[2] The filing made by eight rural state commissions stands out in that it successfully, with but a few minor exceptions, meshes the new law with the different needs and characteristics of rural America that Congress meant to accommodate. See Comments of: The State of Maine Public Utilities Commission, the State of Montana Public Service Commission, the State of Nebraska Public Service Commission, the State of New Hampshire Public Utilities Commission, the State of New Mexico State Corporation Commission, the State of Utah Public Service Commission, the State of Vermont Department of Public Service and Public Service Board, and the Public Service Commission of West Virginia ("the Eight Rural States").

[3] The Eight Rural States at 2-3; and the RTC at 6.

[4] The Eight Rural States at 1-2.

[5] Id. at 4-8; and RTC at 11-12.

[6] The Eight Rural States at 14.

[7] Id. at 15-20.

[8] For example, US West advocates only a "deployment of a core set of basic telephony services." US West at 5. NYNEX at 1 suggests that "[t]he Commission should limit the size of the universal service fund to the minimum necessary. . . ." See, also, Bell Atlantic at 6-10. Other commenting parties would limit the mechanism in other ways. See all of the following sections in this part.

[9] RTC at 2-3.

[10] USTA at 15. The USTA plan apparently calls for: 1) carriers to allocate the full 25 percent interstate allocated common line cost to end user recovery; 2) an allowance for SLCs to "rebalance" to a local level based on areas smaller than study areas; and 3) users to be charged SLCs either (a) at the full 25 percent end user amount, if less than the interstate benchmark, or (b) the benchmark. Id. Of course, this full 25 percent allocation of common line costs to non-carrier common line ("CCL") recovery eliminates any recovery from long distance carriers and their customers for their use of common lines. See I. G., infra.

[11] Similarly, Frontier also urges substantial jurisdictional cost shifts, claiming that even the 25% gross allocator and DEM weighting mechanisms "unquestionably over allocate costs to the interstate jurisdiction." Frontier at 10.

[12] GTE at 13.

[13] Some carriers underestimate the importance of the mechanism and apparently want to limit the total industry contribution. Minimum commitment, almost without exception, leads to minimum result. If Congress meant to minimize this commitment, it would have left universal service goals out of the Act.

[14] US West at 12.

[15] RTC at 3. The Act requires comparable rates for comparable services. Basic local service at $15 a month allowing access to a few million other local users is not comparable to a typical rural rate which only provides local service access to a few hundred subscribers.

[16] The Eight Rural States at 11-12.

[17] Id. at 13-14.

[18] MCI at 9.

[19] Sprint at 6.

[20] TCG at 15.

[21] The Colorado PUC staff "believes that funding should be applied to all access lines (business and residential) in rural and high cost areas." Colorado PUC staff at 6.

[22] See 47 C.F.R. 254(b)(3). The inclusion of "low-income consumers" to the list was an addition made during the Joint Conference. Manager's Explanation at p. 131. It was contemplated by both houses of Congress that rural and high cost areas would have access to services that were supported by universal service mechanisms. See S. 652 [[section]] 247(b)(1)(A) and H.R. 1555 [[section]] 246(b)(2). In fact, attempts made to limit the beneficiaries of geographically averaged rates in [[section]] 254(g) to residential customers were defeated.

[23] "These subsidies should be fully portable, so that when a customer selects a particular carrier, that carrier will then be eligible for universal service funding to help serve the customer." LDDS Worldcomm at 6. See also MFS at 15; and Association for Local Telecommunications Services at 14.

[24] 47 C.F.R. [[section]] 214(e)(1).

[25] 47 C.F.R. [[section]] 214(e)(1) and (5), and [[section]] 254(e). Universal service support will not promote ongoing network investment with evolving and advancing quality services if the support is put at risk among carriers based on customers served.

[26] The Senate defeated, by a margin of 82-18, an amendment that would have added a "customer voucher" approach to universal service. The portability discussion attempts to resurrect the voucher approach.

[27] "First, the BCM assumes that households are uniformly distributed throughout the CBG. This assumption is probably least true in the more rural areas." MCI at 11.

[28] AT&T at Appendix A, pp.1-2.

[29] The Eight Rural States at 6, and 5-8, generally. The Eight Rural States suggest modifications: 1) to include business lines; 2) to improve assumptions regarding population, switching cost, coverage design, assignment to wirecenters, and technology trade-offs; and 3) to include other variables such as terrain and remoteness. Id. at 6-7.

[30] Ameritech at 12.

[31] SWBT at 16.

[32] The Eight Rural States at 5.

[33] The least dense range for modeling purposes has been designed around a zero to five households per square mile. See, generally, Joint Sponsors' Benchmark Costing Model. This lowest density modeling range is much too aggregated for the typical experience of high cost LECs with densities well below 1 subscriber per square mile. Cost modeling for all census block groups below 5 households per square mile is a gross simplification given that the predominance of high-cost occurs at this and less dense range levels. For a more complete discussion of the merits, or lack thereof, of the BCM, see NTCA Comments filed on October 10, 1995, at 73-90; and NTCA Reply Comments filed November 9, 1995, at 26-30, both in CC Docket 80-286.

[34] The model may produce mathematical results such that, for example, one census block group's per-unit cost is twice at much as a second. While experts may with common sense understand that the first is clearly higher cost than the second, they do not know how much greater. Is the real answer 1.5 times, 2 times, 5 times, or 50 times as costly? The exact answer is paramount to establishing the proper support level. Just recognizing that one is higher cost is not a sufficient mechanism.

[35] Some point out that census block groups are not the best "service block" because there is "no planned relationship to the actual physical telecommunications network and the associated costs." Alaska PUC at 13-14. "[T]he BCM will fail to provide appropriate support if applied to Alaska in the model's current form, leading to erosion of universal service." Id. at 14-15.

[36] "Conversely, it may be difficult to create a model which provides a verifiable relationship between proxy results and actual costs." New York State Department of Public Service at 6.

[37] Even for those expecting to adopt a BCM approach, there is still doubt as to the ultimate form: "There is still unresolved issues remaining regarding the appropriate proxy model and inputs." Public Utilities Commission of the State of California at 11. These doubts leave questions about ultimate success.

[38] Even isolation of companies may not be enough to guard against wildly erroneous results leading to distorted pricing for otherwise comparable areas.

[39] For example, both AT&T and MCI, suggest similar mechanisms. AT&T recommends a plan that would provide cost recovery support "[t]o the extent that the [total service long run incremental cost ("TSLRIC")] of serving an area would require a local service rate that exceeds that affordable rate. . . ." AT&T at 14. MCI asks that the "subsidy" be calculated as "the difference between the [TSLRIC] of basic universal service, determined separately for different geographic cost zones. . . , and the revenues generated by rates set at the current nationwide average." MCI at ii.

[40] The support must be specific, predictable, and sufficient and must be designed both to preserve and advance universal service. 47 C.F.R. [[section]] 254(b)(5).

[41] Calculations which would be subject to extreme theoretical debate and fierce disagreement over their proper practical application would further burden universal service.

[42] The Washington Utilities and Transportation Commission ("WUTC") understands: "The Commission will use incremental cost studies primarily to establish price floors for individual services. . . . [I]t is important to ensure that the rates at least cover the incremental costs of providing that service. Guarding against cross-subsidy and predatory pricing is the primary function of the incremental cost studies." Fifteenth Supplemental Order, Docket No. UT-950200, released by the WUTC on April 11, 1996 ("WUTC Order") at p. 81. "No party has suggested any sort of mechanistic relationship between incremental costs and rates. . . . Neither are rates based on equal markup over incremental cost necessarily fair. An equally `fair' rule, with potentially very different rates, would be to have equal discounts from the stand-alone cost of each service." Id.

[43] WUTC Order at p. 83.

[44] Id.

[45] AT&T, MCI and others have perpetuated the argument that no portion of local loop costs should be borne by long distance services and that it follows that all of the local loop costs should be attributed incrementally to basic local service.

[46] The WUTC also concludes that "[o]ther considerations . . . remain an important part of the rate-setting process." Id. at p. 82. The WUTC cites: "1. Effectiveness in yielding total revenue requirements under the fair return standard; 2. Fairness in the apportionment of total costs of service among different consumers; and 3. Efficiency in discouraging wasteful use of services while promoting all justified types and amounts of use, in view of the relationships between costs incurred and benefits received." Id. at n. 42.

[47] AT&T at iii. AT&T forgets that affordability is not the only criterion required by Congress. Comparability to urban areas' rates is also required.

[48] Id.

[49] MCI approaches this question similarly, except that it proposes a benchmark rate of $20 per month. MCI at ii.

[50] Notice of Proposed Rulemaking, CC Docket Nos. 95-185 and 94-54, released by the Commission on January 11, 1996, at paras. 49-55.

[51] For example, AT&T argues "the SLC should be raised to recover fully the subscriber loop portion, or base factor portion, of the interstate common line; this will result in a SLC of approximately $7.00 per subscriber (with offsetting reductions in the access charge component of toll rates)." AT&T at 16.

[52] In addition to the 25 percent allocation, the Universal Service Fund allocates approximately 2 percent to the interstate jurisdiction.

[53] Now consider another illustrative example whereby two complete competing networks with redundant facilities, both capable of providing both local service and long distance service. If they were competing for customers to connect to their respective networks and buy their services, they would not seek to recover all local distribution, non-traffic sensitive costs in the form of full, recurring monthly charges. Competitive carriers would opt, at least for some portion of customers, to split the cost recovery between up-front recurring charges and volume service charges. Too high a recurring charge would not attract customers from a competitor or keep existing customers from moving to another competitor with a lower recurring charge.

[56] "[T]he Texas PUC reminds the Commission that the local loop is necessary for the provision of virtually all telecommunication services. . . . We therefore urge that the Commission not increase the interstate [SLC] at least until appropriate costs are developed, additional determinations are made regarding the assignment of joint and common costs, and the components of the universal service funding program are in place." Public Utility Commission of Texas at ii.

[57] "The SLC shifts costs from the interLATA user to all conventional users. This shift has a recognizable effect of hampering universal service goals." South Dakota Public Utilities Commission at 2. "[T]he NYDPS opposes an increase in the federal [SLC] as a result of a decision to reduce the interstate carrier common line charge. It is our view that such action could jeopardize the continued provision of quality services at affordable rates and is counter to the goal of federal legislation that quality services be provided at affordable rates." New York State Department of Public Service at 1-2.

[58] It is arguable that part of the DEM weighting mechanism is properly charged to IXCs for their use of switching given higher toll demands, and this portion is not a subsidy. Moreover, a DEM allocator for switching partially results in the subsidy of toll services by local services because intra switch local call minutes are counted twice, while toll and extended area service call minutes are only counted once, in arriving at the allocation factor. If the Commission and the Joint Board are to adjust interstate DEM weighting, then they should also adjust the hidden two-times local weighting. For several years, the industry has been awaiting a resolution to the question of what the proper long term allocation should be. Many believe that the factor called the switched minutes of use ("SMOU") would be a more proper allocation factor. This factor removes the two-times weighting of local, intra switch usage.

[59] The RTC notes that some commenting parties suggest that, for treatment of high cost, TS and NTS costs should be examined in combination. The Eight Rural States at 10. This would not be appropriate since carriers face separate high cost recovery and rate problems for TS and NTS costs. Such a combination would, with unfair and unhealthy consequences, enable resellers and interconnectors to cherry-pick the system.

[60] USTA, at 16, agrees that at least for rural LECs, the USF and DEM Weighting should be continued.

[61] RTC at 11-12.

[62] For those newly eligible carriers that argue that they are small and should not be required to shoulder these rules, it should be noted that hundreds of existing LECs are small entities and nevertheless comply with several sets of the Commission's rules.

[63] USTA at 17; and NECA at 9-11.

[64] RTC at 11-15.

[65] Similarly as "an entrant that merely resells a bundled retail service purchased at wholesale rates, would not receive the access revenues." Notice of Proposed Rulemaking, CC Docket No. 96-98, Implementation of the Local Competition Provisions in the Telecommunications Act, released by the Commission on April 19, 1996, at para.186. See also RTC at 9-10.

[66] RTC at 13-15; NECA at 9-10.

[67] Due to page limits, the RTC has not commented directly but agrees with the provision of support to those that provide services to education, libraries, and health care providers. Because the funding level here is difficult to determine, it would be prudent and preferable to maintain a separate program for this class of support.

[68] A "sufficiency" index, consistent with the Act, would be ideal. Arbitrary indices or caps, like line growth, do not recognize universal service support needs' growth which varies with the introduction of new technologies and services and improvement in network infrastructure for rural, insular, and high-cost areas in need of advanced, quality services. Furthermore, the current indexed cap, and other Commission actions limiting high cost support, have been hostile towards the transfer of property from larger LECs into the hands of smaller LECs committed to upgrade and maintain quality service.

[69] The RTC also supports the need to address more specifically how the goals of the Act will be achieved for Native Americans. See, generally, Comments submitted by the Navajo Nation; and Comments of The Cheyenne River Sioux Telephone Authority and Golden West Telecommunications Cooperative.

[70] It should be noted that the Act in requiring rules to implement [[section]] 254 only requires this proceeding to establish a specific definition of supported services and a timetable for implementation of the plan. 47 C.F.R. [[section]] 254(a)(2).