to the 30-day filing rule. The calculations required for the exhibits are

nothing more than basic division and the use of the regression function in a spreadsheet program. Further, the HCLS

Benchmarks Implementation Order was likely the source of the data used in the calculations, and these data were

(continued...)

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VIII.

FURTHER NOTICE OF PROPOSED RULEMAKING

A.

Public Interest Obligations

138.

Evolving Speed Obligations. Consistent with the Commission’s authority in section

254(e) of the Communications Act, the Commission supports the deployment of voice and broadband-

capable networks in furtherance of the section 254(b) objective that residents in all parts of the country,

including rural and high-cost areas, have access to advanced telecommunications and information

services.312 In the USF/ICC Transformation Order, the Commission committed to initiating a proceeding

no later than the end of 2014 to review the broadband service performance requirements established for

the Connect America Fund.313 Today, we initiate that proceeding. In particular, we propose to increase

the minimum broadband speeds that we seek to achieve with universal service funding to 10 Mbps

downstream. We seek comment on this proposal, as well as the consequences and tradeoffs involved in

raising the standard, including the ability to preserve and advance broadband service for consumers

within the Connect America budget. We also seek comment on whether to increase the upstream speed

requirement to something higher than 1 Mbps. The new speed standards would apply generally to all

recipients of high-cost support that are subject to broadband public interest obligations: ETCs that elect

model-based Phase II support, ETCs that receive Phase II support through the competitive bidding

process, and rate-of-return ETCs that receive support through legacy mechanisms and CAF-ICC

support.314

139.

In the USF/ICC Transformation Order, the Commission established a speed benchmark

for broadband of 4 Mbps/1 Mbps, with speeds for the later years of an anticipated 2012-2017 timeframe

increasing to 6 Mbps downstream and 1.5 Mbps upstream (6 Mbps/1.5 Mbps).315 The marketplace for

broadband has continued to evolve since the adoption of the USF/ICC Transformation Order. At the time

of the adoption of the USF/ICC Transformation Order, Phase II model-based support was expected to

begin in 2013 and run until 2017. With model-based support now likely to be disbursed in the 2015-2019

timeframe, it is appropriate to reevaluate the speed benchmark in light of the most recent data.

140.

We propose a new downstream speed standard of 10 Mbps to further the statutory goal of

ensuring that consumers in rural parts of the country have access to advanced telecommunications and

information services that are reasonably comparable to those services available in urban areas.316 The

(Continued from previous page)

published on the Commission’s website on April 25, 2012 – thus the carriers had a year to work with the data. See

generally HCLS Benchmarks Implementation Order.

312 47 U.S.C. § 254(b), (e).

313 USF/ICC Transformation Order, 26 FCC Rcd at 17703, para. 106.

314 While competitive ETCs may receive high-cost support while the legacy identical support rule is phased out, they

do not have accompanying broadband deployment obligations. Thus, this proposed speed benchmark would have

no effect on competitive ETCs. These changes to the obligations would also not apply to previously-made

deployment commitments, such as commitments in connection with Connect America Phase I and Mobility Fund

Phase I, which provided one-time, rather than recurring, support. Recipients of Connect America Phase I and

Mobility Fund Phase I funding remain bound to their original obligations.

315 USF/ICC Transformation Order, 26 FCC Rcd at 17726, para. 162.

316 47 U.S.C. § 254.

Some parties have expressed concerns over proposing a higher speed standard. See, e.g., Letter

from Dave Cohen, Vice President – Policy, USTelecom to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 10-90, at 1-2 (filed Apr. 11, 2014) (USTelecom Apr. 11, 2014 Ex Parte); Letter from

Jonathan Banks, Senior Vice President – Law and Policy, USTelecom, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90 (filed Apr. 16, 2014); Letter from Michael D. Saperstein,

Vice President – Federal Regulatory Affairs, Frontier Communications, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 10-90 (filed Apr. 16, 2014); Letter from Micah M. Caldwell, Vice

President – Regulatory Affairs, ITTA, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC

(continued...)

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most recent round of State Broadband Initiative (SBI) data show that nearly all persons living in urban

areas have access to fixed broadband with downstream speeds of at least 10 Mbps.317 SBI data as of June

2013 indicate that only two percent of the population residing in urban census blocks lack access to fixed

broadband with speeds of 10 Mbps downstream/768 kbps upstream. In contrast, the SBI data indicate

that 33 percent of the population residing in rural census blocks lack access to fixed broadband providing

10 Mbps/768 kbps speeds.318

141.

SBI data also show that urban users have greater access to higher upstream speeds than

rural users.319 Given the statutory goal of reasonable comparability, should we set an upstream speed

requirement for universal service purposes at a level higher than 1 Mbps, such as 2 Mbps? We

specifically seek comment on whether 1 Mbps upstream will provide sufficient bandwidth for residential

consumers to take advantage of applications and services that advance critical public purposes such as

education and healthcare. In the recent Rural Broadband Workshop, some parties suggested that upload

speeds higher than 1 Mbps were necessary to support certain telehealth applications.320 To the extent

commenters argue that we should set a different upstream benchmark than 1 Mbps for universal service

purposes, they should provide specific examples of the applications and services that require such

upstream capability for residential consumers.

142.

In proposing to increase the current broadband downstream speed benchmark, we are

primarily focusing on the minimum standard for new deployments of broadband-capable infrastructure.321

Our goal is to ensure that Connect America funding is used efficiently, going forward, to deploy networks

that are capable of scaling to higher speeds over time, as consumer demand warrants. By proposing a

new speed benchmark, we do not intend to suggest that ETCs must deliver such speeds immediately upon

(Continued from previous page)

Docket No. 10-90 (filed Apr. 16, 2014). Parties suggested that an increase in speed should be accompanied by

changes to Phase II support, such as extending the term of support to 10 years. See, e.g., USTelecom Apr. 11, 2014

Ex Parte at 2-3. We seek comment on this proposal, and also encourage parties to submit other suggestions as to

how Phase II support might be modified in light of a higher speed benchmark.

317 Anne Neville, Working to Provide a Better National Broadband Map, National Broadband Map (Feb. 20, 2014),

http://www.broadbandmap.gov/blog/. See also National Broadband Map, http://www.broadbandmap.gov/ (last

visited Apr. 23, 2014).

318 See National Broadband Map, http://www.broadbandmap.gov/ (last visited Apr. 23, 2014). A similar trend can

be seen in NTIA’s annual reports. NTIA, Broadband Statistics Report 8 (Feb. 2014), http://www2.ntia.doc.gov/

files/broadbanddata/Broadband_Availability_in_Rural_vs_Urban_Areas_June2013.pdf . See also Office of Science

and Technology Policy and The National Economic Council, Executive Office of the President, Four Years of

Broadband Growth, at 3 (2013), http://www.whitehouse.gov/sites/default/files/broadband_report_final.pdf (“[W]e

acknowledge that the country is rapidly reaching the point at which baseline broadband evaluations should increase,

and might instead begin at 10 Mbps downstream. This evolving baseline reflects a growing need for increased

bandwidth as more Americans use the Internet for work and to build career skills.”).

319 SBI data indicate that, when examining users with access to downstream speeds of 10 Mbps or greater,

approximately 92 percent of urban residents have access to fixed broadband with 3 Mbps upstream speed, as

compared to only 50 percent of rural users, a difference of 42 percent. See National Broadband Map,

http://www.broadbandmap.gov/ (last visited Apr. 23, 2014). By comparison, at upstream speeds of 768 kbps, the

difference in access between urban and rural consumers is 31 percent.

320 Statement of Thomas F. Klobucar, Deputy Director, Office of Rural Health, U.S. Department of Veterans Affairs

(Mar. 19, 2014), http://www.fcc.gov/events/rural-broadband-workshop (statement begins at 63:30); see also

PowerPoint Presentation of Thomas F. Klobucar, Deputy Director, Office of Rural Health, U.S. Department of

Veterans Affairs, at 11, http://transition.fcc.gov/presentations/03192014/Thomas-Klobucar.pptx (2014).

321 Given the likelihood that required broadband speeds will continue to increase over time, we expect recipients of

funding to deploy technologies capable of delivering faster speeds (and higher capacities) over time with limited

additional investment.

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adoption of a new rule. Rather, consistent with the approach we adopted for the current speed

benchmark, we are proposing a standard that ETCs, current and future, would be expected to achieve over

a period of years, as they utilize high-cost support to extend and upgrade networks in high-cost areas.

143.

In the USF/ICC Transformation Order, the Commission adopted a requirement that

ETCs develop five-year service improvement plans and provide annual updates regarding those plans.

Likewise, in the USF/ICC Transformation Order, the Commission established a five-year time frame for

recipients of model-based support to meet the deployment milestones for Phase II. The Commission thus

recognized that broadband-capable infrastructure would not, and realistically could not, be ubiquitously

deployed overnight, but rather that it would be deployed over a period of time. As such, we emphasize

that there is no immediate consequence, and in particular no loss of universal service support, to the

extent an existing ETC is not currently offering speeds that meet the current 4 Mbps /1 Mbps benchmark

throughout its entire service territory, nor would an ETC be immediately non-compliant with our rules if

in the future we were to revise the downstream speed standard to, for instance, 10 Mbps in response to

this FNPRM.322 Rather, our intent in proposing to revisit this standard is to establish a new minimum

standard that we build toward over time, recognizing that consumers increasingly will utilize applications

and services that require greater bandwidth than our current standard.

144.

As discussed in the Report and Order above, under the framework adopted by the

Commission in the USF/ICC Transformation Order, a rate-of-return carrier is required to deploy

broadband-capable infrastructure to a customer upon reasonable request.323 If the Commission were to

revise its broadband performance obligations to require higher speeds, such as 10 Mbps downstream, such

new deployments would be required to meet the new benchmark. But a rate-of-return carrier would only

be required to meet that higher speed if the request for service was reasonable. A reasonable request is

one where the carrier could cost-effectively extend a voice and broadband-capable network to that

location. In determining whether a particular upgrade is cost effective, the carrier should consider not

only its anticipated end-user revenues from the services to be offered over that network, both voice and

retail broadband internet access, but also other sources of support, such as federal and, where available,

state universal service funding. Under our proposal to increase the minimum downstream speed

threshold, we thus would not expect a rate-of-return carrier immediately to upgrade its entire existing

infrastructure to provide 10 Mbps downstream and 1 Mbps upstream (10 Mbps/1 Mbps) to all current

customers.324 Rather, we propose that rate-of-return carriers would take into account any revised speed

standards when considering whether and where to upgrade existing plant in the ordinary course of

business and would report on progress toward this goal in preparing annual updates to their five-year

service improvement plans. We seek comment on this proposal. To the extent commenters believe it

would take longer than five years to upgrade networks to meet the proposed new standard, they should

specify what time frame they believe is realistic.

145.

In addition, if commenters believe that it would make more requests for service

unreasonable, therefore requiring carriers to scale back their deployment plans, we seek comment on how

322 In this regard, the purpose of filing five-year service quality plans, annual updates to those plans, and information

regarding the number of requests for service from potential customers that were unfulfilled during the prior calendar

years with the Commission, the Fund Administrator, the relevant state commission, relevant authority in a U.S.

Territory, or Tribal government, as appropriate, is to enable the Commission to monitor progress on achievement of

its universal service objectives and to ensure that support is being used for the intended purposes. See 47 C.F.R. §§

54.313(a)(1)-(3), (f)(1)(i), 54.314.

323 USF/ICC Transformation Order, 26 FCC Rcd at 17741, para. 208.

324 This proposed higher speed benchmark would only apply prospectively, not to preexisting obligations. For

example, even if we were to adopt a revised downstream speed requirement of 10 Mbps, an ETC that accepted

support through Phase I of Connect America would not be required to deploy 10 Mbps/1 Mbps in fulfilling its Phase

I commitment.

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to ensure that consumers in those areas receive service. For example, if a request for a higher speed

service would be unreasonable but a request that meets our current standard would be reasonable, we seek

comment on permitting the deployment at the lower speed standard. We also seek comment on whether

carriers should be allowed to self-identify territories that they would not be able to serve (either alone or

through a voluntary partnership) so that the Commission could extend broadband service to those

consumers through a different mechanism.

146.

We seek comment on the costs and benefits of increasing the speed benchmark. Will it

help or hinder our efforts to reach unserved consumers? Will the benefits gained by consumers in having

access to higher speeds outweigh the increased cost of deploying a more robust network? What impact

would it have on participation in the Phase II competitive bidding process and our ability to preserve and

advance universal service in areas where a price cap carrier declines model-based support? Is it

reasonable to assume that the same number of residents would be served in Phase II at speeds of 10

Mbps/1 Mbps as would be served at 4 Mbps/1 Mbps? We direct the Bureau to publish information within

15 days of release of this FNPRM regarding the number of locations that would be eligible for the offer of

model-based support if the revised speed benchmark were used to determine the presence of an

unsubsidized competitor and the number of locations that would be above the extremely high-cost

threshold.325 We encourage parties to address in their comments how changing the speed standard would

affect the number of consumers that could be served.

147.

We intend to take action on this proposed revision to the speed benchmark prior to

extending the offer of support to price cap carriers so that they have clarity as to what is expected of them

over the five-year Phase II term if they make state-level commitments to accept model-based support.

Under the existing rules, Phase II state-level commitment funding recipients must provide broadband with

speeds of 4 Mbps/1 Mbps to all locations and speeds of 6 Mbps/1.5 Mbps to a subset of locations as

specified by the Bureau.326 If we adopt our proposal to raise the minimum speed benchmark to 10 Mbps

downstream, we propose that the Bureau would no longer be required to specify a number of locations

that would receive 6 Mbps downstream or 1.5 Mbps upstream for recipients of model-based support. We

seek comment on this proposal.

148.

If the Commission adopts the proposal to extend broadband downstream speeds to 10

Mbps, we seek comment regarding whether it should provide a longer term for Connect America Phase II

model-based support than the five-year term it adopted in the USF/ICC Transformation Order.327 For

instance, should carriers accepting a state-level commitment for five years have the ability to extend that

term for additional two years, assuming verification of specified deployment milestones to deliver service

with 10 Mbps downstream speed.

149.

Usage and Latency Standards. We propose to apply the same usage allowances and

latency benchmarks that the Bureau implemented for price cap carriers that will accept the offer of model-

based support in the state-level commitment process to ETCs that will receive support through a

competitive bidding process.328 Under this proposal, all Phase II recipients would be required to offer at

least one plan with an initial minimum usage allowance of 100 GB, adjusted over time to take into

325 For purposes of this direction, the Bureau may publish results using 10 Mbps downstream/768 kbps upstream as

a proxy for 10 Mbps downstream/1 Mbps upstream.

326 USF/ICC Transformation Order, 26 FCC Rcd at 17726, para. 160.

327 See, e.g., USTelecom Apr. 11, 2014 Ex Parte at 1-2.

328 The Commission sought comment in the USF/ICC Transformation FNPRM as to whether to relax the

performance standards for entities that are awarded support through a competitive bidding process. USF/ICC

Transformation FNPRM, 26 FCC Rcd at 18088, para. 1204.

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account trends in consumer usage,329 at a price that is reasonably comparable to similar fixed wireline

offerings in urban areas. We also propose to require recipients of support through the competitive

bidding process to provide a roundtrip provider network latency of 100 ms or less. This latency is

suitable to allow for existing real time applications, such as VoIP. We seek comment on these proposals.

150.

Parties that argue that standards should be relaxed for the Phase II competitive bidding

process that will occur in areas where the price cap carrier declines model-based support should identify

with specificity which standard should be relaxed and to what extent, and explain why relaxation of such

standards is consistent with achievement of our universal service objectives. For instance, to the extent

parties argue that a 100 ms or less standard for roundtrip provider network latency is too stringent, they

should identify what numerical standard should be used for the Phase II competitive bidding process.

Likewise, to the extent parties argue that recipients of support through a competitive bidding process

should not be required to offer at least one plan with a minimum usage allowance of 100 GB at a price

that is reasonably comparable to comparable fixed wireline offerings in urban areas, they should identify

what usage level instead would fulfill the statutory principle that consumers in high-cost areas should

have access to “reasonably comparable services” at “reasonably comparable rates.”

151.

In the Phase II Service Obligations Order, the Bureau stated that recipients of model-

based support are permitted to offer their customers services other than those meeting the stated

performance criteria.330 We propose a similar approach for ETCs awarded support in the competitive

bidding process, so they would be free to offer an array of services, including those not meeting the

proposed performance requirements, so long as at least one offering met all the necessary metrics.331 We

seek comment on this proposal.

152.

We also propose to apply these usage allowance and latency standards to rate-of-return

ETCs that are subject to broadband performance obligations. This would ensure that consumers have

access to the same baseline level of broadband service regardless of whether they reside in a price cap or

rate-of-return study area. Again, we emphasize that we do not expect that rate-of-return carriers would

only provide broadband offerings to customers that meet these requirements. Rather, they would be free

to offer an array of services of varying speeds, usage, and price to meet customer demand. If commenters

argue that rate-of-return carriers should either be exempted from or be subject to relaxed usage allowance

and latency standards, we specifically seek comment on how we can ensure that consumers in rate-of-

return areas are not relegated to substantially less robust services than consumers living in price cap areas.

153.

Role of Alternative Technologies in Phase II. In reforming the universal service fund, the

Commission established the Connect America Fund, focused on terrestrial, fixed broadband deployment,

329 See Phase II Service Obligations Order, 28 FCC Rcd at 15068, para. 18 (requiring price cap carriers accepting

model-based Phase II support to offer a minimum usage allowance over the course of the state-level commitment’s

five-year term, that remains consistent with trends in usage for 80 percent of consumers using cable or fiber-based

broadband services). As usage allowance and latency standards were implemented by the Bureau relatively

recently, in October 2013, we do not see a need to update these metrics at this time. By contrast, the 4 Mbps/1 Mbps

speed standard was adopted by the Commission in 2011 in the USF/ICC Transformation Order, with the 4 Mbps/1

Mbps standard originally being proposed in the 2010 National Broadband Plan. See USF/ICC Transformation

Order, 26 FCC Rcd at 17967, para. 93; Federal Communications Commission, Connecting America: The National

Broadband Plan, at 135 (2010), available at http://download.broadband.gov/plan/national-broadband-plan.pdf.

330 Phase II Service Obligations Order, 28 FCC Rcd at 15062, para. 6 n.12. For example, a price cap carrier is not

limited to only offering broadband plans with usage allowances of at least 100 GB; it may offer a value plan with a

lower amount of usage and a premium plan with a higher amount of usage. A recipient need only have a single

voice and broadband offering that satisfies all the specified criteria.

331 For example, under this proposal, an ETC awarded support through a competitive bidding process could offer a

lower cost plan that had a usage allowance of only 50 GB, so long as customers had an option of purchasing a plan

with a usage allowance of at least 100 GB that met all the other stated requirements.

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and the Mobility Fund, focused on mobile broadband deployment.332 Connect America Fund Phase II

recipients were required to deploy networks capable of providing “broadband service that is reasonably

comparable to terrestrial fixed broadband service in urban America.”333 The Commission did not

explicitly prohibit the use of mobile or satellite technology in meeting Phase II obligations, as long as it

provided performance comparable to terrestrial, fixed broadband. Relatedly, in providing funding for the

Connect America Fund, the Commission excluded Phase II support for areas that were served by

unsubsidized competitors; it limited the definition of unsubsidized competitor to terrestrial, fixed

providers.334 The Commission stated that it would revisit this definition as satellite and mobile

technologies developed over time.335

154.

We seek to develop more fully the record on allowing Phase II recipients to satisfy their

obligations using any technology or combination thereof – whether wireline or wireless, fixed or mobile,

terrestrial or satellite – that meets the performance standards for Phase II.336 Specifically, any Phase II

recipient satisfying its obligations would be required to meet the Phase II requirements for speed, latency,

usage allowance, and pricing,337 as they exist today or may be modified in the future in response to this

FNPRM. We emphasize that wireless providers are free, and indeed encouraged, to participate in

Connect America Phase II, and fixed wireless already is an option for the delivery of service in Phase II

under the framework established by the Commission in the USF/ICC Transformation Order. What is

important from the consumer’s perspective is the quality of the user experience and the price of the

service offering, not the specific technology used to deliver service.338 Given that, we seek comment on

whether, for purposes of Phase II implementation, we should allow the use of mobile or satellite

technology that meets the Phase II requirements,339 while maintaining the service and pricing standards

established by the Bureau for the offer of model-based support.340

332 USF/ICC Transformation Order, 26 FCC Rcd at 17702, para. 105.

333 Id. at 17726, para. 160.

334 Id. at 17701-02, para. 104. The Commission received a petition, which remains pending, requesting

reconsideration of the definition of unsubsidized competitor to allow for mobile providers to qualify as unsubsidized

competitors. Petition for Reconsideration of NTCH, Inc., WC Docket No. 10-90 et al. (filed Dec. 29. 2011). A

similar request has been received to permit the use of satellite technology. Petition for Reconsideration of ViaSat,

Inc., WC Docket No. 10-90 et al. (filed Dec. 29, 2011).

335 USF/ICC Transformation Order, 26 FCC Rcd at 17701-02, para. 104. The Commission noted that it did “not

anticipate changing the definition for the next few years.” Id.

336 We note that in the context of the Section 706 Report, the Commission has declined to include mobile services in

the definition of broadband due to concerns about the reliability of data regarding mobile service. See Inquiry

Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and

Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the

Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, GN Docket No. 11-121,

Eighth Broadband Progress Report, 27 FCC Rcd 10342, 10366, para. 35 (2012). The reliability of the data is less of

a concern in the context of Phase II, as the Phase II challenge process will permit the Commission to assess, in

particular instances, whether mobile service is available that satisfies all the necessary requirements.

337 See generally Phase II Service Obligations Order.

338 We note that the quality of the user experience is not limited to merely the quantifiable metrics of speed, usage

allowance, latency, and price. Therefore, we seek comment below on other issues that would impact a consumer’s

experience in using mobile technology, such as the ability to tether the connection to other devices, or the ability to

use multiple devices at once using a single connection.

339 We propose above to increase the downstream speed standard to 10 Mbps. See supra para. 140. At least one

party has noted that, if we were to expand the use of mobile technology, we should take into account the availability

of new spectrum on the market in meeting that speed standard. See Letter from David LaFuria, Counsel, United

States Cellular Corporation, to Marlene H. Dortch, Secretary, Federal Communications Commission, at 2 (filed Apr.

(continued...)

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Federal Communications Commission

FCC 14-54

155.

In a similar vein, for the Phase II competitive bidding process, should we exclude from

eligibility for funding any area that is served by a competitor that meets the Commission’s current

standards for the offer of model-based support to price cap carriers, again presuming that the same service

and pricing standards are met, regardless of technology? We welcome input on the extent to which

mobile or satellite providers today meet those standards.

156.

We seek comment on how to ensure that the end-user experience is functionally

equivalent whether the connection is provided through fixed or mobile means. Should we require, for

instance, that providers allow consumers subscribing to the service to attach or tether their mobile

connections to other devices?341

This will allow consumers to use their mobile connections on

traditionally fixed platforms, such as desktop computers, thus allowing access to the same applications

and functionalities as consumers served through fixed connections. We also seek comment on the ability

of a mobile connection to support multiple devices. Should we adopt requirements that the mobile

service allow users to be able to use multiple devices simultaneously? To the extent that additional

devices or subscriptions are required to support multiple devices, should we consider that in determining

reasonable price comparability? We additionally seek comment on whether any other requirements

should attach to Phase II support for mobile or satellite technologies to ensure they provide the end user

with the same service qualities obtained when a fixed service is purchased. For example, mobile service

can have a far greater variation in service quality as compared to fixed services, with service quality not

only changing based on location within a tower’s footprint, but also even whether the service is being

used indoors rather than outdoors. How should we address these issues to ensure that networks supported

with universal service funds provide consumers with high-quality broadband access regardless of the

technology deployed? How should we ensure that consumers are still able to use services that generally

rely on fixed networks, such as medical monitoring or security systems? What would be the impact on

businesses and anchor institutions if we were to exclude from eligibility for Phase II support those areas

that are served by mobile or satellite providers that meet the Phase II standards?

157.

Evolving Standards. In the above Report and Order, we adopt a term of support of ten

years for those ETCs that are awarded Phase II through a competitive bidding process.342 It is likely that

the public’s expectations for connectivity will evolve substantially over the next decade. Should we

adjust the Phase II obligations for the later years of the ten-year term of support? To plan a network,

recipients of support need to know ahead of time what will be expected of them. What is a reasonable

requirement for entities receiving ten years of support? For example, would requiring Connect America

Phase II recipient to deploy broadband at a higher speed tier for a discrete subset of locations ensure that

the evolving expectations of consumers are met? Should we require Connect America Phase II

participants to provide 20 Mbps downstream service to 20 percent of locations by year eight? Should we </