Federal Communications Commission DA 11-1172
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Jurisdictional Separations and Referral to the
Federal-State Joint Board
National Telecommunications Cooperative
Association
CC Docket No. 80-286
Petition for Clarification and/or Limited Waiver of
Part 36 Jurisdictional Separations Rules
ORDER
Adopted: July 7, 2011 Released: July 7, 2011
By the Chief, Wireline Competition Bureau:
I. INTRODUCTION
1. In this order, we deny a request from the National Telecommunications Cooperative
Association (NTCA) for a clarification or waiver of section 36.392 Commission's rules.1 Specifically,
NTCA requests clarification or a waiver to allow rate-of-return regulated incumbent local exchange
carriers (LECs) to assign to the interstate jurisdiction all costs associated with audits of the federal
universal service fund (USF) conducted by the Commission's Office of Inspector General (OIG) or the
Universal Service Administrative Company (USAC).2 We find that the rule does not need clarification
and that NTCA has not demonstrated that good cause warrants waiver of this rule to allow rate-of-return
incumbent LECs to directly assign the costs associated with these audits to the interstate jurisdiction.
II. BACKGROUND
2. Jurisdictional separations is the process by which incumbent local exchange carriers
(LECs) apportion regulated costs between the intrastate and interstate jurisdictions. The purpose of
separating costs between jurisdictions is to prevent regulated incumbent LECs from recovering the same
costs in both jurisdictions.3 Incumbent LECs perform jurisdictional separations by apportioning regulated
costs between the intrastate and interstate jurisdictions in accordance with the Commission's Part 36
See National Telecommunications Cooperative Association Petition for Clarification and/or Waiver of Part 36
Rules, CC Docket No. 80-286 (dated Aug. 29, 2008; filed Oct. 9, 2008) (Petition); 47 C.F.R. §36.392.
2 See Petition at 5, 8.
Jurisdictional Separations and Referral to the Federal-State Joint Board, CC Docket No. 80-286, Order and Further
Notice of Proposed Rulemaking, 21 FCC Rcd 5516, 5517, para. 2 (2006).
Federal Communications Commission DA 11-1172
separations rules.4 These costs are apportioned to the jurisdictions based upon either a relative use factor,
a fixed allocator, or, when specifically allowed in the Part 36 rules, by direct assignment.5
3. Part 32 of the Commission's rules, the Uniform System of Accounts, requires that
expenses for both internal and external audits are recorded in Account 6720-General and administrative
expense.6 The Part 36 rules require that expenses, other than Extended Area Services expense, charged to
Account 6720 are allocated among the jurisdictions based on the results of the separations of the
combined "Big Three Expenses."7
4. The objective of high-cost universal service support historically has been to help ensure
that consumers have access to telecommunicatiOns services in areas where the cost of providing such
services would otherwise be prohibitively high.8 In section 254 of the Communications Act, Congress
directed the Commission to preserve and advance universal service by ensuring, among other things, that
consumers in rural, insular, and high-cost areas have access to telecommunications services at rates that
are "reasonably comparable to rates charged for similar services in urban areas."9
5. NTCA requests clarification that the Commission's rules permit rate-of-return LECs to
directly assign to the interstate jurisdiction all costs associated with OIG and USAC audits, rather than
allocate such expenses to both the intrastate and interstate jurisdictions.'0 Alternatively, NTCA seeks a
waiver of the Commission's rules so that it may assign to the interstate jurisdiction all costs associated
with federal USF audits. On March 19, 2009, the Wireline Competition Bureau (Bureau) released a
public notice seeking comment on NTCA's petition."
6. NTCA argues that federal USF audits are solely interstate in nature, and therefore it is
appropriate that audit expenses be allocated to the interstate jurisdiction.'2 NTCA further states that these
447 C.F.R. Part 36.
Costs are directly assigned when the telecommunication service is jurisdictionally whole, i.e., a service that is
exclusively either intrastate or interstate in nature. For example, the cost of private line service that is wholly
intrastate in nature is assigned directly to the intrastate jurisdiction. See 47 C.F.R. § 36.154(a).
6 C.F.R. § 32.6720(c).
The Big Three Expenses are Plant Specific Expense, Non-Plant Specific Expense, and Customer Operations
Expense. 47 C.F.R. § 36.392(c).
'See, e.g., Federal-State Joint Board on Universal Service, Forward-Looking Mechanism for High Cost Support for
Non-Rural LECs, CC Docket Nos. 96-45, 97-160, Fifth Report and Order, 13 FCC Rcd 21323, para. 5 (1998) (Fifih
Report and Order).
47 U.S.C. § 254(b)(3).
10 See Petition at 1.
See Comment Sought on a Petition Filed by National Telecommunications Cooperative Association for
Clar?fication and/or Limited Waiver of the Commission's Part 36 Jurisdictional Separations Rules, CC Docket No.
80-286, Public Notice, 24 FCC Rcd 3250 (Wireline Comp. Bur. 2009). Comments were filed by GVNW Consulting
(GVNW), Alexicon Telecommunications Consulting (Alexicon), TCA, Inc.-Telcom Consulting Associates (TCA),
Missouri Small Telephone Company Group (Missouri Small Companies), and Verizon and Verizon Wireless -
(Verizon). Reply Comments were filed by NTCA and the State Members of the Federal-State Joint Board on
Separations (State Joint Board Members).
12 See Petition at 1. The Missouri Small Companies, TCA, GVNW, Alexicon, and the State Joint Board Members
all support NTCA's argument that the federal USF is an interstate program and audit costs should be assigned as
such. See e.g. Missouri Small Companies Comments at 3; TCA Comments at 1; GVNW Comments at 2; Alexicon
Comments at 2; State Joint Board Members Reply Comments at 2.
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Federal Communications Commission DA 11-1172
audits cost rural incumbent LECs between $30,000 and $50,000 per audit, directly affect the rates that
rural customers must pay to receive service, and expose rural incumbent LECs to the possibility that their
state public service commission may disallow the expense.13 NTCA states that, from both a common
sense and a practical standpoint, it is reasonable and prudent that incurred costs be assigned to the cost
causer and that these costs are incurred to comply with USF audits, which is an interstate program.'4
III. DISCUSSION
7. NTCA requests clarification or waiver of section 36.392 of the Commission's rules.'5
NTCA does not provide specific details on how section 36.392 may be unclear with respect to the
jurisdictional allocation of audit costs recorded in Account 6720-General and Administrative expenses.
Section 36.392 states that expenses in Account 6720, other than expenses for Extended Area Service,
"...are apportioned among the operations on the basis of the separation of the cost of the combined Big
Three Expenses.. ,,16 We find that the rule is clear, and on its face requires that audit costs be
apportioned among the interstate and intrastate jurisdictions. We therefore decline to "clarify" that our
rules mandate an alternative result.
8. We find that NTCA has not demonstrated that special circumstances or good cause exist
to warrant waiver of section 36.392 of the Commission's rules, and therefore we deny NTCA's request.'7
Federal universal service support is calculated using unseparated costs, i.e., before costs are allocated to
the jurisdictions pursuant to the separations rules.'8 We find it appropriate that the costs incurred for
complying with audits of universal service support be allocated to all jurisdictions that benefit from the
receipt of such support. We agree with Verizon that it is reasonable to apportion USF compliance costs
such as OIG and USAC audits between the federal and state jurisdictions because universal service
funding is used for facilities that support both interstate and intrastate services.'9
9. We do not find that the equities justify a waiver of section 36.392. We note that audit
costs may also be eligible for additional support from the federal USF regardless of how the costs are
allocated to the jurisdictions.20 We also note that state regulatory commissions conduct their own audits,
' See Petition at 2-3.
" See Petition at 6.
15 See Petition at 1.
16 Section 36.392 also clearly defines the Big Three Expenses. 47 C.F.R § 36.392. We note that Account 2110-
General Support Facilities, Account 6110-Network Support Expenses, and Account 6120-General Support Expenses
are also clearly separated on the basis of the Big Three Expenses. See e.g. 47 C.F.R § 36.111-36.112 and 36.311
7 Generally, the Commission may waive its rules for good cause shown. See 47 C.F.R. § 1.3. The Commission may
exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent with the public
interest. See Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990) (Northeast Cellular).
In addition, the Commission may take into account considerations of hardship, equity, or more effective
implementation of overall policy on an individual basis. See WAITRadio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir.
1969), cert. denied, 409 U.S. 1027 (1972); Northeast Cellular, 897 F.2d at 1166. Waiver of the Commission's rules
is therefore appropriate only if special circumstances warrant a deviation from the general rule, and such deviation
will serve the public interest. Northeast Cellular, 897 F.2d at 1166.
1847 C.F.R. § 36.611 and 54.301(b).
19 See Verizon Comments at 2-3.
20 Audit expenses are charged to Account 6720, which is an eligible expense for universal service support purposes.
47 C.F.R. § 32.6720, 36.611(e), 54.301(c)(5).
Federal Communications Commission DA 11-1172
and those costs are apportioned between the federal and state jurisdictions.21 We find that allocating audit
costs between the jurisdictions in the manner prescribed by the separations rules, particularly in light of
these factors, strikes a reasonable balance. It requires each jurisdiction to bear a fair share of the
administrative costs of universal service programs.
IV. ORDERING CLAUSES
10. ACCORDINGLY, IT IS ORDERED, pursuant to the authority contained in sections 1-4
and 254 of the Communications Act of 1934, as amended, 47 U.S.C. § 15 1-154 and 254, and the
authority delegated under sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R. § 0.91, 0.291,
that the petition for waiver of sections 36.392 the Commission's rules, 47 C.F.R. § 36.392, filed by the
National Telecommunications Cooperative Association on October 9, 2008, IS DENIED.
11. IT IS FURTHER ORDERED that, pursuant to section 1.1 02(b)( 1) of the Commission's
rules, 47 C.F.R. § 1.102(b)(l), this order SHALL BE EFFECTIVE upon release.
FEDERAL COMMUNICATIONS COMMISSION
Sharon E. Gillett
Chief
Wireline Competition Bureau
21 See 47 C.F.R. § 36.392, 36.611(e).
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