[Federal Register: December 30, 2002 (Volume 67, Number 250)]
[Rules and Regulations]
[Page 79525-79533]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de02-6]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170;
FCC 02-329]
Federal-State Joint Board on Universal Service
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Commission adopts several interim
modifications to the existing federal universal service contribution
system. The Commission concludes that these modifications to the
current revenue-based contribution methodology will sustain the
universal service fund and increase the predictability of support in
the near term, while we continue to examine more fundamental reforms.
DATES: Effective January 29, 2003.
FOR FURTHER INFORMATION CONTACT: Diane Law Hsu, Acting Deputy Chief,
Wireline Competition Bureau, Telecommunications Access Policy Division,
(202) 418-7400.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order in CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-
116, and 98-170 released on December 13, 2002. The full text of this
document is available for public inspection during regular business
hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street,
SW., Washington, DC 20554.
I. Introduction and Overview
1. In this Report and Order, we take interim measures to maintain
the viability of universal service in the near term--a fundamental goal
of this Commission--while we consider further long-term reforms. First,
we increase to 28.5 percent the current interim safe harbor that allows
cellular, broadband Personal Communications Service (PCS), and certain
Specialized Mobile Radio (SMR) providers to assume that 15 percent of
their telecommunications revenues are interstate. We also require
wireless telecommunications providers to make a single election whether
to report actual revenues or to use the revised safe harbor for all
affiliated entities within the same safe harbor category. In addition,
we seek to improve competitive neutrality among contributors by
modifying the existing revenue-based methodology to require universal
service contributions based on contributor-provided projections of
collected end-user interstate and international telecommunications
revenues, instead of historical gross-billed revenues. These changes
will be implemented with the FCC Form 499-Q filed on February 1, 2003.
We conclude that our actions to modify the current revenue-based
contribution methodology will sustain the universal service fund and
increase the predictability of support in the near term, while we
continue to examine more fundamental reforms.
2. In light of these changes, we also conclude that
telecommunications carriers may not recover their federal universal
service contribution costs through a separate line item that includes a
mark-up above the relevant contribution factor beginning April 1, 2003.
Limiting the federal universal service line-item charge to an amount
that does not exceed the contribution factor, set quarterly by the
Commission, will increase billing transparency and decrease confusion
for consumers about the amount of universal service contributions that
are passed through by carriers. Carriers will continue to have the
flexibility to recover legitimate administrative costs from consumers
through other means.
[[Page 79526]]
II. Report and Order
3. As noted above, we adopt several modifications to the current
revenue-based system to ensure the sufficiency and predictability of
universal service while we consider reforms to sustain the universal
service fund for the long term. To address concerns raised in the
record that the current interim safe harbor for mobile wireless
providers is inappropriate in light of changing market conditions, we
raise the safe harbor from 15 to 28.5 percent. We establish an all-or-
nothing rule for affiliated wireless telecommunications providers when
determining whether to report actual interstate telecommunications
revenues or to avail themselves of the wireless safe harbor
percentages. We also modify the current revenue-based methodology by
basing contributions on a percentage of projected collected, instead of
historical gross-billed, interstate and international end-user
telecommunications revenues reported by contributors on a quarterly
basis. In light of the modifications adopted by the Commission, we
conclude that carriers may not mark-up universal service line item
amounts above the contribution assessment rate. Finally, we revise our
Lifeline rules to prohibit all Eligible Telecommunications Carriers
(ETCs) from recovering contribution costs from their Lifeline
customers.
A. Modified Revenue-Based Assessment Methodology
1. Mobile Wireless Safe Harbor
4. Based on the record before us, we raise the current safe harbor
for mobile wireless providers from 15 percent to 28.5 percent. We
conclude that a 15 percent interim mobile wireless safe harbor no
longer reflects the extent to which mobile wireless consumers utilize
their wireless phones for interstate calls, particularly in light of
the increased substitution of wireless for traditional wireline
service. According to revenue data included on the latest FCC Form 499-
Q, it appears that 43 percent of mobile wireless filers, representing
78 percent of mobile wireless end-user telecommunications revenues,
currently avail themselves of the mobile wireless safe harbor. As noted
by several commenters, revising the mobile wireless safe harbor is
appropriate because it is no longer based on actual market conditions.
Increasing the interim mobile wireless safe harbor will, therefore,
help to ensure that universal service contributions remain equitable
and non-discriminatory. Such action also will improve the near-term
viability of the universal service mechanisms by ensuring that the
contribution base more accurately reflects today's marketplace.
5. Mobile wireless providers availing themselves of the revised
interim safe harbor will be required to report 28.5 percent of their
telecommunications revenues as interstate beginning with fourth quarter
2002 revenues reported on the February 1, 2003, FCC Form 499-Q. Mobile
wireless providers will still have the option of reporting their actual
interstate telecommunications revenues. We note that mobile wireless
providers must provide documentation to support the reporting of actual
interstate telecommunications revenues upon request.
6. In order to ensure that contributions remain equitable and
nondiscriminatory, we also adopt an all-or-nothing rule for wireless
telecommunications providers seeking to avail themselves of the safe
harbors. Under this rule, wireless providers will continue to be
permitted to report revenues at either the legal entity level or on a
consolidated basis, but will be required to decide whether to report
either actual or safe harbor revenues for all of their affiliated legal
entities within the same safe harbor category (i.e., 28.5 percent, 12
percent or 1 percent). We conclude, in the interests of consistency,
equity, and fairness, that such a contributor that chooses to determine
actual interstate telecommunications revenues for one of its affiliated
entities must do so for all affiliated entities within the same safe
harbor category. Likewise, wireless telecommunications providers must
use the safe harbor for all affiliated carriers within the same
category if they choose to use it for one. If a wireless
telecommunications provider can and does separate its interstate
revenues from intrastate revenues for universal service contribution
purposes, we find that it is reasonable to presume that its affiliates
subject to the same safe harbor can employ the same measures to report
their interstate revenues. It is inappropriate, therefore, to allow
affiliated wireless providers to ``pick and choose'' which entities use
the interim safe harbors.
7. Beginning with the first Form 499-Q filing following the
effective date of this Order, wireless providers, including mobile
wireless providers, paging providers, and analog SMR providers, shall
determine whether to report revenues based on the interim wireless safe
harbors at the affiliated-company level, as opposed to the legal-entity
level, as is the case today. Under this new requirement, if one
wireless entity chooses to report and contribute based on actual
interstate telecommunications revenues, all affiliated companies
subject to the same safe harbor must do the same. Conversely, if one
wireless entity chooses to utilize the interim safe harbors, all
affiliated companies in the same safe harbor category must also use the
safe harbor. For purposes of this requirement and consistent with
section 3(1) of the Act, we define ``affiliate'' as a person that
(directly or indirectly) owns or controls, is owned or controlled by,
or is under common ownership or control with, another person.
8. In addition to the universal service support mechanisms,
consistent with existing Commission practice, revenues reported on the
Form 499-A will continue to be used in administering the
Telecommunications Relay Services, North American Numbering Plan, Local
Number Portability programs, as well as the regulatory fees
administration program for wireline telecommunications providers. We
can see no reason to permit carriers to use a different safe harbor for
revenue reporting for purposes of these other programs. Thus, we
conclude that our actions taken here to revise the interim mobile
wireless safe harbor and modify the reporting of data by wireless
providers on the 499-A also will apply to assessments for the
mechanisms established for Telecommunications Relay Services, the North
American Numbering Plan, and the Local Number Portability programs.
2. Assessment on Projected Collected Revenues
9. Based on our experience with the current collection methodology,
we now find it appropriate to modify this aspect of the methodology to
promote competitive neutrality and to simplify the assessment and
recovery of universal service contributions for carriers and consumers.
We therefore conclude that, instead of assessing universal service
contributions based on revenues accrued as much as six months prior,
the Universal Service Administrative Company (USAC) will assess
contributions based on projections provided by contributors of their
collected end-user interstate and international telecommunications
revenues for the following quarter. Because contributors will be
assessed in the period for which revenues are projected, the modified
methodology will eliminate the interval between the accrual of revenues
and the assessment of universal service contributions based on those
revenues. The modified methodology also will result in minimal changes
to current reporting requirements. The revised methodology
[[Page 79527]]
therefore will base assessments on revenue data that is more reflective
of current market conditions, without significantly increasing
administrative costs for contributors and USAC. We view this and other
changes we make to the revenue-based system to be interim measures
while we consider the approaches raised in the companion Second Further
Notice of Proposed Rulemaking (Second Further NPRM) published elsewhere
in the issue of the Federal Register.
10. We also conclude that the revised contribution methodology
ensures that contributions to universal service support mechanisms
continue to operate in a competitively neutral manner. As noted by
several commenters, the current contribution system based on historical
revenues creates competitive advantages for new entrants and
contributors with increasing interstate telecommunications revenues,
while disadvantaging those carriers with declining revenues.
Interexchange carriers, for example, which currently contribute more
than 60 percent of universal service contributions, are particularly
disadvantaged by the so-called ``lag'' that results because they have
experienced sharp declines in their interstate revenues. Because
contributions are assessed on revenues from six months prior, carriers
with decreasing revenues must recover their contributions from a
revenue base smaller than the one assessed. By basing contribution
assessments on projected collected end-user interstate and
international telecommunications revenues, as opposed to historical
gross-billed revenues, the modified mechanism mitigates the anti-
competitive effects of the current system. This, in turn, helps to
ensure the sufficiency and stability of the universal service fund.
11. For purposes of our revised contribution methodology,
``collected end-user'' revenues refers to gross-billed end-user
interstate and international telecommunications revenues less estimated
uncollectibles. We define uncollectibles as the percentage of
interstate and international telecommunications revenues that the
contributor anticipates will not be collected from end-user customers.
Contributors must make best efforts to collect interstate and
international telecommunications revenues, including any federal
universal service pass-through charges, before characterizing revenues
as uncollectible. As we discuss below, these projected uncollectibles
will be trued up against actual uncollectibles reported on the FCC Form
499-A. This percentage should be calculated in accordance with
Generally Accepted Accounting Principles. Contributors will report
their uncollectible percent on the Form 499 filings (i.e., Forms 499-Q
and 499-A), which will be modified to collect additional information
about uncollectibles consistent with the rules adopted in this Order.
12. Consistent with our existing policy, contributors will continue
to file a Form 499-Q on a quarterly basis and the Form 499-A on an
annual basis. The Commission and USAC will also continue to set
contribution factors on a quarterly basis using the same timeframes as
the current methodology. Under the revised methodology, however, in
addition to filing the Form 499-Q to report historical gross-billed
revenues from the prior quarter, contributors also will project their
gross-billed and collected end-user interstate and international
telecommunications revenues for the upcoming quarter. We believe that
this will not be burdensome for contributors, as they need to develop
such projections for their own internal business purposes. Consistent
with current procedures, contributors will have the option of
certifying as to the confidential nature of such projections on the FCC
Form 499-Q.
13. We note that we retain the requirement for an officer to
certify to the truthfulness and accuracy of the FCC Form 499-A
submitted to the Administrator. We also will require an executive
officer to certify that the projections of gross-billed and collected
revenues included in the FCC Form 499-Q represent a good-faith estimate
based on company policies and procedures. To ensure that contributors
report correct information on the FCC Form 499-A, we require all
contributors to maintain records and documentation to justify the
information reported in the Form 499-A for three years. We also will
require filers to maintain records detailing the methodology used to
determine projections in the Form 499-Q for three years. Filers will be
required to provide such records and documentation to the Commission
and USAC upon request.
14. Under the modified methodology, contributors will continue to
include pass-through charges, if any, as part of their projection of
collected end-user revenues. In order to eliminate circularity,
however, the Administrator will reduce each provider's contribution
obligation by a circularity discount factor representing the provider's
projected contributions to universal service in the upcoming quarter.
Prior to each quarter, we will announce a contribution factor equal to
the projected universal service funding requirement for the upcoming
quarter (projected revenue requirement) divided by an adjusted
contribution base. As discussed below, carriers will be prohibited from
marking up their federal universal service line item above this
contribution factor. In order to calculate an individual provider's
contribution, USAC then will reduce the provider's unadjusted
contribution obligation (i.e., its projected collected end-user
revenues times the contribution factor) by an amount equal to its
contribution obligation times the circularity discount factor. The
circularity discount factor will equal one minus an amount equal to the
adjusted contribution base divided by total projected end-user
interstate and international telecommunication revenues. USAC will send
contributors a firm bill each month based on the above-described
calculation. Therefore, we do not anticipate the need for a reserve
fund, because contributors will be billed monthly based on their
reported projected collected revenues, the same amounts used to
calculate the contribution factor.
15. Although our modified mechanism relies on the ability of
contributors to project gross-billed and collected revenues on a
quarterly basis, it only requires contributors to project for the
upcoming quarter, which should minimize the potential for inaccurate
estimates. Similar to existing policies, contributors will have an
opportunity to correct their projections up to 45 days after the due
date of each Form 499-Q filing and through the annual true-up process.
We find it appropriate to modify the current requirement that revisions
be filed by the due date of the next Form 499-Q (which effectively
provides 90 days for revisions) in light of the changes to the
methodology we adopt today. In particular, we believe it necessary to
eliminate incentives for contributors to revise their revenue
projections after the announcement of the contribution factor for the
upcoming quarter in order to reduce their contribution obligations and
to otherwise reduce the likelihood of a shortfall in universal service
funding in a given calendar quarter. USAC will use the actual revenue
data provided by contributors on the FCC Form 499-A to perform annual
true-ups to the quarterly projected revenue data submitted by
contributors during the prior calendar year. As necessary, USAC will
then refund or collect from contributors any over-payments or under-
payments. If the combined quarterly projected
[[Page 79528]]
revenues reported by a contributor are greater than those reported on
its annual revenue report (Form 499-A), then a refund will be provided
to the contributor based on an average of the two lowest contribution
factors for the year. If the combined quarterly revenues reported by a
contributor are less than those reported on its annual revenue report
(Form 499-A), then USAC will collect the difference from the
contributor using an average of the two highest contribution factors
from that year. This approach is consistent with the existing system.
16. We direct USAC to begin implementation of the revised reporting
requirements, consistent with our modifications to ensure that carriers
begin contributing based on projected collected end-user revenues, in
the next quarterly filing to occur on February 1, 2003. Therefore, the
contribution factor for the second quarter of 2003 will be based on
projected collected end-user interstate and international
telecommunications revenues. As part of the transition to the modified
contribution system, contributors must begin providing information
concerning their projected collected end-user interstate and
international telecommunications revenues (i.e., anticipated end-user
revenues and estimated uncollectibles) for the upcoming quarter with
the filing of the modified 499-Q on February 1, 2003, to reflect
projections for the second quarter of 2003. In order to provide USAC
with a full year of projected revenues with which to conduct the annual
true up for 2003 revenues, contributors also will be required to
include projected collected revenues for the first quarter of 2003 on
the 499-Q that will be filed on February 1, 2003. As discussed above,
subsequent 499-Qs will only include historical revenues from the prior
calendar quarter and projected revenues for the upcoming quarter. The
FCC Form 499-A, which must be filed on April 1, 2003, will include
historical gross-billed revenues for the period of January 2002 through
December 2002. Subsequent FCC Form 499-As will include historical
gross-billed revenues and actual collected end-user interstate and
international telecommunications revenues for the relevant reporting
year.
B. Recovery of Universal Service Contributions
1. Recovery Limitations
17. In this Order, consistent with the goals of the Act and this
Commission for universal service, we adopt rules related to
contribution recovery that will ensure that federal universal service
line items on customer bills accurately reflect the extent of a
carrier's contribution obligations, while at the same time maximizing
fairness and flexibility for carriers. We conclude that
telecommunications carriers may not recover their federal universal
service contribution costs through a separate line item that includes a
mark up above the relevant contribution factor. Contributing carriers
still will have the flexibility to recover their contribution costs
through their end-user rates if they so choose and to recover any
administrative or other costs they currently recover in a universal
service line-item through their customer rates or through another line
item. Contributors will also have the flexibility to express the line
item either as a flat amount or a percentage, as long as the line item
does not exceed the total amount associated with the contribution
factor, or the actual percentage thereof.
18. Based on our experience over the course of the last three
years, we believe it is necessary to provide greater clarity about the
practices we deem reasonable to protect consumers. In light of the
changes to the contribution methodology adopted herein, we conclude
that the practice of marking up federal universal service line-item
charges above the relevant assessment amount will be prohibited
prospectively. Any carrier that applies a federal universal service
line-item charge above the relevant assessment amount could be subject
to enforcement action for violating the rules we adopt in the Order.
19. The elimination of mark-ups in carrier universal service line
items will alleviate end-user confusion regarding the universal service
line item. Specifically, the amount of a carrier's federal universal
service line item will not exceed the relevant interstate
telecommunications portion of the bill times the relevant contribution
factor. This result should eliminate a significant portion of the
consumer frustration and confusion pertaining to universal service line
items. This requirement also should foster a more competitive market by
better enabling customers to comparison shop among carriers. This
furthers our goal of promoting transparency for the end user in order
to facilitate informed customer choice.
20. Therefore, beginning April 1, 2003, carriers that elect to
recover their contribution costs through a separate line item may not
mark up the line item above the relevant contribution factor. To the
extent that a carrier recovers its contribution costs through a line
item, that line item may not exceed the relevant assessment rate. So,
for example, if the contribution factor is 7.28 percent, a carrier's
federal universal service line-item cannot exceed 7.28 percent of the
total amount of the interstate portion of charges for
telecommunications service on each customer's bill. Likewise, if a
carrier chooses to express its federal universal service line-item
charge as a flat amount, that amount may not exceed the interstate
telecommunications portion of the bill times the relevant contribution
factor. In addition, we no longer will permit carriers--whether
wireline or wireless--to average contribution costs across all end-user
customers when establishing federal universal service line-item
amounts. Similarly, because customers of Lifeline services do not
generate assessable interstate telecommunications revenues for ETCs,
the relevant assessment rate and contribution amounts recovered from
such customers would be zero.
21. We recognize that these changes may require modifications in
billing practices for certain carriers. Accordingly, this requirement
will not become effective until April 1, 2003. We will monitor closely
carrier compliance with these new requirements and will take
appropriate action if it appears carriers are not complying with our
rules.
22. We stress that this rule only applies to carriers that choose
to recover their contribution costs through a line item. Carriers will
continue to have flexibility to recover their contribution costs
through their rates or through a line item. In this way, we accommodate
entities such as payphone and prepaid wireless providers that are
unable, for practical or business reasons, to recover universal service
contribution costs through a line item. In addition, carriers will have
the flexibility to express the line item either as a flat amount or as
a percentage, as long as the line item does not exceed the interstate
telecommunications portion of a customer's bill times the relevant
contribution factor.
23. Carriers that are not rate-regulated by this Commission, namely
interexchange carriers, CMRS providers, and competitive local exchange
carriers, will have the same flexibility that exists today to recover
legitimate administrative and other related costs. In particular, such
costs can always be recovered through these carriers' rates or through
other line items. The rule that we adopt today does not prevent any
legitimate cost recovery. Administrative costs of incumbent local
exchange carriers (ILECs) subject to rate-of-return regulation solely
related to
[[Page 79529]]
implementation and compliance with the contribution methodology will be
included in their cost accounting and therefore will be part of their
end-user revenue requirement. As for carriers subject to price cap
regulation, we do not anticipate that administrative costs associated
with our contribution methodology will be extraordinary. Nothing in
this Order modifies our existing Truth-in-Billing requirements.
24. We emphasize that the rules we adopt today do not require the
filing of new tariffs, but may result in revisions to existing tariffs.
We note that the Commission has detariffed most interstate services
offered by interexchange carriers. Further, CLECs and CMRS providers do
not tariff their federal universal service line items with the
Commission.
25. Because carriers cannot include mark ups in their federal
universal service line item, we need not address whether such charges
should be uniform across customer classes. We also need not adopt an
interim safe harbor for mark ups.
26. Consistent with the record developed in this proceeding, we
prohibit all eligible telecommunications carriers from recovering
contribution costs from their Lifeline customers. Under our current
rules, ILECs may not recover universal service contributions from
Lifeline customers, while other carriers may do so. We find that
extending the prohibition on recovery of universal service
contributions from Lifeline customers to all ETCs, including CLECs and
CMRS providers designated as ETCs, will promote equitable and
nondiscriminatory contributions, consistent with section 254 of the
Act. Prohibiting recovery of universal service contributions from
Lifeline customers also helps to increase subscribership by reducing
qualifying low-income consumers' monthly basic local service charges,
consistent with our rules. We also conclude that our actions here
further the universal service goals of the Act by helping to ensure
that low-income consumers have access to telecommunications and
information services.
27. While we believe that the adoption of rules in this Order will
greatly reduce the amount of customer confusion surrounding
contribution recovery issues, the Consumer and Governmental Affairs
Bureau will continue to monitor complaints and consumer calls received
on this topic. In addition, the Consumer and Governmental Affairs
Bureau will continue its educational and outreach programs regarding
federal universal service. We expect the Consumer and Governmental
Affairs Bureau will educate consumers about the new rules adopted in
this order. In this way we can monitor whether the policy goal of
fostering competition through consumer choice is being met. If we
observe a sustained marked increase in consumer complaints regarding
the recovery of carrier contribution costs, we may revisit this issue
at that time.
2. Labeling of Line-Item Charges
28. At this time, we decline to mandate a specific label for
federal universal service line-items pursuant to our Truth-in-Billing
rules. We will monitor how the reforms we adopt today affect carrier
recovery practices and will take further action if necessary.
III. Procedural Matters
A. Final Regulatory Flexibility Analysis
29. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the First Notice of Proposed Rulemaking (First Further
NPRM), 67 FR 1125, March 13, 2002. The Commission sought written public
comment on the proposals in the First Further NPRM, including comment
on the IRFA. This present Final Regulatory Flexibility Analysis (FRFA)
conforms to the RFA. To the extent that any statement in this FRFA is
perceived as creating ambiguity with respect to our rules or statements
made in preceding sections of this Order, the rules and statements set
forth in those preceding sections shall be controlling.
1. Need for, and Objectives of, the Report and Order
30. In this Order, we take interim measures to maintain the
viability of universal service in the near term--a fundamental goal of
this Commission--while we consider further long-term reforms. First, we
increase to 28.5 percent the current interim safe harbor that allows
cellular, broadband PCS, and certain specialized SMRS providers to
assume that 15 percent of their telecommunications revenues are
interstate. We also will require wireless telecommunications providers
to make a single election whether to report actual revenues or to use
the revised safe harbor for all affiliated entities within the same
safe harbor category. In addition, we seek to improve competitive
neutrality among contributors by modifying the existing revenue-based
methodology to require universal service contributions based on
contributor provided projections of collected end-user interstate
telecommunications revenues, instead of historical gross-billed
revenues. We conclude that our actions to modify the current revenue-
based contribution methodology will sustain the universal service fund
and increase the predictability of support in the near term, while we
continue to examine more fundamental reforms.
31. We also take steps to protect consumers from unjust and
unreasonable universal service contribution recovery practices.
Specifically, we conclude that telecommunications carriers may not
recover their federal universal service contribution costs through a
separate line item that includes a mark up above the relevant
contribution factor. Limiting the federal universal service line-item
charge to an amount that does not exceed the contribution factor, set
quarterly by the Commission, will increase billing transparency and
decrease confusion for consumers about the amount of universal service
contributions that are passed through by carriers. Carriers will
continue to have the flexibility to recover legitimate administrative
costs from consumers through other means. We find that our modified
contribution methodology will simplify the assessment and recovery of
universal service contributions for all carriers and consumers,
including small entities.
2. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
32. The Commission received no comments specifically addressing the
IRFA. We did receive, however, some general small entity-related
comments. Some commenters, for example, asserted that a connection-
based methodology would be inequitable and burdensome for small
businesses, particularly with respect to assessment of multi-line
business connections based on the proposed tiers of capacity outlined
in the First Further NPRM. Commenters also expressed general concerns
about carrier recovery practices. Other commenters maintained that a de
minimis exemption was essential to any contribution system adopted by
the Commission. In this Order, we modify the existing methodology;
therefore, issues raised with respect to the impact of a connection-
based assessment on small entity concerns are not directly implicated
by our actions taken today. We do note, however, that the Commission,
concurrent with the issuance of the Order adopted a companion Second
Further NPRM that seeks comment on specific aspects of
[[Page 79530]]
three connection-based proposals in the record. To the extent that
commenters continue to have small entity-related concerns, they may
submit comments in response to the Second Further NPRM.
33. In the Order, we adopt certain modifications to the existing
methodology. As noted in the Order, we, among other things, have
adopted rules related to contribution recovery that will increase
billing transparency and decrease confusion for all consumers,
including small entities, about the amount of universal service
contributions that are passed through by carriers, while maximizing
fairness and flexibility for carriers. By allowing carriers to
contribute based on projections of their collected end-user revenues,
we eliminate one of the major reasons for carriers to recover amounts
in excess of the relevant assessment rate. We prohibit carriers from
marking up federal universal service line items above the contribution
factor. These actions address small entity concerns regarding recovery
practices. We have also retained the de minimis exemption to ensure
that compliance costs associated with contributing to universal service
do not exceed actual contribution amounts.
3. Description and Estimate of the Number of Small Entities to which
Rules will Apply
34. The RFA directs agencies to provide a description of, and,
where feasible, an estimate of the number of small entities that may be
affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' A small organization is generally ``any not-for-profit
enterprise which is independently owned and operated and is not
dominant in its field.'' Nationwide, as of 1992, there were
approximately 275,801 small organizations. ``Small governmental
jurisdiction'' generally means ``governments of cities, counties,
towns, townships, villages, school districts, or special districts,
with a population of less than 50,000.'' As of 1992, there were
approximately 85,006 governmental entities, total, in the United
States. This number includes 38,978 cities, counties, and towns; of
these, 37,566, or 96%, have populations of fewer than 50,000. The
Census Bureau estimates that this ratio is approximately accurate for
all governmental entities. Thus, of the 85,006 governmental entities,
we estimate that 81,600 (96%) are small entities. In addition, the term
``small business'' has the same meaning as the term ``small business
concern'' under the Small Business Act, unless the Commission has
developed one or more definitions that are appropriate to its
activities. Under the Small Business Act, a ``small business concern''
is one that: (1) Is independently owned and operated; (2) is not
dominant in its field of operation; and (3) meets any additional
criteria established by the Small Business Administration (SBA).
35. We have included small incumbent local exchange carriers in
this present RFA analysis. As noted above, a ``small business'' under
the RFA is one that, inter alia, meets the pertinent small business
size standard (e.g., a telephone communications business having 1,500
or fewer employees), and ``is not dominant in its field of operation.''
The SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent local exchange carriers are not dominant in their field of
operation because any such dominance is not ``national'' in scope. We
have therefore included small incumbent local exchange carriers in this
FRFA analysis, although we emphasize that this RFA action has no effect
on Commission analyses and determinations in other, non-RFA contexts.
36. Wireline Carriers and Service Providers (Wired
Telecommunications Carriers). The SBA has developed a small business
size standard for Wired Telecommunications Carriers, which consists of
all such companies having 1500 or fewer employees. According to Census
Bureau data for 1997, there were 2,225 firms in this category, total,
that operated for the entire year. Of this total, 2,201 firms had
employment of 999 or fewer employees, and an additional 24 firms had
employment of 1,000 employees or more. Thus, under this size standard,
the great majority of firms can be considered small.
37. Local Exchange Carriers, Interexchange Carriers, Competitive
Access Providers, Operator Service Providers, Payphone Providers, and
Resellers. Neither the Commission nor SBA has developed a definition
particular to small local exchange carriers (LECs), interexchange
carriers (IXCs), competitive access providers (CAPs), operator service
providers (OSPs), payphone providers or resellers. The closest
applicable definition for these carrier-types under SBA rules is for
Wired Telecommunications Carriers. Under that SBA definition, such a
business is small if it has 1,500 or fewer employees. According to our
most recent data, there are 1,329 incumbent LECs, 532 CAPs, 229 IXCs,
22 OSPs, 936 payphone providers and 710 resellers. Of these, an
estimated 1,024 incumbent LECs, 411 CAPs, 181 IXCs, 20 OSPs, 933
payphone providers, and 669 resellers reported that they have 1,500 or
fewer employees; 305 incumbent LECs, 121 CAPs, 48 IXCs, 2 OSPs, 3
payphone providers, and 41 resellers reported that, alone or in
combination with affiliates, they have more than 1,500 employees. We do
not have data specifying the number of these carriers that are not
independently owned and operated, and therefore we are unable to
estimate with greater precision the number of these carriers that would
qualify as small business concerns under SBA's definition.
Consequently, most incumbent LECs, IXCs, CAPs, OSPs, payphone providers
and resellers are small entities that may be affected by the decisions
and rules adopted in this Order.
38. Wireless Service Providers. The SBA has size standards for
wireless small businesses within the two separate Economic Census
categories of Paging and of Cellular and Other Wireless
Telecommunications. For both of those categories, the SBA considers a
business to be small if it has 1,500 or fewer employees. According to
the most recent Trends in Telephone Report data, 1,761 companies
reported that they were engaged in the provision of wireless service.
Of these 1,761 companies, an estimated 1,175 reported that they have
1,500 or fewer employees and 586 reported that, alone or in combination
with affiliates, they have more than 1,500 employees. Consequently, we
estimate that most wireless service providers are small entities that
may be affected by the rules adopted herein.
39. Broadband Personal Communications Service (PCS). The broadband
PCS spectrum is divided into six frequency designated A through F, and
the Commission has held auctions for each block. The Commission defined
``small entity'' for Blocks C and F as an entity that has average gross
revenues of $40 million or less in the three previous calendar years.
For Block F, an additional classification for ``very small business''
was added and is defined as an entity that, together with affiliates,
has average gross revenues of not more than $15 million for the
preceding three calendar years. These standards defining ``small
entity'' in the context of broadband PCS auctions have been approved by
the SBA. No small businesses within the SBA-approved definition bid
successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auctions. A
total
[[Page 79531]]
of 93 small and very small business bidders won approximately 40
percent of the 1,479 licenses for Blocks D, E, and F. On March 23,
1999, the Commission re-auctioned 347 C, D, E, and F Block licenses;
there were 48 small business winning bidders. On January 26, 2001, the
Commission completed the auction of 422 C and F Broadband PCS licenses
in Auction No. 35. Of the 35 winning bidders in this auction, 29
qualified as ``small'' or ``very small businesses.'' Based on this
information, we conclude that the number of small broadband PCS
licensees will include the 90 winning C Block bidders, the 93
qualifying bidders in the D, E, and F blocks, the 48 winning bidders in
the 1999 re-auction, and the 29 winning bidders in the 2001 re-auction,
for a total of 260 small entity broadband PCS providers, as defined by
the SBA small business size standards and the Commission's auction
rules. Consequently, we estimate that 260 broadband PCS providers are
small entities that may be affected by the rules and policies adopted
herein.
40. Narrowband PCS. To date, two auctions of narrowband PCs
licenses have been conducted. Through these auctions, the Commission
has awarded a total of 41 licenses, out of which 11 were obtained by
small businesses. For purposes of the two auctions that have already
been held, small businesses were defined as entities with average gross
revenues for the prior three calendar years of $40 million or less. To
ensure meaningful participation of small business entities in the
auctions, the Commission adopted a two-tiered definition of small
businesses in the Narrowband PCS Second Report and Order, 65 FR 35843,
June 6, 2000. A small business is an entity that, together with
affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $40 million. A very small
business is an entity that, together with affiliates and controlling
interests, has average gross revenues for the three preceding years of
not more than $15 million. These definitions have been approved by the
SBA. In the future, the Commission will auction 459 licenses to serve
MTAs and 408 response channel licenses. There is also one megahertz of
narrowband PCS spectrum that has been held in reserve and that the
Commission has not yet decided to release for licensing. The Commission
cannot predict accurately the number of licenses that will be awarded
to small entities in future auctions. However, four of the 16 winning
bidders in the two previous narrowband PCS auctions were small
businesses, as that term was defined under the Commission's Rules. The
Commission assumes, for purposes of this FRFA, that a large portion of
the remaining narrowband PCS licenses will be awarded to small
entities. The Commission also assumes that at least some small
businesses will acquire narrowband PCS licenses by means of the
Commission's partitioning and disaggregation rules.
41. Specialized Mobile Radio (SMR). The Commission awards ``small
entity'' and ``very small entity'' bidding credits in auctions for
Specialized Mobile Radio (SMR) geographic area licenses in the 800 MHz
and 900 MHz bands to firms that had revenues of no more than $15
million in each of the three previous calendar years, or that had
revenues of no more than $3 million in each of the three previous
calendar years, respectively. In the context of both the 800 MHz and
900 MHz SMR service, the definitions of ``small entity'' and ``very
small entity'' have been approved by the SBA. These bidding credits
apply to SMR providers in the 800 MHz and 900 MHz bands that either
hold geographic area licenses or have obtained extended implementation
authorizations. We do not know how many firms provide 800 MHz or 900
MHz geographic area SMR service pursuant to extended implementation
authorizations, nor how many of these providers have annual revenues of
no more than $15 million. One firm has over $15 million in revenues. We
assume, for our purposes here, that all of the remaining existing
extended implementation authorizations are held by small entities, as
that term is defined by the SBA. The Commission has held auctions for
geographic area licenses in the 800 MHz and 900 MHz SMR bands. There
were 60 winning bidders that qualified as small and very small entities
in the 900 MHz auctions. Of the 1,020 licenses won in the 900 MHz
auction, bidders qualifying as small and very small entities won 263
licenses. In the 800 MHz SMR auction, 38 of the 524 licenses won were
won by small and very small entities. Consequently, we estimate that
there are 301 or fewer small entity SMR licensees in the 800 MHz and
900 MHz bands that may be affected by the rules and policies adopted
herein.
42. Rural Radiotelephone Service. The Commission has not adopted a
definition of small entity specific to the Rural Radiotelephone
Service. A significant subset of the Rural Radiotelephone Service is
the Basic Exchange Telephone Radio Systems (BETRS). For purposes of
this FRFA, we will use the SBA's size standard applicable to wireless
service providers, supra--an entity employing no more than 1,500
persons. There are approximately 1,000 licensees in the Rural
Radiotelephone Service, and the Commission estimates that almost all of
them qualify as small entities under the SBA's size standard.
Consequently, we estimate that there are 1,000 or fewer small entity
licensees in the Rural Radiotelphone Service that may be affected by
the rules and policies adopted herein.
43. Air-Ground Radiotelephone Service. The Commission has not
adopted a definition of small entity specific to the Air-Ground
Radiotelephone Service. For purposes of this FRFA, we will use the
SBA's size standard applicable to wireless service providers, supra--an
entity employing no more than 1,500 persons. There are approximately
100 licensees in the Air-Ground Radiotelephone Service, and we estimate
that almost all of them qualify as small under the SBA definition.
4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
44. Pursuant to the Order, contributions to the Commission's
universal service will be based on projections provided by contributors
of their collected end-user interstate and international
telecommunications revenues (i.e., end-user telecommunications revenues
less estimated uncollectibles). As noted in the Order, the modified
methodology will result in minimal changes to current reporting
requirements. Because the projected collection approach we adopt is
similar to the existing contribution methodology, it will be relatively
easy for both USAC and contributors to administer and implement this
modification to our current methodology while we consider other reforms
to the current system. Consistent with our existing policy,
contributors will continue to file a Form 499-Q on a quarterly basis
and the Form 499-A on an annual basis. The Commission and USAC will
also continue to set contribution factors on a quarterly basis using
the same timeframes as the current methodology. Under the revised
methodology, however, in addition to filing the Form 499-Q to report
historical gross-billed revenues from the prior quarter, contributors
also will project their gross-billed and collected end-user interstate
and international telecommunications revenues for the upcoming quarter.
We believe that this will not be burdensome for contributors, as they
need to develop such projections for their own internal business
purposes. Consistent with
[[Page 79532]]
current procedures, contributors will have the option of certifying as
to the confidential nature of such projections on the FCC Form 499-Q.
45. As noted in the Order, we retain the requirement for an officer
to certify to the truthfulness and accuracy of the FCC Form 499-A
submitted to the Administrator. We also will require an officer to
certify that the projections of revenue and uncollectibles included in
the FCC Form 499-Q represent a good-faith estimate based on company
policies and procedures. To ensure the contributors report correct
information on the FCC Form 499-A, we require all contributors to
maintain records and documentation to justify the information reported
in the Form 499-A for three years. We also will require filers to
maintain records detailing the methodology used to determine
projections in the Form 499-Q for three years. Filers will be required
to provide such records and documentation to the Commission and USAC
upon request.
5. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
46. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include the following four alternatives (among others): ``(1)
The establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.''
47. The Commission has taken numerous steps to minimize significant
economic impact on small entities in adopting modifications to the
revenue-based methodology for assessing and recovering contributions to
the federal universal service mechanisms. In modifying the existing
contribution system, we have adopted rules related to contribution
recovery that will increase billing transparency and decrease confusion
for consumers about the amount of universal service contributions that
are passed through by carriers, while ensuring that carriers continue
to have the flexibility to recover legitimate administrative costs from
consumers through other means. By allowing carriers to contribute based
on projected collected end-user revenues, we eliminate one of the major
reasons for carriers to recover amounts in excess of the relevant
assessment rate. In light of these changes, we prohibit carriers from
marking up federal universal service line items above the contribution
factor. These actions address small entity concerns regarding recovery
practices. We have also retained the de minimis exemption to ensure
that compliance costs associated with contributing to universal service
do not exceed actual contribution amounts. Consistent with the views
expressed by many commenters, including small entity commenters, we
find that the alternatives to revise or eliminate the de minimis
exemption are not supported by the record developed at this time.
48. As discussed in the Order, we have also considered various
alternative proposals on how to reform the universal service
contribution system. We conclude that the modifications to the current
revenue-based contribution methodology, as adopted in the Order will
maintain the viability of universal service in the near term, while we
continue to examine reforms that are more fundamental based on
proposals submitted in the record in this proceeding.
6. Report to Congress
49. The Commission will send a copy of the Order, including the
FRFA, in a report to be sent to Congress pursuant to the Congressional
Review Act. In addition, the Commission will send a copy of the Order,
including this FRFA, to the Chief Counsel for Advocacy of the Small
Business Administration. A copy of this Order and FRFA (or summaries
thereof) will also be published in the Federal Register.
B. Paperwork Reduction Act Analysis
50. The action contained herein has been analyzed with respect to
the Paperwork Reduction Act of 1995 and found to impose new or modified
reporting and recordkeeping requirements or burdens on the public.
Implementation of these new or modified reported and recordkeeping
requirements will be subject to approval by the Office of Management
and Budget (OMB) as prescribed by the Act, and will go into effect upon
announcement in the Federal Register of OMB approval.
IV. Ordering Clauses
51. It is ordered that, pursuant to the authority contained in
sections 1-4, 201-205, 214, 218-220, 254, 403, and 405 of the
Communications Act of 1934, as amended, this Report and Order is
adopted.
52. Part 54 of the Commission's rules, is amended, effective
January 29, 2003.
53. The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, shall send a copy of this Report and
order, including the Final Regulatory Flexibility Analysis, to the
Chief Counsel for Advocacy of the Small Business Administration.
List of Subjects in 47 CFR Part 54
Reporting and recordkeeping requirements, Telecommunications,
Telephone.
Federal Communications Commission.
William F. Caton,
Deputy Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
1. The authority citations continue to read as follows:
Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, 254 unless
otherwise noted.
2. Amend Sec. 54.706 by revising paragraphs (b) and (c) to read as
follows:
Sec. 54.706 Contributions.
* * * * *
(b) Prior to April 1, 2003, except as provided in paragraph (c) of
this section, every telecommunications carrier that provides interstate
telecommunications services, every provider of interstate
telecommunications that offers telecommunications for a fee on a non-
common carrier basis, and every payphone provider that is an aggregator
shall contribute to the federal universal service support mechanisms on
the basis of its interstate and international end-user
telecommunications revenues, net of prior period actual contributions.
Beginning April 1, 2003, except as provided in paragraph (c) of this
section, every such provider shall contribute on the basis of its
projected collected interstate and international end-user
telecommunications revenues, net of projected contributions.
(c) Prior to April 1, 2003, any entity required to contribute to
the federal universal service support mechanisms whose interstate end-
user telecommunications revenues comprise less than 12 percent of its
combined interstate and international end-user telecommunications
revenues shall contribute to the federal universal service support
mechanisms for high cost areas, low-income consumers,
[[Page 79533]]
schools and libraries, and rural health care providers based only on
such entity's interstate end-user telecommunications revenues, net of
prior period actual contributions. Beginning April 1, 2003, any entity
required to contribute to the federal universal service support
mechanisms whose projected collected interstate end-user
telecommunications revenues comprise less than 12 percent of its
combined projected collected interstate and international end-user
telecommunications revenues shall contribute based only on such
entity's projected collected interstate end-user telecommunications
revenues, net of projected contributions. For purposes of this
paragraph, an ``entity'' shall refer to the entity that is subject to
the universal service reporting requirements in Sec. 54.711 and shall
include all of that entity's affiliated providers of telecommunications
services.
* * * * *
2. Amend Sec. 54.709 by revising paragraphs (a) introductory text,
and (a)(1), and by removing the first sentence of paragraph (a)(2) and
adding two sentences in its place to read as follows:
Sec. 54.709 Computations of required contributions to universal
service support mechanisms.
(a) Prior to April 1, 2003, contributions to the universal service
support mechanisms shall be based on contributors' end-user
telecommunications revenues and on a contribution factor determined
quarterly by the Commission. Contributions to the mechanisms beginning
April 1, 2003 shall be based on contributors' projected collected end-
user telecommunications revenues, and on a contribution factor
determined quarterly by the Commission.
(1) For funding the federal universal service support mechanisms
prior to April 1, 2003, the subject revenues will be contributors'
interstate and international revenues derived from domestic end users
for telecommunications or telecommunications services, net of prior
period actual contributions. Beginning April 1, 2003, the subject
revenues will be contributors' projected collected interstate and
international revenues derived from domestic end users for
telecommunications or telecommunications services, net of projected
contributions. (2) Prior to April 1, 2003, the quarterly universal
service contribution factor shall be determined by the Commission based
on the ratio of total projected quarterly expenses of the universal
service support mechanisms to the total end-user interstate and
international telecommunications revenues, net of prior period actual
contributions. Beginning April 1, 2003, the quarterly universal service
contribution factor shall be determined by the Commission based on the
ratio of total projected quarterly expenses of the universal service
support mechanisms to the total projected collected end-user interstate
and international telecommunications revenues, net of projected
contributions. * * *
* * * * *
3. Amend Sec. 54.711 by revising paragraph (a) to read as follows:
Sec. 54.711 Contributor reporting requirements.
(a) Contributions shall be calculated and filed in accordance with
the Telecommunications Reporting Worksheet which shall be published in
the Federal Register. The Telecommunications Reporting Worksheet sets
forth information that the contributor must submit to the Administrator
on a quarterly and annual basis. The Commission shall announce by
Public Notice published in the Federal Register and on its website the
manner of payment and dates by which payments must be made. An
executive officer of the contributor must certify to the truth and
accuracy of historical data included in the Telecommunications
Reporting Worksheet, and that any projections in the Telecommunications
Reporting Worksheet represent a good-faith estimate based on the
contributor's policies and procedures. The Commission or the
Administrator may verify any information contained in the
Telecommunications Reporting Worksheet. Contributors shall maintain
records and documentation to justify information reported in the
Telecommunications Reporting Worksheet, including the methodology used
to determine projections, for three years and shall provide such
records and documentation to the Commission or the Administrator upon
request. Inaccurate or untruthful information contained in the
Telecommunications Reporting Worksheet may lead to prosecution under
the criminal provisions of Title 18 of the United States Code. The
Administrator shall advise the Commission of any enforcement issues
that arise and provide any suggested response.
* * * * *
4. Add Sec. 54.712 to subpart H to read as follows:
Sec. 54.712 Carrier recovery of universal service costs from end-
users.
(a) Federal universal service contribution costs may be recovered
through interstate telecommunications-related charges to end users. If
a telecommunications carrier chooses to recover its federal universal
service contribution costs through a line item on a customer's bill, as
of April 1, 2003, the amount of the federal universal service line-item
charge may not exceed the interstate telecommunications portion of that
customer's bill times the relevant contribution factor.
(b) Eligible telecommunications carriers may not recover federal
universal service contribution costs from Lifeline customers.
[FR Doc. 02-32925 Filed 12-27-02; 8:45 am]
BILLING CODE 6712-01-P