XIV. Eligibility for Universal Service Funds

A. Service Area Defined for "Eligible Carrier" Status

It is our responsibility under § 214(e)(5) of the Federal Act to define the term"service area" for purposes of defining the universal service obligations of eligible carriers. Section 214(e)(5) provides as follows:

(5) SERVICE AREA DEFINED.--The term 'service area' means a geographic area established by a State commission for the purpose of determining universal service obligations and support mechanisms. In the case of an area served by a rural telephone company, 'service area' means such company's 'study area' unless and until the Commission and the States, after taking into account recommendations of a Federal-State Joint Board instituted under section 410(c) establish a different definition of service area for such company.

The Commission received very little comment from parties on this issue. Based upon the record before us, we believe that the existing exchange areas of the non-rural ILECs are most appropriate for purposes of defining a carrier's universal service obligations. It is our initial thoughts on this issue that the universal service obligations of both ILECs and CLECs should be the same. This is consistent with the Joint Board's recommendation that the service areas chosen by states for non-rural telephone companies not be unreasonably large. Joint Board Recommended Decision at p. 6.

Under § 254 of the Federal Act, the Joint Board and FCC are charged with determining whether there should be any changes to the study areas of rural telephone companies for federal universal service funding purposes.

The Joint Board has recommended that in the case of rural telephone companies, the company's existing study area be used as the designated service area which is duly noted. The Joint Board found no persuasive reason to adopt a service area that differs from an RTC's present area. Joint Board Recommended Decision at para. 172. The Joint Board noted that potential "cream skimming" is minimized with use of the RTC's service area since competitors would have to provide services throughout the RTC's study area as a condition of eligibility. Joint Board Recommended Decision at para. 172. We note that the FCC's final decision on this issue is expected in May, 1997. We also note that we are not tied into the FCC's ultimate decision with regard to our state funding mechanism but we see no persuasive reason at this time to deviate for purposes of the state funding mechanism.

B. Eligible Telecommunications Carrier

1. Impact of Section 254's Facilities Based Requirement on Eligibility

Only Bell raises the issue of resale carriers and their eligibility for fund receipts. Bell argues that if a CLEC provides universal service in a high cost area and that CLEC provides service over its own facilities, the CLEC should receive the universal service subsidy calculated for that high cost area. Bell Reply Brief at p. 40. On the other hand, if the CLEC has purchased the facilities from the incumbent LEC through resale, the reseller should be entitled to the subsidy only if the reseller paid the incumbent a price that reflects the full cost of the service. If the reseller paid only a below cost rate, the incumbent should receive the subsidy. This way, only the company that bears the cost of the below cost service will receive the subsidy. Bell Reply Brief at p. 40.

AT&T witness Darrah responded that all carriers providing local exchange service in a territory that requires a subsidy should be eligible for that subsidy and that should include resellers. AT&T Stmt. 1.0 (Darrah) p. 28. Witness Darrah further testified that if the Commission's goal is to "encourage competition in telecommunications markets throughout Pennsylvania, it should encourage and promote the use of resale by new entrants." Id. According to witness Darrah, the best way to do this is to require the incumbent LEC to offer their local exchange services for resale at wholesale prices and to ensure that the reseller is eligible for any subsidy that would otherwise be available to local exchange providers in that territory. Id. at 29.

The Federal Act sets out the criteria carriers must meet to become eligible for federal funding purposes. Those criteria are set forth in subpart a. supra. For purposes of the state funding mechanism, we have at this time adopted similar criteria.

One of the eligibility criteria requires that carriers offer the services that are supported by federal universal service support using either their own facilities or a combination of their own facilities and another carrier's facilities. See § 251(e)(1)(A). In our Final-Form Rulemaking Order at Docket L-00950105, we indicated our intent to use the FCC's interpretation of carrier eligibility under this section.

The Joint Board has recommended an interpretation of this provision that would preclude fund distributions to carriers that provide service strictly on a resale basis. Given the express language of the Federal Act, it was the Joint Board's interpretation that in order to qualify for fund receipts, a carrier must be in part facilities-based so that it can use the funds consistent with the purposes set forth in the Federal Act.

We decline to make any determinations with respect to the impact of § 254(e)(1)(4) upon state fund eligibility until the FCC rules on the Joint Board's recommendation in May, 1997.

2. Designation Procedures

Section 214 of the Federal Act establishes the criteria for universal service support as applicable to federal funding mechanisms. Although the express language of § 214 applies only to the federal funding mechanism, we have adopted similar eligibility criteria for purposes of qualifying as an "eligible telecommunications carrier" under the Pennsylvania Universal Service Fund. Consequently, a carrier must meet the requirements of § 214 of the Federal Act for purposes of obtaining funding from either the state or federal funding mechanism. Section 214 provides in pertinent part:

(e) PROVISION OF UNIVERSAL SERVICE.--(1) ELIGIBLE TELECOMMUNICATIONS CARRIERS.--

A common carrier designated as an eligible telecommunications carrier under paragraph (2) or (3) shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received --

(A) offer the services that are supported by Federal universal service support mechanisms under section 254(c), either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier); and

(B) advertise the availability of such services and the charges therefore using media of general distribution.

(2) DESIGNATION OF ELIGIBLE TELECOMMUNICATIONS CARRIERS.-- A State commission shall upon its own motion or upon request designate a common carrier that meets the requirements of paragraph (1) as an eligible telecommunications carrier for a service area designated by the State commission. Upon request and consistent with the public interest, convenience, and necessity, the State commission may, in the case of an area served by a rural telephone company, and shall, in the case of all other areas, designate more than one common carrier as an eligible telecommunications carrier for a service area designated by the State commission, so long as each additional requesting carrier meets the requirements of paragraph (1). Before designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the State commission shall find that the designation is in the public interest.

47 U..S.C. § 214(e).

Accordingly, in order to be eligible for universal service support, a local carrier, either an incumbent LEC or a competitor LEC, must seek an eligibility designation. Carriers may file with the Commisison an Application for Designation as an Eligible Telecommunications Carrier. In its Application, the carrier should provide evidence that it meets the criteria set forth in the Federal Act, including proof of advertising. Upon review of the Application and supporting documentation, the Commission will determine whether the carrier will be designated an eligible telecommunications carrier for both state and federal funding purposes.

To receive an eligibility determination, the local carrier must commit to offer BUS throughout the service area for which eligibility is requested. By extending its commitment to act as an eligible telecommunications carrier, the carrier agrees to offer BUS throughout the service area and assume carrier of last resort obligations. Once a carrier has been designated as an eligible telecommunications carrier, it will qualify for support from Pennsylvania's universal service funding mechanism.

If the Commission does not receive applications for a given service area, it will designate a carrier as the "eligible telecommunications carrier" for intrastate services pursuant to the authority given it under § 214(e)(3) which provides as follows:

(3) DESIGNATION OF ELIGIBLE TELECOMMUNICATIONS CARRIERS FOR UNSERVED AREAS.--If no common carrier will provide the services that are supported by Federal universal service support mechanisms under section 254(c) to an unserved community or any portion thereof that requests such service, the Commission, with respect to interstate services, or a State commission, with respect to intrastate services, shall determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof. Any carrier or carriers ordered to provide such service under this paragraph shall meet the requirements of paragraph (2) and shall be designated as an eligible telecommunications carrier for that community or portion thereof.

The Commission will follow the following procedure for purposes of designating carriers to act as eligible carriers in unserved service territories. After the deadline for filing initial applications has passed, the Commission will publish notice in the Pennsylvania Bulletin of any and all service territories for which an application was not received. Carriers will have 30 days from the publication date to file an application with the Commission. Once the 30 day period elapses, the Commission will publish a second notice in the Pennsylvania Bulletin of any remaining service areas without eligible carriers. The Notice will also include the designation made by the Commission. The Commission designated carrier will have 20 days to file a protest, and other interested parties may file comment in the 20-day period. The Commission will rule on the designations at one of its Public Meetings.

Should a carrier designated as an eligible telecommunications carrier desire to surrender its designation and attendant support, it may file with this Commission a Petition to Relinquish Designation as an Eligible Telecommunications Carrier. The Federal Act allows for the surrender of an eligible telecommunications carrier designation in service areas that are served by more than one eligible telecommunications carrier. The Federal Act provides in pertinent part:

(4) RELINQUISHMENT OF UNIVERSAL SERVICE.--A State commission shall permit an eligible telecommunications carrier to relinquish its designation as such a carrier in any area served by more than one eligible telecommunications carrier. An eligible telecommunications carrier that seeks to relinquish its eligible telecommunications carrier designation for an area served by more than one eligible telecommunications carrier shall give advance notice to the State commission of such relinquishment. Prior to permitting a telecommunications carrier to cease providing universal service in an area served by more than one eligible telecommunications carrier, the State commission shall require the remaining eligible telecommunications carrier or carriers to ensure that all customers served by the relinquishing carrier will continue to be serve, and shall require sufficient notice to permit the purchase or construction of adequate facilities by any remaining eligible telecommunications carrier. The State commission shall establish a time, not to exceed one year after the State commission approves such relinquishment under this paragraph, within which such purchase or construction shall be completed.

47 U.S..C. § 214(e).

In requesting permission to relinquish its designation as an eligible telecommunications carrier, the carrier must file a petition with this Commisison no later than six months before it seeks to cease operating as an eligible telecommunications carrier. The carrier must serve its petition on the other eligible telecommunications carrier or carriers serving the service area at issue, the Office of Consumer Advocate, the Office of Small Business Advocate and the Office of Trial Staff. The Commission will publish notice of the petition in the Pennsylvania Bulletin. Interested parties will have 30 days from the date of publication to file comment on the petition. Reply comments, if any, will be due within 20 days from the date initial comments are due. Parties are to address the criteria for relinquishment contained in § 214(e) of the Federal Act and any other factors they believe relevant to the Commisison's determination. If any contested issues of material fact are raised, the Commission will refer the matter to the Office of Administrative Law Judge for resolution.

As required by the Federal Act, this Commission will make the required determinations to ensure that the customers served by the petition carrier will continue to be served by the remaining eligible telecommunications carrier or carriers and that the remaining carrier or carriers will have sufficient facilities to serve those customers. Upon entering an Order containing the necessary findings, the Commission will permit an eligible telecommunications carrier to relinquish its designation.

XV. Schools, Libraries and Health Care Institutions

A. Requirements of the Federal Act

We note that since this docket was opened, the Federal Act was passed which contains extensive provisions relating to the provision of universal service to schools, libraries and health care institutions. Pursuant to § 254(h)(1)(B), state commissions must determine the appropriate discount to apply in intrastate services provided to schools and libraries as defined in § 254(h)(4) and (5) of the Act. Obviously, this may have implications for Pennsylvania's universal service fund.

Subpart (B) provides as follows:

EDUCATIONAL PROVIDERS AND LIBRARIES.--All telecommunications carriers serving a geographic areas shall, upon a bona fide request for any of its services that are within the definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts charged for similar services to other parties. The discount shall be an amount that the Commisison, with respect to interstate services, and the States, with respect to intrastate services, determine is appropriate and necessary to ensure affordable access to and use of such services by such entities. A telecommunications carrier providing service under this paragraph shall --

(i) have an amount equal to the amount of the discount treated as an offset to its obligation to contribute to the mechanisms to preserve and advance universal service, or

(ii) notwithstanding the provisions of subsection (e) of this section, receive reimbursement utilizing the support mechanisms to preserve and advance universal service.

Pursuant to § 254(c)(3), the FCC, in addition to the services included in the definition of universal service, may designate additional services for the federal support mechanism for schools, libraries, and health care providers.

Subpart (A) of § 254(h)(1) also requires telecommunications carriers upon receiving a bona fide request to provide services to rural health care providers, including instruction relating to the services provided, to charge rates that are reasonably comparable to rates charged for similar services in urban areas in that State. The Federal Act provides that the carrier will be entitled to have an amount equal to the difference, if any, treated as part of its service obligation to participate in the mechanisms to preserve and advance universal service.

Finally, subpart (2) of § 254(c) provides that the FCC shall establish competitively neutral rules- -

(A) to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms, health care providers, and libraries; and

(B) to define the circumstances under which a telecommunications carrier may be required to connect its network to such public institutional telecommunications users.

Subparts (4) and (5) of that Section go on to define eligible institutions for purposes of qualifying for increased support.⁽³⁰⁾

The Federal State Joint Board recently recommended the following for purposes of the federal funding mechanism:

...[W]e recommend that, consistent with section 254(h), all eligible schools and libraries may receive discounts of between 20 and 90 percent on all telecommunications services, Internet access and internal connections, subject to a $2.25 billion annual cap. In addition, any funds that are not disbursed in a given year may be carried forward, and may be disbursed in subsequent years without regard to the cap. We find that this recommendation provides schools and libraries with the maximum flexibility to purchase the package of services they believe will be most effective to meet their respective communications needs. We also conclude that economically disadvantaged schools and libraries, as well as schools and libraries located in high cost areas, should receive greater discounts to ensure that they have affordable access to telecommunications and information services. Further, we recommend that schools and libraries be required to comply with several self-certification requirements, designed to ensure that only eligible entities receive universal support and that they have adopted plans for securing cost-effective access to and use of all of the services purchased under section 254(h).

Recommended Decision at para. 440

As the Joint Board noted, Congress recognized the importance of telecommunications and related services to schools, libraries and health care institutions when it enacted the 1996 Act, as the following passage illustrates:

The provisions of subsection [254] (h) will help open new worlds of knowledge, learning and education to all Americans - rich and poor, rural and urban. They are intended, for example, to provide the ability to browse library collections, review the collections of museums, or find new information on the treatment of illness, to Americans everywhere via schools and libraries. This universal access will assure that no one is barred from benefiting from the power of the Information Age.

Recommended Decision at para. 442 (citing Joint Explanatory Statement at 132-33).

With regard to schools and libraries, the Joint Board recommended that the FCC adopt a rule that provides schools and libraries with the "maximum flexibility to purchase whatever package of telecommunications services they believe will meet their telecommunications service needs most effectively and efficiently." Recommended Decision at para. 458. The Joint Board recommended a discount mechanism for telecommunications services and Internet access. Id. at para. 465. Intra-school and intra-library connections directly to classrooms may receive discounts on these charges as well as for all commercially available telecommunications services and Internet access and other information services to the extent set out in the Recommended Decision. Id. at para. 473.

The Joint Board recommended that "schools and libraries be required to seek competitive bids for all services eligible for section 254(h) discounts." In so doing, schools and libraries would be required to submit their requests for services to the fund administrator, who would post a description of the services sought for all providers to see and respond to as if they were requests for proposals. The Joint Board further recommended that providers make the services available using the lowest commercial rate offered other noncommercial customers as the ceiling. Id. at para. 540. Carriers would be required to self-certify to the administrator that the price is at or below this level. Id. The Joint Board recommended that the eligible institutions be permitted to appeal to the FCC and state commissions, respectively, interstate and intrastate rate determinations. The Joint Board further recommended that the definition of "geographic area" be interpreted to mean "the area in which the service provider is seeking to serve customers, e.g., the telephone or cable company's franchise areas and a wireless company's serving area. Id. at para. 543.

For purposes of the interstate discount, the Joint Board recommended that the FCC adopt a matrix that provides discounts from 20 percent to 90 percent, to apply to all telecommunications service, Internet access, and internal connections, with the range of discounts correlated to the indicators of economic disadvantage and high cost for schools and libraries. Id. at para. 547. The Joint Board adopted a matrix of percentage discounts to be applied to the schools and libraries program. Id. at para. 555.

Finally, the Joint Board recommended that the FCC adopt rules that provide federal funding for discounts for schools and libraries on both interstate and intrastate services to the levels discussed in the Recommended Decision. The Joint Board further recommended that establishment of intrastate discounts at least equal to the discounts on interstate services be a condition of federal universal service support for schools and libraries in that state, and that a state that desired to provide an intrastate discount less than the federal discount could seek a waiver of the requirement. Id at para. 297.

We note that the Federal Act's objective of encouraging the deployment of broadband facilities to schools and health care facilities is also consistent with the objectives of Chapter 30 which state in part:

The General Assembly finds and declares that it is the policy of this Commonwealth to:

(1) Maintain universal telecommunications service at affordable rates while encouraging the accelerated deployment of a universally available, state-of-the-art, interactive, public-switched broadband telecommunications network in rural, suburban and urban areas, including deployment of broadband facilities in or adjacent to the public rights-of-way abutting public schools, including the administrative offices supporting public schools; industrial parks; and health care facilities, as defined in the act of July 19, 1979 (P.L. 130, No. 48), known as the Health Care Facilities Act.

We decline to initiate a separate proceeding at this time, but will instead first request that the Task Force examine this issue and the Joint Board's recommendations and report back to us with recommendations on fulfilling our responsibilities in this regard within 6 months after the entry date of this Opinion and Order. The Task Force's report should also contain information on existing discounts or connectivity programs which are already in effect in Pennsylvania.

Finally, the Task Force should take into account any final FCC rulings on this matter when it issues its final decision in May, 1997.