[Federal Register Volume 79, Number 98 (Wednesday, May 21, 2014)]
[Rules and Regulations]
[Pages 29111-29136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11689]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 05-337; DA 14-534]


Connect America Fund, High-Cost Universal Service Support

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Wireline Competition Bureau (Bureau) 
finalizes decisions regarding the engineering assumptions contained in 
the Connect America Cost Model (CAM) and adopt inputs necessary for the 
model to calculate the cost of serving census blocks in price cap 
carrier areas. The Commission also estimates the final budget for the 
Phase II offer to model-based support to price cap carriers in light of 
the conclusion of the second round of Phase I funding.

DATES: Effective June 20, 2014.

FOR FURTHER INFORMATION CONTACT: Katie King, Wireline Competition 
Bureau, (202) 418-7491 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Bureau's Report and 
Order in WC Docket No. 10-90, 05-337; DA 14-534, adopted on April 22, 
2014, and released on April 22, 2014. 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, or at the following Internet address: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-14-534A1.pdf

I. Introduction

    1. The Report and Order takes important steps to further implement 
the landmark reforms unanimously adopted by the Federal Communications 
Commission (Commission) in 2011 to modernize universal service to 
maintain voice service and expand broadband availability in areas 
served by price cap carriers, known as Phase II of the

[[Page 29112]]

Connect America Fund. The Commission concluded that it would provide 
support through a combination of ``a new forward-looking model of the 
cost of constructing modern multi-purpose networks'' and a competitive 
process. The Commission delegated to the Bureau the task of developing 
that forward-looking cost model.
    2. In the Report and Order, the Bureau finalizes decisions 
regarding the engineering assumptions contained in the Connect America 
Cost Model (CAM) and adopts inputs necessary for the model to calculate 
the cost of serving census blocks in price cap carrier areas. The 
Bureau modified the model over the course of this proceeding to reflect 
the unique circumstances of serving non-contiguous areas of the United 
States, but questions remain in the record regarding whether model-
based support would be sufficient to enable all of these carriers to 
meet their public interest obligations. Price cap carriers serving non-
contiguous areas therefore will be offered model-based support, but 
also be provided the option of receiving frozen support. The Bureau 
identifies the likely funding benchmark that will determine which areas 
are eligible for the offer of model-based support, which will enable 
the Bureau to commence the Phase II challenge process. The Bureau also 
estimates the final budget for the Phase II offer of model-based 
support to price cap carriers in light of the conclusion of the second 
round of Phase I funding.

II. Discussion

    3. In the Report and Order the Bureau adopts the modifications to 
the Connect America Cost Model platform that we have made since the CAM 
Platform Order, 78 FR 26269, May 6, 2013, was adopted and the inputs 
reflected in CAM v4.1.1 that will be used to estimate the forward-
looking cost of building voice and broadband-capable networks in areas 
served by price cap carriers, including price cap carriers that serve 
areas outside the contiguous United States.
    4. Before addressing particular input values and platform updates, 
the Bureau first describes the CAM methodology documentation and other 
information, including illustrative model results, that have been made 
available to assist the public in understanding the CAM. The Bureau 
then adopts the model platform updates and turn to input values, 
focusing on those on which we sought and/or received comment in 
response to various public notices and virtual workshop questions. 
Next, the Bureau discusses the treatment of carriers serving the non-
contiguous areas of the United States. The Bureau then adopts the 
methodology for calculating average per-unit costs and explain how 
certain business locations and community anchor institutions are 
treated in the model.
    5. Finally, the Bureau identifies the likely funding benchmark for 
the model, which will be used to develop the initial list of census 
blocks in areas served by price cap carriers that are presumptively 
eligible for model-based support in Connect America Phase II. The 
Bureau also estimates the final budget for the offer of model-based 
support in light of the conclusion of the second round of Phase I 
funding. Subject to the outcome of the Phase II challenge process, we 
estimate that approximately 4.25 million residential and business 
locations will be eligible to receive model-based Connect America Phase 
II support.

A. Model Documentation and Accessibility

    6. Throughout the more than two year model development process, the 
Bureau has been committed to ensuring an open, transparent, and 
deliberative process. As discussed above, the Bureau solicited public 
comment on a variety of topics related to the development and adoption 
of the cost model through public notices, an in-person workshop, and 
the virtual workshop questions. At the outset of the process, the 
Bureau set forth the criteria by which it would evaluate models 
submitted in this proceeding and identified the capabilities models 
must have to support the policy choices and options specified by the 
Commission. Consistent with the Commission's criteria for public 
accessibility, the Bureau specified that the models and data must be 
available for public scrutiny and potential modification, and that 
access to models could not be restricted by use of a paywall (i.e., 
access to the model cannot be conditioned on paying a fee). At the same 
time, the Bureau made clear that ``models and input values submitted in 
this proceeding may be subject to reasonable restrictions to protect 
commercially sensitive information and proprietary data.''
1. Openness and Transparency
    7. Considerable information about the CAM is available either on 
the Commission's Web site or the CAM Web site hosted by the 
Administrator, consistent with the Commission's obligation to protect 
commercially sensitive information and proprietary data. The models 
submitted by parties in this proceeding and the CAM developed by the 
Bureau are available subject to protective orders. The Bureau ensured 
that the protective order governing the CAM did not prohibit employees 
of telecommunications or competing companies from accessing the model. 
The Bureau has concluded that the procedures that govern access to CAM 
adopted in the Third Supplemental Protective Order ``provide the public 
with appropriate access to the model while protecting competitively 
sensitive information from improper disclosure.'' Members of the public 
who execute the relevant acknowledgement of confidentiality, the 
licensing agreement, and/or non-disclosure agreement have access to 
CAM; detailed CAM outputs; proprietary CAM inputs, data and databases; 
the proprietary capital cost model, CQCapCostFor CACM; network 
topologies provided as inputs to CAM; and source code for CAM and the 
code that creates the network topologies (CQLL and CQMM). Any member of 
the public can obtain access to CAM and the additional information on 
the CAM Web site by executing the relevant documents attached to the 
Third Supplemental Protective Order. Parties who have questions about 
how the model works or need assistance in running the model can take 
advantage of the CAM support desk.
    8. The Bureau has worked with USAC and its contractor, CostQuest, 
to make model documentation, results and other explanatory material 
available on the CAM Web site. Specifically, the CAM home page 
(cacm.usac.org) displays a ``system updates page'' link to ``Release 
Notes,'' which provides summary level information on model changes by 
version number and release date, and a ``Resources'' button to provide 
users a consolidated location for documentation and additional 
resources. Current documentation listed under the ``Resources'' button 
includes the following:
     Background Information on Connect America Cost Model--
Provides a summary of the Connect America Cost Model and its role 
within the Connect America Fund;
     CAM Methodology--Provides comprehensive details on the 
model's methodology and the methodology used to derive various input 
values (updated as each new version is released);
     Capex Tutorial--Links to a tutorial video explaining the 
capital expenditures workbook to help parties better understand the 
structure and inputs contained in the workbook;
     User Guide--Provides help to users with information on how 
to work with and analyze the Connect America Cost Model;

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     FAQ--Provides Frequently Asked Questions sent to CAM 
Support desk (CACMsupport@costquest.com);
     Tile Query Field Definitions--Lists the field definitions 
for data fields within the tile query results.

Additional resources listed under the ``Resources'' button to assist 
users in analyzing model results include:
     Opex Overview--Provides material that walks through the 
development of the Opex inputs for the Connect America Cost Model;
     Capital Cost Model--Derives annual charge factors for 
depreciation, cost of money, and income taxes associated with capital 
investments, used as inputs in the model;
     TelcoMaster Table--Provides holding company name 
associated with serving wire centers and includes state, company name, 
study area code, status as rate-of-return or price cap, company size, 
and other data;
     Coverage Data--Identifies census blocks presumptively 
served by unsubsidized competitors.
    9. The CAM home page also displays a ``Posted Data Sets'' button to 
provide users with access to model inputs and model outputs from 
various model runs, and a link for users to submit questions to the CAM 
Support desk related to access, administration and output generation. 
Additional documentation is available in a ``System Evaluator'' package 
that provides a test environment populated with a sample database, 
allowing users to view database structures, observe processing steps of 
CAM for a subset of the country, and see changes in the database. In 
addition to the CAM source code, the processing source code for 
CostQuest's proprietary applications that develop the network topology 
for the CAM--CQLL and CQMM--also is available upon request to the CAM 
support desk for users that have complied with the additional 
requirements of the Third Supplemental Protective Order.
    10. Information relating to the model also is available on the 
Commission's Web site. On June 4, 2013, the Bureau announced the 
release and public availability of the model methodology documentation, 
and published on the Commission's Web site a number of illustrative 
reports showing results of various runs of CAM v3.1.2. These reports 
provided the opportunity for the public to see how changes in certain 
input values and other decisions would impact total support amounts per 
carrier per state and the number of locations eligible for support. On 
June 17, 2013, the Bureau published illustrative results of various 
runs of CAM v3.1.3 and announced the release of methodology 
documentation for v3.1.3. On June 25, 2013, the Bureau announced the 
release of updated methodology documentation for CAM v3.1.4 and 
illustrative model outputs from running this version using different 
combinations of possible model inputs and support assumptions, with an 
illustrative funding threshold of $52. On August 29, 2013, the Bureau 
announced the availability of updated methodology documentation for CAM 
v3.2 and illustrative model outputs from running this version using 
different combinations of possible model inputs and support 
assumptions, with illustrative funding thresholds of $49.15, $52, and 
$55.40. These reports showed potential support amounts and number of 
supported locations by carrier, by study area, and by state.
    11. On December 4, 2013, the Bureau released default inputs for CAM 
v4.0. On December 18, 2013, the Bureau released the updated methodology 
documentation and posted illustrative results from running this version 
with funding thresholds of $48 and $52. The reports summarize 
information on estimated support and locations for the funded census 
blocks for each funding threshold. Users are able to filter the results 
to view potential support amounts and the number of supported price cap 
carrier locations, by price cap carrier, by state, and by study area. 
In response to informal requests, these illustrative results for v4.0 
also provided additional detail depicting the number of locations that 
would newly receive broadband and the number of locations in price cap 
areas that would fall above the extremely high-cost threshold for each 
funding threshold. The Bureau also released lists of census blocks that 
potentially would be funded, so that the public could determine where 
funding would be targeted under alternative thresholds. On February 6, 
2014, the Bureau published maps that visually displayed the same 
information provided in these illustrative results, so that the public 
could see the actual geographic territories that would potentially be 
subject to the offer of model-based support.
    12. On March 21, 2014, the Bureau announced the availability of CAM 
v4.1, and released a new set of illustrative results reflecting a 
funding benchmark of $52.50. In addition, the default inputs for CAM 
v4.1, updated model documentation, and a list of census blocks that 
potentially would be funded were posted on the Commission's Web site. 
On April 17, 2014, the Bureau announced the availability of CAM v4.1.1 
and posted default inputs for CAM v4.1.1 and updated model 
documentation on the Commission's Web site. As noted above, the minor 
adjustments in this version did not have a material effect on funding 
levels previously released for CAM v4.1.
    13. The Bureau thus is not persuaded by arguments that the cost 
model is ``not sufficiently open and transparent.'' NASUCA's argument 
that the Bureau's model development process is inconsistent with 
Commission precedent regarding the development of the prior forward-
looking model fails to take into account the different constraints that 
necessarily apply to the CAM. NASUCA ignores the fact that HCPM, which 
could be downloaded and run on a personal computer, was considerably 
less complex than CAM. When the Commission delegated to the Bureau 
``the authority to select the specific cost model and associated 
inputs'' in the USF/ICC Transformation Order, 76 FR 73830, November 29, 
2011, it recognized that ``modeling techniques and capabilities have 
advanced significantly since 1998, when [HCPM] was developed, and the 
new techniques could significantly improve the accuracy of modeled 
costs in a new model.'' Rather than updating HCPM, as some suggested, 
the Commission concluded ``that it is preferable to use a more 
accurate, up to date model based on modern techniques.'' CAM provides 
more detailed and precise results at a much more disaggregated level 
than HCPM by relying on proprietary logic, code and data sources. The 
Bureau cannot ``lift the proprietary designation from the results'' 
that the model yields, as NASUCA requests, because the very detailed 
results available to users of the CAM could reveal proprietary business 
information of the contractor or reveal proprietary (commercial) source 
data. The Bureau has always intended to release model results at an 
appropriate level of aggregation, but the necessary first step was to 
make certain threshold decisions in order to focus the debate on those 
policy choices that would have a material impact on support levels. As 
discussed above, the Bureau has released several iterations of 
potential support amounts and number of locations by carrier, by state, 
and has published results by study area as well. The Bureau thus have 
addressed NASUCA's request that ``[a]t a minimum, results at the study 
area level should be public.''
    14. The Bureau finds that the model results that have been posted 
on the Commission's Web site with each version of the model since early 
June 2013 have afforded the public ample opportunity ``to understand 
the implications of the model.'' Each model

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run requires making assumptions about literally hundreds of individual 
inputs; releasing ``all'' model results as requested by NASUCA 
potentially would have amounted to an infinite amount of information 
that would not enhance the public's ability to comment on the policy 
choices facing the Bureau. It would not have been productive to publish 
illustrative results for earlier versions of the model when so many 
aspects of the model were still under development and refinement. Once 
the model development process was well underway, the Bureau began to 
release results for several successive versions that illustrated a 
range of potential outcomes so that the public could evaluate a finite 
number of alternatives, rather than an infinite number of alternatives. 
Moreover, the Bureau has now published several iterations of the 
information that NASUCA specifically identified as being very important 
to have--the number of locations that are above the extremely high-cost 
threshold.
    15. The Bureau is not persuaded by arguments that the model 
development process has failed to meet the level of openness and 
transparency required by the Commission for the model. When the 
Commission declined to adopt the CQBAT model in the USF/ICC 
Transformation Order, it noted that, ``all underlying data, formulae, 
computations, and software associated with the model must be available 
to all interested parties for review and comment.'' As discussed above, 
that standard has been met for the CAM: The 300 users who have signed 
the relevant attachments to the Third Supplemental Protective Order 
have had access to detailed CAM outputs; proprietary CAM inputs, data 
and databases; the processing source code for CostQuest's proprietary 
applications that develop the network topology for the CAM (CQLL and 
CQMM), which are inputs to CAM; and source code for the CAM itself. 
Given the extensive documentation and access to the model that we have 
made available to the public, the Bureau concludes that this 
sufficiently meets the Commission's directive that ``all underlying 
data, formulae, computations, and software associated with the model 
must be available to all interested parties for review and comment.''
    16. For many of the same reasons why the Bureau finds this process 
consistent with the Commission's stated expectations, the Bureau also 
concludes that the Bureau's development of the model is consistent with 
the Administrative Procedure Act's (APA) notice and comment 
requirements. The Bureau is not persuaded by the argument that the 
Bureau has violated the APA by relying on a proprietary model with 
``hidden algorithms, assumptions, and inputs . . . that are not 
available to the public or other potentially affected entities.'' One 
commenter argues that notice and comment requires that ``[i]n order to 
allow for useful criticism, it is especially important for the agency 
to identify and make available technical studies and data that it has 
employed in reaching the decisions to propose particular rules.'' As 
discussed above, considerable technical information and data about the 
CAM are available to interested parties to help them understand how the 
model works and to analyze the results. The Bureau rejects PRTC's 
nebulous claim that it needs ``access to all the meetings, discussion, 
analyses, and workpapers that led to the development of the model's 
inputs'' and algorithms to be able to validate the results of the 
model. PRTC does not explain specifically what ``meetings, discussion, 
analyses, and workpapers'' it seeks that are not already available to 
commenters in this proceeding, given that commenters have had available 
to them sufficient information to evaluate the reasonableness of model 
results. And PRTC's claims that the operating expense, CQLL, and CQMM 
inputs and algorithms it identifies are ``hidden'' are unfounded. In 
fact, as the Bureau discusses more fully below, the Bureau provided 
detailed documentation about these algorithms and inputs. PRTC has 
failed to demonstrate that it is necessary to have access to additional 
information in order to meaningfully comment on and validate the 
operating expense values that the model calculates.
    17. As the Bureau has released versions of the CAM, it has also 
released accompanying public notices explaining the changes it has made 
to the model, and revised and expanded the documentation and other 
information associated with the model. The Bureau also held physical 
and virtual workshops on the model, provided for multiple rounds of 
comments and for ex parte filings, all of which were available to 
commenters in the record. The Bureau thus has provided all interested 
stakeholders--including price cap carriers, potential competitors, 
consumer advocates, and the states--with full access to all the 
information that is necessary to understand how the model works and the 
results it produces. That is sufficient for all parties to evaluate the 
reasonableness of the model.
2. Validation/Verification
    18. The information provided on the CAM Web site, available to 
commenters subject to reasonable limitations to protect commercially 
sensitive and proprietary information under the Bureau's protective 
order, provides interested parties with sufficient information to be 
able to evaluate the reasonableness of the input values and model 
results. Early in the model development process, several parties 
complained that there was not enough information available to validate 
the reasonableness of certain assumptions and input values. Over a 
multi-month period after the first version of the CAM was made 
available, the Bureau worked with the CAM contractor to provide 
additional information and documentation to assist the public in 
understanding the model. As discussed above, subsequent versions of the 
model, updated documentation, inputs, and model results were posted to 
the Commission's Web site and thus available to the public. In addition 
to the model methodology documentation, which describes the methodology 
used to derive various input values, there is a tutorial video 
explaining the capex workbook and inputs, and an overview of the 
development of the opex inputs. Furthermore, detailed results posted to 
the model site, accessible to any authorized model user, provide data 
from various model runs; one set of reports includes location counts, a 
breakout of many components of cost, and investment (capex) data at the 
census block group level (i.e., with little aggregation, breaking the 
country into 219,761 geographic areas); and model results at the census 
block level (i.e., without any geographic aggregation) with location 
counts and cost rounded to the nearest $5.00.
    19. Despite the availability of this detailed information, some 
parties reiterate complaints that there is not enough information 
available to validate and verify the reasonableness of certain 
assumptions, input values, and model results. As discussed below, the 
Bureau is not persuaded that the additional data, documentation, and 
reporting functions that some parties request would help users better 
assess whether modeled results are reasonable. Nor is the Bureau 
persuaded by the arguments of carriers serving non-contiguous areas of 
the United States that they were unable to evaluate model results.
    20. Throughout the model development process, the Bureau has 
improved the model and its documentation in response to comments and 
analyses from various parties. For

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instance, using the detailed results from a previous version of the 
model, ACA identified certain census block groups ``where support was 
being provided in unexpected urban areas,'' such as the National Mall 
in Washington, DC. The Bureau investigated this issue and made further 
adjustments to the location data utilized by the CAM to ensure that 
only census blocks with residential locations were included in the 
model's cost calculations. The Bureau concludes that this improvement 
to the model addresses the concern raised by ACA in a comprehensive way 
and the Bureau adopts this modification. Indeed, ACA concedes that 
``[t]here are potentially legitimate reasons why these areas may be 
receiving support'' and notes that the urban areas it identified ``may 
include counties or portions of counties that are not densely 
populated, currently serviced, or easily accessible.'' Because the 
model estimates cost at a granular level, it is not unexpected that 
some otherwise low-cost urban areas will include a few high-cost 
locations. Accordingly, given the limited, equivocal concerns raised in 
the record, the Bureau does not find it necessary to separately 
investigate each census block in an urban area that may be eligible for 
support.
    21. The Bureau finds that ACA's further requests for additional 
documentation and reporting functions either would not enhance parties' 
ability to evaluate the reasonableness of the model results or are not 
necessary because the information already is available. For example, we 
are not persuaded that ACA's request for access to the geographic 
coordinates of modeled locations, including whether locations were 
randomly placed or spread along roads ``would help users better assess 
whether modeled results appear reasonable at the census block level.'' 
ACA seems to presuppose that whether a location is geocoded or randomly 
placed matters in determining the reasonableness of that location's 
cost. There is no reason to believe this is the case. As the Bureau 
explained in the CAM Platform Order, because ninety-six percent of 
residential locations and ninety-four percent of business locations are 
geocoded, the Bureau expects that any effect on average cost in a 
census block because of random placement of some locations would be 
small. Thus there is no reason to believe that understanding whether a 
location is geocoded or randomly placed would lead to any insight about 
whether the cost is reasonable. Moreover, as the Bureau discusses 
above, there can be high-cost geo-coded locations within otherwise low-
cost areas. Since the cost of a location is thus clearly influenced 
greatly by drivers other than the source (e.g., distance to network 
facilities), the Bureau does not see how the information that ACA 
requests would provide insight into the reasonableness of the cost of 
that location. Although the Bureau is not persuaded that ACA's request 
for ``geographic visualizations'' that include the location of demand 
units would be useful, as discussed above, after the Bureau released 
illustrative results for CAM v4.0, it published maps that visually 
displayed those results so the public could see the geographic 
territories that would potentially be subject to the offer of model-
based support under two different funding benchmarks. These maps thus 
provide ``geographic visualizations'' of costs and support that ``would 
enable stakeholders to more easily evaluate the modeled results.''
    22. Nor is the Bureau persuaded that ACA needs additional reporting 
and documentation to identify specific cost drivers. The detailed model 
results available permit users to identify asset categories at the 
census block group level (for example, the available results break out 
capital costs by part of the network (e.g., middle mile costs, outside 
plant costs, customer premises costs--by network node in model 
parlance) and different types of opex (network operations, general and 
administrative and customer operations and marketing). Moreover, 
because support is based on total costs, it does not matter which asset 
category contributes more to costs in a particular area. In other 
words, whether cost is driven by (non-labor) plant cost or labor cost 
does not matter to the level of support. ACA also requests ``access to 
all interim calculations'' or, at a minimum, an example showing all 
interim calculations, input assumptions, and how these assumptions are 
aggregated to estimate levelized monthly cost. Such access already is 
available. CostQuest provides a sample database to parties who have 
requested the System Evaluator package and signed the non-disclosure 
agreement that allows users to analyze CAM processing steps by running 
each step and then investigating what data changed after each step. 
With regard to the specific question of how costs are levelized, that 
is to say how a monthly annuity is calculated for a given investment, 
the capital cost model that calculates the monthly capital recovery 
(depreciation) and post-tax return (cost of money and tax) is available 
on the CAM Web site, as is a detailed explanation of how opex values 
are calculated.
    23. ACA requested a comparison of CAM determined support amounts 
with previous support amounts. ACA and anyone else can easily compare 
frozen Phase I support and Phase II support at the study area level by 
comparing 2013 support disbursements available on USAC's Web site with 
the various illustrative model results. Aggregating those amounts at 
the state or holding company level is a simple mathematical exercise. 
In any event, it is not clear how such a comparison would be relevant 
to our decisions to finalize the model, which calculates costs at the 
census block level. Current frozen support levels were the result of 
several different legacy mechanisms, some of which provided support 
based on carriers' embedded costs averaged over a study area (ICLS, 
HCLS and LSS), while others were determined based on a fixed amount 
per-voice line (IAS), or state level averaging of an earlier forward-
looking cost model (HCMS). As a practical matter, there is no simple 
way to compare those costs to CAM outputs.
    24. The Bureau has made available sufficiently detailed information 
on the CAM Web site, and the Bureau does not find NASUCA's complaints 
to the contrary persuasive. Contrary to NASUCA's claims, as discussed 
above, some model results are reported at the census block level, e.g., 
the number of locations and average cost in the block rounded to the 
nearest $5.00, and a list of blocks eligible for support as part of the 
package of illustrative results was released for CAM v4.0 and v4.1. At 
the census block group level, the total monthly cost is broken down 
separately for residential and business locations into the following 
components: Network operations; general and administrative; customer 
operations and marketing; depreciation; taxes; and cost of money. In 
addition, the block group level results break out capital costs by 
network node--the precise network breakout that NASUCA says is of 
interest. NASUCA has not convinced us that the detailed information 
provided on the CAM Web site is inadequate, and the Bureau concludes 
that the information already available is sufficient to enable parties 
to provide meaningful analysis and comment on the model and its inputs.
    25. Nor is the Bureau convinced that requiring price cap carriers 
to file accounting data, as NASUCA requests, is an appropriate way to 
validate cost inputs for a FTTP network. Only one price cap carrier has 
deployed FTTP at scale. Even for providers that have deployed FTTP, the 
Bureau is skeptical

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that accounting data would allow us to determine FTTP-specific costs. 
Fiber costs in an FTTP deployment would be indistinguishable from the 
fiber deployed in a Digital Subscriber Line (DSL) or voice-only 
network. State-wide reporting would mean that costs from areas without 
FTTP would be lumped together with costs for FTTP areas; and even if 
FTTP were deployed across an entire state, carriers largely have 
continued to maintain their copper networks in parallel.
    26. The Bureau also is not persuaded by the arguments of the non-
contiguous carriers that they were unable to evaluate the model inputs 
and results. For instance, at various points in the proceeding, ACS 
claimed that it did not have enough information to determine whether 
model results are reasonable. Similarly, PRTC argued that it did not 
have enough information to evaluate whether input values are 
reasonable. The record demonstrates, however, that ACS and PRTC 
understand CAM and its inputs well enough to advocate specific changes 
to the model with clear expectations as to the impact of those changes. 
Although ACS, PRTC, and Vitelco initially argued that the Bureau should 
use their state/territory-specific models rather than CAM to estimate 
their Phase II support, after further discussion and meetings with the 
Bureau, the carriers serving non-contiguous areas demonstrated that 
they were able to analyze CAM inputs and outputs, and they subsequently 
provided inputs for the Bureau to incorporate into later versions of 
the model. In addition, ACS, PRTC, and Vitelco each ultimately proposed 
state/territory-specific modifications to CAM.
    27. Similarly, the Bureau is unpersuaded by ACS' and PRTC's 
arguments that they did not have enough information to verify various 
input values and understand why the model results do not reflect their 
own costs. Both ACS and PRTC seem to assume that verifying input values 
involves comparing them to their own embedded (i.e., previously 
incurred) costs rather than evaluating whether the input values are 
reasonable estimates of the forward-looking costs of an efficient 
provider. For example, one would only expect model-calculated property 
taxes to be the same as actual property taxes if both reflect the same 
asset base on which the taxes are assessed. However, one should expect 
a forward-looking model to reflect a more efficient network compared to 
today's network--for example, due to moving to a more efficient 
technology and replacing thick bundles of copper with smaller, higher 
capacity fiber cables, or from higher asset utilization due to improved 
clustering and routing. Therefore arguments that the model is flawed, 
or that access is incomplete because the model does not produce results 
similar to embedded costs are mistaken.
    28. The Bureau also is not persuaded by ACS and PRTC's argument 
that they needed access to other carriers' proprietary data in order to 
evaluate whether calculated opex costs were appropriate. The carriers 
have always had the opportunity to compare their own costs or labor 
rates with those used in the model which we believe is sufficient to 
evaluate the appropriateness of the inputs. In addition, the Bureau 
worked with CostQuest to provide a detailed explanation of the model's 
opex methodology, which is posted on the CAM Web site and includes a 
comparison between the model-calculated per-location opex values and 
per-line NECA data for carriers' reported operating expenses. In 
addition, model users can obtain reports of CAM expenses by wire 
center, study area or carrier footprint, and can determine, for 
example, the location-adjusted unit cost for labor. In short, the 
Bureau believes that such data provide ample opportunity for commenters 
to evaluate the model's ability to appropriately capture the cost of 
operating in any given area including the non-contiguous areas of the 
United States.
    29. The Bureau also has made available sufficient documentation and 
information about CQLL and CQMM to enable parties to evaluate the 
reasonableness of the outputs and do not find PRTC's call for the 
release of CQLL and CQMM warranted. As noted above, parties can access 
CQLL and CQMM source code using DRM-protected PDF files. In addition, 
the System Evaluator package allows users to view each of the 
processing steps used to calculate costs by the CAM. This includes 
access to the databases of information used as inputs to the cost 
calculations; these databases include the output of CQLL and CQMM that 
are used by the CAM for the coverage area contained within the System 
Evaluator package. And as noted above, parties that have signed the 
relevant Third Supplemental Protective Order attachments have had 
access to CAM's inputs and outputs throughout the model development 
process, and CAM illustrative results and methodology documentation 
have been made available for months on the Commission's Web site. Such 
access affords the requisite opportunity for parties to assess the 
reasonableness of CQLL and CQMM's output without compromising 
CostQuest's proprietary business information.
    30. Parties have had numerous opportunities to comment, and the 
Bureau has received numerous suggestions through the virtual workshop, 
comments and the ex parte process regarding how to improve the model 
over more than eighteen months. Pursuant to the Bureau's policy 
direction, numerous changes have been made to the model in response to 
meaningful written comments that were filed and issues identified in 
the ex parte process. For example, in response to commenters' concerns 
that the National Broadband Map data do not show the availability of 
voice services for purposes of determining whether a census block is 
served by an unsubsidized competitor to determine areas eligible for 
support, the Bureau concluded the CAM's cable and fixed wireless 
coverage should be modified to reflect only carriers who reported voice 
service on FCC Form 477, pursuant to the Bureau's policy decision. As 
discussed above, the Bureau also concluded it was necessary to modify 
the national demand location data utilized in CAM v4.0 to address an 
issue previously raised by ACA. Although the Bureau has not 
incorporated all changes to the CAM that were suggested by outside 
parties, it has made numerous improvements in response to issues raised 
in the record. The Bureau therefore concludes that the CAM includes 
functionalities and capabilities needed to accomplish the task 
delegated to by Bureau by the Commission. Moreover, given the extensive 
documentation available, as well as the ability to compare the model 
output values as a means to test the validity of the model input 
values, the Bureau concludes that the Bureau's approach with the CAM 
sufficiently meets the Commission's directive that the ``model and all 
underlying data, formulae, computations, and software associated with 
the model must be available to all interested parties for review and 
comment. All underlying data should be verifiable, engineering 
assumptions reasonable, and outputs plausible.''
3. Alleged Delegation by the Bureau
    31. Finally, PRTC's assertion that the Bureau has sub-delegated its 
responsibility to develop the model to CostQuest is unfounded. PRTC 
claims that the Bureau has delegated its ``decision-making authority'' 
to CostQuest because CostQuest ``has crafted the hidden algorithms, 
input sheets, and toggle formulae that power the [CAM]'' and has 
allowed CostQuest to `` `make crucial decisions' about the

[[Page 29117]]

inputs and assumptions the model will employ.'' Contrary to PRTC's 
assertions, and unlike the case law cited by PRTC, the Bureau has given 
CostQuest no such decision-making role.
    32. The Commission instructed the Bureau to ``select'' a model that 
is consistent with the Commission's parameters. As described in greater 
detail above, the Bureau at all times has independently made all 
necessary decisions regarding the model, based on the record before it. 
As evidenced by the Report and Order and the prior CAM Platform Order, 
the Bureau, with much input from outside parties, has made the policy 
decisions on everything from the network architecture to be used to how 
the input values should be developed. USAC directs CostQuest to 
implement these decisions pursuant to the policy direction of the 
Bureau--simply put, CostQuest has no decision-making authority to make 
changes to the CAM without the Bureau fully vetting and USAC approving 
a change. Moreover, PRTC has not persuasively explained why it lacked 
sufficient access to specific aspects of the model to enable meaningful 
comment--and thus meaningful oversight and review by the Bureau--
particularly given the extensive access and information available to 
commenters, as discussed above.
    33. Contrary to PRTC's unsupported claim that the Bureau has 
engaged in the ``abdication to CostQuest of the entire modeling 
process,'' throughout the process the Bureau has been in full control 
of model development. These changes are detailed by the CAM Release 
Notes and public notices that accompany each iteration of the CAM, and 
as described above, are often made in response to comments made by 
outside parties. For example, the Bureau concluded that the model 
should calculate the costs of a green-field FTTP wireline network 
(rather than a brown-field or DSL network), estimate the cost of an IP-
enabled network capable of providing voice services (rather than a 
switched network or a network that offers no voice services), and 
exclude areas from support based on the Bureau's definition of 
unsubsidized competitor--and those changes were implemented pursuant to 
the Bureau's policy decisions. The Bureau also sought comment on CQLL 
and CQMM's methodology for developing a wireline topology, and made the 
policy decision that the methodology is reasonable; in fact a good deal 
of the virtual workshop was devoted to issues of how best to approach 
such analyses. In addition, the Bureau not only determined what input 
data sets to use, but also how to modify those sources in response to 
public input. The process of creating a model undertaking such an 
exercise from scratch and then seeking and considering comments from 
outside parties, would have added many more months to the Phase II 
implementation timeline. It was far more efficient to use the expertise 
of CostQuest to help with the technical aspects of implementing the 
Commission's directives, and for the Bureau to refer parties to 
CostQuest when they had technical questions.

B. Model Inputs and Platform Updates

    34. In this section the Bureau adopts the model inputs and the 
minor modifications to the model platform that we have made since the 
CAM Platform Order was adopted on April 22, 2013. In that Order, the 
Bureau ``primarily address[ed] the model platform, which is the basic 
framework for the model consisting of key assumptions about the design 
of the network and network engineering,'' and also ``address[ed] 
certain framework issues relating to inputs.'' The Bureau anticipated 
that ``[t]ogether, the two orders should resolve all the technical and 
engineering assumptions necessary for the CAM to estimate the cost of 
providing service at the census block level and state level.''
    35. Model platform changes, including changes to certain network 
engineering assumptions with regard to non-contiguous areas of the 
United States, were discussed and explained in public notices 
announcing subsequent versions of CAM, in the model methodology 
documentation, and in more detail in the CAM Release Notes. The Bureau 
also adopts the updated data sets that are used in the current version 
of CAM. For example, when the model platform was adopted, the version 
of the model at the time (CAM v3.0) used National Broadband Map data as 
of June 2012 to identify census blocks shown in the National Broadband 
Map as unserved by wireline telecommunications, cable, and fixed 
wireless providers offering speed levels of 3 Mbps downstream and 768 
kbps upstream. The current version of CAM updates the broadband 
coverage data in several ways. This version uses June 2013 National 
Broadband Map data, modifies the cable and fixed wireless broadband 
coverage to reflect only providers that have reported voice 
subscriptions on FCC Form 477 June 2013, and removes subsidized 
providers from the model's source data used to identify which census 
blocks presumptively will receive funding. As discussed below, CAM uses 
GeoResults 4Q 2012 data to identify wire center boundaries and central 
office locations. As discussed above, CQLL and CQMM develop the network 
topology for CAM, which are used as inputs to CAM. The Bureau also 
adopts the updates to these data. For example, in the CAM Platform 
Order, the Bureau adopted the customer location data used in the model, 
which CQLL uses to develop the network topology. As described above, we 
updated the demand location data by modifying the methodology for 
placing randomly placing county growth locations. The major data inputs 
to the CAM along with the underlying source for those data are listed 
in Appendix three of the Model Methodology documentation.
    36. The Bureau also adopts the user-adjustable inputs for purposes 
of finalizing the model in order to calculate support amounts to be 
offered to price cap carriers. The inputs for CAM v4.1.1 are posted on 
the Commission's Web site and include values for capital expenses, 
operating expenses, annual charge factors, busy hour bandwidth, 
business and residential take rate, company size classifications, 
adjustments made for company size purchasing power, plant mix, property 
tax, regional cost adjustments, the percentage of buried plant placed 
in conduit, and state sales tax. The Bureau discusses below those 
inputs that were the focus of the virtual workshop questions and public 
comment, specifically: (1) Outside plant and interoffice transport 
capex input values, including wire center boundaries, plant mix, and 
sharing; (2) other capex input values, including customer premises 
equipment, customer drops, central office facilities, FTTP equipment, 
voice capability, busy hour demand, and annual charge factors; and (3) 
opex input values, including network operations expense factors, 
general and administrative expenses, customer operations marketing and 
service operating expenses, and bad debt expense.
1. Outside Plant and Interoffice Transport Capex Input Values
    37. In this section, the Bureau addresses the model inputs related 
to capital expenditures capex for outside plant and interoffice 
transport plant. As the Commission recognized when it adopted the model 
platform and inputs for HCPM, outside plant--i.e., the facilities that 
connect the customer premises to the central office--constitutes the 
largest portion of total network investment. Outside plant investment 
in an FTTP network includes the fiber cables in the feeder and 
distribution plant and the cost of the fiber distribution hubs and 
fiber

[[Page 29118]]

splitters that connect feeder and distribution plant; transport plant 
investment includes fiber cables as well as the required electronics. 
Cable costs include the material costs of the fiber-optic cable, as 
well as the costs of installing the cable, including the materials and 
labor associated with the structure. Outside plant and transport 
consist of a mix of different types of structure: Aerial, underground, 
and buried cable. Aerial cable is strung between poles above ground. 
Underground cable is placed underground within conduit for added 
support and protection, with access points via manholes. Buried cable 
is placed underground but without any conduit. A significant portion of 
outside plant investment consists of the poles, trenches, conduits, and 
other structure that support or house the cables along with the 
capitalized labor associated with those structures. In some cases, 
other providers like electric utilities share structure with the LEC 
and, therefore, only a portion of the costs associated with that 
structure are borne by the LEC. As discussed below, CAM outside and 
interoffice plant capex input values take into account variations in 
cost due to plant mix (aerial, buried, or underground) and structure 
sharing, as well as terrain, density and regional material and labor 
cost differences.
a. Wire Center Boundaries
    38. As discussed in the CAM Platform Order, in designing the 
modeled network, the CAM platform uses a green-field, ``scorched node'' 
approach that estimates the average (levelized) cost over time of an 
efficient modern network, assuming only the existence of current LEC 
wire centers and their boundaries, and central office and tandem 
locations. In the Model Design PN, 77 FR 38804, June 29, 2012, the 
Bureau proposed using wire center boundaries obtained through a new 
data collection, or in the alternative, commercial data, if the data 
collection could not be completed in time for the model development 
process. The only party directly commenting on data sources for wire 
center boundaries, NASUCA, favored using the Bureau's study area 
boundary data collection.
    39. The Bureau concludes that it will use a commercial data set, 
GeoResults 4Q 2012 wire center boundaries and central office locations, 
in CAM that will determine support amounts to be offered to price cap 
carriers. Although the Bureau recently collected study area boundary 
and exchange data from all incumbent LECs (or state commissions filing 
data for their carriers), it would unnecessarily delay finalizing of 
the model to incorporate that data into the model for the purpose of 
calculating the offer of support to price cap carriers. The GeoResults 
data are the data used in all model versions starting with CAM v2. 
Interested parties have had ample opportunity to review model cost 
estimates and resulting support amounts using this data set, and no 
party has expressed concerns that using commercial data materially 
impacts the accuracy of model results for the price cap carriers. 
Indeed, carriers often rely on commercial data for their own wire 
center boundaries. For example, in response to the Bureau's data 
request, AT&T submitted GeoResults data for some of its study areas, 
and Verizon submitted data from another commercial vendor. Using the 
Bureau's study area boundary data collection in the model for price cap 
carriers would require additional time to complete Phase II Connect 
America implementation, without any clear indication that it would 
materially improve the accuracy of model results for price cap 
carriers.
b. Plant Mix Input Values
    40. Outside and inter-office transport plant investment varies 
significantly based on plant mix, i.e., the relative proportions of 
different types of plant- aerial, underground, or buried--in any given 
area. The Bureau originally sought comment on plant mix input values in 
the virtual workshop in October 2012, and requested additional input on 
December 17, 2012, in light of the release of the Connect America Cost 
Model. The ABC Coalition filed updated plant mix values on January 11, 
2013, and the Bureau sought comment on these values in the virtual 
workshop. In the CAM Platform Order, the Bureau adopted a model that 
assumes that each state is made up of three density zones--urban, 
suburban, and rural, but did not adopt input values at that time. For 
each of the three density zone, the model assumes a specific percentage 
of underground, buried, and aerial plant for each of the three sections 
of the network (feeder plant, distribution plant and inter-office 
facilities). As a result, each state will have a matrix of 27 different 
plant mixes, one for each combination of density zone, plant type and 
component of the network. In addition, the model includes default 
nationwide plant mix values, which may be used in any state for which 
specific inputs may not be available.
    41. The Bureau adopts the plant mix inputs used in CAM v4.1.1 for 
contiguous carriers, which are based on carrier-specific data submitted 
by the ABC Coalition. Verizon derived six groups of plant mix values, 
recognizing regional differences, from its forward-looking cost model 
for FTTP and engineering sources of existing structure. AT&T extracted 
aerial, buried and underground plant outside plant mileage data from a 
network database covering copper and fiber cables placed in the 
previous fifteen years for each of its twenty-two state LEC service 
territories. CenturyLink provided its company-specific actual plant mix 
by using an internal database of continuing plant records for its 
thirty-seven state incumbent LEC footprint. In states where there were 
two or more reporting carriers, such as California and Florida, the 
values were combined using simple averages for the density zones and 
network sections in those states. Where company-specific or state-
specific data were not available, the model uses national average data, 
which is consistent with the approach taken for HCPM. The national 
averages are simple averages of the company-specific values.
    42. Although ACA agrees that using carrier-specific data to develop 
plant mix data is reasonable, it argues that the input values submitted 
by the ABC Coalition show lower proportions of aerial plant in rural 
areas than ACA has seen reported by other broadband providers, and that 
``deploying buried plant can be significantly more expensive than the 
cost of deploying aerial plant.'' In response, the ABC Coalition argues 
that ACA does not identify the broadband providers with higher 
percentages of aerial plant and ignores the wide range of the 
proportion of aerial plant in the Coalition's state-specific tables. 
The national average percentage of aerial plant used in the model is 
29.8 percent, but the percentages are as high as 78 percent or 73.3 
percent in some northeastern states to as low as 8.5 percent or 9 
percent in some midwestern and western states (Kansas, Colorado, and 
Wyoming). ACA has not filed any data to support its claims that there 
is more aerial plant in rural areas; and it is not clear that the plant 
mix values that ACA refers to are representative of the entirety of 
price cap ILECs' study areas. Thus the Bureau has no data in the record 
on which to base alternative plant mix values. Even if the Bureau were 
to increase the percentages of aerial plant in rural areas, it would 
not expect the costs to change that much because the costs of buried 
plant in rural areas are not much higher, or can be lower, than the 
costs of aerial plant, so it finds the existing data reasonable to use 
here.

[[Page 29119]]

c. Outside Plant Sharing
    43. The CAM platform assumes that outside plant facilities are 
shared a certain percentage of the time between a carrier's own 
distribution and feeder and with other providers, such as electric 
utilities. In addition, CAM assumes that interoffice routes (i.e., 
middle mile) will be shared with distribution and/or feeder routes a 
certain percentage of the time, and that the interoffice network is a 
shared network carrying both voice and broadband for residential and 
certain business locations and special access and private line 
(including direct Internet access) traffic for other business 
locations, wireless towers, and community anchor institutions. The 
percentage of shared facilities may vary by density zone--rural, urban, 
or suburban, and by structure type--aerial, buried, or underground. 
Thus, similar to the plant mix input tables, each plant sharing table 
has a matrix of nine possible density zone/structure type combinations. 
In the virtual workshop, the Bureau sought comment on determining the 
plant sharing factors.
    44. The Bureau adopts the outside plant sharing percentages used in 
CAM v4.1.1. For structure sharing with other providers, the model 
assumes that 48 percent of the cost of aerial structure in all density 
zones is attributed to the LEC, and that 96 percent of buried and 
underground structure in rural areas, 80 percent of buried and 
underground structure in suburban areas, and 76 percent of buried and 
underground structure in urban areas is attributed to the LEC. This 
effectively assumes, for example, that an electric or other company 
lays cable along a given route only four percent of the time in rural 
areas at the same time the LEC has a buried trench open or underground 
conduit available, and only 20 percent of the time in suburban areas. 
The Bureau concludes these are reasonable assumptions, given that it is 
unlikely that electric or other utilities would have a need to bury new 
cable at the same time as the incumbent LEC. Likewise, the Bureau finds 
that it is reasonable to assume that sharing of aerial plant is more 
prevalent (which results in less cost assigned to the LEC) than sharing 
of buried trenches or underground conduit because other companies do 
not need to be deploying facilities at the same time in the same place 
to share the cost of poles.
    45. For sharing between the LEC's own plant, the model assumes that 
distribution and feeder plant share aerial structure 78 percent of the 
time that their routes overlap, share buried structure 41 percent of 
the time that their routes overlap, and share underground structure 67 
percent of the time that their routes overlap. The model uses these 
sharing factors to determine how much structure is required for each 
route. The effect of this sharing is to reduce the cost of feeder and 
distribution plant because they require less structure like poles, 
conduits and trenches.
    46. The Bureau also adopts the sharing percentages related to 
interoffice transport used in CAM v4.1.1. Interoffice routes connect 
central offices, and often will run along the same routes as the feeder 
and distribution and use the same structure. Because the model 
estimates the full cost of structure within the wire center, the model 
only needs to estimate the additional cost of interoffice structure 
that is not shared with feeder and distribution structure. Thus, these 
interoffice sharing percentages reflect the percentages of interoffice 
routes requiring dedicated structure. The model also assumes that the 
interoffice network is shared between two major groups of services: 
Voice and broadband for residential and certain business locations 
(mass market services) and special access and private line (including 
direct Internet access) for other business locations, wireless towers, 
and community anchor institutions, and that 50 percent of the cost of 
interoffice fiber and structure is attributed to voice/broadband 
services. The allocation is based on the assumption that residential/
business voice and broadband services and special access/private line 
services are transported over the same middle mile routes using the 
same fiber cables and structure. CAM assumes that one-half the cost of 
the fiber and associated structures in the middle mile are attributed 
to the voice and broadband services delivered to residential and small 
business customers, and the other half is attributed to the private 
line/special access services, as if each service type would otherwise 
require the construction of an independent network.
    47. Although there are various approaches to allocating common 
costs by dividing all costs and fully distributing them on the basis of 
an ``allocation key,'' the Bureau chose to allocate middle mile costs 
by broad services types. Specifically, the CAM splits these costs 
between enterprise services, such as special access and other dedicated 
services, and mass market services, such as ``best efforts'' Internet 
access and single or dual line voice services that typically are 
delivered to residences and small businesses. The Bureau could have 
considered alternative cost allocation methods, such as a division 
based on some measure of bandwidth used, the share of bits transferred, 
or the share of revenues. However, the Bureau does not have any data to 
support an alternative allocation method.
d. Other Outside Plant and Interoffice Transport Capex Inputs
    48. In addition to variations in cost due to plant mix and 
structure sharing, the CAM capex input values take into account other 
factors that affect costs, such as size or type of material, terrain 
and soil conditions, density of the area, or region of the country. In 
the CAM Platform Order, the Bureau adopted regional cost adjustment 
factors to capture regional cost differences in labor and material 
costs by three-digit ZIP codes. In the Report and Order, the Bureau 
adopts the approach and outside plant capex input values used in CAM 
v4.1.1 that, where appropriate, reflect cost differences related to 
these other factors.
    49. For the capex input values that vary by density, the Bureau 
adopts the methodology used to identify an area as urban, suburban, or 
rural in CAM. Specifically, density is measured at the census block 
group level and based on the number of locations in the block group 
divided by the area. Census block groups with 5000 or more locations 
per square mile are identified as urban; those with 200 or more 
locations per square mile that are not urban are identified as 
suburban; and those with fewer than 200 locations per square mile are 
defined as rural. The Bureau notes that these categories only address 
which inputs are used to calculate costs--what the unit costs are, not 
the cost to connect each location. The network costs themselves are 
driven by the amount of plant, which is determined by the route 
distance back to the ILEC central office. Thus areas within a density 
zone can have very different costs; for example, those locations that 
have the lowest density (e.g., 1 location per square mile or less) are 
likely to have much higher costs than those closer to the 200 per 
square mile cutoff. We note that these density zones collapse the nine 
density zones used in HCPM into three: The three lowest density zones 
are classified as rural, the four middles density zones are classified 
as suburban, and the two highest density zones are classified as urban. 
The Bureau finds that this is a reasonable approach. For some of the 
input values used in HCPM, there was little or no difference in values 
used in

[[Page 29120]]

the lowest three density zones. Some input values used in HCPM, such as 
feeder and distribution placement costs, increased with density, so 
averaging the three lowest density zones together would have increased 
costs in the most rural areas.
    50. In addition to varying by density, some costs also vary by type 
of terrain and soil conditions. For example, terrain/soil conditions 
affect the labor costs for placing underground and buried structure. 
The CAM uses different input values for underground and buried 
excavation costs in four types of terrain (normal, soft rock, hard rock 
or water, i.e., high water table). Terrain factors were developed for 
each census block group using data from the Natural Resources 
Conservation Service (NRCS) STATSGO database for bedrock depth, rock 
hardness, water depth and surface texture. For input values that vary 
by terrain, we adopt the methodology used to identify terrain type in 
CAM v4.1.1 for contiguous areas of the United States. The rock hardness 
used in the contiguous United States for a given census block group is 
whichever type of rock is listed most frequently for the list of 
STATSGO map units in the census block group, regardless of the 
geographic area of the individual map units.
2. Other Capex Input Values
    51. In this section, we address additional capex inputs used by the 
CAM. Consistent with the Commission's direction in the USF/ICC 
Transformation Order and the Bureau's decision in the CAM Platform 
Order, the CAM estimates the capital cost of the equipment necessary to 
facilitate provision of voice and broadband service to end users over a 
FTTP network. This includes estimating the cost of the hardware used 
throughout the network, including the carrier's central office 
facilities and at the end user's premises. To provide a more accurate 
reflection of the total cost to the carrier of providing this 
equipment, the CAM includes an estimate of the percentage of homes or 
business locations that would be expected to have drops and optical 
network terminals (ONTs) over the course of the relevant time period 
(the customer drop rate). The CAM also accounts for the capital cost 
per subscriber of providing voice service on an FTTP network, as well 
as the demand on the network during high traffic periods. The CAM also 
includes the capability to model the cost of both undersea and 
submarine cable used for middle mile connections in non-contiguous 
areas. Finally, the CAM captures the cost of capital investment used 
over time by utilizing Annual Charge Factors (ACFs) to determine the 
capital related to the monthly cost of depreciation, cost of money, and 
income taxes. As discussed below, the Bureau adopts the values used by 
the CAM v4.1.1 for these capex inputs and finalize the methodology used 
for calculating ACFs.
a. Optical Network Terminals
    52. In the USF/ICC Transformation Order, the Commission required 
all federal high-cost universal service support recipients to offer 
voice telephony service over broadband-capable networks, and also 
required all recipients to offer broadband service as a condition of 
receiving such support. Consequently, the inputs used by the CAM must 
reflect the cost of equipment that provides the ability to provide both 
voice and broadband service. Included in the inputs is the cost of the 
ONT that provides the gateway functionality to provide the Internet 
protocol-to-time-division multiplexing (IP-to-TDM) conversion needed to 
utilize the end-user's TDM equipment. The Bureau sought comment in the 
virtual workshop on the appropriateness of using these inputs.
    53. The Bureau concludes that the CAM's methodology for the cost of 
ONTs is a reasonable approach and is consistent with the Commission's 
direction in the USF/ICC Transformation Order. We note that certain 
parties have advocated that the cost of battery backup for the modem 
should be included in this input. For example, NASUCA highlights the 
fact that, in FTTP networks, the ONT is powered in the end-users' home, 
whereas copper telephone networks are powered from the central office. 
To ensure that the network is sustainable when there are electrical 
outages, NASUCA argues that the cost of batteries at the customer's 
premises must be included in this input. The Bureau agrees with NASUCA 
and note that the CAM methodology assumes that the material prices of 
the ONTs include the up-front cost of battery backup and alarm, thereby 
incorporating the cost for such backup into model costs.
b. Customer Drop Rate
    54. To properly model the cost of the equipment necessary to 
construct a new FTTP network, the CAM makes an assumption about the 
customer drop rate, i.e., the percentage of homes or businesses that 
will actually be connected to the network by a drop and ONT, rather 
than just being passed by the network. Beginning with CAM v3.1, the 
customer drop rate was set at 80 percent for both residential and 
business locations. ACA argued that the customer drop rate used by the 
CAM should be set at 90 percent to reflect the Commission's National 
Broadband Plan forecast adoption curve. The ABC Coalition advocated for 
the use of an 80 percent customer drop rate for broadband service.
    55. The purpose of the customer drop rate is to determine the 
number of locations that are actually connected to the network by a 
drop and ONT, as opposed to the number of locations that are simply 
passed by the network. The underlying assumption is that an efficient 
provider will not physically connect every location when it runs fiber 
down a rural road, but rather will do so only when the subscriber 
chooses to subscribe.
    56. The Bureau concludes that 80 percent is a reasonable estimate 
for the percentage of locations connected with a drop and ONT. The 
Bureau decided to adopt an 80 percent customer drop rate primarily 
because we are concerned that assuming that 90 percent for all 
residential and business locations are physically connected to the 
network may overestimate the potential level of customer demand. For 
example, some people may choose to subscribe to satellite broadband or 
only to mobile services provided by another provider (not the recipient 
of Phase II support); indeed, due to other barriers to adoption of 
broadband services, some small fraction may not subscribe to any form 
of broadband. Moreover, even in the presence of latent demand, it 
likely would take some time for customers to adopt a newly available 
service. Therefore, while the 80 percent customer drop rate used by the 
CAM may slightly understate the costs associated with constructing the 
network, it also recognizes that not all potential customers in a given 
area will necessarily opt to receive broadband or voice service from a 
Phase II-supported carrier.
    57. At the same time, it is reasonable to assume that the customer 
drop rate used by the CAM is higher than the current or even expected 
subscription rate. When a carrier building a new FTTP network runs 
cable down a street, some locations may be vacant or the occupants may 
not presently wish to purchase broadband or voice service; over time, 
however these locations will become connected as new residents move in 
and choose to subscribe. Such ``churn'' means that at any point in time 
the percent of locations that have drops and ONTs will likely exceed 
the actual subscription rate.

[[Page 29121]]

c. Central Office Facilities
    58. As with the ONT inputs, the CAM inputs reflecting the cost for 
central office facilities for an all-IP network must account for the 
cost of providing both voice and broadband service, consistent with the 
Commission's direction. This includes the costs for routers, Ethernet 
switches, rack space, and optical line terminators (OLTs) for FTTP 
configurations, as well as costs for buildings, land, and power.
    59. The Bureau adopts CAM v4.1.1's input values to estimate the 
cost of central office facilities. The Bureau acknowledges that some 
parties have advocated for the inclusion of specific costs within the 
central office inputs. For example, NASUCA argued for the inclusion of 
inputs that ensure the sustainability of the network in the event of 
electric outages, such as back-up generators and large batteries in the 
central offices. The Bureau agrees and notes that the capitalized power 
investments for central office generators and batteries are included in 
the ``Other Rate'' on the ``Labor Rates and Loadings'' input worksheet 
for all equipment items assigned to the circuit or switching accounts. 
The model also includes the cost for backup power at the location to 
account for the fact that, in an FTTP network, power at the central 
office does not supply power to the outside plant.
    60. Though ACS agreed that the cost of routers, Ethernet switches, 
and other materials appropriate for a voice and broadband capable 
network should be included as inputs, it also advocated for additional 
costs, such as ``building space, power, support equipment, etc.'' We 
take this opportunity to clarify that costs for buildings, land, and 
power are included as inputs for central office facilities.
d. FTTP Network Equipment
    61. In the CAM Platform Order, the Bureau determined that the CAM 
would estimate the costs of an FTTP network. Consequently, the CAM 
reflects the capital cost of constructing a FTTP network, accounting 
for hardware such as ONTs, fiber drop terminals, fiber splitters, and 
OLTs. The Bureau solicited comment on the reasonableness of these 
inputs in the virtual workshop and asked parties to specify whether any 
other types of hardware should be added or excluded when they adopt the 
final version of the model.
    62. The Bureau concludes that CAM v4.1.1's FTTP equipment input 
values are reasonable based on the record before us. The ABC Coalition 
noted that there was a general lack of experience among its members of 
building FTTP networks in high cost and rural areas, but explained 
that, based on input from at least one Coalition member, ``the current 
FTTP inputs are the best available values and should be used as the 
FTTP input values in the adopted version of CACM.'' Both ACS and PRTC 
also agreed that the CAM makes the appropriate assumptions regarding 
the types of hardware needed for FTTP networks.
e. Voice Capability
    63. As noted above, the Commission requires all federal high-cost 
universal service support recipients to offer ``voice telephony 
service'' over broadband-capable networks, and also requires all 
recipients to offer broadband service as a condition of receiving such 
support. Accordingly, in the CAM Platform Order, the Bureau adopted ``a 
model platform that estimates the cost of an IP-enabled network capable 
of providing voice service.'' The cost of providing voice service is 
``modeled on a per-subscriber basis and takes into account the cost of 
hardware, software, services, and customer premises equipment to 
provide carrier-grade Voice over Internet Protocol (VoIP) service.'' 
The CAM Platform Order, however, did not address the specific inputs 
used to calculate the per-subscriber costs.
    64. The Bureau now adopts CAM v4.1.1's default inputs for voice 
service. Specifically, the CAM assumes capital costs of $52.50 per 
subscriber associated with providing voice service on an IP-enabled 
broadband network. Applying the annual charge factor to this per-
subscriber capital charge increases the levelized monthly cost of 
service by approximately one dollar. The Bureau notes that this cost 
estimate is consistent with the rates charged by third-party providers 
of hosted voice services. USTelecom agrees that these monthly costs are 
``within the realm of reason.''
f. Busy Hour Demand
    65. In the CAM Platform Order the Bureau adopted a model platform 
that will size network facilities such that there is sufficient 
capacity at the time of peak usage. The model platform accomplishes 
this by ensuring that the size of each link in the network is 
sufficient to support peak usage busy hour offered load (BHOL), taking 
into account average subscriber usage at peak utilization.
    66. The Bureau now adopts CAM v4.1.1's BHOL input value of 0.44 
Mbps, which corresponds to 440 kbps per user. The Bureau sought comment 
on using a BHOL input value of 440 kbps in the virtual workshop. The 
use of this value was supported by the ABC Coalition and was not 
opposed by any party. The ABC Coalition explains that while a higher 
BHOL value ``may be reasonable,'' it believes that the model's 
``results are not sensitive enough to changes in the busy hour 
bandwidth input to warrant modifying it.'' The Bureau agrees. Modest 
changes in this BHOL value are unlikely to impact significantly cost 
estimates and ultimate support amounts.
    67. As explained in the model's methodology, CAM v4.1.1 has been 
sized to provide, at a minimum, a capacity of 5.4 Mbps per user, 
corresponding to a BHOL of 5,400 kbps. Thus, the specific BHOL value 
that we choose would only impact costs (by requiring the network to add 
additional capacity) if the BHOL were to exceed 5,400 kbps. The Bureau 
does not believe this is likely, as discussed below.
    68. The CAM models a FTTP network architecture that is based on a 
GPON design. In the GPON network, there are a limited number of 
aggregation points that constrain broadband speeds, including fiber 
splitters and optical line terminal (OLT). When both the splitters and 
the OLT are fully utilized, each subscriber will receive at a minimum 
5.4 Mbps of capacity in the most capacity-constrained areas, and in 
rural areas where there are fewer subscribers per splitter and fewer 
splitters per OLT, each subscriber will have many times that capacity 
by default, with the exact amount determined by local conditions. 
Further toward the core network, aggregation points are Ethernet 
switches and routers, whose capacities (number of line cards) increase 
with the number of subscribers assumed to be on the network. Thus, the 
CAM captures the need for increased capacity in the Ethernet (backhaul) 
network according to the supported number of subscribers. As a result, 
the modeled network is designed to provide far more busy-hour capacity, 
at least 5.4 Mbps per end user, than the BHOL value of 0.44 Mbps the 
Bureau adopts here.
    69. The Bureau adopts a BHOL that is significantly higher than that 
used for the National Broadband Plan. There, staff adopted a BHOL of 
160 kbps for the Broadband Assessment Model ``to represent usage in the 
future,'' finding that with this value, ``this network will not only 
support the traffic of the typical user, but it will also support the 
traffic of the overwhelming majority of all user types, including the 
effect of demand growth over time.'' In developing the Broadband 
Assessment

[[Page 29122]]

Model, the staff assumed all residential and small business locations 
would receive speeds at 4 Mbps/1 Mbps. Usage for the CAM differs in 
several key ways: Monthly data usage has continued to grow since the 
development of the Broadband Assessment Model, and the Connect America 
Phase II model will be calculating support for a period of time further 
into the future than the modeling for the National Broadband Plan. 
Moreover, the Commission expressly contemplated that recipients of 
Phase II support would be offering service with higher speeds by the 
end of the five-year term. Therefore, the Bureau finds that it is 
reasonable to adopt a higher BHOL for the CAM than was used in the 
Broadband Assessment Model. The 0.44 Mbps value is consistent with 
growth rates utilized by Commission staff when developing the Broadband 
Assessment Model.
    70. Even with higher assumed broadband speeds than the current 4 
Mbps downstream, based on current and forecast usage, the Bureau 
concludes the BHOL input value of 0.44 Mbps is reasonable. As noted 
above, the assumed BHOL--which reflects a mix of high- and low-
bandwidth uses--incorporates growth over time as subscribers move to 
more bandwidth-intensive uses. Further, some data suggest that moving 
to a higher speed connection by itself does not raise the BHOL 
substantially. Moving to a higher speed connection might allow users to 
demand more busy hour capacity for bandwidth-intensive applications 
like streaming video. However, because BHOL includes the effect of low-
bandwidth users and those who are not online at all, the effect of 
higher-bandwidth video streaming will be muted. In other words, as long 
as people spend some of their busy hour time with email and social 
media, or offline entirely, the overall increase in BHOL associated 
with higher broadband speeds is minimal. And, to the extent that demand 
falls outside of periods of peak demand (i.e., if people watch more, 
higher-quality video but outside of busy hour), there will be no effect 
on BHOL at all. For that reason, we do not expect an increase in 
broadband speed of, e.g., 2x to 5x (i.e., a downstream speed of 8-20 
Mbps) would lead to a comparable increase in BHOL. Moreover, even if 
BHOL were to increase linearly with speed, to 880 to 2,200 kbps, there 
would not result in any increase in modeled network cost because, as 
noted above, model costs are not sensitive to BHOL values below 5400 
kbps.
    71. The BHOL the Bureau selects also is consistent with the 
Commission's expectation that recipients of Phase II support would 
offer services with usage allowances reasonably comparable to usage for 
comparable services in urban areas. The Bureau implemented that 
directive by specifying an initial minimum usage allowance of 100 GB of 
data per month, with usage allowances over time consistent with trends 
in usage for 80 percent of consumers using cable or fiber-based fixed 
broadband services. The 0.44 Mbps input value that the Bureau adopts 
today should be sufficient to accommodate a 100 GB/month usage 
allowance and reasonable growth trends in usage over the five-year 
term.
g. Annual Charge Factors for Capex
    72. The CAM captures the cost of capital investment used over time, 
reflecting both the cost of initial deployment, replacement capital 
expense and the cost of money necessary to have access to that amount 
of capital. To do so, the model applies levelized Annual Charge Factors 
(ACFs) to a number of capital investment assets categories, including 
circuits, software, switches, land, and buildings, to determine the 
capital-related monthly cost of depreciation, cost of money, and income 
taxes (i.e., to ensure the appropriate cost of money is provided after 
accounting for the impact of income taxes). The Bureau sought comment 
in the virtual workshop on the reasonableness of the ACFs and the 
methodology used to calculate the ACFs. Below the Bureau adopts the 
specific inputs for depreciation, income taxes, and cost of money to be 
utilized in calculating the ACFs.
(i) Depreciation
    73. In the CAM Platform Order, the Bureau concluded that the CAM 
should determine terminal value ``based on `book value' calculated as 
the difference between investment and economic depreciation, which 
takes into account the economic life of the equipment and 
infrastructure.'' Utilizing such an approach reflects the likelihood of 
failure of a particular piece of capital equipment, rather than its 
straight-line accounting lifetime. The methodology the Bureau adopted 
for the CAM in the CAM Platform Order, therefore, is consistent with 
the methodology used in the past by the Commission and calculates book 
depreciations using Gompertz-Makeham survivor (mortality) curves and 
projected economic lives, adjusted so that the average lifetime of the 
asset falls within the range of expected accounting lifetimes 
authorized by the Commission. The Bureau noted that this approach was 
supported in the record.
    74. ACA contends that the input assumptions should be updated to 
remove the negative future net salvage values, because the CAM uses the 
low end of project equipment lives. Instead, ACA recommends that the 
future net salvage rates used in the CAM be modified to adopt the high 
end of the salvage rate range for asset classes where the high end of 
the salvage rate range is zero or positive, and adopt a salvage rate of 
zero for asset classes where the high end of the salvage rate is 
negative. The Bureau disagrees. Adopting a salvage rate of zero for 
certain asset classes, rather than a negative salvage rate, implicitly 
assumes that there is no cost associated with removing those assets at 
the end of their usable lives. Ignoring the fact that carriers face 
actual costs to remove certain assets would be akin to ignoring the 
cost of placing the asset and would result in a flawed estimate of cost 
recovery.
    75. ACA further recommends that the CAM use lower starting year 
prices for capital equipment, given that the prices used by the model 
will be more than two years old by the time Phase II support is 
distributed, and include a mechanism that reduces capital equipment 
prices over time to reflect deflation in equipment pricing. The Bureau 
declines to adopt both these proposals. As explained in the Bureau's 
response to the Hogendorn peer review, even after analyzing potential 
price fluctuations using extreme values, overall costs are unlikely to 
increase or decrease significantly. Further, to the extent that either 
the funding benchmark or the extremely high cost threshold is raised, 
the range over which prices are likely to move also is raised, lowering 
the extent to which the assumption of zero cost changes potentially 
overstates costs, and increasing the likelihood that they will 
understate costs. Therefore, using a fixed cost for capital equipment, 
in conjunction with the CAM's assumptions of a fixed cost for other 
inputs like labor, provides a consistent representation of the cost of 
this input over the five-year funding period and will have minimal, if 
any, effects on overall costs.
(ii) Income Taxes
    76. Federal and state income tax rates are included in the ACF 
calculation so that when the ACFs are applied, the model provides a 
post-income-tax rate of return for each plant category. The Bureau 
concludes that adopting the marginal federal corporate income tax

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rate of 34 percent and a marginal state income tax rate averaged across 
all states of 5.3 percent is reasonable and supported by the record. 
The ABC Coalition supported the use of these income tax rates, and no 
party objected to their use.
(iii) Cost of Money
    77. Versions one through 3.1 of the CAM assumed a nine percent cost 
of money in setting the default ACF input values, calculated with a 
ratio of debt to equity of 25:75, 9.7 percent cost of equity, and 7 
percent cost of debt. CAM v3.1.2 through v3.1.4 provided users the 
option of selecting ACFs that assume a nine percent cost of money, 
calculated with the same debt to equity ratio of 25:75, or an eight 
percent cost of money, calculated with a ratio of debt to equity of 
45:55, 9.48 percent cost of equity, and 6.19 percent cost of debt. CAM 
v4.0 adjusted the default input for the cost of money to 8.5 percent.
    78. The ABC Coalition, through its submission of the CQBAT model 
and virtual workshop comments, advocated for the use of a nine percent 
cost of money input when calculating ACFs. Conversely, ACA, in response 
to the Model Design PN, contended that an appropriate cost of money 
input for purposes of calculating ACFs should be between five percent 
and seven percent. Both parties agree that the rate adopted by the 
Bureau should be the same for all price cap carriers.
    79. In a 2013 staff report, the Bureau explained that a reasonable 
analytical approach would establish a zone of reasonableness for the 
cost of capital between 7.39 percent and 8.72 percent for rate-of-
return carriers, calculated with a debt to equity ratio based on the 
market value of carriers' capital structure. Based on that analysis and 
other factors, the Bureau recommended that the authorized rate of 
return should be selected in the upper half of this range, between 8.06 
percent and 8.72 percent. This suggested range is lower than the 
Commission's previous 11.25 percent rate of return for all incumbent 
LECs, which was adopted in 1990 when incumbent LECs were operating as 
regulated monopolies.
    80. The Bureau finds that the methodology used in the 2013 staff 
report in the rate represcription proceeding is a helpful tool for 
determining a reasonable return for price cap carriers accepting model-
based support. Applying this methodology solely to data from the price 
cap carriers yields a zone of reasonableness for a cost of money for 
price cap carriers between 7.84 percent and 9.20 percent. The Bureau 
concludes that a reasonable approach is for the CAM to use a unitary 
cost of money at approximately the midpoint of that range, 8.5 percent. 
The Bureau believes that adopting an 8.5 percent cost of money, rather 
than a figure at the lower end of the zone of reasonableness, 
recognizes that this number will effectively be locked in for the next 
five years and accounts for the fact that the data used to calculate 
the zone of reasonableness reflects a time of historic lows. The Bureau 
takes this action solely for purposes of finalizing the input values 
for the cost model, and our action today in no way prejudges what 
action the Commission may ultimately take in the pending rate 
represcription proceeding.
    81. The Bureau is not persuaded by PRTC's argument that the rate of 
return used in the CAM should remain 11.25 percent. PRTC argues that a 
lower rate of return does not account for the actual market conditions 
it faces, due in part to the fact that it is still heavily dependent 
upon traditional telecommunications revenue streams and therefore faces 
different risks than the larger price cap carriers that are market 
leaders in video and wireless services. Even if the Bureau were to 
accept PRTC's argument that it is less diversified than the other price 
cap ILECs, that argument by itself does not necessarily justify a 
higher rate for PRTC. The cost of capital, according to well-
established portfolio theory, does not depend on the overall risk of a 
company, but rather on portion of the overall risk that cannot be 
diversified away. That portion, known as the non-diversifiable, or 
systematic, risk is the risk that an investor could not offset through 
the purchase of other assets. Investors are assumed to diversify by 
holding a portfolio of assets, and only to the extent that an investor 
is unable to diversify away the risk of any individual asset by so 
doing should there be an expectation of a return on an investment in an 
asset that is commensurate with that non-diversifiable risk, according 
to this theory. Companies for which the rate of return on an investment 
in its stock is expected to change by less than the market rate of 
return have less systematic risk and a lower cost of capital than the 
average company, while companies for which the rate of return on an 
investment in its stock is expected to change by more than the market 
rate of return have greater systematic risk and a higher cost of 
capital than the average company.
    82. PRTC asserts that it has a higher cost of capital and therefore 
requires a higher rate of return than the other price cap ILECs because 
it is less diversified than the others. The Bureau cannot accept this 
argument absent a showing that PRTC's systematic risk is greater than 
the systematic risk of the typical price cap ILEC. While a company's 
systematic risk will vary depending on the services that it offers, 
there is nothing in the record that would enable us to conclude that 
the systematic risk of a telecommunications company that derives a 
relatively large fraction or even all of its revenues from traditional 
phone services, and a small fraction or none from other services, is 
greater or lesser than that of a company that derives a relatively 
small fraction of revenues from traditional phone services and a 
relatively large fraction from other services. Thus, the record does 
not demonstrate whether PRTC has a higher or a lower cost of capital 
than the other price cap ILECs as a result of being less diversified 
than the other price cap ILECs.
3. Opex Input Values
    83. In this section, the Bureau addresses the model inputs related 
to operating expenditures. The CAM estimates opex incurred by an 
efficient provider using a forward-looking network in the provisioning 
of voice and broadband by developing opex factors. These factors vary 
by company size and by a rural, urban, or suburban classification. The 
network opex factors and G&A factors are applied to capital investment 
estimates calculated by the CAM to determine monthly operating costs. 
In other words, the total investment is multiplied by a factor to 
determine network operating costs under the assumption that providers 
with larger networks have higher total operating expenses; G&A costs 
are calculated the same way. The customer operations marketing and 
service operating expenses and bad debt are expressed as dollar amounts 
of expense per location. The customer operations marketing and service 
operating expenses and the bad debt operating expense per customer are 
derived based on factors applied to an assumed ARPU for broadband and 
voice services. As discussed below, the Bureau adopts CAM v4.1.1's 
methodology for calculating opex, as well as its opex input values.
a. Network Operations Expense Factors
    84. Network operations expense includes both plant specific 
expenses and plant non-specific expenses. Plant specific expenses 
include expenses related to the operation and maintenance of 
telecommunications plant. Plant non-specific expenses include network 
operations expenses

[[Page 29124]]

such as network administration, testing, and engineering. They also 
include general support and network support expenses such as 
provisioning, network operations, depreciation, and amortization 
expenses for land and buildings, office furniture and equipment, 
general purpose computers, and vehicles.
    85. The Bureau adopts the CAM's approach of calculating network 
operations expense factors by determining the relationship between 
capital investment and ongoing cost to operate and maintain the plant. 
This approach is similar to the HCPM, which also calculated plant 
specific opex as a ratio to capex. The Bureau also adopts the plant 
specific and plant non-specific network operations inputs used in CAM 
v4.1.1 which were initially developed based on NECA data from 2008 to 
2010, and supplemented with additional data sourced from ARMIS and 
third party sources. As described in the methodology documentation, 
model inputs were scaled so that the model-calculated opex figures 
reflect NECA data from 2008 to 2010 and ARMIS data for 2007 and 2010. 
Such calculations were based on model runs for a copper-based network 
to reflect the dominant technology deployed during the time the source 
data were drawn. These values were then adjusted to reflect the costs 
associated with a FTTP, rather than a copper-based deployment. These 
factors were all derived to adjust for size, density, and location.
    86. The Bureau sought comment in the virtual workshop on the CAM's 
methodology for calculating network operations expense factors and the 
associated input values. ACS and PRTC objected to the company-size 
adjustments made to the opex factors for medium companies. They claimed 
that the use of a negative factor for medium companies (relative to 
large companies) means that the model calculates opex costs that are 
lower than large companies, suggesting that medium companies are more 
efficient than large companies. In fact, as shown in the September 12th 
webinar presentation that Bureau staff presented to state regulators, 
the opex per location for medium companies is generally larger, often 
much larger, than that of the large companies for the reasons set forth 
below.
    87. The medium company size adjustment is a negative factor in 
relation to larger companies, because medium companies as a whole have 
greater capex (per location) costs than larger companies. Since opex is 
calculated as a product of capex multiplied by the opex input, if capex 
is higher, then with no adjustment opex will be higher as well even for 
the same opex input. In the cost study used to determine opex values, 
the capital intensity (capex per active loop) was significantly higher 
for companies in the medium group than in the large group ($1,429 for 
the large vs. $2,117 for the medium). While the opex per loop for plant 
specific and plant non-specific opex was higher for medium companies, 
it was not as great as the difference in capex per loop; therefore the 
adjustment for medium companies for those categories is negative (-
26.96 percent). In CAM v4.1.1, the difference in capital intensity 
remains ($1,281.25 for large, compared to $1,800.43 for medium). The 
resulting average operating cost per demand location in CAM v4.1.1 for 
large is $5.26 and for medium is $5.66. The Bureau therefore believes 
that the adjustment downward in the opex factor for medium companies is 
appropriate.
b. General and Administrative Expenses
    88. General and Administrative (G&A) expenses are expenses of the 
day-to-day operations of a carrier. These expenses include such 
expenses as accounting and financial services, insurance, utilities, 
legal expenses, procuring materials and supplies, and performing 
personnel administrative activities.
(i) Development of General and Administrative Factors
    89. The Bureau adopts the CAM's approach of employing a weight 
against investment to calculate G&A opex. As with network operations 
expense, the factors were calculated by company size and scaled to 
reflect providers' reported costs. The Bureau also adopts CAM v4.1.1's 
input values for G&A expenses.
    90. The Bureau sought comment on the CAM's methodology for 
calculating G&A factors and the associated input values, and no party 
objected to the methodology. The ABC Coalition supports the values that 
CAM v4.1.1 uses for G&A, while ACA argues that the G&A input values 
overstate costs for large companies. ACA appears to assume that the CAM 
opex factors are not scaled based on size, as it claims that larger 
companies with higher revenues are able to take advantage of operating 
leverage and pay less for G&A expenses and overstating costs would 
incentivize carriers to operate inefficiently. In fact, the CAM does 
take into account the disparity in costs by scaling the G&A factors 
based on size; and, as noted, since G&A ultimately depends on the 
investment for each carrier, carriers with lower investment per 
location will have lower G&A per location as well. The G&A factors were 
developed separately for each size class of carrier, resulting in lower 
G&A factors for larger carriers. CAM v4.1.1 calculates the average 
monthly G&A costs per location for large companies as $4.43, for medium 
companies as $6.05, and for small companies as $10.28.
(ii) State Property Tax Adjustment Factors
    91. The CAM also adjusts the G&A factors to account for the fact 
that property taxes, which are usually accounted for as a subset of G&A 
operating expense, vary by state. The Bureau adopts the CAM's use of 
state property tax factors and the input values it uses for these 
factors to reflect the impact of property tax on opex, given the 
difference of state rates versus the national average. To develop the 
factors, the average property tax per state was determined, and then 
applied to the net plant in service to determine the implied property 
tax expense by state. These figures were then compared to an overall 
national weighted average property tax rate to develop state-specific 
factors.
    92. The Bureau sought comment on the CAM's use of state property 
tax factors and their associated values in the virtual workshop. 
Parties agree that the use of state property tax factors is reasonable 
given the wide variety in state property tax rates. However, ACS and 
PRTC also claim that property tax should be separately calculated ``in 
a manner that is consistent with how it is levied.'' They provide as an 
example the method of estimating property taxes by applying an ``Other 
Operating Tax Factor'' to investment, calculated based on a ratio of 
the balances of their other operating taxes account and their total 
plant in service account. But ACS and PRTC failed to explain how their 
methodology is applicable to a forward-looking cost model, and why that 
method would provide more appropriate results.
    93. The ABC Coalition supported the use of the values the CAM 
utilizes for the state-specific factors. ACS and PRTC claimed that they 
are unable to assess the validity of the values the CAM uses for state-
specific factors due to a lack of documentation of the analyses, data, 
and methodologies used to develop G&A and the property tax factors. The 
carriers also argued that although they were unable to separately 
assess the costs that CAM estimates for property tax, the total G&A 
expense amount estimated (at that time, in CAM v2.0) understates their 
current costs for Alaska and Puerto Rico. As discussed above, the 
Bureau has provided reasonable access to the underlying

[[Page 29125]]

data, assumptions, and logic of the model as required by the 
Commission, while still preserving the confidentiality of some of the 
underlying data provided by carriers. Although the Bureau has since 
posted documentation that describes in detail the methodology that the 
CAM uses to develop property tax factors, ACS and PRTC did not provide 
any further information about how their companies' property tax costs 
compare. The Bureau thus finds no basis to adopt their proposal.
c. Customer Operations Marketing and Service Operating Expenses
    94. Customer operations marketing and service operating expenses 
include such expenses as produce management and sales, advertising, 
operator services, and costs incurred in establishing and servicing 
customer accounts. The Bureau adopts the CAM's approach of calculating 
customer operations and marketing on a per-subscriber basis. The Bureau 
further adopts $6.81 per location passed as the appropriate amount.
    95. The Bureau sought comment on the CAM's methodology for 
determining customer operations marketing and service operating 
expenses and the associated input values in the virtual workshop. No 
party objected to the methodology, and the ABC Coalition supported the 
use of the expense input values that were used for the CAM at the time, 
noting that the ratio developed using ARMIS data of expenses to revenue 
continues to be consistent with their experience. While the Bureau made 
minor adjustments to these input values in CAM v4.1, the difference is 
not material to overall cost calculations.
d. Bad Debt Expense
    96. Bad debt expense represents the amount of revenue that carriers 
are unable to collect from their customers. The Bureau adopts CAM 
v4.1.1's $1.05 per location passed cost for bad debt. The Bureau sought 
comment on the CAM's methodology for calculating bad debt expense as 2 
percent of assumed average revenue per user, and no party objected to 
this methodology.

C. Treatment of Non-Contiguous Carriers

    97. In the USF/ICC Transformation Order, the Commission recognized 
that price cap carriers serving specific non-contiguous areas of the 
United States--Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and 
Northern Marianas Islands--face different operating conditions and 
challenges from those faced by carriers in the contiguous 48 states. As 
a result, the Commission directed the Bureau to consider the unique 
circumstances of these areas when adopting a cost model and whether the 
model provides sufficient support for carriers serving these areas. If, 
after considering these issues, the Bureau determined that ``the model 
ultimately adopted does not provide sufficient support to any of these 
areas, the Bureau could maintain existing support levels'' to any 
affected price cap carrier, so long as support for price cap areas 
stayed within the overall budget of $1.8 billion per year.
1. Cost Adjustments for Non-Contiguous Areas
    98. At the outset, the Bureau recognizes that earlier in the model 
development process, ACS, PRTC, and Vitelco contended that any national 
broadband cost model developed by the Bureau would be unable to 
adequately account for the unique challenges of deploying and offering 
broadband services in non-contiguous areas. As a result, each of the 
carriers submitted its own cost model and encouraged the Bureau to 
utilize its respective model when allocating support to Alaska, Puerto 
Rico, and the Virgin Islands. The Bureau declines to do so. Rather than 
modeling the cost for a FTTP network, as previously decided by the 
Bureau, the cost models submitted by PRTC (``BCMPR'') and Vitelco 
(``USVI BCM'') estimate the cost of a forward-looking DSL network and a 
hybrid fiber coaxial network, respectively. Moreover, the ACS model 
simply estimates the cost of middle mile microwave, satellite, and 
undersea cable transport facilities in Alaska, rather than modeling the 
cost of an entire network. Further, none of the models filed by these 
non-contiguous carriers calculate costs at the census-block level or 
smaller or contain the functionality to exclude unsubsidized 
competitors. Therefore, none of the submitted models meet the criteria 
laid out by the Bureau to estimate the costs of constructing a forward-
looking FTTP network capable of providing both voice and broadband 
service.
    99. Instead, the Bureau has modified the CAM to reflect the unique 
operating conditions and challenges faced by price cap carriers in 
Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands, and the Northern 
Marianas Islands. Throughout the model development process, these 
carriers have filed information regarding the unique costs of providing 
both voice and broadband service in their respective service areas. In 
accordance with the Commission's direction, the Bureau has carefully 
studied this information, while making those modifications we deemed 
appropriate to take into account their unique geographic circumstances. 
The Bureau also has examined the embedded costs of these carriers in 
order to provide us with a historical view of the costs associated with 
serving these areas. The Bureau believes that the totality of our work 
over a nine-month period has provided us with a better understanding of 
the issues facing non-contiguous carriers in their service areas. 
Below, we discuss this analysis in greater detail and adopt a number of 
inputs specific to non-contiguous areas.
a. Plant Mix
    100. Several non-contiguous carriers suggested that the model 
should incorporate ``forward-looking'' plant mix values for their areas 
that are significantly different than their current plant mix values. 
For example, ACS stated that, because it deploys fiber exclusively 
within a conduit, it classifies any deployment in a conduit as 
underground in its records. Similarly, Vitelco argued that underground 
plant is necessary to protect fiber against extreme temperatures and 
humidity, high salt concentration in the air, and frequent tropical 
storms and hurricanes in the Virgin Islands. While the Bureau agrees 
that it is appropriate to use forward-looking plant mix values, it 
questions whether an efficient provider would in fact fully deploy 
underground plant in situations where it is cost effective to bury such 
plant. Therefore, in CAM v4.0, the Bureau modified the approach to 
plant mix inputs for non-contiguous areas to reflect a hybrid of the 
current plant mix values of non-contiguous carriers and the forward-
looking plant-mix values they submitted. This hybrid approach assumes 
that the amount of underground plant in non-contiguous areas will not 
exceed a carrier's current amount of underground plant, and if the 
carrier-submitted forward-looking values for underground plant are 
higher than current values, the excess is shifted into buried plant. 
Additionally, in response to comments submitted by several non-
contiguous carriers, CAM v4.0 was modified to allow for the addition of 
conduit to fiber in buried plant. The same approach is used in CAM 
v4.1.1.
    101. Today, the Bureau adopts CAM v4.1.1's hybrid approach to plant 
mix for all non-contiguous areas, as well as its use of ``buried in 
conduit'' plant. The Bureau concludes that the hybrid approach to plant 
mix recognizes that, in non-contiguous areas it may be appropriate to 
move some plant from aerial to buried, and to encase buried fiber in 
conduit for additional protection. This approach is more

[[Page 29126]]

appropriate than assuming more fiber is moved into underground plant 
with underground vaults and man-hole or hand-hole access with costs 
that are typically three to five times more costly than buried plant.
b. Undersea and Submarine Cable
    102. In CAM v3.2, the Bureau added the capability to model the 
investment and cost for ``undersea cable'' and landing station 
facilities needed to transport traffic to and from landing stations in 
non-contiguous areas to landing stations in the contiguous United 
States. CAM v3.2 modeled undersea cables: from Alaska to Oregon and 
Washington; from the Northern Marianas to Guam and from Guam to Oregon; 
from Hawaii to California; from the U.S. Virgin Islands to Puerto Rico 
and from Puerto Rico to Florida; and from Puerto Rico to Florida. The 
Bureau augmented this capability in CAM v4.0 by modeling intrastate 
middle mile routes requiring an underwater connection between islands 
in Hawaii, Puerto Rico, the U.S. Virgin Islands, and the Northern 
Mariana Islands, and to connect Anchorage to Juneau and the Kenai 
Peninsula. The model was modified to include ``submarine cable'' costs 
and the cost for two beach manholes on each intrastate middle mile 
submarine route.
    103. The Bureau concludes that adopting the inputs for both 
undersea and submarine cable costs recognizes that carriers serving 
non-contiguous areas incur significant middle mile costs not faced by 
contiguous carriers. However, the Bureau notes that these inputs do not 
include all of the costs advocated for by non-contiguous carriers. For 
example, the CAM does not assume full landing stations, with routing 
facilities and room for co-location, at submarine cable landing sites; 
instead, since the middle-mile routes run between central offices that 
already have such facilities, the Bureau concludes that an efficient 
provider would use less costly beach manholes, eliminating the need for 
duplicative facilities to provide multiplexing, routing, or co-
location.
    104. Beginning with CAM v3.2, the model estimated the cost 
attributable to the voice-and-broadband network the Bureau is modeling 
for transport to and from the contiguous United States by applying a 
percentage-use factor based on highest total capacity and highest lit 
capacity of existing fiber cable systems. Because the Alaska route and 
the Northern Marianas to Guam portion of the Northern Marianas route 
are not shared with any international traffic, CAM v3.2 included the 
same share of cost for this portion of the middle-mile network as the 
rest (i.e., 50 percent) for the costs of connecting Alaska to Oregon 
and Washington, the Northern Marianas to Guam, and the U.S. Virgin 
Islands to Puerto Rico.
    105. HTI argues that the CAM should be based only on lit capacity 
of fiber that an efficient provider would be expected to utilize in the 
future. Additionally, HTI contends that the allocation process is 
inconsistent with the forward-looking methodology used by the CAM 
because the 50 percent sharing factor understates projected Hawaii 
usage. In particular, HTI states that it is a minor provider of 
interstate, interLATA special access, and private line services, and it 
does not possess the market power to capture a 50 percent market share 
for those services.
    106. The Bureau disagrees that the CAM-calculated cost should be 
based only on the current lit-fiber capacity, rather than total 
capacity. HTI's argument that the Bureau should only take lit fiber 
into account is based on the idea that the owner of the fiber will only 
light the amount of capacity that it has to date. In fact, if demand 
grows, the owner of the fiber will light more capacity to meet that 
demand (at relatively low cost) rather than building an entire new 
international cable (at relatively high cost). Thus, the Bureau 
concludes a methodology that takes into account both lit and total 
capacity is appropriate. The Bureau also disagrees with HTI that the 
methodology is inconsistent with a forward-looking model. The Bureau 
notes that the demand it uses is a forecast of demand, thus aligning 
the cost it calculates with the demand it expects in the future. As a 
result, the Bureau adopts CAM v4.1.1's allocation methodology.
    107. ACS argued that the CAM underestimates the percentage of total 
forward-looking capital costs for undersea cable that are allocated to 
supported voice and broadband services. The calculation used by the CAM 
allocates 50 percent of total Alaska traffic traveling over ACS's 
undersea cable to voice and broadband services and 50 percent to other 
services such as special access and wireless backhaul. The 50 percent 
allocated to voice and broadband services is then applied to the 
percentage of locations in Alaska actually served by ACS--approximately 
67 percent--to determine the proportion of total undersea cable voice 
and broadband traffic carried by ACS--approximately 34 percent. This 
number is divided by the total amount of Alaska traffic assumed to be 
carried over ACS's undersea cable (100 percent) to determine the 
percentage of undersea cable costs that are allocated to the delivery 
of supported voice and broadband services by ACS. Instead, ACS asserted 
that, because of the presence of a subsidized competitor in its service 
areas, the model should assume that approximately 67 percent of the 
overall traffic between Alaska and the mainland travels over the cable 
owned by ACS, rather than 100 percent of the traffic. Using CAM 
v4.1.1's methodology, this modification would result in 50 percent of 
the undersea cable costs being allocated to eligible voice and 
broadband service deployed by ACS, rather than 34 percent.
    108. The Bureau is not persuaded by this argument. Adopting ACS's 
proposal essentially would mean that the Bureau assumes the 
construction of an entirely new undersea cable to connect to the 
mainland areas in Alaska served by rate-of-return carriers, which makes 
little sense economically. Further, allocating the total traffic 
between Alaska and the mainland in this fashion suggests that ACS is 
unable to compete with the subsidized carrier in its service areas, as 
the Bureau would expect an efficient provider to be able to do. As a 
result, the Bureau adopts CAM v4.1.1's allocation methodology.
c. Terrain Methodology
    109. As discussed above, the methodology the Bureau adopts for 
determining the rock hardness for a given census block group in the 
contiguous United States is whichever type of rock is listed most 
frequently for the list of STATSGO map units in the census block group, 
regardless of the geographic area of the individual map units. Several 
carriers serving the non-contiguous areas--ACS, PRTC, and HTI--
requested that the model treat 100 percent of their terrain as ``hard 
rock,'' the most expensive terrain in which to place plant. The Bureau 
has concerns that this approach would significantly over-estimate the 
actual amount of hard rock in these areas. In CAM v4.0, the Bureau 
developed a modified approach for determining the appropriate rock 
hardness for census block groups in non-contiguous areas; this 
methodology was not changed in CAM v4.1 or v4.1.1 for non-contiguous 
carriers other than Vitelco. This new methodology considers the entire 
census block group in a given non-contiguous area to be hard rock if at 
least fifty percent of the area is identified as hard rock.
    110. The Bureau generally adopts CAM v4.1.1's methodology for 
calculating rock hardness in non-contiguous areas except the Virgin 
Islands. The Bureau finds that this approach addresses issues with the

[[Page 29127]]

differences in terrain data for census block groups in non-contiguous 
areas compared with those in contiguous areas, particularly the fact 
that the size of some of the block groups in non-contiguous areas and 
the associated STATSGO map units are much larger than in the contiguous 
United States. For example, in Alaska it would be possible to have a 
substantial fraction of an area described as hard rock in the STATSGO 
database, but because of multiple map units would be contained within 
the census block group, the block group may not have hard rock as the 
most commonly occurring value. Therefore, the Bureau believes an area-
based measure is appropriate to determine the proper rock hardness 
outside the contiguous United States.
    111. However, the STATSGO map data used by the model to calculate 
rock hardness in non-contiguous areas does not include terrain data for 
the Virgin Islands. Vitelco stated that the CAM should be modified to 
capture the actual terrain characteristics of the Virgin Islands. 
Because of the need to undertake significant additional work to examine 
the soil composition data available for the Virgin Islands in order to 
determine the relationship between the terrain mix and the cost of 
deploying a communications network in the Virgin Islands, CAM v4.1 
incorporated a new methodology for approximating terrain mix data in 
the Virgin Islands, and the same approach was used in CAM v4.1.1. This 
methodology assumes that the mix of terrain types in the Virgin Islands 
is similar to the mix of terrain types in Puerto Rico. The model 
utilizes the terrain mix from Puerto Rico to determine a weighted 
average structure labor cost by density zone for buried and underground 
plant. For example, Puerto Rico has 27 percent normal soil, 40 percent 
soft rock or medium, and 33 percent hard rock. Those weights are 
applied, in this example, to the default inputs for rural buried 
plant--$3.11 for normal, $3.77 for soft rock and $5.19 for hard rock. 
The results are then combined to find the terrain-adjusted cost of 
$4.06 for rural buried plant in the Virgin Islands.
    112. The Bureau adopts the terrain approximation methodology used 
in CAM v4.1.1 for the Virgin Islands. The Bureau acknowledges that 
Vitelco suggested that it look to a soil survey from the National 
Resources Conservation Service and the new STATSGO2 database to assist 
us in determining the actual terrain characteristics of the Virgin 
Islands. The Bureau notes that, while these are adequate sources for 
determining the geologic composition of the territory, they provide no 
additional detail regarding how expensive excavation and other 
constructions costs would be in these types of soil, and Vitelco has 
provided no additional explanation as to how it should or could use 
this information to determine those costs. As a result, considering the 
geographic proximity and similar geologic composition of the Virgin 
Islands and Puerto Rico, the Bureau concludes that the weighted average 
approach we adopt today is reasonable approximation for the Virgin 
Islands.
d. State-Specific Inputs
    113. Vitelco advocated for a number of specific adjustments to the 
model throughout the development process to better reflect the cost of 
providing service in the Virgin Islands. In particular, Vitelco filed 
data on materials and labor unit costs, claiming that the data 
reflected the actual costs it faced from contractors for the 
provisioning and installation of outside plant facilities. CAM v4.0 
incorporated an updated capex workbook specific to the Virgin Islands, 
reflecting a number of cost increases to certain capital expenses 
associated with the build out of a FTTP network in the territory, but 
did not include any labor adjustments. CAM v4.1 modified a number of 
these state-specific inputs for the Virgin Islands, including adjusting 
the number of poles assumed by the model to reflect the spacing 
associated with 35 foot poles and using the default input values 
associated with the structure sharing table, FTTpFill input, and duct 
labor input, and the same approach was used in CAM v4.1.1.
    114. The Bureau adopts the state-specific capex workbook utilized 
by CAM v4.1.1. The Bureau concludes that, though some of the cost 
adjustments it makes for the Virgin Islands appear large--for instance, 
the increased cost of poles--these costs are reasonable given that the 
small size of the islands creates a lack of scale and a dearth of local 
sources for materials. The Bureau remains unconvinced that the labor 
costs should be adjusted upward. Increasing labor costs as proposed by 
Vitelco would give the Virgin Islands the highest labor rates of 
anywhere in the country by a significant margin, particularly when 
compared to incomes. While the Bureau recognizes the challenges of 
obtaining skilled labor for network expansion, it is not persuaded that 
an efficient provider would have labor costs as high as that proposed 
by Vitelco. As a result, the Bureau declines to adopt Vitelco's 
proposed labor adjustments.
    115. Several other non-contiguous carriers voiced concerns that the 
model versions to date have underestimated the cost of deploying voice 
and broadband in their service areas. These carriers also submitted 
input values for material and labor costs that they claim reflect the 
cost of providing service in their respective areas. Though the Bureau 
adopts a state specific capex workbook for the Virgin Islands, it is 
not convinced that further adjustments to the material or labor costs 
used by the model for any of the non-contiguous carriers is 
appropriate.
    116. The objective of a forward-looking cost model is not to model 
how much it costs a specific provider to serve its area, but how much 
it would cost an efficient provider to do so. The difficulty, of 
course, is determining what it would cost for an efficient provider to 
operate. As a general matter, the Bureau believes that it is useful to 
compare model costs to embedded costs, based on the assumption that a 
modern network would cost no more than the historical network. Given 
the embedded costs for carriers in non-contiguous areas such as Alaska, 
Puerto Rico, and Hawaii, it appears that the current version of the 
model is capturing costs reasonably well in these areas, despite the 
fact that the Bureau is not using the inputs submitted by carriers 
serving these areas. For example, the loop costs calculated by CAM v4.0 
are within one percent of the loop costs reported to NECA by ACS. 
Conversely, if the Bureau were to use the state-specific inputs 
submitted by ACS in our model, the cost of the loop network in Alaska 
would be 76 percent higher than ACS's embedded costs. Similarly, using 
the state-specific inputs submitted by PRTC results in the cost of the 
network exceeding both PRTC's embedded costs and the costs from PRTC's 
own forward-looking cost model for a DSL network.
    117. Some carriers have filed receipts reflecting their actual 
costs for materials and labor, which they argue lends support to fact 
that the model should include their state-specific input values. 
However, the Bureau is unconvinced that these receipts are generally 
representative of the costs of building an entirely new FTTP network 
from the ground up. The comparisons to embedded costs are illuminating 
here. If the unit costs provided did represent the cost of an entirely 
new network in these areas, then the Bureau would expect embedded costs 
to be substantially higher. Because the Bureau has no reason to doubt 
the veracity of these filings, it believes that the receipts it has 
received relate to the cost to the

[[Page 29128]]

carrier of replacing individual pieces of a network, rather than the 
wholesale cost of constructing an entirely new network. For example, on 
a per unit basis, it is cheaper to purchase and install all the poles 
for a network at one time, rather than to purchase and install one 
replacement pole when needed. Similarly, the Bureau expects on a per-
unit basis that it will be far more costly to splice only one or two 
fibers at a time when compared with the cost of building an entirely 
new FTTP network.
    118. ACS in particular has attacked our use of embedded costs as a 
comparison for forward-looking costs. The question the Bureau seeks to 
answer is whether the proposals made by ACS and other non-contiguous 
carriers lead to reasonable outcomes. In particular, ACS argues that 
``historic loop costs are informative only of the largely depreciated 
costs of a portion of a network based on an outmoded technology.'' The 
Bureau agrees that embedded costs are based on an outmoded technology; 
however, there are many reasons to believe that the cost of a modern 
network should not be higher than the costs of the older network. 
First, while labor costs have increased over time, as ACS argues, there 
are offsetting gains in labor productivity and in the cost-capability 
of network equipment. Second, a forward-looking cost model, by its 
nature, assumes the use of clustering and routing that will lead to 
more efficient utilization of network equipment and fewer network 
assets overall--i.e., lower costs. Finally, as ACS notes, the Bureau 
adopted GPON FTTP as the network technology of choice, in large measure 
because that technology has much lower operating expenses. In total, 
this provides ample reason to expect forward-looking costs to be lower 
than embedded costs.
    119. The Bureau also recognizes that embedded costs will fall as a 
network depreciates. Comparing levelized forward-looking costs to only 
one or two years of embedded cost could indeed provide a skewed 
perspective, particularly for a carrier that has depreciated plant more 
quickly than it has made investments. However, over a long-enough 
period of time, the average of embedded costs reflects the cost to 
serve that area over that period of time, albeit perhaps with an older 
technology. The Bureau compared modeled forward-looking costs to the 
average of ACS's embedded costs over almost 20 years. Given that long 
timeframe, including some time periods where there was greater 
investment and greater embedded costs, the Bureau concludes that the 
average of embedded costs is a good measure of the ongoing cost to 
provide service in these areas with the embedded network, which is a 
useful guide as to the maximum cost to provide service in a forward-
looking model. Further, the current inputs used by the model actually 
produce a forward-looking loop cost for ACS above its embedded cost, so 
the Bureau is not using embedded cost as a hard cap, as ACS seems to 
believe.
    120. In its latest filing, ACS argued that the Commission 
previously rejected the use of embedded costs to calculate forward-
looking costs. Specifically, ACS notes that while ``the estimation of 
forward-looking expenses may start with embedded costs, limiting 
forward-looking costs based on embedded costs would violate Commission 
policy that federal support should be determined based on forward-
looking costs.'' Indeed, the Commission previously stated that it did 
not believe ``that the cost of maintaining . . . embedded plant is the 
best predictor of the forward-looking cost of maintaining the network 
investment predicted by the model.'' However, in doing so, the 
Commission explained that it would not use this data because it could 
not determine ``how much of the differences among companies are 
attributable to inefficiency and how much can be explained by regional 
differences or other factors.'' The Commission's rejection of embedded 
costs, therefore, was predicated on the concern that incumbent LEC 
embedded costs would be too high and might reflect inefficient 
operations more than they reflect the cost associated with any given 
area. Thus, our use of embedded costs as a tool to evaluate the 
reasonableness of proposed adjustments to the model is in fact 
completely consistent with Commission precedent. ACS's arguments that 
costs could be much higher than embedded costs, however, are not.
e. Company Size
    121. The approach the Bureau adopts above to calculate network 
operations expense factors considers the relationship between capital 
investment and ongoing cost to operate and maintain the plant. ACS 
objected to the company-size adjustments made to the opex factors for 
medium companies, stating that the use of a negative factor for medium 
companies (relative to large companies) results in the model 
calculating opex costs that are lower than large companies, which 
suggests that medium companies are more efficient than large companies. 
In addition, ACS argued that, given its continued line loss, remote and 
largely rural service area, and heavy reliance on high-cost support, it 
should instead be considered a ``small'' carrier for purposes of 
calculating its opex. In CAM v4.0, the Bureau shifted ACS from the 
``medium'' carrier category to the ``small'' carrier category. This 
same approach was used in CAM v4.1 and v4.1.1.
    122. Today the Bureau adopts CAM v4.1.1's approach to company size 
for ACS. After analyzing the model's results, the Bureau finds that 
this approach more accurately reflects ACS's forward-looking opex 
costs. For example, classifying ACS as a medium company captures only 
60 percent of ACS's total opex costs as reported to NECA; conversely, 
reclassifying ACS as a small company captures 76 percent of ACS's total 
opex costs. As a result, the Bureau believes classifying ACS as a 
``small'' carrier rather than a ``medium'' carrier allows the model to 
properly calculate the company's opex.
2. Election of Frozen Support for Non-Contiguous Areas
    123. As described above, the Bureau adopts a number of inputs 
specific to non-contiguous areas for use in the CAM. The Bureau 
believes these inputs generally reflect the unique costs and 
circumstances of serving non-contiguous areas and, as such, do not 
believe any additional specific changes proposed by non-contiguous 
carriers are appropriate based on the evidence in the record.
    124. Consistent with the Commission's directive, the Bureau has 
also evaluated the sufficiency of the support calculated by the model. 
The model development process has been ongoing for almost two years, 
with the Bureau having responded to dozens of filings, ex parte 
presentations, and comments in a Virtual Workshop in order to refine 
and calibrate the model. With respect to non-contiguous areas in 
particular, the Bureau has worked intensively over the last nine months 
to make adjustments to the model to take into account the unique costs 
and circumstances of serving non-contiguous. At the same time, 
questions have been raised recently specifically about whether the 
model accurately accounts for wireline terrestrial middle mile costs in 
Alaska. The Bureau does not expect to be able to resolve such questions 
quickly. Questions also continue to be raised by several carriers 
regarding whether model-calculated support would be sufficient in the 
areas they serve.
    125. The Bureau is mindful that continuing work on the model delays 
the day when the offer of support is

[[Page 29129]]

made to the price cap carriers and delays the time when consumers 
across the nation will newly have access to broadband services. As 
noted above, the Commission delegated to the Bureau the authority to 
maintain existing support levels for any non-contiguous carrier for 
which the model did not provide sufficient support. The Bureau 
therefore makes available to all non-contiguous carriers the option of 
choosing either to continue to receive frozen support amounts for the 
term of Phase II, or to elect or decline the model-determined support 
amount.
    126. The Bureau recognizes that for several of the non-contiguous 
carriers, the amount of model-determined support is greater than frozen 
support. For purposes of ensuring that the Bureau does not exceed the 
overall budget for the offer of support when we determine the final 
list of eligible blocks after the challenge process, it will require 
each non-contiguous carrier to notify us within 15 days of resolution 
of the associated service obligations whether it will choose to elect 
to continue to receive frozen support for the term of Phase II.
    127. The Bureau previously sought to develop the record on what the 
service obligations should be for these carriers, should they be 
provided frozen support. In light of our decision today to provide this 
option, further consideration of this question is now timely. To 
provide non-contiguous carriers with the requisite information to make 
an informed decision about whether to elect to receive frozen support 
or model-based support, the Bureau anticipates that the service 
obligations for carriers receiving frozen support would be determined 
prior to their having to make a decision whether to receive frozen 
support.

D. Identifying Supported Locations

    128. In this section, the Bureau adopts the methodology for taking 
the results of the cost-to-serve module to determine support levels. 
The Bureau begins by discussing the methodology for calculating the 
average forward looking per-location cost of building voice and 
broadband-capable networks. The Bureau then explains the treatment of 
certain business locations and community anchor institutions.
1. Calculating Average Per-Unit Costs
    129. The model calculates costs on a per-location-passed basis. It 
calculates the average cost-per-location for a given census block by 
dividing the total cost of serving customer locations (the fixed cost 
of passing all locations in a given area plus the variable cost 
associated with serving active subscribers) by the number of 
residential locations and small business locations in that census 
block, as discussed in more detail in the following section. The CAM 
gives users the option of unitizing costs by all residential/small 
business locations in an area or by active residential/small business 
subscribers, which takes into account an assumed subscription rate. The 
Bureau sought comment in the virtual workshop on unitizing costs by all 
locations. The Bureau concludes that unitizing costs by all locations 
is consistent with the Commission's general expectation that the 
supported providers would offer services with the desired 
characteristics to all supported locations. In addition, this approach 
means that the per-unit costs calculated by the model do not depend on 
the assumed subscription rate.
    130. The Bureau concludes that this is a preferable approach than 
unitizing costs across active subscribers, as suggested by PRTC and 
ACS. The crux of PRTC and ACS's argument appears to be that the model 
should factor in the revenue that each carrier is expected to receive 
from customers when calculating support amounts. They argue that 
unitizing costs by active subscribers would ensure that carriers' 
support is calculated based only on the revenues carriers are actually 
receiving from customers. But they assume that the Bureau would adopt 
the same funding benchmark--based only on the assumed revenue per 
subscriber--regardless of whether costs are unitized by location or by 
subscriber. If instead the Bureau adopts a funding benchmark that takes 
into account both assumed revenues per subscriber and an assumed 
subscription rate, then the support per location will be the same 
regardless of whether costs are unitized by locations (using the 
methodology discussed below to calculate the funding benchmark) or by 
subscribers (using a market price per subscriber funding benchmark). As 
the Bureau discusses below, it adopts a funding benchmark that 
estimates the likely revenues available through reasonable end user 
rates, taking into account the assumed subscription rate. Thus, the 
Bureau has addressed PRTC and ACS's concern by adopting a benchmark 
that calculates support levels by accounting for the number of 
locations from which carriers will recover revenue, even though it 
calculates costs on a per-location-passed basis.
2. Treatment of Non-``Mass Market'' Locations
    131. In the USF/ICC Transformation Order, the Commission 
established a performance goal of ensuring ``the universal availability 
of modern networks capable of delivering broadband and voice service to 
homes, businesses, and community anchor institutions.'' The Commission 
stated that it expected that eligible telecommunications carriers 
``would provide higher bandwidth offerings to community anchor 
institutions in high-cost areas at rates that are reasonably comparable 
to comparable offerings to community anchor institutions in urban 
areas,'' and would engage with community anchor institutions while 
planning their Connect America-supported networks.
    132. To account for demand for such high speed connections, the CAM 
sizes its network by assuming dedicated fiber connections for 
``enterprise locations,'' including certain business locations, 
community anchor institutions, and wireless towers, that are typically 
served by special access and private line or similar non-TDM-based 
services like Ethernet. Given the Commission's statement that it did 
not intend ``that the model will skew more funds to communities that 
have community anchor institutions,'' the Bureau finds that it is 
reasonable to exclude the costs of extending fiber to community anchor 
locations from cost-to-serve calculations. Locations served by such 
enterprise services, which includes direct Internet access, are also 
excluded from the unitization of the total middle mile cost of a census 
block to avoid location counts that are a mixture of residences and 
small businesses intermingled with enterprise locations.
    133. If the Bureau were to include the costs specifically 
associated with serving anchor institutions in the model, any census 
block containing one or more anchor institutions would become more 
costly to serve than a census block otherwise identical but containing 
just residential locations. The net result would be that some census 
blocks that otherwise would be below the funding benchmark would become 
eligible for support, while at the same time other census blocks that 
otherwise would have been eligible for funding might become ineligible 
for the offer of model-based support because the average cost would now 
fall above the extremely high-cost threshold. This is precisely the 
skewed effect that the Commission sought to avoid.
    134. But the model does account for the fact that price cap 
carriers will be using their networks to provide high speed service to 
enterprise locations when it makes its cost calculations for 
residential and small business locations. To determine the costs of 
shared last-mile network assets, the CAM

[[Page 29130]]

determines how many fiber strands are used by the various demand 
locations and allocates the cost of fiber and structure between special 
access and private line locations, and other locations (i.e., 
residential locations and those business locations assumed to be 
purchasing mass-market services), with support calculated based only on 
costs related to the latter group of locations. As described above, the 
model similarly captures the sharing of middle mile network by 
estimating that 50 percent of the costs of an interoffice route are 
attributable to enterprise services and are excluded from cost 
calculations.
    135. The Bureau sought comment on the CAM's approach for sizing the 
network to account for enterprise locations and its exclusion of the 
costs of dedicated fiber to such locations from cost to serve 
calculations. The ABC Coalition supported the CAM's treatment of 
enterprise locations, and no parties submitted alternative proposals 
for how the CAM should account for such locations.
    136. The Bureau concludes that this approach is the most reasonable 
way to implement the Commission's directive that the Phase II budget 
maximize the number of residences, businesses and anchor institutions 
that have access to robust, scalable broadband, while not skewing 
support towards communities with a greater number of anchor 
institutions. The Bureau finds that by sizing the network to assume a 
dedicated fiber to enterprise locations, the model reasonably captures 
the efficiencies of a network designed to serve all locations in an 
area and appropriately accounts for the fact that these locations 
typically require more bandwidth than a residential connection. At the 
same time, excluding the dedicated fiber costs of serving community 
anchor institutions from cost to serve calculations is an appropriate 
method to avoid potential distortions in which particular census blocks 
are funded over others.

E. Support Thresholds

    137. In this section, the Bureau tentatively sets the funding 
benchmark for Connect America Phase II support at $52.50 per location 
and estimate that the extremely high-cost threshold will be $207.81 per 
location. We first establish the methodology for determining the 
funding benchmark. The Bureau then adopts two inputs--subscribership 
rate and ARPU--used in the methodology to calculate the benchmark. 
Finally, the Bureau calculates the budget available for Connect America 
Phase II and estimate the extremely high-cost threshold using that 
budget.
1. Budget
    138. First, the Bureau determines that the budget used to set the 
extremely high-cost threshold will be approximately $1.782 billion. In 
the USF/ICC Transformation Order, the Commission established an annual 
funding target of $4.5 billion for high-cost universal service support. 
Within the $4.5 billion budget, the Commission set aside up to $1.8 
billion annually for a five-year period to support areas served by 
price cap carriers. This amount includes the support that price cap 
carriers receive through the CAF-ICC. The Bureau forecasted that over a 
five-year period, from 2015 to 2019, price cap carriers will draw an 
average of roughly $50 million per year of support from the CAF-ICC 
recovery mechanism, and it sought comment in the virtual workshop on 
whether $50 million would be a reasonable amount of support to set 
aside. The only party commenting on this topic agreed that it is 
reasonable to set aside $50 million to recognize the average draw from 
the CAF-ICC recovery mechanism. In addition, the budget will include 
approximately $32 million per year from funds remaining from Connect 
America Phase I after completion of round two. The Bureau therefore 
concludes that approximately $1.782 billion in support will be 
available in price cap areas for Phase II. The Bureau reserves the 
right to update this budget, however, when it releases the results of 
the final model run after the challenge process, based on the most 
current information at that time regarding projected CAF-ICC support.
2. Methodology
    139. Next, the Bureau adopts the methodology discussed in the 
Virtual Workshop for establishing a funding benchmark. The Bureau will 
first establish the funding benchmark based on where costs are likely 
to be higher than reasonable end user revenues and then determine the 
extremely high-cost threshold based on the available budget, consistent 
with the Commission's direction that the Bureau takes into account 
determine where costs are likely to be higher than can be supported 
through reasonable end user revenues alone. The alternative 
methodology--to first identify the extremely high-cost threshold, and 
then use the available budget to identify the funding benchmark--would 
not guarantee that the funding benchmark would end up at a level where 
costs are likely covered by available end user revenues. In addition, 
the language used by the Commission in providing guidance regarding the 
extremely high-cost threshold--that it ``anticipated that fewer than 
one percent of American households'' would be in census blocks 
exceeding the threshold--reflects a predictive judgment about the 
effect of the policy it adopted, not a strict mandate that the 
extremely high cost threshold be set at the 99th cost percentile. For 
those reasons, the Bureau finds that first establishing the funding 
benchmark and using that, in combination with the established budget 
for Connect America Phase II, is fully consistent with the Commission's 
instructions contained in the USF/ICC Transformation Order and produces 
a more reasonable outcome than the alternative.
    140. As noted, the USF/ICC Transformation Order stated that the 
funding benchmark should ``identify those census blocks where the cost 
of service is likely to be higher than can be supported through 
reasonable end user rates alone. . . .'' Any estimate of future 
revenues is necessarily a forecast, dependent on a range of reasonable 
assumptions. Below, the Bureau adopts a blended ARPU that reflects the 
revenues that a carrier can reasonably expect to receive from each 
subscriber for providing voice, broadband, and a combination of those 
services. Because not all locations will have active subscribers, we 
will adjust the ARPU by multiplying it by the expected subscription 
rate adopted below. The Bureau finds that multiplying the ARPU by the 
expected subscription rate will yield an estimate of the revenues that 
a carrier can reasonably expect to receive from the locations in each 
census block. ACA supported this methodology when it was presented in 
the Virtual Workshop. The Bureau also finds that a funding benchmark 
derived solely from cost, such as proposed by the ABC Coalition, does 
not satisfactorily address the requirement, inherent in the 
Commission's delegation of authority to the Bureau, that the funding 
benchmark reflect the revenues reasonably recovered from end users.
3. Average Revenue per User
    141. The Bureau adopts an ARPU of $75 which the CAM uses to 
calculate certain opex costs--customer operations marketing and service 
operating expenses and bad debt expense--and also to set the 
preliminary funding benchmark that will determine which areas will be 
subject to the challenge process to finalize the list of census blocks 
eligible for model-based support.

[[Page 29131]]

    142. Forecasting the potential ARPU for recipients of model-based 
support necessarily requires making a number of predictive judgments. 
For example, a carrier's ARPU will average over customers who subscribe 
to both voice and broadband services and others who subscribe to just 
one of those services; in addition, the ARPU will average over prices 
that vary over time according to the carrier's current promotions and 
discounts off its basic rates; and which broadband speed package a 
customer chooses. Depending on which assumptions are made, there is a 
range of ARPU values that would be reasonable to select.
    143. Based on the record before us, the Bureau concludes that an 
ARPU of $75 is a reasonable assumption. The ABC Coalition presents an 
analysis based on Telogical System's ``High Speed Internet Services 
Products, Pricing & Promotions Report National View'' July 2013 survey 
that suggests that a reasonable range of monthly broadband rates for 
service that provides a minimum of 4 Mbps down would be $29 to $46 per 
month for cable, DSL and fiber Internet access providers in the 30 
major U.S. markets, depending on how many customers are paying 
promotional rates versus month-to month rates. The ABC Coalition also 
assumes a rate of $30 for voice services, for a range of rates of 
$58.54 to $76.03 for voice and broadband services together. The 
National Broadband Plan model estimated an ARPU of fixed voice service 
at approximately $33.50 and an ARPU of fixed broadband at $36 to 44--
which when added together ranges from $69.50 to $77.50. ACA suggests 
that ARPU should be calculated by determining the lowest non-
promotional, non-contract pricing for broadband and voice services 
(with unlimited local and long-distance minutes) from any area where 4 
Mbps/1 Mbps broadband or greater is available, and weighting this by 
each price cap carriers' share of total Connect America-eligible 
locations. It recommends that the Bureau adopts an ARPU of $71.
    144. The ABC Coalition did not submit any data to substantiate its 
claim that ``a substantial percentage of customers'' subscribe to 
stand-alone broadband and ``a large percentage of customers'' subscribe 
to voice-only services. On balance, the Bureau concludes that it would 
be reasonable to select a value in the higher end of the ranges of 
rates provided by the ABC Coalition and the range of ARPUs estimated by 
the National Broadband Plan model. The Bureau recognizes that a growing 
number of households rely only on wireless services for their voice 
services. On the other hand, to the extent customers continue to 
subscribe to landline voice service, the ARPU for such service may well 
be higher than the $30 suggested by the ABC Coalition. The results of 
our urban rate survey show that the average rate for an unlimited all-
distance voice service offered by incumbent LECs in census tracts 
classified by Census as urban is $48.91, significantly higher than the 
$30 proposed by the ABC Coalition. While the Bureau recognizes that not 
all customers may subscribe to such all-distance plans, many do. 
Moreover, consumers increasingly over time will migrate to higher speed 
broadband connections to meet their growing demand for video services, 
and many businesses will pay rates that exceed residential rates to 
receive higher-speed services or for service-level agreements that 
provide guaranteed rather than best-efforts performance associated with 
residential service. By selecting an ARPU that is on the higher side of 
the range of ARPU rates in the record before us today, the Bureau 
accounts for the fact that the Commission expects recipients of support 
to deliver higher speeds, and a significant number of customers are 
likely to purchase more expensive packages for higher tiers of 
broadband services that exceed 4 Mbps/1 Mbps.
    145. The Bureau is not persuaded by NRIC's argument that it should 
select an ARPU of $97. NRIC makes this argument by pointing to 
benchmarks that the Bureau sought comment on in the context of setting 
interim reasonable comparability benchmarks, prior to completion of the 
urban rate survey. NRIC fails to recognize that there is a difference 
between the maximum allowable rate, which ensures that services in 
rural areas are offered at rates that are reasonably comparable to 
urban offerings, and the average revenue that Connect America Phase II-
supported providers are more likely to earn. Rather than simply 
assuming that all carriers will charge the maximum allowable rate, the 
Bureau will rely on data submitted through the record as well as our 
own analyses and predictive judgment to make a reasonable assumption as 
to the revenue that we expect carriers will gain from their customers.
4. Expected Subscription Rate
    146. The Bureau adopts an expected subscription rate of 70 percent 
for the purpose of estimating the amount of revenues a carrier may 
reasonably recover from end-users and, by extension, the funding 
benchmark. This is the percentage of locations that could reasonably be 
expected to subscribe to voice, broadband, or a bundle including at 
least one of those services. The blended subscription rate 
appropriately matches the blended ARPU adopted above.
    147. As a threshold matter, the Bureau concludes that the 
subscription rate used to estimate revenues should be different than 
the customer drop rate, or take rate, used to estimate the cost of 
customer premises equipment in the cost model. In the Virtual Workshop, 
the Bureau asked whether it was appropriate to use a single ``take 
rate'' for both purposes. Commenters, including ACA and US Telecom, 
broadly supported the use of single take rate for all purposes. The 
Bureau finds, however, that the different uses require rates tailored 
to their purpose. For the purpose of a customer drop rate, as described 
above, a location may have customer premises equipment without having a 
revenue-producing subscriber. For the purpose of estimating the amount 
of revenues that can reasonably be recovered from ``end user 
revenues,'' on the other hand, the Bureau finds it is appropriate to 
use a subscription rate that reflects the percentage of locations with 
paying customers, rather than the percentage of locations with 
installed drops.
    148. The expected subscription rate must necessarily be lower than 
the 80 percent customer drop rate adopted above because location with a 
subscriber must have a drop, but a location with a drop need not 
necessarily have a subscriber. ACA argues that the take rate should be 
set at 90 percent to reflect the Commission's National Broadband Plan 
forecast adoption curve. On the other hand, United States Telecom 
advocates for the use of a 60 percent take for voice service and an 80 
percent take rate for broadband service. One peer review of the model 
cites academic studies argued that subscription rates of 90 percent 
would be too high, given that two academic studies suggest broadband 
subscription rates (i.e., not including voice-only subscribers) of 65 
or 67 percent in the United States generally, and one those studies 
estimated rural subscription rates as low as 50 percent. The Pew 
Research Center's Internet and American Life Project estimates the 
current home broadband subscription rate to be 62 percent. In light of 
these varying estimates, and taking into account both broadband and 
voice subscriptions, either standalone or bundled with other services, 
in our predictive judgment we find that an expected subscription rate 
of 70 percent

[[Page 29132]]

is appropriate for estimating revenue available from end users.
5. Setting the Funding Benchmark and Extremely High-Cost Threshold
    149. Applying an assumed ARPU of $75 and the 70 percent expected 
subscription rate, the preliminary funding benchmark that we identify 
for purpose of developing the preliminary list of eligible census 
blocks is $52.50 per location. This benchmark is consistent with the 
benchmark proposed by the ABC Coalition. This funding threshold is 
lower than the funding thresholds proposed by ACA and Nebraska Rural 
Independent Carriers, which assumed different ARPU and subscription 
rates than those we adopt in this order. Given the ARPU and 
subscription rate we adopt for the reasons discussed above, we are not 
persuaded based on the record before us that a higher funding benchmark 
is justified.
    150. As described above, the Bureau concludes that approximately 
$1.782 billion is available for the Phase II budget pursuant to the 
CAM. Applying that amount and the $52.50 funding benchmark just 
discussed results in an extremely high-cost threshold of $207.81 per 
location, assuming carriers serving the non-contiguous areas of the 
United States accept model-based support. Accordingly, census blocks 
with average costs, as estimated by the CAM, equal to or in excess of 
$207.81 will not be eligible for the offer of model-based support in 
Phase II. The Bureau estimates that 0.37 percent of all locations in 
price cap areas are presumed to be extremely high cost. Given the 
$52.50 benchmark and $207.81 extremely high-cost threshold, the Bureau 
currently forecasts approximately 4.25 million locations will be in 
areas eligible for the offer of Connect America Phase II model-based 
support. These figures may change, however, dependent on the outcome of 
the challenge process and the elections of carriers serving the non-
contiguous areas of the United States.
    151. In identifying the preliminary funding benchmark and extremely 
high-cost threshold, the Bureau recognizes that minor adjustments may 
be appropriate to take into account the results of the challenge 
process before issuing the final list of eligible census blocks. The 
Bureau therefore reserves the right to make minor adjustments prior to 
releasing the final list of census blocks eligible for the offer of 
model-based support.

F. Initial List of Eligible Census Blocks

    152. The Bureau concludes that using round eight National Broadband 
Map data (data as of June 2013) implements the Commission's directive 
to the Bureau to identify areas served by unsubsidized competitors as 
close as possible to the time of adoption of the cost model. The Bureau 
will finalize the list of eligible census blocks through the challenge 
process in the months ahead, and will not update the model for purposes 
of the offer of support to price cap carriers in the event newer 
National Broadband Map data become available before completion of that 
challenge process.
    153. As the Bureau explained in the Connect America Phase II 
Challenge Process Order, 78 FR 32991, June 3, 2013, the Bureau will 
publish a preliminary list of cost-qualified census blocks that are 
presumptively unserved by an unsubsidized competitor. The Bureau will 
then commence the Phase II challenge process, whereby interested 
parties may contend that census blocks should be added or removed from 
the list based on whether those blocks are unserved or served by an 
unsubsidized competitor. After the challenges and responses are 
reviewed, the Bureau will add or remove census blocks from the list of 
presumptively cost-qualified census block as appropriate to keep total 
support amounts within the overall Phase II budget. The CAM support 
module will be rerun using the finalized list of eligible census 
blocks. Support will be calculated in a manner that utilizes the 
appropriate amount of the Phase II budget. If the Phase II budget would 
be exceeded by a net increase in census blocks deemed to be 
``unserved,'' the extremely high-cost threshold may be lowered to keep 
Phase II within its budget.

III. Procedural Matters

A. Paperwork Reduction Act

    154. This document does not contain new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(PRA), Public Law 104-13. In addition, therefore, it does not contain 
any new or modified information collection burden for small business 
concerns with fewer than 25 employees, pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198.

B. Final Regulatory Flexibility Analysis

    155. As required by the Regulatory Flexibility Act, as amended 
(RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Model Design Public Notice in WC Docket Nos. 10-90, 
05-337, and the Phase II Non-Contiguous Areas Public Notice, 78 FR 
12006, February 21, 2013, in WC Docket No. 10-90. The Bureau sought 
written public comment on the proposals in the Model Design Public 
Notice and the Phase II Non-Contiguous Areas Public Notice, including 
comment on the IRFAs. This Final Regulatory Flexibility Analysis (FRFA) 
conforms to the RFA.
1. Need for, and Objectives of, the Report and Order
    156. The Report and Order finalizes decisions regarding the 
engineering assumptions contained in the Connect America Cost Model 
(CAM) and adopts input values for the model, for example, the cost of 
network components such as fiber and electronics, plant mix, various 
capital cost parameters, and network operating expenses. Together with 
the CAM Platform Order, the two orders resolve all of the technical and 
engineering assumptions necessary for the CAM to estimate the cost of 
providing service at the census block and state level. In addition, the 
Report and Order adopts the methodology for determining the lower 
``funding benchmark'' and the upper ``extremely high-cost threshold,'' 
and also identifies preliminary values: A funding benchmark of $52.50 
and an extremely high-cost threshold of $207.81. Areas between these 
thresholds will be presumptively eligible for funding, subject to the 
challenge process to ensure that areas are not served by unsubsidized 
competitor. The budget used to set the extremely high-cost threshold 
will be approximately $1.782 billion.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the Supplemental IRFA
    157. There were no comments filed that specifically addressed the 
rules and policies proposed in the IRFA for the Model Design Public 
Notice. Alaska Communications Systems (ACS) commented on the IRFA for 
the Phase II Non-Contiguous Areas Public Notice. In this IRFA, the 
Bureau noted that the Connect America Phase II issues for which it 
sought comment were ``not anticipated to have a significant economic 
impact on small entities insofar as the results impact high-cost 
support amounts for price cap carriers.'' The Bureau explained that 
``most (and perhaps all) of the affected carriers are not small 
entities,'' and that the ``choice of alternatives discussed is not 
anticipated to systematically increase or decrease support for any 
particular group of entities and therefore any significant economic 
impact cannot

[[Page 29133]]

necessarily be minimized through alternatives.''
    158. In its comments, Alaska Communications Systems (ACS) claims 
that as a company with ``roughly 800 aggregate employees across its 
[incumbent local exchange carriers] and their affiliates'' and as a 
business that is not ``dominant in its field of operation,'' it 
qualifies as a small entity within the meaning of the Regulatory 
Flexibility Act. It also asserts that the CAM ``systematically reduces 
support for three of the non-[contiguous] price cap carriers, while 
substantially increasing support for the other price cap companies as a 
whole, including most of them individually.''
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    159. 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.
    160. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    161. 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, 
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.
    162. 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 
FNPRM.
    163. 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 FNPRM.
    164. 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.
    165. 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 FNPRM.
    166. 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.
    167. 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

[[Page 29134]]

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.
    168. 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.
    169. 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 FNPRM.
    170. 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.
    171. 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 FNPRM.
    172. 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 FNPRM.
    173. 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.
    174. 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 
Notice. 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

[[Page 29135]]

some of the OVS operators may qualify as small entities.
    175. Internet Service Providers. 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 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 FNPRM.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    176. In the Report and Order, the Bureau adopts inputs associated 
with a forward-looking economic cost model to be used to determine 
support amounts to be offered to price cap carriers and their 
affiliates pursuant to Phase II of the Connect America Fund. Comment 
was previously sought on possible data inputs that would require 
reporting by small entities, including wire center boundaries, 
residential location data, and data from local exchange carriers 
regarding their mix of aerial, underground, and buried plant, the age 
of existing plant, and the gauge of existing twisted-pair copper plant. 
The Bureau largely adopts the use of commercial data sources, or relies 
on data that was previously submitted by carriers to develop the 
inputs. No small entity was required to submit data. The Report and 
Order does not impose further data collections and recordkeeping 
requirements.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities and Significant Alternatives Considered
    177. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): ``(1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.''
    178. The Report and Order adopts a number of input values for the 
Connect America Cost Model. The model's use of these input values to 
calculate support are not anticipated to have a significant economic 
impact on small entities insofar as the results produce high-cost 
support amounts for price cap carriers and their affiliates that accept 
the support in exchange for making a state-level commitment pursuant to 
Connect America Phase II. This is primarily because as discussed above, 
virtually all of the affected carriers are not small entities. 
Moreover, the alternatives for most input values that were considered 
were not anticipated to systematically increase or decrease support for 
any particular group of entities, and therefore any significant 
economic impact could not necessarily be minimized through 
alternatives.
    179. The Bureau does note, however, that it adopted a number of 
inputs for carriers, several of which may be small entities, that serve 
non-contiguous areas in order to reflect the unique costs of serving 
these areas. The Bureau also has provided the opportunity for these 
carriers to elect to receive frozen support for the term of Connect 
America Phase II or elect to decline model-based support if they find 
that the support calculated by the CAM is not sufficient for serving 
non-contiguous areas.
    180. Moreover, the choice of a methodology and preliminary values 
for the funding benchmark and extremely high-cost threshold may have a 
significant economic impact on small entities. Using a preliminary 
funding benchmark of $52.50 and a budget of $1.782 billion results in a 
preliminary extremely high-cost threshold of $207.81 per location. 
Areas that exceed this extremely high-cost threshold may be supported 
by the Remote Areas Fund, and thus could receive support through an 
alternative support mechanism that could include small entities.
    181. The Bureau considered a number of alternatives for setting the 
funding benchmark and extremely high-cost threshold, including whether 
the Bureau should first determine the funding benchmark and then use 
the budget to determine the extremely high-cost threshold, or if it 
should first determine the extremely high-cost threshold and then use 
the budget to determine the funding benchmark. Consistent with the 
Commission's direction that the Bureau take into account where costs 
are likely to be higher than can be supported through reasonable end 
user revenues alone, the Bureau chose to set the funding benchmark 
first, by estimating the average revenue per user (ARPU) that could be 
reasonably expected from voice and broadband services and adjusting the 
ARPU to take into account that not all locations passed will 
necessarily subscribe to one or both services over the full term of 
Phase II support. The Bureau also sought comment on a number of 
alternatives for the ARPU and subscription rate for setting the funding 
benchmark. Using an assumed ARPU of $75 and a 70 percent subscription 
rate, the Bureau identified a preliminary funding benchmark of $52.50. 
The Bureau found that an assumed ARPU of $75 reflects the revenues that 
a carrier can reasonably expect to receive from each subscriber for 
providing voice, broadband, and a combination of those services, and 
that a 70 percent subscription rate reflects that not all locations 
will have active subscribers.
    182. By identifying a preliminary funding benchmark at $52.50 and 
an estimated budget of $1.782 billion, the preliminary extremely high-
cost threshold becomes $207.81 per location. Although establishing this 
extremely high-cost threshold is likely to have a significant impact on 
smaller entities that may seek support from the Remote Areas Fund, the 
full impact will not be known until the Commission issues an order 
adopting the rules for the Remote Areas Fund, including rules 
designating the areas that will be eligible for Remote Areas Fund 
support, and determining which entities are eligible to receive support 
for serving Remote Areas Fund-eligible areas. The Bureau anticipates 
that the Commission will consider alternatives when adopting rules for 
the Remote Areas Fund, including those that would minimize the 
significant economic impact on small entities.

[[Page 29136]]

    183. The Model Design Public Notice. IRFA also suggested that our 
adoption of a preliminary funding benchmark and extremely high-cost 
threshold may affect the service obligations of rate-of-return 
carriers. We have since clarified that the funding benchmark and 
extremely high-cost threshold we adopt for purposes of the offer of 
support to price cap carriers does not bind the Commission on any 
decision regarding the use of the model in other contexts. The Bureau 
anticipates that the Commission will consider alternatives when 
deciding whether to use the CAM in other contexts, including those that 
would minimize the significant economic impact on small entities.
6. Report to Congress
    184. The Commission will send a copy of the Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
Congressional Review Act. In addition, the Commission will send a copy 
of the Report and Order, including this FRFA, to the Chief Counsel for 
Advocacy of the SBA. A copy of the Report and Order and the FRFA (or 
summaries thereof) will also be published in the Federal Register.

C. Data Quality Act

    185. The Commission certifies that it has complied with the Office 
of Management and Budget Final Information Quality Bulletin for Peer 
Review, 70 FR 2664, January 14, 2005, and the Data Quality Act, Public 
Law 106-554 (2001), codified at 44 U.S.C. 3516 note, with regard to its 
reliance on influential scientific information in the Report and Order 
in WC Docket Nos. 10-90 and 05-337.

IV. Ordering Clauses

    186. Accordingly, it is ordered, pursuant to the authority 
contained in sections 1, 2, 4(i), 5, 214, 254, 303(r), and 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), 155, 214, 
254, 303(r), 403, and 1302, Sec. Sec.  0.91, 0.201(d), 1.1, and 1.427 
of the Commission's rules, 47 CFR 0.91, 0.201(d), 1.1, 1.427, and the 
delegations of authority in paragraphs 157, 169, 170, 184, 186, 187, 
and 192 of the USF/ICC Transformation Order, FCC 11-161, that the 
Report and Order is adopted, effective June 20, 2014.
    187. It is further ordered that the Commission shall send a copy of 
the Report and Order to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).
    188. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

Federal Communications Commission.
Carol E. Mattey,
Deputy Chief, Wireline Competition Bureau.
[FR Doc. 2014-11689 Filed 5-20-14; 8:45 am]
BILLING CODE 6712-01-P