[2] These include the Carrier Common Line Charge ("CCLC"), DEM weighting, Long Term Support ("LTS"), and the Residual Interconnection Charge ("RIC"). Additional subsidies, such as the Universal Service Fund ("USF") and the Lifeline Assistance program, are separately assessed on interexchange carriers based on presubscribed lines, but have the same effect of raising interexchange rates in order to subsidize local service. See AT&T at 3 & nn.3-4.

[3] See AT&T at 5, 7-9; NYNEX at 9; BellSouth at 13; Pacific Telesis at 13-15; SWBT at 17-18; Sprint at 20; MCI at 14-15; LCI at 4-5; Ad Hoc at 22-24; MFS at 5-16; Teleport at 5; GTE at 16-18; see also U S WEST at 16-18 (characterizing implicit subsidies as "insidious[]").

[4] SWBT at 4; see Pacific Telesis at 13; Ameritech at 20-21; USTA at 18; see also MFS at 22; MCI at 14-15; Citizens for a Sound Economy at 13-15; Sprint at 20; California PUC at 20; Ad Hoc at 22-23; accord Ameritech at 21 ("There is no longer serious debate over the fact that . . . [CCL] charge[s] . . . . are subsidies."). NYNEX (among others) erroneously takes issue with the Commission's conclusion that the CCLC is a subsidy. See NPRM [[paragraph]] 133; NYNEX at 6-8. The CCLC, however, undeniably "imposes a per minute charge on one class of service . . . to reduce flat rates for end users," and thus is clearly a "subsidy" that artificially increases interexchange rates and lowers local exchange rates. NPRM [[paragraph]] 113.

[5] Ameritech at 11-12. See also USTA at 18.

[6] Pacific Telesis at 14 (footnote omitted). See also USTA at 18; Bell Atlantic at 13.

[7] See MCI at 15; MFS at 5-16; Pacific Telesis at 14-15; Ameritech at 11; Bell Atlantic at 12-13; BellSouth at 11-12; Citizens Util. at 9; ALTS at 4-9; GTE at 14-16; Time Warner at 4-6; see also NYNEX at 6 (subscribership increased after implementation of SLC); Teleport at 1-2 (current USF and DEM support in excess of what is actually required to support universal service).

[8] Notice of Proposed Rulemaking, Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, FCC 96-182 (Apr. 19, 1996) ("Section 251 NPRM").

[9] See, e.g., Teleport at 7-9, 11-12; LDDS at 12; MCI at 10-13; Sprint at 8-14; Pennsylvania PUC at 17-20; Ad Hoc at 5-11; Telecom Resellers Assoc. at 11-14; U S WEST at 11; Pacific Telesis at 16-17.

[10] See, e.g., Teleport at 7-9, 11-12; Time Warner at 9; ALTS at 11-12; LDDS at 12; MCI at 10-13; Sprint at 9-14; GTE at 9-10; Florida PSC at 9-11; New York DPS at 6-8; Pennsylvania PUC at 17-20; NYNEX at 9-13; Pacific Telesis at 16-17; U S WEST at 11-12; Ad Hoc at 5-11.

[11] See Rural Util. Serv. at 3-7, 15; Cincinnati Bell at 5-10; Alaska Tel. Assoc. at 2-7; Rural Tel. Coal. at 11-15; SWBT at 14-16; Ameritech at 12.

[12] See H. Averch and L. Johnson, Behavior of the Firm under Regulatory Constraint, 52 Am. Econ. Rev. (1962); see also Ad Hoc at 10-11.

[13] See GTE at 9; NECA at 6-7; SWBT at 14, 16; Minnesota Indep. Coal. at 11-14; Minnesota Telephone Assoc. at 2; Oregon & Washington ITAs at 12; U S WEST at 10-11.

[14] Section 251 NPRM at [[paragraph]] 124; see also Notice of Proposed Rulemaking, Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, et al., CC Docket No. 95-185, FCC 95-505, [[paragraph]] 4 (Jan. 11, 1996) ("We adopt policies that are intended to create or replicate market-based incentives and prices for both suppliers and consumers."); id. at [[paragraph]][[paragraph]] 4-5 (by replicating market-based incentives in this manner, the Commission can ensure "the availability to consumers of goods and services at the lowest overall cost" and "an efficient level of innovation in terms of the development of new services and the deployment of new technology, as well as the efficient entry of new firms . . . . [so that] consumers should receive maximum benefit from their purchases of telecommunications services").

[15] For example, suppose that an incumbent LEC and a potential entrant could each provide core services at a TSLRIC slightly above the affordable rate, so that each would be entitled to an economic subsidy. Furthermore, suppose the incumbent LEC is permitted to recover historical embedded costs in additional to the subsidy. In that event, despite providing the same services at the same TSLRIC, the incumbent LEC would be entitled to collect larger universal service support subsidies than its competitor. Thus, the incumbent LEC could forestall entry by credibly threatening to use its universal service support subsidy to lower its retail prices below that of its competitor.

[16] See, e.g., MCI at 14-15 ("The prices for the local loop, including the CCL and SLC charges, are currently well in excess of their economic cost. An increase in the SLC coupled with an exactly offsetting reduction of the CCL will allow the LECs to continue to recover more than the true cost of the loop."); see also Florida PSC at 21-22; New York DPS at 3-4; Pennsylvania PUC at 23-24; Washington Util. & Trans. Comm. at 18-20; NARUC at 15-18; Maine PUC at 19. Cf. Ad Hoc at 22-24 (adjust SLC only for inflation).

[17] See USTA at 18; SWBT at 17-18; Ameritech at 12-13; NECA at 10-11; Keystone Arthur at 2.

[18] See MCI at 15; MFS at 5-16; Pacific Telesis at 14-15; Ameritech at 11; Bell Atlantic at 12-13; BellSouth at 11-12; Citizens Util. at 9; ALTS at 4-9; GTE at 14-16; Time Warner at 4-6.

[19] Sprint at 18; Ad Hoc at 24; CompTel at 16; U S WEST at 2; Florida PSC at 8-9; Citizens Util. at 7, 10-17; Teleport at 3; PCIA at 12-13; NCTA at ii-iii.

[20] BellSouth at 2-3, 12-13; Pacific Telesis at 12-14, 22-23; SWBT at 6-8; MFS at 13-17; LCI at 4-5.

[21] See Ad Hoc at 24; PCIA at 12-13; Teleport at 3; Sprint at 2-5.

[22] Indeed, many commenters echoed AT&T's specific proposal (AT&T at 22 n.34) that the administrator could be a major accounting firm, a data processing firm, or a financial institution. See Ameritech at 24; MFS at 24; LCI at 6; Sprint at 23-24; Cincinnati Bell at 5; Missouri PSC at 21-22; New Jersey BPU at 5; Ohio PUC at 16-17; ACTA at 13; Commun. Resellers Assoc. at 14-15; Airtouch at 11; New Mexico Attorney General at 5-6.

[23] See NPRM [[paragraph]] 125; AT&T at 8-9. Section 254(d) does not limit the federal surcharge to the revenues from interstate services.

[24] See, e.g., Ameritech at 22-23; MFS at 23; Teleport at 13; LDDS at 18; MCI at 15-16; Sprint at 16-17; GTE at 16-18; NCTA at 24; Western Wireless at 5.

[25] A number of commenters address issues related to information (i.e., enhanced) services and providers of those services. First, there is a broad consensus that universal service support should be made available only for basic telecommunications services, not for information services. See ITAA at 5; IIA at 3; ITIC at 5-6; but see ISA at 10. Second, the commenters are correct that information service providers, like all customers of basic telecommunications services, should pay the universal service support surcharge on their purchase of telecommunications services from carriers. See ITAA at 17-18; IIA at 6; ITIC at 9; ISA at 11-12. Third, private networks providing basic telecommunications services should not have to assess a universal service support surcharge on their internal users. See ITAA at 17-19; ITIC at 9. However, to the extent that those private networks resell their services to third parties as common carriers, they, like other resellers of basic services, should contribute to universal service support by a surcharge on their retail revenues. As resellers, they would, of course, receive a surcharge credit on the services they resell. See AT&T at 8 n.10, 22. Finally, a number of parties contend that information service providers, whether providing online services or Internet access, should not be required to contribute to universal service support via a surcharge on their retail revenues. See ITAA at 17; IIA at 6; ITIC at 9-10; ISA at 6-15. A number of important issues, including access reform, must be resolved before this issue can be considered.

[26] Section 214(e)(2) requires a State to certify as an eligible carrier any carrier in the relevant area that offers the services encompassed within the definition of universal service and that advertises the availability of such services and the charges using media of general distribution. This would include small rural carriers as well. Initially, however, small rural carriers should be exempted from the portability requirement as the administrative costs of enforcing the requirement would outweigh the benefits. This exemption should end after a state commission requires rural carriers to interconnect to new entrants pursuant to [[section]] 251(f)(1)(B). See AT&T at 9 n.12.

[27] MCI at 5; see also MFS at 13-16; Teleport at 14-16; California PUC at 13-14.

[28] See 47 U.S.C. [[section]][[section]] 254(b)(4), (d) and (e); see also S. Rep. 104-23, 104th Cong., 1st Sess., p. 25 (1995) ("[T]he Committee intends that the universal service support mechanisms . . . . shall be, to the extent possible consistent with the goal of ensuring universal service, transparent, explicit, equitable and nondiscriminatory to all telecommunications carriers.") (emphasis added).

[29] See, e.g., LCI at 5-6; CompTel at 9; ACTA at 3-4; Telecom. Resellers Assoc. at 8-10; MCI at 16-18; Sprint at 3; Citizens for Sound Economy at 2-3; Winstar at 7-10; Western Wireless at 10-11; Vanguard Cellular at 7-9; PCIA at 6-9; CTIA at 2-4; Tele-Commun. at 4; Frontier at 8-10; GTE at 16-18.

[30] See BellSouth at 4; Ameritech at 4-5; U S WEST at 15-16; Pacific Telesis at 2 n.1.

[31] Universal Service Task Force, Preparations for Addressing Universal Service Issues: A Review of Current Interstate Support Mechanisms 30 (Feb. 23, 1996).

[32] See, e.g., MFS at 16; GSA at 3; SBA at 6-8; Rural Util. Serv. at 9; MCI at 3; Sprint at 6-7; Cincinnati Bell at 4; Florida PSC at 6; Pennsylvania PUC at 13; South Carolina PSC at 3-4; Ameritech at 5; Bell Atlantic at 7; BellSouth at 5-6; NYNEX at 11-12; SWBT at 8; U S WEST at 5-6; Tele-Commun. at 3-4; Time Warner at 4; CompTel at 12-13; NCTA at 5; ACTA at 5.

[33] See, e.g., Time Warner at 4; ALTS at 9-10; Cincinnati Bell at 4; Florida PSC at 7; Pennsylvania PUC at 13; South Carolina PSC at 3-4; Ameritech at 5; NYNEX at 11-12; SWBT at 8; U S WEST at 5-6; New Mexico Attorney General at 3-4; Alabama-Mississippi Tel. Assoc. at 3; AARP at 9-10.

[34] AT&T supports the Commission's call to make interexchange services more affordable for low-income consumers. See NPRM [[paragraph]] 55. Indeed, as the Commission has recognized, AT&T has taken the lead role in this area.

[35] See SBA at 5-6; MCI at 9; NYNEX at 1-2; Tele-Commun. at 8-9; Citizens Utilities at 4; ALTS at 9; GTE at 2-3.

[36] See, e.g., USTA at 14-16; Pacific Telesis at 18-19; Ameritech at 9-12; BellSouth at 10-14; NYNEX at 9-13; U S WEST at 8-11; MCI at 10-13; CompTel at 7-15; Sprint at 8-14; Ad Hoc at 17-20; Time Warner at 7-8; Citizens Util. at 10-12; Florida PSC at 5; Pennsylvania PUC at 20.

[37] See Connecticut Office of Consumer Counsel v. AT&T Communications, 4 FCC Rcd. 8130, 8132 (1989), aff'd sub nom. Connecticut Office of Consumer Counsel v. FCC, 915 F.2d 75 (2d Cir. 1990), cert. den., 499 U.S. 920 (1991) (surcharge collected by AT&T to recover expense of gross receipts tax was a "reasonable method of preventing states from singling out telecommunications for taxation in order to transfer a portion of their tax burden to non-residents via rates for interstate telephone service"). Of course, as AT&T explained in its comments (at 14-15), a state would be free to provide additional subsidies to LECs beyond federal universal service support if such subsidies were funded by intrastate purchasers and not ratepayers in other jurisdictions.

[38] Proposals from commenters, such as SWBT, that the affordable rate be set on the basis of median household income fail to satisfy these standards. Presumably, this would require the Commission to determine the median household income in every region in which a cost estimate is used to determine the TSLRIC of the local exchange network. In any such region where the TSLRIC exceeds the arbitrarily designated percentage of median income, a local exchange provider would be eligible for universal service support. Thus, even within a single state there would be widely varying levels of universal service support.

Such a scheme on its face fails to comport with the Act's requirement of "reasonably comparable" rates. Moreover, because of factors like home ownership, median income is not necessarily a good proxy for income available for telephone service.

[39] See, e.g., BellSouth 10-13; Frontier at 3-5; Wisconsin PSC at 12-13; Pacific Telesis at 22-23; Oregon and Washington ITAs at 6.

[40] See, e.g., Cincinnati Bell at 14; Citizens Util. at 20-21; Frontier at 4-5; ACTA at 9-10; U S WEST at 20-22; NYNEX at 18-19; BellSouth at 17; Ameritech at 15.

[41] See, e.g., Ameritech at 14-18; Bell Atlantic at 17; BellSouth at 19-21; MCI at 20-21; NCTA at 17-19; NYNEX at 19-23; Pacific Telesis at 5-9.

[42] NYNEX at 20.

[43] BellSouth at 19-20.