[Federal Register Volume 63, Number 99 (Friday, May 22, 1998)]
[Proposed Rules]
[Pages 28339-28343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13654]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[CC Docket 96-45, 97-160; DA 98-848]
Forward-Looking Economic Cost Mechanism For Universal Service
Support
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this Public Notice, we seek to augment the record on
certain issues relating to the creation of a federal forward-looking
economic cost mechanism, including the appropriate input values for
that mechanism and the level of the revenue benchmark.
DATES: Comments from interested parties are due on May 26, 1998, and
reply comments are due on June 9, 1998.
ADDRESSES: Interested parties must file an original and five copies of
their comments with the Office of Secretary, Federal Communications
Commission, Room 222, 1919 M Street, NW., Washington, DC 20554. Parties
should send three copies of their comments to Sheryl Todd, Common
Carrier Bureau, Federal Communications Commission, 2100 M. St, NW., 8th
Floor, Washington, DC 20554. Parties should send one copy of their
comments to the Commission's copy contractor, International
Transcription Service, 1231 20th Street, NW., Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT: Brad Wimmer, Accounting Policy
Division, Common Carrier Bureau, (202) 418-7400.
SUPPLEMENTARY INFORMATION:
1. On May 8, 1997, the Commission released a Universal Service
Order on Universal Service CC Docket No. 96-45, FCC 97-157 (released
May 8, 1997) 62 FR 32862 (June 17, 1997). In the Universal Service
Order, the Commission adopted a plan for universal service support for
rural, insular, and high cost areas that will replace existing implicit
federal subsidies with explicit, competitively neutral federal
universal service support mechanisms. The Commission adopted the Joint
Board's recommendation that an eligible carrier's level of universal
service support should be based upon the forward-looking economic cost
of
[[Page 28340]]
constructing and operating the network facilities and functions used to
provide the services that will be supported by the federal universal
service support mechanisms. The Commission determined that, beginning
January 1, 1999, non-rural carriers will receive support based on the
forward-looking economic cost of providing the supported services. The
Commission further determined that high cost support for rural carriers
should continue essentially unchanged and should not be based on
forward-looking costs until further review has been completed, but no
sooner than 2001.
2. Consistent with the Joint Board's recommendation, the Commission
concluded in the Universal Service Order that it would need to
determine costs based on a careful analysis of efficient network
design, engineering practices, available technologies, and current
technology costs. That is, to determine forward-looking costs, the
Commission decided to look at all of the costs and cost-causative
factors that go into building a network. The Commission decided to do
this in two stages: First, it would look at the network design,
engineering, and technology issues relevant to designing a network to
provide the supported services. Second, the Commission said that it
would look at the costs of the components of the network, such as
cabling and switch costs, and various capital cost parameters, such as
debt-equity ratios and depreciation rates (``input values'').
3. In a Further Notice of Proposed Rulemaking (Further Notice) 62
FR 42457 (Aug. 7, 1997), the Commission established a multi-phase plan
to develop a federal mechanism that would send the correct signals for
entry, investment, and innovation.1 In particular, the
Commission sought comment on the platform design and input values that
it should adopt in a federal mechanism to estimate the cost of each of
the elements of the telephone network necessary for non-rural carriers
to provide the supported services to high cost areas. On July 9, 1997,
the Bureau sought information through a ``Data Request'' from certain
non-rural local exchange carriers (LECs) and holding companies to
assist the Commission in evaluating the models and selecting a federal
mechanism.2
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\1\ Federal-State Joint Board on Universal Service, Forward-
Looking Mechanism for High Cost Support for Non-Rural LECs, Further
Notice of Proposed Rulemaking, CC Docket Nos. 96-45, 97-160, 12 FCC
Rcd 18,514 (rel. July 18, 1997) 62 FR 42457 (Aug. 7, 1997) (Further
Notice).
\2\ Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Order, DA 97-1433 (rel. July 9, 1997) (Data Request).
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Issues for Comment
4. We have already received significant comment in response to the
Further Notice and Data Request. In light of the passage of time,
however, we wish to give parties the opportunity to update their
comments regarding the input values that should be used in the federal
mechanism and in setting the level of the revenue benchmark. We also
seek further comment on certain issues that may not have been
adequately addressed by commenters in response to the Further Notice or
Data Request. We note that parties' arguments for and against specific
input values are significantly more persuasive when accompanied by
supporting empirical data, including the assumptions on which those
data are based. If empirical data are unavailable, we encourage parties
to explain how proposed input values are otherwise verifiable and
appropriate. By seeking additional comments on specific input values,
we are not prejudging the outcome of issues raised in the Report to
Congress or in the Public Notice on Proposals to Revise the Methodology
for Determining Universal Service Support.3 We emphasize
that we are not seeking comment in this Public Notice on the network
design, engineering and technology issues.
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\3\ See Federal-State Joint Board on Universal Service, Report
to Congress, CC Docket No. 96-45 (April 10, 1998) at para. 197 (``We
are committed to issuing a reconsideration order in response to the
petitions filed asking the Commission to reconsider the decision to
fund 25 percent of the required support amount.''); Proposals to
Revise the Methodology for Determining Universal Service Support,
Public Notice, DA 98-715 (rel. April 15, 1998) (``We seek to augment
the record by encouraging interested parties to submit additional
proposals for modifying the Commission's methodology (for
determining the appropriate level of federal universal service
support for non-rural carriers).'').
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5. The issues relating to input values were outlined in the Further
Notice and Data Request, and parties are encouraged to review the
Further Notice and Data Request closely before preparing any comments
concerning inputs. Parties that have already filed thorough comments
concerning inputs in response to the Further Notice and Data Request
should not reiterate those comments; the Commission will consider
inputs comments filed in response to the Further Notice and Data
Request, as well as comments filed in response to this Public Notice,
in selecting the input values for the federal mechanism.
A. Inputs Issues
i. Customer Location Data
6. In the Further Notice, the Commission requested comment on the
use of data that associate the location of each customer with
latitudinal and longitudinal coordinates (geocode data) in a forward-
looking economic cost mechanism.4 In a Public Notice
released on November 13, 1997 (62 FR 65389 (Dec.12, 1997)), the Common
Carrier Bureau (Bureau) recommended that ``models be capable of
accepting and using geocode data to the extent that such data are
available and reliable.'' 5
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\4\ Further Notice, 12 FCC Rcd at 18,536, 18,579-80 paras. 44,
176.
\5\ Guidance To Proponents Of Cost Models In Universal Service
Proceeding: Customer Location and Outside Plant, Public Notice, CC
Docket Nos. 96-45, 97-160, DA-2372 (rel. Nov. 13, 1997) 62 FR 65389
(Dec.12, 1997).
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7. The only geocode data currently on the record are those provided
by the proponents of the HAI model.6 The Metromail database
on which HAI's residential geocodes are based is a commercial database
developed primarily for the purpose of direct marketing. HAI's geocodes
for businesses are based on a database of business addresses compiled
by Dun & Bradstreet.
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\6\ HAI was submitted by AT&T and MCI. See Letter from Richard
N. Clarke, AT&T, to Magalie Roman Salas, FCC, dated Dec. 11, 1997).
Versions of HAI filed before February 3, 1998, were known as the
Hatfield Model.
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8. We seek comment on any alternative source of geocode data, or
databases that could be used to develop geocodes for use in 1999,
including information on the openness, reliability, and cost of the
data.7 For example, WorldCom notes the availability of
global positioning satellite (GPS) devices, which they contend can
provide latitude and longitude coordinates that are more precise than
geocoding methods utilized by HAI.8 We seek comment on
whether the benefits of geocoding using a GPS device outweigh the
burdens associated with developing the data, compared to
[[Page 28341]]
alternative methods of obtaining geocoded data. We also request comment
on other possible methods and technologies for geocoding business and
residential locations, and their associated costs, in particular for
partial use in determining support for 1999. Commenters suggesting
alternative sources of data should include empirical evidence
documenting and verifying the accuracy of these data sources, including
how these data are typically used, who is currently using the data, the
extent to which these data would be available for determining support
in 1999, and the criteria used to develop these data.
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\7\ In filings with the Common Carrier Bureau, several incumbent
LECs have represented that they have geocoded a relatively large
percentage of their customers. See, e.g., Letter from Ted Hackman,
Cincinnati Bell, to Secretary, FCC, dated April 24, 1998
(99.8%,99.6%, and 99.2% of its customer accounts for Ohio, Kentucky,
and Indiana, respectively); Letter from W. Scott Randolph, GTE, to
Secretary, FCC, dated April 27, 1998.
\8\ A GPS device can associate the physical structure to which a
carrier provides services, such as a house, with coordinates
identified by satellite technology. Letter from David Porter,
WorldCom, to William Caton, FCC, dated Oct. 16, 1997 (World Com Oct.
16 ex parte) at 3.
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ii. Maximum Copper Loop Length
9. In addition, we seek to augment the record on the appropriate
maximum loop length that the federal mechanism should assume is
permissible without the use of significantly more expensive
electronics. The proponents of the BCPM model 9 assert that
copper loops longer than 12,000 feet would require the use of a
substantially more expensive extended-range card in the digital loop
carrier (DLC), while the HAI proponents assert that copper lengths can
extend to 18,000 feet using only a slightly more expensive card in the
DLC. The resolution of this question has a significant effect on cost
estimates because the maximum copper length constrains the maximum size
of a serving area. We seek comment on this issue. In particular, we
seek comment on the type and cost of line cards required to serve loops
between 12,000 and 18,000 feet from a DLC remote terminal.
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\9\ BCPM is sponsored by BellSouth, U S West, and Sprint Local
Telephone Company. See Submission to CC Docket Nos. 96-45 and 97-160
by Bellsouth, U S West, and Sprint dated Dec. 11, 1997.
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iii. Defining ``Households''
10. We also seek further comment on the appropriate input value to
measure the number of households used in the federal mechanism. The
sixth criterion identified in the Universal Service Order specifies
that a ``model must estimate the cost of providing service for all
businesses and households within a geographic region.'' 10
It appears that the Census Bureau uses the term ``households'' as a
term of art to refer to occupied housing units.11 Different
parties have advocated alternative interpretations of the sixth
criterion. BCPM identifies the cost of outside plant that would serve
all housing units,12 occupied or not, while HAI identifies
the cost of serving Census-defined households with
telephones.13
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\10\ Universal Service Order, 12 FCC Rcd at 8915 para. 250.
\11\ See the Census Bureau's website at http://www.census.gov/
population/estimates/housing/prhuhht1.txt (defining a housing unit
as ``a house, an apartment, a mobile home, a group of rooms or a
single room that is occupied (or if vacant, is intended for
occupancy) as a separate living quarters.''). See also the Census
Bureau's website at http://www.census.gov/population/methods/
sthhmet.txt (``A housing unit is classified as vacant if no one is
living in it, unless its occupants are only temporarily absent * *
*. Vacant units are excluded if they are open to the elements; that
is, the roof, walls, windows, and/or doors no longer protect the
interior from the elements, or if there is positive evidence that
the unit is condemned or is to be demolished.'')
\12\ BCPM December 11 submission, Model Methodology at 8.
\13\ AT&T and MCI ex parte, December 23, 1997.
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11. We encourage parties to submit additional comment on the
appropriate universe of ``households'' that should be assumed for
purposes of calculating the forward-looking cost of providing the
supported services: total housing units (occupied and unoccupied),
total households (housing units that are occupied), or households with
telephones.14 We also seek comment on the HAI proponents'
assumption that uninhabited housing units or households without
telephones are more likely to be located in remote areas than
households with telephones.
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\14\ We note that the question of which ``households'' and
business locations should be included for purposes of estimating the
forward-looking cost of providing the supported services is distinct
from the question of which lines should be supported. Indeed, we
specified that the model must estimate the costs incurred to provide
multi-line business services, special access, private lines and
multiple residential connections. Universal Service Order, 12 FCC
Rcd at 8915 para. 250. Cf. Recommended Decision, 12 FCC Rcd 87, 132-
134, paras. 89-92 (1996) (recommending that support should be
provided only for primary residential connections and single-line
business connections, and that business connections should receive a
lower level of support).
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12. In particular, we seek comment on alternative sources of data
to those used in HAI 15 and BCPM 16 for
determining the number of residential and business customers located in
either the wire center, Census Block Group (CBG),17 or
CB.18 Any such information should include empirical evidence
documenting and verifying the accuracy, cost, and current availability
of these data sources. We ask commenters to address whether we should
require incumbent LECs to provide the universal service administrator
with wire center boundary data and the number of residential, multi-
line and single-line business lines served in each wire center.
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\15\ In determining the number of customers in a Census Block
(CB) or wire center, HAI utilizes the PNR National Access Line Model
(NALM). The PNR NALM uses PNR survey information, the Local Exchange
Routing Guide (LERG), Business Location Research (BLR) wire center
boundaries, a Dun & Bradstreet business database, the Metromail
household database, the Claritas 1996 demographic database, and U.S.
Census Bureau estimates to calculate both the number of residential
and business locations and access lines in each CB, and in each wire
center in the United States.
\16\ BCPM also uses U.S. Census Bureau data and business line
data obtained from PNR.
\17\ A census block group is a collection of census blocks. The
Bureau of the Census defines a ``census block group'' as ``generally
contain[ing] between 250 and 550 housing units, with the ideal size
being 400 housing units.'' U.S. Census Bureau, 1990 Census of
Population and Housing, at App. A, ``Area Classifications'' (issued
Mar. 1992).
\18\ We note that our request for a source of accurate and
reliable data about the number of residential and business customers
in a geographic area is related to our request for accurate,
reliable, and extensive geocode data.
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iv. Depreciation
13. In the Universal Service Order, the Commission articulated a
set of criteria that acceptable cost studies or models must meet in
order to be used to determine federal high-cost support. These criteria
were adopted to ensure consistency in the calculations of federal
universal service support. In criterion five, the Commission noted that
``(e)conomic lives and future net salvage percentages used in
calculating depreciation expense should be within the FCC-authorized
range and use currently authorized depreciation lives.'' 19
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\19\ Universal Service Order, 12 FCC Rcd at 8914 para. 250.
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14. We seek comment on the particular values of depreciation lives
and future net salvage percentages we should use to determine the
forward-looking cost of providing supported services in a competitive
environment. Commenters submitting specific proposals should submit the
data and a description of the methodologies used to derive their
estimates of depreciation lives and future net salvage values for all
classes of assets. Because economic lives may differ from physical
lives for a variety of reasons, we ask commenters to identify all of
the factors used to derive their estimates. Commenters should discuss
and quantify the impact all factors considered in their analysis have
on projected economic lives and salvage values. For example, commenters
should address the effect potential or actual competition, changes in
asset prices, or the desire to introduce new services may have on asset
lives. Commenters should also explain fully why their approach is
appropriate for a model being used to estimate the forward-looking cost
of providing supported services in high-cost areas and whether
determining the cost of supported services requires the use of
depreciation lives and salvage rates
[[Page 28342]]
specifically designed for that purpose. Commenters recommending asset
lives and salvage values that fall outside of Commission ranges should
explain fully why such lives are appropriate. Finally, we note that
BCPM and HAI use different methodologies for computing depreciation
expenses. HAI uses straight-line depreciation,20 while BCPM
incorporates many different methodologies,21 to compute
depreciation and capital expenses. We seek comment on the specific
advantages of the different methodologies available for calculating
rates of economic depreciation (including those used in BCPM and HAI),
the use of different methodologies for different assets, and the effect
of their use on calculated costs. Commenters should provide studies
supporting the methodologies advocated.
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\20\ HAI Dec. 11 submission, Model Description at 67.
\21\ BCPM Dec. 11 submission, Model Methodology at 80.
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v. Cost of Installing Outside Plant
15. In the Further Notice, the Commission noted that a carrier's
outside plant consists of a mix of aerial, underground, and buried
cable. The cost of installing each type of outside plant depends on
terrain conditions, line density, and other factors. For example,
depending on the situation, cable can be placed in trenches dug by hand
or with a backhoe, or it may be plowed directly into the ground. The
total cost of construction depends upon the cost of each of these
activities and the percentage of cable that is placed in each manner.
In the Further Notice, the Commission tentatively concluded that
installation costs for cable should vary based on terrain and line
density and reached other tentative conclusions about the cost of
installing outside plant.22 The model proponents have filed
default values for the cost of each of these activities and the
percentage of cable that would be installed in each manner. We seek
comment on the tentative conclusions in the Further Notice and the
model proponents' default values. Additionally, Dr. David Gabel of
Queens College has analyzed data from the Rural Utilities Service
regarding the cost of installing cables. We seek comment on Dr. Gabel's
analysis and whether it is applicable to non-rural
carriers.23 Parties supporting or refuting the
appropriateness of the default values, or proposing alternate values,
should provide documentation in support of their position. For example,
parties may provide information on labor and capital tools rates, along
with the quantity of inputs needed to construct the plant. Commenters
should also address whether it is appropriate to use a composite rate
for the nation or whether these rates should differ by state or region.
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\22\ See Further Notice, 12 FCC Rcd at 18,541-18,544, paras. 60-
69.
\23\ Dr. Gabel's paper is available on the World Wide Web at
http://www.nrri.ohio-state.edu/, and also via a link from the
Commission's Universal Service home page.
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B. Revenues to be Included and Level of the Benchmark
16. In the Universal Service Order, the Commission determined that
the level of federal high cost support that eligible non-rural carriers
will receive will be 25 percent of the difference between the estimated
forward-looking economic cost of providing the supported services and a
revenue benchmark.24 The Joint Board recommended that the
Commission adopt a nationwide revenue benchmark to calculate such
support. Because the ``cost estimated by the proxy models includes the
cost of the facilities used to provide (local, discretionary, access,
and other) services,'' 25 the Joint Board concluded that the
benchmark should include revenues generated by all of the services
provided over the network being modeled.26 Further, the
Joint Board recommended that the Commission adopt separate benchmarks
for residential and business services.27 In April 1997, a
majority of the state members of the Joint Board concluded that the
Commission should establish a benchmark based on cost--specifically,
the national average proxy cost--rather than revenue against which to
compare costs in a given area in order to determine support for that
area.28
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\24\ Universal Service Order, 12 FCC Rcd at 8925-8926 para. 270.
See also Federal-State Joint Board on Universal Service, Report to
Congress, CC Docket No. 96-45, FCC 98-67, paras. 219-231 (rel. April
10, 1998). See also Common Carrier Bureau Seeks Comment on Proposals
to Revise the Methodology for Determining Universal Service Support,
Public Notice, DA 98-715 (rel. April 15, 1998).
\25\ The Joint Board stated that ``[d]iscretionary services
include services that are added on to basic local service, e.g.,
call waiting, call forwarding or caller ID.'' Recommended Decision,
12 FCC Rcd at 246 n.1002.
\26\ Recommended Decision, 12 FCC Rcd at 246-47.
\27\ Recommended Decision, 12 FCC Rcd at 247.
\28\ Second State Proxy Models Report at 14.
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17. In the Universal Service Order, the Commission adopted the
Joint Board's recommendation to establish a revenue-based benchmark,
but indicated its intention to seek comment on the specific benchmark
or benchmarks that should be used.29 In the Universal
Service Order, the Commission found that the calculation of the revenue
benchmarks must be consistent with the method of calculating the
forward-looking cost of constructing and operating the
network.30 In particular, it indicated in the Universal
Service Order that the Commission would clarify the appropriate amount
of access charge revenue that should be included in the revenue
benchmark.31 We seek comment generally on the amount of
access revenues that should be included in the benchmark. Also, in the
Universal Service Order, the Commission noted that the models filed in
this proceeding do not include estimates of the costs of all the
elements used in the delivery of access services.32 Because
access charges currently are above cost, however, the Commission
concluded that ``unless and until both interstate and intrastate access
charges have been reduced to recover only per-minute switch and
transport costs, access revenues should be included in the benchmark.''
33 Similarly, the Commission also stated that ``(w)e will
seek further information to clarify the appropriate amount of * * *
intraLATA toll revenue that should be included in the revenue
benchmark.'' 34 We, therefore, seek comment on whether we
should exclude from the revenue-benchmark estimates, for purposes of
determining universal service support, the incremental costs associated
with the provision of services that are not supported by universal
service but which contribute to the revenue benchmark. We seek comment
on this issue and ask commenters to provide estimates of the amount
that should be deducted from the benchmark. We note that the models
exclude the costs of switching and transport for intraLATA toll and
interstate and intrastate access services. Alternatively, we seek
comment on whether the models should be altered to include the
incremental costs associated with the provision of services that are
not supported by
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universal service but which contribute to the revenue benchmark.
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\29\ Universal Service Order, 12 FCC Rcd at 8919-20, 8923-24
paras. 259, 266.
\30\ Universal Service Order, 12 FCC Rcd at 8924 para. 267.
Specifically, for purposes of determining support, a revenue
benchmark could be considered consistent with forward-looking cost
estimates if all of the facilities used to deliver services included
in the revenue benchmark are included in the cost estimates.
\31\ Universal Service Order, 12 FCC Rcd at 8924 para. 267.
\32\ Universal Service Order, 12 FCC Rcd at 8921 para. 262.
\33\ Universal Service Order, 12 FCC Rcd at 8921 para. 262.
\34\ Universal Service Order, 12 FCC Rcd at 8924 para. 267.
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18. We also encourage parties to provide further information about
the services that can be provided over the network that the universal
service mechanism is designed to support, and the revenues related to
those services, because such information will enable us to set the
benchmarks accurately. Based on 1994 data received in response to our
earlier data request in CC Docket No. 80-286, the Commission suggested
in the Universal Service Order that the benchmarks might be set at
approximately $31 for residential service and $51 for business
service.35
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\35\ Universal Service Order, 12 FCC Rcd at 8924 para. 267.
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Final Regulatory Flexibility Analysis
19. In the Universal Service Order we conducted a Final Regulatory
Flexibility Analysis (FRFA),36 as required by the Regulatory
Flexibility Act (RFA).37 We received no petitions for
reconsideration of that FRFA. In this present Public Notice, the
Commission promulgates no additional final rules, and our action does
not affect the previous analysis. If commenters believe that the
proposals discussed in this Public Notice require additional RFA
analysis, they should include a discussion of these issues in their
comments.
\36\ Universal Service Order, 12 FCC Rcd at 9219-9260 paras.
870-983.
\37\ See 5 U.S.C. 604. The RFA, see 5 U.S.C. 601 et. seq., has
been amended by the Contract With America Advancement Act of 1996,
Pub. L. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA
is the Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA).
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Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-13654 Filed 5-21-98; 8:45 am]
BILLING CODE 6712-01-P