Federal Communications Commission DA 15-1210 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of National Exchange Carrier Association, Inc. 2016 Modification of Average Schedule Universal Service Support Formula High-Cost Universal Service Support ) ) ) ) ) ) ) ) ) WC Docket No. 05-337 ORDER Adopted: October 23, 2015 Released: October 23, 2015 By the Deputy Chief, Telecommunications Access Policy Division, Wireline Competition Bureau: I. INTRODUCTION 1. Pursuant to section 69.606(b) of the Commission’s rules, the National Exchange Carrier Association, Inc. (NECA) has submitted the annual average schedule company high-cost loop support (HCLS) formula modifications for Commission review. 1 The Commission’s rules require that this formula “simulate the disbursements that would be received . . . by a company that is representative of average schedule companies.” 2 For the reasons discussed below, we approve NECA’s proposed HCLS formula for 2016. II. HIGH-COST LOOP SUPPORT FORMULA 2. Pursuant to Part 54 of the Commission’s rules, HCLS, also known as the loop expense adjustment, provides universal service support to carriers with high loop costs based on the extent that an individual company’s cost per loop (CPL) exceeds the national average cost per loop (NACPL). 3 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 a formula developed by NECA and approved annually by the Wireline Competition Bureau (Bureau). 4 This formula is developed by 1 47 C.F.R. § 69.606(b); see Federal-State Joint Board on Universal Service, National Exchange Carrier Association, Inc. 2005 Modification of Average Schedule Universal Service Formulas, CC Docket No. 96-45, Order, 19 FCC Rcd 24998, 25002, para. 7 (Wireline Comp. Bur. 2004) (2005 Order) (requiring NECA to file high-cost loop support formula and supporting data no later than September 1 annually). 2 47 C.F.R. § 69.606. 3 See 47 C.F.R. Part 54, Subpart M. 4 See National Exchange Carrier Association, Inc. Proposed Modifications to the 1998-99 Interstate Average Schedule Formulas, ASD 98-96, Order, 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 company-specific cost studies. See, e.g., ALLTEL Corp. v. FCC, 838 F.2d 551, 553 (D.C. Cir. 1988). Federal Communications Commission DA 15-1210 2 NECA using data from a sample group of average schedule carriers and similarly-situated companies that file cost data (cost companies) in addition to data (access line and exchange information) obtained from the entire population of average schedule carriers; once approved, the formula is used to determine support amounts for all average schedule carriers. 3. In December 2014, the FCC adopted a Report and Order that modified the way HCLS expense adjustments are calculated starting July 1, 2015. The targeted change to the existing HCLS rule was designed to provide a more equitable distribution of HCLS among carriers by reducing support proportionally among all HCLS recipients to remain within the shrinking HCLS cap, instead of eliminating support altogether for some companies while preserving support for other companies. 5 4. On August 21, 2015, NECA filed proposed modifications to the current HCLS universal service formula for average schedule companies and requested that they take effect on January 1, 2016, and remain in effect through December 31, 2016. 6 On August 25, 2015, the Bureau issued a public notice seeking comment on NECA’s proposed formula. 7 No comments were received. 5. Consistent with prior years, NECA proposes calculating HCLS payments for 2016 for average schedule companies based on the relationship of CPL data of sample companies to values representing the number of loops per exchange (CPL calculations). 8 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, and uses regression analyses to predict CPLs for all average schedule carriers. Each average schedule company’s derived CPL is then used to calculate the HCLS support amount consistent with section 54.1310 of the Commission’s rules, as revised in 2014. 9 The 2015 HCLS formula previously approved by the Bureau is expected to provide $8.0 million in payments to carriers serving 165 average schedule study areas. 10 NECA’s proposed formula 5 See Connect America Fund, WC Docket No. 10-90, ETC Annual Reports and Certifications, WC Docket No. 14- 58, Petition of USTelecom for Forbearance Pursuant to 47 U.S.C. § 160(c) from Obsolete ILEC Regulatory Obligations that Inhibit Deployment of Next-Generation Networks, WC Docket No. 14-192, Report and Order, 29 FCC Rcd 15644, 15680-84, paras. 102-114 (2014). 6 See 2016 NECA Modification of the Average Schedule Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337 (filed Aug. 21, 2015) (NECA 2016 Filing). 7 See Comment Sought on the 2016 Modification of Average Schedule Company Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337, Public Notice, 30 FCC Rcd 8487 (Wireline Comp. Bur. 2015). 8 See NECA 2016 Filing at 1-27; see also, e.g., National Exchange Carrier Association, Inc.; 2015 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05- 337, Order, 29 FCC Rcd 14952, 14954, para. 4 (Wireline Comp. Bur. 2014) (2015 Order); National Exchange Carrier Association, Inc.; 2014 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 28 FCC Rcd 16885, 16887, para. 4 (Wireline Comp. Bur. 2013) (2014 Order); National Exchange Carrier Association, Inc.; 2013 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 27 FCC Rcd 15178, 15180, para. 6 (Wireline Comp. Bur. 2012) (2013 Order); National Exchange Carrier Association, Inc. and Universal Service Administrative Company; 2012 Modification of Average Schedule Universal Service Support Formulas; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 27 FCC Rcd 133, 135, para. 6 (Wireline Comp. Bur. 2012) (2012 Order). 9 See NECA 2016 Filing at 1-27. 10 We note that the current amount of support expected to be paid for 2015 – $8.0 million – is less than the amount that was projected when NECA submitted its original average schedule formula for 2015. See 2015 NECA Modification of the Average Schedule Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337 (filed Aug. 27, 2014). At that time, NECA estimated that the CPL formula would result in total payments of $10.3 (continued...) Federal Communications Commission DA 15-1210 3 for 2016 projects $11.3 million in payments to carriers serving 194 average schedule study areas. 11 NECA states that most of the increase is due to the rule change adopted by the Commission in 2014. 12 6. We find that NECA’s results and CPL calculations appear to be accurate and complete, and the proposed HCLS formula should reasonably approximate the CPL of the sample average schedule companies, and thereby allocate funds appropriately to average schedule companies. 13 Therefore, we approve the HCLS formula as provided in NECA’s August 21, 2015 submission. III. ORDERING CLAUSE 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 21, 2015 for high-cost loop support IS ADOPTED, as described herein, effective as of January 1, 2016. FEDERAL COMMUNICATIONS COMMISSION Alexander A. Minard Deputy Chief Telecommunications Access Policy Division Wireline Competition Bureau (Continued from previous page) million for 2015. See id. at 1. To ensure that total disbursed HCLS remains under the HCLS indexed cap, however, payments to all cost companies and average schedule companies were reduced. See NECA 2016 Filing at 1. 11 See NECA 2016 Filing at 1. For 2013, 2014 and 2015, approved high-cost loop average schedule formulas were estimated to result in total payments of $13.7 million, $11.2 million and $10.3 million, respectively. See 2013 Order, 27 FCC Rcd at 15180, para. 7 n.16; 2014 Order, 28 FCC Rcd at 16886, para. 4 n.10; 2015 Order, 29 FCC Rcd at 14952, para. 4 n.10. 12 See NECA 2016 Filing at 2. NECA observes that if the prior rules were applied, then the proposed formula would have increased payments to average schedule companies by approximately 2 percent. 13 See, e.g., 2012 Order, 27 FCC Rcd at 135, para. 7; 2013 Order, 27 FCC Rcd at 15180, para. 7; 2014 Order, 28 FCC Rcd at 16886, para. 4; 2015 Order, 29 FCC Rcd at 14952, para. 5.