²Under USTA's proposal to fund universal service support for high cost, rural, insular and unserved areas, prices would be increased to an affordability benchmark.

³Support for high cost, rural, insular and unserved areas should be provided to the eligible carrier servicing the geographic area. This type of support should be used to provide maintain and upgrade facilities to ensure affordable, high quality service is maintained. Provision of this type of support to customers will not ensure that the necessary facilities are built and maintained. See, Ardmore Telephone Co., at 4, Bledsoe Telephone Coop., at 4, Blountsville Telephone Co., at 4, Farmers Telephone Coop., at 4, Missouri PUC at 11, Mon-Cre Telephone Coop., at 4, New Hope Telephone Coop., at 4 and Ragland Telephone Coop., at 4.

⁴Even though the mechanisms should be separate, funding for each can be recovered through a surcharge based on interstate retail revenues.

⁵For example, costs above the benchmark would be targeted for the high cost mechanism.

⁶See, for example, Wisconsin PSC at 2, Colorado PUC at 2, Georgia PSC at 2, Kentucky PSC at 1-2, Oklahoma CC at 2, California PUC at 3, Texas PUC at 2, Rhode Island PUC at 1, Wyoming PSC at 2.

⁷Costs must exceed the affordability benchmark for a provider to be eligible for high cost assistance. An exchange carrier would receive universal service support when its costs for the core services exceed the affordability benchmark rate. The amount of support would be the difference between the benchmark rate and its actual cost for the core services or the actual rate and the actual cost for the core services, whichever is lower. This amount would be available to any eligible telecommunications carrier serving a non rural telephone company serving area. Eligible carriers serving rural telephone company serving areas would calculate their own support amount.

⁸USTA at 6-10.

⁹Many commenters expressed support for a larger fund in order to connect every classroom in every school to the Information Superhighway. USTA'S plan could be viewed as an initial step to ensure that every qualified school and library in the Nation have at least the same initial level of technology and functionality before additional capabilities are included. In addition, several commenters sought to include other educational institutions, such as universities and day care centers. The Act is very specific as to which entities are "qualified" to receive discounted rates. Finally, the focus of this initiative should be to benefit the students. It is not clear how the provision of special services to the school office would be of benefit to students.

¹⁰American Association of Community Colleges at 6-7, Michigan Library Association at 5-7, ACE Coalition at 6-7.

¹¹Some of these services, such as inside wire, are provided by non-telecommunications providers. Inclusion of these services in the funding mechanism would require that the providers be included in the funding base to ensure that it is competitively neutral, as required by the Act.

¹²National School Boards Association, et.al., at 20-21, American Library Association at 2, Wisconsin Department of Public Instruction at 2 and American Federation of Teachers at 4.

¹³NYNEX at Exhibit C.

¹⁴Florida PSC at 6-7, Sprint at 7, LCI at 3 and the Michigan PSC at 1. AT&T, at 12, proposed that interexchange service not be included in the core set of services yet receive support. Such a proposal is not in accordance with the Act. In addition, AT&T included number portability in its definition. [[section]]251(e)(2) of the Act deals with number portability. Number portability is not a service which could be included in the core set of services for universal service.

¹⁵Michigan PSC at 2, Ameritech at 10-11, GTE at 7-8, Pacific Telesis at 17-19, Southwestern Bell at 17-19, AT&T at 15, and Sprint at 8.

¹⁶In accord, GVNW at 10, AT&T at 16, Florida PSC at 8, Southwestern Bell at 4, ITIC at 12, Time Warner at 20, Compuserve at 7, and MFS at 22.

¹⁷Some exchange carriers may not increase EUCL prices.

¹⁸GVNW at Appendices 1-5.

¹⁹GVNW at 10, Ardmore Telephone Co. at 4, Bledsoe Telephone Coop. at 1, Blountsville Telephone Co. at 1, Evans Telephone Co., et.al. at 2, Farmers Telephone Coop at 1, Fort Mojave Telecom. at 2, Mon-Cre Telephone Coop at 1, New Hope Telephone Coop at 1, Ragland Telephone at 1, United Utilities at 3, Minnesota Telephone Association at 1, Texas PUC at 8, People for the American Way at 2, and Rural Telephone Finance Coop at 2.

²⁰See, Century and TDS at 2 listing provisions of the Act to protect the interests of rural telephone companies.

²¹Keystone-Arthur Telephone Co. at 4.

²²MCI claims (at 16) that these mechanisms provide funding to exchange carriers without requiring that exchange carriers modify their networks. This statement is untrue. Exchange carriers must incur the cost of providing a loop before that cost can be recovered through the support mechanism. In addition, contrary to the assertion of LDDS (at 11), the underlying cost of providing universal service is based on actual cost under these mechanisms.

²³Century and TDS at Appendix A.

²⁴In accord, Century and TDS at 6-7, U.S. Small Business Administration at 4, GVNW at 14, and Pennsylvania PUC at 21.

²⁵AARP at 14-16 and NASUCA at 16-17.

²⁶Kenneth Gordon and William E. Taylor, "Comments on Universal Service", Federal-State Joint Board on Universal Service, CC Docket No. 96-45, April 12, 1996. [NERA].

²⁷Id. at 8-9.

²⁸Jerry Hausman, Timothy Tardiff and Alexander Belinfante, "The Effects of the Breakup of AT&T on Telephone Penetration in the United States, American Economic Review, 83, 1993 at 178-179 as cited by NERA at p. 20.

²⁹AARP at 15 and NASUCA at 23.

³⁰See, Alfred Kahn and William Shew, "Current Issues in Telecommunications Regulation: Pricing, 4 Yale Journal on Regulation (1987); Steve G. Parsons, "Seven Years After Kahn and Shew: Lingering Myths on Costs and Pricing Telephone Service, 11 Yale Journal on Regulation at 149 (1994) and Testimony of Dr. Richard D. Emmerson before the Georgia Public Service Commission, In Re: Universal Access Fund, Docket No. 5825-U, March 18, 1996.

³¹Under current separations rules, costs are allocated based on use. Thus, a portion of loop costs are allocated to the interstate jurisdiction to reflect interstate usage and a portion is allocated to the intrastate jurisdiction to reflect intrastate usage.

³²Memorandum Opinion and Order, CC Docket No. 78-72, Phase I, released August 22, 1983, [[paragraph]]10.

³³In 1983, the Commission observed that the "concept that users of the local telephone network should be responsible for the costs they actually cause is sound from a public policy perspective and rings of fundamental fairness. It assures that ratepayers will be able to make rational choices in their use of telephone service, and it allows the burgeoning telecommunications industry to develop in a way that best serves the needs of the country." Id. at [[paragraph]]7.

³⁴In accord, LDDS at 10. Some parties insist that only one residential line be included, AT&T at 13 and Sprint at 4,6. However if would be difficult and impractical for eligible carriers to make such a determination.

³⁵Because a proxy is a hypothetical cost model, it should not be used to set prices since it does not represent the actual cost of providing service. In addition, since it produces relative costs, a proxy should not be used to determine the size of the high cost funding mechanism. The current Benchmark Cost Model should not be required for rate of return regulated exchange carriers.

³⁶NERA provides various examples which demonstrate that setting the initial level of support in relation to the incumbent's embedded costs and then relying upon competition and the market mechanism for subsequent fine-tuning is economically efficient and will ensure that the market will be served by the least-cost provider. NERA at 9-16.

³⁷MCI at 10-12 and AT&T at 14-15.

³⁸Sprint at 14.

³⁹MCI at 3, and LDDS at 3.

⁴⁰Incumbent exchange carriers have a significant reserve deficiency on their regulatory books. The deficiency reflects the under-depreciation of their embedded plant. (See, USTA Reply Comments, CC Docket No. 94-1, March 1, 1994 at Attachment D, Table 2). As many parties pointed out in their comments, incumbent exchange carriers are entitled to fully recover this plant, since it was deployed by these exchange carriers to further universal service and fulfill carrier of last resort obligations in the past. There is more than one way the recovery of this embedded plant can be addressed. Some parties have proposed that recovery be achieved through an explicit, non-portable support mechanism in conjunction with universal service. Others have proposed price restructuring and/or flexibility. Whatever method(s) are accepted, the Commission must allow incumbent exchange carriers to recover this investment.

⁴¹AT&T at 7,12, Sprint at 14, Ad Hoc at 13, Pennsylvania PUC at 17-19, American Library Association at 13 and LDDS at 23.

⁴²AARP at 18-20.

⁴³Washington UTC at 12, Oregon PUC at 7, Florida PSC at 10, NARUC at 12 and Missouri PUC at 8.

⁴⁴USF and weighted DEM for non-rural telephone companies would be frozen over the four year period and then eliminated.

⁴⁵Citizens for a Sound Economy at 12-13, and AT&T at 10.

⁴⁶Time Warner suggests that only one carrier of last resort receive support. The Act requires multiple eligible carriers in non-rural telephone company service areas.

⁴⁷Statement of David E. Freet, Vice President, Pennsylvania Telephone Association, Federal-State Joint Board, Low Income Panel Presentation, April 12, 1996.

⁴⁸Comsat at 9-13, CTIA at 5-7, Telecommunications Resellers Association at 19-20 (seeking an exemption from funding, but asserting that resellers be permitted to receive support).

⁴⁹The fund established to recover the costs of interstate TRS calls requires payments from all common carriers subject to the Americans with Disabilities Act. As of November 1995, there are approximately 2,900 TRS fund contributors. All contributors are required to pay at least $100 per year to the fund.

⁵⁰USTA at 24, GTE at 17.

⁵¹AT&T at 7-8, Sprint at 16-17, AARP at 20.

⁵²Wisconsin PSC at 19 and Indiana PSC at 10-11.

⁵³Sprint at 4, LDDS at 18, MFS at 13-15, Illinois CC at 7-11, Ad Hoc at 21 and CWA at 11.

⁵⁴Wyoming PSC at 4.

⁵⁵USTA at 25, AT&T at 7, LCI at 5.

⁵⁶LDDS at 18.