Federal Communications Commission DA 07-5077 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Federal-State Joint Board on Universal Service National Exchange Carrier Association, Inc. and Universal Service Administrative Company 2008 Modification of Average Schedule Universal Service Formulas ) ) ) ) ) ) ) ) ) CC Docket No. 96-45 ORDER Adopted: December 20, 2007 Released: December 20, 2007 By the Chief, Wireline Competition Bureau: I. INTRODUCTION 1. Each year, the Commission must review and approve or modify any proposed modifications to the formulas used to calculate high-cost loop support and local switching support for average schedule companies.1 Pursuant to section 69.606(b) of the Commission’s rules, the National Exchange Carrier Association, Inc. (NECA) files the annual average schedule company formula modifications for high-cost loop support.2 Pursuant to section 54.301(f) of the Commission’s rules, the Universal Service Administrative Company (USAC) submits the proposed formula for local switching support.3 The Commission’s rules require that these formulas simulate the disbursements that would be received by a company that is representative of average schedule companies.4 2. On August 28, 2007, NECA filed proposed modifications to the current high-cost loop universal service formula for average schedule companies, and it requested that they take effect on January 1, 2008, and remain in effect through December 31, 2008.5 On September 28, 2007, USAC filed proposed modifications to the current local switching support formula for average schedule companies which, if approved, will be effective from January 1, 2008, through December 31, 2008.6 On October 5, 1 See 47 C.F.R. § 69.606; 47 C.F.R. § 54.301(f). 2 47 C.F.R. 69.606(b); see also National Exchange Carrier Association, Inc. 2005 Modification of Average Schedule Universal Service Formulas, CC Docket No. 96-45, 19 FCC Rcd 24998, 25002, para. 7 (Wireline Comp. Bur. 2005) (2005 Order) (requiring NECA to file high cost loop formula and supporting data no later than September 1). 3 47 C.F.R. § 54.301(f). 4 See 47 C.F.R. § 69.606; 47 C.F.R. § 54.301(f). 5 See 2008 NECA Modification of the Average Schedule Universal Service High Cost Loop Support Formula, CC Docket No. 96-45 (filed Aug. 28, 2007) (NECA 2008 Filing). 6 See Letter from Karen M. Majcher, USAC, to Marlene H. Dortch, FCC, CC Docket No. 96-45 (filed Sept. 28, 2007) (USAC 2008 Filing) (attaching 2008 average schedule local switching support formula). Federal Communications Commission DA 07-5077 2 2007, the Wireline Competition Bureau (Bureau) issued a public notice soliciting comments on NECA’s and USAC’s proposed formulas.7 For the reasons discussed below, we approve NECA’s proposed high- cost loop formula and USAC’s proposed local switching support formula. II. HIGH-COST LOOP SUPPORT FORMULA 3. Pursuant to Part 36 of the Commission’s rules, high-cost loop support, also known as the loop expense adjustment, is intended to provide universal service support to carriers with high loop costs based on the degree that an individual company’s cost per loop exceeds the national average.8 Because average schedule companies are not required to perform company-specific cost studies – the basis upon which a carrier’s expense adjustment is calculated – the Commission has permitted expense adjustments for average schedule companies to be calculated pursuant to formulas developed by NECA and approved or modified annually by the Bureau.9 These formulas are developed by NECA using data from a sample group of average schedule carriers and from similarly situated companies that file cost data, and are used to determine support amounts for all average schedule carriers. 4. Consistent with high-cost loop formulas approved in prior years, for 2008 NECA proposes calculating high-cost loop support payments for average schedule companies based on a formula that relates cost per loop (CPL) data of sample companies to their loops per exchange values (CPL formula).10 The proposed CPL formula for 2008 has been developed using the same methodology as used and approved in prior years.11 The current approved high-cost loop support formula is expected to 7 See Comment Sought on the 2008 Modification of Average Schedule Universal Service High-Cost Loop Support Formula and the 2008 Average Schedule Company Local Switching Support Formula, CC Docket No. 96-46, Public Notice, 22 FCC Rcd 18081 (Wireline Comp. Bur. 2007). No comments were filed. 8 See 47 C.F.R. Part 36, subpart F. 9 See National Exchange Carrier Association, Inc. Proposed Modifications to the 1998-99 Interstate Average Schedule Formulas, Order, ASD 98-96, 15 FCC Rcd 1819, 1819-20, para. 2 (1999). Average schedule companies have been permitted by the Commission to estimate their access settlements and universal service support through the use of average schedules to avoid the difficulties and expenses involved with conducting company-specific cost studies. See, e.g., ALLTEL Corp. v. FCC, 838 F.2d 551, 553 (D.C. Cir. 1998). 10 See NECA 2008 Filing at 1-25; National Exchange Carrier Association, Inc. and Universal Service Administrative Company 2007 Modification of Average Schedule Universal Service Formulas, CC Docket No. 96- 45, Order, 22 FCC Rcd 179, 183, para. 7 (Wireline Comp. Bur. 2007) (2007 Order); National Exchange Carrier Association, Inc. and Universal Service Administrative Company 2006 Modification of Average Schedule Universal Service Formulas, CC Docket No. 96-45, Order, 21 FCC Rcd 188, 192, para. 8 (Wireline Comp. Bur. 2006) (2006 Order). Each year from 2000 to 2005, NECA filed Applications for Review or Petitions for Reconsideration requesting that the Commission or Bureau approve NECA’s preferred expense adjustment per loop formula rather than the CPL formula. On March 9, 2007, NECA submitted a request to withdraw these filings. We granted NECA’s request for withdrawal. See Federal-State Joint Board on Universal Service, National Exchange Carrier Association, Inc. Proposed Modifications of 2000, 2001, 2002, 2003, 2004, and 2005 Average Schedule Universal Service Formulas, CC Docket No. 96-45, Order, 22 FCC Rcd 5093 (Wireline Comp. Bur. 2007). 11 NECA uses regression analyses to develop the CPL formula. NECA collects account data from a sample group of average schedule carriers. To estimate current year costs, NECA applies forecasted growth factors to data collected from sample average schedule carriers one and two years prior to the current year. NECA then applies cost allocation factors—developed from the cost studies of similarly situated cost companies—to the account balances of each sample average schedule company to estimate a CPL for each of the sample companies. NECA then uses regression analyses to predict CPLs for all average schedule carriers. Each average schedule company’s derived CPL is then used to calculate the appropriate support amount. See NECA 2008 Filing at 1-25. Federal Communications Commission DA 07-5077 3 provide $48.1 million in payments for 2007 to 375 study areas.12 NECA’s proposed formula for 2008 would provide an estimated $46.8 million payable to 388 study areas for 2008, a decrease of 2.7 percent over 2007 year payments.13 5. Consistent with our prior orders, we approve NECA’s proposed CPL formula for purposes of calculating average schedule company expense adjustments for 2008. The Bureau has consistently held, and the Commission has upheld, that the appropriate high-cost loop support formula should reasonably approximate the CPL of the sample average schedule companies and allocate funds accurately to average schedule companies.14 Because NECA’s submission of the results derived from the CPL formula appear to be accurate and complete, we approve the CPL formula as provided in NECA’s August 28, 2007, submission. III. LOCAL SWITCHING SUPPORT FORMULA 6. The local switching support formula is used to determine the amount of support for switching costs that will be provided to average schedule companies from the Commission’s universal service high-cost support mechanism.15 The current interstate local switching support formula was approved on January 9, 2007.16 In its September 28, 2007, filing, USAC proposes a formula for 2008 which, if approved, would decrease annual payments for local switching support for average schedule companies from approximately $86.3 million in 2007 to approximately $69.4 million in 2008, a decrease of approximately 16.9%.17 We have reviewed USAC’s filing and the supporting information in NECA’s 2007 Modification of Average Schedules and find that the methodology used to develop this year’s proposed formula is the same methodology used to develop the formula we approved during the last 12 We note that the current amount of $48.1 million is less than the amount that was indicated in the NECA 2007 Filing using the CPL formula. See 2007 NECA Modification of the Average Schedule Universal Service High Cost Loop Support Formula, CC Docket No. 96-45 (filed Aug. 30, 2006) (NECA 2007 Filing). The NECA 2007 Filing estimated the CPL formula would result in total payments of $56.1 million. Due to adjustments made to the national average cost per loop to ensure that the amount of high-cost loop support disbursed remains under the indexed cap, however, payments to all cost companies and average schedule companies were reduced. See NECA 2008 Filing at 1. 13 See NECA 2008 Filing. 14 National Exchange Carrier Association, Inc. Proposed 2003 Modification of Average Schedule Formulas, CC Docket No. 96-45, Order, 17 FCC Rcd 26204, 26207-08, para. 8 (Wireline Comp. Bur. 2002) (2003 Order); National Exchange Carrier Association, Inc. Proposed 2004 Modification of Average Schedule Formulas, CC Docket No. 96-45, Order, 18 FCC Rcd 26619, 26622, para. 6 (Wireline Comp. Bur. 2003) (2004 Order); 2005 Order, 19 FCC Rcd at 25001, para. 6; 2006 Order, 21 FCC Rcd at 192, para. 8. 15 Local switching support is a portion of the settlements that average schedule companies receive for providing interstate local switching access service. Average schedule companies recover the remaining costs of providing interstate local switching access costs through NECA’s local switching access charges. 16 See 2007 Order. 17 See USAC 2008 Filing at Attachment; Letter from Karen M. Majcher, USAC, to Marlene H. Dortch, FCC, CC Docket No. 96-45 (filed Nov. 16, 2007) (attaching 2008 estimate of local switching support for average schedule companies). Federal Communications Commission DA 07-5077 4 payment period.18 Consistent with the Bureau’s prior orders, we approve USAC’s proposed 2008 average schedule local switching support formula.19 IV. ORDERING CLAUSES 7. Accordingly, IT IS ORDERED, pursuant to sections 0.91 and 0.291 of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, that the average schedule cost per loop formula proposed by the National Exchange Carrier Association, Inc. on August 28, 2007, for high-cost loop support IS ADOPTED, effective as of January 1, 2008. 8. IT IS FURTHER ORDERED, pursuant to sections 0.91 and 0.291 of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, that the universal service support formula proposed by the Universal Service Administrative Company on September 28, 2007, for local switching support IS ADOPTED, effective as of January 1, 2008. FEDERAL COMMUNICATIONS COMMISSION Dana R. Shaffer Chief Wireline Competition Bureau 18 USAC’s average schedule local switching support formula is developed by studies documented in NECA’s annual modification of average schedules filing. See National Exchange Carrier Association, Inc., 2007 Modification of Average Schedules, WC Docket No. 06-223 (filed Dec. 21, 2006) (NECA’s 2007 Modification of Average Schedules); USAC 2008 Filing (attaching 2008 average schedule local switching support formula); 2007 Order, 22 FCC Rcd at 180, para. 3. 19 See, e.g., 2005 Order, 19 FCC Rcd at 24999, para. 2; 2006 Order, 21 FCC Rcd at 189, para. 3; 2007 Order, 22 FCC Rcd at 180, para. 3.