Federal Communications Commission
	
DA 99-3021
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of
National Exchange Carrier Association, Inc.
	
ASD 99-43
Proposed Modifications to the 1999-2000
Interstate Average Schedule Formulas
ORDER
Adopted: December 28, 1999
		
Released: December 29, 1999
By the Chief, Accounting Safeguards Division, Common Carrier Bureau:
I. Introduction
1.
	
On October 1, 1999, the National Exchange Carrier Association, Inc. ("NECA")
filed proposed modifications to the current universal service formulas for average schedule
companies.1 These formulas, which under NECA's proposal would take effect on January 1,
2000 and remain in effect through December 31, 2000, include a local switching support formula
and a universal service fund (USF!) expense adjustment formula. On October 7, 1999, the
Accounting Safeguards Division issued a public notice soliciting comments on the NECA filing.2
Two parties filed comments.3 As discussed below, we approve NECNs modified local switching
support formula. Regarding the USF expense adjustment formula, however, further review of
NECA's proposed revision to the USF expense adjustment formula is necessary. Until this
review is complete, we direct NECA to retain the current USF expense adjustment formula.
See 2000 NECA Modification of Average Schedule Universal Service Formulas, National
Exchange Carrier Association, Inc., October 1, 1999. ("NECA Filing").
2
	
Pleading Cycle Established for Comments on NECA's Proposed Modification of Average
Schedule Universal Service Formulas, ASD 99-43, DA 99-2 105 (rel. October 7, 1999).
Comments were filed in support of NECA's proposed formula revisions by the National Telephone
Cooperative Association ("NTCA") and the Organization for the Promotion and Advancement of Small
Telecommunications Companies ("OPASTCO") (November 3, 1999).
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II. Discussion
2. Local Switching Support Formula. The local switching support formula is used
to determine the amount of support for switching costs that will be provided from universal
service support mechanisms. The current interstate local switching support formula was
approved on December 22, 1998. NECA proposes minor modifications to the current local
switching support formula which, if approved, would increase the local switching support for
average schedule companies by approximately $240,000 per month.5 We have reviewed NECA's
proposed changes to this formula and find it consistent with our requirements. We therefore
approve it.
3. USE Expense Adjustment Formula. The current USF expense adjustment
formula is the result of an Order dated March 17, 1999,6 directing NECA to retain the USF
expense adjustment formula approved in June 1998, adjusted to reflect the growth in average
schedule companies' working loops and to ensure no carrier's support would be unreasonably
reduced.8 In adopting the current USF expense adjustment formula, we rejected modifications
proposed by NECA because we found that NECA's proposed formula did not reasonably
approximate the cost per loop of sample average companies, and resulted in estimated costs per
loop that were widely disparate from the actual costs per loop of the sample data.9
4. NECA's proposed modifications in the instant proceeding raise the same
concerns that led us to reject NECA's previous proposal.'° For instance, under NECA's proposed
formula, the USF expense adjustment increase for average schedule companies would be
See National Exchange Carrier Association, Inc., Proposed Modifications to the 1998-99 Interstate
Average Schedule Formulas, Order, ASD 98-96, DA 98-25 87, December 22, 1998.
See NECA Filing at lI-i 1. The local switching support is a portion of the settlements that average
schedule companies receive for providing interstate local switching access service. The remainder of
settlements continue to be recovered through NECA's local switching access charges. Id. at TI-i.
6
	
See National Exchange Carrier Association, Inc., Proposed Modifications to the 1998-99 Interstate
Average Schedule Formulas, Order, ASD 98-96, DA 99-530, March 17, 1999 (March 1999 Order).
See National Exchange Carrier Association; Inc. Proposed Modifications to the 1998-1999
Interstate Average Schedule Formulas, Order, AAD 98-20, DA 98-1297, June 29, 1998.
The current USF expense adjustment formula is effective through December 31, 1999.
See March 1999 Order at ¶f 8-12. We pointed out that USF expense adjustments are provided to
carriers for high cost loop support, and therefore, an appropriate USF expense formula should reasonably
approximate the actual costs per loop of the sample companies and should allocate funds accurately to the
average schedule companies. Id. at ¶ 6. We found that NECA's proposed formula had an apparent upward
bias that resulted in a significant overstatement of costs per loop and would misallocate USF funds in many
cases. Id. at9.
10
	
NECA sought Commission review of the March 1999 Order. See Application for Review filed by
the National Exchange Carrier Association, Inc., In the Matter of National Exchange Modifications to the
1998-99 Interstate Average Schedule Formulas, ASD 98-96, DA 99-530 (filed April 16, 1999). The
Commission recently denied NECA's Application for Review and sustained the Bureau's fmdings in the
matter below. See In the Matter of National Exchange Carrier Association, Inc. Proposed Modifications to
the 1998-99 Interstate Average Schedule Formulas, ASD 98-96, FCC 99-395, December 20, 1999.
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DA 99-3021
substantially greater than the increase in the growth of loops for these companies." Further
review and examination of NECA's proposed modifications to the current USF expense
adjustment formula is necessary before we can determine whether revisions are warranted. To
maintain stability in USF expense adjustment payments to average schedule companies while we
complete our review, we direct NECA to retain the current USF expense adjustment formula as
set forth in the March 1999 Order. Our review will proceed expeditiously so that any revised
formula, if appropriate, will be implemented promptly.
III. Ordering Clause
5.
	
Accordingly, IT IS ORDERED, pursuant to Sections 0.91 and 0.291 of the
Commission rules, 47 C.F.R. § 0.91, 9.29 1, that the average schedule formula proposed by the
National Exchange Carriers Association, Inc. on October 1, 1999, for local switching support
SHALL BECOME EFFECTIVE January, 1 2000.
6.
	
IT IS FURTHER ORDERED, pursuant to Sections 0.91 and 0.291 of the
Commission rules, 47 C.F.R. § 0.91, 9.291, that the current universal service fund expense
adjustment formula approved by the Commission on March 17, 1999, SHALL REMAIN IN
EFFECT January 1, 2000.
7. IT IS FURTHER ORDERED, pursuant to Section 4(i) of the Communications
Act of 1934, as Amended, 47 U.S.C. § 154(i), and Sections 0.91 and 0.29 1 of the Commission's
rules, 47 C.F.R. § 0.91, 0.29 1, that THIS ORDER IS EFFECTIVE UPON ITS RELEASE.
FEDERAL COMMUNICATIONS COMMISSION
Kenneth P. Moran
Chief, Accounting Safeguard Division
NECA proposes an increase of approximately 20 percent in USF expense adjustments (see NECA
Filing at 111-24), while the growth in loops for these companies is only approximately 5 percent (see NECA
Filing at Appendix D and exparte letter from Regina McNeil, NECA to Ms. Salas, FCC, dated June 11,
1999 in ASD 98-96).
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