Federal Register: December 30, 2002 (Volume 67, Number 250)
DOCID: FR Doc 02-32925
FEDERAL COMMUNICATIONS COMMISSION
Federal Communications Commission
CFR Citation: 47 CFR Part 54
Docket ID: [CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170; FCC 02-329]
NOTICE: RULES
ACTION: Common carrier services:
DOCUMENT ACTION: Final rule.
SUBJECT CATEGORY:
Federal-State Joint Board on Universal Service
DATES: Effective January 29, 2003.
DOCUMENT 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 revenuebased 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.
SUMMARY:
Federal-State Joint Board on Universal Service—; Universal service contribution methodology,
SUPPLEMENTAL INFORMATION
This is a summary of the Commission's Report and Order in CC Docket Nos. 9645, 98171, 90571, 92237, 99200, 95 116, and 98170 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 CYA257, 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 terma fundamental goal of this Commissionwhile we consider further longterm 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 revenuebased methodology to require universal service contributions based on contributorprovided projections of collected enduser interstate and international telecommunications revenues, instead of historical grossbilled revenues. These changes will be implemented with the FCC Form 499Q filed on February 1, 2003. We conclude that our actions to modify the current revenuebased 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
markup above the relevant contribution factor beginning April 1, 2003.
Limiting the federal universal service lineitem 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
revenuebased 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 allor
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 revenuebased methodology by
basing contributions on a percentage of projected collected, instead of
historical grossbilled, interstate and international enduser
telecommunications revenues reported by contributors on a quarterly
basis. In light of the modifications adopted by the Commission, we
conclude that carriers may not markup 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 RevenueBased 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 enduser 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 nondiscriminatory. Such action also will improve the nearterm 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 499Q. 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 allornothing 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 499Q 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 affiliatedcompany level, as opposed to the legalentity 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 499A 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 499A 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 enduser 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 revenuebased 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 socalled ``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 enduser interstate and
international telecommunications revenues, as opposed to historical
grossbilled 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 enduser'' revenues refers to grossbilled enduser 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 enduser customers. Contributors must make best efforts to collect interstate and international telecommunications revenues, including any federal universal service passthrough 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 499A. 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 499Q and 499A), 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 499Q on a quarterly basis and the Form 499A 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 499Q to report historical grossbilled revenues from the prior quarter, contributors also will project their grossbilled and collected enduser 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 499Q.
13. We note that we retain the requirement for an officer to certify to the truthfulness and accuracy of the FCC Form 499A submitted to the Administrator. We also will require an executive officer to certify that the projections of grossbilled and collected revenues included in the FCC Form 499Q represent a goodfaith estimate based on company policies and procedures. To ensure that contributors report correct information on the FCC Form 499A, we require all contributors to maintain records and documentation to justify the information reported in the Form 499A for three years. We also will require filers to maintain records detailing the methodology used to determine projections in the Form 499Q 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 passthrough charges, if any, as part of their projection of collected enduser 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 enduser 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 enduser interstate and international telecommunication revenues. USAC will send contributors a firm bill each month based on the abovedescribed 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 grossbilled 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 499Q filing and through the annual trueup process.
We find it appropriate to modify the current requirement that revisions
be filed by the due date of the next Form 499Q (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 499A to perform annual
trueups 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 overpayments 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 499A), 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 499A), 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 enduser 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 enduser interstate and international
telecommunications revenues. As part of the transition to the modified
contribution system, contributors must begin providing information
concerning their projected collected enduser interstate and
international telecommunications revenues (i.e., anticipated enduser
revenues and estimated uncollectibles) for the upcoming quarter with
the filing of the modified 499Q 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 499Q that will be filed on February 1, 2003. As discussed above,
subsequent 499Qs will only include historical revenues from the prior
calendar quarter and projected revenues for the upcoming quarter. The
FCC Form 499A, which must be filed on April 1, 2003, will include
historical grossbilled revenues for the period of January 2002 through
December 2002. Subsequent FCC Form 499As will include historical
grossbilled revenues and actual collected enduser 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 enduser rates if they so choose and to recover any
administrative or other costs they currently recover in a universal
service lineitem 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 lineitem charges above the relevant assessment amount will be prohibited prospectively. Any carrier that applies a federal universal service lineitem 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 markups in carrier universal service line
items will alleviate enduser 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 lineitem 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 lineitem
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 carrierswhether
wireline or wirelessto average contribution costs across all enduser
customers when establishing federal universal service lineitem
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 rateregulated 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 rateofreturn 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
enduser 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 TruthinBilling 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 lowincome 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 lowincome 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 LineItem Charges
28. At this time, we decline to mandate a specific label for federal universal service lineitems pursuant to our TruthinBilling 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 terma fundamental goal of this Commissionwhile we consider further longterm 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 revenuebased methodology to require universal service contributions based on contributor provided projections of collected enduser interstate telecommunications revenues, instead of historical grossbilled 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 lineitem
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 entityrelated
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 multiline
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 connectionbased proposals in the record. To the extent that
commenters continue to have small entityrelated 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 enduser 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 notforprofit 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, nonRFA 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 carriertypes 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 SBAapproved 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 reauctioned 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 reauction, and the 29 winning bidders in the 2001 reauction,
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 twotiered 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, supraan 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. AirGround Radiotelephone Service. The Commission has not adopted a definition of small entity specific to the AirGround Radiotelephone Service. For purposes of this FRFA, we will use the SBA's size standard applicable to wireless service providers, supraan entity employing no more than 1,500 persons. There are approximately 100 licensees in the AirGround 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 enduser interstate and international
telecommunications revenues (i.e., enduser 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 499Q on a quarterly basis
and the Form 499A 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 499Q to report
historical grossbilled revenues from the prior quarter, contributors
also will project their grossbilled and collected enduser 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 499Q.
45. As noted in the Order, we retain the requirement for an officer
to certify to the truthfulness and accuracy of the FCC Form 499A
submitted to the Administrator. We also will require an officer to
certify that the projections of revenue and uncollectibles included in
the FCC Form 499Q represent a goodfaith estimate based on company
policies and procedures. To ensure the contributors report correct
information on the FCC Form 499A, we require all contributors to
maintain records and documentation to justify the information reported
in the Form 499A for three years. We also will require filers to
maintain records detailing the methodology used to determine
projections in the Form 499Q 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 revenuebased 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 enduser 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 revenuebased 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 14, 201205, 214, 218220, 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 54UNIVERSAL 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 enduser
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 enduser
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 enduser telecommunications
revenues shall contribute to the federal universal service support mechanisms for high cost areas, lowincome consumers,
[[Page 79533]]
schools and libraries, and rural health care providers based only on
such entity's interstate enduser 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 enduser
telecommunications revenues comprise less than 12 percent of its
combined projected collected interstate and international enduser
telecommunications revenues shall contribute based only on such
entity's projected collected interstate enduser 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' enduser
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 enduser 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 enduser 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 goodfaith 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 telecommunicationsrelated 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 lineitem
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. 0232925 Filed 122702; 8:45 am]
BILLING CODE 671201P
FOR FURTHER INFORMATION CONTACT
Diane Law Hsu, Acting Deputy Chief, Wireline Competition Bureau, Telecommunications Access Policy Division, (202) 4187400.