______________________________
				)
In the Matter of		)
				)
Federal-State Joint Board	)	CC Docket No. 96-45
on Universal Service		)
________________________________)

SUMMARY

The comments in this proceeding confirm that Section 254 of the Telecommunications Act of 1996 requires fundamental changes in the provision of universal service support. As shown in Part I, there is broad consensus that the current system of implicit cross-subsidies must be wholly eliminated. These subsidies not only prevent more efficient competitors from challenging incumbent providers in local exchange markets; they also threaten competition in the interexchange market by making toll providers vulnerable to price squeezes by local exchange carriers. Thus, the only way to comply with the Act's command that all subsidies be "explicit," "equitable" and "nondiscriminatory" is to strip all implicit subsidies out of access charges and replace them with a competitively neutral funding mechanism.

For the same reasons, there is substantial agreement that the Commission should adopt a total service long-run incremental cost ("TSLRIC") standard to determine local exchange costs and eligibility for universal service support. And there is similar agreement that the TSLRIC of local exchange service should be calculated using an appropriate cost estimate.

The Act's goals of promoting local competition while advancing universal service cannot be achieved, however, if the Commission acquiesces in the requests by some commenters to use historical costs to determine a LEC's eligibility for universal support. Using historical costs would permit LECs to obtain universal service subsidies for local exchange facilities that are obsolete, redundant or even unnecessary, and would allow the LEC to thwart entry by more efficient providers.

Compliance with Section 254's commands likewise requires the Commission to reject the request by a number of LECs that the Commission phase out the current implicit subsidies over a four-year transition period in order to avoid "rate shock." Indeed, there should be no rate shock at all, given the facts that local service rates in most areas are already compensatory, and, to the extent the LECs legitimately require subsidies to provide service, the competitively neutral mechanism would provide them. Moreover, as many of the LECs concede, rate rebalancing would likely reduce overall telecommunications bills and hence increase subscribership. There simply is no legitimate reason to delay the realization of those benefits.

Further, as AT&T's initial comments demonstrated, the Act clearly authorizes the Commission to implement this new universal service fund ("NUSF") by assessing a surcharge on all interstate and intrastate retail revenues from all telecommunications services. Section 254(b) provides that "all" telecommunications providers should make equitable and nondiscriminatory contributions to the fund and Section 254(d) provides that the Commission shall establish a "mechanism" that is "sufficient" to "preserve and advance universal service." Thus, contrary to the concerns of some commenters, Section 254(f) gives the states a complementary role and permits them to adopt funding mechanisms that do not "rely on or burden the Federal universal service support mechanisms."

These fundamental principles -- that universal service support must be equitable, nondiscriminatory and available to all "eligible" carriers -- likewise mandate that all NUSF subsidies (other than those flowing to small rural carriers) be portable. Thus, an alternative carrier must be entitled to a subsidy whenever it wins a customer from another carrier that received NUSF support to serve that customer. As recognized by the commenters, these principles also require that universal service support be technology-neutral. Accordingly, wireless as well as wireline carriers should be eligible for universal service support when providing the primary line to a subscriber's premises.

As shown in Part II, a similar consensus exists as to the implementation of the new universal service system. For example, there is widespread support for the Commission's preliminary determination of the core services that meet the requirements of Section 254(c)(1). There is also considerable support for the inclusion of several other basic services, most notably equal access to long distance services, because these services enjoy wide acceptance by residential customers. And the vast majority of commenters recognize that no "advanced services" should be subsidized at this time because of their limited use by the broader public. Moreover, although interexchange services should not be included in the core services, IXCs should be permitted to recover from the NUSF any below-cost provision of interexchange services that results from rate averaging requirements.

In addition, there is substantial agreement as to how the universal service subsidy should be calculated. Specifically, a LEC should be entitled to receive universal service support if the TSLRIC for providing core services exceeds the nationwide affordable rate. Similarly, a LEC would be entitled to the current level of subsidies provided under the Lifeline and Link-Up programs when providing services to low-income households.

Finally, the comments recognize that subsidies to schools, libraries and health care providers should be limited to telecommunications services and should not include customer premises equipment or inside wiring. For those telecommunications services entitled to universal service support, the simplest and most equitable system would be to permit qualified public institutions to obtain the deepest volume discount offered by the telecommunications carrier for similar service to a commercial user. A number of commenters offered other constructive proposals that could also form the basis for a fair and workable subsidy scheme. Accordingly, AT&T recommends that the Joint Board engage in further study of this issue while encouraging State authorities to expand the scope of the numerous voluntary programs already offered to these institutions.

Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

______________________________
				)
In the Matter of		)
				)
Federal-State Joint Board	)		CC Docket No. 96-45
On Universal Service		)
________________________________)

REPLY COMMENTS OF AT&T CORP.

Pursuant to the Commission's March 8, 1996 Notice of Proposed Rulemaking and Order Establishing a Joint Board, FCC 96-93 ("NPRM"), AT&T Corp. ("AT&T") submits these reply comments on the implementation of the universal service provisions of the Telecommunications Act of 1996 ("Act" or "1996 Act").[1]

There is an overwhelming consensus among the commenters that the Act requires fundamental changes in the manner in which universal service support is funded and provided. For example, virtually all commenters -- including interexchange carriers ("IXCs"), local exchange carriers ("LECs") and customer groups -- agree that the Act requires all universal service-related subsidies to be made explicit, and that they be funded by all telecommunications providers in a fully nondiscriminatory manner. As AT&T previously showed, and as many commenters agree, this bedrock principle requires that the costs used to determine the relevant subsidies be measured under a total service long-run incremental cost ("TSLRIC") standard, and that (except for small rural LECs) all subsidies be made portable. The statutory requirements likewise foreclose the arguments, advanced by a few LECs, that the new subsidy system should be based in part on historical or "embedded" costs, and should be implemented over a multi-year period.

The comments likewise reflect broad consensus that the new universal service support mechanism can and should fund a core set of widely accepted services at a cost that is reasonable and therefore preserves strong public support for universal service. For example, most commenters agree that the NPRM correctly identifies the services that should be subsidized, and that other, "advanced" services should not be subsidized unless and until they gain widespread public acceptance. There is also widespread support for using a single, nationwide "affordable rate" as a baseline for determining who is entitled to a subsidy, and at what level, and for integrating the existing low-income support mechanisms into the new universal service fund ("NUSF"). Finally, there is broad agreement that the subsidies provided for schools, libraries and health care facilities should extend only to "telecommunications services," and not to premises equipment or inside wiring upgrades.

I. THERE IS OVERWHELMING AGREEMENT THAT THE 1996 ACT REQUIRES FUNDAMENTAL CHANGES IN PROVIDING FOR UNIVERSAL SERVICE.

As AT&T demonstrated in its comments, the Act requires a fundamental shift in the way universal service support is funded and distributed. In particular, the Act requires that all implicit cross-subsidies be removed from telecommunications charges, and that those subsidies be refashioned so that they are "explicit," "equitable" and "nondiscriminatory" -- as they would be if they were implemented through a simple surcharge on telecommunications services. Most commenters recognize that this shift must occur, and indeed, there is general consensus on the broad outlines of the new regime.

Elimination of Implicit Subsidies. For example, many commenters agree that the existing subsidies must be stripped out of access charges. The current system of universal service funding is based on a set of subsidies that are built into access charges and assessed only on IXCs.[2] These subsidies seriously impede the development of competition in two important ways. First, the subsidization of local service rates inhibits local competition by preventing more efficient competitors from challenging incumbent providers. Second, subsidies also threaten competition in toll markets because, as the providers of exchange access increasingly enter those markets, other providers become vulnerable to anticompetitive price squeezes. Thus, as one commenter stated, the Act's "goal of encouraging competition would be frustrated if the present distortion of economic efficiency of consumers' purchases is permitted to continue." Ad Hoc at 23-24; see also CompTel at 9; MCI at 6-7.

Indeed, the Act by its terms forecloses the continuation of all implicit cross-subsidies. Section 254(k) forbids all telecommunications carriers to "use services that are not competitive to subsidize services that are subject to competition." Moreover, Section 254(b)(4) requires all providers to make "equitable and nondiscriminatory" contributions to universal service. Equally important, Section 254(e) requires all universal service support to be "explicit." As AT&T has shown, and most commenters agree, these provisions effectively require that the current subsidies be removed from access charges and redesigned as a surcharge on telecommunications services.[3]

Even many of the LECs agree with these fundamental points. Southwestern Bell, for example, acknowledges (at 4) that "recovering the interstate portion of universal service costs through interstate switched access charges is a form of implicit support and is inconsistent with the Act." Therefore, as Pacific Telesis recommends (at 12-13), "[t]he Commission's goal should be to identify subsidies in the current [access] rates and rate structures and refashion them into explicit, competitively neutral mechanisms." Thus, as many LECs acknowledge, "[t]he interstate CCL should be eliminated";[4] "DEM weighting should be eliminated immediately," because it "has absolutely no relationship to the affordability of service";[5] and the Commission should "eliminate recovery of [LTS] through interstate CCL charges and . . . LTS itself should be dismantled."[6] In short, the Joint Board should recommend -- and the Commission should adopt -- a wholesale reform of the subsidy system, and should not focus merely on certain limited aspects of the system such as CCLC and the present USF.

Cost-Based Rates and Subsidies. This shift in universal service funding will likely lead to a reduction of consumers' total bills for telecommunications services. Thus, as many commenters recognize, requiring that universal service be funded through a single, explicit surcharge should increase, not decrease, subscribership.[7]

In this regard, it is critically important that the Joint Board and the Commission adopt TSLRIC as the economic standard. Not only should the Commission set access charges and interconnection rates at TSLRIC levels (in implementing Sections 251 and 252(d)),[8] the Commission should also use TSLRIC as its benchmark for determining whether universal service support is necessary for local service rates, and if so, for establishing the subsidy level. Only by using the TSLRIC standard can the Commission ensure that all implicit subsidies have been removed from the rates for telecommunications services as Section 254 requires, and that these impediments to the development of competition have been eliminated. The comments reflect overwhelming support for these fundamental principles.[9]

There is also general agreement that a TSLRIC-based cost estimate, such as a BCM-like model, should be used to determine subsidy levels.[10] Although a few commenters argue that historical costs should be used to determine local exchange costs,[11] the Commission should flatly reject this suggestion and instead require that all universal service support payments be made only on the basis of a TSLRIC-based cost estimate. It has been long recognized that permitting a LEC to obtain revenues -- whether in the rates it charges or the subsidies it receives -- on the basis of historical costs gives it a strong incentive to overinvest in its capital asset rate base.[12] Moreover, given a LEC's incentive to inflate costs, reliance upon historical costs would require state public utility commissions to undertake frequent, unwieldy and expensive inquiries into the value and prudence of any claimed costs.

For the same reasons, the Commission should reject the suggestion by some LECs that "embedded" costs be incorporated into whatever cost model is ultimately chosen by the Commission.[13] A local exchange carrier should be permitted to collect universal service support only when its TSLRIC (as determined by the appropriate cost estimate) is greater than the nationwide affordable rate (see infra, pp. 19-21). As the Commission has observed, "[e]conomists generally agree that prices based on [long-run incremental costs] give appropriate signals to producers and consumers and ensure efficient entry and utilization of telecommunications infrastructure. They further agree that competitive markets, over the long run, tend to force prices toward [long-run incremental costs]."[14] The same principle applies with equal force to subsidies: forcing subscribers to subsidize a LEC's embedded costs in any fashion would distort the competitive market and, indeed, allow the LEC to thwart entry by other, more efficient potential competitors.[15] In any event, it is doubtful that any significant portion of LEC assets would remain unrecovered, in any meaningful sense, under a proper TSLRIC standard. Any recent investment in local exchange facilities should have been made with the expectation of deregulation and resulting competition. As Ad Hoc observes (at 7), "[t]he onset of local competition (to date, barely present) did not take the LECs by surprise, and should certainly have been reflected in LEC construction planning. Regulators can and should reasonably expect that LECs have adjusted their business plans and construction programs for the onset of competition, including the possible loss of market share."

Further, most if not all of the Tier 1 LECs lobbied vigorously for the passage of the 1996 Act, which, in addition to facilitating local competition, provides them the opportunity to participate more readily as full service providers of new lines of business, such as video services, information services, Internet access services, and interexchange services. In addition, the LECs have also successfully convinced their regulators in most states to allow them to move away from rate of return regulation with its focus on historical embedded costs, to incentive regulation, with its focus on competitive pricing flexibility so that the LECs can better meet anticipated competition. At the same time, the LECs have modernized and expanded their plant facilities in anticipation of an expansion of business as a result of local competition and the provision of many new, non-basic services. Thus, most if not all of any difference between the TSLRIC for basic services and total LEC embedded costs can and should be attributed to the LECs' preparations to offer new services.

In any event, even if the monopoly LECs were somehow prevented from properly sizing their facilities in the past (and they were not), they will still be able to do so as they execute their business plans to provide competitive services. Full facilities-based competition will take, at a minimum, several years to develop.

For all these reasons, the Commission should make no provision for incorporating an additional measure of embedded costs on top of TSLRIC for basic, single-line service.

Finally, adoption of the principles outlined above may well avoid any need for increased rates in many or most areas. As the commenters observe, under a TSLRIC standard, local service rates in many areas are already fully compensatory.[16] In such areas, therefore, there would be no need for an increase in the subscriber line charge ("SLC") to compensate for the elimination of existing subsidies in access charges.

Transition Period. The Commission should likewise reject suggestions by a number of LECs that the Commission eliminate the current implicit subsidies slowly over a four-year transition period out of a fear that ratepayers may suffer "rate shock."[17] As already noted, there is no reason to expect any significant "rate shock" because the evidence suggests that local service rates in most areas are already compensatory.

In all events, such a transition period would be entirely inappropriate. For one thing, it would be inconsistent with the Act, which as noted above flatly forbids all implicit cross-subsidies. Maintaining such subsidies, even if only for four years, would be directly contrary to this statutory prohibition. Moreover, as many of the LECs concede, any rate rebalancing would likely reduce consumers' overall telecommunications bills and increase subscribership.[18] Consumers should not be forced to wait for these benefits. Perhaps most important, the LECs' proposal -- which is to bulk-bill IXCs for CCL costs while continuing to subsidize local service rates -- is a thinly disguised attempt to protect themselves from emerging local competition during the critical early stages of its development. For all these reasons, a transition period would seriously undermine the central purposes of the Act.

Single, "Non-Jurisdictional" NUSF. As AT&T noted in its initial comments, once current subsidies are divorced from access charges, they should be consolidated into a single, competitively neutral surcharge on telecommunications services that would flow into a single new universal service fund administered by a neutral third party. AT&T at 8-9. Many commenters support this basic concept,[19] or its functional equivalent (e.g., a single surcharge flowing into two or three funds that disburse the money to the various recipients).[20] These commenters agree that such a system is necessary both to keep all subsidies "explicit" (see [[section]] 254(e)), and for administrative efficiency.[21] Furthermore, most commenters agree with the Commission's suggestion (NPRM [[paragraph]] 128) that the fund should be administered by a "non-governmental fund administrator" that would administer the fund in the most "efficient, fair and competitively neutral manner" possible.[22]

Moreover, the Act clearly authorizes the Commission to establish the NUSF as a comprehensive, "non-jurisdictional" means of funding universal service. The Commission should therefore establish a surcharge on all interstate and intrastate retail revenues from all services.[23] The Commission is authorized to establish such a surcharge both by Section 254(b)(4), which authorizes the Commission (in conjunction with the Joint Board) to base its universal service policies on the principle that "all" telecommunications providers should make equitable and nondiscriminatory contributions, and by Section 254(d), which specifically provides that the Commission shall establish "mechanisms" that are "sufficient" to "preserve and advance universal service." 47 U.S.C. [[section]] 254(d) (emphasis added).

Moreover, contrary to concerns of some commenters, 254(f) clearly allocates to the States a complementary role. In contrast to Section 254(d), Section 254(f) authorizes the States to establish "sufficient" mechanisms to preserve universal service only where the State has adopted definitions and standards that add to the federal requirements. Further, the States may adopt such mechanisms only where they would not "rely on or burden the Federal universal service support mechanisms." Moreover, under Section 254(f), a State may adopt universal service regulations only to the extent that they do not conflict with the Commission's rules. Thus, the Act expressly contemplates that the NUSF itself will be fully "sufficient" to preserve universal service, as a number of commenters recognize.[24]

For the same reasons, the Commission must divorce universal service contributions from the jurisdictional separations rules. Indeed, the "non-jurisdictional" NUSF would obviate the need for difficult jurisdictional determinations; it would promote the "explicitness" of the universal service subsidies; and it would further the development of competition by establishing uniform and predictable rules, rather than a hodgepodge of conflicting funding mechanisms.[25]

Portability of Universal Service Support. As AT&T showed (and as many commenters agree), with the exception of subsidies to small rural carriers, all subsidies from the NUSF should be portable -- i.e., they should follow the customer, not the carrier. This principle follows naturally from the Act's requirement that (apart from rural areas) universal service support must be made available to all "eligible" carriers -- i.e., all carriers in that area that satisfy the requirements of Section 214(e)(1) and (2).[26] Thus, as USTA acknowledges (at 17), "other eligible carriers should receive the same level of support per line as the incumbent exchange carrier."

As a practical matter, the implementation of these requirements would necessitate a transfer of NUSF support whenever an alternative carrier wins a customer from another carrier. As MCI puts it, "the provider selected by the customer should be entitled to the per-line subsidy."[27]

Furthermore, the Commission should reject any suggestion that only wireline -- and not wireless -- carriers should be eligible to receive universal service support when wireless carriers provide the primary line to a subscriber's principal residence. Nothing in the Act limits universal service support to carriers that provide core services via wireline. To the contrary, the Act specifically prohibits such discrimination.[28] Indeed, there is a consensus among the commenters,[29] including the RBOCs,[30] that the Act requires universal service to be provided in a competitively neutral manner.

Moreover, Section 214(e) by its terms permits a wireless carrier to be an "eligible" carrier, as long as it is offering the core services at least partially over its own facilities. 47 U.S.C. [[section]] 214(e)(1). Providing incumbent LECs with universal service subsidy in high cost regions, while denying such payments to wireless carriers providing identical services (but with a different technology), would flatly contradict this mandate. Indeed, as the Universal Service Task Force recently noted, "[a]ssistance programs that provide subsidies to incumbent services while denying assistance to new entrants may impede the development of competition."[31]

II. THE COMMENTS ESTABLISH THAT THE NEW USF SUPPORT MECHANISM SHOULD FUND A CORE SET OF QUALITY SERVICES AT A REASONABLE COST.

The comments likewise reflect substantial consensus as to the implementation of the new universal service system. For example, there is general agreement on the definition of universal service. And many parties have offered constructive proposals regarding discounts for schools, libraries and health care facilities.

Definition of Universal Service. In its comments, AT&T strongly endorsed the Commission's preliminary determination of the core services that meet the requirements of Section 254(c)(1) and are therefore eligible for universal service support: voice grade dial tone, touch tone, residential single party service, and access to emergency and operator services. See AT&T at 11-14; NPRM [[paragraph]][[paragraph]] 18-22. There is nearly universal support from the commenters for the Commission's proposal.[32]

Many commenters also agree with AT&T's position that equal access to long distance services, white pages directory listing and access to directory assistance have achieved sufficient public acceptance and usage to be included in the core services proposed by the Commission in the NPRM, in addition to local number portability.[33] This is particularly true of equal access to long distance services, which not only is demanded and provided to the vast majority of residential customers, but is necessary to facilitate long distance competition, and therefore is in the public interest. See 47 U.S.C. [[section]] 254(c).[34]

Moreover, as these commenters recognize, the Commission properly excluded any "advanced services" from universal service support because of their limited use by the broader public. See [[section]] 254(c)(1). Indeed, any attempt to require subsidization of such services at this time would be counterproductive, because it would dramatically expand the size of the NUSF and thus erode public support for all universal service support.[35] Of course, as the market evolves and prices for advanced services are reduced by technological innovations and competitive forces, the Commission can and should consider expanding the set of core services to include those advanced services that gain widespread acceptance and otherwise meet the requirements of Section 254(c)(1).

Further, although AT&T does not believe interexchange services should be included in the core services group, interexchange carriers should be entitled to universal service support to the extent that the Commission adopts regulations that require carriers to provide interexchange services below costs (as determined by TSLRIC). Likewise, carriers should be permitted to recover from the NUSF for any below-cost provision of interexchange services that results from rate averaging. See 47 U.S.C. [[section]] 254(g).

Baseline for Calculating the Subsidy. There is also substantial agreement that a national "affordable rate" should be used in conjunction with the TSLRIC standard to determine the actual subsidy provided to carriers operating in high cost areas.[36] A single, nationwide affordable rate would clearly be easier to administer than -- and therefore far preferable to -- an attempt to set affordable rates on a state-by-state basis. It would also prevent a state from attempting to export costs to other states by establishing an unduly low affordable rate.[37] Moreover, a nationwide approach is entirely consistent with, if not compelled by, the Act's requirement that rates in high cost rural areas be "reasonably comparable to rates charged for similar services in urban areas." 47 U.S.C. [[section]] 254(b)(3) (emphasis added). Indeed, providing different subsidies to service providers that have identical costs and provide identical services would contradict Congress's intent that universal service support be provided in a nondiscriminatory and competitively neutral manner.[38]

In addition, as AT&T demonstrated in its comments, the baseline for calculating a national affordable rate should certainly be no lower than the current national average charge for local phone service, increased by the amount of any implicit economic universal service subsidies currently embedded in access charges, such as the interstate CCLC. See AT&T at 15-17.

Low-Income Support. There is similarly broad agreement that the existing Lifeline and Link-Up programs should be consolidated with the other universal service-related subsidies. Given the Act's requirements that all funding for universal service support be explicit and nondiscriminatory, the commenters generally recognize that these programs can easily be continued, with funding, however, provided from the NUSF.[39]

Schools, Libraries and Health Care. The final issue concerns subsidies to schools, libraries and health care providers. In its initial comments, AT&T endorsed the Act's approach of requiring telecommunications service providers to give discounts to qualified public institutions to enhance their access to advanced telecommunications services. AT&T at 19-20. However, as AT&T and many other commenters noted, the text and history of the Act limit these subsidies to "telecommunications services," and do not encompass premises equipment or inside wire upgrades.[40] Such a limitation is also supported by sound public policy: as U S WEST noted in its comments, the "larger the 'menu' of services for which USF support is required, the greater the pressure to increase the overall size of the USF" and, moreover, "as the menu gets larger, less discounting can reasonably be expected to occur." U S WEST at 20. Subsidizing purchases of premises equipment and inside wiring upgrades could threaten universal service because end users must ultimately bear the burden of these subsidies.

In its comments, moreover, AT&T demonstrated that the simplest and most equitable subsidy scheme would be to require that qualified public institutions be charged -- and providers allowed to recover -- only the "deepest volume discount level that is offered by the carrier for similar service to a commercial user." AT&T at 20. A number of other commenters offer constructive and complementary proposals that could serve as alternatives, or be used in conjunction with AT&T's proposal.[41]

For example, NYNEX proposes that the Commission establish a council with members from the public and private sectors to develop and evaluate proposals to enhance public institutions' access to information services.[42] On the other hand, BellSouth proposes that the Commission give institutions a kind of "block grant" that could be applied to telecommunications services.[43]

Given the undeveloped state of the record on this issue, AT&T recommends that the Joint Board continue to study it. At the same time, telecommunications services providers should be encouraged to work with State authorities and expand the numerous voluntary programs already offered to these institutions. For example, AT&T is involved in a number of ways to support life-long learning and access to new and emerging technologies for education. It has backed that support with over $500 million in grants to educational institutions and professionals over the last decade. In addition, in 1995, AT&T announced its most significant single commitment to education -- the AT&T Learning Network -- a $150 million, five-year commitment to help to put all 110,000 of the Nation's public and private elementary schools on the information superhighway by the year 2000. Such voluntary programs will work well until the Joint Board completes its study.

CONCLUSION

For the reasons stated above, the Commission should adopt a competitively neutral system of universal service support that supports the development of local competition, as mandated by the 1996 Act.

Respectfully submitted,

AT&T Corp.
By /s/ Judy Sello
Mark C. Rosenblum
Peter H. Jacoby
Judy Sello

Room 3244J1
295 North Maple Avenue
Basking Ridge, NJ 07920
(908) 221-8984

Gene C. Schaerr
James P. Young

1722 I Street, N.W.
Washington, DC 20006
(202) 736-8141


Its Attorneys

May 7, 1996

TABLE OF CONTENTS

Page
SUMMARY .............................................. i

I. THERE IS OVERWHELMING AGREEMENT THAT THE 1996 ACT
REQUIRES FUNDAMENTAL CHANGES IN PROVIDING FOR
UNIVERSAL SERVICE ............................... 2

Elimination of Implicit Subsidies .......... 3

Cost-Based Rates and Subsidies ............. 5

Transition Period .......................... 10

Single, Non-Jurisdictional NUSF ............ 11

Portability of Universal Service Support ... 15

II. THE COMMENTS ESTABLISH THAT THE NEW USF SUPPORT
MECHANISM SHOULD FUND A CORE SET OF QUALITY
SERVICES AT A REASONABLE COST ................... 17

Definition of Universal Service ............ 17

Baseline for Calculating the Subsidy ....... 19

Low-Income Support ......................... 21

School, Libraries and Health Care .......... 21

CONCLUSION ........................................... 24

May 7, 1996