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TITLE PAGE & TABLE OF CONTENTS

I. Introduction 1

II. Executive Summary 21

III. Principles 43

IV. Definition of Universal Service: What Services to Support 56

A. Overview 56

B. Designated Services 58

C. Feasibility of Providing Designated Services 88

D. Extent of Universal Service Support 94

E. Quality of Service 97

F. Reviewing the Definition of Universal Service 103

V. Affordability 108

A. Overview 108

B. Affordability 109

VI. Carriers Eligible for Universal Service Support 127

A. Overview 127

B. Eligible Telecommunications Carriers 130

C. Definition of Service Areas 182

D.Unserved Areas 194

VII. Rural, Insular, and High Cost 199

A. Overview 199

B. Background 208

C. Universal Service Support Based on Forward-Looking Economic Cost 223

1. Overview 223

2. Scope of Costs to Be Supported 224

3. Determination of Forward-Looking Cost for Non-Rural Carriers 232

4. Determination of Forward-Looking Cost for Rural Carriers 252

5. Applicable Benchmarks 257

6. Share of Support Provided by Federal Universal Service Support Mechanisms 268

D. Mechanism for Carriers Until Support Is Provided Based on Forward-Looking Economic Cost 273

1. Non-Rural Carriers 273

2. Rural Carriers 291

E. Use of Competitive Bidding Mechanisms 319

VIII. Support for Low-Income Consumers 326

A. Overview 326

B. Authority to Revise Lifeline and Link Up Programs 329

C. Changes to Structure of Lifeline and Link Up 341

D. Services Included in Lifeline and Link Up 383

E. Implementation of Revised Lifeline and Link Up Programs 408

IX. Issues Unique to Insular Areas 410

A. Overview 410

B. Background 411

C. Discussion 414

X. Schools and Libraries 424

A. Overview 424

B. Telecommunications Carrier Functionalities and Services Eligible for Support 426

C. Discount Methodology 464

D. Restrictions Imposed on Schools and Libraries 552

E. Funding Mechanisms for Schools and Libraries 583

F. Access to Advanced Telecommunications and Information Services 587

G. Sections 706 and 708 of the 1996 Act 601

H. Initiation 606

XI. Support for Health Care Providers 608

A. Overview 608

B. Services Eligible for Support 609

C. Eligibility of Health Care Providers 638

1. Defining Eligibility for Health Care Providers 638

2. Defining Rural Areas 646

3. Definition of Health Care Provider 653

D. Implementing Support Mechanisms for Rural Health Care Providers 657

1. Identifying the Applicable Rural Rate 657

2. Identifying the Applicable Urban Rate 664

3. Competitive Bidding 686

4. Insular Areas and Alaska 690

E. Capping and Administering the Mechanisms 702

1. Selecting Between Combined or Separate Support Mechanisms for Health Care Providers and Schools and Libraries 702

2. Funding Cap 704

F. Restrictions and Administration 717

1. Restrictions on Resale and Aggregated Purchases 717

2. Bona Fide Requests 724

3. Selecting Between Offset or Reimbursement for Telecommunications Carriers 732

G. Advanced Telecommunications and Information Services 738

XII. Interstate Subscriber Line Charges and Carrier Common Line Charges 750

A. Overview 750

B. LTS Payments 753

C. SLC Caps 760

D. CCL Charges 767

E. Replacement of LTS 769

XIII. Administration of Support Mechanisms 772

A. Overview 772

B. Mandatory Contributors to the Support Mechanisms 775

C. Other Providers of Interstate Telecommunications 793

D. The De Minimis Exemption 801

E. Scope of the Commission's Authority Over the Universal Service Support Mechanisms 806

F. Basis for Assessing Contributions 842

G. Administrator of the Support Mechanisms 858

H. Implementation 867

XIV. Final Regulatory Flexibility Analysis 870

A. Need for and Objectives of This Report and Order and the Rules Adopted Herein 872

B. Summary and Analysis of the Significant Issues Raised by Public Comments in Response to IRFA 874

C. Description and Estimates of the Number of Small Entities to Which the Rules Adopted in this Report and Order Will Apply 890

1. Telephone Companies 894

2. Cable System Operators 917

3. Municipalities 923

4. Rural Health Care Providers 924

5. Schools and Libraries 925

D. Summary Analysis of the Projected Reporting, Recordkeeping, and Other Compliance Requirements and Significant Alternatives and Steps Taken to Minimize the Significant Economic Impact on a Substantial Number of Small Entities Consistent with Stated Objectives 926

E. Report to Congress 983

XV. Conclusion 984

XVI. Ordering Clauses 985

STATEMENTS

Chairman Hundt

Commissioner Quello

Commissioner Ness

Commissioner Chong

Appendix A (Parties Filing Initial Comments)

Appendix B (Parties Filing Reply Comments)

Appendix C (Parties Filing Cost Proxy Model Comments)

Appendix D (Parties Filing Comments on Proxy Cost Model Workshops)

Appendix E (Parties Filing Proxy Cost Models)

Appendix F (Parties Cited in this Order that Filed Only in Response to the NPRM in CC Docket No. 96-45)

Appendix G (Parties Filing Initial Comments: CPD File No. 97-2)

Appendix H (Parties Filing Reply Comments: CPD File No. 97-2)

Appendix I (Final Rules)

Appendix J (Summary of Comments in CC Docket No. 96-45)

Appendix K (Universal Service Proceeding February 1996 - May 1997)

Appendix L (List of Universal Service Proceedings May 1997 - 2001)

Appendix M (Future Proceedings)

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