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FCC Seeks Targeted Information in USF/ICC Transformation Proceeding

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Released: August 3, 2011

PUBLIC NOTICE

Federal Communications Commission

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Washington, D.C. 20554

Internet: http://www.fcc.gov

DA 11-1348

Release Date: August 3, 2011

FURTHER INQUIRY INTO CERTAIN ISSUES IN THE UNIVERSAL SERVICE-

INTERCARRIER COMPENSATION TRANSFORMATION PROCEEDING

WC Docket Nos. 10-90, 07-135, 05-337, 03-109;

CC Docket No. 01-92, 96-45

GN Docket No. 09-51

Comment Date: August 24, 2011
Reply Comment Date: August 31, 2011

In order to comprehensively reform and modernize the universal service fund (USF) and
intercarrier compensation (ICC) system in light of recent technological, market, and regulatory changes,
on February 9, 2011, the Commission released the Universal Service and Intercarrier Compensation
Transformation Notice of Proposed Rulemaking
(USF-ICC Transformation NPRM).1 The NPRM sought
public comment on reforms to modernize USF and ICC for broadband, control the size of the USF as it
transitions to support broadband, require accountability from companies receiving support, and use
market-driven and incentive-based policies that maximize the value of scarce program resources for the
benefit of consumers. Previously, on October 14, 2010, the Commission released the Universal Service
Reform Mobility Fund Notice of Proposed Rulemaking
(Mobility Fund NPRM), which proposed to
expand mobile voice and data service availability by using a market-based mechanism to award one-time
support from accumulated USF reserves.2 In response to the USF-ICC Transformation NPRM, a number
of parties have offered specific proposals for reform, including a proposal by the State Members of the
Federal-State Universal Service Joint Board (State Members), the "RLEC Plan" put forward by the Joint
Rural Associations, and the "America's Broadband Connectivity Plan" filed by six Price Cap Companies
("ABC Plan").3 We seek comment on how these proposals comport with the Commission's articulated


1 Connect America Fund; A National Broadband Plan for Our Future; Establishing Just and reasonable Rates for
Local Exchange Carriers; High-Cost Universal Service Support; Developing a Unified Intercarrier Compensation
Regime; Federal-State Joint Board on Universal Service; Lifeline and Link-Up
; WC Docket Nos. 10-90, 07-135,
05-337, 03-109, CC Docket Nos. 01-92, 96-45, GN Docket No. 09-51, Notice of Proposed Rulemaking and Further
Notice of Proposed Rulemaking, 26 FCC Rcd 4554 (2011).
2 Universal Service Reform Mobility Fund, Notice of Proposed Rulemaking, 25 FCC Rcd 14,716 (2010).
3 Comments by the State Members of the Federal-State Joint Board on Universal Service, WC Docket No. 10-90 et
al. (filed May 2, 2011) (State Member Comments); Comments of NECA, NTCA, OPASTCO, and WTA, WC
Docket No. 10-90 et al. (filed May 2, 2011) (RLEC Plan); Letter from Robert W. Quinn, Jr., AT&T, Steve Davis,
CenturyLink, Michael T. Skrivan, FairPoint, Kathleen Q. Abernathy, Frontier, Kathleen Grillo, Verizon, and
Michael D. Rhoda, Windstream, to Marlene H. Dortch, FCC, WC Docket No. 10-90 et al. (filed July 29, 2011)
(ABC Plan). See also Letter from Walter B. McCormick, Jr., United States Telecom Association, Robert W. Quinn,

objectives and statutory requirements. We invite comment on specific aspects of the proposals and on
additional issues that are not fully developed in the record.

I.

Universal Service

A. Separate Support for Mobile Broadband.


Several parties propose that the Commission create two separate components of the
Connect America Fund, one focused on ensuring that consumers receive fixed voice and
broadband service (which could be wired or wireless) from a single provider of last resort
in areas that are uneconomic to serve with fixed service, and one focused on providing
ongoing support for mobile voice and broadband service in areas that are uneconomic to
serve with mobile service (i.e., a Mobile Connect America Fund), with the two
components together providing annual support under a defined budget.4 We seek
comment on providing separate funding for fixed broadband (wired or wireless) and
mobility. How should the Commission set the relative budgets of two separate
components?5 How should the budgets be revised over time?

In the USF/ICC Transformation NPRM, the Commission sought comment on phasing
down high-cost support for competitive eligible telecommunications carriers (competitive
ETCs) over 5 years and transitioning such support to the CAF.6 To what extent would
projected savings associated with intercarrier compensation reform for wireless carriers
as proposed in the ABC Plan help offset reductions in high-cost support for competitive
ETCs? We ask parties to substantiate their comments with data and remind parties that
they may file data under the protective order issued in this proceeding.7

B. Elimination of Rural and Non-Rural Carrier Distinctions

.





Jr., AT&T, Melissa Newman, CenturyLink, Michael T. Skrivan, FairPoint, Kathleen Q. Abernathy, Frontier,
Kathleen Grillo, Verizon, Michael D. Rhoda, Windstream, Shirley Bloomfield, NTCA, John Rose, OPASTCO, and
Kelly Worthington, WTA, to Chairman Julius Genachowski, Commissioner Michael J. Copps, Commissioner
Robert M. McDowell, Commissioner Mignon Clyburn, FCC, WC Docket No. 10-90 et al. (filed July 29, 2011)
(Joint Letter).
4 See, e.g., State Member Comments at 2, 68-73; ABC Plan, Attachment 1 at 8; RLEC Plan at 83; United States
Cellular Corp. April 18 Comments at 20; American Cable Association April 18 Comments at 5-6; AT&T April 18
Comments at 86-87, 108-09; Nebraska Pub. Serv. Comm. April 18 Comments at 17.
5 We note the wide range of proposed budgets for a mobility fund. Compare ABC Plan, Attachment 1 at 9 (at most
$300 million) with US Cellular, Letter from David A. LaFuria, Counsel to United States Cellular Corporation, to
Marlene H. Dortch, FCC, WC Docket No. 05-337 et al., at 5 (filed July 29, 2011) (US Cellular July 29, 2011 Ex
Parte
)(at least $1.3 billion). US Cellular has proposed that we determine appropriate support levels for mobile
carriers in targeted high cost rural areas using a model of an efficient level of costs. See Letter from David A.
LaFuria, Counsel to United States Cellular Corporation, to Marlene H. Dortch, FCC, WC Docket No. 05-337et al.
(filed June 16, 2011) (US Cellular June 16 Ex Parte); U.S. Cellular July 29 Ex Parte.
6 USF/ICC Transformation NPRM, 26 FCC Rcd at 4641, para. 248.
7 Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92; WC Docket Nos. 07-135, 10-90,
05-337; GN Docket No. 09-51, Protective Order, 25 FCC Rcd 13160 (WCB 2010) (Protective Order).
2


In the USF/ICC Transformation NPRM, the Commission sought comment on two
potential paths for the long term CAF: (1) use a competitive, technology-neutral bidding
process to determine CAF recipients; or (2) offer the current voice carrier of last resort a
right of first refusal to serve the area for an amount of ongoing support determined by a
cost model, with a competitive process if the incumbent refuses the offer.8 Several
parties that jointly filed a letter proposing a path for reform propose a hybrid system in
which support would be determined under a combination of a forward-looking cost
model and competitive bidding in areas served by price cap companies, while companies
that today are regulated under a rate of return methodology would continue to receive
support based on embedded costs, albeit with greater accountability and cost controls.9
Similarly, the State Members suggest that a forward-looking model be used for price cap
companies, while rate of return companies would have the option of receiving support
under a model or based on embedded costs.10 We seek comment on the policy
implications of eliminating the current references to rural and non-rural carriers in our
rules and of adopting two separate approaches to determining support for carriers that
operate in rural areas that are uneconomic to serve, based on whether a company is
regulated under rate of return or price caps in the interstate jurisdiction.

C. CAF Support for Price Cap Areas

.
1. Use of a Model.
o Both the State Members and the ABC Plan would use a forward-looking model
to determine support amounts for areas where there is no private sector business
case to offer broadband.11 We seek comment on what information would need to
be filed in the record regarding the CostQuest Broadband Analysis Tool
(CQBAT model) for the Commission to consider adopting it, as proposed in the
ABC Plan.
o The ABC Plan proposes using one technology to determine the modeled costs of
4 Mbps download/768 kbps upload service, while permitting support recipients
to use any technology capable of meeting those requirements.12 Should the
amounts determined by a model be adjusted to reflect the technology actually
deployed? Is ten years an appropriate time frame for determining support levels,
given statutory requirements for an evolving definition of universal service?
Should the model reflect the costs of building a network capable of meeting
future consumer demand for higher bandwidth that reasonably can be anticipated
five years from now?
2. Right of First Refusal (ROFR)


8 USF-ICC Transformation NPRM, 26 FCC Rcd at 4681-90, paras. 417-447.
9 See Joint Letter at 2.
10 State Member Comments at 38-39.
11 See ABC Plan, Attach. 1 (Framework of the Proposal) at 3-6, Attach. 3 (Model Description); State Member
Comments at 37-38.
12 ABC Plan, Attach. 1 at 2, 7.
3

o The ABC Plan would give an incumbent local exchange carrier (LEC) the
opportunity to accept or decline a model-determined support amount in a wire
center if the incumbent LEC has already made high-speed Internet service
available to more than 35 percent of the service locations in the wire center.13
We seek comment on this proposal. Would aggregating census blocks to
something other than a wire center be an improvement to the proposal? Is 35
percent a reasonable threshold? Should areas that are overlapped by an
unsubsidized facilities-based provider be excluded when calculating the
percentage? Is the opportunity to exercise a ROFR reasonable consideration for
an incumbent LEC's ongoing responsibility to serve as a voice carrier of last
resort throughout its study areas, even as legacy support flows are being phased
down? Should any ROFR go to the provider with the most broadband
deployment in the relevant area rather than automatically to the incumbent
LEC?14 Alternatively, if there are at least two providers in the relevant area that
exceed the threshold, should the Commission use competitive bidding to select
the support recipient?
3. Public Interest Obligations
o Last year, the Federal-State Joint Board on Universal Service recommended that
the Commission adopt a principle "that universal service support should be
directed where possible to networks that provide advanced services, as well as
voice services."15 If that recommendation is adopted, how could the CQBAT
model be improved to account for the costs of providing both broadband and
voice service?
o The State Members propose that recipients of support meet specific broadband
build-out milestones at years 1, 3 and 5 of deployment.16 A company that
exceeded a specified minimum standard, but failed to meet the higher standard at
a given milestone would receive a pro rata share of support. We seek comment
on what specific interim milestones would be effective in ensuring that carriers
receiving CAF support are building out broadband at a reasonable rate during the
specified build-out period.
o The ABC Plan proposes that CAF recipients provide broadband service that
meets specified bandwidth requirements to all locations within a supported area,
but does not address the pricing of such services or usage allowances.17 Should
the Commission adopt reporting requirements for supported providers regarding


13 See ABC Plan, Attach. 1 at 6.
14 See Letter from Steven F. Morris and Jennifer K. McKee, National Cable and Telecommunications Association,
to Marlene H. Dortch, FCC, WC Docket No. et al., Attach. at 3 (filed July 29, 2011) (NCTA Letter).
15 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Recommended Decision, 25 FCC Rcd
15598, 15625, para. 75 (2010).
16 See State Member Comments at 62-63. Specifically, a company would lose all of its support if it failed to meet
the minimum standard of deploying gradually increasing speeds to increasing percentages of its area over the five-
year period. A company would receive full funding if it met or exceeded a higher standard. Id.
17 ABC Plan, Attach. 1 at 2-3, 7-8.
4

pricing and usage allowances to facilitate its ability to ensure that consumers in
rural areas are receiving reasonably comparable services at reasonably
comparable rates?
4. Eligible Telecommunications Carrier (ETC) Requirements
o The ABC Plan proposes a procurement model, in which recipients of CAF
support incur service obligations only to the extent they agree to perform them in
explicit agreements with the Commission, and CAF recipients are free to use any
technology, wireline or wireless, that meets specified bandwidth and service
requirements.18 What specific rule changes to the Commission's rules, including
Part 54, Subpart C of the Commission's rules, would be necessary to implement
such a proposal?
5. State Role
o The State Members and other commenters propose an ongoing role for states in
monitoring and oversight over recipients of universal service support.19 We seek
comment on specific illustrative areas where the states could work in partnership
with the Commission in advancing universal service, subject to a uniform
national framework, and invite comments on other suggestions. For example:

Were the Commission to adopt a ROFR mechanism, could the states
determine whether a provider has already made a substantial broadband
investment in a particular area, and therefore would be eligible to be
offered support amounts determined under a forward-looking model?20

Should ETCs be required to file copies of all information submitted to
the Commission regarding compliance with public interest obligations
with the states, as well as with USAC?

The ABC Plan contemplates that CAF recipients would serve all
business and residential locations within a supported area, but does not
specifically address the obligation to serve newly built locations within a
supported area over the ten-year term of the funding. Should states be
charged with determining whether any charges for extending service to
newly constructed buildings are reasonable, based on local conditions?

Should states collect information regarding customer complaints,
including complaints about unfulfilled service requests and inadequate
service?

D. Reforms for Rate-of-Return Carriers.



18 ABC Plan, Attach. 1 at 2, 3, 7.
19 State Member Comments at 139-140; see also Cal. Pub. Util. Comm., April 19 Comments at 10-11; Pub. Serv.
Comm. of Mo. April 6 Comments at 9-11; Neb. Pub. Serv. Comm. April 19 Comments; of Wash. Util. and Transp.
Comm. April 18 Comments at 5-6.
20 ABC Plan, Attach. 1 at 2.
5


In light of the RLEC Plan and the Joint Letter, as well proposals by the State Members,
we seek comment below on specific issues relating to universal service support for rate-
of-return companies.
o Re-examining the Interstate Rate of Return. The Joint Letter proposes that CAF
calculations for areas served by rate-of-return companies would be calculated
using a 10 percent interstate rate of return.21 The State Members recommended
that the rate of return for universal service calculations be set at 8.5 percent.22
We seek comment on what data the Commission would need to have in the
record to enable it to waive the requirements in Part 65 of the Commission's
rules for a rate of return prescription proceeding, so that the Commission could
quickly adopt a particular rate of return.
o Corporate Operations Expense Limitation Formula. We seek comment on
applying the following formula to limit recovery of corporate operations
expenses for high-cost loop support (HCLS), interstate common line support
(ICLS), and local switching support (LSS).23
For study areas with 6,000 or fewer working loops, the monthly amount per loop
shall be limited to;
$42.337 (.00328 x the number of working loops) or $50,000/the number of
working loops, whichever is greater
For study areas with more than 6,000 working loops, but fewer than 17,888
working loops, the monthly amount per loop shall be limited to;
$3.007 + (117,990/number of working loops)
For study areas with 17,888 or more working loops, the monthly amount per loop
shall be limited to;
$9.52 per working loop
o Eliminating Support for Areas with an Unsubsidized Competitor. In responding
to the NPRM, the RLEC Plan suggested that the Commission could establish a
process to reduce an incumbent's support if another facilities-based provider
proves that it provides sufficient broadband and voice service to at least 95
percent of the households in the incumbent's study area without any support or


21 Joint Letter at 2.
22 State Member Comments at 36.
23 See NECA, Universal Service Fund Data: NECA Study Results, 2009 Report (filed Sept. 30, 2010),
http://www.fcc.gov/wcb/iatd/neca.html. 2011 support is based on 2009 cost data, filed on September 30, 2010. The
statistical regression techniques for developing the updated limitation formula are the same as used to develop the
initial formula. See First Reconsideration Order, 12 FCC Rcd at 10115-17, App. B. The statistical formula
produced by our updated analysis, as shown below, includes the allowance of 115% to permit more carriers to fall
within the range of reasonableness.
6

cross-subsidy.24 We seek comment on such a process, including how to allocate
costs to the remaining portions of the incumbent's study area for purposes of
determining universal service support. Would a cost model be a way to allocate
costs between the subsidized and unsubsidized portion of a rate-of-return study
area that overlaps substantially with an unsubsidized competitor?25 Could state
commissions administer proceedings to consider such challenges, similar to the
suggestion in the ABC Plan that state commissions could elect to determine
which census blocks served by price cap companies have unsubsidized
competitors, and therefore are not eligible for CAF support?
o Limits on Reimbursable Operating and Capital Costs. We seek comment on
limiting reimbursable levels of capital investment and operating expenses for
LSS.

E. Ensuring Consumer Equity


Rate Benchmark. In the USF/ICC Transformation NPRM, the Commission sought
comment on the use of a rate benchmark to encourage states to rebalance their rates and
ensure that universal service does not subsidize carriers with artificially low rates.26 In
response to the NPRM, one commenter suggested that we should develop a benchmark
for voice service and reduce a carrier's high-cost support by the amount that its rate falls
below the benchmark.27 Under such an approach, the Commission would reduce
intrastate universal service support (specifically, HCLS for rural carriers and high-cost
model support (HCMS) for non-rural carriers) dollar for dollar during the transition to
CAF to the extent the company's local rates do not meet the specified benchmark. These
reductions would not flow to other recipients. We seek comment on this proposal and
proposed variations on it. Should we set the initial benchmark using the most recently
available data that the Commission has regarding local rates? For example, according to
the 2008 Reference Book of Rates, the average monthly charge for flat-rate service was
$15.62 per month. Using the same data, the average monthly charge for flat-rate service,
plus subscriber line charges of $5.74 per month, would total $21.36 per month.28 Should
the benchmark rise over a period of three years, for instance, with an end point of $25-
$30 (or some other amount) for the total of the local residential rate, federal subscriber
line charge (SLC), state subscriber line charge, mandatory extended area service charges,
and per-line contribution to a state's high cost fund, if one exists? Should this benchmark
be the same as the ICC benchmark?

Total company earnings review. The State Members recommended that a Provider of
Last Resort Fund include a total company earnings review to limit a supported carrier


24 RLEC Plan at 51-56.
25 See NTCA Letter, Attach. at 2.
26 USF/ICC Transformation NPRM, 26 FCC Rcd at 4733-34, para. 573. See also id. at 4603, para. 139 and note
223.
27 Ad Hoc Telecommunications Users Committee April 18 Comments.
28 Industry Analysis and Technology Division, Wireline Competition Bureau, Reference Book of Rates, Price
Indices, and Household Expenditures for Telephone Service
, at Table 1.1 (2008).
7

from earning more than a reasonable return.29 We seek to further develop the record on
the mechanics of conducting an earnings review to ensure that universal service is not
providing excessive support to the detriment of consumers across the United States.
o We seek comment on the State Members' recommendation that, at least initially,
the support mechanism should not factor in either the revenues or marginal costs
of video operations to avoid the risk of subsidizing video operating losses
attributable to unregulated programming costs.30
o We seek comment on what total company rate of return should be used, what the
mechanism should be for reducing support to the extent that total company rate
of return is exceeded, and how often a total company earnings review should be
conducted.
o We seek comment on what carriers should be required to submit to USAC, in a
standard format, to facilitate a total company earnings review. For example,
should we require submission of the audited financial statements for the
incumbent LEC, a consolidated balance sheet and income statement for the
incumbent LEC and its affiliates, a list of affiliates, a schedule showing dividends
paid to shareholders or patronage refunds distributed to members of cooperatives
for the last five years, a Cost Allocation Manual, an explanation of how revenues
from bundled services are booked, a trial balance of accounts at a Class B
accounting level or greater, and the number of retail customers served by the
incumbent LEC and its affiliates for voice and broadband service?

F. Highest-Cost Areas.


The ABC Plan would rely on satellite broadband to serve extremely high-cost areas.31
We seek comment on a proposal by ViaSat to create a Competitive Technologies Fund to
distribute support through a combination of a reverse auction and consumer vouchers to
enable consumers in highest-cost areas to obtain service from wireless, satellite, or other
providers.32

We also seek comment on what obligations are appropriate to impose on recipients of
funding, as a condition of receiving support, to facilitate provisioning by others in areas
the recipients are not obligated to serve. For example, Public Knowledge has proposed to
require recipients to make interconnection points and backhaul capacity available so that


29 State Member Comments at 56-58. The Commission sought comment on including all revenues (including
broadband revenues) when evaluating rate of return requirements. USF/ICC Transformation NPRM, 26 FCC Rcd at
4674, para. 392.
30 State Member Comments at 35.
31 See ABC Plan, Attach. 1 at 4.
32 See generally Letter from John P. Janka, Counsel to ViaSat, Inc. and WildBlue, Communications, Inc., to Marlene
H. Dortch, FCC, WC Docket No. 10-90 et al. (filed July 29, 2011) See also NCTA Letter, Attach. at 2
(recommending that the Commission identify areas that are prohibitively expensive to serve and provide subsidies to
consumers living in those areas to subscribe to satellite broadband service).
8

unserved high-cost communities could deploy their own broadband networks.33 Should
recipients' Acceptable Use Policies also be required to allow customers to share their
broadband connections with unserved customers nearby, for example, through the use of
WiFi combined with directional antenna technology?

G. CAF Support for Alaska, Hawaii, Tribal lands, U.S. Territories, and Other Areas



GCI has proposed an Alaska-specific set of universal service reforms that it asserts better
reflect the operating conditions in Alaska and the lower level of broadband and mobile
deployment in that state.34 We seek comment on this proposal for Alaska, and ask
whether this, or a similar approach, would also be warranted for Hawaii, Tribal lands, the
U.S. Territories, or other particular areas, and how we should consider such proposals in
light of the Tribal lands exclusion from the current cap on high-cost support for
competitive ETCs. We further seek comment on other proposals relating to Alaska and
Hawaii that have been proposed in the record. We further seek comment on how such
proposals could be improved, if the Commission were to adopt a plan to constrain the
size of the CAF and access restructuring within a $4.5 billion annual budget, and
whether, in the alternative, other modifications are warranted to the national policy to
better reflect operating conditions in these areas.

H. Implementing Reform within a Defined Budget.


The ABC Plan recommends a five-year transition for phasing down legacy funding,
concomitant with a phase-in of potential CAF support, including potential access
recovery associated with intercarrier compensation reform; the Joint Letter suggests
several potential measures that could be taken to keep support totals within a budget,
such as phasing in funding for mobility, deferring CAF funding for study areas served by
particular price cap companies, or deferring reductions in intercarrier compensation.35
We seek comment on the implications of these and alternative proposals, including
variations to the Commission's prior proposals regarding safety net additive (SNA) and
LSS, for ensuring that total funding remains within a defined budget.36

I. Interim Reforms for Price Cap Carriers.



33 C.f. Public Knowledge and Benton Foundation April 18 Comments, at 5-7; Letter from John Bergmayer, Public
Knowledge, to Marlene H. Dortch, FCC, WC Docket No. 10-90 et al. (filed July 28, 2001).
34 See Letter from Christopher Nierman, GCI, to Marlene H. Dortch, FCC, WC Docket No. 10-90 et al. (filed Aug.
1, 2011).
35 See ABC Plan, Attach. 1 at 8-9; Joint Letter at 2-3. The Joint Letter states that $2.2 billion in support would be
provided to areas served by price cap companies, and initially $2 billion in funding would go to areas served by rate-
of-return companies, with the opportunity for that funding to increase to $2.3 billion by 2017. Joint Letter at 2.
36 For instance, could the Commission allow companies that previously qualified for SNA with a year-over-year
increase of total plant in service of 14 percent or more to receive the remaining amounts of SNA for past
qualification, while eliminating it immediately for those companies that did not increase total plant in service
investment by 14 percent (i.e., that qualified for SNA due to line loss)? What would be the impact of adjusting the
formula for LSS so that it only would be available for companies with 15,000 or fewer access lines, as suggested by
one commenter. See Alexicon April 18 Comments at 13-14.
9


As an interim step, Windstream, Frontier and CenturyLink suggest that the Commission
could immediately target support that currently flows to price cap carriers to the highest-
cost wire centers within their service territories, using a regression analysis based on the
Commission's existing high-cost model to estimate wire center forward-looking costs for
both rural and non-rural price cap carriers.37 We seek comment on this proposal and how
it relates to other proposals in the record for comprehensive reform.
o In addition to combining and distributing HCLS and HCMS, should the
Commission also include funds currently provided through LSS and SNA to
price cap carriers? Should we also include funds currently provided to price cap
carriers through interstate access support (IAS) and frozen ICLS?
o Should the Commission increase annual HCMS support by an additional amount,
such as $100 to $200 million, to be repurposed from ongoing reductions in
support for companies that have chosen to relinquish universal service funding?
Should we impose a cap on the amount of support a carrier is eligible to receive
for a wire center? For instance, should that cap be set at $250 per line per month,
similar to the Commission's proposal for a cap in total support for all existing
recipients?
o What public interest obligations for using funding for broadband-capable
networks should apply to carriers receiving support under this approach? Should
carriers receiving such support be prohibited from using the funds in areas that
are served by an unsubsidized facilities-based broadband provider?
o Do any special circumstances exist in the states of Alaska and Hawaii, or
Territories and Tribal lands generally, or other areas, that warrant a different
approach for price cap carriers serving such areas, if the Commission were to
adopt this interim measure?

II.

Intercarrier Compensation

A. Federal-State Roles

1. Federal Framework.

The ABC Plan proposes that the Commission set the framework to reduce intrastate
access rates, and recovery to the extent necessary for those reduced intrastate access
revenues would come from the federal jurisdiction through a combination of federal SLC
increases and federal universal service support.38
o How would this aspect of the ABC Plan affect states in different stages of
intrastate access reform those that have undertaken significant reform and


37 See Windstream Communications, Inc. April 18 Comments at 9; Letter from Jennie B. Chandra, Windstream
Communications, Inc., to Marlene H. Dortch, FCC, WC Docket No. 10-90 et al. (filed June 30, 2011); Letter from
Michael D. Saperstein, Jr., Frontier Communications, to Marlene H. Dortch, FCC, WC Docket No. 10-90et al. (filed
July 26, 2011).
38 ABC Plan, Attach. 1 at 10-13.
10

moved intrastate rates to parity with interstate rates, those in the process of
reform, and states that have not yet initiated reform?
o The ABC Plan provides a uniform, consistent framework for reform across all
states. We seek comment on whether the ABC Plan could be improved by
providing states incentives to increase artificially low consumer rates or create
state USFs for example through the use of a consumer monthly rate ceiling or
benchmark or by requiring states to contribute a certain amount per line of
recovery to offset intrastate rate reductions?

In calculating access recovery, the ABC Plan proposes a $30 "rate
benchmark" for price cap carriers, and the Rate-of-Return plan proposes
a $25 benchmark, both of which are structured as a ceiling on consumer
rate increases (via a federal SLC), to limit increases on consumer rates in
states where such rates have already been raised as part of intrastate
access reform.39 Is this ceiling sufficient to mitigate any potential impact
on consumers in states that have already begun reforms (and thus are
already paying increased local rates and/or state universal service
contributions associated with such reform) relative to consumers in states
that have not yet undertaken such reforms (for which all recovery would
come through the federal mechanism in the ABC Plan)? Should there be
different rate benchmarks for different carriers or should there be a single
benchmark?

In the ABC Plan, in calculating access recovery, the initial consumer
monthly rate is taken as a snapshot in time as of January 1, 2012. In lieu
of a snapshot, and in order to avoid deterring states from rebalancing
local rates and/or establishing state USFs, should the rate used to
determine access recovery be the "higher of" (1) the rate as of January
2012 and (2) the rate at future points before annual access recovery
amounts are calculated? In this scenario, any increased consumer rates
as a result of state reforms,40 would count toward the benchmark, more
accurately reflecting the actual consumer burden at that time.

A rate benchmark could also be used as an imputation for a certain level
of end-user recovery for intrastate rate reductions, rather than as a ceiling
on federal SLC increases. For instance, the Ad Hoc Telecommunications
Users Committee proposes a local rate benchmark that could be imputed,
rather than used as a ceiling,41 and commenters propose a range of


39 ABC Plan, Attach. 1 at 12; Joint Letter, Attach. at 3 n.1.
40 This could occur, for example, if the Commission were to reduce HCLS or HCMS if local rates are below a
specified threshold. See supra Section I.E. (Rate Benchmark).
41 See Ad Hoc April 18 Comments at 54. For example, a benchmark structured as a ceiling would simply limit the
rates assessed on end-users, whereas an imputed benchmark would reduce the eligible recovery by the imputed
dollar amount regardless of whether those charges are actually assessed.
11

possible benchmarks from $25-$30.42 Would an imputation approach
better encourage states that currently depend on long distance consumers
to help subsidize local phone service for their local consumers to bring
consumer rates to levels more comparable to the national average? What
would be the appropriate level for such a benchmark, and should it be
phased in over time?

Instead of or in addition to a rate benchmark, should states be responsible
for contributing a certain dollar amount per line to aid in access
recovery? The State Members, for example, suggest that states
contribute $2 per line for purposes of universal service.43 In this
scenario, a state would be responsible for recovery of $2 per line of
reduced intrastate access revenues, which could be imputed to carriers
before they become eligible for federal recovery. Does this approach
appropriately balance the interests of consumers in states that already
have implemented some reforms, with the associated burden of reform
being born by consumers in those states, rather than federal recovery
mechanisms? If so, should states that already have a state universal
service fund be exempted completely from this per-line contribution, or
only to the extent of, for example, the $2 per line state contribution to
recovery?
2. State-Federal Framework.

In the alternative, the State Members propose that the states reform intrastate rates and
that the Commission facilitate this reform through state inducements rather than a federal
framework.44 We seek comment on this proposal.
o To address concerns that some states may not reform intrastate access charges,
we seek comment on a framework, similar to a proposal in the USF/ICC
Transformation NPRM
,45 under which states have three years to develop an
intrastate reform plan. Under this alternative, after three years, the Commission
would set a transition for reducing intrastate access rates and deny any further
federal recovery to offset reduced intrastate revenue.
o If the Commission adopts the state-federal framework approach advocated by the
State Members, how can the Commission best incent states to reform intrastate
access rates? Should the Commission match some federal universal service
dollars to a state universal service fund for states that are using such a fund to
reform intrastate access charges? Such matching could be structured in several


42 See, e.g., Joint Letter, Attach. at 3 n.1 ($25 benchmark); ABC Plan, Attach. 1 at 12 ($30 benchmark); AT&T April
18 Comments at 33 ($27 initial benchmark that could increase over time, such at to $30).
43 Cf. State Member Comments at 60 (suggesting that federal universal service support be reduced by $2 per
location, which "States can restore . . . on a 100% matching basis, with funds raised under a high-cost universal
service program under Section 254").
44 See State Member Comments at 148.
45 USF/ICC Transformation NPRM, paras. 548-49.
12

different ways, including on a per-line basis (such as $1-2), as a percentage of the
state contribution, or on an aggregate state basis.46 We seek further comment on
how such a match should be structured to provide adequate inducements and
maintain our commitment to control the size of the federal high cost fund.

Under the framework of leaving reform of intrastate rates initially to the states, the
Commission would begin immediate reforms of interstate access charges. We seek
comment on a glide path for the Commission to reduce all interstate access rate elements.
Should the length of the rate transition vary, providing three years for price cap carriers
and five years for rate-of-return carriers, given that rate of return carriers' interstate
access rates are higher at the outset?47 What should the transition be for competitive
LECs?48 Would an approach that provides different transitions for different types of
carriers, whether competitive, price cap or rate-of-return LEC raise any policy concerns?
We also seek comment on whether the Commission should reduce originating interstate
access rates and, if so, whether we should require the reductions at the same time or only
after terminating rates have been reduced.

B. Scope of Reform


We seek comment on the approach outlined in the ABC Plan to reform substantially
terminating rates for end office switching while taking a more limited approach to
reforming certain transport elements and originating access.49 Would any problematic
incentives, such as arbitrage schemes, arise from or be left in place by such an approach,
and if so, what could be done to mitigate them?

C. Recovery Mechanism.


We seek comment on the appropriate recovery mechanism for ICC reform, including the
ABC Plan's and the Joint Letter's recovery proposals.50 We also seek comment on the
relative merits and incentives for carriers associated with an alternative approach that
provides more predictable recovery amounts, such as the alternative described below.
1. Federal-State Role in Recovery.
o As noted above, the ABC Plan proposes to shift recovery for reduced intrastate
access charge revenues to the federal jurisdiction. Could the Commission
achieve more comprehensive reform of intercarrier compensation rate elements if
recovery is achieved through a federal-state partnership? We seek comment


46 See, e.g., Nebraska Companies April 18 Comments at 35-36 & App. B.
47 See, e.g., Comcast April 18 Comments at 5 (advocating a three year transition).
48 See, e.g., Letter from Karen Reidy, COMPTEL, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et
al. at 3 (filed July 27, 2011).
49ABC Plan, Attach. 1 at 10-11(proposing to reduce certain rate elements to $0.0007 per minute with more limited
reforms for other intercarrier compensation rates).
50 ABC Plan, Attach. 1 at 11-13; Joint Letter, Attach. at 2-4.
13

above on different means by which states could share responsibility for recovery
of reduced intrastate access revenues.
2. Price Cap Carriers.
o For price cap carriers electing to receive support from the transitional access
replacement mechanism, the ABC Plan's recovery proposal includes annual true-
ups to adjust for possible increases or decreases in minutes of use. Although
minutes of use for incumbent LECs have been declining,51 the ABC Plan's
proposal establishing how VoIP minutes are included in the intercarrier
compensation system prospectively and addressing phantom traffic could cause
minutes of use to flatten or possibly even increase. In addition, the ABC Plan
would treat all VoIP traffic as interstate, which potentially could reduce the
minutes billed at intrastate access rates (depending upon existing payment
practices). Thus the true-up approach could result in the need for additional
recovery, including additional federal universal service funding. We seek
comment on alternatives to the true-up process.
o For example, as an alternative to true ups, we seek comment on a baseline for
recovery that would be 2011 access revenues subject to reform, reduced by 10%
annually to account for decline in demand (i.e., 90% of 2011 revenues in year
one (2012), 81.0% in year two (2013), 72.9% in year three (2014), 65.6% in year
four (2015), etc.).52 This (or a similar framework that may be suggested by
commenters) would be a brightline, predictable approach that would not include
true-ups, regardless of whether demand declines more quickly or more slowly. If
carriers reduce costs or are more efficient, this approach would enable carriers to
realize the benefits of these savings.
3. Rate of Return Carriers.
o We seek comment below on an alternative approach for recovery (or other
approaches that commenters might suggest) that would maintain the predictable
revenue stream associated with rate of return principles while also providing
carriers with better incentives for efficient investment and operations. This
option would provide a fixed percentage of recovery (which could be 100%) of
all reduced terminating access charges (both intrastate and interstate) based on
year 2011 revenues, but without true-ups to reflect changes in the revenue
requirement historically used for interstate access charges. This recovery
mechanism would lock in revenue streams, including intrastate access revenues,
which have been declining annually for many interstate rate-of-return carriers. It
thus provides more predictable revenue recovery while also providing incentives


51 USF/ICC Transformation NPRM, para. 503, Figure 13 (switched access minutes for incumbent LECs).
52 See, e.g.,. NCTA Letter, Attach. at 4 (advocating that recovery need not be revenue neutral, and should phase out
over a period of time). This framework could be used as a recovery mechanism even if we adopted a proposal for
reform that includes better state incentives outlined above.
14

for carriers to reduce costs and realize the benefits of these cost savings.53 The
eligible recovery amount would be recovered through end-user charges and
universal service support as described in the Joint Letter's proposal. We also
seek comment on the duration of recovery funding under this alternative. Should
it be phased out over time following the completion of rate reforms, such as with
the loss of demand?54
4. Reciprocal Compensation.
o
The ABC Plan's proposal provides recovery for reductions in reciprocal
compensation rates to the extent they are above $0.0007, but the ABC Plan
estimates on the impact of the federal universal service fund do not include
estimated recovery from reciprocal compensation. We ask whether providing
federal universal service support for reductions in reciprocal compensation rates
strikes the appropriate policy balance as we seek to control the size of the
universal service fund, and whether there are alternatives to such an approach.
5. Originating Access
o
If the Commission were to address originating access as part of comprehensive
reform, should the Commission treat originating access revenues differently from
terminating access revenues for recovery purposes since, in many cases, the
originating incumbent LEC's affiliate is offering the long distance service? For
example, is it necessary to provide any recovery for the originating access that an
incumbent LEC historically charged for originating calls from the retail long
distance customers of its affiliate?55
o
Alternatively, should recovery for such originating access take the form of a flat
per-customer charge imposed on the incumbent LEC's long distance affiliate for
each of its presubscribed customers? Should such a flat originating access
replacement charge be used for recovery of all originating access revenues more
generally? How would any of these approaches be implemented? Should any


53 Even carriers that are subject to interstate rate-of-return regulation can be subject to incentive regulation at the
state level or some other form of intrastate rate regulation that does not ensure rate increases every time costs
increase or demand decreases.
54 See ABC Plan, Attach. 1 at 12-13. Another possible alternative would be to use a recovery approach similar to
that for price cap carriers, discussed above.
55 Incumbent LECs typically provide retail long distance service through an affiliate in competition with other long
distance providers. If incumbent LEC end-user customers purchase long distance service from the incumbent LEC's
affiliate, it is the incumbent LEC's own affiliate that would pay those originating access charges, either directly or
indirectly. In particular, where the incumbent LEC's affiliate provided facilities-based long distance service, the
affiliate would pay the originating access directly. If the incumbent LEC's affiliate resells long distance service, the
wholesale IXC would directly pay the originating access. But it could pass through the originating access it pays to
the incumbent LEC in the rates it charges the long distance affiliate for wholesale long distance service (depending
upon the extent of any rate averaging), meaning the long distance affiliate would be indirectly paying the originating
access. This raises questions about whether the originating access revenues associated with end-user customers of
the incumbent LEC's own long distance affiliate should be viewed as additional revenue to the incumbent LEC.
15

flat originating access replacement charge differ by end-user customer class
(such as residential vs. business), by level of demand, or otherwise?
o
We seek the following data to help us evaluate originating access reform:

Separately for price cap and rate-of-return incumbent LECs, the number
of (1) long distance minutes that the average customer originates; (2)
8YY minutes that the average customer originates; and (3) long distance
and 8YY minutes that the average customer receives (terminating
minutes); and

Whether the ratio of originated long distance minutes to originated 8YY
minutes varies materially with the level of the customers' expenditure on
telecommunications services.

D. Impact on Consumers.


We seek comment on how to ensure that consumers realize benefits of reduced long
distance and wireless rates as part of intercarrier compensation reform. The ABC Plan
attaches a paper by Professor Jerry Hausman analyzing the consumer benefits of
intercarrier compensation reform. Should the potential realization of consumer pass
through benefits from intercarrier compensation reform be left to the market, as Professor
Hausman asserts, or should any steps be taken to ensure that such benefits are realized by
consumers? If so, what steps should be taken?

The ABC Plan permits incumbent carriers to increase the consumer SLC up to $9.20
before increasing the multiline business SLC, although multiline business SLCs
potentially could increase once consumer SLCs reach that level. To decrease the
potential burden on consumers and the federal universal service fund, should multiline
business customers also see a modest SLC increase and, if so, how much?

The ABC Plan permits incumbent carriers to increase consumer SLC rates $0.50-0.75 per
year for five years or until the consumer's rate reaches the rate benchmark of $30.
Similarly, the Joint Letter permits incumbent carriers to increase consumer SLC rates
$0.75 per year for six years or until the consumer's rate reaches the rate benchmark of
$25. Professor Hausman's paper indicates that companies are constrained by
competition, which could mean that companies may not be able to increase SLC rates on
consumers. We seek comment on the actual likely consumer impact of SLC increases, in
the aggregate and with as much granularity (e.g., by company, by type of state, by
specific state) as can be provided. We also seek comment on proposals that the need for
any recovery should be based on the carrier's showing of need based on its operations
more broadly.56

We seek the following data to help us quantify consumer benefits from intercarrier
compensation reform:


56 See, e.g., NCTA Letter, Attach. at 5.
16

o If ICC termination rates that currently exceed $0.0007 are reduced to $0.0007,
the services where pass through is likely to occur (perhaps, for example, long
distance, wireless service, 8YY services and monthly line rentals) and the likely
extent of that pass through; and
o Estimates of demand elasticities for those services where pass through is likely to
occur.

E. VoIP ICC


Implementation. We seek comment on the implementation of the ABC Plan's proposal
for VoIP intercarrier compensation.57 Under that proposal, VoIP access traffic would be
subject to intercarrier compensation rates different from rates applied to other access
traffic during the first part of the transition.58
o How would VoIP traffic subject to the ICC framework be identified for purposes
of the proposed tariffing regime?
o Would it be feasible to use call record information59 or factors or ratios to
identify the portion of overall traffic that is (or reasonably is considered to be)
relevant VoIP traffic, perhaps subject to certification or audits?60
o Should the Commission identify a "safe harbor" percentage of VoIP traffic for
use in this context? If so, what should be the factual basis for such a safe harbor?
For example, Global Crossing estimates "that on average roughly fifty to sixty
percent of the traffic [on its network] is VoIP."61 Would that, or other data,
provide a basis for a safe harbor?
o Are there alternative mechanisms besides tariffs that could be used to determine
the amount of VoIP traffic exchanged between two carriers for purposes of the
VoIP ICC framework, and if so, what would be the relative merits of such an
approach?

Call Signaling. In the USF/ICC Transformation NPRM the Commission proposed to
apply new call signaling rules designed to address phantom traffic to telecommunications
carriers and interconnected VoIP providers. Some commenters have expressed concerns
about whether and how the proposed rules would apply to one-way interconnected VoIP
providers.62 In particular, we seek to further develop the record regarding possible


57 The ABC Plan's proposal for VoIP ICC would apply not only to traffic to or from customers of interconnected
VoIP services, but also to customers of "one-way" interconnected VoIP services--in particular, to those that allow
users to terminate calls to the PSTN, but not receive calls from the PSTN, or vice versa.
58 ABC Plan, Attach. 1 at 10.
59 See, e.g., XO Section XV Comments at 33; Vonage Section XV Comments at 13-14.
60 See, e.g., XO Section XV Comments at 33; Verizon Section XV Reply at 24; Comcast Section XV Reply at 11.
61 Letter from Paul Kouroupas, Vice President, Regulatory Affairs, Global Crossing, to Marlene H. Dortch,
Secretary, FCC, CC Docket No. 01-92 at 2 (filed Dec. 17, 2010).
62 See Level 3 Section XV Comments at 10-11; AT&T Section XV Reply at 16; Level 3 Section XV Reply at 9.
17

implementation of any new call signaling rules that apply to one-way interconnected
VoIP providers.
o If call signaling rules apply to one-way interconnected VoIP providers, how
could these requirements be implemented?63 Would one-way interconnected
VoIP providers be required to obtain and use numbering resources? If not, how
could the new signaling rules operate for originating callers that do not have a
telephone number?64
o If one-way interconnected VoIP providers were permitted to use a number other
than an actual North American Numbering Plan (NANP) telephone number
associated with an originating caller in required signaling, would such use lead to
unintended or undesirable consequences? If so, should other types of carriers or
entities also be entitled to use alternate numbering?
o Would there need to be numbering resources specifically assigned in the context
of one-way VoIP services? Are there other signaling issues that we should
consider with regard to one-way VoIP calls?
o If call signaling rules were to apply signaling obligations to one-way
interconnected VoIP providers, at what point in a call path should the required
signaling originate, i.e. at the gateway or elsewhere?
o To what extent are such requirements necessary to implement the ABC Plan's
and Joint Letter's proposals that billing for VoIP traffic be based on call detail
information? More broadly, what particular call detail information would be
used for this purpose? What are the relative advantages or disadvantages of
treating such call detail information as dispositive for determining whether access
charges or reciprocal compensation rates apply?
Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419,
interested parties may file comments and reply comments on or before the dates indicated on the first
page of this document. All comments are to reference

WC Docket Nos. 10-90, 07-135, 05-337, 03-109,
CC Docket No. 01-92, 96-45, and GN Docket 09-51

and may be filed using: (1) the Commission's
Electronic Comment Filing System (ECFS) or (2) by filing paper copies. See Electronic Filing of
Documents in Rulemaking Proceedings
, 63 FR 24121 (1998).

Electronic Filers: Comments may be filed electronically using the Internet by accessing the
ECFS: http://fjallfoss.fcc.gov/ecfs2/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each
filing. If more than one docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or rulemaking number.


63 See, e.g., Level 3 Section XV Comments at 10-11 (seeking clarification that compliance would not require one-
way interconnected VoIP providers to obtain numbering resources).
64 See id.
18

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-
class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.

All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be
delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325, Washington, DC 20554.
The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber
bands or fasteners. Any envelopes must be disposed of before entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must
be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street,
SW, Washington DC 20554.
People with Disabilities: To request materials in accessible formats for people with disabilities (Braille,
large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer &
Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

In addition, one copy of each pleading must be sent to each of the following:

(1) The Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, S.W., Room
CY-B402, Washington, D.C. 20554, www.bcpiweb.com; phone: (202) 488-5300 fax: (202) 488-
5563;
(2) Charles Tyler, Telecommunications Access Policy Division, Wireline Competition Bureau, 445 12th
Street, S.W., Room 5-A452, Washington, D.C. 20554; e-mail: Charles.Tyler@fcc.gov.
Filings and comments are also available for public inspection and copying during regular
business hours at the FCC Reference Information Center, Portals II, 445 12th Street, S.W., Room CY-
A257, Washington, D.C. 20554. They may also be purchased from the Commission's duplicating
contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street, S.W., Room CY-B402, Washington,
D.C. 20554, telephone: (202) 488-5300, fax: (202) 488-5563, or via e-mail www.bcpiweb.com.
This matter shall be treated as a "permit-but-disclose" proceeding in accordance with the
Commission's ex parte rules.65 Persons making oral ex parte presentations are reminded that memoranda
summarizing the presentations must contain summaries of the substance of the presentation and not
merely a listing of the subjects discussed. More than a one or two sentence description of the views and
arguments presented generally is required.66 Other rules pertaining to oral and written ex parte
presentations in permit-but-disclose proceedings are set forth in section 1.1206(b) of the Commission's
rules.67
For further information, please contact Katie King, Telecommunications Access Policy Division,
Wireline Competition Bureau, at (202) 418-7400 or TTY (202) 418-0484, Daniel Ball, Pricing Policy
Division, Wireline Competition Bureau, at (202) 418-1520, and Sue McNeil, Auctions and Spectrum
Access Division, Wireless Telecommunications Bureau at (202) 418-0660.
- FCC -


65 47 C.F.R. 1.1200 et seq.
66 See 47 C.F.R. 1.1206(b)(2).
67 47 C.F.R. 1.1206(b).
19

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