PENNSYLVANIA PUBLIC UTILITY COMMISSION

Harrisburg, PA 17105-3265

Public Meeting Held December 19, 1996

Commissioners Present:

John M. Quain, Chairman
Lisa Crutchfield, Vice-Chairman
John Hanger
David W. Rolka
Robert K. Bloom

Docket No. I-00940035

In Re: Formal Investigation to Examine and Establish Updated Universal Service Principles and Policies for Telecommunications Services in the Commonwealth

OPINION AND ORDER

BY THE COMMISSION:

TABLE OF CONTENTS

I.				Introduction	6
II.				Background	6
	A.			Procedural	6
	B.			Findings of Commission in Other Related Proceedings	9
		1.		Definition of Universal Service	9
		2.		Universal Service Funding Mechanism	10
	C.			The Federal Telecommunications Act of 1996	11
	D.			Summary of Commission Findings In This Investigation	12
III.				Need for Universal Service Fund in Pennsylvania	15
	A.			To Maintain Affordable Rates in All Areas of the Commonwealth	15
	B.			To Maintain and/or Increase Subscribership Rates in All Areas of the Commonwealth	17
	C.			To Encourage Competition In Urban and Rural Areas and All Telecommunications Markets in Pennsylvania	17
	D.			To Achieve Regulatory Parity Between Incumbent and New Providers	19
	E.			To Ensure Economic Development in All Areas of the State through the Equal Availability of Basic and Advanced Services So That Telecommunications Infrastructure Development in Pennsylvania Does Not Disadvantage Rural Areas and Result in a System of Haves and Have Nots	19
	F.			To Achieve More Effective Targeting of Existing Subsidies	20
	G.			To Encourage Carriers to Meet the Mandates of Chapter 30	20
	H.			To Carry Out and Comply with the Mandates of TA-96	21
	I.			The Alternatives are not Viable	21
		1.		Play or Pay	21
			a.	Position of the Parties	21
			b.	Discussion	24
		2.		Rate Rebalancing	25
			a.	Position of the Parties	25
			b.	Discussion	26
		3.		Maintenance of the Status Quo	28
IV.				The Cost of Providing Basic Universal Service in Pennsylvania	28
	A.			Use of Auctions	28
		1.		Position of the Parties	28
		2.		Discussion	30
	B.			Multi-Fund Approach	31
		1.		Position of the Parties	31
		2.		Discussion	32
	C.			Costing Models	35
		1.		Design Assessment Criteria	35
		2.		The Bell Model and Study	35
			a.	Criticisms	38
		1.		Model Design	38
		2.		Model Inputs	40
		3.		The Hatfield Model and Study	40
			a.	Criticisms	45
				1. Model Design	45
				2. Model Inputs	45
		4.		The Benchmark Cost Model and Study	46
			a.	Criticisms	52
				1. Model Design	52
				2. Model Inputs	55
		5.		The Johnson Cost Model and Study	55
			a.	Criticisms	58
				1. Model Design	58
				2. Model Inputs	58
		6.		Comparative Model Assessment	59
			a.	Is the model nonproprietary and replicable? Can it be independently tested and validated? Can the inputs and assumptions be readily verified? Is the model user-friendly?	60
			b.	Can the model be applied on a statewide basis? Is the model capable of generating results that are applicable to both large and small LECs?	62
			c.	Does the model enable analysis on a highly disaggregated basis?	63
			d.	Does the model use the best available technology and information? Does it utilize forward-looking technology and information?	67
			e.	Is the model readily adaptable to changes in the definition of basic universal service?	70
			f.	Does the model design accurately reflect costs of putting in place the loop and switch necessary to provide BUS?	70
			g.	Has the model been considered at the Federal level for Federal funding purposes? Is there evidence of wider use of the model?	74
			h.	Overall Assessment	75
	D.			Revisions to BCM	76
		1.		Annual Carrying Charges	76
		2.		Discount Rates for Small Telephone Companies	77
	E.			Joint and Common Costs	77
		1.		Joint Costs--Allocation of the Local Loop	77
			a.	Position of the Parties	77
			b.	Discussion	82
		2.		Common Costs	85
	F.			Asset Impairment	87
V.				Universal Service Rate	88
	A.			Positions of Parties	88
	B.			Discussion	91
VI.				Offsets and Calculation of BUS Cost and Subsidy	95
	A.			BUS Subsidy Offsets	95
		1.		Usage Revenues	95
		2.		Interstate CCLC and SLC	97
		3.		Yellow Pages Revenues	98
	B.			Offsets to BUS Cost	98
		1.		Federal Fund Receipts	98
VII.				Access Costs and Pricing	99
	A.			Positions of Parties	99
	B.			Discussion	102
VIII.				Rate Rebalancing	106
	A.			Positions of Parties	106
	B.			Discussion	109
IX.				Treatment of ILEC Net Receipts and Distributions	110
X.				Collection of USF Assessments	112
XI.				Small LEC Waiver Process	113
XII.				Transition Plan	113
XIII.				Reciprocal Compensation Rates	113
	A.			Positions of the Parties	115
		1.		Usage Charges	115
		2.		Flat-Rate Charges	116
		3.		Bill and Keep	117
		4.		TSLRIC	119
		5.		Inverse Imputation	120
	B.			Discussion	121
XIV.				Eligibility for Universal Service Funds	124
	A.			"Service Area" Defined for "Eligible Carrier" Status	124
	B.			Eligible Telecommunications Carrier	124
		1.		Impact of § 254's Facilities Based Requirement	124
		2.		Designation Procedures	125
XV.				Schools, Libraries and Health Care Institutions	128
	A.			Requirements of the Federal Act	128
	B.			Discussion	130
XVI.				Special Needs of Low Income Customers	133
XVII.				Pennsylvania Universal Service Task Force	135
XVIII.				Relationship with Federal Universal Service Proceeding	136
XIX.				Conclusion	138