²Accord, Initial Comments of the Oregon Public Utility Commission, p. 6 ("Oregon includes accessibility to relay services for the hearing and speech impaired in its definition of universal service, as well"); Initial Comments of the Indiana Public Service Commission, p. 2; NYNEX Comments, p. 11; Comments of Cincinnati Bell Telephone Company, p. 4; Comments of U S WEST, p. 5; New York Department of Public Service, p. 12.

    ³See inter alia, Cincinnati Bell Telephone, p. 5; NYNEX, page 11;

    ⁴CPUC states that it had originally proposed to target support to residential customers in high-cost areas. Commenters protested, stating that the telephone rates for small business customers in high-cost areas would skyrocket if only residential rates are supported. The CPUC is weighing the costs of including small business lines in the universal service fund against the significant rate increases that small business customers in rural ares may face.

    ⁵See, Comments of the CPUC, p. 4 ("The Commission needs more information on which advanced services the market will support before choosing services to subsidize. The Commission could find itself in the position of promoting an advanced service which it later discovers is not the best option for consumers. Unfortunately, once the Commission has deemed an advanced service suitable for subsidy it would be deployed in the network over other services which may be more viable. Without market information, the Commission might support services which would otherwise have been losers."); Comments of U S WEST ("As the 1996 Act acknowledges, the marketplace must be allowed over time to identify the applications most customers actually want and are willing to pay for.")

    ⁶Comments of the Idaho Public Utility Commission, p. 11.

    ⁷Accord, Initial Comments of the Oregon Public Utility Commission, p. 5 ("The initial group of services to be supported should be small, in order to keep the cost of the program down while any difficulties with implementation are being worked out."); Comments of Teleport, pp. 4-5 ("Furthermore, they will ensure that the definition of basic service does not act as a barrier to entry, nor create an undue financial burden for contributors to the universal service fund.")

    ⁸U S WEST estimates that its proposals would result in a $5.0 billion fund, or a fund which is over four times the current funding level. (U S WEST's proposal includes one-party service; a voice-grade line with touch-tone capability; access to competing long distance carriers; access to telephone relay services for hearing or speech disabled customers; dialing access to 911/Enhanced 911 emergency services; and access to directory assistance. Additionally, U S WEST's proposal incorporates the BCM and a $30 affordability benchmark.)

    ⁹Accord, Comments of Airtouch Communications, p. 2; Comments of the Personal Communications Industry Association, p. 4.

    ¹⁰Accord, NYNEX Comments, p. 18 ("In contrast to the large amount of data in the record about high cost areas and subscribership, the Commission has relatively little information about the needs of these entities. Therefore, the Commission needs to gather additional information from the educational, library and health care communities before moving forward on these issues.")

    ¹¹Pacific Telesis points out that the needs of educational institutions may vary from state to state and that a definition of what advanced service is needed for education in one state may not be appropriate in another. To accommodate the differences between states, Pacific Telesis argues that the Commission should permit each state to make the determination of what its schools and libraries need, as long as certain guidelines are met. Pacific Telesis argues that the federal guidelines should set up minimum standards that must be met or describe limits on what services the federal fund will cover. Id. at p. 4. Pacific Telesis argues that by leaving the decision up to state commissions so that the available technology, architecture, and educational needs of their particular state can be addressed will comport with the requirements of Section 254 and the concept of a "bona fide request". Id. at pp. 4-5. While we take no position on this issue at this time, we do agree that the concerns raised by Pacific Telesis merit further examination.

    ¹²Accord, Comments of Teleport Communications Group, p. 1 ("Additionally, TCG recommends that the Commission initiate a "Phase II" of this proceeding to investigate advanced universal services for schools, libraries, and rural health care providers.")

    ¹³Accord, NYNEX Comments, p. 19 ("Simply making telecommunications services available, without the associated equipment and software and professional training and support, and without an understanding of whether those services will meet the user's needs, would not accomplish the goals of the Act. Moreover, the needs of each entity will vary in the years ahead as new technologies and applications are developed.")

    ¹⁴We also agree with the majority of Commenters that it is preferable to use a more simplified, competitively neutral mechanism which would combine all universal service assistance for high-cost companies into one mechanism.

    ¹⁵Some parties believe that embedded costs are inappropriate for use as a benchmark since they provide no incentives for recipients of funding to pursue efficient operations. They also believe that an embedded cost methodology will violate the competitive neutrality goals of the 1996 Act by providing different levels of support to different providers. On the other hand, they argue, that the proxy model does not incorporate the costs of any one particular LEC and thus should satisfy the statutory requirements for a competitively neutral gauge of universal service support requirements. They further argue that support programs should not be based on incumbent carriers' revenue requirements or costs, but those of an efficient, market-driven competitive provider.

    ¹⁶As noted in our initial Comments, we do not utilize a pure TS-LRIC approach. The approach endorsed in our September, 1995 Order includes a reasonable allocation of joint, shared and common costs, including overhead costs. We also tentatively concluded that the local loop costs themselves are joint or shared costs since the loop is utilized to provide a wide array of services, including basic universal service. See In Re: Formal Investigation to Examine and Establish Updated Universal Service Principles and Policies for Telecommunications Services in the Commonwealth; Interlocutory Order, Initiation of Oral Hearings Phase, Docket No. I-00940035, Order (Entered September 5, 19995).

    ¹⁷See, inter alia, CPUC Comments at pp. 10-13; Staff of the Public Utilities Commission of Ohio, Comments at p. 19; Florida Public Service Commission Comments at pp 10-11, Wyoming Public Service Commission Comments at pp. 8-9.

    ¹⁸See, Comments of Teleport, pp. 7-8.

    ¹⁹Initial Comments of the Staff of the Public Utilities Commission of Ohio, p. 6 ("We further believe that Census Block Groups (CBGs) are an appropriate and manageable level of disaggregation for developing proxy costs."); Comments of Teleport at 8-9; Comments of Cincinnati Bell Telephone Company, p. 8 ("In order to insure the proper and accurate distribution of high-cost assistance, costs must be targeted to an area smaller than a study area."); Pacific Telesis Comments, p. 13 ("The subsidy must be targeted to a much smaller geographic unit than the entire state so that appropriate high cost areas can be identified and compensated.");

    ²⁰Comments of Teleport, pp. 8-9.

    ²¹The Commission has several alternatives to the use of embedded costs for smaller carriers. For instance, the Commission could require the use of proxy costs, but allow for a true-up or waiver process in those instances where a smaller rural telephone company believes that it is being harmed or adversely affected under the proxy methodology.

    ²²Accord, Initial Comments of the Oregon Public Utility Commission, p. 3 ("We suggest that the FCC allow each state to determine service quality standards appropriate to its own circumstances, with the broad guidance that they must, at a minimum, be sufficient to enable customers to obtain the services listed in the FCC's definition of universal service."); Comments of the Wyoming Public Service Commission, p. 2 ("Many states have established service quality standards (or guidelines), and the common elements of these standards should be the basis for national service quality standards."); Comments of the Idaho Public Utilities Commission, p. 6 ("The states are in the best position to monitor and enforce service quality for the local user. No federal standards are necessary here."); Comments of the People of the CPUC, p. 3 ("State commissions have been working for years on quality of service issues."); New York State Department of Public Service, p. 3 ("Finally, the Commission should use state reporting requirements to monitor and ensure the provision of high quality service.")

    ²³See Comments of the New York Department of Public Service, p. 5 ("To the extent that a benchmark rate is used for purposes of qualifying for universal service support, the rate level should be left for the states to determine, in the context of state plans for distribution of high-cost assistance. This approach will result in benchmark rates that more accurately reflect circumstances within a particular jurisdiction (e.g., household income, cost of living, local calling area size, telephone penetration, current rate levels and rate setting policies). It will also ensure that universal service support is targeted to those customers in areas where it is most needed.")

    ²⁴See also Comments of the Staff of the Public Utilities Commission of Ohio, p. 6 ("Regardless of the methodology that is chosen by the FCC for the federal Universal Service Fund, the individual states should not be required to adhere to those identical parameters upon establishing its own intrastate universal support fund. Latitude should be given to the individual states to determine their policy goals and design the state universal service program that best achieves those goals.")

    ²⁵Comments of the Idaho PUC, p. 7 ("To effectively attach the remaining pockets of nonsubscribership, a micro-based state approach is preferable to a macro-based federal approach."); CPUC Comments, p. 14 ("The policies which will best ensure universal service in a particular state will depend on great measure upon that state's unique demographics and demographic trends, the state's telecommunication market conduct and history, even the state's geography."); Comments of Cincinnati Bell Telephone Company, p. 3 ("...CBT urges the Commission to allow the states to continue to target support for low-income consumers as state authorities are closer to this issue."); Comments of Pacific Telesis, p. 21 ("We do not believe, however, that the Commission should mandate programs to increase subscribership. Conditions vary greatly from state to state. Multiple factors, such as linguistic needs, income levels, and geography influence subscribership levels."); Comments of U S WEST ("...[M]atters such as service deposits, full toll denial ("FDT") and local service denial are being responsibly addressed at the state level. Absent a demonstration that market or state regulatory resolution of these matters seriously impedes federal universal service goals or the implementation of those goals, federal intervention in this area is not necessary"); Comments of the New York Department of Public Service, p. 14 ("While we support cost-effective low-income programs, mandating a single, nationwide policy may not be as effective as state policies that are tailored to reflect conditions within a particular state. Thus, any Commission requirements should not supersede state policies regarding deposit requirements.").

    ²⁶"To the greatest extent possible, consistent with the provisions of the 1996 Act, all public network beneficiaries should help to support universal service goals."

Comments of U S WEST, p. 14.

    ²⁷See, inter alia, Initial Comments of the Oregon Public Utility Commission, p. 8 ("States should be allowed to decide whether they prefer to administer universal service funds themselves or have them be administered by a neutral third party."); Initial Comments of the New York State Department of Public Service, p. 10; Initial Comments of the California Public Utility Commission, p. 21; Initial Comments of the Colorado Public Service Commission, p. 7; See also Initial Comments of Bell Atlantic.