Federal Communications Commission DA 19-1242 Before the FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 In the Matter of National Exchange Carrier Association, Inc. 2020 Modification of Average Schedule Universal Service Support Formula High-Cost Universal Service Support ) ) ) ) ) ) ) ) ) WC Docket No. 05-337 ORDER Adopted: December 6, 2019 Released: December 6, 2019 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. 47 CFR § 69.606(b); see also 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 (WCB 2004) (2005 Order) (requiring NECA to file high-cost loop support formula and supporting data no later than September 1 annually). 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.” 47 CFR § 69.606. For the reasons discussed below, we approve NECA’s proposed HCLS formula for 2020. II. BACKGROUND 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). See 47 CFR Part 54, Subpart M. 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). 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). This formula is developed by 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. Average schedule companies that are participating in the NECA pools are required to report access line count data to NECA each month based on their billing of End User Common Line (EUCL) charges associated with basic local exchange service. See 2020 NECA Modification of the Average Schedule Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337, at 7 (filed Aug. 28, 2019) (NECA 2020 Filing). Once approved, the new derived 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 former 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. See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, 29 FCC Rcd 15644, 15680-84, paras. 102-114 (2014). 4. In March 2016, the Commission adopted the Rate-of-Return Reform Order, which among other things prescribed a new rate of return to be phased over a six- year period, beginning July 1, 2016, and adopted limits on operating expenses to be recovered through high-cost support. Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, Order and Order on Reconsideration and Further Notice of Proposed Rulemaking, 31 FCC Rcd 3087 (2016) (Rate-of-Return Reform Order). 5. On August 28, 2019, NECA filed proposed modifications to the current HCLS formula for average schedule companies and requested that they take effect on January 1, 2020 and remain in effect through December 31, 2020. See NECA 2020 Filing. The Bureau issued a public notice seeking comment on NECA’s proposed formula. See Comment Sought on the 2020 Modification of Average Schedule Company Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337, Public Notice, DA 19-851 (WCB 2019). No comments were received. III. DISCUSSION 6. Consistent with prior years, NECA proposes calculating 2020 HCLS payments 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). See NECA 2020 Filing at 1-28; see also, e.g., National Exchange Carrier Association, Inc.; 2019 Modifications of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 33 FCC Rcd 12227, 12229, Para. 6 (WCB 2018) (2019 Order); 2018 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 32 FCC Rcd 7654, 7656, para. 7 (WCB 2017) (2018 Order); 2017 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 31 FCC Rcd 12350, 12352, para. 7 (WCB 2016) (2017 Order); 2016 Modification of Average Schedule Universal Service Support Formula; High-Cost Universal Service Support, WC Docket No. 05-337, Order, 30 FCC Rcd 11571, 11573, para. 5 (WCB 2015) (2016 Order). 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. Thereafter, NECA 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. See NECA 2020 Filing at 1-28. The current HCLS formula approved on December 18, 2018 is expected to provide $2.231 million in payments to 47 average schedule study areas in 2019. NECA’s proposed formula for 2020 projects approximately $3.245 million in payments to carriers serving 62 average schedule study areas, an increase of 45.5% over the 2018 approved estimated payments. See NECA 2020 Filing at 1. For 2017, 2018 and 2019, approved high-cost loop average schedule formulas were estimated to result in total payments of $15.4 million, $6.45 million and $7.01 million, respectively. See 2017 Order, 31 FCC Rcd at 12352, para. 7 n.13; 2018 Order, 32 FCC Rcd at 7656, para. 6 n. 11. 2019 Order, 33 FCC Rcd at 12229, para. 6 n. 11. We note that the current amount of support expected to be paid for 2019—$2.231 million—is less than the amount that was projected when NECA submitted its original average schedule formula for 2019. See 2019 NECA Modification of the Average Schedule Universal Service High-Cost Loop Support Formula, WC Docket No. 05-337 (filed Aug. 27, 2018). At that time, NECA estimated that the CPL formula would result in total payments of $7.01 million for 2019. See id. at 1; NECA 2020 Filing at 1. 7. 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. See, e.g., 2016 Order, 30 FCC Rcd at 11573, para. 6; 2017 Order, 31 FCC Rcd at 12352, para. 8; 2018 Order, 32 FCC Rcd at 7656, para. 8; 2019 Order, 33 FCC Rcd at 12229, para. 7. Therefore, we approve the HCLS formula as provided in NECA’s August 28, 2019 submission. IV. ORDERING CLAUSE 8. 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, 2019 for high-cost loop support IS ADOPTED, as described herein, effective as of January 1, 2020. FEDERAL COMMUNICATIONS COMMISSION Alexander A. Minard Deputy Chief Telecommunications Access Policy Division Wireline Competition Bureau 3