I. INTRODUCTION

II. EXECUTIVE SUMMARY

III. PRINCIPLES

A. Overview

1. The following is a summary of comments relating to the issue of principles.

B. Comments

2. 1996 Act Principles. Commenters generally support the guiding principles identified under section 254(b), with some commenters stating various preferences for prioritization of those goals.⁽²³⁴⁰⁾ Others emphasize those goals related to access to services.⁽²³⁴¹⁾ No comments were received in opposition to the establishment of these enumerated principles.

3. In addition to the principles enumerated above, numerous comments were filed regarding additional principles that should guide the Commission when addressing universal service issues.⁽²³⁴²⁾ These proposed additional principles are set forth below.

4. Competitive Neutrality. A majority of commenters addressing this issue advocate adopting competitive neutrality as an additional principle to shape policies governing universal service.⁽²³⁴³⁾ A few commenters advocate specific definitions of competitive neutrality that emphasize application of universal service rules and mechanisms in a manner that does not advantage or disadvantage one provider of telecommunications services over another.⁽²³⁴⁴⁾ Others emphasize competitively neutral contribution, distribution, and determination of eligibility for universal service support.⁽²³⁴⁵⁾ ALTS contends that the Joint Board's definition of competitive neutrality should be broadened to include the concept of a competitively neutral administrator and that rules and regulations themselves, not just application of the rules, should be competitively neutral.⁽²³⁴⁶⁾ Commenters also cite congressional intent to promote competition in the advancement of telecommunications services.⁽²³⁴⁷⁾ Several commenters advocate inclusion of technological neutrality as a concept related to the principle of competitive neutrality.⁽²³⁴⁸⁾ They contend that the Commission should avoid defining any particular service or technology that must be available and supported by universal service support mechanisms and allow the marketplace to shape the direction of technology.⁽²³⁴⁹⁾

5. Some commenters focus on the effect of a principle of competitive neutrality on rural areas. Evans Tel. contends that Congress adopted "rural safeguard" provisions in the 1996 Act in the form of statutory advantages and protections to rural telephone companies not provided to competitors. These provisions, according to Evans Tel., were designed to protect universal service in areas served by small, rural telephone companies from competition in the absence of such safeguards that could threaten rural service rates and quality standards.⁽²³⁵⁰⁾ Therefore, Evans Tel. and other commenters assert, competitive neutrality can enter into universal service only as a secondary consideration - subordinate to the specific principles identified in the 1996 Act.⁽²³⁵¹⁾ RTC contends that Congress understood that rural conditions require special scrutiny "even where pro-competitive measures are concerned" and that Congress balanced the policies of rural competition and universal service in the 1996 Act.⁽²³⁵²⁾

6. A few commenters contend that a principle of competitive neutrality is unnecessary or inconsistent with section 254.⁽²³⁵³⁾ Western Alliance asserts that the section 254(b) principles make it clear that universal service is intended to be a safeguard against competitive excesses and market failures.⁽²³⁵⁴⁾ They further assert that, given the express reference to competitive neutrality in section 254(h)(2), the lack of any reference to competitive neutrality in the general provisions of section 254(b) demonstrates a conscious decision by Congress not to include competitive neutrality as a principle.⁽²³⁵⁵⁾

7. TCA contends that the concept of competitive neutrality already is embodied in the 1996 Act and, therefore, is not needed as an additional principle.⁽²³⁵⁶⁾ Wyoming PSC contends that if competitive neutrality permits diminished emphasis on affordable universal service in rural and high cost areas where market forces dictate such a result, then the principle runs against the express policy of the 1996 Act and should not be allowed.⁽²³⁵⁷⁾

8. Americans with Disabilities. Some commenters urge the Commission to address specific issues faced by Americans with disabilities pursuant to the provisions of section 254.⁽²³⁵⁸⁾ NAD contends that, while individuals with disabilities are covered by section 255, reliance upon section 255 to ensure basic access to the public switched network by individuals with disabilities who must purchase specialized customer premises equipment (SCPE) is misplaced.⁽²³⁵⁹⁾ Specifically, NAD contends that universal service support is needed to fund SCPE for individuals with disabilities.⁽²³⁶⁰⁾ Commenters also contend that individuals with speech disabilities who use Alternative and Augmentive Communications (AAC) pay more for end-user access to telecommunications services than does the general public due to the increased response time required by AAC device users.⁽²³⁶¹⁾ Commenters request universal service support to bring toll charges for both text telephone (TTY) and telecommunications relay service users in line with other toll charges based on the longer than average calls associated with the use of these services.⁽²³⁶²⁾

9. Additional Protection for Specific Groups. Public Advocates suggests as an additional goal that, in each state, carriers should work to achieve the statewide average rate of subscribership among that state's low-income, minority, and limited English-speaking communities.⁽²³⁶³⁾

10. Schools and Libraries. Some commenters suggest that allowing community-based organizations providing educational, health, and literary services to receive the same full and equal access to advanced services as libraries and schools should be a principle that stems from section 254(b).⁽²³⁶⁴⁾

11. Other Suggested Principles. Bar of New York advocates including an additional principle expressly promoting access to interactive services.⁽²³⁶⁵⁾ GSA recommends that "economic efficiency" be recognized as a principle.⁽²³⁶⁶⁾ A few commenters also contend that the Commission should adopt a principle of minimizing the growth and overall size of the universal service support mechanisms.⁽²³⁶⁷⁾

IV. DEFINITION OF UNIVERSAL SERVICE: WHAT SERVICES TO SUPPORT

A. Overview

12. The following is a summary of the comments on the issue of what services should be included in the definition of universal service under section 254(c)(1).

B. Designated Services

1. Comments

13. General Comments. Catholic Conference agrees with the Joint Board's conclusion that all four criteria enumerated in section 254(c)(1) must be considered, but not necessarily met, before a service may be included within the definition of universal service.⁽²³⁶⁸⁾ Benton suggests that the Commission adopt a universal service system defined by transport and termination requirements rather than services.⁽²³⁶⁹⁾ As defined by Benton, transport requirements concerning the "quality and capacity of telephony media" (such as the provision of single-party service or the capability of providing fax/data service at specified speeds), the distribution of those media, and termination requirements mandate that carriers connect with a specified destination on demand (for example, equal access to interexchange carriers).⁽²³⁷⁰⁾ According to Benton, this approach would permit the Commission to adopt "policies without either specifying or implying specific facilities, architecture, or network topography and the carriers that are traditionally associated with those elements."⁽²³⁷¹⁾

14. Services Proposed in the Recommended Decision. Various commenters concur with the Joint Board's recommended list of services to be supported by universal service support mechanisms.⁽²³⁷²⁾ GSA contends that the services proposed for support by the Joint Board encompass the "minimum group of services that should be available to all consumers."⁽²³⁷³⁾ In contrast, People For asserts that the Joint Board failed to recommend a sufficiently broad definition of universal service that would "fulfill Congress' mandate to ensure full participation in the information age."⁽²³⁷⁴⁾

15. Voice Grade Access to the Public Switched Network. Bar of New York asserts that the Joint Board's recommendation that voice grade access occur at approximately 3,500 Hertz will not ensure residential consumers access to interactive services, which, it argues, requires greater bandwidth.⁽²³⁷⁵⁾ Bar of New York cites the Recommended Decision's conclusion in connection with rural health care providers that services such as video-on-demand, medical imaging, two-way interactive distance learning and high definition television (HDTV) might require bandwidth of 1.544 Mbps.⁽²³⁷⁶⁾ Thus, Bar of New York argues that the benefits of broadband interactive services warrant support for increased bandwidth.⁽²³⁷⁷⁾ MFS asserts that the Commission should assure universal access to advanced services, including the capability to support data transmissions of at least 1 Mbps, by adopting the network standards established by Congress for carriers that borrow from the Rural Utilities Service (RUS) under the Rural Electrification Restructuring Act of 1993 (RELRA).⁽²³⁷⁸⁾

16. Local Usage. Ameritech, arguing that states should support local usage through their own universal service mechanisms, contends that a variable usage component should not be funded through federal support mechanisms.⁽²³⁷⁹⁾ According to Ameritech, if the Commission includes a variable usage component within the definition of voice grade access, states would be encouraged to designate a high level of local usage for support in their respective jurisdictions in order to maximize the benefits their constituents receive from federal universal service support mechanisms.⁽²³⁸⁰⁾ In contrast, Ohio PUC maintains that support for local usage is essential to realizing the full benefits of voice grade access and further contends that a local usage component meets the four criteria set forth in section 254(c)(1).⁽²³⁸¹⁾ Ohio PUC advocates that the states, rather than the Commission, be responsible for establishing minimum local usage levels in their respective jurisdictions.⁽²³⁸²⁾

17. United Utilities argues against the establishment of a local usage sensitive support mechanism because, it contends, such a mechanism would require carriers that do not offer measured service to eliminate flat, non-usage based rates and require those carriers to purchase new switches and software and implement new billing systems.⁽²³⁸³⁾ United Utilities contends that, if the Commission elects to limit the amount of support for local usage, the Commission should apply such a limitation only to non-rural carriers that use measured service and "exempt [the rural carrier] from having to limit the amount of local usage that customers receive in order to be able to receive the full amount of universal service funding that the carrier is otherwise entitled to receive."⁽²³⁸⁴⁾

18. DTMF Signaling. NENA favors including DTMF signaling among the services to be supported because, NENA argues, DTMF signaling "is an important means of speeding calls where seconds saved may save lives and property in emergencies."⁽²³⁸⁵⁾

19. Access to Emergency Services. NENA concurs with the Joint Board's recommendation to include access to emergency services, including access to 911, among the supported services.⁽²³⁸⁶⁾ TCA contends that by adopting the Joint Board's recommendation to exclude access to enhanced 911 (E911) service from the list of supported services, the Commission would be giving wireless providers a competitive advantage over providers that can or must offer this service.⁽²³⁸⁷⁾ Similarly, Western Alliance opposes what it characterizes as the Joint Board's failure to recognize the potential benefit provided by E911 in favor of ensuring that potential wireless competitors could receive universal service support.⁽²³⁸⁸⁾ TCA favors supporting access to E911 service, as well as E911 service itself, when it is requested by the local community.⁽²³⁸⁹⁾

20. Access to Directory Assistance and White Pages Directories. USTA urges the Commission to include white pages directories within the definition of universal service because, it argues, white pages directories meet the statutory criteria for inclusion and serve the public interest by making this information available to consumers.⁽²³⁹⁰⁾ West Virginia Consumer Advocate "strongly disagrees" with the Joint Board's decision against recommending that white pages directories be supported because it contends that the Joint Board's recommendation to exclude white pages directories is inconsistent with its recommendation to support access to directory assistance.⁽²³⁹¹⁾ West Virginia Consumer Advocate asserts that, like access to directory assistance, white pages directories are a "fundamentally important offering" that, while not a "telecommunications service" per se, are "necessary for consumers to access telecommunications and information services."⁽²³⁹²⁾ Oregon PUC argues that, if the Commission decides to exclude white pages listings from the list of supported services, the Commission should require carriers to include all of their subscribers in their directory assistance databases.⁽²³⁹³⁾ In contrast, Georgia PSC asserts that white pages directories do not come within the Act's definition of "telecommunications services" and, therefore, supports the Joint Board's recommendation to exclude white pages directories from the list of supported services.⁽²³⁹⁴⁾

21. Access to Operator Service. CWA argues that access to operator service should include "initial contact with a live operator," which, it contends, is "indispensable for users in public health or safety emergencies."⁽²³⁹⁵⁾

22. Access to Interexchange Service. USTA supports the Joint Board's recommendation that the Commission include access to interexchange service within the definition of universal service.⁽²³⁹⁶⁾ GCI opposes providing universal service support for access to interexchange service on the grounds that interexchange service is competitive and is not currently subsidized.⁽²³⁹⁷⁾

23. Equal Access to Interexchange Service. Ameritech argues that the principle of competitive neutrality requires that, in areas where the incumbent LEC has the obligation to offer equal access to interexchange service providers, other carriers receiving universal service support in that area also should be obligated to provide equal access.⁽²³⁹⁸⁾ Noting that incumbent LECs have incurred costs associated with upgrading their networks to offer equal access and that end-user customers have come to expect this service, GVNW and TCA contend that the principle of competitive neutrality mandates that competitors be required to offer equal access.⁽²³⁹⁹⁾ GVNW urges the Commission to include equal access in the definition of universal service and establish an implementation deadline by which all eligible carriers must provide such access.⁽²⁴⁰⁰⁾ Western Alliance maintains that the exclusion of equal access from the list of core services would ensure that wireless carriers qualify for universal service support at the expense of rural consumers who, as a result of such a determination, may be denied the substantial benefits of equal access.⁽²⁴⁰¹⁾ WorldCom asserts that the Joint Board's recommendation not to support equal access is inconsistent with the principle of competitive neutrality in that it favors one discrete class of carriers over all other carriers that seek to provide equal access as part of universal service.⁽²⁴⁰²⁾ WorldCom recommends that the Commission either: 1) support equal access only to the extent that eligible carriers are able to provide it; or 2) support equal access "across the board" but permit CMRS providers to file for waivers from this requirement.⁽²⁴⁰³⁾

24. CTIA and Vanguard argue that wireless carriers should not be required to provide services or functionalities, such as equal access, that they are not currently able or required to provide.⁽²⁴⁰⁴⁾ Similarly, PCIA contends that the Joint Board properly recognized that, under section 332(c)(8), CMRS providers are not "required to provide equal access to common carriers for the provision of toll services."⁽²⁴⁰⁵⁾ Vanguard asserts that including equal access within the list of supported services would be inconsistent with Congress's intent to maximize consumer choice because doing so would limit the ability of CMRS providers to offer universal service in areas where they are best equipped to provide service.⁽²⁴⁰⁶⁾ PCIA asserts that because sections 332(c)(8) and 254 were enacted together as part of the 1996 Act, the Commission must interpret these sections under principles of statutory construction so that neither is nullified.⁽²⁴⁰⁷⁾ By exempting CMRS providers from equal access obligations while creating a universal service program consistent with section 254, PCIA asserts that the Joint Board's recommendation represents a permissible construction of the two provisions.

25. Advanced Services. APC and Business Software Alliance concur with the Joint Board's recommendation that the Commission not support advanced services such as ISDN, end-to-end digital service and call waiting on the theory that the Commission must carefully choose the services designated for support in order to limit the overall size of the universal service support mechanisms.⁽²⁴⁰⁸⁾ In contrast, ITC argues that the statutory principle of "access to advanced services" is missing from the proposed definition of supported services.⁽²⁴⁰⁹⁾ ITC contends that supporting access to advanced services for schools and libraries, but not for carriers serving consumers in high cost areas, discriminates against "family and economic institutions of society" in favor of educational institutions.⁽²⁴¹⁰⁾ People For contends that the statutory principle promoting "access to advanced telecommunications and information services" provides authority for the Commission to support services and functionalities such as modern network facilities, Internet access availability, call tracing, and 900-number blocking services.⁽²⁴¹¹⁾ Bar of New York contends that, if access charge reform does not result in a system that permits differential pricing for voice and data calls, universal service support might be necessary to ensure access to interactive services.⁽²⁴¹²⁾ Urban League advocates including fax and modem capability, the latter of which will ensure all Americans have the ability to use electronic mail, in the definition of universal service.⁽²⁴¹³⁾

26. Iowa Utilities Board states that "advanced telecommunications and information services" should include Internet service and that the Commission should establish incentives to encourage access to Internet facilities for communities in rural areas.⁽²⁴¹⁴⁾ Arguing that information service providers merely provide conduit, and not content, People For opposes the Joint Board's conclusion that Internet access is not a "telecommunications service."⁽²⁴¹⁵⁾ Accordingly, People For urges the Commission to reject the Joint Board's recommendation and include Internet service within the definition of universal service.⁽²⁴¹⁶⁾ In the alternative, People For requests that the Commission define Internet service as a "telecommunications service" not presently designated for universal service support.⁽²⁴¹⁷⁾

27. Taking issue with the view expressed by People For, NCTA contends that Internet access is not a telecommunications service.⁽²⁴¹⁸⁾ NCTA asserts that the Joint Board correctly recognized that information and enhanced services provided over the facilities of common carriers are treated, for regulatory purposes, as separate and distinct from the basic telecommunications capacity used to transmit those services.⁽²⁴¹⁹⁾ Whereas a common carrier's basic transmission capacity is a telecommunications service that must be made available to any information service provider under tariff, NCTA maintains, a common carrier's Internet access service is not a telecommunications service.

28. Other Services. Catholic Conference advocates supporting voice messaging services for individuals without residences and contends that this service meets each of the criteria enumerated in section 254(c)(1).⁽²⁴²⁰⁾ CWA recommends that the Commission add "prompt access to repair bureaus and business offices" to the list of supported services.⁽²⁴²¹⁾

29. Universal Service Alliance urges the Commission to reject the Joint Board's recommendation to exclude consideration of disabilities-related issues and to provide universal service support to make specialized customer premises equipment, such as TTYs, telephone signaling devices, telebraille machines and volume control telephones, accessible and affordable to consumers with disabilities in all states.⁽²⁴²²⁾ In addition, Universal Service Alliance favors supporting toll charges associated with TTY and relay service calls.⁽²⁴²³⁾ Universal Service Alliance argues that, contrary to the Joint Board's representation, the Commission's proceeding to implement section 255 is narrowly focused on making telecommunications equipment usable by consumers with disabilities and does not encompass numerous issues raised by the section 254 mandate that all persons have access to basic and advanced telecommunications services.⁽²⁴²⁴⁾

30. Offering Supported Services on a Stand-Alone Basis. GTE suggests that eligible carriers should be required to offer the services designated for support under section 254(c)(1) on a "stand-alone" basis and at an "affordable" price, and Ameritech, TCA and CWA concur with this proposal.⁽²⁴²⁵⁾ GTE states that this requirement would prevent carriers from "cherry picking" select customers by offering the designated services only in conjunction with other, higher priced services.⁽²⁴²⁶⁾

31. Treatment of Wireless Providers. TCA generally contends that wireless providers receive preferential treatment in the Joint Board's recommended definition of universal service.⁽²⁴²⁷⁾ CTIA urges the Commission to reject the arguments of TCA and others because, CTIA argues, by advocating an expansive list of services required of eligible telecommunications providers, these parties seek to prevent wireless providers from becoming eligible for universal service support.⁽²⁴²⁸⁾

C. Feasibility of Providing Designated Services

1. Comments

32. Limitations on Carriers' Ability to Provide Designated Services. CTIA asserts that it is unfair to require wireless providers to offer E911 service at present in light of the Commission's recent decision in CC Docket 94-102 to give wireless carriers a five-year grace period in which to complete the technical upgrades necessary to achieve E911 capability.⁽²⁴²⁹⁾ According to CTIA, requiring eligible carriers to provide E911 service would not only exclude wireless carriers from becoming eligible for support in the near term, but would also undermine the Commission's decision in CC Docket 94-102.⁽²⁴³⁰⁾

33. Transition Period for Conversion to Single-Party Service. GTE argues that additional state commission action should not be necessary to authorize universal service support for party-line customers when a state regulatory agency has previously established a transition period for offering single-line capability that extends beyond January 1, 1998, the recommended date for implementation of the new high cost support mechanisms.⁽²⁴³¹⁾ In addition, GTE, referring to the Joint Board's recommendation that "carriers may offer consumers the choice of multi-party service in addition to single-party service and remain eligible for universal service support," urges the Commission to clarify that carriers will remain eligible for universal service support not only for single-line customers, but also for each party-line customer that is offered single-line service, but chooses to subscribe to party-line service.⁽²⁴³²⁾ GTE maintains that carriers should not bear the burden of initiating a proceeding before state commissions when customers choose party-line service.⁽²⁴³³⁾

D. Extent of Universal Service Support

1. Comments

34. Limiting Support for Services Carried on a Single Residential Connection. There is considerable record support for the Joint Board's recommendation not to support additional residential connections.⁽²⁴³⁴⁾ PageMart argues that supporting the provision of multiple lines is a benefit that extends "far beyond the universal service mandate to connect the greatest number of residences to the telephone system."⁽²⁴³⁵⁾ Cox argues that second connections do not promote universal service goals because they are not necessary to ensure access to the telephone network.⁽²⁴³⁶⁾ In addition, Cox contends that second lines should not be supported because they are a "significant source of profits to telephone companies."⁽²⁴³⁷⁾ According to Cox, it costs little to provide a second line because conventional loops have the capacity to provide two lines when they are installed, but telephone companies generally charge the same amount for a second line as they do for the first.⁽²⁴³⁸⁾ Sprint asserts that giving ILECs flexibility in pricing second lines will eliminate the need for universal service support for second lines.⁽²⁴³⁹⁾

35. Ad Hoc, arguing against support for additional lines, contends that there is no evidence that the number of consumers who subscribe to secondary lines constitute a "substantial majority" pursuant to section 254(c)(1)(B).⁽²⁴⁴⁰⁾ Further, Ad Hoc argues, even if a "substantial majority" of consumers subscribes to a second line, such additional lines should not be supported because they are not "essential to education, public health, or public safety" consistent with section 254(c)(1)(A).⁽²⁴⁴¹⁾ According to Ad Hoc, secondary lines have never been a core universal service and excluding them from support is consistent with past and present universal service policy.⁽²⁴⁴²⁾ In addition, Ad Hoc characterizes as "speculative" arguments that carriers have difficulty differentiating between primary and secondary lines.⁽²⁴⁴³⁾ According to Ad Hoc, billing systems are presently capable of distinguishing between primary and secondary residential lines or can be modified to add this capability.⁽²⁴⁴⁴⁾ Time Warner proposes that the universal service administrator and carriers work together to address administrative issues.⁽²⁴⁴⁵⁾ Specifically, Time Warner contends, without further elaboration, that assigning one customer voucher "per household in an eligible area" would eliminate the need for the universal service administrator to track "a customer's migration from one carrier to another."⁽²⁴⁴⁶⁾ Time Warner argues that, under this approach, "it would not matter which of multiple carriers serving the high-cost customer was providing the primary line and which was providing the second line."⁽²⁴⁴⁷⁾

36. Sprint and Teleport suggest that the Commission use a customer certification method to identify primary lines that are eligible for high cost support.⁽²⁴⁴⁸⁾ Specifically, Teleport suggests a plan wherein customers should designate one carrier as their primary local exchange carrier.⁽²⁴⁴⁹⁾ Under this plan, support would be provided to the carrier designated by the customer for the provision of the designated services carried on one connection.⁽²⁴⁵⁰⁾ Teleport further suggests that customer information already maintained by local exchange and interexchange carriers in the Customer Account Record Exchange ("CARE") database be used in conjunction with information relating to high cost areas included in the cost models to create a Universal Service Database ("USDB").⁽²⁴⁵¹⁾ According to Teleport, the CARE database, which includes the service address for every customer in a local exchange carrier's service territory, is automated and readily available.⁽²⁴⁵²⁾ Teleport suggests that the fund administrator check each carrier's request for funding for a particular address against the records in the USDB to determine the validity of the request.⁽²⁴⁵³⁾ Using this approach, multiple support requests for one address or requests for addresses not in the USDB would be denied pending further investigation by the administrator, with state commission and FCC intervention required only in disputed cases.⁽²⁴⁵⁴⁾ Teleport recommends that the universal service administrator or another entity designated by the Commission conduct periodic, random audits to discourage fraud.⁽²⁴⁵⁵⁾ Teleport urges the Commission not to countenance the misuse of universal service support simply because it may be impossible to identify and punish every instance of fraud.⁽²⁴⁵⁶⁾

37. Similarly, MFS proposes a plan wherein customers who are served by more than one carrier designate one carrier as their primary local exchange carrier for universal service purposes.⁽²⁴⁵⁷⁾ Under the MFS proposal, the fund administrator would enter nine-digit zip codes into a national database.⁽²⁴⁵⁸⁾ The database would identify the zip codes corresponding to high cost areas and could be designed to match high cost census blocks or wire centers with the appropriate nine-digit zip codes.⁽²⁴⁵⁹⁾ The database would also include the customer's last name and street address in those instances in which the nine-digit zip code is insufficient to identify a specific household.⁽²⁴⁶⁰⁾ The universal service support administrator could provide carriers with a listing of end users residing in high cost areas, which carriers could match against their billing database, or the carriers could submit claims for support by providing the administrator with an electronic listing of their customers by nine-digit zip code drawn from their billing records.⁽²⁴⁶¹⁾ The fund administrator would use the customer's nine-digit zip code to determine whether the carrier is eligible to receive high cost support and would use the customer's name to identify more precisely the connection for which the carrier is requesting support.⁽²⁴⁶²⁾ According to MFS, carriers already use zip codes for billing purposes and have an incentive to retain customer zip codes because the US Postal Service offers postage discounts to bulk-billers that use zip codes.⁽²⁴⁶³⁾ MFS also argues that a system using zip codes would be automated and auditable.⁽²⁴⁶⁴⁾

38. Conversely, several commenters oppose the Joint Board's recommendation not to provide universal service support beyond that provided for designated services carried on a single residential connection.⁽²⁴⁶⁵⁾ Some parties, including some rural LECs, assert that the cost of providing additional lines will increase if these lines are not supported.⁽²⁴⁶⁶⁾ In addition, Minnesota Coalition argues that eliminating support for additional residential lines would discourage LECs from installing sufficient facilities to accommodate second lines.⁽²⁴⁶⁷⁾ Similarly, GVNW argues that if, in the future, the definition of universal service is modified to include Internet access over separate facilities, eligible carriers will not have adequately invested in the facilities necessary to provide this service.⁽²⁴⁶⁸⁾ California SBA argues that, under the Joint Board's recommendation, there will be no economic incentive for new local service providers to build new facilities to compete with incumbent LECs because support levels will be "unrealistically low."⁽²⁴⁶⁹⁾ Western Alliance, for example, estimates that one of its members will have to triple the rate currently charged for a second residential connection if universal service support is not available for that connection.⁽²⁴⁷⁰⁾ Western Alliance contends that, if that same member's state commission permitted it to rebalance rates in order to make up for the loss of support for additional residential connections, the member would be required to increase all of its local service rates by 61 percent.⁽²⁴⁷¹⁾ Such "revenue dislocation," Western Alliance contends, might amount to an unconstitutional taking.⁽²⁴⁷²⁾

39. Evans contends that, unlike small rural LECs, large, geographically diversified RBOCs may be able to cross-subsidize rates for second lines within cost areas with revenues generated in the RBOC's low cost service areas in order to keep rates low for second lines.⁽²⁴⁷³⁾ Staurulakis argues that incumbent LECs would be disadvantaged because customers will have an incentive to purchase second lines from competitive LECs, which could purchase bundled discounted services from the incumbent LEC and resell this service to customers as second lines.⁽²⁴⁷⁴⁾ TDS argues that most loop costs are incurred when installing the first line and that the incremental cost of additional connections is less than half the cost of installing the first connection.⁽²⁴⁷⁵⁾ Accordingly, TDS asserts, the Joint Board's recommendation to limit support to single connections will not reduce per-line support costs in proportion to the number of second or additional lines for which support would be eliminated under the Joint Board's proposal.⁽²⁴⁷⁶⁾ Rather, TDS contends, incumbent LECs will be encouraged to overprice additional lines to prevent the loss of support that should be directed almost entirely to the first line.⁽²⁴⁷⁷⁾ GVNW contends that, "at a minimum, costs associated with multiple lines should be incrementally identified while fully attributing joint and common costs associated with multiple lines to the first line."⁽²⁴⁷⁸⁾

40. Roseville Tel. Co. argues that if multi-line business and residential lines are deemed ineligible for support, the proxy model should be adjusted to exclude the costs of providing services over these additional lines.⁽²⁴⁷⁹⁾ Roseville Tel. Co. contends that restricting support to single connections would require the establishment of separate revenue benchmarks for determining the amount of support an eligible carrier should receive under a proxy model because, it argues, multi-line businesses and residences with second lines would have significantly different toll usage levels than other business and residential customers.⁽²⁴⁸⁰⁾ According to Roseville Tel. Co., ILECs do not have access to customer toll billing records to estimate access revenues by customer class because IXCs have assumed the billing function for most large toll users, and the special traffic studies needed to determine these estimates would be costly and unreliable.⁽²⁴⁸¹⁾

41. Some commenters argue that a system that limits support to single residential connections would be difficult to administer and bill."⁽²⁴⁸²⁾ SBC contends that ILECs will be unable to determine whether a particular dwelling has been divided or whether more than one household occupies a dwelling, and, thus, would have difficulty determining which residences have multiple connections.⁽²⁴⁸³⁾ John Staurulakis contends that it would be especially difficult to make such a determination when individuals residing in group homes have separate telephone lines.⁽²⁴⁸⁴⁾ Some parties question how the primary line will be determined if a customer obtains two lines, each from a different carrier.⁽²⁴⁸⁵⁾ According to PacTel, if the first line obtained in a multi-connection residence is always considered the single connection eligible for support, then the incumbent provider will have a competitive advantage.⁽²⁴⁸⁶⁾ Conversely, TCA argues that the supported line should be the one that is installed first.⁽²⁴⁸⁷⁾ SBC characterizes the Joint Board's suggestion that carriers use subscriber billing information as an "unworkable" method for determining the number of connections to a location, and argues that such an approach will become "even more unworkable" as competition develops.⁽²⁴⁸⁸⁾ According to GTE, service providers have no means, other than querying the customer, to determine whether a request for service involves a primary or secondary connection.⁽²⁴⁸⁹⁾

42. Western Alliance opposes limiting support to single residential lines because, it contends, additional residential connections meet each of the criteria set forth in section 254(c)(1).⁽²⁴⁹⁰⁾ California SBA argues that the proposal to limit support to single residential connections violates the principles set forth in sections 254(b)(1)-(3) by failing to provide access to affordable telecommunications services in high cost areas.⁽²⁴⁹¹⁾ GTE and TCA assert that the recommended limitation will have the practical effect of impeding access to and use of information services, in conflict with section 254(b)(2) because families will be discouraged from adding second lines to access on-line information services.⁽²⁴⁹²⁾ Evans Tel. Co. and NRPT argue that eliminating support for additional residential lines will violate section 254(b)(3) because rural consumers will pay far more for secondary connections than will urban subscribers.⁽²⁴⁹³⁾ Similarly, Lufkin-Conroe and RTC maintain that limiting universal service support to single lines will deny rural residents access to services and rates that are reasonably comparable to those of their urban counterparts.⁽²⁴⁹⁴⁾ TDS argues that the statute requires rural services and rates to be reasonably comparable to those in urban areas and, therefore, does not authorize regulators to decide that merely some portion of rural rates and services should be comparable to urban rates and services.⁽²⁴⁹⁵⁾ ITC contends that rural consumers, especially students, have a greater need than their urban counterparts for second lines that enable access to on-line information services at home because they generally live far from schools and libraries.⁽²⁴⁹⁶⁾ U S West asserts that the recommended approach would be neither specific nor predictable, contrary to the principle set forth in section 254(b)(5).⁽²⁴⁹⁷⁾

43. SBC argues that, if the Commission elects not to support additional lines, as recommended by the Joint Board, the Commission must "preempt all pricing constraints on non-supported telephone exchange service unless upon implementation, the commission in a particular state has established an intrastate fund to support those federally unsupported services."⁽²⁴⁹⁸⁾ Similarly, USTA contends that if carriers cannot receive support for second lines, incumbent LECs should be given pricing flexibility to ensure that the costs of those lines can be fully recovered.⁽²⁴⁹⁹⁾ According to U S West, second and multiple lines should be deregulated in high cost areas if they are not supported.⁽²⁵⁰⁰⁾ TDS argues that if the long-established practice of averaging local rates for all lines were changed and additional lines were priced at cost, the result would be to increase the rates for all primary residential lines -- the lines that incur the most cost -- unless additional support is available for initial connections.⁽²⁵⁰¹⁾ Ohio PUC proposes that, if funding is extended to second residential lines, then the Commission require as a pre-condition for universal service eligibility that carriers provide the second line at the same recurring and non-recurring rate to end users and offer promotions on a non-discriminatory basis for both the primary and secondary lines.⁽²⁵⁰²⁾

44. Limiting Support for Services Provided to the Primary Residence. Various parties support the Joint Board's recommendation that eligible carriers receive support for providing designated services to a residential subscriber's primary residence, but not to second or vacation homes.⁽²⁵⁰³⁾ California DCA favors this proposed limitation because of the reduced amount of support it anticipates that this approach will require.⁽²⁵⁰⁴⁾ Ameritech contends there are "no good public policy reasons" for funding a second line to a subscriber's summer residence.⁽²⁵⁰⁵⁾ APT asserts that supporting service to a second residence is inconsistent with section 254(c)(1)(A) because it is not "essential to education, public health, or public safety."⁽²⁵⁰⁶⁾ Taking the Joint Board's proposal a step further, California DCA questions how the Commission can justify supporting even one connection to the residence of consumers who can afford a second or vacation home.⁽²⁵⁰⁷⁾

45. MFS also concurs with the recommendation to limit support to one connection to a subscriber's primary residence and proposes a plan wherein customers who are served by more than one carrier designate one specific carrier as their primary local exchange carrier for universal service purposes.⁽²⁵⁰⁸⁾ As discussed in paragraph 70, supra, MFS proposes a plan wherein the fund administrator would cross-reference the nine-digit zip codes of subscribers with census blocks or wire centers located in high cost areas.⁽²⁵⁰⁹⁾ MFS contends that using the nine-digit zip code for a customer's billing address, rather than for the service address, will minimize the likelihood that support would be provided for second or vacation homes because, MFS argues, customers who maintain more than one residence are likely to have their bills sent to their primary residence.⁽²⁵¹⁰⁾

46. Teleport urges the Commission to adopt a system that allows consumers to certify that a supported service is being provided only to their primary residence.⁽²⁵¹¹⁾ Teleport further recommends that the fund administrator or some other entity conduct periodic audits to discourage fraud.⁽²⁵¹²⁾

47. Other commenters oppose limiting the number of residences for which a carrier may receive support.⁽²⁵¹³⁾ Several parties contend that identifying a subscriber's "primary" residence is administratively unworkable.⁽²⁵¹⁴⁾ RTC states that any mechanism implemented to determine the number of homes owned by each subscriber would be so complex that it would fail a cost/benefit analysis.⁽²⁵¹⁵⁾ Texas PUC and U S West argue that the administrative difficulties associated with the Joint Board's recommendation outweigh any arguments in favor of limiting support.⁽²⁵¹⁶⁾ Some parties question how ILECs would be able to determine whether their customers own an additional residence in another carrier's service area, or own residences in more than one spouse's name.⁽²⁵¹⁷⁾ Western Alliance argues that the administrative costs involved in determining whether a subscriber's residence is "primary" will reduce the carrier's net universal service support amount.⁽²⁵¹⁸⁾ RTC, arguing that resort areas are often occupied by permanent residents, contends that MFS' proposal to use nine-digit zip codes would deny support to families that need it.⁽²⁵¹⁹⁾ RTC contends that the Recommended Decision "illegally introduces means testing into the high cost support mechanism."⁽²⁵²⁰⁾ Some parties raise privacy concerns because, they argue, an investigation into consumers' property ownership would be required to limit support to the primary residence.⁽²⁵²¹⁾ Similarly, Minnesota Coalition argues that rural LECs are not in a position to monitor the living habits of their customers.⁽²⁵²²⁾ Western Alliance and U S West urge the Commission, if it adopts the Joint Board's recommendation, to allow carriers to rely on a customer's self certification that a specified line is serving a primary or second residence.⁽²⁵²³⁾ GTE contends that consumers, particularly those who understand the system, will be motivated to declare a vacation home in a high cost area as the consumer's primary residence.⁽²⁵²⁴⁾

48. GTE opposes the Joint Board's recommendation that ILECs use billing information to identify a consumer's primary residence. GTE argues that billing information does not answer "dozens of other questions" such as whether more than one household shares a dwelling and whether another carrier is already providing service to a customer's "primary" residence in a different state.⁽²⁵²⁵⁾ GTE further states that the Commission must address certain "real-life, practical" considerations such as whether individuals may self-certify to their status and whether carriers must retain records for audit purposes.⁽²⁵²⁶⁾

49. Minnesota Coalition argues that eliminating support for second homes will impose a disproportionate burden on rural ILECs because these ILECs serve many vacation and second homes.⁽²⁵²⁷⁾ Minnesota Coalition asserts that the primary residence limitation would violate the statutory requirement that support be "predictable" because support for rural LECs would fluctuate when subscribers "change their residential status or move away from a residence previously occupied."⁽²⁵²⁸⁾ The requirement that support be "sufficient" would also be violated, Minnesota Coalition contends, because eliminating support for residences that were previously eligible for support would reduce a carrier's level of support without a corresponding reduction in expenses.⁽²⁵²⁹⁾ Similarly, Western Alliance and Evans Tel. Co. argue that an ILEC would lose compensation for costs incurred when it installs a new line to provide service to a primary residence if the residence is subsequently sold to a subscriber who uses it as a second residence.⁽²⁵³⁰⁾ Silver Star Tel. Co. notes that ILECs are required to serve second and vacation homes as part of their COLR obligations and thus, it argues, they should be eligible to receive support for serving additional residences.⁽²⁵³¹⁾ U S West contends that the COLR obligation should be changed if the Joint Board's recommendation is adopted.⁽²⁵³²⁾ SBC argues that limiting support to primary residences would be confiscatory because it would deny incumbent LECs a reasonable opportunity to recover the costs of providing service.⁽²⁵³³⁾ USTA argues that if carriers cannot receive support for serving second residences, incumbent LECs must be given pricing flexibility to ensure that the costs of these lines are fully recovered.⁽²⁵³⁴⁾

50. Evans Tel. Co. contends that the Joint Board's proposal violates section 254(b)(3) because consumers who own second residences in high cost areas will be subject to higher rates for second lines than those who own second residences in low cost areas.⁽²⁵³⁵⁾ Evans Tel. Co. asserts such a result constitutes a violation of the principle of "reasonably comparable" services and rates for urban and rural consumers.⁽²⁵³⁶⁾ Silver Star Tel. Co. argues that subscribers require the same access to health, emergency, and community services when they inhabit a second residence as they do when they are at their primary residence.⁽²⁵³⁷⁾ Lufkin-Conroe contends that, because second or vacation homes may be occupied for only part of the year, their owners may elect to forego telephone service if rates increase significantly.⁽²⁵³⁸⁾ The absence of telephone service, Lufkin-Conroe argues, could result in delayed access to emergency services with the potential resulting loss of life or property.⁽²⁵³⁹⁾

51. Supporting Designated Services Carried to Single-Connection Businesses. As a preliminary matter, Georgia PSC urges the Commission to clarify the distinction between the terms "single-connection" and "single-line."⁽²⁵⁴⁰⁾ According to Georgia PSC, the category of single-connection businesses is more limited than that of single-line businesses because a business may have several "single-line" connections.⁽²⁵⁴¹⁾ In general, several commenters agree that support should be provided for designated services provided to single-connection businesses.⁽²⁵⁴²⁾

52. Several commenters, however, advocating a more restrictive approach, take issue with the Joint Board's recommendation that universal service support be available even for single-connection businesses.⁽²⁵⁴³⁾ Ameritech argues that supporting business services constitutes a substantial policy shift and would "inevitably and significantly" increase the size of the support mechanisms.⁽²⁵⁴⁴⁾ According to Ameritech and LCI, telephone service should be considered a cost of starting and operating a business that should not be supported by federal universal service mechanisms.⁽²⁵⁴⁵⁾ Ameritech argues that small businesses already get a "quasi-subsidy" in the form of a tax deduction, which is not available to residential consumers, and receive assistance from mechanisms such as Small Business Administration loans and other state and federal programs.⁽²⁵⁴⁶⁾

53. Ameritech also argues that there is nothing in the legislative history of the 1996 Act that indicates that Congress intended to use section 254 to subsidize business development.⁽²⁵⁴⁷⁾ NTIA and BANX contend that supporting business connections would be inconsistent with section 254(c)(1)(B) that states that, in defining universal service, the Commission should consider the extent to which telecommunications services "have, through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers."⁽²⁵⁴⁸⁾ APT contends that the Joint Board failed to demonstrate that services to single-connection businesses are "essential" so as to warrant their support pursuant to section 254(c)(1).⁽²⁵⁴⁹⁾ LCI argues that when Congress believed that special circumstances required support to be extended to non-residential subscribers -- such as schools, libraries and health care providers -- it expressly provided for such support.⁽²⁵⁵⁰⁾

54. According to Teleport, there is no evidence to suggest that businesses are unable to pay cost-based rates for their services.⁽²⁵⁵¹⁾ Similarly, Sprint contends that there is no information in the record to confirm the hypothesis that small businesses will forego local telephone service in high cost areas unless such service is supported.⁽²⁵⁵²⁾ ACTA contends that a general rule providing for support to single-line businesses is overly broad. Thus, ACTA proposes an alternative method pursuant to which the demonstrated need of a business for support determines whether a business single-connection line will be supported.⁽²⁵⁵³⁾ Maryland PSC asserts that any business customer could benefit from universal service by obtaining single lines from multiple carriers or attaching a PBX to a single business line.⁽²⁵⁵⁴⁾ Maryland PSC favors allowing the competitive marketplace to control costs for businesses.⁽²⁵⁵⁵⁾ California PUC argues that in California, unlike residential measured rate service, the measured business rate does not include any calling allowance, so all local calls made on business lines result in revenue for the LEC.⁽²⁵⁵⁶⁾ Accordingly, California PUC opposes the Joint Board's recommendation to support businesses with single connections.

55. In contrast, several parties urge the Commission to support services provided to businesses with multiple connections and oppose the Joint Board's recommendation to limit support to services provided to businesses with single connections.⁽²⁵⁵⁷⁾ Many commenters argue that such a limitation would harm rural economies.⁽²⁵⁵⁸⁾ For example, Lufkin-Conroe argues that the cost of telephone service is a factor that directly influences whether a telemarketing firm or other communications-intensive business will locate or remain in a rural community.⁽²⁵⁵⁹⁾ In addition, SBA reports that, in response to a recent poll, 3.6 percent of rural businesses indicated that they would relocate or discontinue their operations if their telephone service rates increased by $10.00 per month and nearly 20 percent indicated that they would relocate or discontinue their operations if telephone service rates increased by $25.00 per month.⁽²⁵⁶⁰⁾ SBA suggests that increases of these proportions are possible as a result of the Joint Board's recommendation to deny support for services provided to businesses with multiple connection. Some commenters insist that absent federal support, carriers will be required to increase rates for businesses with multiple connections.⁽²⁵⁶¹⁾ In addition, Minnesota Coalition argues that ILEC investments that were made when a business had only a single line would lose support when a second line is added.⁽²⁵⁶²⁾ Roseville Tel. Co. contends that a system that limits support to businesses with single connections would be administratively difficult to administer, requiring complex and costly studies of billing records.⁽²⁵⁶³⁾ Minnesota Coalition asserts that, under the Joint Board's proposal, business customers with multiple connections would be encouraged to mischaracterize themselves as having only single-connections.⁽²⁵⁶⁴⁾

56. SBA argues that without support, rates charged to businesses with multiple connections will not be "affordable" for rural businesses, an outcome inconsistent with section 254(b)(1).⁽²⁵⁶⁵⁾ In addition, SBA contends that the Joint Board's proposal to limit support to businesses with single connections is inconsistent with promotion of access to advanced telecommunications services, a principle found in section 254(b)(2), because the proposal creates a disincentive for rural businesses with single connections to add connections to accommodate fax lines or modems.⁽²⁵⁶⁶⁾ According to Evans Tel. Co., it is not clear whether Congress intended business customers to be considered "consumers" for purposes of section 254(b)(3), but that the provisions of sections 254(b)(1) and (2) clearly apply to businesses.⁽²⁵⁶⁷⁾ RTC and SBA contend that businesses with multiple connections should be considered "consumers" for which services and rates should be "reasonably comparable" in urban and rural areas, a principle found in section 254(b)(3).⁽²⁵⁶⁸⁾ SBA contends that the Recommended Decision imposes a distinction among classes of "consumers" where none is warranted and none was intended by Congress.⁽²⁵⁶⁹⁾ SBA contends that the legislative history of section 254 indicates that some members of Congress intended universal service support to be available for small businesses.⁽²⁵⁷⁰⁾ RTC argues that all business lines in high cost areas should be supported because Congress recognized the differences between business and residential lines when it chose not to limit toll rate averaging to residential service.⁽²⁵⁷¹⁾

57. Western Alliance argues that most rural businesses with multiple lines are small businesses that use additional lines to record messages, send facsimiles or use on-line services.⁽²⁵⁷²⁾ TDS states that "few businesses are able to get by with only a single connection in the current information-laden business environment."⁽²⁵⁷³⁾ SBA, noting that businesses with multiple connections include city halls, police stations, churches, school boards, and other public bodies, asserts that rural businesses with multiple lines share the same need for access to health, safety, and employment services as residential subscribers do.⁽²⁵⁷⁴⁾ SBA proposes that carriers receive universal service support for all connections provided to these institutional users.⁽²⁵⁷⁵⁾ SBA also contends that significant telephone rate increases are likely to be as cost-prohibitive for businesses with many lines as they would be for businesses with only one.⁽²⁵⁷⁶⁾ Evans Tel. Co. suggests that the Commission expand upon the Joint Board's recommendation by supporting services provided to businesses with no more than five connections.⁽²⁵⁷⁷⁾

58. A few parties propose alternatives to the Joint Board's recommendation regarding support for businesses with single connections. California SBA recommends that businesses located in high cost areas that employ fewer than 100 employees and earn less than $10 million in gross annual revenues "be eligible for universal service support for all business lines."⁽²⁵⁷⁸⁾ California SBA recommends that businesses should be required to certify under penalty of perjury that they meet these criteria "before they are eligible for support."⁽²⁵⁷⁹⁾ In addition, the state Joint Board members propose that the Commission adopt the three-year transition period recommended by the Joint Board, during which high cost support for rural telephone companies would extend to all of a carrier's working lines. In addition, SBA proposes that carriers serving businesses with $5.0 million or less in annual gross receipts receive universal service support for an unlimited number of connections.⁽²⁵⁸⁰⁾ In addition, SBA recommends that carriers serving all other businesses receive support for up to five connections for those businesses to ensure that business connections used for fax machines, computer modems and credit card and check approval verification are supported.⁽²⁵⁸¹⁾ SBA also suggests that, if support to multiple-connection businesses is reduced, the dollar amount of support a carrier would lose per line should be capped and additional universal service support should available to make up the difference between the cap amount and the previous amount of support the carrier received.⁽²⁵⁸²⁾ The state Joint Board members further propose that the ongoing cooperative state-Commission review of the forward-looking cost methodologies also include a review of whether support should be limited to residential and single connection businesses for rural carriers.⁽²⁵⁸³⁾

59. Level of Support for Business Connections. CNMI, Interior, and TCA argue that the amount of support provided should be the same whether a connection serves a business or residential customer.⁽²⁵⁸⁴⁾ SBA and CNMI argue that the Joint Board's rationale for supporting businesses with single connections, i.e., that they have been treated similarly in the past, warrants making support for businesses with single connections match the support for primary connections to residences.⁽²⁵⁸⁵⁾ In addition, CNMI argues that providing a reduced amount of universal service support for services provided to businesses with only one line would permit business rates to remain disproportionately high, substantially increase the costs of small, start-up businesses and, thereby, discourage entrepreneurship.⁽²⁵⁸⁶⁾ SBA opposes the Joint Board's suggestion that, as competition develops, it may be unnecessary to provide any support for businesses with a single connection in the future, stating that small businesses are vulnerable to rate increases and have a limited ability to pass on increased costs to their customers.⁽²⁵⁸⁷⁾

60. United Utilities disagrees with the Joint Board's conclusion that services provided to businesses with a single connection should be supported at a reduced rate because business rates are higher than residential rates.⁽²⁵⁸⁸⁾ Business rates are higher, United Utilities argues, because there are implicit subsidies built into these rates that help keep residential rates low.⁽²⁵⁸⁹⁾ According to United Utilities, these implicit subsidies will be eliminated when "competition and the unbundling of rates make support flows explicit" and, thus, the Joint Board should not have recommended reduced support for business connections based on the fact that business rates are currently higher than residential rates.⁽²⁵⁹⁰⁾ Conversely, Texas PUC agrees with the Joint Board's recommendation that businesses with a single line should be supported at a reduced rate.⁽²⁵⁹¹⁾

E. Quality of Service

1. Comments

61. Federal Role. CWA contends that the Commission should establish federal performance-based service quality standards on which all telecommunications providers must report and for which they are accountable.⁽²⁵⁹²⁾ According to CWA, the Joint Board's recommendation that "states may adopt and enforce service quality standards" does not ensure the "mandate" of section 254(b)(1) that "quality services should be available at just, reasonable, and affordable rates."⁽²⁵⁹³⁾ Relying on data compiled by NARUC, CWA maintains that many states do not have quality standards and those that do have standards do not necessarily have comprehensive standards.⁽²⁵⁹⁴⁾ CWA suggests that the Commission establish a special task force or delegate the responsibility of developing comprehensive service quality standards to the Network Reliability Council.⁽²⁵⁹⁵⁾ Moreover, CWA urges the Commission to require all carriers that receive universal service support to meet federal service quality standards in each of the four calendar quarters preceding the receipt of such support. CWA would deny support to carriers that fail to meet this threshold and require those carriers to pay a penalty to the universal service administrator that would be used to support universal service.⁽²⁵⁹⁶⁾

62. State Roles. A few parties suggest that the Commission permit states to implement carrier performance standards.⁽²⁵⁹⁷⁾ For example, California DCA argues that while the nation as a whole may need federal mandates to foster competition and achieve universal service goals, the states are well-equipped to implement the details of those policies.⁽²⁵⁹⁸⁾ Ohio PUC agrees with the Joint Board's recommendation that states submit service quality data to the Commission, but urges the Commission to determine the type of data it would expect state commissions to provide.⁽²⁵⁹⁹⁾ CWA argues that, if it relies on state commissions to monitor service quality, the Commission should require states to impose on competitive LECs the same quality standards they impose on incumbent LECs .⁽²⁶⁰⁰⁾

63. Quality of Service Reporting Requirements. North Dakota PSC contends that information pertaining to service quality should be made public in order to enable comparisons between the performance of different telecommunications carriers.⁽²⁶⁰¹⁾ According to North Dakota PSC, providing consumers with easy access to publicly available data on the performance of various carriers could spur carriers to compete for customers on the basis of service quality.⁽²⁶⁰²⁾ Further, North Dakota PSC contends that the Commission should collect quality of service data in addition to that already submitted through mechanisms such as ARMIS because only one LEC in North Dakota is required to file ARMIS data and state law exempts telephone companies serving fewer than 8000 lines from quality service oversight by the North Dakota PSC.⁽²⁶⁰³⁾ Moreover, North Dakota PSC maintains that there is no industry organization in North Dakota that collects and publishes service quality data.⁽²⁶⁰⁴⁾

F. Reviewing the Definition of Universal Service

1. Comments

64. In General. GVNW argues that, if anticipated revenues are not "sufficient," carriers will not invest in advanced services because they will not expect to recover costs, including a reasonable profit.⁽²⁶⁰⁵⁾ Accordingly, GVNW argues that if, in the future, the definition of universal service is modified to include additional services, those carriers that have not invested in advanced services will no longer qualify to receive support because they will be unable to provide all of the newly designated services.⁽²⁶⁰⁶⁾

65. Periodic Reassessment. Some commenters suggest that the definition of universal service should be revised periodically.⁽²⁶⁰⁷⁾ According to CNMI, periodic revisions to the definition are appropriate because of the pace and scope of change in the telecommunications market and the provision in section 254(c) that describes the definition of universal service as "an evolving level of telecommunications services."⁽²⁶⁰⁸⁾ A few parties concur with the Joint Board's recommendation to convene a Joint Board no later than January 1, 2001 to revisit the definition of universal service.⁽²⁶⁰⁹⁾

66. In contrast, People For contends that "periodically" means more than one review after four years.⁽²⁶¹⁰⁾ Instead, People For urges a biennial review which, it argues, is necessary to keep universal service policies current.⁽²⁶¹¹⁾ Using the growth of Internet deployment in the last four years as an example, People For asserts that the definition of universal service should be reviewed every two years.⁽²⁶¹²⁾ Illinois CC asserts that the Commission should revisit the definition of universal service pursuant to section 254(c)(1) after the Joint Board has evaluated an alternate definition of services to be supported and the costs associated with supporting those services.⁽²⁶¹³⁾

V. AFFORDABILITY

A. Overview

67. The following is a summary of the comments related to the issue of affordability.

B. Affordability

1. Comments

68. In General. Several parties express concern regarding the relationship between expanding the level of universal service funding, and the affordability of rates for telecommunications consumers who, they argue, ultimately must pay for an expanded funding obligation.⁽²⁶¹⁴⁾ These parties contend that if universal service support is not carefully targeted and overall funding levels are not appropriately circumscribed, then telephone service will become unaffordable for increasing numbers of subscribers.⁽²⁶¹⁵⁾ Citizens Utilities, while conditionally accepting the Joint Board's general conclusion that current rates are affordable, argues that the Commission must consider whether rates will remain affordable in the competitive environment, as well as the potential impact of rate increases on telecommunications services subscribers.⁽²⁶¹⁶⁾ Similarly, Puerto Rico Tel. Co. asserts that in order to fulfill the statutory goal of "just, reasonable and affordable" rates, universal service mechanisms must mitigate the effect of any rate increases to prevent the loss of subscribers.⁽²⁶¹⁷⁾ According to Puerto Rico Tel. Co., Congress specifically directed the Joint Board and Commission to "ensure that universal service is achieved" because, it argues, the combined effect of new regulations in the areas of universal service, interconnection pricing, and access charge reform "is likely to place unavoidable upward pressure on consumer rates."⁽²⁶¹⁸⁾

69. Factors Affecting Affordability. Several parties support the Joint Board's general finding that the definition of affordability must take into account both rate levels and non-rate factors.⁽²⁶¹⁹⁾ With respect to specific factors affecting affordability, numerous commenters support the Joint Board's inclusion of local calling area size or local calling scope among the factors that must be considered in determining affordability.⁽²⁶²⁰⁾ Minnesota Coalition argues that the prices rural consumers pay for extensions of local calling scope, such as Extended Area Service, should be factored into a determination of affordability.⁽²⁶²¹⁾ A few parties argue that, in determining rate affordability, the Commission should consider whether consumers have the ability to contact their "community of interest," i.e., hospitals, schools and other essential services, by placing local calls.⁽²⁶²²⁾

70. In addition, several parties favor considering income levels when assessing rate affordability.⁽²⁶²³⁾ People For contends that the Commission should establish a formula based on a fixed or progressively increasing percentage of disposable income that would guide the states in determining whether rates are affordable.⁽²⁶²⁴⁾ According to People For, this approach would be equitable because, it argues, consumers with the lowest income levels are least able to afford telecommunications services.⁽²⁶²⁵⁾ Minnesota Coalition supports the Joint Board's decision not to recommend the adoption of a national median level of income for purposes of assessing affordability because, it argues, such a standard would tend to "overestimate the price at which service is affordable when applied to a service area having an income level that is significantly below the national median."⁽²⁶²⁶⁾ Consistent with the Recommended Decision, some parties also favor consideration of the cost of living,⁽²⁶²⁷⁾ population density,⁽²⁶²⁸⁾ and other socioeconomic factors⁽²⁶²⁹⁾ among the factors that affect affordability.

71. Affordability of Current Rates. Bell Atlantic contends that the existing nationwide subscribership level is high and stable, and, thus, indicates that current rates are affordable.⁽²⁶³⁰⁾ In contrast, Governor of Guam argues that the Commission should conclude that where existing rates are not affordable or reasonably comparable to urban rates, such as in Guam, rates in such areas can be supported by universal service support mechanisms.⁽²⁶³¹⁾

72. Link Between Subscribership and Affordability. Various parties agree with the Joint Board's finding that a correlation exists between affordability and subscribership levels.⁽²⁶³²⁾ People For, however, urges against basing any definition of affordability solely on subscribership levels.⁽²⁶³³⁾ According to People For, a high subscribership level does not reveal whether the average family is spending a disproportionate amount of its disposable income on telecommunications services.⁽²⁶³⁴⁾ People For urges the Commission to consider income levels in conjunction with subscribership levels in determining affordability.⁽²⁶³⁵⁾

73. Puerto Rico Tel. Co., stating that its subscribership has not yet reached an acceptable level, argues that the Joint Board's proposal that the Commission work with states that have declining subscribership levels ignores the fact that certain regions currently have a low subscribership level.⁽²⁶³⁶⁾ Puerto Rico Tel. Co. suggests that "if the subscribership level in an eligible carrier's service area is more than five percentage points below the national average," then the local rate should be deemed presumptively not affordable.⁽²⁶³⁷⁾

74. State and Federal Roles in Ensuring Affordability. Bell Atlantic supports the recommendation that states exercise primary responsibility for determining the affordability of rates within their respective jurisdictions.⁽²⁶³⁸⁾ Minnesota Coalition favors the Joint Board's decision not to recommend the establishment of a nationwide affordable rate and argues that such a general rate would fail to consider the impact of local characteristics on affordability.⁽²⁶³⁹⁾ Some parties concur with the Joint Board's conclusion that state commissions have the ability, knowledge, and expertise to measure and evaluate the factors affecting affordability.⁽²⁶⁴⁰⁾ Washington UTC also agrees with the Joint Board's recommendation that the Commission work together with states to determine the cause of a decrease in a state's subscribership level and the implications for affordability in that state.⁽²⁶⁴¹⁾ People For argues that declining income levels, and not just declining subscribership levels, should trigger Commission review of affordability in a given state.⁽²⁶⁴²⁾ Bell Atlantic argues that only if subscribership rates drop by a "statistically significant amount over a period of time," and the state asks for federal help, should the Commission offer to work with the state to determine and remedy the problem.⁽²⁶⁴³⁾

75. Measuring Level of Support Based on Affordability or Subscribership Levels. Puerto Rico Tel. Co. maintains that the Joint Board has failed to propose how a determination at the state level that rates are not affordable will be addressed by federal universal service mechanisms.⁽²⁶⁴⁴⁾ Puerto Rico Tel. Co. argues that merely "identifying" whether rates are affordable does nothing to ensure that rates are affordable.⁽²⁶⁴⁵⁾ Puerto Rico Tel. Co. suggests that the Commission use affordability, as measured by subscribership levels, to determine the level of support payments available to carriers serving areas where rates are not affordable.⁽²⁶⁴⁶⁾ Interior likewise urges the Commission to provide universal service support for rates that are not affordable or reasonably comparable.⁽²⁶⁴⁷⁾ MFS, arguing generally in favor of retaining current levels of high cost support, states that increases in total high cost support should occur only when there is a decline in subscribership or when there is a substantial change in a factor affecting affordability.⁽²⁶⁴⁸⁾

VI. Carriers Eligible for Universal Service Support

A. Overview

76. The following is a summary of the comments relating to the issues of: Eligible Telecommunications Carriers, Service Areas, and Unserved Areas.

B. Eligible Telecommunications Carriers

1. Comments

a. Eligibility Criteria

77. Adoption of Section 214(e)(1) Criteria. A broad cross-section of commenters supports the Joint Board's recommendation that the Commission adopt the criteria in section 214(e)(1) as the rules governing eligibility.⁽²⁶⁴⁹⁾ CNMI asserts that the Joint Board correctly determined that section 214(e) prevents carriers from offering differential rates or cream-skimming.⁽²⁶⁵⁰⁾ CompTel states that section 214(e) contains neutral, objective criteria.⁽²⁶⁵¹⁾ SBC notes that the Joint Board's recommendation that the Commission adopt the criteria in section 214(e) as the sole criteria for eligibility is inconsistent with its recommendation that all eligible carriers must offer Lifeline service.⁽²⁶⁵²⁾

78. Statutory Construction of Section 214(e). CompTel, WorldCom, AT&T, and GCI assert that the states and the Commission are precluded from adopting eligibility requirements that exceed those contained in section 214(e).⁽²⁶⁵³⁾ Two states and two incumbent LECs disagree and urge the Commission to clarify that states may impose equitable, competitively-neutral conditions on carriers wishing to become eligible for support for federal and state universal service funds.⁽²⁶⁵⁴⁾ GTE asserts that the use of the phrases "a carrier that receives such support" and "any such support . . ." in section 254(e) instead of the phrase "such eligible carrier" shows that more than eligibility is required to receive support.⁽²⁶⁵⁵⁾ GTE also suggests that, as it has in the Lifeline program, the Commission has the authority to condition acceptance of federal funds upon compliance with federal guidelines.⁽²⁶⁵⁶⁾ GTE contends that accepting the arguments of CompTel and WorldCom would convert section 214(e) into an entitlement, and would prevent states and the Commission from carrying out their obligations under section 254(i).⁽²⁶⁵⁷⁾ GTE further asserts that converting section 214(e) into an entitlement would preclude adoption of its proposed competitive bidding mechanism and therefore would violate the Commission's duty to fully consider all reasonable alternatives.⁽²⁶⁵⁸⁾

79. Additional Obligations as a Condition of Eligibility. Several incumbent LECs assert that the provisions of section 214(e)(1) are insufficient to further universal service goals, and suggest that all eligible carriers should comply with carrier of last resort (COLR) obligations, or with requirements identical to those imposed on incumbent LECs at the state or federal level with respect to pricing, terms, conditions, provisioning, and quality standards.⁽²⁶⁵⁹⁾ GTE suggests that the terms of the obligation to serve should be set by each state, subject to broad federal guidelines.⁽²⁶⁶⁰⁾ GTE, along with several other commenters, disagrees with the Joint Board's conclusion that the requirements of section 214(e)(1) will prevent carriers from "cherry-picking" by offering differential rates.⁽²⁶⁶¹⁾ GTE asserts that, in order to prevent carriers from creating specialized service packages designed to attract only the most profitable customers, the Commission should require each carrier to offer a service package that includes only the federally-supported services on a stand-alone basis at a price determined to be "affordable" by the state commission.⁽²⁶⁶²⁾

80. Several incumbent LECs assert that the Joint Board's recommendation not to impose additional criteria is in conflict with its recommended principle of competitive neutrality because some carriers must perform more burdensome and costly functions than other carriers for the same compensation.⁽²⁶⁶³⁾ Ameritech explains that incumbent LECs incur higher costs than other carriers because their unique regulatory obligations require them to: 1) support a network that is capable of handling traffic at the busiest times; 2) incur financial risk associated with the inability to cease providing service if providing service becomes financially detrimental; 3) incur financial risk associated with stranded investment; and, 4) at least with respect to some incumbent LECs, provide equal access.⁽²⁶⁶⁴⁾ In its Cherry-Wildman Report, Ameritech asserts that imposing COLR obligations asymmetrically on some carriers without compensating those carriers for the costs of those obligations is not sustainable.⁽²⁶⁶⁵⁾ Ameritech asserts that an asymmetrical burden will favor less efficient firms that are free from such burdens, and asserts that, in extreme circumstances, carriers that retain these obligations may be driven from the industry altogether.⁽²⁶⁶⁶⁾

81. PCIA disagrees with the proposals to impose additional eligibility criteria and asserts that competitive neutrality does not require that all carriers be subject to the same regulation, rather it requires that the Commission account for the fact that different carriers operate in different competitive environments.⁽²⁶⁶⁷⁾ MFS asserts that the Commission should not impose COLR obligations as a component of eligibility because such a requirement would be administratively difficult to implement, and would not be competitively neutral because it would create a cost disadvantage for some carriers that might otherwise serve low-income and high cost customers.⁽²⁶⁶⁸⁾

82. GTE, SBC, and USTA further assert that incumbent LECs with COLR obligations are likely to be forced to serve the least profitable customers because they believe that, unless symmetrical regulations are imposed, competitive carriers will be able to "cream-skim" the most profitable customers.⁽²⁶⁶⁹⁾ They allege that averaged levels of universal service support COLR carriers receive are unlikely to be sufficient for serving just the highest cost customers in an area.⁽²⁶⁷⁰⁾ Ameritech and GTE observe that if all subscribers could be served at cost or at a profit, states would not need to impose COLR obligations.⁽²⁶⁷¹⁾

83. WinStar asserts that the Commission should amend the Joint Board's recommendation that, to be eligible, a carrier must offer service to all low-income customers in a service area because, as a practical matter, it may be technically infeasible for a wireless carrier to offer service to some customers.⁽²⁶⁷²⁾ SBC opposes WinStar's argument, stating that this obligation is one of the risks associated with being a facilities-based carrier, and part of the obligation incumbent LECs shoulder every day.⁽²⁶⁷³⁾

84. Several commenters suggest other criteria that they believe should be imposed upon eligible carriers. SBC and USTA assert that if it fails to ensure that eligible carriers comply with some level of regulation regarding quality of service and affordability, the Commission will also fail to ensure that carriers provide "quality" services, as required by the first universal service principle.⁽²⁶⁷⁴⁾ The Ohio PUC suggests that, in order to qualify as eligible, non-rural carriers should be required to provide interconnection to other certified local carriers and to unbundle and resell their services because it believes this would further the principle of competitive neutrality.⁽²⁶⁷⁵⁾ MFS asserts that the Commission should adopt, as a prerequisite for receipt of federal funds, the standards that the Rural Utilities Service (RUS) imposes upon its borrowers.⁽²⁶⁷⁶⁾ If carriers demonstrate that it is technically infeasible to meet these standards because of exogenous factors, such as limited spectrum in the case of wireless providers, MFS suggests that the Commission, consistent with the principle of competitive neutrality, grant waivers to such providers.⁽²⁶⁷⁷⁾ CWA asserts that the Commission should prevent telecommunications carriers that violate the National Labor Relations Act from receiving universal service support for the twelve-month period following a National Labor Relations Board decision of a labor-law violation.⁽²⁶⁷⁸⁾ CWA asserts that such a rule would promote competitive neutrality by preventing carriers from illegally suppressing labor costs, would promote rapid provision of high-quality services, and would increase the growth of high-wage, high-skill jobs.⁽²⁶⁷⁹⁾ CWA cites federal regulations for Head Start, the Job Training Partnership Act (JTPA), and Medicare as precedent for this recommendation.⁽²⁶⁸⁰⁾

85. Treatment of Particular Classes of Carriers. Time Warner advocates excluding carriers subject to price cap regulation from eligibility to receive universal service support. Time Warner asserts that these carriers possess sufficient flexibility to permit internal funding of universal service obligations.⁽²⁶⁸¹⁾ Time Warner suggests that, as a safety net, the Commission allow carriers subject to price cap regulation to petition state commissions to receive universal service support if they demonstrate that their universal service obligations are not allowing them to earn a fair return.⁽²⁶⁸²⁾ Sprint opposes Time Warner's position. First, Sprint asserts that most LECs' local service offerings have not been subject to price cap regulation.⁽²⁶⁸³⁾ Second, Sprint asserts that, because states require carriers to maintain low basic service prices, price cap LECs will not be able to fund universal service obligations internally.⁽²⁶⁸⁴⁾

86. Vanguard and Centennial state that the Commission should confirm the ability of wireless providers to be designated eligible for universal service support.⁽²⁶⁸⁵⁾ Centennial urges the Commission to clarify that a state may not use the terms of section 332(c)(3)(A) to deny a CMRS provider eligible status.⁽²⁶⁸⁶⁾ Celpage indicates that the "narrow" definition of eligible carriers recommended by the Joint Board precludes most CMRS providers from meeting the eligibility criteria because they will not be able to offer all the supported services.⁽²⁶⁸⁷⁾ NYNEX, supported by CWA, expresses concern that it may be difficult to determine whether a CMRS provider is actually providing service to a customer and asserts, therefore, that a wireless carrier should receive support only if the wireless carrier is a customer's primary carrier and the customer pays unsubsidized rates for its wireline service.⁽²⁶⁸⁸⁾ PCIA opposes this proposal.⁽²⁶⁸⁹⁾ PCIA states that federal laws against fraud sufficiently protect against any attempt by CMRS carriers to seek universal service support for customers that they do not serve, and asserts that additional requirements placed solely on wireless carriers would discriminate against these carriers.⁽²⁶⁹⁰⁾

87. Advertising. WorldCom suggests that the Commission should advise states not to impose specific or extensive advertising requirements, especially if they would unduly burden new entrants. WorldCom asserts that competition by itself should prove more than sufficient to spur advertising.⁽²⁶⁹¹⁾ Roseville Tel. Co. asserts that the Commission should make explicit that the section 214(e) requirement that carriers advertise in "media of general distribution" is not satisfied by placing advertisements in business publications alone, but compels carriers to advertise in publications targeted to the general residential market.⁽²⁶⁹²⁾ CPI states that although it recommended that the Commission should not create national standards for advertising, the Joint Board did not adopt any recommendation regarding the meaning of the term "throughout" as that term appears in section 214(e).⁽²⁶⁹³⁾

b. Section 214(e)(1) Facilities Requirement

88. Section 214(e)(1) Facilities Requirement. Several commenters contend that it will be difficult to determine whether the section 214(e)(1) facilities requirement has been met, and urge the Commission to clarify its meaning.⁽²⁶⁹⁴⁾ Noting that the Commission sought comment on this issue in its Infrastructure Sharing NPRM, EXCEL alleges that there is no commonly accepted definition of the term "facilities" or "facilities-based carrier."⁽²⁶⁹⁵⁾ Commenters contend that the section 214(e)(1) facilities requirement could require a carrier to perform any of the following: construct and maintain its own loop facilities serving at least 20 percent of its customers;⁽²⁶⁹⁶⁾ use its own loop and switching facilities;⁽²⁶⁹⁷⁾ use its own switch in combination with resold service;⁽²⁶⁹⁸⁾ construct a single, short loop;⁽²⁶⁹⁹⁾ install one mile of fiber;⁽²⁷⁰⁰⁾ make a de minimis use of its own facilities;⁽²⁷⁰¹⁾ use its own switch to provide exchange access for billing purposes;⁽²⁷⁰²⁾ or, own a billing office.⁽²⁷⁰³⁾ EXCEL indicates that the Commission could probably not adopt the most restrictive interpretation of the section 214(e)(1) facilities requirement -- that a carrier must use its own facilities to provide every aspect of every supported service -- because, for example, carriers would have difficulty providing access to directory assistance using their own facilities.⁽²⁷⁰⁴⁾ A number of commenters urge the Commission to determine that provisioning service through the use of unbundled network elements is sufficient to meet the section 214(e)(1) facilities requirement.⁽²⁷⁰⁵⁾ CompTel asserts that the Joint Board appears to support interpreting unbundled network elements as a carrier's own facilities when it states that a carrier may meet the eligibility criteria "regardless of the technology used by that carrier."⁽²⁷⁰⁶⁾ Lufkin-Conroe vigorously opposes classifying the purchase of unbundled network elements as sufficient to meet the section 214(e)(1) facilities requirement.⁽²⁷⁰⁷⁾ Lufkin-Conroe asserts that the purpose of the section 214(e)(1) facilities requirement, particularly when considered in combination with the requirements of sections 214(e)(3) and (e)(4), is to ensure the construction and maintenance of "adequate physical facilities to serve each area."⁽²⁷⁰⁸⁾ Lufkin-Conroe asserts that allowing a provider to obtain universal service support after purchasing just one unbundled network element does not further this purpose.⁽²⁷⁰⁹⁾ EXCEL urges the Commission to prohibit states from defining the term "facilities" differently from the definition adopted by the Commission.⁽²⁷¹⁰⁾

89. MFS suggests that the policy underlying the section 214(e)(1) facilities requirement is to prevent double recovery by preventing both a reseller and the underlying wholesaler from receiving compensation for a single customer.⁽²⁷¹¹⁾ MFS asserts the Commission should give effect to section 214(e)(1) by including "pure" resellers and limiting the potential for double recovery by explicitly reflecting subsidies on customer bills.⁽²⁷¹²⁾

90. Telco asserts that the Commission should interpret the term "facilities" consistently for purposes of sections 251(c)(2) and 214(e)(1).⁽²⁷¹³⁾ Telco asserts that, because section 251(c)(2) states incumbent LECs have the "duty to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier's network" the Commission should determine that resellers that provide universal service through interconnection arrangements or the purchase of unbundled network elements are eligible for universal service support.⁽²⁷¹⁴⁾ TRA states that the Commission declined to impose a facilities requirement on requesting carriers under section 251(c)(3) because the Commission determined that "it would be administratively impossible"⁽²⁷¹⁵⁾ and concluded that any facilities requirement it could construct "would likely be so easy to meet it would ultimately be meaningless."⁽²⁷¹⁶⁾

91. Eligibility of Resellers. Several commenters, mostly representing incumbent LECs, support the Joint Board's conclusion that the explicit language of section 214(e)(1) precludes "pure" resellers from eligibility.⁽²⁷¹⁷⁾ On the other hand, several commenters, mostly representing resellers, indicate that the Joint Board's conclusion was not compelled by the statutory language and assert that the Commission should adopt an interpretation of section 214(e)(1) that would not exclude resellers from eligibility.⁽²⁷¹⁸⁾ EXCEL, MFS, Telco and TRA assert that excluding "pure" resellers violates the Joint Board's recommended principle of competitive neutrality.⁽²⁷¹⁹⁾ EXCEL and Telco assert it is not competitively neutral to require resellers to contribute to the fund, but not allow them to be compensated from the fund.⁽²⁷²⁰⁾ TRA and Telco assert that denying resellers eligibility will deprive higher cost customers of the lower prices and improved services brought on by competition.⁽²⁷²¹⁾ TRA indicates that the exclusion of resellers contradicts the Joint Board's finding that "wholesale exclusion of classes of carriers from eligibility is inconsistent with the plain language of the 1996 Act."⁽²⁷²²⁾ TRA states that elsewhere the Commission has determined that "competitive neutrality" means that "no carrier be significantly disadvantaged in its 'ability to compete with other carriers for customers in the marketplace.'"⁽²⁷²³⁾ Several commenters contend that EXCEL's and TRA's arguments ignore the plain language of the statute, and should not be adopted.⁽²⁷²⁴⁾ Lufkin-Conroe asserts that allowing resellers to receive universal service support would do nothing to improve the quality of service, increase access to advanced services, or enhance the comparability of rural services.⁽²⁷²⁵⁾

92. EXCEL, Telco, and TRA assert that, if the Commission feels compelled to adopt the statutory interpretation of the section 214(e)(1) facilities requirement recommended by the Joint Board, the Commission should forbear from that requirement.⁽²⁷²⁶⁾ EXCEL and Telco assert that the three statutory criteria for forbearance have been met.⁽²⁷²⁷⁾ They state that the first prong of the test is met because the restriction itself is discriminatory: resellers, unlike other carriers, will not be able to recover the costs of serving high cost consumers without universal service support.⁽²⁷²⁸⁾ EXCEL and Telco assert that the second prong is met because so long as they receive the services that are supported by federal universal service support mechanisms, it makes no difference to consumers whether the carrier is using its own facilities. Supported by TRA, EXCEL and Telco assert that enforcing the restriction may harm consumers by limiting consumers' choices and will deprive eligible consumers of the benefits of competition.⁽²⁷²⁹⁾ TRA asserts that the Commission has recognized the importance of resale as an entry vehicle for small businesses and other new entrants.⁽²⁷³⁰⁾ Finally, these commenters assert that, as the Commission found in the Local Competition Order, requiring carriers to own some local exchange facilities does not promote competition.⁽²⁷³¹⁾ Relying on the Commission's language in the Local Competition Order, cited above, TRA asserts that there is no policy rationale for requiring a carrier to own a single piece of equipment, and thus encourages the Commission to forbear from enforcing the "meaningless" section 214(e)(1) facilities requirement.⁽²⁷³²⁾

c. Requirements of Section 254(e) Pertaining to Intended Uses of Universal Service Funds

93. Ensuring Universal Service Support is Used as Intended. The North Dakota PSC supports the Joint Board's recommendation that the Commission conduct periodic reviews to ensure that universal service is being provided if a state has insufficient resources to support monitoring programs.⁽²⁷³³⁾

C. Definition of Service Areas

1. Comments

a. Non-Rural Service Areas

94. Non-Rural Service Areas. WorldCom and the Maryland PSC support the Joint Board's finding that states have primary responsibility for designating the service area.⁽²⁷³⁴⁾ AT&T asserts that, although state commissions have the authority to define service areas, if they fail to designate service areas that are coincident with the zones for unbundled network elements, this action would contravene the requirements of section 253. AT&T reasons that such a decision by a state commission might require a purchaser of unbundled network elements to pay more for that unbundled network element than it could recover from the customer and from universal service support mechanisms, thus precluding a carrier using unbundled network elements from competing in a high cost area.⁽²⁷³⁵⁾ Nextel asserts that the Commission has authority to alter rural service areas.⁽²⁷³⁶⁾

95. A number of non-incumbent LECs support the Joint Board's recommendation that the Commission encourage states to designate service areas that are not "unreasonably large."⁽²⁷³⁷⁾ PacTel indicates that any averaging of costs across a large geographical area will penalize carriers that serve states with a mix of high cost and low cost areas.⁽²⁷³⁸⁾ CTIA agrees with the Joint Board's conclusion that state designation of an unreasonably large service area may violate section 253.⁽²⁷³⁹⁾ Cox and PCIA favor service areas that are as small as possible. Cox and PCIA reason that small service areas will be easier for new entrants to serve, thus encouraging competition which will benefit consumers and, in the long run, will reduce the need for universal service support as prices are driven down.⁽²⁷⁴⁰⁾ PCIA, supported by Sprint PCS, suggests that the Commission "emphatically" recommend to the state commissions that they design all services areas, rural and non-rural, according to census blocks.⁽²⁷⁴¹⁾ WorldCom, along with APC, asserts that incumbent LECs should not be unduly advantaged by designation of service areas that correspond closely or precisely to the contours of their existing facilities.⁽²⁷⁴²⁾ Teleport asserts that service areas should be consistent with the cost study parameters adopted by the Commission to calculate the level of high cost support, and that no carrier should be required to serve an area larger than that used for the cost study area.⁽²⁷⁴³⁾ CPI suggests that the Commission adopt guidelines to assist state commissions in determining the size of each service area.⁽²⁷⁴⁴⁾

96. Ability of Commission to base support on areas smaller than state-designated service areas. SBC and Sprint PCS support the Joint Board's determination that the Commission can base high cost support on a geographic area that differs from a service area established by a state commission.⁽²⁷⁴⁵⁾ Bell Atlantic disagrees, contending that section 214(e)(5) gives the states exclusive authority to establish non-rural service areas "for the purpose of determining universal service obligations and support mechanisms."⁽²⁷⁴⁶⁾

b. Rural Service Areas

97. Service Areas Served by Rural Telephone Companies. A majority of parties who commented on this issue support the Joint Board's recommendation to adopt rural study areas as the service areas in geographic areas served by a rural telephone company.⁽²⁷⁴⁷⁾ Several entities representing the interests of rural LECs assert this decision will ensure that "cream-skimming" will not occur in rural areas.⁽²⁷⁴⁸⁾ Minnesota Coalition asserts that this decision is consistent with other provisions of the 1996 Act that make clear that competition in rural areas should not occur in a manner that harms universal service.⁽²⁷⁴⁹⁾ Minnesota Coalition also agrees with the Joint Board that adopting rural study areas as service areas would reduce the costs of implementing the program because rural LECs' accounting systems are designed to be applied to an entire study area, and adopting this approach avoids the costs and difficulties of attempting to determine embedded costs for a different service area.⁽²⁷⁵⁰⁾ ITC asserts that retaining study areas for rural carriers while allowing non-rural service areas to be variable in size may result in inequities because current study areas often incorporate a small urban area that lowers the average cost per loop, while the newly designated non-rural service areas may not.⁽²⁷⁵¹⁾ TCA expresses concern regarding the Joint Board's recommendation that "existing" rural study areas be used as rural service areas.⁽²⁷⁵²⁾ TCA indicates that when a rural study area is modified, the corresponding service area should also be modified accordingly.⁽²⁷⁵³⁾

98. Several parties, including parties representing primarily wireless interests, assert that the Joint Board neglected to account for the fact that many rural study areas are non-contiguous when it recommended that rural LECs' study areas be used as rural service areas for purposes of section 214(e).⁽²⁷⁵⁴⁾ Cox, Nextel, and Vanguard assert that adoption of this recommendation could impede wireless providers from qualifying for universal service support, in part because some wireless carriers are licensed within geographic regions with prescribed boundaries or are licensed on a station-by-station basis.⁽²⁷⁵⁵⁾ Vanguard indicates that the analysis that led the Joint Board to recommend that states not designate unreasonably large service areas also dictates that the size and distribution of rural service areas not inhibit competition.⁽²⁷⁵⁶⁾ GCI states that it is willing to provide service in all of a non-contiguous study area of a rural LEC, as long as the Commission does not impose criteria in addition to the criteria included in section 214(e)(1)(A).⁽²⁷⁵⁷⁾

99. Rather than using rural study areas, Cox suggests that new entrants should be required to serve only the entire contiguous portion of a rural LEC's study area because it will give competitors a fair chance to obtain universal service support while protecting rural carriers from "cream-skimming."⁽²⁷⁵⁸⁾ Cox suggests that this approach would be consistent with the Commission's current standards for modifying study areas which require carriers to demonstrate that modifications will not increase universal service costs.⁽²⁷⁵⁹⁾ In the alternative, Cox asserts that carriers could provide the core services throughout a service area.⁽²⁷⁶⁰⁾ Cox asserts that allowing providers to offer the core services cooperatively will alleviate difficulties in serving contiguous and non-contiguous service areas.⁽²⁷⁶¹⁾ Vanguard and Nextel support defining a service area as the area in which a service provider is seeking to serve customers, citing examples of a telephone franchise area or a wireless company's service area.⁽²⁷⁶²⁾ Nextel indicates that adopting this definition would be consistent with the competitive neutrality principle, and is also consistent with the Joint Board's recommendation regarding the analogous requirement for providers that offer supported services to schools and libraries.⁽²⁷⁶³⁾ Vanguard indicates its proposed definition of a rural service area is consistent with the language of section 214(e)(5) which recognizes that a rural LEC's study area may not be appropriate for determining universal service support eligibility.⁽²⁷⁶⁴⁾ Vanguard clarifies that CMRS service areas have been determined carefully by the Commission and that the Commission has adopted explicit build-out obligations for the provision of service throughout a given geographic region.⁽²⁷⁶⁵⁾ Thus, Vanguard asserts that if a wireless company's service area was adopted as its section 214 service area, CMRS providers would not be able to provide service only to the most lucrative consumers in an areas, as some LECs allege.⁽²⁷⁶⁶⁾

D. Unserved Areas

1. Comments

100. TCA, the lone commenter on the Joint Board recommendation on this issue, asserts that rules for unserved areas are a state matter under section 102 of the 1996 Act.⁽²⁷⁶⁷⁾ TCA indicates that any federal pronouncements in this area should state that no federal intervention is needed.⁽²⁷⁶⁸⁾

VII. RURAL, INSULAR, AND HIGH COST

A. Overview

101. The following is a summary of the comments relating to the rural, insular, and high costs issues.

B. Universal Service Support Based on Forward-Looking Economic Cost

1. Scope of Cost to be Supported

102. Forward-looking Costs. Many of the commenters agree with the Joint Board's recommendation that we base universal service support on the forward-looking costs of constructing and operating the network used to provide the services included in the list of services adopted pursuant to section 254(c)(1).⁽²⁷⁶⁹⁾ Several commenters contend that basing support mechanisms on forward-looking costs best reflects the costs of an efficient operator, thereby facilitating the transition to a competitive environment.⁽²⁷⁷⁰⁾ The Business Software Alliance and MCI contend that the use of forward-looking costs offers the correct economic incentives for carriers deciding how to invest, including whether to enter a new market.⁽²⁷⁷¹⁾ The CNMI Representative suggests that using forward-looking costs would permit support levels to reflect not only costs, but also the realities of spply and demand.⁽²⁷⁷²⁾ ITI states that the use of forward-looking costs would ensure that universal service support corresponds to the true costs of providing the service.⁽²⁷⁷³⁾ AirTouch states that using forward-looking costs, and breaking the link between the carrier's embedded costs and the support level, will create price-cap-like incentives for efficient cost reduction.⁽²⁷⁷⁴⁾

103. Other commenters disagree, however, and contend that the use of forward-looking costs will produce uncertainty and inaccuracy, because they claim that such cost figures are volatile, subjective, and unverifiable.⁽²⁷⁷⁵⁾ Several commenters argue that because they prevent carriers from recovering substantial portions of their infrastructure investment these forward-looking assumptions render it irrational to make future investments.⁽²⁷⁷⁶⁾ John Staurulakis adds that use of forward-looking costs undermines Congress's intent to promote facilities-based competition.⁽²⁷⁷⁷⁾ The California SBA contends that using the least-cost, most-efficient technology standard will likely underestimate the real cost of providing the supported services in high cost areas because few if any carriers are actually able to use such technology.⁽²⁷⁷⁸⁾ Harris agrees, stating that the newest technologies are often not available to ILECs, particularly small ILECs serving rural areas.⁽²⁷⁷⁹⁾

104. USTA, while opposing the use of forward-looking costs, states that if such costs are used, the appropriate basis for determining forward-looking economic costs is the expected cost of an actual firm in the market, not a hypothetical entrant that would instantaneously supply the entire market. USTA argues that an actual market participant, whether an incumbent or a new entrant, may be efficient in a dynamic sense, although not in the "static" sense assumed in the proxy models.⁽²⁷⁸⁰⁾ USTA notes that the telephone industry undergoes constant technological change, and asserts that the assumption of a static environment in the models poses significant cost recovery risks for ILECs, even if they are operating efficiently.⁽²⁷⁸¹⁾

105. Embedded Costs. Most ILECs contend that universal service support should be based on their embedded costs, rather than on forward-looking costs.⁽²⁷⁸²⁾ The ILECs assert that embedded costs more accurately reflect the real costs of providing service than forward-looking costs.⁽²⁷⁸³⁾ Ameritech and Puerto Rico Tel. Co. agree, stating that embedded costs accurately reflect the true costs of providing service and have been documented over time.⁽²⁷⁸⁴⁾ Tularosa Basin Tel. argues that there is no significant evidence of ILECs "goldplating" their networks through the use of universal service funds and that there is overwhelming evidence that ILECs are in fact using universal service support to bring quality services to their customers. It notes that all of its construction has been based on efficient engineering designs and competitive bidding to assure the most cost-effective infrastructure possible.⁽²⁷⁸⁵⁾

106. SBC states that nothing in the 1996 Act suggests that the Commission should jettison the use of embedded costs as a basis for support.⁽²⁷⁸⁶⁾ ITC claims that using embedded costs is the best way to ensure that funds are used to support the network and that potential new entrants receive the correct economic signals about the cost of providing service in that area.⁽²⁷⁸⁷⁾ The commenters also contend that use of embedded costs is the only way to ensure that there is a sufficient support mechanism, as required in section 254.⁽²⁷⁸⁸⁾

107. Many other parties oppose the use of embedded costs.⁽²⁷⁸⁹⁾ PageMart asserts that embedded costs include many unnecessary costs that should not be supported through universal service support mechanisms.⁽²⁷⁹⁰⁾ PCIA contends that such costs are based on obsolete rate-of-return regulation.⁽²⁷⁹¹⁾ AT&T states that use of embedded costs will not allow the support mechanism to capture the full benefits of current technology.⁽²⁷⁹²⁾ Chicago claims that basing support on embedded costs would impose enormous burdens on customers to compensate for past decision making by the ILEC, no matter how faulty those decisions were. Chicago also maintains that use of embedded costs would impose a significant barrier to entry, because support would be tied to the operating decisions of ILECs.⁽²⁷⁹³⁾ CPI expresses concern that use of a carrier's historic costs to set the support levels would subsidize the inefficient carrier at the expense of the efficient carrier.⁽²⁷⁹⁴⁾

108. Bell Atlantic proposes that the Commission use state-averaged embedded line costs as the basis for setting universal service support levels.⁽²⁷⁹⁵⁾ Bell Atlantic claims that averaging the costs within each state will eliminate any incentives not to be efficient that are built into the existing system because ILECs with obsolete technology or inefficient operations will not be rewarded with higher support payments than more efficient ILECs in the state. Bell Atlantic states that its proposal will also ensure that support flows to states that actually experience high cost, not just those that experience high costs in a theoretical model.⁽²⁷⁹⁶⁾

109. "Legacy" Costs. Several ILECs assert that the Commission should modify the Joint Board's recommended approach by providing for the explicit recovery of carriers' plant and equipment investments.⁽²⁷⁹⁷⁾ These commenters contend that carriers made these investments pursuant to federal and state regulatory directives that mandated the provision of a certain level of telephone service in high cost and rural areas. Some commenters argue that any universal service support mechanism that fails to provide for recovery of the costs of an ILEC's facilities would strand the ILEC's investment and constitute a confiscation of property, in violation of the Fifth Amendment protection against takings.⁽²⁷⁹⁸⁾

110. PacTel states that the Joint Board's recommendation that non-rural carriers move to a proxy model immediately is contrary to the Telecommunications Act and the constitutional prohibition against uncompensated takings.⁽²⁷⁹⁹⁾ Referring to plant and equipment investments as "legacy" costs,⁽²⁸⁰⁰⁾ PacTel contends that any cost proxy model used to calculate the costs of support services must allow ILECs to recover their legacy costs, or in the alternative, establish a transitional legacy cost recovery mechanism.⁽²⁸⁰¹⁾ PacTel maintains that failure to allow carriers to recover these investment costs would break a long-standing contract between government and local telephone companies, under which telephone companies are entitled to receive a fair opportunity to recover their legitimately incurred costs, including a fair return on investment.⁽²⁸⁰²⁾ PacTel explains that in exchange for that opportunity, ILECs committed to provide quality service to all consumers at rates set by regulators and assumed COLR obligations. PacTel asserts that regulators have often set rates based on social rather than economic policies and relied on the promise of a sustainable monopoly to defer recovery and keep rates below cost.⁽²⁸⁰³⁾ In addition, PacTel contends that regulatory decisions required the ILECs to recover plant and equipment investment in accordance with long depreciation schedules, and thus massive undepreciated plant and equipment remains on the ILECs' books.⁽²⁸⁰⁴⁾ PacTel states that its unrecovered investment is $4.7 billion in excess of what it should be using accepted economic depreciation methods. It adds that it does not expect to recover that investment if the Commission adopts the Joint Board's proposal.⁽²⁸⁰⁵⁾

111. As an alternative to providing for legacy cost recovery in the proxy model, PacTel proposes that the Commission establish a separate six-year transition mechanism that would permit ILECs to withdraw amounts from the high cost fund based on their legacy costs. CLECs would receive high cost assistance only from the forward-looking mechanism that would govern all eligible entities.⁽²⁸⁰⁶⁾ PacTel further argues that large carriers, as well as small, rural carriers, should be eligible to recover legacy costs during this transition, because they: (1) cannot simply replace lost revenues with revenues from other services because of the mandate that subsidies be explicit; (2) are less able to raise local rates to recover legacy costs than rural companies because of existing price caps; and, (3) have legacy costs per line that are comparable to those of rural carriers, despite a larger subscriber base.