[Federal Register Volume 77, Number 103 (Tuesday, May 29, 2012)]
[Rules and Regulations]
[Pages 31520-31536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12950]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR parts 51 and 54
[WC Docket Nos. 10-90, 07-135, 05-337, 03-109; GN Docket No. 09-51; CC
Docket Nos. 01-92, 96-45; WT Docket No. 10-208; FCC 12-47]
Connect America Fund; A National Broadband Plan for Our Future;
Establishing Just and Reasonable Rates for Local Exchange Carriers;
High-Cost Universal Service Support
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
reconsiders and modifies certain provisions of its rules that were
adopted in the USF/ICC Transformation Order. The Commission grants a
Petition for Reconsideration and Clarification of the National Exchange
Carrier Association, Inc., Organization for the Promotion and
Advancement of Small Telecommunications Companies and Western
Telecommunications Alliance. The Commission grants in part and denies
in part a Petition for Reconsideration filed by the Independent
Telephone & Telecommunications Alliance and a Petition for
Reconsideration and/or Clarification filed by Frontier Communications
Corp. and Windstream Communications, Inc. Finally, the Commission
denies a Petition for Reconsideration filed by the United States
Telecom Association.
DATES: Effective June 28, 2012.
FOR FURTHER INFORMATION CONTACT: Amy Bender, Wireline Competition
Bureau, (202) 418-1469, Victoria Goldberg, Wireline Competition Bureau,
(202) 418-1520.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's in WC
Docket Nos. 10-90, 07-135, 05-337, 03-109; GN Docket No. 09-51; CC
Docket Nos. 01-92, 96-45; WT Docket No. 10-208; FCC 12-47, released on
April 25, 2012. The full text of this document is available for public
inspection during regular business hours in the FCC Reference Center,
Room CY-A257, 445 12th Street SW., Washington, DC 20554, and at the
following Internet address: The complete text may be purchased from the
Commission's duplicating contractor, Best Copy and Printing, Inc.
(BCPI), Portals II, 445 12th Street SW., Room CY-B402, Washington, DC
20554, (202) 488-5300, facsimile (202) 488-5563, or via email at
[email protected] http://transition.fcc.gov/Daily_Releases/Daily_Business/2012/db0425/FCC-12-47A1.pdf.
I. Introduction
1. In this Order, we address several issues raised in petitions for
reconsideration of certain aspects of the USF/ICC Transformation Order.
The USF/ICC Transformation Order represents a careful balancing of
policy goals, equities, and budgetary constraints. This balance was
required in order to advance the fundamental goals of universal service
and intercarrier compensation reform within a defined budget while
simultaneously providing sufficient transitions for stakeholders to
adapt. While reconsideration of a Commission's decision may be
appropriate when a petitioner demonstrates that the original order
contains a material error or omission, or raises additional facts that
were not known or did not exist until after the petitioner's last
opportunity to present such matters, if a petition simply repeats
arguments that were previously considered and rejected in the
proceeding, due to the balancing involved in this proceeding, we are
likely to deny it.
2. With this standard in mind, in this Order we take several
limited actions stemming from reconsideration petitions. We grant a
request to permit carriers accepting incremental support in Phase I of
the Connect America Fund (CAF) to receive credit for deploying
broadband to certain unserved locations in partially served census
blocks, and deny a number of other requests to modify the rules
governing CAF Phase I. In addition, we also grant in part a request by
Frontier-Windstream and the Rural Associations to reconsider the VoIP
intercarrier compensation rules adopted in the USF/ICC Transformation
Order. Specifically, we modify our rules to permit LECs, prospectively,
to tariff a transitional default rate equal to their intrastate
originating access rates when they originate intrastate toll VoIP
traffic
[[Page 31521]]
until June 30, 2014. This targeted modification is intended to be
transitional and temporary and does not alter the overall, uniform,
national framework for comprehensive intercarrier compensation reform
which was established in the USF/ICC Transformation Order.
II. Connect America Fund Phase I Incremental Support
3. In the USF/ICC Transformation Order, the Commission adopted a
framework for the Connect America Fund that would provide support in
price cap territories based on a combination of competitive bidding and
a forward-looking cost model. But, as the Commission observed,
developing and implementing a new cost model could be expected to take
some time. So, in order to immediately accelerate broadband deployment
in such areas, the Commission established Phase I of the CAF to begin
the process of transitioning high-cost support for price cap carriers
to the CAF. In Phase I, the Commission froze current high-cost support
for price cap carriers, and, in addition, committed up to $300 million
in incremental support to promote deployment of broadband to unserved
areas within price cap carriers' service territories and their rate of
return affiliates' service territories. The $300 million in incremental
support will be allocated among price cap carriers by the use of a
simplified forward-looking cost estimate based on the prior high cost
proxy model.
4. Participation in CAF Phase I is optional: That is, carriers will
be able to choose how much of their allocated incremental support to
accept based on the broadband obligations that accompany the support.
Each carrier will be required to deploy broadband to a number of
locations equal to the amount of incremental support it accepts divided
by $775. As the Commission explained, that standard was designed to
reach as many locations as possible as cost-effectively as possible--to
``spur immediate broadband deployment to as many unserved locations as
possible'' with the limited funds available by ``encourag[ing] carriers
to use the support in lower-cost areas where there is [nevertheless] no
private sector business case for deployment of broadband.'' And, to
ensure that these deployments reach those who are otherwise unserved
and are unlikely to be served in the near future, the Commission
required carriers to certify, among other things, that the locations
they would deploy to are shown as unserved by fixed broadband with a
minimum speed of 768 kbps downstream and 200 kbps upstream on the
National Broadband Map; that, to the best of the carrier's knowledge,
the location is not in fact served; and that incremental support would
not be used to satisfy merger commitments or similar regulatory
obligations.
5. Various parties ask us to reconsider aspects of these rules.
Below, we grant in part a request by the Independent Telephone &
Telecommunications Alliance (ITTA) that we modify the rules and permit
carriers, in certain circumstances, to receive credit in CAF Phase I
for deploying to unserved locations based on a certification that they
are unserved, even though such locations are identified as served on
the National Broadband Map. In addition, we deny requests from Frontier
and Windstream, along with the United States Telecom Association (US
Telecom), that we reconsider the $775 per-location deployment
requirement. We also deny their request that we permit carriers to
receive credit in CAF Phase I for improving broadband service to
underserved locations--locations where broadband is available, but does
not meet the requirements for new CAF Phase I deployments. We also deny
Windstream's request, in the alternative, that we permit carriers to
use CAF Phase I incremental support to deploy second-mile fiber
facilities. Finally, we deny a request by Frontier and Windstream that
the $300 million in incremental support be allocated among carriers by
calculating distributions ``as if'' the incremental support mechanism
were distributing both incremental support and frozen high-cost
support, rather than only incremental support.
6. First, ITTA asks us to reconsider the rule that carriers
receiving CAF Phase I incremental support must deploy broadband to
locations shown on the National Broadband Map as unserved by fixed
broadband. ITTA argues that the National Broadband Map in some cases
``overstates fixed broadband coverage'' and that excluding unserved
areas from eligibility for CAF Phase I deployment because they appear
as served on the Map would mean that consumers in those areas would not
benefit from CAF Phase I. ITTA, in an ex parte letter joined by several
carriers, elaborates on its proposal, asking that we modify the rules
to permit carriers to serve additional locations in three different
situations.
7. Our analysis of ITTA's petition is informed by a balancing of
considerations. On the one hand, CAF Phase I is an interim measure
intended to accelerate deployment to those unserved locations that can
be reached in the near term. Given our goal of deploying new funding
quickly, we believe it is reasonable to focus deployment on areas where
it is clear that no broadband exists, rather than to create a
potentially burdensome and time-consuming process to identify other
areas without service. On the other hand, we do believe that, where
adjustments can be made in a way that will not create undue delays,
modifying the rules to permit carriers to accept as much incremental
support as possible--and thus deploy broadband to more unserved
locations--would serve the public interest.
8. ITTA first notes that in some census blocks, the incumbent local
exchange provider is the only provider shown by the National Broadband
Map as offering fixed broadband services. But, as ITTA explains, the
reporting methodology used to create the Map ``indicates that an entire
census block is served by the [incumbent] LEC even if only a single
location in that census block is able to receive broadband.'' In such
situations, ITTA observes, the incumbent LEC knows which locations are
actually served and which are actually unserved, and it proposes that
the carrier should be able to receive credit in CAF Phase I for
deploying broadband to locations that it certifies were not, in fact,
already served.
9. We conclude that modifying our rule to provide additional
flexibility in this situation will promote the goals of CAF Phase I.
Accordingly, we will permit carriers accepting CAF Phase I support to
satisfy their deployment requirement by deploying to locations
identified on the National Broadband Map as served if the Map reflects
that the only provider of fixed broadband to the location is the
incumbent carrier itself, the locations are in fact unserved by
broadband, and the carrier makes the certifications required by Sec.
54.312(b)(3) of our rules.
10. ITTA also argues that some census blocks are shown in some of
the tools available on the National Broadband Map Web site as being
served by a carrier other than the incumbent LEC, but that the data
underlying the Map ``clearly identifies that the non-ILEC provider
serves only a part of the census block.'' This situation can arise in
certain situations when, for example, the data underlying the Map show
that a cable operator offers broadband to only certain locations within
a census block. ITTA proposes that a carrier receiving CAF Phase I
support be able to receive credit in CAF Phase I for deploying to
locations in such blocks to the extent that the data underlying the
[[Page 31522]]
Map confirms that the non-ILEC provider does not serve the location.
11. We conclude that no change to the rules is necessary to address
this concern. Section 54.312(b)(3) of our rules requires that a carrier
certify that the locations to be served to satisfy its deployment
requirement ``are shown as unserved by fixed broadband on the then-
current version of the National Broadband Map.'' We take this
opportunity to clarify that if the data underlying the Map show that a
location is not served by a particular provider, then, for the purposes
of this rule, the location is ``shown as unserved'' by that provider.
12. In addition, ITTA claims that there are locations which the
National Broadband Map indicates are served by a carrier other than the
incumbent LEC, but which the incumbent LEC reasonably believes are not,
in fact, served by that other provider. ITTA proposes that carriers
receive credit for deploying to such areas, if they provide evidence
that there are unserved locations in the area. Specifically, ITTA
proposes a CAF Phase I support recipient be permitted to provide a
certification that, to the best of the carrier's knowledge, there are
unserved locations in a census block notwithstanding that the Map
indicates that those locations are served. ITTA proposes that the
recipient be permitted to--but not required to--provide ``consumer
declarations or other supporting evidence'' supporting its
certification. If it does, the certification would not be subject to
rebuttal. On the other hand, if the carrier does not provide any
declarations or other supporting evidence, other broadband providers in
the area would have up to 30 days to respond to the certification. To
rebut the CAF Phase I recipient's certification, ITTA proposes that
those other providers would be required to certify that they can
provide service throughout the relevant area and would be required to
provide one or more consumer declarations from customers who either
currently or in the past have subscribed to the provider's service
within the relevant area. If no provider rebutted the CAF Phase I
recipient's certification, the CAF Phase I recipient would be permitted
to deploy to unserved locations in the census block at issue.
13. We decline to adopt this aspect of ITTA's proposal. ITTA does
not explain how a CAF Phase I recipient would know which locations--
other than any locations for which it has obtained a consumer's
declaration--in a census block are actually unserved by any other
carrier. In addition, we observe that ITTA's proposal would require a
provider wishing to challenge the CAF Phase I recipient's certification
to provide a declaration within 30 days from a customer or former
customer in the census block. That task might be quite time consuming
given limited resources. Worse, it might not be possible, because a
provider may have no customers in a particular census block, even
though it offers service there. Yet ITTA would apparently have us
provide CAF Phase I incremental support to incumbents to deploy in such
locations. On balance, we cannot conclude on the record before us that
adopting ITTA's proposed process, which may not significantly increase
the number of locations that are likely to receive new broadband, would
serve the public interest.
14. ITTA, joined by several carriers, also asks that we permit
carriers receiving CAF Phase I incremental support to deploy broadband
to locations that are served by another broadband provider but where
the service offered by that other provider does not meet defined
service characteristics. They propose that the other provider offer
service of at least 768 kbps sustained download speed, with a usage
limit no lower than 53 gigabytes per month, all at a price no higher
than the month-to-month price of the highest price for a similar
product from a wireline provider in the state.
15. We decline to adopt this proposal for several reasons. We
acknowledge that some consumers may live in areas ineligible for CAF
Phase I support even though the broadband available to them does not
currently meet our goals. The Commission chose in CAF Phase I, however,
to focus limited resources on deployments to extend broadband to some
of the millions of unserved Americans who lack access to broadband
entirely, rather than to drive faster speeds to those who already have
service. We are not persuaded that the decision about the more pressing
need was unreasonable. Moreover, we are not persuaded that permitting
CAF Phase I recipients to overbuild other broadband providers
represents the most efficient use of limited CAF Phase I support. In
addition, we conclude that we do not have an adequate record at this
time to make a determination about how high a competitor's price must
be--either alone or in combination with usage limits--before we would
support overbuilding that competitor, a critical component of
petitioners' request.
16. Second, Frontier, Windstream and USTelecom seek reconsideration
of the requirement that a carrier accepting incremental support in CAF
Phase I deploy broadband to a number of unserved locations equal to the
amount each carrier accepts divided by $775. In particular, these
parties take issue with the use of $775 as a nationwide estimate for
the appropriate amount of per-location support.
17. In adopting the $775 figure, the Commission recognized that, in
the absence of a fully developed cost model, the choice of a per-
location support amount necessarily involved an exercise of judgment.
The Commission weighed a variety of considerations, including the fact
that resources for this interim mechanism were limited and the goal to
``spur immediate broadband deployment to as many unserved locations as
possible.'' The Commission also considered several sources of data,
including deployment projects undertaken by a mid-size price cap
carrier under the Rural Utilities Service's Broadband Initiatives
Program, data from analysis done as part of the National Broadband
Plan, and an analysis performed using the ABC plan cost model,
submitted by a group of price cap carriers.
18. Petitioners argue that the comparison with the BIP deployments
(which showed an average per-location cost of $557) was faulty,
because, ``[a]s the Commission acknowledges in the Order, BIP was aimed
at improving service to underserved locations as well as deploying to
unserved locations'' and only deployments to the unserved count toward
satisfaction of the CAF Phase I requirement. But as petitioners
concede, the Commission acknowledged this concern in the Order, and
took it into account. Petitioners also complain that the analysis based
on the National Broadband Plan and the ABC plan cost model focuses on
deployment costs and fails to account for the cost of maintaining and
operating existing networks. That complaint misses the mark, however,
because the goal of CAF Phase I is to provide one-time support to spur
broadband deployment, not to create a new source of ongoing support.
Moreover, as the Commission explained in the Order, one part of the
analysis Commission staff performed suggested that there were
approximately 1.75 million unserved locations served by price cap
carriers with costs below $765. Even if all $300 million available in
Phase I were accepted, carriers would be required to deploy to only
387,096 locations in total. In other words, the Commission's analysis
indicates that, nationwide, there are far more unserved locations with
costs below our deployment requirement than will be reached in Phase I.
No party disputed the Commission's analysis on this point.
[[Page 31523]]
In sum, nothing in the petitions for reconsideration calls the
Commission's conclusion into question or suggests that any other
nationwide number would be more appropriate.
19. In any event, the heart of Frontier, Windstream and USTelecom's
argument is that the Commission should adopt carrier-specific
deployment requirements for CAF Phase I rather than use a nationwide
figure for the per-location support offered. As Frontier and Windstream
explain: ``The fact that some locations within another carrier's
territory might be served for $400 or less does nothing for another
carrier's consumers when that carrier's least-expensive unserved
locations would cost $1,000 or more to serve.'' They assert that they
are in the latter situation: because of their history of aggressively
deploying broadband, ``there are relatively few, if any, unserved areas
left in Petitioners' service areas that can be reached for $775 or
less.'' Petitioners propose that we develop a carrier-specific
requirement by using the CostQuest Broadband Analysis Tool (CQBAT), a
cost model submitted as part of a proposal by several large carriers
for reform of the high-cost universal service support mechanism.
20. We decline to adopt the proposed carrier-by-carrier approach.
Petitioners may have deployed to many or all of the locations in their
territories for which $775 represents an adequate subsidy, but CAF
Phase I incremental support, as established in the USF/ICC
Transformation Order, was designed to reach a significant number of
relatively low-cost locations, not to ensure that the entire $300
million offered for Phase I is accepted. Indeed, the Commission
recognized that some incremental support would likely be declined, and
explained that declined support ``may be used in other ways to advance
our broadband objectives pursuant to our statutory authority.'' To the
extent carriers have already deployed to the low-cost areas in their
territories, then those carriers' remaining unserved areas may be
better candidates for CAF Phase II, which will be identified, using an
updated model, along with the appropriate ongoing subsidy amounts for
areas with costs above a specified benchmark. Further, we note that in
the Order, the Commission expressly declined to adopt the CQBAT model,
explaining that it would be premature to rely on it in light of the
limited opportunity the public had then had to review it. Instead, the
Commission initiated an open process to develop a robust cost model for
the Connect America Fund, a process that is now underway. We are not
persuaded that we should, at this early stage in that ongoing process,
prejudge the merits of the CQBAT model and adopt it for use in CAF
Phase I. Accordingly, we decline to relax the nationwide deployment
requirement and decline to establish carrier-specific requirements.
21. Third, several parties ask us to modify the broadband
deployment requirement for CAF Phase I to permit carriers to meet their
obligations not just by deploying broadband to previously unserved
locations, but also by upgrading service to locations that are
``underserved''--locations, for example, that are served by broadband
at speeds less than the 4 megabits downstream required for new
deployments in CAF Phase I. Frontier and Windstream argue that
underserved areas should be eligible for support in CAF Phase I
because, in order to deploy broadband to unserved locations, ``facility
upgrades in underserved areas may be required,'' and, what is more,
those investments may be ``very significant.'' As explained above,
however, the Commission's focus in CAF Phase I was to spur broadband
deployment to consumers who lack access to broadband, not to improve
service for those who already have access to some form of high-speed
Internet access. We recognize that as they extend broadband to
previously unserved areas, carriers may need to upgrade network
facilities shared by both served and unserved locations. However, we
believe the $775 per newly served location appropriately takes account
of the cost of these upgrades. That is, we conclude it is only
appropriate to support such shared investments through CAF Phase I to
the extent that they do not drive the required subsidy per unserved
location above $775.
22. Fourth, in an ex parte letter, Windstream offers a further
alternative to the nationwide deployment requirement. Windstream
proposes that carriers should be permitted to use CAF Phase I support
to deploy second-mile fiber in areas not currently served by fiber.
Windstream argues that the existing rules will penalize the customers
of those carriers, like Windstream, that have already deployed Digital
Subscriber Line Access Multiplexers (DSLAMs) fed by existing copper
facilities to provide at least some level of broadband service in some
of their most rural areas, even where there is no business case to
deploy fiber to the DSLAM. As Windstream observes, residential
broadband bandwidth demand has increased substantially in recent years.
Providing support for fiber in such areas, Windstream argues, is
essential to maintain existing service levels for their consumers;
driving fiber deeper into the network would also reduce the cost of
connecting rural wireless cell sites to fiber facilities.
23. We decline to adopt Windstream's proposal for second-mile fiber
support. While we agree with Windstream that deploying second-mile
fiber facilities is a worthwhile endeavor, we reiterate that the focus
of CAF Phase I is a relatively narrow one: to spur deployment of
broadband to relatively low-cost locations that nevertheless currently
have no service at all, while we implement CAF Phase II. It is not
intended to be a long-term program or to serve all broadband deployment
needs, such as the need to eventually replace existing broadband
facilities to meet projected demand. Instead, the need for such
investments is more appropriately considered in the broader context of
the CAF Phase II mechanism.
24. Finally, Frontier and Windstream request that we clarify or
reconsider how the $300 million allocated to CAF Phase I will be
distributed among carriers. The USF/ICC Transformation Order freezes
existing high cost support and uses the CAF Phase I incremental support
mechanism to allocate an additional $300 million. Frontier and
Windstream assert that there are two different ways that this $300
million could be distributed through the incremental support mechanism.
In the first, the incremental support allocation mechanism could be
applied only to the $300 million in incremental support. In the second,
preferred by petitioners, all high-cost support, both frozen support
and the $300 million incremental support, would be distributed ``as
if'' it were allocated using the new mechanism, subject to a ``hold
harmless'' rule that would ensure no carrier would receive less support
than it previously received.
25. According to Frontier and Windstream, the two approaches
``differ markedly in how they allocate the incremental $300 million.''
That is so because the CAF Phase I incremental support allocation
mechanism allocates support ``from the top down.'' Specifically, a per-
location cost is calculated for each wire center; support is then
calculated for the carrier serving that wire center based on the amount
by which that per-location cost exceeds a funding threshold, multiplied
by the total number of locations in the wire center. The funding
threshold is set so that the specified amount of support, either $300
million or $1.3 billion, is allocated. Setting the funding threshold to
distribute $1.3 billion would of course result in a lower threshold
than
[[Page 31524]]
setting it to distribute $300 million, and a lower threshold would mean
that more wire centers have per-location costs above the threshold.
Petitioners argue that spreading incremental support based on a broader
range of high-cost wire centers (those above the threshold set with
$1.3 billion) ``would be far more equitable'' than the alternative
approach. In addition, they argue, their proposal is more consistent
with the support framework that will be in place during CAF Phase II,
when the very highest-cost census blocks will likely be served through
satellite, fixed wireless, or other technologies rather than wireline
broadband provided by incumbent carriers. CenturyLink opposes these
petitioners' proposal, arguing that the Commission's ``straightforward
calculation'' was ``sensible and justified,'' as compared to the multi-
stage, more complex calculation advocated by Frontier and Windstream.
26. We decline to change the CAF Phase I support calculation as
advocated by Frontier and Windstream. We remain unconvinced that it
would be reasonable to allocate the $300 million in incremental CAF
Phase I support ``as-if'' a different amount of support were being
allocated. CAF Phase I is an interim support mechanism, designed to be
a simple, easily administered tool to provide a boost to broadband
deployment in the near term while the Wireline Competition Bureau
develops a support model for CAF Phase II. We acknowledge that there
were other ways the Commission could have established the amounts of
support each carrier would be eligible for in this interim mechanism.
But Frontier and Windstream have not shown that their proposed
methodology, which would add a degree of complexity for an uncertain
benefit, would likely serve the goals of CAF Phase I more effectively
than the methodology adopted in the Order, and we decline to adopt it.
III. Intercarrier Compensation for VOIP Traffic
27. Background. The USF/ICC Transformation Order comprehensively
reformed the intercarrier compensation system. Significantly, the
Commission launched long-term intercarrier compensation reform by
adopting a bill-and-keep methodology as the ultimate uniform, national
methodology for all telecommunications traffic exchanged with a local
exchange carrier (LEC). The USF/ICC Transformation Order began this
transition to bill-and-keep with terminating switched access rates. In
addition, the Commission addressed specific intercarrier compensation
issues involving commercial mobile radio service (CMRS)-LEC
compensation and made clear the prospective payment obligations for
certain ``VoIP'' traffic, referred to in the USF/ICC Transformation
Order as ``VoIP-PSTN'' traffic.
28. In light of new evidence in the record, we reconsider an aspect
of the transitional intercarrier compensation framework adopted for
originating VoIP traffic. For purposes of the USF/ICC Transformation
Order, VoIP-PSTN traffic ``is `traffic exchanged over PSTN facilities
that originates and/or terminates in IP format.' In this regard, we
focus specifically on whether the exchange of traffic between a LEC and
another carrier occurs in Time-Division Multiplexing (TDM) format (and
not in IP format), without specifying the technology used to perform
the functions subject to the associated intercarrier compensation
charges.'' As with the USF/ICC Transformation Order more broadly, the
VoIP intercarrier compensation framework weighed the benefits of ``a
more measured transition away from carriers' reliance on intercarrier
compensation as a significant revenue source.'' The Commission also
found, however, that VoIP traffic had been a particular source of
intercarrier compensation disputes and litigation. As a result,
``carriers may receive some intercarrier compensation payments at
something less than the full intercarrier compensation rates charged in
the case of traditional telephone service'' or, in some cases, no
payment at all. Balancing these and additional considerations led the
Commission to adopt a middle ground that, prospectively, neither
``subject[ed] VoIP traffic to the pre-existing intercarrier
compensation regime that applies in the context of traditional
telephone service, including full interstate and intrastate access
charges,'' nor ``immediately adopt[ed] a bill-and-keep methodology for
VoIP traffic'' or a very low rate. Instead, the Commission's approach
permitted LECs, starting December 29, 2011, to tariff default
intercarrier compensation for both originating and terminating toll
VoIP traffic at rates equal to interstate access rates, with default
intercarrier compensation for other VoIP traffic at the otherwise-
applicable reciprocal compensation rates. The Commission also adopted
measures to ensure that its approach to VoIP intercarrier compensation
was symmetrical to minimize marketplace distortions. This symmetrical
approach seeks to provide all LECs the opportunity to collect
intercarrier compensation under the same VoIP intercarrier compensation
framework for the functions they (and/or their retail VoIP provider
partner) perform in originating and/or terminating VoIP traffic.
29. Frontier and Windstream and certain rural associations filed
petitions, seeking, among other things, clarification that originating
intrastate toll VoIP traffic was subject to default rates equal to
intrastate originating access under the USF/ICC Transformation Order.
If the Commission instead concludes that default rates equal to
interstate originating access rates applied to all originating toll
VoIP traffic under the USF/ICC Transformation Order, those petitioners
advocate that the Commission reconsider that decision. In light of both
Petitions' focus on VoIP traffic that originates in TDM format, some
commenters expressed concern that the resulting approach would
undermine the symmetry of the VoIP intercarrier compensation framework
adopted in the USF/ICC Transformation Order. Other commenters opposed
the Petitions more broadly, arguing that the USF/ICC Transformation
Order established default rates equal to interstate originating access
for originating intrastate toll VoIP traffic, and that the Commission
should not deviate from the policy balance underlying that approach.
30. Discussion. As discussed below, we do not adopt the Frontier-
Windstream Petition's and Rural Associations Petition's interpretation
of the VoIP intercarrier compensation rules adopted in the USF/ICC
Transformation Order. However, arguments and evidence from those
parties and supporting commenters, persuade us to modify the VoIP ICC
rules on reconsideration in one respect: we permit LECs to tariff
default charges equal to intrastate originating access for originating
intrastate toll VoIP traffic (including traffic that originates in IP,
terminates in IP, or both) at intrastate rates until June 30, 2014. For
all interstate toll VoIP traffic, interstate access rates continue to
apply consistent with the default rates adopted in the USF/ICC
Transformation Order.
31. The record reveals that there has been some uncertainty
regarding the default origination charges for intrastate toll VoIP
traffic under the framework adopted in the USF/ICC Transformation
Order. However, we ultimately are unpersuaded by the Frontier-
Windstream Petition's and Rural Associations Petition's rationales for
interpreting the USF/ICC Transformation Order to apply default
origination charges equal to intrastate--
[[Page 31525]]
rather than interstate--originating access for intrastate toll VoIP
traffic. We disagree with claims that statements in other sections of
the USF/ICC Transformation Order discussing, for example, the
Commission's general intent to address reductions to originating access
in the FNPRM, imply that the Commission took a particular approach to
origination charges for VoIP traffic. The USF/ICC Transformation Order
adopted a distinct prospective intercarrier compensation framework for
VoIP traffic based on its findings specific to that traffic. Contrary
to the Petitions' claims, the USF/ICC Transformation Order's treatment
or discussion of originating access charges in other contexts do not
constrain the interpretation of permissible origination charges for
toll VoIP traffic. In addition, although the USF/ICC Transformation
Order cites illustrative examples of the operation of the VoIP
intercarrier compensation framework for termination charges, the text
and the implementing rules demonstrate that the intercarrier
compensation framework for toll VoIP traffic limits both default
origination and termination charges to the level of interstate access
rates. Further, although the Commission built upon the ABC Plan in
adopting a VoIP intercarrier compensation framework, the Commission did
not adopt the ABC Plan, and as a result, individual commenters'
interpretations of the ABC Plan do not dictate a different
interpretation of the USF/ICC Transformation Order.
32. More fundamentally, these arguments reflect a mistaken
understanding of key elements of the USF/ICC Transformation Order.
Arguments that setting default rates equal to intrastate originating
access are necessary to avoid ``flash cuts'' or ``reductions'' in
intercarrier compensation assume that LECs were receiving intrastate
originating access for intrastate toll VoIP traffic under the status
quo prior to that Order. Although the marketplace evidence in the
record on reconsideration demonstrates the accuracy of that position in
many cases, that assumption is not reflected in the USF/ICC
Transformation Order itself. Rather, based on the available record
evidence, the Commission found as a practical matter that compensation
for VoIP traffic was widely subject to dispute and varied outcomes, and
that ``the record is clear that many providers did not pay the same
intercarrier compensation rates for VoIP traffic that would have
applied to traditional telephone service traffic.'' The Commission did
not reach a different conclusion in the case of originating access.
Consequently, the USF/ICC Transformation Order itself does not provide
a basis for interpreting the requirements of that Order against a
baseline assumption that intrastate originating access historically had
been received for intrastate toll VoIP traffic.
33. The record on reconsideration, however, indicates that prior to
the USF/ICC Transformation Order, here were fewer disputes and
instances of non-payment or under-payment of origination charges billed
at intrastate originating access rates for intrastate toll VoIP traffic
than was the case for terminating charges for such traffic,
particularly for calls that originated in TDM format. Consequently,
several commenters present evidence that they will experience annual
reductions in originating access revenues under the VoIP intercarrier
compensation framework adopted in the USF/ICC Transformation Order.
34. This new evidence regarding the status quo prior to the USF/ICC
Transformation Order persuades us to reconsider the balancing of policy
interests underlying the Order's approach to VoIP traffic, consistent
with Petitioners' request in the alternative to reconsider those rules.
In light of this new evidence, we conclude that an appropriate,
measured transition for these revenues is somewhat different from the
transition that the Commission anticipated based on its findings in the
USF/ICC Transformation Order. Consequently, on reconsideration we find
it appropriate to permit LECs, prospectively, to tariff a rate equal to
their intrastate originating access rates when they originate
intrastate toll VoIP traffic, albeit for a finite period of time.
35. In particular, consistent with Frontier's proposal, we amend
part 51 of our rules to permit LECs to tariff default rates equal to
their intrastate originating access rates when they originate
intrastate toll VoIP traffic from the effective date of our the revised
rules until June 30, 2014--effective July 1, 2014, LECs will be
permitted to tariff default rates for such traffic equal to their
interstate originating access rates. This is to be considered a
transitional rate. We do not find it appropriate to permit default
origination charges equal to intrastate access rates indefinitely,
consistent with the Commission's recognized need to ``reduce disputes
and provide greater certainty to the industry regarding intercarrier
compensation revenue streams while also reflecting the Commission's
move away from the pre-existing, flawed intercarrier compensation
regimes that have applied to traditional telephone service'' under the
framework adopted in the USF/ICC Transformation Order. We are mindful
that some providers were receiving compensation for originating VoIP
traffic, however, we consider the transition of origination charges for
intrastate toll VoIP traffic in the context of the Commission's overall
VoIP intercarrier compensation framework. Under this framework, most
providers will receive, either via negotiated agreements or via
tariffed charges, additional revenues for previously disputed
terminating VoIP calls and will also realize savings associated with
reduced litigation and disputes. In light of these benefits,
indefinitely permitting origination charges at the level of intrastate
access for prospective intrastate toll VoIP traffic is not necessary to
ensure a measured transition and is indeed in tension with our overall
policy goal of encouraging a migration to all IP networks and moving
away from reliance on ICC revenues.
36. Indeed, the USF/ICC Transformation Order makes clear the
Commission's goal of promoting migration to IP services. As VoIP
providers observe, actions that may benefit some providers through a
more measured transition away from reliance on intercarrier
compensation also burden other providers that are required to bear
those costs. Other providers likewise explain that these costs flow
through to their services and, in turn, the services their customers
provide. In light of these considerations, we believe that a measured
transition with a time limit on the use of intrastate access charges as
a default for that time period is necessary to ensure that migration to
IP services is adequately promoted. The time limit we adopt falls well
within our uniform, national framework for comprehensive intercarrier
compensation reform which set forth the overall transition for
intercarrier compensation rates established in the USF/ICC
Transformation Order. Within this time period, we predict that carriers
will have had the opportunity to make significant progress
transitioning their business plans away from extensive reliance on
intercarrier compensation.
37. As with the national VoIP intercarrier compensation framework
adopted in the USF/ICC Transformation Order, the Commission here is
specifying rates applicable to LECs' origination of intrastate toll
VoIP traffic as an exercise of the same legal authority that enables
the Commission to specify transitional rates for comprehensive
intercarrier compensation reform under the basic framework of section
251(b)(5). In the
[[Page 31526]]
USF/ICC Transformation Order, the Commission asserted authority to
allow transitional origination charges for toll VoIP traffic, and our
action here relies on that authority. In the USF/ICC Transformation
Order the Commission noted that ``[t]he legal authority that enables us
to specify transitional rates for comprehensive intercarrier
compensation reform also enables us to adopt our transitional VoIP-PSTN
intercarrier compensation framework pending the transition to bill-and-
keep.'' The Commission also noted that it ``has authority to adopt * *
* [a] transitional framework for toll VoIP-PSTN traffic based on our
rulemaking authority to implement section 251(b)(5),'' and that
``interpreting our rulemaking authority in this manner is consistent
with court decisions recognizing that `avoiding market disruptions
pending broader reforms is, of course, a standard and accepted
justification for a temporary rule.' '' Our actions here likewise do
not alter states' roles or preexisting Commission decisions regarding
the treatment of VoIP more generally. In particular, nothing in this
Order impacts the holding of the Vonage Order. Other than specifying a
new transitional default rate that LECs are permitted to tariff in the
context of originating intrastate toll VoIP traffic, we leave the USF/
ICC Transformation Order's transitional national VoIP intercarrier
compensation framework completely unaltered.
38. We disagree with commenters who argue that the Commission has
not sufficiently justified its legal authority to permit transitional
origination charges for toll VoIP traffic consistent with sections
251(b)(5) and 251(g) of the Act. As the Commission explained in the
USF/ICC Transformation Order, traffic previously was not subject to
compensation under section 251(b)(5) if ``such traffic [was] subject to
pre-1996 Act obligations regarding `exchange access,' '' and thus
grandfathered under section 251(g). The Commission concluded that
``[r]egardless of whether particular VoIP services are
telecommunications services or information services, there [were] pre-
1996 Act obligations regarding LECs' compensation for the provision of
exchange access to an IXC or an information service provider''--namely,
either intercarrier access charges or, if subject to the ESP exemption,
special access or subscriber line charges. Contrary to some claims, it
was not necessary for the Commission to resolve which of those exchange
access charge frameworks applied in particular circumstances
previously--so long as they were exchange access regulations involving
the exchange of traffic between a LEC and an interexchange carrier or
information service provider, they were subject to grandfathering under
section 251(g) until superseded by the Commission. Moreover, we agree
with parties arguing that ``the grandfathering provision of section
251(g) does not require pre-Act compensation regulations to be frozen
in time'' but allows the Commission ``to `modify LECs' pre-Act
`restrictions' or `obligations' pending full implementation of relevant
sections of the Act.'' Thus, in exercising its authority to adopt a
transitional framework for VoIP intercarrier compensation, the
Commission was not restricted to adopting precisely the same charges
that might have applied previously. As commenters observe, ``[t]o find
otherwise would remove any ability of the Commission to adopt a
reasonable transition away from pre-Act compensation obligations.''
Thus, regardless of whether the ESP exemption framework historically
applied to VoIP traffic, the Commission had authority to eliminate the
potential application of that framework to VoIP traffic and adopt
transitional intercarrier compensation rules, including origination
charges for toll VoIP traffic, that seek to limit marketplace
disruptions pending the ultimate transition to bill-and-keep under
section 251(b)(5).
39. We also make clear that the new default rate for originating
intrastate toll VoIP traffic applies regardless of whether the VoIP
traffic originates in TDM or IP format. The VoIP intercarrier
compensation rules adopted in the USF/ICC Transformation Order included
a ``symmetry'' principle that all VoIP traffic will be subject to the
same intercarrier compensation requirements, regardless of whether TDM
or IP technology was used to originate or terminate the call. The
Commission thus ``decline[d] to adopt an asymmetric approach that would
apply VoIP-specific rates for only IP-originated or only IP-terminated
traffic.'' Rather, the Commission ``adopt[ed] rules making clear that
origination and termination charges may be imposed under our
transitional [VoIP] intercarrier compensation framework, including when
an entity `uses Internet Protocol facilities to transmit such traffic
to [or from] the called party's premises.' ''
40. This ``VoIP symmetry rule'' was incorporated in the codified
intercarrier compensation rules for toll VoIP traffic. Section
51.913(a) of the Commission's rules specifies the rate applicable to
all ``Access Reciprocal Compensation subject to this subpart exchanged
between a local exchange carrier and another telecommunications carrier
in Time Division Multiplexing (TDM) format that originates and/or
terminates in IP format,'' without distinguishing among classes of VoIP
traffic depending upon whether they originate in TDM or IP. In
addition, Sec. 51.913(b) of the rules makes clear that a LEC ``shall
be entitled to assess and collect the full Access Reciprocal
Compensation charges prescribed by this subpart that are set forth in a
local exchange carrier's interstate or intrastate tariff for the access
services defined in Sec. 51.903'' even if the relevant origination or
termination functions are performed by the LEC's retail VoIP provider
partner--which, of necessity, would be performing these functions in
IP, rather than TDM. Likewise, the rules make clear that ``functions
provided by a LEC as part of transmitting telecommunications between
designated points using, in whole or in part, technology other than TDM
transmission'' count equally as access services for purposes of Sec.
51.903 of the Commission's rules as those performed in TDM.
41. The Petitions focus on the factual scenario of TDM-originated
VoIP traffic, and do not request reconsideration of the VoIP symmetry
rule nor state that interstate rates should continue to apply to IP-
originated VoIP traffic. Precisely because the Petitions did not ask
the Commission to reconsider the VoIP symmetry rule, however, they
necessarily implicate the rate regulations for all originating
intrastate VoIP traffic, because all such traffic would have to be
considered for the Petitions to be accommodated within the framework of
the VoIP symmetry rule. As commenters observe, the Petitions would be
inconsistent with the symmetrical rules adopted in the USF/ICC
Transformation Order if interpreted as implicating only TDM-originated
VoIP traffic. Indeed, Frontier and Windstream subsequently joined with
a number of other stakeholders in advocating that the Commission act on
their Petition ``by stating that all originating access charges are
subject to the same treatment pending further reform.'' Consequently,
we interpret the Petitions as implicating the rate regulations for all
originating intrastate VoIP traffic, consistent with the rules we adopt
on reconsideration.
42. Notably, we would not grant the requests for reconsideration of
our VoIP intercarrier compensation rules if the symmetry rule were not
applicable here. The Commission adopted the symmetry requirement in the
USF/ICC
[[Page 31527]]
Transformation Order to avoid ``marketplace distortions that give one
category of providers an artificial regulatory advantage in costs and
revenues relative to other market participants.'' As commenters
recognized, reconsidering the rules only for intrastate toll VoIP
traffic originated in TDM could lead to the outcome the Commission's
symmetry rule sought to avoid, for instance by creating artificial
incentives for parties to send traffic using TDM technology simply to
increase their revenues, which likewise would provide competitive
advantages to such providers relative to providers relying on IP
networks. The symmetry rule avoids these outcomes, enabling us to grant
reconsideration on this issue.
IV. Procedural Matters
A. Paperwork Reduction Act
43. This Second Order on Reconsideration contains no new
information collection requirements subject to the Paperwork Reduction
Act of 1995 (PRA), Public Law 104-13, so no review nor approval from
the Office of Management and Budget (OMB) is required.
B. Final Regulatory Flexibility Act Certification
44. The Regulatory Flexibility Act (RFA) requires that agencies
prepare a regulatory flexibility analysis for notice-and-comment
rulemaking proceedings, unless the agency certifies that ``the rule
will not have a significant economic impact on a substantial number of
small entities.'' The RFA generally defines ``small entity'' as having
the same meaning as the terms ``small business,'' ``small
organization,'' and ``small governmental jurisdiction.'' In addition,
the term ``small business'' has the same meaning as the term ``small
business concern'' under the Small Business Act. A small business
concern is one which: (1) Is independently owned and operated; (2) is
not dominant in its field of operation; and (3) satisfies any
additional criteria established by the Small Business Administration
(SBA).
45. This Second Order on Reconsideration adopts revisions to 47 CFR
parts 51 and 54. We hereby certify that the revision to part 54 will
not have a significant economic impact on a substantial number of small
entities. Previously, our rules governing Phase I of the Connect
America Fund required, among other things, that carriers accepting
incremental support deploy only to locations shown as unserved on the
National Broadband Map. In this Order, we revise our rules to expand
the areas to which such carriers may deploy, by permitting them to also
deploy to unserved locations that are shown as served by the carrier
itself, a change we make in recognition of the fact that the Map
generally shows wireline coverage on a census-block-by-census-block
basis, and thus shows an entire census block as served by the incumbent
carrier even when there may be many locations in the block that are, in
fact, not served. We conclude that this change to our rules will not
have a significant impact on a substantial number of small entities.
The Commission will send a copy of this Order, including this
certification, to the Chief Counsel for Advocacy of the Small Business
Administration. In addition, the Order (or a summary thereof) and
certification will be published in the Federal Register.
C. Congressional Review Act
46. The Commission will send a copy of this Order to Congress and
the Government Accountability Office pursuant to the Congressional
Review Act.
D. Final Regulatory Flexibility Analysis
47. As required by the Regulatory Flexibility Act of 1980 (RFA), as
amended, Initial Regulatory Flexibility Analyses (IRFAs) were
incorporated in the Notice of Proposed Rule Making and Further Notice
of Proposed Rulemaking (USF/ICC Transformation NPRM), in the Notice of
Inquiry and Notice of Proposed Rulemaking (USF Reform NOI/NPRM), and in
the Notice of Proposed Rulemaking (Mobility Fund NPRM) for this
proceeding. The Commission sought written public comment on the
proposals in the USF/ICC Transformation NPRM, including comment on the
IRFA. The Commission only received comments on the USF/ICC
Transformation NPRM IRFA. The comments received were discussed in the
USF/ICC Transformation Order, and are not discussed further here. This
Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
48. Need for, and Objectives of the Order. In the USF/ICC
Transformation Order, the Commission adopted policies to transition
outdated universal service and intercarrier compensation (ICC) systems
to the Connect America Fund (CAF). In the present order, in addition to
revising some rules related to universal service, which revisions we
certify will not have a significant economic impact on a substantial
number of small entities, we revise the rules adopted in the USF/ICC
Transformation Order governing intercarrier compensation for Voice over
Internet Protocol (VoIP). In that Order, the Commission permitted LECs,
starting December 29, 2011, to tariff default intercarrier compensation
rates for both originating and terminating toll VoIP traffic at rates
equal to interstate access rates, with default intercarrier
compensation for other VoIP traffic at the otherwise-applicable
reciprocal compensation rates.
49. In this Second Order on Reconsideration, the Commission
reconsidered the transitional intercarrier compensation framework
adopted in the USF/ICC Transformation Order for originating VoIP
traffic. Specifically, the Commission modified the VoIP ICC rules to
permit LECs to tariff default charges equal to intrastate originating
access for originating intrastate toll VoIP traffic at intrastate rates
until June 30, 2014.
50. Summary of Significant Issues Raised by Public Comments in
Response to the IRFA. No comments relating to any of the IRFAs have
been filed since the Commission released the USF/ICC Transformation
Order. In making the determinations reflected in the Order, we have
considered the impact of our actions on small entities.
51. Description and Estimate of the Number of Small Entities to
which the Proposed Rules Will Apply. 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 proposed rules, if
adopted. The RFA generally defines the term ``small entity'' as having
the same meaning as the terms ``small business,'' ``small
organization,'' and ``small governmental jurisdiction.'' In addition,
the term ``small business'' has the same meaning as the term ``small-
business concern'' under the Small Business Act. A ``small-business
concern'' is one which: (1) Is independently owned and operated; (2) is
not dominant in its field of operation; and (3) satisfies any
additional criteria established by the SBA.
52. Small Businesses. Nationwide, there are a total of
approximately 27.5 million small businesses, according to the SBA.
53. Wired Telecommunications Carriers. The SBA has developed a
small business size standard for Wired Telecommunications Carriers,
which consists of all such companies having 1,500 or fewer employees.
According to Census Bureau data for 2007, there were 3,188 firms in
this category, total, that operated for the entire year. Of this total,
3,144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1,000 employees or more. Thus, under this size standard,
[[Page 31528]]
the majority of firms can be considered small.
54. Local Exchange Carriers (LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to local exchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 1,307 carriers reported
that they were incumbent local exchange service providers. Of these
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees. Consequently, the Commission
estimates that most providers of local exchange service are small
entities that may be affected by the rules and policies proposed in the
Order.
55. Incumbent Local Exchange Carriers (incumbent LECs). Neither the
Commission nor the SBA has developed a size standard for small
businesses specifically applicable to incumbent local exchange
services. The closest applicable size standard under SBA rules is for
Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees. According to
Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers. Of these 1,307 carriers, an estimated 1,006
have 1,500 or fewer employees and 301 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of incumbent
local exchange service are small businesses that may be affected by
rules adopted pursuant to the Order.
56. We have included small incumbent LECs 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 LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. We have therefore included
small incumbent LECs in this RFA analysis, although we emphasize that
this RFA action has no effect on Commission analyses and determinations
in other, non-RFA contexts.
57. Competitive Local Exchange Carriers (competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate size standard under SBA rules is for
the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,442 carriers reported that they were
engaged in the provision of either competitive local exchange services
or competitive access provider services. Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. In addition, 17 carriers have reported that they are
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500
or fewer employees. In addition, 72 carriers have reported that they
are Other Local Service Providers. Of the 72, seventy have 1,500 or
fewer employees and two have more than 1,500 employees. Consequently,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and Other Local Service Providers are small entities that
may be affected by rules adopted pursuant to the Order.
58. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to interexchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 359 companies reported
that their primary telecommunications service activity was the
provision of interexchange services. Of these 359 companies, an
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500
employees. Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected
by rules adopted pursuant to the Order.
59. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business size standard specifically for
prepaid calling card providers. The appropriate size standard under SBA
rules is for the category Telecommunications Resellers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 193 carriers have reported that they are
engaged in the provision of prepaid calling cards. Of these, an
estimated all 193 have 1,500 or fewer employees and none have more than
1,500 employees. Consequently, the Commission estimates that the
majority of prepaid calling card providers are small entities that may
be affected by rules adopted pursuant to the Order.
60. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 213 carriers have reported
that they are engaged in the provision of local resale services. Of
these, an estimated 211 have 1,500 or fewer employees and two have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of local resellers are small entities that may be affected by
rules adopted pursuant to the Order.
61. Toll Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 881 carriers have reported
that they are engaged in the provision of toll resale services. Of
these, an estimated 857 have 1,500 or fewer employees and 24 have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of toll resellers are small entities that may be affected by
rules adopted pursuant to the Order.
62. Other Toll Carriers. Neither the Commission nor the SBA has
developed a size standard for small businesses specifically applicable
to Other Toll Carriers. This category includes toll carriers that do
not fall within the categories of interexchange carriers, operator
service providers, prepaid calling card providers, satellite service
carriers, or toll resellers. The closest applicable size standard under
SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 284 companies reported that their primary
telecommunications service activity was the provision of other toll
carriage. Of these, an estimated 279 have 1,500 or fewer employees and
five have more than 1,500 employees. Consequently, the Commission
estimates that most Other Toll Carriers are small entities that may be
affected by the rules and policies adopted pursuant to the Order.
63. 800 and 800-Like Service Subscribers. Neither the Commission
nor the SBA has developed a small
[[Page 31529]]
business size standard specifically for 800 and 800-like service (toll
free) subscribers. The appropriate size standard under SBA rules is for
the category Telecommunications Resellers. Under that size standard,
such a business is small if it has 1,500 or fewer employees. The most
reliable source of information regarding the number of these service
subscribers appears to be data the Commission collects on the 800, 888,
877, and 866 numbers in use. According to our data, as of September
2009, the number of 800 numbers assigned was 7,860,000; the number of
888 numbers assigned was 5,588,687; the number of 877 numbers assigned
was 4,721,866; and the number of 866 numbers assigned was 7,867,736. We
do not have data specifying the number of these subscribers that are
not independently owned and operated or have more than 1,500 employees,
and thus are unable at this time to estimate with greater precision the
number of toll free subscribers that would qualify as small businesses
under the SBA size standard. Consequently, we estimate that there are
7,860,000 or fewer small entity 800 subscribers; 5,588,687 or fewer
small entity 888 subscribers; 4,721,866 or fewer small entity 877
subscribers; and 7,867,736 or fewer small entity 866 subscribers.
64. Wireless Telecommunications Carriers (except Satellite). Since
2007, the SBA has recognized wireless firms within this new, broad,
economic census category. Prior to that time, such firms were within
the now-superseded categories of Paging and Cellular and Other Wireless
Telecommunications. Under the present and prior categories, the SBA has
deemed a wireless business to be small if it has 1,500 or fewer
employees. For this category, census data for 2007 show that there were
1,383 firms that operated for the entire year. Of this total, 1,368
firms had employment of 999 or fewer employees and 15 had employment of
1000 employees or more. Similarly, according to Commission data, 413
carriers reported that they were engaged in the provision of wireless
telephony, including cellular service, Personal Communications Service
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these,
an estimated 261 have 1,500 or fewer employees and 152 have more than
1,500 employees. Consequently, the Commission estimates that
approximately half or more of these firms can be considered small.
Thus, using available data, we estimate that the majority of wireless
firms can be considered small.
65. Broadband Personal Communications Service. The broadband
personal communications service (PCS) spectrum is divided into six
frequency blocks 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 its 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 small business size standards
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 of 93 small and very small business bidders won approximately 40
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the
Commission re-auctioned 347 C, E, and F Block licenses. There were 48
small business winning bidders. In 2001, the Commission completed the
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35
winning bidders in this auction, 29 qualified as ``small'' or ``very
small'' businesses. Subsequent events, concerning Auction 35, including
judicial and agency determinations, resulted in a total of 163 C and F
Block licenses being available for grant. In 2005, the Commission
completed an auction of 188 C block licenses and 21 F block licenses in
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24
winning bidders, 16 claimed small business status and won 156 licenses.
In 2007, the Commission completed an auction of 33 licenses in the A,
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were
designated entities. In 2008, the Commission completed an auction of 20
Broadband PCS licenses in the C, D, E and F block licenses in Auction
78.
66. Advanced Wireless Services. In 2008, the Commission conducted
the auction of Advanced Wireless Services (``AWS'') licenses. This
auction, which as designated as Auction 78, offered 35 licenses in the
AWS 1710-1755 MHz and 2110-2155 MHz bands (``AWS-1''). The AWS-1
licenses were licenses for which there were no winning bids in Auction
66. That same year, the Commission completed Auction 78. A bidder with
attributed average annual gross revenues that exceeded $15 million and
did not exceed $40 million for the preceding three years (``small
business'') received a 15 percent discount on its winning bid. A bidder
with attributed average annual gross revenues that did not exceed $15
million for the preceding three years (``very small business'')
received a 25 percent discount on its winning bid. A bidder that had
combined total assets of less than $500 million and combined gross
revenues of less than $125 million in each of the last two years
qualified for entrepreneur status. Four winning bidders that identified
themselves as very small businesses won 17 licenses. Three of the
winning bidders that identified themselves as a small business won five
licenses. Additionally, one other winning bidder that qualified for
entrepreneur status won 2 licenses.
67. Narrowband Personal Communications Services. In 1994, the
Commission conducted an auction for Narrowband PCS licenses. A second
auction was also conducted later in 1994. For purposes of the first two
Narrowband PCS auctions, ``small businesses'' were entities with
average gross revenues for the prior three calendar years of $40
million or less. Through these auctions, the Commission awarded a total
of 41 licenses, 11 of which were obtained by four small businesses. To
ensure meaningful participation by small business entities in future
auctions, the Commission adopted a two-tiered small business size
standard in the Narrowband PCS Second Report and Order. 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.
The SBA has approved these small business size standards. A third
auction was conducted in 2001. Here, five bidders won 317 (Metropolitan
Trading Areas and nationwide) licenses. Three of these claimed status
as a small or very small entity and won 311 licenses.
68. Paging (Private and Common Carrier). In the Paging Third Report
and Order, we developed a small business size standard for ``small
businesses'' and ``very small businesses'' for purposes of determining
their eligibility for special provisions such as bidding credits and
installment payments. A ``small business'' is an entity that, together
with
[[Page 31530]]
its affiliates and controlling principals, has average gross revenues
not exceeding $15 million for the preceding three years. Additionally,
a ``very small business'' is an entity that, together with its
affiliates and controlling principals, has average gross revenues that
are not more than $3 million for the preceding three years. The SBA has
approved these small business size standards. According to Commission
data, 291 carriers have reported that they are engaged in Paging or
Messaging Service. Of these, an estimated 289 have 1,500 or fewer
employees, and two have more than 1,500 employees. Consequently, the
Commission estimates that the majority of paging providers are small
entities that may be affected by our action. An auction of Metropolitan
Economic Area licenses commenced on February 24, 2000, and closed on
March 2, 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-
seven companies claiming small business status won 440 licenses. A
subsequent auction of MEA and Economic Area (``EA'') licenses was held
in the year 2001. Of the 15,514 licenses auctioned, 5,323 were sold.
One hundred thirty-two companies claiming small business status
purchased 3,724 licenses. A third auction, consisting of 8,874 licenses
in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs,
was held in 2003. Seventy-seven bidders claiming small or very small
business status won 2,093 licenses. A fourth auction, consisting of
9,603 lower and upper paging band licenses was held in the year 2010.
Twenty-nine bidders claiming small or very small business status won
3,016 licenses..
69. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service
has both Phase I and Phase II licenses. Phase I licensing was conducted
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized
to operate in the 220 MHz band. The Commission has not developed a
small business size standard for small entities specifically applicable
to such incumbent 220 MHz Phase I licensees. To estimate the number of
such licensees that are small businesses, we apply the small business
size standard under the SBA rules applicable to Wireless
Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer
employees. The Commission estimates that nearly all such licensees are
small businesses under the SBA's small business size standard that may
be affected by rules adopted pursuant to the Order.
70. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service
has both Phase I and Phase II licenses. The Phase II 220 MHz service is
subject to spectrum auctions. In the 220 MHz Third Report and Order, we
adopted a small business size standard for ``small'' and ``very small''
businesses for purposes of determining their eligibility for special
provisions such as bidding credits and installment payments. This small
business size standard indicates that a ``small business'' is an entity
that, together with its affiliates and controlling principals, has
average gross revenues not exceeding $15 million for the preceding
three years. A ``very small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
that do not exceed $3 million for the preceding three years. The SBA
has approved these small business size standards. Auctions of Phase II
licenses commenced on September 15, 1998, and closed on October 22,
1998. In the first auction, 908 licenses were auctioned in three
different-sized geographic areas: three nationwide licenses, 30
Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA)
Licenses. Of the 908 licenses auctioned, 693 were sold. Thirty-nine
small businesses won licenses in the first 220 MHz auction. The second
auction included 225 licenses: 216 EA licenses and 9 EAG licenses.
Fourteen companies claiming small business status won 158 licenses.
71. Specialized Mobile Radio. The Commission awards small business
bidding credits in auctions for Specialized Mobile Radio (``SMR'')
geographic area licenses in the 800 MHz and 900 MHz bands to entities
that had revenues of no more than $15 million in each of the three
previous calendar years. The Commission awards very small business
bidding credits to entities that had revenues of no more than $3
million in each of the three previous calendar years. The SBA has
approved these small business size standards for the 800 MHz and 900
MHz SMR Services. The Commission has held auctions for geographic area
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was
completed in 1996. Sixty bidders claiming that they qualified as small
businesses under the $15 million size standard won 263 geographic area
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper
200 channels was conducted in 1997. Ten bidders claiming that they
qualified as small businesses under the $15 million size standard won
38 geographic area licenses for the upper 200 channels in the 800 MHz
SMR band. A second auction for the 800 MHz band was conducted in 2002
and included 23 BEA licenses. One bidder claiming small business status
won five licenses.
72. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels was conducted in 2000. Eleven bidders
won 108 geographic area licenses for the General Category channels in
the 800 MHz SMR band qualified as small businesses under the $15
million size standard. In an auction completed in 2000, a total of
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz
SMR service were awarded. Of the 22 winning bidders, 19 claimed small
business status and won 129 licenses. Thus, combining all three
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR
band claimed status as small business.
73. In addition, there are numerous incumbent site-by-site SMR
licensees and licensees with extended implementation authorizations in
the 800 and 900 MHz bands. We do not know how many firms provide 800
MHz or 900 MHz geographic area SMR 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. In
addition, we do not know how many of these firms have 1,500 or fewer
employees. We assume, for purposes of this analysis, that all of the
remaining existing extended implementation authorizations are held by
small entities, as that small business size standard is approved by the
SBA.
74. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service systems, previously referred to as Multipoint
Distribution Service (``MDS'') and Multichannel Multipoint Distribution
Service (``MMDS'') systems, and ``wireless cable,'' transmit video
programming to subscribers and provide two-way high speed data
operations using the microwave frequencies of the Broadband Radio
Service (``BRS'') and Educational Broadband Service (``EBS'')
(previously referred to as the Instructional Television Fixed Service
(``ITFS'')). In connection with the 1996 BRS auction, the Commission
established a small business size standard as an entity that had annual
average gross revenues of no more than $40 million in the previous
three calendar years. The BRS auctions resulted in 67 successful
bidders obtaining licensing opportunities for
[[Page 31531]]
493 Basic Trading Areas (``BTAs''). Of the 67 auction winners, 61 met
the definition of a small business. BRS also includes licensees of
stations authorized prior to the auction. At this time, we estimate
that of the 61 small business BRS auction winners, 48 remain small
business licensees. In addition to the 48 small businesses that hold
BTA authorizations, there are approximately 392 incumbent BRS licensees
that are considered small entities. After adding the number of small
business auction licensees to the number of incumbent licensees not
already counted, we find that there are currently approximately 440 BRS
licensees that are defined as small businesses under either the SBA or
the Commission's rules. The Commission has adopted three levels of
bidding credits for BRS: (i) A bidder with attributed average annual
gross revenues that exceed $15 million and do not exceed $40 million
for the preceding three years (small business) is eligible to receive a
15 percent discount on its winning bid; (ii) a bidder with attributed
average annual gross revenues that exceed $3 million and do not exceed
$15 million for the preceding three years (very small business) is
eligible to receive a 25 percent discount on its winning bid; and (iii)
a bidder with attributed average annual gross revenues that do not
exceed $3 million for the preceding three years (entrepreneur) is
eligible to receive a 35 percent discount on its winning bid. In 2009,
the Commission conducted Auction 86, which offered 78 BRS licenses.
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten,
two bidders claimed small business status and won 4 licenses; one
bidder claimed very small business status and won three licenses; and
two bidders claimed entrepreneur status and won six licenses.
75. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,032 EBS licensees. All but 100 of these licenses are held by
educational institutions. Educational institutions are included in this
analysis as small entities. Thus, we estimate that at least 1,932
licensees are small businesses. Since 2007, Cable Television
Distribution Services have been defined within the broad economic
census category of Wired Telecommunications Carriers; that category is
defined as follows: ``This industry comprises establishments primarily
engaged in operating and/or providing access to transmission facilities
and infrastructure that they own and/or lease for the transmission of
voice, data, text, sound, and video using wired telecommunications
networks. Transmission facilities may be based on a single technology
or a combination of technologies.'' The SBA defines a small business
size standard for this category as any such firms having 1,500 or fewer
employees. The SBA has developed a small business size standard for
this category, which is: all such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were a total
of 955 firms in this previous category that operated for the entire
year. Of this total, 939 firms had employment of 999 or fewer
employees, and 16 firms had employment of 1000 employees or more. Thus,
under this size standard, the majority of firms can be considered small
and may be affected by rules adopted pursuant to the Order.
76. Lower 700 MHz Band Licenses. The Commission previously adopted
criteria for defining three groups of small businesses for purposes of
determining their eligibility for special provisions such as bidding
credits. The Commission defined a ``small business'' as an entity that,
together with its affiliates and controlling principals, has average
gross revenues not exceeding $40 million for the preceding three years.
A ``very small business'' is defined as an entity that, together with
its affiliates and controlling principals, has average gross revenues
that are not more than $15 million for the preceding three years.
Additionally, the Lower 700 MHz Band had a third category of small
business status for Metropolitan/Rural Service Area (``MSA/RSA'')
licenses, identified as ``entrepreneur'' and defined as an entity that,
together with its affiliates and controlling principals, has average
gross revenues that are not more than $3 million for the preceding
three years. The SBA approved these small size standards. The
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses
available for auction, 484 licenses were sold to 102 winning bidders.
Seventy-two of the winning bidders claimed small business, very small
business or entrepreneur status and won a total of 329 licenses. The
Commission conducted a second Lower 700 MHz Band auction in 2003 that
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area
licenses. Seventeen winning bidders claimed small or very small
business status and won 60 licenses, and nine winning bidders claimed
entrepreneur status and won 154 licenses. In 2005, the Commission
completed an auction of 5 licenses in the Lower 700 MHz Band,
designated Auction 60. There were three winning bidders for five
licenses. All three winning bidders claimed small business status.
77. In 2007, the Commission reexamined its rules governing the 700
MHz band in the 700 MHz Second Report and Order. The 700 MHz Second
Report and Order revised the band plan for the commercial (including
Guard Band) and public safety spectrum, adopted services rules,
including stringent build-out requirements, an open platform
requirement on the C Block, and a requirement on the D Block licensee
to construct and operate a nationwide, interoperable wireless broadband
network for public safety users. An auction of A, B and E block
licenses in the Lower 700 MHz band was held in 2008. Twenty winning
bidders claimed small business status (those with attributable average
annual gross revenues that exceed $15 million and do not exceed $40
million for the preceding three years). Thirty three winning bidders
claimed very small business status (those with attributable average
annual gross revenues that do not exceed $15 million for the preceding
three years). In 2011, the Commission conducted Auction 92, which
offered 16 Lower 700 MHz band licenses that had been made available in
Auction 73 but either remained unsold or were licenses on which a
winning bidder defaulted. Two of the seven winning bidders in Auction
92 claimed very small business status, winning a total of four
licenses.
78. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz band
licenses. In 2008, the Commission conducted Auction 73 in which C and D
block licenses in the Upper 700 MHz band were available. Three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years).
79. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order,
we adopted a small business size standard for ``small businesses'' and
``very small businesses'' for purposes of determining their eligibility
for special provisions such as bidding credits and installment
payments. A ``small business'' is an entity that, together with its
affiliates and controlling principals, has average gross revenues not
exceeding $40 million for the preceding three years. Additionally, a
``very small business'' is an entity that, together with its affiliates
and controlling principals, has average
[[Page 31532]]
gross revenues that are not more than $15 million for the preceding
three years. An auction of 52 Major Economic Area (MEA) licenses
commenced on September 6, 2000, and closed on September 21, 2000. Of
the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five
of these bidders were small businesses that won a total of 26 licenses.
A second auction of 700 MHz Guard Band licenses commenced on February
13, 2001 and closed on February 21, 2001. All eight of the licenses
auctioned were sold to three bidders. One of these bidders was a small
business that won a total of two licenses.
80. Cellular Radiotelephone Service. Auction 77 was held to resolve
one group of mutually exclusive applications for Cellular
Radiotelephone Service licenses for unserved areas in New Mexico.
Bidding credits for designated entities were not available in Auction
77. In 2008, the Commission completed the closed auction of one
unserved service area in the Cellular Radiotelephone Service,
designated as Auction 77. Auction 77 concluded with one provisionally
winning bid for the unserved area totaling $25,002.
81. Private Land Mobile Radio (``PLMR''). PLMR systems serve an
essential role in a range of industrial, business, land transportation,
and public safety activities. These radios are used by companies of all
sizes operating in all U.S. business categories, and are often used in
support of the licensee's primary (non-telecommunications) business
operations. For the purpose of determining whether a licensee of a PLMR
system is a small business as defined by the SBA, we use the broad
census category, Wireless Telecommunications Carriers (except
Satellite). This definition provides that a small entity is any such
entity employing no more than 1,500 persons. The Commission does not
require PLMR licensees to disclose information about number of
employees, so the Commission does not have information that could be
used to determine how many PLMR licensees constitute small entities
under this definition. We note that PLMR licensees generally use the
licensed facilities in support of other business activities, and
therefore, it would also be helpful to assess PLMR licensees under the
standards applied to the particular industry subsector to which the
licensee belongs.
82. As of March 2010, there were 424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands below 512 MHz. We note that any
entity engaged in a commercial activity is eligible to hold a PLMR
license, and that any revised rules in this context could therefore
potentially impact small entities covering a great variety of
industries.
83. Rural Radiotelephone Service. The Commission has not adopted a
size standard for small businesses specific to the Rural Radiotelephone
Service. A significant subset of the Rural Radiotelephone Service is
the Basic Exchange Telephone Radio System (``BETRS''). In the present
context, we will use the SBA's small business size standard applicable
to Wireless Telecommunications Carriers (except Satellite), i.e., 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 there are 1,000 or fewer small entity licensees in the
Rural Radiotelephone Service that may be affected by the rules and
policies proposed herein.
84. Air-Ground Radiotelephone Service. The Commission has not
adopted a small business size standard specific to the Air-Ground
Radiotelephone Service. We will use SBA's small business size standard
applicable to Wireless Telecommunications Carriers (except Satellite),
i.e., 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
small business size standard and may be affected by rules adopted
pursuant to the Order.
85. Aviation and Marine Radio Services. Small businesses in the
aviation and marine radio services use a very high frequency (VHF)
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator
transmitter. The Commission has not developed a small business size
standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business
size standard for the category Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of our
evaluations in this analysis, we estimate that there are up to
approximately 712,000 licensees that are small businesses (or
individuals) under the SBA standard. In addition, between December 3,
1998 and December 14, 1998, the Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and
161.775-162.0125 MHz (coast transmit) bands. For purposes of the
auction, the Commission defined a ``small'' business as an entity that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $15 million
dollars. In addition, a ``very small'' business is one that, together
with controlling interests and affiliates, has average gross revenues
for the preceding three years not to exceed $3 million dollars. There
are approximately 10,672 licensees in the Marine Coast Service, and the
Commission estimates that almost all of them qualify as ``small''
businesses under the above special small business size standards and
may be affected by rules adopted pursuant to the Order.
86. Fixed Microwave Services. Fixed microwave services include
common carrier, private operational-fixed, and broadcast auxiliary
radio services. At present, there are approximately 22,015 common
carrier fixed licensees and 61,670 private operational-fixed licensees
and broadcast auxiliary radio licensees in the microwave services. The
Commission has not created a size standard for a small business
specifically with respect to fixed microwave services. For purposes of
this analysis, the Commission uses the SBA small business size standard
for Wireless Telecommunications Carriers (except Satellite), which is
1,500 or fewer employees. The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and
thus is unable at this time to estimate with greater precision the
number of fixed microwave service licensees that would qualify as small
business concerns under the SBA's small business size standard.
Consequently, the Commission estimates that there are up to 22,015
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the
microwave services that may be small and may be affected by the rules
and policies adopted herein. We note, however, that the common carrier
microwave fixed licensee category includes some large entities.
87. Offshore Radiotelephone Service. This service operates on
several UHF
[[Page 31533]]
television broadcast channels that are not used for television
broadcasting in the coastal areas of states bordering the Gulf of
Mexico. There are presently approximately 55 licensees in this service.
The Commission is unable to estimate at this time the number of
licensees that would qualify as small under the SBA's small business
size standard for the category of Wireless Telecommunications Carriers
(except Satellite). Under that SBA small business size standard, a
business is small if it has 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Thus, under this category and the associated small business size
standard, the majority of firms can be considered small.
88. 39 GHz Service. The Commission created a special small business
size standard for 39 GHz licenses--an entity that has average gross
revenues of $40 million or less in the three previous calendar years.
An additional size standard for ``very small business'' is: an entity
that, together with affiliates, has average gross revenues of not more
than $15 million for the preceding three calendar years. The SBA has
approved these small business size standards. The auction of the 2,173
39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The
18 bidders who claimed small business status won 849 licenses.
Consequently, the Commission estimates that 18 or fewer 39 GHz
licensees are small entities that may be affected by rules adopted
pursuant to the Order.
89. Local Multipoint Distribution Service. Local Multipoint
Distribution Service (``LMDS'') is a fixed broadband point-to-
multipoint microwave service that provides for two-way video
telecommunications. The auction of the 986 LMDS licenses began and
closed in 1998. The Commission established a small business size
standard for LMDS licenses as an entity that has average gross revenues
of less than $40 million in the three previous calendar years. An
additional small business size standard for ``very small business'' was
added as an entity that, together with its affiliates, has average
gross revenues of not more than $15 million for the preceding three
calendar years. The SBA has approved these small business size
standards in the context of LMDS auctions. There were 93 winning
bidders that qualified as small entities in the LMDS auctions. A total
of 93 small and very small business bidders won approximately 277 A
Block licenses and 387 B Block licenses. In 1999, the Commission re-
auctioned 161 licenses; there were 32 small and very small businesses
winning that won 119 licenses.
90. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the small
business size standard was an entity that, together with its
affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2
million in annual profits each year for the previous two years. In the
218-219 MHz Report and Order and Memorandum Opinion and Order, we
established a small business size standard for a ``small business'' as
an entity that, together with its affiliates and persons or entities
that hold interests in such an entity and their affiliates, has average
annual gross revenues not to exceed $15 million for the preceding three
years. A ``very small business'' is defined as an entity that, together
with its affiliates and persons or entities that hold interests in such
an entity and its affiliates, has average annual gross revenues not to
exceed $3 million for the preceding three years. These size standards
will be used in future auctions of 218-219 MHz spectrum.
91. 2.3 GHz Wireless Communications Services. This service can be
used for fixed, mobile, radiolocation, and digital audio broadcasting
satellite uses. The Commission defined ``small business'' for the
wireless communications services (``WCS'') auction as an entity with
average gross revenues of $40 million for each of the three preceding
years, and a ``very small business'' as an entity with average gross
revenues of $15 million for each of the three preceding years. The SBA
has approved these definitions. The Commission auctioned geographic
area licenses in the WCS service. In the auction, which was conducted
in 1997, there were seven bidders that won 31 licenses that qualified
as very small business entities, and one bidder that won one license
that qualified as a small business entity.
92. 1670-1675 MHz Band. An auction for one license in the 1670-1675
MHz band was conducted in 2003. The Commission defined a ``small
business'' as an entity with attributable average annual gross revenues
of not more than $40 million for the preceding three years and thus
would be eligible for a 15 percent discount on its winning bid for the
1670-1675 MHz band license. Further, the Commission defined a ``very
small business'' as an entity with attributable average annual gross
revenues of not more than $15 million for the preceding three years and
thus would be eligible to receive a 25 percent discount on its winning
bid for the 1670-1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
93. 3650-3700 MHz band. In March 2005, the Commission released a
Report and Order and Memorandum Opinion and Order that provides for
nationwide, non-exclusive licensing of terrestrial operations,
utilizing contention-based technologies, in the 3650 MHz band (i.e.,
3650-3700 MHz). As of April 2010, more than 1270 licenses have been
granted and more than 7433 sites have been registered. The Commission
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, we estimate
that the majority of these licensees are Internet Access Service
Providers (ISPs) and that most of those licensees are small businesses.
94. 24 GHz--Incumbent Licensees. This analysis may affect incumbent
licensees who were relocated to the 24 GHz band from the 18 GHz band,
and applicants who wish to provide services in the 24 GHz band. For
this service, the Commission uses the SBA small business size standard
for the category ``Wireless Telecommunications Carriers (except
satellite),'' which is 1,500 or fewer employees. To gauge small
business prevalence for these cable services we must, however, use the
most current census data. Census data for 2007, which supersede data
contained in the 2002 Census, show that there were 1,383 firms that
operated that year. Of those 1,383, 1,368 had fewer than 100 employees,
and 15 firms had more than 100 employees. Thus under this category and
the associated small business size standard, the majority of firms can
be considered small. The Commission notes that the Census' use of the
classifications ``firms'' does not track the number of ``licenses''.
The Commission believes that there are only two licensees in the 24 GHz
band that were relocated from the 18 GHz band, Teligent and TRW, Inc.
It is our understanding that Teligent and its related companies have
less than 1,500 employees, though this may change in the future. TRW is
not a small entity. Thus, only one incumbent licensee in the 24 GHz
band is a small business entity.
95. 24 GHz--Future Licensees. With respect to new applicants in the
24 GHz band, the size standard for ``small
[[Page 31534]]
business'' is an entity that, together with controlling interests and
affiliates, has average annual gross revenues for the three preceding
years not in excess of $15 million. ``Very small business'' in the 24
GHz band is an entity that, together with controlling interests and
affiliates, has average gross revenues not exceeding $3 million for the
preceding three years. The SBA has approved these small business size
standards. These size standards will apply to a future 24 GHz license
auction, if held.
96. Satellite Telecommunications. Since 2007, the SBA has
recognized satellite firms within this revised category, with a small
business size standard of $15 million. The most current Census Bureau
data are from the economic census of 2007, and we will use those
figures to gauge the prevalence of small businesses in this category.
Those size standards are for the two census categories of ``Satellite
Telecommunications'' and ``Other Telecommunications.'' Under the
``Satellite Telecommunications'' category, a business is considered
small if it had $15 million or less in average annual receipts. Under
the ``Other Telecommunications'' category, a business is considered
small if it had $25 million or less in average annual receipts.
97. The first category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing point-to-point
telecommunications services to other establishments in the
telecommunications and broadcasting industries by forwarding and
receiving communications signals via a system of satellites or
reselling satellite telecommunications.'' For this category, Census
Bureau data for 2007 show that there were a total of 512 firms that
operated for the entire year. Of this total, 464 firms had annual
receipts of under $10 million, and 18 firms had receipts of $10 million
to $24,999,999. Consequently, we estimate that the majority of
Satellite Telecommunications firms are small entities that might be
affected by rules adopted pursuant to the Order.
98. The second category of Other Telecommunications ``primarily
engaged in providing specialized telecommunications services, such as
satellite tracking, communications telemetry, and radar station
operation. This industry also includes establishments primarily engaged
in providing satellite terminal stations and associated facilities
connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications
from, satellite systems. Establishments providing Internet services or
voice over Internet protocol (VoIP) services via client-supplied
telecommunications connections are also included in this industry.''
For this category, Census Bureau data for 2007 show that there were a
total of 2,383 firms that operated for the entire year. Of this total,
2,346 firms had annual receipts of under $25 million. Consequently, we
estimate that the majority of Other Telecommunications firms are small
entities that might be affected by our action.
99. Cable and Other Program Distribution. Since 2007, these
services have been defined within the broad economic census category of
Wired Telecommunications Carriers; that category is defined as follows:
``This industry comprises establishments primarily engaged in operating
and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired telecommunications networks. Transmission
facilities may be based on a single technology or a combination of
technologies.'' The SBA has developed a small business size standard
for this category, which is: all such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were a total
of 955 firms in this previous category that operated for the entire
year. Of this total, 939 firms had employment of 999 or fewer
employees, and 16 firms had employment of 1000 employees or more. Thus,
under this size standard, the majority of firms can be considered small
and may be affected by rules adopted pursuant to the Order.
100. Cable Companies and Systems. The Commission has developed its
own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small and may be affected by rules
adopted pursuant to the Order.
101. Cable System Operators. The Act also contains a size standard
for small cable system operators, which is ``a cable operator that,
directly or through an affiliate, serves in the aggregate fewer than 1
percent of all subscribers in the United States and is not affiliated
with any entity or entities whose gross annual revenues in the
aggregate exceed $250,000,000.'' The Commission has determined that an
operator serving fewer than 677,000 subscribers shall be deemed a small
operator, if its annual revenues, when combined with the total annual
revenues of all its affiliates, do not exceed $250 million in the
aggregate. Industry data indicate that, of 1,076 cable operators
nationwide, all but ten are small under this size standard. We note
that the Commission neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore we are unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
102. Open Video Services. The open video system (``OVS'') framework
was established in 1996, and is one of four statutorily recognized
options for the provision of video programming services by local
exchange carriers. The OVS framework provides opportunities for the
distribution of video programming other than through cable systems.
Because OVS operators provide subscription services, OVS falls within
the SBA small business size standard covering cable services, which is
``Wired Telecommunications Carriers.'' The SBA has developed a small
business size standard for this category, which is: all such firms
having 1,500 or fewer employees. According to Census Bureau data for
2007, there were a total of 955 firms in this previous category that
operated for the entire year. Of this total, 939 firms had employment
of 999 or fewer employees, and 16 firms had employment of 1000
employees or more. Thus, under this second size standard, most cable
systems are small and may be affected by rules adopted pursuant to the
Order. In addition, we note that the Commission has certified some OVS
operators, with some now providing service. Broadband service providers
(``BSPs'') are currently the only significant holders of OVS
certifications or local OVS franchises. The Commission does not have
financial or employment information regarding the entities authorized
to provide OVS, some of which may not yet be operational. Thus, again,
at least some of the OVS operators may qualify as small entities.
103. Internet Service Providers. Since 2007, these services have
been defined within the broad economic census category of Wired
Telecommunications
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Carriers; that category is defined as follows: ``This industry
comprises establishments primarily engaged in operating and/or
providing access to transmission facilities and infrastructure that
they own and/or lease for the transmission of voice, data, text, sound,
and video using wired telecommunications networks. Transmission
facilities may be based on a single technology or a combination of
technologies.'' The SBA has developed a small business size standard
for this category, which is: All such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were 3,188
firms in this category, total, that operated for the entire year. Of
this total, 3144 firms had employment of 999 or fewer employees, and 44
firms had employment of 1000 employees or more. Thus, under this size
standard, the majority of firms can be considered small. In addition,
according to Census Bureau data for 2007, there were a total of 396
firms in the category Internet Service Providers (broadband) that
operated for the entire year. Of this total, 394 firms had employment
of 999 or fewer employees, and two firms had employment of 1000
employees or more. Consequently, we estimate that the majority of these
firms are small entities that may be affected by rules adopted pursuant
to the Order.
104. Internet Publishing and Broadcasting and Web Search Portals.
Our action may pertain to interconnected VoIP services, which could be
provided by entities that provide other services such as email, online
gaming, web browsing, video conferencing, instant messaging, and other,
similar IP-enabled services. The Commission has not adopted a size
standard for entities that create or provide these types of services or
applications. However, the Census Bureau has identified firms that
``primarily engaged in (1) publishing and/or broadcasting content on
the Internet exclusively or (2) operating Web sites that use a search
engine to generate and maintain extensive databases of Internet
addresses and content in an easily searchable format (and known as Web
search portals).'' The SBA has developed a small business size standard
for this category, which is: All such firms having 500 or fewer
employees. According to Census Bureau data for 2007, there were 2,705
firms in this category that operated for the entire year. Of this
total, 2,682 firms had employment of 499 or fewer employees, and 23
firms had employment of 500 employees or more. Consequently, we
estimate that the majority of these firms are small entities that may
be affected by rules adopted pursuant to the Order.
105. Data Processing, Hosting, and Related Services. Entities in
this category ``primarily * * * provid[e] infrastructure for hosting or
data processing services.'' The SBA has developed a small business size
standard for this category; that size standard is $25 million or less
in average annual receipts. According to Census Bureau data for 2007,
there were 8,060 firms in this category that operated for the entire
year. Of these, 7,744 had annual receipts of under $24,999,999.
Consequently, we estimate that the majority of these firms are small
entities that may be affected by rules adopted pursuant to the Order.
106. All Other Information Services. The Census Bureau defines this
industry as including ``establishments primarily engaged in providing
other information services (except news syndicates, libraries,
archives, Internet publishing and broadcasting, and Web search
portals).'' Our action pertains to interconnected VoIP services, which
could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant
messaging, and other, similar IP-enabled services. The SBA has
developed a small business size standard for this category; that size
standard is $7.0 million or less in average annual receipts. According
to Census Bureau data for 2007, there were 367 firms in this category
that operated for the entire year. Of these, 334 had annual receipts of
under $5.0 million, and an additional 11 firms had receipts of between
$5 million and $9,999,999. Consequently, we estimate that the majority
of these firms are small entities that may be affected by our action.
107. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Under the revised VoIP pricing rules we adopt,
carriers may tariff default intercarrier compensation charges for
intrastate originating toll VoIP-PSTN traffic in the absence of an
agreement for different intercarrier compensation. Service providers
may need to revise their interstate and intrastate tariffs to account
for these changes.
108. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered. The RFA requires an
agency to describe any significant alternatives that it has considered
in reaching its 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.
109. We did not identify any feasible alternatives that would have
lessened the economic impact on small entities. In the absence of an
agreement, there is no other way than through a tariff filing to
effectuate the new default rates where increased rates may be allowed.
110. Report to Congress. The Commission will send a copy of the
Order, including this FRFA, in a report to be sent to Congress and the
Government Accountability Office pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996. In addition, the
Commission will send a copy of the Order, including the FRFA, to the
Chief Counsel for Advocacy of the Small Business Administration. A copy
of the Order and FRFA (or summaries thereof) will also be published in
the Federal Register.
V. Ordering Clauses
111. Accordingly, it is ordered, pursuant to the authority
contained in sections 1, 2, 4(i), 201-206, 214, 218-220, 251, 252, 254,
256, 303(r), 332, 403 of the Communications Act of 1934, as amended,
and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151,
152, 154(i), 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332,
403, 1302, and Sec. Sec. 1.1 and 1.429 of the Commission's rules, 47
CFR 1.1 and 1.429, that this Second Order on Reconsideration is
adopted.
112. It is further ordered that the Petition for Reconsideration of
the United States Telecom Association is denied to the extent provided
herein.
113. It is further ordered that the Petition for Reconsideration
and/or Clarification of Frontier Communications Corp. and Windstream
Communications, Inc., is granted to the extent provided herein and
denied to the extent provided herein.
114. It is further ordered that the Petition for Reconsideration
and Clarification of the National Exchange Carrier Association, Inc.,
Organization for the Promotion and Advancement of Small
Telecommunications Companies and Western Telecommunications Alliance,
is granted to the extent provided herein.
115. It is further ordered that the Petition for Reconsideration of
the
[[Page 31536]]
Independent Telephone & Telecommunications Alliance is granted to the
extent provided herein and denied to the extent provided herein.
116. It is further ordered that part 51 of the Commission's rules,
47 CFR part 51, is amended, and such rule amendments shall be effective
45 days after the date of publication of the rule amendments in the
Federal Register.
117. It is further ordered that Part 54 of the Commission's rules,
47 CFR part 54, is amended, and such rule amendments shall be effective
30 days after the date of publication of the rule amendments in the
Federal Register.
List of Subjects in 47 CFR Parts 51 and 54
Communications common carriers, Reporting and recordkeeping
requirements, Telecommunications, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rule
For the reasons discussed in the Second Order on Reconsideration,
the Federal Communications Commission amends 47 CFR parts 51 and 54 as
follows:
PART 51--INTERCONNECTION
0
1. The authority citation for part 51 continues to read as follows:
Authority: Sections 1-5, 7, 201-05, 207-09, 218, 220, 225-27,
251-54, 256, 271, 303(r), 332, 706 of the Telecommunication Act of
1996, 48 Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-
05, 207-09, 218, 220, 225-27, 251-54, 256, 271, 303(r), 332, 1302,
47 U.S.C. 157 note, unless otherwise noted.
0
2. Revise Sec. 51.913(a) to read as follows:
Sec. 51.93 Transition for VoIP-PSTN traffic.
(a)(1) Terminating Access Reciprocal Compensation subject to this
subpart exchanged between a local exchange carrier and another
telecommunications carrier in Time Division Multiplexing (TDM) format
that originates and/or terminates in IP format shall be subject to a
rate equal to the relevant interstate terminating access charges
specified by this subpart. Interstate originating Access Reciprocal
Compensation subject to this subpart exchanged between a local exchange
carrier and another telecommunications carrier in Time Division
Multiplexing (TDM) format that originates and/or terminates in IP
format shall be subject to a rate equal to the relevant interstate
originating access charges specified by this subpart.
(2) Until June 30, 2014, intrastate originating Access Reciprocal
Compensation subject to this subpart exchanged between a local exchange
carrier and another telecommunications carrier in Time Division
Multiplexing (TDM) format that originates and/or terminates in IP
format shall be subject to a rate equal to the relevant intrastate
originating access charges specified by this subpart. Effective July 1,
2014, originating Access Reciprocal Compensation subject to this
subpart exchanged between a local exchange carrier and another
telecommunications carrier in Time Division Multiplexing (TDM) format
that originates and/or terminates in IP format shall be subject to a
rate equal to the relevant interstate originating access charges
specified by this subpart.
(3) Telecommunications traffic originates and/or terminates in IP
format if it originates from and/or terminates to an end-user customer
of a service that requires Internet protocol-compatible customer
premises equipment.
* * * * *
PART 54--UNIVERSAL SERVICE
0
3. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254,
303(r), 403, and 1302 unless otherwise noted.
0
4. Section 54.312(b)(3) is revised to read as follows:
Sec. 54.312 Connect America Fund for Price Cap Territories--Phase I.
* * * * *
(b) * * *
(3) A carrier may elect to accept or decline incremental support. A
holding company may do so on a holding-company basis on behalf of its
operating companies that are eligible telecommunications carriers,
whose eligibility for incremental support, for these purposes, shall be
considered on an aggregated basis. A carrier must provide notice to the
Commission, relevant state commissions, and any affected Tribal
government, stating the amount of incremental support it wishes to
accept and identifying the areas by wire center and census block in
which the designated eligible telecommunications carrier will deploy
broadband to meet its deployment obligation, or stating that it
declines incremental support. Such notification must be made within 90
days of being notified of any incremental support for which it would be
eligible. Along with its notification, a carrier accepting incremental
support must also submit a certification that the locations to be
served to satisfy the deployment obligation are not shown as served by
fixed broadband provided by any entity other than the certifying entity
or its affiliate on the then-current version of the National Broadband
Map; that, to the best of the carrier's knowledge, the locations are,
in fact, unserved by fixed broadband; that the carrier's current
capital improvement plan did not already include plans to complete
broadband deployment within the next three years to the locations to be
counted to satisfy the deployment obligation; and that incremental
support will not be used to satisfy any merger commitment or similar
regulatory obligation.
* * * * *
[FR Doc. 2012-12950 Filed 5-25-12; 8:45 am]
BILLING CODE 6712-01-P